UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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| | | | |
ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172022
OR
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| | | | |
¨☐ | 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)
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| | | | | | | | | | |
DELAWAREDelaware | | 82-0572194 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.)
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| | | |
280 PARK AVENUE, 38 TH FLOOR,
NEW YORK, NEW YORK 320 Park Avenue, | 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,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one): | | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filer | | ☒ | | Accelerated filer | | ☐ |
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Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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Large accelerated filer | | ý | | Accelerated filer | | ¨ |
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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, 2017,25, 2022, there were 33,942,97433,064,611 shares of the registrant’s common stock outstanding, par value $0.001 per share.
TABLE OF CONTENTS
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PART 1.I. 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.
EXLSERVICE HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per share amounts)amount and share count)
| | | | | | | | | | | | | | |
| | As of |
| | September 30, 2022 | | December 31, 2021 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 89,262 | | | $ | 135,337 | |
Short-term investments | | 172,889 | | | 179,430 | |
Restricted cash | | 7,013 | | | 6,174 | |
Accounts receivable, net | | 256,911 | | | 194,232 | |
Other current assets | | 54,509 | | | 62,971 | |
Total current assets | | 580,584 | | | 578,144 | |
Property and equipment, net | | 79,933 | | | 86,008 | |
Operating lease right-of-use assets | | 61,966 | | | 76,692 | |
Restricted cash | | 1,996 | | | 2,299 | |
Deferred tax assets, net | | 54,898 | | | 21,404 | |
Intangible assets, net | | 69,008 | | | 81,082 | |
Goodwill | | 405,781 | | | 403,902 | |
Long-term investments | | 34,724 | | | 3,190 | |
Other assets | | 29,838 | | | 30,183 | |
Total assets | | $ | 1,318,728 | | | $ | 1,282,904 | |
Liabilities and stockholders’ equity | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 3,487 | | | $ | 5,647 | |
Current portion of long-term borrowings | | 35,000 | | | 260,016 | |
Deferred revenue | | 19,279 | | | 20,000 | |
Accrued employee costs | | 92,252 | | | 114,285 | |
Accrued expenses and other current liabilities | | 96,800 | | | 76,350 | |
Current portion of operating lease liabilities | | 16,740 | | | 18,487 | |
Income taxes payable, net | | 23,410 | | | 901 | |
Total current liabilities | | 286,968 | | | 495,686 | |
Long-term borrowings, less current portion | | 235,000 | | | — | |
Operating lease liabilities, less current portion | | 54,174 | | | 68,506 | |
Deferred tax liabilities, net | | 759 | | | 965 | |
Other non-current liabilities | | 37,243 | | | 24,591 | |
Total liabilities | | 614,144 | | | 589,748 | |
Commitments and contingencies (Refer to Note 25) | | | | |
ExlService Holdings, Inc. Stockholders’ equity: | | | | |
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued | | — | | | — | |
Common stock, $0.001 par value; 100,000,000 shares authorized, 39,798,956 shares issued and 33,051,021 shares outstanding as of September 30, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021 | | 40 | | | 40 | |
Additional paid-in capital | | 432,492 | | | 395,742 | |
Retained earnings | | 867,256 | | | 756,137 | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
| | | | | | | | | | | | | | |
Accumulated other comprehensive loss | | (154,203) | | | (89,474) | |
Total including shares held in treasury | | 1,145,585 | | | 1,062,445 | |
Less: 6,747,935 shares as of September 30, 2022 and 6,216,858 shares as of December 31, 2021, held in treasury, at cost | | (441,001) | | | (369,289) | |
Total stockholders’ equity | | 704,584 | | | 693,156 | |
| | | | |
| | | | |
Total liabilities and stockholders’ equity | | $ | 1,318,728 | | | $ | 1,282,904 | |
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)thousands, except per share amount and share count)
|
| | | | | | | | | | | | | | | |
| 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, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Revenues, net | | $ | 361,351 | | | $ | 290,325 | | | $ | 1,037,341 | | | $ | 826,804 | |
Cost of revenues(1) | | 230,462 | | | 177,743 | | | 659,185 | | | 507,265 | |
Gross profit(1) | | 130,889 | | | 112,582 | | | 378,156 | | | 319,539 | |
Operating expenses: | | | | | | | | |
General and administrative expenses | | 42,519 | | | 36,167 | | | 122,898 | | | 103,369 | |
Selling and marketing expenses | | 23,879 | | | 21,672 | | | 72,034 | | | 59,631 | |
Depreciation and amortization expense | | 14,380 | | | 12,305 | | | 42,057 | | | 36,716 | |
| | | | | | | | |
Total operating expenses | | 80,778 | | | 70,144 | | | 236,989 | | | 199,716 | |
Income from operations | | 50,111 | | | 42,438 | | | 141,167 | | | 119,823 | |
Foreign exchange gain, net | | 1,504 | | | 1,171 | | | 4,683 | | | 2,958 | |
Interest expense | | (2,442) | | | (1,810) | | | (4,820) | | | (6,804) | |
Other income, net | | 2,261 | | | 1,721 | | | 4,498 | | | 5,346 | |
Loss on settlement of convertible notes | | — | | | (12,845) | | | — | | | (12,845) | |
Income before income tax expense and earnings from equity affiliates | | 51,434 | | | 30,675 | | | 145,528 | | | 108,478 | |
Income tax expense | | 12,447 | | | 4,196 | | | 34,774 | | | 22,019 | |
Income before earnings from equity affiliates | | 38,987 | | | 26,479 | | | 110,754 | | | 86,459 | |
Gain from equity-method investment | | 108 | | | 28 | | | 365 | | | — | |
Net income attributable to ExlService Holdings, Inc. stockholders | | $ | 39,095 | | | $ | 26,507 | | | $ | 111,119 | | | $ | 86,459 | |
Earnings per share attributable to ExlService Holdings, Inc. stockholders: | | | | | | | | |
Basic | | $ | 1.18 | | | $ | 0.79 | | | $ | 3.33 | | | $ | 2.57 | |
Diluted | | $ | 1.16 | | | $ | 0.77 | | | $ | 3.28 | | | $ | 2.52 | |
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders: | | | | | | | | |
Basic | | 33,237,833 | | | 33,449,311 | | 33,360,346 | | | 33,583,791 |
Diluted | | 33,777,749 | | | 34,305,893 | | 33,833,637 | | | 34,336,950 |
| |
(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.
EXLSERVICE HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | |
| 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, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net income | | $ | 39,095 | | | $ | 26,507 | | | $ | 111,119 | | | $ | 86,459 | |
Other comprehensive income/(loss): | | | | | | | | |
Unrealized gain/(loss) on cash flow hedges | | (13,489) | | | 261 | | | (28,638) | | | (42) | |
Loss on net investment hedges | | — | | | — | | | — | | | (1,134) | |
Foreign currency translation loss | | (19,144) | | | (3,789) | | | (49,371) | | | (10,475) | |
Reclassification adjustments | | | | | | | | |
(Gain)/loss on cash flow hedges(1) | | 1,567 | | | (2,150) | | | (1,881) | | | (7,845) | |
Retirement benefits(2) | | 147 | | | 178 | | | 451 | | | 533 | |
Income tax effects relating to above(3) | | 10,090 | | | (12) | | | 14,710 | | | 1,690 | |
Total other comprehensive loss | | (20,829) | | | (5,512) | | | (64,729) | | | (17,273) | |
Total comprehensive income | | $ | 18,266 | | | $ | 20,995 | | | $ | 46,390 | | | $ | 69,186 | |
(1)These are reclassified to net income and are included in cost of revenues, operating expenses and interest expense, as applicable in the unaudited consolidated statements of income. Refer to Note 17 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements.
(2)These are reclassified to net income and are included in other income, net in the unaudited consolidated statements of income. Refer to Note 20 - Employee Benefit Plans to the unaudited consolidated financial statements.
(3)These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation loss. Refer to Note 22 - Income Taxes to the unaudited consolidated financial statements.
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the three months ended September 30, 2022 and 2021
(In thousands, except share count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2022 | 39,795,161 | | | $ | 40 | | | $ | 420,306 | | | $ | 828,161 | | | $ | (133,374) | | | (6,671,126) | | | $ | (429,480) | | | $ | 685,653 | |
Stock issued against stock-based compensation plans | 3,795 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 12,186 | | | — | | | — | | | — | | | — | | | 12,186 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (76,809) | | | (11,521) | | | (11,521) | |
| | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (20,829) | | | — | | | — | | | (20,829) | |
Net income | — | | | — | | | — | | | 39,095 | | | — | | | — | | | — | | | 39,095 | |
Balance as of September 30, 2022 | 39,798,956 | | | $ | 40 | | | $ | 432,492 | | | $ | 867,256 | | | $ | (154,203) | | | (6,747,935) | | | $ | (441,001) | | | $ | 704,584 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2021 | 39,283,853 | | | $ | 39 | | | $ | 439,051 | | | $ | 701,331 | | | $ | (86,745) | | | (6,034,144) | | | $ | (325,662) | | | $ | 728,014 | |
Stock issued against stock-based compensation plans | 28,372 | | | — | | | 536 | | | — | | | — | | | — | | | — | | | 536 | |
Stock-based compensation | — | | | — | | | 10,894 | | | — | | | — | | | — | | | — | | | 10,894 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (244,580) | | | (28,196) | | | (28,196) | |
Issuance of treasury stock | — | | | — | | | 19,436 | | | — | | | — | | | 310,394 | | | 17,306 | | | 36,742 | |
Settlement of convertible notes | — | | | — | | | (84,000) | | | — | | | — | | | — | | | — | | | (84,000) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (5,512) | | | — | | | — | | | (5,512) | |
Net income | — | | | — | | | — | | | 26,507 | | | — | | | — | | | — | | | 26,507 | |
Balance as of September 30, 2021 | 39,312,225 | | | $ | 39 | | | $ | 385,917 | | | $ | 727,838 | | | $ | (92,257) | | | (5,968,330) | | | $ | (336,552) | | | $ | 684,985 | |
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the nine months ended September 30, 2022 and 2021
(In thousands, except share count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2022 | 39,508,340 | | | $ | 40 | | | $ | 395,742 | | | $ | 756,137 | | | $ | (89,474) | | | (6,216,858) | | | $ | (369,289) | | | | | $ | 693,156 | |
Stock issued against stock-based compensation plans | 290,616 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Stock-based compensation | — | | | — | | | 36,750 | | | — | | | — | | | — | | | — | | | | | 36,750 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (531,077) | | | (71,712) | | | | | (71,712) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (64,729) | | | — | | | — | | | | | (64,729) | |
Net income | — | | | — | | | — | | | 111,119 | | | — | | | — | | | — | | | | | 111,119 | |
Balance as of September 30, 2022 | 39,798,956 | | | $ | 40 | | | $ | 432,492 | | | $ | 867,256 | | | $ | (154,203) | | | (6,747,935) | | | $ | (441,001) | | | | | $ | 704,584 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2021 | 38,968,052 | | | $ | 39 | | | $ | 420,976 | | | $ | 641,379 | | | $ | (74,984) | | | (5,408,618) | | | $ | (268,238) | | | $ | 719,172 | |
Stock issued against stock-based compensation plans | 344,173 | | | — | | | 709 | | | — | | | — | | | — | | | — | | | 709 | |
Stock-based compensation | — | | | — | | | 28,796 | | | — | | | — | | | — | | | — | | | 28,796 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (870,106) | | | (85,620) | | | (85,620) | |
Issuance of treasury stock | — | | | — | | | 19,436 | | | — | | | — | | | 310,394 | | | 17,306 | | | 36,742 | |
Settlement of convertible notes | — | | | — | | | (84,000) | | | — | | | — | | | — | | | — | | | (84,000) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (17,273) | | | — | | | — | | | (17,273) | |
Net income | — | | | — | | | — | | | 86,459 | | | — | | | — | | | — | | | 86,459 | |
Balance as of September 30, 2021 | 39,312,225 | | | $ | 39 | | | $ | 385,917 | | | $ | 727,838 | | | $ | (92,257) | | | (5,968,330) | | | $ | (336,552) | | | $ | 684,985 | |
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) | | | | | | | | | | | |
| Nine months ended September 30, |
| 2022 | | 2021 |
Cash flows from operating activities: | | | |
Net income | $ | 111,119 | | | $ | 86,459 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 41,993 | | | 37,159 | |
Stock-based compensation expense | 36,750 | | | 28,796 | |
Amortization of operating lease right-of-use assets | 17,365 | | | 20,012 | |
Unrealized (gain)/loss on investments | (475) | | | 5,987 | |
Unrealized foreign currency exchange gain, net | (16,813) | | | (3,799) | |
Deferred income tax benefit | (5,621) | | | (17,374) | |
Allowance / (reversal) of expected credit losses | 177 | | | (405) | |
Fair value changes in contingent consideration | 1,000 | | | — | |
Loss on settlement of convertible notes | — | | | 12,845 | |
Amortization of non-cash interest expense related to convertible senior notes | — | | | 1,795 | |
| | | |
Others, net | 1,240 | | | 590 | |
Change in operating assets and liabilities, net of effects of acquisitions: | | | |
Accounts receivable | (68,066) | | | (44,871) | |
Other current assets | 2,553 | | | 3,033 | |
Income taxes payable, net | 4,043 | | | (5,685) | |
Other assets | (8,428) | | | 2,485 | |
Accounts payable | (1,927) | | | (2,333) | |
Deferred revenue | 2,103 | | | (21,196) | |
Accrued employee costs | (11,778) | | | 26,664 | |
Accrued expenses and other liabilities | 13,685 | | | 3,254 | |
Operating lease liabilities | (17,831) | | | (19,654) | |
Net cash provided by operating activities | 101,089 | | | 113,762 | |
| | | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (32,099) | | | (29,026) | |
Proceeds from sale of property and equipment | 197 | | | 825 | |
| | | |
| | | |
Business acquisition (net of cash and cash equivalents acquired) | (3,322) | | | — | |
Purchases of investments | (164,313) | | | (76,500) | |
Proceeds from redemption of investments | 124,355 | | | 83,183 | |
Net cash used for investing activities | (75,182) | | | (21,518) | |
| | | |
Cash flows from financing activities: | | | |
Principal payments of finance lease liabilities | (108) | | | (157) | |
Proceeds from borrowings | 35,000 | | | 225,000 | |
Repayments of borrowings | (25,000) | | | (329,000) | |
| | | |
Acquisition of treasury stock | (71,712) | | | (85,620) | |
Proceeds from exercise of stock options | — | | | 710 | |
Net cash used for financing activities | (61,820) | | | (189,067) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (9,626) | | | (5,003) | |
Net decrease in cash, cash equivalents and restricted cash | (45,539) | | | (101,826) | |
Cash, cash equivalents and restricted cash at the beginning of the period | 143,810 | | | 225,519 | |
Cash, cash equivalents and restricted cash at the end of the period | $ | 98,271 | | | $ | 123,693 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid during the period for: | | | |
Interest | $ | 4,982 | | | $ | 5,833 | |
Income taxes, net of refunds | $ | 35,192 | | | $ | 31,087 | |
Supplemental disclosure of non-cash investing and financing activities: | | | |
Settlement of portion of convertible notes through issuance of treasury stock | $ | — | | | $ | 36,742 | |
Assets acquired under finance lease | $ | 218 | | | $ | 79 | |
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
1. Organization
ExlService Holdings, Inc. (“ExlService Holdings”) is organized as a corporation under the laws of the state of Delaware. ExlService Holdings, together with its subsidiaries and affiliates (collectively, the “Company”), operatesis a leading data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth. By bringing together deep domain expertise with robust data, powerful analytics, cloud, artificial intelligence and machine learning, the Company creates agile, scalable solutions and executes complex operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media, and retail, among others. The Company’s data-led value creation framework enables better and faster decision making, leveraging its end-to-end data and analytics capabilities to drive improved business outcomes, and re-designing of operating models to integrate advanced technology into operational workflows. The Company embeds digital operations and solutions into clients’ businesses and introduces its data led approach to transform operations. Accordingly, as the Business Process Management (“BPM”) industry providingCompany’s operations management services are now a part of its digital operations and analytics services that help businesses enhance growthsolutions, they are referred to as “digital operations and profitability. Using its proprietary platforms, methodologies and tools,solutions” herein; however, the Company looks deeper to helphas not changed the way in which it manages its clients improve global operations, enhance data-driven insights, increase customer satisfaction, and manage risk and compliance. business or its operating segments or segment reporting structure.
The Company’s clients are located principally in the United States of America (“U.S.”) and the United Kingdom (“U.K.”).
2. Summary of Significant Accounting Policies
(a)Basis of Preparation and Principles of Consolidation
The unaudited interim consolidated financial statements have been prepared in accordanceconformity 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, 2016.2021.
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 intercompanyThe standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, have beenand gains and losses arising from intra-group transactions, are eliminated in consolidation.while preparing consolidated 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 amountrespective 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 interestthe fair value of the net assets of the investee at the acquisition date of obtaining control over the subsidiary, and the non-controlling interest'sis recognized as goodwill. The proportionate share of changes in equity since that date. The non-controlling interest innet income or loss of the operations for all the periods presented were insignificant and are included under general and administrative expensesinvestee after its acquisition is recognized in the unaudited consolidated statements of income.
For purposes of comparability, certain prior period amounts have been reclassified to conform to the current year presentation in accordance with U.S. GAAP.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
(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, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and discount rate applied within the discounted cash flow model for business acquisitions, allowance for doubtful receivables,expected credit losses, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements, estimated costs to complete fixed price contracts, recoverability of 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 amortization of ROU, depreciation and amortization periods, purchase price allocation,and recoverability of long-termlong-lived assets, including goodwill and intangibles,intangibles.
(c)Investments
The Company’s short-term investments consist of investments in mutual funds and estimates to complete fixed price contracts.those term deposits with more than three months of original maturity and less than twelve months of remaining maturity as of the reporting date, while long-term investments consist of term deposits with more than twelve months of remaining maturity as of the reporting date.
(c) Share-Based Compensation
The Company’s investments in term deposits with financial institutions are measured and recognized at amortized cost. Interest earned on such investments is included in other income, net.
The Company’s mutual fund investments are in debt funds in India. These investments are accounted for in accordance with the fair value option under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments. The fair value is represented by original cost on the acquisition date and the net asset value (“NAV”) as quoted, at each reporting period and any changes in fair value are included in other income, net. Gain or loss on the disposal of these investments is calculated using the weighted average cost of the investments sold and is included in other income, net.
(d)Derivative Financial Instruments
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 aspectsnormal course of accounting for share-based paymentbusiness, the Company uses derivative instruments to mitigate the exposure from risk of foreign currency and interest rate fluctuations. The Company enters into foreign currency forward contracts to hedge cash flow risks from forecasted transactions includingdenominated in certain foreign currencies, and interest rate swaps to hedge cash flow risks from its revolving credit facility having variable interest rate obligations. These contracts adhere to the Company’s treasury operations’ objectives and policies to qualify as cash flow hedges, and are with counterparties that are highly rated financial institutions.
Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income/(loss) (“AOCI”), net of tax. The resultant foreign exchange gain/(loss) upon settlement of cash flow hedges of a forecast transaction are recorded in the unaudited consolidated statements of income tax consequences, classificationalong with the underlying hedged item in the same line as part of awards“Cost of revenues,” “General and administrative expenses,” “Selling and marketing expenses,” and “Depreciation and amortization expense,” as either equity or liabilities, an optionapplicable. The accumulated changes in the fair value of interest rate swaps recognized in AOCI are reclassed to recognize gross stock compensation expense with actual forfeitures recognizedthe unaudited consolidated statements of income and are presented as they occur,a part of “Interest expense” over the term of the contract.
The Company evaluates hedge effectiveness of cash flow hedges at the time a contract is entered into as well as certain classifications on an ongoing basis. For hedge relationships that are discontinued because 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 summarizesforecasted transaction is not expected to occur by the effectsend of the adoption on the Company's unaudited consolidated financial statements:originally specified period, any related derivative amounts recorded in AOCI are reclassified to earnings.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
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 regardlessuses derivatives instruments consisting of whetherforeign currency forward contracts to economically hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the benefit reduces taxes payablefunctional currency, against the risk of foreign currency fluctuations associated with remeasurement of such assets and liabilities to functional currency. These derivatives do not qualify as fair value hedges under ASC 815. Changes in the current period. As a result, the Companyfair value of these derivatives are recognized discrete adjustments to income tax expense for the three months ended September 30, 2017 in the amountunaudited consolidated statements of $3,488income and are included in foreign exchange gain/(loss).
The Company also uses foreign currency forward contracts designated as net investment hedges to hedge the foreign currency risks related to the Company's investment in foreign subsidiaries. Gains and losses on these forward contracts are recognized in AOCI as part of the foreign currency translation adjustment. All of the assets and liabilities related to the Company’s forward contracts are subject to master netting arrangements with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the nine months ended September 30, 2017counterparty in the amountcase 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 onan event of default or 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.termination event. The Company has applied the modified retrospective adoption approach as of 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 portionpresented all of the standardassets and liabilities related to these contracts on a prospectivegross basis, beginningwith no offsets, in 2017 and accordingly prior periods have not been adjusted.its consolidated statements of financial position. There is no financial collateral (including cash collateral) provided or received by the Company related to these contracts.
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) (e)Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB")October 2021, FASB issued Accounting StandardsStandard Update ("ASU"(“ASU”) 2014-09, “RevenueNo. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”.Customers. This standard update along with subsequently issued updates, clarifiesASU provides guidance in Topic 805 to require the principles for recognizing revenueacquirer entity to recognize and develops a common revenue standard for United States generally accepted accounting principles (GAAP)measure contract assets 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 at 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 presentcontract liabilities acquired 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 changebusiness combination 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, using the modified retrospective method. The Company's considerations include, but are not limited to, the comparability of its financial statements and the comparability within its industry from application of the new standard to its contractual arrangements. The Company has established an implementation team to implement the standard update related to the recognition of revenue from contractsaccordance with customers and continues to evaluate the changes to accounting system and processes, and additional 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,Topic 606, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifiesCustomers, as if it had originated the implementation guidance on principal versus agent considerations. The guidance includes indicators to assistcontracts. Generally, this should result in an entity in determining whether it controls a specified good or service before it is transferred toacquirer recognizing and measuring the customers. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve month term, these arrangements must now be recognized asacquired contract assets and contract liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use assetconsistent with how they were recognized and lease obligation will be recorded for all leases, whether operating 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 to all comparative periods presentedmeasured in the consolidatedacquiree’s financial statements.statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The new guidanceASU is effective for fiscal years beginning after December 15, 2018,2022. An entity may early adopt the ASU including adoption in an 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.
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which require 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. The allowance for credit losses is a valuation account that is to be deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The amendment should be applied through a modifiedperiod, with retrospective approach. Early adoption as of the fiscal years beginning after December 15, 2018 is permitted. The adoption of ASU 2016-13 is not expected to have a material effect on the Company's consolidated financial statements.
In August 2016, FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The amendments applyapplication 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 guidance for each of eight issues identified therein, thereby reducing the current and potential future diversity in practice. The amendments are effective for fiscal years beginning after December 15, 2017 and interim periodsbusiness combinations within those annual periods and should be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this ASU to have a material effect on its financial position or results of operations.
In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows - Restricted cash. The amendments apply to all entities that have restricted cash or restricted cash equivalents and are required to present a Statement of Cash Flows under Topic 230. The amendments in this update require that a Statement of Cash Flows should explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for fiscal years beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted with an adjustment reflected as of the beginning of the fiscal year in which the amendment is adoption. The Company does not expect the adoption of this ASU to have a 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 andincludes such 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 its consolidated financial statements.
In March, 2017, FASB issued ASU 2017-07, Improving 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 of prior service cost/credit, and settlement and curtailment effects, are to be included 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 annual period. The Company is currently evaluating the impact that the adoption of this guidance will haveASU on its consolidated financial statements.
(f)Recently adopted Accounting Pronouncements
In May 2017,March 2020, FASB issued ASU 2017-09, Compensation - Stock CompensationNo. 2020-04, Reference Rate Reform (Topic 718)848): ScopeFacilitation of Modification Accounting.the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance on the typesfor a limited period of changestime to the terms or conditions of share-based payment awardsease potential accounting impacts associated with transitioning away from reference rates that are expected to which an entity would be requireddiscontinued, such as interbank offered rates and London Inter-Bank Offered Rate (“LIBOR”). The ASU provides practical expedients and exceptions for applying U.S. GAAP to apply modification accounting. Modification accounting is required onlycontracts, hedging relationships, and other transactions affected by reference rate reform if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions.certain criteria are met. The amendments in this ASUare elective and are effective upon issuance for all entities for annual periods, and interim periods within those annual periods, beginning afterthrough 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.31, 2022. 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 willASU did not have a material impact on itsthe Company’s unaudited 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 data analytics and digital operations management and analytics services. solutions.
The Company has eightmanages and reports financial information through its four reportable segments: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating segments, which are strategicdecisions. These business units that align its productsdevelop client-specific solutions, build capabilities, maintain a unified go-to-market approach and services with how it manages its business, approaches its key marketsare integrally responsible for service delivery, customer satisfaction, growth 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.profitability.
In prior periods the Company presented two reportable segments: Operations Management (which included its 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, the Company presents 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 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 statements of income and comprehensive income, balance sheets or statements of cash flows.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
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, othercertain 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
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
ContentsEXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
The December 2021 and June 2022 acquisition of Clairvoyant AI Inc. (“Clairvoyant”) and Inbound Media Group, LLC (“Inbound”), respectively, are both included in the Analytics reportable segment. Refer to Note 10 - Business Combinations, Goodwill and Intangible Assets to the unaudited consolidated financial statements for further details.
Revenues and cost of revenues for the three months ended September 30, 2022 and 2021, respectively, for each of the reportable segments, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 |
Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 116,198 | | | $ | 22,820 | | | $ | 56,035 | | | $ | 166,298 | | | $ | 361,351 | |
Cost of revenues(1) | 75,041 | | | 17,119 | | | 32,363 | | | 105,939 | | | 230,462 | |
Gross profit(1) | $ | 41,157 | | | $ | 5,701 | | | $ | 23,672 | | | $ | 60,359 | | | $ | 130,889 | |
Operating expenses | | | | | | | | | 80,778 | |
Foreign exchange gain, interest expense and other income, net | | | | | | | | | 1,323 | |
Income tax expense | | | | | | | | | 12,447 | |
Gain from equity-method investment | | | | | | | | | 108 | |
Net income | | | | | | | | | $ | 39,095 | |
(1) Exclusive of depreciation and amortization expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2021 |
Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 98,008 | | | $ | 27,341 | | | $ | 44,513 | | | $ | 120,463 | | | $ | 290,325 | |
Cost of revenues(1) | 61,490 | | | 17,057 | | | 23,660 | | | 75,536 | | | 177,743 | |
Gross profit(1) | $ | 36,518 | | | $ | 10,284 | | | $ | 20,853 | | | $ | 44,927 | | | $ | 112,582 | |
Operating expenses | | | | | | | | | 70,144 | |
Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net | | | | | | | | | (11,763) | |
Income tax expense | | | | | | | | | 4,196 | |
Gain from equity-method investment | | | | | | | | | 28 | |
Net income | | | | | | | | | $ | 26,507 | |
(1) Exclusive of depreciation and amortization expense.
Revenues and cost of revenues for the nine months ended September 30, 20172022 and 2016,2021, respectively, for each of the reportable segments, are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 |
| Insurance | | Healthcare | | TT&L | | F&A | | All Other | | Analytics | | Total |
|
Revenues, net | $ | 173,784 |
| | $ | 56,726 |
| | $ | 53,374 |
| | $ | 63,694 |
| | $ | 62,547 |
| | $ | 154,310 |
| | $ | 564,435 |
|
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 |
|
Operating expenses | | | | | | | | | | | | | 143,291 |
|
Foreign exchange gain, interest expense and other income, net | | | | | | | | | | | | | 14,759 |
|
Income tax expense | | | | | | | | | | | | | 7,202 |
|
Net income | | | | | | | | | | | | | $ | 58,243 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
|
| | | | | | | | | | | | | | | |
| 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 |
|
(1) BPM and related services include revenues of the Company's five industry-focused operating segments, one capability operating segment and consulting operating segment, which provides services related to operations management services. See reportable segment disclosure above.
Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2022 |
Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 328,021 | | | $ | 72,027 | | | $ | 160,655 | | | $ | 476,638 | | | $ | 1,037,341 | |
Cost of revenues(1) | 210,768 | | | 52,464 | | | 92,790 | | | 303,163 | | | 659,185 | |
Gross profit(1) | $ | 117,253 | | | $ | 19,563 | | | $ | 67,865 | | | $ | 173,475 | | | $ | 378,156 | |
Operating expenses | | | | | | | | | 236,989 | |
Foreign exchange gain, interest expense and other income, net | | | | | | | | | 4,361 | |
Income tax expense | | | | | | | | | 34,774 | |
Gain from equity-method investment | | | | | | | | | 365 | |
Net income | | | | | | | | | $ | 111,119 | |
(1) Exclusive of depreciation and amortization expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2021 |
Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 283,887 | | | $ | 85,856 | | | $ | 122,871 | | | $ | 334,190 | | | $ | 826,804 | |
Cost of revenues(1) | 176,942 | | | 52,133 | | | 66,850 | | | 211,340 | | | 507,265 | |
Gross profit(1) | $ | 106,945 | | | $ | 33,723 | | | $ | 56,021 | | | $ | 122,850 | | | $ | 319,539 | |
Operating expenses | | | | | | | | | 199,716 | |
Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net | | | | | | | | | (11,345) | |
Income tax expense | | | | | | | | | 22,019 | |
| | | | | | | | | |
Net income | | | | | | | | | $ | 86,459 | |
(1) Exclusive of depreciation and amortization expense.
Revenues, net by service type, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Digital operations and solutions(1) | $ | 195,053 | | | $ | 169,862 | | | $ | 560,703 | | | $ | 492,614 | |
Analytics services | 166,298 | | | 120,463 | | | 476,638 | | | 334,190 | |
Revenues, net | $ | 361,351 | | | $ | 290,325 | | | $ | 1,037,341 | | | $ | 826,804 | |
(1) Digital operations and solutions include revenues of the Company’s Insurance, Healthcare and Emerging Business reportable segments. Refer to the reportable segment disclosure above.
The Company attributes the revenues to regions based upon the location of its customers.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2022 | | 2021 | | 2022 | | 2021 |
Revenues, net | | | | | | | | Revenues, net | | | | | | | |
United States | $ | 158,501 |
| | $ | 137,047 |
| | $ | 462,676 |
| | $ | 407,272 |
| United States | $ | 310,652 | | | $ | 249,726 | | | $ | 891,551 | | | $ | 709,382 | |
Non-United States | | | | | | | | Non-United States | |
United Kingdom | 26,824 |
| | 27,993 |
| | 81,857 |
| | 84,284 |
| United Kingdom | 34,131 | | | 27,433 | | | 98,994 | | | 78,359 | |
Rest of World | 7,020 |
| | 6,160 |
| | 19,902 |
| | 17,158 |
| Rest of World | 16,568 | | | 13,166 | | | 46,796 | | | 39,063 | |
Total Non-United States | 33,844 |
| | 34,153 |
| | 101,759 |
| | 101,442 |
| Total Non-United States | 50,699 | | | 40,599 | | | 145,790 | | | 117,422 | |
| $ | 192,345 |
| | $ | 171,200 |
| | $ | 564,435 |
| | $ | 508,714 |
| |
Revenues, net | | Revenues, net | $ | 361,351 | | | $ | 290,325 | | | $ | 1,037,341 | | | $ | 826,804 | |
Property, plant and equipmentLong-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, 2022 | | December 31, 2021 |
Long-lived assets | | | |
India | $ | 58,969 | | | $ | 79,604 | |
United States | 55,825 | | | 50,095 | |
Philippines | 18,899 | | | 22,011 | |
Rest of World | 8,206 | | | 10,990 | |
Long-lived assets | $ | 141,899 | | | $ | 162,700 | |
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:
| | | | | | | | | | | |
| As of |
| September 30, 2022 | | December 31, 2021 |
| | | |
Accounts receivable, net | $ | 256,911 | | | $ | 194,232 | |
Contract assets | $ | 1,180 | | | $ | 2,524 | |
Contract liabilities: | | | |
Deferred revenue (consideration received in advance) | $ | 16,342 | | | $ | 18,247 | |
Consideration received for process transition activities | $ | 4,515 | | | $ | 2,203 | |
Accounts receivable includes $134,334 and $93,336 as of September 30, 2022 and December 31, 2021, 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.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
|
| | | | | | | |
| 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 |
|
Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers. The Company also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract fulfillment costs. Consideration received from customers, if any, relating to such transition activities are classified under contract liabilities and are included within “Deferred revenues” and “Other non-current liabilities” in the consolidated balance sheets. The revenues are recognized as (or when) the performance obligation is fulfilled under the contract with customer.4.Revenue recognized during the three and nine months ended September 30, 2022 and 2021, 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, |
| 2022 | | 2021 | | 2022 | | 2021 |
Deferred revenue (consideration received in advance) | $ | 2,456 | | | $ | 1,778 | | | $ | 16,326 | | | $ | 28,731 | |
Consideration received for process transition activities | $ | 706 | | | $ | 411 | | | $ | 1,370 | | | $ | 1,598 | |
Contract acquisition and fulfillment costs
The following table provides details of the Company’s contract acquisition and fulfillment costs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contract Acquisition Costs |
| Three months ended | | Nine months ended | | Year ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | | December 31, 2021 |
| | | | | | | | | |
Opening Balance | $ | 983 | | | $ | 867 | | | $ | 511 | | | $ | 1,027 | | | $ | 1,027 | |
Additions / (reductions) | 78 | | | (97) | | | 805 | | | 277 | | | 277 | |
Amortization | (73) | | | (158) | | | (328) | | | (692) | | | (793) | |
Closing Balance | $ | 988 | | | $ | 612 | | | $ | 988 | | | $ | 612 | | | $ | 511 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contract Fulfillment Costs |
| Three months ended | | Nine months ended | | Year ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | | December 31, 2021 |
| | | | | | | | | |
Opening Balance | $ | 10,167 | | | $ | 3,694 | | | $ | 5,795 | | | $ | 5,631 | | | $ | 5,631 | |
Additions | 2,964 | | | 279 | | | 8,449 | | | 443 | | | 3,742 | |
Amortization | (1,170) | | | (693) | | | (2,283) | | | (2,794) | | | (3,578) | |
Closing Balance | $ | 11,961 | | | $ | 3,280 | | | $ | 11,961 | | | $ | 3,280 | | | $ | 5,795 | |
There was no impairment for contract acquisition and contract fulfillment costs as of September 30, 2022 and December 31, 2021. The capitalized costs are amortized over the expected period of benefit of the contract.
Allowance for expected credit losses
The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future and estimates relating to the possible effects resulting from COVID-19.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
| | | | | | | | | | | |
| As of |
| September 30, 2022 | | December 31, 2021 |
Accounts receivable, including unbilled receivables | $ | 257,766 | | | $ | 194,805 | |
Less: Allowance for expected credit losses | (855) | | | (573) | |
Accounts receivable, net | $ | 256,911 | | | $ | 194,232 | |
The movement in “Allowance for expected credit losses” on customer balances was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended | | Year ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | | December 31, 2021 |
Opening Balance | $ | 844 | | | $ | 730 | | | $ | 573 | | | $ | 1,189 | | | $ | 1,189 | |
Additions / (reductions) | 9 | | | (19) | | | 752 | | | (414) | | | (496) | |
Reductions due to write-off of Accounts Receivables | — | | | (41) | | | (472) | | | (114) | | | (129) | |
Translation adjustment | 2 | | | 1 | | | 2 | | | 10 | | | 9 | |
Closing Balance | $ | 855 | | | $ | 671 | | | $ | 855 | | | $ | 671 | | | $ | 573 | |
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, and an assumed conversion premium of outstanding convertible notes, using the treasury stock method. Stock options, restrictedmethod (as discussed further in the subsequent paragraph). Common stock and restricted stock unitsequivalents 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.
In 2021, diluted weighted-average shares outstanding was affected by the treatment of the Company’s 3.5% per annum Convertible Senior Notes due October 1, 2024 (the “Notes”). The Company had a choice to settle the Notes in cash, shares or any combination of the two. The Company had the ability to settle the principal balance of the Notes in cash, and as such, the Company applied the treasury stock method. The dilution related to the conversion premium, if any, of the Notes is included in the calculation of diluted weighted-average shares outstanding for the portion of the period until actual settlement and to the extent the issuance is dilutive based on the average stock price during the reporting period being greater than the conversion price of $75. During the third quarter of 2021, the Company settled the Notes by electing a combination of cash and shares of the Company’s common stock and as such included the count of shares issued on settlement in the calculation of basic earnings per share for the portion of the period outstanding.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
The following table sets forth the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Numerators: | | | | | | | |
Net income | $ | 39,095 | | | $ | 26,507 | | | $ | 111,119 | | | $ | 86,459 | |
Denominators: | | | | | | | |
Basic weighted average common shares outstanding | 33,237,833 | | | 33,449,311 | | | 33,360,346 | | | 33,583,791 | |
Dilutive effect of share-based awards | 539,916 | | | 440,378 | | | 473,291 | | | 371,145 | |
Dilutive effect of conversion premium on the Notes | — | | | 416,204 | | | — | | | 382,014 | |
Diluted weighted average common shares outstanding | 33,777,749 | | | 34,305,893 | | | 33,833,637 | | | 34,336,950 | |
Earnings per share attributable to ExlService Holdings Inc. stockholders: | | | | | | | |
Basic | $ | 1.18 | | | $ | 0.79 | | | $ | 3.33 | | | $ | 2.57 | |
Diluted | $ | 1.16 | | | $ | 0.77 | | | $ | 3.28 | | | $ | 2.52 | |
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share | 936 | | | 40,384 | | | 673 | | | 14,044 | |
6. Cash, Cash Equivalents and Restricted Cash
For the purposes of the unaudited statements of cash flows, cash, cash equivalents and restricted cash comprise of the following: | | | | | | | | | | | | | | | | | |
| As of |
| September 30, 2022 | | September 30, 2021 | | December 31, 2021 |
Cash and cash equivalents | $ | 89,262 | | | $ | 114,581 | | | $ | 135,337 | |
Restricted cash (current) | 7,013 | | | 6,810 | | | 6,174 | |
Restricted cash (non-current) | 1,996 | | | 2,302 | | | 2,299 | |
Cash, cash equivalents and restricted cash | $ | 98,271 | | | $ | 123,693 | | | $ | 143,810 | |
7. Investments
Investments consist of the following: | | | | | | | | | | | | |
| | As of |
| | September 30, 2022 | | December 31, 2021 |
Short-term investments | | | | |
Mutual funds | | $ | 99,435 | | $ | 127,551 |
Term deposits | | 73,454 | | 51,879 |
Total Short-term investments | | $ | 172,889 | | $ | 179,430 |
| | | | |
Long-term investments | | | | |
Term deposits | | $ | 31,355 | | $ | 186 |
Investment in equity affiliate | | 3,369 | | 3,004 |
Total Long-term investments | | $ | 34,724 | | $ | 3,190 |
| | | | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
5.8. Other Income, net
Other income, net consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Gain on sale and mark-to-market of mutual funds and money market funds | $ | 1,471 | | | $ | 1,233 | | | $ | 3,341 | | | $ | 3,991 | |
Interest and dividend income | 1,457 | | | 761 | | | 3,674 | | | 2,052 | |
Others, net | (667) | | | (273) | | | (2,517) | | | (697) | |
Other income, net | $ | 2,261 | | | $ | 1,721 | | | $ | 4,498 | | | $ | 5,346 | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
6.9. Property Plant and Equipment, net
Property Plant and Equipment consistequipment, net consists of the following:
| | | | | | | | | | | | | | | | | |
| Estimated useful lives | | As of |
| (Years) | | September 30, 2022 | | December 31, 2021 |
Owned Assets: | | | | | |
Network equipment and computers | 3-5 | | $ | 125,523 | | | $ | 116,023 | |
Software | 2-5 | | 106,738 | | | 101,884 | |
Leasehold improvements | 3-8 | | 43,326 | | | 46,401 | |
Office furniture and equipment | 3-8 | | 20,669 | | | 22,302 | |
Motor vehicles | 2-5 | | 573 | | | 693 | |
Buildings | 30 | | 978 | | | 1,070 | |
Land | — | | 640 | | | 700 | |
Capital work in progress | — | | 10,876 | | | 10,288 | |
| | | 309,323 | | | 299,361 | |
Less: Accumulated depreciation and amortization | | | (229,813) | | | (213,699) | |
| | | $ | 79,510 | | | $ | 85,662 | |
Right-of-use assets under finance leases*: | | | | | |
Network equipment and computers | | | $ | 84 | | | $ | 91 | |
Leasehold improvements | | | 1,030 | | | 1,229 | |
Office furniture and equipment | | | 666 | | | 787 | |
Motor vehicles | | | 636 | | | 578 | |
| | | 2,416 | | | 2,685 | |
Less: Accumulated depreciation and amortization | | | (1,993) | | | (2,339) | |
| | | 423 | | | 346 | |
Property and equipment, net | | | $ | 79,933 | | | $ | 86,008 | |
|
| | | | | | | | | |
| 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 |
|
*Depreciation on assets held under finance leases are computed using the straight-line method over the shorter of the assets estimated useful lives or the lease term.
Capital work in progress represents advances paid towards acquisition of property plant and equipment and cost of property, plant and equipment andcosts incurred on internally generateddeveloped software costs not yet ready to be placed in service.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
During the three and nine months ended September 30, 2022, there were no changes in estimated useful lives of property and equipment during the ordinary course of operations.
The depreciation and amortization expense, excluding amortization of acquisition-related intangibles, recognized in the unaudited consolidated statements of income was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Depreciation and amortization expense | $ | 10,137 | | | $ | 9,283 | | | $ | 29,182 | | | $ | 26,936 | |
The effect of foreign exchange gain/(loss) upon settlement of cash flow hedges recorded under depreciation and amortization, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Effect of foreign exchange gain/(loss) | | $ | (126) | | | $ | 120 | | | $ | (64) | | | $ | 443 | |
Internally developed software costs, included under Software, was as follows:
| | | | | | | | | | | |
| As of |
| September 30, 2022 | | December 31, 2021 |
Cost | $ | 29,015 | | | $ | 19,289 | |
Less : Accumulated amortization | (14,599) | | | (10,226) | |
Internally developed software, net | $ | 14,416 | | | $ | 9,063 | |
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, |
| 2022 | | 2021 | | 2022 | | 2021 |
Amortization expense | $ | 1,832 | | | $ | 1,086 | | | $ | 4,414 | | | $ | 3,165 | |
As of September 30, 2022 and December 31, 2021, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value; however, there can be no assurance that long-lived assets will not be impaired in future periods. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, the asset’s residual value, if any, and estimates relating to the possible effects resulting from COVID-19. It is reasonably possible that the judgments and estimates described above could change in future periods.
|
| | | | | | | | | | | | | | | |
| 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 |
|
7.10. Business Combinations, Goodwill and Intangible Assets
Goodwill
Clairvoyant AI Inc.
On December 16, 2021, the Company, through its wholly owned subsidiary ExlService.com, LLC (“Buyer”), completed the acquisition of Clairvoyant, a Delaware corporation, pursuant to an equity securities purchase agreement dated December 16, 2021 (the “Purchase Agreement”). The following table sets forth detailsCompany purchased 100% of the issued and outstanding equity securities in Clairvoyant.
Clairvoyant is a global technology consulting and services company that helps organizations in their business transformation by maximizing the value of data through actionable insights. It provides data engineering, analytics, machine learning, product engineering, and cloud-based solutions. The acquisition strengthens the Company’s goodwill balance as of September 30, 2017:capabilities by adding additional expertise in data engineering and cloud enablement, further supporting its clients in insurance, healthcare, banking and financial services, and retail.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
The aggregate purchase consideration payable was $90,325, including cash and cash equivalents acquired, debt, other post-closing adjustments and contingent consideration. The base purchase consideration payable at closing of the acquisition (the “Closing”) was $80,080, excluding cash and cash equivalents acquired, debt and estimated other post-closing adjustments. As of September 30, 2022 and December 31, 2021, of the total purchase consideration, the Company has paid $78,984 and $76,831, respectively, net of cash and cash equivalents acquired. The Purchase Agreement also allows sellers the ability to earn up to $20,000 of contingent consideration, based on the achievement of certain performance goals by Clairvoyant during the 2022 and 2023 calendar years. The contingent consideration had an estimated fair value of $10,000 and $9,000, as of September 30, 2022 and December 31, 2021, respectively, and has been presented as contingent consideration under “Accrued expenses and other current liabilities” and “Other non-current liabilities,” as applicable, in the consolidated balance sheets. Changes in the fair value of contingent consideration were recognized in the unaudited consolidated statements of income and presented as a part of “Other income, net.” A portion of the purchase consideration otherwise payable was placed into escrow as security for the post-closing working capital adjustments and the indemnification obligations under the Purchase Agreement. To finance the acquisition at the Closing, the Company utilized its revolving Credit Facility in the amount of $75,000 and paid the balance with available cash on hand.
The Company accounted for the business combination using the acquisition method of accounting.
Pursuant to the Company’s business combinations accounting policy, the aggregate purchase consideration for Clairvoyant was allocated to identifiable net tangible and intangible assets based upon their fair values. The excess of the estimated purchase consideration over fair value of identifiable net tangible and intangible assets was recorded as goodwill. In order to allocate the consideration transferred for Clairvoyant, the fair values of all identifiable assets and liabilities must be established. For accounting and financial reporting purposes, fair value is defined under ASC No. 820, Fair Value Measurement and Disclosure, as the price that would be received upon sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. Use of different estimates and judgments could yield different results.
The tables below presents the fair value of the consideration exchanged and the allocation of purchase consideration to the major classes of assets and liabilities of Clairvoyant as of December 16, 2021:
| | | | | | | |
Assets: | | | |
Cash and cash equivalents | | | $ | 5,598 | |
Accounts receivable, net | | | 8,709 | |
Other current assets | | | 360 | |
Property and equipment, net | | | 398 | |
Intangible assets, net | | | |
Customer relationships | | | 31,600 | |
Developed technology | | | 2,070 | |
Trade names and trademarks | | | 300 | |
Non-compete agreements | | | 300 | |
Other assets | | | 217 | |
Total assets | | | $ | 49,552 | |
| | | |
Liabilities: | | | |
Accounts payable | | | $ | (1,199) | |
Accrued expenses and other current liabilities | | | (4,873) | |
Deferred tax liabilities | | | (9,383) | |
Other non-current liabilities | | | (1,226) | |
Total liabilities | | | (16,681) | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
| | | | | | | |
Net assets acquired | | | 32,871 | |
Goodwill | | | 57,454 | |
Total purchase consideration* | | | $ | 90,325 | |
* Includes contingent consideration of $9,000 recognized at fair value as of the date of acquisition.
During the three and nine months ended September 30, 2022, the Company recognized measurement period adjustments, which led to increase in goodwill in an amount of $nil and $2,229, respectively. These adjustments primarily relate to an increase in income tax liabilities of $988 included under “other non-current liabilities” and post-closing purchase adjustments.
The fair values of customer relationships were determined by using an “income approach,” specifically the Multi-Period Excess Earnings Method. The customer relationship assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 7 years.
The fair values of the developed technology intangible assets were determined by using the “cost approach,” specifically the replacement cost method. The technology assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 3 years.
The goodwill recognized represents the acquired capabilities, operating synergies and other benefits expected to result from combining the acquired operations with the Company’s existing operations. The amount of goodwill recognized from Clairvoyant’s acquisition is not deductible for tax purposes. The goodwill has been assigned to the Company’s Analytics reportable segment based upon the Company’s assessment of nature of services rendered by Clairvoyant.
Acquisition-related costs are being expensed as incurred and are included in general and administrative expenses in the unaudited consolidated statements of income. The Company recognized acquisition-related costs of $nil and $134 during the three and nine months ended September 30, 2022, respectively, and $761 during the year ended December 31, 2021.
The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition. The acquisition did not materially impact the Company’s financial position, results of operations or cash flows, and therefore, the Company has not provided supplemental pro forma results.
Inbound Media Group, LLC
On June 10, 2022, the Company, through its wholly owned subsidiary ExlService.com, LLC, entered into an Asset Purchase Agreement to acquire certain assets of Inbound, a Wyoming limited liability company, which is a digital marketing business focused primarily on lead generation in the insurance space, for cash consideration of $1,469 and contingent consideration with an estimated fair value of $1,439 as of the date of acquisition based on the achievement of certain performance goals by Inbound during the 2022 to 2024 calendar years.
The Company accounted for this business combination using the acquisition method of accounting. Goodwill and intangible assets of $1,992 and $916, respectively, were recognized by the Company as a result of this transaction. The goodwill recognized for this business is deductible for income tax purposes. The acquisition strengthens the Company’s capabilities in digital direct-to-consumer marketing by adding performance marketing, lead generation and customer engagement capabilities to its suite of end-to-end marketing solutions, proprietary data sets and robust consumer analytics.
The results of operations of the acquired business and the fair value of the net assets acquired are included in the Company’s consolidated financial statements with effect from the date of the acquisition. The acquisition did not materially impact the Company’s financial position, results of operations or cash flows, and therefore, the Company has not provided unaudited supplemental pro forma results.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
Goodwill
The following table sets forth details of changes in goodwill by reportable segment of the Company: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance as of January 1, 2022 | $ | 50,428 | | | $ | 21,942 | | | $ | 49,020 | | | $ | 282,512 | | | $ | 403,902 | |
Acquisition | — | | | — | | | — | | | 1,992 | | | 1,992 | |
Measurement period adjustments | — | | | — | | | — | | | 2,229 | | | 2,229 | |
Currency translation adjustments | (654) | | | (57) | | | (1,630) | | | (1) | | | (2,342) | |
Balance as of September 30, 2022 | $ | 49,774 | | | $ | 21,885 | | | $ | 47,390 | | | $ | 286,732 | | | $ | 405,781 | |
As of September 30, 2022, the Company performed an assessment to determine whether events or circumstances exist that may lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company considered current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance during nine months of the current fiscal year, business forecasts for the remainder of the year, stock price movements, generation and availability of cash and expansion plans. The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the annual impairment test performed during the fourth quarter of 2021. The Company did not identify any triggers or indications of potential impairment for its reporting units as of September 30, 2022.
There can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. These estimates and judgements may not be within the control of the Company and accordingly it is reasonably possible that the judgments and estimates described above could change in future periods. The duration of market volatility is highly uncertain and, as such, the impact on cash flows, long-term debt-free net cash flow growth rate in the terminal year and discount rates are subject to significant judgments and may cause variability in the Company’s assessment of existence of any impairment. The Company continues to monitor significant changes in key assumptions that could result in future period impairment charges.
The recoverability of goodwill is dependent upon the continued growth of cash flows from the Company’s business activities. This growth is based on business forecasts and improvement in profitability of its reporting units. The Company continues to maintain its focus on cultivating long-term client relationships as well as attracting new clients.
Intangible Assets
Information regarding the Company’s intangible assets is set forth below:
| |
| As of September 30, 2017 | | As of September 30, 2022 |
| 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 | $ | 99,146 | | | $ | (36,999) | | | $ | 62,147 | |
Leasehold benefits | 2,826 |
| | (2,490 | ) | | 336 |
| |
Developed technology | 14,314 |
| | (8,177 | ) | | 6,137 |
| Developed technology | 24,759 | | | (19,539) | | | 5,220 | |
Trade names and trademarks | | Trade names and trademarks | 1,700 | | | (1,230) | | | 470 | |
Non-compete agreements | 2,045 |
| | (1,739 | ) | | 306 |
| Non-compete agreements | 336 | | | (65) | | | 271 | |
Trade names and trademarks | 5,379 |
| | (3,887 | ) | | 1,492 |
| |
| $ | 99,936 |
| | $ | (57,268 | ) | | $ | 42,668 |
| | $ | 125,941 | | | $ | (57,833) | | | $ | 68,108 | |
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 | $ | 126,841 | | | $ | (57,833) | | | $ | 69,008 | |
|
| | | | | | | | | | | |
| 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 is as follows:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Amortization expense | $ | 3,487 |
| | $ | 2,848 |
| | $ | 10,492 |
| | $ | 8,281 |
|
|
| |
| (in years) |
Customer relationships | 5.15 |
Leasehold benefits | 1.67 |
Developed technologies | 3.77 |
Non-compete agreements | 1.93 |
Trade names and trademarks (Finite lived) | 5.23 |
ContentsEXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
| | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-lived intangible assets: | | | | | |
Customer relationships | $ | 103,016 | | | $ | (33,018) | | | $ | 69,998 | |
Developed technology | 25,040 | | | (15,850) | | | 9,190 | |
Trade names and trademarks | 1,700 | | | (1,006) | | | 694 | |
Non-compete agreements | 300 | | | — | | | 300 | |
| $ | 130,056 | | | $ | (49,874) | | | $ | 80,182 | |
Indefinite-lived intangible assets: | | | | | |
Trade names and trademarks | $ | 900 | | | $ | — | | | $ | 900 | |
Total intangible assets | $ | 130,956 | | | $ | (49,874) | | | $ | 81,082 | |
The amortization expense recognized in the unaudited consolidated statements of income was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Amortization expense | $ | 4,243 | | | $ | 3,022 | | | $ | 12,875 | | | $ | 9,780 | |
The remaining weighted average life of intangible assets is as follows:
| | | | | |
| (in years) |
Customer relationships | 5.7 |
Developed technology | 1.5 |
Trade names and trademarks (Finite lived) | 1.7 |
Non-compete agreements | 3.0 |
| | | | | |
Estimated future amortization expense related to finite-lived intangible assets as of September 30, 2022 was as follows: |
2022 (October 1 - December 31) | $ | 4,228 | |
2023 | 14,634 | |
2024 | 12,123 | |
2025 | 10,686 | |
2026 | 10,357 | |
2027 and thereafter | 16,080 | |
Total | $ | 68,108 | |
|
| | | |
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. Other current assets
Other current assets consistsTable of the following:
|
| | | | | | | |
| 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 of the following:
|
| | | | | | | |
| 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 |
|
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
11. Accumulated Other Comprehensive LossCurrent Assets
Accumulated other comprehensive loss consistsOther current assets consist of amortization of actuarial 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”). Changes in the fair values of contracts that are deemed effective are recorded as a component of accumulated other comprehensive loss until the settlement of those contracts. The balances as of September 30, 2017 and December 31, 2016 are as follows:following:
| | | | | | | | | | | |
| As of |
| September 30, 2022 | | December 31, 2021 |
Advance income tax, net | $ | 19,040 | | | $ | 15,199 | |
Receivables from statutory authorities | 13,929 | | | 18,023 | |
Prepaid expenses | 13,723 | | | 14,655 | |
Advances to suppliers | 1,834 | | | 1,464 | |
Deferred contract fulfillment costs | 1,793 | | | 1,483 | |
Derivative instruments | 1,362 | | | 8,682 | |
Contract assets | 564 | | | 1,319 | |
Others | 2,264 | | | 2,146 | |
Other current assets | $ | 54,509 | | | $ | 62,971 | |
|
| | | | | | | |
| 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. Fair Value MeasurementsOther Assets
Assets and Liabilities Measured at Fair ValueOther assets consist of the following:
The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of September 30, 2017 and December 31, 2016. The table excludes accounts receivable, accounts payable and accrued expenses for which fair values approximate their carrying amounts. | | | | | | | | | | | |
| As of |
| September 30, 2022 | | December 31, 2021 |
Deferred contract fulfillment costs | $ | 10,168 | | | $ | 4,312 | |
Lease deposits | 8,592 | | | 9,649 | |
Deposits with statutory authorities | 6,362 | | | 6,417 | |
Contract assets | 616 | | | 1,205 | |
Receivable from statutory authorities | 226 | | | 222 | |
Derivative instruments | 219 | | | 6,307 | |
Others | 3,655 | | | 2,071 | |
Other assets | $ | 29,838 | | | $ | 30,183 | |
|
| | | | | | | | | | | | | | | |
As of September 30, 2017 | Level 1 | | Level 2 | | Level 3 | | Total |
Assets |
| |
| |
| |
|
Money market and mutual funds* | $ | 146,477 |
| | $ | — |
| | $ | — |
| | $ | 146,477 |
|
Derivative financial instruments | — |
| | 14,395 |
| | — |
| | 14,395 |
|
Total | $ | 146,477 |
| | $ | 14,395 |
| | $ | — |
| | $ | 160,872 |
|
Liabilities |
| |
| |
| |
|
Derivative financial instruments | $ | — |
| | $ | 2,883 |
| | $ | — |
| | $ | 2,883 |
|
Total | $ | — |
| | $ | 2,883 |
| | $ | — |
| | $ | 2,883 |
|
|
| |
| |
| |
|
As of December 31, 2016 | Level 1 | | Level 2 | | Level 3 | | Total |
Assets |
| |
| |
| |
|
Money market and mutual funds | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Derivative financial instruments | — |
| | 6,318 |
| | — |
| | 6,318 |
|
Total | $ | — |
| | $ | 6,318 |
| | $ | — |
| | $ | 6,318 |
|
Liabilities |
| |
| |
| |
|
Derivative financial instruments | $ | — |
| | $ | 2,258 |
| | $ | — |
| | $ | 2,258 |
|
Total | $ | — |
| | $ | 2,258 |
| | $ | — |
| | $ | 2,258 |
|
25
* Represents short-term investments carried on fair value option under ASC 825 “Financial Instruments” as
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
13. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| | | | | | | | | | | |
| As of |
| September 30, 2022 | | December 31, 2021 |
Accrued expenses | $ | 47,351 | | | $ | 44,405 | |
Payable to statutory authorities | 17,230 | | | 13,902 | |
Derivative instruments | 11,897 | | | 1,852 | |
Client liabilities | 6,593 | | | 6,097 | |
Contingent consideration | 5,280 | | | — | |
Accrued capital expenditures | 4,274 | | | 8,630 | |
Interest payable | 365 | | | 252 | |
Finance lease liabilities | 140 | | | 141 | |
Other current liabilities | 3,670 | | | 1,071 | |
Accrued expenses and other current liabilities | $ | 96,800 | | | $ | 76,350 | |
14. Other Non-Current Liabilities
Other non-current liabilities consist of the following:
| | | | | | | | | | | |
| As of |
| September 30, 2022 | | December 31, 2021 |
Retirement benefits | $ | 14,506 | | | $ | 9,604 | |
Derivative instruments | 8,114 | | | 1,785 | |
Contingent consideration | 6,159 | | | 9,000 | |
Deferred transition revenue | 3,272 | | | 995 | |
Unrecognized tax benefits | 2,186 | | | 1,068 | |
Income taxes payable | 1,790 | | | 1,790 | |
Finance lease liabilities | 300 | | | 229 | |
Others | 916 | | | 120 | |
Other non-current liabilities | $ | 37,243 | | | $ | 24,591 | |
15. Accumulated Other Comprehensive Income/(Loss)
Accumulated other comprehensive income/(loss) (“AOCI”) consists of actuarial gain/(loss) on retirement benefits and foreign currency translation adjustments. In addition, the Company enters into foreign currency forward contracts and interest rate swaps, which are designated as cash flow hedges and net investment hedges, as applicable, in accordance with ASC 815. Cumulative changes in the fair values of cash flow hedges are recognized in AOCI on the Company’s consolidated balance sheets. The fair value changes are reclassified from AOCI to unaudited consolidated statements of income upon settlement of foreign currency forward contracts designated as cash flow hedges of a forecast transaction, whereas such changes are for interest rate swaps are reclassified over the term of the contract. Fair value changes related to net investment hedges are included in AOCI and are reclassified to unaudited consolidated statements of income when a foreign operation is disposed or partially disposed. The following table sets forth the changes in AOCI for the nine months ended September 30, 2022 and 2021:
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
| | | | | | | | | | | | | | | | | | | | | | | |
| Accumulated Other Comprehensive Income/(Loss) |
| Foreign currency translation loss | | Unrealized gain/(loss) on cash flow hedges | | Retirement benefits | | Total |
Balance as of January 1, 2022 | $ | (95,437) | | | $ | 8,420 | | | $ | (2,457) | | | $ | (89,474) | |
Losses recognized during the period | (49,371) | | | (28,638) | | | — | | | (78,009) | |
| | | | | | | |
Reclassification to net income (1) | — | | | (1,881) | | | 451 | | | (1,430) | |
Income tax effects (2) | 8,898 | | | 5,948 | | | (136) | | | 14,710 | |
Accumulated other comprehensive income/(loss) as of September 30, 2022 | $ | (135,910) | | | $ | (16,151) | | | $ | (2,142) | | | $ | (154,203) | |
| | | | | | | |
Balance as of January 1, 2021 | $ | (86,185) | | | $ | 13,799 | | | $ | (2,598) | | | $ | (74,984) | |
Losses recognized during the period | (10,475) | | | (42) | | | — | | | (10,517) | |
Losses on net investment hedges | (1,134) | | | — | | | — | | | (1,134) | |
Reclassification to net income (1) | — | | | (7,845) | | | 533 | | | (7,312) | |
Income tax effects (2) | 1,859 | | | (15) | | | (154) | | | 1,690 | |
Accumulated other comprehensive income/(loss) as of September 30, 2021 | $ | (95,935) | | | $ | 5,897 | | | $ | (2,219) | | | $ | (92,257) | |
(1) Refer to Note 17 - Derivatives and Hedge Accounting and Note 20 - Employee Benefit Plans to the unaudited consolidated financial statements for reclassification to net income.
(2) These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation loss. Refer to Note 22 - Income Taxes to the unaudited consolidated financial statements.
16. Fair Value Measurements
Assets and Liabilities Measured at Fair Value
The following table sets forth the Company’s assets and liabilities that were recognized at fair value:
| | | | | | | | | | | | | | | | | | | | | | | |
| Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Other Unobservable Inputs | | |
As of September 30, 2022 | (Level 1) | | (Level 2) | | (Level 3) | | Total |
Assets | | | | | | | |
Cash equivalents - Money market funds* | $ | 2,085 | | | $ | — | | | $ | — | | | $ | 2,085 | |
Mutual funds** | 99,435 | | | — | | | — | | | 99,435 | |
Derivative financial instruments | — | | | 1,581 | | | — | | | 1,581 | |
Total | $ | 101,520 | | | $ | 1,581 | | | $ | — | | | $ | 103,101 | |
Liabilities | | | | | | | |
Derivative financial instruments | $ | — | | | $ | 20,011 | | | $ | — | | | $ | 20,011 | |
Contingent consideration*** | — | | | — | | | 11,439 | | | 11,439 | |
Total | $ | — | | | $ | 20,011 | | | $ | 11,439 | | | $ | 31,450 | |
| | | | | | | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
| | | | | | | | | | | | | | | | | | | | | | | |
| Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Other Unobservable Inputs | | |
As of December 31, 2021 | (Level 1) | | (Level 2) | | (Level 3) | | Total |
Assets | | | | | | | |
Cash equivalents - Money market funds* | $ | 5,374 | | | $ | — | | | $ | — | | | $ | 5,374 | |
Mutual funds** | 127,551 | | | — | | | — | | | 127,551 | |
Derivative financial instruments | — | | | 14,989 | | | — | | | 14,989 | |
Total | $ | 132,925 | | | $ | 14,989 | | | $ | — | | | $ | 147,914 | |
Liabilities | | | | | | | |
Derivative financial instruments | $ | — | | | $ | 3,637 | | | $ | — | | | $ | 3,637 | |
Contingent consideration*** | — | | | — | | | 9,000 | | | 9,000 | |
Total | $ | — | | | $ | 3,637 | | | $ | 9,000 | | | $ | 12,637 | |
*Represents money market funds which are carried at the fair value option under ASC Topic 825 “Financial Instruments”.
** Represents those short-term investments which are carried at the fair value option under ASC Topic 825 “Financial Instruments”.
*** Contingent consideration is presented under “Accrued Expenses and Other Current Liabilities” and “Other Non-Current Liabilities,” as applicable, in the consolidated balance sheets.
Derivative Financial Instruments:
The Company’s derivative financial instruments consist of foreign currency forward exchange contracts.contracts and interest rate swaps. Fair values for derivative financial instruments are based on independent sources including highly rated financial institutions and are classified as Level 2. SeeRefer to Note 1317 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements contained herein for further detailsdetails.
Fair Value of Contingent Consideration:
The fair value measurement of contingent consideration is determined using Level 3 inputs. The Company’s contingent consideration represents a component of the total purchase consideration for its acquisition of Clairvoyant and Inbound. The measurement is calculated using unobservable inputs based on the Company’s own assessment of achievement of certain performance goals by Clairvoyant during the 2022 and 2023 calendar years and Inbound during the 2022 to 2024 calendar years. The Company estimated the fair value of the contingent consideration based on the Monte Carlo simulation model and scenario-based method. Refer to Note 10 - Business Combinations, Goodwill and Intangible Assets to the unaudited consolidated financial statements for further details.
The following table summarizes the changes in the fair value of contingent consideration:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Opening balance | $ | 11,439 | | | $ | — | | | $ | 9,000 | | | $ | — | |
Acquisitions | — | | | — | | | 1,439 | | | — | |
Fair value changes | — | | | — | | | 1,000 | | | — | |
Closing balance
| $ | 11,439 | | | $ | — | | | $ | 11,439 | | | $ | — | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
During the three months and nine months ended September 30, 2022 and 2021 there were no transfers among Level 1, Level 2 and Level 3.
Financial Instruments Not Carried at Fair Value:
The Company’s other financial instruments not carried at fair value consist primarily of cash and cash equivalents (except investments in money market funds, as disclosed above), short-term investments (except investments in mutual funds, as disclosed above), restricted cash, accounts receivable, net, long-term investments, accrued capital expenditures, accrued expenses, client liabilities and interest payable on borrowings for which fair values approximate their carrying amounts. The carrying value of the Company’s outstanding revolving credit facility approximates its fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments.
17. Derivatives and Hedge Accounting.Accounting
13. Derivatives and Hedge Accounting
The Company uses derivative instruments and hedging transactions to mitigate exposure tocash flow volatility from risk of fluctuations in foreign currency fluctuationexchange rates and interest rates. The Company enters into foreign currency forward contracts to hedge cash flow risks associated withfrom forecasted transactions denominated in certain foreign currencies, and interest rate swaps to minimize earnings andhedge cash flow volatility associated with changes in foreign currency exchange rates. The Company’s derivative financial instruments are largely foreign exchange forwardrisks from its revolving credit facility having variable interest rate obligations. These contracts that are designated effective and that qualify as cash flow hedges under ASC 815. TheTopic 815 and are with counterparties that are highly rated financial institutions. As of September 30, 2022 and December 31, 2021, the Company had outstanding foreign currency forward contracts totaling $604,560 and $514,580, respectively and interest rate swaps totaling $75,000 and $nil, respectively.
The Company estimates that approximately $10,757 of derivative losses, net, excluding tax effects, included in AOCI, representing changes in the value of cash flow hedges totaling $297,643 (including $1,500 of range forward contracts)based on exchange rates prevailing as of September 30, 2017 and $218,545 as2022, could be reclassified into earnings within the next twelve months. As of December 31, 2016. The fair valueSeptember 30, 2022, the maximum outstanding term of thesethe cash flow hedges is included in the other comprehensive loss on the Company's unaudited consolidated balance sheet.was approximately 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 fluctuations in foreign currency exchange rates associated with remeasurement of such assets and liabilities to functional currency. These derivativesforeign currency forward contracts do not qualify as fair value hedges under ASC Topic 815. Changes in the fair value of these derivativesfinancial instruments are recognized in the unaudited consolidated statements of income and are included in the foreign exchange gain/loss.(loss) line item. The Company’s primary exchange rate exposure is with the Indian Rupee,rupee, the U.K. Poundpound sterling (GBP) and the Philippine peso. The Company also has exposure to Colombian pesos (COP), Czech Koruna,koruna, the Euro (EUR), South African RandZAR, the Australian dollar (AUD) and other local currencies in which it operates. Outstanding foreign currency forward contracts amounted to $91,523USD 162,473, GBP 9,254, EUR 1,906 and GBP 17,244COP 3,619,127 as of September 30, 20172022 and amounted to $63,980USD 134,612, GBP 6,763, EUR 1,343 and GBP 17,974COP 2,541,902 as of December 31, 2016.2021.
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 settable sets forth the fair value of the foreign currency exchangeforward contracts and interest rate swaps and their location on the unaudited consolidated financial statements:balance sheets:
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivatives in cash flow hedging relationships | | Derivatives not designated as hedging instruments |
| | As of | | As of |
Derivative financial instruments | | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
Other current assets | | $ | 995 | | | $ | 8,669 | | | $ | 367 | | | $ | 13 | |
Other assets | | $ | 219 | | | $ | 6,307 | | | $ | — | | | $ | — | |
Accrued expenses and other current liabilities | | $ | 11,752 | | | $ | 1,324 | | | $ | 145 | | | $ | 528 | |
Other non-current liabilities | | $ | 8,114 | | | $ | 1,785 | | | $ | — | | | $ | — | |
|
| | | | | | | |
| 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, 20172022
(In thousands, except share and per share amounts)amount and share count)
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 exchangeforward contracts and interest rate swaps on AOCI and the unaudited consolidated statements of incomeincome:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
Derivative financial instruments: | | 2022 | | 2021 | | 2022 | | 2021 |
Unrealized gain/(loss) recognized in AOCI | | | | | | | | |
Derivatives in cash flow hedging relationships | | $ | (13,489) | | | $ | 261 | | | $ | (28,638) | | | $ | (42) | |
| | | | | | | | |
Loss recognized in unaudited consolidated statements of income | | | | | | | | |
Derivatives not designated as hedging instruments | | $ | (4,889) | | | $ | (464) | | | $ | (11,245) | | | $ | (1,054) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments |
| | Three months ended September 30, |
| | 2022 | | 2021 |
| | As per unaudited consolidated statements of income | | Loss on derivative financial instruments | | As per unaudited consolidated statements of income | | Gain/(loss) on derivative financial instruments |
Cash flow hedging relationships | | | | | | | | |
Location in unaudited consolidated statements of income where gain was reclassified from AOCI | | | | | | | | |
| | | | | | | | |
Cost of revenues | | $ | 230,462 | | | $ | (1,381) | | | $ | 177,743 | | | $ | 1,801 | |
General and administrative expenses | | $ | 42,519 | | | (109) | | | $ | 36,167 | | | 223 | |
Selling and marketing expenses | | $ | 23,879 | | | (6) | | | $ | 21,672 | | | 11 | |
Depreciation and amortization expense | | $ | 14,380 | | | (71) | | | $ | 12,305 | | | 115 | |
Interest expense | | $ | 2,442 | | | — | | | $ | 1,810 | | | — | |
Total before tax | | | | (1,567) | | | | | 2,150 | |
Income tax effects on above | | | | 133 | | | | | (370) | |
Net of tax | | | | $ | (1,434) | | | | | $ | 1,780 | |
| | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | |
Location in unaudited consolidated statements of income where gain/(loss) was recognized | | | | | | | | |
| | | | | | | | |
Foreign exchange gain, net | | $ | 1,504 | | | $ | (4,889) | | | $ | 1,171 | | | $ | (464) | |
| | $ | 1,504 | | | $ | (4,889) | | | $ | 1,171 | | | $ | (464) | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments |
| | Nine months ended September 30, |
| | 2022 | | 2021 |
| | As per unaudited consolidated statements of income | | Gain/(loss) on derivative financial instruments | | As per unaudited consolidated statements of income | | Gain/(loss) on derivative financial instruments |
Cash flow hedging relationships | | | | | | | | |
Location in unaudited consolidated statements of income where gain was reclassified from AOCI | | | | | | | | |
| | | | | | | | |
Cost of revenues | | $ | 659,185 | | | $ | 1,396 | | | $ | 507,265 | | | $ | 6,643 | |
General and administrative expenses | | $ | 122,898 | | | 366 | | | $ | 103,369 | | | 769 | |
Selling and marketing expenses | | $ | 72,034 | | | 23 | | | $ | 59,631 | | | 39 | |
Depreciation and amortization expense | | $ | 42,057 | | | 96 | | | $ | 36,716 | | | 394 | |
Interest expense | | $ | 4,820 | | | — | | | $ | 6,804 | | | — | |
Total before tax | | | | 1,881 | | | | | 7,845 | |
Income tax effects on above | | | | (802) | | | | | (1,186) | |
Net of tax | | | | $ | 1,079 | | | | | $ | 6,659 | |
| | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | |
Location in unaudited consolidated statements of income where gain/(loss) was recognized | | | | | | | | |
| | | | | | | | |
Foreign exchange gain, net | | $ | 4,683 | | | $ | (11,245) | | | $ | 2,958 | | | $ | (1,054) | |
| | $ | 4,683 | | | $ | (11,245) | | | $ | 2,958 | | | $ | (1,054) | |
Effect of net investment hedges on accumulated other comprehensive income/(loss):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | Amount of loss recognized in AOCI | | Amount of loss recognized in AOCI |
Net investment hedging relationships | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency forward contracts | | $ | — | | | $ | — | | | $ | — | | | $ | 1,134 | |
18. Borrowings
The following tables summarizes the Company’s debt position: | | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| Credit Facility |
Current portion of long-term borrowings | $ | 35,000 | | | $ | 260,016 | |
| | | |
| | | |
| | | |
| | | |
Long-term borrowings | 235,000 | | | — | |
Total borrowings | $ | 270,000 | | | $ | 260,016 | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
Unamortized debt issuance costs for the threeCompany’s revolving Credit Facility of $1,245 and nine months ended$232 as of September 30, 20172022 and 2016:December 31, 2021, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.
|
| | | | | | | | | | | | | | | |
| 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 |
|
Credit Agreement14. Borrowings
The Company hasheld a $300,000 revolving credit facility pursuant to its credit agreement (the “Credit Agreement”), dated as of November 21, 2017 with certain lenders and Citibank N.A. as Administrative Agent (the “Credit Facility”). The Credit Facility had a maturity date of November 21, 2022 and was voluntarily pre-payable from time to time without premium or penalty.
On April 18, 2022, the Company and each of the Company’s wholly owned material domestic subsidiaries entered into an Amendment and Restatement Agreement with Citibank, N.A. as Administrative Agent and certain lenders (the “2022 Credit Agreement”), includingpursuant to which the parties thereto amended and restated the Credit Agreement. Among other things, the 2022 Credit Agreement (a) provides for the issuance of new revolving credit commitments such that the aggregate amount of revolving credit commitments available to the Company is equal to $400,000; (b) extends the maturity date of the Credit Facility from November 21, 2022 to April 18, 2027; and (c) replaces LIBOR with Secured Overnight Financing Rate (“SOFR”) as the reference rate for the U.S. dollar borrowings.
The 2022 Credit Agreement provides an option to increase the commitments by up to $200,000, subject to certain approvals and conditions. The 2022 Credit Agreement includes a letter of credit sub-facility, in the amount of $100,000. The Credit Facility has a maturity date of October 24, 2019sub facility and is voluntarily pre-payable from time to time without premium or penalty.
Borrowings under the 2022 Credit Facility mayAgreement can be used for working capital and general corporate purposes, and forincluding permitted acquisitions. The amount outstanding as of September 30, 2017 is $45,000 which is included
Obligations under “long-term borrowings” in the unaudited consolidated balance sheets. The2022 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, whichAgreement 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'sCompany’s material domestic subsidiaries and material foreign subsidiaries and isare secured by all or substantially all of the assets of the Company and itsour material domestic subsidiaries. The 2022 Credit Agreement governingcontains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of certain assets or subsidiaries.
The Credit Facility contains certain covenants including a restriction on our indebtedness, and a covenant to not permit thecarried an effective 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. rate as shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Effective Interest Rate | 3.4 | % | | 2.3 | % | | 2.3 | % | | 2.0 | % |
As of September 30, 2017,2022 and December 31, 2021, the Company was in compliance with theall financial and non-financial covenants listed above.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 (the “Notes”). The Notes carried interest at a rate of 3.5% per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year. The Notes were convertible at an initial conversion rate of 13.3333 shares of the common stock per one thousand dollar principal amount of the Notes (which represented an initial conversion price of approximately $75 per share). The Company had the option to redeem the principal amount of the Notes, at its option, if the closing sale price of the common stock exceeded 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding the Company’s exercise of this redemption right (including the trading day immediately prior to the date of the notice of redemption).
On August 27, 2021, the Company entered into a Payoff and Termination Agreement with the Purchaser, pursuant to which the Company prepaid and settled its outstanding obligations under the Notes, by electing a combination of cash and
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
shares of the Company’s common stock. During the three and nine months ended September 30, 2021, the Company recognized interest expense and amortization of debt discount of $1,248 and $5,237, respectively, on the Notes.
15.
Expected payments for all of the Company’s borrowings as of September 30, 2022 were as follows:
| | | | | | | | | | | |
| Credit Facility | | Interest Payments* |
2022 (October 1 - December 31) | $ | 20,000 | | | $ | 2,809 | |
2023 | 15,000 | | | 10,505 | |
2024 | — | | | 10,154 | |
2025 | — | | | 10,154 | |
2026 | — | | | 10,154 | |
2027 and thereafter | 235,000 | | | 3,808 | |
Total | $ | 270,000 | | | $ | 47,584 | |
* Interest payments are based on effective interest rate as of September 30, 2022.
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, 2022 and December 31, 2021, the Company had outstanding letters of credit of $461, each, that were not recognized in the consolidated balance sheets.
19. Capital Structure
Common Stock
The Company has one class of common stock outstanding.
During the three months ended September 30, 2017 and 2016, the
The Company did not acquire anypurchased shares of its common stock from employees in connection with withholding tax payments related to the vesting of restricted stock.
During the nine months ended September 30, 2017stock units 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 ofperformance-based restricted stock for a total consideration of $3,016 and $728, respectively. units, as below:
| | | | | | | | | | | | | | | | | |
| Shares repurchased | | Total consideration | | Weighted average purchase price per share (1) |
Three months ended September 30, 2022 | — | | $ | — | | | $ | — | |
Three months ended September 30, 2021 | — | | $ | — | | | $ | — | |
| | | | | |
Nine months ended September 30, 2022 | 27,219 | | $ | 3,191 | | | $ | 117.23 | |
Nine months ended September 30, 2021 | 25,450 | | $ | 2,015 | | | $ | 79.18 | |
(1)The weighted average purchase price per share of $46.40 and $45.44, respectively, wasis based on the average of the high and lowclosing price of the Company’s share of common stock on the Nasdaq Global Select Market on the trading day prior to the applicable vesting date of the shares of restricted stock.
On December 30, 2014,16, 2019, the Company’s Board of Directors authorized a $200,000 common stock repurchase program beginning January 1, 2020 through December 31, 2022 (the “2014“2019 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,October 5, 2021, the Company’s Board of Directors authorized an additionala $300,000 common stock repurchase program beginning January 1, 2022 (the “2017“2022 Repurchase Program”), under whichand terminated the 2019 Repurchase Program on December 31, 2021.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
Under the 2022 Repurchase Program and 2019 Repurchase Program, shares may be purchased by the Company from time to time from the open market and through private transactions, during each ofor otherwise, as determined by the fiscal years 2017 through 2019 up to an aggregate additional amount of $100,000. The approval increasesCompany’s management as market conditions warrant. Repurchases may be discontinued at any time by the 2017 authorization from $20,000 to $40,000 and authorizes stock repurchases of up to $40,000 in each of 2018 and 2019.management.
During the three and nine months ended September 30, 2017, the
The Company purchased 160,033 and 584,017 shares of its common stock, respectively, for an aggregate purchase price of approximately $9,004 and $29,320, respectively,a total consideration including commissions, representing an average purchase price per share of $56.26 and $50.20, respectively, under the 2014 and 2017 Repurchase Program.repurchase programs, 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, 2022 | 76,809 | | $ | 11,521 | | | $ | 150.00 | |
Three months ended September 30, 2021 | 244,580 | | $ | 28,196 | | | $ | 115.28 | |
| | | | | |
Nine months ended September 30, 2022 | 503,858 | | $ | 68,521 | | | $ | 135.99 | |
Nine months ended September 30, 2021 | 844,656 | | $ | 83,605 | | | $ | 98.98 | |
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.
20. Employee Benefit Plans
The Company’s Gratuity PlansPlan in India ("Gratuity Plan"(the “India Plan”) provideprovides 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"“Philippines Plan”). The benefit costs ofLiabilities 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 anrecognized and amortized over the remaining period of service of the employees.
Components of net periodic benefit costs and actuarial basis. loss reclassified from AOCI, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Service cost | $ | 921 | | | $ | 874 | | | $ | 2,869 | | | $ | 2,648 | |
Interest cost | 302 | | | 231 | | | 938 | | | 700 | |
Expected return on plan assets | (215) | | | (199) | | | (664) | | | (600) | |
Amortization of actuarial loss, gross of tax | 147 | | | 178 | | | 451 | | | 533 | |
Net gratuity cost | $ | 1,155 | | | $ | 1,084 | | | $ | 3,594 | | | $ | 3,281 | |
| | | | | | | |
Amortization of actuarial loss, gross of tax | $ | 147 | | | $ | 178 | | | $ | 451 | | | $ | 533 | |
Income tax effects on amortization of actuarial loss | (44) | | | (32) | | | (136) | | | (154) | |
Amortization of actuarial loss, net of tax | $ | 103 | | | $ | 146 | | | $ | 315 | | | $ | 379 | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
Net gratuity cost includes the following components:
|
| | | | | | | | | | | | | | | |
| 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 GratuityIndia Plan in India is partially funded andwhereas the Philippines plan is unfunded. The Company makes annual contributions to the employees'employees’ gratuity fund of the India Plan established with Life Insurance Corporation of Indialeading insurance companies. Fund managers manage these funds and HDFC Standard Life Insurance Company. They 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 theseThese funds are managed on a cash accumulation basis and declare interest is declared retrospectively on March 31 of
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
each year. The Company earnedexpects to earn a return of approximately 8.0%7.2% per annum on these Gratuity Plansthe India Plan for the periodyear ended December 31, 2022.
| | | | | | | | |
Change in Plan Assets | | |
Plan assets as of January 1, 2022 | | $ | 13,605 | |
Actual return | | 656 | |
Employer contribution | | 1,431 | |
Benefits paid* | | (1,347) | |
Effect of exchange rate changes | | (1,206) | |
Plan assets as of September 30, 2022 | | $ | 13,139 | |
* Benefits payments were substantially made through the plan assets during the nine months ended September 30, 2017.2022.
|
| | | | |
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 social security contribution plan. The Company may make discretionary contributions of up to a maximum of 4%3.0% of employee compensation within certain limits. Contributions
The Company’s accrual for contributions to the 401(k) plans amounting to $487 and $554Plans 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,
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Contribution to the 401(k) Plans | $ | 1,097 | | | $ | 789 | | | $ | 4,140 | | | $ | 2,841 | |
The Company’s contribution for various defined social security contribution plans on behalf of its employees in India, the Philippines, Bulgaria, Romania, the Czech Republic, South Africa, Colombia, Mexico, Australia and Singapore.Singapore were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Contributions to the defined social security contribution plans | $ | 4,660 | | | $ | 3,580 | | | $ | 13,422 | | | $ | 10,617 | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
17.21. Leases
The Company conducts its operations using facilities leased under operating lease agreements that expire at various dates. The Company finances its use of certain motor vehicles and other equipment under various lease arrangements provided by financial institutions. Future minimumThe lease payments under these capital leases as of September 30, 2017 are as follows:agreements do not contain any covenants to impose any restrictions except for market-standard practice for similar lease arrangements.
|
| | | |
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 conductshad performed an evaluation of its operations usingcontracts with suppliers in accordance with Topic 842, Leases, and had determined that, except for leases for office facilities, leased under non-cancelable operating lease agreements that expire at various dates. Future minimum lease payments under non-cancelable agreements expiring after September 30, 2017 are set forth below:
|
| | | |
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 expensesmotor vehicles and other current liabilities” and “Non-current liabilities” inequipment as described above, none of the unaudited consolidated balance sheets.Company’s contracts contain a lease. As part of the Company’s efforts to optimize its existing network of operations centers, the Company continued to evaluate its office facilities to determine where it can exit or consolidate its use of office space.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
18.
Supplemental balance sheet information
| | | | | | | | | | | |
| As of |
| September 30, 2022 | | December 31, 2021 |
Operating Lease | | | |
Operating lease right-of-use assets | $ | 61,966 | | | $ | 76,692 | |
| | | |
Operating lease liabilities - Current | $ | 16,740 | | | $ | 18,487 | |
Operating lease liabilities - Non-current | 54,174 | | | 68,506 | |
Total operating lease liabilities | $ | 70,914 | | | $ | 86,993 | |
| | | |
Finance Lease | | | |
Property and equipment, gross | $ | 2,416 | | | $ | 2,685 | |
Accumulated depreciation | (1,993) | | | (2,339) | |
Property and equipment, net | $ | 423 | | | $ | 346 | |
| | | |
Finance lease liabilities - Current | $ | 140 | | | $ | 141 | |
Finance lease liabilities - Non-current | 300 | | | 229 | |
Total finance lease liabilities | $ | 440 | | | $ | 370 | |
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.
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: | 2022 | | 2021 | | 2022 | | 2021 |
Amortization of right-of-use assets | $ | 28 | | | $ | 47 | | | $ | 116 | | | $ | 149 | |
Interest on lease liabilities | 14 | | | 10 | | | 42 | | | 49 | |
| 42 | | | 57 | | | 158 | | | 198 | |
Operating lease(a) | 5,360 | | | 6,380 | | | 17,365 | | | 20,012 | |
Variable lease costs | 1,298 | | | 1,779 | | | 3,827 | | | 5,672 | |
Total lease cost | $ | 6,700 | | | $ | 8,216 | | | $ | 21,350 | | | $ | 25,882 | |
(a) Includes short-term leases, which are immaterial.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
Supplemental cash flow and other information related to leases are as follows:
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2022 | | 2021 |
Cash payments for amounts included in the measurement of lease liabilities : | | | |
Operating cash outflows for operating leases | $ | 17,831 | | | $ | 19,654 | |
Operating cash outflows for finance leases | $ | 42 | | | $ | 49 | |
Financing cash outflows for finance leases | $ | 108 | | | $ | 157 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 3,519 | | | $ | 4,647 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 218 | | | $ | 79 | |
Weighted-average remaining lease term (in years) | | | |
Finance lease | 2.7 years | | 1.9 years |
Operating lease | 5.5 years | | 5.9 years |
Weighted-average discount rate | | | |
Finance lease | 14.4 | % | | 14.3 | % |
Operating lease | 7.0 | % | | 7.3 | % |
The Company modified certain of its operating leases, resulting in an increase of its lease liabilities by $209 and a decrease of its lease liabilities by $1,022 during the nine months ended September 30, 2022 and 2021, respectively, with a corresponding adjustment to ROU assets.
As of September 30, 2022 and December 31, 2021, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.
Maturities of lease liabilities as of September 30, 2022 were as follows: | | | | | | | | | | | |
| Operating Leases | | Finance Leases |
2022 (October 1 - December 31) | $ | 5,347 | | | $ | 46 | |
2023 | 20,723 | | | 197 | |
2024 | 17,322 | | | 129 | |
2025 | 11,153 | | | 84 | |
2026 | 9,030 | | | 59 | |
2027 and thereafter | 24,087 | | | 50 | |
Total lease payments | 87,662 | | | 565 | |
Less: Imputed interest | 16,748 | | | 125 | |
Present value of lease liabilities | $ | 70,914 | | | $ | 440 | |
Maturities of lease liabilities as of December 31, 2021 were as follows:
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
2022 | $ | 24,020 | | | $ | 185 | |
2023 | 22,666 | | | 147 | |
2024 | 17,745 | | | 72 | |
2025 | 10,741 | | | 34 | |
2026 | 8,395 | | | 17 | |
2027 and thereafter | 25,198 | | | — | |
Total lease payments | 108,765 | | | 455 | |
Less: Imputed interest | 21,772 | | | 85 | |
Present value of lease liabilities | $ | 86,993 | | | $ | 370 | |
22. 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.rate. 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 continued 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 13.7% during the three months ended September 30, 2021 to 24.2% during the three months ended September 30, 2022. The Company recorded income tax expense of $2,819$12,447 and $5,646$4,196 for the three months ended September 30, 20172022 and 2016,2021, respectively. The effectiveincrease in income tax rate decreased from 26.0%expense was primarily as a result of higher profit during the three months ended September 30, 20162022, compared to 11.8% asthe three months ended September 30, 2021, the recording of a result of (i) excessone-time deferred tax benefit related to stock awards of $3,488 pursuant to ASU No. 2016-09$2,400 on settlement of the Notes during the three months ended September 30, 2017, (ii)2021, and higher earningsexcess tax benefits during the three months ended September 30, 2021.
The Company’s effective tax rate increased from foreign subsidiaries and lower domestic profit in20.3% during the U.S., partially offset by higher tax expense on account ofnine months ended September 30, 2021 to 23.9% during the expiration of a tax holiday for some of the operating centers in India.
nine months ended September 30, 2022. The Company recorded income tax expense of $7,202$34,774 and $18,549$22,019 for the nine months ended September 30, 20172022 and 2016,2021, respectively. The effectiveincrease in income tax rate decreased from 28.6%expense was primarily as a result of higher profit during the nine months ended September 30, 20162022, compared to 11.0% asthe nine months ended September 30, 2021, the recording of a result of (i) excessone-time deferred tax benefit related to stock awards of $7,169 pursuant to ASU No. 2016-09$2,400 on settlement of the Notes during the nine months ended September 30, 2017, (ii) conclusion of2021, and an uncertain tax position of $3,153 (including interest of $1,433), (iii) higher earnings from foreign subsidiaries and lower domestic profitincrease in the U.S.,non-deductible expenses, partially offset by higher excess tax benefits during the nine months ended September 30, 2022.
Effective for taxable years beginning after December 31, 2021, Internal Revenue Code Section 174, Amortization of Research and Experimental Expenditures, provides that research and experimentation expenses can no longer be currently deducted, instead such expenses are required to be capitalized. Such capitalized expenses are to be amortized over a period of five and fifteen years for the U.S. and foreign research, respectively. Although this change has no impact on the income statement due to offsetting current tax expense on accountwith corresponding deferred tax benefit, the change has resulted in an aggregate increase of $17,640 in the expiration of acurrent tax holiday for some ofliability and deferred tax asset balances, presented under “Income taxes payable, net” and “Deferred tax assets, net,” respectively, in 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 benefitsunaudited consolidated balance sheets as of September 30, 20172022.
Income tax (deferred) recognized in AOCI were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Deferred taxes benefit / (expense) recognized on: | | | | | | | |
Unrealized gain/(loss) on cash flow hedges | $ | 2,348 | | | $ | (980) | | | $ | 5,146 | | | $ | (1,201) | |
Reclassification adjustment for cash flow hedges | (133) | | | 370 | | | 802 | | | 1,186 | |
Reclassification adjustment for retirement benefits | (44) | | | (32) | | | (136) | | | (154) | |
| | | | | | | |
Foreign currency translation loss | 7,919 | | | 630 | | | 8,898 | | | 1,859 | |
Total income tax benefit / (expense) recognized in AOCI | $ | 10,090 | | | $ | (12) | | | $ | 14,710 | | | $ | 1,690 | |
During the three months ended EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except per share amount and 2016, the Company has recognized interest of nil and $50, respectively, which 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.share count)
19.
23. 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, |
| 2022 | | 2021 | | 2022 | | 2021 |
Cost of revenues | $ | 2,713 | | | $ | 2,198 | | | $ | 8,485 | | | $ | 5,588�� | |
General and administrative expenses | 5,237 | | | 4,431 | | | 14,937 | | | 12,337 | |
Selling and marketing expenses | 4,236 | | | 4,265 | | | 13,328 | | | 10,871 | |
Total | $ | 12,186 | | | $ | 10,894 | | | $ | 36,750 | | | $ | 28,796 | |
| | | | | | | |
Income tax benefit related to share-based compensation, including excess tax benefits | $ | 2,833 | | | $ | 2,697 | | | $ | 8,855 | | | $ | 7,129 | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
As of September 30, 2017,2022, the Company had 1,492,0971,308,384 shares available for grant under the 2015 Amendment2018 Omnibus Incentive Plan.
Stock Options
Stock option activity under the Company’s stock-based compensation plans is shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options | | Weighted-Average Exercise Price | | Aggregate Intrinsic Value | | Weighted-Average Remaining Contractual Life (Years) |
Outstanding as of December 31, 2021 | 3,093 | | | $ | 27.62 | | | $ | 362 | | | 2.0 |
Granted | — | | | — | | | — | | | — | |
Exercised | — | | | — | | | — | | | — | |
Forfeited | — | | | — | | | — | | | — | |
Outstanding as of September 30, 2022 | 3,093 | | | $ | 27.62 | | | $ | 370 | | | 1.3 |
Vested and exercisable as of September 30, 2022 | 3,093 | | | $ | 27.62 | | | $ | 370 | | | 1.3 |
Share Matching Program
Under the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”), the Company established a share matching program (“SMP”) for executive officers and Restatementother specified employees. Under the SMP, the Company agreed to issue a number of restricted stock units equal to the number of newly acquired shares of the 2006 Omnibus Award Plan.Company's common stock. For purposes of the match, “newly acquired shares” includes the employee’s first quarter 2022 open market purchase of the common stock, and
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
crediting of equity awards vesting under any existing stock award plan of the Company as having been purchased by such employees, in an amount between $100 to $500 per such employee.
Stock Options
Stock option activityThe matching restricted stock units granted under the Company’s stock 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 asSMP will vest in two installments, with one-third to vest on the second anniversary 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 valueand the remaining two-thirds to vest on the third anniversary of options vested duringthe grant date; the newly acquired shares for which the matching restricted stock units were granted must also be held by the employee until such vesting dates. The Company’s underlying common stock issued pursuant to the vesting of the matching restricted stock units will not be marketable or transferable for a period of two years following the vesting date. Certain forfeiture and other conditions apply.
During the nine months ended September 30, 2017 and 2016 was nil and $706, respectively.2022, the Company granted 52,636 matching restricted stock units under the SMP.
Restricted Stock and
Restricted Stock Units
Restricted stock and restricted stock unit activity under the Company’s stockstock-based compensation plans is shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Restricted Stock Units (Others) | | Restricted Stock Units (SMP) |
| Number | | Weighted-Average Fair Value | | Number | | Weighted-Average Fair Value |
Outstanding as of December 31, 2021* | 982,187 | | | $ | 81.61 | | | — | | | $ | — | |
Granted | 356,983 | | | 121.15 | | | 52,636 | | | 124.76 | |
Vested | (302,625) | | | 73.86 | | | — | | | — | |
Forfeited | (77,894) | | | 94.48 | | | (4,177) | | | 124.76 | |
Outstanding as of September 30, 2022* | 958,651 | | | $ | 97.74 | | | 48,459 | | | $ | 124.76 | |
|
| | | | | | | | | | | | | |
| 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, 20172022 and December 31, 20162021 restricted stock units vested for which the underlying common stock is yet to be issued are 146,112174,490 and 135,054,162,481 respectively.
As of September 30, 2017,2022, unrecognized compensation cost of $39,553$73,569 is expected to be expensed over a weighted average period of 2.662.5 years.
Performance Based Stock Awards
Under the 2018 Plan, the Company grants performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees. During the nine months ended September 30, 2022, the Company granted 40% of each award recipient’s equity grants in the form of PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for a three year period. The remaining 60% of each award recipient’s equity grants are PRSUs that are based on a market condition that is contingent on the Company’s meeting the total shareholder return relative to a group of peer companies specified under the program measured over a three-year performance period. However, the features of the equity incentive compensation program are subject to change by the Compensation Committee of our Board of Directors. The award recipient may earn up to two hundred percent (200%) of the PRSUs granted based on the actual achievement of targets.
Performance restricted stock unit activity under the Company’s stock plans is shown below:
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172022
(In thousands, except share and per share amounts)amount and share count)
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 |
| Revenue Based PRSUs | | Market Condition Based PRSUs | | Number | | Weighted Average Fair Value | | Number | | Weighted Average Fair Value |
| 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 |
| |
Outstanding as of December 31, 2021 | | Outstanding as of December 31, 2021 | 58,864 | | | $ | 78.29 | | | 172,042 | | | $ | 113.74 | |
Granted | 62,113 |
| | 47.73 |
| | 62,100 |
| | 54.10 |
| Granted | 53,122 | | | 119.98 | | | 79,631 | | | 155.67 | |
Vested | — |
| | — |
| | — |
| | — |
| Vested | — | | | — | | | — | | | — | |
Forfeited | (8,595 | ) | | 43.96 |
| | (8,595 | ) | | 59.40 |
| Forfeited | (6,113) | | | 97.62 | | | (14,940) | | | 126.10 | |
Outstanding at September 30, 2017 | 168,692 |
| | $ | 43.81 |
| | 268,676 |
| | $ | 48.58 |
| |
Outstanding as of September 30, 2022 | | Outstanding as of September 30, 2022 | 105,873 | | | $ | 98.09 | | | 236,733 | | | $ | 127.07 | |
As of September 30, 2017,2022, unrecognized compensation cost of $7,095$24,273 is expected to be expensed over a weighted average period of 1.832.0 years.
Employee Stock Purchase Plan
20.On June 21, 2022, at the annual meeting of stockholders of the Company, the Company’s stockholders approved the ExlService Holdings, Inc. 2022 Employee Stock Purchase Plan (the “2022 ESPP”).
The 2022 ESPP allows eligible employees to purchase the Company’s shares of common stock through payroll deductions at a pre-specified discount to the lower of closing price of the Company’s common shares on the date of offering or the last business day of each purchase interval. The dollar amount of shares of common stock that can be purchased under the 2022 ESPP must not exceed 15% of the participating employee’s compensation during the offering period, subject to a cap of $25 per employee per calendar year. The first offering period under the 2022 ESPP commenced on October 1, 2022 with a term of three months. The Company has registered 800,000 shares of common stock to be reserved for issuance over the term of the 2022 ESPP.
24. Related Party Disclosures
The
In April 2022, the Company provides consultingentered into a service contract for providing analytics services to PharmaCord, LLC. OneThe Vanguard Group Inc., which beneficially owns more than 10% of the Company’s directors, Nitin Sahney, iscommon stock as of September 30, 2022. During the member-manager and chief executive officer of PharmaCord, LLC. The Company recognized revenue of approximately $701 and $1,506 in the three months and nine months ended September 30, 2017, respectively, for services provided.
At September 30, 2017 and December 31, 2016,2022, the Company had an account receivablerecognized revenues, net of $379$814 and nil,$1,388, respectively related to these services.this service contract. The Company had outstanding accounts receivable, net of $804 related to this service contract as of September 30, 2022.
21.25. Commitments and Contingencies
Fixed Asset
Capital Commitments
At
As of September 30, 2017,2022, the Company hashad committed to spend approximately $7,407$6,200 under agreements to purchase fixed assets.property and equipment. This amount is net of capital advances paid which are recognized in respect of these purchases.the unaudited consolidated balance sheets as “Capital work in progress” under “Property and equipment, net.”
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 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 managementCompany 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”).Authority. 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 investment criteria and investment criteria.certain other
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
criteria, including but not limited to work-from-office norms, etc. The Company’s managementCompany believes that these centers have in the past satisfied and will continue to satisfycomplied with the required criteria.requirements.
Contingencies
U.S. and Indian transfer
Transfer pricing regulations generally require that any international transactioncontrolled intercompany transactions involving associated enterprisesrelated entities be at an arm’s-length price. Accordingly, the Company determines the appropriate pricingtransfer prices for the international transactions among its associated enterprisesrelated entities on the basis of a detailed functional and economic analysis involving benchmarking against transactions among entities that are not under common control. The taxunrelated entities. Tax authorities have jurisdiction to review this arrangementtransfer pricing results, and in the event that they determine that the transfer price applied was not appropriate, the Company may incur increasedadditional tax, liability, including accrued interest and penalties. The Company is currently involved in transfer pricing 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)
ofregarding transactions with some of its transfer pricing policies for some of its subsidiaries. Further,related entities. In addition, the Company and a U.S. subsidiary are engaged in tax litigation with the income-taxIndian tax authorities in India on the issue ofregarding a permanent establishment.establishment matter.
The aggregate disputed amount demanded by Indian tax authorities (net of advance payments) from the Company primarily related to its transfer pricing and other corporate tax issues for years ranging from tax years 2003 to 20142019 and its permanent establishment issues ranging fromfor tax years 2003 to 20072006 as of September 30, 20172022 and December 31, 20162021 is $16,075$37,717 and $17,963, respectively, of which the$34,276, respectively. The Company has made payments and/or provided bank guarantee toguarantees against these demands in the extent $8,418amounts of $7,659 and $8,640,$7,954, respectively. Amounts paid as deposits in respect of such assessments aggregating to $6,389$6,030 and $6,690$6,172 as of September 30, 20172022 and December 31, 2016,2021, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $2,029$1,629 and $1,950$1,782 as of September 30, 20172022 and December 31, 2016,2021, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s 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 remotetax 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 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.
22. Subsequent Event
On October 24,India’s Value Added Tax (“VAT”) regime ended in June 2017 a wholly owned subsidiaryand was replaced by the current Goods and Service Tax (“GST”) regime. Pursuant to reviewing the Company’s annual VAT filings, the Indian tax authorities raised aggregate VAT tax demands for tax years 2015 and 2017 in an amount of the Company entered into a definitive purchase agreement to acquire substantially all the assets$5,619 and $6,387 as of Health Integrated, Inc. Based in Tampa, Florida, Health Integrated is a care management company that provides end-to-end technologySeptember 30, 2022 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 closeDecember 31, 2021, respectively. Beginning in the first quarter of 2018, subject2020, the GST authorities rejected the Company’s refunds claims in an amount of $3,548 and $3,322 as of September 30, 2022 and December 31, 2021, respectively. The Company has filed appeals against these matters and believes that it is more likely than not that upon final examination its position will be sustained based on its technical merits. Accordingly, no provision was recognized as of September 30, 2022 and December 31, 2021.
One of the Company’s subsidiaries in India has undergone an assessment with the statutory authority with respect to defined social security contribution plan. Except for some components of the fulfillmentassessment for which the Company has recognized a provision in the financial statements, the Company believes that the amount demanded by such authority is not a meaningful indicator of the potential liabilities of the Company, and that the matter is without merit. The Company is defending against the assessment order and has accordingly instituted an appeal against the order before the relevant tribunal while also making a payment under protest of the amount demanded, being a prerequisite for the appeal to be admitted. As of the reporting date, the Company’s management does not believe that the ultimate assessment will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. The Company will continue to monitor and evaluate its position based on future events and developments in this matter.
In September 2020, the Indian Parliament passed various consolidating labor codes, including the Code on Social Security, 2020 (the “Indian Social Security Code”) which aims to rationalize labor laws. The Indian Social Security Code has implications on defined social security contribution plans, provision of certain closing conditions, including regulatorybenefits or facilities to employees at employer’s costs and other consents.post-retirement benefits. Most specifically, it broadens the definition of an employee and wages and liberalizes the definition of “continuous period” for the purpose of determining employee benefits, amongst others. However, the rules for the Indian Social Security Code are yet to be published and the effective date from which these changes are applicable is yet to be notified. The Company will complete its evaluation once the subject rules are notified and will give appropriate impact in the
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2022
(In thousands, except per share amount and share count)
financial statements in the period in which, the Indian Social Security Code becomes effective and the related rules to determine the financial impact are published.
From time to time, the Company, its subsidiaries, and/or their present officers or directors, on individual basis, may be or have been, named as a defendant in litigation matters, including employment-related claims. The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and attorney’s fees. With respect to pending litigation matters as of the reporting date, the Company believes that the damages amounts claimed in such cases are not meaningful indicators of the potential liabilities of the Company, that these matters are without merit, and that the Company intends to vigorously defend each of them.
The outcomes of legal actions are unpredictable and subject to significant uncertainties, and thus it is inherently difficult to determine the likelihood of the Company incurring a material loss or quantification of any such loss. With respect to pending litigation matters as of the reporting date, based on information currently available, including the Company’s assessment of the facts underlying each matter and advice of counsel, the amount or range of reasonably possible losses, if any, cannot be reasonably estimated. Based on the Company’s assessment, including the availability of insurance recoveries, the Company’s management does not believe that currently pending litigation, individually or in aggregate, will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
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, 2016.2021. Some of the statements in the following discussion are forward looking statements. Dollar amounts within Item 2 are presented as actual, approximated, dollar amounts.
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. These factors include but are not limited to:
•the impact of COVID-19 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;industries and our ability to withstand the loss of a significant client;
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;
•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, medical epidemics or pandemics, or acts of violence or war;
•our ability to withstandrealize the lossentire book value of a significant customer;goodwill and other intangible assets from acquisitions;
•our ability to make accurate estimates and assumptions in connection with the preparation of our consolidated financial statements;
•failure to protect our intellectual property;
•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;
•credit risk fluctuations in the market values of our investment and derivatives portfolios;
•legal liability arising out of customer contracts;
•technological innovation;
•our ability to meet our environmental, social and governance-related goals and targets;
•effects of political orand economic instabilityconditions globally, particularly in the geographies in whichwhere we operate;operate, including potential effects of the Russian invasion of Ukraine;
•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 customeremployee data; and
•adverse outcome of our disputes with the Indian tax authorities.authorities, in the geographies where we operate.
These and other factors are more fully discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2021 and under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. 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.
Executive Overview
We operateare a leading data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth. By bringing together deep domain expertise with robust data, powerful analytics, cloud, AI and ML, we create agile, scalable solutions and execute complex operations for the world’s leading corporations in the business process management (“BPM”) industryindustries including insurance, healthcare, banking and we providefinancial services, media, and retail, among others.
We deliver data analytics and digital operations management and analytics services that help the business enhance growth and profitability. Using our proprietary platforms, methodologies and tools we look deepersolutions to help our clients, improve global operations, enhance data-driven insights, increase customer satisfaction,driving enterprise-scale business transformation initiatives that leverage our deep expertise in advanced analytics, AI, ML and cloud. We manage risk and compliance. report financial information through our four strategic business units: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions.
Our eight operatingreportable segments are strategic business units that align our productsas follows:
•Insurance,
•Healthcare,
•Analytics, and services with how we manage our business, approach our key markets and interact with our clients. Six of those operating segments provide BPM or “operations management” services, which we organize 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 our industry-focused segments as well as clients across other industries. In each of these six operating segments we provide operations management services, which typically involve transfer to the Company of select business operations of a client, after which we administer 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 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 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:
•Emerging Business.
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 includeincludes 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.,United States, the United Kingdom, the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.
On December 16, 2021, we completed the acquisition of Clairvoyant, a global data, AI, ML, and cloud services firm that helps organizations in their business transformation by maximizing the value of data through actionable insights. It provides data engineering, analytics, AI, ML, product engineering, and cloud-based solutions. The acquisition strengthens our Analytics capabilities by adding additional expertise in data engineering and cloud enablement, further supporting our clients in the insurance, healthcare, banking and financial services, and retail industries.
On June 10, 2022, the Company, through its wholly owned subsidiary ExlService.com, LLC, entered into an Asset Purchase Agreement to acquire certain assets of Inbound, a digital marketing business focused primarily on lead generation in the insurance space. The acquisition expands our digital direct-to-consumer marketing services by adding proven performance marketing, lead generation and customer engagement capabilities to our suite of end-to-end marketing solutions, proprietary data sets and robust consumer analytics.
Continued Impact of COVID-19 on Our Business
During 2022, we continued to recover from the COVID-19 pandemic. As the global economy continued to adapt to the impact of COVID-19, our clients are focused on receiving personalized customer experiences, optimizing costs and supporting resilient operating models. We remain committed to helping our clients adapt and thrive through the ongoing uncertainties caused by COVID-19 and, going forward, to the shifting business environment, which has led to increased demand for digital capabilities.
In 2022, we implemented a new work standard under which employees in many of our locations, where permitted by local laws and regulations, and where the role and client requirements permit, have the opportunity to choose between different work arrangements. Subject to local rules and regulations, these work arrangements include working in a hybrid arrangement or a fully remote arrangement, with occasional work from the office when warranted. We have begun to re-open our operation centers and offices globally with a focus on safety and consistency with applicable local regulations.
We continue to focus on effectively managing the unprecedented challenges and uncertainties of the pandemic on a global basis. Management has prioritized the health and safety of our employees and their families: we have adopted numerous safety procedures at our global facilities, including hygiene and disinfection protocols, testing and contact tracing, social distancing and wearing personal protective equipment. We share best practices throughout our facilities globally in order to standardize effective safety guidelines and procedures across our operations. Our safety guidelines and procedures are updated on a regular basis.
While many of the COVID-19 related restrictions have been lifted in the geographies in which we operate, there have been periodic resurgences of COVID-19 as a result of new strains and variants, which has led us to monitor our work model and / or implement additional safety procedures.
We believe our actions have been successful and that the pandemic has not significantly affected our business, results of operations, financial position and cash flow during the first nine months of 2022, however the impact of the pandemic for the period beyond the first nine months of 2022 will depend on many evolving and uncertain factors that are not within our control.
For additional information and risks related to COVID-19, see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Revenues
For the three months ended September 30, 2017,2022, we had revenues of $192.3$361.4 million compared to revenues of $171.2$290.3 million for the three months ended September 30, 2016,2021, an increase of $21.1$71.1 million, or 12.4%24.5%. For the nine months ended September 30, 2017,2022, we had revenues of $564.4$1,037.3 million compared to revenues of $508.7$826.8 million for the nine months ended September 30, 2016,2021, an increase of $55.7$210.5 million, or 11.0%25.5%.
We serve clientsclients mainly in the U.S.United States and the U.K., with these two regions generating approximately 82.4%United Kingdom, which generated 86.0% and 13.9%9.4%, respectively, of our total revenues for the three months ended September 30, 20172022 and approximately 80.1% and 16.4%, respectively, of our revenues for the three months ended September 30, 2016. For the nine months ended September 30, 2017, these2021. These two regions generated 82.0%85.9% and 14.5%, respectively, of our total revenues and 80.1% and 16.6%9.5%, respectively, of our total revenues for the nine months ended September 30, 2016.2022 and 85.8% and 9.5%, respectively, of our total revenues for the nine months ended September 30, 2021.
For the three months ended September 30, 20172022 and 2016,2021, our total revenues from our top ten clients accounted for 38.3%34.2% and 41.0%38.7% of our total revenues, respectively. For the nine months ended September 30, 20172022 and 2016,2021, our total revenues from our top ten clients accounted for 38.7%33.7% and 40.6%38.6% of our total revenues, respectively. NoneAlthough 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% ofcould 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.
Our Business
We provide data analytics and digital operations management and analytics services.solutions to our clients. We market our services to our existing and prospective clients through our sales and client management teams, which are aligned by key industry verticals and cross-industry domains such as finance and accounting. Our sales and client management teams operate primarily from the U.S.,United States, Europe and Australia.
Digital Operations Management Services:and Solutions: We provide our clients with a range of digital operations management services principally in theand solutions 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,Emerging Business strategic business units, which are focused on solving complex industry problems such as Financethe insurance claims lifecycle and Accounting Services. We also provide services related to operations management, through our Consulting services that provide advice regarding transformational initiatives.
Our operations management solutionsfinancial transactions processing, and typically involve the transferuse of agile delivery models to the Company of selectimplement digital technologies and interventions like hyper-automation, customer experience transformation, advanced automation, robotics, enterprise architecture, end-to-end business operations of a client such as claims processing, clinical operations, or financial transaction processing, after which wefunction management and transformations. We either administer and manage the operations for our clientthese functions on an ongoing basis. As partbasis via longer-term arrangements or project work. For a portion of this transfer,our digital operations and solutions, 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 digital operations and solutions that include industry-specific digital transformational services as well as cross-industry finance and accounting services as part of the Emerging Business strategic business unit.
We provide our services under contracts with our clients, which typically have been observingterms of three or more years, with some being rolling contracts with no end dates. Typically, our clients can terminate these contracts with or without cause and with short notice periods. These contracts provide us with a relatively predictable revenue base for a substantial portion of our digital operations and solutions business. However, we have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.
We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models. Outcome-based pricing arrangements are examples of non-linear pricing models where clients link revenues from platforms and solutions and the services we provide to usage or savings rather than the efforts deployed to provide these services. We continue to observe a shift in the industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models. We believe this trend will continue and we 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 ratefull-time-equivalent pricing model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins. In addition, we
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.
Analytics: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 Analyticsanalytics services focus on driving improved business outcomes for our customersclients by generating data-drivenunlocking deep insights from data and create data driven solutions across all parts of our customers’clients’ 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 enhance, modernize and enrich structured and unstructured data and use a spectrum of advanced analytical tools and techniques, including our in-house ML and AI capabilities to create insights
and improve decision making for our clients. Our acquisition of Clairvoyant in December 2021 strengthens our analytics capabilities by adding additional expertise in data engineering and cloud enablement, further supporting our clients in the insurance, healthcare, banking and financial services, and retail industries. We actively cross-sell and, where appropriate, integrate our Analyticsanalytics services with other digital operations management servicesand solutions as part of a comprehensive offering set for our clients. Our projects-based analytics services are cyclical and can be significantly affected by variations in business cycles. In addition, our projects-based analytics services are documented in contracts with terms generally not exceeding one year and may not produce ongoing or recurring business for us once the project is completed. These contracts also usually contain provisions permitting termination of the contract after a short notice period. The short-term nature and specificity of these projects could lead to fluctuations and uncertainties in the revenues generated from providing analytics services.
We anticipate that revenues from our Analyticsanalytics services will grow as we expand our service offerings and client base, both organically and through acquisitions.
Critical Accounting Policies and Estimates
For a description of
There have been no significant changes in our critical accounting policies and estimates referduring the three and nine months ended September 30, 2022, as compared to the critical accounting policies and estimates referred in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – CriticalOperations” under “Critical Accounting Policies and Estimates” and Note 2 - Summary of Significant Accounting Policies to the Consolidated Financial Statementsour consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
2021.
Results of Operations
The following table summarizes our results of operations for the threeoperations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (dollars in millions) | | (dollars in millions) |
Revenues, net | $ | 361.4 | | | $ | 290.3 | | | $ | 1,037.3 | | | $ | 826.8 | |
Cost of revenues(1) | 230.5 | | | 177.7 | | | 659.2 | | | 507.2 | |
Gross profit(1) | 130.9 | | | 112.6 | | | 378.1 | | | 319.6 | |
Operating expenses: | | | | | | | |
General and administrative expenses | 42.5 | | 36.2 | | | 122.9 | | 103.4 | |
Selling and marketing expenses | 23.9 | | 21.7 | | | 72.0 | | 59.7 | |
Depreciation and amortization expense | 14.4 | | 12.3 | | | 42.1 | | 36.7 | |
| | | | | | | |
Total operating expenses | 80.8 | | | 70.2 | | | 237.0 | | | 199.8 | |
Income from operations | 50.1 | | | 42.4 | | | 141.1 | | | 119.8 | |
Foreign exchange gain, net | 1.5 | | | 1.2 | | | 4.7 | | | 3.0 | |
Interest expense | (2.4) | | | (1.8) | | | (4.8) | | | (6.8) | |
Other income, net | 2.3 | | | 1.7 | | | 4.5 | | | 5.3 | |
Loss on settlement of convertible notes | — | | | (12.8) | | | — | | | (12.8) | |
Income before income tax expense and earnings from equity affiliates | 51.5 | | | 30.7 | | | 145.5 | | | 108.5 | |
Income tax expense | 12.5 | | | 4.2 | | | 34.8 | | | 22.1 | |
Income before earnings from equity affiliates | 39.0 | | | 26.5 | | | 110.7 | | | 86.4 | |
Gain from equity-method investment | 0.1 | | | — | | | 0.4 | | | — | |
Net income attributable to ExlService Holdings, Inc. stockholders | $ | 39.1 | | | $ | 26.5 | | | $ | 111.1 | | | $ | 86.4 | |
(1) Exclusive of depreciation and nine months ended September 30, 2017 and 2016: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 |
|
Due to rounding, the numbers presented in the tables included in this Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may not add up precisely to the totals provided.
Three Months Ended September 30, 20172022 Compared to Three Months Ended September 30, 20162021
Revenues.
The following table summarizes our revenues by reportable segment for the three months ended September 30, 2017 and 2016:segments:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Percentage change |
| 2022 | | 2021 | | Change | |
| (dollars in millions) | | | | |
Insurance | $ | 116.2 | | | $ | 98.0 | | | $ | 18.2 | | | 18.6 | % |
Healthcare | 22.8 | | | 27.3 | | | (4.5) | | | (16.5) | % |
Emerging Business | 56.1 | | | 44.5 | | | 11.6 | | | 25.9 | % |
Analytics | 166.3 | | | 120.5 | | | 45.8 | | | 38.0 | % |
Total revenues, net | $ | 361.4 | | | $ | 290.3 | | | $ | 71.1 | | | 24.5 | % |
|
| | | | | | | | | | | | | | |
| 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, 20172022 were $192.3$361.4 million, up $21.1$71.1 million, or 12.4%24.5%, compared to the three months ended September 30, 2016.2021, driven primarily by revenue growth in Analytics.
Revenue growth in Insurance of $6.8$18.2 million was primarily driven by expansion of business from our new and existing clients of $6.4 million. The remaining increase of $0.4 million is attributable to a net impact of appreciation of the South African Rand and Indian rupee during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Insurance revenues were 31.0% and 30.9% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, respectively.
Revenue growth in Healthcare of $2.9 million was driven 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 existing clients of $1.2 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 revenues were 9.6% and 10.2% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, 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 of $3.4 million was driven primarily by lower revenue in our Consulting and Utilities operating segments, aggregating to $3.7$19.9 million. This was partially offset by a net increaseloss of $0.3$1.7 million duemainly attributable to the appreciationdepreciation of the U.K. pound sterling, the Australian dollar and the Indian rupee against the U.S. dollar during the three months ended September 30, 20172022, compared to the three months ended September 30, 2016. All Other2021. Insurance revenues were 10.4%32.2% and 13.7%33.8% of our total revenues induring the three months ended September 30, 20172022 and September 30, 2016,2021, respectively.
Revenue decline in Healthcare of $4.5 million was primarily driven by the ramp-down in certain existing clients during the three months ended September 30, 2022. Healthcare revenues were 6.3% and 9.4% of our total revenues during the three months ended September 30, 2022 and September 30, 2021, respectively.
Revenue growth in Emerging Business of $11.6 million was primarily driven by expansion of business from our new and existing clients aggregating to $13.8 million. This was partially offset by a loss of $2.2 million mainly attributable to the depreciation of the U.K. pound sterling, the Indian rupee and the Euro against the U.S. dollar during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Emerging Business revenues were 15.5% and 15.3% of our total revenues during the three months ended September 30, 2022 and September 30, 2021, respectively.
Revenue growth in Analytics of $12.1$45.8 million was primarily driven by higher volumes in our recurringannuity and project basedproject-based engagements from our new and existing clients of $11.9$35.0 million, including $6.5 millionand contributions from our IQR Consulting Inc. ("IQR") and Datasource Consulting, LLC ("Datasource") acquisitionsacquisition of Clairvoyant in 2016. The increaseDecember 2021 of $0.2$12.5 million. This was partially offset by a loss of $1.7 million ismainly attributable to the appreciationdepreciation of Indian rupeethe U.K. pound sterling against the U.S. dollar during the three months ended September 30, 20172022, compared to the three months ended September 30, 2016.2021. Analytics revenues were 27.9%46.0% and 24.3%41.5% of our total revenues induring the three months ended September 30, 20172022 and September 30, 2016,2021, respectively.
Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of Revenues | | Gross Margin |
| Three months ended September 30, | | Change | | Percentage change | | Three months ended September 30, | | Change |
| 2022 | | 2021 | | | | 2022 | | 2021 | |
| (dollars in millions) | | | | | | | | | | |
Insurance | $ | 75.0 | | | $ | 61.4 | | | $ | 13.6 | | | 22.0 | % | | 35.4 | % | | 37.3 | % | | (1.9) | % |
Healthcare | 17.1 | | | 17.1 | | | — | | | — | % | | 25.0 | % | | 37.6 | % | | (12.6) | % |
Emerging Business | 32.4 | | | 23.7 | | | 8.7 | | | 36.8 | % | | 42.2 | % | | 46.8 | % | | (4.6) | % |
Analytics | 106.0 | | | 75.5 | | | 30.5 | | | 40.2 | % | | 36.3 | % | | 37.3 | % | | (1.0) | % |
Total | $ | 230.5 | | | $ | 177.7 | | | $ | 52.8 | | | 29.7 | % | | 36.2 | % | | 38.8 | % | | (2.6) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2017,2022, cost of revenues was $124.9$230.5 million compared to $111.8$177.7 million for the three months ended September 30, 2016,2021, an increase of $13.1$52.8 million, or 11.7%29.7%. Our gross margin for the three months ended September 30, 20172022 was 35.1%36.2%, compared to 34.7%38.8% for the three months ended September 30, 2016, an increase2021, a decrease of 40260 basis points (“bps”).
The increase in cost of revenues in Insurance of $1.9$13.6 million during the three months ended September 30, 2022 was primarily due to an increaseincreases in employee-related costs of $1.6$13.6 million on account of higher headcount and wage inflation, technology and infrastructurehigher technology costs of $0.6 million. This was$2.0 million on account of increased leverage of the remote work model, partially offset by a decreaseforeign exchange gain, net of hedging of $2.0 million. Gross margin in other operating costs of $0.4 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. dollarInsurance decreased by 190 bps during the three months ended September 30, 20172022, compared to the three months ended September 30, 2016.2021, primarily due to lower margins associated with ramp-ups in certain new clients during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
The cost of revenues in Healthcare remained unchanged at $17.1 million during the three months ended September 30, 2022 and 2021. This was driven by increases in employee-related costs of $0.7 million on account of higher headcount in existing clients and wage inflation, offset by foreign exchange gain, net of hedging of $0.5 million and lower other operating costs of $0.2 million. Gross margin increasedin Healthcare decreased by 5001,260 bps during the three months ended September 30, 20172022, compared to the three months ended September 30, 2016,2021, primarily due to higherlower revenues and margin expansion inassociated with ramp-down of certain existing clients.clients during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
The increase in cost of revenues in HealthcareEmerging Business of $1.1$8.7 million during the three months ended September 30, 2022 was primarily due to an increaseincreases in employee-related costs of $1.2$8.2 million on account of higher headcount and wage inflation, higher technology and infrastructure costs of $0.3 million. This was$0.9 million on account of increased leverage of the remote work model, higher travel costs of $0.8 million, and higher facilities cost of $0.5 million, partially offset by $0.4 million due to the depreciationforeign exchange gain, net of the Philippine peso against the U.S. dollarhedging of $1.7 million. Gross margin in Emerging Business decreased by 460 bps during the three months ended September 30, 20172022, compared to the three months ended September 30, 2016. Gross margin increased by 480 bps2021, primarily due to lower margins associated with ramp-ups in certain new clients, higher employee-related costs and higher operating expenses during the three months ended September 30, 20172022, compared to the three months ended September 30, 2016, primarily due to higher revenues and operational efficiencies.2021.
The decrease in cost of revenues in TT&L of $0.5 million was primarily due to a decrease in employee-related costs of $0.2 million on account of lower headcount (partially offset by wage inflation), decrease in infrastructure costs of $0.1 million and decrease in other operating costs of $0.1 million. There was a decrease of $0.1 million due to the 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. Gross margin increased by 590 bps during the three months ended September 30, 2017 as 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&AAnalytics of $1.3$30.5 million during the three months ended September 30, 2022 was primarily due to an increaseincreases in employee-related costs of $0.6$29.4 million on account of higher headcount and wage inflation, infrastructureincluding incremental cost related to our acquisition of Clairvoyant in December 2021. The remaining increase was attributable to higher technology costs of $0.1$1.2 million andon account of increased leverage of the remote work model, higher travel costs of $0.4$1.1 million, and higher other operating costs of $2.3 million. ThereThis was an increasepartially offset by foreign exchange gain, net of $0.3 million due to the appreciationhedging 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.$3.5 million. Gross margin in Analytics decreased by 100 bps during the three months ended September 30, 20172022, compared to the three months ended September 30, 20162021, 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 decreaseincreases 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 otherhigher operating costs aggregating to $0.2 millionexpenses during the three months ended September 30, 20172022, 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 higher2021.
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, primarily due to higher operating costs and lower gross margin from our 2016 acquisitions.
Selling, General and Administrative (“SG&A”) Expenses.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Change | | Percentage change |
| 2022 | | 2021 | | |
| (dollars in millions) | | | | |
General and administrative expenses | $ | 42.5 | | | $ | 36.2 | | | $ | 6.3 | | | 17.6 | % |
Selling and marketing expenses | 23.9 | | | 21.7 | | | 2.2 | | | 10.2 | % |
Selling, general and administrative expenses | $ | 66.4 | | | $ | 57.9 | | | $ | 8.5 | | | 14.8 | % |
As a percentage of revenues | 18.4 | % | | 19.9 | % | | | | |
|
| | | | | | | | | | | | | | |
| 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 in SG&A expenses of $8.5 million was primarily due to an increase inhigher employee-related costs of $2.2$7.5 million (including $1.6 millionon account of a higher headcount and wage inflation, including incremental employee-related costs related to our 2016 acquisitions) as a resultacquisition of annual wage increments and anClairvoyant in December 2021, increase in our average headcount to support the increased business volumes. There was an increasetechnology costs of $1.8$2.3 million due to recognitionon account of reserve for doubtful account receivables, $0.5 million of infrastructure costs related to our new operating centerscontinued investments in digital capabilities and $0.5 million ofhigher other operating expenses. There was acosts of $0.3 million, partially offset by foreign exchange gain, net increase of $0.2 million due to the appreciationhedging of the Indian rupee and 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.$1.6 million.
Depreciation and Amortization.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Change | | Percentage change |
| 2022 | | 2021 | | |
| (dollars in millions) | | | | |
Depreciation expense | $ | 10.1 | | | $ | 9.3 | | | $ | 0.8 | | | 9.2 | % |
Intangible amortization expense | 4.3 | | | 3.0 | | | 1.3 | | | 40.4 | % |
Depreciation and amortization expense | $ | 14.4 | | | $ | 12.3 | | | $ | 2.1 | | | 16.9 | % |
As a percentage of revenues | 4.0 | % | | 4.2 | % | | | | |
|
| | | | | | | | | | | | | | |
| 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 increased by $1.1 million, or 12.9%, from $8.6 million for the three months ended September 30, 2016 to $9.7 million for the three months ended September 30, 2017. The increase in intangibles amortization expense of $0.6$1.3 million was primarily due to amortization of intangibles associated with IQRour acquisition of Clairvoyant and Datasource acquisitionsInbound in 2016. There was anDecember 2021 and June 2022, respectively, during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase in our depreciation expense of $0.5$0.8 million was primarily due to depreciation of $1.2 million related to our new operating centersinvestments in Indiadigital capabilities and computer and networking equipment, partially offset by foreign exchange gain, net of hedging of $0.4 million during the Philippinesthree months ended September 30, 2022, compared to support our business growth and impact of our 2016 acquisitions.the three months ended September 30, 2021.
Income from Operations. Income from operations increased $1.3by $7.7 million, or 7.5%18.1%, from $17.3$42.4 million for the three months ended September 30, 20162021 to $18.6$50.1 million for the three months ended September 30, 2017.2022, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the three months ended September 30, 2022. As a percentage of revenues, income from operations decreased from 10.1%14.6% for the three months ended September 30, 20162021 to 9.7%13.9% for the three months ended September 30, 2017.2022.
Foreign Exchange Gain/(Loss). Net foreignForeign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the U.K. Poundpound sterling, the Philippine peso and the Philippine pesoSouth African ZAR during the three months ended September 30, 2017.2022. The average exchange rate of the U.S. dollar against the Indian rupee decreasedincreased from 66.7373.88 during the three months ended September 30, 20162021 to 64.4580.01 during the three months ended September 30, 2017.2022. The average exchange rate of the U.K. Poundpound sterling against the U.S. dollar remained flat at 1.31decreased from 1.37 during the three months ended September 30, 2016 and2021 to 1.16 during the three months ended September 30, 2017.2022. The average exchange rate of the U.S. dollar against the Philippine peso increased from 47.4050.24 during the three months ended September 30, 20162021 to 50.8256.63 during the three months ended September 30, 2017.2022. The average exchange rate of the U.S. dollar against the South African ZAR increased from 14.76 during the three months ended September 30, 2021 to 17.21 during the three months ended September 30, 2022.
We recorded a net foreign exchange gain of $2.8$1.5 million for the three months ended September 30, 20172022, compared to net foreign exchange gain of $1.2 million for the three months ended September 30, 2021.
Interest expense. Interest expense increased from $1.8 million for the three months ended September 30, 2021 to $2.4 million for the three months ended September 30, 2022, primarily due to higher outstanding obligations under our revolving Credit Facility and higher effective interest rates during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
Other Income, net.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Percentage change |
| 2022 | | 2021 | | Change | |
| (dollars in millions) | | | | |
Gain on sale and mark-to-market of mutual funds and money market funds | $ | 1.5 | | | $ | 1.2 | | | $ | 0.3 | | | 19.3 | % |
Interest income | 1.5 | | | 0.8 | | | 0.7 | | | 91.5 | % |
Other, net | (0.7) | | | (0.3) | | | (0.4) | | | 144.3 | % |
Other income, net | $ | 2.3 | | | $ | 1.7 | | | $ | 0.6 | | | 31.4 | % |
Other income, net increased by $0.6 million, from $1.7 million for the three months ended September 30, 2016.
Interest expense. Interest expense increased $0.1 million, from $0.32021 to $2.3 million for the three months ended September 30, 20162022, primarily due to $0.4higher interest income on investments in term deposits of $0.7 million and higher yield on our mutual fund investments of $0.3 million.
Loss on settlement of Notes. On August 27, 2021, we settled our outstanding obligations under the Notes and recognized
a loss of $12.8 million during the three months ended September 30, 2021. See Note 18 - Borrowings to our unaudited consolidated financial statements.
Income Tax Expense. The effective tax rate increased from 13.7% during the three months ended September 30, 2021 to 24.2% during the three months ended September 30, 2022. We recorded income tax expense of $12.4 million and $4.2 million for the three months ended September 30, 2017.
Other Income, net. Other2022 and 2021, respectively. The increase in income nettax expense was flat at $2.9 millionprimarily a result of higher profit during the three months ended September 30, 2017.
Income Tax Expense. The effective2022, compared to the three months ended September 30, 2021, the recording of a one-time deferred tax rate decreased from 26.0%benefit of $2.4 million on settlement of the Notes during the three months ended September 30, 2016 to 11.8% as a result of (i)2021, and higher excess tax benefit related to stock awards of $3.5 million pursuant to ASU No. 2016-09benefits during the three months ended September 30, 2017, and (ii) higher earnings from foreign subsidiaries and lower domestic profit in 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 India2021.
Net Income. Net income increased from $16.0$26.5 million for the three months ended September 30, 20162021 to $21.1$39.1 million for the three months ended September 30, 2017,2022, primarily due to lower income tax expense of $2.8 million, higherincrease in income from operations of $1.3$7.7 million, loss on settlement of the Notes of $12.8 million during three months ended September 30, 2021 and higher foreign exchange gain, net of $1.1$0.3 million, partially offset by higher interestincome tax expense of $0.1$8.3 million. As a percentage of revenues, net income increased from 9.4%9.1% for the three months ended September 30, 20162021 to 11.0%10.8% for the three months ended September 30, 2017.2022.
Nine Months Ended September 30, 20172022 Compared to Nine Months Ended September 30, 20162021
Revenues.
The following table summarizes our revenues by reportable segment for the nine months ended September 30, 2017 and 2016:segments:
| | | Nine months ended September 30, | | | | Percentage change | | Nine months ended September 30, | | Percentage change |
| 2017 | | 2016 | | Change | | | 2022 | | 2021 | | Change | |
| (dollars in millions) | | | | | | (dollars in millions) | | | | |
Insurance | $ | 173.8 |
| | $ | 151.7 |
| | $ | 22.1 |
| | 14.6 | % | Insurance | $ | 328.0 | | | $ | 283.8 | | | $ | 44.2 | | | 15.5 | % |
Healthcare | 56.7 |
| | 49.8 |
| | 6.9 |
| | 13.9 | % | Healthcare | 72.1 | | | 85.9 | | | (13.8) | | | (16.1) | % |
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 | 160.6 | | | 122.9 | | | 37.7 | | | 30.8 | % |
Analytics | 154.3 |
| | 120.2 |
| | 34.1 |
| | 28.4 | % | Analytics | 476.6 | | | 334.2 | | | 142.4 | | | 42.6 | % |
Total revenues, net | $ | 564.4 |
| | $ | 508.7 |
| | $ | 55.7 |
| | 11.0 | % | Total revenues, net | $ | 1,037.3 | | | $ | 826.8 | | | $ | 210.5 | | | 25.5 | % |
Revenues for the nine months ended September 30, 20172022 were $564.4$1,037.3 million, up $55.7$210.5 million, or 11.0%25.5%, compared to the nine months ended September 30, 2016.2021, driven primarily by revenue growth in Analytics and Insurance.
Revenue growth in Insurance of $22.1$44.2 million was primarily driven by expansion of business from our new and existing clients aggregating to $47.6 million. This was partially offset by a loss of $3.4 million mainly attributable to the depreciation of the U.K. pound sterling, the Australian dollar and the Indian rupee against the U.S. dollar during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Insurance revenues were 31.6% and 34.3% of our total revenues during the nine months ended September 30, 2022 and September 30, 2021, respectively.
Revenue decline in Healthcare of $13.8 million was primarily driven by the ramp-down in certain existing clients during the nine months ended September 30, 2022. Healthcare revenues were 6.9% and 10.4% of our total revenues during the nine months ended September 30, 2022 and September 30, 2021, respectively.
Revenue growth in Emerging Business of $37.7 million was primarily driven by expansion of business from our new and existing clients of $21.1$42.1 million. This was partially offset by a loss of $4.4 million including incremental $2.6 million related to the July 2016 acquisition of Liss Systems Limited ("Liss"). The remaining increase of $1.0 million ismainly attributable to a net impact of appreciation of the South African Rand and Indian rupee and depreciation of the U.K. Poundpound sterling, the Indian rupee and the Euro against the U.S. dollar during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.Emerging Business revenues were 15.5% and 14.9% of our total revenues during the nine months ended September 30, 2022 and September 30, 2021, respectively.
Revenue growth in Analytics of $142.4 million was primarily driven by the higher volumes in our annuity and project based engagements from our new and existing clientsof $112.1 million, and contributions from our acquisition of Clairvoyant in December 2021 of $33.7 million. This was partially offset by a loss of $3.4 million mainly attributable to the depreciation of the U.K. pound sterling against the U.S. dollar during the nine months ended September 30, 20172022, compared to the nine months ended September 30, 2016. Insurance2021. Analytics revenues were 30.8%45.9% and 29.8%40.4% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.
Revenue growth in Healthcare of $6.9 million was driven by expansion of business from our existing and new clients. Healthcare revenues were 10.0% and 9.8% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.
Revenue growth in TT&L of $0.8 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 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. TT&L revenues were 9.5% and 10.4% of our total revenues in the nine months ended September 30, 20172022 and September 30, 2016,2021, respectively.
Revenue growth in F&A of $4.7 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
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.segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of Revenues | | Gross Margin |
| Nine months ended September 30, | | | | Percentage change | | Nine months ended September 30, | | Change |
| 2022 | | 2021 | | Change | | | 2022 | | 2021 | |
| (dollars in millions) | | | | | | | | | | |
Insurance | $ | 210.7 | | | $ | 176.9 | | | $ | 33.8 | | | 19.1 | % | | 35.7 | % | | 37.7 | % | | (2.0) | % |
Healthcare | 52.4 | | | 52.2 | | | 0.2 | | | 0.6 | % | | 27.2 | % | | 39.3 | % | | (12.1) | % |
Emerging Business | 92.8 | | | 66.8 | | | 26.0 | | | 38.8 | % | | 42.2 | % | | 45.6 | % | | (3.4) | % |
Analytics | 303.3 | | | 211.3 | | | 92.0 | | | 43.4 | % | | 36.4 | % | | 36.8 | % | | (0.4) | % |
Total | $ | 659.2 | | | $ | 507.2 | | | $ | 152.0 | | | 29.9 | % | | 36.5 | % | | 38.6 | % | | (2.1) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2017,2022, cost of revenues was $370.5$659.2 million compared to $332.2$507.2 million for the nine months ended September 30, 2016,2021, an increase of $38.3$152.0 million, or 11.5%29.9%. Our gross margin for the nine months ended September 30, 20172022 was 34.4%36.5% compared to 34.7%38.6% for the nine months ended September 30, 2016,2021, a decrease of 30 basis points (bps).210 bps.
The increase in cost of revenues in Insurance of $10.5$33.8 million during the nine months ended September 30, 2022 was primarily due to an increaseincreases in employee-related costs of $8.2$32.8 million (including $1.3 million from our Liss acquisition) on account of higher headcount and wage inflation, andhigher technology and infrastructure costs of $2.8 million. This was$5.1 million on account of increased leverage of the remote work model and higher travel costs of $1.1 million, partially offset by a decrease in travel related costsforeign exchange gain, net of $0.6hedging of $4.3 million and lower other operating costs of $0.7$0.9 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. dollarGross margin in Insurance decreased by 200 bps during the nine months ended September 30, 20172022, compared to the nine months ended September 30, 2016. Gross margin increased by 300 bps2021, primarily due to lower margins associated with ramp-ups in certain new clients during the nine months ended September 30, 20172022, compared to the nine months ended September 30, 2016, primarily due to higher revenues and lower operating costs.2021.
The increase in cost of revenues in Healthcare of $3.9$0.2 million during the nine months ended September 30, 2022 was primarily due to an increaseincreases in employee-related costs of $3.9$1.8 million on account of higher headcount in existing clients and wage inflation, partially offset by lower other operating costs of $0.8 million and foreign exchange gain, net of hedging of $0.8 million. Gross margin in Healthcare decreased by 1,210 bps during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to lower revenues and higher operating expenses associated with the ramp-down of certain existing clients during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
The increase in cost of revenues in Emerging Business of $26.0 million during the nine months ended September 30, 2022 was primarily due to increases in employee-related costs of $24.7 million on account of higher headcount and wage inflation, higher technology costs of $0.6$3.1 million and infrastructureon account of increased leverage of the remote work model, higher travel costs of $0.4 million. This was$1.7 million, higher facilities costs of $0.5 million, partially offset by a decreaseforeign exchange gain, net of $1.0 million due to the depreciationhedging of the Philippine peso against the U.S. dollar$4.0 million. Gross margin in Emerging Business decreased by 340 bps during the nine months ended September 30, 20172022, compared to the nine months ended September 30, 2016. Gross margin increased by 100 bps2021, primarily due to lower margins associated with ramp-ups in certain new clients, higher employee-related costs and higher operating expenses during the nine months ended September 30, 20172022, compared to the nine months ended September 30, 2016, primarily due to higher revenues and operational efficiencies.2021.
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
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 compared to the nine months ended September 30, 2016. Gross margin decreased by 150 bps during the nine months ended September 30, 2017 compared to the nine 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 $5.0 million was primarily due to a decrease in employee-related costs of $2.9 million on account of lower headcount, partially offset by wage inflation. There was also a decrease in travel related costs of $1.6 million and other operating expenses of $0.5 million. Gross margin decreased by 500 bps during the nine months ended September 30, 2017 compared to the nine 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 $26.2$92.0 million during the nine months ended September 30, 2022 was primarily due to an increaseincreases in employee-related costs of $24.8$85.5 million (including incremental $15.1 million related to our IQR and Datasource acquisitions in 2016) on account of higher headcount and wage inflation, anincluding incremental cost related to our acquisition of Clairvoyant in December 2021. The remaining increase inwas attributable to higher travel costs of $3.2 million, higher technology costs of $0.9$2.5 million infrastructureon account of increased leverage of the remote work model and higher other operating costs of $0.9 million and travel costs of $0.3$7.5 million. This was partially offset by reductionforeign exchange gain, net of hedging of $6.7 million. Gross margin in our other operating costs of $1.4 million. There was an increase of $0.6 million due to the appreciation of the Indian rupee against the U.S. dollarAnalytics decreased by 40 bps during the nine months ended September 30, 20172022, compared to the nine months ended September 30, 2016. Gross margin decreased by 300 bps2021, primarily due to increases in employee-related costs and higher operating expenses during the nine months ended September 30, 20172022, compared to the nine months ended September 30, 2016, primarily due to higher employee costs and lower gross margin from our 2016 acquisitions.2021.
Selling, General and Administrative (“SG&A”) Expenses.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2022 | | 2021 | | Change | |
| (dollars in millions) | | | | |
General and administrative expenses | $ | 122.9 | | | $ | 103.4 | | | $ | 19.5 | | | 18.9 | % |
Selling and marketing expenses | 72.0 | | | 59.7 | | | 12.3 | | | 20.8 | % |
Selling, general and administrative expenses | $ | 194.9 | | | $ | 163.1 | | | $ | 31.8 | | | 19.6 | % |
As a percentage of revenues | 18.8 | % | | 19.7 | % | | | | |
|
| | | | | | | | | | | | | | |
| 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 of $31.8 million was primarily due to an increase inhigher employee-related costs of $8.2$28.2 million (including $4.1 millionon account of a higher headcount and wage inflation, including incremental employee-related costs related to our 2016 acquisitions) as a resultacquisition of annual wage increments and anClairvoyant in December 2021, 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 infrastructuretechnology costs of $1.5$7.6 million related to our newon account of continued investments in digital capabilities and higher other operating centers. There was acosts of $1.4 million, partially offset by foreign exchange gain, net increase of $0.7hedging of $3.2 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 to2022 and COVID-19 related expenses of $2.2 million during the nine months ended September 30, 2016.2021.
Depreciation and Amortization.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2022 | | 2021 | | Change | |
| (dollars in millions) | | | | |
Depreciation expense | $ | 29.2 | | | $ | 26.9 | | | $ | 2.3 | | | 8.3 | % |
Intangible amortization expense | 12.9 | | | 9.8 | | | 3.1 | | | 31.6 | % |
Depreciation and amortization expense | $ | 42.1 | | | $ | 36.7 | | | $ | 5.4 | | | 14.5 | % |
As a percentage of revenues | 4.1 | % | | 4.4 | % | | | | |
|
| | | | | | | | | | | | | | |
| 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 amortization expense increased by $3.8 million, or 15.1%, from $25.0 million for the nine months ended September 30, 2016 to $28.8 million for the nine months ended September 30, 2017. The increase in intangibleintangibles amortization expense of $2.2$3.1 million was primarily due to amortization of intangibles associated with our 2016 acquisitions. Further, there was anacquisition of Clairvoyant and Inbound in December 2021 and June 2022, respectively, partially offset by decrease in intangibles amortization expense due to end of useful lives for certain intangible assets during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase in our depreciation expense of $1.6$2.3 million was primarily due to depreciation of $3.0 million related to our new operating centersinvestments in Indiadigital capabilities and computer and networking equipment, partially offset by foreign exchange gain, net of hedging of $0.7 million during the Philippines andnine months ended September 30, 2022, compared to support our business growth and depreciation expense associated with our 2016 acquisitions.the nine months ended September 30, 2021.
Income from Operations. Income from operations increased by $0.6$21.3 million, or 1.3%17.8%, from $50.0$119.8 million for the nine months ended September 30, 20162021 to $50.6$141.1 million for the nine months ended September 30, 2017.2022, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the nine months ended September 30, 2022. As a percentage of revenues, income from operations decreased from 9.8%14.5% for the nine months ended September 30, 20162021 to 9.0%13.6% for the nine months ended September 30, 2017.2022.
Foreign Exchange Gain/(Loss). Net foreignForeign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the U.K. Poundpound sterling, the Philippine peso and the Philippine pesoSouth African ZAR during the nine months ended September 30, 2017.2022. The average exchange rate of the U.S. dollar against the Indian rupee decreasedincreased from 67.1073.57 during the nine months ended September 30, 20162021 to 65.1277.65 during the nine months ended September 30, 2017.2022. The average exchange rate of the U.K. Poundpound sterling against the U.S. dollar decreased from 1.38 during the nine months ended September 30, 20162021 to 1.281.25 during the nine months ended September 30, 2017.2022. The average exchange rate of the U.S. dollar against the Philippine peso increased from 47.1348.94 during the nine months ended September 30, 20162021 to 50.3153.71 during the nine months ended September 30, 2017.2022. The average exchange rate of the U.S. dollar against the South African ZAR increased from 14.64 during the nine months ended September 30, 2021 to 16.10 during the nine months ended September 30, 2022.
We recorded a net foreign exchange gain of $7.3$4.7 million for the nine months ended September 30, 20172022, compared to $3.6the net foreign exchange gain of $3.0 million for the nine months ended September 30, 2016.2021.
Interest expense. Interest expense increased by $0.4 milliondecreased from $1.0$6.8 million for the nine months ended September 30, 20162021 to $1.4$4.8 million for the nine months ended September 30, 2017, 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 on mutual fund investments of $0.6 million was2022, primarily due to the settlement of outstanding obligations under the Notes (as defined under Note 18 – Borrowings-Convertible Senior Notes to our unaudited consolidated financial statements”) on August 27, 2021, partially offset by higher cash balances in certain ofoutstanding obligations under our foreign subsidiaries and higher gain on sale of investmentrevolving Credit Facility bearing a relatively lower effective interest rate as compared to the Notes during the nine months ended September 30, 20172022, compared to the nine months ended September 30, 2016. We also recorded other2021.
Other Income, net.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2022 | | 2021 | | Change | |
Gain on sale and mark-to-market of mutual funds and money market funds | $ | 3.4 | | | $ | 3.9 | | | $ | (0.5) | | | (16.3) | % |
Interest and dividend income | 3.7 | | | 2.1 | | | 1.6 | | | 79.0 | % |
Other, net | (2.6) | | | (0.7) | | | (1.9) | | | 261.1 | % |
Other income, net | $ | 4.5 | | | $ | 5.3 | | | $ | (0.8) | | | (15.9) | % |
Other income, net decreased by $0.8 million, from $5.3 million for the nine months ended September 30, 2021 to $4.5 million for the nine months ended September 30, 2022. The decrease is primarily due to a fair value adjustment to recognize an increase in contingent consideration liability of $4.1$1.0 million related to our acquisition of Clairvoyant in December 2021, interest on statutory payments of $0.7 million, and lower return on mutual fund investments of $0.5 million, partially offset by higher interest income on investments in term deposits of $0.9 million and interest on income tax refunds of $0.7 million.
Loss on settlement of Notes. On August 27, 2021, we settled our outstanding obligations under the Notes and recognized
a loss of $12.8 million during the nine months ended September 30, 2016 due to the reversal of earn-out liability related2021. See Note 18 - Borrowings to our RPM acquisition in 2015.unaudited consolidated financial statements.
Income Tax Expense. The effective tax rate decreasedincreased from 28.6%20.3% during the nine months ended September 30, 20162021 to 11.0% as a result of (i) excess tax benefit related to stock awards of $7.2 million pursuant to ASU No. 2016-0923.9% during the nine months ended September 30, 2017, (ii) conclusion of an uncertain tax position of $3.2 million (including interest of $1.4 million), and (iii) higher earnings from foreign subsidiaries and lower domestic profit in the U.S., partially offset by higher2022. 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 $46.3$34.8 million and $22.1 million for the nine months ended September 30, 20162022 and 2021, respectively. The increase in income tax expense was primarily as a result of higher profit during the nine months ended September 30, 2022, compared to $58.2the nine months ended September 30, 2021, the recording of a one-time deferred tax benefit of $2.4 million on settlement of the Notes during the nine months ended September 30, 2021, and an increase in non-deductible expenses, partially offset by higher excess tax benefits during the nine months ended September 30, 2022.
Net Income. Net income increased from $86.4 million for the nine months ended September 30, 2017,2021 to $111.1 million for the nine months ended September 30, 2022, primarily due to increase in income from operations of $21.3 million, loss on settlement of the Notes of $12.8 million during three months ended September 30, 2021, lower income taxinterest expense of $11.3$2.0 million, higher foreign exchange gain, net of $3.7$1.7 million and higher incomegain from operationsequity-method investment of $0.6$0.4 million, partially offset by higher income tax expense of $12.7 million and lower other income, net of $3.3 million and higher interest expense of $0.4$0.8 million.
As a percentage of revenues, net income increased from 9.1%10.5% for the nine months ended September 30, 20162021 to 10.3%10.7% for the nine months ended September 30, 2017.2022.
Liquidityand Capital Resources
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2022 | | 2021 |
| (dollars in millions) |
Opening cash, cash equivalents and restricted cash | $ | 143.8 | | | $ | 225.5 | |
Net cash provided by operating activities | 101.1 | | | 113.8 | |
Net cash used for investing activities | (75.2) | | | (21.5) | |
Net cash used for financing activities | (61.8) | | | (189.1) | |
Effect of exchange rate changes | (9.6) | | | (5.0) | |
Closing cash, cash equivalents and restricted cash | $ | 98.3 | | | $ | 123.7 | |
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
| (dollars in millions) |
Opening cash and cash equivalents | $ | 213.2 |
| | $ | 205.3 |
|
Net cash provided by operating activities | 72.2 |
| | 56.0 |
|
Net cash used for investing activities | (171.2 | ) | | (126.2 | ) |
Net cash used for financing activities | (28.2 | ) | | (34.2 | ) |
Effect of exchange rate changes | 1.7 |
| | (2.5 | ) |
Closing cash and cash equivalents | $ | 87.7 |
| | $ | 98.4 |
|
As of September 30, 20172022 and December 31, 2016,2021, we had $249.4$262.2 million and $226.6$284.9 million, respectively, in cash, cash equivalents and short-term investments, (including $205.1of which $237.5 million and $170.1$254.8 million, respectively, held byis located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes. We periodically evaluate opportunities regarding distribution to fund our operations in the United States and other geographies, and as and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign subsidiaries). We do not intend to repatriate funds held by our foreign subsidiaries since our future growth partially depends upon continued infrastructure and technology investments, geographical expansions and acquisitions outside of the U.S. Therefore, we anticipate that we will indefinitely reinvest the earnings generated outside of the U.S. If we were to repatriate our overseas funds, we would accrue and pay applicable taxes.jurisdictions.
Operating Activities: Cash flows from Net cash provided by operating activities increased by $16.2was $101.1 million from $56.0and $113.8 million for the nine months ended September 30, 20162022 and 2021, respectively, reflecting higher working capital needs, offset by higher cash earnings. The major drivers contributing to $72.2the decrease of $12.7 million year-over-year included the following:
•A decrease in accrued employee costs, offset by an increase in accrued expenses and other liabilities contributed to a lower cash flow of $33.3 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The decrease was primarily due to higher payments (net of accruals) of annual performance incentives of $43.0 million, offset by higher employee costs accruals of $4.9 million and higher accrued expenses of $4.8 million due to an increase in our cost base to support revenue growth.
•An increase in net income of $24.7 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to an increase in income from operations of $21.3 million driven by higher revenues, lower interest expense of $2.0 million and higher foreign exchange gain, net of $1.7 million.
•Other drivers decreasing cash flows during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 included: income tax payments, net of refunds, of $4.1 million, primarily due to higher income tax payments on higher net income.
Investing Activities: Net cash used for investing activities was $75.2 million and $21.5 million for the nine months ended September 30, 2017.2022 and 2021, respectively. The increase in net cash flows from operationsused for investing activities of $53.7 million is mainly due to higher net purchase of investments of $40.0 million during nine months ended September 30, 2022 compared to net redemption of investments of $6.7 million during the nine months ended September 30, 20172021. The increase is also due to higher capital expenditures in infrastructure, technology assets, software and product developments of $3.7 million and acquisitions related payouts of $3.3 million during the nine months ended September 30, 2022.
Financing Activities: Net cash used for financing activities was $61.8 million and $189.1 million during the nine months ended September 30, 2022 and 2021, respectively. The decrease of $127.2 million was primarily due to net proceeds of our borrowings under our revolving Credit Facility of $10.0 million during the nine months ended September 30, 2022 compared to net repayment of our borrowings of $104.0 million during the nine months ended September 30, 2021. The remaining decrease was attributable to lower purchases of treasury stock under our share repurchase program of $13.9 million during the nine months ended September 30, 2022 compared to the nine months ended September 30, 20162021. This was due to an increase in net incomepartially offset by $12.0 million, increase in non-cash adjustmentproceeds from the exercise of $3.9 million and decrease in working capital of $0.3 million from $25.2stock options by $0.7 million during the nine months ended September 30, 2016 to $24.9 million during the nine months ended September 30, 2017.2021.
Investing Activities: Cash flows used for investing activities increased by $45.0 million from $126.2 million for the nine months ended September 30, 2016 to $171.2 million for the nine months ended September 30, 2017. The increase was primarily due to an increase in short-term investments of $47.2 million (net of redemption) and due to an increase in capital expenditures of $6.4 million during the nine months ended September 30, 2017 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.
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 capitalbusiness 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.
We incurred $26.8$32.1 million of capital expenditures induring the nine months ended September 30, 2017.2022. We expect to incur total capital expenditures of between $30.0$37.0 million to $35.0$42.0 million in 2017,2022, 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 demand orders by the tax assessment ordersand/or other statutory authorities, 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 25 - Commitments and Contingencies to Note 21 to theour 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,working capital needs, capital expenditures and working capital needs.smaller acquisitions. If we have significant growth through acquisitions, we may need to obtain additional financing.
We believe that our existing cash, cash equivalents and short-term investments and sources of liquidity will be sufficient to satisfy our cash requirements over the next 12 months. Our future cash requirements will depend on many factors, including our rate of revenue growth, our investments in strategic initiatives, applications or technologies, operation centers and acquisition of complementary businesses, continued purchases under our board-authorized stock repurchase program, which may require the use of significant cash resources and/or additional financing. Although we anticipate that we will continue to rely upon cash from operating activities to finance most of our above mentioned requirements, if we have significant growth through acquisitions, we may need to obtain additional financing.
In the ordinary course of Contents
business, we enter into contracts and commitments that obligate us to make payments in the future. These obligations include borrowings, including interest obligations, purchase commitments, operating and finance lease commitments, employee benefit payments under Gratuity plans and uncertain tax positions. See Note 18 - Borrowings, Note 21 - Leases, and Note 25 - Commitments and Contingencies to our unaudited consolidated financial statements herein for further information on material cash requirements from known contractual and other obligations.
In the ordinary course of business, we provide standby letters of credit to third parties primarily for facility leases. As of September 30, 2022 and December 31, 2021, we had outstanding letters of credit of $0.5 million, each, that were not recognized in our consolidated balance sheets. 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 expenditures or capital resources. We had no other off-balance sheet arrangements or obligations.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) allows employers to defer the payment of the employer share of Federal Insurance Contributions Act (“FICA”) taxes for the period from April 1, 2020 and ending December 31, 2020. The deferred amount is payable as follows: (1) 50% of the deferred amount was paid on or before December 31, 2021 and (2) the remaining 50% of the deferred amount will be paid on or before December 31, 2022. Our deferred contributions, net of payments to FICA was $3.1 million as of September 30, 2022 and December 31, 2021, each, which will be paid on or before December 31, 2022.
Financing Arrangements (Debt Facility)
Our Credit Agreement providesThe following tables summarizes our debt position:
| | | | | | | | | | | | | | |
| | As of September 30,2022 | | As of December 31, 2021 |
| | (dollars in millions) |
| | Credit Facility |
Current portion of long-term borrowings | | $ | 35.0 | | | $ | 260.0 | |
| | | | |
Long-term borrowings | | 235.0 | | | — | |
| | | | |
| | | | |
| | | | |
Total borrowings | | $ | 270.0 | | | $ | 260.0 | |
Unamortized debt issuance costs for revolving credit facility (the “Credit Facility”), including a letter of credit sub-facility, in the amount of $100.0 million. Theour Credit Facility has a maturity date of October 24, 2019$1.2 million and is voluntarily pre-payable from time to time without premium or penalty. As of September 30, 2017, we had outstanding indebtedness of $45.0$0.2 million which is included under “long term borrowings” in the unaudited consolidated balance sheets.
Borrowings under the Credit Facility may be used for working 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) 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 had no off-balance sheet arrangements or obligations.
Contractual Obligations
The following table sets forth our contractual obligations as of September 30, 2017:2022 and December 31, 2021, respectively, is presented under “Other current assets” and “Other assets,” as applicable in our consolidated balance sheets.
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| |
(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 relatedSee Note 18 - Borrowings 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” 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.
Our operations centers in the Philippines are registered with the “PEZA.” The registration provides us with certain fiscal incentives on the import of capital goods and requires that ExlService Philippines, Inc. meet certain performance and investment criteria. We believe that these centers have in the past satisfied and will continue to satisfy the required criteria.unaudited consolidated financial statements herein for further details.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2—“Recent Accounting Pronouncements” to theour unaudited consolidated financial statements contained herein.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
During the three months ended September 30, 2017,2022, 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 Part II, Item 7A “Quantitative and Qualitative Disclosures aboutAbout Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2021.
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 ourits 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, 2017.2022. 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, 2022, were effective.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2017,2022, there waswere no changechanges in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
In making its assessment of the changes in internal control over financial reporting during the nine months ended September 30, 2022, our management excluded an evaluation of the disclosure controls and procedures of Clairvoyant and Inbound which we acquired on December 16, 2021 and June 10, 2022, respectively. See Note 10 - Business Combinations, Goodwill and Intangible Assets to our unaudited consolidated financial statements contained herein for details of our acquisition.
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 seeSee Note 21 25 - Commitments and Contingenciesto theour 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, 20162021 (the “2021 Form 10-K”), supplemented by the disclosure below, 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, 2016these 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 results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our clients’ businesses and levels of business activity.
The Russian invasion of Ukraine and the resulting economic sanctions imposed by the United States and other countries, along with certain international organizations, have impacted the global economy and given rise to potential global security
issues that may adversely affect international business and economic conditions. Additional sanctions, and retaliatory acts by Russia in response to such sanctions including state sponsored cyber attacks, could further damage or disrupt international commerce. Although we have no operations in Russia or Ukraine, certain of our clients and suppliers may have been or may in the future be impacted by these events. Moreover, the ongoing effects of the hostilities and sanctions may not be limited to Russia and Russian companies and may spill over to and negatively impact other regional and global economic markets. A prolonged conflict may result in increased inflation, rising energy prices and constrained supply chain, and thus may lead to inflationary global economic environment. At this time, the extent and duration of the military action, resulting sanctions, retaliatory actions, future economic and market disruptions, and the extent of future cyber attack incidents and resulting effects on us, are impossible to predict.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
None.
Purchases of Equity Securities by the Issuer
During the three months ended September 30, 2017,2022, purchases of common stock were as follows:
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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, 2022 through July 31, 2022 | | 68,109 | | | $ | 146.82 | | | 68,109 | | | $ | 233,000,320 | |
August 1, 2022 through August 31, 2022 | | 8,700 | | | $ | 174.85 | | | 8,700 | | | $ | 231,479,093 | |
September 1, 2022 through September 30, 2022 | | — | | | $ | — | | | — | | | $ | 231,479,093 | |
Total | | 76,809 | | | $ | 150.00 | | | 76,809 | | | $ | — | |
(1) On February 28, 2017,October 5, 2021, the Company’s Board of Directors authorized an additionala $300 million common stock repurchase program beginning January 1, 2022 (the “2017“2022 Repurchase Program”), under which.
Under the 2022 Repurchase Program, shares may be purchased by the Company from time to time from the open market and through private transactions, during each ofor otherwise, as determined by the fiscal years 2017 through 2019 upCompany’s management as market conditions warrant. The Company has structured open market purchases under the Repurchase Program to an aggregate additional amount of $100 million. The approval increasescomply with Rule 10b-18 under the 2017 authorization from $20 million to $40 million and authorizes stock repurchases of up to $40 million in each of 2018 and 2019.Exchange Act. Repurchases may be discontinued at any time by management.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
ITEM 6.Exhibits
See Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated herein by reference.
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.
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| | | |
Date: October 26, 2017 | EXLSERVICE HOLDINGS, INC. |
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| By: | | /S/ VISHAL CHHIBBAR
|
| | | 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:
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3.1 | | |
3.1 | | | | |
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3.2 | | | | |
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3.3 | | | | |
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10.1 | | | | |
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31.1 | | | | |
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31.2 | | | | |
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32.1 | | | | |
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32.2 | | | | |
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101.INS | | XBRL Instance Document | | |
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101.SCH | | XBRL Taxonomy Extension Scheme | | |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | | |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase | | |
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101.PRE | | XBRL Extension Presentation Linkbase | | |
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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.
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Date: October 27, 2022 | EXLSERVICE HOLDINGS, INC. |
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| By: | | /S/ MAURIZIO NICOLELLI |
| | | MAURIZIO NICOLELLI Chief Financial Officer (Duly Authorized Signatory, Principal Financial and Accounting Officer) |