UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2023



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

FOR THE TRANSITION PERIOD FROMTO

COMMISSION FILE NUMBER 001-33089

EXLSERVICE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



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

~~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

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

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

~~Smaller reporting company~~

Emerging growth company

¨☐

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

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

As of ~~October 24, 2017,~~April 25, 2023, there were ~~33,942,974~~33,246,709 shares of the registrant’s common stock outstanding, par value $0.001 per share.

Table of Contents

TABLE OF CONTENTS



		PAGE
ITEM
	Part I. Financial Information	1

1.	FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1
	Consolidated Statements of Income for the Three Months Ended March 3 1 , 202 3 and 202 2	3
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022	4
	Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	6
	Notes to Consolidated Financial Statements	7

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

3.	Quantitative and Qualitative Disclosures About Market Risk	45

4.	Controls and Procedures	45

	Part II. Other Information	45

1.	Legal Proceedings	45

1A.	Risk Factors	45

2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

3.	Defaults Upon Senior Securities	46

4.	Mine Safety Disclosures	46

5.	Other Information	46

6.	Exhibits	47

Signatures		48

PAGE
ITEM

Part I. Financial Information
3

1.
FINANCIAL STATEMENTS

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

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

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

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

Notes to Consolidated Financial Statements (Unaudited)
7

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

3.
Quantitative and Qualitative Disclosures About Market Risk
42

4.
Controls and Procedures
42

Part II. Other Information
42

1.
Legal Proceedings
42

1A.
Risk Factors
42

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

3.
Defaults Upon Senior Securities
43

4.
Mine Safety Disclosures
43

5.
Other Information
43

6.
Exhibits
43

Signatures
44

Table of Contents

PART 1.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.~~

~~Table of Contents~~

~~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

Table of Contents

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

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


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


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.

Table of Contents

EXLSERVICE HOLDINGS, INC.

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

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

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

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

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


	Three months ended 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.

Table of Contents

EXLSERVICE HOLDINGS, INC.

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

(In thousands)

Nine months ended September 30,

2017 2016
Cash flows from operating activities:

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

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

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

Cash flows from investing activities:

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

Cash flows from financing activities:

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


	Three months ended 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.

Table of Contents

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


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

	Shares	Amount								Shares	Amount








Balance as of January 1, 2022	39,508,340	$	40	$	395,742	$	756,137	$	(89,474)	(6,216,858)	$	(369,289)	$	693,156

Stock issued against stock-based compensation plans	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.

Table of Contents

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.

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2017~~March 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”), ~~operates~~is a leading data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth. By bringing together deep domain expertise with robust data, powerful analytics, cloud, artificial intelligence and machine learning, the Company creates agile, scalable solutions and executes complex operations for the world’s leading corporations in ~~the Business Process Management (“BPM”) industry providing operations management~~industries including insurance, healthcare, banking and financial services, media, and retail, among others. The Company’s data-led value creation framework enables better and faster decision making, leveraging its end-to-end data and analytics ~~services that help~~capabilities to drive improved business outcomes, and re-designing of operating models to integrate advanced technology into operational workflows. The Company embeds digital operations and solutions into clients’ businesses ~~enhance growth~~ and ~~profitability. Using~~introduces its ~~proprietary platforms, methodologies and tools, the Company looks deeper~~data 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 ~~accordance~~conformity with United States generally accepted accounting principles (“USU.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by USU.S. GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~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 intercompany~~The standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, ~~have been~~and gains and losses arising from intra-group transactions, are eliminated 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 parent~~affiliates 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 consists~~any excess purchase consideration paid over proportionate share of the ~~amount~~fair value of ~~such interest~~the net assets of the investee at the acquisition date ~~of obtaining control over the subsidiary, and the non-controlling interest's~~is recognized as goodwill. The proportionate share of ~~changes in equity since that date. The non-controlling interest in~~net income or loss of the ~~operations for all the periods presented were insignificant and are included under general and administrative expenses~~investee 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.

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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)

(b)Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with USU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, ~~allowance~~estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and the discount rate applied within the discounted cash flow model for ~~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-term~~long-lived assets, ~~including~~ goodwill and ~~intangibles, and estimates to complete fixed price contracts.~~intangibles.

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 ~~Standards~~Standard Board ~~("FASB"~~(“FASB”) issued Accounting ~~Standards~~Standard Update ~~("ASU"~~(“ASU”) ~~2014-09, “Revenue from Contracts with Customers”~~No. 2023-01, Leases (“ASC Topic 842”): Common Control Arrangements. This ~~standard update along~~ASU provides guidance in ASC Topic 842 that leasehold improvements associated with ~~subsequently issued updates, clarifies~~common 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"). Adoption~~useful life of the ~~new rules could impact~~leasehold 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 impact~~common 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 revenue~~long 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 require~~underlying asset through a lease, and (ii) accounted for as a transfer between entities under common control through an adjustment to ~~all comparative periods presented in~~equity if and when the ~~consolidated financial statements.~~lessee no longer controls the use of the underlying asset. The ~~new guidance~~ASU is effective for fiscal years beginning after December 15, ~~2018, including~~2023. 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 have~~ASU 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, which~~No. 2021-08, Business Combinations (“ASC Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU provides guidance in ASC Topic 805 to require the acquirer entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contract with Customers, as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial ~~asset (or a group of~~statements, 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 ~~periods~~period, 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 eight~~manages 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 strategic~~decisions. These business units ~~that align its products~~develop client-specific solutions, build capabilities, maintain a unified go-to-market approach and ~~services with how it manages its business, approaches its key markets~~are 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.

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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)

The Company does not allocate, and therefore the CODM does not evaluate, ~~other~~certain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages these assets on a total Company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented.

Revenues and cost of revenues for the three months ended ~~September 30, 2017~~March 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 Company~~net 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 services~~solutions include revenues of the ~~Company's five industry-focused operating segments, one capability operating segment~~Company’s Insurance, Healthcare and ~~consulting operating segment, which provides services related~~Emerging Business reportable segments. Refer to ~~operations management services. See~~the 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.

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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)


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


	As of
	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

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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)

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, restricted~~Common stock ~~and restricted stock units~~equivalents that are anti-dilutive are excluded from the computation of weighted average shares outstanding.

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


	Three months ended 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, 2017~~March 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 and~~costs incurred on internally ~~generated~~developed 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, 2017~~March 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 balance~~performance 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 is~~expense 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 relationships~~Developed technology		~~5.15~~1.4
~~Leasehold benefits~~		~~1.67~~
~~Developed technologies~~	~~3.77~~
~~Non-compete agreements~~	~~1.93~~
Trade names and trademarks ~~(Finite~~(finite lived)	~~5.23~~1.3
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, 2017~~March 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 assets~~Current Assets

Other current assets ~~consists~~consist 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

13. Accrued ~~expenses~~Expenses and ~~other current liabilities~~Other Current Liabilities

Accrued expenses and other current liabilities ~~consists~~consist 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 consists~~Table 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, 2017~~March 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 ~~Loss~~Income/(Loss)

Accumulated other comprehensive ~~loss~~income/(loss) (“AOCI”) consists of ~~amortization of~~ actuarial ~~gain /~~ gain/(loss) on retirement benefits and ~~changes in the cumulative~~ foreign currency translation adjustments. In addition, the Company enters into foreign currency ~~exchange~~forward contracts and interest rate swaps, which are designated as cash flow hedges and net investment hedges, as applicable, in accordance with ASC ~~topic~~Topic 815, “Derivatives and ~~Hedging” (“ASC No. 815”)~~Hedging. ~~Changes~~Cumulative changes in the fair values of ~~contracts that~~cash flow hedges are ~~deemed effective~~recognized in AOCI on the Company’s consolidated balance sheets. The fair value changes are ~~recorded as a component~~reclassified from AOCI to unaudited consolidated statements of ~~accumulated other comprehensive loss until the~~income 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 as~~following 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, 2017~~Contents

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:~~

share count)

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 for~~recognized 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 investments~~money 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, 2017~~March 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. ~~See~~Refer to Note 1317 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements ~~contained herein~~ for further ~~details~~details.

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 ~~Derivatives~~the 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 to~~cash flow volatility from risk of fluctuations in foreign currency ~~fluctuation~~exchange rates and interest rates. The Company enters into foreign currency forward contracts to hedge cash flow risks ~~associated with~~from forecasted transactions denominated in certain foreign currencies, and interest rate swaps to ~~minimize earnings and~~hedge cash flow ~~volatility associated with changes in foreign currency exchange rates. The Company’s derivative financial instruments are largely foreign exchange forward~~risks 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. The~~Topic 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 as~~March 31, 2023, could be reclassified into earnings within the next twelve months. As of ~~December~~March 31, ~~2016. The fair value~~2023, the maximum outstanding term of ~~these~~the 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 ~~derivatives~~foreign 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 ~~derivatives~~financial 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, 2017~~March 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 ~~exchange~~forward contracts and interest rate swaps on AOCI and the unaudited consolidated statements of income:


	Three months ended March 31,
Derivative financial instruments:	2023		2022
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 three~~derivatives in cash flow hedging relationships and ~~nine months ended September 30, 2017~~derivatives 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:~~

share count)

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 a~~following 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”), ~~including~~dated 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, 2019~~sub facility and is voluntarily pre-payable from time to time without premium or penalty.

Borrowings under the 2022 Credit ~~Facility may~~Agreement can be used for working capital and general corporate purposes, ~~and for~~including 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. The~~2022 Credit Facility carried an effective interest rate of 2.9% per annum and 2.2% per annum, during the three months ended September 30, 2017 and 2016, respectively, and for the nine months ended September 30, 2017 and 2016 it was 2.7% per annum and 2.0% per annum, respectively.

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

~~The Credit Facility is~~ guaranteed by the ~~Company's~~Company’s material domestic subsidiaries and ~~material foreign subsidiaries and is~~are secured by all or substantially all of the ~~assets of the Company~~Company’s and its material domestic ~~subsidiaries.~~subsidiaries’ assets. The 2022 Credit Agreement ~~governing the Credit Facility~~ contains ~~certain~~customary affirmative and negative covenants, including, ~~a restriction on our indebtedness, and a covenant~~but 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 day~~ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of ~~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 ~~the~~all 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, 2017~~March 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, the~~The Company ~~did not acquire any~~purchased 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, 2017~~stock 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 of~~performance-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, was~~is based on the ~~average of the high and low~~closing 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 ~~Board~~board of ~~Directors~~directors 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 “2017~~2022 Repurchase ~~Program”), under which~~Program, shares may be purchased by the Company from time to time from the open market and through private transactions, ~~during each of~~or otherwise, as determined by the ~~fiscal years 2017 through 2019 up to an aggregate additional amount of $100,000. The approval increases~~Company’s management as market conditions warrant. Repurchases may be discontinued at any time by the ~~2017 authorization from $20,000 to $40,000 and authorizes stock repurchases of up to $40,000 in each of 2018 and 2019.~~management.

~~During the three and nine months ended September 30, 2017, the~~

The Company purchased ~~160,033 and 584,017~~ shares of its common stock, ~~respectively,~~ for ~~an aggregate purchase price of approximately $9,004 and $29,320, respectively,~~a total consideration including commissions, ~~representing an average purchase price per share of $56.26 and $50.20, respectively,~~ under the ~~2014 and 2017~~2022 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 ~~Board~~Company’s board of ~~Directors~~directors designates that these shares be retired or used for other purposes.

~~16.~~20. Employee Benefit Plans

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

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

~~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 ~~Gratuity~~India Plan ~~in India~~ is partially funded ~~and~~whereas the Philippines ~~plan~~Plan is unfunded. The Company makes annual contributions to the ~~employees' gratuity fund~~India Plan established with ~~Life Insurance Corporation of India~~insurance companies. Fund managers manage these funds and ~~HDFC Standard Life Insurance Company. They~~ calculate the annual contribution required to be made by the Company and manage the ~~Gratuity Plans,~~India Plan, including any required payouts. ~~Fund managers manage these~~These funds are managed on a cash accumulation basis and ~~declare~~ interest is declared retrospectively on March 31 of each year. The Company ~~earned~~expects to earn a return of approximately ~~8.0%~~7.2% per annum on ~~these Gratuity Plans~~the 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 $554~~Plans were ~~made during the three months ended September 30, 2017 and 2016, respectively, and $2,051 and $1,945 during the nine months ended September 30, 2017 and 2016, respectively.~~as follows:

During the three months ended September 30, 2017 and 2016, the Company contributed $1,845 and $1,608, respectively, and during the nine months ended September 30, 2017 and 2016, the Company contributed $5,350 and $4,619, respectively,


	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 minimum~~do 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, 2017~~March 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.

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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)

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, 2016~~March 31, 2022 to ~~11.8% as a result of (i) excess tax benefit related to stock awards of $3,488 pursuant to ASU No. 2016-09~~13.6% 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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. The ~~effective~~decrease 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 ~~benefit~~benefits related to ~~stock awards of $7,169 pursuant to ASU No. 2016-09~~stock-based compensation during the ~~nine~~three months ended ~~September 30, 2017, (ii) conclusion of an uncertain tax position of $3,153 (including interest of $1,433), (iii) higher earnings from foreign subsidiaries and lower domestic profit in~~March 31, 2023, compared to the ~~U.S.,~~three months ended March 31, 2022, partially offset by ~~higher~~an increase in income tax expense on ~~account of~~higher 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, 2017~~March 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 included~~United States. These distributions do not constitute a change in the Company’s permanent reinvestment assertion.

Deferred income ~~tax expense~~taxes 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

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

Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~September 30, 2017~~March 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

~~Stock~~During 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. The~~each 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 during~~established 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 during~~SMP, 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, 2017~~March 31, 2023 and ~~2016. The total grant date fair value of options vested during the nine months ended September 30, 2017 and 2016 was~~2022, 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 ~~stock~~stock-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, 2017~~March 31, 2023 and December 31, ~~2016~~2022 restricted stock units vested for which the underlying common stock is yet to be issued are ~~146,112~~119,908 and ~~135,054,~~174,490 respectively.

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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)

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 ~~2.66~~2.9 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.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~September 30, 2017~~March 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 Asset~~Capital Commitments

~~At September 30, 2017,~~As of March 31, 2023, the Company ~~has~~had 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 management~~Company believes, however, that these units have in the past satisfied, and will continue to satisfy, the required conditions.

The Company’s operations centers in the Philippines are registered ~~with the Philippine~~as qualified Philippines Economic Zone Authority ~~(“PEZA”). The registration~~units, 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 ~~performance~~requirements to retain the incentives. The Company has complied, and ~~investment criteria. The Company’s management believes that these centers have in~~intends to continue compliance, with the ~~past satisfied and will continue~~requirements to ~~satisfy~~avail itself of the ~~required criteria.~~incentives.

Contingencies

~~U.S. and Indian~~The transfer pricing regulations in the countries in which the Company operates require that ~~any international transaction involving associated enterprises~~controlled intercompany transactions be at ~~an arm’s-length price.~~arm’s-length. Accordingly, the Company determines ~~the appropriate~~and documents pricing for ~~the international~~controlled intercompany transactions ~~among its associated enterprises~~based on ~~the basis of a detailed functional and~~an 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 that~~Company’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 increased~~could 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 ~~over~~raised aggregate VAT tax demands for tax years 2015 and 2017, in the ~~application~~amounts 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

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~September 30, 2017~~March 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 tax~~attorney’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 it~~damages 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 to~~continuously monitor developments on these matters ~~in its consolidated~~to assess potential impacts to the financial statements.

The ~~Company does not expect any impact from these assessments on its future income tax expense. It~~outcomes of legal actions are unpredictable and subject to significant uncertainties, and thus it is ~~possible that~~inherently 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 subsidiary~~likelihood of the Company ~~entered into~~incurring a ~~definitive purchase agreement~~material loss or quantification of any such loss. With respect to ~~acquire substantially all~~pending litigation matters as of the ~~assets~~reporting 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 is~~aggregate, 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 ~~behalf~~the 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 expected~~Company will continuously monitor these matters to ~~close in the first quarter of 2018, subject~~assess potential impacts to the ~~fulfillment of certain closing conditions, including regulatory and other consents.~~financial statements.

Table of Contents

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 in~~withstand 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;

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•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 ~~withstand~~service debt or obtain additional financing on favorable terms. Inception of interest rate swaps to hedge interest rate risk;

•negative public reaction in the ~~loss~~U.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 repatriation~~the 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 client~~meet 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 up~~may 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.

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Executive Overview

We ~~operate~~are 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”) industry~~industries including insurance, healthcare, banking and ~~we provide~~financial 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 deeper~~solutions 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 operating~~reportable segments are ~~strategic business units that align our products~~as 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 ~~include~~includes highly trained industry and process specialists across the United States, Latin America, South Africa, Europe and Asia (primarily India and the Philippines), is a key asset. We have operations centers in India, the ~~U.S.,~~United States, the United Kingdom, the Republic of Ireland, the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.

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Revenues

For the three months ended ~~September 30, 2017,~~March 31, 2023, we ~~had~~generated 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, 2017~~March 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, 2017~~March 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. ~~For~~Although 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 from~~loss of any of our top ten clients ~~accounted for 38.7% and 40.6% of~~could 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.

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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 the~~and 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 ~~Finance~~the 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 client~~these functions on an ongoing ~~basis. As part~~basis 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 observing~~terms 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 rate~~full-time-equivalent pricing model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins. ~~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.

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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 difficult~~aim 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 improved~~drive better business outcomes for our ~~customers~~clients by ~~generating data-driven~~unlocking 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 ~~lifecycle~~life 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 ~~Analytics~~analytics services with other digital operations ~~management services~~and 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 ~~Analytics~~analytics services will grow as we expand our service offerings and client base, both organically and through acquisitions.

Critical Accounting Policies and Estimates

~~For a description of~~There have been no significant changes in our critical accounting policies and estimates ~~refer~~during 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 – Critical~~Operations” under “Critical Accounting Policies and Estimates” and Note 2 - Summary of Significant Accounting Policies to ~~the Consolidated Financial Statements~~our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2022.

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Results of Operations

The following table summarizes our results of ~~operations for~~operations:


	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 ~~three~~numbers presented in the tables included in this Part I, Item 2, “Management’s Discussion and ~~nine months ended September 30, 2017~~Analysis 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

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Three Months Ended ~~September 30, 2017~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2016~~March 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, 2017~~March 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 million~~This was driven by expansion of business from our new and existing clients. Healthcare revenues were 9.8% and 9.3% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, respectively.

~~Revenue growth in Travel, Transportation and Logistics ("TT&L") of $1.0 million was primarily driven by net volume increase from our new and existing clients of $1.2 million,~~ partially offset by ~~$0.2~~a loss of $1.4 million ~~impact due~~mainly attributable to the depreciation of the ~~Philippine Peso~~Australian dollar, the Indian rupee and the U.K. pound sterling against the U.S. dollar during the three months ended ~~September 30, 2017~~March 31, 2023, compared to the three months ended ~~September 30, 2016. TT&L~~March 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, 2017~~March 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 increase~~loss of ~~$0.3~~$1.8 million ~~due~~mainly attributable to the ~~appreciation~~depreciation of the U.K. pound sterling and the Indian rupee against the U.S. dollar during the three months ended ~~September 30, 2017~~March 31, 2023, compared to the three months ended ~~September 30, 2016. All Other~~March 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, 2017~~March 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 ~~recurring~~annuity 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 is~~mainly attributable to the ~~appreciation~~depreciation of ~~Indian rupee~~the U.K. pound sterling against the U.S. dollar during the three months ended ~~September 30, 2017~~March 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, 2017~~March 31, 2023 and ~~September 30, 2016,~~2022, respectively.

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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, 2017~~March 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 increase~~increases in employee-related costs of ~~$1.6~~$16.9 million on account of higher headcount and wage inflation, ~~technology~~ and ~~infrastructure~~higher 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 decrease~~foreign 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. dollar~~Insurance decreased by 240 bps during the three months ended ~~September 30, 2017~~March 31, 2023, compared to the three months ended ~~September 30, 2016. Gross margin increased by 500 bps~~March 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, 2017~~March 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 increase~~increases 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 depreciation~~foreign exchange gain, net of ~~the Philippine peso against the U.S. dollar~~hedging of $0.6 million. Gross margin in Healthcare decreased by 290 bps during the three months ended ~~September 30, 2017~~March 31, 2023, compared to the three months ended ~~September 30, 2016. Gross margin increased~~March 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 bps~~foreign exchange gain, net of hedging during the three months ended ~~September 30, 2017~~March 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&A~~Emerging Business of ~~$1.3~~$6.8 million for the three months ended March 31, 2023 was primarily due to ~~an increase~~increases in employee-related costs of ~~$0.6~~$7.2 million on account of higher headcount and wage inflation, ~~infrastructure~~higher technology costs of ~~$0.1~~$0.8 million on account of increased use of the hybrid and ~~travel~~remote 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 dollar~~Gross margin in Emerging Business increased by 320 bps during the three months ended ~~September 30, 2017~~March 31, 2023, compared to the three months ended ~~September 30, 2016. Gross margin decreased by 100 bps~~March 31, 2022, primarily due to higher revenues and operational efficiencies during the three months ended ~~September 30, 2017~~March 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 increase~~increases 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

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headcount and wage inflation and ~~an increase in technology~~higher 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 reduction~~foreign 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. dollar~~Analytics increased by 120 bps during the three months ended ~~September 30, 2017~~March 31, 2023, compared to the three months ended ~~September 30, 2016. Gross margin decreased by 540 bps~~March 31, 2022, primarily due to higher revenues during the three months ended ~~September 30, 2017~~March 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.

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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 in~~higher employee-related costs of ~~$2.2~~$11.1 million ~~(including $1.6 million~~on account of ~~incremental employee-related costs related to our 2016 acquisitions) as a result of annual~~higher headcount and wage ~~increments and an~~inflation, increase in ~~our average headcount to support the increased business volumes. There was an increase~~travel 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 of~~higher other operating ~~expenses. There~~costs of $1.2 million. This was apartially offset by foreign exchange gain, net ~~increase~~ of ~~$0.2~~hedging 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, 2017~~March 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 %

~~Depreciation~~The 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, 2016~~March 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 was~~March 31, 2023, primarily due to ~~amortization~~higher revenues, partially offset by higher cost of ~~intangibles associated with IQR~~revenues and Datasource acquisitions in 2016. There was an increase in our depreciation expense of $0.5 million, due to depreciation related to our new operating centers in India and the Philippines to support our business growth and impact of our 2016 acquisitions.

~~Income from Operations.~~ ~~Income from operations increased $1.3 million, or 7.5%, from $17.3 million for~~higher 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 ~~decreased~~increased from ~~10.1%~~13.4% for the three months ended ~~September 30, 2016~~March 31, 2022 to ~~9.7%~~14.8% for the three months ended ~~September 30, 2017.~~March 31, 2023.

Foreign Exchange ~~Gain/(Loss).~~ ~~Net foreign~~Gain, 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. ~~Pound~~pound sterling and the ~~Philippine peso~~South 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 ~~decreased~~increased from ~~66.73~~75.25 during the three months ended ~~September 30, 2016~~March 31, 2022 to ~~64.45~~82.25 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 ~~47.40~~51.32 during the three months ended ~~September 30, 2016~~March 31, 2022 to ~~50.82~~54.78 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, 2017~~March 31, 2023 compared to ~~$1.7~~a foreign exchange gain, net of $1.8 million for the three months ended ~~September 30, 2016.~~March 31, 2022.

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Interest ~~expense.~~ expense. Interest expense increased ~~$0.1 million,~~ from ~~$0.3~~$0.9 million for the three months ended ~~September 30, 2016~~March 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.

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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 $2.9~~increased 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, 2016~~March 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. 2016-09~~13.6% 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 higher~~March 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, 2016~~March 31, 2023 and 2022, respectively. The decrease in income tax expense was primarily as a result of higher excess tax benefits related to ~~$21.1~~stock-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 operations~~net 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% for~~11.0% during the three months ended ~~September 30, 2016~~March 31, 2022 to ~~11.0% for~~12.8% 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

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

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

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

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

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

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

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

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

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

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

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

The increase in cost of revenues in F&A of $3.8 million was primarily due to an increase in employee-related costs of $2.3 million on account of higher headcount and wage inflation and infrastructure costs of $0.7 million. There was an increase of $0.7 million due to the appreciation of the Indian rupee against the U.S. dollar during the nine months ended September 30, 2017 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.

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~~Income from Operations.~~ Income from operations increased by $0.6 million, or 1.3%, from $50.0 million for the nine months ended September 30, 2016 to $50.6 million for the nine months ended September 30, 2017. 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.~~

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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, 2017~~March 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 $205.1~~of which $177.5 million and ~~$170.1~~$233.3 million, respectively, ~~held by~~is 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). We~~jurisdictions. 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 by~~constitute 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 $16.2~~was $16.0 million ~~from $56.0 million for~~during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2023 compared to ~~$72.2~~net cash used for operating activities of $26.9 million ~~for~~during the ~~nine~~three 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 operations~~earnings including adjustments for non-cash and other items contributed higher cash flow of $22.8 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 compared to the ~~nine~~three months ended ~~September 30, 2016 was due~~March 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 adjustment~~a higher cash flow of ~~$3.9 million and decrease in working capital of $0.3 million from $25.2~~$13.5 million during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2023 compared to ~~$24.9 million during~~ the ~~nine~~three 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 due~~other current assets contributed to ~~an increase in capital expenditures~~a higher cash flow of $6.4 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 compared to the ~~nine~~three months ended ~~September 30, 2016. This~~March 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 amount~~primarily 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 ~~nine~~three 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 $28.2~~were $91.3 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 as compared to ~~$34.2~~cash provided by financing activities of $3.6 million during the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2022. The decrease ~~in cash flow used for financing activities between periods is~~of $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 ~~nine~~three months ended ~~September 30, 2016. This was partially offset by~~March 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 million~~under our share repurchase program during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 as compared to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2022.

Table of Contents

We expect to use cash from operating activities to maintain and expand our ~~business. As we have focused on expanding our cash flow from operating activities we continue to make capital~~business by making investments, primarily related to building new ~~facilities~~digital 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 ~~nine~~three 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 the~~our 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. If~~above mentioned requirements, although if we have significant growth through acquisitions, we may need to obtain additional financing.

~~Table~~We maintain deposits in federally insured financial institutions in excess of ~~Contents~~

~~Financing Arrangements (Debt Facility)~~

~~Our Credit Agreement provides for revolving~~federally 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 ~~amount~~event of ~~$100.0 million. The Credit Facility has a maturity date of October 24, 2019~~any potential default by the financial institutions holding our cash and ~~is voluntarily pre-payable from time~~cash 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, ~~under~~Note 21- Leases and Note 25- Commitments and Contingencies to our unaudited consolidated financial statements herein for further information on material cash requirements from known contractual and other obligations.

In the ~~Credit Facility may be used for working capital and general corporate purposes~~ordinary 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, 2017~~March 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 Obligations~~Financing Arrangements (Debt Facility)

The following table ~~sets forth~~summarizes our ~~contractual obligations~~debt 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 related~~See 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.

~~Table of Contents~~

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 ~~the~~our unaudited consolidated financial statements contained herein.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

During the three months ended ~~September 30, 2017,~~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 ~~about~~About 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 maintain~~The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports ~~we file~~the Company files or ~~submit~~submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to ~~our~~the Company’s management, including ~~our~~its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure. In connection with the preparation of this Quarterly Report on Form 10-Q, ~~our~~the 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 ~~our~~the 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, our~~the 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 ~~was~~were no ~~change~~changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II. ~~Other Information~~OTHER INFORMATION

ITEM 1. Legal Proceedings

In the course of our normal business activities, various lawsuits, claims and proceedings may be instituted or asserted against us. WeAlthough there can be no assurance, we believe that the disposition of matters currently instituted or asserted will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. ~~Please see~~See Note 2125 - Commitments and Contingencies to ~~the~~our 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, ~~2016~~2022, a number of risks which may materially affect our business, financial condition or results of operations. You should carefully consider ~~the “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016~~those 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.

~~Table of Contents~~

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
—

Table of Contents


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 Board~~October 5, 2021, our board of ~~Directors~~directors authorized ~~an additional~~a $300 million common stock repurchase program beginning January 1, 2022 (the ~~“2017~~“2022 Repurchase Program”)~~, under which~~.

Under the 2022 Repurchase Program, shares may be purchased by ~~the Company~~us from time to time from the open market and through private transactions, ~~during each of~~or otherwise, as determined by our management as market conditions warrant. We have structured open market purchases under the ~~fiscal years 2017 through 2019 up~~2022 Repurchase Program to ~~an aggregate additional amount of $100 million. The approval increases~~comply 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.

Table of Contents

INDEX TO EXHIBITS

~~ITEM~~Item 6.Exhibits

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

~~Table of Contents~~

~~SIGNATURES~~

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



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

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

~~Table of Contents~~

~~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

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

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

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

~~10.1~~10.1+		Amendment No. 2 to Second Amended and Restated Employment and Non-Competition Agreement, ~~dated September 19, 2017, by and~~effective February 16, 2023, between ~~ExlService Holdings~~the Company and Rohit Kapoor.

~~31.1~~10.2+		Form of Restricted Stock Unit Agreement (applicable to U.S. Executive Officers) under the 2018 Omnibus Incentive Plan.

10.3+		Form of Restricted Stock Unit Agreement (applicable to International Executive Officers) under the 2018 Omnibus Incentive Plan.

10.4+		Form of ExlService Holdings, Inc. Employment Agreement (applicable to Executive Officers).

10.5+		Employment Agreement, effective as of April 18, 2022, between exl Service (India) Private Limited and Vikas Bhalla.

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

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

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

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

101.INS		Inline XBRL Instance ~~Document~~Document*

101.SCH		Inline XBRL Taxonomy Extension ~~Scheme~~Schema*

101.CAL		Inline XBRL Taxonomy Extension Calculation ~~Linkbase~~Linkbase*

101.DEF		Inline XBRL Taxonomy Extension Definition ~~Linkbase~~Linkbase*

101.LAB		Inline XBRL Taxonomy Extension Label ~~Linkbase~~Linkbase*

101.PRE		Inline XBRL Extension Presentation ~~Linkbase~~Linkbase*

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.

Table of Contents

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)



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



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



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



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



	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



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



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



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



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



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



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



	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



	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



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	—