ExlService Holdings, Inc. (“EXL,” “we,” “us,” “our” or the “Company”), incorporated in Delaware in 2002, is a leading data analytics and digital operations and solutions company that partnerscompany. We partner with clients using a data and AI-led approach to improvereinvent business models, drive better business outcomes and unlock growth. By bringing together deep domain expertisegrowth with robustspeed. EXL harnesses the power of data, powerful analytics, cloud, artificial intelligence (“AI”), and machine learning (“ML”), we create agile, scalable solutions and execute complexdeep 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. Focused on driving faster decision-making and transforming operating models, EXL was founded onin 1999 with the core values of innovation, collaboration, excellence, integrity and respect. HeadquarteredWe are headquartered in New York our team is over 37,400 strong, with more than 50 officesand have approximately 54,000 employees spanning six continents.

Our strategic business units, through which we provide digital operations and solutions, are described below:

EXL generated revenues from approximately 459560 clients and 460550 clients in 20212023 and 2020,2022, respectively (with annual revenue exceeding $50,000 per client). We have won 5863 and 4459 new clients during 20212023 and 2020,2022, respectively.

Our top three, five and ten clients generated 18.7%16.4%, 25.2%22.9% and 38.1%34.0% of our revenues, respectively, in 2021.2023. Our top three, five and ten clients generated 19.2%16.3%, 25.4%22.9% and 37.4%34.9% of our revenues, respectively, in 2020.2022. No client accounted for more than 10% of our total revenues in 20212023 or 2020.2022. Our revenue concentration with our top clients remains consistent year-over-year and we continue to develop relationships with new clients to diversify our client base. We believe that the loss of any of our ten largest clients could have a material adverse effect on our financial performance. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business-WeBusiness––We earn a substantial portion of our revenues from a limited number of clients.”

At EXL, our cultureorganizational ethos is defineddistinctly shaped by our five core values: innovation, collaboration, excellence, integrity and mutual respect. In line with thoseour core values, we considerrecognize our workforce’s pivotal role in driving our success. We prioritize the ongoing development and progression of our employees, because we believe it to be critical to the success of our business and view employee development and growth as key to oursustained performance and sustainability.longevity.

As of December 31, 2021, we had a headcount of2023, our team is approximately 37,400 employees. We had54,000 strong, with more than 50 offices spanning across six continents. This encompasses approximately 24,80034,900 employees basedlocated in India, 8,100 employees10,700 in the Philippines, 2,300 employees2,600 in the United States, 200 employees in the United Kingdom, 400 employees in Colombia, 400 employees in the Czech Republic, Bulgaria, Romania, and 1,200 employees

Our diversity, equity and inclusion philosophy isaims to create ana fair and inclusive work environment and leveragethat harnesses the power of diversity to enabledrive organizational success. We recognize that the organization to effectively capitalize onworld we live and work in is diverse and fueled by innovation. To thrive in this environment, we foster a culture that values diverse perspectives, embraces differences and promotes leadership opportunities in a way that reflects the differing views and contributions that each employee brings to the workplace.communities in which we operate.

We consider diversity, equity and inclusion to be a key factor in our recruiting and retention goals and overall business growth strategy. As of December 31, 2021, of the2023, our United States reporting workforce comprised approximately 45.4% were racially/ethnically diverse individuals. As of December 31, 2021,16.2% underrepresented minorities and our global workforce was approximately 41.0% female, with over 15,180 women employees globally.43% women.

EXL is committed to providing a supportive working environment and career opportunities for our employees. Our Diversity and Inclusion Council consists of a global, diverse mix of leaders and oversees our diversity, equity and inclusion program. We provide trainings to our employees on topics aimed at improving diversity, equity and inclusion, such as managing unconscious bias, and have formed employee resource groups for select employee communities that are aimed at supporting diverse groups and interests. For our female employees, EXL has several programs to promote career advancement for women, including leadership development for women at the mid- to senior- levels, a separate program to improve the retention and engagement of new mothers through employee friendly parental leave and similar policies, and our WE (Women at EXL) platform, which is designed to enable women at EXL advance their career and achieve professional growth through discussion, collaboration, networking, training, development and mentorship opportunities. We believe that maintaining diversity in our leadership is one of the most important gateways to build an inclusive business. In recent years, we have placed a special focus on women leadership development from mid to senior levels through actively developing women leaders. We also rigorously track attrition risks of women at the rank of Vice President and above and work at minimizing attrition through diversity, equity and inclusion initiatives and benefits.

We have an integrated talent management framework that employs active collaboration between our recruitment, capability development and business human resource functions. We deploy innovative methods to recruit, train and retain

Employee Retention

EXL finds meaningful ways to help the communities in which we operate. Our community activities focus on passing along the skills that our employees use in our operations to members of the communities in which we operate to help transform lives. On our own, with outside partners and in partnership with our clients, we support market-relevant technical and life skill development and education initiatives, disaster relief efforts and global health initiatives. These programs align with the expectations clients have of service providers and benefit our other stakeholders. In 2021,2023, we continued many of these activities virtually.in hybrid and virtual formats. Examples of our programs include:

We strive to continuously improve in the area ofour environmental, health and safety initiatives (“EHS”), with a focus on reducing our carbon footprint, energy conservation, waste minimization, green infrastructure and operations. Our EHS team tracks and assesses our progress with respect to key performance indicators for energy, greenhouse gas emissions and water and waste generation targets annually. We have also established Company-wide and worksite-specific workplace safety objectives that are integrated into our EHS Management System. We believe that these measures will also help us in sustainable development efforts. Where practical, we seek to integrate EHS with our business activities, focusing on conducting our activities in an environmentally responsible manner and ensuring the health and safety of the Company’sour employees, contractors, customers, visitors and the communities where the Company operates.in which we operate. In addition, we seek to maintain a responsible supply chain by stating our expectations for all of our vendors in our Supplier Standards of Conduct

Our operations are subject to rules, regulations and statutes in the countries where we have operations and where we deliver services as a result of the diverse and complex nature of our service offerings. More often, however, our clients contractually require that we comply with certain rules and regulations applicable to their specific industries.us in delivering our services to them.

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically through the EDGAR System. You may access the information filed by us with the SEC by visiting its website.

Our corporate headquarters and all of our operations centers are leased under long-term leases with varying expiration dates, except for an operations center in Pune, India with an area of 86,361 sq. ft. and containing approximately 1,670 agent workstations, which we own. Substantially all of our owned and leased property is used to service all of our reporting segments.

We believe that our current facilities are adequate to support our existing operations.operations, however we continue to optimize our existing network of operations centers to service our client, drive efficiencies and adapting the hybrid working model. We also believe that we will be able to obtain suitable additional facilities on commercially reasonable terms on an “as needed basis.”

None.

This graph will not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This graph will not be deemed to be incorporated by reference into any prior or subsequent filing under the Securities Act, or the Exchange Act.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Annual Report on Form 10-K, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. Many of the following risks, uncertainties and other factors identified below have been, and will be, amplified by COVID-19. These factors include but are not limited to:

Our global delivery network, which includes highly trained industry and process specialists across the United States, the United Kingdom, Latin America, South Africa, Europe and Asia (primarily India and the Philippines), is a key asset. We have operations centers in India, the United States, the Philippines, South Africa, Colombia, Bulgaria, Romania, the United Kingdom, the Philippines, Bulgaria, Colombia, South Africa, RomaniaCzech Republic, Mexico and the Czech Republic.

For the year ended December 31, 2021,fiscal 2023, we generated revenues of $1,122.3$1,630.7 million compared to revenues of $958.4$1,412.0 million for the year ended December 31, 2020,fiscal 2022, an increase of $163.9$218.7 million, or 17.1%15.5%.

We serve clients mainly in the United States and the United Kingdom, with these two regions generating 85.9%84.1% and 9.4%10.9%, respectively, of our total revenues for the year ended December 31, 2021fiscal 2023 and 85.0%85.9% and 9.3%9.5%, respectively, of our revenues for the year ended December 31, 2020.fiscal 2022.

For the years ended December 31, 2021fiscal 2023 and 2020,2022, our total revenues from our top ten clients accounted for 38.1%34.0% and 37.4%34.9% of our total revenues, respectively. Our revenue concentration with our top clients remains largely consistent year-over-year andAlthough we continue to develop relationships with new clients to diversify our client base. Webase, we believe that the loss of any of our top ten clients could have a material adverse effect on our financial performance.

We provide data analytics and digital operations and solutions to our clients. We market our services to our existing and prospective clients through our sales and client management teams, which are aligned by key industry verticals and cross-industry domains such as finance and accounting. Our sales and client management teams operate primarily from the United States, Europe and Australia.

We provide our services under contracts with our clients, which typically have terms of three or more years, with some being rolling contracts with no end dates. Typically, our clients can terminate these contracts with or without cause and with short notice periods. These contracts provide us with a relatively predictable revenue base for a substantial portion of our digital operations and solutions business. However, weour clients can typically terminate these contracts with or without cause and with short notice periods. We have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.

We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models. Outcome-based pricing arrangements are examples of non-linear pricing models where clients link revenues from platforms and solutions and the services we provide to usage or savings rather than the efforts deployed to provide these services. We continue to observe a shift in the industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models. We believe this trend will continue and we use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a full-time-equivalent pricing model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins.

We have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs.digital operations and solutions needs to seek more favorable contract terms and diversification of the risk of concentration on a few vendors. We believe that the trend toward multi-vendor relationships will continue. A multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor, which can result in significantly reduced gross margins from the provision of services to such client for each vendor. To the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors, our gross margins and revenues

We anticipate that revenues from our analytics services will grow as we expand our service offerings and client base, both organically and through acquisitions.

Our cost of revenues primarily consists of:

The most significant components of our cost of revenues are salaries and benefits (including stock-based compensation), retirement benefits, recruitment, training, transport, meals, rewards and recognition and employee health and life insurance. Salary levels, employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues. We make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements. Although we generally have been able to reallocate our employees as client demand has fluctuated, a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees, which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount. A significant increase in the turnover rate among our employees, particularly among the highly skilled workforce needed to execute certain services, would increase our recruiting and training costs and decrease our operating efficiency, productivity and profit margins. In addition, cost of revenues also includes non-cash amortization of stockstock-based compensation expense relatingrelated to the grant of our issuance of equity awards to employees directly involved in providing services to our clients.

We expect our cost of revenues to continue to increase as we continue to add professionals in our operatingoperations centers globally to service additional business and as wages continue to increase globally. In particular, we expect recruitment and training costs to continue to increase as we continue to addhire additional staff to service new clients and providetrain existing staff to provide them with additionalevolving skill sets. There is significant competition for professionals with skills necessary to perform the services we offer to our clients. As our existing competitors continue to grow, and as new competitors enter the market, we expect competition for skilled professionals in each of these areas to continue to increase, with corresponding increases in our cost of revenues to reflect increased compensation levels for such professionals. We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our remote workhybrid working model, invest in information technology solutions, including adaption to evolving modes of seeking such solutions through cloud-based hosting arrangements and security measures to

Our General and Administrative expenses (“G&A”) comprise of expenses relating to salaries and benefits (including stock basedstock-based compensation), retirement benefits as well as costs related to recruitment, training and retention of senior management and other support personnel in enabling functions, telecommunications, utilities, travel and other miscellaneous administrative costs. G&A expenses also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting, immigration and other advisors), litigation claims, cost of technology solutions sought through evolving modes of cloud-based hosting arrangements, investment in product development, digital technology, advanced automation and robotics, cloud, AI and MI,ML, bad debt allowance and stockstock-based compensation expenses related to grant of our issuance of

Selling and marketing expenses primarily consist of salaries and benefits (including stock basedstock-based compensation), retirement benefits and other compensation expenses of sales and marketing and client management personnel, sales commission, travel and brand building, client events and conferences. We expect that sales and marketing expenses will continue to increase as we invest in our sales and client management functions to better serve our clients and in our branding.

Depreciation and amortization pertains to depreciation of our tangible assets,property and equipment, including network equipment, cabling, computers, office furniture and equipment, motor vehicles and leasehold improvements and amortization of intangible assets.assets acquired in business combinations. As part of our ongoing evaluation of our business needs, we add new facilities and expandcontinually optimize our existing operations centers and expect depreciation to decrease on assets related to operations centers, such as office furniture and equipment and leasehold improvements. As our business continues to expand we expect that depreciation expense will increase, reflecting additional investments in digital technologies and equipment, such asincluding laptops, desktop computers, servers and other infrastructure. The propertyinfrastructure, and increased reliance on hybrid working model, we expect increases in depreciation on assets-related to such investments. Property and equipment, which are abandoned,if evaluated as being used differently than as originally intended are assessed for revision of their useful life, thereby revising thetheir future depreciation to reflect the actual use of such property and equipment over the remaining shortened life. We expect lower depreciation on assets related to operating centers closed as a result of optimization of office space and increased reliance on remote work model, due to the impact of COVID-19. We expect amortization of intangible assets to increase further as we pursue strategic relationships and acquisitions.

We report our financial results in U.S. dollars.

Our revenues are primarily denominated in the U.S. dollar. However,dollar, however, a significant portion of our total revenues are earned in the U.K. pound sterling (8.6%representing 10.1% and 8.3%, respectively, for the years ended December 31, 20218.6% of our total revenues in fiscal 2023 and 2020), while2022, respectively. We also incur a significant portion of our expenses are incurredin the Indian rupee, the Philippine peso and paid in Indian rupees (29.4%the U.K. pound sterling, representing 28.5%, 8.2% and 27.2%3.1%, respectively, of our total costs for the years ended December 31, 2021expenses in fiscal 2023, compared to 29.1%, 8.2% and 2020) and the Philippine peso (9.5% and 11.5%3.0%, respectively, of our total costs for the years ended December 31, 2021 and 2020).expenses in fiscal 2022. The exchange rates among the Indian rupee, the Philippine peso, the U.K. pound sterling and the U.S. dollar have changed substantially in recent years and may fluctuate substantially in the future as well. The results of our operations could be substantially impacted as the Indian rupee, the Philippine peso and the U.K. pound sterling appreciate or depreciate against the U.S. dollar. See Part I, Item 1A, “Risk Factors” under “Risks Related to the International Nature of Our Business––Currency exchange rate fluctuations in the various currencies in which we do business, or the failure of our hedging strategies to mitigate such fluctuations, could have a material adverse effect on our results of operations,” as well as Note 2 - Summary of Significant Accounting Policies and Note 1617 - Derivatives and Hedge Accounting to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data” and Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk-Components of Market Risk-Foreign Currency Risk.”

Interest expense primarily consist of interest on our borrowings under our revolving credit facility and convertible senior notes, finance lease liabilitiesleases and notional interest implicit in the purchase of property and equipment.

Other income,income/(expense), net primarily consists of gain/(loss) on sale, mark to market, dividend income and dividendinterest income on our investments in mutual fundsshort-term and money market funds, and interest on time deposits classified under “Cash andlong-term investments, cash equivalents,” “Short-term investments” and “Other assets,” as applicable on our consolidated balance sheets.applicable. Other income,income/(expense), net also consists of changes in fair value of earn-outcontingent consideration related to business combinations, interest on refunds received from income tax authorities in India on completion of tax assessments, profit or loss on disposal of long-lived assets and components of net periodic benefit cost such as interest cost, expected return on plan assets and amortization of actuarial gain or loss and profit or loss on disposal of long-lived assets.loss.

We are subject to income taxes in the United States and other foreign jurisdictions.countries we operate in. Our future tax expense and cash tax liability in the futureliabilities could be adversely affected by various factors, including, but not limited to,any new unfavorable tax legislative and other changes in tax laws, regulations, accounting principles or interpretationssuch countries. We continuously monitor such changes to assess and quantify the potential adverse outcome of tax examinations. Changes in the valuation of deferred tax assets and liabilities, which may result from a decline in our profitability or changes in tax rates or legislation, could have a material adverse effectimpacts on our tax expense.consolidated financial statements.

During the year 2018, we made an election to change the tax status of most of our controlled foreign corporations (“CFC”) to disregarded entities for U.S. income tax purposes. As a result, we no longer have undistributed earnings in connection with these CFCs. The Transition Tax resulted in previously taxed income (“PTI”) which may be subject to withholding taxes and currency gains or losses upon repatriation. We periodically evaluate opportunities to distribute PTIcash among our group entities to fund our operations in the United States and other geographies,countries, and as and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions. These distributions do not constitute a change in our permanent reinvestment assertion.

The discussion and analysis of our financial condition and results of operations are based upon the financial statements included in this Annual Report on Form 10-K, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). A summary of our significant accounting policies is included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements. statements under Part II, Item 8, “Financial Statements and Supplementary Data.”

We consider the policies discussed below to be critical to an understanding of our consolidated financial statements, as their application places the most significant demands on management’s judgment regarding matters that are inherently uncertain at the time an estimate is made.

These policies include revenue recognition, allowance for expected credit losses, business combinations, goodwill, intangibles and long-lived assets, stock-based compensation, derivative instrumentsemployee benefits, leases and hedging activity and borrowings. income taxes.

The significant estimates and assumptions that affect the consolidated financial statements include, but are not limited to, estimates of the fair value of thestock-based awards, identifiable intangible assets and contingent consideration, purchase price allocation, allowance for expectedassumptions related to credit losses,risk of customers, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements, estimated costs to complete fixed price contracts, recoverability of dues from statutory authorities, assets and obligations related to employee benefit plans, determination of incremental borrowing for measuring lease liabilities, deferred tax assets and liabilities, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, assumptions related to lease liabilities, ROU assets, lease cost, income taxes and assets, obligations related to employee benefit plans,purchase price allocation, revenue projections and discount rate applied within the discounted cash flow model for business acquisitions.

These accounting policies, estimates and the associated risks are set out below. Future events may not develop exactly as forecasted and estimates routinely require adjustment.

Revenue is recognized when services are provided to our clients,customers, in an amount that reflects the consideration which we expect to be entitled to in exchange for the services provided. We recognize revenue when we satisfy a performance obligation by providing services to a customer.

Revenue is measured based on consideration specified in a contract with a customer and excludes value added tax, business tax, any applicable discounts and amounts collected on behalf of third parties. We recognize revenue when we satisfyReimbursements of out-of-pocket expenses are included as a performance obligation by providing services to a customer.

We sometimes enter into contracts with our clientscustomers which include promises to transfer multiple products and services to the client.customer. Determining whether products and services are considered as distinct performance obligations that should be accounted for separately rather than as one performance obligation may require significant judgment. The transaction price is allocated to performance obligations on relative standalone selling price basis.

Judgment is also required to determine the standalone selling price for each distinct performance obligation. In instances where the standalone selling price is not directly observable, it is determined using information that may include market conditions and other observable inputs.

Variability in the transaction price arises primarily due to service level agreements, volume discounts entailing variability in revenue earned, and volume discounts.contracts under our reimbursement optimization services whereby variability in revenue is attributable to the amount we enable our customers to recover.

We consider our historical experience, including trends with similar transactions and expectations regarding the contract in estimating the amount of variable consideration that should be recognized during a period.

We believe that the expected value method is most appropriate for determining the variable consideration since we have a large number of contracts with similar nature of transactions/services.

Unbilled receivables represent revenues recognized for services rendered between the last billing date and the balance sheet date. Unbilled receivables also include revenues recognized from reimbursement optimization services where we identify an overpayment claim. In such contracts, our consideration is contingent upon and collectable only when the actual collections are made by our clients.customers. Based on guidance on “variable consideration” in ASC Topic 606, we use our historical experience and projections to determine the expected recoveries from our clientscustomers and recognize revenue and receivables based upon such expected recoveries. Accordingly, the amounts for which services have been performed and for which invoices have not been issued to customers on the balance sheet date, (i.e. unbilled receivables) are presented under accounts receivable.

We record accounts receivable net of allowances for expected credit losses. Allowances for credit losses are established through the evaluation of aging of accounts receivables, prior collection experience, current market conditions, forecasts about future economic conditions, clients’customers’ financial condition and the amount of accounts receivable in dispute to estimate the collectability of these accounts receivable. Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased in a business combination. We undertake studies to determine the fair values of assets and liabilities acquired and allocate purchase consideration to assets and liabilities, including property and equipment, goodwill and other identifiable intangibles. Goodwill is not amortized but is tested for impairment at least on an annual basis, relying on a number of factors including operating results, business plans and estimated future cash flows of the reporting units to which it is assigned. We undertake studies to determine the fair values of assets and liabilities acquired and allocate purchase consideration to assets and liabilities, including property and equipment, goodwill and other identifiable intangibles. We examine the carrying value and fair value of the reporting unit that includes goodwill annually inas and when the fourth quarter, or more frequently, as circumstances warrant, to determine whether there are any impairment losses.

We test for goodwill impairment atperform an assessment of qualitative factors to determine whether the reporting unit level. We also assess any potential goodwill impairment for our reporting units immediately priorexistence of events or circumstances leads to any segment changes and reallocate goodwill on the basis of the new reporting units.

Determining the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term over which the stock awards will be outstanding before they are exercised and the expected volatility of our stock.

We also grant performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees. Generally, the grants provide that 50% of thewe grant PRSUs cliff vest at the end of a three-year period based on an aggregated revenue target (“PUs”) for a three-year period. The remaining 50% vestperiod, while grants based on a market conditionconditions (“MUs”) that isare contingent on EXL meeting or exceeding the total shareholder return relative to a group of peer companies specified under the program,our 2018 Omnibus Incentive Plan (the “2018 Plan”), and are measured over a three-year performance period. The award recipient may earn up to 200% of the PRSUs granted based on the actual achievements of both targets. However, the features of our equity incentive compensation program are subject to change by the Compensation Committee of our Board of Directors.

The fair value of each PU is determined based on the market price of one share of our common stock on the day prior to the date of grant. The grant date fair value for the MUs is determined using a Monte Carlo simulation model. The Monte Carlo simulation model simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. The Monte Carlo simulation model also involves the use of additional key assumptions, including dividend yield and risk-free interest rate. We periodically assess the reasonableness of our assumptions and update our estimates as required. If actual results differ significantly from our estimates, stock-based compensation expense and our results of operations could be materially affected.

We account for income tax using the asset and liability method. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized in respect of future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases and operating losses carried forward, if any. Deferred tax assets and liabilities are measured using the anticipated tax rates for the years in which such temporary differences are expected to be recovered or settled. We recognize the effect of a change in tax rates on deferred tax assets and liabilities during the period in which the new tax rate was enacted or the change in tax status was filed or approved. We release the tax effects from accumulated other comprehensive income/(loss) (“AOCI”) at the time of reclassification of cash flows hedges gains/ (losses) from AOCI to the consolidated statements of income. Deferred tax assets are recognized in full, subject to a valuation allowance that reduces the amount recognized to that which is more likely than not to be realized. In assessing the likelihood of realization, we consider all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. With respect to any entity that benefits from a corporate tax holiday, deferred tax assets or liabilities for existing temporary differences are recorded only to the extent such temporary differences are expected to reverse following the expiration of the tax holiday.

We also evaluate potential exposures related to tax contingencies or claims made by the tax authorities in various jurisdictions in order to determine whether a reserve may be required. A reserve is recorded if we believe that a loss is probablemore likely than not, and if the amount of such loss can be reasonably estimated. Such reserves are based on estimates and, consequently, are subject to changing facts and circumstances, including the progress of ongoing audits, changes in case law and the passage of new legislation. We believe that we have established adequate reserves to cover any currentpotential tax assessments.

We record contributions to defined contribution plans in our consolidated statements of income in the period in which services are rendered by the covered employees. Current service costs for defined benefit plans are recognized in the period to which they relate. The liability in respect of defined benefit plans is calculated annually by using the projected unit credit method and various actuarial assumptions including discount rates, mortality, expected return on assets, expected increase in the compensation rates and attrition rates. We evaluate these critical assumptions at least annually. If actual results differ significantly from our estimates, current service costs for defined benefit plans and our results of operations could be materially impacted.

We account for a lease at the inception of the contract. Our assessment is based on whether: (1) the contract involves the use of a distinct identified asset, (2) we obtain the right to substantially all the economic benefits from the use of the asset throughout the term of the contract, and (3) we have the right to direct the use of the asset. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. Operating leases are recorded in “Operating lease right-of-use assets,” “Current portion of operating lease liabilities” and “Operating lease liabilities, less current portion” in our consolidated balance sheets. Finance leases are recorded in “Property and equipment, net,” and the current and non-current portion of finance lease liabilities are presented within “Accrued expenses and other current liabilities” and “Other non-current liabilities,” respectively in our consolidated balance sheets.

Lease terms includes our assessment for the effects of options to extend or terminate the lease. We consider the extension option as part of our lease term for those lease arrangements where we are reasonably certain at commencement of the lease that we will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term.term reflecting single operating lease cost. We haveevaluate lease agreements withto determine lease and non-lease components, which are accounted for separately.

Loss contingencies are recorded as liabilities when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Significant judgment is required in the determination of probability and whether an exposure is reasonably estimable, both. Our judgments are subjective and based on the information available from the status of the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. As additional information becomes available, we reassess any potential liability related to any pending litigation and may revise our estimates. Such revisions in estimates of any potential liabilities could have a material impact on our results of operations, financial position and cash flows.