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, 2017MARCH 31, 2023
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,April 25, 2023, there were 33,942,97433,246,709 shares of the registrant’s common stock outstanding, par value $0.001 per share.
TABLE OF CONTENTS
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1. | | FINANCIAL STATEMENTS (UNAUDITED) | |
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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 |
| | March 31, 2023 | | December 31, 2022 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 87,298 | | | $ | 118,669 | |
Short-term investments | | 116,479 | | | 179,027 | |
Restricted cash | | 5,598 | | | 4,897 | |
Accounts receivable, net | | 290,512 | | | 259,222 | |
Other current assets | | 66,340 | | | 50,979 | |
Total current assets | | 566,227 | | | 612,794 | |
Property and equipment, net | | 86,652 | | | 82,828 | |
Operating lease right-of-use assets | | 52,782 | | | 55,347 | |
Restricted cash | | 2,069 | | | 2,055 | |
Deferred tax assets, net | | 62,252 | | | 55,791 | |
Intangible assets, net | | 60,681 | | | 64,819 | |
Goodwill | | 405,824 | | | 405,637 | |
Long-term investments | | 35,559 | | | 34,779 | |
Other assets | | 36,525 | | | 32,069 | |
Total assets | | $ | 1,308,571 | | | $ | 1,346,119 | |
Liabilities and stockholders’ equity | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 3,384 | | | $ | 7,789 | |
Current portion of long-term borrowings | | 40,000 | | | 30,000 | |
Deferred revenue | | 21,525 | | | 18,782 | |
Accrued employee costs | | 49,955 | | | 108,100 | |
Accrued expenses and other current liabilities | | 133,400 | | | 95,352 | |
Current portion of operating lease liabilities | | 14,095 | | | 14,978 | |
Income taxes payable, net | | 18,545 | | | 2,945 | |
Total current liabilities | | 280,904 | | | 277,946 | |
Long-term borrowings, less current portion | | 160,000 | | | 220,000 | |
Operating lease liabilities, less current portion | | 45,655 | | | 48,155 | |
Deferred tax liabilities, net | | 493 | | | 547 | |
Other non-current liabilities | | 26,297 | | | 41,292 | |
Total liabilities | | 513,349 | | | 587,940 | |
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, 40,334,368 shares issued and 33,321,455 shares outstanding as of March 31, 2023 and 39,987,976 shares issued and 33,234,444 shares outstanding as of December 31, 2022 | | 40 | | | 40 | |
Additional paid-in capital | | 460,527 | | | 445,108 | |
Retained earnings | | 950,436 | | | 899,105 | |
Accumulated other comprehensive loss | | (131,487) | | | (144,143) | |
Total including shares held in treasury | | 1,279,516 | | | 1,200,110 | |
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| | | | | | | | | | | | | | | |
| 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: |
| |
| | | |
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General and administrative expenses | 26,870 |
| | 21,854 |
| | 75,809 |
| | 63,620 |
|
Selling and marketing expenses | 12,222 |
| | 11,623 |
| | 38,711 |
| | 37,875 |
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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 |
|
| | | | | | | | | | | | | | |
Less: 7,012,913 shares as of March 31, 2023 and 6,753,532 shares as of December 31, 2022, held in treasury, at cost | | (484,294) | | | (441,931) | |
Total stockholders’ equity | | 795,222 | | | 758,179 | |
Total liabilities and stockholders’ equity | | $ | 1,308,571 | | | $ | 1,346,119 | |
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 |
| |
| |
| |
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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 March 31, |
| | 2023 | | 2022 |
Revenues, net | | $ | 400,643 | | | $ | 329,208 | |
Cost of revenues (1) | | 251,469 | | | 207,516 | |
Gross profit (1) | | 149,174 | | | 121,692 | |
Operating expenses: | | | | |
General and administrative expenses | | 46,746 | | | 39,945 | |
Selling and marketing expenses | | 29,493 | | | 24,170 | |
Depreciation and amortization expense | | 13,487 | | | 13,602 | |
| | | | |
Total operating expenses | | 89,726 | | | 77,717 | |
Income from operations | | 59,448 | | | 43,975 | |
Foreign exchange gain, net | | 105 | | | 1,756 | |
Interest expense | | (3,385) | | | (876) | |
Other income, net | | 3,155 | | | 2,411 | |
| | | | |
Income before income tax expense and earnings from equity affiliates | | 59,323 | | | 47,266 | |
Income tax expense | | 8,058 | | | 11,202 | |
Income before earnings from equity affiliates | | 51,265 | | | 36,064 | |
Gain from equity-method investment | | 66 | | | 114 | |
Net income attributable to ExlService Holdings, Inc. stockholders | | $ | 51,331 | | | $ | 36,178 | |
Earnings per share attributable to ExlService Holdings, Inc. stockholders: | | | | |
Basic | | $ | 1.54 | | | $ | 1.08 | |
Diluted | | $ | 1.51 | | | $ | 1.07 | |
Weighted average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders: | | | | |
Basic | | 33,439,564 | | | 33,442,038 | |
Diluted | | 33,931,480 | | | 33,894,868 | |
| |
(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 March 31, |
| 2023 | | 2022 |
Net income | $ | 51,331 | | | $ | 36,178 | |
Other comprehensive income/(loss): | | | |
Unrealized gain/(loss) on cash flow hedges | 7,294 | | | (517) | |
| | | |
Foreign currency translation gain/(loss) | 5,313 | | | (7,445) | |
| | | |
Reclassification adjustments: | | | |
(Gain)/loss on cash flow hedges(1) | 3,065 | | | (1,989) | |
Retirement benefits(2) | (25) | | | 155 | |
Income tax effects relating to above(3) | (2,991) | | | 964 | |
Total other comprehensive income/(loss) | $ | 12,656 | | | $ | (8,832) | |
Total comprehensive income | $ | 63,987 | | | $ | 27,346 | |
(1)These are reclassified to net income and are included in cost of revenues, operating expenses and interest expense, as applicable in the unaudited consolidated statements of income. Refer to Note 17 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements.
(2)These are reclassified to net income and are included in other income, net in the unaudited consolidated statements of income. Refer to Note 20 - Employee Benefit Plans to the unaudited consolidated financial statements.
(3)These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation gain/(loss). Refer to Note 22 - Income Taxes to the unaudited consolidated financial statements.
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
For the three months ended March 31, 2023 and 2022
(In thousands, except share count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income/(loss) | | Treasury Stock | | | | Total |
| | | | | | |
| Shares | | Amount | | | | | Shares | | Amount | | |
Balance as of January 1, 2023 | 39,987,976 | | | $ | 40 | | | $ | 445,108 | | | $ | 899,105 | | | $ | (144,143) | | | (6,753,532) | | | $ | (441,931) | | | | | $ | 758,179 | |
Stock issued against stock-based compensation plans | 346,392 | | | — | | | 1,012 | | | — | | | — | | | — | | | — | | | | | 1,012 | |
Stock-based compensation | — | | | — | | | 14,407 | | | — | | | — | | | — | | | — | | | | | 14,407 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (259,381) | | | (42,363) | | | | | (42,363) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other comprehensive income | — | | | — | | | — | | | — | | | 12,656 | | | — | | | — | | | | | 12,656 | |
Net income | — | | | — | | | — | | | 51,331 | | | — | | | — | | | — | | | | | 51,331 | |
Balance as of March 31, 2023 | 40,334,368 | | | $ | 40 | | | $ | 460,527 | | | $ | 950,436 | | | $ | (131,487) | | | (7,012,913) | | | $ | (484,294) | | | | | $ | 795,222 | |
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| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | | | Total |
| | | | | | |
| Shares | | Amount | | | | | Shares | | Amount | | |
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| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
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 | 285,814 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Stock-based compensation | — | | | — | | | 11,224 | | | — | | | — | | | — | | | — | | | | | 11,224 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (248,552) | | | (31,385) | | | | | (31,385) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (8,832) | | | — | | | — | | | | | (8,832) | |
Net income | — | | | — | | | — | | | 36,178 | | | — | | | — | | | — | | | | | 36,178 | |
Balance as of March 31, 2022 | 39,794,154 | | | $ | 40 | | | $ | 406,966 | | | $ | 792,315 | | | $ | (98,306) | | | (6,465,410) | | | $ | (400,674) | | | | | $ | 700,341 | |
| | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Cash flows from operating activities: | | | | |
Net income | | $ | 51,331 | | | $ | 36,178 | |
Adjustments to reconcile net income to net cash provided by/(used for) operating activities: | | | | |
Depreciation and amortization expense | | 13,408 | | | 13,669 | |
Stock-based compensation expense | | 14,407 | | | 11,224 | |
Amortization of operating lease right-of-use assets | | 4,883 | | | 6,043 | |
Unrealized loss/(gain) on investments | | 8,186 | | | (384) | |
Unrealized foreign currency exchange loss/(gain), net | | 2,814 | | | (3,165) | |
Deferred income tax benefit | | (9,444) | | | (193) | |
Allowance for expected credit losses | | 342 | | | 34 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Others, net | | 1,160 | | | 705 | |
Change in operating assets and liabilities, net of effects of acquisitions: | | | | |
Accounts receivable | | (30,896) | | | (45,659) | |
Other current assets | | (6,046) | | | (1,116) | |
Income taxes payable, net | | 7,883 | | | 6,185 | |
Other assets | | (4,172) | | | (2,924) | |
Accounts payable | | (4,445) | | | (808) | |
Deferred revenue | | 2,451 | | | 3,707 | |
Accrued employee costs | | (57,315) | | | (60,008) | |
Accrued expenses and other liabilities | | 26,931 | | | 15,647 | |
Operating lease liabilities | | (5,453) | | | (6,005) | |
Net cash provided by/(used for) operating activities | | 16,025 | | | (26,870) | |
| | | | |
Cash flows from investing activities: | | | | |
Purchases of property and equipment | | (12,479) | | | (16,101) | |
Proceeds from sale of property and equipment | | 565 | | | 63 | |
Business acquisition (net of cash and cash equivalents acquired) | | — | | | (1,367) | |
Purchases of investments | | (51,495) | | | (36,804) | |
Proceeds from redemption of investments | | 106,750 | | | 49,515 | |
| | | | |
| | | | |
Net cash provided by/(used for) investing activities | | 43,341 | | | (4,694) | |
| | | | |
Cash flows from financing activities: | | | | |
Principal payments of finance lease liabilities | | (43) | | | (39) | |
Proceeds from borrowings | | 50,000 | | | 35,000 | |
Repayments of borrowings | | (100,000) | | | — | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Acquisition of treasury stock | | (42,363) | | | (31,385) | |
| | | | |
Proceeds from ESPP contribution | | 1,102 | | | — | |
Net cash (used for)/provided by financing activities | | (91,304) | | | 3,576 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 1,282 | | | (753) | |
Net decrease in cash, cash equivalents and restricted cash | | (30,656) | | | (28,741) | |
Cash, cash equivalents and restricted cash at the beginning of the period | | 125,621 | | | 143,810 | |
Cash, cash equivalents and restricted cash at the end of the period | | $ | 94,965 | | | $ | 115,069 | |
| | | | |
Supplemental disclosure of cash flow information: | | | | |
Cash paid during the period for: | | | | |
Interest | | $ | 3,325 | | | $ | 1,277 | |
Income taxes, net of refunds | | $ | 6,525 | | | $ | 5,404 | |
Supplemental disclosure of non-cash investing and financing activities: | | | | |
Assets acquired under finance lease | | $ | 99 | | | $ | 50 | |
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017March 31, 2023
(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 the Business Process Management (“BPM”) industry providing operations managementindustries 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 services that helpcapabilities 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 enhance growth and profitability. Usingintroduces its proprietary platforms, methodologies and tools, the Company looks deeperdata led approach to help its clients improve global operations, enhance data-driven insights, increase customer satisfaction, and manage risk and compliance. transform operations.
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, 2016.2022.
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 while preparing consolidated financial statements.
The Company’s investments in consolidation.
Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to the parentaffiliates are initially recorded at cost and it represents the minority partner’s interest in the operations of ExlService Colombia S.A.S. Non-controlling interest consistsany excess purchase consideration paid over proportionate share of the amountfair value of such interestthe 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.
Accounting policies of the respective individual subsidiaries and equity affiliates are aligned wherever necessary, so as to ensure consistency with the accounting policies that are adopted by the Company under U.S. GAAP.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(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, allowanceestimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and the discount rate applied within the discounted cash flow model for doubtful receivables,business acquisitions, credit risk of customers, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements, estimated costs to complete fixed price contracts, 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, stock-based awards, and debt 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, and estimates to complete fixed price contracts.intangibles.
(c) Share-Based Compensation
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). ASU No. 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the Statement of Cash Flows. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted this ASU effective January 1, 2017. The following summarizes the effects of the adoption on the Company's unaudited consolidated financial statements:
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
Income taxes - Upon adoption of this standard, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. The Company also recognizes excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. As a result, the Company recognized discrete adjustments to income tax expense for the three months ended September 30, 2017 in the amount of $3,488 and for the nine months ended September 30, 2017 in the amount of $7,169 related to excess tax benefits. No adjustment is recorded for any windfall benefits previously recorded in Additional Paid-In Capital.
Forfeitures - Prior to adoption, share-based compensation expense was recognized on a straight line basis, net of estimated forfeitures, such that expense was recognized only for share-based awards that are expected to vest. A forfeiture rate was estimated annually and revised, if necessary, in subsequent periods if actual forfeitures differed from initial estimates. Upon adoption, the Company will no longer apply a forfeiture rate and instead will account for forfeitures as they occur. The Company has applied the modified retrospective adoption approach as 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 portion of the standard on a prospective basis beginning in 2017 and accordingly prior periods have not been adjusted.
Earnings Per Share - The Company uses the treasury stock method to compute diluted earnings per share, unless the effect would be anti-dilutive. The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share.
(d) Recent Accounting Pronouncements
In May 2014,March 2023, the Financial Accounting StandardsStandard Board ("FASB"(“FASB”) issued Accounting StandardsStandard Update ("ASU"(“ASU”) 2014-09, “Revenue from Contracts with Customers”No. 2023-01, Leases (“ASC Topic 842”): Common Control Arrangements. This standard update alongASU provides guidance in ASC Topic 842 that leasehold improvements associated with subsequently issued updates, clarifiescommon control leases should be (i) amortized by the principles for recognizing revenue and develops a common revenue standard for United States generally accepted accounting principles (GAAP) and is effective for reporting periods beginning after December 15, 2017. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services ("performance obligations") are transferred to customers in amounts that reflectlessee over the consideration to which the Company expects to be entitled in exchange for those goods or services ("transaction price"). Adoptionuseful life of the new rules could impactleasehold improvements to 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 impactcommon control group, regardless of the new standard. The ultimate impact on revenue resulting from the application of the new standard will be subject to assessments that are dependent on many variables, including, but not limited to, the terms of the contractual arrangements and the mix of business. Upon adoption, the Company expect that variable consideration when present in a revenue arrangements will need to be estimated based on its achievability and recognized over the contractual periodlease term, as compared to recognizing such revenuelong as the services are performed. The Company also expects a change in the manner that it recognizes certain incremental and fulfillment costs from expensing them as incurred to deferring and recognizing them over the contractual period.
The Company intends to adopt the new standard, effective January 1, 2018, 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 contracts 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, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether itlessee controls a specified good or service before it is transferred to 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 as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether 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 requireunderlying asset through a lease, and (ii) accounted for as a transfer between entities under common control through an adjustment to all comparative periods presented inequity if and when the consolidated financial statements.lessee no longer controls the use of the underlying asset. The new guidanceASU is effective for fiscal years beginning after December 15, 2018, including2023. Early adoption is permitted for both interim periods within those fiscal years.and annual financial statements that have not yet been issued. When adopted in an interim period, it must be adopted from the beginning of the year that includes that interim period. The Company is currently evaluating the impact that the adoption of this guidance will haveASU on its consolidated financial statements and the implementation approach to be used.statements.
(d) Recently adopted Accounting Pronouncements
In June 2016,October 2021, FASB issued ASU 2016-13, Financial Instruments - Credit Losses, whichNo. 2021-08, Business Combinations (“ASC Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU provides guidance in ASC Topic 805 to require the acquirer entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contract with Customers, as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial asset (or a group ofstatements, if the acquiree prepared financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.statements in accordance with U.S. GAAP. 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 guidanceASU is effective for fiscal years beginning after December 15, 2019,2022. An entity may early adopt the ASU including adoption in an interim periodsperiod, with retrospective application to all business combinations within those fiscal years. The amendment should be applied through a modified retrospective approach. Early adoption as of the fiscal years beginning after December 15, 2018 is permitted.year that includes such interim period. 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 apply to all entities that are required to present a Statement of Cash Flows under Topic 230. The amendments are an improvement to GAAP because they provide 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 periods 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.is applicable for future business combinations.
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 and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017 and should be applied prospectively. The Company is currently evaluating the impact that the adoption of this standard will have on 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 have on its consolidated financial statements.
In May 2017, FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. Modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in their financial statements. The amendments are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption being permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
3. Segment and Geographical Information
The Company operates in the BPM industry and is a provider of 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.
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)
profitability.
The chief operating decision maker (“CODM”) generally reviews financial information such as revenues, cost of revenues and gross profit, disaggregated by the operating segments to allocate an overall budget among the operating segments.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
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 of revenues for the three months ended September 30, 2017March 31, 2023 and 2016,2022, respectively, for each of the reportable segments, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
| Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 125,937 | | | $ | 26,703 | | | $ | 66,161 | | | $ | 181,842 | | | $ | 400,643 | |
Cost of revenues(1) | 82,324 | | | 18,809 | | | 35,970 | | | 114,366 | | | 251,469 | |
Gross profit(1) | $ | 43,613 | | | $ | 7,894 | | | $ | 30,191 | | | $ | 67,476 | | | $ | 149,174 | |
Operating expenses | | | | | | | | | 89,726 | |
Foreign exchange gain, net, interest expense and other income, net | | | | | | | | | (125) | |
Income tax expense | | | | | | | | | 8,058 | |
Gain from equity-method investment | | | | | | | | | 66 | |
Net income | | | | | | | | | $ | 51,331 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2017 |
| Insurance | | Healthcare | | TT&L | | F&A | | All Other | | Analytics | | Total |
|
Revenues, net | $ | 59,608 |
| | $ | 18,871 |
| | $ | 18,496 |
| | $ | 21,642 |
| | $ | 19,984 |
| | $ | 53,744 |
| | $ | 192,345 |
|
Cost of revenues (exclusive of depreciation and amortization) | 39,699 |
| | 11,966 |
| | 10,135 |
| | 13,310 |
| | 13,629 |
| | 36,151 |
| | 124,890 |
|
Gross profit | $ | 19,909 |
| | $ | 6,905 |
| | $ | 8,361 |
| | $ | 8,332 |
| | $ | 6,355 |
| | $ | 17,593 |
| | $ | 67,455 |
|
Operating expenses | | | | | | | | | | | | | 48,800 |
|
Foreign exchange gain, interest expense and other income, net | | | | | | | | | | | | | 5,241 |
|
Income tax expense | | | | | | | | | | | | | 2,819 |
|
Net income | | | | | | | | | | | | | $ | 21,077 |
|
(1) Exclusive of depreciation and amortization expense. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 |
| Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
Revenues, net | $ | 103,266 | | | $ | 26,156 | | | $ | 50,747 | | | $ | 149,039 | | | $ | 329,208 | |
Cost of revenues(1) | 65,082 | | | 17,651 | | | 29,213 | | | 95,570 | | | 207,516 | |
Gross profit(1) | $ | 38,184 | | | $ | 8,505 | | | $ | 21,534 | | | $ | 53,469 | | | $ | 121,692 | |
Operating expenses | | | | | | | | | 77,717 | |
Foreign exchange gain, net, interest expense and other income, net | | | | | | | | | 3,291 | |
Income tax expense | | | | | | | | | 11,202 | |
Gain from equity-method investment | | | | | | | | | 114 | |
Net income | | | | | | | | | $ | 36,178 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share(1) Exclusive of depreciation and per share amounts)
amortization expense.
Revenues, and cost of revenues for the nine months ended September 30, 2017 and 2016, 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 |
|
Net revenues of the Companynet by service type, were as follows:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Digital operations and solutions(1) | $ | 218,801 | | | $ | 180,169 | |
Analytics services | 181,842 | | | 149,039 | |
Revenues, net | $ | 400,643 | | | $ | 329,208 | |
|
| | | | | | | | | | | | | | | |
| 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 Digital operations and related servicessolutions include revenues of the Company's five industry-focused operating segments, one capability operating segmentCompany’s Insurance, Healthcare and consulting operating segment, which provides services relatedEmerging Business reportable segments. Refer to operations management services. Seethe reportable segment disclosure above.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
The Company attributes the revenues to regions based upon the location of its customers.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 |
Revenues, net | | | | | | | | Revenues, net | | | |
United States | $ | 158,501 |
| | $ | 137,047 |
| | $ | 462,676 |
| | $ | 407,272 |
| United States | $ | 339,073 | | | $ | 282,379 | |
Non-United States | | | | | | | | Non-United States | |
United Kingdom | 26,824 |
| | 27,993 |
| | 81,857 |
| | 84,284 |
| United Kingdom | 41,574 | | | 32,773 | |
Rest of World | 7,020 |
| | 6,160 |
| | 19,902 |
| | 17,158 |
| Rest of World | 19,996 | | | 14,056 | |
Total Non-United States | 33,844 |
| | 34,153 |
| | 101,759 |
| | 101,442 |
| Total Non-United States | 61,570 | | | 46,829 | |
| $ | 192,345 |
| | $ | 171,200 |
| | $ | 564,435 |
| | $ | 508,714 |
| |
Revenues, net | | Revenues, net | $ | 400,643 | | | $ | 329,208 | |
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 |
| March 31, 2023 | | December 31, 2022 |
Long-lived assets | | | |
United States | $ | 61,183 | | | $ | 60,709 | |
India | 46,732 | | | 50,118 | |
Philippines | 17,686 | | | 18,406 | |
Rest of World | 13,833 | | | 8,942 | |
Long-lived assets | $ | 139,434 | | | $ | 138,175 | |
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 |
| March 31, 2023 | | December 31, 2022 |
Accounts receivable, net | | $ | 290,512 | | | $ | 259,222 | |
Contract assets | | $ | 2,628 | | | $ | 2,768 | |
Contract liabilities: | | | | |
Deferred revenue (consideration received in advance) | | $ | 19,685 | | | $ | 17,079 | |
Consideration received for process transition activities | | $ | 5,295 | | | $ | 5,423 | |
Accounts receivable includes $155,992 and $126,027 as of March 31, 2023 and December 31, 2022, respectively, representing unbilled receivables. The Company has accrued the unbilled receivables for work performed in accordance with the terms of contracts with customers and considers no significant performance risk associated with its unbilled receivables.
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
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(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 |
|
reduced from revenues. The Company’s assessment did not indicate any impairment losses on its contract assets for the periods presented.Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers. 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 months ended March 31, 2023 and 2022, which was included in the contract liabilities balance at the beginning of the respective periods:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Deferred revenue (consideration received in advance) | $ | 13,002 | | | $ | 9,564 | |
Consideration received for process transition activities | $ | 703 | | | $ | 366 | |
Contract acquisition and fulfillment costs
The following table provides details of the Company’s contract acquisition and fulfillment costs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Contract Acquisition Costs | | Contract Fulfillment Costs |
| | Three months ended | | Year ended | | Three months ended | | Year ended |
| | March 31, 2023 | | March 31, 2022 | | December 31, 2022 | | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
Opening Balance | | $ | 1,095 | | | $ | 511 | | | $ | 511 | | | $ | 13,871 | | | $ | 5,795 | | | $ | 5,795 | |
Additions | | 1,079 | | | 547 | | | 1,014 | | | 4,618 | | | 2,177 | | | 15,509 | |
Amortization | | (180) | | | (131) | | | (430) | | | (616) | | | (537) | | | (7,433) | |
Closing Balance | | $ | 1,994 | | | $ | 927 | | | $ | 1,095 | | | $ | 17,873 | | | $ | 7,435 | | | $ | 13,871 | |
There was no impairment for contract acquisition and contract fulfillment costs as of March 31, 2023 and December 31, 2022. 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.
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
Accounts receivable, including unbilled receivables | | $ | 292,183 | | | $ | 260,554 | |
Less: Allowance for expected credit losses | | (1,671) | | | (1,332) | |
Accounts receivable, net | | $ | 290,512 | | | $ | 259,222 | |
The movement in “Allowance for expected credit losses” on customer balances was as follows:
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Year ended |
| | 2023 | | 2022 | | December 31, 2022 |
Opening Balance | | $ | 1,332 | | | $ | 573 | | | $ | 573 | |
Additions | | 451 | | | 172 | | | 815 |
Reductions due to write-off of Accounts Receivables | | (112) | | | (158) | | | (60) | |
Currency translation adjustments | | — | | | 1 | | | 4 |
Closing Balance | | $ | 1,671 | | | $ | 588 | | | $ | 1,332 | |
Concentration of credit risk
To reduce credit risk, the Company conducts ongoing credit evaluations of its customers. No customer accounted for more than 10% of accounts receivable, net, as of March 31, 2023 and December 31, 2022.
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, restricted stock units and employee stock purchase plans) issued and outstanding at the reporting date, using the treasury stock method. Stock options, restrictedCommon stock and restricted stock unitsequivalents that are anti-dilutive are excluded from the computation of weighted average shares outstanding.
The following table sets forth the computation of basic and diluted earnings per share:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Numerators: | | | |
Net income | $ | 51,331 | | | $ | 36,178 | |
Denominators: | | | |
Basic weighted average common shares outstanding | 33,439,564 | | | 33,442,038 | |
Dilutive effect of share-based awards | 491,916 | | | 452,830 | |
Diluted weighted average common shares outstanding | 33,931,480 | | | 33,894,868 | |
Earnings per share attributable to ExlService Holdings, Inc. stockholders: | | | |
Basic | $ | 1.54 | | | $ | 1.08 | |
Diluted | $ | 1.51 | | | $ | 1.07 | |
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share | 109,269 | | | 1,082 | |
6. Other Income, net
Other income, net consists of the following:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Gain on sale and mark-to-market on investments | $ | 1,644 | | | $ | 1,236 | |
Interest and dividend income | 1,721 | | | 1,370 | |
| | | |
Others, net | (210) | | | (195) | |
Other income, net | $ | 3,155 | | | $ | 2,411 | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
5. Other Income,7. Cash, Cash Equivalents and Restricted Cash
For the purposes of unaudited statements of cash flows, cash, cash equivalents and restricted cash consist of the following:
| | | | | | | | | | | | | | | | | |
| As of |
| March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
Cash and cash equivalents | $ | 87,298 | | | $ | 106,540 | | | $ | 118,669 | |
Restricted cash (current) | 5,598 | | | 6,274 | | | 4,897 | |
Restricted cash (non-current) | 2,069 | | | 2,255 | | | 2,055 | |
Cash, cash equivalents and restricted cash | $ | 94,965 | | | $ | 115,069 | | | $ | 125,621 | |
Restricted cash (current) primarily represents funds held on behalf of clients in dedicated bank accounts. The corresponding liability against the same is included under “Accrued Expenses and other current liabilities.” Restricted cash (non-current) represents amounts on deposit with banks against bank guarantees issued through banks in favor of relevant statutory authorities for equipment imports, deposits for obtaining indirect tax registrations and for demands against pending income tax assessments. These deposits with banks will mature one year after the balance sheet date.
8. Investments
Investments consist of the following:
| | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
Short-term investments | | | | |
Mutual funds | | $ | 64,253 | | $ | 110,964 |
Term deposits | | 52,226 | | 68,063 |
Total Short-term investments | | $ | 116,479 | | $ | 179,027 |
| | | | |
Long-term investments | | | | |
Term deposits | | $ | 32,055 | | $ | 31,341 |
Investment in equity affiliate | | 3,504 | | 3,438 |
Total Long-term investments | | $ | 35,559 | | $ | 34,779 |
Refer to Note 16 - Fair Value Measurements to the unaudited consolidated financial statements for further details.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
9. Property and Equipment, net
Other income,Property and equipment, net consists of the following:
| | | | | | | | | | | | | | | | | |
| | | As of |
| Estimated useful lives (Years) | | March 31, 2023 | | December 31, 2022 |
Owned Assets: | | | | | |
Network equipment and computers | 3-5 | | $ | 136,289 | | | $ | 130,218 | |
Software | 2-5 | | 98,410 | | | 88,487 | |
Leasehold improvements | 3-8 | | 41,040 | | | 42,890 | |
Office furniture and equipment | 3-8 | | 19,936 | | | 20,211 | |
Motor vehicles | 2-5 | | 683 | | | 605 | |
Buildings | 30 | | 968 | | | 961 | |
Land | — | | 633 | | | 629 | |
Capital work in progress | — | | 9,750 | | | 14,459 | |
| | | 307,709 | | | 298,460 | |
Less: Accumulated depreciation and amortization | | | (221,621) | | | (216,132) | |
| | | $ | 86,088 | | | $ | 82,328 | |
Right-of-use assets under finance leases*: | | | | | |
Network equipment and computers | | | 58 | | | 82 | |
Leasehold improvements | | | 611 | | | 1,013 | |
Office furniture and equipment | | | 437 | | | 662 | |
Motor vehicles | | | 816 | | | 742 | |
| | | 1,922 | | | 2,499 | |
Less: Accumulated depreciation and amortization | | | (1,358) | | | (1,999) | |
| | | $ | 564 | | | $ | 500 | |
Property and equipment, net | | | $ | 86,652 | | | $ | 82,828 | |
|
| | | | | | | | | | | | | | | |
| 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. Property, Plant and Equipment
Property, Plant and Equipment consist*Depreciation on assets held under finance leases are computed using the straight-line method over the shorter of the following:
|
| | | | | | | | | |
| 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 |
|
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.
During the three months ended March 31, 2023, 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 March 31, |
| 2023 | | 2022 |
Depreciation and amortization expense | $ | 9,338 | | | $ | 9,116 | |
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
The effect of foreign exchange gain/(loss) upon settlement of cash flow hedges recorded under depreciation and amortization expense, excluding amortization of acquisition-related intangibles was as follows:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Effect of foreign exchange gain/(loss) | | $ | (79) | | | $ | 67 | |
Internally developed software costs, included under Software, was as follows:
| | | | | | | | | | | |
| As of |
| March 31, 2023 | | December 31, 2022 |
Cost | $ | 40,944 | | | $ | 31,544 | |
Less : Accumulated amortization | (18,114) | | | (16,134) | |
Internally developed software, net | $ | 22,830 | | | $ | 15,410 | |
The amortization expense on internally developed software recognized in the unaudited consolidated statements of income was as follows:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Amortization expense | $ | 1,975 | | | $ | 1,033 | |
As of March 31, 2023 and December 31, 2022, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value; however, there can be no assurance that long-lived assets will not be impaired in future periods. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, the asset’s residual value, if any. It is reasonably possible that the judgments and estimates described above could change in future periods.
|
| | | | | | | | | | | | | | | |
| 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 |
|
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
|
| | | | | | | |
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. Goodwill and Other Intangible Assets
Goodwill
The following table sets forth details of changes in goodwill by reportable segment of the Company:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
Balance as of January 1, 2023 | $ | 49,929 | | | $ | 21,875 | | | $ | 47,101 | | | $ | 286,732 | | | $ | 405,637 | |
Currency translation adjustments | 68 | | | 4 | | | 115 | | | — | | | 187 | |
| | | | | | | | | |
Balance as of March 31, 2023 | $ | 49,997 | | | $ | 21,879 | | | $ | 47,216 | | | $ | 286,732 | | | $ | 405,824 | |
As of March 31, 2023, the Company performed an assessment to determine whether events or circumstances exist that may lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company considered current and forecasted economic and market conditions and qualitative factors, such as the Company’s goodwill balanceperformance during the first quarter 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 2022. The Company did not identify any triggers or indications of potential impairment for its reporting units as of September 30, 2017:March 31, 2023.
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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2017
(In thousands, except share and per share amounts)
Other Intangible Assets
Information regarding the Company’s intangible assets is set forth below:
| | | | | | | | | | | | | | | | | |
| As of March 31, 2023 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-lived intangible assets: | | | | | |
Customer relationships | $ | 99,146 | | | $ | (42,642) | | | $ | 56,504 | |
Developed technology | 24,912 | | | (22,185) | | | 2,727 | |
Trade names and trademarks | 1,700 | | | (1,375) | | | 325 | |
Non-compete agreements | 336 | | | (111) | | | 225 | |
| 126,094 | | | (66,313) | | | 59,781 | |
Indefinite-lived intangible assets: | | | | | |
Trade names and trademarks | 900 | | | — | | | 900 | |
Total intangible assets | $ | 126,994 | | | $ | (66,313) | | | $ | 60,681 | |
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
| |
| As of September 30, 2017 | | As of December 31, 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 | | | $ | (39,848) | | | $ | 59,298 | |
Leasehold benefits | 2,826 |
| | (2,490 | ) | | 336 |
| |
Developed technology | 14,314 |
| | (8,177 | ) | | 6,137 |
| Developed technology | 24,878 | | | (20,902) | | | 3,976 | |
Trade names and trademarks | | Trade names and trademarks | 1,700 | | | (1,303) | | | 397 | |
Non-compete agreements | 2,045 |
| | (1,739 | ) | | 306 |
| Non-compete agreements | 336 | | | (88) | | | 248 | |
Trade names and trademarks | 5,379 |
| | (3,887 | ) | | 1,492 |
| |
| $ | 99,936 |
| | $ | (57,268 | ) | | $ | 42,668 |
| | 126,060 | | | (62,141) | | | 63,919 | |
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 | $ | 126,960 | | | $ | (62,141) | | | $ | 64,819 | |
|
| | | | | | | | | | | |
| 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 isexpense recognized in the unaudited consolidated statements of income was 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 |
|
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Amortization expense | $ | 4,149 | | | $ | 4,486 | |
The remaining weighted average life of intangible assets is as follows:
| | | | | |
| (in years) |
Customer relationships | (in years)5.3 |
Customer relationshipsDeveloped technology | 5.151.4 |
Leasehold benefits | 1.67 |
Developed technologies | 3.77 |
Non-compete agreements | 1.93 |
Trade names and trademarks (Finite(finite lived) | 5.231.3 |
Non-compete agreements | 2.6 |
| | | | | |
Estimated future amortization expense related to finite-lived intangible assets as of March 31, 2023 was as follows: |
2023 (April 1 - December 31) | $ | 10,503 | |
2024 | 12,137 | |
2025 | 10,702 | |
2026 | 10,364 | |
2027 | 9,364 | |
2028 and thereafter | 6,711 | |
Total | $ | 59,781 | |
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
|
| | | |
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 |
|
8.11. Other current assetsCurrent Assets
Other current assets consistsconsist of the following:
| | | | | | | | | | | |
| As of |
| March 31, 2023 | | December 31, 2022 |
Prepaid expenses | $ | 23,256 | | | $ | 18,132 | |
Receivables from statutory authorities | 15,609 | | | 15,724 | |
Advance income tax, net | 13,568 | | | 5,716 | |
Derivative instruments | 2,949 | | | 1,526 | |
Advances to suppliers | 2,047 | | | 1,944 | |
Deferred contract fulfillment costs | 1,934 | | | 1,178 | |
Contract assets | 826 | | | 904 | |
Others | 6,151 | | | 5,855 | |
Other current assets | $ | 66,340 | | | $ | 50,979 | |
12. Other Assets
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Derivative instruments | $ | 8,236 |
| | $ | 3,324 |
|
Advances to suppliers | 3,681 |
| | 1,091 |
|
Receivables from statutory authorities | 5,784 |
| | 11,870 |
|
Others | 4,632 |
| | 4,883 |
|
Other current assets | $ | 22,333 |
| | $ | 21,168 |
|
Other assets consist of the following: | | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
Deferred contract fulfillment costs | | $ | 15,939 | | | $ | 12,693 | |
Lease deposits | | 6,514 | | | 6,621 | |
Deposits with statutory authorities | | 6,310 | | | 6,276 | |
Contract assets | | 1,802 | | | 1,864 | |
Derivative instruments | | 1,483 | | | 820 | |
| | | | |
Others | | 4,477 | | | 3,795 | |
Other assets | | $ | 36,525 | | | $ | 32,069 | |
9.
13. Accrued expensesExpenses and other current liabilitiesOther Current Liabilities
Accrued expenses and other current liabilities consistsconsist of the following:
| | | | | | | | | | | |
| As of |
| March 31, 2023 | | December 31, 2022 |
Accrued expenses | $ | 53,061 | | | $ | 47,854 | |
Payable to statutory authorities | 40,235 | | | 20,430 | |
Contingent consideration | 18,100 | | | 5,000 | |
Client liabilities | 5,609 | | | 5,110 | |
Derivative instruments | 5,140 | | | 10,059 | |
Accrued capital expenditures | 4,619 | | | 4,032 | |
| | | |
| | | |
Other current liabilities | 6,636 | | | 2,867 | |
Accrued expenses and other current liabilities | $ | 133,400 | | | $ | 95,352 | |
|
| | | | | | | |
| 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 consistsTable 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 |
|
Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
14. Other Non-Current Liabilities
11.Other non-current liabilities consist of the following:
| | | | | | | | | | | |
| As of |
| March 31, 2023 | | December 31, 2022 |
Retirement benefits | $ | 14,220 | | | $ | 12,982 | |
Deferred transition revenue | 4,223 | | | 4,408 | |
Derivative instruments | 3,209 | | | 6,218 | |
Unrecognized tax benefits | 2,329 | | | 2,329 | |
Contingent consideration | 589 | | | 13,689 | |
| | | |
| | | |
Others | 1,727 | | | 1,666 | |
Other non-current liabilities | $ | 26,297 | | | $ | 41,292 | |
15. Accumulated Other Comprehensive LossIncome/(Loss)
Accumulated other comprehensive lossincome/(loss) (“AOCI”) consists of amortization of actuarial gain / gain/(loss) on retirement benefits and changes in the cumulative foreign currency translation adjustments. In addition, the Company enters into foreign currency exchangeforward contracts and interest rate swaps, which are designated as cash flow hedges and net investment hedges, as applicable, in accordance with ASC topicTopic 815, “Derivatives and Hedging” (“ASC No. 815”)Hedging. ChangesCumulative changes in the fair values of contracts thatcash flow hedges are deemed effectiverecognized in AOCI on the Company’s consolidated balance sheets. The fair value changes are recorded as a componentreclassified from AOCI to unaudited consolidated statements of accumulated other comprehensive loss until theincome upon settlement of those contracts.foreign currency forward contracts designated as cash flow hedges of a forecast transaction, whereas such changes for interest rate swaps are reclassified over the term of the contract. Fair value changes related to net investment hedges are included in AOCI and are reclassified to unaudited consolidated statements of income when a foreign operation is disposed or partially disposed. The balances asfollowing table sets forth the changes in AOCI during the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Accumulated Other Comprehensive Income/(Loss) |
| Foreign currency translation gain/(loss) | | Unrealized gain/(loss) on cash flow hedges | | Retirement benefits | | Total |
Balance as of January 1, 2023 | $ | (133,139) | | | $ | (11,303) | | | $ | 299 | | | $ | (144,143) | |
Gains recognized during the period | 5,313 | | | 7,294 | | | — | | | 12,607 | |
Reclassification to net income | — | | | 3,065 | | | (25) | | | 3,040 | |
Income tax effects (2) | (1,138) | | | (1,834) | | | (19) | | | (2,991) | |
Accumulated other comprehensive income/(loss) as of March 31, 2023 | $ | (128,964) | | | $ | (2,778) | | | $ | 255 | | | $ | (131,487) | |
| | | | | | | |
Balance as of January 1, 2022 | $ | (95,437) | | | $ | 8,420 | | | $ | (2,457) | | | $ | (89,474) | |
Losses recognized during the period | (7,445) | | | (517) | | | — | | | (7,962) | |
Reclassification to net income (1) | — | | | (1,989) | | | 155 | | | (1,834) | |
Income tax effects (2) | 499 | | | 512 | | | (47) | | | 964 | |
Accumulated other comprehensive income/(loss) as of March 31, 2022 | $ | (102,383) | | | $ | 6,426 | | | $ | (2,349) | | | $ | (98,306) | |
1.Refer to Note 17 - Derivatives and Hedge Accounting and Note 20 - Employee Benefit Plans to the unaudited consolidated financial statements for reclassification to net income.
2.These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation gain/(loss). Refer to Note 22 - Income Taxes to the unaudited consolidated financial statements.
Table of September 30, 2017Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and December 31, 2016 are as follows:
|
| | | | | | | |
| 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 | ) |
12.16. Fair Value Measurements
Assets and Liabilities Measured at Fair Value
The following table sets forth the Company’s assets and liabilities that were accounted forrecognized 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.value:
| | | | | | | | | | | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Other Unobservable Inputs | |
As of September 30, 2017 | Level 1 | | Level 2 | | Level 3 | | Total | |
As of March 31, 2023 | | As of March 31, 2023 | | (Level 1) | | (Level 2) | | (Level 3) | | Total |
Assets |
| |
| |
| |
| Assets | | | | | | | | |
Money market and mutual funds* | $ | 146,477 |
| | $ | — |
| | $ | — |
| | $ | 146,477 |
| |
Cash equivalents - Money market funds* | | Cash equivalents - Money market funds* | | $ | 789 | | | $ | — | | | $ | — | | | $ | 789 | |
Mutual funds** | | Mutual funds** | | 64,253 | | | — | | | — | | | 64,253 | |
Derivative financial instruments | — |
| | 14,395 |
| | — |
| | 14,395 |
| Derivative financial instruments | | — | | | 4,432 | | | — | | | 4,432 | |
Total | $ | 146,477 |
| | $ | 14,395 |
| | $ | — |
| | $ | 160,872 |
| Total | | $ | 65,042 | | | $ | 4,432 | | | $ | — | | | $ | 69,474 | |
Liabilities |
| |
| |
| |
| Liabilities | | | | | | | | |
Derivative financial instruments | $ | — |
| | $ | 2,883 |
| | $ | — |
| | $ | 2,883 |
| Derivative financial instruments | | $ | — | | | $ | 8,349 | | | $ | — | | | $ | 8,349 | |
Contingent consideration*** | | Contingent consideration*** | | — | | | — | | | 18,689 | | | 18,689 | |
Total | $ | — |
| | $ | 2,883 |
| | $ | — |
| | $ | 2,883 |
| Total | | $ | — | | | $ | 8,349 | | | $ | 18,689 | | | $ | 27,038 | |
|
| |
| |
| |
| | | | | | | | |
As of December 31, 2016 | Level 1 | | Level 2 | | Level 3 | | Total | |
| | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Other Unobservable Inputs | |
As of December 31, 2022 | | As of December 31, 2022 | | (Level 1) | | (Level 2) | | (Level 3) | | Total |
Assets |
| |
| |
| |
| Assets | | | | | | | | |
Money market and mutual funds | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
Cash equivalents - Money market funds* | | Cash equivalents - Money market funds* | | $ | 1,137 | | | $ | — | | | $ | — | | | $ | 1,137 | |
Mutual funds** | | Mutual funds** | | 110,964 | | | — | | | — | | | 110,964 | |
Derivative financial instruments | — |
| | 6,318 |
| | — |
| | 6,318 |
| Derivative financial instruments | | — | | | 2,346 | | | — | | | 2,346 | |
Total | $ | — |
| | $ | 6,318 |
| | $ | — |
| | $ | 6,318 |
| Total | | $ | 112,101 | | | $ | 2,346 | | | $ | — | | | $ | 114,447 | |
Liabilities |
| |
| |
| |
| Liabilities | | | | | | | | |
Derivative financial instruments | $ | — |
| | $ | 2,258 |
| | $ | — |
| | $ | 2,258 |
| Derivative financial instruments | | $ | — | | | $ | 16,277 | | | $ | — | | | $ | 16,277 | |
Contingent consideration*** | | Contingent consideration*** | | — | | | — | | | 18,689 | | | 18,689 | |
Total | $ | — |
| | $ | 2,258 |
| | $ | — |
| | $ | 2,258 |
| Total | | $ | — | | | $ | 16,277 | | | $ | 18,689 | | | $ | 34,966 | |
* Represents short-term investmentsmoney market funds which are carried onat the fair value option under ASC Topic 825 “Financial Instruments”“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:
Table of September 30, 2017.Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
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 business acquisitions. The measurement is calculated using unobservable inputs based on Derivativesthe Company’s own assessment of achievement of certain performance goals. The Company estimated the fair value of the contingent consideration based on the Monte Carlo simulation model and Hedge Accounting.scenario-based method.
13.The following table summarizes the changes in the fair value of contingent consideration:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Opening balance | $ | 18,689 | | | $ | 9,000 | |
Acquisitions | — | | | — | |
Fair value changes | — | | | — | |
Closing balance | $ | 18,689 | | | $ | 9,000 | |
During the three months ended March 31, 2023 and 2022, there were no transfers among Level 1, Level 2 and Level 3.
Financial Instruments Not Carried at Fair Value:
The Company’s other financial instruments not carried at fair value consist primarily of cash and cash equivalents (except investments in money market funds, as disclosed above), short-term investments (except investments in mutual funds, as disclosed above), restricted cash, accounts receivable, net, long-term investments, accrued capital expenditures, accrued expenses, client liabilities and interest payable on borrowings for which fair values approximate their carrying amounts. The carrying value of the Company’s outstanding revolving credit facility approximates its fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments.
17. 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, Derivatives and Hedging, and are with counterparties that are highly rated financial institutions. For derivatives in cash flow hedging relationships as of March 31, 2023 and December 31, 2022, the Company had outstanding foreign currency forward contracts totaling $877,820 and $841,620, respectively and interest rate swaps totaling $75,000, each.
The Company estimates that approximately $2,086 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 asMarch 31, 2023, could be reclassified into earnings within the next twelve months. As of DecemberMarch 31, 2016. The fair value2023, 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 42 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 815.Topic 815, Derivatives and Hedging. 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. Pound sterling and the Philippine peso. The Company also has exposure to Colombian pesos, Czech Koruna, Euro, South African Rand and other local currencies in which it operates. Outstanding foreign currency forward contracts amounted to $91,523 and GBP 17,244 as of September 30, 2017 and amounted to $63,980 and GBP 17,974 as of December 31, 2016.
The Company estimates that approximately $6,839 of net derivative gains included in accumulated other comprehensive loss (“AOCL”) could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of September 30, 2017. At September 30, 2017, the maximum outstanding term of the cash flow hedges was forty-five months.
The Company evaluates hedge effectiveness at the time a contract is entered into as well as on an ongoing basis. If during this time, a contract is deemed ineffective, the change in the fair value is recorded in the unaudited consolidated statements of income and is included in foreign exchange gain/(loss). For hedging positions that are discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related derivative amounts recorded in equity are reclassified to earnings. There were no such significant amounts of gains or losses that were reclassified from AOCL into earnings during the three and nine months ended September 30, 2017 and 2016.
The following tables set forth the fair value of the foreign currency exchange contracts and their location on the unaudited consolidated financial statements:
Derivatives designated as hedging instruments:
|
| | | | | | | |
| 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 |
|
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
Philippine peso and the U.K. pound sterling (GBP). The Company also has exposure to Colombian pesos (COP), Czech koruna, the Euro (EUR), South African ZAR, the Australian dollar (AUD), the Canadian dollar (CAD) and other local currencies in which it operates.
Derivatives
The following table sets forth the aggregate notional principal amounts of outstanding foreign currency forward contracts for derivatives not designated as hedging instruments:
| | | | | | | | | | | | | | |
| | As of |
Foreign currency forward contracts denominated in: | | March 31, 2023 | | December 31, 2022 |
U. S. dollar (USD) | | 170,630 | | | 163,990 | |
U.K. pound sterling (GBP) | | 11,798 | | | 8,351 | |
Euro (EUR) | | 2,647 | | | 1,956 | |
Australian dollar (AUD) | | 2,090 | | | 1,951 | |
South African ZAR | | 34,704 | | | — | |
Colombian peso (COP) | | 1,970,314 | | | — | |
| | | | |
|
| | | | | | | |
| 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 table sets forth the fair value of the foreign currency forward contracts and interest rate swaps and their location on the consolidated balance sheets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivatives in cash flow hedging relationships | | Derivatives not designated as hedging instruments |
| | As of | | As of |
| | March 31, 2023 | | December 31, 2022 | | March 31, 2023 | | December 31, 2022 |
Assets: | | | | | | | | |
Other current assets | | $ | 2,866 | | | $ | 1,271 | | | $ | 83 | | | $ | 255 | |
Other assets | | $ | 1,483 | | | $ | 820 | | | $ | — | | | $ | — | |
Liabilities: | | | | | | | | |
Accrued expenses and other current liabilities | | $ | 4,952 | | | $ | 10,044 | | | $ | 188 | | | $ | 15 | |
Other non-current liabilities | | $ | 3,209 | | | $ | 6,218 | | | $ | — | | | $ | — | |
The following tables set forth the effect of foreign currency exchangeforward contracts and interest rate swaps on AOCI and the unaudited consolidated statements of income:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
Derivative financial instruments: | | 2023 | | 2022 |
Unrealized gain/(loss) recognized in AOCI | | | | |
Derivatives in cash flow hedging relationships | | $ | 7,294 | | | $ | (517) | |
| | | | |
Gain/(loss) recognized in unaudited consolidated statements of income | | | | |
Derivatives not designated as hedging instruments | | $ | 2,528 | | | $ | (899) | |
Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for the threederivatives in cash flow hedging relationships and nine months ended September 30, 2017derivatives not designated as hedging instruments:
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and 2016:
|
| | | | | | | | | | | | | | | |
| 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
| | 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/(loss) was reclassified from AOCI | | | | | | | | |
| | | | | | | | |
Cost of revenues | | $ | 251,469 | | | $ | (2,755) | | | $ | 207,516 | | | $ | 1,583 | |
General and administrative expenses | | $ | 46,746 | | | (242) | | | $ | 39,945 | | | 294 | |
Selling and marketing expenses | | $ | 29,493 | | | (19) | | | $ | 24,170 | | | 14 | |
Depreciation and amortization expense | | $ | 13,487 | | | (123) | | | $ | 13,602 | | | 98 | |
Interest expense | | $ | 3,385 | | | 74 | | | $ | 876 | | | — | |
Total before tax | | | | (3,065) | | | | | 1,989 | |
Income tax effects on above | | | | 534 | | | | | (515) | |
Net of tax | | | | $ | (2,531) | | | | | $ | 1,474 | |
| | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | |
Location in unaudited consolidated statements of income where gain/(loss) was recognized | | | | | | | | |
| | | | | | | | |
Foreign exchange gain/(loss), net | | $ | 105 | | | $ | 2,528 | | | $ | 1,756 | | | $ | (899) | |
| | $ | 105 | | | $ | 2,528 | | | $ | 1,756 | | | $ | (899) | |
14.
18. Borrowings
The Company has afollowing tables summarizes the Company’s debt position:
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
| | Revolving credit facility |
Current portion of long-term borrowings | | $ | 40,000 | | | $ | 30,000 | |
| | | | |
Long-term borrowings | | 160,000 | | | 220,000 | |
Total borrowings | | $ | 200,000 | | | $ | 250,000 | |
Unamortized debt issuance costs for the Company’s revolving credit facility of $1,109 and $1,177 as of March 31, 2023 and December 31, 2022, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
Credit Agreement
The Company held a $300,000 revolving credit facility pursuant to its credit agreement (the “Credit Facility”Agreement”), includingdated as of November 21, 2017 with certain lenders and Citibank N.A. as Administrative Agent. The revolving credit facility originally had a maturity date of November 21, 2022 and was voluntarily pre-payable from time to time without premium or penalty.
On April 18, 2022, the Company and each of the Company’s wholly owned material domestic subsidiaries entered into an Amendment and Restatement Agreement with Citibank, N.A. as Administrative Agent and certain lenders (the “2022 Credit Agreement”), pursuant to which the parties thereto amended and restated the Credit Agreement. Among other things, the 2022 Credit Agreement (a) provides for the issuance of new revolving credit commitments such that the aggregate amount of revolving credit commitments available to the Company is equal to $400,000; (b) extends the maturity date of the revolving credit facility from November 21, 2022 to April 18, 2027; and (c) replaces LIBOR with 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 CompanyCompany’s and its material domestic subsidiaries.subsidiaries’ assets. The 2022 Credit Agreement governing the Credit Facility contains certaincustomary affirmative and negative covenants, including, a restriction on our indebtedness, and a covenantbut not limited to, not permit the interest coverage ratio (the ratio of EBIT to cash interest expense) to be less than 3.5 to 1.0 or the leverage ratio (total funded indebtedness to EBITDA) to be greater than 2.5 to 1.0, for the four consecutive quarter period endingrestrictions on the last dayability 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 each fiscal quarter. certain assets or subsidiaries.
The revolving credit facility carried an effective interest rate as shown below:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Effective Interest Rate | | 5.9 | % | | 1.3 | % |
As of September 30, 2017,March 31, 2023 and December 31, 2022, the Company was in compliance with theall financial and non-financial covenants listed above.under the revolving credit facility.
Expected payments for all of the Company’s borrowings as of March 31, 2023 were as follows:
| | | | | | | | | | | | | | |
| | Revolving credit facility |
| | Principal Payments | | Interest Payments* |
2023 (April 1 - December 31) | | $ | 40,000 | | | $ | 8,048 | |
2024 | | — | | | 9,364 | |
2025 | | — | | | 9,364 | |
2026 | | — | | | 9,364 | |
2027 | | 160,000 | | | 3,512 | |
Total | | $ | 200,000 | | | $ | 39,652 | |
| | | | |
| | | | |
| | | | |
| | | | |
* Interest payments are based on effective interest rate as of March 31, 2023.
Letters of Credit
In the ordinary course of business, the Company provides standby letters of credit to third parties primarily for facility leases. As of each of March 31, 2023 and December 31, 2022, the Company had outstanding letters of credit of $461, that were not recognized in the consolidated balance sheets.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
15.19. Capital Structure
Common Stock
The Company has one class of common stock outstanding.
During the three months ended September 30, 2017 and 2016, theThe 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 March 31, 2023 | | 38,356 | | | $ | 6,529 | | | $ | 170.22 | |
Three months ended March 31, 2022 | | 27,219 | | | $ | 3,191 | | | $ | 117.23 | |
(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,October 5, 2021, the Company’s Boardboard of Directorsdirectors authorized a $300,000 common stock repurchase program beginning January 1, 2022 (the “2014“2022 Repurchase Program”), under which shares were authorized to be purchased by.
Under the Company from time to time from the open market and through private transactions during each of the fiscal years 2015 through 2017 up to an annual amount of $20,000.
On February 28, 2017, the Company’s Board of Directors authorized an additional common stock repurchase program (the “20172022 Repurchase Program”), under whichProgram, 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 20172022 Repurchase Program.Program, 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 March 31, 2023 | | 221,025 | | $ | 35,834 | | | $ | 162.13 | |
Three months ended March 31, 2022 | | 221,333 | | $ | 28,194 | | | $ | 127.38 | |
Repurchased shares have been recorded as treasury shares and will be held until the BoardCompany’s board of Directorsdirectors 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 an actuarial basis. recognized and amortized over the remaining period of service of the employees.
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 planPlan is unfunded. The Company makes annual contributions to the employees' gratuity fundIndia Plan established with Life Insurance Corporation of Indiainsurance 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 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 period ended September 30, 2017.year ending on December 31, 2023.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
|
| | | | |
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 |
|
| | | | | | | | |
Change in Plan Assets | | |
Plan assets as of January 1, 2023 | | $ | 14,449 | |
Actual return | | 257 | |
Employer contribution | | — | |
Benefits paid | | (302) | |
Effect of exchange rate changes | | 98 | |
Plan assets as of March 31, 2023 | | $ | 14,502 | |
| | |
Components of net periodic benefit costs recognized in unaudited consolidated statements of income and actuarial (gain)/loss reclassified from AOCI, were as follows:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Service cost | $ | 956 | | | $ | 990 | |
Interest cost | 395 | | | 323 | |
Expected return on plan assets | (263) | | | (228) | |
Amortization of actuarial (gain)/loss, gross of tax | (25) | | | 155 | |
Net gratuity cost | $ | 1,063 | | | $ | 1,240 | |
| | | |
Amortization of actuarial (gain)/loss, gross of tax | $ | (25) | | | $ | 155 | |
Income tax effects on above | (19) | | | (47) | |
Amortization of actuarial (gain)/loss, net of tax | $ | (44) | | | $ | 108 | |
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 March 31, |
| | 2023 | | 2022 |
Contribution to the 401(k) Plans | | $ | 2,386 | | | $ | 2,017 | |
The Company’s contribution for various defined social security contribution plans on behalf of its employees in India,foreign subsidiaries of the Philippines, Bulgaria, Romania, the Czech Republic, South Africa, Colombia, and Singapore.Company were as follows:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Contributions to the defined social security contribution plans | | $ | 5,392 | | | $ | 4,213 | |
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 minimum lease payments under these capital leases as of September 30, 2017 are as follows:
|
| | | |
During the next twelve months ending September 30, |
|
2018 | $ | 227 |
|
2019 | 173 |
|
2020 | 128 |
|
2021 | 72 |
|
Total minimum lease payments | 600 |
|
Less: amount representing interest | 117 |
|
Present value of minimum lease payments | 483 |
|
Less: current portion | 168 |
|
Long term capital lease obligation | $ | 315 |
|
The Company conducts its operations using facilities leased under non-cancelable operating lease agreements that expire at various dates. Future minimumdo not contain any covenants to impose any restrictions except for market-standard practice for similar lease payments under non-cancelable agreements expiring after September 30, 2017 are set forth below:arrangements.
|
| | | |
During the next twelve months ending September 30, |
|
2018 | $ | 10,477 |
|
2019 | 8,470 |
|
2020 | 4,795 |
|
2021 | 3,189 |
|
2022 | 1,064 |
|
2023 and thereafter | 933 |
|
| $ | 28,928 |
|
Rent expense
The operating leases are subject to renewal periodically and have scheduled rent increases. The Company recognizes rent on such leases on a straight-line basis over cancelable and non-cancelable lease period determined under ASC topic 840, "Leases":
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Rent expense | $ | 6,362 |
| | $ | 5,445 |
| | $ | 18,168 |
| | $ | 15,871 |
|
Deferred rent
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Cancelable and non - cancelable operating leases
| $ | 8,763 |
| | $ | 7,915 |
|
Deferred rent is included under “Accrued expenses and other current liabilities” and “Non-current liabilities” in the unaudited consolidated balance sheets.Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
The Company had performed an evaluation of its contracts with suppliers in accordance with ASC Topic 842, Leases, and had determined that, except for leases for office facilities, motor vehicles and other equipment as described above, none of the Company’s contracts contain a lease. As part of the Company’s efforts to optimize its existing network of operations centers, the Company continued to evaluate its office facilities to determine where it can exit or consolidate its use of office space.
18.Supplemental balance sheet information
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
Operating Lease | | | | |
Operating lease right-of-use assets | | $ | 52,782 | | | $ | 55,347 | |
| | | | |
Operating lease liabilities - Current | | $ | 14,095 | | | $ | 14,978 | |
Operating lease liabilities - Non-current | | 45,655 | | | 48,155 | |
Total operating lease liabilities | | $ | 59,750 | | | $ | 63,133 | |
| | | | |
Finance Lease | | | | |
Property and equipment, gross | | $ | 1,922 | | | $ | 2,499 | |
Accumulated depreciation | | (1,358) | | | (1,999) | |
Property and equipment, net | | $ | 564 | | | $ | 500 | |
| | | | |
Finance lease liabilities - Current | | $ | 176 | | | $ | 164 | |
Finance lease liabilities - Non-current | | 407 | | | 355 | |
Total finance lease liabilities | | $ | 583 | | | $ | 519 | |
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:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
Lease cost | | 2023 | | 2022 |
Finance lease: | | | | |
Amortization of right-of-use assets | | $ | 38 | | | $ | 38 | |
Interest on lease liabilities | | 20 | | | 14 | |
| | 58 | | | 52 | |
Operating lease(a) | | 4,883 | | | 6,043 | |
Variable lease costs | | 1,007 | | | 1,121 | |
| | | | |
Total lease cost | | $ | 5,948 | | | $ | 7,216 | |
(a) Includes short-term leases, which are immaterial.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
Supplemental cash flow and other information related to leases are as follows:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Cash payments for amounts included in the measurement of lease liabilities : | | | | |
Operating cash outflows for operating leases | | $ | 5,453 | | | $ | 6,005 | |
Operating cash outflows for finance leases | | $ | 20 | | | $ | 14 | |
Financing cash outflows for finance leases | | $ | 43 | | | $ | 39 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | 1,213 | | | $ | 3,834 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | | $ | 99 | | | $ | 50 | |
Weighted average remaining lease term (in years) | | | | |
Finance lease | | 2.9 years | | 2.1 years |
Operating lease | | 5.8 years | | 5.6 years |
Weighted average discount rate | | | | |
Finance lease | | 14.0% | | 14.6% |
Operating lease | | 7.0% | | 7.0% |
The Company modified certain of its operating leases, resulting in a decrease of its lease liabilities by $3,094 and an increase of its lease liabilities by $367, during the three months ended March 31, 2023 and 2022, respectively, with a corresponding adjustment to ROU assets.
As of March 31, 2023 and December 31, 2022, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.
Maturities of lease liabilities as of March 31, 2023 were as follows:
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
2023 (April 1 - December 31) | | $ | 13,501 | | | $ | 190 | |
2024 | | 15,228 | | | 191 | |
2025 | | 10,387 | | | 142 | |
2026 | | 9,295 | | | 115 | |
2027 | | 6,765 | | | 104 | |
2028 and thereafter | | 19,429 | | | 14 | |
Total lease payments | | 74,605 | | | 756 | |
Less: Imputed interest | | 14,855 | | | 173 | |
Present value of lease liabilities | | $ | 59,750 | | | $ | 583 | |
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
Maturities of lease liabilities as of December 31, 2022 were as follows:
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
2023 | | $ | 18,711 | | | $ | 228 | |
2024 | | 14,846 | | | 162 | |
2025 | | 10,037 | | | 114 | |
2026 | | 8,941 | | | 88 | |
2027 | | 6,474 | | | 79 | |
2028 and thereafter | | 19,624 | | | — | |
Total lease payments | | 78,633 | | | 671 | |
Less: Imputed interest | | 15,500 | | | 152 | |
Present value of lease liabilities | | $ | 63,133 | | | $ | 519 | |
22. Income Taxes
The 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 Company recorded income tax expense of $2,819 and $5,646 for the three months ended September 30, 2017 and 2016, respectively. The effective tax rate decreased from 26.0%23.7% during the three months ended September 30, 2016March 31, 2022 to 11.8% as a result of (i) excess tax benefit related to stock awards of $3,488 pursuant to ASU No. 2016-0913.6% during the three months ended September 30, 2017, (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 India.
March 31, 2023. The Company recorded income tax expense of $7,202$8,058 and $18,549$11,202 for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. The effectivedecrease in income tax rate decreased from 28.6% during the nine months ended September 30, 2016 to 11.0%expense was primarily as a result of (i)higher excess tax benefitbenefits related to stock awards of $7,169 pursuant to ASU No. 2016-09stock-based compensation during the ninethree months ended September 30, 2017, (ii) conclusion of an uncertain tax position of $3,153 (including interest of $1,433), (iii) higher earnings from foreign subsidiaries and lower domestic profit inMarch 31, 2023, compared to the U.S.,three months ended March 31, 2022, partially offset by higheran increase in income tax expense on account ofhigher profit and an increase in non-deductible expenses during the expiration of a tax holiday for some of the operating centers in India.three months ended March 31, 2023.
The following table summarizes the activity related to the gross unrecognized tax benefits from January 1, 2017 through September 30, 2017:
|
| | | |
Balance as of January 1, 2017 | $ | 3,087 |
|
Increases related to prior year tax positions | — |
|
Decreases related to prior year tax positions | (1,720 | ) |
Increases related to current year tax positions | — |
|
Decreases related to current year tax positions | — |
|
Effect of exchange rate changes | 85 |
|
Balance as of September 30, 2017 | $ | 1,452 |
|
The unrecognized tax benefits as of September 30, 2017 of $1,452, if recognized, would impact the effective tax rate.
During the three months ended September 30, 2017March 31, 2023, the Company’s subsidiaries in India, U.K. and 2016,Australia repatriated $76,000 (net of $4,015 withholding taxes), $15,598 and $9,081, respectively, to the Company has recognized interest of nil and $50, respectively, which are includedUnited States. These distributions do not constitute a change in the Company’s permanent reinvestment assertion.
Deferred income tax expensetaxes recognized 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.AOCI were as follows:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Deferred taxes benefit / (expense) recognized on: | | | |
Unrealized gain/(loss) on cash flow hedges | $ | (1,300) | | | $ | (3) | |
Reclassification adjustment for cash flow hedges | (534) | | | 515 | |
| | | |
Reclassification adjustment for retirement benefits | (19) | | | (47) | |
Foreign currency translation gain/(loss) | (1,138) | | | 499 | |
Total | $ | (2,991) | | | $ | 964 | |
19. 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, |
| 2017 | | 2016 | | 2017 | | 2016 |
Cost of revenue | $ | 1,109 |
| | $ | 795 |
| | $ | 3,448 |
| | $ | 2,848 |
|
General and administrative expenses | 2,601 |
| | 1,905 |
| | 7,541 |
| | 6,241 |
|
Selling and marketing expenses | 1,998 |
| | 1,784 |
| | 5,782 |
| | 5,654 |
|
Total | $ | 5,708 |
| | $ | 4,484 |
| | $ | 16,771 |
| | $ | 14,743 |
|
AsTable of September 30, 2017, the Company had 1,492,097 shares available for grant under the 2015 Amendment and Restatement of the 2006 Omnibus Award Plan.
Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
23. Stock Based Compensation
Stock-based compensation expense by nature of function, as below, are included in the unaudited consolidated statements of income:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
Cost of revenues | $ | 3,566 | | | $ | 2,641 | |
General and administrative expenses | 5,825 | | | 4,395 | |
Selling and marketing expenses | 5,016 | | | 4,188 | |
Total | $ | 14,407 | | | $ | 11,224 | |
| | | |
Income tax benefit related to share-based compensation(1) | $ | 9,830 | | | $ | 2,806 | |
(1) Includes $12,520 and $3,610 during the three months ended March 31, 2023 and 2022 respectively, related to discrete benefits recognized in income tax expense in accordance with ASU No. 2016-09, Compensation - Stock Compensation.
As of March 31, 2023 and December 31, 2022, the Company had 952,074 and 1,324,755 shares, respectively, available for grant under the 2018 Omnibus Incentive Plan.
Stock Options
StockDuring the three months ended March 31, 2023 and 2022, there was no stock option activity under the Company’s stock-based compensation plans. The number of 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 that were vested and exercisable as of September 30, 2017 is nil. Theeach of March 31, 2023 and December 31, 2022 were 3,093 units.
Share Matching Program
Under the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”), the Company did not grant any options duringestablished a share matching program (“SMP”) for executive officers and other specified employees. Under the three and nine months ended September 30, 2017 and 2016. There were no options that vested duringSMP, the Company agreed to issue a number of restricted stock units equal to the number of newly acquired shares of the Company's common stock.
During the three months ended September 30, 2017March 31, 2023 and 2016. The total grant date fair value of options vested during the nine months ended September 30, 2017 and 2016 was2022, nil and $706, respectively.52,636, respectively, restricted stock units were issued under the Company’s SMP. As of each of March 31, 2023 and December 31, 2022, the number of unvested restricted stock units was 47,623 units.
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 |
| | Number | | Weighted Average Fair Value |
Outstanding as of December 31, 2022* | | 923,126 | | | $ | 98.71 | |
Granted | | 217,194 | | | 172.80 | |
Vested | | (284,174) | | | 87.52 | |
Forfeited | | (8,513) | | | 99.41 | |
Outstanding as of March 31, 2023* | | 847,633 | | | $ | 121.44 | |
|
| | | | | | | | | | | | | |
| 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, 2017March 31, 2023 and December 31, 20162022 restricted stock units vested for which the underlying common stock is yet to be issued are 146,112119,908 and 135,054,174,490 respectively.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2023
(In thousands, except per share amount and share count)
As of September 30, 2017,March 31, 2023, unrecognized compensation cost of $39,553$86,957 is expected to be expensed over a weighted average period of 2.662.9 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 three months ended March 31, 2023, the Company granted 40% of each award recipient’s equity grants in the form of PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for a three-year period (“PU”). The remaining 60% of each award recipient’s equity grants are PRSUs that are based on market conditions, contingent on the Company's meeting a total shareholder return relative to a group of peer companies specified under the 2018 Plan, and are measured over a three-year performance period (“MU”).
PRSU activity under the Company’s stock plans is shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Revenue Based PRSUs | | Market Condition Based PRSUs |
| Number | | Weighted Average Fair Value | | Number | | Weighted Average Fair Value |
Outstanding as of December 31, 2022 | 49,591 | | | $ | 119.99 | | | 178,712 | | | $ | 134.72 | |
Granted | 43,868 | | | 172.82 | | | 65,729 | | | 223.61 | |
| | | | | | | |
Vested | — | | | — | | | — | | | — | |
Forfeited | (130) | | | 119.98 | | | (194) | | | 155.67 | |
Outstanding as of March 31, 2023 | 93,329 | | | $ | 144.82 | | | 244,247 | | | $ | 158.62 | |
As of March 31, 2023, unrecognized compensation cost of $43,169 is expected to be expensed over a weighted average period of 2.3 years.
Employee Stock Purchase Plan
On June 21, 2022, at the annual meeting of stockholders of the Company, the Company’s stockholders approved the ExlService Holdings, Inc. 2022 Employee Stock Purchase Plan (the “2022 ESPP”).
The 2022 ESPP allows eligible employees to purchase the Company’s shares of common stock through payroll deductions at a pre-specified discount to the lower of closing price of the Company’s common shares on the date of offering or the last business day of each purchase interval. The dollar amount of shares of common stock that can be purchased under the 2022 ESPP must not exceed 15% of the participating employee’s compensation during the offering period, subject to a cap of $25 per employee per calendar year. The Company has registered 800,000 shares of common stock to be reserved for issuance over the term of the 2022 ESPP.
The second offering period under the 2022 ESPP commenced on January 1, 2023 with a term of six months.
During the three months ended March 31, 2023, 7,636 common shares were issued under the 2022 ESPP for purchases of common stock made during the first offering period that completed on December 31, 2022. As of March 31, 2023 and December 31, 2022, 792,364 and 800,000 shares, respectively, remain available for future issuance under the 2022 ESPP.
24. Related Party Disclosures
In April 2022, the Company entered into a service contract for providing analytics services to The Vanguard Group Inc., which beneficially owns more than 10% of the Company’s common stock as of March 31, 2023. During the three months ended March 31, 2023, the Company recognized revenues, net of $951 related to this service contract. The Company had outstanding accounts receivable of $1,217 and $856, related to this service contract as of March 31, 2023 and December 31, 2022, respectively.
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(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 |
| Number | | Weighted Avg Grant Date Fair Value | | Number | | Weighted Avg Grant Date Fair Value |
Outstanding at December 31, 2016 | 115,174 |
| | $ | 41.70 |
| | 215,171 |
| | $ | 47.42 |
|
Granted | 62,113 |
| | 47.73 |
| | 62,100 |
| | 54.10 |
|
Vested | — |
| | — |
| | — |
| | — |
|
Forfeited | (8,595 | ) | | 43.96 |
| | (8,595 | ) | | 59.40 |
|
Outstanding at September 30, 2017 | 168,692 |
| | $ | 43.81 |
| | 268,676 |
| | $ | 48.58 |
|
As of September 30, 2017, unrecognized compensation cost of $7,095 is expected to be expensed over a weighted average period of 1.83 years.
20. Related Party Disclosures
The Company provides consulting services to PharmaCord, LLC. One of the Company’s directors, Nitin Sahney, is 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, the Company had an account receivable of $379 and nil, respectively, related to these services.
21.25. Commitments and Contingencies
Fixed AssetCapital Commitments
At September 30, 2017,As of March 31, 2023, the Company hashad committed to spend approximately $7,407$7,500 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.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 Philippineas qualified Philippines Economic Zone Authority (“PEZA”). The registrationunits, which provides the Company with certain fiscal incentives on the import of capital goods and requires ExlService Philippines, Inc.local purchase of services and materials. The Company is required to meet certain performancerequirements to retain the incentives. The Company has complied, and investment criteria. The Company’s management believes that these centers have inintends to continue compliance, with the past satisfied and will continuerequirements to satisfyavail itself of the required criteria.incentives.
Contingencies
U.S. and IndianThe transfer pricing regulations in the countries in which the Company operates require that any international transaction involving associated enterprisescontrolled intercompany transactions be at an arm’s-length price.arm’s-length. Accordingly, the Company determines the appropriateand documents pricing for the internationalcontrolled intercompany transactions among its associated enterprisesbased on the basis of a detailed functional andan economic analysis involving benchmarking against transactions among entities that are not under common control.as prescribed in the respective regulations. The tax authorities have jurisdiction to review this arrangement and in the event thatCompany’s transfer pricing. If the Company’s transfer pricing is challenged by the authorities, they determine that the transfer price applied was not appropriate, the Company may incur increasedcould assess additional tax, liability, including accrued interest and penalties. penalties, thereby impacting the Company’s profitability and cash flows.
The Company is currently involved in transfer pricing and related income tax disputes with Indian tax authorities. The aggregate amount demanded by Indian tax authorities (net of advance payments) as of March 31, 2023 and December 31, 2022 is $37,072 and $37,088, respectively. The Company has made payments and/or provided bank guarantees against these demands in the amounts of $7,316 and $7,532, as of March 31, 2023 and December 31, 2022, respectively. The Company believes that its positions will more likely than not be sustained upon final examination by the tax authorities, and accordingly has not accrued any liabilities with respect to these matters in its consolidated financial statements.
India’s Value Added Tax (“VAT”) regime ended in June 2017 and was replaced by the current Goods and Service Tax (“GST”) regime. Pursuant to reviewing the Company’s annual VAT filings, the Indian tax authorities overraised aggregate VAT tax demands for tax years 2015 and 2017, in the applicationamounts of $5,563 and $5,526, as of March 31, 2023 and December 31, 2022, respectively. The GST authorities rejected the Company’s refunds claims in the amounts of $3,892 and $3,866 as of March 31, 2023 and December 31, 2022, respectively. The Company has filed appeals against these matters and believes that it is more likely than not that upon final examination its position will be sustained based on its technical merits. Accordingly, no provision was recognized as of March 31, 2023 and December 31, 2022, respectively.
One of the Company’s subsidiaries in India has undergone an assessment with the statutory authority with respect to defined social security contribution plan. Except for some components of the assessment for which the Company has recognized a provision in the financial statements, the Company believes that the amount demanded by such authority is not a meaningful indicator of the potential liabilities of the Company, and that the matter is without merit. The Company is defending 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 August 2019 and September 2020, the Indian Parliament passed various consolidating labor codes, including the Code on Social Security, 2020 (the “Indian Social Security Code”) which aims to rationalize labor laws. The Indian Social Security
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017March 31, 2023
(In thousands, except share and per share amounts)amount and share count)
Code has implications on defined social security contribution plans, provision of certain benefits or facilities to employees at employer’s costs and 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, among 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 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.
of some of its transfer pricing policies for some of its subsidiaries. Further,From time to time, the Company, its subsidiaries, and/or their present officers or directors, may be or have been, named as a defendant in litigation matters, including employment-related claims. The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and a U.S. subsidiary are engaged in taxattorney’s fees. With respect to pending litigation with the income-tax authorities in India on the issue of permanent establishment.
The aggregate disputed amount demanded by Indian tax authorities from the Company primarily related to its transfer pricing issues for years ranging from tax years 2003 to 2014 and its permanent establishment issues ranging from tax years 2003 to 2007matters as of September 30, 2017 and December 31, 2016 is $16,075 and $17,963, respectively, of which the Company has made payments or provided bank guarantee to the extent $8,418 and $8,640, respectively. Amounts paid as deposits in respect of such assessments aggregating to $6,389 and $6,690 as of September 30, 2017 and December 31, 2016, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $2,029 and $1,950 as of September 30, 2017 and December 31, 2016, 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.
Based on advice from its Indian tax advisors, the facts underlying the Company’s position and its experience with these types of assessments,reporting date, the Company believes that the probability that itdamages claimed are without merit, and the Company intends to vigorously defend them. The Company will ultimately be found liable for these assessments is remote and accordingly has not accrued any amount with respect tocontinuously monitor developments on these matters in its consolidatedto assess potential impacts to the financial statements.
The Company does not expect any impact from these assessments on its future income tax expense. Itoutcomes of legal actions are unpredictable and subject to significant uncertainties, and thus it is possible thatinherently difficult to determine 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, 2017, a wholly owned subsidiarylikelihood of the Company entered intoincurring a definitive purchase agreementmaterial loss or quantification of any such loss. With respect to acquire substantially allpending litigation matters as of the assetsreporting date, based on information currently available, including the Company’s assessment of Health Integrated, Inc.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 Tampa, Florida, Health Integrated isaggregate, will have a care management company that provides end-to-end technology and analytics-enabled care management services including case management, utilization management, disease management, special needs programs, and multichronic care managementmaterial adverse effect on behalfthe Company’s consolidated financial condition, results 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.operations or cash flows. The acquisition is expectedCompany will continuously monitor these matters to close in the first quarter of 2018, subjectassess potential impacts to the fulfillment of certain closing conditions, including regulatory and other consents.financial statements.
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, 2016.2022. 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:
•our ability to maintain and grow client demand for our services and solutions, including anticipating and incorporating the latest technology into our offerings;
•impact on client demand by the selling cycle and terms of our client contracts;
•fluctuations in our earnings;
•our ability to hire and retain enough sufficiently trained employees to support our operations or any changes in the senior management team;
•our ability to accurately estimate and/or manage costs;
•our ability to adjust our pricing terms or effectively manage our asset utilization levels to meet the changing demands of our clients and potential clients;
•cyber security incidents, data breaches, or other unauthorized disclosure of sensitive or confidential client and employee data;
•reliance on third parties to deliver services and infrastructure for client critical services;
•employee wage increases;
•failure to protect our intellectual property;
•our dependence on a limited number of clients in a limited number of industries;
worldwide political, economic or business conditions;
negative public reaction in the U.S. or elsewhere to offshore outsourcing;
fluctuations in our earnings;
industries and our ability to attract and retain clients including inwithstand the loss of a timely manner;significant client;
our ability to successfully consummate or integrate strategic acquisitions;
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•our ability to successfully consummate or integrate strategic acquisitions including the senior management team;impact from the impairment of goodwill and other intangible assets, if any;
•our ability to adhere to regulations or accreditation or licensing standards that govern our business;
•increasing competition in our industry;
•telecommunications or technology disruptions;disruptions or breaches, natural or other disasters, medical epidemics or pandemics, such as COVID-19, or acts of violence or war;
•operational and information security failures arising as a result of remote work solutions adopted due to COVID-19;
•legal liability arising out of customer and third party contracts;
•adverse outcome of our disputes with the tax authorities in the geographies where we operate;
•the introduction of new or unfavorable tax legislation;
•changes in tax laws or decisions regarding repatriation of funds held abroad;
•exposure to currency exchange rate fluctuations in the various currencies in which we do business including the potential effects of Russian-Ukraine conflict, rising inflation, high interest rates and economic recessionary trends on currency exchange rates;
•restrictions on immigration;
•ability to withstandservice debt or obtain additional financing on favorable terms. Inception of interest rate swaps to hedge interest rate risk;
•negative public reaction in the lossU.S. or elsewhere to offshore outsourcing;
•effects of a significant customer;political and economic conditions globally, particularly in the geographies where we operate;
•ability to make accurate estimates and assumptions in connection with the preparation of our consolidated financial statements;
•regulatory, legislative and judicial developments, including changes to or the withdrawal of governmental fiscal incentives;
changes•credit risk fluctuations in tax laws or decisions regarding repatriationthe market values of funds held abroad;our investment and derivatives portfolios; and
•our ability to service debt or obtain additional financing on favorable terms;
legal liability arising out of customer contracts;
technological innovation;
political or economic instability in the geographies in which we operate;
unauthorized disclosure of sensitive or confidential clientmeet our environmental, social and customer data;governance-related goals and
adverse outcome of our disputes with the Indian tax authorities. targets;
These and other factors are more fully discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. 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 upmay occur 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 Republic of Ireland, the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.
Revenues
For the three months ended September 30, 2017,March 31, 2023, we hadgenerated revenues of $192.3$400.6 million compared to revenues of $171.2$329.2 million for the three months ended September 30, 2016,March 31, 2022, an increase of $21.1$71.4 million, or 12.4%. For the nine months ended September 30, 2017, we had revenues of $564.4 million compared to revenues of $508.7 million for the nine months ended September 30, 2016, an increase of $55.7 million, or 11.0%21.7%.
We serve clients mainly in the U.S.United States and the U.K.,United Kingdom, with these two regions generating approximately 82.4%84.6% and 13.9%10.4%, respectively, of our total revenues for the three months ended September 30, 2017March 31, 2023 and approximately 80.1%85.8% and 16.4%10.0%, respectively, of our revenues for the three months ended September 30, 2016. For the nine months ended September 30, 2017, these two regions generated 82.0% and 14.5%, respectively, of our total revenues and 80.1% and 16.6%, respectively, of our total revenues for the nine months ended September 30, 2016.March 31, 2022.
For the three months ended September 30, 2017March 31, 2023 and 2016,2022, our total revenues from our top ten clients accounted for 38.3%34.8% and 41.0%36.2% of our total revenues, respectively. ForAlthough we continue to develop relationships with new clients to diversify our client base, we believe that the nine months ended September 30, 2017 and 2016, our total revenues fromloss of any of our top ten clients accounted for 38.7% and 40.6% ofcould have a material adverse effect on our total revenues, respectively. None of our clients individually accounted for more than 10% of 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 challenges such as Financethe insurance claims life cycle, financial transactions processing and Accounting Services.provider and member experiences. This typically involves the use of agile delivery models to implement digital technologies and interventions like hyper-automation, customer experience transformation, advanced automation, robotics, enterprise architecture, end-to-end business function management and transformations. We also provide services related to operations management, through our Consulting services that provide advice regarding transformational initiatives.
Our operations management solutions typically involve the transfer to the Company of select business operations of a client such as claims processing, clinical operations, or financial transaction processing, after which weeither 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 contracts with no end dates. These contracts provide us with a relatively predictable revenue base for a substantial portion of our digital operations and solutions business. However, our clients can typically terminate these contracts with or without cause and with short notice periods. We have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.
We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models. Outcome-based pricing arrangements are examples of non-linear pricing models where clients link revenues from platforms and solutions and the services we provide to usage or savings rather than the efforts deployed to provide these services. We continue to observe a shift in the industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models. We believe this trend will continue and we 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.digital operations and solutions needs to seek more favorable contract terms and diversification of the risk of concentration on a few vendors. We believe that the trend toward multi-vendor relationships will continue. A multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor, which can result in significantly reduced gross margins from the provision of services to such client for each vendor. To the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors, our gross margins and revenues 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 ouranalytics services and the budget and approval processes of prospective clients make it difficultaim to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.
Analytics: Our Analytics services focus on driving improveddrive better business outcomes for our customersclients by generating data-drivenunlocking deep insights from data and creating data-led solutions across all parts of our customers’clients’ business. We 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 Analytics teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecyclelife cycle management, risk underwriting and pricing, operational effectiveness, credit and operational risk monitoring and governance, regulatory reporting 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 AI and ML capabilities and proprietary solutions to create insights, improve decision making for our clients and address a range of complex industry-wide priorities. Our acquisition of Clairvoyant AI, Inc. in December 2021 strengthened our data analytics capabilities with additional expertise in data and product engineering, cloud enablement and managed services, 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 ofThere have been no significant changes in our critical accounting policies and estimates referduring the three months ended March 31, 2023, 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, 2016.2022.
Results of Operations
The following table summarizes our results of operations foroperations:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
| (dollars in millions) |
Revenues, net | $ | 400.6 | | | $ | 329.2 | |
Cost of revenues(1) | 251.5 | | | 207.5 | |
Gross profit(1) | 149.1 | | | 121.7 | |
Operating expenses: | | | |
General and administrative expenses | 46.7 | | | 39.9 | |
Selling and marketing expenses | 29.5 | | | 24.2 | |
Depreciation and amortization expense | 13.5 | | | 13.6 | |
| | | |
Total operating expenses | 89.7 | | | 77.7 | |
Income from operations | 59.4 | | | 44.0 | |
Foreign exchange gain, net | 0.1 | | | 1.8 | |
Interest expense | (3.4) | | | (0.9) | |
Other income, net | 3.2 | | | 2.4 | |
| | | |
Income before income tax expense and earnings from equity affiliates | 59.3 | | | 47.3 | |
Income tax expense | 8.1 | | | 11.2 | |
Income before earnings from equity affiliates | 51.2 | | | 36.1 | |
Gain from equity-method investment | 0.1 | | | 0.1 | |
Net income attributable to ExlService Holdings, Inc. stockholders | $ | 51.3 | | | $ | 36.2 | |
(1) Exclusive of depreciation and amortization expense.
Due to rounding, the threenumbers presented in the tables included in this Part I, Item 2, “Management’s Discussion and nine months ended September 30, 2017Analysis of Financial Condition and 2016:Results of Operations” may not add up precisely to the totals provided.
|
| | | | | | | | | | | | | | | |
| 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 |
|
Three Months Ended September 30, 2017March 31, 2023 Compared to Three Months Ended September 30, 2016March 31, 2022
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 | | Three months ended March 31, | | | | Percentage change |
| 2017 | | 2016 | | Change | | | 2023 | | 2022 | | Change | |
| (dollars in millions) | | | | | | (dollars in millions) | | | | |
Insurance | $ | 59.6 |
| | $ | 52.8 |
| | $ | 6.8 |
| | 12.9 | % | Insurance | $ | 125.9 | | | $ | 103.3 | | | $ | 22.6 | | | 22.0 | % |
Healthcare | 18.9 |
| | 16.0 |
| | 2.9 |
| | 18.2 | % | Healthcare | 26.7 | | | 26.2 | | | 0.5 | | | 2.1 | % |
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 | )% | |
| | | | | | | | |
Emerging Business | | Emerging Business | 66.2 | | | 50.7 | | | 15.5 | | | 30.4 | % |
Analytics | 53.7 |
| | 41.6 |
| | 12.1 |
| | 29.1 | % | Analytics | 181.8 | | | 149.0 | | | 32.8 | | | 22.0 | % |
Total revenues, net | $ | 192.3 |
| | $ | 171.2 |
| | $ | 21.1 |
| | 12.4 | % | Total revenues, net | $ | 400.6 | | | $ | 329.2 | | | $ | 71.4 | | | 21.7 | % |
Revenues for the three months ended September 30, 2017March 31, 2023 were $192.3$400.6 million, up $21.1$71.4 million, or 12.4%21.7%, compared to the three months ended September 30, 2016.March 31, 2022, driven primarily by revenue growth from our new and existing clients in the Analytics, Emerging Business and Insurance reportable segments.
Revenue growth in Insurance of $6.8$22.6 million was primarily driven by expansion of business from our new and existing clients of $6.4$24.0 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 millionThis 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 $0.2a loss of $1.4 million impact duemainly attributable to the depreciation of the Philippine PesoAustralian dollar, the Indian rupee and the U.K. pound sterling against the U.S. dollar during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016. TT&LMarch 31, 2022. Insurance revenues were 9.6% and 10.2%31.4% of our total revenues induring each of the three months ended September 30, 2017March 31, 2023 and September 30, 2016,2022.
Revenue growth in Healthcare of $0.5 million was primarily driven by expansion of business from our existing clients, partially offset by the ramp-downs during the three months ended March 31, 2023. Healthcare revenues were 6.7% and 7.9% of our total revenues during the three months ended March 31, 2023 and 2022, respectively.
Revenue growth in Finance and Accounting ("F&A")Emerging Business of $1.7$15.5 million was primarily driven by expansion of business from our new clients and existing clients. F&A revenues were 11.3% and 11.6%clients 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$17.3 million. This was partially offset by a net increaseloss of $0.3$1.8 million duemainly attributable to the appreciationdepreciation of the U.K. pound sterling and the Indian rupee against the U.S. dollar during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016. All OtherMarch 31, 2022. Emerging Business revenues were 10.4%16.5% and 13.7%15.4% of our total revenues induring the three months ended September 30, 2017March 31, 2023 and September 30, 2016,2022, respectively.
Revenue growth in Analytics of $12.1$32.8 million was primarily driven by higher volumes in our recurringannuity and project based engagements from our new and existing clients of $11.9$33.8 million. This was partially offset by a loss of $1.0 million including $6.5 million from our IQR Consulting Inc. ("IQR") and Datasource Consulting, LLC ("Datasource") acquisitions in 2016. The increase of $0.2 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, 2017March 31, 2023, compared to the three months ended September 30, 2016.March 31, 2022. Analytics revenues were 27.9%45.4% and 24.3%45.3% of our total revenues induring the three months ended September 30, 2017March 31, 2023 and September 30, 2016,2022, respectively.
Cost of Revenues and Gross Margin: Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.
| | | Cost of Revenues | | Gross Margin | | Cost of Revenues | | Gross Margin |
| Three months ended September 30, | | | | Percentage change | | Three months ended September 30, | | Change | | Three months ended March 31, | | Percentage change | | Three months ended March 31, | |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
| (dollars in millions) | | | | | | | | | | | | (dollars in millions) | | | | | | | | |
Insurance | $ | 39.7 |
| | $ | 37.8 |
| | $ | 1.9 |
| | 5.0 | % | | 33.4 | % | | 28.4 | % | | 5.0 | % | Insurance | $ | 82.3 | | | $ | 65.1 | | | $ | 17.2 | | | 26.5 | % | | 34.6 | % | | 37.0 | % | | (2.4) | % |
Healthcare | 12.0 |
| | 10.9 |
| | 1.1 |
| | 9.9 | % | | 36.6 | % | | 31.8 | % | | 4.8 | % | Healthcare | 18.8 | | | 17.6 | | | 1.2 | | | 6.6 | % | | 29.6 | % | | 32.5 | % | | (2.9) | % |
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 | )% | |
| | | | | | | | | | | | | | |
Emerging Business | | Emerging Business | 36.0 | | | 29.2 | | | 6.8 | | | 23.1 | % | | 45.6 | % | | 42.4 | % | | 3.2 | % |
Analytics | 36.2 |
| | 25.8 |
| | 10.4 |
| | 40.2 | % | | 32.7 | % | | 38.1 | % | | (5.4 | )% | Analytics | 114.4 | | | 95.6 | | | 18.8 | | | 19.7 | % | | 37.1 | % | | 35.9 | % | | 1.2 | % |
Total | $ | 124.9 |
| | $ | 111.8 |
| | $ | 13.1 |
| | 11.7 | % | | 35.1 | % | | 34.7 | % | | 0.4 | % | Total | $ | 251.5 | | | $ | 207.5 | | | $ | 44.0 | | | 21.2 | % | | 37.2 | % | | 37.0 | % | | 0.2 | % |
For the three months ended September 30, 2017,March 31, 2023, cost of revenues was $124.9$251.5 million compared to $111.8$207.5 million for the three months ended September 30, 2016,March 31, 2022, an increase of $13.1$44.0 million, or 11.7%21.2%. Our gross margin for the three months ended September 30, 2017March 31, 2023 was 35.1%37.2% compared to 34.7%37.0% for the three months ended September 30, 2016,March 31, 2022, an increase of 4020 basis points (“bps”). primarily driven by higher revenues and expansion in margin in certain existing clients during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.
The increase in cost of revenues in Insurance of $1.9$17.2 million for the three months ended March 31, 2023 was primarily due to an increaseincreases in employee-related costs of $1.6$16.9 million on account of higher headcount and wage inflation, technology and infrastructurehigher technology costs of $0.6 million. This was$2.9 million on account of increased use of the hybrid and remote working models, partially offset by a decreaseforeign exchange gain, net of hedging of $2.6 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 240 bps during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016. Gross margin increased by 500 bpsMarch 31, 2022, primarily due to lower margins associated with higher costs during ramp-ups in certain existing and new clients during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016, primarily due to higher revenues and margin expansion in existing clients.March 31, 2022.
The increase in cost of revenues in Healthcare of $1.1$1.2 million for the three months ended March 31, 2023 was primarily due to an increaseincreases in employee-related costs of $1.2$1.8 million on account of higher headcount and wage inflation, technology and infrastructure costs of $0.3 million. This was partially offset by $0.4 million due to the depreciationforeign exchange gain, net of the Philippine peso against the U.S. dollarhedging of $0.6 million. Gross margin in Healthcare decreased by 290 bps during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016. Gross margin increasedMarch 31, 2022, primarily due to lower revenues associated with the ramp-down of certain existing clients and higher other operating costs, partially offset by 480 bpsforeign exchange gain, net of hedging during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016, primarily due to higher revenues and operational efficiencies.March 31, 2022.
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&AEmerging Business of $1.3$6.8 million for the three months ended March 31, 2023 was primarily due to an increaseincreases in employee-related costs of $0.6$7.2 million on account of higher headcount and wage inflation, infrastructurehigher technology costs of $0.1$0.8 million on account of increased use of the hybrid and travelremote working models and higher other operating costs of $0.4$0.5 million, partially offset by foreign exchange gain, net of hedging of $1.7 million. There was an increase of $0.3 million due to the appreciation of the Indian rupee against the US dollarGross margin in Emerging Business increased by 320 bps during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016. Gross margin decreased by 100 bpsMarch 31, 2022, primarily due to higher revenues and operational efficiencies during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016 primarily due to migration costs associated with our new client wins and higher reimbursable travel related costs with lower gross margin.March 31, 2022.
The decline in cost of revenues in All Other of $1.1 million was primarily due to a decrease in employee-related costs of $0.6 million on account of lower headcount, partially offset by wage inflation. There was also a decrease in travel related costs of $0.3 million, infrastructure costs and other operating costs aggregating to $0.2 million during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Gross margin decreased by 560 bps during the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily due to lower revenues in our Consulting and Utilities operating segments.
The increase in cost of revenues in Analytics of $10.4$18.8 million for the three months ended March 31, 2023 was primarily due to an increaseincreases in employee-related costs of $9.0$20.9 million (including $5.4 million related to the IQR and Datasource acquisitions in 2016) on account of higher
headcount and wage inflation and an increase in technologyhigher other operating costs of $0.4$0.9 million, infrastructure costs of $0.5 million and travel costs of $0.4 million. This was partially offset by a reductionforeign exchange gain, net of hedging of $3.0 million. Gross margin 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. dollarAnalytics increased by 120 bps during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016. Gross margin decreased by 540 bpsMarch 31, 2022, primarily due to higher revenues during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016, primarily due to higher operating costs and lower gross margin from our 2016 acquisitions.March 31, 2022.
Selling, General and Administrative (“SG&A”) Expenses.
| | | Three months ended September 30, | | | | Percentage change | | Three months ended March 31, | | | | Percentage change |
| 2017 | | 2016 | | Change | | | 2023 | | 2022 | | Change | |
| (dollars in millions) | | | | | | (dollars in millions) | | | | |
General and administrative expenses | $ | 26.9 |
| | $ | 21.9 |
| | $ | 5.0 |
| | 23.0 | % | General and administrative expenses | $ | 46.7 | | | $ | 39.9 | | | $ | 6.8 | | | 17.0 | % |
Selling and marketing expenses | 12.2 |
| | 11.6 |
| | 0.6 |
| | 5.2 | % | Selling and marketing expenses | 29.5 | | | 24.2 | | | 5.3 | | | 22.0 | % |
Selling, general and administrative expenses | $ | 39.1 |
| | $ | 33.5 |
| | $ | 5.6 |
| | 16.8 | % | Selling, general and administrative expenses | $ | 76.2 | | | $ | 64.1 | | | $ | 12.1 | | | 18.9 | % |
As a percentage of revenues | 20.3 | % | | 19.6 | % | |
| | | As a percentage of revenues | 19.0 | % | | 19.5 | % | | | | |
The increase in SG&A expenses of $12.1 million was primarily due to an increase inhigher employee-related costs of $2.2$11.1 million (including $1.6 millionon account of incremental employee-related costs related to our 2016 acquisitions) as a result of annualhigher headcount and wage increments and aninflation, increase in our average headcount to support the increased business volumes. There was an increasetravel costs of $1.8$1.2 million due to recognition of reserve for doubtful account receivables, $0.5 million of infrastructure costs related to our new operating centers and $0.5 million ofhigher other operating expenses. Therecosts of $1.2 million. This was apartially offset by foreign exchange gain, net increase of $0.2hedging of $1.4 million, due to the appreciation of the Indian rupee and depreciation of the Philippine peso against the U.S. dollar during the three months ended September 30, 2017March 31, 2023, compared to the three months ended September 30, 2016.March 31, 2022.
Depreciation and Amortization.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | Percentage change |
| 2023 | | 2022 | | Change | |
| (dollars in millions) | | | | |
Depreciation expense | $ | 9.3 | | | $ | 9.1 | | | $ | 0.2 | | | 2.4 | % |
Intangible amortization expense | 4.2 | | | 4.5 | | | (0.3) | | | (7.5) | % |
Depreciation and amortization expense | $ | 13.5 | | | $ | 13.6 | | | $ | (0.1) | | | (0.8) | % |
As a percentage of revenues | 3.4 | % | | 4.1 | % | | | | |
|
| | | | | | | | | | | | | | |
| 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 | % | | | | |
DepreciationThe increase in depreciation expense of $0.2 million was primarily due to depreciation of $0.6 million related to our investments in digital capabilities, computers and networking equipment, partially offset by foreign exchange gain, net of hedging of $0.4 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease in intangibles amortization expense of $0.3 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to end of useful lives for certain intangible assets.
Income from Operations. Income from operations increased by $1.1$15.4 million, or 12.9%35.2%, from $8.6$44.0 million for the three months ended September 30, 2016March 31, 2022 to $9.7$59.4 million for the three months ended September 30, 2017. The increase in intangibles amortization expense of $0.6 million wasMarch 31, 2023, primarily due to amortizationhigher revenues, partially offset by higher cost of intangibles associated with IQRrevenues and Datasource acquisitions in 2016. There was an increase in our depreciation expense of $0.5 million, due to depreciation related to our new operating centers in India and the Philippines to support our business growth and impact of our 2016 acquisitions.
Income from Operations. Income from operations increased $1.3 million, or 7.5%, from $17.3 million forhigher SG&A expenses during the three months ended September 30, 2016 to $18.6 million for the three months ended September 30, 2017.March 31, 2023. As a percentage of revenues, income from operations decreasedincreased from 10.1%13.4% for the three months ended September 30, 2016March 31, 2022 to 9.7%14.8% for the three months ended September 30, 2017.March 31, 2023.
Foreign Exchange Gain/(Loss). Net foreignGain, net. Foreign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the Philippine peso, the U.K. Poundpound sterling and the Philippine pesoSouth African ZAR during the three months ended September 30, 2017.March 31, 2023, compared to the three months ended March 31, 2022. The average exchange rate of the U.S. dollar against the Indian rupee decreasedincreased from 66.7375.25 during the three months ended September 30, 2016March 31, 2022 to 64.4582.25 during the three months ended September 30, 2017. The average exchange rate of the U.K. Pound sterling against the U.S. dollar remained flat at 1.31 during the three months ended September 30, 2016 and September 30, 2017.March 31, 2023. The average exchange rate of the U.S. dollar against the Philippine peso increased from 47.4051.32 during the three months ended September 30, 2016March 31, 2022 to 50.8254.78 during the three months ended September 30, 2017.March 31, 2023. The average exchange rate of the U.K. pound sterling against the U.S. dollar decreased from 1.33 during the three months ended March 31, 2022 to 1.23 during the three months ended March 31, 2023. The average exchange rate of the U.S. dollar against the South African ZAR increased from 15.15 during the three months ended March 31, 2022 to 17.90 during the three months ended March 31, 2023.
We recorded a net foreign exchange gain, net of $2.8$0.1 million for the three months ended September 30, 2017March 31, 2023 compared to $1.7a foreign exchange gain, net of $1.8 million for the three months ended September 30, 2016.March 31, 2022.
Interest expense. expense. Interest expense increased $0.1 million, from $0.3$0.9 million for the three months ended September 30, 2016March 31, 2022 to $0.4$3.4 million for the three months ended September 30, 2017.March 31, 2023, primarily due to a higher effective interest rate of 5.9% during the three months ended March 31, 2023, compared to 1.3% during the three months ended March 31, 2022, partially offset by a lower average outstanding balance under our revolving credit facility during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.
Other Income, net.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | Percentage change |
| 2023 | | 2022 | | Change | |
| (dollars in millions) | | | | |
| | | | | | | |
Gain on sale and mark-to-market on investments | $ | 1.7 | | | $ | 1.2 | | | $ | 0.5 | | | 33.0 | % |
Interest and dividend income | 1.7 | | | 1.4 | | | 0.3 | | | 25.6 | % |
Others, net | (0.2) | | | (0.2) | | | — | | | — | % |
Other income, net | $ | 3.2 | | | $ | 2.4 | | | $ | 0.8 | | | 30.9 | % |
Other income, net was flat at $2.9increased by $0.8 million, from $2.4 million for the three months ended March 31, 2022 to $3.2 million for the three months ended March 31, 2023. The increase is primarily due to higher return on mutual fund investments of $0.5 million and higher interest income on our short-term and long-term investments of $0.9 million during the three months ended September 30, 2017.March 31, 2023, compared to the three months ended March 31, 2022. This was partially offset by interest on income tax refunds of $0.7 million received during the three months ended March 31, 2022.
Income Tax Expense.Expense. The effective tax rate decreased from 26.0%23.7% during the three months ended September 30, 2016March 31, 2022 to 11.8% as a result of (i) excess tax benefit related to stock awards of $3.5 million pursuant to ASU No. 2016-0913.6% 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 higherMarch 31, 2023. We recorded income tax expense on account of the expiration of a tax holiday for some of the operating centers in India
Net Income. Net income increased from $16.0$8.1 million and $11.2 million for the three months ended September 30, 2016March 31, 2023 and 2022, respectively. The decrease in income tax expense was primarily as a result of higher excess tax benefits related to $21.1stock-based compensation during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, partially offset by an increase in income tax expense on higher profit and an increase in non-deductible expense during the three months ended March 31, 2023.
Net Income. Net income increased from $36.2 million for the three months ended September 30, 2017,March 31, 2022 to $51.3 million for the three months ended March 31, 2023, primarily due to an increase in income from operations of $15.4 million, lower income tax expense of $2.8$3.1 million and higher other income, from operationsnet of $1.3 million, higher foreign exchange gain of $1.1$0.8 million, partially offset by higher interest expense of $0.1$2.5 million and lower foreign exchange gain, net of $1.7 million. As a percentage of revenues, net income increased from 9.4% for11.0% during the three months ended September 30, 2016March 31, 2022 to 11.0% for12.8% during the three months ended September 30, 2017.March 31, 2023.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenues.
The following table summarizes our revenues by reportable segment for the nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2017 | | 2016 | | Change | |
| (dollars in millions) | | | | |
Insurance | $ | 173.8 |
| | $ | 151.7 |
| | $ | 22.1 |
| | 14.6 | % |
Healthcare | 56.7 |
| | 49.8 |
| | 6.9 |
| | 13.9 | % |
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 | )% |
| | | | | | | |
Analytics | 154.3 |
| | 120.2 |
| | 34.1 |
| | 28.4 | % |
Total revenues, net | $ | 564.4 |
| | $ | 508.7 |
| | $ | 55.7 |
| | 11.0 | % |
Revenues for the nine months ended September 30, 2017 were $564.4 million, up $55.7 million or 11.0% compared to the nine months ended September 30, 2016.
Revenue growth in Insurance of $22.1 million was driven by expansion of business from our new and existing clients of $21.1 million, including incremental $2.6 million related to the July 2016 acquisition of Liss Systems Limited ("Liss"). The remaining increase of $1.0 million is attributable to a net impact of appreciation of the South African Rand and Indian rupee and 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. Insurance revenues were 30.8% and 29.8% 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, 2017 and September 30, 2016, 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.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Cost of Revenues | | Gross Margin |
| Nine months ended September 30, | | | | Percentage change | | Nine months ended September 30, | | Change |
| 2017 | | 2016 | | Change | | | 2017 | | 2016 | |
| (dollars in millions) | | | | | | | | | | |
Insurance | $ | 119.0 |
| | $ | 108.5 |
| | $ | 10.5 |
| | 9.7 | % | | 31.5 | % | | 28.5 | % | | 3.0 | % |
Healthcare | 36.4 |
| | 32.5 |
| | 3.9 |
| | 12.2 | % | | 35.8 | % | | 34.8 | % | | 1.0 | % |
TT&L | 30.8 |
| | 31.9 |
| | (1.1 | ) | | (3.4 | )% | | 42.2 | % | | 39.4 | % | | 2.8 | % |
F & A | 39.2 |
| | 35.4 |
| | 3.8 |
| | 10.7 | % | | 38.5 | % | | 40.0 | % | | (1.5 | )% |
All Other | 42.8 |
| | 47.8 |
| | (5.0 | ) | | (10.6 | )% | | 31.6 | % | | 36.6 | % | | (5.0 | )% |
| | | | | | | | | | | | | |
Analytics | 102.3 |
| | 76.1 |
| | 26.2 |
| | 34.4 | % | | 33.7 | % | | 36.7 | % | | (3.0 | )% |
Total | $ | 370.5 |
| | $ | 332.2 |
| | $ | 38.3 |
| | 11.5 | % | | 34.4 | % | | 34.7 | % | | (0.3 | )% |
For the nine months ended September 30, 2017, cost of revenues was $370.5 million compared to $332.2 million for the nine months ended September 30, 2016, an increase of $38.3 million, or 11.5%. Our gross margin for the nine months ended September 30, 2017 was 34.4% compared to 34.7% for the nine months ended September 30, 2016, a decrease of 30 basis points (bps).
The increase in cost of revenues in Insurance of $10.5 million was primarily due to an increase in employee-related costs of $8.2 million (including $1.3 million from our Liss acquisition) on account of higher headcount and wage inflation, and technology and infrastructure costs of $2.8 million. This was partially offset by a decrease in travel related costs of $0.6 million and other operating costs of $0.7 million. There was a net increase of $0.7 million due to the appreciation of the Indian rupee and depreciation of the Philippine peso against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Gross margin increased by 300 bps during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to higher revenues and lower operating costs.
The increase in cost of revenues in Healthcare of $3.9 million was primarily due to an increase in employee-related costs of $3.9 million on account of higher headcount and wage inflation, technology costs of $0.6 million and infrastructure costs of $0.4 million. This was partially offset by a decrease of $1.0 million due to the depreciation of the Philippine peso against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Gross margin increased by 100 bps during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to higher revenues and operational efficiencies.
The decrease in cost of revenues in TT&L of $1.1 million was primarily due to decrease in infrastructure cost of $0.3 million, other operating costs of $0.2 million and employee-related costs of $0.1 million on account of lower headcount (partially offset by wage inflation).The cost of revenue also decreased due to depreciation of the Philippine peso against the U.S. dollar of $0.3 million during the nine months ended September 30, 2017 compared to the nine months ended September
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 million was primarily due to an increase in employee-related costs of $24.8 million (including incremental $15.1 million related to our IQR and Datasource acquisitions in 2016) on account of higher headcount and wage inflation, an increase in technology costs of $0.9 million, infrastructure costs of $0.9 million and travel costs of $0.3 million. This was partially offset by reduction 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. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Gross margin decreased by 300 bps during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to higher employee costs and lower gross margin from our 2016 acquisitions.
Selling, General and Administrative (“SG&A”) Expenses.
|
| | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2017 | | 2016 | | Change | |
| (dollars in millions) | | | | |
General and administrative expenses | $ | 75.8 |
| | $ | 63.6 |
| | $ | 12.2 |
| | 19.2 | % |
Selling and marketing expenses | 38.7 |
| | 37.9 |
| | 0.8 |
| | 2.2 | % |
Selling, general and administrative expenses | $ | 114.5 |
| | $ | 101.5 |
| | $ | 13.0 |
| | 12.8 | % |
As a percentage of revenues | 20.3 | % | | 20.0 | % | | | | |
The increase in SG&A expenses was primarily due to an increase in employee-related costs of $8.2 million (including $4.1 million of incremental employee-related costs related to our 2016 acquisitions) as a result of annual wage increments and an increase in our average headcount to support the increased business volumes. There was an increase of $2.7 million due to recognition of reserve for doubtful account receivables and infrastructure costs of $1.5 million related to our new operating centers. There was a net increase of $0.7 million due to the appreciation of the Indian rupee and depreciation of the Philippine peso against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.
Depreciation and Amortization.
|
| | | | | | | | | | | | | | |
| 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 intangible amortization expense of $2.2 million was primarily due to amortization of intangibles associated with our 2016 acquisitions. Further, there was an increase in our depreciation expense of $1.6 million related to our new operating centers in India and the Philippines and to support our business growth and depreciation expense associated with our 2016 acquisitions.
Income from Operations. Income from operations increased by $0.6 million, or 1.3%, from $50.0 million for the nine months ended September 30, 2016 to $50.6 million for the nine months ended September 30, 2017. As a percentage of revenues, income from operations decreased from 9.8% for the nine months ended September 30, 2016 to 9.0% for the nine months ended September 30, 2017.
Foreign Exchange Gain/(Loss). Net foreign exchange gains and losses are primarily attributable to movement of the U.S. dollar against the Indian rupee, the U.K. Pound sterling and the Philippine peso during the nine months ended September 30, 2017. The average exchange rate of the U.S. dollar against the Indian rupee decreased from 67.10 during the nine months ended September 30, 2016 to 65.12 during the nine months ended September 30, 2017. The average exchange rate of the U.K. Pound sterling against the U.S. dollar decreased from 1.38 during the nine months ended September 30, 2016 to 1.28 during the nine months ended September 30, 2017. The average exchange rate of the U.S. dollar against the Philippine peso increased from 47.13 during the nine months ended September 30, 2016 to 50.31 during the nine months ended September 30, 2017.
We recorded a net foreign exchange gain of $7.3 million for the nine months ended September 30, 2017 compared to $3.6 million for the nine months ended September 30, 2016.
Interest expense. Interest expense increased by $0.4 million from $1.0 million for the nine months ended September 30, 2016 to $1.4 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 was primarily due to higher cash balances in certain of our foreign subsidiaries and higher gain on sale of investment during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. We also recorded other income of $4.1 million during the nine months ended September 30, 2016 due to the reversal of earn-out liability related to our RPM acquisition in 2015.
Income Tax Expense. The effective tax rate decreased from 28.6% during the nine months ended September 30, 2016 to 11.0% as a result of (i) excess tax benefit related to stock awards of $7.2 million pursuant to ASU No. 2016-09 during the nine months ended September 30, 2017, (ii) conclusion of an uncertain tax position of $3.2 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 higher 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 million for the nine months ended September 30, 2016 to $58.2 million for the nine months ended September 30, 2017, primarily due to lower income tax expense of $11.3 million, higher foreign exchange gain of $3.7 million, higher income from operations of $0.6 million partially offset by lower other income of $3.3 million and higher interest expense of $0.4 million.
As a percentage of revenues, net income increased from 9.1% for the nine months ended September 30, 2016 to 10.3% for the nine months ended September 30, 2017.
Liquidity and Capital Resources
|
| | | | | | | |
| 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 |
|
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
| (dollars in millions) |
Opening cash, cash equivalents and restricted cash | $ | 125.6 | | | $ | 143.8 | |
Net cash provided by/(used for) operating activities | 16.0 | | | (26.9) | |
Net cash provided by/(used for) investing activities | 43.3 | | | (4.7) | |
Net cash (used for)/provided by financing activities | (91.3) | | | 3.6 | |
Effect of exchange rate changes | 1.4 | | | (0.8) | |
Closing cash, cash equivalents and restricted cash | $ | 95.0 | | | $ | 115.0 | |
As of September 30, 2017March 31, 2023 and December 31, 2016,2022, we had $249.4$203.8 million and $226.6$269.9 million, respectively, in cash, cash equivalents and short-term investments, (including $205.1of which $177.5 million and $170.1$233.3 million, respectively, held byis located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes. We periodically evaluate opportunities to distribute cash among our group entities to fund our operations, expand our business and make strategic acquisitions 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). Wejurisdictions. During the three months ended March 31, 2023, our subsidiaries in India, U.K. and Australia repatriated $76.0 million (net of $4.0 million withholding taxes), $15.6 million and $9.1 million, respectively, to the United States. These distributions do not intend to repatriate funds held byconstitute a change in 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.permanent reinvestment assertion.
Operating Activities: Cash flows from
Net cash provided by operating activities increased by $16.2was $16.0 million from $56.0 million forduring the ninethree months ended September 30, 2016March 31, 2023 compared to $72.2net cash used for operating activities of $26.9 million forduring the ninethree months ended September 30, 2017.March 31, 2022, reflecting higher cash earnings and efficiencies in management of working capital. The major drivers contributing to the increase of $42.9 million year-over-year included the following:
•Increase in cash flows from operationsearnings including adjustments for non-cash and other items contributed higher cash flow of $22.8 million during the ninethree months ended September 30, 2017March 31, 2023 compared to the ninethree months ended September 30, 2016 was dueMarch 31, 2022. These adjustments comprise of deferred tax effects, depreciation and amortization of long-lived assets and intangibles acquired in business combinations, share-based employee compensation, unrealized foreign currency exchange gain/(loss), unrealized gain/(loss) on investments, among others.
•Changes in accounts receivable, including unbilled receivable and deferred revenue, contributed to an increase in net income by $12.0 million, increase in non-cash adjustmenta higher cash flow of $3.9 million and decrease in working capital of $0.3 million from $25.2$13.5 million during the ninethree months ended September 30, 2016March 31, 2023 compared to $24.9 million during the ninethree months ended September 30, 2017.March 31, 2022. Changes in accounts receivable was driven by revenue growth. Days sales outstanding was 65 days as of March 31, 2023 compared to 64 days as of March 31, 2022.
Investing Activities: Cash flows used for investing activities increased•Decrease in employee-related and other payments, partially offset 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 dueother current assets contributed to an increase in capital expendituresa higher cash flow of $6.4 million during the ninethree months ended September 30, 2017March 31, 2023 compared to the ninethree months ended September 30, 2016. ThisMarch 31, 2022.
Investing Activities: Cash provided by investing activities were $43.3 million for the three months ended March 31, 2023 as compared to cash used for investing activities of $4.7 million for the three months ended March 31, 2022. The increase of $48.0 million was partially offset by amountprimarily due to higher net redemption of investments of $55.3 million during the three months ended March 31, 2023 as compared to net redemption of investments of $12.7 million during the three months ended March 31, 2022, lower cash paid for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $4.1 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022, and payment of a portion of purchase consideration for our business acquisition of $9.4$1.4 million, during the ninethree 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.March 31, 2022.
Financing Activities: Cash flows used for financing activities was $28.2were $91.3 million during the ninethree months ended September 30, 2017March 31, 2023 as compared to $34.2cash provided by financing activities of $3.6 million during the ninethree months ended September 30, 2016.March 31, 2022. The decrease in cash flow used for financing activities between periods isof $94.9 million was primarily due to net repayment of borrowings of $25.0$50.0 million under the Credit Agreement (as described below in “Financing Arrangements”)our revolving credit facility during the ninethree months ended September 30, 2016. This was partially offset byMarch 31, 2023 as compared to net proceeds of $35.0 million during the three months ended March 31, 2022 and higher purchases of treasury stock of $17.2$11.0 million and lower proceeds from exercise of stock options of $2.0 millionunder our share repurchase program during the ninethree months ended September 30, 2017March 31, 2023 as compared to the ninethree months ended September 30, 2016.March 31, 2022.
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 building new facilitiesdigital capabilities and capital expenditures associated with leasehold improvements to build our facilities and the purchase of telecommunications equipment and computer hardware and software in connection with managing client operations.
We incurred $26.8$12.5 million of capital expenditures induring the ninethree months ended September 30, 2017.March 31, 2023. We expect to incur total capital expenditures of between $30.0$47.0 million to $35.0$52.0 million in 2017,2023, primarily to meet our growth requirements, including additions to our facilities as well as investments in technology applications, product development, digital technology, advanced automation, robotics and infrastructure, but the actual amount may vary based on economic conditions or other factors.infrastructure.
In connection with any tax assessment orders that have been issued, or may be issued against us or our subsidiaries, we may be required to deposit additional amounts with the relevant authorities 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 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. We anticipate that we will continue to rely upon cash from operating activities to finance most of our smaller acquisitions, capital expenditures and working capital needs. Ifabove mentioned requirements, although if we have significant growth through acquisitions, we may need to obtain additional financing.
Financing Arrangements (Debt Facility)
Our Credit Agreement provides for revolvingfederally insured limits, however these deposits are diversified with no significant concentration with a particular financial institution. While we have not experienced any losses while operating with such financial institutions, the recent failure of Silicon Valley Bank and Signature Bank may expose us in general to credit facility (the “Credit Facility”), including a letter of credit sub-facility,risk in the amountevent of $100.0 million. The Credit Facility has a maturity date of October 24, 2019any potential default by the financial institutions holding our cash and is voluntarily pre-payable from timecash equivalents to time without premium or penalty. As of September 30, 2017, we had outstanding indebtedness of $45.0 million which is included under “long term borrowings”the extent recorded in the unaudited consolidated balance sheets.
In the ordinary course of 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, underNote 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 Credit Facility may be used for working capital and general corporate purposesordinary course 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 letterbusiness, we provide standby letters 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
to third parties primarily for facility leases. As of September 30, 2017March 31, 2023 and December 31, 2016,2022, we had outstanding letters of credit of $0.5 million, each, that were not recognized in our consolidated balance sheets. These are unlikely 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.
Contractual ObligationsFinancing Arrangements (Debt Facility)
The following table sets forthsummarizes our contractual obligationsdebt position:
| | | | | | | | | | | | | | |
| | |
| | As of March 31, 2023 | | As of December 31, 2022 |
| | (dollars in millions) |
| | Revolving credit facility |
Current portion of long-term borrowings | | $ | 40.0 | | | $ | 30.0 | |
| | | | |
Long-term borrowings | | 160.0 | | | 220.0 | |
Total borrowings | | $ | 200.0 | | | $ | 250.0 | |
Unamortized debt issuance costs for our revolving credit facility of $1.1 million and $1.2 million as of September 30, 2017:March 31, 2023 and December 31, 2022, respectively, are 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—“2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements”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,March 31, 2023, 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, 2016.2022.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintainThe Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we filethe Company files or submitsubmits 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 ourthe Company’s 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, ourthe Company’s management carried out an evaluation, under the supervision and with the participation of the CEO and CFO, of the effectiveness and operation of ourthe Company’s disclosure controls and procedures as of September 30, 2017.March 31, 2023. Based upon that evaluation, the CEO and CFO have concluded that as of September 30, 2017, ourthe Company’s disclosure controls and procedures, as of March 31, 2023, were effective.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2017,March 31, 2023, 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.
PART II. Other InformationOTHER 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 2125 - Commitments and Contingencies to theour unaudited consolidated financial statements contained herein for details regarding our tax proceedings.
ITEM 1A. Risk Factors
We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162022, 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, 2016those 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.
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,March 31, 2023, purchases of common stock were as follows:
|
| | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(1) |
July 1, 2017 through July 31, 2017 | | — |
| | — |
| | — |
| | 19,684,088 |
|
August 1, 2017 through August 31, 2017 | | 107,633 |
| | 56.12 |
| | 107,633 |
| | 13,643,362 |
|
September 1, 2017 through September 30, 2017 | | 52,400 |
| | 56.55 |
| | 52,400 |
| | 10,680,041 |
|
Total | | 160,033 |
| | 56.26 |
| | 160,033 |
| | — |
|
45
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid per share(1) | | 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 |
January 1, 2023 through January 31, 2023 | | 72,440 | | | $ | 170.20 | | | 50,056 | | | $ | 222,955,003 | |
February 1, 2023 through February 28, 2023 | | 53,099 | | | 170.75 | | | 37,941 | | | $ | 216,479,165 | |
March 1, 2023 through March 31, 2023 | | 133,842 | | | 156.65 | | | 133,028 | | | $ | 195,645,267 | |
Total | | 259,381 | | | $ | 163.32 | | | 221,025 | | | — | |
(1) Includes 38,356 shares of our common stock acquired by us at the price of $170.23 in connection with satisfaction of tax withholding obligations on vested restricted stock. The price paid per share for the restricted stock was the closing price of common stock on the trading day prior to the vesting date of the restricted stock units.
On February 28, 2017, the Company’s BoardOctober 5, 2021, our board of Directorsdirectors 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 Companyus from time to time from the open market and through private transactions, during each ofor otherwise, as determined by our management as market conditions warrant. We have structured open market purchases under the fiscal years 2017 through 2019 up2022 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.
INDEX TO EXHIBITS
ITEMItem 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.
|
| | | |
Date: October 26, 2017 | EXLSERVICE HOLDINGS, INC. |
| | | |
| By: | | /S/ VISHAL CHHIBBAR
|
| | | Vishal Chhibbar
Chief Financial Officer
(Duly Authorized Signatory, Principal Financial and Accounting Officer)
|
EXHIBIT INDEX
The following exhibits are being filed as part of this Quarterly Report on Form 10-Q:
report or incorporated by reference as indicated therein: |
| | | | | | | |
3.1 | | |
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3.1 | | |
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3.2 | | |
| |
3.3 | | |
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10.110.1+ | | |
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31.110.2+ | | |
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10.3+ | | |
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10.4+ | | |
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10.5+ | | |
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31.1 | | |
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31.2 | | |
| | |
32.1 | | |
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32.2 | | |
| | |
101.INS | | Inline XBRL Instance DocumentDocument* |
| | |
101.SCH | | Inline XBRL Taxonomy Extension SchemeSchema* |
| | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation LinkbaseLinkbase* |
| | |
101.DEF | | Inline XBRL Taxonomy Extension Definition LinkbaseLinkbase* |
| | |
101.LAB | | Inline XBRL Taxonomy Extension Label LinkbaseLinkbase* |
| | |
101.PRE | | Inline XBRL Extension Presentation LinkbaseLinkbase* |
| | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
*This exhibit will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
+Indicates management contract or compensatory plan required to be filed as an Exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
Date: April 27, 2023 | EXLSERVICE HOLDINGS, INC. |
| | | |
| By: | | /S/ MAURIZIO NICOLELLI |
| | | MAURIZIO NICOLELLI Chief Financial Officer (Duly Authorized Signatory, Principal Financial and Accounting Officer) |