UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2017~~2020



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROMTO

COMMISSION FILE NUMBER 001-33089

EXLSERVICE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



~~DELAWARE~~Delaware		82-0572194
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

320 Park Avenue,	~~280 PARK AVENUE, 38 TH FLOOR,~~ ~~NEW YORK, NEW YORK~~29th Floor,	~~10017~~
New York,	New York	10022
(Address of principal executive offices)		(Zip code)

(212) 277-7100

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:	Trading symbol(s)	Name of Each Exchange on Which Registered:
Common Stock, par value $0.001 per share	EXLS	NASDAQ

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and

(2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12

months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated ~~filer,”~~filer”, “accelerated ~~filer,”~~filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

¨ ~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~

Emerging growth company

¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

As of October ~~24, 2017,~~27, 2020, there were ~~33,942,974~~33,809,550 shares of the registrant’s common stock outstanding, par value $0.001 per share.

Table of Contents

TABLE OF CONTENTS



		PAGE
ITEM
	Part I. Financial Information	3

1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of S eptember 30, 2020 (Unaudited) and December 31, 2019	3
	Consolidated Statements of Income (Unaudited) for the Three and Nine months ended September 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine months ended September 30, 2020 and 2019	5
	Consolidated Statements of Equity (Unaudited) for the Three and Nine months ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows (Unaudited) for the Nine months ended Septe m ber 30, 2020 and 2019	8
	Notes to Consolidated Financial Statements (Unaudited)	9

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

3.	Quantitative and Qualitative Disclosures About Market Risk	59

4.	Controls and Procedures	59

	Part II. Other Information	59

1.	Legal Proceedings	59

1A.	Risk Factors	59

2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

3.	Defaults Upon Senior Securities	61

4.	Mine Safety Disclosures	61

5.	Other Information	61

6.	Exhibits	62

Signatures		63

PAGE
ITEM

Part I. Financial Information
3

1.
FINANCIAL STATEMENTS

Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016
3

Consolidated Statements of Income (Unaudited) for the Three months and Nine months ended September 30, 2017 and 2016
4

Consolidated Statements of Comprehensive Income (Unaudited) for the Three months and Nine months ended September 30, 2017 and 2016
5

Consolidated Statements of Cash Flows (Unaudited) for the Nine months ended September 30, 2017 and 2016
6

Notes to Consolidated Financial Statements (Unaudited)
7

2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28

3.
Quantitative and Qualitative Disclosures About Market Risk
42

4.
Controls and Procedures
42

Part II. Other Information
42

1.
Legal Proceedings
42

1A.
Risk Factors
42

2.
Unregistered Sales of Equity Securities and Use of Proceeds
42

3.
Defaults Upon Senior Securities
43

4.
Mine Safety Disclosures
43

5.
Other Information
43

6.
Exhibits
43

Signatures
44

Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

~~(In thousands, except share and per share amounts)~~

As of
September 30, 2017 December 31, 2016
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 87,665
$ 213,155
Short-term investments 161,702
13,491
Restricted cash 1,913
3,846
Accounts receivable, net 133,862
113,067
Prepaid expenses 6,958
7,855
Advance income tax, net 8,821
6,242
Other current assets 22,333
21,168
Total current assets 423,254
378,824
Property, plant and equipment, net 63,729
49,029
Restricted cash 3,710
3,393
Deferred taxes, net 16,118
14,799
Intangible assets, net 43,568
53,770
Goodwill 187,953
186,770
Other assets 30,672
19,943
Total assets $ 769,004
$ 706,528
Liabilities and Equity
Current liabilities:
Accounts payable $ 3,834
$ 3,288
Short-term borrowings —
10,000
Deferred revenue 8,662
16,615
Accrued employee cost 49,385
50,832
Accrued expenses and other current liabilities 49,040
43,264
Current portion of capital lease obligations 168
232
Total current liabilities 111,089
124,231
Long term borrowings 45,000
35,000
Capital lease obligations, less current portion 315
300
Non-current liabilities 16,234
14,819
Total liabilities 172,638
174,350
Commitments and contingencies (See Note 21)

Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued —
—
Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 36,525,692 shares issued and 33,804,962 shares outstanding as of September 30, 2017 and 35,699,819 shares issued and 33,628,109 shares outstanding as of December 31, 2016 37
36
Additional paid-in capital 311,691
284,646
Retained earnings 436,419
382,722
Accumulated other comprehensive loss (59,290 ) (75,057 )
Total including shares held in treasury 688,857
592,347
Less: 2,720,730 shares as of September 30, 2017 and 2,071,710 shares as of December 31, 2016, held in treasury, at cost (92,698 ) (60,362 )
Stockholders’ equity $ 596,159
$ 531,985
Non-controlling interest 207
193
Total equity $ 596,366
$ 532,178
Total liabilities and equity $ 769,004
$ 706,528

~~See accompanying notes to unaudited consolidated financial statements.~~

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

~~UNAUDITED CONSOLIDATED STATEMENTS OF INCOME~~

(In thousands, except share and per share amounts)

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

2017 2016 2017 2016
Revenues, net $ 192,345
    $ 171,200
$ 564,435
$ 508,714
Cost of revenues (exclusive of depreciation and amortization) 124,890
    111,767
370,458
332,172
Gross profit 67,455
59,433
193,977
176,542
Operating expenses:


General and administrative expenses 26,870
    21,854
75,809
63,620
Selling and marketing expenses 12,222
    11,623
38,711
37,875
Depreciation and amortization 9,708
    8,597
28,771
25,000
Total operating expenses 48,800
42,074
143,291
126,495
Income from operations 18,655
    17,359
50,686
50,047
Foreign exchange gain, net 2,801
    1,741
7,267
3,573
Interest expense (482 ) (295 ) (1,379 ) (1,023 )
Other income, net 2,922
    2,891
8,871
12,197
Income before income tax expense 23,896
21,696
65,445
64,794
Income tax expense 2,819
    5,646
7,202
18,549
Net income $ 21,077
$ 16,050
$ 58,243
$ 46,245
Earnings per share:
Basic $ 0.62
    $ 0.48
$ 1.72
$ 1.38
Diluted $ 0.60
$ 0.46
$ 1.66
$ 1.34
Weighted-average number of shares used in computing earnings per share:
Basic 33,838,374
    33,624,401
33,834,392
33,542,258
Diluted 35,043,987
    34,675,485
35,048,672
34,512,815


	As of
	September 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	206,423	$	119,165
Short-term investments	156,175		202,238
Restricted cash	7,312		5,453
Accounts receivable, net	154,983		171,864
Prepaid expenses	8,248		13,246
Advance income tax, net	1,138		4,698
Other current assets	30,784		24,594
Total current assets	565,063		541,258
Property and equipment, net	94,103		79,142
Operating lease right-of-use assets	95,873		86,396
Restricted cash	2,277		2,426
Deferred tax assets, net	13,230		11,855
Intangible assets, net	62,941		73,982
Goodwill	348,723		349,529
Other assets	34,280		36,016
Investment in equity affiliate	2,991		2,484
Total assets	$	1,219,481	$	1,183,088
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,213	$	6,564
Current portion of long-term borrowings	10,474		40,867
Deferred revenue	13,562		13,436
Accrued employee costs	57,402		68,885
Accrued expenses and other current liabilities	73,043		74,017
Current portion of operating lease liabilities	19,048		24,148
Income taxes payable, net	5,157		1,432
Total current liabilities	184,899		229,349
Long-term borrowings, less current portion	216,235		194,131
Operating lease liabilities, less current portion	89,412		74,709
Income taxes payable	1,790		1,790
Deferred tax liabilities, net	841		966
Other non-current liabilities	16,376		12,142
Total liabilities	509,553		513,087
Commitments and contingencies (Refer to Note 24)
Preferred stock, $0.001 par value; 15,000,000 shares authorized, NaN issued	0		0
ExlService Holdings, Inc. Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 38,840,890 shares issued and 33,953,536 shares outstanding as of September 30, 2020 and 38,480,654 shares issued and 34,185,241 shares outstanding as of December 31, 2019	39		39
Additional paid-in capital	413,135		391,240
Retained earnings	609,161		551,903
Accumulated other comprehensive loss	(85,217)		(84,892)
Total including shares held in treasury	937,118		858,290
Less: 4,887,354 shares as of September 30, 2020 and 4,295,413 shares as of December 31, 2019, held in treasury, at cost	(227,190)		(188,289)
Stockholders’ equity	709,928		670,001

Total equity	709,928		670,001
Total liabilities and stockholders’ equity	$	1,219,481	$	1,183,088

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

EXLSERVICE HOLDINGS, INC.

~~UNAUDITED~~ CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE~~ INCOME (UNAUDITED)

(In ~~thousands)~~thousands, except share and per share amounts)

Three months ended September 30, Nine months ended September 30,
2017
2016 2017 2016
Net income $ 21,077
$ 16,050
$ 58,243
$ 46,245
Other comprehensive income:

Unrealized (loss)/gain on effective cash flow hedges, net of taxes ($162), $1,067, $2,874 and $1,094, respectively (557 ) 2,540
5,900
3,066
Foreign currency translation adjustment (3,030 ) 1,716
10,813
(2,652 )
Retirement benefits, net of taxes nil, $4, nil and $24, respectively —
104
—
409
Reclassification adjustments

Realized gain on cash flow hedges, net of taxes ($129), ($205), ($476) and ($386), respectively⁽¹⁾
(294 ) (261 ) (1,081 ) (486 )
Retirement benefits, net of taxes $30, $1, $77 and $3, respectively⁽²⁾
42
22
135
64
Total other comprehensive income/(loss) $ (3,839 ) $ 4,121
$ 15,767
$ 401
Total comprehensive income $ 17,238
$ 20,171
$ 74,010
$ 46,646


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Revenues, net	$	241,018	$	251,392	$	709,481	$	734,474
Cost of revenues(1)	152,087		167,542		473,144		487,228
Gross profit(1)	88,931		83,850		236,337		247,246
Operating expenses:
General and administrative expenses	26,810		29,590		84,501		93,349
Selling and marketing expenses	15,290		18,302		42,797		53,996
Depreciation and amortization expense	12,425		13,047		37,280		39,466
Impairment and restructuring charges	0		489		0		7,296
Total operating expenses	54,525		61,428		164,578		194,107
Income from operations	34,406		22,422		71,759		53,139
Foreign exchange gain, net	716		1,009		3,452		3,471
Interest expense	(2,628)		(3,180)		(8,583)		(10,626)
Other income, net	2,485		4,563		9,239		13,088
Income before income tax expense and earnings from equity affiliates	34,979		24,814		75,867		59,072
Income tax expense	8,490		5,701		18,416		12,571
Income before earnings from equity affiliates	26,489		19,113		57,451		46,501
Loss from equity-method investment	71		69		193		198
Net income attributable to ExlService Holdings, Inc. stockholders	$	26,418	$	19,044	$	57,258	$	46,303
Earnings per share attributable to ExlService Holdings, Inc. stockholders:
Basic	$	0.77	$	0.55	$	1.66	$	1.35
Diluted	$	0.76	$	0.55	$	1.65	$	1.33
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:
Basic	34,327,477		34,322,449		34,404,798		34,382,787
Diluted	34,536,049		34,699,497		34,617,830		34,744,968


~~(1)~~	~~These are reclassified to net income and are included in the foreign exchange gain in the unaudited consolidated statements of income. See Note 13 to the unaudited consolidated financial statements.~~


~~(2)~~	These are reclassified to net income and are included in the computation of net periodic pension costs in the unaudited consolidated statements of income. See Note 16 to the unaudited consolidated financial statements.

(1) Exclusive of depreciation and amortization expense.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

EXLSERVICE HOLDINGS, INC.

~~UNAUDITED~~ CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

Nine months ended September 30,

2017 2016
Cash flows from operating activities:

Net income $ 58,243
$ 46,245
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 28,771
25,000
Stock-based compensation expense 16,771
14,743
Unrealized gain on short term investments (4,437 ) (4,955 )
Change in fair value of earn-out consideration —
(4,060 )
Unrealized foreign exchange loss/(gain) 446
(147 )
Deferred income tax (benefit)/expense (5,417 ) 4,424
Allowances for doubtful accounts 2,706
37
Others, net 12
(84 )
Change in operating assets and liabilities:

Restricted cash 1,757
(464 )
Accounts receivable (22,064 ) (16,559 )
Prepaid expenses and other current assets 5,194
(587 )
Accounts payable 371
(2,518 )
Deferred revenue (8,155 ) (1,485 )
Accrued employee costs (915 ) (3,812 )
Accrued expenses and other liabilities 267
5,688
Advance income tax, net (2,607 ) (4,748 )
Other assets 1,241
(676 )
Net cash provided by operating activities 72,184
56,042

Cash flows from investing activities:

Purchase of property, plant and equipment (26,759 ) (20,335 )
Business acquisition (net of cash acquired) (724 ) (9,427 )
Purchase of investments (197,897 ) (155,709 )
Proceeds from redemption of investments 54,238
59,229
Net cash used for investing activities (171,142 ) (126,242 )

Cash flows from financing activities:

Principal payments on capital lease obligations (133 ) (292 )
Repayments of borrowings —
(25,000 )
Acquisition of treasury stock (32,336 ) (15,169 )
Proceeds from exercise of stock options 4,275
6,226
Net cash used for financing activities (28,194 ) (34,235 )
Effect of exchange rate changes on cash and cash equivalents 1,662
(2,514 )
Net decrease in cash and cash equivalents (125,490 ) (106,949 )
Cash and cash equivalents, beginning of period 213,155
205,323
Cash and cash equivalents, end of period $ 87,665
$ 98,374


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Net income	$	26,418	$	19,044	$	57,258	$	46,303
Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges	12,165		(3,574)		5,040		5,631
Foreign currency translation gain/(loss)	11,327		(10,065)		524		(5,662)
Reclassification adjustments
Loss/(gain) on cash flow hedges(1)	435		(1,704)		633		(3,259)
Retirement benefits(2)	98		(40)		296		(119)
Income tax (expense)/benefit relating to above(3)	(4,968)		3,588		(6,818)		723
Total other comprehensive income/(loss)	$	19,057	$	(11,795)	$	(325)	$	(2,686)
Total comprehensive income	$	45,475	$	7,249	$	56,933	$	43,617

(1)These are reclassified to net income and are included either in cost of revenues or operating expenses, as applicable in the unaudited consolidated statements of income. Refer to Note 16 - 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 19 - Employee Benefit Plans to the unaudited consolidated financial statements.

(3)These are income tax (expense)/benefit recognized on cash flow hedges, retirement benefits and foreign currency translation gains/(losses). Refer to Note 21 - Income Taxes to the unaudited consolidated financial statements.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the three months ended September 30, 2020 and 2019

(In thousands, except share and per share amounts)


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

	Shares	Amount								Shares	Amount
Balance as of June 30, 2020	38,818,365	$	39	$	404,704	$	582,743	$	(104,274)	(4,497,779)	$	(202,284)	$	680,928
Stock issued against stock-based compensation plans	22,525	—		85		—		—		—	—		85
Stock-based compensation	—	—		8,346		—		—		—	—		8,346
Acquisition of treasury stock	—	—		—		—		—		(389,575)	(24,906)		(24,906)
Other comprehensive income	—	—		—		—		19,057		—	—		19,057
Net income	—	—		—		26,418		—		—	—		26,418
Balance as of September 30, 2020	38,840,890	$	39	$	413,135	$	609,161	$	(85,217)	(4,887,354)	$	(227,190)	$	709,928


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

	Shares	Amount								Shares	Amount
Balance as of June 30, 2019	38,295,083	$	38	$	378,633	$	511,503	$	(74,358)	(4,088,759)	$	(174,463)	$	641,353
Stock issued against stock-based compensation plans	27,271	—		—		—		—		—	—		0
Stock-based compensation	—	—		7,427		—		—		—	—		7,427
Acquisition of treasury stock	—	—		—		—		—		(125,744)	(8,346)		(8,346)

Other comprehensive loss	—	—		—		—		(11,795)		—	—		(11,795)
Net income	—	—		—		19,044		—		—	—		19,044
Balance as of September 30, 2019	38,322,354	$	38	$	386,060	$	530,547	$	(86,153)	(4,214,503)	$	(182,809)	$	647,683

Table of Contents

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the nine months ended September 30, 2020 and 2019

(In thousands, except share and per share amounts)


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

	Shares	Amount								Shares	Amount
Balance as of January 1, 2020	38,480,654	$	39	$	391,240	$	551,903	$	(84,892)	(4,295,413)	$	(188,289)	$	670,001
Stock issued against stock-based compensation plans	360,236	—		1,045		—		—		—	—		1,045
Stock-based compensation	—	—		20,850		—		—		—	—		20,850
Acquisition of treasury stock	—	—		—		—		—		(591,941)	(38,901)		(38,901)
Other comprehensive loss	—	—		—		—		(325)		—	—		(325)
Net income	—	—		—		57,258		—		—	—		57,258
Balance as of September 30, 2020	38,840,890	$	39	$	413,135	$	609,161	$	(85,217)	(4,887,354)	$	(227,190)	$	709,928


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

	Shares	Amount								Shares	Amount
Balance as of January 1, 2019	37,850,544	$	38	$	364,179	$	484,244	$	(83,467)	(3,628,068)	$	(146,925)	$	250	$	618,319
Stock issued against stock-based compensation plans	471,810	—		338		—		—		—	—		—		338
Stock-based compensation	—	—		21,538		—		—		—	—		—		21,538
Acquisition of treasury stock	—	—		—		—		—		(586,435)	(35,884)		—		(35,884)
Allocation of equity component related to issuance costs on convertible notes	—	—		(13)		—		—		—	—		—		(13)
Non-controlling interest	—	—		18		—		—		—	—		(250)		(232)
Other comprehensive loss	—	—		—		—		(2,686)		—	—		—		(2,686)
Net income	—	—		—		46,303		—		—	—		—		46,303
Balance as of September 30, 2019	38,322,354	$	38	$	386,060	$	530,547	$	(86,153)	(4,214,503)	$	(182,809)	$	0	$	647,683

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Nine months ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	57,258	$	46,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	37,249		39,633
Stock-based compensation expense	20,850		21,538
Amortization of operating lease right-of-use assets	20,484		20,544
Unrealized gain on short term investments	(4,807)		(7,443)
Unrealized foreign exchange (gain)/loss, net	(437)		19
Deferred income tax benefit	(1,572)		(6,859)
Allowance for expected credit losses	353		433
Loss from equity-method investment	193		198
Amortization of non-cash interest expense related to convertible senior notes	1,943		1,836
Impairment charges	0		3,167
Others, net	(935)		(148)
Change in operating assets and liabilities:
Accounts receivable	16,078		(16,475)
Prepaid expenses and other current assets	1,498		752
Advance income tax, net	7,001		6,212
Other assets	3,096		(1,307)
Accounts payable	(490)		(1,847)
Deferred revenue	295		3,247
Accrued employee costs	(11,854)		3,420
Accrued expenses and other liabilities	(109)		12,160
Operating lease liabilities	(19,780)		(19,428)
Net cash provided by operating activities	126,314		105,955

Cash flows from investing activities:
Purchases of property and equipment	(34,614)		(32,462)
Proceeds from sale of property and equipment	624		154
Investment in equity affiliate	(700)		0
Purchase of non-controlling interest	0		(241)
Purchase of investments	(57,965)		(117,934)
Proceeds from redemption of investments	103,718		129,143
Net cash provided by/(used for) investing activities	11,063		(21,340)

Cash flows from financing activities:
Principal payments of finance lease liabilities	(180)		(274)
Proceeds from borrowings	110,000		46,000
Repayments of borrowings	(120,393)		(87,763)
Payment of debt issuance costs	0		(117)
Acquisition of treasury stock	(38,901)		(35,884)
Proceeds from exercise of stock options	1,045		338
Net cash used for financing activities	(48,429)		(77,700)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	20		(1,761)
Net increase in cash, cash equivalents and restricted cash	88,968		5,154
Cash, cash equivalents and restricted cash at the beginning of the period	127,044		104,131
Cash, cash equivalents and restricted cash at the end of the period	$	216,012	$	109,285

See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

1. Organization

ExlService Holdings, Inc. (“ExlService Holdings”) is organized as a corporation under the laws of the state of Delaware. ExlService Holdings, together with its subsidiaries and affiliates (collectively, the “Company”), operates in the Business Process Management (“BPM”) industry providing operations management services and analytics services that ~~help businesses enhance growth~~helps its clients build and ~~profitability. Using~~grow sustainable businesses. By orchestrating its ~~proprietary platforms, methodologies~~domain expertise, data, analytics and ~~tools,~~digital technology, the Company looks deeper to ~~help its clients~~design and manage agile, customer-centric operating models to improve global operations, drive profitability, enhance customer satisfaction, increase data-driven insights, ~~increase customer satisfaction,~~ and manage risk and compliance. The Company’s clients are located principally in the United States of America (“U.S.”) and the ~~U.K.~~United Kingdom (“U.K”).

2. Summary of Significant Accounting Policies

(a) Basis of Preparation and Principles of Consolidation

The unaudited ~~interim~~ consolidated financial statements have been prepared in ~~accordance~~conformity with United States generally accepted accounting principles (“USU.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by USU.S. GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019.

The unaudited ~~interim~~ consolidated financial statements reflect all adjustments (of a normal and recurring nature) that management considers necessary for a fair presentation of such statements for the interim periods presented. The unaudited consolidated statements of income for the interim periods presented are not necessarily indicative of the results for the full year or for any subsequent period.

The accompanying unaudited consolidated financial statements include the financial statements of ExlService Holdings and all of its subsidiaries. ~~All intercompany~~The standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, ~~have been~~and gains and losses arising from intra-group transactions, are eliminated ~~in consolidation.~~while preparing those financial statements.

Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to the parent and it represents the minority partner’s interest in the operations of ExlService Colombia S.A.S. Non-controlling interest consists

Accounting policies of the ~~amount~~respective individual subsidiary and associate are aligned wherever necessary, so as to ensure consistency with the accounting policies that are adopted by the Company under U.S. GAAP.

The Company’s investments in equity affiliates are initially recorded at cost and any excess purchase consideration paid over proportionate share of ~~such interest~~the fair value of the net assets of the investee at the acquisition date ~~of obtaining control over the subsidiary, and the non-controlling interest's~~is recognized as goodwill. The proportionate share of ~~changes in equity since that date. The non-controlling interest in~~net income or loss of the ~~operations for all the periods presented were insignificant and are included under general and administrative expenses~~investee is recognized in the unaudited consolidated statements of income.

Effective January 1, 2020, the Company made certain operational and structural changes to more closely integrate the Company’s businesses and to simplify its organizational structure. Under the new structure, the Company reports its financial performance based on new segments described in Note 3 - Segment and Geographical Information to the unaudited consolidated financial statements. In conjunction with the new reporting structure, the Company has recast certain prior period amounts, wherever applicable, to conform to the way the Company internally manages and monitors segment performance. This change primarily impacted Note 3 - Segment and Geographical Information and Note 9 - Goodwill and Intangible Assets

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

to the unaudited consolidated financial statements, with no impact on the unaudited consolidated balance sheets, statements of income, comprehensive (loss)/income, equity and cash flows.

(b) Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with USU.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, allowance for ~~doubtful receivables,~~expected credit losses, expected recoverability from customers with contingent fee arrangements, recoverability of ~~service tax receivables,~~dues from statutory authorities, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, assumptions used to calculate stock-based compensation expense, assumptions used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost, depreciation and amortization periods, purchase price allocation, recoverability of ~~long-term~~long-lived assets including goodwill and intangibles, and ~~estimates~~estimated costs to complete fixed price contracts.

As of September 30, 2020, the extent to which the global Coronavirus Disease 2019 pandemic (“COVID-19”) will ultimately impact the Company's business depends on numerous dynamic factors, which the Company still cannot reliably predict. As a result, many of the Company's estimates and assumptions herein required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to COVID-19, the Company’s estimates may materially change in future periods. Any changes in estimates are adjusted prospectively in the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). ASU No. 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the Statement of Cash Flows. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.

The Company ~~adopted this ASU effective January 1, 2017. The following summarizes the effects~~determines if an arrangement is a lease at inception of the ~~adoption on~~contract. 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 the Company's unaudited consolidated ~~financial statements:~~balance sheets. Finance leases are recorded in "property and equipment", and 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 the Company's unaudited consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date for determining the present value of lease payments. Lease terms includes the effects of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately.

The Company accounts for lease-related concessions to mitigate the economic effects of COVID-19 on lessees in accordance with guidance in Topic 842, Leases, to determine, on a lease-by-lease basis, whether the concession provided by lessor should be accounted for as a lease modification.

The Company accounts for a modification as a separate contract when it grants an additional right of use not included in the original lease and the increase is commensurate with the standalone price for the additional right of use, adjusted for the circumstances of the particular contract. Modifications which are not accounted for as a separate contract are reassessed as of the effective date of the modification based on its modified terms and conditions and the facts and circumstances as of that date.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

~~Income taxes~~ - Upon adoption of this standard, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. The Company also recognizes excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. As a result, the Company recognized discrete adjustments to income tax expense for the three months ended September 30, 2017 in the amount of $3,488 and for the nine months ended September 30, 2017 in the amount of $7,169 related to excess tax benefits. No adjustment is recorded for any windfall benefits previously recorded in Additional Paid-In Capital.

~~Forfeitures~~ - Prior to adoption, share-based compensation expense was recognized on a straight line basis, net of estimated forfeitures, such that expense was recognized only for share-based awards that are expected to vest. A forfeiture rate was estimated annually and revised, if necessary, in subsequent periods if actual forfeitures differed from initial estimates. Upon adoption, the Company will no longer apply a forfeiture rate and instead will account for forfeitures as they occur. The Company has applied the modified retrospective adoption approach as ofOn January 1, ~~2017 and has recognized a cumulative-effect adjustment to reduce additional paid-in-capital of $5,999 and retained earnings of $4,546 (net of deferred tax effect of $1,453).~~

~~Statements of Cash Flows~~ - The Company historically accounted for excess tax benefits on the Statement of Cash Flows as a financing activity. Upon adoption of this standard, excess tax benefits are classified along with other income tax cash flows as an operating activity. The Company has elected to adopt this portion of the standard on a prospective basis beginning in 2017 and accordingly prior periods have not been adjusted.

~~Earnings Per Share~~ - The Company uses the treasury stock method to compute diluted earnings per share, unless the effect would be anti-dilutive. The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share.

~~(d) Recent Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers”. This standard update along with subsequently issued updates, clarifies the principles for recognizing revenue and develops a common revenue standard for United States generally accepted accounting principles (GAAP) and is effective for reporting periods beginning after December 15, 2017. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services ("performance obligations") are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services ("transaction price"). Adoption of the new rules could impact the timing of revenue recognition for certain contracts. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2018 using either one of two methods: (i) retrospectively to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at2019, the date of initial application, ~~and providing certain additional disclosures as defined per ASU 2014-09 (modified retrospective method).~~

The Company is evaluating the impact of the new standard. The ultimate impact on revenue resulting from the application of the new standard will be subject to assessments that are dependent on many variables, including, but not limited to, the terms of the contractual arrangements and the mix of business. Upon adoption, the Company expect that variable consideration when present in a revenue arrangements will need to be estimated based on its achievability and recognized over the contractual period as compared to recognizing such revenue as the services are performed. The Company also expects a change in the manner that it recognizes certain incremental and fulfillment costs from expensing them as incurred to deferring and recognizing them over the contractual period.

~~The Company intends to adopt the new standard, effective January 1, 2018,~~adopted Topic 842, Leases, using the modified retrospective method. The ~~Company's considerations include, but are~~modified retrospective method provides a method of recognizing those leases which had not ~~limited to, the comparability of its financial statements and the comparability within its industry from application~~expired as of the ~~new standard to its contractual arrangements.~~ date of adoption of January 1, 2019.

The ~~Company has established an implementation team to implement the standard update related to~~adoption resulted in the recognition of ~~revenue from contracts with customers~~ROU assets of $80,328 (net of deferred rent of $8,626) and ~~continues~~lease liabilities of $88,954 for operating leases as of January 1, 2019. The Company's accounting for finance leases remained substantially unchanged. The adoption had no impact on opening balance of retained earnings. Refer to ~~evaluate~~Note 20 - Leases to the ~~changes~~unaudited consolidated financial statements for details.

(d) Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (("Subtopic 715-20")): Changes to ~~accounting system~~the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and ~~processes, and additional~~add disclosure requirements ~~that may be necessary.~~

~~EXLSERVICE HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~September 30, 2017~~

~~(In thousands, except share and per share amounts)~~

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers.identified as relevant. The amendments in this ASU are effective for ~~all entities for fiscal years, and interim periods within those~~ fiscal years beginning after December 15, ~~2017.~~2020. Early adoption is permitted. The adoption of this ASU is not expected to have any material effect on the Company’s consolidated financial statements.

In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. The ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The Company is currently evaluating the impact ~~that the adoption~~ of this ~~guidance will have on its consolidated financial statements.~~ASU.

In ~~February 2016, the~~August 2020, FASB issued ASU ~~2016-02, Leases (Topic 842)~~No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU ~~2016-02 requires~~simplifies the ~~identification~~accounting for certain financial instruments with characteristics of ~~arrangements that should~~liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU removes separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and hence most of the instruments will be accounted for as ~~leases by lessees. In general,~~a single model (either debt or equity). The ASU also states that entities must apply the if-converted method to all convertible instruments for ~~lease arrangements exceeding~~calculation of diluted EPS and the treasury stock method is no longer available. An entity can use either a twelve month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operatingfull or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU 2016-02 requires the use of the modified retrospective ~~method, which will require adjustment~~approach to ~~all comparative periods presented in~~adopt the ~~consolidated financial statements.~~ASU’s guidance. The ~~new guidance~~ASU is effective for fiscal years beginning after December 15, ~~2018, including~~2021 and may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact ~~that the adoption~~ of this ~~guidance will have on its consolidated financial statements and the implementation approach to be used.~~ASU.

(e) Recently Adopted Accounting Pronouncements

In June 2016, FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which ~~require~~requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be ~~collected.~~collected based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The new guidance replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. The allowance for credit losses is a valuation account that is to be deducted from the amortized cost ~~basis~~ of the financial asset(s) so as to present the net carrying value at the amount expected to be collected on the financial asset. The Company adopted Topic 326 as of January 1, 2020 using a modified retrospective approach through a cumulative-effect adjustment to its retained earnings. The adoption of the ASU had no impact to equity as of January 1, 2020 with a corresponding offset to accounts receivable. Further, the impact of adoption of this guidance did not have a material effect on the Company's accounting policies, processes, and systems. Refer to Note 4 - Revenues, net to the unaudited consolidated financial statements for details.

In August 2018, FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, by prescribing new ~~guidance is~~disclosure requirements, and the elimination and modification of disclosure

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

requirements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity was permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. The ~~amendment should be applied through a modified retrospective approach. Early adoption as of the fiscal years beginning after December 15, 2018 is permitted. The~~early adoption of this ASU, ~~2016-13 is~~effective January 1, 2020, did not ~~expected to~~ have aany material effect on the ~~Company's~~Company’s disclosures in the unaudited consolidated financial statements.

In August ~~2016,~~2018, FASB issued ASU ~~2016-15, Classification~~No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software ("Subtopic 350-40"): This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the ASU requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in FASB Accounting Standard Codification Subtopic 350-40 on internal-use software to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The ASU 2018-15 also provides guidance on amortization and impairment of ~~Certain Cash Receipts~~any costs capitalized, along with new presentation and ~~Cash Payments.~~disclosure requirements. The ~~amendments apply to all entities that are required to present a Statement of Cash Flows under Topic 230. The amendments are an improvement to GAAP because they provide~~new guidance ~~for each of eight issues identified therein, thereby reducing the current and potential future diversity in practice. The amendments are~~is effective for fiscal years beginning after December 15, ~~2017~~2019 and ~~interim periods within those annual periods and should be applied using a retrospective transition method to each period presented.~~adoption was allowed prospectively. The ~~Company does not expect the~~ adoption of this ASU toeffective January 1, 2020 did not have aany material effect on ~~its~~the Company’s unaudited consolidated financial ~~position or results of operations.~~statements.

In ~~November 2016,~~April 2019, FASB issued ASU ~~2016-18, Statement of Cash Flows - Restricted cash.~~No. 2019-04, Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments: Targeted Transition Relief (Topic 825). The amendments ~~apply~~clarify the scope of the credit losses standard and address issues related to ~~all entities that have restricted cash or restricted cash equivalents~~accrued interest receivable balances, recoveries, variable interest rates and ~~are required~~prepayments, among other things. With respect to ~~present a Statement of Cash Flows under Topic 230. The~~hedge accounting, the amendments ~~in this update require that a Statement of Cash Flows should explain~~address partial-term fair value hedges, fair value hedge basis adjustments, and certain transition requirements, among other things. With respect to recognizing and measuring financial instruments, the ~~change during the period~~amendment in the ~~total~~ASU address the scope of ~~cash, cash equivalents,~~the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and ~~amounts generally described as restricted cash or restricted cash equivalents. The amendments are~~which equity securities have to be remeasured at historical exchange rates. This ASU is effective for public business entities for fiscal years beginning after December 15, ~~2017 and~~2019, including interim periods within ~~those annual periods.~~that fiscal year. Early adoption was permitted. The adoption of this ASU did not have any material effect on the Company’s unaudited consolidated financial statements.

In May 2019, FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. This ASU provides entities with the option to irrevocably elect the fair value option, on an instrument-by-instrument basis in accordance with Subtopic 825-10, for certain financial instruments that are within the scope of Subtopic 326-20, upon adopting Topic 326. The fair value option election does not apply to held-to-maturity debt securities. The amendments in this ASU provide entities with targeted transition relief that is ~~permitted with an adjustment reflected~~intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. The Company adopted Topic 326 as of ~~the beginning of the fiscal year in which the amendment is adoption. The Company does not expect~~January 1, 2020, whereby no such fair value election was made, accordingly, the adoption of this ASU todid not have aany material effect on ~~its financial position or results of operations.~~

~~In January 2017,~~ the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates Step 2 from the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017 and should be applied prospectively. The Company is currently evaluating the impact that the adoption of this standard will have on itsCompany’s unaudited consolidated financial statements.

~~In March, 2017, FASB issued ASU 2017-07, Improving~~(f) Reclassification

Certain reclassifications have been made in the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. The ASU amends ASC 715, Compensation — Retirement Benefits, to require employers that present a measure of operating income in their statement of income to include only the service cost component of net periodic pension cost and net periodic post-retirement benefit cost in operating expenses (together with other employee compensation costs). The

~~EXLSERVICE HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~September 30, 2017~~

~~(In thousands, except share and per share amounts)~~

~~other components of net benefit cost, including amortization~~consolidated financial statements of prior ~~service cost/credit, and settlement and curtailment effects, are~~periods to ~~be included~~conform to the classification used in ~~non-operating expenses. The update also stipulates that only~~ the service cost component of net benefit cost is eligible for capitalization. The amendments are effective for fiscal years beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted as of the beginning of an annualcurrent period. The ~~Company is currently evaluating~~impact of such reclassifications on the ~~impact that the adoption of this guidance will have on its~~ consolidated financial ~~statements.~~statements is not material.

In May 2017, FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. Modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in their financial statements. The amendments are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption being permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

3. Segment and Geographical Information

The Company operates in the BPM industry and is a provider of operations management and analytics services.

Effective January 1, 2020, the Company made certain operational and structural changes to more closely integrate its businesses and to simplify its organizational structure. The Company ~~has eight operating segments, which are~~now manages and reports financial information through its 4 strategic business units that align its products and services with how it manages its business, approaches its key markets and interacts with its clients. Six of those operating segments provide BPM or “operations management” services, which the Company organizes into industry-focused operating segments (Insurance, Healthcare, Travel, Transportation and Logistics, Banking and Financial Services, and Utilities) and one “capability” operating segment (Finance and Accounting) that provides services to clients in industry-focused segments as well as clients across other industries. In each of these six operating segments, the Company provides operations management services, which typically involve transfer to the Company of select business operations of a client, after which it administers and manages those operations for its client on an ongoing basis. The remaining two operating segments are Consulting, which provides industry-specific transformational services related to operations management services, and the Analytics operating segment, which provides services that focus on driving improved business outcomes for clients by generating data-driven insights across all parts of their business.

~~In prior periods the Company presented two reportable segments: Operations Management (which included its~~units: Insurance, Healthcare, ~~Travel, Transportation~~Analytics and ~~Logistics, Finance~~Emerging Business, which reflects how management will review financial information and ~~Accounting, Banking and Financial services, Utilities and Consulting~~make operating ~~segments) and Analytics. Effective for the quarter and year ended December 31, 2016, the Company presents information for the following reportable segments:~~decisions. These business units will develop client-specific solutions, build

~~• Insurance~~

~~• Healthcare~~

~~• Travel, Transportation and Logistics (“TT&L”)~~

~~• Finance and Accounting (“F&A”), and~~

~~• Analytics~~

The remaining operating segments, which includes the banking and financial services, utilities and consulting operating segments have been included in a category called “All Other”. Segment information for all prior periods presented herein has been changed to conform to the current presentation. This change in segment presentation does not affect the Company's unaudited consolidated statementsTable of ~~income and comprehensive income, balance sheets or statements of cash flows.~~

Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

capabilities, maintain a unified go-to-market approach and be integrally responsible for service delivery, customer satisfaction, growth and profitability. In line with the Company’s strategy of vertical integration and focus on domain expertise, the Company has integrated its Finance & Accounting and Consulting operating segments within each of the Insurance and Healthcare operating segments based on the corresponding industry-specific clients to whom those services are provided. Finance & Accounting and Consulting services to clients outside of the Insurance and Healthcare industries will now be part of the Company’s newly formed business unit and reportable segment Emerging Business. In addition, the Company integrated its former Travel, Transportation and Logistics, Banking and Financial Services, and Utilities operating segments under the Emerging Business unit to further leverage and optimize the operating scale in providing operations management services.

The Company’s new reportable segments effective January 1, 2020 are as follows:

•Insurance,

•Healthcare,

•Emerging Business, and

•Analytics

In conjunction with the new reporting structure, the Company has recast its segment disclosures for prior periods presented to conform to the way the Company internally manages and monitors segment performance.

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 Company does not allocate and therefore the CODM does not evaluate, ~~other~~certain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages 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, ~~2017~~2020 and ~~2016,~~2019, respectively, for each of the reportable segments, are as follows:


	Three months ended September 30, 2020
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	87,830	$	25,112	$	37,577	$	90,499	$	241,018
Cost of revenues(1)	56,831		17,993		20,792		56,471		152,087
Gross profit(1)	$	30,999	$	7,119	$	16,785	$	34,028	$	88,931
Operating expenses									54,525
Foreign exchange gain, interest expense and other income, net									573
Income tax expense									8,490
Loss from equity-method investment									71
Net income									$	26,418

Three months ended September 30, 2017
Insurance Healthcare TT&L F&A All Other Analytics Total

Revenues, net $ 59,608
$ 18,871
$ 18,496
$ 21,642
$ 19,984
$ 53,744
$ 192,345
Cost of revenues (exclusive of depreciation and amortization) 39,699
11,966
10,135
13,310
13,629
36,151
124,890
Gross profit $ 19,909
$ 6,905
$ 8,361
$ 8,332
$ 6,355
$ 17,593
$ 67,455
Operating expenses 48,800
Foreign exchange gain, interest expense and other income, net 5,241
Income tax expense 2,819
Net income $ 21,077

(1) Exclusive of depreciation and amortization expense.

Three months ended September 30, 2016
Insurance Healthcare TT&L F&A All Other Analytics Total

Revenues, net $ 52,801
$ 15,959
$ 17,519
$ 19,858
$ 23,426
$ 41,637
$ 171,200
Cost of revenues (exclusive of depreciation and amortization) 37,797
10,887
10,637
12,012
14,655
25,779
111,767
Gross profit $ 15,004
$ 5,072
$ 6,882
$ 7,846
$ 8,771
$ 15,858
$ 59,433
Operating expenses �� 42,074
Foreign exchange gain, interest expense and other income, net 4,337
Income tax expense 5,646
Net income $ 16,050

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)


	Three months ended September 30, 2019
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	91,096	$	25,631	$	45,912	$	88,753	$	251,392
Cost of revenues(1)	62,233		20,409		27,067		57,833		167,542
Gross profit(1)	$	28,863	$	5,222	$	18,845	$	30,920	$	83,850
Operating expenses									61,428
Foreign exchange gain, interest expense and other income, net									2,392
Income tax expense									5,701
Loss from equity-method investment									69
Net income									$	19,044

(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, for each of the reportable segments, are as follows:


	Nine months ended September 30, 2017															Nine months ended September 30, 2020
	Insurance		Healthcare		TT&L		F&A		All Other		Analytics		Total			Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	173,784	$	56,726	$	53,374	$	63,694	$	62,547	$	154,310	$	564,435	Revenues, net	$	252,851	$	77,119	$	114,902	$	264,609	$	709,481
Cost of revenues (exclusive of depreciation and amortization)	119,004		36,402		30,832		39,163		42,770		102,287		370,458
Gross profit	$	54,780	$	20,324	$	22,542	$	24,531	$	19,777	$	52,023	$	193,977
Cost of revenues(1)															Cost of revenues(1)	174,909		57,226		68,689		172,320		473,144
Gross profit(1)															Gross profit(1)	$	77,942	$	19,893	$	46,213	$	92,289	$	236,337
Operating expenses													143,291		Operating expenses									164,578
Foreign exchange gain, interest expense and other income, net													14,759		Foreign exchange gain, interest expense and other income, net									4,108
Income tax expense													7,202		Income tax expense									18,416
Loss from equity-method investment															Loss from equity-method investment									193
Net income													$	58,243	Net income									$	57,258

(1) Exclusive of depreciation and amortization expense.


	Nine months ended September 30, 2019
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	257,963	$	69,609	$	143,317	$	263,585	$	734,474
Cost of revenues(1)	176,890		55,960		82,212		172,166		487,228
Gross profit(1)	$	81,073	$	13,649	$	61,105	$	91,419	$	247,246
Operating expenses									194,107
Foreign exchange gain, interest expense and other income, net									5,933
Income tax expense									12,571
Loss from equity-method investment									198
Net income									$	46,303

(1) Exclusive of depreciation and amortization expense.

Nine months ended September 30, 2016
Insurance Healthcare TT&L F&A All Other Analytics
Total

Revenues, net $ 151,696
$ 49,788
$ 52,623
$ 58,961
$ 75,434
$ 120,212
$ 508,714
Cost of revenues (exclusive of depreciation and amortization) 108,516
32,440
31,901
35,385
47,836
76,094
332,172
Gross profit $ 43,180
$ 17,348
$ 20,722
$ 23,576
$ 27,598
$ 44,118
$ 176,542
Operating expenses 126,495
Foreign exchange gain, interest expense and other income, net 14,747
Income tax expense 18,549
Net income $ 46,245

~~Net revenues~~Table of ~~the Company by service type, were as follows:~~

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
BPM and related services ⁽¹⁾
$ 138,601
$ 129,563
$ 410,125
$ 388,502
Analytics services 53,744
41,637
154,310
120,212
Total $ 192,345
$ 171,200
$ 564,435
$ 508,714

Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

Revenues, net by service type, were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
BPM and related services(1)	$	150,519	$	162,639	$	444,872	$	470,889
Analytics services	90,499		88,753		264,609		263,585
Revenues, net	$	241,018	$	251,392	$	709,481	$	734,474

(1) BPM and related services include revenues of the Company's Insurance, Healthcare and Emerging Business operating segments. Refer to the reportable segment disclosure above.

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


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Revenues, net
United States	$	203,928	$	208,753	$	600,840	$	602,758
Non-United States
United Kingdom	22,903		27,884		65,011		87,140
Rest of World	14,187		14,755		43,630		44,576
Total Non-United States	37,090		42,639		108,641		131,716
Revenues, net	$	241,018	$	251,392	$	709,481	$	734,474

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Revenues, net
United States $ 158,501
$ 137,047
$ 462,676
$ 407,272
Non-United States
United Kingdom 26,824
27,993
81,857
84,284
Rest of World 7,020
6,160
19,902
17,158
Total Non-United States 33,844
34,153
101,759
101,442
$ 192,345
$ 171,200
$ 564,435
$ 508,714

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


	As of
	September 30, 2020		December 31, 2019
Long-lived assets
India	$	103,224	$	78,244
United States	47,847		52,375
Philippines	29,053		26,006
Rest of World	9,852		8,913
Long-lived assets	$	189,976	$	165,538

4. Revenues, net

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

Contract balances

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

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

As of
September 30, 2017 December 31, 2016
Property, plant and equipment, net
India $ 37,139
$ 23,362
United States 14,829
10,809
Philippines 9,031
11,900
Rest of World 2,730
2,958
$ 63,729
$ 49,029


	As of
	September 30, 2020		December 31, 2019
Accounts receivable, net	$	154,983	$	171,864
Contract assets	$	4,742	$	5,391
Contract liabilities
Deferred revenue (consideration received in advance)	$	11,600	$	11,259
Consideration received for process transition activities	$	3,187	$	3,036

4.Accounts receivable includes $74,386 and $73,920 as of September 30, 2020 and December 31, 2019, 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.

Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers. This may also include revenues deferred for certain contracts where services have been rendered but other conditions for revenue recognition have not been met for example, where a legally enforceable contract is not executed. The Company also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract fulfillment costs. Consideration received from customers, if any, relating to such transition activities are classified under contract liabilities and are included within “Deferred revenues” and “other non-current liabilities” in the unaudited consolidated balance sheets. The revenues are recognized as (or when) the performance obligation is fulfilled under the contract with customer.

Revenue recognized during the three and nine months ended September 30, 2020 and 2019, 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,
	2020		2019		2020		2019
Revenue recognized	$	1,611	$	1,086	$	9,805	$	5,312

Contract acquisition and fulfillment costs


	Contract Acquisition Costs
	Three months ended				Nine months ended				Year ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019		December 31, 2019
									(Audited)
Opening Balance	$	1,270	$	469	$	1,307	$	713	$	713
Additions	63		776		250		776		1,222
Amortization	(112)		(113)		(336)		(357)		(628)
Closing Balance	$	1,221	$	1,132	$	1,221	$	1,132	$	1,307

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)


	Contract Fulfillment Costs
	Three months ended				Nine months ended				Year ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019		December 31, 2019
									(Audited)
Opening Balance	$	6,780	$	5,608	$	7,255	$	4,051	$	4,051
Additions	116		1,140		763		3,307		4,652
Amortization	(463)		(411)		(1,585)		(1,021)		(1,448)
Closing Balance	$	6,433	$	6,337	$	6,433	$	6,337	$	7,255

There was 0 impairment for contract acquisition and contract fulfillment costs as of September 30, 2020 and December 31, 2019. The capitalized costs are amortized on a straight line basis over the life of the contract.

Allowance for expected credit losses

On January 1, 2020, the Company adopted ASC Topic 326, Financial Instruments-Credit Losses. Accounts receivable and contract assets are in the scope for which assessment is made. 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 and estimates relating to the possible effects resulting from COVID-19.

The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on expected losses is subject to significant judgment, including but not limited to changes in customers’ credit rating, and may cause variability in the Company’s allowance for credit losses in future periods.

As of January 1, 2020 the Company’s provision for doubtful receivables was $1,163. There was no material impact on the provision when calculated by applying the Topic 326 guidance.


	As of
	September 30, 2020		January 1, 2020
Accounts receivable, including unbilled receivables	$	156,383	$	173,027
Less: Allowance for lifetime expected credit loss	(1,400)		(1,163)
Accounts receivable, net	$	154,983	$	171,864

The movement in allowance for current expected credit loss on customer balances for the three and nine months ended September 30, 2020 and 2019 and year ended December 31, 2019 was as follows:


	Three months ended				Nine months ended				Year ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019		December 31, 2019
Balance at the beginning of the period	$	1,434	$	1,168	$	1,163	$	956	$	956
Addition (reversal) during the period, net	(36)		(57)		345		208		354
Charged against allowance	0		(1)		(100)		(55)		(156)
Translation adjustment, if any	2		3		(8)		4		9
Balance at the end of the period	$	1,400	$	1,113	$	1,400	$	1,113	$	1,163

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

5. 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 and restricted stock units) issued and outstanding at the reporting date, using the treasury stock method. ~~Stock options, restricted~~Common stock ~~and restricted stock units~~equivalents that are anti-dilutive are excluded from the computation of weighted average shares outstanding. The Company includes performance stock unit awards in dilutive potential common shares when they become contingently issuable and have a dilutive impact per authoritative guidance and excludes such awards when they are not contingently issuable.

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


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Numerators:
Net income	$	26,418	$	19,044	$	57,258	$	46,303
Denominators:
Basic weighted average common shares outstanding	34,327,477		34,322,449		34,404,798		34,382,787
Dilutive effect of share-based awards	208,572		377,048		213,032		362,181
Diluted weighted average common shares outstanding	34,536,049		34,699,497		34,617,830		34,744,968
Earnings per share attributable to ExlService Holdings Inc. stockholders:
Basic	$	0.77	$	0.55	$	1.66	$	1.35
Diluted	$	0.76	$	0.55	$	1.65	$	1.33
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share	347,126		0		385,252		141,834

6. Cash, Cash Equivalents and Restricted Cash

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Numerators:
Net income $ 21,077
$ 16,050
$ 58,243
$ 46,245
Denominators:
Basic weighted average common shares outstanding 33,838,374
33,624,401
33,834,392
33,542,258
Dilutive effect of share based awards 1,205,613
1,051,084
1,214,280
970,557
Diluted weighted average common shares outstanding 35,043,987
34,675,485
35,048,672
34,512,815
Earnings per share:
Basic $ 0.62
$ 0.48
$ 1.72
$ 1.38
Diluted $ 0.60
$ 0.46
$ 1.66
$ 1.34
Weighted average common shares considered anti-dilutive in computing diluted earnings per share —
32,516
151,961
97,574

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


	As of
	September 30, 2020		September 30, 2019
Cash and cash equivalents	$	206,423	$	101,432
Restricted cash (current)	7,312		5,412
Restricted cash (non-current)	2,277		2,441
Cash, cash equivalents and restricted cash	$	216,012	$	109,285

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

5.7. Other Income, net

Other income, net consists of the following:


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Gain on sale and mark-to-market of mutual funds, net	$	1,965	$	3,216	$	7,131	$	10,060
Interest income	777		489		1,941		1,982
Others, net	(257)		858		167		1,046
Other income, net	$	2,485	$	4,563	$	9,239	$	13,088

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

2017 2016 2017 2016
Interest and dividend income $ 322
$ 354
$ 1,317
$ 1,208
Gain on mutual fund investments 2,556
2,562
6,777
6,191
Change in fair value of earn-out consideration —
—
—
4,060
Other, net 44
(25 ) 777
738
Other income, net $ 2,922
$ 2,891
$ 8,871
$ 12,197

6.8. Property ~~Plant~~ and Equipment, net

Property ~~Plant~~ and ~~Equipment consist~~equipment, net consists of the following:


	Estimated useful lives	As of
	(Years)	September 30, 2020		December 31, 2019
Owned Assets:
Network equipment and computers	3-5	$	103,666	$	98,309
Software	3-5	96,574		79,746
Leasehold improvements	3-8	46,542		44,982
Office furniture and equipment	3-8	21,759		22,046
Motor vehicles	2-5	593		601
Buildings	30	1,078		1,114
Land	—	705		729
Capital work in progress	—	5,894		10,309
		276,811		257,836
Less: Accumulated depreciation and amortization		(183,230)		(179,331)
		$	93,581	$	78,505
Right-of-use assets under finance leases:
Leasehold improvements		$	682	$	738
Office furniture and equipment		239		308
Motor vehicles		705		711
		1,626		1,757
Less: Accumulated depreciation and amortization		(1,104)		(1,120)
		$	522	$	637
Property and equipment, net		$	94,103	$	79,142

Estimated useful lives As of

(Years) September 30, 2017 December 31, 2016
Owned Assets:

Network equipment and computers 3-5 $ 73,728
$ 65,381
Software 3-5 56,369
44,617
Leasehold improvements 3-8 36,741
31,192
Office furniture and equipment 3-8 18,397
15,426
Motor vehicles 2-5 645
580
Buildings 30 1,218
1,171
Land — 797
766
Capital work in progress — 9,624
4,964

197,519
164,097
Less: Accumulated depreciation and amortization
(134,245 ) (115,568 )

$ 63,274
$ 48,529
Assets under capital leases:

Leasehold improvements
$ 889
$ 854
Office furniture and equipment
138
133
Motor vehicles
644
810

1,671
1,797
Less: Accumulated depreciation and amortization
(1,216 ) (1,297 )

$ 455
$ 500
Property, Plant and Equipment, net
$ 63,729
$ 49,029

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

During the three and nine months ended September 30, 2020, there were no changes in estimated useful lives of property and equipment.

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

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Depreciation and amortization expense	$	9,012	$	7,545	$	26,283	$	22,882

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


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Effect of foreign exchange gain/(loss)	$	18	$	54	$	(31)	$	167

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


	As of
	September 30, 2020		December 31, 2019
Cost	$	17,936	$	15,784
Less : Accumulated amortization	(4,992)		(4,989)
Internally developed software, net	$	12,944	$	10,795

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,
	2020		2019		2020		2019
Amortization expense	$	1,215	$	746	$	3,892	$	1,952

As of September 30, 2020, the Company believes 0 impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value; however, there can be no assurances that long-lived assets will not be impaired in future periods. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. It is reasonably possible that the judgments and estimates described above could change in future periods. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on undiscounted cash flows is subject to significant judgment and may cause variability in the Company’s assessment of the existence of any impairment.

During the three and nine months ended September 30, 2019, the Company performed an impairment test of its long-lived assets related to its Health Integrated business. Based on the results, the long-lived assets carrying value exceeded its fair value. The primary factor contributing to a reduction in the fair value is the wind-down of the Health Integrated business, due to reduction to the Company's estimated future cash flows. As a result of this analysis, the Company recognized impairment charges of $0 and $2,178 during the three and nine months ended September 30, 2019, respectively, to write down the carrying value of property and equipment to its fair value. This impairment charge was recorded in the unaudited consolidated statements of income under "Impairment and restructuring charges".

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Depreciation and amortization expense $ 6,221
$ 5,749
$ 18,279
$ 16,719

Software - Internally developed:
As of
September 30, 2017 December 31, 2016
Cost $ 2,364
$ 2,242
Less : Accumulated amortization expense 791
336
$ 1,573
$ 1,906

7.9. Goodwill and Intangible Assets

Goodwill

The ~~following table sets forth details~~Company transitioned to new segment reporting structure effective January 1, 2020, which resulted in certain changes to its operating segments and reporting units. The Company reallocated goodwill to its reporting units using a relative fair value approach. In addition, the Company completed an assessment of any potential goodwill impairment for all its reporting units immediately prior to the ~~Company’s goodwill balance as of September 30, 2017:~~reallocation and determined that no impairment existed.

Insurance Healthcare TT&L F&A All Other Analytics Total
Balance as at January 1, 2016 $ 35,824
$ 19,276
$ 13,278
$ 47,891
$ 5,326
$ 49,940
$ 171,535
Acquisitions 2,510
—
—
—
—
13,598
16,108
Currency translation adjustments (224 ) —
(295 ) (354 ) —
—
(873 )
Balance as at December 31, 2016 $ 38,110
$ 19,276
$ 12,983
$ 47,537
$ 5,326
$ 63,538
$ 186,770
Currency translation adjustments 204
—
445
534
—
—
1,183
Balance as at September 30, 2017 $ 38,314
$ 19,276
$ 13,428
$ 48,071
$ 5,326
$ 63,538
$ 187,953

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

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


	Insurance		Healthcare		Emerging Business		TT&L		F&A		All Other		Analytics		Total
Balance at January 1, 2019	$	38,203	$	19,276	$	0	$	12,697	$	47,193	$	5,326	$	227,289	$	349,984
Currency translation adjustments	73		0		0		(240)		(288)		0		0		(455)
Balance at December 31, 2019	$	38,276	$	19,276	$	0	$	12,457	$	46,905	$	5,326	$	227,289	$	349,529
Goodwill reallocation(1)	12,192		2,693		49,803		(12,457)		(46,905)		(5,326)		0		0
Currency translation adjustments	(144)		(22)		(638)		0		0		0		(2)		(806)
Balance at September 30, 2020	$	50,324	$	21,947	$	49,165	$	0	$	0	$	0	$	227,287	$	348,723

(1) Represents the reallocation of goodwill as a result of the Company reorganizing its operating segments as described in Note 3 - Segment and Geographical Information to the unaudited consolidated financial statements.

As of March 31, 2020, due to the deteriorating macroeconomic conditions arising from the COVID-19 pandemic, the Company performed a goodwill impairment test for its reporting units. The Company considered the effects of the COVID-19 pandemic on its significant inputs used in determining the fair value of the Company’s reporting units. Based on the results, the fair value of each of the Company’s reporting units exceeded their carrying value and the Company’s goodwill was not impaired.

During the third quarter of 2020, the Company evaluated the continuing effects of COVID-19 and its impact on the global economy on each of the Company’s reporting units to assess whether there was a triggering event during the quarter requiring the Company to perform a goodwill impairment test. The Company considered certain improvements in current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance and business forecasts, stock price movements and expansion plans. The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the interim impairment quantitative test performed during the first quarter of 2020. The Company did not identify any triggers or indications of potential impairment for its reporting units as of September 30, 2020. The Company will continue to monitor the impacts of COVID-19 on the Company and significant changes in key assumptions that could result in future period impairment charges.

The recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities. There can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. These estimates and judgements may not be within the control of the Company and accordingly it is reasonably possible that the judgments and estimates described above could change in future periods. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on cash flows, long-term debt-free net cash flow growth rate in the terminal year and discount rates are subject to significant judgments and may cause variability in the Company’s assessment of existence of any impairment.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Intangible Assets

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


	As of September 30, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	73,240	$	(25,432)	$	47,808
Developed technology	23,414		(10,675)		12,739
Trade names and trademarks	5,100		(3,606)		1,494
	$	101,754	$	(39,713)	$	62,041
Indefinite-lived intangible assets:
Trade names and trademarks	900		—		900
Total intangible assets	$	102,654	$	(39,713)	$	62,941


	As of September 30, 2017								As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:								Finite-lived intangible assets:
Customer relationships	$	75,372	$	(40,975	)	$	34,397	Customer relationships	$	97,602	$	(43,330)	$	54,272
Leasehold benefits	2,826		(2,490		)	336
Developed technology	14,314		(8,177		)	6,137		Developed technology	26,976		(10,687)		16,289
Non-compete agreements	2,045		(1,739		)	306
Trade names and trademarks	5,379		(3,887		)	1,492		Trade names and trademarks	5,100		(2,579)		2,521
	$	99,936	$	(57,268	)	$	42,668		$	129,678	$	(56,596)	$	73,082
Indefinite-lived intangible assets:								Indefinite-lived intangible assets:
Trade names and trademarks	$	900	$	—		$	900	Trade names and trademarks	900		—		900
Total intangible assets	$	100,836	$	(57,268	)	$	43,568	Total intangible assets	$	130,578	$	(56,596)	$	73,982

As of December 31, 2016

Gross
Carrying Amount

Accumulated
Amortization

Net Carrying
Amount
Finite-lived intangible assets:
Customer relationships $ 75,181
$ (32,968 ) $ 42,213
Leasehold benefits 2,715
(2,247 ) 468
Developed technology 14,186
(6,468 ) 7,718
Non-compete agreements 2,045
(1,612 ) 433
Trade names and trademarks 5,360
(3,322 ) 2,038
$ 99,487
$ (46,617 ) $ 52,870
Indefinite-lived intangible assets:
Trade names and trademarks $ 900
$ —
$ 900
Total intangible assets $ 100,387
$ (46,617 ) $ 53,770

The amortization ~~expenses~~expense for the period is as follows:


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Amortization expense	$	3,413	$	5,502	$	10,997	$	16,584

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Amortization expense $ 3,487
$ 2,848
$ 10,492
$ 8,281

The remaining weighted average life of intangible assets is as follows:


		(in years)
Customer relationships		~~(in years)~~7.11
~~Customer relationships~~Developed technology		~~5.15~~2.94
~~Leasehold benefits~~		~~1.67~~
~~Developed technologies~~	~~3.77~~
~~Non-compete agreements~~	~~1.93~~
Trade names and trademarks (Finite lived)	~~5.23~~2.01

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)


Estimated future amortization expense related to intangible assets as of September 30, 2020 is as follows:
2020 (October 1 - December 31)	$	3,417
2021	12,744
2022	11,331
2023	9,042
2024	6,700
2025 and thereafter	18,807
Total	$	62,041

Estimated amortization of intangible assets during the next twelve months ending September 30,
2018 $ 12,667
2019 11,947
2020 5,705
2021 3,207
2022 2,461
2023 and thereafter 6,681
Total $ 42,668

8.10. Other ~~current assets~~Current Assets

Other current assets ~~consists~~consist of the following:


	As of
	September 30, 2020		December 31, 2019
Derivative instruments	$	7,514	$	4,076
Advances to suppliers	2,532		1,581
Receivables from statutory authorities	14,250		12,608
Contract assets	1,773		1,414
Deferred contract fulfillment costs	2,059		1,673
Interest accrued on fixed deposits	149		439
Others	2,507		2,803
Other current assets	$	30,784	$	24,594

11. Other Assets

As of
September 30, 2017 December 31, 2016
Derivative instruments $ 8,236
$ 3,324
Advances to suppliers 3,681
1,091
Receivables from statutory authorities 5,784
11,870
Others 4,632
4,883
Other current assets $ 22,333
$ 21,168

~~9. Accrued expenses and other current liabilities~~

~~Accrued expenses and other current liabilities consists~~Other assets consist of the following:


	As of
	September 30, 2020		December 31, 2019
Lease deposits	$	10,106	$	9,983
Derivative instruments	4,438		3,433
Deposits with statutory authorities	6,280		6,237
Term deposits	1,900		1,983
Contract assets	2,969		3,977
Deferred contract fulfillment costs	4,374		5,582
Others	4,213		4,821
Other assets	$	34,280	$	36,016

As of
September 30, 2017 December 31, 2016
Accrued expenses $ 39,250
$ 30,690
Derivative instruments 1,330
1,430
Client liability account 2,090
4,005
Others 6,370
7,139
Accrued expenses and other current liabilities $ 49,040
$ 43,264

~~10. Non-current liabilities~~

~~Non-current liabilities consists of the following:~~

As of
September 30, 2017 December 31, 2016
Derivative instruments $ 1,553
$ 828
Unrecognized tax benefits 692
3,640
Deferred rent 7,890
7,237
Retirement benefits 2,917
1,977
Others 3,182
1,137
Non-current liabilities $ 16,234
$ 14,819

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

12. Accrued Expenses and Other Current Liabilities

~~11.~~Accrued expenses and other current liabilities consist of the following:


	As of
	September 30, 2020		December 31, 2019
Accrued expenses	$	41,776	$	50,097
Payable to statutory authorities	10,189		9,247
Accrued capital expenditure	7,413		3,035
Derivative instruments	1,207		1,783
Client liabilities	7,506		6,378
Interest payable	2,725		1,492
Other current liabilities	1,978		1,732
Finance lease liabilities	249		253
Accrued expenses and other current liabilities	$	73,043	$	74,017

13. Other Non-Current Liabilities

Other non-current liabilities consist of the following:


	As of
	September 30, 2020		December 31, 2019
Derivative instruments	$	544	$	1,250
Unrecognized tax benefits	1,047		1,047
Retirement benefits	4,119		6,517
Deferred transition revenue	2,026		1,911
Accrued capital expenditure	3,452		0
Other liabilities	4,867		987
Finance lease liabilities	321		430
Other non-current liabilities	$	16,376	$	12,142

14. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss (“AOCI”), consists of ~~amortization of~~ actuarial ~~gain /~~ gain/(loss) on retirement benefits and changes in the cumulative foreign currency translation adjustments. In addition, the Company enters into foreign currency exchange contracts, which are designated as cash flow hedges in accordance with ASC ~~topic 815~~ ~~“Derivatives and Hedging” (“ASC No. 815”)~~.815. Changes in the fair values of these foreign currency exchange contracts ~~that~~ are ~~deemed effective are recorded as a component of accumulated other comprehensive loss~~recognized in AOCI on the Company's unaudited consolidated balance sheets until the settlement of those contracts. The balances as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are as follows:


	As of
	September 30, 2020		December 31, 2019
Cumulative foreign currency translation loss	$	(86,439)	$	(86,963)
Unrealized gain on cash flow hedges	10,277		4,604
Retirement benefits	(1,484)		(1,780)
Income tax expense relating to above (1)	(7,571)		(753)
Accumulated other comprehensive loss	$	(85,217)	$	(84,892)

(1) These are income tax expenses recognized on cash flow hedges, retirement benefits and foreign currency translation losses. Refer to Note 21 - Income Taxes to the unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

As of
September 30, 2017 December 31, 2016
Cumulative currency translation adjustments $ (66,486 ) $ (77,299 )
Unrealized gain on cash flow hedges, net of taxes of $3,605 and $1,207 7,559
2,740
Retirement benefits, net of taxes of ($265) and ($342) (363 ) (498 )
Accumulated other comprehensive loss $ (59,290 ) $ (75,057 )

~~12.~~15. Fair Value Measurements

Assets and Liabilities Measured at Fair Value

The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of September 30, ~~2017~~2020 and December 31, ~~2016. The table excludes accounts receivable, accounts payable and accrued expenses for which fair values approximate their carrying amounts.~~2019.


										Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
As of September 30, 2017	Level 1		Level 2		Level 3		Total
As of September 30, 2020									As of September 30, 2020	(Level 1)		(Level 2)		(Level 3)		Total
Assets									Assets
Money market and mutual funds*	$	146,477	$	—	$	—	$	146,477
Mutual funds*									Mutual funds*	$	125,077	$	0	$	0	$	125,077��
Derivative financial instruments	—		14,395		—		14,395		Derivative financial instruments	0		11,952		0		11,952
Total	$	146,477	$	14,395	$	—	$	160,872	Total	$	125,077	$	11,952	$	0	$	137,029
Liabilities									Liabilities
Derivative financial instruments	$	—	$	2,883	$	—	$	2,883	Derivative financial instruments	$	0	$	1,751	$	0	$	1,751
Total	$	—	$	2,883	$	—	$	2,883	Total	$	0	$	1,751	$	0	$	1,751

As of December 31, 2016	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 December 31, 2019									As of December 31, 2019	(Level 1)		(Level 2)		(Level 3)		Total
Assets									Assets
Money market and mutual funds	$	—	$	—	$	—	$	—
Mutual funds*									Mutual funds*	$	166,330	$	0	$	0	$	166,330
Derivative financial instruments	—		6,318		—		6,318		Derivative financial instruments	0		7,509		0		7,509
Total	$	—	$	6,318	$	—	$	6,318	Total	$	166,330	$	7,509	$	0	$	173,839
Liabilities									Liabilities
Derivative financial instruments	$	—	$	2,258	$	—	$	2,258	Derivative financial instruments	$	0	$	3,033	$	0	$	3,033
Total	$	—	$	2,258	$	—	$	2,258	Total	$	0	$	3,033	$	0	$	3,033

*Represents those short-term investments, which are carried onat the fair value option under ASC 825 ~~“Financial~~"Financial Instruments” as of September 30, ~~2017.~~2020 and December 31, 2019.

~~EXLSERVICE HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~September 30, 2017~~

~~(In thousands, except share and per share amounts)~~

Derivative Financial Instruments: The Company’s derivative financial instruments consist of foreign currency forward exchange contracts. Fair values for derivative financial instruments are based on independent sources including highly rated financial institutions and are classified as Level 2. ~~See~~Refer to Note 1316 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements ~~contained herein~~ for further ~~details~~details.

Financial instruments not carried at fair value:

The Company’s other financial instruments not carried at fair value consist primarily of cash and cash equivalents, short-term investments (except investment in mutual funds, as disclosed above), restricted cash, accrued interest on term deposits, accrued capital expenditures, accrued expenses and interest payable on borrowings for which fair values approximate their carrying amounts due to their short-term nature. 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.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Convertible Senior Notes:

The total estimated fair value of the convertible senior notes as of September 30, 2020 and December 31, 2019 was $146,149 and $149,934, respectively. The fair value was determined based on the market yields for similar Notes as of the September 30, 2020 and December 31, 2019, respectively. The Company considers the fair value of the Notes to be a Level 2 measurement due to the limited inputs available for its fair valuation.

Nonrecurring fair value measurements of assets:

Nonrecurring fair value measurements include impairment tests conducted by the Company during the nine months ended September 30, 2020 and year ended December 31, 2019 of its goodwill. The fair value determination for goodwill was based on Company’s internal assessment, which are Level 3 inputs. During the nine months ended September 30, 2020 and year ended December 31, 2019, the Company did 0t recognize any impairment charges on goodwill as the fair values exceeded their carrying value. Refer to Note 9- Goodwill and Intangible Assets to the unaudited consolidated financial statements for further details.

During the year ended December 31, 2019, the Company conducted impairment tests of its long-lived assets and ROU assets related to its Health Integrated business. The fair value determination for ROU assets was based on third party quotes, which are Level 2 inputs, and for other long-lived assets, it was based on Company’s internal assessment, which are Level 3 inputs. During the year ended December 31, 2019, the Company recognized impairment charges on long-lived assets and ROU assets to write down the carrying value to their fair values.

16. Derivatives and Hedge ~~Accounting.~~Accounting

~~13. Derivatives and Hedge Accounting~~

The Company uses derivative instruments and hedging transactions to mitigate exposure to foreign currency fluctuation risks associated with forecasted transactions denominated in certain foreign currencies ~~and~~so as to minimize earnings and cash flow volatility associated with changes in foreign currency exchange rates. The Company’s derivative financial instruments are largely forward foreign exchange ~~forward~~ contracts that are designated as effective hedges and that qualify as cash flow hedges under ASC 815. The Company had outstanding cash flow hedges totaling ~~$297,643~~$444,570 as of September 30, 2020 and $410,390 (including ~~$1,500~~$4,300 of range forward contracts) as of ~~September 30, 2017 and $218,545 as of~~ December 31, ~~2016. The~~2019.

Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income/(loss), net of tax, until the hedged transactions occurs. The resultant foreign exchange gain/(loss) upon settlement of these cash flow hedges is recorded along with the underlying hedged item in the same line of unaudited consolidated statements of income as either a part of “Cost of revenues”, “General and administrative expenses”, “Selling and marketing expenses”, “Depreciation and amortization expense”, as applicable. The impact of COVID-19 on the economic environment is uncertain and may cause variability in determination of fair value of these cash flow hedges, which could impact the effects of change in fair value that get recorded as a component of accumulated other comprehensive income/(loss) and also resultant exchange gain/(loss) upon settlement of derivative financial instruments.

The Company evaluates hedge effectiveness at the time a contract is entered into as well as on an ongoing basis. For hedging positions that are discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related amounts recorded in equity are reclassified to earnings.

The Company estimates that approximately $6,383 of net derivative gains, excluding tax effects, included in AOCI, representing changes in the ~~other comprehensive loss~~fair value of cash flow hedges, could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of September 30, 2020. At September 30, 2020, the ~~Company's unaudited consolidated balance sheet.~~maximum outstanding term of the cash flow hedges was 45 months.

The Company also enters into foreign currency forward contracts to economically hedge its intercompany balances and other monetary assets and liabilities denominated in currencies other than functional ~~currencies.~~currencies, against the risk of foreign currency fluctuations associated with remeasurement of such assets and liabilities to functional currency. These derivatives do not qualify as fair value hedges under ASC 815. Changes in the fair value of these derivatives are recognized in the unaudited

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

consolidated statements of income and are included in the foreign exchange gain/~~loss.~~(loss) line item. The impact of COVID-19 on the economic environment is uncertain and may cause variability in determination of fair value of these derivatives, which could impact the effects of change in fair value that get recorded in the foreign exchange gain/(loss) line item. The Company’s primary exchange rate exposure is with the Indian ~~Rupee,~~rupee, the U.K. ~~Pound~~pound sterling and the Philippine peso. The Company also has exposure to Colombian pesos (COP), Czech ~~Koruna,~~koruna, the Euro, South African ~~Rand~~ZAR and other local currencies in which it operates. Outstanding foreign currency forward contracts amounted to ~~$91,523~~USD 138,517, GBP 7,230, EUR 1,342 and ~~GBP 17,244~~COP 8,287,950 as of September 30, ~~2017~~2020 and ~~amounted to $63,980~~USD 124,045, GBP 10,843 and ~~GBP 17,974~~EUR 1,289 as of December 31, ~~2016.~~2019.

The Company estimates that approximately $6,839 of net derivative gains included in accumulated other comprehensive loss (“AOCL”) could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of September 30, 2017. At September 30, 2017, the maximum outstanding term of the cash flow hedges was forty-five months.

The Company evaluates hedge effectiveness at the time a contract is entered into as well as on an ongoing basis. If during this time, a contract is deemed ineffective, the change in the fair value is recorded in the unaudited consolidated statements of income and is included in foreign exchange gain/(loss). For hedging positions that are discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related derivative amounts recorded in equity are reclassified to earnings. There were no such significant amounts of gains or losses that were reclassified from AOCL into earnings during the three and nine months ended September 30, 2017 and 2016.

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

~~Derivatives designated as hedging instruments:~~


Derivatives designated as hedging instruments:	As of
Foreign currency exchange contracts	September 30, 2020		December 31, 2019
Other current assets	$	7,427	$	3,945
Other assets	$	4,438	$	3,433
Accrued expenses and other current liabilities	$	1,044	$	1,524
Other non-current liabilities	$	544	$	1,250

Derivatives not designated as hedging instruments:	As of
Foreign currency exchange contracts	September 30, 2020		December 31, 2019
Other current assets	$	87	$	131
Accrued expenses and other current liabilities	$	163	$	259

As of
September 30, 2017 December 31, 2016
Other current assets:
Foreign currency exchange contracts $ 8,122
$ 3,211
Other assets:
Foreign currency exchange contracts $ 6,159
$ 2,994
Accrued expenses and other current liabilities:
Foreign currency exchange contracts $ 1,283
$ 1,430
Non-current liabilities:
Foreign currency exchange contracts $ 1,553
$ 828

~~EXLSERVICE HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~September 30, 2017~~

~~(In thousands, except share and per share amounts)~~

~~Derivatives not designated as hedging instruments:~~

As of
September 30, 2017 December 31, 2016
Other current assets:
Foreign currency exchange contracts $ 114
$ 113
Accrued expenses and other current liabilities:
Foreign currency exchange contracts $ 47
$ —

The following tables set forth the effect of foreign currency exchange contracts on the unaudited consolidated statements of income and accumulated other comprehensive loss for the three and nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


	Three months ended September 30,				Nine months ended September 30,
Forward Exchange Contracts:	2020		2019		2020		2019
Unrealized gain/(loss) recognized in AOCI
Derivatives in cash flow hedging relationships	$	12,165	$	(3,574)	$	5,040	$	5,631

Gain/(loss) recognized in consolidated statements of income
Derivatives not designated as hedging instruments	$	3,388	$	(794)	$	2,377	$	3,525

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Derivatives in Cash flow hedging relationship
Gain/(loss) recognized in AOCL on derivative - Effective portion $ (719 ) $ 3,607
$ 8,774
$ 4,160
Gain/(loss) reclassified from AOCL to foreign exchange gain/(loss) - Effective portion $ 423
$ 466
$ 1,557
$ 872
Gain/(loss) recognized in foreign exchange gain/(loss) - Ineffective portion $ —
$ —
$ —
$ —

Derivatives not designated as hedging instruments
Gain/(loss) recognized in foreign exchange gain/(loss) $ (678 ) $ 1,382
$ 2,095
$ 4,110

~~14. Borrowings~~

~~The Company has a revolving credit facility (the “Credit Facility”), including a letter~~Table of ~~credit sub-facility, in the amount of $100,000. The Credit Facility has a maturity date of October 24, 2019 and is voluntarily pre-payable from time to time without premium or penalty.~~

Borrowings under the Credit Facility may be used for working capital, general corporate purposes and for acquisitions. The amount outstanding as of September 30, 2017 is $45,000 which is included under “long-term borrowings” in the unaudited consolidated balance sheets. The Credit Facility carried an effective interest rate of 2.9% per annum and 2.2% per annum, during the three months ended September 30, 2017 and 2016, respectively, and for the nine months ended September 30, 2017 and 2016 it was 2.7% per annum and 2.0% per annum, respectively.

In connection with the financing, the Company incurred certain debt issuance costs, which are deferred and amortized as an adjustment to interest expense over the term of the Credit Facility. The unamortized debt issuance costs as of September 30, 2017 and December 31, 2016 was $200 and $272, respectively, and is included under “other current assets” and “other assets” in the unaudited consolidated balance sheets.

The Credit Facility is guaranteed by the Company's domestic subsidiaries and material foreign subsidiaries and is secured by all or substantially all of the assets of the Company and its material domestic subsidiaries. The Credit Agreement governing the Credit Facility contains certain covenants including a restriction on our indebtedness, and a covenant to not permit the interest coverage ratio (the ratio of EBIT to cash interest expense) to be less than 3.5 to 1.0 or the leverage ratio (total funded indebtedness to EBITDA) to be greater than 2.5 to 1.0, for the four consecutive quarter period ending on the last day of each fiscal quarter. As of September 30, 2017, the Company was in compliance with the financial covenants listed above.Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)


Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments
	Three months ended September 30,
	2020				2019
	As per unaudited consolidated statements of income		(Loss)/gain on foreign currency exchange contracts		As per unaudited consolidated statements of income		Gain/(loss) on foreign currency exchange contracts
Cash flow hedging relationships
Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCI

Cost of revenues	$	152,087	$	(233)	$	167,542	$	1,432
General and administrative expenses	$	26,810	(132)		$	29,590	173
Selling & marketing expenses	$	15,290	(4)		$	18,302	19
Depreciation & amortization expense	$	12,425	(66)		$	13,047	80
			$	(435)			$	1,704

Derivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognized

Foreign exchange gain/(loss), net	$	716	$	3,388	$	1,009	$	(794)
	$	716	$	3,388	$	1,009	$	(794)

~~15.~~

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)


Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments
	Nine months ended September 30,
	2020				2019
	As per unaudited consolidated statements of income		(Loss)/gain on foreign currency exchange contracts		As per unaudited consolidated statements of income		Gain on foreign currency exchange contracts
Cash flow hedging relationships
Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCI

Cost of revenues	$	473,144	$	(272)	$	487,228	$	2,682
General and administrative expenses	$	84,501	(246)		$	93,349	359
Selling & marketing expenses	$	42,797	(9)		$	53,996	38
Depreciation & amortization expense	$	37,280	(106)		$	39,466	180
			$	(633)			$	3,259

Derivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain was recognized

Foreign exchange gain, net	$	3,452	$	2,377	$	3,471	$	3,525
	$	3,452	$	2,377	$	3,471	$	3,525

17. Borrowings

The following tables summarizes the Company’s debt position as of September 30, 2020 and December 31, 2019.


	As of September 30, 2020
	Revolver Credit Facility		Structured Payables		Notes		Total
Current portion of long-term borrowings	$	10,000	$	474	$	0	$	10,474

Long-term borrowings	79,000		0		150,000		229,000
Unamortized debt discount	0		0		(11,908)		(11,908)
Unamortized debt issuance costs*	0		0		(857)		(857)
Long-term borrowings	79,000		0		137,235		216,235
Total borrowings	$	89,000	$	474	$	137,235	$	226,709

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)


	As of December 31, 2019
	Revolver Credit Facility		Structured Payables		Notes		Total
Current portion of long-term borrowings	$	40,000	$	867	$	0	$	40,867

Long-term borrowings	59,000		0		150,000		209,000
Unamortized debt discount	0		0		(13,851)		(13,851)
Unamortized debt issuance costs*	0		0		(1,018)		(1,018)
Long-term borrowings	59,000		0		135,131		194,131
Total borrowings	$	99,000	$	867	$	135,131	$	234,998

*Unamortized debt issuance costs for the Company’s revolver Credit Facility of $555 and $748 as of September 30, 2020 and December 31, 2019, respectively, is presented under “Other current assets” and “Other assets” in the consolidated balance sheets.

Revolver Credit Agreement

The Company’s $300,000 revolving credit facility pursuant to its credit agreement (the “Credit Agreement”) with certain lenders and Citibank N.A. as Administrative Agent (the “Credit Facility”) carried an effective interest rate as shown below.


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Effective interest rate	1.9	%	4.1	%	2.4	%	4.1	%

As of September 30, 2020 and December 31, 2019, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.

Convertible Senior Notes

On October 1, 2018, the Company entered into an investment agreement (the “Investment Agreement”) with Orogen Echo LLC (the “Purchaser”), an affiliate of The Orogen Group LLC, relating to the issuance to the Purchaser of $150,000 in an aggregate principal amount of 3.50% Convertible Senior Notes due October 1, 2024 (the “Notes”). The transactions contemplated by the Investment Agreement, including the issuance of the Notes, closed on October 4, 2018. The Notes bear interest at a rate of 3.50% per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year. Until October 4, 2020, under the Investment Agreement, the Purchaser was restricted from transferring the Notes or any shares of common stock issuable upon conversion of the Notes, or entering into any transaction that transfers such interests to a third party.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

During the three and nine months ended September 30, 2020 and 2019, the Company recognized interest expense and amortization of debt discount, on the Notes as below:


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Interest expense on the Notes	$	1,313	$	1,313	$	3,938	$	3,894
Amortization of debt discount on the Notes	$	654	$	618	$	1,943	$	1,836

Future principal payments/maturities for all of the Company's borrowings as of September 30, 2020 were as follows:


	Notes		Revolver Credit Facility		Structured Payables		Total
2020 (October - December)	$	0	$	0	$	474	$	474
2021	0		10,000		0		10,000
2022	0		79,000		0		79,000
2023	0		0		0		0
2024	150,000		0		0		150,000
Total	$	150,000	$	89,000	$	474	$	239,474

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 September 30, 2020 and December 31, 2019, the Company had outstanding letters of credit of $461 each, that were not recognized in the consolidated balance sheets.

18. Capital Structure

Common Stock

The Company has ~~one~~1 class of common stock outstanding.

~~During the three months ended September 30, 2017 and 2016, the~~The Company ~~did not acquire any~~purchased shares of common stock from employees in connection with withholding tax payments related to the vesting of restricted ~~stock.~~stock, as below:

During the nine months ended September 30, 2017 and 2016, the Company acquired 65,003 and 16,027 shares of common stock, respectively, from employees in connection with withholding tax payments related to the vesting of restricted stock for a total consideration of $3,016 and $728, respectively.


	Shares repurchased	Total consideration		Weighted average purchase price per share (1)
Three months ended September 30, 2020	0	$	0	$	0
Three months ended September 30, 2019	0	$	0	$	0

Nine months ended September 30, 2020	26,601	$	2,012	$	75.63
Nine months ended September 30, 2019	22,666	$	1,408	$	62.11

(1) The weighted average purchase price per share ~~of $46.40 and $45.44, respectively,~~ was the ~~average of the high and low~~closing price of the ~~Company’s~~Company's share of common stock on the Nasdaq Global Select Market on the trading day prior to the vesting date of the shares of restricted stock.

On December 30, 2014, the Company’s Board of Directors authorized a common stock repurchase program (the “2014 Repurchase Program”), under which shares were authorized to be purchased by the Company from time to time from the open market and through private transactions during each of the fiscal years 2015 through 2017 up to an annual amount of $20,000.

On February 28, 2017, the Company’s Board of Directors authorized an additional common stock repurchase program (the “2017 Repurchase Program”), under which shares may be purchased by the Company from time to time from the open market and through private transactions during each of the fiscal years 2017 through 2019 up to an aggregate additional amount

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

of $100,000. The approval ~~increases~~increased the 2017 authorization from $20,000 to $40,000 and authorizes stock repurchases of up to $40,000 in each of 2018 and 2019.

~~During~~

On December 16, 2019, the ~~three and nine months ended September 30, 2017,~~Company’s Board of Directors authorized a $200,000 common stock repurchase program beginning January 1, 2020 through December 31, 2022 (the “2019 Repurchase Program”). The shares may be purchased by the Company ~~purchased 160,033~~from time to time from the open market and ~~584,017~~through private transactions, or otherwise, as determined by the Company’s management as market conditions warrant.

The Company purchased shares of its common stock, ~~respectively, for an aggregate purchase price of approximately $9,004 and $29,320, respectively,~~ including commissions, ~~representing an average purchase price per share of $56.26 and $50.20, respectively,~~ under the ~~2014~~2019 Repurchase Program and the 2017 Repurchase ~~Program.~~Program, as applicable, as below:

During the three and nine months ended September 30, 2016, the Company purchased 108,143 and 302,953 shares of its common stock, respectively, for an aggregate purchase price of approximately $5,466 and $14,441, respectively, including commissions, representing an average purchase price per share of $50.54 and $47.67, respectively, under the 2014 Repurchase Program.


	Shares repurchased	Total consideration		Weighted average purchase price per share
Three months ended September 30, 2020	389,575	$	24,906	$	63.93
Three months ended September 30, 2019	125,744	$	8,346	$	66.38

Nine months ended September 30, 2020	565,340	$	36,889	$	65.25
Nine months ended September 30, 2019	563,769	$	34,476	$	61.15

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.

~~16.~~The 2019 Repurchase Program may be suspended or discontinued at any time. During the quarter ended March 31, 2020, to enhance the Company’s liquidity position in response to COVID-19, the Company elected to temporarily suspend share repurchases under the 2019 Repurchase Program. The 2019 Repurchase Program remains authorized by the Board of Directors and the Company resumed share repurchases effective July 1, 2020, considering improved market conditions, the Company’s capital and liquidity needs and other factors.

19. Employee Benefit Plans

The Company’s Gratuity ~~Plans~~Plan in India ~~("Gratuity~~(the "India Plan") ~~provide~~provides for a lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee’s salary and years of employment with the Company. Liabilities with regard to the Gratuity Plans are determined by actuarial valuation using the projected unit credit method. Current service costs for the Gratuity Plan are accrued in the year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of the employees.

In addition, the Company’s subsidiary operating in the Philippines conforms to the minimum regulatory benefit, which provide for lump sum payment to vested employees on retirement from employment in an amount based on the respective employee’s salary and years of employment with the Company (the "Philippines Plan"). ~~The benefit costs of~~Liabilities with regard to the India Plan and the Philippines Plan are determined by actuarial valuation using the projected unit credit method. Current service costs for these Plans are accrued in the year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are ~~calculated on an actuarial basis.~~ recognized and amortized over the remaining period of service of the employees.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

Components of net periodic benefit cost were as follows:

~~Net gratuity cost includes the following components:~~


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Service cost	$	679	$	488	$	2,021	$	1,468
Interest cost	242		219		722		659
Expected return on plan assets	(159)		(142)		(477)		(428)
Amortization of actuarial loss/(gain)	98		(40)		296		(119)
Net gratuity cost	$	860	$	525	$	2,562	$	1,580

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Service cost $ 491
$ 402
$ 1,469
$ 1,203
Interest cost 166
150
494
449
Expected return on plan assets (112 ) (104 ) (330 ) (312 )
Amortization of actuarial loss 72
23
212
67
Net gratuity cost $ 617
$ 471
$ 1,845
$ 1,407

The ~~Gratuity~~India Plan ~~in India~~ is partially funded ~~and~~whereas the Philippines plan is unfunded. The Company makes annual contributions to the employees' gratuity fund of the India Plan established with Life Insurance Corporation of India and HDFC Standard Life Insurance Company. ~~They~~Fund managers manage these funds and calculate the annual contribution required to be made by the Company and manage the ~~Gratuity Plans,~~India Plan, including any required payouts. ~~Fund managers manage these~~These funds are managed on a cash accumulation basis and ~~declare~~ interest is declared retrospectively on March 31 of each year. The Company ~~earned~~expects to earn a return of approximately ~~8.0%~~7.0% per annum on ~~these Gratuity Plans~~the India Plan for the ~~period~~year ended ~~September 30, 2017.~~December 31, 2020. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on assets and obligations related to employee benefit plans is subject to significant judgment and may cause variability in the Company’s net periodic benefit cost in future periods.


Change in Plan Assets
Plan assets at January 1, 2020	$	8,784
Actual return	506
Employer contribution	3,072
Benefits paid	(634)
Effect of exchange rate changes	(267)
Plan assets at September 30, 2020	$	11,461

Change in Plan Assets
Plan assets at January 1, 2017 $ 5,640
  Actual return 341
  Employer contribution 1,694
  Benefits paid (896 )
  Effect of exchange rate changes 227
Plan assets at September 30, 2017 $ 7,006

The Company maintains several 401(k) plans (the “401(k) Plans”) under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), covering all eligible employees, as defined in the Code as a defined contribution plan. The Company may make discretionary contributions of up to a maximum of 4%4.0% of employee compensation within certain limits. ~~Contributions~~To enhance the Company’s liquidity position in response to COVID-19, the Company elected to temporarily suspend making any discretionary contributions to the 401(k) ~~plans amounting~~Plans from January 2020 until July 2020. The Company resumed the contributions retrospectively from August 2020.

The Company's accrual for contributions to ~~$487 and $554~~the 401(k) Plans were ~~made during the three months ended September 30, 2017 and 2016, respectively, and $2,051 and $1,945 during the nine months ended September 30, 2017 and 2016, respectively.~~as follows:

During the three months ended September 30, 2017 and 2016, the Company contributed $1,845 and $1,608, respectively, and during the nine months ended September 30, 2017 and 2016, the Company contributed $5,350 and $4,619, respectively, for various defined contribution plans on behalf


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Contributions to the 401(k) Plans	$	2,661	$	779	$	2,916	$	2,901

Table of ~~its employees in India, the Philippines, Bulgaria, Romania, the Czech Republic, South Africa, Colombia, and Singapore.~~

Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

The Company's contribution for various defined benefit plans on behalf of employees in India, the Philippines, Romania, the Czech Republic, South Africa, Colombia, Australia and Singapore were as follows:

~~17.~~


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Contributions to the defined benefit plans	$	2,758	$	2,849	$	8,382	$	7,665

20. Leases

The Company conducts its operations using facilities leased under operating lease agreements that expire at various dates. The Company finances its use of certain motor vehicles and other equipment under various lease arrangements provided by financial institutions. ~~Future minimum lease payments under these capital leases as of September 30, 2017 are as follows:~~

During the next twelve months ending September 30,
2018 $ 227
2019 173
2020 128
2021 72
Total minimum lease payments 600
Less: amount representing interest 117
Present value of minimum lease payments 483
Less: current portion 168
Long term capital lease obligation $ 315

The Company ~~conducts~~had performed an evaluation of its ~~operations using~~contracts with suppliers in accordance with Topic 842 and had determined that, except for leases for office facilities, ~~leased under non-cancelable operating~~motor vehicles and other equipment as described above, none of the Company’s contracts contain a lease. In assessment of the lease term, the Company considers the extension option as part of its lease term for those lease arrangements where the Company is reasonably certain of availing the extension option. The lease agreements ~~that expire at various dates. Future minimum~~do not contain any covenant to impose any restrictions except for market-standard practice for similar lease ~~payments under non-cancelable agreements expiring after~~arrangements.

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

The Company accounts for lease-related concessions to mitigate the economic effects of COVID-19 on lessees in accordance with guidance in Topic 842, Leases, to determine on lease-by-lease basis, whether the concession provided by a lessor should be accounted for as a lease modification. Such concessions had an insignificant impact on our unaudited consolidated financial statements during the nine months ended September 30, ~~2017 are set forth below:~~2020.

During the next twelve months ending September 30,
2018 $ 10,477
2019 8,470
2020 4,795
2021 3,189
2022 1,064
2023 and thereafter 933

$ 28,928

~~Rent expense~~

The operating leases are subject to renewal periodically and have scheduled rent increases. The Company recognizes rent on such leases on a straight-line basis over cancelable and non-cancelable lease period determined under ASC topic 840, "Leases":

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Rent expense $ 6,362
$ 5,445
$ 18,168
$ 15,871

~~Deferred rent~~

As of
September 30, 2017 December 31, 2016
Cancelable and non - cancelable operating leases

$ 8,763
$ 7,915

~~Deferred rent is included under “Accrued expenses and other current liabilities” and “Non-current liabilities” in the unaudited consolidated balance sheets.~~Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

~~18.~~Supplemental balance sheet information


	As of
	September 30, 2020		December 31, 2019
Operating Lease
Operating lease right-of-use assets	$	95,873	$	86,396

Operating lease liabilities - Current	$	19,048	$	24,148
Operating lease liabilities - Non-current	89,412		74,709
Total operating lease liabilities	$	108,460	$	98,857

Finance Lease
Property and equipment, gross	$	1,626	$	1,757
Accumulated depreciation	(1,104)		(1,120)
Property and equipment, net	$	522	$	637

Finance lease liabilities - Current	$	249	$	253
Finance lease liabilities - Non-current	321		430
Total finance lease liabilities	$	570	$	683

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

During the three and nine months ended September 30, 2019, the Company performed an impairment test of its long-lived assets of its Health Integrated business. Based on the results, the operating lease ROU assets carrying value exceeded their fair value. As a result of this analysis, the Company recognized impairment on ROU assets of $0 and $989 during the three and nine months ended September 30, 2019, in the unaudited consolidated statements of income under "impairment and restructuring charges".

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,
Finance lease:	2020		2019		2020		2019
Amortization of right-of-use assets	$	52	$	68	$	177	$	198
Interest on lease liabilities	10		26		60		71
	62		94		237		269

Operating lease(a)	6,781		6,843		20,484		20,544
	6,781		6,843		20,484		20,544

Sublease income	0		(29)		0		(134)
Total lease cost	$	6,843	$	6,908	$	20,721	$	20,679

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

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

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


	Nine months ended September 30,
	2020			2019
Cash payments for amounts included in the measurement of lease liabilities :
Operating cash outflows for operating leases	$	19,780		$	19,428
Operating cash outflows for finance leases	$	60		$	71
Financing cash outflows for finance leases	$	180		$	274
Right-of-use assets obtained in exchange for new operating lease liabilities	$	19,900		$	31,189
Right-of-use assets obtained in exchange for new finance lease liabilities	$	90		$	177
Weighted-average remaining lease term
Finance lease	1.9 years			2.3 years
Operating lease	6.4 years			5.9 years
Weighted-average discount rate
Finance lease	10.3		%	8.7		%
Operating lease	7.5		%	7.2		%

The Company determines the incremental borrowing rate by adjusting the benchmark reference rates, applicable to the respective geographies where the leases were entered, with appropriate financing spreads and lease specific adjustments for the effects of collateral.

Maturities of lease liabilities as of September 30, 2020 are as follows:


	Operating Leases		Finance Leases
2020 (October 1 - December 31)	$	6,837	$	105
2021	25,974		273
2022	24,239		157
2023	22,112		110
2024	17,175		38
2025 and thereafter	44,698		6
Total lease payments	$	141,035	$	689
Less: Imputed interest	32,575		119
Present value of lease liabilities	$	108,460	$	570

Maturities of minimum lease payments as of December 31, 2019 are as follows:


During the next twelve months ending December 31,	Operating Leases		Capital Leases
2020	$	26,932	$	325
2021	23,783		251
2022	21,526		157
2023	19,381		86
2024	14,865		22
2025 and thereafter	23,983		0
Total minimum lease payment	$	130,470	$	841
Less: Imputed interest	31,613		158
Present value of minimum lease payments	$	98,857	$	683

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

21. Income Taxes

The Company determines the tax provision for interim periods using an estimate of its annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates its estimate of annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment. The impact of COVID-19 on the economic environment is uncertain and may change the annual effective tax rate, which could impact tax expense.

The Company's effective tax rate increased from 23.0% during the three months ended September 30, 2019 to 24.3% during the three months ended September 30, 2020. The Company recorded income tax expense of ~~$2,819~~$8,490 and ~~$5,646~~$5,701 for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~effective~~increase in the income tax ~~rate decreased from 26.0%~~expense was primarily as a result of (i) higher profit during the three months ended September 30, ~~2016 to 11.8% as~~2020 and(ii) recording a ~~result~~discrete benefit of ~~(i) excess tax benefit related to stock awards of $3,488 pursuant to ASU No. 2016-09~~$495 during the three months ended September 30, ~~2017, (ii) higher earnings~~2019 relating to job related incentives in India for prior years.

The Company's effective tax rate increased from ~~foreign subsidiaries and lower domestic profit in~~21.3% during the ~~U.S., partially offset by higher tax expense on account of~~nine months ended September 30, 2019 to 24.3% during the ~~expiration of a tax holiday for some of the operating centers in India.~~

nine months ended September 30, 2020. The Company recorded income tax expense of ~~$7,202~~$18,416 and ~~$18,549~~$12,571 for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~effective~~increase in income tax expense was primarily as a result of (i) recording a one-time tax expense of $1,320 due to electing a new tax regime for two of the Company’s Indian subsidiaries which provides for a lower tax rate ~~decreased from 28.6%~~on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits during the nine months ended September 30, ~~2016~~2020, compared to ~~11.0% as~~ a ~~result~~benefit of ~~(i)~~$2,520 recorded during the nine months ended September 30, 2019, (ii) higher profit during the nine months ended September 30, 2020, partially offset by (iii) recording of excess tax ~~benefit~~benefits related to stock awards of ~~$7,169~~$1,874 pursuant to ASU No. 2016-09 during the nine months ended September 30, ~~2017, (ii) conclusion of an uncertain tax position of $3,153 (including interest of $1,433), (iii) higher earnings from foreign subsidiaries and lower domestic profit in~~2020 compared to $1,094 during the ~~U.S., partially offset by higher tax expense on account of the expiration of a tax holiday for some of the operating centers in India.~~

~~The following table summarizes the activity related to the gross unrecognized tax benefits from January 1, 2017 through September 30, 2017:~~

Balance as of January 1, 2017 $ 3,087
Increases related to prior year tax positions —
Decreases related to prior year tax positions (1,720 )
Increases related to current year tax positions —
Decreases related to current year tax positions —
Effect of exchange rate changes 85
Balance as of September 30, 2017 $ 1,452

~~The unrecognized tax benefits as of September 30, 2017 of $1,452, if recognized, would impact the effective tax rate.~~

~~During the three~~nine months ended September 30, ~~2017 and 2016, the Company has~~2019.

Income tax (deferred) recognized ~~interest of nil and $50, respectively, which~~in other comprehensive income / (loss) are included in the income tax expense in the unaudited consolidated statements of income. As of September 30, 2017 and December 31, 2016, the Company has accrued interest and penalties of $240 and $1,553, relating to unrecognized tax benefits.as follows:


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Income tax (expense)/benefit on:
Unrealized gain/(loss) on cash flow hedges	$	(2,775)	$	1,636	$	(669)	$	(20)
Retirement benefits	(32)		(9)		216		(99)
Foreign currency translation gain/(loss)	(2,161)		1,961		(6,365)		842
Total income tax (expense)/benefit recognized in other comprehensive income /(loss)	$	(4,968)	$	3,588	$	(6,818)	$	723

~~19.~~

22. Stock-Based Compensation

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


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Cost of revenues	$	1,723	$	1,573	$	4,765	$	4,537
General and administrative expenses	3,358		2,957		8,038		8,713
Selling and marketing expenses	3,265		2,897		8,047		8,288
Total	$	8,346	$	7,427	$	20,850	$	21,538

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Cost of revenue $ 1,109
$ 795
$ 3,448
$ 2,848
General and administrative expenses 2,601
1,905
7,541
6,241
Selling and marketing expenses 1,998
1,784
5,782
5,654
Total $ 5,708
$ 4,484
$ 16,771
$ 14,743

AsTable of ~~September 30, 2017, the Company had 1,492,097 shares available for grant under the 2015 Amendment and Restatement of the 2006 Omnibus Award Plan.~~

Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

As of September 30, 2020, the Company had 2,327,133 shares available for grant under the 2018 Omnibus Incentive Plan.

Stock Options

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

Number of
Options Weighted Avg
Exercise
Price Aggregate
Intrinsic
Value Weighted Avg
Remaining
Contractual
Life (Years)
Outstanding at December 31, 2016 811,902
$ 16.31
$ 27,718
2.96
  Granted —
—

  Exercised (349,880 ) 12.22

  Forfeited —
—

Outstanding at September 30, 2017 462,022
$ 19.40
$ 17,980
2.97
Vested and exercisable at September 30, 2017 462,022
$ 19.40
$ 17,980
2.97

The unrecognized compensation cost for outstanding options as of September 30, 2017 is nil. The Company did not grant any options during the three and nine months ended September 30, 2017 and 2016. There were no options that vested during the three months ended September 30, 2017 and 2016. The total grant date fair value of options vested during the nine months ended September 30, 2017 and 2016 was nil and $706, respectively.


	Number of Options	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (Years)
Outstanding at December 31, 2019	98,161	$	23.39	$	4,522	1.86
Granted	0	0		—		—
Exercised	(45,742)	22.85		2,193		—
Forfeited	0	0		—		—
Outstanding at September 30, 2020	52,419	$	23.86	$	2,207	1.37
Vested and exercisable at September 30, 2020	52,419	$	23.86	$	2,207	1.37

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock unit activity under the Company’s ~~stock~~stock-based compensation plans is shown below:


	Restricted Stock			Restricted Stock Units
	Number	Weighted Average Fair Value		Number	Weighted Average Fair Value
Outstanding at December 31, 2019*	27,384	$	48.72	913,094	$	59.61
Granted	0	0		392,287	77.01
Vested	(5,002)	52.41		(323,860)	56.62
Forfeited	0	0		(63,951)	65.37
Outstanding at September 30, 2020*	22,382	$	47.90	917,570	$	67.70

Restricted Stock Restricted Stock Units
Number
Weighted Avg Grant Date
Fair Value
Number
Weighted Avg Grant Date
Fair Value
Outstanding at December 31, 2016* 246,940
$ 42.42
1,256,288
$ 37.38
Granted —
—
391,927
48.02
Vested (36,767 ) 38.74
(449,977 ) 34.69
Forfeited (4,505 ) 35.11
(96,140 ) 41.03
Outstanding at September 30, 2017* 205,668
$ 43.24
1,102,098
$ 41.94

* As of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 restricted stock units vested for which the underlying common stock is yet to be issued ~~are 146,112~~were 181,638 and ~~135,054,~~167,270 respectively.

As of September 30, ~~2017,~~2020, unrecognized compensation cost of ~~$39,553~~$48,346 is expected to be expensed over a weighted average period of ~~2.66~~2.68 years.

Performance Based Stock Awards

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


	Revenue Based PRSUs			Market Condition Based PRSUs
	Number	Weighted Average Fair Value		Number	Weighted Average Fair Value
Outstanding at December 31, 2019	87,685	$	62.54	87,670	$	82.10
Granted	61,368	78.29		61,352	102.10
Vested	0	0		0	0
Forfeited	(2,736)	66.20		(2,734)	85.68
Outstanding at September 30, 2020	146,317	$	69.08	146,288	$	90.42

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, ~~2017~~2020

(In thousands, except share and per share amounts)

~~Performance Based Stock Awards~~

~~Performance restricted stock unit (the “PRSUs”) activity under the Company’s stock plans is shown below:~~

Revenue Based PRSUs Market Condition Based PRSUs
Number
Weighted Avg Grant Date
Fair Value
Number
Weighted Avg Grant Date
Fair Value
Outstanding at December 31, 2016 115,174
$ 41.70
215,171
$ 47.42
Granted 62,113
47.73
62,100
54.10
Vested —
—
—
—
Forfeited (8,595 ) 43.96
(8,595 ) 59.40
Outstanding at September 30, 2017 168,692
$ 43.81
268,676
$ 48.58

As of September 30, ~~2017,~~2020, unrecognized compensation cost of ~~$7,095~~$9,635 is expected to be expensed over a weighted average period of ~~1.83~~1.90 years.

The impact of COVID-19 on the economic environment is uncertain and has caused variability in the estimation of number of performance based restricted stock units that will eventually vest and the related compensation cost to be recognized in the unaudited consolidated statements of income.

~~20.~~

23. Related Party Disclosures

On October 1, 2018, the Company entered into the Investment Agreement with the Purchaser relating to the issuance to the Purchaser of $150,000 aggregate principal amount of the Notes. In connection with the investment, Vikram S. Pandit, Chairman and CEO of The Orogen Group LLC (an affiliate of the Purchaser), was appointed to Company’s Board of Directors.

The Company ~~provides consulting services~~had outstanding Notes with a principal amount of $150,000 each as of September 30, 2020 and December 31, 2019 and interest accrued of $2,625 and $1,313 as of September 30, 2020 and December 31, 2019, respectively, related to ~~PharmaCord, LLC. One of~~ the ~~Company’s directors, Nitin Sahney, is the member-manager and chief executive officer of PharmaCord, LLC.~~ Investment Agreement.

The Company recognized ~~revenue of approximately $701~~interest expense on the Notes related to the Investment Agreements as below. Refer to Note 17 – Borrowings to the unaudited consolidated financial statements for details.


	Three months ended September 30,				Nine months ended September 30,
	2020		2019			2020		2019
Interest expense on Notes	$	1,313	$	1,313		$	3,938	$	3,894

24. Commitments and ~~$1,506 in the three months and nine months ended September 30, 2017, respectively, for services provided.~~Contingencies

Capital Commitments

At September 30, ~~2017 and December 31, 2016,~~2020, the Company had ~~an account receivable of $379 and nil, respectively, related to these services.~~

~~21. Commitments and Contingencies~~

~~Fixed Asset Commitments~~

~~At September 30, 2017, the Company has~~ committed to spend approximately ~~$7,407~~$2,700 under agreements to purchase ~~fixed assets.~~property and equipment. This amount is net of capital advances paid as of September 30, 2020 which are recognized in ~~respect of these purchases.~~the unaudited consolidated balance sheets as property and equipment.

Other Commitments

Certain units of the Company’s Indian subsidiaries were established as 100% Export-Oriented units or under the Software Technology Parks of India (“STPI”) or Special Economic Zone (“SEZ”) scheme promulgated by the Government of India. These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares. The Company has undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. The Company’s management believes, however, that these units have in the past satisfied and will continue to satisfy the required conditions.

The Company’s operations centers in the Philippines are registered with the Philippine Economic Zone Authority (“PEZA”). The registration provides the Company with certain fiscal incentives on the import of capital goods and local purchase of services and materials and requires ExlService Philippines, Inc. to meet certain performance and investment criteria. The Company’s management believes that these centers have in the past satisfied and will continue to satisfy the required criteria.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Contingencies

The U.S. and Indian transfer pricing regulations require that any international transaction involving associated enterprises be at an arm’s-length price. Accordingly, the Company determines the appropriate pricing for the international transactions among its associated enterprises on the basis of a detailed functional and economic analysis involving benchmarking against transactions among entities that are not under common control. The tax authorities have jurisdiction to review this arrangement and in the event that they determine that the transfer price applied was not appropriate, the Company may incur increased tax liability, including accrued interest and penalties. The Company is currently involved in disputes with the Indian tax authorities over the application

~~EXLSERVICE HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~September 30, 2017~~

~~(In thousands, except share and per share amounts)~~

of some of its transfer pricing policies for some of its subsidiaries. Further, the Company and a U.S. subsidiary are engaged in tax litigation with the income-tax authorities in India on the issue of permanent establishment. The Company is subject to taxation in the United States and various states and foreign jurisdictions. For the U.S., the Philippines and India, tax year 2016 and subsequent tax years remain open for examination by the tax authorities as of September 30, 2020.

The aggregate ~~disputed~~ amount demanded by ~~Indian~~income tax authorities (net of advance payments, if any) from the Company ~~primarily~~ related to its transfer pricing issues for ~~years ranging from~~ tax years 2003 to ~~2014~~2016 and its permanent establishment issues ~~ranging from~~for tax years 2003 to 2007 as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 is ~~$16,075~~$16,588 and ~~$17,963,~~$16,220, respectively, of which the Company has made payments and/or provided bank ~~guarantee~~guarantees to the extent ~~$8,418~~$8,041 and ~~$8,640,~~$8,108, respectively. Amounts paid as deposits in respect of such assessments aggregating to ~~$6,389~~$6,245 and ~~$6,690~~$6,252 as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to ~~$2,029~~$1,796 and ~~$1,950~~$1,856 as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s unaudited consolidated balance ~~sheets as of September 30, 2017 and December 31, 2016.~~sheets.

Based on ~~advice from its Indian tax advisors,~~ the facts underlying the Company’s position and its experience with these types of assessments, the Company believes that its position will more likely than not be sustained upon final examination by the ~~probability that it will ultimately be found liable for these assessments is remote~~tax authorities based on its technical merits as of the reporting date and accordingly has not accrued any amount with respect to these matters in its unaudited consolidated financial statements. The Company does not expect any impact from these assessments on its future income tax expense. It is possible that the Company might receive similar orders or assessments from tax authorities for subsequent years. Accordingly, even if these disputes are resolved, the Indian tax authorities may still serve additional orders or assessments.

In February 2019, there was a judicial pronouncement in India with respect to defined contribution benefits payments interpreting certain statutory defined contribution obligations of employees and employers. Currently some of the Company's subsidiaries in India are undergoing assessment with the statutory authorities. As of the reporting date, it is unclear whether the interpretation set out in the pronouncement has retrospective application. If applied retrospectively, the interpretation may result in a significant increase in contributions payable by the Company for past periods for certain of its India-based employees. There are numerous interpretative challenges concerning the retrospective application of the judgment. Due to such challenges and a lack of interpretive guidance, and based on legal advice, the Company believes it is currently impracticable to reliablyestimate the timing and amount of any payments the Company may be required to make. Accordingly, the Company will re-evaluate the amount of a potential provision, if any, upon further developments.

~~22. Subsequent Event~~

~~On October 24, 2017,~~From time to time, the Company and/or its present officers or directors, on individual basis, may be or have been, named as a ~~wholly owned subsidiary~~defendant in litigation matters, including employment-related claims. The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and attorney’s fees. With respect to pending litigation matters as of the reporting date, the Company believes that the damages amounts claimed in such cases are not meaningful indicators of the potential liabilities of the Company, ~~entered into a definitive purchase agreement~~that these matters are without merit, and that the Company intends to ~~acquire substantially all the assets~~vigorously defend each of ~~Health Integrated, Inc. Based in Tampa, Florida, Health Integrated is a care management company that provides end-to-end technology~~them.

The outcomes of legal actions are unpredictable and analytics-enabled care management services including case management, utilization management, disease management, special needs programs, and multichronic care management on behalf of health plans. Health Integrated currently serves over five million lives in the Medicaid, Medicare, and dual eligible populations. It is known for its strong capabilities in improving member health status through behavioral change. The acquisition is expected to close in the first quarter of 2018, subject to significant uncertainties, and thus it is inherently difficult to determine the ~~fulfillment~~likelihood of ~~certain closing conditions,~~the Company incurring a material loss or quantification of any such loss. With respect to pending litigation matters as of the reporting date, based on information currently available, including ~~regulatory~~the Company’s assessment of the facts underlying each matter and ~~other consents.~~advice of counsel, the amount or range of reasonably possible losses, if any, cannot be reasonably estimated. Based on the Company’s assessment, including the availability of insurance recoveries, the Company’s management does not believe that currently pending litigation, individually or in aggregate, will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in connection with our unaudited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019. Some of the statements in the following discussion are forward looking statements. Dollar amounts within Item 2 are presented as actual, ~~approximated,~~rounded, dollar amounts.

We have described in this Quarterly Report on Form 10-Q, the impact of the global Coronavirus Disease 2019 pandemic (“COVID-19”) on our financial results for the quarter ended September 30, 2020. See "Cautionary Note Regarding Forward-Looking Statements" below and in Item 1A-“Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q for further information regarding risks and uncertainties relating to COVID-19.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking ~~statements.~~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 Quarterly Report on Form 10-Q, 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 are, and will be, amplified by COVID-19. These factors include but are not limited to:

•the impact of the COVID-19 pandemic and related response measures on our business, results of operations and financial condition, including the impact of governmental lockdowns and other restrictions on our operations and processes and those of our clients and suppliers;

•our dependence on a limited number of clients in a limited number of industries;

•worldwide political, economic or business conditions;

•negative public reaction in the U.S. or elsewhere to offshore outsourcing;

•fluctuations in our earnings;

•our ability to attract and retain clients including in a timely manner;

•our ability to successfully consummate or integrate strategic acquisitions;

•our ability to accurately estimate and/or manage the costs and/or timing of winding down businesses;

•restrictions on immigration;

•our ability to hire and retain enough sufficiently trained employees to support our operations;

•our ability to grow our business or effectively manage growth and international operations;

•any changes in the senior management team;

•increasing competition in our industry;

•telecommunications or technology ~~disruptions;~~disruptions or breaches, natural or other disasters, or medical epidemics or pandemics;

•our ability to withstand the loss of a significant customer;

•our ability to realize the entire book value of goodwill and other intangible assets from acquisitions;

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•regulatory, legislative and judicial developments, including changes to or the withdrawal of governmental fiscal incentives;

•changes in tax laws or decisions regarding repatriation of funds held abroad;

•ability to service debt or obtain additional financing on favorable terms;

•legal liability arising out of customer contracts;

•technological innovation;

•political or economic instability in the geographies in which we operate;

•operational and information security failures arising as a result of remote work solutions adopted due to COVID-19;

•cyber security incidents, data breaches, or other unauthorized disclosure of sensitive or confidential client and customer data; and

•adverse outcome of our disputes with the Indian tax ~~authorities.~~authorities

~~These~~

In particular, you should consider the numerous risks outlined in Part II, Item 1A—“Risk Factors” in this Quarterly Report on Form 10-Q, Part II, Item 1A—“Risk Factors” in our Quarterly Reports on Form 10-Q for the quarter ended June 30, 2020 and ~~other factors are more fully discussed~~March 31, 2020 and Part I, Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019. These and other risks could cause actual results to differ materially from those implied by forward-looking statements in this Quarterly Report on Form 10-Q.

The forward-looking statements made by us in this Quarterly Report on Form 10-Q, or elsewhere, speak only as of the date on which they were made. New risks and uncertainties come up from time to time, and it is impossible for us to predict those events or how they may affect us. We have no obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q after the date of this Quarterly Report on Form 10-Q, except as required by federal securities laws.

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Executive Overview

We are a leading operations management and analytics company that helps our clients build and grow sustainable businesses. By orchestrating our domain expertise, data, analytics and digital technology, we look deeper to design and manage agile, customer-centric operating models to improve global operations, drive profitability, enhance customer satisfaction, increase data-driven insights, and manage risk and compliance. We serve customers in multiple industries, including insurance, healthcare, banking and financial services, utilities, travel, transportation and logistics, media and retail, among others.

We operate in the business process management (“BPM”) industry and we provide operations management and analytics ~~services that help the~~services. Effective January 1, 2020, we made certain operational and structural changes to more closely integrate our businesses and to simplify our organizational structure. We now manage and report financial information through our four strategic business ~~enhance~~units, Insurance, Healthcare, Analytics and Emerging Business, which reflects how management will review financial information and make operating decisions. These business units develop client specific solutions, build capabilities, maintain a unified go-to-market approach and are integrally responsible for service delivery, customer satisfaction, growth and profitability. ~~Using~~In line with our ~~proprietary platforms, methodologies~~strategy of vertical integration and ~~tools~~focus on domain expertise, we ~~look deeper to help~~have integrated our ~~clients improve global operations, enhance data-driven insights, increase customer satisfaction,~~Finance & Accounting and ~~manage risk and compliance. Our eight~~Consulting operating segments ~~are strategic business units that align our products~~within each of the Insurance and ~~services with how we manage our business, approach our key markets and interact with our clients. Six of those~~Healthcare operating segments ~~provide BPM or “operations management”~~based on the corresponding industry-specific clients. Finance & Accounting and Consulting services ~~which~~provided to clients outside of the Insurance and Healthcare industries is now the part of our newly formed business unit and reportable segment, Emerging Business. In addition, we ~~organize into industry-focused operating segments (Insurance, Healthcare,~~integrated our former Travel, Transportation and Logistics, Banking and Financial Services, and Utilities) and one “capability” operating segment (Finance and Accounting) that provides services to clients in our industry-focused segments as well as clients across other industries. In each of these sixUtilities operating segments ~~we provide~~under Emerging Business to further leverage and optimize the operating scale in providing operations management ~~services, which typically involve transfer~~services.

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Our new reportable segments are as follows:

•Insurance,

•Healthcare,

•Analytics, and

•Emerging Business

In conjunction with the new reporting structure, we recast our segment and goodwill disclosures for all prior periods presented to conform to the ~~Company of select business operations of a client, after which~~way we ~~administer~~internally manage and manage those operations for our client on an ongoing basis. Our remaining two operating segments are Consulting, which provides industry-specific transformational services related to operations management services, and our Analytics operatingmonitor segment ~~which provides services that focus on driving improved business outcomes for clients by generating data-driven insights across all parts of their business.~~performance.

In prior periods we presented two reportable segments: Operations Management (which included our Insurance, Healthcare, Travel, Transportation and Logistics, Finance and Accounting, Banking and Financial services, Utilities and Consulting operating segments) and Analytics. Effective for the quarter and year ended December 31, 2016, we present information for the following reportable segments:

~~Insurance~~

~~Healthcare~~

~~Travel, Transportation and Logistics (“TT&L”)~~

~~Finance and Accounting (“F&A”), and~~

~~Analytics~~

The remaining operating segments, which includes our Banking and Financial Services, Utilities and Consulting operating segments have been included in a category called “All Other”. This change in segment presentation does not affect our consolidated statements of income, balance sheets or statements of cash flows. For further descriptions of our operating segments, see Note 3 to the unaudited consolidated financial statements contained herein.

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

Continued impact of COVID-19 on Our Business

The global COVID-19 pandemic continues to materially impact worldwide economic activity and levels of business confidence and has had widespread, rapidly-evolving and unpredictable impacts on global societies, economies, financial markets and business practices. During the first fiscal quarter ended March 31, 2020, COVID-19 did not have a significant impact on our business, however, in subsequent quarters, COVID-19 materially impacted us and our customers, employees, contractors, suppliers, and other partners, who were prevented from conducting business activities as usual, including due to the health and safety measures in response to COVID-19, such as shutdowns, which have been requested or mandated by governmental authorities. The shutdown measures disrupted our ability to provide our services and solutions and resulted in, among other things, loss of revenue, increased costs and the possibility of enhanced credit risk on our accounts receivable, which is reflected in our financial operating results. The continued spread of COVID-19 and the measures taken by the governments of countries affected has disrupted the continuity of our provision of services to our customers and adversely impacted our business, financial condition or results of operations.

In the second and third quarters of 2020, we took actions in response to the pandemic that focused on the implementation of our business continuity plans, helping our employees and our customers, as well as on preparing for the future and the long-term success of our business. These actions included disseminating guidance and information to our employees, facilitating work from home, implementing best practices for employees while working from home, periodic CEO messaging, various programs aimed at employee wellness, including a global wellness program, enhanced awareness towards information security, and updated cyber security and data privacy policies, among others. We have implemented broad travel restrictions and largely moved to virtual-only events for the safety of our employees and our customers. We also implemented pandemic-specific protocols for our essential employees whose jobs require them to be on-site or with our customers by implementing additional safety measures at all of our facilities, including increased frequency in cleaning and disinfecting, and enhanced hygiene and social distancing practices. We continue to work closely with our customers and business partners to support them as they expand their own remote work solutions and contingency plans, and help them to access our products and services remotely. There continues to be volatility and economic and geopolitical uncertainty in many markets around the world. Despite the efforts described above, there is a risk that if jurisdictions in which we operate reinstate prior restrictions, stagnate in their reopening processes, or implement new restrictions in response to new outbreaks or continued spread, our operations and business could be materially impacted.

The full extent of the impact of COVID-19 on our business, results of operations, financial position and cash flow in fiscal year 2020 and beyond is currently uncertain and will depend on many factors that are not within our control, including, but not limited to: the duration and scope of the pandemic; the effectiveness of actions taken to contain or mitigate the pandemic and prevent or limit any reoccurrence; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides. We also continue to evaluate market conditions and are taking precautionary measures to strengthen our financial position, including reevaluating the pace of our investment plans, hiring practices, use of our real estate and facilities, employee compensation, stock repurchase and discretionary spending, including marketing and travel expenses. In addition, some of our expenses are less variable in nature and do not closely correlate to changes in revenues, which may lead to a decrease in our profitability. However we do not expect COVID-19 and its related economic impact to materially adversely affect our liquidity position in the foreseeable future. Due to the above circumstances and as described generally in this Quarterly Report on Form 10-Q, our results of

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operations for the three and nine months ended period ended September 30, 2020 are not necessarily indicative of our future performance, and our financial results, including but not limited to net revenues, income from operations, net income, cash flow and earnings per share, in future periods may differ materially from historical trends. We continue to monitor the implications of COVID-19 on our business, as well as our customers’ and suppliers’ businesses.

In response to certain anticipated impacts from COVID-19, we have also implemented a series of temporary cost reduction measures to further preserve financial flexibility. These actions include the postponement of certain discretionary spending and capital expenditures, deferring scheduled increases in base salaries, deferring non-critical hiring, temporarily reducing the base salaries of our executive officers and certain other groups of employees and temporarily suspending the 401(k) match program for U.S. employees. Some of these actions have been reversed as of September 30, 2020.

We have also taken certain precautionary measures to maintain financial flexibility during this time, including drawing $100.0 million from our line of credit under our existing Credit Agreement on March 12, 2020, the proceeds of which were available for working capital, general corporate or other purposes as needed, however it was repaid in full on April 20, 2020. During the quarter ended March 31, 2020, to enhance our liquidity position in response to COVID-19, management elected to temporarily suspend share repurchases under the 2019 Repurchase Program. We resumed share repurchases effective July 1, 2020, considering improved market conditions, our capital and liquidity needs and other factors, and are now targeting to repurchase up to $80.0 million for calendar year 2020, subject to market conditions.

As of September 30, 2020, due to the macroeconomic conditions arising from COVID-19, we performed a goodwill impairment test for any potential impairment and concluded that there was no impairment. However, there can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. These estimates and judgments may not be within the control of us and accordingly it is reasonably possible that the judgments and estimates could change in future periods. We determined there was no triggering event and no impairment test was performed during the three months ended September 30, 2020.

For additional information and risks related to COVID-19, see Item 1A- "Risk Factors" below.

Revenues

For the three months ended September 30, ~~2017,~~2020, we had revenues of ~~$192.3~~$241.0 million compared to revenues of ~~$171.2~~$251.4 million for the three months ended September 30, ~~2016, an increase~~2019, a decrease of ~~$21.1~~$10.4 million, or ~~12.4%~~4.1%. For the nine months ended September 30, ~~2017,~~2020, we had revenues of ~~$564.4~~$709.5 million compared to revenues of ~~$508.7~~$734.5 million for the nine months ended September 30, ~~2016, an increase~~2019, a decrease of ~~$55.7~~$25.0 million, or ~~11.0%~~3.4%.

We serve clients mainly in the ~~U.S.~~United States and the ~~U.K.,~~United Kingdom, with these two regions generating ~~approximately 82.4%~~84.6% and ~~13.9%~~9.5%, respectively, of our total revenues for the three months ended September 30, ~~2017~~2020, and ~~approximately 80.1%~~83.0% and ~~16.4%~~11.1%, respectively, of our total revenues for the three months ended September 30, ~~2016.~~2019. For the nine months ended September 30, ~~2017,~~2020, these two regions generated ~~82.0%~~84.7% and ~~14.5%~~9.2%, respectively, of our total revenues and ~~80.1%~~82.1% and ~~16.6%~~11.9%, respectively, of our total revenues for the nine months ended September 30, ~~2016.~~2019.

For the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, our total revenues from our top ten clients accounted for ~~38.3%~~38.7% and ~~41.0%~~35.7% of our total revenues, respectively. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, our total revenues from our top ten clients accounted for ~~38.7%~~37.3% and ~~40.6%~~36.2% of our total revenues, respectively. ~~None~~Our revenue concentration with our top clients remains largely 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 top ten clients ~~individually accounted for more than 10% of~~could have a material adverse effect on our total revenues during the three and nine months ended September 30, 2017 and 2016. Although we intend to continue increasing and diversifying our customer base, we expect in the near future that a significant portion of our revenue will continue to be contributed by a limited number of large clients.

financial performance.

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Our Business

We provide operations management and analytics services. 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 from the U.S., Europe and Australia.

Operations Management Services: We provide our clients with a range of operations management services ~~principally in the~~from our Insurance, Healthcare ~~Travel, Transportation~~ and Logistics, Banking and Financial Services and Utilities sectors, among others, as well as cross-industry operations management services, such as Finance and Accounting Services. We also provide services related to operations management, through our Consulting services that provide advice regarding transformational initiatives.

~~Our operations management solutions~~Emerging Business operating segments, which typically involve the transfer to ~~the Company of select~~EXL business operations of a client such as claims processing, clinical operations, or financial transaction processing, after which we administer and manage ~~the~~those operations for our client on an ongoing basis. As part of this transfer, we hire and train employees to work at our operations centers on the relevant business operations, implement a process migration to these operations centers and then provide services either to the client or directly to the client’s customers. Each client contract has different terms based on the scope, deliverables and complexity of the engagement. We also provide consulting services related to operations management that include industry-specific digital transformational services as well as cross-industry finance and accounting services as part of the Emerging Business operating segment.

We ~~have been observing~~continue to observe a shift in industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models. We believe this trend will continue and we ~~have begun to~~ use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a billing rate model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain our gross margins. In addition, we have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs. 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 may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition.

Our existing agreements with original terms of three or more years provide us with a relatively predictable revenue base for a substantial portion of our operations management business, however, 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.

Analytics: Our ~~Analytics~~analytics services focus on driving improved business outcomes for our customers by generating data-driven insights across all parts of our customers’ business. We also provide care optimization and reimbursement optimization services, for our clients through our healthcare analytics solutions and services. We also offer integrated solutions to help our clients in cost containment by leveraging technology platforms, customizable and configurable analytics and expertise in healthcare reimbursements to help clients enhance their claim payment accuracy. Our teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecycle management, risk underwriting and pricing, operational effectiveness, credit and operational risk monitoring and governance, regulatory reporting, payment integrity and care management and data management. We actively cross-sell and, where appropriate, integrate our Analytics services with other operations management services as part of a comprehensive offering ~~set~~ for our clients.

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

We expect that the growth of our operations management and analytics services will continue to be impacted throughout 2020 by the COVID-19 pandemic and subsequent global recovery. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Impact of COVID-19 on Our Business” and to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations –- Critical Accounting Policies and Estimates” and Note 2 - Summary of Significant Accounting Policiesto the ~~Consolidated Financial Statements~~consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019.

In addition, due to outbreak of COVID-19, we have reassessed those of our accounting policies whose application places the most significant demands on management’s judgment, for instance, revenue recognition, allowance for expected credit losses, business combinations, goodwill, intangibles and long-lived assets, stock-based compensation, derivative instruments and hedging activity, borrowings, assumptions related to ROU assets, lease cost, income taxes and assets and obligations related to employee benefit plans. Such reassessments did not have a significant impact on our results of operations and cash flows for the periods presented.

~~Table~~

Due to rounding, the numbers presented in the tables included in this “Item 2—Management’s Discussion and Analysis of ~~Contents~~

Financial Condition and Results of Operations” may not add up precisely to the totals provided.

Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(dollars in millions)				(dollars in millions)
Revenues, net	$	241.0	$	251.4	$	709.5	$	734.5
Cost of revenues(1)	152.1		167.5		473.1		487.2
Gross profit(1)	88.9		83.9		236.4		247.3
Operating expenses:
General and administrative expenses	26.8		29.6		84.5		93.4
Selling and marketing expenses	15.3		18.3		42.8		54.0
Depreciation and amortization expense	12.4		13.1		37.3		39.5
Impairment and restructuring charges	—		0.5		—		7.3
Total operating expenses	54.5		61.5		164.6		194.2
Income from operations	34.4		22.4		71.8		53.1
Foreign exchange gain, net	0.7		1.0		3.5		3.5
Interest expense	(2.6)		(3.2)		(8.6)		(10.6)
Other income, net	2.5		4.6		9.2		13.1
Income before income tax expense and earnings from equity affiliates	35.0		24.8		75.9		59.1
Income tax expense	8.5		5.7		18.4		12.6
Income before earnings from equity affiliates	26.5		19.1		57.5		46.5
Loss from equity-method investment	0.1		0.1		0.2		0.2
Net income attributable to ExlService Holdings, Inc. stockholders	$	26.4	$	19.0	$	57.3	$	46.3

(1) Exclusive of depreciation and amortization expense.

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(dollars in millions)
(dollars in millions)

Revenues, net $ 192.3
    $ 171.2
$ 564.4
$ 508.7
Cost of revenues (exclusive of depreciation and amortization) 124.9
    111.8
370.5
332.2
Gross profit 67.4
59.4
193.9
176.5
Operating expenses:
General and administrative expenses 26.9
    21.9
75.8
63.6
Selling and marketing expenses 12.2
    11.6
38.7
37.9
Depreciation and amortization 9.7
    8.6
28.8
25.0
Total operating expenses 48.8
42.1
143.3
126.5
Income from operations 18.6
    17.3
50.6
50.0
Foreign exchange gain, net 2.8
    1.7
7.3
3.6
Interest expense (0.4 ) (0.3 ) (1.4 ) (1.0 )
Other income, net 2.9
    2.9
8.9
12.2
Income before income tax expense 23.9
21.6
65.4
64.8
Income tax expense 2.8
    5.6
7.2
18.5
Net income $ 21.1
$ 16.0
$ 58.2
$ 46.3

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Three Months Ended September 30, ~~2017~~2020 Compared to Three Months Ended September 30, ~~2016~~2019

Revenues.

The following table summarizes our revenues by reportable ~~segment~~segments for the three months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


	Three months ended September 30,						Percentage change
	2020		2019		Change
	(dollars in millions)
Insurance	$	87.8	$	91.1	$	(3.3)	(3.6)	%
Healthcare	25.1		25.6		(0.5)		(2.0)	%
Emerging Business	37.6		45.9		(8.3)		(18.2)	%
Analytics	90.5		88.8		1.7		2.0	%
Total revenues, net	$	241.0	$	251.4	$	(10.4)	(4.1)	%

Three months ended September 30,
Percentage
change
2017 2016 Change
(dollars in millions)
Insurance $ 59.6
$ 52.8
$ 6.8
12.9 %
Healthcare 18.9
16.0
2.9
18.2 %
Travel, Transportation and Logistics 18.5
17.5
1.0
5.6 %
Finance and Accounting 21.6
19.9
1.7
9.0 %
All Other 20.0
23.4
(3.4 ) (14.7 )%

Analytics 53.7
41.6
12.1
29.1 %
Total revenues, net $ 192.3
$ 171.2
$ 21.1
12.4 %

Revenues for the three months ended September 30, ~~2017~~2020 were ~~$192.3~~$241.0 million, ~~up $21.1~~down $10.4 million, or ~~12.4%~~4.1%, compared to the three months ended September 30, ~~2016.~~2019. The impact of the COVID-19 pandemic on our net revenues in the third quarter of 2020 was primarily related to clients adapting to the shift in our delivery capabilities from a physical to a virtual, work-from-home operating environment as well as economic uncertainty leading to lower volumes from some existing clients and causing delays in the execution and implementation of new client contracts, which impacted growth.

Revenue ~~growth~~decline in Insurance of ~~$6.8~~$3.3 million was primarily driven by ramp down of certain client contracts and lower volumes due to the impact of COVID-19 aggregating to $14.1 million, partially offset by expansion of business from ~~our new and~~certain existing clients ~~of $6.4 million. The remaining increase of $0.4~~aggregating to $10.6 million isand $0.2 million mainly attributable to ~~a net impact of~~the appreciation of Australian dollar and U.K pound sterling against the U.S. dollar and depreciation of the Indian rupee and South African ~~Rand and Indian rupee~~ZAR against the U.S. dollar during the three months ended September 30, ~~2017~~2020, compared to the three months ended September 30, ~~2016.~~2019. Insurance revenues were ~~31.0%~~36.4% and ~~30.9%~~36.2% of our total revenues in the three months ended September 30, ~~2017~~2020 and September 30, ~~2016,~~2019, respectively.

Revenue ~~growth~~decline in Healthcare of $0.5 million was primarily driven by our December 2019 wind-down of Health Integrated business revenues of $2.9 million, ~~was driven~~partially offset by expansion of business from ~~our new and existing clients. Healthcare revenues were 9.8% and 9.3% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, respectively.~~

~~Revenue growth in Travel, Transportation and Logistics ("TT&L") of $1.0 million was primarily driven by net volume increase from our new and~~certain existing clients ~~of $1.2~~aggregating to $2.4 million ~~partially offset by $0.2 million impact due to depreciation of the Philippine Peso against the U.S. dollar~~ during the three months ended September 30, ~~2017 compared to the three months ended September 30, 2016. TT&L~~2020. Healthcare revenues were ~~9.6%~~10.4% and 10.2% of our total revenues in the three months ended September 30, ~~2017~~2020 and September 30, ~~2016,~~2019, respectively.

Revenue growth in Finance and Accounting ("F&A") of $1.7 million was driven by expansion of business from our new and existing clients. F&A revenues were 11.3% and 11.6% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, respectively.

Revenue decline in ~~All Other~~Emerging Business of ~~$3.4~~$8.3 million was primarily driven ~~primarily~~ by lower ~~revenue in our Consulting and Utilities operating segments, aggregating to $3.7 million. This was partially offset by a net increase of $0.3 million~~volumes due to the ~~appreciation~~impact of COVID-19 and ramp down of certain client contracts aggregating to $7.9 million and $0.4 million attributable to the depreciation of the Indian rupee against the U.S. dollar during the three months ended September 30, ~~2017~~2020, compared to the three months ended September 30, ~~2016. All Other~~2019. Emerging Business revenues were ~~10.4%~~15.6% and ~~13.7%~~18.3% of our total revenues in the three months ended September 30, ~~2017~~2020 and September 30, ~~2016,~~2019, respectively.

Revenue growth in Analytics of ~~$12.1~~$1.7 million was ~~driven by our recurring and project based engagements~~attributable to higher volumes from our ~~new and~~ existing clients of ~~$11.9~~$1.4 million, ~~including $6.5~~and $0.3 million ~~from our IQR Consulting Inc. ("IQR") and Datasource Consulting, LLC ("Datasource") acquisitions in 2016. The increase of $0.2 million is~~ attributable to the appreciation of ~~Indian rupee~~the U.K. pound sterling against the U.S. dollar during the three months ended September 30, ~~2017~~2020, compared to the three months ended September 30, ~~2016.~~2019. Analytics revenues were ~~27.9%~~37.5% and ~~24.3%~~35.3% of our total revenues in the three months ended September 30, ~~2017~~2020 and September 30, ~~2016,~~2019, respectively.

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Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.


	Cost of Revenues								Gross Margin
	Three months ended September 30,				Change		Percentage change		Three months ended September 30,				Change
	2020		2019						2020		2019
	(dollars in millions)
Insurance	$	56.8	$	62.2	$	(5.4)	(8.7)	%	35.3	%	31.7	%	3.6	%
Healthcare	18.0		20.4		(2.4)		(11.8)	%	28.4	%	20.4	%	8.0	%
Emerging Business	20.8		27.1		(6.3)		(23.2)	%	44.7	%	41.0	%	3.7	%
Analytics	56.5		57.8		(1.3)		(2.4)	%	37.6	%	34.8	%	2.8	%
Total	$	152.1	$	167.5	$	(15.4)	(9.2)	%	36.9	%	33.4	%	3.5	%

Cost of Revenues Gross Margin
Three months ended September 30,
Percentage
change
Three months ended September 30, Change
2017 2016 Change 2017 2016
(dollars in millions)
Insurance $ 39.7
$ 37.8
$ 1.9
5.0 % 33.4 % 28.4 % 5.0 %
Healthcare 12.0
10.9
1.1
9.9 % 36.6 % 31.8 % 4.8 %
TT&L 10.1
10.6
(0.5 ) (4.7 )% 45.2 % 39.3 % 5.9 %
F & A 13.3
12.0
1.3
10.8 % 38.5 % 39.5 % (1.0 )%
All Other 13.6
14.7
(1.1 ) (7.0 )% 31.8 % 37.4 % (5.6 )%

Analytics 36.2
25.8
10.4
40.2 % 32.7 % 38.1 % (5.4 )%
Total $ 124.9
$ 111.8
$ 13.1
11.7 % 35.1 % 34.7 % 0.4 %

For the three months ended September 30, ~~2017,~~2020, cost of revenues was ~~$124.9~~$152.1 million compared to ~~$111.8~~$167.5 million for the three months ended September 30, ~~2016, an increase~~2019, a decrease of ~~$13.1~~$15.4 million, or ~~11.7%~~9.2%. Our gross margin for the three months ended September 30, ~~2017~~2020 was ~~35.1%~~36.9% compared to ~~34.7%~~33.4% for the three months ended September 30, ~~2016,~~2019, an increase of 40350 basis points (“bps”).

The ~~increase~~decrease in cost of revenues in Insurance of ~~$1.9~~$5.4 million was primarily due to ~~an increase~~decrease in employee-related costs of ~~$1.6~~$3.9 million, ~~on account of higher headcount and wage inflation, technology and infrastructure~~lower travel costs of ~~$0.6~~$2.2 million and currency movements, net of hedging of $0.3 million. This was ~~partially~~ offset by ~~a decrease in~~higher technology and other operating costs of ~~$0.4~~$0.9 million. ~~There was a net increase of $0.2 million due to the appreciation of the Indian rupee and depreciation of the Philippine peso against the U.S. dollar~~Gross margin in Insurance increased by 360 bps during the three months ended September 30, ~~2017~~2020 compared to the three months ended September 30, ~~2016.~~2019, primarily due to expansion in margin in certain existing clients and lower operating expenses as a result of COVID-19 cost reduction measures during the three months ended September 30, 2020.

The decrease in cost of revenues in Healthcare of $2.4 million was primarily due to decrease in employee-related costs of $2.2 million, lower travel costs of $0.3 million and currency movements, net of hedging of $0.1 million, partially offset by higher other operating costs of $0.2 million. Gross margin in Healthcare increased by ~~500~~800 bps during the three months ended September 30, ~~2017~~2020, compared to the three months ended September 30, ~~2016,~~2019, primarily due to ~~higher revenues and~~lower margin ~~expansion~~ in ~~existing clients.~~

The increase in cost of revenues in Healthcare of $1.1 million was primarily due to an increase in employee-related costs of $1.2 million on account of higher headcount and wage inflation, technology and infrastructure costs of $0.3 million. This was partially offset by $0.4 million due to the ~~depreciation of the Philippine peso against the U.S. dollar~~Heath Integrated business during the three months ended September 30, ~~2017 compared to the three months ended September 30, 2016. Gross margin increased by 480 bps~~2019 and higher revenues during the three months ended September 30, ~~2017 compared to the three months ended September 30, 2016, primarily due to higher revenues and operational efficiencies.~~2020.

The decrease in cost of revenues in ~~TT&L~~Emerging Business of ~~$0.5~~$6.3 million was primarily due to a decrease in employee-related costs of $4.9 million, lower infrastructure and travel costs of $1.5 million and currency movements, net of hedging of $0.2 million, ~~on account of lower headcount (partially~~partially offset by ~~wage inflation), decrease in infrastructure costs of $0.1 million and decrease in~~higher other operating costs of ~~$0.1~~$0.3 million. ~~There was a decrease of $0.1 million due to the depreciation of the Philippine peso against the U.S. dollar~~Gross margin in Emerging Business increased by 370 bps during the three months ended September 30, ~~2017~~2020, compared to the three months ended September 30, ~~2016.~~2019, primarily due to lower operating expenses as a result of COVID-19 cost reduction measures during the three months ended September 30, 2020.

The decrease in cost of revenues in Analytics of $1.3 million was primarily due to lower travel costs of $1.8 million, lower other operating costs of $1.1 million, lower infrastructure costs of $0.5 million and currency movements, net of hedging of $0.4 million. This was partially offset by an increase in employee-related costs of $1.5 millionand technology costs of $0.9 million. Gross margin in Analytics increased by ~~590~~280 bps during the three months ended September 30, ~~2017 as~~2020, compared to the three months ended September 30, ~~2016 due to margin expansion in existing clients and lower operating costs.~~

The increase in cost of revenues in F&A of $1.3 million was primarily due to an increase in employee-related costs of $0.6 million on account of higher headcount and wage inflation, infrastructure costs of $0.1 million and travel costs of $0.4 million. There was an increase of $0.3 million due to the appreciation of the Indian rupee against the US dollar during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Gross margin decreased by 100 bps during the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to migration costs associated with our new client wins and higher reimbursable travel related costs with lower gross margin.

The decline in cost of revenues in All Other of $1.1 million was primarily due to a decrease in employee-related costs of $0.6 million on account of lower headcount, partially offset by wage inflation. There was also a decrease in travel related costs of $0.3 million, infrastructure costs and other operating costs aggregating to $0.2 million during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Gross margin decreased by 560 bps during the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily due to lower revenues in our Consulting and Utilities operating segments.

The increase in cost of revenues in Analytics of $10.4 million was primarily due to an increase in employee-related costs of $9.0 million (including $5.4 million related to the IQR and Datasource acquisitions in 2016) on account of higher

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headcount and wage inflation, and an increase in technology costs of $0.4 million, infrastructure costs of $0.5 million and travel costs of $0.4 million. This was partially offset by a reduction in our other operating expenses of $0.4 million. There was an increase of $0.3 million due to the appreciation of the Indian rupee against the U.S. dollar during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Gross margin decreased by 540 bps during the three months ended September 30, 2017 compared to the three months ended September 30, 2016,2019, primarily due to higher ~~operating costs~~revenues and lower ~~gross margin from our 2016 acquisitions.~~operating expenses as a result of COVID-19 cost reduction measures.

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Selling, General and Administrative (“SG&A”) Expenses.


	Three months ended September 30,						Change		Percentage change
	2020			2019
	(dollars in millions)
General and administrative expenses	$	26.8		$	29.6		$	(2.8)	(9.4)	%
Selling and marketing expenses	15.3			18.3			(3.0)		(16.5)	%
Selling, general and administrative expenses	$	42.1		$	47.9		$	(5.8)	(12.1)	%
As a percentage of revenues	17.5		%	19.1		%

Three months ended September 30,
Percentage
change
2017 2016 Change
(dollars in millions)
General and administrative expenses $ 26.9
$ 21.9
$ 5.0
23.0 %
Selling and marketing expenses 12.2
11.6
0.6
5.2 %
Selling, general and administrative expenses $ 39.1
$ 33.5
$ 5.6
16.8 %
As a percentage of revenues 20.3 % 19.6 %

The ~~increase~~decrease in SG&A expenses of $5.8 million was primarily due to ~~an increase in~~COVID-19 cost reduction measures including the temporary reduction of the base salaries of our executive officers and certain other groups of employees. The decrease was driven by lower employee-related costs of $4.7 million, lower travel costs of $1.7 million, partially offset by higher other operating costs of $0.6 million.

Depreciation and Amortization.


	Three months ended September 30,						Change		Percentage change
	2020			2019
	(dollars in millions)
Depreciation expense	$	9.0		$	7.5		$	1.5	19.4	%
Intangible amortization expense	3.4			5.6			(2.2)		(38.0)	%
Depreciation and amortization expense	$	12.4		$	13.1		$	(0.7)	(4.8)	%
As a percentage of revenues	5.2		%	5.2		%

The decrease in intangibles amortization expense of $2.2 million (including $1.6 million of incremental employee-related costs related to our 2016 acquisitions) as a result of annual wage increments and an increase in our average headcount to support the increased business volumes. There was ~~an increase of $1.8 million~~primarily due to ~~recognition~~end of ~~reserve~~useful lives for doubtful account receivables, $0.5 million of infrastructure costs related to our new operating centers and $0.5 million of other operating expenses. There was a net increase of $0.2 million due to the appreciation of the Indian rupee and depreciation of the Philippine peso against the U.S. dollarcertain intangible assets during the three months ended September 30, ~~2017~~2020 compared to the three months ended September 30, ~~2016.~~2019. The increase in depreciation expense of $1.5 million was due to depreciation related to our investments in new operating centers to support our business growth.

~~Depreciation~~

Impairment and ~~Amortization.~~Restructuring Charges.


	Three months ended September 30,								Percentage change
	2020			2019			Change
	(dollars in millions)
Impairment and restructuring charges	$	—		$	0.5		$	(0.5)	(100.0)	%
As a percentage of revenues	—		%	0.2		%

Three months ended September 30,
Percentage
change
2017 2016 Change
(dollars in millions)
Depreciation expense $ 6.2
$ 5.7
$ 0.5
8.2 %
Intangible amortization expense 3.5
2.9
0.6
22.4 %
Depreciation and amortization expense $ 9.7
$ 8.6
$ 1.1
12.9 %
As a percentage of revenues 5.0 % 5.0 %

~~Depreciation and amortization expense~~During the three months ended September 30, 2019, we recorded restructuring charges of $0.5 million in connection with the wind-down of our Health Integrated business.

Income from Operations. Income from operations increased by ~~$1.1~~$12.0 million, or ~~12.9%~~53.4%, from ~~$8.6~~$22.4 million for the three months ended September 30, ~~2016~~2019 to ~~$9.7~~$34.4 million for the three months ended September 30, 2017. The increase in intangibles amortization expense of $0.6 million was primarily due to amortization of intangibles associated with IQR and Datasource acquisitions in 2016. There was an increase in our depreciation expense of $0.5 million, due to depreciation related to our new operating centers in India and the Philippines to support our business growth and impact of our 2016 acquisitions.

~~Income from Operations.~~ ~~Income from operations increased $1.3 million, or 7.5%, from $17.3 million for the three months ended September 30, 2016 to $18.6 million for the three months ended September 30, 2017.~~2020. As a percentage of revenues, income from operations ~~decreased~~increased from ~~10.1%~~8.9% for the three months ended September 30, ~~2016~~2019 to ~~9.7%~~14.3% for the three months ended September 30, ~~2017.~~2020.

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ended September 30, ~~2017.~~2020. The average exchange rate of the U.S. dollar against the Indian rupee ~~decreased~~increased from ~~66.73~~70.35 during the three months ended September 30, ~~2016~~2019 to ~~64.45~~74.06 during the three months ended September 30, ~~2017.~~2020. The average exchange rate of the U.K. ~~Pound~~pound sterling against the U.S. dollar ~~remained flat at~~increased from 1.22 during the three months ended September 30, 2019 to 1.31 during the three months ended September 30, ~~2016 and September 30, 2017.~~2020. The average exchange rate of the U.S. dollar against the Philippine peso ~~increased~~decreased from ~~47.40~~51.59 during the three months ended September 30, ~~2016~~2019 to ~~50.82~~48.71 during the three months ended September 30, ~~2017.~~2020. The average exchange rate of the U.S. dollar against the Australian dollar decreased from 1.47 during the three months ended September 30, 2019 to 1.39 during the three months ended September 30, 2020.

We recorded a net foreign exchange gain of ~~$2.8~~$0.7 million for the three months ended September 30, ~~2017~~2020 compared to ~~$1.7~~the net foreign exchange gain of $1.0 million for the three months ended September 30, ~~2016.~~2019.

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Interest expense. Interest expense ~~increased $0.1 million,~~decreased from ~~$0.3~~$3.2 million for the three months ended September 30, ~~2016~~2019 to ~~$0.4~~$2.6 million for the three months ended September 30, ~~2017.~~2020, primarily due to repayments leading to lower outstanding borrowings and lower effective interest rates under our Credit Facility during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Other Income, net.


	Three months ended September 30,						Percentage change
	2020		2019		Change
	(dollars in millions)
Gain on sale and mark-to-market of mutual funds	$	2.0	$	3.2	$	(1.2)	(38.9)	%
Interest income	0.8		0.5		0.3		58.9	%
Other, net	(0.3)		0.9		(1.2)		(130.1)	%
Other income, net	$	2.5	$	4.6	$	(2.1)	(45.5)	%

Other income, net ~~was flat at $2.9~~decreased by $2.1 million, from $4.6 million for the three months ended September 30, 2019 to $2.5 million for the three months ended September 30, 2020, primarily due to lower return on mutual fund investments of $1.2 million during the three months ended September 30, ~~2017.~~

~~Income Tax Expense.~~ ~~The effective tax rate decreased from 26.0%~~2020 compared to the three months ended September 30, 2019 and recognition of one-time other income of $0.8 million related to our Health Integrated business during the three months ended September 30, ~~2016 to 11.8% as a result of (i) excess~~2019.

Income Tax Expense. The effective tax ~~benefit related to stock awards of $3.5 million pursuant to ASU No. 2016-09~~rate increased from 23.0% during the three months ended September 30, ~~2017, and (ii) higher earnings from foreign subsidiaries and lower domestic profit in~~2019 to 24.3% during the ~~U.S., partially offset by higher~~three months ended September 30, 2020. We recorded income tax expense ~~on account~~ of ~~the expiration of a tax holiday for some of the operating centers in India~~

~~Net Income.~~ ~~Net income increased from $16.0~~$8.5 million and $5.7 million for the three months ended September 30, ~~2016~~2020 and 2019, respectively. The increase in income tax expense was primarily as a result of (i) higher profit during the three months ended September 30, 2020 and (ii) recording a discrete benefit of $0.5 million during the three months ended September 30, 2019 relating to ~~$21.1~~job related incentives in India for prior years.

Net Income. Net income increased from $19.0 million for the three months ended September 30, ~~2017,~~2019 to $26.4 million for the three months ended September 30, 2020, primarily due to increase in income from operations of $12.0 million, lower interest expense of $0.6 million. This was partially offset by higher income tax expense of $2.8 million, ~~higher~~lower other income, ~~from operations~~net of ~~$1.3~~$2.1 million, ~~higher~~lower foreign exchange gain, net of ~~$1.1 million, partially offset by higher interest expense of $0.1~~$0.3 million. As a percentage of revenues, net income increased from ~~9.4%~~7.6% for the three months ended September 30, ~~2016~~2019 to 11.0% for the three months ended September 30, ~~2017.~~2020.

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Nine Months Ended September 30, ~~2017~~2020 Compared to Nine Months Ended September 30, ~~2016~~2019

Revenues.

The following table summarizes our revenues by reportable ~~segment~~segments for the nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


	Nine months ended September 30,							Percentage change			Nine months ended September 30,						Percentage change
	2017		2016		Change						2020		2019		Change
	(dollars in millions)										(dollars in millions)
Insurance	$	173.8	$	151.7	$	22.1		14.6	%	Insurance	$	252.9	$	258.0	$	(5.1)	(2.0)	%
Healthcare	56.7		49.8		6.9			13.9	%	Healthcare	77.1		69.6		7.5		10.8	%
Travel, Transportation and Logistics	53.4		52.6		0.8			1.4	%
Finance and Accounting	63.7		59.0		4.7			8.0	%
All Other	62.5		75.4		(12.9		)	(17.1	)%

Emerging Business										Emerging Business	114.9		143.3		(28.4)		(19.8)	%
Analytics	154.3		120.2		34.1			28.4	%	Analytics	264.6		263.6		1.0		0.4	%
Total revenues, net	$	564.4	$	508.7	$	55.7		11.0	%	Total revenues, net	$	709.5	$	734.5	$	(25.0)	(3.4)	%

Revenues for the nine months ended September 30, ~~2017~~2020 were ~~$564.4~~$709.5 million, ~~up $55.7~~down $25.0 million, or ~~11.0%~~3.4%, compared to the nine months ended September 30, ~~2016.~~2019. The impact of the COVID-19 pandemic on our net revenues for the nine months ended September 30, 2020 was primarily related to clients adapting to the shift in our delivery capabilities from a physical to a virtual, work-from-home operating environment, as well as economic uncertainty leading to lower volumes from some existing clients and causing delays in the execution and implementation of new client contracts, which impacted growth.

Revenue ~~growth~~decline in Insurance of ~~$22.1~~$5.1 million was primarily driven by lower volumes due to the impact of COVID-19 and ramp down of certain client contracts, partially offset by expansion of business from ~~our new and~~certain existing clients ~~of $21.1~~aggregating to $3.8 million ~~including incremental $2.6~~and $1.4 million ~~related to the July 2016 acquisition of Liss Systems Limited ("Liss"). The remaining increase of $1.0 million is~~mainly attributable to ~~a net impact of appreciation of~~ the ~~South African Rand and Indian rupee and~~ depreciation of the ~~U.K. Pound sterling~~Indian rupee, Australian dollar and South African ZAR against the U.S. dollar during the nine months ended September 30, ~~2017~~2020 compared to the nine months ended September 30, ~~2016.~~2019. Insurance revenues were ~~30.8%~~35.6% and ~~29.8%~~35.1% of our total revenues in the nine months ended September 30, ~~2017~~2020 and September 30, ~~2016,~~2019, respectively.

Revenue growth in Healthcare of ~~$6.9~~$7.5 million was primarily driven by expansion of business from our existing clients and new ~~clients.~~wins aggregating to $17.2 million, partially offset by our December 2019 wind-down of Health Integrated business revenues of $9.7 million during the nine months ended September 30, 2019. Healthcare revenues were ~~10.0%~~10.9% and ~~9.8%~~9.5% of our total revenues in the nine months ended September 30, ~~2017~~2020 and September 30, ~~2016,~~2019, respectively.

Revenue ~~growth~~decline in ~~TT&L~~Emerging Business of ~~$0.8~~$28.4 million was primarily driven by ~~net volume increases from our existing clients of $1.6 million, partially offset by an impact of $0.8 million~~lower volumes due to the ~~depreciation~~impact of ~~the Philippine Peso against the U.S. dollar during the nine months ended September 30, 2017 compared~~COVID-19 and ramp down of certain client contracts aggregating to ~~the nine months ended September 30, 2016. TT&L revenues were 9.5%~~$26.7 million, and ~~10.4% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.~~

~~Revenue growth in F&A of $4.7~~$1.7 million ~~was driven by expansion of business from our new and existing clients of $4.4 million. The remaining increase of $0.3 million is~~ attributable to the ~~appreciation of Indian rupee against the U.S. dollar~~

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during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. F&A revenues were 11.3% and 11.6% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.

Revenue decline in All Other of $12.9 million was driven primarily by lower revenue in our Consulting and Utilities operating segments, partially offset by higher revenue in our Banking and Financial Services operating segment, aggregating to $13.1 million. This was partially offset by $0.2 million impact due to the depreciation of the U.K. Pound sterling against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 in our Consulting operating segment. All Other revenues were 11.1% and 14.8% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.

Revenue growth in Analytics of $34.1 million was driven by our recurring and project based engagements from our new and existing clients of $34.4 million, including incremental $18.6 million from IQR and Datasource acquisitions in 2016. The increase was partially offset by a decrease of $0.3 million due to the depreciation of the U.K. Pound sterling against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Analytics revenues were 27.3% and 23.6% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.

~~Cost of Revenues and Gross Margin~~: ~~The following table sets forth cost of revenues and gross margin of our reportable segments.~~

Cost of Revenues Gross Margin
Nine months ended September 30,
Percentage
change
Nine months ended September 30, Change
2017 2016 Change 2017 2016
(dollars in millions)
Insurance $ 119.0
$ 108.5
$ 10.5
9.7 % 31.5 % 28.5 % 3.0 %
Healthcare 36.4
32.5
3.9
12.2 % 35.8 % 34.8 % 1.0 %
TT&L 30.8
31.9
(1.1 ) (3.4 )% 42.2 % 39.4 % 2.8 %
F & A 39.2
35.4
3.8
10.7 % 38.5 % 40.0 % (1.5 )%
All Other 42.8
47.8
(5.0 ) (10.6 )% 31.6 % 36.6 % (5.0 )%

Analytics 102.3
76.1
26.2
34.4 % 33.7 % 36.7 % (3.0 )%
Total $ 370.5
$ 332.2
$ 38.3
11.5 % 34.4 % 34.7 % (0.3 )%

For the nine months ended September 30, 2017, cost of revenues was $370.5 million compared to $332.2 million for the nine months ended September 30, 2016, an increase of $38.3 million, or 11.5%. Our gross margin for the nine months ended September 30, 2017 was 34.4% compared to 34.7% for the nine months ended September 30, 2016, a decrease of 30 basis points (bps).

The increase in cost of revenues in Insurance of $10.5 million was primarily due to an increase in employee-related costs of $8.2 million (including $1.3 million from our Liss acquisition) on account of higher headcount and wage inflation, and technology and infrastructure costs of $2.8 million. This was partially offset by a decrease in travel related costs of $0.6 million and other operating costs of $0.7 million. There was a net increase of $0.7 million due to the appreciation of the Indian rupee and depreciation of the Philippine peso against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Gross margin increased by 300 bps during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to higher revenues and lower operating costs.

The increase in cost of revenues in Healthcare of $3.9 million was primarily due to an increase in employee-related costs of $3.9 million on account of higher headcount and wage inflation, technology costs of $0.6 million and infrastructure costs of $0.4 million. This was partially offset by a decrease of $1.0 million due to the depreciation of the Philippine peso against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Gross margin increased by 100 bps during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to higher revenues and operational efficiencies.

The decrease in cost of revenues in TT&L of $1.1 million was primarily due to decrease in infrastructure cost of $0.3 million, other operating costs of $0.2 million and employee-related costs of $0.1 million on account of lower headcount (partially offset by wage inflation).The cost of revenue also decreased due to depreciation of the Philippine peso against the U.S. dollar of $0.3 million during the nine months ended September 30, 2017 compared to the nine months ended September

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30, 2016. Gross margin increased by 280 bps during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily due to higher revenues and lower operating costs.

The increase in cost of revenues in F&A of $3.8 million was primarily due to an increase in employee-related costs of $2.3 million on account of higher headcount and wage inflation and infrastructure costs of $0.7 million. There was an increase of $0.7 million due to the appreciation of the Indian rupee against the U.S. dollar during the nine months ended September 30, ~~2017~~2020 compared to the nine months ended September 30, ~~2016. Gross margin decreased~~2019. Emerging Business revenues were 16.2% and 19.5% of our total revenues in the nine months ended September 30, 2020 and September 30, 2019, respectively.

Revenue growth in Analytics of $1.0 million was attributable to our recurring and project-based engagements from our existing clients of $1.2 million, partially offset by ~~150 bps~~$0.2 million attributable to the depreciation of the U.K. pound sterling against the U.S. dollar during the nine months ended September 30, ~~2017~~2020 compared to the nine months ended September 30, ~~2016, primarily due~~2019. Analytics revenues were 37.3% and 35.9% of our total revenues in the nine months ended September 30, 2020 and September 30, 2019, respectively.

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Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.


	Cost of Revenues								Gross Margin
	Nine months ended September 30,						Percentage change		Nine months ended September 30,				Change
	2020		2019		Change				2020		2019
	(dollars in millions)
Insurance	$	174.9	$	176.9	$	(2.0)	(1.1)	%	30.8	%	31.4	%	(0.6)	%
Healthcare	57.2		56.0		1.2		2.3	%	25.8	%	19.6	%	6.2	%
Emerging Business	68.7		82.1		(13.4)		(16.4)	%	40.2	%	42.6	%	(2.4)	%
Analytics	172.3		172.2		0.1		0.1	%	34.9	%	34.7	%	0.2	%
Total	$	473.1	$	487.2	$	(14.1)	(2.9)	%	33.3	%	33.7	%	(0.4)	%

For the nine months ended September 30, 2020, cost of revenues was $473.1 million compared to ~~migration costs associated with our new client wins and higher reimbursable travel related costs with lower~~$487.2 million for the nine months ended September 30, 2019, a decrease of $14.1 million, or 2.9%. Our gross ~~margin.~~margin for the nine months ended September 30, 2020 was 33.3% compared to 33.7% for nine months ended September 30, 2019, a decrease of 40 bps.

The ~~decline~~decrease in cost of revenues in ~~All Other~~Insurance of ~~$5.0~~$2.0 million was primarily due to a decrease in employee-related costs of ~~$2.9~~$2.2 million, ~~on account~~lower travel costs of ~~lower headcount,~~$1.8 million and currency movements, net of hedging of $1.8 million. This was partially offset by ~~wage inflation. There was also a decrease in travel related~~higher infrastructure and technology costs of ~~$1.6~~$2.6 million and other operating ~~expenses~~costs of ~~$0.5~~$1.2 million. Gross margin in Insurance decreased by ~~500~~60 bps during the nine months ended September 30, ~~2017~~2020 compared to the nine months ended September 30, ~~2016,~~2019, primarily due to lower revenues in ~~our Consulting and Utilities operating segments.~~existing clients.

The increase in cost of revenues in ~~Analytics~~Healthcare of ~~$26.2~~$1.2 million was primarily due to an increase in employee-related costs of ~~$24.8~~$1.5 million ~~(including incremental $15.1 million related to our IQR~~ and ~~Datasource acquisitions in 2016) on account of higher headcount and wage inflation, an increase in technology~~other operating costs of ~~$0.9 million, infrastructure costs of $0.9 million and travel costs of $0.3~~$0.5 million. This was partially offset by ~~reduction in our other operating~~lower technology costs of ~~$1.4~~$0.4 million and currency movements, net of hedging of $0.4 million. ~~There was an increase of $0.6 million due to the appreciation of the Indian rupee against the U.S. dollar~~Gross margin in Healthcare increased by 620 bps during the nine months ended September 30, ~~2017~~2020 compared to the nine months ended September 30, ~~2016.~~2019, primarily due to lower margin in the Health Integrated business during the nine months ended September 30, 2019 and higher revenues during the nine months ended September 30, 2020.

The decrease in cost of revenues in Emerging Business of $13.4 million was primarily due to a decrease in employee-related costs of $9.7 million, lower infrastructure and technology cost of $2.1 million, lower travel costs of $1.4 million,and currency movements, net of hedging of $1.1 million, partially offset by higher other operating costs of $0.9 million. Gross margin in Emerging Business decreased by ~~300~~240 bps during the nine months ended September 30, ~~2017~~2020, compared to the nine months ended September 30, ~~2016,~~2019, primarily due to ~~higher employee costs and~~ lower ~~gross margin from our 2016 acquisitions.~~revenues.

~~Selling, General and Administrative (“SG&A”) Expenses.~~

Nine months ended September 30,
Percentage
change
2017 2016 Change
(dollars in millions)
General and administrative expenses $ 75.8
$ 63.6
$ 12.2
19.2 %
Selling and marketing expenses 38.7
37.9
0.8
2.2 %
Selling, general and administrative expenses $ 114.5
$ 101.5
$ 13.0
12.8 %
As a percentage of revenues 20.3 % 20.0 %

The increase in ~~SG&A expenses~~cost of revenues in Analytics of $0.1 million was primarily due to an increase in employee-related costs of ~~$8.2~~$10.7 million ~~(including $4.1 million of incremental employee-related costs related to our 2016 acquisitions) as a result of annual wage increments~~ and ~~an increase in our average headcount to support the increased business volumes. There was an increase of $2.7 million due to recognition of reserve for doubtful account receivables and infrastructure~~higher technology costs of ~~$1.5~~$1.1 million. This was partially offset by lower other operating costs of $6.4 million, ~~related to our new operating centers. There was a~~lower travel costs of $3.7 million and currency movements, net ~~increase~~ of ~~$0.7 million due to the appreciation~~hedging of ~~the Indian rupee and depreciation of the Philippine peso against the U.S. dollar~~$1.6 million. Gross margin in Analytics increased by 20 bps during the nine months ended September 30, ~~2017~~2020, compared to the nine months ended September 30, ~~2016.~~2019.

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Selling, General and Administrative (“SG&A”) Expenses.


	Nine months ended September 30,								Percentage change
	2020			2019			Change
	(dollars in millions)
General and administrative expenses	$	84.5		$	93.4		$	(8.9)	(9.5)	%
Selling and marketing expenses	42.8			54.0			(11.2)		(20.7)	%
Selling, general and administrative expenses	$	127.3		$	147.4		$	(20.1)	(13.6)	%
As a percentage of revenues	17.9		%	20.1		%

The decrease in SG&A expenses of $20.1 million was primarily due to COVID-19 cost reduction measures including the temporary reduction of the base salaries of our executive officers and certain other groups of employees. The decrease was driven by lower employee-related costs of $14.4 million, lower infrastructure and travel costs of $4.0 million, lower other operating costs of $0.6 million and currency movements, net of hedging of $1.1 million.

Depreciation and Amortization.


	Nine months ended September 30,								Percentage change
	2020			2019			Change
	(dollars in millions)
Depreciation expense	$	26.3		$	22.9		$	3.4	14.9	%
Intangible amortization expense	11.0			16.6			(5.6)		(33.7)	%
Depreciation and amortization expense	$	37.3		$	39.5		$	(2.2)	(5.5)	%
As a percentage of revenues	5.3		%	5.4		%

Nine months ended September 30,
Percentage
change
2017 2016 Change
(dollars in millions)
Depreciation expense $ 18.3
$ 16.7
$ 1.6
9.3 %
Intangible amortization expense 10.5
8.3
2.2
26.7 %
Depreciation and amortization expense $ 28.8
$ 25.0
$ 3.8
15.1 %
As a percentage of revenues 5.1 % 4.9 %

~~Depreciation and~~The decrease in intangibles amortization expense of $5.6 million was primarily due to end of useful lives for certain intangible assets during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase in depreciation expense of $3.4 million was due to depreciation related to our investments in new operating centers to support our business growth.

Impairment and Restructuring Charges.


	Nine months ended September 30,								Percentage change
	2020			2019			Change
	(dollars in millions)
Impairment and restructuring charges	$	—		$	7.3		$	(7.3)	(100.0)	%
As a percentage of revenues	—		%	1.0		%

During the nine months ended September 30, 2019, we recorded impairment charges of $3.2 million and restructuring charges of $4.1 million in connection with the wind-down of our Health Integrated business.

Income from Operations. Income from operations increased by ~~$3.8~~$18.7 million, or ~~15.1%~~35.0%, from ~~$25.0~~$53.1 million for the nine months ended September 30, ~~2016~~2019 to ~~$28.8~~$71.8 million for the nine months ended September 30, 2017. The increase in intangible amortization expense of $2.2 million was primarily due to amortization of intangibles associated with our 2016 acquisitions. Further, there was an increase in our depreciation expense of $1.6 million related to our new operating centers in India and the Philippines and to support our business growth and depreciation expense associated with our 2016 acquisitions.

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~~Income from Operations.~~ ~~Income from operations increased by $0.6 million, or 1.3%, from $50.0 million for the nine months ended September 30, 2016 to $50.6 million for the nine months ended September 30, 2017.~~2020. As a percentage of revenues, income from operations ~~decreased~~increased from ~~9.8%~~7.2% for the nine months ended September 30, ~~2016~~2019 to ~~9.0%~~10.1% for the nine months ended September 30, ~~2017.~~2020.

Foreign Exchange Gain/(Loss). Net foreign exchange gains and losses are primarily attributable to movement of the U.S. dollar against the Indian rupee, the U.K. ~~Pound~~pound sterling, the Philippine peso, Australian dollar and the ~~Philippine peso~~South African ZAR during the nine months ended September 30, ~~2017.~~2020. The average exchange rate of the U.S. dollar against the Indian rupee ~~decreased~~increased from ~~67.10~~70.03 during the nine months ended September 30, ~~2016~~2019 to ~~65.12~~74.18 during the nine months ended September 30, ~~2017.~~2020. The average exchange rate of the U.K. ~~Pound~~pound sterling against the U.S. dollar ~~decreased from 1.38~~remained stable at 1.27 during the nine months ended September 30, ~~2016 to 1.28 during~~2020 from the nine months ended September 30, ~~2017.~~2019. The average exchange rate of the U.S. dollar against the Philippine peso ~~increased~~decreased from ~~47.13~~51.84 during the nine months ended September 30, ~~2016~~2019 to ~~50.31~~49.94 during the nine months ended September 30, ~~2017.~~2020. The average exchange rate of the U.S. dollar against the Australian dollar increased

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from 1.43 during the nine months ended September 30, 2019 to 1.48 during the nine months ended September 30, 2020. The average exchange rate of the U.S. dollar against the South African ZAR increased from 14.38 during the nine months ended September 30, 2019 to 16.88 during the nine months ended September 30, 2020.

We recorded a net foreign exchange gain of ~~$7.3~~$3.5 million each for the nine months ended September 30, 2020 and 2019.

Interest expense. Interest expense decreased from $10.6 million for the nine months ended September 30, ~~2017 compared~~2019 to ~~$3.6~~$8.6 million for the nine months ended September 30, ~~2016.~~2020 primarily due torepayments of borrowings leading to lower outstanding borrowings and lower effective interest rates under our Credit Facility during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

~~Interest expense.~~ ~~Interest expense increased~~Other Income, net.


	Nine months ended September 30,						Percentage change
	2020		2019		Change
Gain on sale and mark-to-market of mutual funds	$	7.1	$	10.1	$	(3.0)	(29.1)	%
Interest income	1.9		2.0		(0.1)		(2.1)	%
Other, net	0.2		1.0		(0.8)		(84.0)	%
Other income, net	$	9.2	$	13.1	$	(3.9)	(29.4)	%

Other income, net decreased by ~~$0.4~~$3.9 million, from ~~$1.0~~$13.1 million for the nine months ended September 30, ~~2016~~2019 to ~~$1.4~~$9.2 million for the nine months ended September 30, ~~2017,~~2020, primarily due to ~~financing cost associated with purchase of software.~~

~~Other Income, net~~

Nine months ended September 30,
Percentage
change
2017 2016 Change
(dollars in millions)
Interest and dividend income $ 1.3
$ 1.2
$ 0.1
9.0 %
Gain on mutual fund investments 6.8
6.2
0.6
9.5 %
Change in fair value of earn-out consideration —
4.1
(4.1 ) (100.0 )%
Other, net 0.8
0.7
0.1
5.3 %
Other income, net $ 8.9
$ 12.2
$ (3.3 ) (27.3 )%

~~Increase in interest and dividend income of $0.1 million and increase in gain~~lower return on mutual fund investments of ~~$0.6~~$3.0 million ~~was primarily due to higher cash balances in certain of our foreign subsidiaries and higher gain on sale of investment~~ during the nine months ended September 30, ~~2017~~2020 compared to the nine months ended September 30, ~~2016. We also recorded~~2019 and recognition of one-time other income of ~~$4.1~~$0.8 million related to our Health Integrated business during the nine months ended September 30, ~~2016 due to the reversal of earn-out liability related to our RPM acquisition in 2015.~~2019.

Income Tax Expense. The effective tax rate ~~decreased~~increased from ~~28.6%~~21.3% during the nine months ended September 30, ~~2016~~2019 to ~~11.0%~~24.3% during the nine months ended September 30, 2020. We recorded income tax expense of $18.4 million and $12.6 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in income tax expense was primarily as a result of (i) recording of a one-time tax expense of $1.3 million due to electing a new tax regime for two of our Indian subsidiaries which provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits during the nine months ended September 30, 2020, compared to a benefit of $2.5 million recorded during the nine months ended September 30, 2019, (ii) higher profit during the nine months ended September 30, 2020, partially offset by (iii) recording of excess tax ~~benefit~~benefits related to stock awards of ~~$7.2~~$1.9 million pursuant to ASU No. 2016-09 during the nine months ended September 30, ~~2017, (ii) conclusion of an uncertain tax position of $3.2~~2020 compared to $1.1 million ~~(including interest of $1.4 million), and (iii) higher earnings from foreign subsidiaries and lower domestic profit in~~during the ~~U.S., partially offset by higher tax expense on account of the expiration of a tax holiday for some of the operating centers in India.~~nine months ended September 30, 2019. See Note 21 - Income Taxes to our unaudited consolidated financial statements.

Net Income.Net income increased from $46.3 million for the nine months ended September 30, ~~2016~~2019 to ~~$58.2~~$57.3 million for the nine months ended September 30, ~~2017,~~2020, primarily due to ~~lower income tax expense of $11.3 million, higher foreign exchange gain of $3.7 million, higher~~increase in income from operations of ~~$0.6~~$18.7 million, lower interest expense of $2.0 million. This was partially offset by lower other income, net of ~~$3.3~~$3.9 million and higher ~~interest~~income tax expense of ~~$0.4~~$5.8 million.

As a percentage of revenues, net income increased from ~~9.1%~~6.3% for the nine months ended September 30, ~~2016~~2019 to ~~10.3%~~8.1% for the nine months ended September 30, ~~2017.~~2020.

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Liquidityand Capital Resources


								Nine months ended September 30,
	Nine months ended September 30,							2020		2019
	2017			2016				(dollars in millions)
	(dollars in millions)
Opening cash and cash equivalents	$	213.2		$	205.3
Opening cash, cash equivalents and restricted cash							Opening cash, cash equivalents and restricted cash	$	127.0	$	104.1
Net cash provided by operating activities	72.2			56.0			Net cash provided by operating activities	126.3		106.0
Net cash used for investing activities	(171.2		)	(126.2		)
Net cash provided by/(used for) investing activities							Net cash provided by/(used for) investing activities	11.1		(21.3)
Net cash used for financing activities	(28.2		)	(34.2		)	Net cash used for financing activities	(48.4)		(77.7)
Effect of exchange rate changes	1.7			(2.5		)	Effect of exchange rate changes	—		(1.8)
Closing cash and cash equivalents	$	87.7		$	98.4
Closing cash, cash equivalents and restricted cash							Closing cash, cash equivalents and restricted cash	$	216.0	$	109.3

As of September 30, ~~2017~~2020 and ~~December 31, 2016,~~2019, we had ~~$249.4~~$362.6 million and ~~$226.6~~$280.8 million, respectively, in cash, cash equivalents and short-term investments, ~~(including $205.1~~of which $300.7 million, and ~~$170.1~~$228.7 million, respectively, ~~held by our~~is located in foreign ~~subsidiaries). We~~jurisdictions that upon distribution may be subject to withholding and other taxes and we do not currently intend to ~~repatriate funds held by~~distribute such amounts. If, in the future, we change our ~~foreign subsidiaries since our future growth partially depends upon continued infrastructure~~intention regarding distributions, additional taxes may be required and ~~technology investments, geographical expansions and acquisitions outside of~~would be recorded in the ~~U.S. Therefore, we anticipate that we will indefinitely reinvest~~period the ~~earnings generated outside of the U.S. If we were to repatriate our overseas funds, we would accrue and pay applicable taxes.~~intention changes.

Operating Activities: Cash flows ~~from~~provided by operating activities ~~increased by $16.2 million from $56.0~~were $126.3 million for the nine months ended September 30, ~~2016~~2020 as compared to ~~$72.2~~cash flows provided by operating activities of $106.0 million during the nine months ended September 30, 2019. Generally, factors that affect our earnings, for instance, pricing, volume of services, costs and productivity, affect our cash flows used or provided from operations in a similar manner. However, while management of working capital, including timing of collections and payments affects operating results only indirectly, the impact on the working capital requirements and cash flows provided by operating activities can be significant.

Cash flows provided by operating activities for the nine months ended September 30, 2020 were $126.3 million. This comprised of net income plus the net effect of non-cash items, such as depreciation and amortization expense, stock-based compensation expense, amortization of operating lease right-of-use assets, unrealized gains on short-term investment, deferred income taxes, and others aggregating to $130.6 million. The primary working capital use of cash of $32.2 million during the nine months ended September 30, 2020 was driven by payments of operating lease liabilities, accrued employee costs, accrued expenses and other liabilities and accounts payable. The primary working capital sources of cash of $27.9 million was driven by collections of accounts receivables, decrease in advance income tax, net, current and non-current assets and increase in deferred revenues.

Investing Activities: Cash flows provided by investing activities were $11.1 million for the nine months ended September 30, ~~2017. The increase in~~2020 as compared to cash flows ~~from operations~~used for investing activities of $21.3 million for the nine months ended September 30, ~~2017~~2019. The increase is mainly due to higher net redemption of investments of $45.7 million during the nine months ended September 30, 2020 as compared to net redemptions of investments of $11.2 million during the nine months ended September 30, 2019. This was partially offset by higher capital expenditures for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $2.1 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, ~~2016 was due to an increase in net income by $12.0 million, increase in non-cash adjustment of $3.9 million and decrease in working capital of $0.3 million from $25.2~~2019.

Financing Activities: Cash flows used for financing activities were $48.4 million during the nine months ended September 30, ~~2016~~2020 as compared to ~~$24.9~~cash flows used for financing activities of $77.7 million during the nine months ended September 30, ~~2017.~~

~~Investing Activities:~~ ~~Cash~~2019. The decrease in cash flows used for ~~investing~~financing activities ~~increased by $45.0~~was primarily due to lower net repayment of $10.4 million ~~from $126.2 million for~~(net of proceeds) under our Credit Facility (as described below in “Financing Arrangements (Debt Facility)”) during the nine months ended September 30, ~~2016~~2020 as compared to ~~$171.2 million for the nine months ended September 30, 2017. The increase was primarily due to an increase in short-term investments~~net repayments of ~~$47.2 million (net of redemption) and due to an increase in capital expenditures of $6.4~~$41.8 million during the nine months ended September 30, ~~2017~~2019, partially offset by higher purchases of treasury stock by $3.0 million under our share repurchase program during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2016. This was partially offset by amount paid for business acquisition of $9.4 million during the nine months ended September 30, 2016 compared to $0.7 million paid for settlement of working capital and purchase consideration payable related to 2016 acquisitions during the nine months ended September 30, 2017.2019.

~~Financing Activities:~~ Cash flows used for financing activities was $28.2 million during the nine months ended September 30, 2017 compared to $34.2 million during the nine months ended September 30, 2016. The decrease in cash flow used for financing activities between periods is primarily due to repayment of borrowings of $25.0 million under the Credit Agreement (as described below in “Financing Arrangements”) during the nine months ended September 30, 2016. This was partially offset by higher purchases of treasury stock of $17.2 million and lower proceeds from exercise of stock options of $2.0 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

We expect to use cash from operating activities to maintain and expand our ~~business. As we have focused on expanding our cash flow from operating activities we continue to make capital~~business by making investments primarily related to new facilities and capital expenditures associated with leasehold improvements to build our facilities, digital capabilities and ~~the~~ purchase of telecommunications equipment and computer hardware and software in connection with managing client operations.

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We incurred ~~$26.8~~$34.6 million of capital expenditures in the nine months ended September 30, ~~2017.~~2020. We expect to incur total capital expenditures of between ~~$30.0~~$36.0 million ~~to $35.0~~and $38.0 million in ~~2017,~~2020, primarily to meet our growth requirements, including additions to our facilities as well as investments in technology applications, product development, digital technology, advanced automation, robotics and ~~infrastructure, but the actual amount may vary based on economic conditions or other factors.~~infrastructure.

In connection with any tax assessment orders that have been issued or may be issued against us or our subsidiaries, we may be required to deposit additional amounts with respect to such assessment orders ~~(refer~~(see Note 24 - Commitments and Contingencies to ~~Note 21 to the~~our unaudited consolidated financial statements ~~contained~~ herein for further details). We anticipate that we will continue to rely upon cash from operating activities to finance our smaller acquisitions, capital expenditures and working capital needs. If we have significant growth through acquisitions, we may need to obtain additional financing.

During the nine months ended September 30, 2020, to enhance our liquidity position in response to COVID-19, management has taken certain precautionary measures, including: drawing $100.0 million from our line of credit under our existing Credit Agreement on March 12, 2020, the proceeds of which were available for working capital, general corporate or other purposes as needed, and which was repaid in full on April 20, 2020; and electing to temporarily suspend share repurchases under our 2019 Repurchase Program, and other cost reduction measures related to employee and vendor expenses and capital expenditure plans. The 2019 Repurchase Program remains authorized by the Board of Directors and the management using its discretion has resumed share repurchases effective July 1, 2020, considering improved market conditions, our capital needs and other factors. However, there is no assurance that the impacts we have experienced to date, and any future impact we may experience, from the COVID-19 pandemic will not have an adverse effect on our cash flows.

~~Table~~

The Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”) allows employers to defer the payment of ~~Contents~~

the employer share of Federal Insurance Contributions Act (“FICA”) taxes for the period from April 1, 2020 and ending December 31, 2020. As of September 30, 2020, we deferred FICA payments of $4.5 million under the CARES Act and will continue to defer FICA payments through December 31, 2020. The deferred amount will be payable as follows: (1) 50% of the deferred amount will be paid on December 31, 2021 and (2) the remaining 50% of the deferred amount will be paid on December 31, 2022.

Financing Arrangements (Debt Facility)

~~Our~~The following tables summarizes our Debt balances as of September 30, 2020 and December 31, 2019.


	As of September 30, 2020
	(dollars in millions)
	Revolver Credit Facility		Structured Payables		Notes		Total
Current portion of long-term borrowings	$	10.0	$	0.5	$	—	$	10.5

Long-term borrowings	79.0		—		150.0		229.0
Unamortized debt discount	—		—		(11.9)		(11.9)
Unamortized debt issuance costs*	—		—		(0.9)		(0.9)
Long-term borrowings	79.0		—		137.2		216.2
Total borrowings	$	89.0	$	0.5	$	137.2	$	226.7

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	As of December 31, 2019
	(dollars in millions)
	Revolver Credit Facility		Structured Payables		Notes		Total
Current portion of long-term borrowings	$	40.0	$	0.9	$	—	$	40.9

Long-term borrowings	59.0		—		150.0		209.0
Unamortized debt discount	—		—		(13.9)		(13.9)
Unamortized debt issuance costs*	—		—		(1.0)		(1.0)
Long-term borrowings	59.0		$	—	$	135.1	$	194.1
Total borrowings	$	99.0	$	0.9	$	135.1	$	235.0

*Unamortized debt issuance costs for our revolver Credit ~~Agreement provides~~Facility of $0.6 million and $0.7 million as of September 30, 2020 and December 31, 2019, respectively, is presented under “Other current assets” and “Other assets” in the consolidated balance sheets.

See Note 17 - Borrowings to our unaudited consolidated financial statements herein for ~~revolving credit facility (the “Credit Facility”), including a letter~~further details on our debt facilities.

Off-Balance Sheet Arrangements

In the ordinary course of business, we provide standby letters of credit ~~sub-facility, in the amount of $100.0 million. The Credit Facility has a maturity date of October 24, 2019 and is voluntarily pre-payable from time~~ to ~~time without premium or penalty.~~third parties primarily for facility leases. As of September 30, ~~2017,~~2020 and December 31, 2019, we had outstanding ~~indebtedness~~letters of ~~$45.0~~credit of $0.5 million ~~which is included under “long term borrowings”~~each, respectively, that were not recognized in ~~the~~our unaudited and audited consolidated balance ~~sheets.~~

~~Borrowings under the Credit Facility may be used for working~~sheets, respectively. These are not reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital ~~and general corporate purposes of the Company and its subsidiaries and for acquisitions.~~

~~Depending on the type of borrowing, loans under the Credit Agreement bear interest at a rate equal to the specified prime rate (alternate base rate)~~expenditures or adjusted LIBO rate, plus, in each case, an applicable margin. The applicable margin is tied to the Company’s leverage ratio and ranges from 0.3% to 0.8% per annum with respect to loans pegged to the specified prime rate, and 1.3% to 1.8% per annum on loans pegged to the adjusted LIBO rate. The revolving credit commitments under the Credit Agreement are subject to a commitment fee. The commitment fee is also tied to the Company’s leverage ratio, and ranges from 0.2% to 0.3% per annum on the average daily amount by which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations. The Credit Facility carried an effective interest rate per annum of 2.9% and 2.7% during the three and nine months ended September 30, 2017, respectively.

~~Off-Balance Sheet Arrangements~~

~~As of September 30, 2017 and December 31, 2016, we~~capital resources. We had no ~~off-balance~~other off balance sheet arrangements or obligations.

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Contractual Obligations

The following table sets forth our contractual obligations as of September 30, ~~2017:~~2020:

Payment Due by Period

Less than 1-3 4-5 After

1 year years years 5 years Total

(dollars in millions)
Capital leases $ 0.2
$ 0.3
$ 0.1
$ —
$ 0.6
Operating leases 10.5
13.3
4.3
0.9
29.0
Purchase obligations 7.2
0.2
—
—
7.4
Other obligations^(a)
2.8
4.6
3.7
5.2
16.3
Borrowings

Principal payments —
45.0
—
—
45.0
Interest Payments^(b)
1.3
1.3
—
—
2.6
Total contractual cash obligations^(c)
$ 22.0
$ 64.7
$ 8.1
$ 6.1
$ 100.9


	Payment Due by Period
	Less than		1-3		4-5		After
	1 year		years		years		5 years		Total
	(dollars in millions)
Finance leases	$	0.3	$	0.3	$	0.1	$	—	$	0.7
Operating leases(a)	26.5		47.5		30.1		36.9		141.0
Purchase obligations	2.7		—		—		—		2.7
Other obligations(b)	2.4		4.2		3.4		5.7		15.7
Borrowings:
Principal payments	10.5		79.0		150.0		—		239.5
Interest payments(c)	6.3		11.5		7.9		—		25.7
Total contractual cash obligations(d)	$	48.7	$	142.5	$	191.5	$	42.6	$	425.3


~~(a)~~	~~Represents estimated payments under the Gratuity Plan.~~


~~(b)~~	~~Interest on borrowings is calculated based on the effective interest rate on the outstanding borrowings as of September 30, 2017.~~


~~(c)~~	~~Excludes $1.5 million related to uncertain tax positions, since the extent of the amount and timing of payment is currently not reliably estimable or determinable.~~

(a)Represents operating lease liabilities payable over the lease term.

(b) Represents estimated employee benefit payments under the Gratuity Plan.

(c)Interest on borrowings is calculated based on the interest rate on the outstanding borrowings as of September 30, 2020.

(d)Excludes $1.0 million related to uncertain tax positions, since the extent of the amount and timing of payment is currently not reliably estimable or determinable.

Certain units of our Indian subsidiaries were established as 100% Export-Oriented units under the ~~“STPI”~~Software Technology Parks of India (“STPI”) or Special Economic Zone ("SEZ") scheme promulgated by the Government of India. These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares. We have undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores, and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. We believe, however, that these units have in the past satisfied and will continue to satisfy the required conditions.

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Our operations centers in the Philippines are registered with the ~~“PEZA.”~~Philippine Economic Zone Authority (“PEZA”). The registration provides us with certain fiscal incentives on the import of capital goods and local purchase of services and materials and requires that ExlService Philippines, Inc. to meet certain performance and investment criteria. We believe that these centers have in the past satisfied and will continue to satisfy the required criteria.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 2—“Recent Accounting Pronouncements” to the unaudited consolidated financial statements contained herein.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

During the three months ended September 30, ~~2017,~~2020, there were no material changes in our market risk exposure. For a discussion of our market risk associated with exchange rate risk and interest rate risk, see Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including ~~our~~its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure. In connection with the preparation of this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of the CEO and CFO, of the effectiveness and operation of our disclosure controls and procedures as of September 30, ~~2017.~~2020. Based upon that evaluation, the CEO and CFO have concluded that ~~as of September 30, 2017,~~ our disclosure controls and procedures, as of September 30, 2020, were effective.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, ~~2017,~~2020, there ~~was~~were no ~~change~~changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

ITEM 1. Legal Proceedings

In the course of our normal business activities, various lawsuits, claims and proceedings may be instituted or asserted against us. WeAlthough there can be no assurance, we believe that the disposition of matters currently instituted or asserted will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. ~~Please see~~See Note 21 24 - Commitments and Contingenciesto ~~the~~our unaudited consolidated financial statements contained herein for ~~details regarding our tax proceedings.~~details.

ITEM 1A. Risk Factors

We have disclosed below, as well as under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2019 a number of risks which may materially affect our business, financial condition or results of operations. You should carefully consider ~~the “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016~~these Risk Factors and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us may also materially adversely affect our business, financial condition and/or results of operations.

Our business, results of operations and financial condition have been adversely affected, and could in the future be materially adversely affected, by the coronavirus pandemic.

In March 2020, the World Health Organization declared the outbreak of a disease caused by a novel strain of the coronavirus (COVID-19) to be a global pandemic. This global pandemic is having widespread, rapidly-evolving and unpredictable impacts on global societies, economies, financial markets and business practices. COVID-19 has affected us, our customers, employees, contractors, suppliers and business partners, all of whom have been prevented from conducting business activities as usual, including due to the many and varying health and safety measures in response to COVID-19, including travel restrictions, quarantines, curfews, shelter in place and safer-at-home orders, and business shutdowns, as well as multi-step reopening policies. The continued spread of COVID-19 and the measures taken by governmental authorities disrupted the

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continuity of our provision of services to our customers and adversely impacted our business, results of operations and financial condition (see Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q).

The COVID-19 pandemic and the actions taken by governments, businesses and individuals in response to the pandemic have resulted in, and are expected to continue to result in, a substantial curtailment of business activities, weakened economic conditions, significant economic uncertainty and volatility in the financial markets, both in the United States and abroad. The ultimate impact of COVID-19 on our business, operations and financial results remains unknown and will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration, scope and severity of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our clients and client demand for our services and our solutions; our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; the ability of our clients to pay for our services and solutions; any closures of our and our clients' offices and facilities, and any additional preventative or protective actions that we, our clients, and governments may implement that may result in a period of continued business interruption. The global macroeconomic effects of the pandemic may have long-lasting effects, even after the pandemic has subsided.

In the U.S., India, the Philippines, Europe and South Africa, we have large concentrations of employees performing critical operations, which are in varying stages of restrictions and re-opening to address COVID-19. Certain jurisdictions have begun re-opening but have returned to restrictions in the face of increases in new COVID-19 cases. There is considerable uncertainty regarding how current and future health and safety measures implemented in response to the pandemic will impact our business, including whether they will result in further changes in demand from our clients for our services and solutions, further increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs, operating costs or otherwise), how they will further impact our supply chain. An extended period of mass remote work by our employees may reduce our employees’ efficiency and productivity, which may cause delays in service delivery, disrupt employee relations, hamper innovation and may have other unforeseen adverse effects on our business. For those employees who are permitted to come onsite, while we have implemented personal safety measures at all such locations, any actions we take with respect to our workforce may not be sufficient to mitigate the risk of infection by COVID-19 and further disruption to our business.

In addition, the effects of COVID-19 could affect our business in many ways, including, but not limited to, the following factors:

•the impact of the pandemic on the economies and financial markets of the countries and regions in which we operate, including a potential global recession, a decline in customer confidence and spending;

•our inability to obtain rent deferrals or other relief from many of our landlords with respect to our leased corporate offices that were or still remain closed, which could result in litigation or other disruptions;

•COVID-19 and remote-work oriented phishing and similar cybersecurity attack attempts;

•remote work solutions may be limited in their ability to replicate the operational oversight and security controls of our office environments and we may suffer operational and information security failures as a result of the changed controls;

•we may be required to revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of long-lived assets, goodwill and intangibles, and deferred tax assets, which could have a material adverse effect on our financial position and results of operations;

•governmental actions in the geographies in which we operate may prevent us from adjusting the size of our workforce or modifying compensation terms; and

•COVID-19 may also have a material adverse effect on our liquidity and cash flows. If our business does not generate sufficient cash flows from operating activities, and sufficient funds are not otherwise available to us from borrowings under our credit facility or other sources, we may not be able to cover our expenses, fund our other liquidity and working capital needs, or execute on our strategic initiatives, each of which could significantly harm our business.

The measures taken to date will impact our business for the fourth quarter of 2020 and potentially beyond. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the full impact of the COVID-19 pandemic on our business and the duration for which it may have an impact cannot be determined at this time. Any of these events could cause or contribute to risks and uncertainties enumerated in this Quarterly Report on Form 10-Q or our other filings with the SEC, and could materially adversely affect our business, financial condition, results of operations and/or stock price.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds

None.

~~Table of Contents~~

Purchases of Equity Securities by the Issuer

During the three months ended September 30, ~~2017,~~2020, purchases of common stock were as follows:

Period Total Number of
Shares Purchased Average Price
Paid per share Total Number of Shares Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs⁽¹⁾
July 1, 2017 through July 31, 2017 —
—
—
19,684,088
August 1, 2017 through August 31, 2017 107,633
56.12
107,633
13,643,362
September 1, 2017 through September 30, 2017 52,400
56.55
52,400
10,680,041
Total 160,033
56.26
160,033
—


Period	Total Number of Shares Purchased	Average Price Paid per share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2020 through July 31, 2020	157,600	$	62.64	157,600	$	178,144,055
August 1, 2020 through August 31, 2020	75,349	$	65.84	75,349	$	173,182,802
September 1, 2020 through September 30, 2020	156,626	$	64.30	156,626	$	163,111,132
Total	389,575	$	63.93	389,575	$	—

~~(1)~~ On ~~February 28, 2017, the Company’s~~December 16, 2019, our Board of Directors authorized ~~an additional~~a $200.0 million common stock repurchase program beginning January 1, 2020 through December 31, 2022 (the ~~“2017~~“2019 Repurchase Program”)~~, under which~~. The shares may be purchased by ~~the Company~~us from time to time from the open market and through private transactions, ~~during each of~~or otherwise, as determined by us as market conditions warrant. The 2019 Repurchase Program may be suspended or discontinued at any time.

During the ~~fiscal years 2017 through~~quarter ended March 31, 2020, to enhance our liquidity position in response to COVID-19, management elected to temporarily suspend share repurchases under the 2019 Repurchase Program. We resumed share repurchases effective July 1, 2020, considering improved market conditions, our capital and liquidity needs and other factors, and are now targeting to repurchase up to ~~an aggregate additional amount of $100 million. The approval increases the 2017 authorization from $20~~$80.0 million for calendar year 2020, subject to ~~$40 million and authorizes stock repurchases of up to $40 million in each of 2018 and 2019.~~market conditions.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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ITEM 6.Exhibits

~~See Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated herein by reference.~~

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~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~



~~Date: October 26, 2017~~	~~EXLSERVICE HOLDINGS, INC.~~

	~~By:~~	/S~~/ VISHAL~~ C~~HHIBBAR~~
		~~Vishal Chhibbar~~ ~~Chief Financial Officer~~ ~~(Duly Authorized Signatory, Principal Financial and Accounting Officer)~~

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~~EXHIBIT INDEX~~

The following exhibits are being filed as part of this Quarterly Report on Form 10-Q:



3.1

~~3.1~~	Amended and Restated Certificate of Incorporation of the Company, as in effect on the date hereof (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 1-33089) filed on October 25, 2006).

3.2		~~Fourth~~Certificate of Amendment to Amended and Restated ~~By-Laws~~Certificate of Incorporation of the Company (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A (File No. 1-33089) filed on April 26, 2019).

3.3		Fifth Amended and Restated By-laws of ExlService Holdings, Inc.~~, as in effect on the date hereof~~ (incorporated by reference to Exhibit 3.2 toof the Company’s Current Report on Form 8-K (File No. 1-33089) filed on ~~February 28, 2017).~~June 19, 2019)

10.1		Second Amended and Restated Employment and Non-Competition Agreement, dated ~~September 19, 2017, by and~~August 3, 2020, between ~~ExlService Holdings~~the Company and Rohit Kapoor.

31.1		Certification of the Chief Executive Officer of ExlService Holdings, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer of ExlService Holdings, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Scheme

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Extension Presentation Linkbase

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: October 29, 2020	EXLSERVICE HOLDINGS, INC.

	By:	/S/ MAURIZIO NICOLELLI
		MAURIZIO NICOLELLI Chief Financial Officer (Duly Authorized Signatory, Principal Financial and Accounting Officer)



	As of
	September 30, 2017			December 31, 2016
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	87,665		$	213,155
Short-term investments	161,702			13,491
Restricted cash	1,913			3,846
Accounts receivable, net	133,862			113,067
Prepaid expenses	6,958			7,855
Advance income tax, net	8,821			6,242
Other current assets	22,333			21,168
Total current assets	423,254			378,824
Property, plant and equipment, net	63,729			49,029
Restricted cash	3,710			3,393
Deferred taxes, net	16,118			14,799
Intangible assets, net	43,568			53,770
Goodwill	187,953			186,770
Other assets	30,672			19,943
Total assets	$	769,004		$	706,528
Liabilities and Equity
Current liabilities:
Accounts payable	$	3,834		$	3,288
Short-term borrowings	—			10,000
Deferred revenue	8,662			16,615
Accrued employee cost	49,385			50,832
Accrued expenses and other current liabilities	49,040			43,264
Current portion of capital lease obligations	168			232
Total current liabilities	111,089			124,231
Long term borrowings	45,000			35,000
Capital lease obligations, less current portion	315			300
Non-current liabilities	16,234			14,819
Total liabilities	172,638			174,350
Commitments and contingencies (See Note 21)
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued	—			—
Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 36,525,692 shares issued and 33,804,962 shares outstanding as of September 30, 2017 and 35,699,819 shares issued and 33,628,109 shares outstanding as of December 31, 2016	37			36
Additional paid-in capital	311,691			284,646
Retained earnings	436,419			382,722
Accumulated other comprehensive loss	(59,290		)	(75,057		)
Total including shares held in treasury	688,857			592,347
Less: 2,720,730 shares as of September 30, 2017 and 2,071,710 shares as of December 31, 2016, held in treasury, at cost	(92,698		)	(60,362		)
Stockholders’ equity	$	596,159		$	531,985
Non-controlling interest	207			193
Total equity	$	596,366		$	532,178
Total liabilities and equity	$	769,004		$	706,528



	Three months ended September 30, 2017
	Insurance		Healthcare		TT&L		F&A		All Other		Analytics		Total
	Insurance		Healthcare		TT&L		F&A		All Other		Analytics		Total
Revenues, net	$	59,608	$	18,871	$	18,496	$	21,642	$	19,984	$	53,744	$	192,345
Cost of revenues (exclusive of depreciation and amortization)	39,699		11,966		10,135		13,310		13,629		36,151		124,890
Gross profit	$	19,909	$	6,905	$	8,361	$	8,332	$	6,355	$	17,593	$	67,455
Operating expenses													48,800
Foreign exchange gain, interest expense and other income, net													5,241
Income tax expense													2,819
Net income													$	21,077



	Three months ended September 30, 2016
	Insurance		Healthcare		TT&L			F&A		All Other		Analytics		Total
	Insurance		Healthcare		TT&L			F&A		All Other		Analytics		Total
Revenues, net	$	52,801	$	15,959	$	17,519		$	19,858	$	23,426	$	41,637	$	171,200
Cost of revenues (exclusive of depreciation and amortization)	37,797		10,887		10,637			12,012		14,655		25,779		111,767
Gross profit	$	15,004	$	5,072	$	6,882		$	7,846	$	8,771	$	15,858	$	59,433
Operating expenses							��							42,074
Foreign exchange gain, interest expense and other income, net														4,337
Income tax expense														5,646
Net income														$	16,050



	Nine months ended September 30, 2016
	Insurance		Healthcare		TT&L		F&A		All Other		Analytics		Total
	Insurance		Healthcare		TT&L		F&A		All Other		Analytics		Total
Revenues, net	$	151,696	$	49,788	$	52,623	$	58,961	$	75,434	$	120,212	$	508,714
Cost of revenues (exclusive of depreciation and amortization)	108,516		32,440		31,901		35,385		47,836		76,094		332,172
Gross profit	$	43,180	$	17,348	$	20,722	$	23,576	$	27,598	$	44,118	$	176,542
Operating expenses													126,495
Foreign exchange gain, interest expense and other income, net													14,747
Income tax expense													18,549
Net income													$	46,245



Software - Internally developed:
	As of
	September 30, 2017		December 31, 2016
Cost	$	2,364	$	2,242
Less : Accumulated amortization expense	791		336
	$	1,573	$	1,906



Estimated amortization of intangible assets during the next twelve months ending September 30,
2018	$	12,667
2019	11,947
2020	5,705
2021	3,207
2022	2,461
2023 and thereafter	6,681
Total	$	42,668



Change in Plan Assets
Plan assets at January 1, 2017	$	5,640
Actual return	341
Employer contribution	1,694
Benefits paid	(896		)
Effect of exchange rate changes	227
Plan assets at September 30, 2017	$	7,006



During the next twelve months ending September 30,
2018	$	10,477
2019	8,470
2020	4,795
2021	3,189
2022	1,064
2023 and thereafter	933
	$	28,928



Balance as of January 1, 2017	$	3,087
Increases related to prior year tax positions	—
Decreases related to prior year tax positions	(1,720		)
Increases related to current year tax positions	—
Decreases related to current year tax positions	—
Effect of exchange rate changes	85
Balance as of September 30, 2017	$	1,452



	Number of Options		Weighted Avg Exercise Price		Aggregate Intrinsic Value		Weighted Avg Remaining Contractual Life (Years)
Outstanding at December 31, 2016	811,902		$	16.31	$	27,718	2.96
Granted	—		—
Exercised	(349,880	)	12.22
Forfeited	—		—
Outstanding at September 30, 2017	462,022		$	19.40	$	17,980	2.97
Vested and exercisable at September 30, 2017	462,022		$	19.40	$	17,980	2.97



Period	Total Number of Shares Purchased	Average Price Paid per share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs⁽¹⁾
July 1, 2017 through July 31, 2017	—	—	—	19,684,088
August 1, 2017 through August 31, 2017	107,633	56.12	107,633	13,643,362
September 1, 2017 through September 30, 2017	52,400	56.55	52,400	10,680,041
Total	160,033	56.26	160,033	—