UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
| | | | |
ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172023
OR
|
| | | | |
¨☐ | 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)
|
| | | | | | | | | | |
DELAWAREDelaware | | 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 | | ý | | 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, 2017,2023, there were 33,942,974164,922,767 shares of the registrant’s common stock outstanding, par value $0.001 per share.
TABLE OF CONTENTS
| | | | | | | | | | | |
| | | |
| | | PAGE |
ITEM | | | |
| | | |
| | | |
1. | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
2. | | | |
| | | |
3. | | | |
| | | |
4. | | | |
| | | |
| | | |
| | | |
1. | | | |
| | | |
1A. | | | |
| | | |
2. | | | |
| | | |
3. | | | |
| | | |
4. | | | |
| | | |
5. | | | |
| | | |
6. | | | |
| |
| |
|
| | | |
| | | |
| | | PAGE |
ITEM | | | |
| | | |
| | | |
1. | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
2. | | | |
| | | |
3. | | | |
| | | |
4. | | | |
| | | |
| | | |
| | | |
1. | | | |
| | | |
1A. | | | |
| | | |
2. | | | |
| | | |
3. | | | |
| | | |
4. | | | |
| | | |
5. | | | |
| | | |
6. | | | |
| |
| |
PART 1.I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts) |
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
| (Unaudited) | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 87,665 |
| | $ | 213,155 |
|
Short-term investments | 161,702 |
| | 13,491 |
|
Restricted cash | 1,913 |
| | 3,846 |
|
Accounts receivable, net | 133,862 |
| | 113,067 |
|
Prepaid expenses | 6,958 |
| | 7,855 |
|
Advance income tax, net | 8,821 |
| | 6,242 |
|
Other current assets | 22,333 |
| | 21,168 |
|
Total current assets | 423,254 |
| | 378,824 |
|
Property, plant and equipment, net | 63,729 |
| | 49,029 |
|
Restricted cash | 3,710 |
| | 3,393 |
|
Deferred taxes, net | 16,118 |
| | 14,799 |
|
Intangible assets, net | 43,568 |
| | 53,770 |
|
Goodwill | 187,953 |
| | 186,770 |
|
Other assets | 30,672 |
| | 19,943 |
|
Total assets | $ | 769,004 |
| | $ | 706,528 |
|
Liabilities and Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 3,834 |
| | $ | 3,288 |
|
Short-term borrowings | — |
| | 10,000 |
|
Deferred revenue | 8,662 |
| | 16,615 |
|
Accrued employee cost | 49,385 |
| | 50,832 |
|
Accrued expenses and other current liabilities | 49,040 |
| | 43,264 |
|
Current portion of capital lease obligations | 168 |
| | 232 |
|
Total current liabilities | 111,089 |
| | 124,231 |
|
Long term borrowings | 45,000 |
| | 35,000 |
|
Capital lease obligations, less current portion | 315 |
| | 300 |
|
Non-current liabilities | 16,234 |
| | 14,819 |
|
Total liabilities | 172,638 |
| | 174,350 |
|
Commitments and contingencies (See Note 21) |
|
| |
|
|
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued | — |
| | — |
|
Stockholders’ equity: | | | |
Common stock, $0.001 par value; 100,000,000 shares authorized, 36,525,692 shares issued and 33,804,962 shares outstanding as of September 30, 2017 and 35,699,819 shares issued and 33,628,109 shares outstanding as of December 31, 2016 | 37 |
| | 36 |
|
Additional paid-in capital | 311,691 |
| | 284,646 |
|
Retained earnings | 436,419 |
| | 382,722 |
|
Accumulated other comprehensive loss | (59,290 | ) | | (75,057 | ) |
Total including shares held in treasury | 688,857 |
| | 592,347 |
|
Less: 2,720,730 shares as of September 30, 2017 and 2,071,710 shares as of December 31, 2016, held in treasury, at cost | (92,698 | ) | | (60,362 | ) |
Stockholders’ equity | $ | 596,159 |
| | $ | 531,985 |
|
Non-controlling interest | 207 |
| | 193 |
|
Total equity | $ | 596,366 |
| | $ | 532,178 |
|
Total liabilities and equity | $ | 769,004 |
| | $ | 706,528 |
|
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per share amounts)amount and share count)
| | | | | | | | | | | | | | |
| | As of |
| | September 30, 2023 | | December 31, 2022 |
| | | | |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 122,655 | | | $ | 118,669 | |
Short-term investments | | 151,581 | | | 179,027 | |
Restricted cash | | 3,257 | | | 4,897 | |
Accounts receivable, net | | 303,378 | | | 259,222 | |
Other current assets | | 70,697 | | | 50,979 | |
Total current assets | | 651,568 | | | 612,794 | |
Property and equipment, net | | 96,729 | | | 82,828 | |
Operating lease right-of-use assets, net | | 56,817 | | | 55,347 | |
Restricted cash | | 2,047 | | | 2,055 | |
Deferred tax assets, net | | 79,767 | | | 55,791 | |
Goodwill | | 405,579 | | | 405,637 | |
Other intangible assets, net | | 53,315 | | | 64,819 | |
Long-term investments | | 5,273 | | | 34,779 | |
Other assets | | 51,398 | | | 32,069 | |
Total assets | | $ | 1,402,493 | | | $ | 1,346,119 | |
Liabilities and stockholders’ equity | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 3,159 | | | $ | 7,789 | |
Current portion of long-term borrowings | | 50,000 | | | 30,000 | |
Deferred revenue | | 13,766 | | | 18,782 | |
Accrued employee costs | | 105,535 | | | 108,100 | |
Accrued expenses and other current liabilities | | 107,730 | | | 95,352 | |
Current portion of operating lease liabilities | | 14,008 | | | 14,978 | |
Income taxes payable, net | | 11,948 | | | 2,945 | |
Total current liabilities | | 306,146 | | | 277,946 | |
Long-term borrowings, less current portion | | 160,000 | | | 220,000 | |
Operating lease liabilities, less current portion | | 48,445 | | | 48,155 | |
Deferred tax liabilities, net | | 461 | | | 547 | |
Other non-current liabilities | | 31,354 | | | 41,292 | |
Total liabilities | | 546,406 | | | 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; 400,000,000 shares authorized, 202,124,185 shares issued and 165,117,859 shares outstanding as of September 30, 2023 and 199,939,880 shares issued and 166,172,220 shares outstanding as of December 31, 2022 (1) | | 202 | | | 200 | |
Additional paid-in capital (1) | | 492,577 | | | 444,948 | |
Retained earnings | | 1,043,380 | | | 899,105 | |
Accumulated other comprehensive loss | | (136,805) | | | (144,143) | |
Total including shares held in treasury | | 1,399,354 | | | 1,200,110 | |
|
| | | | | | | | | | | | | | | |
| 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: 37,006,326 shares as of September 30, 2023 and 33,767,660 shares as of December 31, 2022, held in treasury, at cost (1) | | (543,267) | | | (441,931) | |
Total stockholders’ equity | | 856,087 | | | 758,179 | |
Total liabilities and stockholders’ equity | | $ | 1,402,493 | | | $ | 1,346,119 | |
(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)thousands, except per share amount and share count)
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 |
| 2016 | | 2017 | | 2016 |
Net income | $ | 21,077 |
| | $ | 16,050 |
| | $ | 58,243 |
| | $ | 46,245 |
|
Other comprehensive income: |
| |
| |
| |
|
Unrealized (loss)/gain on effective cash flow hedges, net of taxes ($162), $1,067, $2,874 and $1,094, respectively | (557 | ) | | 2,540 |
| | 5,900 |
| | 3,066 |
|
Foreign currency translation adjustment | (3,030 | ) | | 1,716 |
| | 10,813 |
| | (2,652 | ) |
Retirement benefits, net of taxes nil, $4, nil and $24, respectively | — |
| | 104 |
| | — |
| | 409 |
|
Reclassification adjustments |
| |
| |
| |
|
Realized gain on cash flow hedges, net of taxes ($129), ($205), ($476) and ($386), respectively(1) | (294 | ) | | (261 | ) | | (1,081 | ) | | (486 | ) |
Retirement benefits, net of taxes $30, $1, $77 and $3, respectively(2) | 42 |
| | 22 |
| | 135 |
| | 64 |
|
Total other comprehensive income/(loss) | $ | (3,839 | ) | | $ | 4,121 |
| | $ | 15,767 |
| | $ | 401 |
|
Total comprehensive income | $ | 17,238 |
| | $ | 20,171 |
| | $ | 74,010 |
| | $ | 46,646 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Revenues, net | | $ | 410,971 | | | $ | 361,351 | | | $ | 1,216,610 | | | $ | 1,037,341 | |
Cost of revenues (1) | | 256,002 | | | 230,462 | | | 760,691 | | | 659,185 | |
Gross profit (1) | | 154,969 | | | 130,889 | | | 455,919 | | | 378,156 | |
Operating expenses: | | | | | | | | |
General and administrative expenses | | 52,213 | | | 42,519 | | | 144,564 | | | 122,898 | |
Selling and marketing expenses | | 30,943 | | | 23,879 | | | 88,674 | | | 72,034 | |
Depreciation and amortization expense | | 11,583 | | | 14,380 | | | 38,192 | | | 42,057 | |
| | | | | | | | |
Total operating expenses | | 94,739 | | | 80,778 | | | 271,430 | | | 236,989 | |
Income from operations | | 60,230 | | | 50,111 | | | 184,489 | | | 141,167 | |
Foreign exchange gain, net | | 409 | | | 1,504 | | | 838 | | | 4,683 | |
Interest expense | | (3,405) | | | (2,442) | | | (10,030) | | | (4,820) | |
Other income, net | | 778 | | | 2,261 | | | 6,594 | | | 4,498 | |
Income before income tax expense and earnings from equity affiliates | | 58,012 | | | 51,434 | | | 181,891 | | | 145,528 | |
Income tax expense | | 14,161 | | | 12,447 | | | 37,773 | | | 34,774 | |
Income before earnings from equity affiliates | | 43,851 | | | 38,987 | | | 144,118 | | | 110,754 | |
Gain from equity-method investment | | 25 | | | 108 | | | 157 | | | 365 | |
Net income attributable to ExlService Holdings, Inc. stockholders | | $ | 43,876 | | | $ | 39,095 | | | $ | 144,275 | | | $ | 111,119 | |
Earnings per share attributable to ExlService Holdings, Inc. stockholders (2): | | | | | | | | |
Basic | | $ | 0.26 | | | $ | 0.24 | | | $ | 0.87 | | | $ | 0.67 | |
Diluted | | $ | 0.26 | | | $ | 0.23 | | | $ | 0.86 | | | $ | 0.66 | |
Weighted average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders (2): | | | | | | | | |
Basic | | 166,159,619 | | | 166,189,165 | | 166,707,599 | | | 166,801,730 |
Diluted | | 167,688,374 | | | 168,888,745 | | 168,591,612 | | | 169,168,185 |
| |
(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.
(2) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023.Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
Cash flows from operating activities: |
| |
|
Net income | $ | 58,243 |
| | $ | 46,245 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
| |
|
Depreciation and amortization | 28,771 |
| | 25,000 |
|
Stock-based compensation expense | 16,771 |
| | 14,743 |
|
Unrealized gain on short term investments | (4,437 | ) | | (4,955 | ) |
Change in fair value of earn-out consideration | — |
| | (4,060 | ) |
Unrealized foreign exchange loss/(gain) | 446 |
| | (147 | ) |
Deferred income tax (benefit)/expense | (5,417 | ) | | 4,424 |
|
Allowances for doubtful accounts | 2,706 |
| | 37 |
|
Others, net | 12 |
| | (84 | ) |
Change in operating assets and liabilities: |
| |
|
Restricted cash | 1,757 |
| | (464 | ) |
Accounts receivable | (22,064 | ) | | (16,559 | ) |
Prepaid expenses and other current assets | 5,194 |
| | (587 | ) |
Accounts payable | 371 |
| | (2,518 | ) |
Deferred revenue | (8,155 | ) | | (1,485 | ) |
Accrued employee costs | (915 | ) | | (3,812 | ) |
Accrued expenses and other liabilities | 267 |
| | 5,688 |
|
Advance income tax, net | (2,607 | ) | | (4,748 | ) |
Other assets | 1,241 |
| | (676 | ) |
Net cash provided by operating activities | 72,184 |
| | 56,042 |
|
|
| |
|
Cash flows from investing activities: |
| |
|
Purchase of property, plant and equipment | (26,759 | ) | | (20,335 | ) |
Business acquisition (net of cash acquired) | (724 | ) | | (9,427 | ) |
Purchase of investments | (197,897 | ) | | (155,709 | ) |
Proceeds from redemption of investments | 54,238 |
| | 59,229 |
|
Net cash used for investing activities | (171,142 | ) | | (126,242 | ) |
|
|
| |
|
|
Cash flows from financing activities: |
|
| |
|
|
Principal payments on capital lease obligations | (133 | ) | | (292 | ) |
Repayments of borrowings | — |
| | (25,000 | ) |
Acquisition of treasury stock | (32,336 | ) | | (15,169 | ) |
Proceeds from exercise of stock options | 4,275 |
| | 6,226 |
|
Net cash used for financing activities | (28,194 | ) | | (34,235 | ) |
Effect of exchange rate changes on cash and cash equivalents | 1,662 |
| | (2,514 | ) |
Net decrease in cash and cash equivalents | (125,490 | ) | | (106,949 | ) |
Cash and cash equivalents, beginning of period | 213,155 |
| | 205,323 |
|
Cash and cash equivalents, end of period | $ | 87,665 |
| | $ | 98,374 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Net income | | $ | 43,876 | | | $ | 39,095 | | | $ | 144,275 | | | $ | 111,119 | |
Other comprehensive income/(loss): | | | | | | | | |
Unrealized gain/(loss) on cash flow hedges | | (7,903) | | | (13,489) | | | 8,242 | | | (28,638) | |
| | | | | | | | |
Foreign currency translation loss | | (7,782) | | | (19,144) | | | (2,605) | | | (49,371) | |
Reclassification adjustments | | | | | | | | |
(Gain)/loss on cash flow hedges(1) | | 32 | | | 1,567 | | | 4,261 | | | (1,881) | |
Retirement benefits(2) | | (22) | | | 147 | | | (70) | | | 451 | |
Income tax effects relating to above(3) | | 3,017 | | | 10,090 | | | (2,490) | | | 14,710 | |
Total other comprehensive income/(loss) | | $ | (12,658) | | | $ | (20,829) | | | $ | 7,338 | | | $ | (64,729) | |
Total comprehensive income | | $ | 31,218 | | | $ | 18,266 | | | $ | 151,613 | | | $ | 46,390 | |
(1)These are reclassified to net income and are included in cost of revenues, operating expenses and interest expense, as applicable in the unaudited consolidated statements of income. Refer to Note 17 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements.
(2)These are reclassified to net income and are included in other income, net in the unaudited consolidated statements of income. Refer to Note 20 - Employee Benefit Plans to the unaudited consolidated financial statements.
(3)These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation gain/(loss). Refer to Note 22 - Income Taxes to the unaudited consolidated financial statements.
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
For the three months ended September 30, 2023 and 2022
(In thousands, except share count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock (1) | | Additional Paid-in Capital (1) | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| | | | | |
| Shares | | Amount | | | | | Shares (1) | | Amount | |
Balance as of June 30, 2023 | 201,748,635 | | | $ | 202 | | | $ | 471,962 | | | $ | 999,504 | | | $ | (124,147) | | | (35,985,285) | | | $ | (513,307) | | | $ | 834,214 | |
Stock issued against stock-based compensation plans | 375,550 | | | — | | | 3,548 | | | — | | | — | | | — | | | — | | | 3,548 | |
Stock-based compensation | — | | | — | | | 17,067 | | | — | | | — | | | — | | | — | | | 17,067 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (1,021,041) | | | (29,960) | | | (29,960) | |
| | | | | | | | | | | | | | | |
Other comprehensive income | — | | | — | | | — | | | — | | | (12,658) | | | — | | | — | | | (12,658) | |
Net income | — | | | — | | | — | | | 43,876 | | | — | | | — | | | — | | | 43,876 | |
Balance as of September 30, 2023 | 202,124,185 | | | $ | 202 | | | $ | 492,577 | | | $ | 1,043,380 | | | $ | (136,805) | | | (37,006,326) | | | $ | (543,267) | | | $ | 856,087 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock (1) | | Additional Paid-in Capital (1) | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| | | | | |
| Shares | | Amount | | | | | Shares (1) | | Amount | |
Balance as of June 30, 2022 | 198,975,805 | | | $ | 199 | | | $ | 420,147 | | | $ | 828,161 | | | $ | (133,374) | | | (33,355,630) | | | $ | (429,480) | | | $ | 685,653 | |
Stock issued against stock-based compensation plans | 18,975 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 12,186 | | | — | | | — | | | — | | | — | | | 12,186 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (384,045) | | | (11,521) | | | (11,521) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (20,829) | | | — | | | — | | | (20,829) | |
Net income | — | | | — | | | — | | | 39,095 | | | — | | | — | | | — | | | 39,095 | |
Balance as of September 30, 2022 | 198,994,780 | | | $ | 199 | | | $ | 432,333 | | | $ | 867,256 | | | $ | (154,203) | | | (33,739,675) | | | $ | (441,001) | | | $ | 704,584 | |
(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023.Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
For the nine months ended September 30, 2023 and 2022
(In thousands, except share count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock (1) | | Additional Paid-in Capital (1) | | Retained Earnings | | Accumulated Other Comprehensive Income/(loss) | | Treasury Stock | | | | Total |
| | | | | | |
| Shares | | Amount | | | | | Shares (1) | | Amount | | |
January 1, 2023 | 199,939,880 | | | $ | 200 | | | $ | 444,948 | | | $ | 899,105 | | | $ | (144,143) | | | (33,767,660) | | | $ | (441,931) | | | | | $ | 758,179 | |
Stock issued against stock-based compensation plans | 2,184,305 | | | 2 | | | 4,644 | | | — | | | — | | | — | | | — | | | | | 4,646 | |
Stock-based compensation | — | | | — | | | 42,985 | | | — | | | — | | | — | | | — | | | | | 42,985 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (3,238,666) | | | (101,336) | | | | | (101,336) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other comprehensive income | — | | | — | | | — | | | — | | | 7,338 | | | — | | | — | | | | | 7,338 | |
Net income | — | | | — | | | — | | | 144,275 | | | — | | | — | | | — | | | | | 144,275 | |
Balance as of September 30, 2023 | 202,124,185 | | | $ | 202 | | | $ | 492,577 | | | $ | 1,043,380 | | | $ | (136,805) | | | (37,006,326) | | | $ | (543,267) | | | | | $ | 856,087 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock (1) | | Additional Paid-in Capital (1) | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| | | | | |
| Shares | | Amount | | | | | Shares (1) | | Amount | |
January 1, 2022 | 197,541,700 | | | $ | 198 | | | $ | 395,584 | | | $ | 756,137 | | | $ | (89,474) | | | (31,084,290) | | | $ | (369,289) | | | $ | 693,156 | |
Stock issued against stock-based compensation plans | 1,453,080 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 36,750 | | | — | | | — | | | — | | | — | | | 36,750 | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (2,655,385) | | | (71,712) | | | (71,712) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (64,729) | | | — | | | — | | | (64,729) | |
Net income | — | | | — | | | — | | | 111,119 | | | — | | | — | | | — | | | 111,119 | |
Balance as of September 30, 2022 | 198,994,780 | | | $ | 199 | | | $ | 432,333 | | | $ | 867,256 | | | $ | (154,203) | | | (33,739,675) | | | $ | (441,001) | | | $ | 704,584 | |
(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023.Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) | | | | | | | | | | | | |
| Nine months ended September 30, | |
| 2023 | | 2022 | |
Cash flows from operating activities: | | | | |
Net income | $ | 144,275 | | | $ | 111,119 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization expense | 38,010 | | | 41,993 | | |
Stock-based compensation expense | 42,985 | | | 36,750 | | |
Amortization of operating lease right-of-use assets | 15,171 | | | 17,365 | | |
Unrealized loss/(gain) on investments | 6,003 | | | (475) | | |
Unrealized foreign currency exchange gain, net | (862) | | | (16,813) | | |
Deferred income tax benefit | (26,555) | | | (5,621) | | |
Allowance for expected credit losses | 2,444 | | | 177 | | |
Fair value changes in contingent consideration | 2,500 | | | 1,000 | | |
| | | | |
| | | | |
| | | | |
| | | | |
Others, net | 1,384 | | | 1,240 | | |
Change in operating assets and liabilities, net of effects of acquisitions: | | | | |
Accounts receivable | (46,488) | | | (68,066) | | |
Other current assets | (412) | | | 2,553 | | |
Income taxes payable, net | (12,022) | | | 4,043 | | |
Other assets | (18,792) | | | (8,428) | | |
Accounts payable | (4,624) | | | (1,927) | | |
Deferred revenue | 2,319 | | | 2,103 | | |
Accrued employee costs | (1,853) | | | (11,778) | | |
Accrued expenses and other liabilities | 4,299 | | | 13,685 | | |
Operating lease liabilities | (15,622) | | | (17,831) | | |
Net cash provided by operating activities | 132,160 | | | 101,089 | | |
| | | | |
Cash flows from investing activities: | | | | |
Purchases of property and equipment | (41,106) | | | (32,099) | | |
Proceeds from sale of property and equipment | 640 | | | 197 | | |
Investment in equity affiliate | (600) | | | — | | |
| | | | |
Business acquisition (net of cash and cash equivalents acquired) | — | | | (3,322) | | |
Purchases of investments | (165,021) | | | (164,313) | | |
Proceeds from redemption of investments | 217,525 | | | 124,355 | | |
Net cash provided by/(used for) investing activities | 11,438 | | | (75,182) | | |
| | | | |
Cash flows from financing activities: | | | | |
Principal payments of finance lease liabilities | (120) | | | (108) | | |
Proceeds from borrowings | 70,000 | | | 35,000 | | |
Repayments of borrowings | (110,000) | | | (25,000) | | |
| | | | |
Acquisition of treasury stock | (100,542) | | | (71,712) | | |
Payment of contingent consideration | (5,000) | | | — | | |
Proceeds from ESPP contribution and exercise of stock options | 4,690 | | | — | | |
| | | | |
Net cash used for financing activities | (140,972) | | | (61,820) | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (288) | | | (9,626) | | |
Net increase/(decrease) in cash, cash equivalents and restricted cash | 2,338 | | | (45,539) | | |
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 | $ | 127,959 | | | $ | 98,271 | | |
| | | | |
Supplemental disclosure of cash flow information: | | | | |
Cash paid during the period for: | | | | |
Interest | $ | 10,580 | | | $ | 4,982 | | |
Income taxes, net of refunds | $ | 76,743 | | | $ | 35,192 | | |
Supplemental disclosure of non-cash investing and financing activities: | | | | |
| | | | |
Assets acquired under finance lease | $ | 285 | | | $ | 218 | | |
See accompanying notes to unaudited consolidated financial statements.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
1. Organization
ExlService Holdings, Inc. (“ExlService Holdings”) is organized as a corporation under the laws of the state of Delaware. ExlService Holdings, together with its subsidiaries and affiliates (collectively, the “Company”), operatesis a leading data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth. By bringing together deep domain expertise with robust data, powerful analytics, cloud, artificial intelligence and machine learning, the Company creates agile, scalable solutions and executes complex operations for the world’s leading corporations in the Business Process Management (“BPM”) industry providing operations managementindustries including insurance, healthcare, banking and financial services, media, and retail, among others. The Company’s data-led value creation framework enables better and faster decision making, leveraging its end-to-end data and analytics services that helpcapabilities to drive improved business outcomes, and re-designing of operating models to integrate advanced technology into operational workflows. The Company embeds digital operations and solutions into clients’ businesses enhance growth and profitability. Usingintroduces its proprietary platforms, methodologies and tools, the Company looks deeperdata led approach to help its clients improve global operations, enhance data-driven insights, increase customer satisfaction, and manage risk and compliance. transform operations.
The Company’s clients are located principally in the United States of America (“U.S.”) and the United Kingdom (“U.K.”).
2. Summary of Significant Accounting Policies
(a)Basis of Preparation and Principles of Consolidation
The unaudited interim consolidated financial statements have been prepared in accordanceconformity with United States generally accepted accounting principles (“USU.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by USU.S. GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022.
The unaudited interim consolidated financial statements reflect all adjustments (of a normal and recurring nature) that management considers necessary for a fair presentation of such statements for the interim periods presented. The unaudited consolidated statements of income for the interim periods presented are not necessarily indicative of the results for the full year or for any subsequent period.
The accompanying unaudited consolidated financial statements include the financial statements of ExlService Holdings and all of its subsidiaries. All intercompanyThe standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, have beenand gains and losses arising from intra-group transactions, are eliminated while preparing consolidated financial statements.
The Company’s investments in consolidation.
Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to the parentaffiliates are initially recorded at cost and it represents the minority partner’s interest in the operations of ExlService Colombia S.A.S. Non-controlling interest consistsany excess purchase consideration paid over proportionate share of the amountfair value of such interestthe net assets of the investee at the acquisition date of obtaining control over the subsidiary, and the non-controlling interest'sis recognized as goodwill. The proportionate share of changes in equity since that date. The non-controlling interest innet income or loss of the operations for all the periods presented were insignificant and are included under general and administrative expensesinvestee after its acquisition is recognized in the unaudited consolidated statements of income.
Accounting policies of the respective individual subsidiaries and equity affiliates are aligned wherever necessary, so as to ensure consistency with the accounting policies that are adopted by the Company under U.S. GAAP.
(b)Stock Split
The Company recognizes the effects of a forward stock split in the financial statements if there are changes in the total par value of the increased shares upon such forward stock split. The Company reclassifies an amount equal to the par value of the increased shares resulting from the forward stock split from “Additional paid-in capital” to “Common stock.” The Company presents the effects of a forward stock split on earnings per share in the financial statements retroactively for all the periods
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
presented. The Company has an option to present other effects of the forward stock split, including changes in the total par value of the increased shares and count of shares of common stock, in the consolidated financial statements either retroactively for all the periods presented or only for the period in which the forward stock split of the common stock becomes effective. The Company has elected to present the effects of the forward stock split retroactively for all the periods presented.
(c)Use of Estimates
The preparation of the unaudited consolidated financial statements in conformity with USU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, allowanceestimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and the discount rate applied within the discounted cash flow model for doubtful receivables,business acquisitions, credit risk of customers, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability of service tax receivables,from customers with contingent fee arrangements, estimated costs to complete fixed price contracts, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, and stock-based awards, useful life of long-lived assets and other intangible assets, 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, methods to calculate depreciation and amortization periods, purchase price allocation,for long-lived assets and other intangible assets, and recoverability of long-termlong-lived assets, including goodwill and intangibles, and estimates to complete fixed price contracts.other intangible assets.
(c) Share-Based Compensation
(d)Recent Accounting Pronouncements
In March 2016,2023, the FASBFinancial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-01, Leases (“Accounting Standards Codification (“ASC”) Topic 842”): Common Control Arrangements. This ASU No. 2016-09, Compensation - Stock Compensation (Topic 718).provides guidance in ASC Topic 842 that leasehold improvements associated with common control leases should be (i) amortized by the lessee over the useful life of the leasehold improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset through a lease, and (ii) accounted for as a transfer between entities under common control through an adjustment to equity if and when the lessee no longer controls the use of the underlying asset. The 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 areis effective for all entities for fiscal years, and interim periods within those fiscal years beginning after December 15, 2016.2023. Early adoption is permitted for both interim 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 adoptedis currently evaluating the impact of this ASU on its consolidated financial statements.
(e)Recently adopted Accounting Pronouncements
In October 2021, FASB issued ASU 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 statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The ASU is effective January 1, 2017.for fiscal years beginning after December 15, 2022. An entity may early adopt the ASU including adoption in an interim period, with retrospective application to all business combinations within the fiscal year that includes such interim period. The following summarizesadoption of this ASU is applicable for future business combinations.
In July 2023, the effectsFASB issued ASU No. 2023-03, Presentation of Financial Statements (“ASC Topic 205”), Income Statement-Reporting Comprehensive Income (“ASC Topic 220”), Distinguishing Liabilities from Equity (“ASC Topic 480”), Equity (“ASC Topic 505”), and Compensation-Stock Compensation (“ASC Topic 718”) pursuant to SEC Staff Accounting Bulletin No. 120 and amends various SEC paragraphs in the adoptionASC. The ASU is effective immediately upon issuance and did not have a material impact on the Company'sCompany’s unaudited consolidated financial statements:statements.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)
Income taxes - Upon adoption of this standard, all excess tax benefitsamount 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.count)
(d) Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers”. This standard update along with subsequently issued updates, clarifies the principles for recognizing revenue and develops a common revenue standard for United States generally accepted accounting principles (GAAP) and is effective for reporting periods beginning after December 15, 2017. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services ("performance obligations") are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services ("transaction price"). Adoption of the new rules could impact the timing of revenue recognition for certain contracts. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2018 using either one of two methods: (i) retrospectively to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09 (modified retrospective method).
The Company is evaluating the impact of the new standard. The ultimate impact on revenue resulting from the application of the new standard will be subject to assessments that are dependent on many variables, including, but not limited to, the terms of the contractual arrangements and the mix of business. Upon adoption, the Company expect that variable consideration when present in a revenue arrangements will need to be estimated based on its achievability and recognized over the contractual period as compared to recognizing such revenue as the services are performed. The Company also expects a change in the manner that it recognizes certain incremental and fulfillment costs from expensing them as incurred to deferring and recognizing them over the contractual period.
The Company intends to adopt the new standard, effective January 1, 2018, 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 it 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 adjustment to all comparative periods presented in the consolidated financial statements. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and the implementation approach to be used.
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is to be deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The amendment should be applied through a modified retrospective approach. Early adoption as of the fiscal years beginning after December 15, 2018 is permitted. The adoption of ASU 2016-13 is not expected to have a material effect on the Company's consolidated financial statements.
In August 2016, FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The amendments 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.
In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows - Restricted cash. The amendments apply to all entities that have restricted cash or restricted cash equivalents and are required to present a Statement of Cash Flows under Topic 230. The amendments in this update require that a Statement of Cash Flows should explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for fiscal years beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted with an adjustment reflected as of the beginning of the fiscal year in which the amendment is adoption. The Company does not expect the adoption of this ASU to have a material effect on its financial position or results of operations.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates Step 2 from the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017 and should be applied prospectively. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In March, 2017, FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. The ASU amends ASC 715, Compensation — Retirement Benefits, to require employers that present a measure of operating income in their statement of income to include only the service cost component of net periodic pension cost and net periodic post-retirement benefit cost in operating expenses (together with other employee compensation costs). The
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in non-operating expenses. The update also stipulates that only the service cost component of net benefit cost is eligible for capitalization. The amendments are effective for fiscal years beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In May 2017, FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. Modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in their financial statements. The amendments are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption being permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
3. Segment and Geographical Information
The Company operates in the BPM industry and is a provider of data analytics and digital operations management and analytics services. solutions.
The Company has eightmanages and reports financial information through its four reportable segments: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating segments, which are strategicdecisions. These business units that align its productsdevelop client-specific solutions, build capabilities, maintain a unified go-to-market approach and services with how it manages its business, approaches its key marketsare integrally responsible for service delivery, customer satisfaction, growth and interacts with its clients. Six of those operating segments provide BPM or “operations management” services, which the Company organizes into industry-focused operating segments (Insurance, Healthcare, Travel, Transportation and Logistics, Banking and Financial Services, and Utilities) and one “capability” operating segment (Finance and Accounting) that provides services to clients in industry-focused segments as well as clients across other industries. In each of these six operating segments, the Company provides operations management services, which typically involve transfer to the Company of select business operations of a client, after which it administers and manages those operations for its client on an ongoing basis. The remaining two operating segments are Consulting, which provides industry-specific transformational services related to operations management services, and the Analytics operating segment, which provides services that focus on driving improved business outcomes for clients by generating data-driven insights across all parts of their business.profitability.
In prior periods the Company presented two reportable segments: Operations Management (which included its Insurance, Healthcare, Travel, Transportation and Logistics, Finance and Accounting, Banking and Financial services, Utilities and Consulting operating segments) and Analytics. Effective for the quarter and year ended December 31, 2016, the Company presents information for the following reportable segments:
• Insurance
• Healthcare
• Travel, Transportation and Logistics (“TT&L”)
• Finance and Accounting (“F&A”), and
• Analytics
The remaining operating segments, which includes the banking and financial services, utilities and consulting operating segments have been included in a category called “All Other”. Segment information for all prior periods presented herein has been changed to conform to the current presentation. This change in segment presentation does not affect the Company's unaudited consolidated statements of income and comprehensive income, balance sheets or statements of cash flows.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
The chief operating decision maker (“CODM”) generally reviews financial information such as revenues, cost of revenues and gross profit, disaggregated by the operating segments to allocate an overall budget among the operating segments.
The Company does not allocate, and therefore the CODM does not evaluate, othercertain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages these assets on a total Company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented.
Revenues and cost of revenues for the three months ended September 30, 20172023 and 2016,2022, respectively, for each of the reportable segments, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2023 |
Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 136,369 | | | $ | 26,177 | | | $ | 65,316 | | | $ | 183,109 | | | $ | 410,971 | |
Cost of revenues(1) | 86,435 | | | 16,533 | | | 37,599 | | | 115,435 | | | 256,002 | |
Gross profit(1) | $ | 49,934 | | | $ | 9,644 | | | $ | 27,717 | | | $ | 67,674 | | | $ | 154,969 | |
Operating expenses | | | | | | | | | 94,739 | |
Foreign exchange gain, net, interest expense and other income, net | | | | | | | | | (2,218) | |
Income tax expense | | | | | | | | | 14,161 | |
Gain from equity-method investment | | | | | | | | | 25 | |
Net income | | | | | | | | | $ | 43,876 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2017 |
| Insurance | | Healthcare | | TT&L | | F&A | | All Other | | Analytics | | Total |
|
Revenues, net | $ | 59,608 |
| | $ | 18,871 |
| | $ | 18,496 |
| | $ | 21,642 |
| | $ | 19,984 |
| | $ | 53,744 |
| | $ | 192,345 |
|
Cost of revenues (exclusive of depreciation and amortization) | 39,699 |
| | 11,966 |
| | 10,135 |
| | 13,310 |
| | 13,629 |
| | 36,151 |
| | 124,890 |
|
Gross profit | $ | 19,909 |
| | $ | 6,905 |
| | $ | 8,361 |
| | $ | 8,332 |
| | $ | 6,355 |
| | $ | 17,593 |
| | $ | 67,455 |
|
Operating expenses | | | | | | | | | | | | | 48,800 |
|
Foreign exchange gain, interest expense and other income, net | | | | | | | | | | | | | 5,241 |
|
Income tax expense | | | | | | | | | | | | | 2,819 |
|
Net income | | | | | | | | | | | | | $ | 21,077 |
|
(1) Exclusive of depreciation and amortization expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 |
Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 116,198 | | | $ | 22,820 | | | $ | 56,035 | | | $ | 166,298 | | | $ | 361,351 | |
Cost of revenues(1) | 75,041 | | | 17,119 | | | 32,363 | | | 105,939 | | | 230,462 | |
Gross profit(1) | $ | 41,157 | | | $ | 5,701 | | | $ | 23,672 | | | $ | 60,359 | | | $ | 130,889 | |
Operating expenses | | | | | | | | | 80,778 | |
Foreign exchange gain, net, interest expense and other loss, net | | | | | | | | | 1,323 | |
Income tax expense | | | | | | | | | 12,447 | |
Gain from equity-method investment | | | | | | | | | 108 | |
Net income | | | | | | | | | $ | 39,095 | |
(1) Exclusive of depreciation and amortization expense.
Revenues and cost of revenues for the nine months ended September 30, 2023 and 2022, respectively, for each of the reportable segments, are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 20172023
(In thousands, except share and per share amounts)amount and share count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2023 |
Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 390,762 | | | $ | 80,036 | | | $ | 198,677 | | | $ | 547,135 | | | $ | 1,216,610 | |
Cost of revenues(1) | 253,081 | | | 52,882 | | | 111,414 | | | 343,314 | | | 760,691 | |
Gross profit(1) | $ | 137,681 | | | $ | 27,154 | | | $ | 87,263 | | | $ | 203,821 | | | $ | 455,919 | |
Operating expenses | | | | | | | | | 271,430 | |
Foreign exchange gain, net, interest expense and other income, net | | | | | | | | | (2,598) | |
Income tax expense | | | | | | | | | 37,773 | |
Gain from equity-method investment | | | | | | | | | 157 | |
Net income | | | | | | | | | $ | 144,275 | |
(1) Exclusive of depreciation and amortization expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2022 |
Insurance | | Healthcare | | Emerging Business | | Analytics | | Total |
|
Revenues, net | $ | 328,021 | | | $ | 72,027 | | | $ | 160,655 | | | $ | 476,638 | | | $ | 1,037,341 | |
Cost of revenues(1) | 210,768 | | | 52,464 | | | 92,790 | | | 303,163 | | | 659,185 | |
Gross profit(1) | $ | 117,253 | | | $ | 19,563 | | | $ | 67,865 | | | $ | 173,475 | | | $ | 378,156 | |
Operating expenses | | | | | | | | | 236,989 | |
Foreign exchange gain, net, interest expense and other income, net | | | | | | | | | 4,361 | |
Income tax expense | | | | | | | | | 34,774 | |
Gain from equity-method investment | | | | | | | | | 365 | |
Net income | | | | | | | | | $ | 111,119 | |
(1) Exclusive of depreciation and amortization expense.
Revenues, and cost of revenues for the nine months ended September 30, 2017 and 2016, respectively, for each of the reportable segments, are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 |
| Insurance | | Healthcare | | TT&L | | F&A | | All Other | | Analytics | | Total |
|
Revenues, net | $ | 173,784 |
| | $ | 56,726 |
| | $ | 53,374 |
| | $ | 63,694 |
| | $ | 62,547 |
| | $ | 154,310 |
| | $ | 564,435 |
|
Cost of revenues (exclusive of depreciation and amortization) | 119,004 |
| | 36,402 |
| | 30,832 |
| | 39,163 |
| | 42,770 |
| | 102,287 |
| | 370,458 |
|
Gross profit | $ | 54,780 |
| | $ | 20,324 |
| | $ | 22,542 |
| | $ | 24,531 |
| | $ | 19,777 |
| | $ | 52,023 |
| | $ | 193,977 |
|
Operating expenses | | | | | | | | | | | | | 143,291 |
|
Foreign exchange gain, interest expense and other income, net | | | | | | | | | | | | | 14,759 |
|
Income tax expense | | | | | | | | | | | | | 7,202 |
|
Net income | | | | | | | | | | | | | $ | 58,243 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2016 |
| | Insurance | | Healthcare | | TT&L | | F&A | | All Other | | Analytics |
| Total |
|
| Revenues, net | $ | 151,696 |
| | $ | 49,788 |
| | $ | 52,623 |
| | $ | 58,961 |
| | $ | 75,434 |
| | $ | 120,212 |
| | $ | 508,714 |
|
| Cost of revenues (exclusive of depreciation and amortization) | 108,516 |
| | 32,440 |
| | 31,901 |
| | 35,385 |
| | 47,836 |
| | 76,094 |
| | 332,172 |
|
| Gross profit | $ | 43,180 |
| | $ | 17,348 |
| | $ | 20,722 |
| | $ | 23,576 |
| | $ | 27,598 |
| | $ | 44,118 |
| | $ | 176,542 |
|
| Operating expenses | | | | | | | | | | | | | 126,495 |
|
| Foreign exchange gain, interest expense and other income, net | | | | | | | | | | | | | 14,747 |
|
| Income tax expense | | | | | | | | | | | | | 18,549 |
|
| Net income | | | | | | | | | | | | | $ | 46,245 |
|
Net revenues of the Companynet by service type, were as follows:
|
| | | | | | | | | | | | | | | |
| Three months ended 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Digital operations and solutions(1) | $ | 227,862 | | | $ | 195,053 | | | $ | 669,475 | | | $ | 560,703 | |
Analytics services | 183,109 | | | 166,298 | | | 547,135 | | | 476,638 | |
Revenues, net | $ | 410,971 | | | $ | 361,351 | | | $ | 1,216,610 | | | $ | 1,037,341 | |
(1) BPMDigital operations and related servicessolutions include revenues of the Company's five industry-focused operating segments, one capability operating segmentCompany’s Insurance, Healthcare and consulting operating segment, which provides services relatedEmerging Business reportable segments. Refer to operations management services. Seethe reportable segment disclosure above.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
The Company attributes the revenues to regions based upon the location of its customers.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenues, net | | | | | | | | Revenues, net | | | | | | | |
United States | $ | 158,501 |
| | $ | 137,047 |
| | $ | 462,676 |
| | $ | 407,272 |
| United States | $ | 343,135 | | | $ | 310,652 | | | $ | 1,022,883 | | | $ | 891,551 | |
Non-United States | | | | | | | | Non-United States | |
United Kingdom | 26,824 |
| | 27,993 |
| | 81,857 |
| | 84,284 |
| United Kingdom | 46,327 | | | 34,131 | | | 131,549 | | | 98,994 | |
Rest of World | 7,020 |
| | 6,160 |
| | 19,902 |
| | 17,158 |
| Rest of World | 21,509 | | | 16,568 | | | 62,178 | | | 46,796 | |
Total Non-United States | 33,844 |
| | 34,153 |
| | 101,759 |
| | 101,442 |
| Total Non-United States | 67,836 | | | 50,699 | | | 193,727 | | | 145,790 | |
| $ | 192,345 |
| | $ | 171,200 |
| | $ | 564,435 |
| | $ | 508,714 |
| |
Revenues, net | | Revenues, net | $ | 410,971 | | | $ | 361,351 | | | $ | 1,216,610 | | | $ | 1,037,341 | |
Property, plant and equipmentLong-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets were as follows:
| | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
Long-lived assets | | | |
United States | $ | 62,642 | | | $ | 60,709 | |
India | 44,811 | | | 50,118 | |
Philippines | 21,895 | | | 18,406 | |
Rest of World | 24,198 | | | 8,942 | |
Long-lived assets | $ | 153,546 | | | $ | 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 |
| September 30, 2023 | | December 31, 2022 |
| | | |
Accounts receivable, net | $ | 303,378 | | | $ | 259,222 | |
Contract assets | $ | 11,086 | | | $ | 2,768 | |
Contract liabilities: | | | |
Deferred revenue (consideration received in advance) | $ | 11,285 | | | $ | 17,079 | |
Consideration received for process transition activities | $ | 13,893 | | | $ | 5,423 | |
Accounts receivable includes $152,425 and $126,027 as of September 30, 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 reduced from revenues. The Company’s assessment did not indicate any impairment losses on its contract assets for the periods presented.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 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 |
|
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 revenue” and “Other non-current liabilities” in the consolidated balance sheets. The revenues are recognized as (or when) the performance obligation is fulfilled under the contract with customer.4.Revenue recognized during the three and nine months ended September 30, 2023 and 2022, which was included in the contract liabilities balance at the beginning of the respective periods:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Deferred revenue (consideration received in advance) | $ | 690 | | | $ | 2,456 | | | $ | 16,682 | | | $ | 16,326 | |
Consideration received for process transition activities | $ | 373 | | | $ | 706 | | | $ | 1,381 | | | $ | 1,370 | |
Contract acquisition and fulfillment costs
The following table provides details of the Company’s contract acquisition and fulfillment costs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contract Acquisition Costs |
| Three months ended | | Nine months ended | | Year ended |
| September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 | | December 31, 2022 |
| | | | | | | | | |
Opening Balance | $ | 2,183 | | | $ | 983 | | | $ | 1,095 | | | $ | 511 | | | $ | 511 | |
Additions | 115 | | | 78 | | | 1,591 | | | 805 | | | 1,014 | |
Amortization | (233) | | | (73) | | | (621) | | | (328) | | | (430) | |
Closing Balance | $ | 2,065 | | | $ | 988 | | | $ | 2,065 | | | $ | 988 | | | $ | 1,095 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contract Fulfillment Costs |
| Three months ended | | Nine months ended | | Year ended |
| September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 | | December 31, 2022 |
| | | | | | | | | |
Opening Balance | $ | 21,445 | | | $ | 10,167 | | | $ | 13,871 | | | $ | 5,795 | | | $ | 5,795 | |
Additions | 3,790 | | | 2,964 | | | 12,633 | | | 8,449 | | | 15,509 | |
Amortization | (878) | | | (1,170) | | | (2,147) | | | (2,283) | | | (7,433) | |
Closing Balance | $ | 24,357 | | | $ | 11,961 | | | $ | 24,357 | | | $ | 11,961 | | | $ | 13,871 | |
There was no impairment for contract acquisition and contract fulfillment costs as of September 30, 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.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
| | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
Accounts receivable, including unbilled receivables | $ | 307,074 | | | $ | 260,554 | |
Less: Allowance for expected credit losses | (3,696) | | | (1,332) | |
Accounts receivable, net | $ | 303,378 | | | $ | 259,222 | |
The movement in “Allowance for expected credit losses” on customer balances was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended | | Year ended |
| September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 | | December 31, 2022 |
Opening Balance | $ | 1,800 | | | $ | 844 | | | $ | 1,332 | | | $ | 573 | | | $ | 573 | |
Additions | 1,964 | | | 9 | | | 2,441 | | | 752 | | | 815 | |
Reductions due to write-off of accounts receivables | (70) | | | — | | | (78) | | | (472) | | | (60) | |
Currency translation adjustments | 2 | | | 2 | | | 1 | | | 2 | | | 4 | |
Closing Balance | $ | 3,696 | | | $ | 855 | | | $ | 3,696 | | | $ | 855 | | | $ | 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 September 30, 2023 and December 31, 2022.
5. Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding, adjusted for outstanding shares that are subject to repurchase during each period. Diluted earnings per share is computed using the weighted average number of common shares plus the potentially dilutive effect of common stock equivalents (outstanding stock options, restricted stock, restricted stock units and employee stock purchase plans) issued and outstanding at the reporting date, using the treasury stock method. Stock options, restrictedCommon stock and restricted stock unitsequivalents that are anti-dilutive are excluded from the computation of weighted average shares outstanding.
The following table sets forth the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Numerators: | | | | | | | |
Net income | $ | 43,876 | | | $ | 39,095 | | | $ | 144,275 | | | $ | 111,119 | |
Denominators(1): | | | | | | | |
Basic weighted average common shares outstanding | 166,159,619 | | | 166,189,165 | | | 166,707,599 | | | 166,801,730 | |
Dilutive effect of stock-based awards | 1,528,755 | | | 2,699,580 | | | 1,884,013 | | | 2,366,455 | |
| | | | | | | |
Diluted weighted average common shares outstanding | 167,688,374 | | | 168,888,745 | | | 168,591,612 | | | 169,168,185 | |
Earnings per share attributable to ExlService Holdings, Inc. stockholders (1): | | | | | | | |
Basic | $ | 0.26 | | | $ | 0.24 | | | $ | 0.87 | | | $ | 0.67 | |
Diluted | $ | 0.26 | | | $ | 0.23 | | | $ | 0.86 | | | $ | 0.66 | |
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share (1) | 2,899,035 | | | 4,680 | | | 1,564,844 | | | 3,365 | |
(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerators: | | | | | | | |
Net income | $ | 21,077 |
| | $ | 16,050 |
| | $ | 58,243 |
| | $ | 46,245 |
|
Denominators: | | | | | | | |
Basic weighted average common shares outstanding | 33,838,374 |
| | 33,624,401 |
| | 33,834,392 |
| | 33,542,258 |
|
Dilutive effect of share based awards | 1,205,613 |
| | 1,051,084 |
| | 1,214,280 |
| | 970,557 |
|
Diluted weighted average common shares outstanding | 35,043,987 |
| | 34,675,485 |
| | 35,048,672 |
| | 34,512,815 |
|
Earnings per share: | | | | | | | |
Basic | $ | 0.62 |
| | $ | 0.48 |
| | $ | 1.72 |
| | $ | 1.38 |
|
Diluted | $ | 0.60 |
| | $ | 0.46 |
| | $ | 1.66 |
| | $ | 1.34 |
|
Weighted average common shares considered anti-dilutive in computing diluted earnings per share | — |
| | 32,516 |
| | 151,961 |
| | 97,574 |
|
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
5.6. Other Income, net
Other income, net consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Gain on sale and mark-to-market on investments | $ | 1,337 | | | $ | 1,471 | | | $ | 4,076 | | | $ | 3,341 | |
Interest and dividend income | 2,106 | | | 1,457 | | | 5,480 | | | 3,674 | |
Fair value changes of contingent consideration* | (2,500) | | | — | | | (2,500) | | | (1,000) | |
Others, net | (165) | | | (667) | | | (462) | | | (1,517) | |
Other income, net | $ | 778 | | | $ | 2,261 | | | $ | 6,594 | | | $ | 4,498 | |
* Refer to Note 16 - Fair Value Measurements to the unaudited consolidated financial statements for further details.
7. Cash, Cash Equivalents and Restricted Cash
|
| | | | | | | | | | | | | | | |
| 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, PlantFor the purposes of unaudited statements of cash flows, cash, cash equivalents and Equipment
Property, Plant and Equipmentrestricted cash consist of the following:
| | | | | | | | | | | | | | | | | |
| As of |
| September 30, 2023 | | September 30, 2022 | | December 31, 2022 |
Cash and cash equivalents | $ | 122,655 | | | $ | 89,262 | | | $ | 118,669 | |
Restricted cash (current) | 3,257 | | | 7,013 | | | 4,897 | |
Restricted cash (non-current) | 2,047 | | | 1,996 | | | 2,055 | |
Cash, cash equivalents and restricted cash | $ | 127,959 | | | $ | 98,271 | | | $ | 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 |
| September 30, 2023 | | December 31, 2022 |
Short-term investments | | | |
Mutual funds | $ | 76,476 | | | $ | 110,964 | |
Term deposits | 75,105 | | | 68,063 | |
Total Short-term investments | $ | 151,581 | | | $ | 179,027 | |
| | | |
Long-term investments | | | |
Term deposits | $ | 1,078 | | | $ | 31,341 | |
Investment in equity affiliate | 4,195 | | | 3,438 | |
Total Long-term investments | $ | 5,273 | | | $ | 34,779 | |
Refer to Note 16 - Fair Value Measurements to the unaudited consolidated financial statements for further details.
|
| | | | | | | | | |
| Estimated useful lives | | As of |
| (Years) | | September 30, 2017 | | December 31, 2016 |
Owned Assets: |
| |
| |
|
Network equipment and computers | 3-5 | | $ | 73,728 |
| | $ | 65,381 |
|
Software | 3-5 | | 56,369 |
| | 44,617 |
|
Leasehold improvements | 3-8 | | 36,741 |
| | 31,192 |
|
Office furniture and equipment | 3-8 | | 18,397 |
| | 15,426 |
|
Motor vehicles | 2-5 | | 645 |
| | 580 |
|
Buildings | 30 | | 1,218 |
| | 1,171 |
|
Land | — | | 797 |
| | 766 |
|
Capital work in progress | — | | 9,624 |
| | 4,964 |
|
|
| | 197,519 |
| | 164,097 |
|
Less: Accumulated depreciation and amortization |
| | (134,245 | ) | | (115,568 | ) |
|
| | $ | 63,274 |
| | $ | 48,529 |
|
Assets under capital leases: |
| |
| |
|
Leasehold improvements |
| | $ | 889 |
| | $ | 854 |
|
Office furniture and equipment |
| | 138 |
| | 133 |
|
Motor vehicles |
| | 644 |
| | 810 |
|
|
| | 1,671 |
| | 1,797 |
|
Less: Accumulated depreciation and amortization |
| | (1,216 | ) | | (1,297 | ) |
|
| | $ | 455 |
| | $ | 500 |
|
Property, Plant and Equipment, net |
| | $ | 63,729 |
| | $ | 49,029 |
|
Capital work in progress represents advances paid towards acquisition
Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
9. Property and Equipment
Property and equipment, net consists of the following:
| | | | | | | | | | | | | | | | | |
| | | As of |
| Estimated useful lives (Years) | | September 30, 2023 | | December 31, 2022 |
Owned Assets: | | | | | |
Network equipment and computers | 3-5 | | $ | 143,357 | | | $ | 130,218 | |
Software | 2-5 | | 99,614 | | | 88,487 | |
Leasehold improvements | 3-8 | | 39,470 | | | 42,890 | |
Office furniture and equipment | 3-8 | | 19,407 | | | 20,211 | |
Motor vehicles | 2-5 | | 727 | | | 605 | |
Buildings | 30 | | 958 | | | 961 | |
Land | — | | 627 | | | 629 | |
Capital work in progress | — | | 15,674 | | | 14,459 | |
| | | 319,834 | | | 298,460 | |
Less: Accumulated depreciation and amortization | | | (223,760) | | | (216,132) | |
| | | 96,074 | | | 82,328 | |
Right-of-use assets under finance leases: | | | | | |
Network equipment and computers | | | 58 | | | 82 | |
Leasehold improvements | | | 605 | | | 1,013 | |
Office furniture and equipment | | | 431 | | | 662 | |
Motor vehicles | | | 891 | | | 742 | |
| | | 1,985 | | | 2,499 | |
Less: Accumulated depreciation and amortization | | | (1,330) | | | (1,999) | |
| | | 655 | | | 500 | |
Property and equipment, net | | | $ | 96,729 | | | $ | 82,828 | |
Capital work in progress represents advances paid towards acquisition of property and equipment and costs incurred on internally developed software not yet ready for its intended use.
During the three and nine months ended September 30, 2023, there were no material changes in estimated useful lives of property and equipment during the ordinary course of operations.
The depreciation and amortization expense, excluding amortization of acquisition-related intangibles, recognized in the unaudited consolidated statements of income was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Depreciation and amortization expense | $ | 8,426 | | | $ | 10,137 | | | $ | 26,682 | | | $ | 29,182 | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Depreciation and amortization expense | $ | 6,221 |
| | $ | 5,749 |
| | $ | 18,279 |
| | $ | 16,719 |
|
|
| | | | | | | |
Software - Internally developed: | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Cost | $ | 2,364 |
| | $ | 2,242 |
|
Less : Accumulated amortization expense | 791 |
| | 336 |
|
| $ | 1,573 |
| | $ | 1,906 |
|
7. Goodwill and Intangible Assets
Goodwill
The following table sets forth detailseffect of the Company’s goodwill balanceforeign exchange loss upon settlement of cash flow hedges recorded under depreciation and amortization expense, was as of September 30, 2017:follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Effect of foreign exchange loss | | $ | (37) | | | $ | (126) | | | $ | (182) | | | $ | (64) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 20172023
(In thousands, except share and per share amounts)amount and share count)
Internally developed software costs, included under Software, was as follows:
| | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
Cost | $ | 42,585 | | | $ | 31,544 | |
Less : Accumulated amortization | (22,843) | | | (16,134) | |
Internally developed software, net | $ | 19,742 | | | $ | 15,410 | |
The amortization expense on internally developed software recognized in the unaudited consolidated statements of income was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Amortization expense | $ | 2,311 | | | $ | 1,832 | | | $ | 6,711 | | | $ | 4,414 | |
As of September 30, 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.
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 | 11 | | | (2) | | | (66) | | | (1) | | | (58) | |
Balance as of September 30, 2023 | $ | 49,940 | | | $ | 21,873 | | | $ | 47,035 | | | $ | 286,731 | | | $ | 405,579 | |
As of September 30, 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 performance during nine months of the current fiscal year, business forecasts for the remainder of the year, stock price movements, generation and availability of cash and expansion plans. The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the annual impairment test performed during the fourth quarter of 2022. The Company did not identify any triggers or indications of potential impairment for its reporting units as of September 30, 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.
Other Intangible Assets
Information regarding the Company’s intangible assets is set forth below:
|
| | | | | | | | | | | |
| As of September 30, 2017 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-lived intangible assets: |
|
| |
|
| |
|
|
Customer relationships | $ | 75,372 |
| | $ | (40,975 | ) | | $ | 34,397 |
|
Leasehold benefits | 2,826 |
| | (2,490 | ) | | 336 |
|
Developed technology | 14,314 |
| | (8,177 | ) | | 6,137 |
|
Non-compete agreements | 2,045 |
| | (1,739 | ) | | 306 |
|
Trade names and trademarks | 5,379 |
| | (3,887 | ) | | 1,492 |
|
| $ | 99,936 |
| | $ | (57,268 | ) | | $ | 42,668 |
|
Indefinite-lived intangible assets: | | | | | |
Trade names and trademarks | $ | 900 |
| | $ | — |
| | $ | 900 |
|
Total intangible assets | $ | 100,836 |
| | $ | (57,268 | ) | | $ | 43,568 |
|
|
| | | | | | | | | | | |
| As of December 31, 2016 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-lived intangible assets: | | | | | |
Customer relationships | $ | 75,181 |
| | $ | (32,968 | ) | | $ | 42,213 |
|
Leasehold benefits | 2,715 |
| | (2,247 | ) | | 468 |
|
Developed technology | 14,186 |
| | (6,468 | ) | | 7,718 |
|
Non-compete agreements | 2,045 |
| | (1,612 | ) | | 433 |
|
Trade names and trademarks | 5,360 |
| | (3,322 | ) | | 2,038 |
|
| $ | 99,487 |
| | $ | (46,617 | ) | | $ | 52,870 |
|
Indefinite-lived intangible assets: | | | | | |
Trade names and trademarks | $ | 900 |
| | $ | — |
| | $ | 900 |
|
Total intangible assets | $ | 100,387 |
| | $ | (46,617 | ) | | $ | 53,770 |
|
The amortization expenses is as follows:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Amortization expense | $ | 3,487 |
| | $ | 2,848 |
| | $ | 10,492 |
| | $ | 8,281 |
|
|
| |
| (in years) |
Customer relationships | 5.15 |
Leasehold benefits | 1.67 |
Developed technologies | 3.77 |
Non-compete agreements | 1.93 |
Trade names and trademarks (Finite lived) | 5.23 |
ContentsEXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
| | | | | | | | | | | | | | | | | |
| As of September 30, 2023 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-lived intangible assets: | | | | | |
Customer relationships | $ | 99,146 | | | $ | (48,313) | | | $ | 50,833 | |
Developed technology | 3,490 | | | (2,266) | | | 1,224 | |
Trade names and trademarks | 1,700 | | | (1,520) | | | 180 | |
Non-compete agreements | 336 | | | (158) | | | 178 | |
| 104,672 | | | (52,257) | | | 52,415 | |
Indefinite-lived intangible assets: | | | | | |
Trade names and trademarks | 900 | | | — | | | 900 | |
Total intangible assets | $ | 105,572 | | | $ | (52,257) | | | $ | 53,315 | |
| | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-lived intangible assets: | | | | | |
Customer relationships | $ | 99,146 | | | $ | (39,848) | | | $ | 59,298 | |
Developed technology | 24,878 | | | (20,902) | | | 3,976 | |
Trade names and trademarks | 1,700 | | | (1,303) | | | 397 | |
Non-compete agreements | 336 | | | (88) | | | 248 | |
| 126,060 | | | (62,141) | | | 63,919 | |
Indefinite-lived intangible assets: | | | | | |
Trade names and trademarks | 900 | | | — | | | 900 | |
Total intangible assets | $ | 126,960 | | | $ | (62,141) | | | $ | 64,819 | |
The amortization expense recognized in the unaudited consolidated statements of income was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Amortization expense | $ | 3,157 | | | $ | 4,243 | | | $ | 11,510 | | | $ | 12,875 | |
| | | | | |
Estimated future amortization expense related to finite-lived intangible assets as of September 30, 2023 was as follows: |
2023 (October 1 - December 31) | $ | 3,147 | |
2024 | 12,135 | |
2025 | 10,699 | |
2026 | 10,363 | |
2027 | 9,364 | |
2028 and thereafter | 6,707 | |
Total | $ | 52,415 | |
|
| | | |
Estimated amortization of intangible assets during the next twelve months ending September 30, |
2018 | $ | 12,667 |
|
2019 | 11,947 |
|
2020 | 5,705 |
|
2021 | 3,207 |
|
2022 | 2,461 |
|
2023 and thereafter | 6,681 |
|
Total | $ | 42,668 |
|
8. Other current assets
Other current assets consistsTable of the following:
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Derivative instruments | $ | 8,236 |
| | $ | 3,324 |
|
Advances to suppliers | 3,681 |
| | 1,091 |
|
Receivables from statutory authorities | 5,784 |
| | 11,870 |
|
Others | 4,632 |
| | 4,883 |
|
Other current assets | $ | 22,333 |
| | $ | 21,168 |
|
9. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consists of the following:
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Accrued expenses | $ | 39,250 |
| | $ | 30,690 |
|
Derivative instruments | 1,330 |
| | 1,430 |
|
Client liability account | 2,090 |
| | 4,005 |
|
Others | 6,370 |
| | 7,139 |
|
Accrued expenses and other current liabilities | $ | 49,040 |
| | $ | 43,264 |
|
10. Non-current liabilities
Non-current liabilities consists of the following:
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Derivative instruments | $ | 1,553 |
| | $ | 828 |
|
Unrecognized tax benefits | 692 |
| | 3,640 |
|
Deferred rent | 7,890 |
| | 7,237 |
|
Retirement benefits | 2,917 |
| | 1,977 |
|
Others | 3,182 |
| | 1,137 |
|
Non-current liabilities | $ | 16,234 |
| | $ | 14,819 |
|
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
11. Accumulated Other Comprehensive LossCurrent Assets
Accumulated other comprehensive loss consistsOther current assets consist of amortization of actuarial gain / (loss) on retirement benefits and changes in the cumulative foreign currency translation adjustments. In addition, the Company enters into foreign currency exchange contracts, which are designated as cash flow hedges in accordance with ASC topic 815 “Derivatives and Hedging” (“ASC No. 815”). Changes in the fair values of contracts that are deemed effective are recorded as a component of accumulated other comprehensive loss until the settlement of those contracts. The balances as of September 30, 2017 and December 31, 2016 are as follows:following:
| | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
Advance income tax, net | $ | 26,630 | | | $ | 5,716 | |
Receivables from statutory authorities | 15,996 | | | 15,724 | |
Prepaid expenses | 15,066 | | | 18,132 | |
Deferred contract fulfillment costs | 3,091 | | | 1,178 | |
Derivative instruments | 2,757 | | | 1,526 | |
Contract assets | 2,286 | | | 904 | |
Advances to suppliers | 1,299 | | | 1,944 | |
| | | |
Others | 3,572 | | | 5,855 | |
Other current assets | $ | 70,697 | | | $ | 50,979 | |
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Cumulative currency translation adjustments | $ | (66,486 | ) | | $ | (77,299 | ) |
Unrealized gain on cash flow hedges, net of taxes of $3,605 and $1,207 | 7,559 |
| | 2,740 |
|
Retirement benefits, net of taxes of ($265) and ($342) | (363 | ) | | (498 | ) |
Accumulated other comprehensive loss | $ | (59,290 | ) | | $ | (75,057 | ) |
12. Fair Value MeasurementsOther Assets
AssetsOther assets consist of the following:
| | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
Deferred contract fulfillment costs | $ | 21,266 | | | $ | 12,693 | |
Contract assets | 8,800 | | | 1,864 | |
Deposits with statutory authorities | 7,272 | | | 6,276 | |
Lease deposits | 5,828 | | | 6,621 | |
Derivative instruments | 2,265 | | | 820 | |
Others | 5,967 | | | 3,795 | |
Other assets | $ | 51,398 | | | $ | 32,069 | |
13. Accrued Expenses and Other Current Liabilities Measured at Fair Value
The following table sets forthAccrued expenses and other current liabilities consist of the Company’s assets and liabilities that were accounted for at fair value as of September 30, 2017 and December 31, 2016. The table excludes accounts receivable, accounts payable and accrued expenses for which fair values approximate their carrying amounts.following:
| | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
Accrued expenses | $ | 55,071 | | | $ | 47,854 | |
Payable to statutory authorities | 19,067 | | | 20,430 | |
Contingent consideration | 15,600 | | | 5,000 | |
Client liabilities | 5,251 | | | 5,110 | |
Derivative instruments | 5,089 | | | 10,059 | |
Accrued capital expenditures | 3,978 | | | 4,032 | |
| | | |
| | | |
Others | 3,674 | | | 2,867 | |
Accrued expenses and other current liabilities | $ | 107,730 | | | $ | 95,352 | |
|
| | | | | | | | | | | | | | | |
As of September 30, 2017 | Level 1 | | Level 2 | | Level 3 | | Total |
Assets |
| |
| |
| |
|
Money market and mutual funds* | $ | 146,477 |
| | $ | — |
| | $ | — |
| | $ | 146,477 |
|
Derivative financial instruments | — |
| | 14,395 |
| | — |
| | 14,395 |
|
Total | $ | 146,477 |
| | $ | 14,395 |
| | $ | — |
| | $ | 160,872 |
|
Liabilities |
| |
| |
| |
|
Derivative financial instruments | $ | — |
| | $ | 2,883 |
| | $ | — |
| | $ | 2,883 |
|
Total | $ | — |
| | $ | 2,883 |
| | $ | — |
| | $ | 2,883 |
|
|
| |
| |
| |
|
As of December 31, 2016 | Level 1 | | Level 2 | | Level 3 | | Total |
Assets |
| |
| |
| |
|
Money market and mutual funds | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Derivative financial instruments | — |
| | 6,318 |
| | — |
| | 6,318 |
|
Total | $ | — |
| | $ | 6,318 |
| | $ | — |
| | $ | 6,318 |
|
Liabilities |
| |
| |
| |
|
Derivative financial instruments | $ | — |
| | $ | 2,258 |
| | $ | — |
| | $ | 2,258 |
|
Total | $ | — |
| | $ | 2,258 |
| | $ | — |
| | $ | 2,258 |
|
21
* Represents short-term investments carried on fair value option under ASC 825 “Financial Instruments” as
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
14. Other Non-Current Liabilities
Other non-current liabilities consist of the following:
| | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
Retirement benefits | $ | 13,210 | | | $ | 12,982 | |
Deferred transition revenue | 11,807 | | | 4,408 | |
Unrecognized tax benefits | 2,329 | | | 2,329 | |
Derivative instruments | 1,534 | | | 6,218 | |
Contingent consideration | 589 | | | 13,689 | |
| | | |
| | | |
Others | 1,885 | | | 1,666 | |
Other non-current liabilities | $ | 31,354 | | | $ | 41,292 | |
15. Accumulated Other Comprehensive Income/(Loss)
Accumulated other comprehensive income/(loss) (“AOCI”) consists of actuarial gain/(loss) on retirement benefits and foreign currency translation adjustments. In addition, the Company enters into foreign currency forward contracts and interest rate swaps, which are designated as cash flow hedges and net investment hedges, as applicable, in accordance with ASC Topic 815, Derivatives and Hedging. Cumulative changes in the fair values of cash flow hedges are recognized in AOCI on the Company’s consolidated balance sheets. The fair value changes are reclassified from AOCI to unaudited consolidated statements of income upon settlement of foreign currency forward contracts designated as cash flow hedges of a forecast transaction, whereas such changes for interest rate swaps are reclassified over the term of the contract. Fair value changes related to net investment hedges are included in AOCI and are reclassified to unaudited consolidated statements of income when a foreign operation is disposed or partially disposed. The following table sets forth the changes in AOCI during the nine months ended September 30, 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/(losses) recognized during the period | (2,605) | | | 8,242 | | | — | | | 5,637 | |
| | | | | | | |
Reclassification to net income (1) | — | | | 4,261 | | | (70) | | | 4,191 | |
Income tax effects (2) | 466 | | | (2,900) | | | (56) | | | (2,490) | |
Accumulated other comprehensive income/(loss) as of September 30, 2023 | $ | (135,278) | | | $ | (1,700) | | | $ | 173 | | | $ | (136,805) | |
| | | | | | | |
Balance as of January 1, 2022 | $ | (95,437) | | | $ | 8,420 | | | $ | (2,457) | | | $ | (89,474) | |
Losses recognized during the period | (49,371) | | | (28,638) | | | — | | | (78,009) | |
| | | | | | | |
Reclassification to net income (1) | — | | | (1,881) | | | 451 | | | (1,430) | |
Income tax effects (2) | 8,898 | | | 5,948 | | | (136) | | | 14,710 | |
Accumulated other comprehensive income/(loss) as of September 30, 2022 | $ | (135,910) | | | $ | (16,151) | | | $ | (2,142) | | | $ | (154,203) | |
(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.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
16. Fair Value Measurements
Assets and Liabilities Measured at Fair Value
The following table sets forth the Company’s assets and liabilities that were recognized at fair value:
| | | | | | | | | | | | | | | | | | | | | | | |
| Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Other Unobservable Inputs | | |
As of September 30, 2023 | (Level 1) | | (Level 2) | | (Level 3) | | Total |
Assets | | | | | | | |
Cash equivalents - Money market funds (1) | $ | 17,718 | | | $ | — | | | $ | — | | | $ | 17,718 | |
Mutual funds (2) | 76,476 | | | — | | | — | | | 76,476 | |
Derivative financial instruments | — | | | 5,022 | | | — | | | 5,022 | |
Total | $ | 94,194 | | | $ | 5,022 | | | $ | — | | | $ | 99,216 | |
Liabilities | | | | | | | |
Derivative financial instruments | $ | — | | | $ | 6,623 | | | $ | — | | | $ | 6,623 | |
Contingent consideration (3) | — | | | — | | | 16,189 | | | 16,189 | |
Total | $ | — | | | $ | 6,623 | | | $ | 16,189 | | | $ | 22,812 | |
| | | | | | | |
| Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Other Unobservable Inputs | | |
As of December 31, 2022 | (Level 1) | | (Level 2) | | (Level 3) | | Total |
Assets | | | | | | | |
Cash equivalents - Money market funds (1) | $ | 1,137 | | | $ | — | | | $ | — | | | $ | 1,137 | |
Mutual funds (2) | 110,964 | | | — | | | — | | | 110,964 | |
Derivative financial instruments | — | | | 2,346 | | | — | | | 2,346 | |
Total | $ | 112,101 | | | $ | 2,346 | | | $ | — | | | $ | 114,447 | |
Liabilities | | | | | | | |
Derivative financial instruments | $ | — | | | $ | 16,277 | | | $ | — | | | $ | 16,277 | |
Contingent consideration (3) | — | | | — | | | 18,689 | | | 18,689 | |
Total | $ | — | | | $ | 16,277 | | | $ | 18,689 | | | $ | 34,966 | |
(1)Represents money market funds which are carried at the fair value option under ASC Topic 825 “Financial Instruments”.
(2) Represents those short-term investments which are carried at the fair value option under ASC Topic 825 “Financial Instruments”.
(3) Contingent consideration is presented under “Accrued Expenses and Other Current Liabilities” and “Other Non-Current Liabilities,” as applicable, in the consolidated balance sheets.
Fair Value of Derivative Financial Instruments:
The Company’s derivative financial instruments consist of foreign currency forward exchange contracts.contracts and interest rate swaps. Fair values for derivative financial instruments are based on independent sources including highly rated financial institutions and are classified as Level 2. SeeRefer to Note 1317 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements contained herein for further detailsdetails.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
Fair Value of Contingent Consideration:
The fair value measurement of contingent consideration is determined using Level 3 inputs. The Company’s contingent consideration represents a component of the total purchase consideration for business acquisitions. The measurement is calculated using unobservable inputs based on Derivativesthe Company’s own assessment of achievement of certain performance goals. The Company estimated the fair value of the contingent consideration based on the Monte Carlo simulation model and Hedge Accounting.scenario-based method.
13.The following table summarizes the changes in the fair value of contingent consideration:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Opening balance | $ | 13,689 | | | $ | 11,439 | | | $ | 18,689 | | | $9,000 |
Acquisitions | — | | | — | | | — | | | 1,439 | |
Fair value changes | 2,500 | | | — | | | 2,500 | | | 1,000 | |
Payments | — | | | — | | | (5,000) | | | — | |
Closing balance | $ | 16,189 | | | $ | 11,439 | | | $ | 16,189 | | | $ | 11,439 | |
During the three and nine months ended September 30, 2023 and 2022, there were no transfers among Level 1, Level 2 and Level 3.
Financial Instruments Not Carried at Fair Value:
The Company’s other financial instruments not carried at fair value consist primarily of cash and cash equivalents (except investments in money market funds, as disclosed above), short-term investments (except investments in mutual funds, as disclosed above), restricted cash, accounts receivable, net, long-term investments, accrued capital expenditures, accrued expenses, client liabilities and interest payable on borrowings for which fair values approximate their carrying amounts. The carrying value of the Company’s outstanding revolving credit facility approximates its fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments.
17. Derivatives and Hedge Accounting
The Company uses derivative instruments and hedging transactions to mitigate exposure tocash flow volatility from risk of fluctuations in foreign currency fluctuationexchange rates and interest rates. The Company enters into foreign currency forward contracts to hedge cash flow risks associated withfrom forecasted transactions denominated in certain foreign currencies, and interest rate swaps to minimize earnings andhedge cash flow volatility associated with changes in foreign currency exchange rates. The Company’s derivative financial instruments are largely foreign exchange forwardrisks from its revolving credit facility having variable interest rate obligations. These contracts that are designated effective and that qualify as cash flow hedges under ASC 815. The Company had outstandingTopic 815, Derivatives and Hedging, and are with counterparties that are highly rated financial institutions. For derivatives in cash flow hedges totaling $297,643 (including $1,500 of range forward contracts)hedging relationships as of September 30, 20172023 and $218,545 as of December 31, 2016. 2022, the Company had outstanding foreign currency forward contracts totaling $797,400 and $841,620, respectively and interest rate swaps totaling $75,000, each.
The fairCompany estimates that approximately $2,399 of derivative losses, net, excluding tax effects, included in AOCI, representing changes in the value of these cash flow hedges is included inbased on exchange rates prevailing as of September 30, 2023, could be reclassified into earnings within the other comprehensive loss onnext twelve months. As of September 30, 2023, the Company's unaudited consolidated balance sheet.maximum outstanding term of the cash flow hedges was approximately 36 months.
The Company also enters into foreign currency forward contracts to economically hedge its intercompany balances and other monetary assets and liabilities denominated in currencies other than functional currencies.currencies, against the risk of fluctuations in foreign currency exchange rates associated with remeasurement of such assets and liabilities to functional currency. These derivativesforeign currency forward contracts do not qualify as fair value hedges under ASC 815.Topic 815, Derivatives and Hedging. Changes in the fair value of these derivativesfinancial instruments are recognized in the unaudited consolidated statements of income and are included in the foreign exchange gain/loss.(loss) line item. The Company’s primary exchange rate exposure is with the Indian Rupee,rupee, the Philippine peso and the U.K. Poundpound sterling and the Philippine peso.(GBP). The Company also has exposure to Colombian pesos Czech Koruna,(COP), the Euro (EUR), South African Randrand (ZAR), the Australian dollar (AUD), the Canadian dollar (CAD) and other local currencies in which it operates. Outstanding foreign currency forward contracts amounted to $91,523 and GBP 17,244 as
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 |
|
Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
DerivativesThe 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: | | September 30, 2023 | | December 31, 2022 |
U. S. dollar (USD) | | 175,445 | | | 163,990 | |
U.K. pound sterling (GBP) | | 10,435 | | | 8,351 | |
Euro (EUR) | | 3,531 | | | 1,956 | |
Australian dollar (AUD) | | 3,991 | | | 1,951 | |
South African rand (ZAR) | | 122,188 | | | — | |
Colombian peso (COP) | | 2,286,550 | | | — | |
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Other current assets: | | | |
Foreign currency exchange contracts | $ | 114 |
| | $ | 113 |
|
Accrued expenses and other current liabilities: | | | |
Foreign currency exchange contracts | $ | 47 |
| | $ | — |
|
The following tables settable 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 |
| | September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
Assets: | | | | | | | | |
Other current assets | | $ | 2,542 | | | $ | 1,271 | | | $ | 215 | | | $ | 255 | |
Other assets | | $ | 2,265 | | | $ | 820 | | | $ | — | | | $ | — | |
Liabilities: | | | | | | | | |
Accrued expenses and other current liabilities | | $ | 4,941 | | | $ | 10,044 | | | $ | 148 | | | $ | 15 | |
Other non-current liabilities | | $ | 1,534 | | | $ | 6,218 | | | $ | — | | | $ | — | |
The following table sets forth the effect of foreign currency exchangeforward contracts and interest rate swaps on AOCI and the unaudited consolidated statements of income for the three and nine months ended September 30, 2017 and 2016:income:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
Derivative financial instruments: | | 2023 | | 2022 | | 2023 | | 2022 |
Unrealized gain/(loss) recognized in AOCI | | | | | | | | |
Derivatives in cash flow hedging relationships | | $ | (7,903) | | | $ | (13,489) | | | $ | 8,242 | | | $ | (28,638) | |
| | | | | | | | |
Gain/(loss) recognized in unaudited consolidated statements of income | | | | | | | | |
Derivatives not designated as hedging instruments | | $ | (1,584) | | | $ | (4,889) | | | $ | 574 | | | $ | (11,245) | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Derivatives in Cash flow hedging relationship | | | | | | | |
Gain/(loss) recognized in AOCL on derivative - Effective portion | $ | (719 | ) | | $ | 3,607 |
| | $ | 8,774 |
| | $ | 4,160 |
|
Gain/(loss) reclassified from AOCL to foreign exchange gain/(loss) - Effective portion | $ | 423 |
| | $ | 466 |
| | $ | 1,557 |
| | $ | 872 |
|
Gain/(loss) recognized in foreign exchange gain/(loss) - Ineffective portion | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | |
Gain/(loss) recognized in foreign exchange gain/(loss) | $ | (678 | ) | | $ | 1,382 |
| | $ | 2,095 |
| | $ | 4,110 |
|
14. Borrowings
The Company has a revolving credit facility (the “Credit Facility”), including a letterTable of credit sub-facility, in the amount of $100,000. The Credit Facility has a maturity date of October 24, 2019 and is voluntarily pre-payable from time to time without premium or penalty.
Borrowings under the Credit Facility may be used for working capital, general corporate purposes and for acquisitions. The amount outstanding as of September 30, 2017 is $45,000 which is included under “long-term borrowings” in the unaudited consolidated balance sheets. The Credit Facility carried an effective interest rate of 2.9% per annum and 2.2% per annum, during the three months ended September 30, 2017 and 2016, respectively, and for the nine months ended September 30, 2017 and 2016 it was 2.7% per annum and 2.0% per annum, respectively.
In connection with the financing, the Company incurred certain debt issuance costs, which are deferred and amortized as an adjustment to interest expense over the term of the Credit Facility. The unamortized debt issuance costs as of September 30, 2017 and December 31, 2016 was $200 and $272, respectively, and is included under “other current assets” and “other assets” in the unaudited consolidated balance sheets.
The Credit Facility is guaranteed by the Company's domestic subsidiaries and material foreign subsidiaries and is secured by all or substantially all of the assets of the Company and its material domestic subsidiaries. The Credit Agreement governing the Credit Facility contains certain covenants including a restriction on our indebtedness, and a covenant to not permit the interest coverage ratio (the ratio of EBIT to cash interest expense) to be less than 3.5 to 1.0 or the leverage ratio (total funded indebtedness to EBITDA) to be greater than 2.5 to 1.0, for the four consecutive quarter period ending on the last day of each fiscal quarter. As of September 30, 2017, the Company was in compliance with the financial covenants listed above.Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
The following table sets forth the location and amount of gain/(loss) recognized in unaudited consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments:
15. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, |
| | 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 |
Derivatives in cash flow hedging relationships | | | | | | | | |
Location in unaudited consolidated statements of income where gain/(loss) was reclassified from AOCI | | | | | | | | |
| | | | | | | | |
Cost of revenues | | $ | 256,002 | | | $ | (252) | | | $ | 230,462 | | | $ | (1,381) | |
General and administrative expenses | | $ | 52,213 | | | 18 | | | $ | 42,519 | | | (109) | |
Selling and marketing expenses | | $ | 30,943 | | | — | | | $ | 23,879 | | | (6) | |
Depreciation and amortization expense | | $ | 11,583 | | | (19) | | | $ | 14,380 | | | (71) | |
Interest expense | | $ | 3,405 | | | 221 | | | $ | 2,442 | | | — | |
Total before tax | | | | (32) | | | | | (1,567) | |
Income tax effects on above | | | | (64) | | | | | 133 | |
Net of tax | | | | $ | (96) | | | | | $ | (1,434) | |
| | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | |
Location in unaudited consolidated statements of income where gain/(loss) was recognized | | | | | | | | |
| | | | | | | | |
Foreign exchange gain/(loss), net | | $ | 409 | | | $ | (1,584) | | | $ | 1,504 | | | $ | (4,889) | |
| | $ | 409 | | | $ | (1,584) | | | $ | 1,504 | | | $ | (4,889) | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
The following table sets forth the location and amount of gain/(loss) recognized in unaudited consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, |
| | 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 |
Derivatives in cash flow hedging relationships | | | | | | | | |
Location in unaudited consolidated statements of income where gain/(loss) was reclassified from AOCI | | | | | | | | |
| | | | | | | | |
Cost of revenues | | $ | 760,691 | | | $ | (4,148) | | | $ | 659,185 | | | $ | 1,396 | |
General and administrative expenses | | $ | 144,564 | | | (357) | | | $ | 122,898 | | | 366 | |
Selling and marketing expenses | | $ | 88,674 | | | (32) | | | $ | 72,034 | | | 23 | |
Depreciation and amortization expense | | $ | 38,192 | | | (185) | | | $ | 42,057 | | | 96 | |
Interest expense | | $ | 10,030 | | | 461 | | | $ | 4,820 | | | — | |
Total before tax | | | | (4,261) | | | | | 1,881 | |
Income tax effects on above | | | | 701 | | | | | (802) | |
Net of tax | | | | $ | (3,560) | | | | | $ | 1,079 | |
| | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | |
Location in unaudited consolidated statements of income where gain/(loss) was recognized | | | | | | | | |
| | | | | | | | |
Foreign exchange gain/(loss), net | | $ | 838 | | | $ | 574 | | | $ | 4,683 | | | $ | (11,245) | |
| | $ | 838 | | | $ | 574 | | | $ | 4,683 | | | $ | (11,245) | |
18. Borrowings
The following table summarizes the Company’s debt position: | | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
| Revolving credit facility |
Current portion of long-term borrowings | $ | 50,000 | | | $ | 30,000 | |
| | | |
| | | |
| | | |
| | | |
Long-term borrowings | 160,000 | | | 220,000 | |
Total borrowings | $ | 210,000 | | | $ | 250,000 | |
Unamortized debt issuance costs for the Company’s revolving credit facility of $972 and $1,177 as of September 30, 2023 and December 31, 2022, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 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 Agreement”), 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 and is voluntarily pre-payable from time to time without premium or penalty. Borrowings under the 2022 Credit Agreement can be used for working capital and general corporate purposes, including permitted acquisitions.
Obligations under the 2022 Credit Agreement are guaranteed by the Company’s material domestic subsidiaries and are secured by all or substantially all of the Company’s and its material domestic subsidiaries’ assets. The 2022 Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of certain assets or subsidiaries.
The revolving credit facility carried an effective interest rate as shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Effective Interest Rate | 6.5 | % | | 3.4 | % | | 6.2 | % | | 2.3 | % |
As of September 30, 2023 and December 31, 2022, the Company was in compliance with all financial and non-financial covenants listed under the revolving credit facility.
Expected payments for all of the Company’s borrowings as of September 30, 2023 were as follows:
| | | | | | | | | | | |
| Revolving credit facility |
| Principal Payments | | Interest Payments* |
2023 (October 1 - December 31) | $ | 35,000 | | | $ | 3,029 | |
2024 | 15,000 | | | 10,659 | |
2025 | — | | | 10,069 | |
2026 | — | | | 10,069 | |
2027 | 160,000 | | | 3,776 | |
Total | $ | 210,000 | | | $ | 37,602 | |
* Interest payments are based on interest rate prevailing as of September 30, 2023.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
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 September 30, 2023 and December 31, 2022, the Company had outstanding letters of credit of $461, that were not recognized in the consolidated balance sheets.
19. Capital Structure
Common Stock
The Company has one class of common stock outstanding.
DuringStock Split
On June 20, 2023, the three months ended September 30, 2017Company’s stockholders approved an amendment to the Company’s Amended and 2016,Restated Certificate of Incorporation, which upon filing with the Company did not acquire anyState of Delaware on August 1, 2023, and effectiveness thereof, effected a 5-for-1 forward stock split of the Company’s common stock (the “2023 Stock Split”) and an increase in the number of authorized shares of the Company’s common stock from 100,000,000 shares to 400,000,000 shares. The par value of each share of common stock, $0.001, remained unchanged.
Pursuant to the 2023 Stock Split, each stockholder of record on July 25, 2023 holding shares of the Company’s common stock received four additional shares of the Company’s common stock for every one share held. The additional shares were distributed after the close of business on August 1, 2023. The common shares began trading on the Nasdaq Global Select Market on a post-split basis on August 2, 2023.
All share count and per share amounts in the unaudited consolidated financial statements have been retrospectively adjusted from January 1, 2022 to reflect the 2023 Stock Split as if it occurred at the beginning of the earliest period presented. An amount equal to the par value of the increased shares resulting from the 2023 Stock Split was reclassified from “Additional paid-in capital” to “Common stock.”
Share Repurchases
The Company 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, 2017stock units and 2016, the Company acquired 65,003 and 16,027 shares of common stock, respectively, from employees in connection with withholding tax payments related to the vesting ofperformance-based restricted stock for a total consideration of $3,016 and $728, respectively. units, as below:
| | | | | | | | | | | | | | | | | |
| Shares repurchased | | Total consideration | | Weighted average purchase price per share (1) |
Three months ended September 30, 2023 | 45,267 | | $ | 1,324 | | | $ | 29.25 | |
Three months ended September 30, 2022 | — | | $ | — | | | $ | — | |
| | | | | |
Nine months ended September 30, 2023 | 237,047 | | $ | 7,853 | | | $ | 33.13 | |
Nine months ended September 30, 2022 | 136,095 | | $ | 3,191 | | | $ | 23.45 | |
(1)The weighted average purchase price per share of $46.40 and $45.44, respectively, wasis based on the average of the high and lowclosing price of the Company’s share of common stock on the Nasdaq Global Select Market on the trading day prior to the applicable vesting date of the shares of restricted stock.
On December 30, 2014,October 5, 2021, the Company’s Boardboard of Directorsdirectors authorized a $300,000 common stock repurchase program beginning January 1, 2022 (the “2014“2022 Repurchase Program”), under which shares were authorized to be purchased by.
Under the Company from time to time from the open market and through private transactions during each of the fiscal years 2015 through 2017 up to an annual amount of $20,000.
On February 28, 2017, the Company’s Board of Directors authorized an additional common stock repurchase program (the “20172022 Repurchase Program”), under whichProgram, shares may be purchased by the Company from time to time from the open market and through private transactions, during each ofor otherwise, as determined by the fiscal years 2017 through 2019 up to an aggregate additional amount of $100,000. The approval increasesCompany’s management as market conditions warrant. Repurchases may be discontinued at any time by the 2017 authorization from $20,000 to $40,000 and authorizes stock repurchases of up to $40,000 in each of 2018 and 2019.management.
During the three and nine months ended September 30, 2017, the
The Company purchased 160,033 and 584,017 shares of its common stock, respectively, for an aggregate purchase price of approximately $9,004 and $29,320, respectively,a total consideration including commissions, representing an average purchase priceunder the 2022 Repurchase Program, as below:
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share of $56.26amount and $50.20, respectively, under the 2014 and 2017 Repurchase Program.share count)
During the three and nine months ended September 30, 2016, the Company purchased 108,143 and 302,953 shares of its common stock, respectively, for an aggregate purchase price of approximately $5,466 and $14,441, respectively, including commissions, representing an average purchase price per share of $50.54 and $47.67, respectively, under the 2014 Repurchase Program. | | | | | | | | | | | | | | | | | |
| Shares repurchased | | Total consideration | | Weighted average purchase price per share |
Three months ended September 30, 2023 | 975,774 | | $ | 28,636 | | | $ | 29.35 | |
Three months ended September 30, 2022 | 384,045 | | $ | 11,521 | | | $ | 30.00 | |
| | | | | |
Nine months ended September 30, 2023 | 3,001,619 | | $ | 93,483 | | | $ | 31.14 | |
Nine months ended September 30, 2022 | 2,519,290 | | $ | 68,521 | | | $ | 27.20 | |
Repurchased shares have been recorded as treasury shares and will be held until the BoardCompany’s board of Directorsdirectors designates that these shares be retired or used for other purposes.
16.20. Employee Benefit Plans
The Company’s Gratuity PlansPlan in India ("Gratuity Plan"(the “India Plan”) provideprovides for a lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee’s salary and years of employment with the Company. Liabilities with regard to the Gratuity Plans are determined by actuarial valuation using the projected unit credit method. Current service costs for the Gratuity Plan are accrued in the year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of the employees.
In addition, the Company’s subsidiary operating in the Philippines conforms to the minimum regulatory benefit, which provide for lump sum payment to vested employees on retirement from employment in an amount based on the respective employee’s salary and years of employment with the Company (the "Philippines Plan"“Philippines Plan”). The benefit costs ofLiabilities with regard to the India Plan and the Philippines Plan are determined by actuarial valuation using the projected unit credit method. Current service costs for these plans are accrued in the year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are calculated on an actuarial basis. recognized and amortized over the remaining period of service of the employees.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
Net gratuity cost includes the following components:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 491 |
| | $ | 402 |
| | $ | 1,469 |
| | $ | 1,203 |
|
Interest cost | 166 |
| | 150 |
| | 494 |
| | 449 |
|
Expected return on plan assets | (112 | ) | | (104 | ) | | (330 | ) | | (312 | ) |
Amortization of actuarial loss | 72 |
| | 23 |
| | 212 |
| | 67 |
|
Net gratuity cost | $ | 617 |
| | $ | 471 |
| | $ | 1,845 |
| | $ | 1,407 |
|
The GratuityIndia Plan in India is partially funded andwhereas the Philippines planPlan is unfunded. The Company makes annual contributions to the employees' gratuity fundIndia Plan established with Life Insurance Corporation of Indiainsurance companies. Fund managers manage these funds and HDFC Standard Life Insurance Company. They calculate the annual contribution required to be made by the Company and manage the Gratuity Plans,India Plan, including any required payouts. Fund managers manage theseThese funds are managed on a cash accumulation basis and declare interest is declared retrospectively on March 31 of each year. The Company earnedexpects to earn a return of approximately 8.0%7.2% per annum on these Gratuity Plansthe India Plan for the periodyear ending on December 31, 2023.
| | | | | | | | |
Change in Plan Assets | | |
Plan assets as of January 1, 2023 | | $ | 14,449 | |
Actual return | | 853 | |
Employer contribution | | 2,921 | |
Benefits paid* | | (1,015) | |
Effect of exchange rate changes | | (78) | |
Plan assets as of September 30, 2023 | | $ | 17,130 | |
* Benefits payments were substantially made through the plan assets during the nine months ended September 30, 2017.2023.
Components of net periodic benefit costs recognized in unaudited consolidated statements of income and actuarial (gain)/loss reclassified from AOCI, were as follows:
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Service cost | $ | 947 | | | $ | 921 | | | $ | 2,856 | | | $ | 2,869 | |
Interest cost | 392 | | | 302 | | | 1,180 | | | 938 | |
Expected return on plan assets | (261) | | | (215) | | | (788) | | | (664) | |
Amortization of actuarial (gain)/loss, gross of tax | (22) | | | 147 | | | (70) | | | 451 | |
Net gratuity cost | $ | 1,056 | | | $ | 1,155 | | | $ | 3,178 | | | $ | 3,594 | |
| | | | | | | |
Amortization of actuarial (gain)/loss, gross of tax | $ | (22) | | | $ | 147 | | | $ | (70) | | | $ | 451 | |
Income tax effects on above | (19) | | | (44) | | | (56) | | | (136) | |
Amortization of actuarial (gain)/loss, net of tax | $ | (41) | | | $ | 103 | | | $ | (126) | | | $ | 315 | |
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 contribution to the 401(k) plans amounting to $487 and $554 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.Plans was as follows:
During the three months ended September 30, 2017 and 2016, the Company contributed $1,845 and $1,608, respectively, and during the nine months ended September 30, 2017 and 2016, the Company contributed $5,350 and $4,619, respectively,
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Contribution to the 401(k) Plans | $ | 1,240 | | | $ | 1,097 | | | $ | 4,804 | | | $ | 4,140 | |
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 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Contributions to the defined social security contribution plans | $ | 5,841 | | | $ | 4,660 | | | $ | 16,837 | | | $ | 13,422 | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2017
(In thousands, except share and per share amounts)
17.21. Leases
The Company conducts its operations using facilities leased under operating lease agreements that expire at various dates. The Company finances its use of certain motor vehicles and other equipment under various lease arrangements provided by financial institutions. Future minimumThe lease payments under these capital leases as of September 30, 2017 are as follows:agreements do not contain any covenants to impose any restrictions except for market-standard practice for similar lease arrangements.
|
| | | |
During the next twelve months ending September 30, |
|
2018 | $ | 227 |
|
2019 | 173 |
|
2020 | 128 |
|
2021 | 72 |
|
Total minimum lease payments | 600 |
|
Less: amount representing interest | 117 |
|
Present value of minimum lease payments | 483 |
|
Less: current portion | 168 |
|
Long term capital lease obligation | $ | 315 |
|
The Company conductshad performed an evaluation of its operations usingcontracts with suppliers in accordance with ASC Topic 842, Leases, and had determined that, except for leases for office facilities, leased under non-cancelable operating lease agreements that expire at various dates. Future minimum lease payments under non-cancelable agreements expiring after September 30, 2017 are set forth below:
|
| | | |
During the next twelve months ending September 30, |
|
2018 | $ | 10,477 |
|
2019 | 8,470 |
|
2020 | 4,795 |
|
2021 | 3,189 |
|
2022 | 1,064 |
|
2023 and thereafter | 933 |
|
| $ | 28,928 |
|
Rent expense
The operating leases are subject to renewal periodically and have scheduled rent increases. The Company recognizes rent on such leases on a straight-line basis over cancelable and non-cancelable lease period determined under ASC topic 840, "Leases":
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Rent expense | $ | 6,362 |
| | $ | 5,445 |
| | $ | 18,168 |
| | $ | 15,871 |
|
Deferred rent
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Cancelable and non - cancelable operating leases
| $ | 8,763 |
| | $ | 7,915 |
|
Deferred rent is included under “Accrued expensesmotor vehicles and other current liabilities” and “Non-current liabilities” inequipment as described above, none of the unaudited consolidated balance sheets.Company’s contracts contain a lease. As part of the Company’s efforts to optimize its existing network of operations centers, the Company continued to evaluate its office facilities to determine where it can exit or consolidate its use of office space.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
Supplemental balance sheet information
18. | | | | | | | | | | | |
| As of |
| September 30, 2023 | | December 31, 2022 |
Operating Lease | | | |
Operating lease right-of-use assets, net | $ | 56,817 | | | $ | 55,347 | |
| | | |
Operating lease liabilities - Current | $ | 14,008 | | | $ | 14,978 | |
Operating lease liabilities - Non-current | 48,445 | | | 48,155 | |
Total operating lease liabilities | $ | 62,453 | | | $ | 63,133 | |
| | | |
Finance Lease | | | |
Property and equipment, gross | $ | 1,985 | | | $ | 2,499 | |
Accumulated depreciation | (1,330) | | | (1,999) | |
Property and equipment, net | $ | 655 | | | $ | 500 | |
| | | |
Finance lease liabilities - Current | $ | 171 | | | $ | 164 | |
Finance lease liabilities - Non-current | 505 | | | 355 | |
Total finance lease liabilities | $ | 676 | | | $ | 519 | |
The components of lease cost, which are included in the Company’s unaudited consolidated statements of income, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Lease cost | Three months ended September 30, | | Nine months ended September 30, |
Finance lease: | 2023 | | 2022 | | 2023 | | 2022 |
Amortization of right-of-use assets | $ | 50 | | | $ | 28 | | | $ | 127 | | | $ | 116 | |
Interest on lease liabilities | 25 | | | 14 | | | 63 | | | 42 | |
| 75 | | | 42 | | | 190 | | | 158 | |
Operating lease(a) | 4,839 | | | 5,360 | | | 15,171 | | | 17,365 | |
Variable lease costs | 1,170 | | | 1,298 | | | 3,334 | | | 3,827 | |
| | | | | | | |
Total lease cost | $ | 6,084 | | | $ | 6,700 | | | $ | 18,695 | | | $ | 21,350 | |
(a) Includes short-term leases, which are immaterial.
Supplemental cash flow and other information related to leases are as follows:
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2023 | | 2022 |
Cash payments for amounts included in the measurement of lease liabilities : | | | |
Operating cash outflows for operating leases | $ | 15,622 | | | $ | 17,831 | |
Operating cash outflows for finance leases | $ | 63 | | | $ | 42 | |
Financing cash outflows for finance leases | $ | 120 | | | $ | 108 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 13,477 | | | $ | 3,519 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 285 | | | $ | 218 | |
Weighted average remaining lease term (in years) | | | |
Finance lease | 3.1 years | | 2.7 years |
Operating lease | 5.6 years | | 5.5 years |
Weighted average discount rate | | | |
Finance lease | 14.2 | % | | 14.4 | % |
Operating lease | 7.4 | % | | 7.0 | % |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
The Company modified certain of its operating leases, resulting in a net decrease of its lease liabilities by $1,876 and a net increase of its lease liabilities by $209, during the nine months ended September 30, 2023 and 2022, respectively, with a corresponding adjustment to ROU assets.
As of September 30, 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 September 30, 2023 were as follows: | | | | | | | | | | | |
| Operating Leases | | Finance Leases |
2023 (October 1 - December 31) | $ | 4,632 | | | $ | 72 | |
2024 | 17,468 | | | 241 | |
2025 | 13,220 | | | 198 | |
2026 | 12,322 | | | 167 | |
2027 | 9,779 | | | 148 | |
2028 and thereafter | 20,584 | | | 65 | |
Total lease payments | 78,005 | | | 891 | |
Less: Imputed interest | 15,552 | | | 215 | |
Present value of lease liabilities | $ | 62,453 | | | $ | 676 | |
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 effective tax rate increased from 24.2% during the three months ended September 30, 2022 to 24.4% during the three months ended September 30, 2023. The Company recorded income tax expense of $2,819$14,161 and $5,646$12,447 for the three months ended September 30, 20172023 and 2016,2022, respectively. The effectiveincrease in income tax rate decreased from 26.0%expense was primarily as a result of higher profit during the three months ended September 30, 20162023, compared to 11.8% as a result of (i) excess tax benefit related to stock awards of $3,488 pursuant to ASU No. 2016-09the three months ended September 30, 2022, and an increase in non-deductible expenses during the three months ended September 30, 2017, (ii) higher earnings from foreign subsidiaries and lower domestic profit in the U.S.,2023, partially offset by higher excess tax expense on account ofbenefits related to stock-based compensation, and higher tax credits during the expiration of athree months ended September 30, 2023, compared to the three months ended September 30, 2022.
The effective tax holiday for some ofrate decreased from 23.9% during the operating centers in India.
nine months ended September 30, 2022 to 20.8% during the nine months ended September 30, 2023. The Company recorded income tax expense of $7,202$37,773 and $18,549$34,774 for the nine months ended September 30, 20172023 and 2016,2022, respectively. The effectiveincrease in income tax rate decreased from 28.6%expense was primarily as a result of higher profit during the nine months ended September 30, 20162023, compared to 11.0% as a result of (i) excess tax benefit related to stock awards of $7,169 pursuant to ASU No. 2016-09 during the nine months ended September 30, 2017, (ii) conclusion2022, and an increase in
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 and 2016, the Company has recognized interest of nil and $50, respectively, which are included in the income tax expense in the unaudited consolidated statements of income. As of September 30, 2017 and December 31, 2016, the Company has accrued interest and penalties of $240 and $1,553, relating to unrecognized tax benefits.
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 |
|
As 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.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
non-deductible expenses, partially offset by higher excess tax benefits related to stock-based compensation, and higher tax credits during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
During the nine months ended September 30, 2023, the Company’s subsidiaries in India, the United Kingdom and Australia repatriated $76,000 (net of $4,015 withholding taxes), $15,598 and $9,081, respectively, to the United States. These distributions do not constitute a change in the Company’s permanent reinvestment assertion.
Deferred income taxes recognized in AOCI were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Deferred taxes benefit / (expense) recognized on: | | | | | | | |
Unrealized gain/(loss) on cash flow hedges | $ | 1,370 | | | $ | 2,348 | | | $ | (2,199) | | | $ | 5,146 | |
Reclassification adjustment for cash flow hedges | 64 | | | (133) | | | (701) | | | 802 | |
Reclassification adjustment for retirement benefits | (19) | | | (44) | | | (56) | | | (136) | |
| | | | | | | |
Foreign currency translation adjustments | 1,602 | | | 7,919 | | | 466 | | | 8,898 | |
Total | $ | 3,017 | | | $ | 10,090 | | | $ | (2,490) | | | $ | 14,710 | |
23. Stock-Based Compensation
Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.
Stock-based compensation expense by nature of function, as below, are included in the unaudited consolidated statements of income:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Cost of revenues | $ | 4,038 | | | $ | 2,713 | | | $ | 10,945 | | | $ | 8,485 | |
General and administrative expenses | 6,544 | | | 5,237 | | | 15,579 | | | 14,937 | |
Selling and marketing expenses | 6,485 | | | 4,236 | | | 16,461 | | | 13,328 | |
Total | $ | 17,067 | | | $ | 12,186 | | | $ | 42,985 | | | $ | 36,750 | |
| | | | | | | |
Income tax benefit related to stock-based compensation(1) | $ | 4,340 | | | $ | 2,833 | | | $ | 16,959 | | | $ | 8,855 | |
(1) Includes $462 and ($92) during the three months ended September 30, 2023 and 2022, respectively, and $13,172 and $3,532 during the nine months ended September 30, 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 September 30, 2023 and December 31, 2022, the Company had 3,284,270 and 6,623,775 shares, respectively, available for grant under the 2018 Omnibus Incentive Plan.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
Stock Options
Stock optionoptions activity under the Company’s stockstock-based compensation plans is shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Stock Options | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual Life (Years) |
Outstanding as of December 31, 2022 | 15,465 | | | $ | 5.52 | | | $ | 439 | | | 1.0 |
Granted | 1,790,695 | | | 30.14 | | | — | | | 9.7 |
Exercised | (15,465) | | | 5.52 | | | 384 | | | — | |
Forfeited | — | | | — | | | — | | | — | |
Outstanding as of September 30, 2023 | 1,790,695 | | | $ | 30.14 | | | $ | — | | | 9.7 |
Vested and exercisable as of September 30, 2023 | — | | | $ | — | | | $ | — | | | — |
Weighted average grant date fair value of per unit of stock option granted during the period | $ | 12.03 | | | | | | | |
|
| | | | | | | | | | | | |
| 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 outstandingStock options as of September 30, 2017 is nil. The Company did not grant any optionsgranted under the 2018 Omnibus Incentive Plan during the three and nine months ended September 30, 20172023, have a contractual period of ten years and 2016. There were no options that vested duringvest ratably over four years.
The fair value of each stock option granted to employees is estimated on the threedate of grant using the Black-Scholes option-pricing model with the following assumptions:
| | | | | |
| Nine months ended September 30, 2023 |
Dividend yield | — | |
Expected life (years) | 6.25 |
Risk free interest rate for expected life | 3.8 | % |
Volatility for expected life | 32.4 | % |
The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model.
As of September 30, 2017 and 2016.2023, unrecognized compensation cost of $20,070 is expected to be expensed over a weighted average period of 3.8 years. The total grant date fair value of stock options vestedexercised during the nine months ended September 30, 20172023 and 20162022, was nil$30 and $706,$nil, respectively.
Share Matching Program
Under the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”), the Company established a share matching program (“SMP”) for executive officers and other specified employees. Under the SMP, the Company agreed to issue a number of restricted stock units equal to the number of newly acquired shares of the Company's common stock.
Restricted Stockstock unit activity under the SMP is shown below:
| | | | | | | | | | | |
| Restricted Stock Units (SMP) |
| Number | | Weighted Average Fair Value |
Outstanding as of December 31, 2022 | 238,115 | | | $ | 24.95 | |
Granted | — | | | — | |
Vested | — | | | — | |
Forfeited | (20,885) | | | 24.95 | |
Outstanding as of September 30, 2023 | 217,230 | | | $ | 24.95 | |
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
As of September 30, 2023, unrecognized compensation cost of $2,710 is expected to be expensed over a weighted average period of 1.5 years.
Restricted Stock Units
Restricted stock and restricted stock unit activity under the Company’s stockstock-based compensation plans is shown below:
| | | | | | | | | | | |
| Restricted Stock Units |
| Number | | Weighted Average Fair Value |
Outstanding as of December 31, 2022* | 4,615,630 | | | $ | 19.74 | |
Granted | 1,193,615 | | | 34.27 | |
Vested | (1,779,745) | | | 18.48 | |
Forfeited | (332,035) | | | 21.30 | |
Outstanding as of September 30, 2023* | 3,697,465 | | | $ | 24.89 | |
|
| | | | | | | | | | | | | |
| 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, 20172023 and December 31, 20162022 restricted stock units vested for which the underlying common stock is yet to be issued are 146,112652,640 and 135,054,872,450 respectively.
As of September 30, 2017,2023, unrecognized compensation cost of $39,553$66,970 is expected to be expensed over a weighted average period of 2.662.5 years.
Performance Based Stock Awards
Under the 2018 Plan, the Company grants performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees. During the nine months ended September 30, 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 | 247,955 | | | $ | 24.00 | | | 893,560 | | | $ | 26.94 | |
Granted | 219,740 | | | 34.56 | | | 329,245 | | | 44.72 | |
Vested | (245) | | | 25.94 | | | (365) | | | 33.55 | |
Forfeited | (27,495) | | | 25.59 | | | (87,010) | | | 28.33 | |
Outstanding as of September 30, 2023 | 439,955 | | | $ | 29.17 | | | 1,135,430 | | | $ | 31.99 | |
As of September 30, 2023, unrecognized compensation cost of $29,509 is expected to be expensed over a weighted average period of 1.9 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
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
$25 per employee per calendar year. The Company has reserved 4,000,000 shares of common stock for issuance under the 2022 ESPP.
Performance Based Stock Awards
Performance restricted stock unit (the “PRSUs”) activityThe third offering period under the 2022 ESPP commenced on July 1, 2023 with a term of six months.
Activity under the Company’s stock plans2022 ESPP is shown below:
| | | | | | | | | | | | | | |
| | Number | | Total Proceeds Received |
Shares available for issuance as of December 31, 2022 | | 4,000,000 | | |
Issuance of common stock related to the: | | | | |
First offering period | | (38,180) | | $ | 1,013 | |
Second offering period | | (130,495) | | $ | 3,548 | |
Shares available for issuance as of September 30, 2023 | | 3,831,325 | | |
Contributions received for the third offering period up to September 30, 2023 | | | | $ | 1,112 | |
The ESPP is compensatory and results in compensation expense. The fair value of common stock to be issued under the ESPP was determined using the Black-Scholes option pricing model with the following assumptions:
| | | | | | | | | | | |
| Second offering period of January 1, 2023 to June 30, 2023 | | Third offering period of July 1, 2023 to December 31, 2023 |
Dividend yield | — | | | — | |
Expected life (years) | 0.5 | | 0.5 |
Risk free interest rate for expected life | 4.7 | % | | 5.4 | % |
Volatility for expected life | 38.9 | % | | 25.5 | % |
Discount for illiquidity | 10.3 | % | | 8.9 | % |
|
| | | | | | | | | | | | | |
| 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 |
|
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 September 30, 2023. During the three months ended September 30, 2023 and 2022, the Company recognized revenues, net of $354 and $814, respectively, related to this service contract. During the nine months ended September 30, 2023 and 2022, the Company recognized revenues, net of $1,684 and $1,388, respectively, related to this service contract. The Company had outstanding accounts receivable, net of $240 and $856, related to this service contract as of September 30, 2023 and December 31, 2022, respectively.
25. Commitments and Contingencies
Capital Commitments
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, 2016,2023, the Company had an account receivable of $379 and nil, respectively, related to these services.
21. Commitments and Contingencies
Fixed Asset Commitments
At September 30, 2017, the Company has committed to spend approximately $7,407$9,400 under agreements to purchase fixed assets.property and equipment. This amount is net of capital advances paid which are recognized in respectunaudited consolidated balance sheets as “Capital work in progress” under “Property and equipment, net.”
On June 15, 2023, the Company, along with other limited partners, entered into a limited partnership agreement with the general partner, PNP Financial Services Fund GP I, LLC and initial limited partner and outgoing partner, to form a partnership with the name Plug and Play Financial Services Fund I, L.P. (the “Partnership”) for the primary purpose of these purchases.making investments
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
in growth-stage technology companies. During the three months ended September 30, 2023, the Company invested $600 in the Partnership and is committed under the Partnership to make further investments up to an amount of $3,400.
Other Commitments
Certain units of the Company’s Indian subsidiaries were established as 100%Export-Oriented units or under the Software Technology Parks of India (“STPI”)or Special Economic Zone scheme promulgated by the Government of India. These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares. The Company has undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. The Company’s managementCompany believes, however, that these units have in the past satisfied, and will continue to satisfy, the required conditions.
The Company’s operations centers in the Philippines are registered with the Philippineas qualified Philippines Economic Zone Authority (“PEZA”). The registrationunits, which provides the Company with certain fiscal incentives on the import of capital goods and requires ExlService Philippines, Inc.local purchase of services and materials. The Company is required to meet certain performancerequirements to retain the incentives. The Company has complied, and investment criteria. The Company’s management believes that these centers have inintends to continue compliance, with the past satisfied and will continuerequirements to satisfyavail itself of the required criteria.incentives.
Contingencies
U.S. and Indian
The transfer pricing regulations in the countries in which the Company operates require that any international transaction involving associated enterprisescontrolled intercompany transactions be at an arm’s-length price.arm’s-length. Accordingly, the Company determines the appropriateand documents pricing for the internationalcontrolled intercompany transactions among its associated enterprisesbased on the basis of a detailed functional andan economic analysis involving benchmarking against transactions among entities that are not under common control.as prescribed in the respective regulations. The tax authorities have jurisdiction to review this arrangement and in the event thatCompany’s transfer pricing. If the Company’s transfer pricing is challenged by the authorities, they determine that the transfer price applied was not appropriate, the Company may incur increasedcould assess additional tax, liability, including accrued interest and penalties. penalties, thereby impacting the Company’s profitability and cash flows.
The Company is currently involved in transfer pricing and related income tax disputes with Indian tax authorities. The aggregate amount demanded by Indian tax authorities (net of advance payments) as of September 30, 2023 and December 31, 2022 is $36,682 and $37,088, respectively. The Company has made payments and/or provided bank guarantees against these demands in the amounts of $7,242 and $7,532, as of September 30, 2023 and December 31, 2022, respectively. The Company believes that its positions will more likely than not be sustained upon final examination by the tax authorities, and accordingly has not accrued any liabilities with respect to these matters in its consolidated financial statements.
India’s Value Added Tax (“VAT”) regime ended in June 2017 and was replaced by the current Goods and Service Tax (“GST”) regime. Pursuant to reviewing the Company’s annual VAT filings, the Indian tax authorities overraised aggregate VAT demands for tax years 2015 and 2017, in the applicationamounts of $5,504 and $5,526, as of September 30, 2023 and December 31, 2022, respectively. The GST authorities rejected the Company’s refunds claims in the amounts of $4,203 and $3,866 as of September 30, 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 September 30, 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. 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 relating to employee benefits during employment and post-employment benefits. 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.
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 20172023
(In thousands, except share and per share amounts)amount and share count)
of some of its transfer pricing policies for some of its subsidiaries. Further,From time to time, the Company, its subsidiaries, and/or their present officers or directors, may be or have been, named as a defendant in litigation matters, including employment-related claims. The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and a U.S. subsidiary are engaged in taxattorney’s fees. With respect to pending litigation with the income-tax authorities in India on the issue of permanent establishment.
The aggregate disputed amount demanded by Indian tax authorities from the Company primarily related to its transfer pricing issues for years ranging from tax years 2003 to 2014 and its permanent establishment issues ranging from tax years 2003 to 2007matters as of September 30, 2017 and December 31, 2016 is $16,075 and $17,963, respectively, of which the Company has made payments or provided bank guarantee to the extent $8,418 and $8,640, respectively. Amounts paid as deposits in respect of such assessments aggregating to $6,389 and $6,690 as of September 30, 2017 and December 31, 2016, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $2,029 and $1,950 as of September 30, 2017 and December 31, 2016, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s consolidated balance sheets as of September 30, 2017 and December 31, 2016.
Based on advice from its Indian tax advisors, the facts underlying the Company’s position and its experience with these types of assessments,reporting date, the Company believes that the probability that itdamages claimed are without merit, and the Company intends to vigorously defend them. The Company will ultimately be found liable for these assessments is remote and accordingly has not accrued any amount with respect tocontinuously monitor developments on these matters in its consolidatedto assess potential impacts to the financial statements.
The Company does not expect any impact from these assessments on its future income tax expense. Itoutcomes of legal actions are unpredictable and subject to significant uncertainties, and thus it is possible thatinherently difficult to determine the Company might receive similar orders or assessments from tax authorities for subsequent years. Accordingly even if these disputes are resolved, the Indian tax authorities may still serve additional orders or assessments.
22. Subsequent Event
On October 24, 2017, a wholly owned subsidiarylikelihood of the Company entered intoincurring a definitive purchase agreementmaterial loss or quantification of any such loss. With respect to acquire substantially allpending litigation matters as of the assetsreporting date, based on information currently available, including the Company’s assessment of Health Integrated, Inc.the facts underlying each matter and advice of counsel, the amount or range of reasonably possible losses, if any, cannot be reasonably estimated. Based on the Company’s assessment, including the availability of insurance recoveries, the Company’s management does not believe that currently pending litigation, individually or in Tampa, Florida, Health Integrated isaggregate, will have a care management company that provides end-to-end technology and analytics-enabled care management services including case management, utilization management, disease management, special needs programs, and multichronic care managementmaterial adverse effect on behalfthe Company’s consolidated financial condition, results of health plans. Health Integrated currently serves over five million lives in the Medicaid, Medicare, and dual eligible populations. It is known for its strong capabilities in improving member health status through behavioral change.operations or cash flows. The acquisition is expectedCompany will continuously monitor these matters to close in the first quarter of 2018, subjectassess potential impacts to the fulfillment of certain closing conditions, including regulatory and other consents.financial statements.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in connection with our unaudited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. Some of the statements in the following discussion are forward looking statements. Dollar amounts within Item 2 are presented as actual, approximated, dollar amounts.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements.statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include but are not limited to:
•our ability to maintain and grow client demand for our services and solutions, including anticipating and incorporating the latest technology into our offerings;
•impact on client demand by the selling cycle and terms of our client contracts;
•fluctuations in our earnings;
•our ability to hire and retain enough sufficiently trained employees to support our operations or any changes in the senior management team;
•our ability to accurately estimate and/or manage costs;
•our ability to adjust our pricing terms or effectively manage our asset utilization levels to meet the changing demands of our clients and potential clients;
•cyber security incidents, data breaches, or other unauthorized disclosure of sensitive or confidential client and employee data;
•reliance on third parties to deliver services and infrastructure for client critical services;
•employee wage increases;
•failure to protect our intellectual property;
•our dependence on a limited number of clients in a limited number of industries;
worldwide political, economic or business conditions;
negative public reaction in the U.S. or elsewhere to offshore outsourcing;
fluctuations in our earnings;
industries and our ability to attract and retain clients including inwithstand the loss of a timely manner;significant client;
our ability to successfully consummate or integrate strategic acquisitions;
restrictions on immigration;
our ability to hire and retain enough sufficiently trained employees to support our operations;
•our ability to grow our business or effectively manage growth and international operations;
any changes in•our ability to successfully consummate or integrate strategic acquisitions including the senior management team;impact from the impairment of goodwill and other intangible assets, if any;
•our ability to adhere to regulations or accreditation or licensing standards that govern our business;
•increasing competition in our industry;
•telecommunications or technology disruptions;disruptions or breaches, natural or other disasters, medical epidemics or pandemics, such as COVID-19, or acts of violence or war;
•operational and information security failures arising as a result of remote work solutions adopted due to COVID-19;
•legal liability arising out of customer and third party contracts;
•adverse outcome of our disputes with the tax authorities in the geographies where we operate;
•the introduction of new or unfavorable tax legislation;
•changes in tax laws or decisions regarding repatriation of funds held abroad;
•exposure to currency exchange rate fluctuations in the various currencies in which we do business including the potential effects of Russian-Ukraine conflict, rising inflation, high interest rates and economic recessionary trends on currency exchange rates;
•restrictions on immigration;
•ability to withstandservice debt or obtain additional financing on favorable terms. Inception of interest rate swaps to hedge interest rate risk;
•negative public reaction in the lossU.S. or elsewhere to offshore outsourcing;
•effects of a significant customer;political and economic conditions globally, particularly in the geographies where we operate;
•ability to make accurate estimates and assumptions in connection with the preparation of our consolidated financial statements;
•regulatory, legislative and judicial developments, including changes to or the withdrawal of governmental fiscal incentives;
changes•credit risk fluctuations in tax laws or decisions regarding repatriationthe market values of funds held abroad;our investment and derivatives portfolios; and
•our ability to service debt or obtain additional financing on favorable terms;meet our environmental, social and governance-related goals and targets.
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 and customer data; and
adverse outcome of our disputes with the Indian tax authorities.
These and other factors are more fully discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. These and other risks could cause actual results to differ materially from those implied by forward-looking statements in this Quarterly Report on Form 10-Q.
The forward-looking statements made by us in this Quarterly Report on Form 10-Q, or elsewhere, speak only as of the date on which they were made. New risks and uncertainties come upmay occur from time to time, and it is impossible for us to predict those events or how they may affect us. We have no obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q after the date of this Quarterly Report on Form 10-Q, except as required by federal securities laws.
Executive Overview
We 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, artificial intelligence, including generative AI, we create agile, scalable solutions and execute complex operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media, and retail, among others.
We deliver data analytics and digital operations and solutions to our clients, driving enterprise-scale business transformation initiatives that leverage our deep expertise in advanced analytics, artificial intelligence, generative AI and cloud. We manage and 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 reportable segments are as follows:
•Insurance,
•Healthcare,
•Analytics, and
•Emerging Business
Executive Overview
We operate in the business process management (“BPM”) industry and we provide operations management and analytics services that help the business enhance growth and profitability. Using our proprietary platforms, methodologies and tools we look deeper to help our clients improve global operations, enhance data-driven insights, increase customer satisfaction, and manage risk and compliance. Our eight operating segments are strategic business units that align our products 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:
Insurance
Healthcare
Travel, Transportation and Logistics (“TT&L”)
Finance and Accounting (“F&A”), and
Analytics
The remaining operating segments, which includes our Banking and Financial Services, Utilities and Consulting operating segments have been included in a category called “All Other”. This change in segment presentation does not affect our consolidated statements of income, balance sheets or statements of cash flows. For further descriptions of our operating segments, see Note 3 to the unaudited consolidated financial statements contained herein.
Our global delivery network, which includeincludes highly trained industry and process specialists across the United States, Latin America, South Africa, Europe and Asia (primarily India and the Philippines), is a key asset. We have operations centers in India, the U.S.,United States, the United Kingdom, the Republic of Ireland, the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.
Revenues
For the three months ended September 30, 2017,2023, we hadgenerated revenues of $192.3$411.0 million compared to revenues of $171.2$361.4 million for the three months ended September 30, 2016,2022, an increase of $21.1$49.6 million, or 12.4%13.7%. For the nine months ended September 30, 2017,2023, we hadgenerated revenues of $564.4$1,216.6 million compared to revenues of $508.7$1,037.3 million for the nine months ended September 30, 2016,2022, an increase of $55.7$179.3 million, or 11.0%17.3%.
We serve clientsclients mainly in the U.S.United States and the U.K.,United Kingdom, with these two regions generating approximately 82.4%83.5% and 13.9%11.3%, respectively, of our total revenues for the three months ended September 30, 20172023, and approximately 80.1%86.0% and 16.4%9.4%, respectively, of our total revenues for the three months ended September 30, 2016.2022. For the nine months ended September 30, 2017,2023, these two regions generated 82.0%84.1% and 14.5%10.8%, respectively, of our total revenues and 80.1%85.9% and 16.6%9.5%, respectively, of our total revenues for the nine months ended September 30, 2016.2022.
For the three months ended September 30, 20172023 and 2016,2022, our total revenues from our top ten clients accounted for 38.3%34.6% and 41.0%34.2% of our total revenues, respectively. For the nine months ended September 30, 20172023 and 2016,2022, our total revenues from our top ten clients accounted for 38.7%34.2% and 40.6%33.7% of our total revenues, respectively. NoneAlthough we continue to develop relationships with new clients to diversify our client base, we believe that the loss of any of our top ten clients individually accounted for more than 10% ofcould have a material adverse effect on our total revenues during the three and nine months ended September 30, 2017 and 2016. Although we intend to continue increasing and diversifying our customer base, we expect in the near future that a significant portion of our revenue will continue to be contributed by a limited number of large clients.
financial performance.
Our Business
We provide data analytics and digital operations management and analytics services.solutions to our clients. We market our services to our existing and prospective clients through our sales and client management teams, which are aligned by key industry verticals and cross-industry domains such as finance and accounting. Our sales and client management teams operate primarily from the U.S.,United States, Europe and Australia.
Digital Operations Management Services:and Solutions: We provide our clients with a range of digital operations management services principally in theand solutions from our Insurance, Healthcare Travel, Transportation and Logistics, Banking and Financial Services and Utilities sectors, among others, as well as cross-industry operations management services,Emerging Business strategic business units, which are focused on solving complex industry challenges such as Financethe insurance claims life cycle, financial transactions processing and Accounting Services.provider and member experiences. This typically involves the use of agile delivery models to implement digital technologies and interventions like hyper-automation, customer experience transformation, advanced automation, generative AI, robotics, enterprise architecture, end-to-end business function management and transformations. We also provide services related to operations management, through our Consulting services that provide advice regarding transformational initiatives.
Our operations management solutions typically involve the transfer to the Company of select business operations of a client such as claims processing, clinical operations, or financial transaction processing, after which weeither administer and manage the operations for our clientthese functions on an ongoing basis. As partbasis via longer-term arrangements or project work. For a portion of this transfer,our digital operations and solutions, we hire and train employees to work at our operations centers on the relevant business operations, implement a process migration to these operations centers and then provide services either to the client or directly to the client’s customers. Each client contract has different terms based on the scope, deliverables and complexity of the engagement. We also provide consulting services related to digital operations and solutions that include industry-specific digital transformational services as well as cross-industry finance and accounting services as part of the Emerging Business strategic business unit.
We provide our services under contracts with our clients, which typically have been observingterms of three or more years, with some being contracts with no end dates. These contracts provide us with a relatively predictable revenue base for a substantial portion of our digital operations and solutions business. However, our clients can typically terminate these contracts with or without cause and with short notice periods. We have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.
We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models. Outcome-
based pricing arrangements are examples of non-linear pricing models where clients link revenues from platforms and solutions and the services we provide to usage or savings rather than the efforts deployed to provide these services. We continue to observe a shift in the industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models. We believe this trend will continue and we have begun to use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a billing ratefull-time-equivalent pricing model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins. In addition, we
We have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs.digital operations and solutions needs to seek more favorable contract terms and diversification of the risk of concentration on a few vendors. We believe that the trend toward multi-vendor relationships will continue. A multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor, which can result in significantly reduced gross margins from the provision of services to such client for each vendor. To the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors, our gross margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition.
Analytics:Our existing agreements with original terms of three or more years provide us with a relatively predictable revenue base for a substantial portion of our operations management business, however, we have a long selling cycle for ouranalytics services and the budget and approval processes of prospective clients make it difficultaim to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.
Analytics: Our Analytics services focus on driving improveddrive better business outcomes for our customersclients by generating data-drivenunlocking deep insights from data and creating data-led solutions across all parts of our customers’clients’ business. We provide care optimization and reimbursement optimization services for our clients through our healthcare analytics solutions and services. We also offer integrated solutions to help our clients in cost containment by leveraging technology platforms, customizable and configurable analytics and expertise in healthcare reimbursements to help clients enhance their claim payment accuracy. Our Analytics teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecyclelife cycle management, risk underwriting and pricing, operational effectiveness, credit and operational risk monitoring and governance, regulatory reporting and data management. We enhance, modernize and enrich structured and unstructured data and use a spectrum of advanced analytical tools and techniques, including our in-house and third party artificial intelligence, generative AI, and machine learning capabilities and proprietary solutions to create insights, improve decision making for our clients and address a range of complex industry-wide priorities. We actively cross-sell and, where appropriate, integrate our Analyticsanalytics services with other digital operations management servicesand solutions as part of a comprehensive offering set for our clients. Our project-based analytics services are cyclical and can be significantly affected by variations in business cycles. In addition, our project-based analytics services are documented in contracts with terms generally not exceeding one year and may not produce ongoing or recurring business for us once the project is completed. These contracts also usually contain provisions permitting termination of the contract after a short notice period. The short-term nature and specificity of these projects could lead to fluctuations and uncertainties in the revenues generated from providing analytics services.
We anticipate that revenues from our Analyticsanalytics services will grow as we expand our service offerings and client base, both organically and through acquisitions.
2023 Stock Split
On June 20, 2023, subsequent to the approval and recommendation of our board of directors, our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation, which upon filing with the State of Delaware on August 1, 2023, and effectiveness thereof, effected a 5-for-1 forward stock split of our common stock and an increase in the number of authorized shares of our common stock from 100,000,000 shares to 400,000,000 shares. The par value of each share of common stock, $0.001, remained unchanged. See Note 19 – Capital Structure to our unaudited consolidated financial statements herein for further details.
Critical Accounting Policies and Estimates
For a description of
There have been no significant changes in our critical accounting policies and estimates referduring the three and nine months ended September 30, 2023, as compared to the critical accounting policies and estimates referred in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – CriticalOperations” under “Critical Accounting Policies and Estimates” and Note 2 - Summary of Significant Accounting Policies to the Consolidated Financial Statementsour consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
2022.
Results of Operations
The following table summarizes our results of operations foroperations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (dollars in millions) | | (dollars in millions) |
Revenues, net | $ | 411.0 | | | $ | 361.4 | | | $ | 1,216.6 | | | $ | 1,037.3 | |
Cost of revenues(1) | 256.0 | | | 230.5 | | | 760.7 | | | 659.2 | |
Gross profit(1) | 155.0 | | | 130.9 | | | 455.9 | | | 378.1 | |
Operating expenses: | | | | | | | |
General and administrative expenses | 52.2 | | 42.5 | | | 144.5 | | 122.9 | |
Selling and marketing expenses | 31.0 | | 23.9 | | | 88.7 | | 72.0 | |
Depreciation and amortization expense | 11.6 | | 14.4 | | | 38.2 | | 42.1 | |
| | | | | | | |
Total operating expenses | 94.8 | | | 80.8 | | | 271.4 | | | 237.0 | |
Income from operations | 60.2 | | | 50.1 | | | 184.5 | | | 141.1 | |
Foreign exchange gain, net | 0.4 | | | 1.5 | | | 0.8 | | | 4.7 | |
Interest expense | (3.4) | | | (2.4) | | | (10.0) | | | (4.8) | |
Other income, net | 0.8 | | | 2.3 | | | 6.6 | | | 4.5 | |
| | | | | | | |
Income before income tax expense and earnings from equity affiliates | 58.0 | | | 51.5 | | | 181.9 | | | 145.5 | |
Income tax expense | 14.2 | | | 12.5 | | | 37.8 | | | 34.8 | |
Income before earnings from equity affiliates | 43.8 | | | 39.0 | | | 144.1 | | | 110.7 | |
Gain from equity-method investment | 0.1 | | | 0.1 | | | 0.2 | | | 0.4 | |
Net income attributable to ExlService Holdings, Inc. stockholders | $ | 43.9 | | | $ | 39.1 | | | $ | 144.3 | | | $ | 111.1 | |
(1) Exclusive of depreciation and amortization expense.
Due to rounding, the threenumbers presented in the tables included in this Part I, Item 2, “Management’s Discussion and nine months ended September 30, 2017Analysis of Financial Condition and 2016:Results of Operations” may not add up precisely to the totals provided.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (dollars in millions) | | (dollars in millions)
|
Revenues, net | $ | 192.3 |
| | $ | 171.2 |
| | $ | 564.4 |
| | $ | 508.7 |
|
Cost of revenues (exclusive of depreciation and amortization) | 124.9 |
| | 111.8 |
| | 370.5 |
| | 332.2 |
|
Gross profit | 67.4 |
| | 59.4 |
| | 193.9 |
| | 176.5 |
|
Operating expenses: | | | | | | | |
General and administrative expenses | 26.9 |
| | 21.9 |
| | 75.8 |
| | 63.6 |
|
Selling and marketing expenses | 12.2 |
| | 11.6 |
| | 38.7 |
| | 37.9 |
|
Depreciation and amortization | 9.7 |
| | 8.6 |
| | 28.8 |
| | 25.0 |
|
Total operating expenses | 48.8 |
| | 42.1 |
| | 143.3 |
| | 126.5 |
|
Income from operations | 18.6 |
| | 17.3 |
| | 50.6 |
| | 50.0 |
|
Foreign exchange gain, net | 2.8 |
| | 1.7 |
| | 7.3 |
| | 3.6 |
|
Interest expense | (0.4 | ) | | (0.3 | ) | | (1.4 | ) | | (1.0 | ) |
Other income, net | 2.9 |
| | 2.9 |
| | 8.9 |
| | 12.2 |
|
Income before income tax expense | 23.9 |
| | 21.6 |
| | 65.4 |
| | 64.8 |
|
Income tax expense | 2.8 |
| | 5.6 |
| | 7.2 |
| | 18.5 |
|
Net income | $ | 21.1 |
| | $ | 16.0 |
| | $ | 58.2 |
| | $ | 46.3 |
|
Three Months Ended September 30, 20172023 Compared to Three Months Ended September 30, 20162022
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 |
| 2023 | | 2022 | | Change | |
| (dollars in millions) | | | | |
Insurance | $ | 136.4 | | | $ | 116.2 | | | $ | 20.2 | | | 17.4 | % |
Healthcare | 26.2 | | | 22.8 | | | 3.4 | | | 14.7 | % |
Emerging Business | 65.3 | | | 56.1 | | | 9.2 | | | 16.6 | % |
Analytics | 183.1 | | | 166.3 | | | 16.8 | | | 10.1 | % |
Total revenues, net | $ | 411.0 | | | $ | 361.4 | | | $ | 49.6 | | | 13.7 | % |
|
| | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Percentage change |
| 2017 | | 2016 | | Change | |
| (dollars in millions) | | | | |
Insurance | $ | 59.6 |
| | $ | 52.8 |
| | $ | 6.8 |
| | 12.9 | % |
Healthcare | 18.9 |
| | 16.0 |
| | 2.9 |
| | 18.2 | % |
Travel, Transportation and Logistics | 18.5 |
| | 17.5 |
| | 1.0 |
| | 5.6 | % |
Finance and Accounting | 21.6 |
| | 19.9 |
| | 1.7 |
| | 9.0 | % |
All Other | 20.0 |
| | 23.4 |
| | (3.4 | ) | | (14.7 | )% |
| | | | | | | |
Analytics | 53.7 |
| | 41.6 |
| | 12.1 |
| | 29.1 | % |
Total revenues, net | $ | 192.3 |
| | $ | 171.2 |
| | $ | 21.1 |
| | 12.4 | % |
Revenues for the three months ended September 30, 20172023 were $192.3$411.0 million, up $21.1$49.6 million, or 12.4%13.7%, compared to the three months ended September 30, 2016.2022, driven primarily by revenue growth from our new and existing clients in all of our reportable segments.
Revenue growth in Insurance of $6.8$20.2 million was primarily driven by expansion of business from our new and existing clients of $6.4 million. The remaining increase of $0.4 million is attributable to a net impact of appreciation of the South African Rand and Indian rupee during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Insurance revenues were 31.0% and 30.9% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, respectively.
Revenue growth in Healthcare of $2.9 million was driven by expansion of business from our new and existing clients. Healthcare revenues were 9.8% and 9.3% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, respectively.
Revenue growth in Travel, Transportation and Logistics ("TT&L") of $1.0 million was primarily driven by net volume increase from our new and existing clients of $1.2 million, partially offset by $0.2 million impact due to depreciation of the Philippine Peso against the U.S. dollar during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. TT&L revenues were 9.6% and 10.2% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, respectively.
Revenue growth in Finance and Accounting ("F&A") of $1.7 million was driven by expansion of business from our new and existing clients. F&A revenues were 11.3% and 11.6% of our total revenues in the three months ended September 30, 2017 and September 30, 2016, respectively.
Revenue decline in All Other of $3.4 million was driven primarily by lower revenue in our Consulting and Utilities operating segments, aggregating to $3.7$20.4 million. This was partially offset by a net increaseloss of $0.3$0.2 million, duemainly attributable to the appreciationdepreciation of the Australian dollar, the South African rand and the Indian rupee against the U.S. dollar during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016. All Other2022. Insurance revenues were 10.4%33.2% and 13.7%32.2% of our total revenues induring the three months ended September 30, 20172023 and September 30, 2016,2022, respectively.
Revenue growth in Healthcare of $3.4 million was primarily driven by expansion of business from our new and existing clients during the three months ended September 30, 2023. Healthcare revenues were 6.4% and 6.3% of our total revenues during the three months ended September 30, 2023 and September 30, 2022, respectively.
Revenue growth in Emerging Business of $9.2 million was primarily driven by expansion of business from our new and existing clients of $8.2 million and an increase in revenues of $1.0 million, mainly attributable to the appreciation of the U.K. pound sterling against the U.S. dollar during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Emerging Business revenues were 15.9% and 15.5% of our total revenues during the three months ended September 30, 2023 and September 30, 2022, respectively.
Revenue growth in Analytics of $12.1$16.8 million was primarily driven by higher volumes in our recurringannuity and project based engagements from our new and existing clients of $11.9$15.7 million including $6.5and an increase in revenues of $1.1 million, from our IQR Consulting Inc. ("IQR") and Datasource Consulting, LLC ("Datasource") acquisitions in 2016. The increase of $0.2 million ismainly attributable to the appreciation of Indian rupeethe U.K. pound sterling against the U.S. dollar during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016.2022. Analytics revenues were 27.9%44.5% and 24.3%46.0% of our total revenues induring the three months ended September 30, 20172023 and September 30, 2016,2022, respectively.
Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of Revenues | | Gross Margin |
| Three months ended September 30, | | Change | | Percentage change | | Three months ended September 30, | | Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | |
| (dollars in millions) | | | | | | | | | | |
Insurance | $ | 86.5 | | | $ | 75.0 | | | $ | 11.5 | | | 15.2 | % | | 36.6 | % | | 35.4 | % | | 1.2 | % |
Healthcare | 16.5 | | | 17.1 | | | (0.6) | | | (3.4) | % | | 36.8 | % | | 25.0 | % | | 11.8 | % |
Emerging Business | 37.6 | | | 32.4 | | | 5.2 | | | 16.2 | % | | 42.4 | % | | 42.2 | % | | 0.2 | % |
Analytics | 115.4 | | | 106.0 | | | 9.4 | | | 9.0 | % | | 37.0 | % | | 36.3 | % | | 0.7 | % |
Total | $ | 256.0 | | | $ | 230.5 | | | $ | 25.5 | | | 11.1 | % | | 37.7 | % | | 36.2 | % | | 1.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Cost of Revenues | | Gross Margin |
| Three months ended September 30, | | | | Percentage change | | Three months ended September 30, | | Change |
| 2017 | | 2016 | | Change | | | 2017 | | 2016 | |
| (dollars in millions) | | | | | | | | | | |
Insurance | $ | 39.7 |
| | $ | 37.8 |
| | $ | 1.9 |
| | 5.0 | % | | 33.4 | % | | 28.4 | % | | 5.0 | % |
Healthcare | 12.0 |
| | 10.9 |
| | 1.1 |
| | 9.9 | % | | 36.6 | % | | 31.8 | % | | 4.8 | % |
TT&L | 10.1 |
| | 10.6 |
| | (0.5 | ) | | (4.7 | )% | | 45.2 | % | | 39.3 | % | | 5.9 | % |
F & A | 13.3 |
| | 12.0 |
| | 1.3 |
| | 10.8 | % | | 38.5 | % | | 39.5 | % | | (1.0 | )% |
All Other | 13.6 |
| | 14.7 |
| | (1.1 | ) | | (7.0 | )% | | 31.8 | % | | 37.4 | % | | (5.6 | )% |
| | | | | | | | | | | | | |
Analytics | 36.2 |
| | 25.8 |
| | 10.4 |
| | 40.2 | % | | 32.7 | % | | 38.1 | % | | (5.4 | )% |
Total | $ | 124.9 |
| | $ | 111.8 |
| | $ | 13.1 |
| | 11.7 | % | | 35.1 | % | | 34.7 | % | | 0.4 | % |
For the three months ended September 30, 2017,2023, cost of revenues was $124.9$256.0 million compared to $111.8$230.5 million for the three months ended September 30, 2016,2022, an increase of $13.1$25.5 million, or 11.7%11.1%. The increase in cost of revenues was primarily due to increases in employee-related costs, partially offset by foreign exchange gain, net of hedging. Our gross margin for the three months ended September 30, 20172023 was 35.1%37.7%, compared to 34.7%36.2% for the three months ended September 30, 2016,2022, an increase of 40150 basis points (“bps”). primarily driven by higher revenues and operational efficiencies during the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
The increase in cost of revenues in Insurance of $1.9$11.5 million for the three months ended September 30, 2023 was primarily due to an increaseincreases in employee-related costs of $1.6$11.3 million on account of higher headcount and wage inflation technology and infrastructurehigher technology costs of $0.6 million. This was$1.7 million on account of increased use of the hybrid and remote working models, partially offset by a decreaseforeign exchange gain, net of hedging of $1.5 million. Gross margin in other operating costs of $0.4 million. There was a net increase of $0.2 million due to the appreciation of the Indian rupee and depreciation of the Philippine peso against the U.S. dollarInsurance increased by 120 bps during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016.2022, primarily due to higher revenues and operational efficiencies during the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
The decrease in cost of revenues in Healthcare of $0.6 million for the three months ended September 30, 2023 was primarily due to lower other operating costs of $0.5 million and foreign exchange gain, net of hedging of $0.3 million, partially offset by increases in employee-related costs of $0.2 million on account of wage inflation. Gross margin in Healthcare increased by 5001,180 bps during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016,2022, primarily due to higher revenues and margin expansion in existing clients.operational efficiencies during the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
The increase in cost of revenues in HealthcareEmerging Business of $1.1$5.2 million for the three months ended September 30, 2023 was primarily due to an increaseincreases in employee-related costs of $1.2$5.5 million on account of higher headcount and wage inflation technology and infrastructurehigher technology costs of $0.3 million. This was$1.0 million on account of increased use of the hybrid and remote working models, partially offset by $0.4foreign exchange gain, net of hedging of $0.8 million due to the depreciationand lower travel costs of the Philippine peso against the U.S. dollar$0.5 million. Gross margin in Emerging Business increased by 20 bps during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016. Gross margin increased by 480 bps2022, primarily due to higher revenues and operational efficiencies during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016, primarily due to higher revenues and operational efficiencies.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 of $1.3 million was primarily due to an increase in employee-related costs of $0.6 million on account of higher headcount and wage inflation, infrastructure costs of $0.1 million and travel costs of $0.4 million. There was an increase of $0.3 million due to the appreciation of the Indian rupee against the US dollar during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Gross margin decreased by 100 bps during the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to migration costs associated with our new client wins and higher reimbursable travel related costs with lower gross margin.
The decline in cost of revenues in All Other of $1.1 million was primarily due to a decrease in employee-related costs of $0.6 million on account of lower headcount, partially offset by wage inflation. There was also a decrease in travel related costs of $0.3 million, infrastructure costs and other operating costs aggregating to $0.2 million during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Gross margin decreased by 560 bps during the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily due to lower revenues in our Consulting and Utilities operating segments.
The increase in cost of revenues in Analytics of $10.4$9.4 million for the three months ended September 30, 2023 was primarily due to an increaseincreases in employee-related costs of $9.0$11.5 million (including $5.4 million related to the IQR and Datasource acquisitions in 2016) on account of higher
headcount and wage inflation, and an increase in technology costspartially offset by foreign exchange gain, net of $0.4 million, infrastructure costshedging of $0.5$1.3 million and lower travel costs of $0.4$0.8 million. This was partially offsetGross margin in Analytics increased by a reduction in our other operating expenses of $0.4 million. There was an increase of $0.3 million due to the appreciation of the Indian rupee against the U.S. dollar70 bps during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016. Gross margin decreased by 540 bps2022, primarily due to higher revenues and operational efficiencies during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016, primarily due to higher operating costs and lower gross margin from our 2016 acquisitions.2022.
Selling, General and Administrative (“SG&A”) Expenses.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Change | | Percentage change |
| 2023 | | 2022 | | |
| (dollars in millions) | | | | |
General and administrative expenses | $ | 52.2 | | | $ | 42.5 | | | $ | 9.7 | | | 22.8 | % |
Selling and marketing expenses | 31.0 | | | 23.9 | | | 7.1 | | | 29.6 | % |
Selling, general and administrative expenses | $ | 83.2 | | | $ | 66.4 | | | $ | 16.8 | | | 25.2 | % |
As a percentage of revenues | 20.2 | % | | 18.4 | % | | | | |
|
| | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Percentage change |
| 2017 | | 2016 | | Change | |
| (dollars in millions) | | | | |
General and administrative expenses | $ | 26.9 |
| | $ | 21.9 |
| | $ | 5.0 |
| | 23.0 | % |
Selling and marketing expenses | 12.2 |
| | 11.6 |
| | 0.6 |
| | 5.2 | % |
Selling, general and administrative expenses | $ | 39.1 |
| | $ | 33.5 |
| | $ | 5.6 |
| | 16.8 | % |
As a percentage of revenues | 20.3 | % | | 19.6 | % | |
| | |
The increase in SG&A expenses of $16.8 million was primarily due to an increase inhigher employee-related costs of $2.2$10.7 million (including $1.6on account of higher headcount and wage inflation, higher investment in digital capabilities of $3.7 million, higher allowance for expected credit losses of incremental employee-related costs$1.9 million, primarily related to our 2016 acquisitions) as a result of annual wage incrementscustomer bankruptcy event and an increase in our average headcount to support the increased business volumes. Theretravel costs of $0.9 million. This was an increasepartially offset by foreign exchange gain, net of $1.8hedging of $0.4 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 other operating expenses. There was a net increase of $0.2 million due to the appreciation of the Indian rupee and depreciation of the Philippine peso against the U.S. dollar during the three months ended September 30, 20172023, compared to the three months ended September 30, 2016.2022.
Depreciation and Amortization.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Change | | Percentage change |
| 2023 | | 2022 | | |
| (dollars in millions) | | | | |
Depreciation expense | $ | 8.4 | | | $ | 10.1 | | | $ | (1.7) | | | (16.9) | % |
Intangible amortization expense | 3.2 | | | 4.3 | | | (1.1) | | | (25.6) | % |
Depreciation and amortization expense | $ | 11.6 | | | $ | 14.4 | | | $ | (2.8) | | | (19.5) | % |
As a percentage of revenues | 2.8 | % | | 4.0 | % | | | | |
|
| | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Percentage change |
| 2017 | | 2016 | | Change | |
| (dollars in millions) | | | | |
Depreciation expense | $ | 6.2 |
| | $ | 5.7 |
| | $ | 0.5 |
| | 8.2 | % |
Intangible amortization expense | 3.5 |
| | 2.9 |
| | 0.6 |
| | 22.4 | % |
Depreciation and amortization expense | $ | 9.7 |
| | $ | 8.6 |
| | $ | 1.1 |
| | 12.9 | % |
As a percentage of revenues | 5.0 | % | | 5.0 | % | | | | |
DepreciationThe decrease in depreciation expense of $1.7 million was primarily due to lower depreciation of $1.5 million on assets related to operations centers closed as a result of optimization of office space and increased use of the hybrid and remote working models and foreign exchange gain, net of hedging of $0.2 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The decrease in intangibles amortization expense of $1.1 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022 was primarily due to end of useful lives for certain intangible assets.
Income from Operations. Income from operations increased by $1.1$10.1 million, or 12.9%20.2%, from $8.6$50.1 million for the three months ended September 30, 20162022 to $9.7$60.2 million for the three months ended September 30, 2017. The increase in intangibles amortization expense of $0.6 million was2023, primarily due to amortization of intangibles associated with IQRhigher 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 forhigher gross margins, partially offset by higher SG&A expenses during the three months ended September 30, 2016 to $18.6 million for the three months ended September 30, 2017.2023. As a percentage of revenues, income from operations decreasedincreased from 10.1%13.9% for the three months ended September 30, 20162022 to 9.7%14.7% for the three months ended September 30, 2017.2023.
Foreign Exchange Gain/(Loss). Net foreignGain, net. Foreign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the Philippine peso, the U.K. Poundpound sterling and the Philippine pesoSouth African rand during the three months ended September 30, 2017.2023, compared to the three months ended September 30, 2022. The average exchange rate of the U.S. dollar against the Indian rupee decreasedincreased from 66.7380.01 during the three months ended September 30, 20162022 to 64.4582.69 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, 2017.2023. The average exchange rate of the U.S. dollar against the Philippine peso increaseddecreased from 47.4056.63 during the three months ended September 30, 20162022 to 50.8256.02 during the three months ended September 30, 2017.2023. The average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.16 during the three months ended September 30, 2022 to 1.26 during the three months ended September 30, 2023. The average exchange rate of the U.S. dollar against the South African rand increased from 17.21 during the three months ended September 30, 2022 to 18.49 during the three months ended September 30, 2023.
We recorded a net foreign exchange gain, net of $2.8$1.5 million for the three months ended September 30, 20172022 compared to $1.7 million for the three months ended September 30, 2016.
Interest expense. Interest expense increased $0.1 million, from $0.3 million for the three months ended September 30, 2016 to $0.4 million for the three months ended September 30, 2017.2023.
Other Income, net. Other income, net was flat at $2.9 million during the three months ended September 30, 2017.
Income Tax Expense. The effective tax rate decreased from 26.0% during the three months ended September 30, 2016 to 11.8% as a result
Interest expense. Interest 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$2.4 million for the three months ended September 30, 20162022 to $21.1$3.4 million for the three months ended September 30, 2017,2023, primarily due to a higher effective interest rate of 6.5% during the three months ended September 30, 2023, compared to 3.4% during the three months ended September 30, 2022, partially offset by a lower average outstanding balance under our revolving credit facility during the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
Other Income, net.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Change | | Percentage change |
| 2023 | | 2022 | | |
| (dollars in millions) | | |
Gain on sale and mark-to-market on investments | $ | 1.3 | | | $ | 1.5 | | | $ | (0.2) | | | (9.1) | % |
Interest and dividend income | 2.1 | | | 1.5 | | | 0.6 | | | 44.5 | % |
Fair value changes of contingent consideration | (2.5) | | | — | | | (2.5) | | | (100.0) | % |
Others, net | (0.1) | | | (0.7) | | | 0.6 | | | (75.3) | % |
Other income, net | $ | 0.8 | | | $ | 2.3 | | | $ | (1.5) | | | (65.6) | % |
Other income, net decreased by $1.5 million, from $2.3 million for the three months ended September 30, 2022 to $0.8 million for the three months ended September 30, 2023. The decrease is primarily due to a fair value adjustment to recognize an increase in contingent consideration liability of $2.5 million related to our acquisition of Clairvoyant AI, Inc. (“Clairvoyant”) in December 2021 as a result of strong operational performance. This was partially offset by higher interest and dividend income on our investments and lower other expenses during the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
Income Tax Expense. The effective tax rate increased from 24.2% during the three months ended September 30, 2022 to 24.4% during the three months ended September 30, 2023. We recorded income tax expense of $2.8$14.2 million and $12.5 million for the three months ended September 30, 2023 and 2022, respectively. The increase in income tax expense was primarily as a result of higher profit during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, and an increase in non-deductible expenses during the three months ended September 30, 2023, partially offset by higher excess tax benefits related to stock-based compensation, and higher tax credits during the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
Net Income. Net income increased from $39.1 million for the three months ended September 30, 2022 to $43.9 million for the three months ended September 30, 2023, primarily due to increase in income from operations of $1.3 million, higher foreign exchange gain of $1.1$10.1 million, partially offset by higher income tax expense of $1.7 million, lower other income, net of $1.5 million, lower foreign exchange gain, net of $1.1 million and higher interest expense of $0.1$1.0 million. As a percentage of revenues, net income increaseddecreased from 9.4%10.8% for the three months ended September 30, 20162022 to 11.0%10.7% for the three months ended September 30, 2017.2023.
Nine Months Ended September 30, 20172023 Compared to Nine Months Ended September 30, 20162022
Revenues.
The following table summarizes our revenues by reportable segment for the nine months ended September 30, 2017 and 2016:segments:
| | | Nine months ended September 30, | | | | Percentage change | | Nine months ended September 30, | | Percentage change |
| 2017 | | 2016 | | Change | | | 2023 | | 2022 | | Change | |
| (dollars in millions) | | | | | | (dollars in millions) | | | | |
Insurance | $ | 173.8 |
| | $ | 151.7 |
| | $ | 22.1 |
| | 14.6 | % | Insurance | $ | 390.8 | | | $ | 328.0 | | | $ | 62.8 | | | 19.1 | % |
Healthcare | 56.7 |
| | 49.8 |
| | 6.9 |
| | 13.9 | % | Healthcare | 80.0 | | | 72.1 | | | 7.9 | | | 11.1 | % |
Travel, Transportation and Logistics | 53.4 |
| | 52.6 |
| | 0.8 |
| | 1.4 | % | |
Finance and Accounting | 63.7 |
| | 59.0 |
| | 4.7 |
| | 8.0 | % | |
All Other | 62.5 |
| | 75.4 |
| | (12.9 | ) | | (17.1 | )% | |
| | | | | | | | |
Emerging Business | | Emerging Business | 198.7 | | | 160.6 | | | 38.1 | | | 23.7 | % |
Analytics | 154.3 |
| | 120.2 |
| | 34.1 |
| | 28.4 | % | Analytics | 547.1 | | | 476.6 | | | 70.5 | | | 14.8 | % |
Total revenues, net | $ | 564.4 |
| | $ | 508.7 |
| | $ | 55.7 |
| | 11.0 | % | Total revenues, net | $ | 1,216.6 | | | $ | 1,037.3 | | | $ | 179.3 | | | 17.3 | % |
Revenues for the nine months ended September 30, 20172023 were $564.4$1,216.6 million, up $55.7$179.3 million, or 11.0%17.3%, compared to the nine months ended September 30, 2016.2022, driven primarily by revenue growth from our new and existing clients in all of our reportable segments.
Revenue growth in Insurance of $22.1$62.8 million was primarily driven by expansion of business from our new and existing clients of $21.1$65.3 million. This was partially offset by a loss of $2.5 million, including incremental $2.6 million relatedmainly attributable to the July 2016 acquisitiondepreciation of Liss Systems Limited ("Liss"). The remaining increase of $1.0 million is attributable to a net impact of appreciation ofthe Australian dollar, the Indian rupee and the South African Rand and Indian rupee and depreciation of the U.K. Pound sterlingrand against the U.S. dollar during the nine months ended September 30, 20172023, compared to the nine months ended September 30, 2016.2022. Insurance revenues were 30.8%32.1% and 29.8%31.6% of our total revenues induring the nine months ended September 30, 20172023 and September 30, 2016,2022, respectively.
Revenue growth in Healthcare of $6.9$7.9 million was primarily driven by expansion of business from our existingnew 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 to2023. Healthcare revenues were 6.6% and 6.9% of our total revenues during 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, 20172023 and September 30, 2016,2022, respectively.
Revenue growth in F&AEmerging Business of $4.7$38.1 million was primarily driven by expansion of business from our new and existing clients of $4.4 million. The remaining increase of $0.3 million is attributable to the appreciation of Indian rupee against the U.S. dollar
during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. F&A revenues were 11.3% and 11.6% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.
Revenue decline in All Other of $12.9 million was driven primarily by lower revenue in our Consulting and Utilities operating segments, partially offset by higher revenue in our Banking and Financial Services operating segment, aggregating to $13.1 million. This was partially offset by $0.2 million impact due to the depreciation of the U.K. Pound sterling against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 in our Consulting operating segment. All Other revenues were 11.1% and 14.8% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.
Revenue growth in Analytics of $34.1 million was driven by our recurring and project based engagements from our new and existing clients of $34.4 million, including incremental $18.6 million from IQR and Datasource acquisitions in 2016. The increase was partially offset by a decrease of $0.3 million due to the depreciation of the U.K. Pound sterling against the U.S. dollar during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Analytics revenues were 27.3% and 23.6% of our total revenues in the nine months ended September 30, 2017 and September 30, 2016, respectively.
Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Cost of Revenues | | Gross Margin |
| Nine months ended September 30, | | | | Percentage change | | Nine months ended September 30, | | Change |
| 2017 | | 2016 | | Change | | | 2017 | | 2016 | |
| (dollars in millions) | | | | | | | | | | |
Insurance | $ | 119.0 |
| | $ | 108.5 |
| | $ | 10.5 |
| | 9.7 | % | | 31.5 | % | | 28.5 | % | | 3.0 | % |
Healthcare | 36.4 |
| | 32.5 |
| | 3.9 |
| | 12.2 | % | | 35.8 | % | | 34.8 | % | | 1.0 | % |
TT&L | 30.8 |
| | 31.9 |
| | (1.1 | ) | | (3.4 | )% | | 42.2 | % | | 39.4 | % | | 2.8 | % |
F & A | 39.2 |
| | 35.4 |
| | 3.8 |
| | 10.7 | % | | 38.5 | % | | 40.0 | % | | (1.5 | )% |
All Other | 42.8 |
| | 47.8 |
| | (5.0 | ) | | (10.6 | )% | | 31.6 | % | | 36.6 | % | | (5.0 | )% |
| | | | | | | | | | | | | |
Analytics | 102.3 |
| | 76.1 |
| | 26.2 |
| | 34.4 | % | | 33.7 | % | | 36.7 | % | | (3.0 | )% |
Total | $ | 370.5 |
| | $ | 332.2 |
| | $ | 38.3 |
| | 11.5 | % | | 34.4 | % | | 34.7 | % | | (0.3 | )% |
For the nine months ended September 30, 2017, cost of revenues was $370.5 million compared to $332.2 million for the nine months ended September 30, 2016, an increase of $38.3 million, or 11.5%. Our gross margin for the nine months ended September 30, 2017 was 34.4% compared to 34.7% for the nine months ended September 30, 2016, a decrease of 30 basis points (bps).
The increase in cost of revenues in Insurance of $10.5 million was primarily due to an increase in employee-related costs of $8.2 million (including $1.3 million from our Liss acquisition) on account of higher headcount and wage inflation, and technology and infrastructure costs of $2.8$39.2 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&Lloss 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 comparedmainly attributable to the nine months ended September
30, 2016. Gross margin increased by 280 bps during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily due to higher revenues and lower operating costs.
The increase in cost of revenues in F&A of $3.8 million was primarily due to an increase in employee-related costs of $2.3 million on account of higher headcount and wage inflation and infrastructure costs of $0.7 million. There was an increase of $0.7 million due to the appreciationdepreciation of the Indian rupee against the U.S. dollar during the nine months ended September 30, 20172023, compared to the nine months ended September 30, 2016. Gross margin decreased by 150 bps2022.Emerging Business revenues were 16.3% and 15.5% of our total revenues during the nine months ended September 30, 2017 compared to the nine months ended2023 and September 30, 2016, primarily due to migration costs associated with our new client wins and higher reimbursable travel related costs with lower gross margin.2022, respectively.
The decline
Revenue growth in costAnalytics of revenues in All Other of $5.0$70.5 million was primarily due to a decrease in employee-related costs of $2.9 million on account of lower headcount, partially offsetdriven 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 revenueshigher volumes in our Consultingannuity and Utilities operating segments.
The increase in cost project based engagements from our new and existing clientsof revenues in Analytics of $26.2$70.2 million was primarily due toand an increase in employee-related costsrevenues of $24.8$0.3 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 duemainly attributable to the appreciation of the Indian rupeeU.K. pound sterling against the U.S. dollar during the nine months ended September 30, 20172023, compared to the nine months ended September 30, 2016.2022. Analytics revenues were 45.0% and 46.0% of our total revenues during the nine months ended September 30, 2023 and September 30, 2022, 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 |
| 2023 | | 2022 | | Change | | | 2023 | | 2022 | |
| (dollars in millions) | | | | | | | | | | |
Insurance | $ | 253.1 | | | $ | 210.7 | | | $ | 42.4 | | | 20.1 | % | | 35.2 | % | | 35.7 | % | | (0.5) | % |
Healthcare | 52.9 | | | 52.4 | | | 0.5 | | | 0.8 | % | | 33.9 | % | | 27.2 | % | | 6.7 | % |
Emerging Business | 111.4 | | | 92.8 | | | 18.6 | | | 20.1 | % | | 43.9 | % | | 42.2 | % | | 1.7 | % |
Analytics | 343.3 | | | 303.3 | | | 40.0 | | | 13.2 | % | | 37.3 | % | | 36.4 | % | | 0.9 | % |
Total | $ | 760.7 | | | $ | 659.2 | | | $ | 101.5 | | | 15.4 | % | | 37.5 | % | | 36.5 | % | | 1.0 | % |
For the nine months ended September 30, 2023, cost of revenues was $760.7 million compared to $659.2 million for the nine months ended September 30, 2022, an increase of $101.5 million, or 15.4%. The increase in cost of revenues was primarily due to increases in employee-related costs, partially offset by foreign exchange gain, net of hedging. Our gross margin for the nine months ended September 30, 2023 was 37.5% compared to 36.5% for the nine months ended September 30, 2022, an increase of 100 basis points (“bps”) primarily driven by higher revenues, operational efficiencies and foreign exchange gain, net of hedging during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
The increase in cost of revenues in Insurance of $42.4 million for the nine months ended September 30, 2023 was primarily due to increases in employee-related costs of $42.0 million on account of higher headcount and wage inflation, higher technology costs of $6.7 million on account of increased use of the hybrid and remote working models and higher other operating cost of $2.6 million, partially offset by foreign exchange gain, net of hedging of $6.5 million, lower travel cost of $1.5 million and lower facilities cost of $0.9 million on account of optimization of office space. Gross margin in Insurance decreased by 30050 bps during the nine months ended September 30, 20172023, compared to the nine months ended September 30, 2016,2022, primarily due to lower margins associated with higher costs during ramp-ups in certain existing and new clients during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
The increase in cost of revenues in Healthcare of $0.5 million for the nine months ended September 30, 2023 was primarily due to increases in employee-related costs of $3.2 million on account of wage inflation, partially offset foreign exchange gain, net of hedging of $1.7 million and lower facilities cost of $1.0 million on account of optimization of office space. Gross margin in Healthcare increased by 670 bps during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher employeerevenues, operational efficiencies and foreign exchange gain, net of hedging during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
The increase in cost of revenues in Emerging Business of $18.6 million for the nine months ended September 30, 2023 was primarily due to increases in employee-related costs of $18.7 million on account of higher headcount and wage inflation, higher technology costs of $2.8 million on account of increased use of the hybrid and remote working models and higher other operating costs of $1.8 million, partially offset by foreign exchange gain, net of hedging of $3.5 million and lower grosstravel costs of $1.2 million. Gross margin from our 2016 acquisitions.in Emerging Business increased by 170 bps during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher revenues and foreign exchange gain, net of hedging during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
The increase in cost of revenues in Analytics of $40.0 million for the nine months ended September 30, 2023 was primarily due to increases in employee-related costs of $48.4 million on account of higher headcount and wage inflation and higher technology costs of $1.2 million on account of increased use of the hybrid and remote working models, partially offset by foreign exchange gain, net of hedging of $6.0 million, lower travel costs of $2.4 million and lower facilities cost of $1.2 million on account of optimization of office space. Gross margin in Analytics increased by 90 bps during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher revenues, operational efficiencies and foreign exchange gain, net of hedging during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
Selling, General and Administrative (“SG&A”) Expenses.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2023 | | 2022 | | Change | |
| (dollars in millions) | | | | |
General and administrative expenses | $ | 144.5 | | | $ | 122.9 | | | $ | 21.6 | | | 17.6 | % |
Selling and marketing expenses | 88.7 | | | 72.0 | | | 16.7 | | | 23.1 | % |
Selling, general and administrative expenses | $ | 233.2 | | | $ | 194.9 | | | $ | 38.3 | | | 19.7 | % |
As a percentage of revenues | 19.2 | % | | 18.8 | % | | | | |
|
| | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2017 | | 2016 | | Change | |
| (dollars in millions) | | | | |
General and administrative expenses | $ | 75.8 |
| | $ | 63.6 |
| | $ | 12.2 |
| | 19.2 | % |
Selling and marketing expenses | 38.7 |
| | 37.9 |
| | 0.8 |
| | 2.2 | % |
Selling, general and administrative expenses | $ | 114.5 |
| | $ | 101.5 |
| | $ | 13.0 |
| | 12.8 | % |
As a percentage of revenues | 20.3 | % | | 20.0 | % | | | | |
The increase in SG&A expenses of $38.3 million was primarily due to an increase inhigher employee-related costs of $8.2$27.7 million (including $4.1on account of higher headcount and wage inflation, higher investment in digital capabilities of $4.6 million, higher sales and marketing spend of incremental employee-related$3.6 million, increase in travel costs of $2.9 million and higher allowance for expected credit losses of $2.1 million, primarily related to our 2016 acquisitions) as a resultcustomer bankruptcy event. This was partially offset by foreign exchange gain, net of annual wage increments and an increase in our average headcount to support the increased business volumes. There was an increasehedging of $2.7$2.6 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, 20172023, compared to the nine months ended September 30, 2016.2022.
Depreciation and Amortization.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2023 | | 2022 | | Change | |
| (dollars in millions) | | | | |
Depreciation expense | $ | 26.7 | | | $ | 29.2 | | | $ | (2.5) | | | (8.6) | % |
Intangible amortization expense | 11.5 | | | 12.9 | | | (1.4) | | | (10.6) | % |
Depreciation and amortization expense | $ | 38.2 | | | $ | 42.1 | | | $ | (3.9) | | | (9.2) | % |
As a percentage of revenues | 3.1 | % | | 4.1 | % | | | | |
|
| | | | | | | | | | | | | | |
| 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 | % | | | | |
DepreciationThe decrease in depreciation expense of $2.5 million was primarily due to lower depreciation of $1.7 million on assets related to operations centers closed as a result of optimization of office space, increased use of the hybrid and remote working models and foreign exchange gain, net of hedging of $0.8 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The decrease in intangibles amortization expense of $1.4 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 was primarily due to end of useful lives for certain intangible assets.
Income from Operations. Income from operations increased by $3.8$43.4 million, or 15.1%30.7%, from $25.0$141.1 million for the nine months ended September 30, 20162022 to $28.8$184.5 million for the nine months ended September 30, 2017. The increase in intangible amortization expense of $2.2 million was2023, 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 Indiahigher revenues and the Philippines and to support our business growth and depreciation expense associated with our 2016 acquisitions.
Income from Operations. Income from operations increasedhigher gross margins, partially offset by $0.6 million, or 1.3%, from $50.0 million forhigher SG&A expenses during the nine months ended September 30, 2016 to $50.6 million for the nine months ended September 30, 2017.2023. As a percentage of revenues, income from operations decreasedincreased from 9.8%13.6% for the nine months ended September 30, 20162022 to 9.0%15.2% for the nine months ended September 30, 2017.2023.
Foreign Exchange Gain/(Loss). Net foreignGain, net. Foreign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the Philippine peso, the U.K. Poundpound sterling and the Philippine pesoSouth African rand during the nine months ended September 30, 2017.2023, compared to the nine months ended September 30, 2022. The average exchange rate of the U.S. dollar against the Indian rupee decreasedincreased from 67.1077.65 during the nine months ended September 30, 20162022 to 65.1282.38 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, 2017.2023. The average exchange rate of the U.S. dollar against the Philippine peso increased from 47.1353.71 during the nine months ended September 30, 20162022 to 50.3155.46 during the nine months ended September 30, 2017.2023. The average exchange rate of the U.K. pound sterling remained unchanged at 1.25 for each of the nine months ended September 30, 2023 and September 30, 2022. The average exchange rate of the U.S. dollar against the South African rand increased from 16.10 during the nine months ended September 30, 2022 to 18.47 during the nine months ended September 30, 2023.
We recorded a net foreign exchange gain, net of $7.3$4.7 million for the nine months ended September 30, 20172022 compared to $3.6a foreign exchange gain, net of $0.8 million for the nine months ended September 30, 2016.2023.
Interest expense. Interest expense increased by $0.4 million from $1.0$4.8 million for the nine months ended September 30, 20162022 to $1.4$10.0 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 was2023, primarily due to a higher cash balances in certaineffective interest rate of our foreign subsidiaries and higher gain on sale of investment6.2% during the nine months ended September 30, 20172023, compared to 2.3% during the nine months ended September 30, 2022, partially offset by a lower average outstanding balance under our revolving credit facility during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2016. We also recorded2022.
Other Income, net.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | Percentage change |
| 2023 | | 2022 | | Change | |
Gain on sale and mark-to-market on investments | $ | 4.1 | | | $ | 3.4 | | | $ | 0.7 | | | 22.0 | % |
Interest and dividend income | 5.5 | | | 3.7 | | | 1.8 | | | 49.2 | % |
Fair value changes of contingent consideration | (2.5) | | | (1.0) | | | (1.5) | | | 150.0 | % |
Others, net | (0.5) | | | (1.6) | | | 1.1 | | | (69.5) | % |
Other income, net | $ | 6.6 | | | $ | 4.5 | | | $ | 2.1 | | | 46.6 | % |
Other income, net increased by $2.1 million, from $4.5 million for the nine months ended September 30, 2022 to $6.6 million for the nine months ended September 30, 2023. The increase is primarily due to higher return on mutual fund investments of $0.7 million, higher interest income on our investments of $1.8 million and lower other incomeexpenses of $4.1$1.1 million during the nine months ended September 30, 2016 due2023, compared to the reversalnine months ended September 30, 2022. This was partially offset by an increase in fair value adjustment to recognize an increase in contingent consideration liability of earn-out liability$1.5 million related to our RPM acquisition of Clairvoyant in 2015.
Income Tax Expense. The effective tax rate decreased from 28.6%December 2021 during the nine months ended September 30, 20162023, compared to 11.0% as a result of (i) excessthe nine months ended September 30, 2022.
Income Tax Expense. The effective tax benefit related to stock awards of $7.2 million pursuant to ASU No. 2016-09rate decreased from 23.9% during the nine months ended September 30, 2017, (ii) conclusion of an uncertain tax position of $3.2 million (including interest of $1.4 million), and (iii) higher earnings from foreign subsidiaries and lower domestic profit in2022 to 20.8% during the U.S., partially offset by highernine months ended September 30, 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 $46.3$37.8 million and $34.8 million for the nine months ended September 30, 20162023 and 2022, respectively. The increase in income tax expense was primarily as a result of higher profit during the nine months ended September 30, 2023, compared to $58.2the nine months ended September 30, 2022, and an increase in non-deductible expenses, partially offset by higher excess tax benefits related to stock-based compensation, and higher tax credits during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
Net Income. Net income increased from $111.1 million for the nine months ended September 30, 2017,2022 to $144.3 million for the nine months ended September 30, 2023, primarily due to increase in income from operations of $43.4 million and higher other income, net of $2.1 million, partially offset by higher interest expense of $5.2 million, lower foreign exchange gain, net of $3.9 million and higher 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$3.0 million.
As a percentage of revenues, net income increased from 9.1%10.7% for the nine months ended September 30, 20162022 to 10.3%11.9% for the nine months ended September 30, 2017.2023.
Liquidityand Capital Resources
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2023 | | 2022 |
| (dollars in millions) |
Opening cash, cash equivalents and restricted cash | $ | 125.6 | | | $ | 143.8 | |
Net cash provided by operating activities | 132.2 | | | 101.1 | |
Net cash provided by/(used for) investing activities | 11.4 | | | (75.2) | |
Net cash used for financing activities | (141.0) | | | (61.8) | |
Effect of exchange rate changes | (0.3) | | | (9.6) | |
Closing cash, cash equivalents and restricted cash | $ | 127.9 | | | $ | 98.3 | |
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
| (dollars in millions) |
Opening cash and cash equivalents | $ | 213.2 |
| | $ | 205.3 |
|
Net cash provided by operating activities | 72.2 |
| | 56.0 |
|
Net cash used for investing activities | (171.2 | ) | | (126.2 | ) |
Net cash used for financing activities | (28.2 | ) | | (34.2 | ) |
Effect of exchange rate changes | 1.7 |
| | (2.5 | ) |
Closing cash and cash equivalents | $ | 87.7 |
| | $ | 98.4 |
|
As of September 30, 20172023 and December 31, 2016,2022, we had $249.4$274.2 million and $226.6$262.2 million, respectively, in cash, cash equivalents and short-term investments, (including $205.1of which $256.5 million and $170.1$237.5 million, respectively, held byis located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes. We periodically evaluate opportunities to distribute cash among our group entities to fund our operations, expand our business and make strategic acquisitions in the United States and other geographies, and as and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign subsidiaries). Wejurisdictions. During the nine months ended September 30, 2023, our subsidiaries in India, the United Kingdom and Australia repatriated $76.0 million (net of $4.0 million withholding taxes), $15.6 million and $9.1 million, respectively, to the United States. These distributions do not intend to repatriate funds held byconstitute a change in our foreign subsidiaries since our future growth partially depends upon continued infrastructure and technology investments, geographical expansions and acquisitions outside of the U.S. Therefore, we anticipate that we will indefinitely reinvest the earnings generated outside of the U.S. If we were to repatriate our overseas funds, we would accrue and pay applicable taxes.permanent reinvestment assertion.
Operating Activities: Cash flows from
Net cash provided by operating activities increased by $16.2 million from $56.0was $132.2 million for the nine months ended September 30, 20162023, as compared to $72.2net cash provided by operating activities of $101.1 million for the nine months ended September 30, 2017.2022, reflecting higher cash earnings, partially offset by higher working capital needs. The major drivers contributing to the increase of $31.1 million year-over-year included the following:
•Increase in cash flows from operationsearnings including adjustments for non-cash and other items contributed higher cash flow of $38.6 million during the nine months ended September 30, 20172023, as compared to the nine months ended September 30, 2016 was due to an increase2022. These adjustments comprise of deferred tax effects, unrealized foreign currency exchange gain/(loss), unrealized gain/(loss) on investments, stock-based employee compensation, depreciation and amortization of long-lived assets and intangibles acquired in net income by $12.0 million, increasebusiness combinations, fair value changes in non-cash adjustmentcontingent consideration, among others.
•Changes in accounts receivable, including advance billings, contributed higher cash flow of $3.9 million and decrease in working capital of $0.3 million from $25.2$21.8 million during the nine months ended September 30, 20162023, as compared to $24.9the nine months ended September 30, 2022. Collections in accounts receivable, including advance billings was driven by revenue growth during the nine months ended September 30, 2023. This was partially offset by increase in our days sales outstanding which was 64 days as of September 30, 2023, as compared to 63 days as of September 30, 2022.
•Higher income tax payments, net of refunds, contributed higher cash payouts of $41.6 million, partially offset by provision for income tax and changes in deferred tax assets and liabilities of $25.5 million during the nine months ended September 30, 2017.2023, as compared to the nine months ended September 30, 2022.
•Changes in other assets, accounts payables including other liabilities contributed higher cash payouts of $13.2 million during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.
Investing Activities: Cash flows used forprovided by investing activities increased by $45.0 million from $126.2were $11.4 million for the nine months ended September 30, 20162023, as compared to $171.2cash used for investing activities of $75.2 million for the nine months ended September 30, 2017.2022. The increase was primarilyin cash provided by investing activities of $86.6 million year-over-year is mainly due to an increase in short-termnet redemption of investments of $47.2$52.5 million (netduring nine months ended September 30, 2023, as compared to net purchase of redemption) and due to an increase in capital expendituresinvestments of $6.4$40.0 million during the nine months ended September 30, 20172022. The increase was also due to acquisition-related payouts of $3.3 million during the nine months ended September 30, 2022 with no corresponding payouts during the nine months ended September 30, 2023. This was partially offset by higher capital expenditures in infrastructure, technology assets, software and product
developments of $9.0 million during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2016. This was partially offset by amount paid2022.
Financing Activities: Cash used for business acquisition of $9.4financing activities were $141.0 million during the nine months ended September 30, 20162023, as compared to $0.7 million paid for settlement of working capital and purchase consideration payable related to 2016 acquisitions during the nine months ended September 30, 2017.
Financing Activities: Cash flowscash used for financing activities was $28.2of $61.8 million during the nine months ended September 30, 2017 compared2022. The increase in cash used for financing activities of $79.2 million year-over-year was primarily due to $34.2net repayment of our borrowings under our revolving credit facility of $40.0 million during the nine months ended September 30, 2016. The decrease in cash flow used for financing activities between periods is primarily due2023, as compared to repaymentnet proceeds of our borrowings of $25.0 million under the Credit Agreement (as described below in “Financing Arrangements”) during the nine months ended September 30, 2016. This was partially offset by higher purchases of treasury stock of $17.2 million and lower proceeds from exercise of stock options of $2.0$10.0 million during the nine months ended September 30, 20172022. The increase was also due to higher purchases of treasury stock by $28.8 million under our share repurchase program during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2016.2022.
We expect to use cash from operating activities to maintain and expand our business. As we have focused on expanding our cash flow from operating activities we continue to make capitalbusiness by making investments, primarily related to building new facilitiesdigital capabilities and capital expenditures associated with leasehold improvements to build our facilities and the purchase of telecommunications equipment and computer hardware and software in connection with managing client operations.
We incurred $26.8$41.1 million of capital expenditures induring the nine months ended September 30, 2017.2023. We expect to incur total capital expenditures of between $30.0$50.0 million to $35.0$55.0 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 (referorders. See Note 25 - Commitments and Contingencies to Note 21 to theour unaudited consolidated financial statements contained herein for further details).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 stock repurchases under our board-authorized stock repurchase program, which may require the use of significant cash resources and/or additional financing. We anticipate that we will continue to rely upon cash from operating activities to finance most of our smaller acquisitions, capital expenditures and working capital needs. Ifabove mentioned requirements, although if we have significant growth through acquisitions, we may need to obtain additional financing.
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, payments for contingent consideration and uncertain tax positions. See Note 16 - Fair Value Measurements - Fair Value of Contingent Consideration, Note 18 - Borrowings, Note 21 - Leases and Note 25 - Commitments and Contingencies to our unaudited consolidated financial statements herein for further information on material cash requirements from known contractual and other obligations.
In the ordinary course of Contents
business, we provide standby letters of credit to third parties primarily for facility leases. As of September 30, 2023 and December 31, 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.
Financing Arrangements (Debt Facility)
Our Credit Agreement provides for revolving credit facility (the “Credit Facility”), including a letter of credit sub-facility, in the amount of $100.0 million. The Credit Facility has a maturity date of October 24, 2019 and is voluntarily pre-payable from time to time without premium or penalty. As of September 30, 2017, we had outstanding indebtedness of $45.0 million which is included under “long term borrowings” in the unaudited consolidated balance sheets.
Borrowings under the Credit Facility may be used for working capital and general corporate purposes of the Company and its subsidiaries and for acquisitions.
Depending on the type of borrowing, loans under the Credit Agreement bear interest at a rate equal to the specified prime rate (alternate base rate) or adjusted LIBO rate, plus, in each case, an applicable margin. The applicable margin is tied to the Company’s leverage ratio and ranges from 0.3% to 0.8% per annum with respect to loans pegged to the specified prime rate, and 1.3% to 1.8% per annum on loans pegged to the adjusted LIBO rate. The revolving credit commitments under the Credit Agreement are subject to a commitment fee. The commitment fee is also tied to the Company’s leverage ratio, and ranges from 0.2% to 0.3% per annum on the average daily amount by which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations. The Credit Facility carried an effective interest rate per annum of 2.9% and 2.7% during the three and nine months ended September 30, 2017, respectively.
Off-Balance Sheet Arrangements
As of September 30, 2017 and December 31, 2016, we had no off-balance sheet arrangements or obligations.
Contractual Obligations
The following table sets forthsummarizes our contractual obligations as of September 30, 2017:debt position: | | | | | | | | | | | |
| As of September 30,2023 | | As of December 31, 2022 |
| (dollars in millions) |
| Revolving credit facility |
Current portion of long-term borrowings | $ | 50.0 | | | $ | 30.0 | |
| | | |
Long-term borrowings | 160.0 | | | 220.0 | |
| | | |
| | | |
| | | |
Total borrowings | $ | 210.0 | | | $ | 250.0 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 to uncertain tax positions, since the extent of the amount and timing of payment is currently not reliably estimable or determinable. |
Certain units of our Indian subsidiaries were established as 100% Export-Oriented units under the “STPI” scheme promulgated by the Government of India. These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares. We have undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores, and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. We believe, however, that these units have in the past satisfied and will continue to satisfy the required conditions.
Our operations centers in the Philippines are registered with the “PEZA.” The registration provides us with certain fiscal incentives on the import of capital goods and requires that ExlService Philippines, Inc. meet certain performance and investment criteria. We believe that these centers have in the past satisfied and will continueSee Note 18 - Borrowings to satisfy the required criteria.our unaudited consolidated financial statements herein for further details.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2—“2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements”Pronouncements to theour unaudited consolidated financial statements contained herein.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
During the three months ended September 30, 2017,2023, there were no material changes in our market risk exposure. For a discussion of our market risk associated with exchange rate risk and interest rate risk, see Part II, Item 7A “Quantitative and Qualitative Disclosures aboutAbout Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we filethe Company files or submitsubmits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to ourthe Company’s management, including ourits Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure. In connection with the preparation of this Quarterly Report on Form 10-Q, ourthe Company’s management carried out an evaluation, under the supervision and with the participation of the CEO and CFO, of the effectiveness and operation of ourthe Company’s disclosure controls and procedures as of September 30, 2017.2023. Based upon that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures, as of September 30, 2017, our disclosure controls and procedures2023, were effective.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2017,2023, there waswere no changechanges in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II. Other InformationOTHER INFORMATION
ITEM 1. Legal Proceedings
In the course of our normal business activities, various lawsuits, claims and proceedings may be instituted or asserted against us. WeAlthough there can be no assurance, we believe that the disposition of matters currently instituted or asserted will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. Please seeSee Note 21 25 - Commitments and Contingenciesto theour unaudited consolidated financial statements contained herein for details regarding our tax proceedings.
ITEM 1A. Risk Factors
We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162022, a number of risks which may materially affect our business, financial condition or results of operations. You should carefully consider the “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016those risk factors and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us may also materially adversely affect our business, financial condition and/or results of operations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
None.
Purchases of Equity Securities by the Issuer
During the three months ended September 30, 2017,2023, 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 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Purchased from Employees in connection with satisfaction of Withholding Tax Obligations | | Shares Purchased as Part of Publicly Announced Programs | | Total Number of Shares Purchased | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs |
Period | | Number of Shares Purchased | | Average Price Paid per share | | Number of Shares Purchased | | Average Price Paid per share | | |
July 1, 2023 through July 31, 2023 | | — | | | $ | — | | | 320,620 | | | $ | 31.19 | | | 320,620 | | | $ | 156,632,595 | |
August 1, 2023 through August 31, 2023 | | — | | | $ | — | | | 356,689 | | | $ | 28.04 | | | 356,689 | | | $ | 146,632,597 | |
September 1, 2023 through September 30, 2023 | | 45,267 | | | $ | 29.25 | | | 298,465 | | | $ | 28.94 | | | 343,732 | | | $ | 137,995,675 | |
Total | | 45,267 | | | $ | 29.25 | | | 975,774 | | | $ | 29.35 | | | 1,021,041 | | | $ | — | |
(1) On February 28, 2017, the Company’s BoardOctober 5, 2021, our board of Directorsdirectors authorized an additionala $300 million common stock repurchase program beginning January 1, 2022 (the “2017“2022 Repurchase Program”), under which.
Under the 2022 Repurchase Program, shares may be purchased by the Companyus from time to time from the open market and through private transactions, during each ofor otherwise, as determined by our management as market conditions warrant. We have structured open market purchases under the fiscal years 2017 through 2019 up2022 Repurchase Program to an aggregate additional amount of $100 million. The approval increasescomply with Rule 10b-18 under the 2017 authorization from $20 million to $40 million and authorizes stock repurchases of up to $40 million in each of 2018 and 2019.Exchange Act. Repurchases may be discontinued at any time by management.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.Rule 10b5-1 Trading Plans
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6.Exhibits
See Exhibit Index immediately
The following exhibits are being filed as part of this report or incorporated by reference as indicated therein:
| | | | | | | | |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
101.INS | | XBRL Instance Document* |
| | |
101.SCH | | XBRL Taxonomy Extension Scheme* |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase* |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase* |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase* |
| | |
101.PRE | | XBRL Extension Presentation Linkbase* |
| | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| | |
*This exhibit will not be deemed “filed” for purposes of Section 18 of the signature page hereto, which Exhibit Index isExchange Act, or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated hereinby reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
Date: October 26, 2023 | EXLSERVICE HOLDINGS, INC. |
| | | |
Date: October 26, 2017 | EXLSERVICE HOLDINGS, INC. |
By: | | | |
| By: | | /S/ VISHAL CHHIBBARMAURIZIO NICOLELLI |
| | | Vishal Chhibbar
MAURIZIO NICOLELLI Chief Financial Officer (Duly Authorized Signatory, Principal Financial and Accounting Officer)
|
EXHIBIT INDEX
The following exhibits are being filed as part of this Quarterly Report on Form 10-Q:
|
| | |
| | |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
10.1 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
101.INS | | XBRL Instance Document |
| | |
101.SCH | | XBRL Taxonomy Extension Scheme |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
| | |
101.PRE | | XBRL Extension Presentation Linkbase |
| | |