What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-02 compared with 2023-10-26 · 388 added, 522 removed, 730 unchanged (55% of the section changed)

3 unchanged sentences

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

September 30, 2023 December 31, 2022

Notes March 31, 2024 December 31, 2023

Current assets:

6 unchanged sentences

Property and equipment, net 9 101,622 100,373

Operating lease right-of-use assets, net 56,817 55,347

Operating lease right-of-use assets 21 66,799 64,856

Restricted cash 7 4,376 4,386

20 unchanged sentences

Total liabilities 636,136 552,535

Commitments and contingencies (Refer to Note 25)

Commitments and contingencies 25

ExlService Holdings, Inc.

3 unchanged sentences

Common stock, $ 0.001 par value;

400,000,000 shares authorized, 202,124,185 shares issued and 165,117,859 shares outstanding as of September 30, 2023 and 199,939,880 shares issued and 166,172,220 shares outstanding as of December 31, 2022 (1)

400,000,000 shares authorized, 204,734,988 shares issued and 162,425,610 shares outstanding as of March 31, 2024 and 203,410,038 shares issued and 165,277,880 shares outstanding as of December 31, 2023

Additional paid-in capital 502,827 508,028

492,577 444,948

Retained earnings 1,132,426 1,083,663

1 unchanged sentence

Total including shares held in treasury 1,505,021 1,464,854

37,006,326 shares as of September 30, 2023 and 33,767,660 shares as of December 31, 2022, held in treasury, at cost (1)

42,309,378 shares as of March 31, 2024 and 38,132,158 shares as of December 31, 2023, held in treasury, at cost

19 ( 701,766 ) ( 575,417 )

1 unchanged sentence

Total liabilities and stockholders’ equity $ 1,439,391 $ 1,441,972

(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 unaudited consolidated financial statements for further details.

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

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

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

2023 2022 2023 2022

Three months ended March 31,

Notes 2024 2023

Revenues, net 3, 4 $ 436,507 $ 400,643

15 unchanged sentences

Income before earnings from equity affiliates 48,791 51,265

Gain from equity-method investment 25 108 157 365

Gain/(loss) from equity-method investment ( 28 ) 66

Net income attributable to ExlService Holdings, Inc.

15 unchanged sentences

(In thousands)

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

2023 2022 2023 2022

Three months ended March 31,

Notes 2024 2023

Net income $ 48,763 $ 51,331

1 unchanged sentence

Unrealized gain/(loss) on cash flow hedges 17 ( 62 ) 7,294

Foreign currency translation loss ( 7,782 ) ( 19,144 ) ( 2,605 ) ( 49,371 )

Currency translation adjustments ( 3,064 ) 5,313

Reclassification adjustments:

8 unchanged sentences

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

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

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

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

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

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

(3) These are income tax effects recognized on cash flow hedges, retirement benefits and currency translation adjustments.

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the three months ended September 30, 2023 and 2022

For the three months ended March 31, 2024 and 2023

(In thousands, except share count)

Common Stock (1)

Additional Paid-in Capital (1)

Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total

Shares Amount Shares (1)

Balance as of June 30, 2023 201,748,635 $ 202 $ 471,962 $ 999,504 $ ( 124,147 ) ( 35,985,285 ) $ ( 513,307 ) $ 834,214

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

Notes Shares Amount Shares Amount (2)

Balance as of January 1, 2024 203,410,038 $ 203 $ 508,028 $ 1,083,663 $ ( 127,040 ) ( 38,132,158 ) $ ( 575,417 ) $ 889,437

Stock issued against stock-based compensation plans 23 1,324,950 1 1,947 — — — — 1,948

1 unchanged sentence

Acquisition of treasury stock 19 — — — — — ( 4,177,220 ) ( 126,349 ) ( 126,349 )

Accelerated share repurchase 5, 19 — — ( 25,000 ) — — — — ( 25,000 )

Other comprehensive income 15 — — — — ( 3,396 ) — — ( 3,396 )

Net income — — — 48,763 — — — 48,763

Balance as of September 30, 2023 202,124,185 $ 202 $ 492,577 $ 1,043,380 $ ( 136,805 ) ( 37,006,326 ) $ ( 543,267 ) $ 856,087

Common Stock (1)

Additional Paid-in Capital (1)

Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total

Shares Amount Shares (1)

Balance as of June 30, 2022 198,975,805 $ 199 $ 420,147 $ 828,161 $ ( 133,374 ) ( 33,355,630 ) $ ( 429,480 ) $ 685,653

Stock issued against stock-based compensation plans 18,975 — — — — — — —

Stock-based compensation — — 12,186 — — — — 12,186

Acquisition of treasury stock — — — — — ( 384,045 ) ( 11,521 ) ( 11,521 )

Other comprehensive loss — — — — ( 20,829 ) — — ( 20,829 )

Net income — — — 39,095 — — — 39,095

Balance as of September 30, 2022 198,994,780 $ 199 $ 432,333 $ 867,256 $ ( 154,203 ) ( 33,739,675 ) $ ( 441,001 ) $ 704,584

(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 unaudited consolidated financial statements for further details.

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the nine months ended September 30, 2023 and 2022

(In thousands, except share count)

Balance as of March 31, 2024 204,734,988 $ 204 $ 502,827 $ 1,132,426 $ ( 130,436 ) ( 42,309,378 ) $ ( 701,766 ) $ 803,255

Common Stock (1)

1 unchanged sentence

Retained Earnings Accumulated Other Comprehensive Income/(loss) Treasury Stock Total

Shares Amount Shares (1)

January 1, 2023 199,939,880 $ 200 $ 444,948 $ 899,105 $ ( 144,143 ) ( 33,767,660 ) $ ( 441,931 ) $ 758,179

Notes Shares Amount Shares (1)

Balance as of January 1, 2023 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 1,731,960 2 1,010 — — — — 1,012

3 unchanged sentences

Net income — — — 51,331 — — — 51,331

Balance as of September 30, 2023 202,124,185 $ 202 $ 492,577 $ 1,043,380 $ ( 136,805 ) ( 37,006,326 ) $ ( 543,267 ) $ 856,087

Common Stock (1)

Additional Paid-in Capital (1)

Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total

Shares Amount Shares (1)

January 1, 2022 197,541,700 $ 198 $ 395,584 $ 756,137 $ ( 89,474 ) ( 31,084,290 ) $ ( 369,289 ) $ 693,156

Stock issued against stock-based compensation plans 1,453,080 1 ( 1 ) — — — — —

Stock-based compensation — — 36,750 — — — — 36,750

Acquisition of treasury stock — — — — — ( 2,655,385 ) ( 71,712 ) ( 71,712 )

Other comprehensive loss — — — — ( 64,729 ) — — ( 64,729 )

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

Balance as of September 30, 2022 198,994,780 $ 199 $ 432,333 $ 867,256 $ ( 154,203 ) ( 33,739,675 ) $ ( 441,001 ) $ 704,584

Balance as of March 31, 2023 201,671,840 $ 202 $ 460,365 $ 950,436 $ ( 131,487 ) ( 35,064,565 ) $ ( 484,294 ) $ 795,222

(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 unaudited consolidated financial statements for further details.

(2) Inclusive of excise tax for the three months ended March 31, 2024.

Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

Net income $ 48,763 $ 51,331

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

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

Depreciation and amortization expense 12,337 13,408

Stock-based compensation expense 17,852 14,407

Amortization of operating lease right-of-use assets 15,171 17,365

Unrealized loss/(gain) on investments 6,003 ( 475 )

Unrealized foreign currency exchange gain, net ( 862 ) ( 16,813 )

Reduction in the carrying amount of operating lease right-of-use assets 4,995 4,883

Fair value mark-to-market of investments 353 8,186

Unrealized foreign currency exchange (gain)/loss, net ( 274 ) 2,814

Deferred income tax benefit ( 8,680 ) ( 9,444 )

Allowance for expected credit losses 2,444 177

(Reversal)/allowance for expected credit losses ( 240 ) 342

Fair value changes in contingent consideration ( 589 ) —

10 unchanged sentences

Operating lease liabilities ( 4,616 ) ( 5,453 )

Net cash provided by operating activities 132,160 101,089

Payment of contingent consideration ( 11,000 ) —

Net cash (used for)/provided by operating activities ( 21,873 ) 16,025

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sale of property and equipment 62 565

Investment in equity affiliate ( 600 ) —

Business acquisition (net of cash and cash equivalents acquired) — ( 3,322 )

Purchases of investments ( 64,932 ) ( 51,495 )

Proceeds from redemption of investments 80,825 106,750

Net cash provided by/(used for) investing activities 11,438 ( 75,182 )

Net cash provided by investing activities 4,689 43,341

Cash flows from financing activities:

2 unchanged sentences

Repayments of borrowings ( 35,000 ) ( 100,000 )

Acquisition of treasury stock ( 100,542 ) ( 71,712 )

Payment of contingent consideration ( 4,000 ) —

Proceeds from ESPP contribution and exercise of stock options 4,690 —

Acquisition of treasury stock ( 152,227 ) ( 42,363 )

Proceeds from issuance of common stock 1,514 1,102

Net cash used for financing activities ( 9,773 ) ( 91,304 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 288 ) ( 9,626 )

Net increase/(decrease) in cash, cash equivalents and restricted cash 2,338 ( 45,539 )

Effect of exchange rate changes ( 1,212 ) 1,282

Net decrease in cash, cash equivalents and restricted cash ( 28,169 ) ( 30,656 )

Cash, cash equivalents and restricted cash at the beginning of the period 145,401 125,621

3 unchanged sentences

Interest $ 2,971 $ 3,325

Income taxes, net of refunds $ 76,743 $ 35,192

Income taxes $ 11,122 $ 6,525

Supplemental disclosure of non-cash investing and financing activities:

Additions to property and equipment not yet paid $ 3,381 $ 3,827

Assets acquired under finance lease $ 287 $ 99

2 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

March 31, 2024

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

1 unchanged sentence

(“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 that partners with clients to improve business outcomes and unlock growth.

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

The Company’s data-led value creation framework enables better and faster decision making, leveraging its end-to-end data and analytics capabilities to drive improved business outcomes, and re-designing of operating models to integrate advanced technology into operational workflows.

The Company embeds digital operations and solutions into clients’ businesses and introduces its data led approach to transform operations.

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.”).

13 unchanged sentences

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

(b) 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

(b) Use of Estimates

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

GAAP requires management to make estimates and assumptions that affect the carrying amounts of assets and liabilities and disclosure of contingent assets and liabilities included in the unaudited 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 unaudited consolidated financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and the discount rate applied within the discounted cash flow model for business acquisitions, credit risk of customers, the nature and

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

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.

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

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

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

The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and the discount rate applied within the discounted cash flow model for business acquisitions, credit risk of customers, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements, estimated costs to complete fixed price contracts, 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, useful life of long-lived assets and other intangible assets, assumptions used to calculate stock-based compensation expense, assumptions used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate amortization of ROU, methods to calculate depreciation and amortization for long-lived assets and other intangible assets, and recoverability of long-lived assets, goodwill and other intangible assets.

(d) 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”):

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 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.

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 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 unaudited 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 (“Accounting Standards Codification (“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 unaudited 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 unaudited consolidated financial statements.

In March 2024, FASB issued ASU No.

2024-01, Compensation-Stock Compensation (“ASC Topic 718”).

This ASU clarifies how to evaluate whether profits interest and similar awards given to employees and non-employees are within the scope of share-based payment arrangement under ASC 718.

The ASU will be effective for annual periods beginning after December 15, 2024, including interim periods within those years.

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

In March 2024, FASB issued ASU No.

2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements .

This ASU contains amendments to the ASC that remove references to various FASB Concepts Statements.

The ASU will be effective for annual periods beginning after December 15, 2024, with early adoption permitted.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

(d) Recently adopted Accounting Pronouncements

In March 2023, FASB issued ASU No.

2023-01, Leases (“ASC Topic 842”) :

Common Control Arrangements .

3 unchanged sentences

When adopted in an interim period, it must be adopted from the beginning of the year that includes that interim period.

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

(e) 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.

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 unaudited consolidated financial statements.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

The Company does not have any lease arrangements with entities under common control and the adoption of this ASU did not have a material impact on its unaudited consolidated financial statements.

Segment and Geographical Information

3 unchanged sentences

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

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.

1 unchanged sentence

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

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

Three months ended September 30, 2023

Revenues and cost of revenues for the three months ended March 31, 2024 and 2023, respectively, for each of the reportable segments, are as follows:

Three months ended March 31, 2024

Insurance Healthcare Emerging Business Analytics Total

7 unchanged sentences

Income tax expense 13,753

Gain from equity-method investment 25

Net income $ 43,876

(1) Exclusive of depreciation and amortization expense.

Three months ended September 30, 2022

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 116,198 $ 22,820 $ 56,035 $ 166,298 $ 361,351

Cost of revenues (1)

75,041 17,119 32,363 105,939 230,462

Gross profit (1)

$ 41,157 $ 5,701 $ 23,672 $ 60,359 $ 130,889

Operating expenses 80,778

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

Income tax expense 12,447

Gain from equity-method investment 108

Loss from equity-method investment ( 28 )

Net income $ 48,763

(1) Exclusive of depreciation and amortization expense.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

Nine months ended September 30, 2023

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 390,762 $ 80,036 $ 198,677 $ 547,135 $ 1,216,610

Cost of revenues (1)

253,081 52,882 111,414 343,314 760,691

Gross profit (1)

$ 137,681 $ 27,154 $ 87,263 $ 203,821 $ 455,919

Operating expenses 271,430

Foreign exchange gain, net, interest expense and other income, net ( 2,598 )

Income tax expense 37,773

Gain from equity-method investment 157

Net income $ 144,275

(1) Exclusive of depreciation and amortization expense.

Nine months ended September 30, 2022

Three months ended March 31, 2023

Insurance Healthcare Emerging Business Analytics Total

11 unchanged sentences

Revenues, net by service type, were as follows:

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

2023 2022 2023 2022

Three months ended March 31,

Digital operations and solutions (1)

5 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

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

2023 2022 2023 2022

Three months ended March 31,

Revenues, net

United States $ 343,135 $ 310,652 $ 1,022,883 $ 891,551

The United States $ 362,306 $ 339,073

Non-United States

United Kingdom 46,327 34,131 131,549 98,994

The United Kingdom 50,402 41,574

Rest of World 23,799 19,996

1 unchanged sentence

Revenues, net $ 436,507 $ 400,643

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

September 30, 2023 December 31, 2022

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

(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:

March 31, 2024 December 31, 2023

Long-lived assets

United States $ 62,642 $ 60,709

The United States $ 60,177 $ 61,592

India 54,601 53,813

Philippines 21,895 18,406

The Philippines 24,455 21,952

South Africa 22,588 20,890

Rest of World 6,600 6,982

Long-lived assets $ 168,421 $ 165,229

Revenues, net

Revenues, net and Accounts Receivable, net

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

1 unchanged sentence

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Accounts receivable, net $ 335,523 $ 308,108

3 unchanged sentences

Consideration received for process transition activities $ 14,026 $ 12,411

Accounts receivable includes $ 152,425 and $ 126,027 as of September 30, 2023 and December 31, 2022, respectively, representing unbilled receivables.

Accounts receivable includes $ 170,386 and $ 148,735 as of March 31, 2024 and December 31, 2023, respectively, representing unbilled receivables.

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

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

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

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

There was no significant impairment of contract assets as of March 31, 2024 and December 31, 2023.

Revenue recognized during the three months ended March 31, 2024 and 2023, which was included in the contract liabilities balance at the beginning of the respective periods:

Three months ended March 31,

Deferred revenue (consideration received in advance)

$ 7,061 $ 13,002

Consideration received for process transition activities

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers.

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

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

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

Revenue recognized during the three and nine months ended September 30, 2023 and 2022, which was included in the contract liabilities balance at the beginning of the respective periods:

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

2023 2022 2023 2022

Deferred revenue (consideration received in advance) $ 690 $ 2,456 $ 16,682 $ 16,326

Consideration received for process transition activities $ 373 $ 706 $ 1,381 $ 1,370

Contract acquisition and fulfillment costs

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

Contract Acquisition Costs

Three months ended Nine months ended Year ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 December 31, 2022

Opening Balance $ 2,183 $ 983 $ 1,095 $ 511 $ 511

Additions 115 78 1,591 805 1,014

Amortization ( 233 ) ( 73 ) ( 621 ) ( 328 ) ( 430 )

Closing Balance $ 2,065 $ 988 $ 2,065 $ 988 $ 1,095

Contract Fulfillment Costs

Three months ended Nine months ended Year ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 December 31, 2022

Contract Acquisition Costs Contract Fulfillment Costs

Three months ended Year ended Three months ended Year ended

March 31, 2024 March 31, 2023 December 31, 2023 March 31, 2024 March 31, 2023 December 31, 2023

Opening Balance $ 2,122 $ 1,095 $ 1,095 $ 24,673 $ 13,871 $ 13,871

2 unchanged sentences

Closing Balance $ 1,901 $ 1,994 $ 2,122 $ 27,287 $ 17,873 $ 24,673

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

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

There was no significant impairment for contract acquisition and contract fulfillment costs as of March 31, 2024 and December 31, 2023.

Allowance 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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

September 30, 2023 December 31, 2022

The following table provides information about accounts receivable, net of allowance for expected credit losses:

March 31, 2024 December 31, 2023

Accounts receivable, including unbilled receivables $ 338,881 $ 311,811

1 unchanged sentence

Accounts receivable, net $ 335,523 $ 308,108

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

Three months ended Nine months ended Year ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 December 31, 2022

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

Three months ended March 31, Year ended

2024 2023 December 31, 2023

Opening Balance $ 3,703 $ 1,332 $ 1,332

Additions 1,964 9 2,441 752 815

Reductions due to write-off of accounts receivables ( 70 ) — ( 78 ) ( 472 ) ( 60 )

Currency translation adjustments 2 2 1 2 4

Additions/(reductions) ( 269 ) 451 2450

Reductions due to write-off of accounts receivable ( 76 ) ( 112 ) ( 79 )

Closing Balance $ 3,358 $ 1,671 $ 3,703

Concentration of credit risk

Customer and credit risk concentration

No single customer accounted for more than 10% of the Company's revenues, net during the three months ended March 31, 2024 and 2023.

The Company’s management believes that the loss of any of its top ten clients could have a material adverse effect on its financial performance.

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 September 30, 2023 and December 31, 2022.

No customer accounted for more than 10% of accounts receivable, net, as of March 31, 2024 and December 31, 2023.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

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 each period.

Diluted earnings per share is computed using the weighted average number of common shares plus the potentially dilutive effect of common stock equivalents (outstanding stock options, restricted stock, restricted stock units and employee stock purchase plans) issued and outstanding at the reporting date, using the treasury stock method.

Common stock equivalents that are anti-dilutive are excluded from the computation of weighted average shares outstanding.

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

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

2023 2022 2023 2022

Three months ended March 31,

Net income $ 48,763 $ 51,331

8 unchanged sentences

Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share 3,181,304 546,345

2,899,035 4,680 1,564,844 3,365

(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 unaudited consolidated financial statements for further details.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

On March 15, 2024, the Company entered into a master confirmation (the “Master Accelerated Share Repurchase Confirmation”) and a supplemental confirmation (together with the Master Accelerated Share Repurchase Confirmation, the “2024 ASR Agreement”), with Citibank, N.A.

(“Citibank”).

Refer to Note 19 - Capital Structure to the unaudited consolidated financial statements for further details.

During the three months ended March 31, 2024, the Company recorded the initial delivery of shares in treasury stock at cost, which resulted in an immediate reduction of its outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share.

The forward contracts indexed to the Company's own common stock met the criteria for equity classification, and prepayment of $ 25,000 was initially recorded in additional paid-in capital, which reflects the pending settlement of the 2024 ASR Agreement.

Had the 2024 ASR Agreement been settled as of March 31, 2024, determined based on the volume-weighted average price per share since its effective date, Citibank would have been required to deliver additional estimated shares to the Company.

The effect of the potential share settlement under the 2024 ASR Agreement was excluded from the computation of diluted earnings per share as its inclusion would have been anti-dilutive.

Other Income, net

Other income, net consists of the following:

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

2023 2022 2023 2022

Gain on sale and mark-to-market on investments $ 1,337 $ 1,471 $ 4,076 $ 3,341

Three months ended March 31,

Gain on sale and fair value mark-to-market on investments $ 1,016 $ 1,644

Interest and dividend income 2,284 1,721

3 unchanged sentences

* Refer to Note 16 - Fair Value Measurements to the unaudited consolidated financial statements for further details.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

Cash, Cash Equivalents and Restricted Cash

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

September 30, 2023 September 30, 2022 December 31, 2022

March 31, 2024 March 31, 2023 December 31, 2023

Cash and cash equivalents $ 108,565 $ 87,298 $ 136,953

2 unchanged sentences

Cash, cash equivalents and restricted cash $ 117,232 $ 94,965 $ 145,401

Restricted cash (current) primarily represents funds held on behalf of clients in dedicated bank accounts.

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.

1 unchanged sentence

Investments consist of the following:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Short-term investments

9 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

Property and Equipment

Property and equipment, net consists of the following:

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

Property and Equipment, net

Property and equipment consists of the following:

Estimated useful lives (Years) March 31, 2024 December 31, 2023

Owned Assets:

8 unchanged sentences

Motor vehicles 2 - 5

Buildings 30 958 961

Land — 624 625

3 unchanged sentences

$ 100,629 $ 99,596

Right-of-use assets under finance leases:

ROU assets under finance leases:

Network equipment and computers 58 58

2 unchanged sentences

Motor vehicles 1,262 1,020

Accumulated depreciation and amortization ( 1,330 ) ( 1,999 )

Accumulated depreciation ( 1,354 ) ( 1,332 )

Property and equipment, net $ 101,622 $ 100,373

Capital work in progress represents advances paid towards acquisition of property and equipment and costs incurred on internally developed software not yet ready for its intended use.

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

During the three months ended March 31, 2024, there were no changes in estimated useful lives of property and equipment during the ordinary course of operations.

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

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

2023 2022 2023 2022

Three months ended March 31,

Depreciation and amortization expense $ 9,266 $ 9,338

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

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

2023 2022 2023 2022

Effect of foreign exchange loss $ ( 37 ) $ ( 126 ) $ ( 182 ) $ ( 64 )

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

Three months ended March 31,

Effect of foreign exchange gain/(loss) $ ( 9 ) $ ( 79 )

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cost $ 51,370 $ 46,625

2 unchanged sentences

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

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

2023 2022 2023 2022

Three months ended March 31,

Amortization expense $ 2,520 $ 1,975

As of September 30, 2023 and December 31, 2022, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value;

As of March 31, 2024 and December 31, 2023, 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.

6 unchanged sentences

Currency translation adjustments ( 25 ) ( 2 ) ( 38 ) — ( 65 )

Balance as of September 30, 2023 $ 49,940 $ 21,873 $ 47,035 $ 286,731 $ 405,579

As of September 30, 2023, the Company performed an assessment to determine whether events or circumstances exist that may lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The Company considered current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance during nine months of the current fiscal year, business forecasts for the remainder of the year, stock price movements, generation and availability of cash and expansion plans.

Balance as of March 31, 2024 $ 50,010 $ 21,870 $ 46,963 $ 286,731 $ 405,574

As of March 31, 2024, the Company performed an assessment to determine whether events or circumstances exist that may lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The Company considered current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance during the three months ended March 31, 2024, business forecasts for the remainder of the year, stock price movements, generation and availability of cash and expansion plans.

The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the annual impairment test performed during the fourth quarter of 2023.

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

The Company did not identify any triggers or indications of potential impairment for its reporting units as of March 31, 2024.

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

1 unchanged sentence

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

Other Intangible Assets

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

As of September 30, 2023

Other Intangible Assets

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

As of March 31, 2024

Carrying Amount Accumulated

10 unchanged sentences

As of December 31, 2023

Gross Carrying Amount Accumulated Amortization Net Carrying

Carrying Amount Accumulated

Amortization Net Carrying

Finite-lived intangible assets:

8 unchanged sentences

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

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

2023 2022 2023 2022

Three months ended March 31,

Amortization expense $ 3,080 $ 4,149

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

2023 (October 1 - December 31) $ 3,147

2028 and thereafter 6,707

Estimated future amortization expense related to finite-lived intangible assets as of March 31, 2024 was as follows:

2024 (April 1 - December 31) $ 9,049

Total $ 46,180

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

1 unchanged sentence

Other current assets consist of the following:

September 30, 2023 December 31, 2022

Advance income tax, net $ 26,630 $ 5,716

Receivables from statutory authorities 15,996 15,724

March 31, 2024 December 31, 2023

Prepaid expenses $ 27,225 $ 18,171

Deferred contract fulfillment costs 3,091 1,178

Receivables from statutory authorities 18,620 18,500

Advance income tax, net 15,508 23,269

Derivative instruments 3,903 4,308

Contract assets 2,286 904

Advances to suppliers 3,808 1,883

Deferred contract fulfillment costs 2,837 3,303

Contract assets 2,779 2,830

Others 4,073 4,405

1 unchanged sentence

Other assets consist of the following:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Deferred contract fulfillment costs $ 24,450 $ 21,370

7 unchanged sentences

Accrued expenses and other current liabilities consist of the following:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Accrued expenses $ 54,957 $ 58,736

Payable to statutory authorities 35,304 20,591

Contingent consideration 15,600 5,000

Client liabilities 6,516 6,909

Derivative instruments 5,089 10,059

Accrued capital expenditures 3,789 4,134

Derivative instruments 2,172 2,009

Contingent consideration — 15,000

Others 4,321 5,521

2 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

1 unchanged sentence

Other non-current liabilities consist of the following:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Retirement benefits $ 17,771 $ 16,666

11 unchanged sentences

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

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

The following table sets forth the changes in AOCI during the three months ended March 31, 2024 and 2023:

Accumulated Other Comprehensive Income/(Loss)

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

Currency translation adjustments Unrealized gain/(loss) on cash flow hedges Retirement benefits Total

Balance as of January 1, 2024 $ ( 132,643 ) $ 4,198 $ 1,405 $ ( 127,040 )

Gains/(losses) recognized during the period ( 2,605 ) 8,242 — 5,637

Losses recognized during the period ( 3,064 ) ( 62 ) — ( 3,126 )

Reclassification to net income (1)

2 unchanged sentences

519 ( 190 ) ( 1 ) 328

Accumulated other comprehensive income/(loss) as of September 30, 2023 $ ( 135,278 ) $ ( 1,700 ) $ 173 $ ( 136,805 )

Accumulated other comprehensive income/(loss) as of March 31, 2024 $ ( 135,188 ) $ 3,503 $ 1,249 $ ( 130,436 )

Balance as of January 1, 2023 $ ( 133,139 ) $ ( 11,303 ) $ 299 $ ( 144,143 )

Losses recognized during the period ( 49,371 ) ( 28,638 ) — ( 78,009 )

Gains recognized during the period 5,313 7,294 — 12,607

Reclassification to net income (1)

2 unchanged sentences

( 1,138 ) ( 1,834 ) ( 19 ) ( 2,991 )

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

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

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

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

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

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

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

2 unchanged sentences

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

Inputs Significant Other

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

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

As of March 31, 2024 (Level 1) (Level 2) (Level 3) Total

Cash equivalents - Money market funds (1)

5 unchanged sentences

Derivative financial instruments $ — $ 2,517 $ — $ 2,517

Contingent consideration (3)

— — 16,189 16,189

Total $ — $ 2,517 $ — $ 2,517

Quoted Prices in

Active Markets for

Identical Assets Significant Other

Inputs Significant Other

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

12 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

Fair Value of Derivative Financial Instruments :

2 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

Fair Value of Contingent Consideration :

4 unchanged sentences

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

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

2023 2022 2023 2022

Three months ended March 31,

Opening balance $ 15,589 $ 18,689

Acquisitions — — — 1,439

Fair value changes ( 589 ) —

1 unchanged sentence

Closing balance $ — $ 18,689

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

During the three months ended March 31, 2024 and 2023, there were no transfers among Level 1, Level 2 and Level 3.

Financial Instruments Not Carried at Fair Value :

1 unchanged sentence

The carrying value of the Company’s outstanding revolving credit facility approximates its fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

Derivatives and Hedge Accounting

2 unchanged sentences

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

For derivatives in cash flow hedging relationships as of September 30, 2023 and December 31, 2022, the Company had outstanding foreign currency forward contracts totaling $ 797,400 and $ 841,620 , respectively and interest rate swaps totaling $ 75,000 , each.

The Company estimates that approximately $ 2,399 of derivative losses, net, excluding tax effects, included in AOCI, representing changes in the value of cash flow hedges based on exchange rates prevailing as of September 30, 2023, could be reclassified into earnings within the next twelve months.

As of September 30, 2023, the maximum outstanding term of the cash flow hedges was approximately 36 months.

The following table sets forth the aggregate notional amount of derivatives in cash flow hedging relationship:

March 31, 2024 December 31, 2023

Foreign currency forward contracts

dollar (USD) 707,200 722,800

pound sterling (GBP) 1,100 —

Interest rate swaps

USD 75,000 75,000

The Company estimates that approximately $ 1,765 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 March 31, 2024, could be reclassified into earnings within the next twelve months.

As of March 31, 2024, the maximum outstanding term of the cash flow hedges was approximately 45 months.

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

1 unchanged sentence

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

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

pound sterling (GBP).

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

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 the Colombian peso (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:

Foreign currency forward contracts denominated in:

March 31, 2024 December 31, 2023

USD 189,760 170,543

GBP 15,994 14,544

EUR 4,637 5,231

AUD 5,141 3,452

ZAR 157,291 150,150

COP 2,747,748 —

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

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

Foreign currency forward contracts denominated in:

September 30, 2023 December 31, 2022

dollar (USD) 175,445 163,990

pound sterling (GBP) 10,435 8,351

Euro (EUR) 3,531 1,956

Australian dollar (AUD) 3,991 1,951

South African rand (ZAR) 122,188 —

Colombian peso (COP) 2,286,550 —

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

September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

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

March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023

Other current assets $ 3,836 $ 4,216 $ 67 $ 92

Other assets $ 3,515 $ 3,299 $ — $ —

Accrued expenses and other

current liabilities $ 4,941 $ 10,044 $ 148 $ 15

Accrued expenses and other current liabilities $ 2,071 $ 1,859 $ 101 $ 150

Other non-current liabilities $ 345 $ 216 $ — $ —

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

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

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

Three months ended March 31,

Derivative financial instruments:

2023 2022 2023 2022

Unrealized gain/(loss) recognized in AOCI

Unrealized gain/(loss) recognized in OCI

Derivatives in cash flow hedging relationships $ ( 62 ) $ 7,294

3 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

The following table sets forth the location and amount of gain/(loss) recognized in unaudited consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments:

Three months ended September 30,

As per unaudited consolidated

statements of

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

statements of

income Gain/(loss) on derivative financial instruments

Derivatives in cash flow hedging relationships

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

Cost of revenues $ 256,002 $ ( 252 ) $ 230,462 $ ( 1,381 )

General and administrative expenses $ 52,213 18 $ 42,519 ( 109 )

Selling and marketing expenses $ 30,943 — $ 23,879 ( 6 )

Depreciation and amortization expense $ 11,583 ( 19 ) $ 14,380 ( 71 )

Interest expense $ 3,405 221 $ 2,442 —

Total before tax ( 32 ) ( 1,567 )

Income tax effects on above ( 64 ) 133

Net of tax $ ( 96 ) $ ( 1,434 )

Derivatives not designated as hedging instruments

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

Foreign exchange gain/(loss), net $ 409 $ ( 1,584 ) $ 1,504 $ ( 4,889 )

$ 409 $ ( 1,584 ) $ 1,504 $ ( 4,889 )

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

Nine months ended September 30,

As per unaudited consolidated

statements of

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

statements of

income Gain/(loss) on derivative financial instruments

Three months ended March 31,

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

Derivatives in cash flow hedging relationships

12 unchanged sentences

$ 359 $ 40 $ 105 $ 2,528

The following table summarizes the Company’s debt position:

September 30, 2023 December 31, 2022

The following tables summarizes the Company’s debt position:

March 31, 2024 December 31, 2023

Revolving credit facility

1 unchanged sentence

Long-term borrowings 280,000 135,000

160,000 220,000

Total borrowings $ 345,000 $ 200,000

Unamortized debt issuance costs for the Company’s revolving credit facility of $ 972 and $ 1,177 as of September 30, 2023 and December 31, 2022, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

Unamortized debt issuance costs for the Company’s revolving credit facility of $ 835 and $ 903 as of March 31, 2024 and December 31, 2023, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.

Credit Agreement

2 unchanged sentences

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

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.

10 unchanged sentences

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

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

2023 2022 2023 2022

Three months ended March 31,

Effective Interest Rate 6.7 % 5.9 %

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

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

As of March 31, 2024 and December 31, 2023, the Company was in compliance with all financial covenants under the 2022 Credit Agreement.

Expected payments for all of the Company’s borrowings as of March 31, 2024 were as follows:

Revolving credit facility

Payments Interest

2023 (October 1 - December 31) $ 35,000 $ 3,029

2024 15,000 10,659

Principal Payments Interest Payments (1)

2024 (April 1 - December 31) $ 65,000 $ 14,612

2025 — 17,645

2 unchanged sentences

Total $ 345,000 $ 56,519

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

(1) Interest payments are based on interest rate prevailing as of March 31, 2024.

Letters of Credit

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

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

As of each of March 31, 2024 and December 31, 2023, the Company had outstanding letters of credit of $ 461 , that were not recognized in the consolidated balance sheets.

Capital Structure

The Company has one class of common stock outstanding.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

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 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.

6 unchanged sentences

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:

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

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

Three months ended September 30, 2023 45,267 $ 1,324 $ 29.25

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

Nine months ended September 30, 2023 237,047 $ 7,853 $ 33.13

Nine months ended September 30, 2022 136,095 $ 3,191 $ 23.45

Three months ended March 31, 2024 200,402 $ 6,375 $ 31.81

Three months ended March 31, 2023 191,780 $ 6,529 $ 34.04

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

On October 5, 2021, the Company’s board of directors authorized a $ 300,000 common stock repurchase program beginning January 1, 2022 (the “2022 Repurchase Program”).

Under the 2022 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 commissions, under the 2022 Repurchase Program, as below:

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”).

On February 26, 2024, the Company’s board of directors authorized a $ 500,000 (excluding excise tax) common stock repurchase program beginning March 1, 2024 (the “2024 Repurchase Program”), and terminated the 2022 Repurchase Program on February 29, 2024.

On March 15, 2024, the Company entered into a 2024 ASR Agreement with Citibank to repurchase shares of its common stock for an aggregate purchase price of $ 125,000 , as part of the Company’s 2024 Repurchase Program.

Upon payment of the aggregate purchase price of $ 125,000 , the Company received an initial delivery of 3,350,084 shares of its common stock at an initial price of $ 29.85 per share, representing 80 % of the aggregate purchase price.

The Company funded the repurchase with available cash on hand and borrowing from its revolving credit facility.

The 2024 ASR Agreement is accounted for as a treasury stock transaction and forward stock purchase agreement indexed to the Company’s common stock.

The forward stock purchase agreement is classified as an equity instrument under ASC 815-40, Contracts in Entity's Own Equity ("ASC 815- 40") and deemed to have a fair value of zero at the effective date.

Under the terms of the 2024 ASR Agreement, the ultimate number of shares of Common Stock that the Company will repurchase, will be based on the average of the daily volume-weighted average prices of the Common Stock during the term of the 2024 ASR Agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the 2024 ASR Agreement.

At final settlement, Citibank may be required to deliver additional shares of Common Stock to the Company, or, under certain circumstances, the Company may be required to make a cash payment or deliver shares of Common Stock, at its election, to Citibank.

The final settlement of the 2024 ASR Agreement is expected to be completed on July 18, 2024, subject to acceleration at Citibank’s discretion, which could be completed as early as June 17, 2024.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

Under the Company’s two repurchase programs, shares may be purchased by the Company from time to time from the open market and through private transactions, or otherwise, as determined by the Company’s management as market conditions warrant.

Repurchases may be discontinued at any time by the management.

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

Shares repurchased Total consideration Weighted average purchase price per share

Three months ended September 30, 2023 975,774 $ 28,636 $ 29.35

Three months ended September 30, 2022 384,045 $ 11,521 $ 30.00

Nine months ended September 30, 2023 3,001,619 $ 93,483 $ 31.14

Nine months ended September 30, 2022 2,519,290 $ 68,521 $ 27.20

Three months ended March 31, 2024 3,976,818 $ 119,430 $ 30.03

Three months ended March 31, 2023 1,105,125 $ 35,834 $ 32.43

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 $ 544 on repurchase of common stock as a part of cost of such repurchases for the three months ended March 31, 2024.

Employee Benefit Plans

7 unchanged sentences

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

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

These funds are managed on a cash accumulation basis, inclusive of interest which is declared periodically.

The Company expects to earn a return of approximately 7.0 % per annum on the India Plan for the year ending on December 31, 2024.

4 unchanged sentences

Benefits paid ( 241 )

Effect of exchange rate changes ( 78 )

Plan assets as of September 30, 2023

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

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

Currency translation adjustments ( 40 )

Plan assets as of March 31, 2024 $ 17,154

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

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

2023 2022 2023 2022

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

Three months ended March 31,

Service cost $ 1,108 $ 956

8 unchanged sentences

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

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

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

2023 2022 2023 2022

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

Three months ended March 31,

Contribution to the 401(k) Plans $ 2,443 $ 2,386

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

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

2023 2022 2023 2022

Three months ended March 31,

Contributions to the defined social security contribution plans $ 6,749 $ 5,392

3 unchanged sentences

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.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

Supplemental balance sheet information:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Operating Lease

Operating lease right-of-use assets, net $ 56,817 $ 55,347

Operating lease ROU assets $ 66,799 $ 64,856

Operating lease liabilities - Current

$ 13,486 $ 12,780

Operating lease liabilities - Non-current

59,876 58,175

Total operating lease liabilities $ 73,362 $ 70,955

7 unchanged sentences

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

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

Three months ended March 31,

Lease cost 2024 2023

Finance lease:

2023 2022 2023 2022

Amortization of right-of-use assets $ 50 $ 28 $ 127 $ 116

Depreciation on underlying ROU assets $ 67 $ 38

Interest on lease liabilities 36 20

75 42 190 158

Operating lease (a)

4,839 5,360 15,171 17,365

Operating lease (1)

Variable lease costs 984 1,007

Total lease cost $ 6,437 $ 5,948

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

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

Nine months ended September 30,

Three months ended March 31,

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

2 unchanged sentences

Financing cash outflows for finance leases $ 60 $ 43

Right-of-use assets obtained in exchange for new operating lease liabilities $ 13,477 $ 3,519

Right-of-use assets obtained in exchange for new finance lease liabilities $ 285 $ 218

ROU assets obtained in exchange for new operating lease liabilities $ 6,309 $ 1,213

ROU assets obtained in exchange for new finance lease liabilities $ 287 $ 99

Weighted average remaining lease term (in years)

4 unchanged sentences

Operating lease 7.8 % 7.0 %

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

The Company modified certain of its operating leases, resulting in a net decrease of its lease liabilities by $ 1,876 and a net increase of its lease liabilities by $ 209 , during the nine months ended September 30, 2023 and 2022, respectively, with a corresponding adjustment to ROU assets.

As of September 30, 2023 and December 31, 2022, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.

Maturities of lease liabilities as of September 30, 2023 were as follows:

The Company modified certain of its operating leases, resulting in an increase of its lease liabilities by $ 3,228 during the three months ended March 31, 2024 and a decrease of its lease liabilities by $ 3,094 during the three months ended March 31, 2023, with a corresponding adjustment to ROU assets.

As of March 31, 2024 and December 31, 2023, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.

Maturities of lease liabilities as of March 31, 2024 were as follows:

Operating Leases Finance Leases

2023 (October 1 - December 31) $ 4,632 $ 72

2024 (April 1 - December 31) $ 14,029 $ 287

2025 18,485 349

6 unchanged sentences

Present value of lease liabilities $ 73,362 $ 1,029

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

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

11 unchanged sentences

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

The effective tax rate increased from 24.2 % during the three months ended September 30, 2022 to 24.4 % during the three months ended September 30, 2023.

The Company recorded income tax expense of $ 14,161 and $ 12,447 for the three months ended September 30, 2023 and 2022, respectively.

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

The effective tax rate decreased from 23.9 % during the nine months ended September 30, 2022 to 20.8 % during the nine months ended September 30, 2023.

The Company recorded income tax expense of $ 37,773 and $ 34,774 for the nine months ended September 30, 2023 and 2022, respectively.

The increase in income tax expense was primarily as a result of higher profit during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, and an increase in

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

non-deductible expenses, partially offset by higher excess tax benefits related to stock-based compensation, and higher tax credits during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

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

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

Deferred income taxes recognized in AOCI were as follows:

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

2023 2022 2023 2022

The effective tax rate increased from 13.6 % during the three months ended March 31, 2023 to 22.0 % during the three months ended March 31, 2024.

The Company recorded income tax expense of $ 13,753 and $ 8,058 for the three months ended March 31, 2024 and 2023, respectively.

The increase in income tax expense was primarily as a result of higher profit during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and lower excess tax benefits related to stock-based compensation during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

During the three months ended March 31, 2024, one of the Company’s subsidiaries in India repatriated $ 18,255 (net of $ 996 withholding taxes) to the United States.

Deferred income taxes recognized in OCI were as follows:

Three months ended March 31,

Deferred taxes benefit / (expense) recognized on:

2 unchanged sentences

Reclassification adjustment for retirement benefits ( 1 ) ( 19 )

Foreign currency translation adjustments 1,602 7,919 466 8,898

Currency translation adjustments 519 ( 1,138 )

Total $ 328 $ ( 2,991 )

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

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 unaudited consolidated financial statements for further details.

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

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

2023 2022 2023 2022

Three months ended March 31,

Cost of revenues $ 3,949 $ 3,566

4 unchanged sentences

$ 5,358 $ 9,830

(1) Includes $ 462 and ($ 92 ) during the three months ended September 30, 2023 and 2022, respectively, and $ 13,172 and $ 3,532 during the nine months ended September 30, 2023 and 2022, respectively, related to discrete benefits recognized in income tax expense in accordance with ASU No.

(1) Includes $ 7,523 and $ 12,520 during the three months ended March 31, 2024 and 2023, respectively, related to discrete benefits recognized in income tax expense in accordance with ASU No.

2016-09, Compensation - Stock Compensation.

As of September 30, 2023 and December 31, 2022, the Company had 3,284,270 and 6,623,775 shares, respectively, available for grant under the 2018 Omnibus Incentive Plan.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

As of March 31, 2024 and December 31, 2023, the Company had 537,304 and 3,249,875 shares, respectively, available for grant under the 2018 Omnibus Incentive Plan.

Stock Options

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

Number of Stock

Options Weighted Average

Price Aggregate

Value Weighted Average

Outstanding as of December 31, 2022 15,465 $ 5.52 $ 439 1.0

Granted 1,790,695 30.14 — 9.7

Exercised ( 15,465 ) 5.52 384 —

Forfeited — — — —

Outstanding as of September 30, 2023 1,790,695 $ 30.14 $ — 9.7

Vested and exercisable as of September 30, 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 three and nine months ended September 30, 2023, have a contractual period of ten years and vest ratably over four years .

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

Nine months ended September 30, 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 September 30, 2023, unrecognized compensation cost of $ 20,070 is expected to be expensed over a weighted average period of 3.8 years.

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

During the three months ended March 31, 2024 and 2023, there was no stock option activity under the Company’s stock-based compensation plans.

The number of stock options that were unvested as of each of March 31, 2024 and December 31, 2023 were 1,790,695 units.

The number of stock options that were vested and exercisable as of each of March 31, 2024 and December 31, 2023 were nil units.

As of March 31, 2024, unrecognized compensation cost of $ 17,378 is expected to be expensed over a weighted average period of 3.3 years.

Share Matching Program

3 unchanged sentences

Restricted Stock Units (SMP)

Number Weighted Average Fair Value

Number Weighted Average

Outstanding as of December 31, 2023 217,230 $ 24.95

Vested ( 72,385 ) 24.95

Forfeited — —

Outstanding as of September 30, 2023 217,230 $ 24.95

Outstanding as of March 31, 2024* 144,845 $ 24.95

* As of March 31, 2024 and December 31, 2023 restricted stock units vested for which the underlying common stock is yet to be issued are 72,385 and nil , respectively.

As of March 31, 2024, unrecognized compensation cost of $ 1,805 is expected to be expensed over a weighted average period of 1.0 year.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

As of September 30, 2023, unrecognized compensation cost of $ 2,710 is expected to be expensed over a weighted average period of 1.5 years.

Restricted Stock Units

6 unchanged sentences

Forfeited ( 30,585 ) 28.10

Outstanding as of September 30, 2023* 3,697,465 $ 24.89

* As of September 30, 2023 and December 31, 2022 restricted stock units vested for which the underlying common stock is yet to be issued are 652,640 and 872,450 respectively.

As of September 30, 2023, unrecognized compensation cost of $ 66,970 is expected to be expensed over a weighted average period of 2.5 years.

Outstanding as of March 31, 2024* 3,855,981 $ 27.86

* As of March 31, 2024 and December 31, 2023 restricted stock units vested for which the underlying common stock is yet to be issued are 326,590 and 324,125 , respectively.

As of March 31, 2024, unrecognized compensation cost of $ 91,761 is expected to be expensed over a weighted average period of 3.0 years.

Performance-Based Stock Awards

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

During the nine months ended September 30, 2023, the Company granted 40 % of each award recipient’s equity grants in the form of PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for a three-year period (“PU”).

During the three months ended March 31, 2024, the Company granted 40 % of each award recipient’s equity grants in the form of PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for a three-year period (“PU”).

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

7 unchanged sentences

Forfeited ( 1,985 ) 33.42 ( 2,965 ) 43.26

Outstanding as of September 30, 2023 439,955 $ 29.17 1,135,430 $ 31.99

As of September 30, 2023, unrecognized compensation cost of $ 29,509 is expected to be expensed over a weighted average period of 1.9 years.

Outstanding as of March 31, 2024 780,550 $ 29.71 1,170,177 $ 40.53

As of March 31, 2024, unrecognized compensation cost of $ 55,900 is expected to be expensed over a weighted average period of 2.4 years.

Employee Stock Purchase Plan

2 unchanged sentences

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

The Company has reserved 4,000,000 shares of common stock for issuance under the 2022 ESPP.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

March 31, 2024

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

$ 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 .

The fourth offering period under the 2022 ESPP commenced on January 1, 2024 with a term of six months .

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

1 unchanged sentence

Shares available for issuance as of December 31, 2023 3,831,325

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 September 30, 2023 3,831,325

Contributions received for the third offering period up to September 30, 2023 $ 1,112

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:

Second offering period of

January 1, 2023 to June 30, 2023 Third offering period of

July 1, 2023 to December 31, 2023

Dividend yield — —

Expected life (years) 0.5 0.5

Risk free interest rate for expected life 4.7 % 5.4 %

Volatility for expected life 38.9 % 25.5 %

Discount for illiquidity 10.3 % 8.9 %

Issuance of common stock related to the third offering period 71,645 $ 1,948

Shares available for issuance as of March 31, 2024 3,759,680

Contributions received for the fourth offering period up to March 31, 2024 $ 1,550

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 September 30, 2023.

During the three months ended September 30, 2023 and 2022, the Company recognized revenues, net of $ 354 and $ 814 , respectively, related to this service contract.

During the nine months ended September 30, 2023 and 2022, the Company recognized revenues, net of $ 1,684 and $ 1,388 , respectively, related to this service contract.

The Company had outstanding accounts receivable, net of $ 240 and $ 856 , related to this service contract as of September 30, 2023 and December 31, 2022, respectively.

In April 2022, the Company entered into a service contract for providing analytics services to The Vanguard Group Inc., which reported that it beneficially owns more than 10% of the Company’s common stock as of December 31, 2023.

During the three months ended March 31, 2024 and 2023, the Company recognized revenues, net of $ 166 and $ 951 , respectively, related to this service contract.

The Company had outstanding accounts receivable, net of $ nil and $ 209 , related to this service contract as of March 31, 2024 and December 31, 2023, respectively.

In February 2024, the Company entered into a service contract for providing analytics services to Corridor Platforms, Inc., which is an equity affiliate of the Company.

During the three months ended March 31, 2024, the Company recognized revenues, net of $ 151 related to this service contract.

The Company had outstanding accounts receivable, net of $ 151 related to this service contract as of March 31, 2024.

Commitments and Contingencies

Capital Commitments

As of September 30, 2023, the Company had committed to spend approximately $ 9,400 under agreements to purchase property and equipment.

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

As of March 31, 2024, the Company had committed to spend approximately $ 9,000 under agreements to purchase property and equipment.

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

in growth-stage technology companies.

During the three months ended September 30, 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 .

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

The Company is committed under the Partnership to make further investments up to an amount of $ 3,400 .

Other Commitments

7 unchanged sentences

Contingencies

The transfer pricing regulations in the countries in which the Company operates require that controlled intercompany transactions be at arm’s-length.

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.

The tax authorities have jurisdiction to

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2024

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

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 September 30, 2023 and December 31, 2022 is $ 36,682 and $ 37,088 , respectively.

The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 7,242 and $ 7,532 , as of September 30, 2023 and December 31, 2022, respectively.

The aggregate amount demanded by Indian tax authorities (net of advance payments) as of March 31, 2024 and December 31, 2023 is $ 36,109 and $ 36,694 , respectively.

The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 7,213 and $ 7,227 , as of March 31, 2024 and December 31, 2023, 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 $ 5,504 and $ 5,526 , as of September 30, 2023 and December 31, 2022, respectively.

The GST authorities rejected the Company’s refunds claims in the amounts of $ 4,203 and $ 3,866 as of September 30, 2023 and December 31, 2022, respectively.

Pursuant to reviewing the Company’s annual VAT filings, the Indian tax authorities raised aggregate VAT demands for tax years 2015 and 2017, in the amounts of $ 5,481 and $ 5,493 , as of March 31, 2024 and December 31, 2023, respectively.

The Company has provided bank guarantees against these demands in the amounts of $ 4,559 and $ 4,570 , as of March 31, 2024 and December 31, 2023, respectively.

The GST authorities rejected the Company’s refunds claims in the amounts of $ 4,737 and $ 4,748 as of March 31, 2024 and December 31, 2023, respectively.

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

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

Accordingly, no provision was recognized as of March 31, 2024 and December 31, 2023, respectively.

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

3 unchanged sentences

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

In August 2019 and September 2020, the Indian Parliament passed various consolidating labor codes, including the Code on Social Security, 2020 (the “Indian Social Security Code”) which aims to rationalize labor laws relating to employee benefits during employment and post-employment benefits.

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2023

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

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.

6 unchanged sentences

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

Subsequent Event

In April 2024, the Company initiated a restructuring plan to align its workforce with market opportunities, business strategies and evolving customer needs.

As part of this plan, the Company expects a reduction in its workforce impacting less than 2 % of its global workforce and to record employee severance and related charges.

The Company expects the plan to be substantially completed by the end of the second quarter ending June 30, 2024.

The Company’s management does not believe that the restructuring plan will have a material adverse impact on its unaudited consolidated financial statements, results of operations or cash flows.

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

What changed 10-Q

Item 1. Financial Statements