ExlService Holdings, Inc. 10-K

ITEM 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure. In connection with the preparation of this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of the CEO and CFO, of the effectiveness and operation of our disclosure controls and procedures as of December 31, 2023. Based upon that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures, as of December 31, 2023, were effective. Management’s Responsibility for Financial Statements Responsibility for the objectivity, integrity and presentation of the accompanying financial statements and other financial information presented in this report rests with our management. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). The financial statements include amounts that are based on estimates and judgments which management believes are reasonable under the circumstances. Deloitte & Touche LLP, an independent registered public accounting firm, has been retained to audit our consolidated financial statements and the effectiveness of our internal control over financial reporting. Its accompanying reports are based on audits conducted in accordance with the standards of the Public Company Accounting Oversight Board. The Audit Committee of the board of directors is composed solely of independent directors and is responsible for recommending to the board of directors the independent public accounting firm to be retained for the coming year. The Audit Committee meets regularly and privately with the independent public accountants, with our internal auditors and with management to review accounting, auditing, internal control and financial reporting matters. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S. The Company’s internal control over financial reporting includes those policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP; • provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorization of our management and our board of directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 49 Table of Contents Our management, under the supervision and with the participation of the CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria described in “ Internal Control—Integrated Framework ” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the board of directors. Based on this assessment and those criteria, management concluded that we maintained effective internal control over financial reporting as of December 31, 2023. See Deloitte & Touche LLP’s accompanying attestation report on their audit of our internal controls over financial reporting. Changes in Internal Control over Financial Reporting During the three months ended December 31, 2023, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. Other Information Rule 10b5-1 Trading Plans During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. PART III. ITEM 10. Directors, Executive Officers and Corporate Governance Code of Ethics. We have adopted a code of conduct and ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. Our code of conduct and ethics can be found posted in the investor relations section on our website at http://ir.exlservice.com/corporate-governance. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our code of conduct and ethics by posting such information on our website at the address and the location specified above. The additional information required by this Item 10 will be set forth in the definitive proxy statement for our 2024 Annual Meeting of Stockholders (the “Proxy Statement”), including under the headings “Our board of directors,” “Our executive officers” and “Corporate governance — Committees — Audit Committee,” “— Committees — Nominating and Governance Committee” and, to the extent included, “— Delinquent Section 16(a) Reports,” and is incorporated herein by reference. We intend to file the Proxy Statement with the SEC within 120 days after the fiscal year ended December 31, 2023. ITEM 11. Executive Compensation We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the headings “Executive Compensation — Compensation Discussion and Analysis,” “— Compensation and Talent Management Committee Report,” “— Summary Compensation Table for Fiscal Year 2023,” “— Grants of Plan-Based Awards Table for Fiscal Year 2023,” “Outstanding Equity Awards at Fiscal 2023 Year-End,” “Option Exercises and Stock Vested During Fiscal Year 2023,” “— Pension Benefits for Fiscal Year 2023,” “— Potential Payments upon Termination or Change in Control at Fiscal 2023 Year-End,” “— Director Compensation for Fiscal Year 2023,” “— Risk and Compensation Policies” and “Corporate Governance — Compensation and Talent Management Committee Interlocks and Insider Participation.” 50 Table of Contents ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the heading “Principal Stockholders.” ITEM 13. Certain Relationships and Related Transactions, and Director Independence We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the headings “Certain Relationships and Related Person Transactions” and “Corporate Governance — Director Independence.” ITEM 14. Principal Accountant Fees and Services We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the heading “Ratification of the Appointment of Independent Registered Public Accounting Firm — Audit and Non-Audit Fees.” PART IV. ITEM 15. Exhibits and Financial Statement Schedules (a) 1. Consolidated Financial Statements. The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on page F-1 hereof. The required financial statements appear on pages F-5 through F-58 hereof. 2. Financial Statement Schedules. Financial statement schedules have been omitted since they are either not required, not material or the information is otherwise included in our consolidated financial statements or the notes to our consolidated financial statements. 3. Exhibits. The Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is incorporated in this Annual Report on Form 10-K by reference. (b) Exhibits. See Item 15(a)(3) above. (c) Financial Statement Schedules. See Item 15(a)(2) above. ITEM 16. Form 10-K Summary Not applicable. 51 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned hereunto duly authorized. Date: February 29, 2024 EXLSERVICE HOLDINGS, INC. By: /S/ MAURIZIO NICOLELLI MAURIZIO NICOLELLI Chief Financial Officer (Duly Authorized Signatory, Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date / S / R OHIT K APOOR Chief Executive Officer, Vice-Chairman and Director (Principal Executive Officer) February 29, 2024 Rohit Kapoor / S / M AURIZIO N ICOLELLI Chief Financial Officer (Principal Financial and Accounting Officer) February 29, 2024 Maurizio Nicolelli / S / V IKRAM S. P ANDIT Chairman of the Board February 29, 2024 Vikram S. Pandit / S / A NDREAS F IBIG Director February 29, 2024 Andreas Fibig / S / S OM M ITTAL Director February 29, 2024 Som Mittal / S / K RISTY P IPES Director February 29, 2024 Kristy Pipes /S/ N ITIN S AHNEY Director February 29, 2024 Nitin Sahney / S / J AYNIE M. S TUDENMUND Director February 29, 2024 Jaynie M. Studenmund / S / S ARAH K. W ILLIAMSON Director February 29, 2024 Sarah K. Williamson 52 Table of Contents INDEX TO EXHIBITS The following exhibits are being filed as part of this report or incorporated by reference as indicated therein: 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on October 26, 2023). 3.2 Sixth Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 1-33089) filed on June 21, 2023). 4.1 Registration Rights Agreement (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K (File No. 1-33089) filed on October 25, 2006). 4.2 Description of Common Stock . 10.1+ Form of ExlService Holdings, Inc. Employment Agreement (applicable to Executive Officers) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023. 10.2+ Second Amended and Restated Employment and Non-Competition Agreement, dated August 3, 2020, between the Company and Rohit Kapoor (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on October 29, 2020). 10.3+ Amendment to Second Amended and Restated Employment and Non-Competition Agreement, dated August 12, 2022, between the Company and Rohit Kapoor (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on October 27, 2022). 10.4+ Amendment No. 2 to Second Amended and Restated Employment and Non-Competition Agreement, effective February 16, 2023, between the Company and Rohit Kapoor (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023). 10.5+ Employment Agreement, effective as of February 3, 2020, between ExlService Holdings, Inc. and Maurizio Nicolelli (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K (File No. 1-33089) filed on February 25, 2021). 10.6+ Employment Agreement, effective as of April 18, 2022, between exl Service (India) Private Limited and Vikas Bhalla (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023. 10.7+ ExlService Holdings, Inc. 2006 Omnibus Plan (incorporated by reference to Exhibit 10.20 of Amendment 3 to the Company’s Registration Statement on Form S-1 (Registration No. 333-121001) filed July 28, 2006). 10.8+ Form of Non-Qualified Stock Option Agreement under the 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.32 of Amendment 5 to the Company’s Registration Statement on Form S-1 (Registration No. 333-121001) filed October 4, 2006). 10.9+ ExlService Holdings, Inc. 2006 Omnibus India Subplan 2 (incorporated by reference to Exhibit 10.38 of Amendment 6 to the Company’s Registration Statement on Form S-1 (Registration No. 333-121001) filed October 17, 2006). 10.10+ Form of Non-Qualified Stock Option Agreement under the 2006 Omnibus India Subplan 2 (incorporated by reference to Exhibit 10.39 of Amendment 5 to the Company’s Registration Statement on Form S-1 (Registration No. 333-121001) filed October 4, 2006). 10.11+ Amendment to ExlService Holdings, Inc. 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.43 of Amendment 5 to the Company’s Registration Statement on Form S-1 (Registration No. 333-121001) filed October 4, 2006). 10.12+ Amendment No. 2 to ExlService Holdings, Inc. 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.46 of Amendment 6 to the Registration Statement on Form S-1 (Registration No. 333-121001) filed October 17, 2006). 10.13+ Amendment No. 3 to ExlService Holdings, Inc. 2006 Omnibus Award Plan (incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-8 (Registration No. 333-157076) filed February 2, 2009). 10.14+ Form of Restricted Stock Unit Agreement (U.S.) under the 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on May 1, 2014). 53 Table of Contents 10.15+ ExlService Holdings, Inc. 2015 Amendment and Restatement of the 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-33089) filed on June 25, 2015). 10.16+ Form of Restricted Stock Unit Agreement (U.S.) under the ExlService Holdings, Inc. 2015 Amendment and Restatement of the 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on October 27, 2016). 10.17+ Form of Restricted Stock Unit Agreement (U.S.) under the ExlService Holdings, Inc. 2015 Amendment and Restatement of the 2006 Omnibus Award Plan “(incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K (File No. 1-33089) filed on March 15, 2017). 10.18+ ExlService Holdings, Inc. 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-33089) filed on June 20, 2018). 10.19+ Form of Restricted Stock Unit Agreement (applicable to U.S. Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023). 10.20+ Form of Restricted Stock Unit Agreement (applicable to International Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023). 10.21+ Form of Restricted Stock Unit Agreement (Directors) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 29, 2021). 10.22+ Form of Option Agreement (applicable to U.S. Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on July 27, 2023). 10.23+ Form of Option Agreement (applicable to International Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on July 27, 2023). 10.24+ ExlService Holdings, Inc. 2022 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-33089) filed on June 22, 2022). 10.25 Amendment and Restatement Agreement, dated April 18, 2022, by and among the Company and the other loan parties thereto, the lenders party thereto, and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-33089) filed on April 20, 2022). 21.1 Subsidiaries of the Company . 23.1 Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm. 31.1 Certification of the Chief Executive Officer of ExlService Holdings, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer of ExlService Holdings, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97 ExlService Holdings, Inc. Clawback Policy. 101.INS Inline XBRL Instance Document* 101.SCH Inline XBRL Taxonomy Extension Schema* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase* 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase* 101.LAB Inline XBRL Taxonomy Extension Label Linkbase* 101.PRE Inline XBRL Extension Presentation Linkbase* 54 Table of Contents 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) *This exhibit will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference. +Indicates management contract or compensatory plan required to be filed as an Exhibit. 55 Table of Contents EXLSERVICE HOLDINGS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) F- 2 Consolidated Balance Sheets as of December 31, 2023 and 2022 F- 5 Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021 F- 7 Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 F- 8 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2023, 2022 and 2021 F- 9 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 F- 10 Notes to Consolidated Financial Statements F- 11 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of ExlService Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of ExlService Holdings, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenues - Refer to Notes 2 and 4 to the financial statements Critical Audit Matter Description Revenue is recognized when services are provided to the Company’s customers, in an amount that reflects the consideration which the Company expects to be entitled to in exchange for the services provided. Revenue is measured based on consideration specified in a contract with a customer and excludes discounts and amounts collected on behalf of third parties. Revenues under time-and-material, transaction and outcome-based contracts are recognized as the services are performed. At the inception of a new contract with a customer, the Company evaluates the revenue recognition principles, including judgments in identifying performance obligations in a contract and determining the timing of revenue recognition. The Company’s contracts may be modified to add, remove or change existing performance obligations, which require judgment to evaluate and determine whether they are to be accounted for on a prospective basis either as a separate contract, or as a termination of existing contract and creation of a new contract. F-2 Table of Contents Auditing revenue recognition requires significant audit effort resulting from the number of customers and related contracts that require evaluation and auditor judgment as to whether revenue was recorded in accordance with the terms of the contracts and revenue recognition principles under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). ______________________________________________________________________________________________________ How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to whether revenue was recorded in accordance with the terms of the contracts with the Company’s customers and met the criteria for revenue recognition in accordance with ASC Topic 606 included the following, among others: • We tested the effectiveness of internal controls over revenue, specifically management’s controls over the identification of performance obligations within the customer contracts and determining timing of revenue recognition for new customer contracts and contracts with significant scope modifications. • We selected a sample of recorded revenue transactions from new customer contracts and evaluated the appropriateness of the performance obligations identified within the customer contracts and assessed if the revenue recognition principles applied are in accordance with ASC Topic 606. • We selected a sample of recorded revenue transactions related to the Company’s contracts that were modified to add, remove or change existing performance obligations and (1) assessed whether the services added to an existing contract are distinct and whether the pricing is at a standalone selling price; and (2) services added that are distinct and at standalone selling price are accounted for on a prospective basis either as a separate contract, or as a termination of existing contract and creation of a new contract. /s/ Deloitte & Touche LLP New York, New York February 29, 2024 We have served as the Company's auditor since 2018. F-3 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of ExlService Holdings, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of ExlService Holdings, Inc. (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 29, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP New York, New York February 29, 2024 F-4 Table of Contents EXLSERVICE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share amount and share count) As of Notes December 31, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents 7 $ 136,953 $ 118,669 Short-term investments 8 153,881 179,027 Restricted cash 7 4,062 4,897 Accounts receivable, net 4 308,108 259,222 Other current assets 11 76,669 50,979 Total current assets 679,673 612,794 Property and equipment, net 9 100,373 82,828 Operating lease right-of-use assets 21 64,856 55,347 Restricted cash 7 4,386 2,055 Deferred tax assets, net 22 82,927 55,791 Goodwill 10 405,639 405,637 Other intangible assets, net 10 50,164 64,819 Long-term investments 8 4,430 34,779 Other assets 12 49,524 32,069 Total assets $ 1,441,972 $ 1,346,119 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 5,055 $ 7,789 Current portion of long-term borrowings 18 65,000 30,000 Deferred revenue 12,318 18,782 Accrued employee costs 117,137 108,100 Accrued expenses and other current liabilities 13 112,900 95,352 Current portion of operating lease liabilities 21 12,780 14,978 Income taxes payable, net 22 1,213 2,945 Total current liabilities 326,403 277,946 Long-term borrowings, less current portion 18 135,000 220,000 Operating lease liabilities, less current portion 21 58,175 48,155 Deferred tax liabilities, net 22 1,495 547 Other non-current liabilities 14 31,462 41,292 Total liabilities 552,535 587,940 Commitments and contingencies 25 ExlService Holdings, Inc. Stockholders’ equity: Preferred stock, $ 0.001 par value; 15,000,000 shares authorized, none issued — — Common stock, $ 0.001 par value; 400,000,000 shares authorized, 203,410,038 shares issued and 165,277,880 shares outstanding as of December 31, 2023 and 199,939,880 shares issued and 166,172,220 shares outstanding as of December 31, 2022 (1) 19 203 200 Additional paid-in capital (1) 508,028 444,948 Retained earnings 1,083,663 899,105 Accumulated other comprehensive loss 15 ( 127,040 ) ( 144,143 ) Total including shares held in treasury 1,464,854 1,200,110 F-5 Table of Contents Less: 38,132,158 shares as of December 31, 2023 and 33,767,660 shares as of December 31, 2022, held in treasury, at cost (1) 19 ( 575,417 ) ( 441,931 ) Total stockholders’ equity 889,437 758,179 Total liabilities and stockholders’ equity $ 1,441,972 $ 1,346,119 (1) Prior period information has been adjusted to reflect the 5 -for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the consolidated financial statements for further details. See accompanying notes to consolidated financial statements. F-6 Table of Contents EXLSERVICE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amount and share count) Year ended December 31, Notes 2023 2022 2021 Revenues, net 3, 4 $ 1,630,668 $ 1,412,044 $ 1,122,293 Cost of revenues (1) 1,022,902 896,595 690,934 Gross profit (1) 607,766 515,449 431,359 Operating expenses: General and administrative expenses 198,294 169,016 142,040 Selling and marketing expenses 120,227 97,989 84,306 Depreciation and amortization expense 9, 10 50,490 56,282 49,132 Total operating expenses 369,011 323,287 275,478 Income from operations 238,755 192,162 155,881 Foreign exchange gain, net 1,532 6,199 4,313 Interest expense 18 ( 13,180 ) ( 8,252 ) ( 7,561 ) Other income/(expense), net 6 10,834 ( 10 ) 6,773 Loss on settlement of convertible notes 18 — — ( 12,845 ) Income before income tax expense and earnings from equity affiliates 237,941 190,099 146,561 Income tax expense 22 53,536 47,565 31,850 Income before earnings from equity affiliates 184,405 142,534 114,711 Gain from equity-method investment 153 434 47 Net income attributable to ExlService Holdings, Inc. stockholders $ 184,558 $ 142,968 $ 114,758 Earnings per share attributable to ExlService Holdings, Inc. stockholders (2) : 5 Basic $ 1.11 $ 0.86 $ 0.68 Diluted $ 1.10 $ 0.85 $ 0.67 Weighted average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders (2) : 5 Basic 166,341,213 166,651,585 167,746,375 Diluted 168,161,371 169,169,290 171,222,390 (1) Exclusive of depreciation and amortization expense. (2) Prior period information has been adjusted to reflect the 5 -for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the consolidated financial statements for further details. See accompanying notes to consolidated financial statements. F-7 Table of Contents EXLSERVICE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year ended December 31, Notes 2023 2022 2021 Net income $ 184,558 $ 142,968 $ 114,758 Other comprehensive income/(loss): Unrealized gain/(loss) on cash flow hedges 17 14,403 ( 27,333 ) 4,663 Loss on net investment hedges 17 — — ( 1,134 ) Foreign currency translation gain/(loss) 652 ( 47,734 ) ( 11,134 ) Retirement benefits 20 1,337 2,574 ( 558 ) Reclassification adjustments: (Gain)/loss on cash flow hedges (1) 17 5,208 1,295 ( 9,264 ) Retirement benefits (2) 20 ( 94 ) 592 709 Income tax effects relating to above (3) 22 ( 4,403 ) 15,937 2,228 Total other comprehensive income/(loss) 17,103 ( 54,669 ) ( 14,490 ) Total comprehensive income $ 201,661 $ 88,299 $ 100,268 (1) These are reclassified to net income and are included in cost of revenues, operating expenses and interest expense, as applicable in the consolidated statements of income. (2) These are reclassified to net income and are included in other income/(expense), net in the consolidated statements of income. (3) These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation gain/(loss). See accompanying notes to consolidated financial statements. F-8 Table of Contents EXLSERVICE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share count) Common Stock (1) Additional Paid-in Capital (1) Retained Earnings Accumulated Other Comprehensive Income/(Loss) Treasury Stock Total Notes Shares Amount Shares (1) Amount (2) Balance as of January 1, 2021 194,840,260 $ 195 $ 420,820 $ 641,379 $ ( 74,984 ) ( 27,043,090 ) $ ( 268,238 ) $ 719,172 Stock issued against stock-based compensation plans 23 2,701,440 3 707 — — — — 710 Stock-based compensation 23 — — 38,621 — — — — 38,621 Acquisition of treasury stock 19 — — — — — ( 5,593,170 ) ( 118,357 ) ( 118,357 ) Issuance of treasury stock — — 19,436 — — 1,551,970 17,306 36,742 Settlement of convertible notes — — ( 84,000 ) — — — — ( 84,000 ) Other comprehensive loss 15 — — — — ( 14,490 ) — — ( 14,490 ) Net income — — — 114,758 — — — 114,758 Balance as of December 31, 2021 197,541,700 $ 198 $ 395,584 $ 756,137 $ ( 89,474 ) ( 31,084,290 ) $ ( 369,289 ) $ 693,156 Stock issued against stock-based compensation plans 23 2,398,180 2 ( 2 ) — — — — — Stock-based compensation 23 — — 49,366 — — — — 49,366 Acquisition of treasury stock 19 — — — — — ( 2,683,370 ) ( 72,642 ) ( 72,642 ) Other comprehensive loss 15 — — — — ( 54,669 ) — — ( 54,669 ) Net income — — — 142,968 — — — 142,968 Balance as of December 31, 2022 199,939,880 $ 200 $ 444,948 $ 899,105 $ ( 144,143 ) ( 33,767,660 ) $ ( 441,931 ) $ 758,179 Stock issued against stock-based compensation plans 23 3,470,158 3 4,643 — — — — 4,646 Stock-based compensation 23 — — 58,437 — — — — 58,437 Acquisition of treasury stock 19 — — — — — ( 4,364,498 ) ( 133,486 ) ( 133,486 ) Other comprehensive income 15 — — — — 17,103 — — 17,103 Net income — — — 184,558 — — — 184,558 Balance as of December 31, 2023 203,410,038 $ 203 $ 508,028 $ 1,083,663 $ ( 127,040 ) ( 38,132,158 ) $ ( 575,417 ) $ 889,437 (1) Prior period information has been adjusted to reflect the 5 -for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the consolidated financial statements for further details. (2) Inclusive of excise tax for the year ended December 31, 2023. Refer to Note 19 – Capital Structure to the consolidated financial statements for further details. See accompanying notes to consolidated financial statements. F-9 Table of Contents EXLSERVICE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 184,558 $ 142,968 $ 114,758 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 50,280 56,102 49,656 Stock-based compensation expense 58,437 49,366 38,621 Reduction in the carrying amount of operating lease right-of-use assets 20,188 21,783 26,326 Fair value mark-to-market of short-term investments 17,044 ( 1,209 ) 5,139 Unrealized foreign currency exchange gain, net ( 1,363 ) ( 16,643 ) ( 3,821 ) Deferred income tax benefit ( 31,742 ) ( 19,552 ) ( 20,326 ) Allowance/(reversal) for expected credit losses 2,453 683 ( 464 ) Loss on settlement of convertible notes — — 12,845 Fair value changes in contingent consideration 1,900 8,250 — Amortization of non-cash interest expense related to convertible notes — — 1,795 Others, net 948 510 168 Change in operating assets and liabilities, net of effects of acquisitions: Accounts receivable ( 49,242 ) ( 68,121 ) ( 37,684 ) Other current assets ( 9,506 ) ( 7,709 ) ( 1,179 ) Income taxes payable, net ( 18,282 ) 8,779 ( 12,062 ) Other assets ( 14,833 ) ( 10,723 ) 227 Accounts payable ( 2,757 ) 2,385 ( 614 ) Deferred revenue ( 877 ) 2,473 ( 12,733 ) Accrued employee costs 14,090 5,551 46,475 Accrued expenses and other liabilities 10,083 14,475 2,934 Operating lease liabilities ( 20,181 ) ( 23,227 ) ( 25,674 ) Net cash provided by operating activities 211,198 166,141 184,387 Cash flows from investing activities: Purchases of property and equipment ( 52,803 ) ( 44,836 ) ( 37,248 ) Proceeds from sale of property and equipment 739 266 1,300 Business acquisition (net of cash and cash equivalents acquired) — ( 3,872 ) ( 76,831 ) Purchases of investments ( 235,369 ) ( 212,607 ) ( 96,011 ) Proceeds from redemption of investments 276,036 164,503 94,520 Investment in equity affiliate ( 600 ) — — Net cash used for investing activities ( 11,997 ) ( 96,546 ) ( 114,270 ) Cash flows from financing activities: Principal payments of finance lease liabilities ( 169 ) ( 142 ) ( 201 ) Proceeds from borrowings 80,000 35,000 300,000 Repayments of borrowings ( 130,000 ) ( 45,000 ) ( 329,031 ) Payment of contingent consideration ( 5,000 ) — — Acquisition of treasury stock ( 131,847 ) ( 72,642 ) ( 118,357 ) Proceeds from issuance of common stock 5,566 1,060 710 Net cash used for financing activities ( 181,450 ) ( 81,724 ) ( 146,879 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash 2,029 ( 6,060 ) ( 4,947 ) Net increase/(decrease) in cash, cash equivalents and restricted cash 19,780 ( 18,189 ) ( 81,709 ) Cash, cash equivalents and restricted cash at the beginning of the period 125,621 143,810 225,519 Cash, cash equivalents and restricted cash at the end of the period $ 145,401 $ 125,621 $ 143,810 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 13,895 $ 8,189 $ 6,589 Income taxes $ 104,882 $ 57,058 $ 49,997 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 $ 461 $ 312 $ 71 See accompanying notes to consolidated financial statements. F-10 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 (In thousands, except per share amount and share count) 1. Organization ExlService Holdings, Inc. (“ExlService Holdings”) is organized as a corporation under the laws of the State of Delaware. ExlService Holdings, together with its subsidiaries and affiliates (collectively, the “Company”), is a leading data analytics and digital operations and solutions company. The Company partners with clients using a data and AI-led approach to reinvent business models, drive better business outcomes and unlock growth with speed. The Company harnesses the power of data, analytics, artificial intelligence (“AI”), and deep industry knowledge to transform operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media and retail, among others. The Company’s clients are located principally in the United States of America (“U.S.”) and the United Kingdom (“U.K.”). 2. Summary of Significant Accounting Policies (a) Basis of Preparation and Principles of Consolidation The consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”). The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of ExlService Holdings, Inc. and all of its subsidiaries and includes the Company's share in the results of its associates. The standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, and gains and losses arising from intra-group transactions, are eliminated while preparing consolidated financial statements. The Company’s investments in equity affiliates are initially recorded at cost and any excess purchase consideration paid over proportionate share of the fair value of the net assets of the investee at the acquisition date is recognized as goodwill. The proportionate share of net income or loss of the investee after its acquisition is recognized in the consolidated statements of income. 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. GAAP. (b) Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the carrying amounts of assets and liabilities and disclosure of contingent assets and liabilities included in the consolidated financial statements. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates that affect the 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, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments and stock-based awards, and useful life of long-lived assets and other intangible assets. The significant assumptions underneath these estimates include, but are not limited to assumptions to calculate stock-based compensation expense, determine incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, determine lease term to calculate single operating lease cost, determine pattern of F-11 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) generation of economic benefits to calculate depreciation and amortization for long-lived assets and other intangible assets, and recoverability of long-lived assets, goodwill and other intangible assets. (c) Foreign Currency Translation The functional currency of each entity in the Company is the currency of the primary economic environment in which it operates. Transactions in foreign currencies are initially recorded into functional currency at the rates of exchange prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are remeasured into functional currency at the rates of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities are remeasured to the functional currency at exchange rates that prevailed on the date of inception of the transaction. All foreign exchange gains and losses arising on re-measurement are recorded in the Company's consolidated statements of income. The assets and liabilities of the subsidiaries for which the functional currency is other than the U.S. dollar are translated into U.S. dollars, the reporting currency, at the rate of exchange prevailing on the balance sheet date. Revenues and expenses are translated into U.S. dollars at the exchange rates prevailing on the last business day of each month, which approximates the average monthly exchange rate. Share capital and other equity items are translated at exchange rates that prevailed on the date of inception of the transaction. Resulting translation adjustments are included in “Accumulated other comprehensive income/(loss)” in the consolidated balance sheets. (d) Revenue Recognition Revenue is recognized when services are provided to the Company's customers, in an amount that reflects the consideration which the Company expect to be entitled to in exchange for the services provided. The Company recognizes revenue when it satisfies a performance obligation by providing services to a customer. Revenue is measured based on consideration specified in a contract with a customer and excludes value added tax, business tax, any applicable discounts and amounts collected on behalf of third parties. Reimbursements of out-of-pocket expenses are included as a part of revenue. Nature of Services The Company derives its revenues from digital operations and solutions and analytics services. The Company provides digital operations and solutions and analytics services helping businesses enhance revenue growth and improve profitability. Type of Contracts and Basis of Recognition i. a) Revenues under time-and-material, transaction and outcome-based contracts are recognized as the services are performed. When the terms of the client contract specify service level parameters that must be met (such as turnaround time or accuracy), the Company monitors such service level parameters to determine if any service credits or penalties have been incurred. Revenues are recognized net of any penalties or service credits that are due to a client. b) Revenues from arrangements involving subcontracting, either in part or whole of the assigned work, are recognized after the Company’s assessment of “Principal versus agent considerations.” The Company evaluates whether it is in control of the services before the same are transferred to the customer to assess whether it is principal or agent in the arrangement. Revenues are recognized on a gross basis if the Company is in the capacity of principal and on a net basis if it falls in the capacity of an agent. ii. Revenues for the Company’s fixed-price contracts, which include business support services provided on a fixed price basis or implementation of applications or solutions, are recognized considering costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations. Incurred cost represents work performed, which corresponds with, and thereby reasonably reflects transfer of control to the client. The use of this method requires significant judgment to estimate the stage of completion and/or cost required to complete the contracted scope of work, including assumptions and estimates relative to the length of time to complete the project and the nature and complexity of the work to be performed and resources engaged. The Company regularly monitors these estimates throughout the execution of the project and records changes in the F-12 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) period in which a change in an estimate is determined. If a change in an estimate results in a projected loss on a project, such loss is recognized in the period in which it is first identified. iii. Revenue from the Company’s software and related services contracts, which are not significant, are primarily related to annual maintenance renewals or incremental license fees for additional users. Maintenance revenues are generally recognized on a straight-line basis over the annual contract term. Fees for incremental license without any associated services are recognized upon delivery of the related incremental license. To a lesser extent, certain contracts may include offerings such as sale of licenses, which may be perpetual or subscription-based. The Company recognizes revenue from distinct perpetual licenses upfront at a point in time when the software is made available to the client, whereas for a combined software license and services performance obligation, revenue is recognized over the period that the services are performed. Revenue from distinct subscription based licenses is recognized over the period of service performed. Revenue from any associated maintenance or ongoing support services is recognized over the term of the contract. iv. Revenues from reimbursement optimization services having contingent fee arrangements are recognized by the Company at the point in time when a performance obligation is satisfied, which is when it identifies an overpayment claim. In such contracts, the Company’s consideration is contingent upon the actual collections made by its customers and net of any subsequent retraction claims. Based on guidance on “variable consideration” in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), the Company uses its historical experience and projections to determine the expected recoveries from its customers and recognizes revenue based upon such expected recoveries. Any adjustment required due to change in estimates are recorded in the period in which such change is identified. Modification to Contracts The Company’s contracts may be modified to add, remove or change existing performance obligations. The accounting for modifications to contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at a standalone selling price. Services added that are distinct and at standalone selling price are accounted on a prospective basis either as a separate contract, or as a termination of existing contract and creation of a new contract. Arrangements with Multiple Performance Obligations The Company’s contracts with customers do not generally bundle different services together except for software and related services contracts, which are not significant, involving implementation services and post contract maintenance services. In such software and related services contracts, revenue is recognized based upon the transaction price allocated to each performance obligation based on the relative standalone selling price. Allocation of Transaction Price to Performance Obligations The transaction price is allocated to performance obligations on a relative standalone selling price basis. Standalone selling prices are estimated by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract. In assessing whether to allocate variable consideration to a specific part of the contract, the Company considers the nature of the variable payment and whether it relates specifically to its efforts to satisfy a specific part of the contract. Variable Consideration Variability in the transaction price arises primarily due to service level agreements, volume discounts entailing variability in revenue earned, and contracts under the Company’s reimbursement optimization services whereby variability in revenue is attributable to the amount the Company enables its customers to recover. The Company considers its historical experience, including trends with similar transactions and expectations regarding the contract in estimating the amount of variable consideration that should be recognized during a period. F-13 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The Company believes that the expected value method is most appropriate for determining the variable consideration since the Company has large number of contracts with similar nature of transactions/services. Unbilled Receivables Unbilled receivables represents revenues recognized for services rendered between the last billing date and the balance sheet date. Unbilled receivables also include revenues recognized from reimbursement optimization services where the Company identifies an overpayment claim. In such contracts, Company’s consideration is contingent upon and collectable only when the actual collections are made by its customers. Based on guidance on “variable consideration” in ASC Topic 606, Company use its historical experience and projections to determine the expected recoveries from its customers and recognize revenue and receivables based upon such expected recoveries. Accordingly, the amounts for which services have been performed and for which invoices have not been issued to customers on the balance sheet date, (i.e. unbilled receivables) are presented under accounts receivable, net. Deferred Revenue and Contract Fulfillment Costs Contract liabilities (deferred revenue) consist of advance billings and billing in excess of revenues recognized. Deferred revenue also includes the amount for which services have been rendered but other conditions of revenue recognition are not met, for example, where the Company does not have an enforceable contract. Further, the Company also defers any upfront payments collected from its customers attributable to certain process transition activities, with respect to its customers where such activities do not represent separate performance obligations. Revenues related to such transition activities are classified under “Deferred revenue” and “Other non-current liabilities” in the Company’s consolidated balance sheets and are recognized as (or when) the performance obligation is fulfilled under the contract with customer. Costs related to such transition activities are contract fulfillment costs, and thereby classified under “Other current assets” and “Other assets” in the consolidated balance sheets, and are recognized over the expected duration of the relationship with customers, under “Cost of revenues” in the consolidated statements of income. Contract Acquisition Costs Direct and incremental costs incurred for acquiring contracts, such as sales commissions are contract acquisition costs and thereby classified under “Other current assets” and “Other assets” in the consolidated balance sheets. Such costs are amortized over the expected duration of the relationship with customers and recorded under Selling and marketing expenses in the consolidated statements of income. Upfront Payments Made to Customers Upfront payments, in nature of deal signing discount or deal signing bonuses made to customers are contract assets and classified under “Other current assets and Other assets” in the consolidated balance sheets. Such costs are amortized over the expected period of benefit and are recorded as an adjustment to transaction price and reduced from revenues. Out-of-Pocket Expenses Reimbursements of out-of-pocket expenses received from customers are included as part of revenues. Payment terms All contracts entered into by the Company specify the payment terms and are defined for each contract separately. Usual payment terms range between 30 - 60 days. The Company does not have any extended payment terms clauses in existing contracts. Remaining Performance Obligations The Company does not disclose the value of remaining performance obligations as a result of applying the practical expedient provided in ASC Topic 606, for contracts that meet any of the following criteria: F-14 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) i. Contracts with an original expected length of one year or less as determined under ASC Topic 606, ii. Contracts for which Company recognize revenue based on the right to invoice for service performed. (e) Cash and Cash Equivalents and Restricted Cash The Company considers all highly liquid investments purchased with an original maturity of ninety days or less to be cash equivalents. Pursuant to the Company’s investment policy, surplus funds are invested in highly-rated debt mutual funds, money market funds and time deposits to reduce its exposure to market risk with regard to these funds. The Company’s investment in money market funds is considered as cash equivalents. These investments are accounted for in accordance with the fair value option under ASC Topic 825, Financial Instruments . 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/(expense), net. 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/(expense), net. Restricted cash includes any cash and cash equivalents that are legally restricted as to withdrawal or usage for the Company’s operations. For purposes of the statements of cash flows, the Company includes in its cash and cash-equivalent balances those amounts that have been classified as restricted cash and restricted cash equivalents. (f) Short-Term and Long-Term 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 and investments in equity affiliate. 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/(expense), net. 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 ASC Topic 825, Financial Instruments . 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/(expense), net. 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/(expense), net. Investments in equity affiliates are initially recorded at cost and any excess purchase consideration paid over proportionate share of the fair value of the net assets of the investee at the acquisition date is recognized as goodwill. The proportionate share of net income or loss of the investee after its acquisition is recognized in the consolidated statements of income. The Company periodically reviews the carrying value of its investment to determine if there has been any other than temporary decline in carrying value. The investment balance for an investee is increased or decreased for cash contribution and distributions to or from, respectively . (g) Accounts Receivable and Allowance for Expected Credit Losses Accounts receivable are recorded net of allowances for expected credit losses. The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future. Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote. F-15 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Accounts receivable include unbilled accounts receivable which represent revenues on contracts to be billed, in subsequent periods, as per the terms of the related contracts. (h) Property and Equipment Property and equipment are stated at cost, which is generally comprised of the purchase price for such property or equipment, non-refundable duties and taxes, but excludes any discounts and/or rebates, less accumulated depreciation and impairment. Equipment held under finance leases are capitalized at the commencement of the lease at an amount equal to the lease liability, adjusted for any lease prepayments, initial direct costs and lease incentives, which usually approximate the fair value of the underlying asset. Expenditures for replacements and improvements are capitalized, if they enhance the production capacity and future benefits whereas the costs of maintenance and repairs are charged to earnings as incurred. Advances paid towards acquisition of property and equipment and the cost of property and equipment not yet placed in service before the end of the reporting period, net of impairment, if any, are classified as capital work in progress. Depreciation is computed using the straight-line method over the estimated useful lives of the assets and is presented under “Depreciation and amortization expense” in the consolidated statements of income. Property and equipment which are abandoned and disposed other than by sale, are assessed for revision of their useful life, thereby revising the future depreciation to reflect the use of property and equipment over the remaining shortened life. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The estimated useful life have been disclosed in Note 9 - Property and Equipment to the consolidated financial statements. (i) Software Development Costs The Company capitalizes certain costs related to the development or enhancements to existing software products to be sold, leased or otherwise marketed and / or used for internal-use. The Company begins to capitalize costs to develop or enhance software when planning stage efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred and recorded within “General and administrative expenses” in the Company’s consolidated statements of income. Costs incurred on internally developed software not yet ready for its intended use before the end of the reporting period, net of impairment, if any, are classified as capital work in progress. The Company exercises judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. Implementation costs in cloud computing arrangements (“CCAs”), such as software as a service and other hosting arrangements are evaluated to ascertain if the arrangement includes a license to internal-use software. If a CCA does not provide a contractual right to the Company to take possession of the software at any time during the hosting period without significant penalty, and it is not feasible to either run the software on the Company’s own hardware, then implementation costs incurred are accounted for as a service contract. In case of the existence of such a contractual right to take possession of the software and the Company is able to run the software on its own hardware, then such implementation costs are capitalized as software development costs. The Company amortizes capitalized implementation costs in a CCA over the life of the service contract. Annual amortization of internally developed software products meant for sale, lease or otherwise marketing is the greater of the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method over the remaining estimated economic life of the software product, generally estimated to be up to 5 years from the date the product became available for use. Annual amortization of internally developed software products meant for internal-use is based on the straight-line method over the estimated useful lives of the internally developed software products. Amortization of such internally developed software is presented under “Depreciation and amortization expense” in the consolidated statements of income. (j) Business Combinations, Goodwill and Other Intangible Assets F-16 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) ASC Topic 805, Business Combinations, requires that the acquisition method of accounting be used for all business combinations. The guidance specifies criteria as to intangible assets acquired in a business combination that must be recognized and reported separately from goodwill. Contingent consideration is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is re-measured to fair value as of each reporting date until the contingency is resolved, whereby such changes in fair value are recognized in earnings. Under ASC Topic 350, Intangibles - Goodwill and Other , all assets and liabilities of the acquired businesses, including goodwill, are assigned to reporting units. Acquisition related costs are expensed as incurred under general and administrative expenses. In addition, assets acquired and liabilities assumed including uncertain tax positions and tax-related valuation allowances in connection with business combinations are initially estimated as of the acquisition date. The Company subsequently re-evaluates the assets acquired and liabilities assumed, including additional assets and liabilities identified subsequent to acquisition date, with any adjustments to its preliminary estimates being recorded to goodwill within the measurement period (up to one year from the acquisition date). Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased in a business combination. The Company undertakes studies to determine the fair values of assets and liabilities acquired and allocate purchase consideration to assets and liabilities, including property and equipment, goodwill and other identifiable intangibles. Goodwill is not amortized but is tested for impairment at least on an annual basis, relying on a number of factors including operating results, business plans and estimated future cash flows of the reporting units to which it is assigned. The Company examines the carrying value and fair value of the reporting unit that includes goodwill as and when the circumstances warrant, to determine whether there are any impairment losses. Refer to Note 10 - Goodwill and Other Intangible Assets to the consolidated financial statements for discussion of the Company's goodwill impairment testing. The Company performs an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Based on the assessment of events or circumstances, the Company performs a quantitative assessment of goodwill impairment if it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, based on the quantitative impairment analysis, the carrying value of the goodwill of a reporting unit exceeds the fair value of such goodwill, an impairment loss is recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to that reporting unit. In addition, the Company performs a quantitative assessment of goodwill impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Intangible assets acquired in a business combination are initially valued and recognized at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over the estimated useful lives and are reviewed for impairment, if indicators of impairment arise. Amortization of intangible assets with definite lives is presented under “Depreciation and amortization expense” in the consolidated statements of income. The evaluation of impairment is based upon a comparison of the carrying amount of the intangible asset to its fair value, which is calculated using the estimated future undiscounted net cash flows expected to be generated by the asset. If the fair value of the intangible assets is less than the carrying amount of the asset, the asset is considered impaired and an impairment expense is recognized equal to any shortfall in the current period. The Company’s definite lived intangible assets are amortized over their estimated useful lives as listed below using a straight-line method: Useful Lives (in years) Customer relationships 7 - 15 Developed technology 3 - 10 Non-compete agreements 4 Trade names and trademarks 10 F-17 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) (k) Impairment of Long-lived Assets Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Such assets are required to be tested for impairment if the carrying amount of the assets is higher than the future undiscounted net cash flows expected to be generated from the assets. 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. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. The Company derives the required undiscounted cash flow estimates from its historical experience and its internal business plans. To determine fair value, the Company follows the discounted cash flow approach and uses its internal cash flow estimates discounted at an appropriate discount rate and independent appraisals, as appropriate. The impairment amount to be recognized is measured as the amount by which the carrying value of the assets exceeds their fair value. (l) 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 forecasted transactions are recorded in the consolidated statements of income along with the underlying hedged item in the same line as part of “Cost of revenues,” “General and administrative expenses,” “Selling and marketing expenses,” and “Depreciation and amortization expense,” as applicable. The accumulated changes in the fair value of interest rate swaps recognized in AOCI are reclassified to the 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. The Company also uses derivatives instruments consisting of foreign currency forward contracts to 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 Topic 815. Changes in the fair value of these derivatives are recognized in the consolidated statements of income and are included in foreign exchange gain, net. 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. Fair value changes on these forward contracts and gains and losses on settlement of such forward contracts are recognized in AOCI as part of the foreign currency translation adjustments and are reclassified to consolidated statements of income when a foreign operation is disposed or partially disposed. 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. F-18 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) (m) Employee Benefits Contributions to defined contribution plans are charged to the consolidated statements of income in the period in which services are rendered by the covered employees. Current service costs for defined benefit plans are recognized in the period to which they relate. The liability in respect of defined benefit plans is calculated annually by the Company using the projected unit credit method. The Company records annual amounts relating to its defined benefit plans based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return on plan assets, future compensation increases and attrition rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in other comprehensive income (loss) (“OCI”) and amortized to net periodic benefit cost over the expected remaining period of service of the covered employees using the corridor method. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions. These assumptions may not be within the control of the Company and accordingly it is reasonably possible that these assumptions could change in future periods. The Company includes the service cost component of the net periodic benefit cost in the same line item or items as other compensation costs arising from services rendered by the respective employees during the period. The interest cost, expected return on plan assets and amortization of actuarial gains/loss, are included in “ Other income/(expense), net. ” Refer to Note 20 - Employee Benefit Plans to the consolidated financial statements for details. The Company recognizes its liabilities for compensated absences depending on whether the obligation is attributable to employee services already rendered, rights to compensated absences vest or accumulate and payment is probable and estimable. (n) Stock-Based Compensation The Company recognizes stock-based compensation expense in the consolidated statements of income for awards of equity instruments to employees and non-employee directors based on the grant-date fair value of those awards. The Company recognizes these compensation costs on straight-line basis over the requisite service period of the award, or to the date on which retirement eligibility is achieved, if shorter. Forfeitures are accounted when the actual forfeitures occur. Under the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”), which was adopted by the Company's stockholders on June 15, 2018, which replaces and supersedes the 2015 Amendment and Restatement of the Company’s 2006 Omnibus Award Plan (the “Prior Plan”) and is effective upon the date approved by the Company’s stockholders, the Company grants performance-based restricted stock units (“PRSU”) to executive officers and other specified employees. Generally, the Company grants PRSUs that cliff vest based on an aggregated revenue target (“PU”) for a three-year period, and PRSUs that are based on market conditions (“MU”) and cliff vest upon meeting or exceeding the Company's total shareholder return relative to a group of peer companies specified under the 2018 Plan, and are measured over a three-year performance period. The award recipient may earn up to 200 % of the PRSUs granted based on the actual achievement of the respective targets. However, the features of the equity incentive compensation program are subject to change by the Compensation and Talent Management Committee of the Company’s board of directors. The fair value of each PU is determined based on the market price of one common share of the Company on the day prior to the date of grant, and the associated compensation expense is calculated on the basis that performance targets at 100 % are probable of being achieved. The compensation expense for the PU is recognized on a straight-line basis over the service period, which is through the end of the third year. Over this period, the number of shares that will be issued is adjusted upward or downward based upon the probability of achievement of the performance targets. The final number of shares issued and the related compensation cost recognized as an expense will be based on a comparison of the final performance metrics to the specified targets. The expense related to the unvested PU as of December 31, 2023 was based on the Company's assessment of performance criteria for these grants that would most likely be met during the respective years of vesting against the targeted performance level. The grant date fair value for the MUs is determined using a Monte Carlo simulation model and the related compensation expense is expensed on a straight-line basis over the vesting period. All compensation expense related to the MU will be recognized if the requisite performance period is fulfilled, regardless of the extent of the market condition achieved. F-19 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Stock-based compensation expense associated with the Company's 2022 Employee Stock Purchase Plan (“ESPP”) is measured at fair-value using a Black-Scholes option-pricing model at the commencement of each offering period and recognized over that offering period. (o) Forward Stock Split The Company recognizes the effects of a forward stock split in the financial statements if there are changes in the total par value of the increased shares upon such forward stock split. The Company reclassifies an amount equal to the par value of the increased shares resulting from the forward stock split from “Additional paid-in capital” to “Common stock.” The Company presents the effects of a forward stock split on earnings per share in the financial statements retroactively for all the periods presented. The Company has an option to present other effects of the forward stock split, including changes in the total par value of the increased shares and count of shares of common stock, in the consolidated financial statements either retroactively for all the periods presented or only for the period in which the forward stock split of the common stock becomes effective. The Company has elected to present the effects of the forward stock split retroactively for all the periods presented. (p) Income Taxes The Company accounts for income taxes using the asset and liability method of accounting for income taxes. The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates. The deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases and all operating losses carried forward, if any. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which the applicable temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or tax status is recognized in the statements of income in the period in which the change is identified. The Company releases (reclassifies) the tax effects from AOCI to the consolidated statements of income at the time of settlement of cash flows hedges and amortization of deferred actuarial gain/(loss) on retirement benefits. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company establishes provisions for uncertain tax provisions and related interest and penalties when the Company believes those tax positions are not more likely than not of being sustained, if challenged. The Company intends to indefinitely reinvest earnings from its foreign subsidiaries and has not recorded deferred tax liabilities for the indefinitely reinvested earnings. The Company recognizes the tax effects of Global Intangible Low-Taxed Income of certain foreign subsidiaries as a period cost. (q) Concentration of Credit Risk in Financial Instruments Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, time deposits, mutual fund investments, accounts receivable and derivative financial instruments. By their nature, all such financial instruments involve risks including the credit risks of non-performance by counterparties. Pursuant to the Company’s investment policy, surplus funds are maintained as cash equivalents and short-term investments, and are invested in highly-rated mutual funds, money market funds and time deposits, placed with highly rated financial institutions to reduce its exposure to market risk with regard to these funds. The Company’s exposure to credit risk on account receivable is influenced mainly by the individual characteristic of each customer and the concentration of risk from the top few customer s. To mitigate this risk the Company evaluates the creditworthiness of its customers in conjunction with its revenue recognition processes as well as through its ongoing collectability assessment processes for accounts receivable. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. (r) Fair value measurements ASC Topic 820, Fair Value Measurements and Disclosures defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on F-20 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) assumptions that market participants would use in pricing the asset or liability as against assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the Company’s own credit risk. The fair value hierarchy consists of the following three levels: • Level I — Quoted prices for identical instruments in active markets. • Level II — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. • Level III — Instruments whose significant value drivers are unobservable. (s) Leases The Company determines if an arrangement is a lease at inception of the contract. The Company’s assessment is based on whether: (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term of the contract, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. Operating leases are presented within “Operating lease right-of-use assets,” “Current portion of operating lease liabilities” and “Operating lease liabilities, less current portion” in the Company's consolidated balance sheets. Long-lived assets underlying finance leases are presented within “Property and equipment” and the current and non-current portion of finance lease liabilities are presented within “Accrued expenses and other current liabilities - others” and “other non-current liabilities - others,” respectively, in the Company's consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease arrangement. Lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease ROU assets are recognized at commencement date in an amount equal to lease liability, adjusted for any lease prepayments, initial direct costs, and lease incentives. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date. 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 are entered and lease specific adjustments for the effects of collateral, if applicable. Lease terms includes the effects of options to extend or terminate the lease when it is reasonably certain at commencement of the lease that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term reflecting single operating lease cost. The Company evaluates lease agreements to determine lease and non-lease components, which are accounted for separately. Lease payments that depend on factors other than an index or rate are considered variable lease payments and are excluded from the operating lease assets and liabilities and are recognized as expense in the period in which the obligation is incurred. Lease payments include payments for common area maintenance, utilities such as electricity, heating and water, among others, and property taxes, and other similar payments paid to the landlord, which are treated as non-lease component. The Company accounts for lease-related concessions in accordance with guidance in Topic 842, Leases , to determine, on a lease-by-lease basis, whether the concession provided by lessor should be accounted for as a lease modification. The Company accounts for a modification as a separate contract when it grants an additional right of use not included in the original lease and the increase is commensurate with the standalone price for the additional right of use, adjusted for the circumstances of the particular contract. Modifications which are not accounted for as a separate contract are reassessed as of the effective date of the modification based on its modified terms and conditions and the facts and circumstances as of that date. Upon modification, the Company remeasures the lease liability to reflect changes to the remaining lease payments and discount rates and recognizes the amount of the remeasurement of the lease liability as an adjustment to the ROU assets. However, if the carrying amount of the ROU assets is reduced to zero as a result of modification, any remaining amount of the remeasurement is recognized as an expense in consolidated statements of income. F-21 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The Company reviews ROU assets for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. (t) Government Grants Government grants are recognized at their fair value when there is a reasonable assurance that the conditions attached to them shall be complied with and the grants will be received. Government grants relating to income are recognized as a reduction of expenses in the consolidated statements of income. Government grants relating to a property and equipment are recognized as a reduction from the cost of acquisition of such property and equipment. The grant is subsequently measured in the consolidated statements of income over the life of the property and equipment in the form of reduced depreciation expense. (u) Earnings per share Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding, adjusted for outstanding shares that are subject to repurchase during the period. Diluted earnings per share is computed using the weighted average number of common shares issued and outstanding during the period plus the potentially dilutive effect of common stock equivalents, including, outstanding stock options, restricted stock, restricted stock units and employee stock purchase plans. For the purposes of calculating diluted earnings per share, the treasury stock method is used for stock-based awards and outstanding convertible notes except where the results would be anti-dilutive. The Company includes performance stock unit awards in dilutive potential common shares when they become contingently issuable and have a dilutive impact per authoritative guidance and excludes such awards when they are not contingently issuable. The Company calculates the dilutive effect of convertible notes using the treasury stock method through the maturity date of the convertible notes, if it has the intent and ability to settle the principal amount of the outstanding convertible notes in cash. Under the treasury stock method, the convertible notes shall have a dilutive impact related to the conversion premium, if any, on diluted earnings per share to the extent the issuance is dilutive based on the average market price of the Company’s common stock for a reporting period being greater the conversion price. (v) Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recognized when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. A disclosure for a contingent liability is made when there is a possible obligation that may require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Legal costs incurred in connection with such liabilities are expensed as incurred. Capital commitments are disclosed in the financial statements. (w) Recent Accounting Pronouncements In March 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-01, Leases (“Accounting Standards Codification (“ASC”) Topic 842”) : Common Control Arrangements . This ASU provides guidance in ASC Topic 842 that leasehold improvements associated with common control leases should be (i) amortized by the lessee over the useful life of the leasehold improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset through a lease, and (ii) accounted for as a transfer between entities under common control through an adjustment to equity if and when the lessee no longer controls the use of the underlying asset. The ASU is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. When adopted in an interim period, it must be adopted from the beginning of the year that includes that interim period. The Company does not have any lease arrangements with entities under common control and the adoption of this ASU is not expected to have a material impact on its consolidated financial statements. In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements : Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative . This ASU modifies the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not F-22 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this ASU should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements. The Company will continue to monitor for SEC action, and plan accordingly for adoption. In November 2023, FASB issued ASU No. 2023-07, Segment Reporting (“ASC Topic 280”) : Improvements to Reportable Segment Disclosures . This ASU improves reportable segment disclosure requirements on an annual and interim basis for all public entities by requiring disclosure of significant segment expenses that are regularly reviewed by the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. The ASU also allows, in addition to the measure that is most consistent with U.S. GAAP, the disclosure of additional measures of segment profit or loss that are used by the CODM in assessing segment performance and deciding how to allocate resources. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements. In December 2023, FASB issued ASU No. 2023-09, Income Taxes (“ASC Topic 740”) , Improvements to Income Tax Disclosures. This ASU expands disclosures relating to the entity’s income tax rate reconciliation, income taxes paid and certain other disclosures related to income taxes. The ASU will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this ASU on its consolidated financial statements. (x) Recently Adopted Accounting Pronouncements In October 2021, FASB issued ASU No. 2021-08, Business Combinations (“ASC Topic 805”) : Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . This ASU provides guidance in ASC Topic 805 to require the acquirer entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contract with Customers , as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The ASU is effective for fiscal years beginning after December 15, 2022. An entity may early adopt the ASU including adoption in an interim period, with retrospective application to all business combinations within the fiscal year that includes such interim period. The adoption of this ASU is applicable for future business combinations. In July 2023, the FASB issued ASU No. 2023-03, Presentation of Financial Statements (“ASC Topic 205”) , Income Statement-Reporting Comprehensive Income (“ASC Topic 220”) , Distinguishing Liabilities from Equity (“ASC Topic 480”) , Equity (“ASC Topic 505”) , and Compensation-Stock Compensation (“ASC Topic 718”) pursuant to SEC Staff Accounting Bulletin No. 120 and amends various SEC paragraphs in the ASC. The ASU is effective immediately upon issuance and did not have a material impact on the Company’s consolidated financial statements. 3. Segment and Geographical Information The Company is a provider of data analytics and digital operations and solutions. The Company manages and reports financial information through its four reportable segments: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions. These business units develop client-specific solutions, build capabilities, maintain a unified go-to-market approach and are integrally responsible for service delivery, customer satisfaction, growth and profitability. The 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. The Company does not allocate and therefore the CODM does not evaluate, certain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages F-23 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 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 years ended December 31, 2023, 2022 and 2021, respectively, for each of the reportable segments, are as follows: Year ended December 31, 2023 Insurance Healthcare Emerging Business Analytics Total Revenues, net $ 529,855 $ 105,994 $ 265,692 $ 729,127 $ 1,630,668 Cost of revenues (1) 341,785 69,273 150,943 460,901 1,022,902 Gross profit (1) $ 188,070 $ 36,721 $ 114,749 $ 268,226 $ 607,766 Operating expenses 369,011 Foreign exchange gain, net, interest expense and other income, net ( 814 ) Income tax expense 53,536 Gain from equity-method investment 153 Net income $ 184,558 (1) Exclusive of depreciation and amortization expense. Year ended December 31, 2022 Insurance Healthcare Emerging Business Analytics Total Revenues, net $ 448,704 $ 97,351 $ 218,638 $ 647,351 $ 1,412,044 Cost of revenues (1) 287,734 70,951 128,017 409,893 896,595 Gross profit (1) $ 160,970 $ 26,400 $ 90,621 $ 237,458 $ 515,449 Operating expenses 323,287 Foreign exchange gain, net, interest expense and other expense, net ( 2,063 ) Income tax expense 47,565 Gain from equity-method investment 434 Net income $ 142,968 (1) Exclusive of depreciation and amortization expense. F-24 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Year ended December 31, 2021 Insurance Healthcare Emerging Business Analytics Total Revenues, net $ 381,999 $ 112,386 $ 167,236 $ 460,672 $ 1,122,293 Cost of revenues (1) 239,529 69,760 91,737 289,908 690,934 Gross profit (1) $ 142,470 $ 42,626 $ 75,499 $ 170,764 $ 431,359 Operating expenses 275,478 Loss on settlement of convertible notes, foreign exchange gain, net, interest expense and other income, net ( 9,320 ) Income tax expense 31,850 Gain from equity-method investment 47 Net income $ 114,758 (1) Exclusive of depreciation and amortization expense. Revenues, net by service type, were as follows: Year ended December 31, 2023 2022 2021 Digital operations and solutions (1) $ 901,541 $ 764,693 $ 661,621 Analytics services 729,127 647,351 460,672 Revenues, net $ 1,630,668 $ 1,412,044 $ 1,122,293 (1) Digital operations and solutions include revenues of the Company’s Insurance, Healthcare and Emerging Business reportable segments. Refer to the reportable segment disclosure above. The Company attributes the revenues to regions based upon the location of its customers. Year ended December 31, 2023 2022 2021 Revenues, net The United States $ 1,370,707 $ 1,213,477 $ 964,059 Non-United States The United Kingdom 177,479 134,630 105,734 Rest of World 82,482 63,937 52,500 Total Non-United States 259,961 198,567 158,234 Revenues, net $ 1,630,668 $ 1,412,044 $ 1,122,293 F-25 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Long-lived assets by geographic area, which consist of property and equipment, net and operating lease ROU assets were as follows: As of December 31, 2023 December 31, 2022 Long-lived assets The United States $ 61,592 $ 60,709 India 53,813 50,118 The Philippines 21,952 18,406 South Africa 20,890 3,980 Rest of World 6,982 4,962 Long-lived assets $ 165,229 $ 138,175 4. Revenues, net and Accounts Receivable, net Refer to Note 3 - Segment and Geographical Information to the consolidated financial statements for revenues disaggregated by reportable segments and geography. Contract balances The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers: As of December 31, 2023 December 31, 2022 Accounts receivable, net $ 308,108 $ 259,222 Contract assets $ 9,665 $ 2,768 Contract liabilities: Deferred revenue (consideration received in advance) $ 9,764 $ 17,079 Consideration received for process transition activities $ 12,411 $ 5,423 Accounts receivable includes $ 148,735 and $ 126,027 as of December 31, 2023 and 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. There was no significant impairment of contract assets as of December 31, 2023 and 2022. Revenue recognized during the years ended December 31, 2023 and 2022, which was included in the contract liabilities balance at the beginning of the respective periods: Year ended December 31, 2023 2022 Deferred revenue (consideration received in advance) $ 16,967 $ 17,964 Consideration received for process transition activities $ 1,762 $ 1,635 F-26 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 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 Year ended December 31, Year ended December 31, 2023 2022 2023 2022 Opening Balance $ 1,095 $ 511 $ 13,871 $ 5,795 Additions 1,841 1,014 13,605 15,509 Amortization ( 814 ) ( 430 ) ( 2,803 ) ( 7,433 ) Closing Balance $ 2,122 $ 1,095 $ 24,673 $ 13,871 There was no significant impairment for contract acquisition and contract fulfillment costs as of December 31, 2023 and 2022. Allowance for expected credit losses The following table provides information about accounts receivable, net of allowance for expected credit losses: As of December 31, 2023 December 31, 2022 Accounts receivable, including unbilled receivables $ 311,811 $ 260,554 Less: Allowance for expected credit losses ( 3,703 ) ( 1,332 ) Accounts receivable, net $ 308,108 $ 259,222 The movement in “Allowance for expected credit losses” was as follows: Year ended December 31, 2023 2022 Opening Balance $ 1,332 $ 573 Additions 2,450 815 Reductions due to write-off of accounts receivables ( 79 ) ( 60 ) Currency translation adjustments — 4 Closing Balance $ 3,703 $ 1,332 Concentration of credit risk 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 December 31, 2023 and 2022. F-27 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 5. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Year ended December 31, 2023 2022 2021 Numerators: Net income $ 184,558 $ 142,968 $ 114,758 Denominators (1) : Basic weighted average common shares outstanding 166,341,213 166,651,585 167,746,375 Dilutive effect of stock-based awards 1,820,158 2,517,705 2,043,465 Dilutive effect of conversion premium on the Notes (2) — — 1,432,550 Diluted weighted average common shares outstanding 168,161,371 169,169,290 171,222,390 Earnings per share attributable to ExlService Holdings, Inc. stockholders (1) : Basic $ 1.11 $ 0.86 $ 0.68 Diluted $ 1.10 $ 0.85 $ 0.67 Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share (1) 1,628,932 2,830 53,525 (1) Prior period information has been adjusted to reflect the 5 -for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the consolidated financial statements for further details. (2) Represents dilution effect related to the conversion premium of the convertible senior notes in the calculation of diluted weighted average shares outstanding for the portion of the period until actual settlement during the third quarter of 2021. Refer to Note 18 – Borrowings to the consolidated financial statements for further details. 6. Other Income/(Expense), net Other income/(expense), net consists of the following: Year ended December 31, 2023 2022 2021 Gain on sale and fair value mark-to-market on investments $ 5,013 $ 4,907 $ 4,891 Interest and dividend income 8,027 5,229 2,726 Fair value changes of contingent consideration (1) ( 1,900 ) ( 8,250 ) — Others, net ( 306 ) ( 1,896 ) ( 844 ) Other income/(expense), net $ 10,834 $ ( 10 ) $ 6,773 (1) Refer to Note 16 - Fair Value Measurements to the consolidated financial statements for further details. F-28 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 7. Cash, Cash Equivalents and Restricted Cash For the purposes of statements of cash flows, cash, cash equivalents and restricted cash consist of the following: As of December 31, 2023 December 31, 2022 December 31, 2021 Cash and cash equivalents $ 136,953 $ 118,669 $ 135,337 Restricted cash (current) 4,062 4,897 6,174 Restricted cash (non-current) 4,386 2,055 2,299 Cash, cash equivalents and restricted cash $ 145,401 $ 125,621 $ 143,810 Restricted cash (current) primarily represents funds held on behalf of customers in dedicated bank accounts. The corresponding liability against the same is included under “Accrued expenses and other current liabilities.” Restricted cash (non-current) represents amounts on deposit with banks against bank guarantees issued through banks in favor of relevant statutory authorities for equipment imports, deposits for obtaining indirect tax registrations and for demands against pending income tax assessments. These deposits with banks will mature one year after the balance sheet date. 8. Investments Investments consist of the following: As of December 31, 2023 December 31, 2022 Short-term investments Mutual funds $ 52,650 $ 110,964 Term deposits 101,231 68,063 Total Short-term investments $ 153,881 $ 179,027 Long-term investments Term deposits $ 239 $ 31,341 Investment in equity affiliate 4,191 3,438 Total Long-term investments $ 4,430 $ 34,779 Refer to Note 16 - Fair Value Measurements to the consolidated financial statements for further details. F-29 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 9. Property and Equipment Property and equipment consists of the following: As of Estimated useful lives (Years) December 31, 2023 December 31, 2022 Owned Assets: Network equipment and computers 3 - 5 $ 149,975 $ 130,218 Software 2 - 5 94,279 88,487 Leasehold improvements 3 - 8 41,933 42,890 Office furniture and equipment 3 - 8 21,199 20,211 Motor vehicles 2 - 5 686 605 Buildings 30 956 961 Land — 625 629 Capital work in progress — 12,276 14,459 321,929 298,460 Less: Accumulated depreciation and amortization ( 222,333 ) ( 216,132 ) $ 99,596 $ 82,328 ROU assets under finance leases: Network equipment and computers 58 82 Leasehold improvements 604 1,013 Office furniture and equipment 427 662 Motor vehicles 1,020 742 2,109 2,499 Less: Accumulated depreciation ( 1,332 ) ( 1,999 ) $ 777 $ 500 Property and equipment, net $ 100,373 $ 82,828 During the years ended December 31, 2023 and 2022, 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 consolidated statements of income was as follows: Year ended December 31, 2023 2022 2021 Depreciation and amortization expense $ 35,812 $ 39,173 $ 36,354 The effect of foreign exchange gain/(loss) upon settlement of cash flow hedges recorded under depreciation and amortization expense, was as follows: Year ended December 31, 2023 2022 2021 Effect of foreign exchange gain/(loss) $ ( 210 ) $ ( 180 ) $ 524 F-30 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Internally developed software costs, included under Software, was as follows: As of December 31, 2023 December 31, 2022 Cost $ 46,625 $ 31,544 Less : Accumulated amortization ( 25,413 ) ( 16,134 ) Internally developed software, net $ 21,212 $ 15,410 The amortization expense on internally developed software recognized in the consolidated statements of income was as follows: Year ended December 31, 2023 2022 2021 Amortization expense $ 9,282 $ 5,958 $ 4,253 As of December 31, 2023 and 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. 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, the asset’s residual value, if any. It is reasonably possible that the judgments and estimates described above could change in future periods. 10. Goodwill and Other Intangible Assets Goodwill The following table sets forth details of changes in goodwill by reportable segment of the Company: Insurance Healthcare Emerging Business Analytics Total Balance as of January 1, 2022 $ 50,428 $ 21,942 $ 49,020 $ 282,512 $ 403,902 Acquisition — — — 1,992 1,992 Measurement period adjustments — — — 2,229 2,229 Currency translation adjustments ( 499 ) ( 67 ) ( 1,919 ) ( 1 ) ( 2,486 ) Balance as of December, 2022 49,929 21,875 47,101 286,732 405,637 Currency translation adjustments 106 ( 3 ) ( 100 ) ( 1 ) 2 Balance as of December 31, 2023 $ 50,035 $ 21,872 $ 47,001 $ 286,731 $ 405,639 During 2023 and 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. Based on such assessment, the Company concluded that it is not more likely than not that the fair values of any of the Company’s reporting units are less than their carrying amounts. The recoverability of goodwill is dependent upon the continued growth of cash flows from the Company’s business activities. This growth is based on business forecasts and improvement in profitability of its reporting units. The Company continues to maintain its focus on cultivating long-term client relationships as well as attracting new customers. The Company believes there are significant opportunities for adding new customers and additional growth and expansion within its existing customers by: • Increasing the depth and breadth of the services, including adoption of new technology, for instance, generative AI, the Company provides across its customers’ value chains and geographies; F-31 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) • Offering the full suite of the Company's services, which includes AI-powered digital operations and solutions and data and analytics; and • Supporting the Company's customers’ geographic expansion leveraging its global footprint. The Company also considers selective strategic relationships with industry leaders that add new long-term client relationships, enhance the depth and breadth of its services and solutions, and complement its business strategy. Through its various partnership programs, the Company expands its technology and innovation ecosystem with select partnerships, alliances or investments that the Company expects will enhance go-to-market opportunities and expand the scope and effectiveness of the Company’s services and solutions by adding digital assets and intellectual property, which will help the Company to win new customers or allowing it to enter new industry verticals and geographic markets. There can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. 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 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. Other Intangible Assets Information regarding the Company’s intangible assets is set forth below: As of December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Finite-lived intangible assets: Customer relationships $ 99,050 $ ( 51,085 ) $ 47,965 Developed technology 3,552 ( 2,522 ) 1,030 Trade names and trademarks 1,400 ( 1,286 ) 114 Non-compete agreements 336 ( 181 ) 155 104,338 ( 55,074 ) 49,264 Indefinite-lived intangible assets: Trade names and trademarks 900 — 900 Total intangible assets $ 105,238 $ ( 55,074 ) $ 50,164 F-32 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) As of December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Finite-lived intangible assets: Customer relationships $ 99,146 $ ( 39,848 ) $ 59,298 Developed technology 24,878 ( 20,902 ) 3,976 Trade names and trademarks 1,700 ( 1,303 ) 397 Non-compete agreements 336 ( 88 ) 248 126,060 ( 62,141 ) 63,919 Indefinite-lived intangible assets: Trade names and trademarks 900 — 900 Total intangible assets $ 126,960 $ ( 62,141 ) $ 64,819 The amortization expense recognized in the consolidated statements of income was as follows: Year ended December 31, 2023 2022 2021 Amortization expense $ 14,678 $ 17,109 $ 12,778 Estimated future amortization expense related to finite-lived intangible assets as of December 31, 2023 was as follows: 2024 $ 12,135 2025 10,699 2026 10,362 2027 9,364 2028 6,704 Total $ 49,264 11. Other Current Assets Other current assets consist of the following: As of December 31, 2023 December 31, 2022 Advance income tax, net $ 23,269 $ 5,716 Receivables from statutory authorities 18,500 15,724 Prepaid expenses 18,171 18,132 Derivative instruments 4,308 1,526 Deferred contract fulfillment costs 3,303 1,178 Contract assets 2,830 904 Advances to suppliers 1,883 1,944 Others 4,405 5,855 Other current assets $ 76,669 $ 50,979 F-33 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 12. Other Assets Other assets consist of the following: As of December 31, 2023 December 31, 2022 Deferred contract fulfillment costs $ 21,370 $ 12,693 Deposits with statutory authorities 6,960 6,276 Contract assets 6,835 1,864 Lease deposits 5,159 6,621 Derivative instruments 3,299 820 Others 5,901 3,795 Other assets $ 49,524 $ 32,069 13. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: As of December 31, 2023 December 31, 2022 Accrued expenses $ 58,736 $ 47,854 Payable to statutory authorities 20,591 20,430 Contingent consideration 15,000 5,000 Client liabilities 6,909 5,110 Accrued capital expenditures 4,134 4,032 Derivative instruments 2,009 10,059 Others 5,521 2,867 Accrued expenses and other current liabilities $ 112,900 $ 95,352 14. Other Non-Current Liabilities Other non-current liabilities consist of the following: As of December 31, 2023 December 31, 2022 Retirement benefits $ 16,666 $ 12,982 Deferred transition revenue 10,195 4,408 Unrecognized tax benefits 1,262 2,329 Contingent consideration 589 13,689 Derivative instruments 216 6,218 Others 2,534 1,666 Other non-current liabilities $ 31,462 $ 41,292 F-34 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 15. Accumulated Other Comprehensive Income/(Loss) Accumulated other comprehensive income/(loss) (“AOCI”) consists of actuarial gain/(loss) on retirement benefits and foreign currency translation adjustments. In addition, the Company enters into foreign currency forward contracts and interest rate swaps, which are designated as cash flow hedges and net investment hedges, as applicable, in accordance with ASC Topic 815, Derivatives and Hedging . 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 consolidated statements of income upon settlement of foreign currency forward contracts designated as cash flow hedges of a forecast transaction, whereas such changes 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 consolidated statements of income when a foreign operation is disposed or partially disposed. The following table sets forth the changes in AOCI during the years ended December 31, 2023, 2022 and 2021: Accumulated Other Comprehensive Income/(Loss) Foreign currency translation gain/(loss) Unrealized gain/(loss) on cash flow hedges Retirement benefits Total Balance as of January 1, 2021 $ ( 86,185 ) $ 13,799 $ ( 2,598 ) $ ( 74,984 ) Gains / (losses) recognized during the year ( 11,134 ) 4,663 ( 558 ) ( 7,029 ) Losses on net investment hedges ( 1,134 ) — — ( 1,134 ) Reclassification to net income (1) — ( 9,264 ) 709 ( 8,555 ) Income tax effects (2) 3,016 ( 778 ) ( 10 ) 2,228 Accumulated other comprehensive income/(loss) as of December 31, 2021 $ ( 95,437 ) $ 8,420 $ ( 2,457 ) $ ( 89,474 ) Gains / (losses) recognized during the year ( 47,734 ) ( 27,333 ) 2,574 ( 72,493 ) Reclassification to net income (1) — 1,295 592 1,887 Income tax effects (2) 10,032 6,315 ( 410 ) 15,937 Accumulated other comprehensive income/(loss) as of December 31, 2022 $ ( 133,139 ) $ ( 11,303 ) $ 299 $ ( 144,143 ) Gains recognized during the year 652 14,403 1,337 16,392 Reclassification to net income (1) — 5,208 ( 94 ) 5,114 Income tax effects (2) ( 156 ) ( 4,110 ) ( 137 ) ( 4,403 ) Accumulated other comprehensive income/(loss) as of December 31, 2023 $ ( 132,643 ) $ 4,198 $ 1,405 $ ( 127,040 ) (1) Refer to Note 17 - Derivatives and Hedge Accounting and Note 20 - Employee Benefit Plans to the 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 gain/(loss). Refer to Note 22 - Income Taxes to the consolidated financial statements. F-35 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 16. Fair Value Measurements Assets and Liabilities Measured at Fair Value 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 December 31, 2023 (Level 1) (Level 2) (Level 3) Total Assets Cash equivalents - Money market funds (1) $ 49,806 $ — $ — $ 49,806 Mutual funds (2) 52,650 — — 52,650 Derivative financial instruments — 7,607 — 7,607 Total $ 102,456 $ 7,607 $ — $ 110,063 Liabilities Derivative financial instruments $ — $ 2,225 $ — $ 2,225 Contingent consideration (3) — — 15,589 15,589 Total $ — $ 2,225 $ 15,589 $ 17,814 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Other Unobservable Inputs As of December 31, 2022 (Level 1) (Level 2) (Level 3) Total Assets Cash equivalents - Money market funds (1) $ 1,137 $ — $ — $ 1,137 Mutual funds (2) 110,964 — — 110,964 Derivative financial instruments — 2,346 — 2,346 Total $ 112,101 $ 2,346 $ — $ 114,447 Liabilities Derivative financial instruments $ — $ 16,277 $ — $ 16,277 Contingent consideration (3) — — 18,689 18,689 Total $ — $ 16,277 $ 18,689 $ 34,966 (1) Represents money market funds which are carried at the fair value option under ASC Topic 825 “ Financial Instruments ” . (2) Represents those short-term investments which are carried at the fair value option under ASC Topic 825 “ Financial Instruments ” . (3) Contingent consideration is presented under “Accrued Expenses and Other Current Liabilities” and “Other Non-Current Liabilities,” as applicable, in the consolidated balance sheets. Fair Value of Derivative Financial Instruments : 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 F-36 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) classified as Level 2. Refer to Note 17 - Derivatives and Hedge Accounting to the consolidated financial statements for further details. Fair Value of Contingent Consideration : The fair value measurement of contingent consideration is determined using Level 3 inputs. The Company’s contingent consideration represents a component of the total purchase consideration for business acquisitions. The measurement is calculated using unobservable inputs based on the Company’s own assessment of achievement of certain performance goals. The Company estimated the fair value of the contingent consideration based on the Monte Carlo simulation model and scenario-based method. The following table summarizes the changes in the fair value of contingent consideration: Year ended December 31, 2023 2022 Opening balance $ 18,689 $ 9,000 Acquisitions — 1,439 Fair value changes 1,900 8,250 Payments ( 5,000 ) — Closing balance $ 15,589 $ 18,689 During the years ended December 31, 2023 and 2022, 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. 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. Nonrecurring Fair Value Measurements of Assets: Nonrecurring fair value measurements include impairment tests of goodwill conducted by the Company during the years ended December 31, 2023 and 2022, as applicable. The fair value determination of the Company's reporting units was based on a combination of the income approach, using a DCF model, which are Level 3 inputs, and also the market approach, as applicable, using market multiples for reporting units, which are Level 2 inputs. During the years ended December 31, 2023 and 2022, the Company did no t recognize any impairment charges on goodwill as the fair values of the reporting units exceeded their carrying value. Refer to Note 10 - Goodwill and Other Intangible Assets to the consolidated financial statements for further details. 17. Derivatives and Hedge Accounting The Company uses derivative instruments to mitigate cash flow volatility from risk of fluctuations in foreign currency exchange rates and interest rates. 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 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 December 31, 2023 and December 31, 2022, the Company had outstanding foreign currency forward contracts totaling $ 722,800 and $ 841,620 , respectively and interest rate swaps totaling $ 75,000 , each. F-37 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The Company estimates that approximately $ 2,357 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 December 31, 2023, could be reclassified into earnings within the next twelve months. As of December 31, 2023, the maximum outstanding term of the cash flow hedges was approximately 42 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. These foreign currency forward contracts do not qualify as fair value hedges under ASC Topic 815, Derivatives and Hedging . Changes in the fair value of these financial instruments are recognized in the 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 (INR), the Philippine peso (PHP), the U.K. pound sterling (GBP) and South African rand (ZAR). The Company also has exposure to Colombian pesos (COP), the Euro (EUR), 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: As of Foreign currency forward contracts denominated in: December 31, 2023 December 31, 2022 U. S. dollar (USD) 170,543 163,990 U.K. pound sterling (GBP) 14,544 8,351 Euro (EUR) 5,231 1,956 Australian dollar (AUD) 3,452 1,951 South African rand (ZAR) 150,150 — 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 As of As of December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Assets: Other current assets $ 4,216 $ 1,271 $ 92 $ 255 Other assets $ 3,299 $ 820 $ — $ — Liabilities: Accrued expenses and other current liabilities $ 1,859 $ 10,044 $ 150 $ 15 Other non-current liabilities $ 216 $ 6,218 $ — $ — The following table sets forth the effect of foreign currency forward contracts and interest rate swaps on AOCI and the consolidated statements of income: Year ended December 31, Derivative financial instruments: 2023 2022 2021 Unrealized gain/(loss) recognized in OCI Derivatives in cash flow hedging relationships $ 14,403 $ ( 27,333 ) $ 4,663 Gain/(loss) recognized in consolidated statements of income Derivatives not designated as hedging instruments $ 296 $ ( 9,571 ) $ 196 F-38 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The following table sets forth the location and amount of gain/(loss) recognized in consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments: Year ended December 31, 2023 2022 2021 As per consolidated statements of income Gain/(loss) on derivative financial instruments As per consolidated statements of income Gain/(loss) on derivative financial instruments As per consolidated statements of income Gain on derivative financial instruments Derivatives in cash flow hedging relationships Location in consolidated statements of income where gain/(loss) was reclassified from AOCI Cost of revenues $ 1,022,902 $ ( 5,180 ) $ 896,595 $ ( 1,304 ) $ 690,934 $ 7,785 General and administrative expenses $ 198,294 ( 454 ) $ 169,016 141 $ 142,040 948 Selling and marketing expenses $ 120,227 ( 40 ) $ 97,989 10 $ 84,306 53 Depreciation and amortization expense $ 50,490 ( 236 ) $ 56,282 ( 32 ) $ 49,132 478 Interest expense $ 13,180 702 $ 8,252 ( 110 ) $ 7,561 — Total before tax ( 5,208 ) ( 1,295 ) 9,264 Income tax effects on above 797 ( 455 ) ( 1,530 ) Net of tax $ ( 4,411 ) $ ( 1,750 ) $ 7,734 Derivatives not designated as hedging instruments Location in consolidated statements of income where gain/(loss) was recognized Foreign exchange gain/(loss), net $ 1,532 $ 296 $ 6,199 $ ( 9,571 ) $ 4,313 $ 196 Effect of net investment hedges on OCI: Year ended December 31, Amount of loss recognized in OCI Net investment hedging relationships 2023 2022 2021 Foreign currency forward contracts $ — $ — $ 1,134 18. Borrowings The following tables summarizes the Company’s debt position: As of December 31, 2023 2022 Revolving credit facility Current portion of long-term borrowings $ 65,000 $ 30,000 Long-term borrowings 135,000 220,000 Total borrowings $ 200,000 $ 250,000 F-39 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Unamortized debt issuance costs for the Company’s revolving credit facility of $ 903 and $ 1,177 as of December 31, 2023 and 2022, respectively, are presented under “Other current assets” and “Other assets,” as applicable, in the consolidated balance sheets. 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. as Administrative Agent. The revolving credit facility originally had a maturity date of November 21, 2022 and was voluntarily pre-payable from time to time without premium or penalty. On April 18, 2022, the Company and each of the Company’s wholly owned material domestic subsidiaries entered into an Amendment and Restatement Agreement with Citibank, N.A., as Administrative Agent, and certain lenders (the “2022 Credit Agreement”), pursuant to which the parties thereto amended and restated the Credit Agreement. Among other things, the 2022 Credit Agreement (a) provides for the issuance of new revolving credit commitments such that the aggregate amount of revolving credit commitments available to the Company is equal to $ 400,000 ; (b) extends the maturity date of the revolving credit facility from November 21, 2022 to April 18, 2027; and (c) replaces LIBOR with the Secured Overnight Financing Rate (“SOFR”) as the reference rate for the U.S. dollar borrowings. The 2022 Credit Agreement provides an option to increase the commitments by up to $ 200,000 , subject to certain approvals and conditions. The 2022 Credit Agreement includes a letter of credit sub facility and is voluntarily pre-payable from time to time without premium or penalty. Borrowings under the 2022 Credit Agreement can be used for working capital and general corporate purposes, including permitted acquisitions. Obligations under the 2022 Credit Agreement are guaranteed by the Company’s material domestic subsidiaries and are secured by all or substantially all of the Company’s and its material domestic subsidiaries’ assets. The 2022 Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of certain assets or subsidiaries. In addition, the 2022 Credit Agreement contains a covenant to not permit the interest coverage ratio or the total net leverage ratio, both, as defined, for the four consecutive quarter period ending on the last day of each fiscal quarter, to be less than 3.0 to 1.0 or more than 3.5 to 1.0, respectively. The 2022 Credit Agreement bears interest at a rate equal to specified prime rate (alternate base rate) or adjusted SOFR, plus, in each case, an applicable margin. The applicable margin is tied to the Company’s total net leverage ratio and ranges from 0 % to 0.75 % per annum on loans pegged to the specified prime rate, and 0.88 % to 1.75 % per annum on loans pegged to the adjusted SOFR. The revolving credit commitments under the 2022 Credit Agreement are subject to a commitment fee which is also tied to the Company’s total net leverage ratio, and ranges from 0.13 % to 0.28 % per annum on the average daily amount by which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations. The revolving credit facility carried an effective interest rate as shown below: Year ended December 31, 2023 2022 2021 Effective Interest Rate 6.3 % 2.9 % 1.7 % As of December 31, 2023 and 2022, the Company was in compliance with all financial covenants under the 2022 Credit Agreement. Convertible Senior Notes On October 1, 2018, the Company entered into an investment agreement with Orogen Echo LLC (the “Purchaser”), an affiliate of The Orogen Group LLC, relating to the issuance to the Purchaser of $ 150,000 , in an aggregate principal amount (the “Notes”). The Notes carried interest at a rate of 3.5 % per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year. The Notes were convertible at an initial conversion rate of 13.3333 shares of the common stock per one thousand dollar principal amount of the Notes (which represented an initial conversion price of approximately $ 75 per share). F-40 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 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). During the year ended December 31, 2021, the Notes carried an effective interest rate of 3.6 %. 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 year ended December 31, 2021, the Company recognized a loss on settlement of the Notes of $ 12,845 , representing the difference between the fair value of the consideration allocated to the debt component and the carrying value of the debt component immediately before settlement, and is presented as “Loss on settlement of convertible notes,” in the Company’s consolidated statements of income. During the year ended December 31, 2021, the Company recognized interest expense and amortization of debt discount of $ 5,237 on the Notes. Expected payments for all of the Company’s borrowings as of December 31, 2023 were as follows: Revolving credit facility Principal Payments Interest Payments (1) 2024 $ 65,000 $ 11,356 2025 — 8,547 2026 — 8,547 2027 135,000 3,205 Total $ 200,000 $ 31,655 (1) Interest payments are based on interest rate prevailing as of December 31, 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 December 31, 2023 and 2022, the Company had outstanding letters of credit of $ 461 , each, that were not recognized in the consolidated balance sheets. 19. Capital Structure Common Stock The Company has one class of common stock outstanding. Holders of the Company's common stock are entitled to one vote per share. Upon the liquidation or dissolution of the Company, its common stockholders are entitled to receive a ratable share of the available net assets of the Company after payment of all debts and other liabilities. The Company's shares of common stock have no preemptive, subscription, redemption or conversion rights. Forward Stock Split 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 Secretary of State of the State of Delaware on August 1, 2023, and effectiveness thereof, effected 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 , remained unchanged. Pursuant to the 2023 Stock Split, each stockholder of record on July 25, 2023 holding shares of the Company’s common stock received four additional shares of the Company’s common stock for every one share held. The additional shares were distributed after the close of business on August 1, 2023. The common shares began trading on the Nasdaq Global Select Market on a post-split basis on August 2, 2023. F-41 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) All share count and per share amounts in the consolidated financial statements have been retrospectively adjusted from January 1, 2021 to reflect the 2023 Stock Split as if it occurred at the beginning of the earliest period presented. An amount equal to the par value of the increased shares resulting from the 2023 Stock Split was reclassified from “Additional paid-in capital” to “Common stock.” Share Repurchases 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) Twelve months ended December 31, 2023 237,047 $ 7,853 $ 33.13 Twelve months ended December 31, 2022 164,080 $ 4,121 $ 25.12 Twelve months ended December 31, 2021 156,545 $ 2,752 $ 17.58 (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 restricted stock units. On December 16, 2019, the Company’s board of directors authorized a $ 200,000 common stock repurchase program beginning January 1, 2020 through December 31, 2022 (the “2019 Repurchase Program”). On October 5, 2021, the Company’s board of directors authorized a $ 300,000 (excluding excise tax) common stock repurchase program beginning January 1, 2022 (the “2022 Repurchase Program”), and terminated the 2019 Repurchase Program on December 31, 2021. Under the 2022 Repurchase Program and 2019 Repurchase Program, shares may be purchased by the Company from time to time from the open market and through private transactions, or otherwise, as determined by the Company’s management as market conditions warrant. Repurchases may be discontinued at any time by the management. The Company purchased shares of its common stock, for a total consideration including commission and excluding excise tax, under repurchase programs, as below: Shares repurchased Total consideration Weighted average purchase price per share Twelve months ended December 31, 2023 4,127,451 $ 125,416 $ 30.39 Twelve months ended December 31, 2022 2,519,290 $ 68,521 $ 27.20 Twelve months ended December 31, 2021 5,436,625 $ 115,605 $ 21.26 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. Pursuant to the Inflation Reduction Act, effective January 1, 2023, the Company is required to pay a 1% excise tax on the fair market value of each share of common stock repurchased, net of stock issuances. The Company recognized excise tax of $ 217 on repurchase of common stock as a part of cost of such repurchases for the year ended December 31, 2023. F-42 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Dividends The Company has not paid or declared any cash dividends on its common stock during the years ended December 31, 2023, 2022 and 2021. The Company’s borrowings under its revolving credit facility could restrict its ability to declare or make any dividends or similar distributions. 20. Employee Benefit Plans The Company’s Gratuity Plan in India (the “India Plan”) provides for a lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee’s salary and years of employment with the Company. In addition, the Company’s subsidiary operating in the Philippines conforms to the minimum regulatory benefit, which provide for lump sum payment to vested employees on retirement from employment in an amount based on the respective employee’s salary and years of employment with the Company (the “Philippines Plan”). Liabilities with regard to the India Plan and the Philippines Plan are determined by actuarial valuation using the projected unit credit method. Current service costs for these plans are accrued in the year to which they relate. 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. The India Plan is partially funded whereas the Philippines Plan is unfunded. The Company makes annual contributions to the India Plan established with 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, inclusive of interest which is declared periodically. The Company earned a return of approximately 7.6 % per annum on the India Plan for the year ended December 31, 2023. F-43 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The benefit obligation has been measured as of December 31, 2023 and 2022. The following table sets forth the activity and the funded status of the gratuity plans and the amounts recognized in the Company’s consolidated financial statements at the end of the relevant periods: Change in projected benefit obligation 2023 2022 Projected benefit obligation as of January 1 $ 21,531 $ 23,271 Service cost 3,799 3,770 Interest cost 1,569 1,232 Benefits paid ( 1,382 ) ( 1,757 ) Actuarial gain (1) ( 1,166 ) ( 2,639 ) Effect of exchange rate changes ( 114 ) ( 2,346 ) Projected benefit obligation as of December 31 $ 24,237 $ 21,531 Change in plan assets Plan assets as of January 1 $ 14,449 $ 13,605 Actual return 1,220 798 Employer contribution 2,913 3,273 Benefits paid (2) ( 1,343 ) ( 1,737 ) Effect of exchange rate changes ( 105 ) ( 1,490 ) Plan assets as of December 31 $ 17,134 $ 14,449 Unfunded status as of December 31 $ 7,103 $ 7,082 Unfunded amount recognized in the consolidated balance sheets Non-current liability (included under other non-current liabilities) $ 6,925 $ 6,971 Current liability (included under accrued employee costs) 178 111 Total accrued liability $ 7,103 $ 7,082 Accumulated benefit obligation as of December 31 $ 16,655 $ 14,447 Plan assets in excess of accumulated benefit obligation as of December 31 $ 479 $ 2 (1) During the years ended December 31, 2023 and 2022 , actuarial gain was driven by changes in actuarial assumptions, offset by experience adjustments on present value of benefit obligations. (2) Benefits payments were substantially made through the plan assets during the years ended December 31, 2023 and 2022 . F-44 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Components of net periodic benefit costs recognized in consolidated statements of income and actuarial (gain)/loss reclassified from AOCI, were as follows: Year ended December 31, 2023 2022 2021 Service cost $ 3,799 $ 3,770 $ 3,512 Interest cost 1,569 1,232 929 Expected return on plan assets ( 1,048 ) ( 872 ) ( 796 ) Amortization of actuarial (gain)/loss, gross of tax ( 94 ) 592 709 Net gratuity cost $ 4,226 $ 4,722 $ 4,354 Amortization of actuarial (gain)/loss, gross of tax $ ( 94 ) $ 592 $ 709 Income tax effects on above ( 74 ) ( 179 ) ( 204 ) Amortization of actuarial (gain)/loss, net of tax $ ( 168 ) $ 413 $ 505 The components of retirement benefits included in AOCI, excluding tax effects, were as follows: As of December 31, 2023 2022 2021 Net actuarial gain/(loss) $ 777 $ ( 462 ) $ ( 3,624 ) Net prior service cost ( 5 ) ( 8 ) ( 12 ) Amount recognized in AOCI, excluding tax effects $ 772 $ ( 470 ) $ ( 3,636 ) The weighted average actuarial assumptions used to determine benefit obligations and net gratuity cost were: Year ended December 31, 2023 2022 2021 Discount rate 7.1 % 7.3 % 5.6 % Rate of increase in compensation levels 7.0 % 7.8 % 7.6 % Expected long-term rate of return on plan assets per annum 7.3 % 7.3 % 6.8 % The Company evaluates these assumptions annually based on its long-term plans of growth and industry standards. The discount rates are either based on current market yields on government securities or yields on government securities adjusted for a suitable risk premium, if available. Expected benefit payments during the year ending December 31, 2024 $ 3,461 2025 $ 3,045 2026 $ 3,027 2027 $ 3,216 2028 $ 2,653 2029 to 2033 $ 10,476 F-45 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 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. 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 contribution to the 401(k) Plans was as follows: Year ended December 31, 2023 2022 2021 Contribution to the 401(k) Plans $ 5,967 $ 5,205 $ 3,693 The Company’s contribution for various defined social security contribution plans on behalf of employees in foreign subsidiaries of the Company was as follows: Year ended December 31, 2023 2022 2021 Contributions to the defined social security contribution plans $ 23,045 $ 18,215 $ 16,340 21. Leases The Company conducts its operations using facilities leased under operating lease agreements that expire at various dates. The Company finances its use of certain motor vehicles and other equipment under various lease arrangements provided by financial institutions. The lease agreements do not contain any covenants to impose any restrictions except for market-standard practice for similar lease arrangements. 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. Supplemental balance sheet information As of December 31, 2023 December 31, 2022 Operating Lease Operating lease ROU assets $ 64,856 $ 55,347 Operating lease liabilities - Current $ 12,780 $ 14,978 Operating lease liabilities - Non-current 58,175 48,155 Total operating lease liabilities $ 70,955 $ 63,133 Finance Lease Property and equipment, gross $ 2,109 $ 2,499 Accumulated depreciation ( 1,332 ) ( 1,999 ) Property and equipment, net $ 777 $ 500 Finance lease liabilities - Current $ 191 $ 164 Finance lease liabilities - Non-current 613 355 Total finance lease liabilities $ 804 $ 519 F-46 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The components of lease cost, which are included in the Company’s consolidated statements of income, are as follows: Year ended December 31, Lease cost 2023 2022 Finance lease: Depreciation on underlying ROU assets $ 181 $ 151 Interest on lease liabilities 90 59 271 210 Operating lease (a) 20,188 21,783 Variable lease costs 4,374 5,033 Total lease cost $ 24,833 $ 27,026 (a) Includes short-term leases, which are immaterial. Supplemental cash flow and other information related to leases are as follows: Year ended December 31 2023 2022 Cash payments for amounts included in the measurement of lease liabilities : Operating cash outflows for operating leases $ 20,181 $ 23,227 Operating cash outflows for finance leases $ 90 $ 59 Financing cash outflows for finance leases $ 169 $ 142 ROU assets obtained in exchange for new operating lease liabilities $ 24,880 $ 734 ROU assets obtained in exchange for new finance lease liabilities $ 461 $ 312 Weighted average remaining lease term (in years) Finance lease 3.1 years 2.8 years Operating lease 5.5 years 5.9 years Weighted average discount rate Finance lease 14.6 % 14.3 % Operating lease 7.7 % 6.8 % 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. The Company modified certain of its operating leases, resulting in a net increase of its lease liabilities by $ 8,805 during the year ended December 31, 2023 and a decrease of its lease liabilities by $ 2,723 during the year ended December 31, 2022, with a corresponding adjustment to ROU assets. As of December 31, 2023 and 2022, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company. There was no impairment of ROU assets as of December 31, 2023 and 2022. F-47 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Maturities of lease liabilities as of December 31, 2023 were as follows: Operating Leases Finance Leases 2024 $ 17,806 $ 297 2025 16,878 256 2026 16,220 222 2027 13,712 191 2028 10,132 98 2029 and thereafter 14,018 — Total lease payments 88,766 1,064 Less: Imputed interest 17,811 260 Present value of lease liabilities $ 70,955 $ 804 Maturities of lease liabilities as of December 31, 2022 were as follows: Operating Leases Finance Leases 2023 $ 18,711 $ 228 2024 14,846 162 2025 10,037 114 2026 8,941 88 2027 6,474 79 2028 and thereafter 19,624 — Total lease payments 78,633 671 Less: Imputed interest 15,500 152 Present value of lease liabilities $ 63,133 $ 519 22. Income Taxes The components of income/(loss) before income taxes consist of the following: Year ended December 31, 2023 2022 2021 Domestic $ 100,905 $ 80,949 $ 43,759 Foreign 137,036 109,150 102,802 $ 237,941 $ 190,099 $ 146,561 F-48 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Income tax expense/(benefit) consists of the following: Year ended December 31, 2023 2022 2021 Current provision: Domestic $ 51,450 $ 43,416 $ 18,532 Foreign 33,828 23,701 33,644 $ 85,278 $ 67,117 $ 52,176 Deferred provision/(benefit): Domestic $ ( 32,024 ) $ ( 17,624 ) $ ( 15,954 ) Foreign 282 ( 1,928 ) ( 4,372 ) ( 31,742 ) ( 19,552 ) ( 20,326 ) Income tax expense $ 53,536 $ 47,565 $ 31,850 Deferred income taxes recognized in OCI were as follows: Year ended December 31, 2023 2022 2021 Deferred taxes benefit / (expense) recognized on: Unrealized gain/(loss) on cash flow hedges $ ( 3,313 ) $ 5,860 $ ( 2,308 ) Reclassification adjustment for cash flow hedges ( 797 ) 455 1,530 Retirement benefits (incl. effects of tax rate changes) ( 63 ) ( 231 ) 194 Reclassification adjustment for retirement benefits ( 74 ) ( 179 ) ( 204 ) Foreign currency translation adjustments ( 156 ) 10,032 3,016 Total $ ( 4,403 ) $ 15,937 $ 2,228 The effective income tax rate differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes approximately as follows: Year ended December 31, 2023 2022 2021 Expected tax expense $ 49,968 $ 39,921 $ 30,777 Foreign tax rate differential 5,333 ( 1,136 ) 1,127 Deferred tax provision 2,509 3,801 350 Unrecognized tax benefits ( 187 ) 273 161 State taxes, net of Federal taxes 11,640 7,730 4,968 Non-deductible expenses 4,083 6,285 3,165 Excess tax benefit on stock-based compensation ( 15,055 ) ( 5,881 ) ( 3,651 ) Research and development credits ( 4,235 ) ( 2,230 ) ( 1,727 ) Prior period items ( 1,415 ) ( 688 ) ( 931 ) Benefit on settlement of convertible notes — — ( 2,411 ) Others 895 ( 510 ) 22 Tax expense $ 53,536 $ 47,565 $ 31,850 F-49 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The effective tax rate decreased from 25.0 % during the year ended December 31, 2022 to 22.5 % during the year ended December 31, 2023. The Company recorded income tax expense of $ 53,536 and $ 47,565 for the years ended December 31, 2023 and 2022, respectively. While the effective tax rate decreased during the year ended December 31, 2023, the amount of income tax expense increased primarily as a result of higher profit during the year ended December 31, 2023, compared to the year ended December 31, 2022, and an increase in non-deductible expenses, partially offset by higher excess tax benefits related to stock-based compensation during the year ended December 31, 2023, compared to the year ended December 31, 2022. During the year ended December 31, 2023, the Company’s foreign subsidiaries in India, the United Kingdom, Australia, Bulgaria and the Czech Republic repatriated an aggregate amount of $ 136,405 (net of $ 5,852 withholding taxes) to the United States. These distributions do not constitute a change in the Company’s permanent reinvestment assertion. 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. However, this change has no net impact on the consolidated statements of income for the years ended December 31, 2023 and 2022, due to an offset between current and deferred taxes. The components of the deferred tax balances were as follows: As of December 31, 2023 December 31, 2022 Deferred tax assets: Tax credit carry forwards $ 12,762 $ 5,716 Depreciation and amortization expense 14,569 14,734 Capitalized research and development expenses 47,276 24,743 Stock-based compensation 8,506 11,425 Accrued employee costs and other expenses 21,611 15,504 Net operating loss carry forwards 212 412 Net unrealized foreign exchange loss 21,449 23,572 Deferred rent 2,853 3,120 Others 416 272 129,654 99,498 Valuation allowance ( 482 ) ( 309 ) Deferred tax assets $ 129,172 $ 99,189 Deferred tax liabilities: Intangible assets $ 27,095 $ 27,807 Net unrealized gain on investments 3,704 6,006 Capitalized costs 5,999 332 Foreign branch accounting 8,810 7,618 Others 2,132 2,182 Deferred tax liabilities $ 47,740 $ 43,945 Net deferred tax assets $ 81,432 $ 55,244 Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying values of assets and liabilities and their respective tax bases and operating loss carry forwards. The Company performed an analysis of the realizability deferred tax assets as of December 31, 2023 and 2022, and recorded a valuation allowance of $ 482 and $ 309 , respectively. F-50 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The Company’s income tax expense also includes provisions established for uncertain income tax positions determined in accordance with Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes . The Company monitors and adjusts these reserves in light of changing facts and circumstances. To the extent that the final tax outcome of these matters differs from the amounts recorded, such differences will impact the income tax expense in the period in which such determination is made. The following table summarizes the activity related to the unrecognized tax benefits: Year ended December 31, 2023 2022 2021 Balance as of January 1 $ 1,449 $ 1,068 $ 907 Increases/(decreases) related to prior year tax positions ( 610 ) 158 ( 12 ) Increases related to current year tax positions 423 223 173 Balance as of December 31 $ 1,262 $ 1,449 $ 1,068 The unrecognized tax benefits as of December 31, 2023 of $ 1,262 , if recognized, would impact the effective tax rate. As of December 31, 2023 and 2022, the Company has no t accrued interest and penalties relating to unrecognized tax benefits. 23. Stock-Based Compensation Prior period information has been adjusted to reflect the 5 -for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the consolidated financial statements for further details. On June 15, 2018, at the Company’s 2018 Annual Meeting of Stockholders, the Company's stockholders approved the 2018 Omnibus Incentive Plan, which among other things, reserves 15,875,000 shares of the Company’s common stock for grants of awards under the 2018 Omnibus Incentive Plan. As of December 31, 2023, the Company had 3,249,875 shares available for grant under the 2018 Omnibus Incentive Plan. Under the 2018 Omnibus Incentive Plan, the Compensation and Talent Management Committee (the “Committee”) may grant awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, performance-based compensation awards (including cash bonus awards and market condition based awards) or any combination of the foregoing. The Committee determines which employees are eligible to receive the equity awards, the number of equity awards to be granted, the exercise price, the vesting period and the exercise period. The vesting period for the equity award issued is determined on the date of the grant and is non-transferable during the life of the equity award. Stock options have a contractual period of ten years from the date of grant and vest ratably over four years . Restricted stock units generally vest proportionally over a period of four years from the date of grant, unless specified otherwise. Stock-based compensation expense by nature of function, as below, are included in the consolidated statements of income: Year ended December 31, 2023 2022 2021 Cost of revenues $ 14,686 $ 11,535 $ 7,871 General and administrative expenses 21,574 20,016 16,396 Selling and marketing expenses 22,177 17,815 14,354 Total $ 58,437 $ 49,366 $ 38,621 Income tax benefit related to stock-based compensation (1) $ 17,333 $ 9,785 $ 9,424 F-51 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) (1) Includes $ 15,055 , $ 5,881 and $ 3,651 during the years ended December 31, 2023, 2022 and 2021, respectively, related to discrete benefits recognized in income tax expense in accordance with ASU No. 2016-09, Compensation - Stock Compensation. Stock Options Stock option activity under the Company’s stock-based compensation plans is shown below: Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (Years) Outstanding as of December 31, 2022 15,465 $ 5.52 $ 439 1.0 Granted 1,790,695 30.14 — 9.5 Exercised ( 15,465 ) 5.52 384 — Forfeited — — — — Outstanding as of December 31, 2023 1,790,695 $ 30.14 $ 1,278 9.5 Vested and exercisable as of December 31, 2023 — $ — $ — — Weighted average grant date fair value of per unit of stock option granted during the period $ 12.03 Stock options granted under the 2018 Omnibus Incentive Plan during the year ended December 31, 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: Year ended December 31, 2023 Dividend yield — Expected life (years) 6.25 Risk free interest rate for expected life 3.8 % Volatility for expected life 32.4 % 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 December 31, 2023, unrecognized compensation cost of $ 18,717 is expected to be expensed over a weighted average period of 3.5 years. The grant date fair value of stock options exercised and cash received from stock options exercised was as follows: Year ended December 31, 2023 2022 2021 Grant date fair value $ 30 $ — $ 257 Cash received $ 85 $ — $ 710 Share Matching Program Under the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”), the Company established a share matching program (“SMP”) for executive officers and other specified employees. Under the SMP, the Company agreed to issue a number of restricted stock units equal to the number of newly acquired shares of the Company's common stock. For purposes of the match, “newly acquired shares” includes the employee’s first quarter 2022 open market purchase of the common stock, and F-52 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (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; the newly acquired shares for which the matching restricted stock units were granted must also be held by the employee until such vesting dates. The Company’s underlying common stock issued pursuant to the vesting of the matching restricted stock units will not be marketable or transferable for a period of two years following the vesting date. Certain forfeiture and other conditions apply. Restricted stock unit activity under the SMP is shown below: Restricted Stock Units (SMP) Number Weighted Average Fair Value Outstanding as of December 31, 2022 238,115 $ 24.95 Granted — — Vested — — Forfeited ( 20,885 ) 24.95 Outstanding as of December 31, 2023 217,230 $ 24.95 As of December 31, 2023, unrecognized compensation cost of $ 2,255 is expected to be expensed over a weighted average period of 1.3 years. Restricted Stock Units The Committee is authorized to award restricted stock units to participants. The Committee establishes the terms, conditions and restrictions applicable to each award of restricted stock units, including the time or times at which restricted stock units will be granted or vested and the number of units to be covered by each award. The terms and conditions of each restricted stock award will be reflected in a restricted stock unit agreement. Any cash or in-kind dividends paid with respect to unvested shares of restricted stock units are withheld by the Company and paid to the holder of such shares of restricted stock, without interest, only if and when such shares of restricted stock units vest. Any unvested shares of restricted stock units are immediately forfeited without consideration upon the termination of holder’s employment with the Company or its affiliates. Accordingly, the Company’s unvested restricted stock units do not include non-forfeitable rights to dividends or dividend equivalents and are therefore not considered as participating securities for purposes of earnings per share calculations pursuant to the two-class method. Restricted stock unit activity under the Company’s stock-based compensation plans is shown below: Restricted Stock Units Number Weighted Average Fair Value Outstanding as of December 31, 2022 * 4,615,630 $ 19.74 Granted 1,258,712 33.99 Vested* ( 1,784,973 ) 18.52 Forfeited ( 357,857 ) 21.60 Outstanding as of December 31, 2023 * 3,731,512 $ 24.96 * As of December 31, 2023 and 2022, restricted stock units vested for which the underlying common stock is yet to be issued are 324,125 and 872,450 , respectively. F-53 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The fair value of restricted stock units is generally the market price of the Company’s shares on the date of grant. As of December 31, 2023, unrecognized compensation cost of $ 59,067 is expected to be expensed over a weighted average period of 2.4 years. The weighted average fair value of restricted stock units granted and the grant date fair value of restricted stock units vested was as follows: Year ended December 31, 2023 2022 2021 Weighted average fair value $ 33.99 $ 24.28 $ 18.25 Grant date fair value $ 33,058 $ 24,002 $ 23,845 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 year ended December 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”). The remaining 60 % of each award recipient’s equity grants are PRSUs that are based on market conditions contingent on the Company's meeting the 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”). The fair value of each PU is determined based on the market price of one common share on a day prior to the date of grant, and the associated stock compensation expense is calculated on the basis that performance targets at 100 % are probable of being achieved. The stock compensation expense for the PUs is recognized on a straight-line basis over the service period, which is through the end of the third year. Over this period, the number of shares that will be issued are adjusted upward or downward based upon the probability of achievement of the performance targets. The final number of shares issued and the related compensation cost recognized as an expense is based on a comparison of the final performance metrics to the specified targets. The grant date fair value for each MU is determined using a Monte Carlo simulation model and the related stock compensation expense is expensed on a straight-line basis over the vesting period. The stock compensation expense related to the MUs is recognized once the requisite performance period is fulfilled regardless of the extent of the market condition achieved. The Monte Carlo simulation model simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model also incorporates the following ranges of assumptions: • The historical volatilities are used over the most recent three-year period for the components of the peer group. • The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period. • Since the plan stipulates that the awards are based upon the TSR of the Company and the components of the peer group, it is assumed that the dividends get reinvested in the issuing entity on a continuous basis. • The correlation coefficients are used to model the way in which each entity tends to move in relation to each other are based upon the price data used to calculate the historical volatilities. F-54 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) The fair value of each MU granted to employees is estimated on the date of grant using the following weighted average assumptions: Year ended December 31, 2023 2022 2021 Dividend yield — — — Expected life (years) 2.9 2.9 2.9 Risk free interest rate for expected life 4.3 % 1.7 % 0.5 % Volatility for expected life 32.9 % 38.3 % 65.2 % PRSU activity under the Company’s stock plans is shown below: Revenue-Based PRSUs Market Condition-Based PRSUs Number Weighted Average Fair Value Number Weighted Average Fair Value Outstanding as of December 31, 2022 247,955 $ 24.00 893,560 $ 26.94 Granted 219,740 34.56 329,245 44.72 Adjustment upon final determination of level of performance goal achievement* — — 476,055 23.96 Vested ( 245 ) 25.94 ( 952,475 ) 23.96 Forfeited ( 29,450 ) 25.94 ( 89,935 ) 28.71 Outstanding as of December 31, 2023 438,000 $ 29.16 656,450 $ 37.78 * Represents adjustment of shares vested in respect of MUs granted in February 2021 upon achievement of the performance targets for such awards for which the underlying common stock was issued subsequent to December 31, 2023. As of December 31, 2023, unrecognized compensation cost of $ 22,564 is expected to be expensed over a weighted average period of 1.5 years. Employee Stock Purchase Plan On June 21, 2022, at the annual meeting of stockholders of the Company, the Company’s stockholders approved the ExlService Holdings, Inc. 2022 Employee Stock Purchase Plan (the “2022 ESPP”). The 2022 ESPP 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 Company has reserved 4,000,000 shares of common stock for issuance under the 2022 ESPP. The third offering period under the 2022 ESPP commenced on July 1, 2023 with a term of six months . F-55 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) Activity under the Company’s 2022 ESPP is shown below: Number Total Proceeds Received Shares available for issuance as of December 31, 2022 4,000,000 Issuance of common stock related to the: First offering period ( 38,180 ) $ 1,013 Second offering period ( 130,495 ) $ 3,548 Shares available for issuance as of December 31, 2023 3,831,325 Issuance of common stock related to the third offering period made subsequent to December 31, 2023 71,645 $ 1,948 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: Third offering period of July 1, 2023 to December 31, 2023 Second offering period of January 1, 2023 to June 30, 2023 First offering period of October 1, 2022 to December 31, 2022 Dividend yield — — — Expected life (years) 0.5 0.5 0.3 Risk free interest rate for expected life 5.4 % 4.7 % 3.3 % Volatility for expected life 25.5 % 38.9 % 43.6 % Discount for illiquidity 8.9 % 10.3 % 9.9 % 24. 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 December 31, 2023. During the year ended December 31, 2023 and 2022, the Company recognized revenues, net of $ 1,975 and $ 2,258 , respectively, related to this service contract. The Company had outstanding accounts receivable, net of $ 209 and $ 856 related to this service contract as of December 31, 2023 and 2022, respectively. On October 1, 2018, the Company entered into the Investment Agreement with the Purchaser relating to the issuance to the Purchaser of $ 150,000 aggregate principal amount of the Notes. In connection with the investment, Vikram S. Pandit, Chairman and CEO of The Orogen Group LLC (an affiliate of the Purchaser), was appointed to Company’s board of directors. The Company settled the Notes on August 27, 2021. Refer to Note 18 - Borrowings to the consolidated financial statements for further details. The following transactions with the Purchaser were recognized by the Company in connection with the Notes during the year ended December 31, 2021: Repayment of the Notes in cash $ 200,000 Repayment of the Notes in shares $ 36,742 Interest expense on the Notes $ 3,442 F-56 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 25. Commitments and Contingencies Capital Commitments As of December 31, 2023 and 2022, the Company had committed to spend approximately $ 7,100 and $ 9,700 , respectively, under agreements to purchase property and equipment. This amount is net of capital advances paid which are recognized in consolidated balance sheets as “Capital work in progress” under “Property and equipment.” 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. During the year ended December 31, 2023, the Company invested $ 600 in the Partnership and is committed under the Partnership to make further investments up to an amount of $ 3,400 . Other Commitments Certain units of the Company’s Indian subsidiaries were established as 100 % Export-Oriented units or under the Software Technology Parks of India or Special Economic Zone scheme promulgated by the Government of India. These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares. The Company has undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. The Company believes, however, that these units have in the past satisfied, and will continue to satisfy, the required conditions. The Company’s operations centers in the Philippines are registered as qualified Philippines Economic Zone Authority units, which provides the Company fiscal incentives on the import of capital goods and local purchase of services and materials. The Company is required to meet certain requirements to retain the incentives. The Company has complied, and intends to continue compliance with the requirements to avail itself of the incentives. Contingencies The transfer pricing regulations in the countries where the Company operates require that controlled intercompany transactions be at arm’s-length. Accordingly, the Company determines and documents pricing for controlled intercompany transactions based on an economic analysis as prescribed in the respective regulations. The tax authorities have jurisdiction to review the Company’s transfer pricing. If the Company’s transfer pricing is challenged by the authorities, they could assess additional tax, interest and penalties, thereby impacting the Company’s profitability and cash flows. 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 December 31, 2023 and 2022 is $ 36,694 and $ 37,088 , respectively. The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 7,227 and $ 7,532 , as of December 31, 2023 and 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 demands for tax years 2015 and 2017, in the amounts of $ 5,493 and $ 5,526 , as of December 31, 2023 and 2022, respectively. The Company has provided bank guarantees against these demands in the amounts of $ 4,570 and $ nil , as of December 31, 2023 and 2022, respectively. The GST authorities rejected the Company’s refund claims in the amounts of $ 4,748 and $ 3,866 as of December 31, 2023 and 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 December 31, 2023 and 2022, respectively. One of the Company’s subsidiary 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 F-57 Table of Contents EXLSERVICE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued) December 31, 2023 (In thousands, except per share amount and share count) 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. 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. From time to time, the Company, its subsidiaries, and/or their present officers or directors, may be or have been, named as a defendant in litigation matters, including employment-related claims. The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and attorney’s fees. With respect to pending litigation matters as of the reporting date, the Company believes that the damages claimed are without merit, and the Company intends to vigorously defend them. The Company will continuously monitor developments on these matters to assess potential impacts to the financial statements. The outcomes of legal actions are unpredictable and subject to significant uncertainties, and thus it is inherently difficult to determine the likelihood of the Company incurring a material loss or quantification of any such loss. With respect to pending litigation matters as of the reporting date, based on information currently available, including the Company’s assessment of the facts underlying each matter and advice of counsel, the amount or range of reasonably possible losses, if any, cannot be reasonably estimated. Based on the Company’s assessment, including the availability of insurance recoveries, the Company’s management does not believe that currently pending litigation, individually or in aggregate, will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. The Company will continuously monitor these matters to assess potential impacts to the financial statements. 26. Subsequent Events On February 26, 2024, the Company’s board of directors authorized a $ 500,000 common stock repurchase program (the “2024 Repurchase Program”), effective March 1, 2024, for a two-year period, in line with its capital allocation strategy. Under the 2024 Repurchase Program, shares may be purchased by the Company from time to time from the open market and through private transactions, or otherwise, as determined by the Company’s management as market conditions warrant. Repurchases may be discontinued at any time by the management. The 2024 Repurchase Program replaces the 2022 Repurchase Program, which was terminated effective February 29, 2024. F-58