Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 20202021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                     TO                     
COMMISSION FILE NUMBER 001-33089

EXLSERVICE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware 82-0572194
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
320 Park Avenue,29th Floor, 
New York,New York10022
(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 EXLSNASDAQ
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      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      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 
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  

As of July 31, 2020,27, 2021, there were 34,176,25533,174,613 shares of the registrant’s common stock outstanding, par value $0.001 per share.



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TABLE OF CONTENTS
 PAGE  PAGE
ITEMITEMITEM
1.1.1.
2.2.2.
3.3.3.
4.4.4.
1.1.1.
1A.1A.1A.
2.2.2.
3.3.3.
4.4.4.
5.5.5.
6.6.6.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
As ofAs of
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
(Unaudited)
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$163,619  $119,165  Cash and cash equivalents$150,211 $218,530 
Short-term investmentsShort-term investments171,962  202,238  Short-term investments144,533 184,286 
Restricted cashRestricted cash4,858  5,453  Restricted cash5,065 4,690 
Accounts receivable, netAccounts receivable, net157,505  171,864  Accounts receivable, net182,111 147,635 
Prepaid expensesPrepaid expenses10,121  13,246  Prepaid expenses12,060 11,344 
Advance income tax, netAdvance income tax, net1,003  4,698  Advance income tax, net13,567 5,684 
Other current assetsOther current assets27,472  24,594  Other current assets33,615 37,109 
Total current assetsTotal current assets536,540  541,258  Total current assets541,162 609,278 
Property and equipment, netProperty and equipment, net91,848  79,142  Property and equipment, net86,511 92,875 
Operating lease right-of-use assetsOperating lease right-of-use assets96,789  86,396  Operating lease right-of-use assets83,280 91,918 
Restricted cashRestricted cash2,298  2,426  Restricted cash2,260 2,299 
Deferred tax assets, netDeferred tax assets, net17,070  11,855  Deferred tax assets, net24,132 7,749 
Intangible assets, netIntangible assets, net66,296  73,982  Intangible assets, net52,853 59,594 
GoodwillGoodwill348,110  349,529  Goodwill348,747 349,088 
Other assetsOther assets31,599  36,016  Other assets27,472 32,099 
Investment in equity affiliateInvestment in equity affiliate3,063  2,484  Investment in equity affiliate2,929 2,957 
Total assetsTotal assets$1,193,613  $1,183,088  Total assets$1,169,346 $1,247,857 
Liabilities and stockholders’ equityLiabilities and stockholders’ equityLiabilities and stockholders’ equity
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$9,048  $6,564  Accounts payable$3,877 $6,992 
Current portion of long-term borrowingsCurrent portion of long-term borrowings20,657  40,867  Current portion of long-term borrowings15,000 25,000 
Deferred revenueDeferred revenue16,752  13,436  Deferred revenue12,017 32,649 
Accrued employee costsAccrued employee costs42,376  68,885  Accrued employee costs70,496 67,645 
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities74,772  74,017  Accrued expenses and other current liabilities76,424 66,410 
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities18,199  24,148  Current portion of operating lease liabilities18,039 18,894 
Income taxes payable, netIncome taxes payable, net2,359  1,432  Income taxes payable, net11,256 3,488 
Total current liabilitiesTotal current liabilities184,163  229,349  Total current liabilities207,109 221,078 
Long-term borrowings, less current portionLong-term borrowings, less current portion215,527  194,131  Long-term borrowings, less current portion139,432 201,961 
Operating lease liabilities, less current portionOperating lease liabilities, less current portion90,934  74,709  Operating lease liabilities, less current portion76,518 84,874 
Income taxes payableIncome taxes payable1,790  1,790  Income taxes payable1,790 1,790 
Deferred tax liabilities, netDeferred tax liabilities, net705  966  Deferred tax liabilities, net902 847 
Other non-current liabilitiesOther non-current liabilities19,566  12,142  Other non-current liabilities15,581 18,135 
Total liabilitiesTotal liabilities512,685  513,087  Total liabilities441,332 528,685 
Commitments and contingencies (Refer to Note 24)Commitments and contingencies (Refer to Note 24)Commitments and contingencies (Refer to Note 24)00
Preferred stock, $0.001 par value; 15,000,000 shares authorized, NaN issuedPreferred stock, $0.001 par value; 15,000,000 shares authorized, NaN issued—  —  Preferred stock, $0.001 par value; 15,000,000 shares authorized, NaN issued
ExlService Holdings, Inc. Stockholders’ equity:ExlService Holdings, Inc. Stockholders’ equity:ExlService Holdings, Inc. Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 38,818,365 shares issued and 34,320,586 shares outstanding as of June 30, 2020 and 38,480,654 shares issued and 34,185,241 shares outstanding as of December 31, 201939  39  
Common stock, $0.001 par value; 100,000,000 shares authorized, 39,283,853 shares issued and 33,249,709 shares outstanding as of June 30, 2021 and 38,968,052 shares issued and 33,559,434 shares outstanding as of December 31, 2020Common stock, $0.001 par value; 100,000,000 shares authorized, 39,283,853 shares issued and 33,249,709 shares outstanding as of June 30, 2021 and 38,968,052 shares issued and 33,559,434 shares outstanding as of December 31, 202039 39 
Additional paid-in capitalAdditional paid-in capital404,704  391,240  Additional paid-in capital439,051 420,976 
Retained earnings582,743  551,903  
Accumulated other comprehensive loss(104,274) (84,892) 
Total including shares held in treasury883,212  858,290  
Less: 4,497,779 shares as of June 30, 2020 and 4,295,413 shares as of December 31, 2019, held in treasury, at cost(202,284) (188,289) 
Stockholders’ equity680,928  670,001  
Total equity680,928  670,001  
Total liabilities and stockholders’ equity$1,193,613  $1,183,088  
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Retained earnings701,331 641,379 
Accumulated other comprehensive loss(86,745)(74,984)
Total including shares held in treasury1,053,676 987,410 
Less: 6,034,144 shares as of June 30, 2021 and 5,408,618 shares as of December 31, 2020, held in treasury, at cost(325,662)(268,238)
Stockholders’ equity728,014 719,172 
Total equity728,014 719,172 
Total liabilities and stockholders’ equity$1,169,346 $1,247,857 
See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per share amounts)

Three months ended June 30,Six months ended June 30,Three months ended June 30,Six months ended June 30,
20202019202020192021202020212020
Revenues, netRevenues, net$222,473  $243,509  $468,463  $483,082  Revenues, net$275,064 $222,473 $536,479 $468,463 
Cost of revenues(1)
Cost of revenues(1)
158,401  162,446  321,057  319,686  
Cost of revenues(1)
170,701 158,401 329,522 321,057 
Gross profit(1)
Gross profit(1)
64,072  81,063  147,406  163,396  
Gross profit(1)
104,363 64,072 206,957 147,406 
Operating expenses:Operating expenses:Operating expenses:
General and administrative expensesGeneral and administrative expenses28,750  31,228  57,691  63,759  General and administrative expenses36,499 28,750 67,202 57,691 
Selling and marketing expensesSelling and marketing expenses13,051  17,647  27,507  35,694  Selling and marketing expenses19,724 13,051 37,959 27,507 
Depreciation and amortization expenseDepreciation and amortization expense12,405  12,752  24,855  26,419  Depreciation and amortization expense12,310 12,405 24,411 24,855 
Impairment and restructuring charges—  5,580  —  6,807  
Total operating expensesTotal operating expenses54,206  67,207  110,053  132,679  Total operating expenses68,533 54,206 129,572 110,053 
Income from operationsIncome from operations9,866  13,856  37,353  30,717  Income from operations35,830 9,866 77,385 37,353 
Foreign exchange gain, netForeign exchange gain, net1,359  1,202  2,736  2,462  Foreign exchange gain, net1,353 1,359 1,787 2,736 
Interest expenseInterest expense(2,883) (3,864) (5,955) (7,446) Interest expense(2,520)(2,883)(4,994)(5,955)
Other income, netOther income, net4,225  4,102  6,754  8,525  Other income, net2,215 4,225 3,625 6,754 
Income before income tax expense and earnings from equity affiliatesIncome before income tax expense and earnings from equity affiliates12,567  15,296  40,888  34,258  Income before income tax expense and earnings from equity affiliates36,878 12,567 77,803 40,888 
Income tax expenseIncome tax expense4,072  2,670  9,927  6,870  Income tax expense8,865 4,072 17,823 9,927 
Income before earnings from equity affiliatesIncome before earnings from equity affiliates8,495  12,626  30,961  27,388  Income before earnings from equity affiliates28,013 8,495 59,980 30,961 
Loss from equity-method investment66  62  121  129  
Gain / (loss) from equity-method investmentGain / (loss) from equity-method investment(66)(28)(121)
Net income attributable to ExlService Holdings, Inc. stockholdersNet income attributable to ExlService Holdings, Inc. stockholders$8,429  $12,564  $30,840  $27,259  Net income attributable to ExlService Holdings, Inc. stockholders$28,021 $8,429 $59,952 $30,840 
Earnings per share attributable to ExlService Holdings, Inc. stockholders:Earnings per share attributable to ExlService Holdings, Inc. stockholders:Earnings per share attributable to ExlService Holdings, Inc. stockholders:
BasicBasic$0.24  $0.36  $0.90  $0.79  Basic$0.83 $0.24 $1.78 $0.90 
DilutedDiluted$0.24  $0.36  $0.89  $0.78  Diluted$0.81 $0.24 $1.75 $0.89 
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:
BasicBasic34,486,202  34,451,67134,443,884  34,413,455Basic33,571,074 34,486,20233,652,146 34,443,884
DilutedDiluted34,597,688  34,702,54734,659,146  34,768,203Diluted34,389,768 34,597,68834,353,593 34,659,146

(1) Exclusive of depreciation and amortization expense.



See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)/INCOME (UNAUDITED)
(In thousands)
Three months ended June 30,Six months ended June 30,Three months ended June 30,Six months ended June 30,
20202019202020192021202020212020
Net incomeNet income$8,429  $12,564  $30,840  $27,259  Net income$28,021 $8,429 $59,952 $30,840 
Other comprehensive (loss)/income:
Other comprehensive income/(loss): Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedgesUnrealized gain/(loss) on cash flow hedges7,721  3,268  (7,125) 9,205  Unrealized gain/(loss) on cash flow hedges(871)7,721 (303)(7,125)
Loss on net investment hedgesLoss on net investment hedges(1,134)(1,134)
Foreign currency translation gain/(loss)Foreign currency translation gain/(loss)6,534  1,017  (10,803) 4,403  Foreign currency translation gain/(loss)(4,775)2,273 (6,686)(19,298)
Reclassification adjustmentsReclassification adjustmentsReclassification adjustments
Loss/(Gain) on cash flow hedges(1)
1,127  (884) 198  (1,555) 
(Gain)/loss on cash flow hedges(1)
(Gain)/loss on cash flow hedges(1)
(2,866)1,127 (5,695)198 
Retirement benefits(2)
Retirement benefits(2)
97  (40) 198  (79) 
Retirement benefits(2)
176 97 355 198 
Income tax expense relating to above(3)
(6,649) (507) (1,850) (2,865) 
Income tax effects relating to above(3)
Income tax effects relating to above(3)
1,478 (2,388)1,702 6,645 
Total other comprehensive income/(loss) Total other comprehensive income/(loss)$8,830  $2,854  $(19,382) $9,109   Total other comprehensive income/(loss)$(7,992)$8,830 $(11,761)$(19,382)
Total comprehensive income$17,259  $15,418  $11,458  $36,368  
Total comprehensive income/(loss)Total comprehensive income/(loss)$20,029 $17,259 $48,191 $11,458 


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

(2)These are reclassified to net income and are included in other income, net in the unaudited consolidated statements of income. Refer to Note 19 - Employee Benefit Plans to the unaudited consolidated financial statements.

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








See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the three months ended June 30, 20202021 and 20192020
(In thousands, except share and per share amounts)


Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal EquityCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Equity
Common StockTreasury StockTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance as of March 31, 202038,813,775  $39  $396,939  $574,314  $(113,104) (4,497,779) $(202,284) $655,904  
Balance as of March 31, 2021Balance as of March 31, 202139,273,989 $39 $428,882 $673,310 $(78,753)(5,747,100)$(297,253)$726,225 
Stock issued against stock-based compensation plansStock issued against stock-based compensation plans4,590  —  39  —  —  —  —  39  Stock issued against stock-based compensation plans9,864 — 99 — — — — 99 
Stock-based compensationStock-based compensation—  —  7,726  —  —  —  —  7,726  Stock-based compensation— — 10,070 — — — — 10,070 
Acquisition of treasury stockAcquisition of treasury stock—  —  —  —  —  —  —  —  Acquisition of treasury stock— — — — — (287,044)(28,409)(28,409)
Other comprehensive income—  —  —  —  8,830  —  —  8,830  
Other comprehensive lossOther comprehensive loss— — — — (7,992)— — (7,992)
Net incomeNet income—  —  —  8,429  —  —  —  8,429  Net income— — — 28,021 — — — 28,021 
Balance as of June 30, 202038,818,365  $39  $404,704  $582,743  $(104,274) (4,497,779) $(202,284) $680,928  
Balance as of June 30, 2021Balance as of June 30, 202139,283,853 $39 $439,051 $701,331 $(86,745)(6,034,144)$(325,662)$728,014 


Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockNon - Controlling InterestTotal EquityCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Equity
Common StockRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Equity
SharesAmountSharesAmountSharesAmountAdditional Paid-in CapitalShares
Balance as of March 31, 201938,256,036  $38  $371,144  $498,939  $(77,212) (3,890,599) $(162,333) $259  $630,835  
Balance as of March 31, 2020Balance as of March 31, 202038,813,775 $39 $396,939 $574,314 $(113,104)(4,497,779)$(202,284)$655,904 
Stock issued against stock-based compensation plansStock issued against stock-based compensation plans39,047  —  316  —  —  —  —  —  316  Stock issued against stock-based compensation plans4,590 — 39 — — — — 39 
Stock-based compensationStock-based compensation—  —  7,155  —  —  —  —  —  7,155  Stock-based compensation— — 7,726 — — — — 7,726 
Acquisition of treasury stock—  —  —  —  —  (198,160) (12,130) —  (12,130) 
Non-controlling interest—  —  18  —  —  —  —  (259) (241) 
Other comprehensive incomeOther comprehensive income—  —  —  —  2,854  —  —  —  2,854  Other comprehensive income— — — — 8,830 — — 8,830 
Net incomeNet income—  —  —  12,564  —  —  —  —  12,564  Net income— — — 8,429 — — — 8,429 
Balance as of June 30, 201938,295,083  $38  $378,633  $511,503  $(74,358) (4,088,759) $(174,463) $—  $641,353  
Balance as of June 30, 2020Balance as of June 30, 202038,818,365 $39 $404,704 $582,743 $(104,274)(4,497,779)$(202,284)$680,928 
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the six months ended June 30, 20202021 and 20192020
(In thousands, except share and per share amounts)

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal EquityCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Equity
Common StockAccumulated Other Comprehensive LossTreasury StockTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmountTotal Equity
Balance as of January 1, 202038,480,654  $39  $391,240  $551,903  $(84,892) (4,295,413) $(188,289) $670,001  
Balance as of January 1, 2021Balance as of January 1, 202138,968,052 $39 $420,976 $641,379 $(74,984)(5,408,618)$(268,238)$719,172 
Stock issued against stock-based compensation plansStock issued against stock-based compensation plans337,711  —  960  —  —  —  —  960  Stock issued against stock-based compensation plans315,801 — 173 — — — — 173 
Stock-based compensationStock-based compensation—  —  12,504  —  —  —  —  12,504  Stock-based compensation— — 17,902 — — — — 17,902 
Acquisition of treasury stockAcquisition of treasury stock—  —  —  —  —  (202,366) (13,995) (13,995) Acquisition of treasury stock— — — — — (625,526)(57,424)(57,424)
Other comprehensive lossOther comprehensive loss—  —  —  —  (19,382) —  —  (19,382) Other comprehensive loss— — — — (11,761)— — (11,761)
Net incomeNet income—  —  —  30,840  —  —  —  30,840  Net income— — — 59,952 — — — 59,952 
Balance as of June 30, 202038,818,365  $39  $404,704  $582,743  $(104,274) (4,497,779) $(202,284) $680,928  
Balance as of June 30, 2021Balance as of June 30, 202139,283,853 $39 $439,051 $701,331 $(86,745)(6,034,144)$(325,662)$728,014 


Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive (Loss)/IncomeTreasury StockNon - Controlling InterestTotal Equity
SharesAmountSharesAmount
Balance as of January 1, 201937,850,544  $38  $364,179  $484,244  $(83,467) (3,628,068) $(146,925) $250  $618,319  
Stock issued against stock-based compensation plans444,539  —  338  —  —  —  —  —  338  
Stock-based compensation—  —  14,111  —  —  —  —  —  14,111  
Acquisition of treasury stock—  —  —  —  —  (460,691) (27,538) —  (27,538) 
Allocation of equity component related to issuance costs on convertible notes—  —  (13) —  —  —  —  —  (13) 
Non-controlling interest—  —  18  —  —  —  —  (250) (232) 
Other comprehensive income—  —  —  —  9,109  —  —  —  9,109  
Net income—  —  —  27,259  —  —  —  —  27,259  
Balance as of June 30, 201938,295,083  $38  $378,633  $511,503  $(74,358) (4,088,759) $(174,463) $—  $641,353  
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Equity
SharesAmountSharesAmount
Balance as of January 1, 202038,480,654 $39 $391,240 $551,903 $(84,892)(4,295,413)$(188,289)$670,001 
Stock issued against stock-based compensation plans337,711 — 960 — — — — 960 
Stock-based compensation— — 12,504 — — — — 12,504 
Acquisition of treasury stock— — — — — (202,366)(13,995)(13,995)
Other comprehensive loss— — — — (19,382)— — (19,382)
Net income— — — 30,840 — — — 30,840 
Balance as of June 30, 202038,818,365 $39 $404,704 $582,743 $(104,274)(4,497,779)$(202,284)$680,928 


See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six months ended June 30,
20202019
Cash flows from operating activities:
Net income$30,840  $27,259  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense24,806  26,532  
Stock-based compensation expense12,504  14,111  
Amortization of operating lease right-of-use assets13,703  13,701  
Unrealized gain on short term investments(2,842) (4,362) 
Unrealized foreign exchange (gain)/loss, net(3,316) 1,967  
Deferred income tax expense/(benefit)(663) (2,631) 
Allowance for expected credit losses389  281  
Loss from equity-method investment121  129  
Amortization of non-cash interest expense related to convertible senior notes1,289  1,218  
Impairment charges—  3,167  
Others, net(1,204) 961  
Change in operating assets and liabilities:
Accounts receivable12,380  (16,478) 
Prepaid expenses and other current assets(1,091) (2,033) 
Advance income tax, net4,446  1,345  
Other assets3,046  126  
Accounts payable1,943  (2,114) 
Deferred revenue3,066  5,654  
Accrued employee costs(23,497) (12,567) 
Accrued expenses and other liabilities(4,182) 5,200  
Operating lease liabilities(12,831) (13,749) 
Net cash provided by operating activities58,907  47,717  
Cash flows from investing activities:
Purchases of property and equipment(22,051) (22,287) 
Investment in equity affiliate(700) —  
Purchase of non-controlling interest—  (241) 
Purchase of investments(49,027) (68,188) 
Proceeds from redemption of investments72,844  91,669  
Net cash provided by investing activities1,066  953  
Cash flows from financing activities:
Principal payments of finance lease liabilities(124) (207) 
Proceeds from borrowings110,000  46,000  
Repayments of borrowings(110,210) (79,590) 
Payment of debt issuance costs—  (117) 
Acquisition of treasury stock(13,995) (27,538) 
Proceeds from exercise of stock options960  338  
Net cash used for financing activities(13,369) (61,114) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,873) (240) 
Net increase/(decrease) in cash, cash equivalents and restricted cash43,731  (12,684) 
Cash, cash equivalents and restricted cash at the beginning of the period127,044  104,131  
Cash, cash equivalents and restricted cash at the end of the period$170,775  $91,447  

See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six months ended June 30,
20212020
Cash flows from operating activities:
Net income$59,952 $30,840 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense24,734 24,806 
Stock-based compensation expense17,902 12,504 
Amortization of operating lease right-of-use assets13,632 13,703 
Unrealized loss / (gain) on short term investments6,777 (2,842)
Unrealized foreign exchange gain, net(2,634)(3,378)
Deferred income tax benefit(14,737)(663)
Allowance for expected credit losses(390)389 
Loss from equity-method investment28 121 
Amortization of non-cash interest expense related to convertible senior notes1,364 1,289 
Others, net144 (1,204)
Change in operating assets and liabilities:
Accounts receivable(34,152)12,380 
Prepaid expenses and other current assets189 (906)
Advance income tax, net39 4,446 
Other assets1,589 3,046 
Accounts payable(2,458)1,943 
Deferred revenue(20,832)3,066 
Accrued employee costs3,833 (23,497)
Accrued expenses and other liabilities12,290 (4,305)
Operating lease liabilities(13,327)(12,831)
Net cash provided by operating activities53,943 58,907 
Cash flows from investing activities:
Purchases of property and equipment(19,903)(22,351)
Proceeds from sale of property and equipment527 300 
Investment in equity affiliate(700)
Purchase of investments(32,987)(49,027)
Proceeds from redemption of investments64,031 72,844 
Net cash provided by investing activities11,668 1,066 
Cash flows from financing activities:
Principal payments of finance lease liabilities(107)(124)
Proceeds from borrowings25,000 110,000 
Repayments of borrowings(99,000)(110,210)
Acquisition of treasury stock(57,424)(13,995)
Proceeds from exercise of stock options174 960 
Net cash used for financing activities(131,357)(13,369)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,237)(2,873)
Net (decrease)/increase in cash, cash equivalents and restricted cash(67,983)43,731 
Cash, cash equivalents and restricted cash at the beginning of the period225,519 127,044 
Cash, cash equivalents and restricted cash at the end of the period$157,536 $170,775 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$3,599 $4,224 
Income taxes, net of refunds$18,710 $4,861 
Supplemental disclosure of non-cash investing and financing activities:
Assets acquired under finance lease$50 $75 

See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 20202021
(In thousands, except share and per share amounts)
1. Organization

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

The unaudited consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.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 U.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, 2019.2020.

The unaudited 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. The standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, and gains and losses arising from intra-group transactions, are eliminated while preparing thoseconsolidated financial statements.

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

The Company’s investments in equity affiliates are initially recorded at cost and any excess purchase consideration paid over proportionate share of the fair value of the net assets of the investee at the acquisition date is recognized as goodwill. The proportionate share of net income or loss of the investee after its acquisition is recognized in the unaudited consolidated statements of income.

Effective January 1, 2020, the Company made certain operational and structural changes to more closely integrate the Company’s businesses and to simplify its organizational structure. Under the new structure, the Company reports its financial performance based on new segments described in Note 3 - Segment and Geographical Information to the unaudited consolidated financial statements. In conjunction with the new reporting structure, the Company has recast certain prior period amounts, wherever applicable, to conform to the way the Company internally manages and monitors segment performance. This change primarily impacted Note 3 - Segment and Geographical Information and Note 9 - Goodwill and Intangible Assets to the unaudited consolidated financial statements, with no impact on the unaudited consolidated balance sheets, statements of income, comprehensive (loss)/income, equity and cash flows.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
(b) Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, allowance for expected credit losses, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements,
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
estimated costs to complete fixed price contracts, recoverability of dues from statutory authorities, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, assumptions used to calculate stock-based compensation expense, assumptions used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost,amortization of ROU, depreciation and amortization periods, purchase price allocation and recoverability of long-lived assets, including goodwill and intangibles, and estimated costs to complete fixed price contracts.intangibles.

As of June 30, 2020,2021, the extent to which the global Coronavirus Disease 2019 pandemic (“COVID-19”) will ultimately impact the Company's business depends on numerous dynamic factors, which the Company still cannot reliably predict. As a result, many of the Company's estimates and assumptions herein required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to COVID-19, the Company’s estimates may materially change in future periods.

(c) Leases

The Company determines if an arrangement is a lease at inception of the contract. Operating leases Any changes in estimates are recorded in "operating lease right-of-use assets", "current portion of operating lease liabilities" and "operating lease liabilities, less current portion"adjusted prospectively in the Company's unauditedCompany’s consolidated balance sheets. Finance leases are recorded in "property and equipment", and current and non-current portion of finance lease liabilities are presented within “accrued expenses and other current liabilities” and “other non-current liabilities,” respectively in the Company's unaudited consolidated balance sheets.

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

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

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

On January 1, 2019, the date of initial application, the Company adopted Topic 842, Leases, using the modified retrospective method. The modified retrospective method provides a method of recognizing those leases which had not expired as of the date of adoption of January 1, 2019.

The adoption resulted in the recognition of ROU assets of $80,328 (net of deferred rent of $8,626) and lease liabilities of $88,954 for operating leases as of January 1, 2019. The Company's accounting for finance leases remained substantially
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
unchanged. The adoption had no impact on opening balance of retained earnings. Refer to Note 20 - Leases to the unaudited consolidated financial statements for details.

(d)(c) Recent Accounting Pronouncements    

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (("Subtopic 715-20")): Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The adoption of this ASU is not expected to have any material effect on the Company’s consolidated financial statements.

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

(e)In August 2020, FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU removes separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and hence most of the instruments will be accounted for as a single model (either debt or equity). The ASU also states that entities must apply the if-converted method to all convertible instruments for calculation of diluted EPS and the treasury stock method is no longer available. An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance. The ASU is effective for fiscal years beginning after December 15, 2021 and may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.

(d) Recently Adopted Accounting Pronouncements

In June 2016,December 2019, FASB issued ASU No. 2016-13,2019-12, Financial Instruments - Credit Losses Income Taxes(Topic 326), which requires a financial asset (or a group of financial assets) measured at amortized cost basisSimplifying the Accounting for Income Taxes. This ASU eliminates certain exceptions related to be presented at the net amount expected to be collected based on historical experience, current conditions,approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and reasonable and supportable forecasts that affect the collectability of the reported amount. The new guidance replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. The allowancedeferred tax liabilities for credit losses is a valuation account that is to be deducted from the amortized cost of the financial asset(s) so as to present the net carrying value at the amount expected to be collected on the financial asset.outside basis differences. The Company adopted Topic 326 as ofthis ASU on January 1, 2020 using a modified retrospective approach through a cumulative-effect adjustment to its retained earnings.2021. The adoption of the ASU had no impact to equity as of January 1, 2020 with a corresponding offset to accounts receivable. Further, the impact of adoption of this guidance did not have a material effect on the Company's accounting policies, processes, and systems. Refer to Note 4 - Revenues, net to the unaudited consolidated financial statements for details.

In August 2018, FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, by prescribing new disclosure requirements, and the elimination and modification of disclosure requirements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity was permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. The early adoption of this ASU effective January 1, 2020, did not have any material effecthas a minimal impact on the Company’s disclosures in the unaudited consolidated financial statements.

In August 2018,October 2020, FASB issued ASU No. 2018-15,2020-10, Intangibles - GoodwillCodification Improvements, to provide guidance for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and Other - Internal-Use Software ("Subtopic 350-40"): Thisother minor improvements. The amendments in this ASU alignsimprove the requirementsconsistency of the ASC by ensuring that all guidance that requires or provides an option for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the ASU requires an entity (customer)to provide information in a hosting arrangement thatthe notes to financial statements is a service contract to followcodified in the guidance in FASB Accounting Standard Codification Subtopic 350-40disclosure section of the ASC. The Company adopted this ASU on internal-use software to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The ASU 2018-15 also provides guidance on amortization and impairment of any costs capitalized, along with new presentation and disclosure requirements. The new guidance is effective for fiscal years beginning after December 15, 2019 and adoption was allowed prospectively.January 1, 2021. The adoption of this ASU effective January 1, 2020 did not have anya material effectimpact on the Company’s unaudited consolidated financial statements.

In January 2021, Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2021-01, Reference Rate Reform (Topic 848): Scope, to expand the scope of Topic 848 to include derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment (commonly referred to as the discounting transition). This ASU extends some of Topic 848’s optional expedients and exceptions for contract modifications and hedge accounting to derivative instruments impacted by discounting transition as a result of the discontinuation of the use of LIBOR as a benchmark interest rate due to reference rate reform. This ASU is effective immediately for all entities with the option to be applied retrospectively as of any date from the beginning of an interim period
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
In April 2019, FASB issued ASU No. 2019-04, Codification Improvementsthat includes or is subsequent to Financial Instruments-Credit Losses (Topic 326), DerivativesMarch 12, 2020, and Hedging (Topic 815), and Financial Instruments: Targeted Transition Relief (Topic 825). The amendments clarify the scope of the credit losses standard and address issues relatedprospectively to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. With respect to hedge accounting, the amendments address partial-term fair value hedges, fair value hedge basis adjustments, and certain transition requirements, among other things. With respect to recognizing and measuring financial instruments, the amendment in the ASU address the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. This ASU is effective for public business entities for fiscal years beginningany new contract modifications made on or after January 7, 2021 through December 15, 2019, including interim periods within that fiscal year. Early adoption was permitted.31, 2022. The adoption of this ASU did not have anya material effectimpact on the Company’s unaudited consolidated financial statements.

In May 2019, FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. This ASU provides entities with the option to irrevocably elect the fair value option, on an instrument-by-instrument basis in accordance with Subtopic 825-10, for certain financial instruments that are within the scope of Subtopic 326-20, upon adopting Topic 326. The fair value option election does not apply to held-to-maturity debt securities. The amendments in this ASU provide entities with targeted transition relief that is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. The Company adopted Topic 326 as of January 1, 2020, whereby no such fair value election was made, accordingly, the adoption of this ASU did not have any material effect on the Company’s unaudited consolidated financial statements.
3. Segment and Geographical Information

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

Effective January 1, 2020, the Company made certain operational and structural changes to more closely integrate its businesses and to simplify its organizational structure. The Company now manages and reports financial information through its 4 strategic business units: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management will review financial information and make operating decisions.Business. These business units will develop client-specific solutions, build capabilities, maintain a unified go-to-market approach and beare integrally responsible for service delivery, customer satisfaction, growth and profitability. In line with the Company’s strategy of vertical integration and focus on domain expertise, the Company has integrated its Finance & Accounting and Consulting operating segments within each of the Insurance and Healthcare operating segments based on the corresponding industry-specific clients to whom those services are provided. Finance & Accounting and Consulting services to clients outside of the Insurance and Healthcare industries will now be part of the Company’s newly formed business unit and reportable segment Emerging Business. In addition, the Company integrated its former Travel, Transportation and Logistics, Banking and Financial Services, and Utilities operating segments under the Emerging Business unit to further leverage and optimize the operating scale in providing operations management services.

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

Insurance,
Healthcare,
Emerging Business, and
Analytics

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

The chief operating decision maker (“CODM”) generally reviews financial information such as revenues, cost of revenues and gross profit, disaggregated by the operating segments to allocate an overall budget among the operating segments.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
The Company does not allocate and therefore the CODM does not evaluate, certain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages these assets on a total Company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented.

Revenues and cost of revenues for the three months ended June 30, 20202021 and 2019,2020, respectively, for each of the reportable segments, are as follows:
Three months ended June 30, 2020Three months ended June 30, 2021
InsuranceHealthcareEmerging BusinessAnalyticsTotalInsuranceHealthcareEmerging BusinessAnalyticsTotal
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, netRevenues, net$81,281  $24,978  $34,535  $81,679  $222,473  Revenues, net$$28,250 $40,690 $111,405 $275,064 
Cost of revenues(1)
Cost of revenues(1)
59,113  19,640  22,416  57,232  158,401  
Cost of revenues(1)
59,359 17,685 22,346 71,311 170,701 
Gross profit(1)
Gross profit(1)
$22,168  $5,338  $12,119  $24,447  $64,072  
Gross profit(1)
$35,360 $10,565 $18,344 $40,094 $104,363 
Operating expensesOperating expenses54,206  Operating expenses68,533 
Foreign exchange gain, interest expense and other income, netForeign exchange gain, interest expense and other income, net2,701  Foreign exchange gain, interest expense and other income, net1,048 
Income tax expenseIncome tax expense4,072  Income tax expense8,865 
Loss from equity-method investment66  
Gain from equity-method investmentGain from equity-method investment
Net incomeNet income$8,429  Net income$28,021 

(1) Exclusive of depreciation and amortization expense.
Three months ended June 30, 2019Three months ended June 30, 2020
InsuranceHealthcareEmerging BusinessAnalyticsTotalInsuranceHealthcareEmerging BusinessAnalyticsTotal
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, netRevenues, net$85,581  $21,730  $48,327  $87,871  $243,509  Revenues, net$$24,978 $34,535 $81,679 $222,473 
Cost of revenues(1)
Cost of revenues(1)
59,414  17,749  27,852  57,431  162,446  
Cost of revenues(1)
59,113 19,640 22,416 57,232 158,401 
Gross profit(1)
Gross profit(1)
$26,167  $3,981  $20,475  $30,440  $81,063  
Gross profit(1)
$22,168 $5,338 $12,119 $24,447 $64,072 
Operating expensesOperating expenses67,207  Operating expenses54,206 
Foreign exchange gain, interest expense and other income, netForeign exchange gain, interest expense and other income, net1,440  Foreign exchange gain, interest expense and other income, net2,701 
Income tax expenseIncome tax expense2,670  Income tax expense4,072 
Loss from equity-method investmentLoss from equity-method investment62  Loss from equity-method investment66 
Net incomeNet income$12,564  Net income$8,429 

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the six months ended June 30, 2021 and 2020, respectively, for each of the reportable
segments, are as follows:

Six months ended June 30, 2021
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$185,879 $58,515 $78,358 $213,727 $536,479 
Cost of revenues(1)
115,452 35,076 43,190 135,804 329,522 
Gross profit(1)
$70,427 $23,439 $35,168 $77,923 $206,957 
Operating expenses129,572 
Foreign exchange gain, interest expense and other income, net418 
Income tax expense17,823 
Loss from equity-method investment28 
Net income$59,952 


(1) Exclusive of depreciation and amortization expense.

Six months ended June 30, 2020
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$165,020 $52,007 $77,326 $174,110 $468,463 
Cost of revenues(1)
118,078 39,233 47,898 115,848 321,057 
Gross profit(1)
$46,942 $12,774 $29,428 $58,262 $147,406 
Operating expenses110,053 
Foreign exchange gain, interest expense and other income, net3,535 
Income tax expense9,927 
Loss from equity-method investment121 
Net income$30,840 


(1) Exclusive of depreciation and amortization expense.

Revenues, net by service type, were as follows:
Three months ended June 30,Six months ended June 30,
2021202020212020
BPM and related services(1)
$163,659 $140,794 $322,752 $294,353 
Analytics services111,405 81,679 213,727 174,110 
Revenues, net$275,064 $222,473 $536,479 $468,463 

(1) BPM and related services include revenues of the Company's Insurance, Healthcare and Emerging Business reportable segments. Refer to the reportable segment disclosure above.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
Revenues and cost of revenues for the six months ended June 30, 2020 and 2019, respectively, for each of the reportable
segments, are as follows:

Six months ended June 30, 2020
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$165,020  $52,007  $77,326  $174,110  $468,463  
Cost of revenues(1)
118,078  39,233  47,898  115,848  321,057  
Gross profit(1)
$46,942  $12,774  $29,428  $58,262  $147,406  
Operating expenses110,053  
Foreign exchange gain, interest expense and other income, net3,535  
Income tax expense9,927  
Loss from equity-method investment121  
Net income$30,840  

(1) Exclusive of depreciation and amortization expense.

Six months ended June 30, 2019
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$166,867  $43,978  $97,405  $174,832  $483,082  
Cost of revenues(1)
114,657  35,551  55,145  114,333  319,686  
Gross profit(1)
$52,210  $8,427  $42,260  $60,499  $163,396  
Operating expenses132,679  
Foreign exchange gain, interest expense and other income, net3,541  
Income tax expense6,870  
Loss from equity-method investment129  
Net income$27,259  

(1) Exclusive of depreciation and amortization expense.

Revenues, net by service type, were as follows:
Three months ended June 30,Six months ended June 30,
2020201920202019
BPM and related services(1)
$140,794  $155,638  $294,353  $308,250  
Analytics services81,679  87,871  174,110  174,832  
Revenues, net$222,473  $243,509  $468,463  $483,082  

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

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
The Company attributes the revenues to regions based upon the location of its customers.
Three months ended June 30,Six months ended June 30, Three months ended June 30,Six months ended June 30,
2020201920202019 2021202020212020
Revenues, netRevenues, netRevenues, net
United StatesUnited States$189,032  $197,901  $396,912  $394,005  United States$235,288 $189,032 $459,656 $396,912 
Non-United StatesNon-United StatesNon-United States
United KingdomUnited Kingdom18,830  30,155  42,108  59,256  United Kingdom26,175 18,830 50,926 42,108 
Rest of WorldRest of World14,611  15,453  29,443  29,821  Rest of World13,601 14,611 25,897 29,443 
Total Non-United StatesTotal Non-United States33,441  45,608  71,551  89,077  Total Non-United States39,776 33,441 76,823 71,551 
Revenues, netRevenues, net$222,473  $243,509  $468,463  $483,082  Revenues, net$275,064 $222,473 $536,479 $468,463 

Long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets were as follows:
As ofAs of
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Long-lived assetsLong-lived assetsLong-lived assets
IndiaIndia$101,073  $78,244  India$87,234 $97,261 
United StatesUnited States50,121  52,375  United States46,965 46,659 
PhilippinesPhilippines28,558  26,006  Philippines25,635 29,434 
Rest of WorldRest of World8,885  8,913  Rest of World9,957 11,439 
Long-lived assetsLong-lived assets$188,637  $165,538  Long-lived assets$169,791 $184,793 


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
As ofJune 30, 2021December 31, 2020
June 30, 2020December 31, 2019
Accounts receivable, netAccounts receivable, net$157,505  $171,864  Accounts receivable, net$182,111 $147,635 
Contract assetsContract assets$5,074  $5,391  Contract assets$3,547 $4,437 
Contract liabilitiesContract liabilitiesContract liabilities
Deferred revenue (consideration received in advance)Deferred revenue (consideration received in advance)$14,739  $11,259  Deferred revenue (consideration received in advance)$10,503 $30,450 
Consideration received for process transition activitiesConsideration received for process transition activities$2,579  $3,036  Consideration received for process transition activities$1,966 $2,774 

Accounts receivable includes $71,489$89,237 and $73,920$63,995 as of June 30, 20202021 and December 31, 2019,2020, 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.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
Contract assets represent upfront payments such as deal signing discounts or deal signing bonuses made to customers. These costs are amortized over the expected period of the benefit and are recorded as an adjustment to transaction price and
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
reduced from revenues. The Company’s assessment did not indicate any impairment losses on its contract assets for the periods presented.

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

Revenue recognized during the three and six months ended June 30, 20202021 and 2019,2020, which was included in the contract liabilities balance at the beginning of the respective periods:

Three months ended June 30,Six months ended June 30,
2020201920202019
Revenue recognized$2,226  $1,450  $8,194  $4,226  
Three months ended June 30,Six months ended June 30,
2021202020212020
Deferred revenue (consideration received in advance)$3,332 $2,226 $26,953 $8,194 
Consideration received for process transition activities$508 $287 $1,187 $561 


Contract acquisition and fulfillment costs
Contract Acquisition Costs
Three months endedSix months endedYear ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019December 31, 2019
(Audited)
Opening Balance$1,215  $513  $1,307  $713  $713  
Addition187  —  187  —  1,222  
Amortization(132) (44) (224) (244) (628) 
Closing Balance$1,270  $469  $1,270  $469  $1,307  

The following table provides details of the Company’s contract acquisition and fulfillment costs:
Contract Acquisition Costs
Three months endedSix months endedYear ended
June 30, 2021June 30, 2020June 30, 2021June 30, 2020December 31, 2020
Opening Balance$785 $1,215 $1,027 $1,307 $1,307 
Additions374 187 374 187 310 
Amortization(292)(132)(534)(224)(590)
Closing Balance$867 $1,270 $867 $1,270 $1,027 

Contract Fulfillment CostsContract Fulfillment Costs
Three months endedSix months endedYear endedThree months endedSix months endedYear ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019December 31, 2019June 30, 2021June 30, 2020June 30, 2021June 30, 2020December 31, 2020
(Audited)
Opening BalanceOpening Balance$6,916  $4,472  $7,255  $4,051  $4,051  Opening Balance$4,419 $6,916 $5,631 $7,255 $7,255 
Addition363  1,441  647  2,167  4,652  
AdditionsAdditions158 363 164 647 779 
AmortizationAmortization(499) (305) (1,122) (610) (1,448) Amortization(883)(499)(2,101)(1,122)(2,403)
Closing BalanceClosing Balance$6,780  $5,608  $6,780  $5,608  $7,255  Closing Balance$3,694 $6,780 $3,694 $6,780 $5,631 


There was 0 impairment for contract acquisition and contract fulfillment costs as of June 30, 20202021 and December 31, 2019.2020. The capitalized costs are amortized on a straight line basis over the lifeexpected period of benefit of the contract.



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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
Allowance for expected credit losses

On January 1, 2020, the Company adopted ASC Topic 326, Financial Instruments-Credit Losses. Accounts receivable and contract assets are in the scope for which assessment is made. The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future and estimates relating to the possible effects resulting from COVID-19.

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

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

As ofAs of
June 30, 2020January 1, 2020June 30, 2021December 31, 2020
Accounts receivable, including unbilled receivablesAccounts receivable, including unbilled receivables$158,939  $173,027  Accounts receivable, including unbilled receivables$182,841 $148,824 
Less: Allowance for lifetime expected credit loss(1,434) (1,163) 
Less: Allowance for expected credit lossLess: Allowance for expected credit loss(730)(1,189)
Accounts receivable, netAccounts receivable, net$157,505  $171,864  Accounts receivable, net$182,111 $147,635 

The movement in allowance for current expected credit loss on customer balances for the three and six months ended June 30, 20202021 and 20192020 and year ended December 31, 20192020 was as follows:

Three months endedSix months endedYear endedThree months endedSix months endedYear ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019December 31, 2019June 30, 2021June 30, 2020June 30, 2021June 30, 2020December 31, 2020
Balance at the beginning of the periodBalance at the beginning of the period$1,346  $1,255  $1,163  $956  $956  Balance at the beginning of the period$1,183 $1,346 $1,189 $1,163 $1,163 
Additions during the period, net186  (33) 381  265  354  
Additions / (Reductions) during the periodAdditions / (Reductions) during the period(445)186 (395)381 300 
Charged against allowanceCharged against allowance(100) (53) (100) (54) (156) Charged against allowance(13)(100)(73)(100)(269)
Translation adjustment, if any (1) (10)   
Translation adjustmentTranslation adjustment(10)(5)
Balance at the end of the periodBalance at the end of the period$1,434  $1,168  $1,434  $1,168  $1,163  Balance at the end of the period$730 $1,434 $730 $1,434 $1,189 

5. Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding, adjusted for outstanding shares that are subject to repurchase during each period. Diluted earnings per share is computed using the weighted average number of common shares plus the potentially dilutive effect of common stock equivalents (outstanding stock options, restricted stock and restricted stock units) issued and outstanding at the reporting date, and assumed conversion premium of outstanding convertible notes, using the treasury stock method. Common stock equivalents and the conversion premium of outstanding convertible notes that are anti-dilutive are excluded from the computation of weighted average shares outstanding. The Company includes performance stock unit awards in dilutive potential common shares when they become contingently issuable and have a dilutive impact per authoritative guidance and excludes such awards when they are not contingently issuable.

Diluted weighted-average shares outstanding is affected by the treatment of our 3.5% per annum Convertible Senior Notes due October 1, 2024 (the “Notes”). The Company has a choice to settle the Notes in cash, shares or any combination of the two. The Company presently intends and has the ability to settle the principal balance of the Notes in cash, and as such, the Company has applied the treasury stock method. The dilution related to the conversion premium, if any, of the Notes is included in the calculation of diluted weighted-average shares outstanding to the extent the issuance is dilutive based on the average stock price during the reporting period being greater than the conversion price of $75. Refer to Note 17 - Borrowings to the unaudited consolidated financial statements for further details.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended June 30,Six months ended June 30, Three months ended June 30,Six months ended June 30,
2020201920202019 2021202020212020
Numerators:Numerators:Numerators:
Net incomeNet income$8,429  $12,564  $30,840  $27,259  Net income$28,021 $8,429 $59,952 $30,840 
Denominators:Denominators:Denominators:
Basic weighted average common shares outstandingBasic weighted average common shares outstanding34,486,202  34,451,671  34,443,884  34,413,455   Basic weighted average common shares outstanding33,571,074 34,486,202 33,652,146 34,443,884 
Dilutive effect of share-based awardsDilutive effect of share-based awards111,486  250,876  215,262  354,748   Dilutive effect of share-based awards330,063 111,486 336,528 215,262 
Dilutive effect of conversion premium on convertible notes Dilutive effect of conversion premium on convertible notes488,631 364,919 
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding34,597,688  34,702,547  34,659,146  34,768,203   Diluted weighted average common shares outstanding34,389,768 34,597,688 34,353,593 34,659,146 
Earnings per share attributable to ExlService Holdings Inc. stockholders:Earnings per share attributable to ExlService Holdings Inc. stockholders:Earnings per share attributable to ExlService Holdings Inc. stockholders:
BasicBasic$0.24  $0.36  $0.90  $0.79  Basic$0.83 $0.24 $1.78 $0.90 
DilutedDiluted$0.24  $0.36  $0.89  $0.78  Diluted$0.81 $0.24 $1.75 $0.89 
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per shareWeighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share638,318  69  404,315  212,751  Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share1,748 638,318 874 404,315 
6. Cash, Cash Equivalents and Restricted Cash

For the purpose of unaudited statements of cash flows, cash, cash equivalents and restricted cash comprise of the following:
As of As of
June 30, 2020June 30, 2019 June 30, 2021June 30, 2020December 31, 2020
Cash and cash equivalentsCash and cash equivalents$163,619  $84,842  Cash and cash equivalents$150,211 $163,619 $218,530 
Restricted cash (current)Restricted cash (current)4,858  4,098  Restricted cash (current)5,065 4,858 4,690 
Restricted cash (non-current)Restricted cash (non-current)2,298  2,507  Restricted cash (non-current)2,260 2,298 2,299 
Cash, cash equivalents and restricted cashCash, cash equivalents and restricted cash$170,775  $91,447  Cash, cash equivalents and restricted cash$157,536 $170,775 $225,519 

7. Other Income, net
Other income, net consists of the following:
Three months ended June 30,Six months ended June 30,Three months ended June 30,Six months ended June 30,
20202019202020192021202020212020
Gain on sale and mark-to-market of mutual funds, net$3,109  $3,318  $5,166  $6,844  
Interest income632  697  1,164  1,493  
Gain on sale and mark-to-market of mutual fundsGain on sale and mark-to-market of mutual funds$1,655 $3,109 $2,758 $5,166 
Interest and dividend incomeInterest and dividend income689 632 1,291 1,164 
Others, netOthers, net484  87  424  188  Others, net(129)484 (424)424 
Other income, netOther income, net$4,225  $4,102  $6,754  $8,525  Other income, net$2,215 $4,225 $3,625 $6,754 
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
8. Property and Equipment, net
Property and equipment, net consists of the following:
Estimated useful livesAs ofEstimated useful livesAs of
(Years)June 30, 2020December 31, 2019(Years)June 30, 2021December 31, 2020
Owned Assets:Owned Assets:Owned Assets:
Network equipment and computersNetwork equipment and computers3-5$96,759  $98,309  Network equipment and computers3-5$110,321 $107,016 
SoftwareSoftware3-590,746  79,746  Software3-599,187 99,708 
Leasehold improvementsLeasehold improvements3-844,328  44,982  Leasehold improvements3-842,547 48,052 
Office furniture and equipmentOffice furniture and equipment3-820,675  22,046  Office furniture and equipment3-820,276 22,210 
Motor vehiclesMotor vehicles2-5578  601  Motor vehicles2-5619 599 
BuildingsBuildings301,053  1,114  Buildings301,070 1,089 
LandLand689  729  Land700 712 
Capital work in progressCapital work in progress10,784  10,309  Capital work in progress5,766 4,647 
265,612  257,836  280,486 284,033 
Less: Accumulated depreciation and amortizationLess: Accumulated depreciation and amortization(174,333) (179,331) Less: Accumulated depreciation and amortization(194,377)(191,629)
$91,279  $78,505  $86,109 $92,404 
Right-of-use assets under finance leases:Right-of-use assets under finance leases:Right-of-use assets under finance leases:
Network equipment and computersNetwork equipment and computers$91 $93 
Leasehold improvementsLeasehold improvements$644  $738  Leasehold improvements1,126 817 
Office furniture and equipmentOffice furniture and equipment210  308  Office furniture and equipment725 255 
Motor vehiclesMotor vehicles710  711  Motor vehicles656 688 
1,564  1,757  2,598 1,853 
Less: Accumulated depreciation and amortizationLess: Accumulated depreciation and amortization(995) (1,120) Less: Accumulated depreciation and amortization(2,196)(1,382)
$569  $637  $402 $471 
Property and equipment, netProperty and equipment, net$91,848  $79,142  Property and equipment, net$86,511 $92,875 

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

During the three and six months ended June 30, 2020,2021, there were no changes in estimated useful lives of property and equipment.

The depreciation and amortization expense, excluding amortization of acquisition-related intangibles, recognized in the unaudited consolidated statements of income was as follows:
Three months ended June 30,Six months ended June 30,
2020201920202019
Depreciation and amortization expense$8,975  $7,198  $17,271  $15,337  
Three months ended June 30,Six months ended June 30,
2021202020212020
Depreciation and amortization expense$8,913 $8,975 $17,653 $17,271 

The effect of foreign exchange gain/(loss)/gain upon settlement of cash flow hedges recorded under depreciation and amortization, was as follows:
Three months ended June 30,Six months ended June 30,
2020201920202019
Effect of foreign exchange (loss)/gain$(71) $56  $(49) $113  
Three months ended June 30,Six months ended June 30,
2021202020212020
Effect of foreign exchange gain/(loss)$158 $(71)$323 $(49)


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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
Internally developed software costs, included under Software, was as follows:
As ofAs of
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
CostCost$14,891  $15,784  Cost$18,827 $18,371 
Less : Accumulated amortizationLess : Accumulated amortization(4,477) (4,989) Less : Accumulated amortization(8,070)(5,998)
Internally developed software, netInternally developed software, net$10,414  $10,795  Internally developed software, net$10,757 $12,373 

The amortization expense on internally developed software recognized in the unaudited consolidated statements of income was as follows:
Three months ended June 30,Six months ended June 30,
2020201920202019
Amortization expense$1,846  $559  $2,677  $1,206  

During the three and six months ended June 30, 2019, the Company performed an impairment test of its long-lived assets related to its Health Integrated business. Based on the results, the long-lived assets carrying value exceeded its fair value. The primary factor contributing to a reduction in the fair value is the wind-down of the Health Integrated business, due to reduction to the Company's estimated future cash flows. As a result of this analysis, the Company recognized impairment charges of $951 and $2,178 during the three and six months ended June 30, 2019, respectively, to write down the carrying value of property and equipment to its fair value. This impairment charge was recorded in the unaudited consolidated statements of income under "Impairment and restructuring charges".
Three months ended June 30,Six months ended June 30,
2021202020212020
Amortization expense$1,055 $1,846 $2,079 $2,677 

As of June 30, 2021 and December 31, 2020, the Company believes 0 impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value; however, there can be no assurances that long-lived assets will not be impaired in future periods. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. It is reasonably possible that the judgments and estimates described above could change in future periods. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on undiscounted cash flows is subject to significant judgment and may cause variability in the Company’s assessment of the existence of any impairment.

9. Goodwill and Intangible Assets

Goodwill

The Company transitioned to new segment reporting structure effective January 1, 2020, which resulted in certain changes to its operating segments and reporting units. The Company reallocated goodwill to its reporting units using a relative fair value approach. In addition, the Company completed an assessment of any potential goodwill impairment for all its reporting units immediately prior to the reallocation and determined that no impairment existed.


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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
The following table sets forth details of changes in goodwill by reportable segment of the Company:
InsuranceHealthcareEmerging BusinessTT&LF&AAll OtherAnalyticsTotal
Balance at January 1, 2019$38,203  $19,276  $—  $12,697  $47,193  $5,326  $227,289  $349,984  
Currency translation adjustments73  —  —  (240) (288) —  —  (455) 
Balance at December 31, 2019$38,276  $19,276  $—  $12,457  $46,905  $5,326  $227,289  $349,529  
Goodwill reallocation(1)
12,192  2,693  49,803  (12,457) (46,905) (5,326) —  —  
Currency translation adjustments(303) (38) (1,076) —  —  —  (2) (1,419) 
Balance at June 30, 2020$50,165  $21,931  $48,727  $—  $—  $—  $227,287  $348,110  
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Balance at January 1, 2021$50,499 $21,953 $49,348 $227,288 $349,088 
Currency translation adjustments37 (377)(1)(341)
Balance at June 30, 2021$50,536 $21,953 $48,971 $227,287 $348,747 

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

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

During the second quarterAs of 2020,June 30, 2021, the Company evaluated the continuing effects of COVID-19 and its impact on the global economy on each of the Company’s reporting units to assess whether there was a triggering event during the quarter requiring the Company to perform a goodwill impairment test. The Company considered certaincontinued improvements in current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance in the first and second quarters, business forecasts for the remainder of the year, stock price movements and the Company’s expansion plans. The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the interim impairment quantitative test performed during the first quarter of 2020. The Company did not identify any triggers or indications of potential impairment for its reporting units as of June 30, 2020. The Company will continue to monitor the impacts of COVID-19 on the Company and significant changes in key assumptions that could result in future period impairment charges.2021.

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

The recoverability of goodwill is dependent upon the continued growth of cash flows from 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.










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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)








Intangible Assets
Information regarding the Company’s intangible assets is set forth below:
As of June 30, 2020
Gross
Carrying Amount
Accumulated
Amortization
Net Carrying
Amount
Finite-lived intangible assets:
Customer relationships$73,160  $(23,440) $49,720  
Developed technology23,348  (9,511) 13,837  
Trade names and trademarks5,100  (3,261) 1,839  
$101,608  $(36,212) $65,396  
Indefinite-lived intangible assets:
Trade names and trademarks900  —  900  
Total intangible assets$102,508  $(36,212) $66,296  
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As of December 31, 2019
Gross Carrying AmountAccumulated AmortizationNet Carrying
Amount
Finite-lived intangible assets:
Customer relationships$97,602  $(43,330) $54,272  
Developed technology26,976  (10,687) 16,289  
Trade names and trademarks5,100  (2,579) 2,521  
$129,678  $(56,596) $73,082  
Indefinite-lived intangible assets:
Trade names and trademarks900  —  900  
Total intangible assets$130,578  $(56,596) $73,982  
EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
As of June 30, 2021
Gross
Carrying Amount
Accumulated
Amortization
Net Carrying
Amount
Finite-lived intangible assets:
Customer relationships$71,416 $(29,341)$42,075 
Developed technology23,533 (14,123)9,410 
Trade names and trademarks5,100 (4,632)468 
$100,049 $(48,096)$51,953 
Indefinite-lived intangible assets:
Trade names and trademarks$900 $— $900 
Total intangible assets$100,949 $(48,096)$52,853 
As of December 31, 2020
Gross Carrying AmountAccumulated AmortizationNet Carrying
Amount
Finite-lived intangible assets:
Customer relationships$73,357 $(27,464)$45,893 
Developed technology23,510 (11,858)11,652 
Trade names and trademarks5,100 (3,951)1,149 
$101,967 $(43,273)$58,694 
Indefinite-lived intangible assets:
Trade names and trademarks$900 $— $900 
Total intangible assets$102,867 $(43,273)$59,594 

The amortization expense forrecognized in the period isunaudited consolidated statements of income was as follows:
Three months ended June 30,Six months ended June 30,
2020201920202019
Amortization expense$3,430  $5,554  $7,584  $11,082  
Three months ended June 30,Six months ended June 30,
2021202020212020
Amortization expense$3,397 $3,430 $6,758 $7,584 


The remaining weighted average life of intangible assets is as follows:
(in years)
Customer relationships7.336.5
Developed technology3.172.3
Trade names and trademarks (Finite lived)2.093.3
Estimated future amortization expense related to finite-lived intangible assets as of June 30, 2021 was as follows:
2021 (July 1 - December 31)$6,018 
202211,347 
20239,054 
20246,712 
20255,960 
2026 and thereafter12,862 
Total$51,953 
21

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
10. Other Current Assets
Other current assets consist of the following:
As of
June 30, 2021December 31, 2020
Derivative instruments$7,560 $9,755 
Advances to suppliers2,672 3,906 
Receivables from statutory authorities16,040 15,658 
Contract assets1,742 1,814 
Deferred contract fulfillment costs1,935 2,888 
Interest accrued on term deposits453 169 
Others3,213 2,919 
Other current assets$33,615 $37,109 
11. Other Assets
Other assets consist of the following:
As of
June 30, 2021December 31, 2020
Lease deposits$9,721 $9,788 
Derivative instruments4,631 6,933 
Deposits with statutory authorities6,255 6,341 
Term deposits180 216 
Contract assets1,805 2,623 
Deferred contract fulfillment costs1,759 2,743 
Others3,121 3,455 
Other assets$27,472 $32,099 


22

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
Estimated future amortization expense related to intangible assets as of June 30, 2020 is as follows:
2020 (July 1 - December 31)$6,822  
202112,730  
202211,325  
20239,036  
20246,694  
2025 and thereafter18,789  
Total$65,396  
10. Other Current Assets
Other current assets consist of the following:
As of
June 30, 2020December 31, 2019
Derivative instruments$4,128  $4,076  
Advances to suppliers1,837  1,581  
Receivables from statutory authorities13,827  12,608  
Contract assets1,744  1,414  
Deferred contract fulfillment costs2,208  1,673  
Interest accrued on fixed deposits344  439  
Others3,384  2,803  
Other current assets$27,472  $24,594  
11. Other Assets
Other assets consist of the following:
As of
June 30, 2020December 31, 2019
Lease deposits$9,738  $9,983  
Derivative instruments1,734  3,433  
Deposits with statutory authorities7,423  7,540  
Term deposits1,829  1,983  
Contract assets3,330  3,977  
Deferred contract fulfillment costs4,572  5,582  
Others2,973  3,518  
Other assets$31,599  $36,016  


23

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
12. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
As ofAs of
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Accrued expensesAccrued expenses$41,724  $50,097  Accrued expenses$42,169 $39,951 
Payable to statutory authoritiesPayable to statutory authorities9,360  9,247  Payable to statutory authorities17,850 10,594 
Accrued capital expenditure9,043  3,035  
Accrued capital expendituresAccrued capital expenditures4,921 7,857 
Derivative instrumentsDerivative instruments4,749  1,783  Derivative instruments681 435 
Client liabilitiesClient liabilities5,070  6,378  Client liabilities5,131 4,740 
Interest payableInterest payable1,416  1,492  Interest payable1,398 1,399 
Other current liabilitiesOther current liabilities3,157  1,732  Other current liabilities4,080 1,205 
Finance lease liabilitiesFinance lease liabilities253  253  Finance lease liabilities194 229 
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities$74,772  $74,017  Accrued expenses and other current liabilities$76,424 $66,410 
13. Other Non-Current Liabilities
Other non-current liabilities consist of the following:
As ofAs of
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Derivative instrumentsDerivative instruments$3,496  $1,250  Derivative instruments$1,052 $29 
Unrecognized tax benefitsUnrecognized tax benefits1,047  1,047  Unrecognized tax benefits907 907 
Retirement benefitsRetirement benefits6,803  6,517  Retirement benefits9,332 8,940 
Deferred transition revenueDeferred transition revenue1,586  1,911  Deferred transition revenue724 924 
Accrued capital expenditure3,373  —  
Others2,904  987  
Accrued capital expendituresAccrued capital expenditures3,486 
Other liabilitiesOther liabilities3,311 3,568 
Finance lease liabilitiesFinance lease liabilities357  430  Finance lease liabilities255 281 
Other non-current liabilitiesOther non-current liabilities$19,566  $12,142  Other non-current liabilities$15,581 $18,135 
14. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss (“AOCI”AOCL”), consists 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 and net investment hedges in accordance with ASC 815. ChangesCumulative changes in the fair values of these foreign currency exchange contracts are recognized in AOCIAOCL on the Company's unaudited consolidated balance sheets until thesheets. Upon settlement of those contracts.foreign exchange contracts designated as cash flow hedges, fair value changes are reclassified from AOCL to net income, whereas such fair value changes related to net investment hedges are included in net income when a foreign operation is disposed or partially disposed. The balances as of June 30, 20202021 and December 31, 2019June 30, 2020 are as follows:
As of
June 30, 2020December 31, 2019
Cumulative foreign currency translation loss$(97,766) $(86,963) 
Unrealized (loss)/gain on cash flow hedges(2,323) 4,604  
Retirement benefits(1,582) (1,780) 
Income tax expense relating to above (1)
(2,603) (753) 
Accumulated other comprehensive loss$(104,274) $(84,892) 

(1) These are income tax (expenses)/benefits recognized on cash flow hedges, retirement benefits and foreign currency translation losses. Refer to Note 21 - Income Taxes to the unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
Foreign currency translation (loss)/gainUnrealized gain/(loss) on cash flow hedgesRetirement benefitsTotal
Balance as of January 1, 2021$(86,185)$13,799 $(2,598)$(74,984)
Losses recognized during the period(6,686)(303)(6,989)
Losses on net investment hedges(1,134)(1,134)
Reclassification to net income (1)
(5,695)355 (5,340)
Income tax effects (2)
1,229 595 (122)1,702 
Accumulated other comprehensive loss as of June 30, 2021$(92,776)$8,396 $(2,365)$(86,745)
Balance as of January 1, 2020$(87,591)$4,098 $(1,399)$(84,892)
Losses recognized during the period(19,298)(7,125)(26,423)
Reclassification to net income (1)
198 198 396 
Income tax effects (2)
4,291 2,106 248 6,645 
Accumulated other comprehensive loss as of June 30, 2020$(102,598)$(723)$(953)$(104,274)

(1) Refer to Note 16 - Derivatives and Hedge Accounting and Note 19 - 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 gains / (losses). Refer to Note 21 - Income Taxes to the unaudited consolidated financial statements.

15. Fair Value Measurements
Assets and Liabilities Measured at Fair Value

The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of June 30, 20202021 and December 31, 2019.2020.
As of June 30, 2020Level 1Level 2Level 3Total
Assets
Mutual funds*$117,490  $—  $—  $117,490  
Derivative financial instruments—  5,862  —  5,862  
Total$117,490  $5,862  $—  $123,352  
Liabilities
Derivative financial instruments$—  $8,245  $—  $8,245  
Total$—  $8,245  $—  $8,245  
As of December 31, 2019Level 1Level 2Level 3Total
Assets
Mutual funds*$166,330  $—  $—  $166,330  
Derivative financial instruments—  7,509  —  7,509  
Total$166,330  $7,509  $—  $173,839  
Liabilities
Derivative financial instruments$—  $3,033  $—  $3,033  
Total$—  $3,033  $—  $3,033  
24

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Other
Unobservable
Inputs
As of June 30, 2021Level 1Level 2Level 3Total
Assets
Mutual funds*$96,481 $$$96,481 
Derivative financial instruments12,191 12,191 
Total$96,481 $12,191 $$108,672 
Liabilities
Derivative financial instruments$$1,733 $$1,733 
Total$$1,733 $$1,733 
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Other
Unobservable
Inputs
As of December 31, 2020Level 1Level 2Level 3Total
Assets
Mutual funds*$160,441 $$$160,441 
Derivative financial instruments16,688 16,688 
Total$160,441 $16,688 $$177,129 
Liabilities
Derivative financial instruments$$464 $$464 
Total$$464 $$464 

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

Derivative Financial Instruments:The Company’s derivative financial instruments consist of foreign currency forward exchange contracts. Fair values for derivative financial instruments are based on independent sources including highly rated financial institutions and are classified as Level 2. Refer to Note 16 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements for further details.

Financial instruments not carried at fair value:

The Company’s other financial instruments not carried at fair value consist primarily of cash and cash equivalents, short-term investments (except investmentinvestments in mutual funds, as disclosed above), restricted cash, accrued interest on term deposits, accrued capital expenditure,expenditures, accrued expenses and interest payable on borrowings for which fair values approximate their carrying amounts due to their short-term nature. The carrying value of the Company’s outstanding revolving credit facility approximates its fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
Convertible Senior Notes:

The total estimated fair value of the convertible senior notes as of June 30, 20202021 and December 31, 20192020 was $141,023$156,121 and $149,934,$152,384, respectively. The fair value was determined based on the market yields for similar Notesconvertible notes as of the June 30, 20202021 and December 31, 2019,2020, respectively. The Company considers the fair value of the Notesconvertible senior notes to be a Level 2 measurement due to the limited inputs available for its fair valuation.

Nonrecurring fair value measurements of assets:

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

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

16. Derivatives and Hedge Accounting

The Company uses derivative instruments and hedging transactions to mitigate exposure to foreign currency fluctuation risks associated with forecasted transactions denominated in certain foreign currencies so as to minimize earnings and cash flow volatility associated with changes in foreign currency exchange rates. The Company’s derivative financial instruments are largely forward foreign exchange contracts that are designated as effective hedges and that qualify as cash flow hedges under ASC 815. The Company had outstanding cash flow hedges totaling $421,630 (including $750 of range forward contracts)$520,560 as of June 30, 20202021 and $410,390 (including $4,300 of range forward contracts)$451,935 as of December 31, 2019.2020.

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

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

The Company estimates that approximately $561$6,891 of net derivative losses,gains, net, excluding tax effects, included in AOCI,AOCL, representing changes in the fair value of cash flow hedges, could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of June 30, 2020.2021. At June 30, 2020,2021, the maximum outstanding term of the cash flow hedges was 45 months.

The Company also enters into foreign currency forward contracts to economically hedge its intercompany balances and other monetary assets and liabilities denominated in currencies other than functional currencies, against the risk of foreign currency fluctuations associated with remeasurement of such assets and liabilities to functional currency. These derivatives do not qualify as fair value hedges under ASC 815. Changes in the fair value of these derivatives are recognized in the unaudited
26

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
consolidated statements of income and are included in the foreign exchange gain/(loss) line item. The impact of COVID-19 on the economic environment is uncertain and may cause variability in determination of fair value of these derivatives, which could impact the effects of change in fair value that get recorded in the foreign exchange gain/(loss) line item. The Company’s primary exchange rate exposure is with the Indian Rupee,rupee, the U.K. pound sterling (GBP) and the Philippine peso. The Company also has exposure to Colombian pesos (COP), Czech Koruna,koruna, the Euro (EUR), South African ZAR, the Australian dollar (AUD) and other local currencies in which it operates. Outstanding foreign currency forward contracts amounted to $106,988,USD 124,195, GBP 9,4876,928, EUR 1,425 and EUR 1,453COP 8,172,868 as of June 30, 20202021 and $124,045,USD 143,394, GBP 10,8436,753, EUR 2,447 and EUR 1,289COP 8,287,950 as of December 31, 2019.2020.

The Company uses forward contracts designated as net investment hedges to hedge the foreign currency risks related to our investments in foreign subsidiaries. Gains and losses on these net investment hedges are recognized in AOCL as part of foreign currency translation adjustments.

All of the assets and liabilities related to our foreign exchange forward contracts are subject to master netting arrangements with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. We have presented all of the assets and liabilities related to our foreign exchange forward contracts on a gross basis, with no offsets, in our unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) provided or received by us related to our foreign exchange forward contracts.

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
Foreign currency exchange contractsJune 30, 2020December 31, 2019
Other current assets$4,070  $3,945  
Other assets$1,734  $3,433  
Accrued expenses and other current liabilities$4,631  $1,524  
Other non-current liabilities$3,496  $1,250  
Derivatives not designated as hedging instruments:As of
Foreign currency exchange contractsJune 30, 2020December 31, 2019
Other current assets$58  $131  
Accrued expenses and other current liabilities$118  $259  
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
Derivatives designated as hedging instruments:As of
Foreign currency exchange contractsJune 30, 2021December 31, 2020
Other current assets$7,472 $9,740 
Other assets$4,631 $6,933 
Accrued expenses and other current liabilities$581 $176 
Other non-current liabilities$1,052 $29 
Derivatives not designated as hedging instruments:As of
Foreign currency exchange contractsJune 30, 2021December 31, 2020
Other current assets$88 $15 
Accrued expenses and other current liabilities$100 $259 

The following tables set forth the effect of foreign currency exchange contracts on the unaudited consolidated statements of income and accumulated other comprehensive loss for the three and six months ended June 30, 20202021 and 2019:2020:
Three months ended June 30,Six months ended June 30,Three months ended June 30,Six months ended June 30,
Forward Exchange Contracts:Forward Exchange Contracts:2020201920202019Forward Exchange Contracts:2021202020212020
Unrealized gain/(loss) recognized in AOCI
Unrealized gain/(loss) recognized in AOCLUnrealized gain/(loss) recognized in AOCL
Derivatives in cash flow hedging relationshipsDerivatives in cash flow hedging relationships$7,721  $3,268  $(7,125) $9,205  Derivatives in cash flow hedging relationships$(871)$7,721 $(303)$(7,125)
Gain/(loss) recognized in consolidated statements of incomeGain/(loss) recognized in consolidated statements of incomeGain/(loss) recognized in consolidated statements of income
Derivatives not designated as hedging instrumentsDerivatives not designated as hedging instruments$3,204  $2,923  $(1,011) $4,319  Derivatives not designated as hedging instruments$(805)$1,897 $(589)$(943)
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instrumentsLocation and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instrumentsLocation and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments
Three months ended June 30,Three months ended June 30,
2020201920212020
As per unaudited consolidated statements of income(Loss)/Gain on foreign currency exchange contractsAs per unaudited consolidated statements of incomeGain on foreign currency exchange contractsAs per unaudited consolidated
statements of
income
Gain/(loss)
on foreign currency exchange contracts
As per unaudited consolidated
statements of
income
Gain/(loss) on foreign currency exchange contracts
Cash flow hedging relationshipsCash flow hedging relationshipsCash flow hedging relationships
Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCI
Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCLLocation in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCL
Cost of revenuesCost of revenues$158,401  $(851) $162,446  $719  Cost of revenues$170,701 $2,418 $158,401 $(851)
General and administrative expensesGeneral and administrative expenses$28,750  (187) $31,228  106  General and administrative expenses$36,499 294 $28,750 (187)
Selling & marketing expenses$13,051  (9) $17,647  12  
Depreciation & amortization expense$12,405  (80) $12,752  47  
$(1,127) $884  
Selling and marketing expensesSelling and marketing expenses$19,724 15 $13,051 (9)
Depreciation and amortization expenseDepreciation and amortization expense$12,310 139 $12,405 (80)
Total before taxTotal before tax2,866 (1,127)
Income tax benefit/(expense) relating to aboveIncome tax benefit/(expense) relating to above(427)124 
Net of taxNet of tax$2,439 $(1,003)
Derivatives not designated as hedging instrumentsDerivatives not designated as hedging instrumentsDerivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognizedLocation in unaudited consolidated statements of income where gain/(loss) was recognizedLocation in unaudited consolidated statements of income where gain/(loss) was recognized
Foreign exchange gain, net$1,359  $3,204  $1,202  $2,923  
Foreign exchange gain/(loss), netForeign exchange gain/(loss), net$1,353 $(805)$1,359 $1,897 
$1,359  $3,204  $1,202  $2,923  $1,353 $(805)$1,359 $1,897 
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instrumentsLocation and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instrumentsLocation and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments
Six months ended June 30,Six months ended June 30,
2020201920212020
As per unaudited consolidated statements of incomeLoss on foreign currency exchange contractsAs per unaudited consolidated statements of incomeGain on foreign currency exchange contractsAs per unaudited consolidated
statements of
income
Gain/(loss) on foreign currency exchange contractsAs per unaudited consolidated
statements of
income
Gain/(loss)
on foreign currency exchange contracts
Cash flow hedging relationshipsCash flow hedging relationshipsCash flow hedging relationships
Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCI
Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCLLocation in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCL
Cost of revenuesCost of revenues$321,057  $(39) $319,686  $1,250  Cost of revenues$329,522 $4,842 $321,057 $(39)
General and administrative expensesGeneral and administrative expenses$57,691  (114) $63,759  186  General and administrative expenses$67,202 546 $57,691 (114)
Selling & marketing expenses$27,507  (5) $35,694  19  
Depreciation & amortization expense$24,855  (40) $26,419  100  
$(198) $1,555  
Selling and marketing expensesSelling and marketing expenses$37,959 28 $27,507 (5)
Depreciation and amortization expenseDepreciation and amortization expense$24,411 279 $24,855 (40)
Total before taxTotal before tax5,695 (198)
Income tax benefit/(expense) relating to aboveIncome tax benefit/(expense) relating to above(816)22 
Net of taxNet of tax$4,879 $(176)
Derivatives not designated as hedging instrumentsDerivatives not designated as hedging instrumentsDerivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognizedLocation in unaudited consolidated statements of income where gain/(loss) was recognizedLocation in unaudited consolidated statements of income where gain/(loss) was recognized
Foreign exchange gain/(loss), net$2,736  $(1,011) $2,462  $4,319  
Foreign exchange gain /(loss), netForeign exchange gain /(loss), net$1,787 $(589)$2,736 $(943)
$2,736  $(1,011) $2,462  $4,319  $1,787 $(589)$2,736 $(943)

Effect of net investment hedges on accumulated other comprehensive loss:
17. Borrowings
Three months ended June 30,Six months ended June 30,
Amount of loss recognized in AOCLAmount of loss recognized in AOCL
Net investment hedging relationships2021202020212020
Foreign exchange contracts$1,134 $$1,134 $
The following tables summarizes the Company’s debt position as of June 30, 2020 and December 31, 2019.


As of June 30, 2020
Revolver Credit FacilityStructured PayablesNotesTotal
Current portion of long-term borrowings$20,000  $657  $—  $20,657  
Long-term borrowings79,000  —  150,000  229,000  
Unamortized debt discount—  —  (12,562) (12,562) 
Unamortized debt issuance costs*—  —  (911) (911) 
Long-term borrowings79,000  —  136,527  215,527  
Total borrowings$99,000  $657  $136,527  $236,184  



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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
As of December 31, 2019
Revolver Credit FacilityStructured PayablesNotesTotal
Current portion of long-term borrowings$40,000  $867  $—  $40,867  
Long-term borrowings59,000  —  150,000  209,000  
Unamortized debt discount—  —  (13,851) (13,851) 
Unamortized debt issuance costs*—  —  (1,018) (1,018) 
Long-term borrowings59,000  —  135,131  194,131  
Total borrowings$99,000  $867  $135,131  $234,998  
17. Borrowings
The following tables summarizes the Company’s debt position as of June 30, 2021 and December 31, 2020.


As of June 30, 2021
Revolving Credit FacilityNotesTotal
Current portion of long-term borrowings$15,000 $0 $15,000 
Long-term borrowings$$150,000 $150,000 
Unamortized debt discount(9,871)(9,871)
Unamortized debt issuance costs*(697)(697)
Long-term borrowings$0 $139,432 $139,432 
Total borrowings$15,000 $139,432 $154,432 

As of December 31, 2020
Revolving Credit FacilityNotesTotal
Current portion of long-term borrowings$25,000 $0 $25,000 
Long-term borrowings$64,000 $150,000 $214,000 
Unamortized debt discount(11,235)(11,235)
Unamortized debt issuance costs*(804)(804)
Long-term borrowings$64,000 $137,961 $201,961 
Total borrowings$89,000 $137,961 $226,961 


*Unamortized debt issuance costs for the Company’s revolverrevolving Credit Facility of $619$361 and $748$490 as of June 30, 20202021 and December 31, 2019,2020, respectively, is presented under “Other current assets” and “Other assets” in the consolidated balance sheets.

Revolver Credit Agreement

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

Three months ended
June 30,
Six months ended
June 30,
2020201920202019
Effective interest rate2.2 %4.2 %2.6 %4.0 %
Three months ended
June 30,
Six months ended
June 30,
2021202020212020
Effective Interest Rate1.8 %2.2 %1.9 %2.6 %


As of June 30, 20202021 and December 31, 2019,2020, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.


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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
Convertible Senior Notes

On October 1, 2018, the Company entered into an investment agreement (the “Investment Agreement”) with Orogen Echo LLC (the “Purchaser”), an affiliate of The Orogen Group LLC, relating to the issuance to the Purchaser of $150,000 in an aggregate principal amount of 3.50%3.5% per annum Convertible Senior Notes due October 1, 2024 (the “Notes”). The transactions contemplated by the Investment Agreement, including the issuance of the Notes, closed on October 4, 2018. The Notes bear interest at a rate of 3.50%3.5% per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year. Until October 4, 2020, under the Investment Agreement, the Purchaser was restricted from transferring the Notes or any shares of common stock issuable upon conversion of the Notes, or entering into any transaction that transfers such interests to a third party. The Notes carried an effective interest rate as shown below:

Three months ended
June 30,
Six months ended
June 30,
2021202020212020
Effective Interest Rate3.7 %3.7 %3.7 %3.7 %

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
During the three and six months ended June 30, 20202021 and 2019,2020, the Company recognized interest expense and amortization of debt discount, on the Notes as below:
Three months ended
June 30,
Six months ended
June 30,
2020201920202019
Interest expense on Notes$1,313  $1,269  $2,625  $2,581  
Amortization of debt discount on Notes$654  $618  $1,289  $1,218  

Three months ended
June 30,
Six months ended
June 30,
2021202020212020
Interest expense on the Notes$1,312 $1,312 $2,625 $2,625 
Amortization of debt discount on the Notes$691 $654 $1,364 $1,289 

Future principal payments/Payments / maturities for all of the Company's borrowings as of June 30, 20202021 were as follows:
NotesRevolver Credit FacilityStructured PayablesTotalNotesRevolving Credit FacilityTotal
2020 (July - December)$—  $20,000  $657  $20,657  
2021—  20,000  —  20,000  
2021 (July - December)2021 (July - December)$$15,000 $15,000 
20222022—  59,000  —  59,000  2022
20232023—  —  —  —  2023
20242024150,000  —  —  150,000  2024150,000 150,000 
TotalTotal$150,000  $99,000  $657  $249,657  Total$150,000 $15,000 $165,000 
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 June 30, 20202021 and December 31, 2019,2020, the Company had outstanding letters of credit of $461, each, that were not recognized in the consolidated balance sheets.

18. Capital Structure
Common Stock
The Company has 1 class of common stock outstanding.
During the three and six months ended June 30, 2020 and 2019, the
The Company purchased shares of common stock from employees in connection with withholding tax payments related to the vesting of restricted stock units and performance-based restricted stock units, as below:
Shares repurchasedTotal consideration
Weighted average purchase price per share (1)
Three months ended June 30, 2020$—  $—  
Three months ended June 30, 2019$—  $—  
Six months ended June 30, 202026,601$2,012  $75.63  
Six months ended June 30, 201922,666$1,408  $62.11  
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)
Shares repurchasedTotal consideration
Weighted average purchase price per share (1)
Three months ended June 30, 20210$$
Three months ended June 30, 20200$$
Six months ended June 30, 202125,450$2,015 $79.18 
Six months ended June 30, 202026,601$2,012 $75.63 

On December 16, 2019, the Company’s Board of Directors authorized a $200,000 common stock repurchase program beginning January 1, 2020 through December 31, 2022 (the "2019 Repurchase Program"). Under the 2019 Repurchase Program, shares may be purchased by the Company from time to time from the open market and through private transactions, or otherwise, as determined by the Company’s management as market conditions warrant. Repurchases may be discontinued at any time by the management.

The Company purchased shares of its common stock, including commissions, under the 2019 Repurchase Program, as below:
Shares repurchasedTotal consideration
Weighted average purchase price per share (1)
Three months ended June 30, 2021287,044$28,409 $98.97 
Three months ended June 30, 20200$$
Six months ended June 30, 2021600,076$55,409 $92.34 
Six months ended June 30, 2020175,765$11,983 $68.18 

(1) The weighted average purchase price per share was the closing price of the Company's share of common stock on the Nasdaq Global Select Market on the trading day prior to the vesting date of the shares of restricted stock.

On February 28, 2017, the Company’s Board of Directors authorized an additional common stock repurchase program (the “2017 Repurchase Program”), under which shares may be purchased by the Company from time to time from the open market and through private transactions during each of the fiscal years 2017 through 2019 up to an aggregate additional amount
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
of $100,000. The approval increased the 2017 authorization from $20,000 to $40,000 and authorizes stock repurchases of up to $40,000 in each of 2018 and 2019.

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

During the three and six months ended June 30, 2020 and 2019, the Company purchased shares of its common stock, including commissions, under the 2019 Repurchase Program and the 2017 Repurchase Program, respectively, as below:

Shares repurchasedTotal considerationWeighted average purchase price per share
Three months ended June 30, 2020$—  $—  
Three months ended June 30, 2019198,160$12,130  $61.21  
Six months ended June 30, 2020175,765$11,983  $68.18  
Six months ended June 30, 2019438,025$26,130  $59.65  

Repurchased shares have been recorded as treasury shares and will be held until the Company’s Board of Directors designates that these shares be retired or used for other purposes.
The 2019 Repurchase Program may be suspended or discontinued at any time.During the quarter ended March 31, 2020, to enhance the Company’s liquidity position in response to COVID-19, the Company elected to temporarily suspend share repurchases under the 2019 Repurchase Program. The 2019 Repurchase Program remains authorized by the Board of Directors and the Company resumed share repurchases effective July 1, 2020, considering improved market conditions, the Company’s capital and liquidity needs and other factors.

19. Employee Benefit Plans

The Company’s Gratuity PlansPlan in India ("Gratuity(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"). 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.


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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
Components of net periodic benefit costcosts, were as follows:
Three months ended June 30,Six months ended June 30, Three months ended June 30,Six months ended June 30,
2020201920202019 2021202020212020
Service costService cost$664  $493  $1,342  $980  Service cost$885 $664 $1,774 $1,342 
Interest costInterest cost237  221  480  440  Interest cost234 237 469 480 
Expected return on plan assetsExpected return on plan assets(157) (144) (318) (286) Expected return on plan assets(200)(157)(401)(318)
Amortization of actuarial (gain)/loss97  (40) 198  (79) 
Amortization of actuarial loss, gross of taxAmortization of actuarial loss, gross of tax176 97 355 198 
Net gratuity costNet gratuity cost$841  $530  $1,702  $1,055  Net gratuity cost$1,095 $841 $2,197 $1,702 
Income tax benefit on amortization of actuarial lossIncome tax benefit on amortization of actuarial loss(71)(55)(122)(64)
Amortization of actuarial loss, net of taxAmortization of actuarial loss, net of tax$105 $42 $233 $134 

The GratuityIndia Plan in India is partially funded whereas the Philippines plan is unfunded. The Company makes annual contributions to the employees' gratuity fund of the GratuityIndia Plan established with Life Insurance Corporation of India and HDFC Standard Life Insurance Company. Fund managers manage these funds and calculate the annual contribution required to be made by the Company and manage the Gratuity Plans,India Plan, including any required payouts. These funds are managed on a cash accumulation basis and interest is declared retrospectively on March 31 of each year. The Company expects to earn a return of approximately 7.0% per annum on these Gratuity Plansthe India Plan for the year ended December 31, 2020. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on assets and obligations related to employee benefit plans is subject to significant judgment and may cause variability in the Company’s net periodic benefit cost in future periods.2021.

Change in Plan Assets
Plan assets at January 1, 20202021$8,78411,512 
Actual return285394 
Employer contribution0 
Benefits paid*paid(431)(774)
Effect of exchange rate changes(477)(191)
Plan assets at June 30, 20202021$8,16110,941 
* Benefits payments were substantially made through the plan assets during the six months ended June 30, 2020.

The Company maintains several 401(k) plans (the “401(k) Plans”) under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), covering all eligible employees, as defined in the Code as a defined contribution plan. The Company may make discretionary contributions of up to a maximum of 4.0% of employee compensation within certain limits. During the three months ended March 31, 2020 and six months ended June 30, 2020, to enhance the Company’s liquidity position in response to COVID-19, the Company elected to temporarily suspend making any discretionary contributions to the 401(k) Plans.

The Company's accrual for contributions to the 401(k) Plans were as follows:

Three months ended June 30,Six months ended June 30,
2020201920202019
Contribution to the 401(k) Plan$29  $909  $255  $2,122  
Three months ended June 30,Six months ended June 30,
2021202020212020
Contribution to the 401(k) Plans$753 $29 $2,052 $255 


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

Three months ended June 30,Six months ended June 30,
2021202020212020
Contribution to the defined benefit plans$3,418 $2,646 $6,712 $5,624 

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
The Company's contribution for various defined benefit plans on behalf of employees in India, the Philippines, Bulgaria, Romania, the Czech Republic, South Africa, Colombia, Australia and Singapore were as follows:

Three months ended June 30,Six months ended June 30,
2020201920202019
Contribution to the defined benefit plans$2,646  $2,762  $5,624  $4,816  



20. Leases

The Company conducts its operations using facilities leased under operating lease agreements that expire at various dates. The Company finances its use of certain motor vehicles and other equipment under various lease arrangements provided by financial institutions. The lease agreements do not contain any covenants to impose any restrictions except for market-standard practice for similar lease arrangements.

The Company had performed an evaluation of its contracts with suppliers in accordance with Topic 842,Leases, and had determined that, except for leases for office facilities, motor vehicles and other equipment as described above, none of the Company’s contracts contain a lease. In assessment of the lease term, the Company considers the extension option as part of its lease term for those lease arrangements where the Company is reasonably certain of availing the extension option. TheAs part of the Company’s effort to moderate the impact of COVID-19, the Company continued to evaluate its office facilities to determine where it can exit, consolidate, or otherwise optimize its use of office space. During the year ended December 31, 2020, the Company changed the lease agreements do not contain any covenantterm for certain of its leases and recognized the resultant amount of the remeasurement of the lease liability as an adjustment to impose any restrictions except for market-standard practice for similar lease arrangements.the ROU assets.

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

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

Supplemental balance sheet information
As of
June 30, 2021December 31, 2020
Operating Lease
Operating lease right-of-use assets$83,280 $91,918 
Operating lease liabilities - Current$18,039 $18,894 
Operating lease liabilities - Non-current76,518 84,874 
Total operating lease liabilities$94,557 $103,768 
Finance Lease
Property and equipment, gross$2,598 $1,853 
Accumulated depreciation(2,196)(1,382)
Property and equipment, net$402 $471 
Finance lease liabilities - Current$194 $229 
Finance lease liabilities - Non-current255 281 
Total finance lease liabilities$449 $510 

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

The components of lease cost, which are included in the Company's unaudited consolidated statements of income, are as follows:

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)

Supplemental balance sheet information
As of
June 30, 2020December 31, 2019
Operating Lease
Operating lease right-of-use assets$96,789  $86,396  
Operating lease liabilities - Current$18,199  $24,148  
Operating lease liabilities - Non-current90,934  74,709  
Total operating lease liabilities$109,133  $98,857  
Finance Lease
Property and equipment, gross$1,564  $1,757  
Accumulated depreciation(995) (1,120) 
Property and equipment, net$569  $637  
Finance lease liabilities - Current$253  $253  
Finance lease liabilities - Non-current357  430  
Total finance lease liabilities$610  $683  

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

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

The components of lease cost, which are included in the Company's unaudited consolidated statements of income, are as follows:
Lease costLease costThree months ended June 30,Six months ended June 30,Lease costThree months ended June 30,Six months ended June 30,
Finance lease:Finance lease:2020201920202019Finance lease:2021202020212020
Amortization of right-of-use assetsAmortization of right-of-use assets$63  $92  $125  $187  Amortization of right-of-use assets$50 $63 $102 $125 
Interest on lease liabilitiesInterest on lease liabilities20  20  50  45  Interest on lease liabilities22 20 39 50 
83  112  175  232  
Operating lease(a)
Operating lease(a)
6,850  6,684  13,703  13,701  
Operating lease(a)
6,871 6,850 13,632 13,703 
6,850  6,684  13,703  13,701  
Sublease income—  (105) —  (105) 
Total lease costTotal lease cost$6,933  $6,691  $13,878  $13,828  Total lease cost$6,943 $6,933 $13,773 $13,878 
(a) Includes short-term leases, which are immaterial.

Supplemental cash flow and other information related to leases are as follows:
Six months ended June 30,
20212020
Cash payments for amounts included in the measurement of lease liabilities :
Operating cash outflows for operating leases$13,327 $12,831 
Operating cash outflows for finance leases$39 $50 
Financing cash outflows for finance leases$107 $124 
Right-of-use assets obtained in exchange for new operating lease liabilities$1,659 $17,999 
Right-of-use assets obtained in exchange for new finance lease liabilities$50 $75 
Weighted-average remaining lease term (in years)
Finance lease1.82.1
Operating lease5.86.8
Weighted-average discount rate
Finance lease14.1 %10.2 %
Operating lease7.4 %7.4 %

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

During the six months ended June 30, 2021 and year ended December 31, 2020, the Company modified certain of its operating leases, resulting in a reduction of its lease liabilities by $547 and $3,143 respectively, with a corresponding reduction in ROU assets.

As of June 30, 2021, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.










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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
Supplemental cash flow and other information related to leases are as follows:
Six months ended June 30,
20202019
Cash payments for amounts included in the measurement of lease liabilities :
Operating cash outflows for operating leases$12,831  $13,749  
Operating cash outflows for finance leases$50  $45  
Financing cash outflows for finance leases$124  $207  
Right-of-use assets obtained in exchange for new operating lease liabilities$17,999  $27,750  
Right-of-use assets obtained in exchange for new finance lease liabilities$75  $144  
Weighted-average remaining lease term
Finance lease2.1 years2.4 years
Operating lease6.8 years6.5 years
Weighted-average discount rate
Finance lease10.2 %8.7 %
Operating lease7.4 %7.3 %

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

Maturities of lease liabilities as of June 30, 2020 are2021 were as follows:
Operating LeasesFinance LeasesOperating LeasesFinance Leases
2020 (July 1 - December 31)$12,989  $183  
202124,909  266  
2021 (July 1 - December 31)2021 (July 1 - December 31)$12,366 $146 
2022202223,121  153  202224,094 179 
2023202321,205  103  202322,715 134 
2024202416,841  32  202417,095 58 
2025 and thereafter43,770   
202520259,878 21 
2026 and thereafter2026 and thereafter33,965 
Total lease paymentsTotal lease payments$142,835  $743  Total lease payments$120,113 $544 
Less: Imputed interestLess: Imputed interest33,702  133  Less: Imputed interest25,556 95 
Present value of lease liabilitiesPresent value of lease liabilities$109,133  $610  Present value of lease liabilities$94,557 $449 

Maturities of minimum lease paymentsliabilities as of December 31, 2019 are2020 were as follows:
During the next twelve months ending December 31,Operating LeasesCapital Leases
2020$26,932  $325  
202123,783  251  
202221,526  157  
202319,381  86  
202414,865  22  
2025 and thereafter23,983  —  
Total minimum lease payment$130,470  $841  
Less: Imputed interest31,613  158  
Present value of minimum lease payments$98,857  $683  
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)

Operating LeasesFinance Leases
2021$25,829 $262 
202224,316 194 
202322,066 114 
202417,084 36 
20259,749 11 
2026 and thereafter34,334 
Total lease payments$133,378 $617 
Less: Imputed interest29,610 107 
Present value of lease liabilities$103,768 $510 

21. Income Taxes

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

The Company recorded income tax expense of $4,072 and $2,670 for the three months ended June 30, 2020 and 2019, respectively. The Company's effective tax rate increaseddecreased from 17.5% during the three months ended June 30, 2019 to 32.4% during the three months ended June 30, 2020 to 24.0% during the three months ended June 30, 2021. The Company recorded income tax expense of $8,865 and $4,072 for the three months ended June 30, 2021 and 2020, respectively. The increase in income tax expense was primarily as a result of higher profit during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, partially offset by recording of a one-time tax expense of $1,320 due to electingelection of a new tax regime, during the three months ended June 30, 2020, for two of the Company’sCompany's Indian subsidiaries whichthat provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits. Accordingly, the Company recorded one-time tax expense of $573 on re-measurement of the Company’s Indian subsidiaries’ deferred taxes to a lower corporate tax rate and one-time tax expense of $747 resulting from foregoing the minimum alternative tax credits.

The Company recorded income tax expense of $9,927 and $6,870 for the six months ended June 30, 2020 and 2019, respectively. The Company's effective tax rate increaseddecreased from 20.1% during the six months ended June 30, 2019 to 24.3% during the six months ended June 30, 2020 to 22.9% during the six months ended June 30, 2021. The Company recorded income tax expense of $17,823 and $9,927 for the six months ended June 30, 2021 and 2020, respectively. The increase in the income tax expense was primarily as a result of higher profit during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, which was partially offset by (i) recording of a one-time tax expense of $1,320 due to electingelection of a new tax regime, during the six months ended June 30, 2020, for two of the Company’sCompany's Indian subsidiaries whichthat provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits during the six months ended June 30, 2020, compared to a benefit of $1,471 recorded during the six months ended June 30, 2019 and (ii) recording of higher excess tax benefits related to stock awards of $1,822 pursuant to ASU No. 2016-09 during the six months ended June 30, 2020, compared to $1,072$1,028 during the six months ended June 30, 2019.2021.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2021
(In thousands, except share and per share amounts)

During the three months ended June 30, 2021, the Company repatriated to the United States $49,000 (net of $2,586 withholding taxes) from India, $42,500 (net of $7,494 withholding taxes) from the Philippines and $17,000 (net of $908 withholding taxes) from India in July 2021. As of June 30, 2021, the Company accrued withholding taxes of $10,988 associated with these distributions and increased the Company’s deferred tax assets. These distributions do not constitute a change in the Company’s permanent reinvestment assertion. The Company bases its decision to continue to indefinitely reinvest earnings in India and the Philippines on its estimate of the working capital required to support its operations in these geographies and periodically reviews its capital initiatives to support and expand the Company’s global operations, as well as an economically viable rate of return on its investments made in India and the Philippines as compared to those made in the United States.


Income tax (deferred) recognized in other“Other comprehensive income are/ (loss)” were as follows:
Three months ended June 30,Six months ended June 30,
2020201920202019
Income tax benefit/(expense) on:
Unrealized gain/(loss) on cash flow hedges$(2,702) $(113) $2,106  $(1,656) 
Retirement benefits257  19  248  (90) 
Currency translation adjustments(4,204) (413) (4,204) (1,119) 
Total income tax expense recognized in other comprehensive income$(6,649) $(507) $(1,850) $(2,865) 
Three months ended June 30,Six months ended June 30,
2021202020212020
Deferred taxes benefit / (expense) recognized on:
Unrealized gain / (loss) on cash flow hedges$177 $(2,578)$(221)$2,128 
Reclassification adjustment for cash flow hedges427 (124)816 (22)
Reclassification adjustment for retirement benefits(71)(55)(122)(64)
Effect of tax rate changes on retirement benefits312 312 
Foreign currency translation loss945 57 1,229 4,291 
Total Income tax benefit recognized in other comprehensive income / (loss)$1,478 $(2,388)$1,702 $6,645 

22. Stock-Based Compensation

The following costs related to the Company’s stock-based compensation plan are included in the unaudited consolidated statements of income:
Three months ended June 30,Six months ended June 30, Three months ended June 30,Six months ended June 30,
2020201920202019 2021202020212020
Cost of revenuesCost of revenues$1,624  $1,638  $3,042  $2,964  Cost of revenues$1,854 $1,624 $3,390 $3,042 
General and administrative expensesGeneral and administrative expenses3,112  2,781  4,680  5,756  General and administrative expenses4,608 3,112 7,906 4,680 
Selling and marketing expensesSelling and marketing expenses2,990  2,736  4,782  5,391  Selling and marketing expenses3,608 2,990 6,606 4,782 
TotalTotal$7,726  $7,155  $12,504  $14,111  Total$10,070 $7,726 $17,902 $12,504 

As of June 30, 2020,2021, the Company had 2,305,1551,892,706 shares available for grant under the 2018 Omnibus Incentive Plan.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020
(In thousands, except share and per share amounts)
Stock Options

Stock option activity under the Company’s stock-based compensation plans is shown below:
Number of
Options
Weighted-Average
Exercise
Price
Aggregate
Intrinsic
Value
Weighted-Average
Remaining
Contractual
Life (Years)
Outstanding at December 31, 201998,161  $23.39  $4,522  1.86
  Granted—  —  —  —  
  Exercised(41,422) 23.18  1,993  —  
  Forfeited—  —  —  —  
Outstanding at June 30, 202056,739  $23.54  $2,261  1.54
Vested and exercisable at June 30, 202056,739  $23.54  $2,261  1.54
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The unrecognized compensation cost for unvested options as of EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 2020 was $NaN.2021
Restricted Stock(In thousands, except share and per share amounts)
Number of
Options
Weighted-Average
Exercise
Price
Aggregate
Intrinsic
Value
Weighted-Average
Remaining
Contractual
Life (Years)
Outstanding at December 31, 202031,265 $25.43 $1,866 1.9
  Granted— — 
  Exercised(7,016)24.77 467 — 
  Forfeited— — 
Outstanding at June 30, 202124,249 $25.63 $1,955 1.6
Vested and exercisable at June 30, 202124,249 $25.63 $1,955 1.6
Restricted Stock Units
Restricted stock and restricted stock unit activity under the Company’s stock-based compensation plans is shown below:
Restricted StockRestricted Stock Units Restricted Stock
NumberWeighted Average
Fair Value
NumberWeighted Average
Fair Value
NumberWeighted Average
Fair Value
Outstanding at December 31, 2019*27,384  $48.72  913,094  $59.61  
Outstanding at December 31, 2020*Outstanding at December 31, 2020*903,666 $67.84 
Granted Granted—  —  392,287  77.01   Granted356,177 84.59 
Vested Vested—  —  (310,657) 56.59   Vested(327,689)63.74 
Forfeited Forfeited—  —  (43,318) 63.87   Forfeited(31,491)71.32 
Outstanding at June 30, 2020*27,384  $48.72  951,406  $67.58  
Outstanding at June 30, 2021*Outstanding at June 30, 2021*900,663 $75.83 

* As of June 30, 20202021 and December 31, 20192020 restricted stock units vested for which the underlying common stock is yet to be issued werewas 200,542 and 181,638 and 167,270, respectively.
As of June 30, 2020,2021, unrecognized compensation cost of $55,720$57,540 is expected to be expensed over a weighted average period of 2.852.8 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 six months ended June 30, 2021, the Company granted PRSUs that cliff vest at the end of a three year period based on a market condition that is contingent on the Company's meeting the total shareholder return relative to a group of peer companies specified under the program measured over a three-year performance period. The award recipient may earn up to two hundred percent (200%) of the PRSUs granted based on the actual achievement of targets.

Performance based restricted stock unit activity under the Company’s stock plans is shown below:
Revenue Based PRSUsMarket Condition Based PRSUs Revenue Based PRSUsMarket Condition Based PRSUs
NumberWeighted Average
Fair Value
NumberWeighted Average
Fair Value
NumberWeighted Average
Fair Value
NumberWeighted Average
Fair Value
Outstanding at December 31, 201987,685  $62.54  87,670  $82.10  
Outstanding at December 31, 2020Outstanding at December 31, 2020105,892 $72.32 105,868 $97.85 
GrantedGranted61,368  78.29  61,352  102.10  Granted121,180 119.80 
VestedVested—  —  —  —  Vested
ForfeitedForfeited(2,063) 62.24  (2,062) 80.33  Forfeited(157)78.34 (157)102.10 
Outstanding at June 30, 2020146,990  $69.12  146,960  $90.47  
Outstanding at June 30, 2021Outstanding at June 30, 2021105,735 $72.31 226,891 $109.57 
As of June 30, 2020,2021, unrecognized compensation cost of $8,959$18,481 is expected to be expensed over a weighted average period of 2.012.1 years.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)

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


23. Related Party Disclosures

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

The Company had outstanding Notes with a principal amount of $150,000 each as of June 30, 20202021 and December 31, 20192020 and interest accrued of $1,312 and $1,313 each as of June 30, 20202021 and December 31, 2019,2020, respectively, related to the Investment Agreement.

The Company recognized interest expense on the Notes related to the Investment Agreement sAgreements as below. Refer to Note 17 – Borrowings to the unaudited consolidated financial statements for details.
Three months ended June 30,Six months ended June 30,
2020201920202019
Interest expense on Notes$1,313  $1,269  $2,625  $2,581  
Three months ended June 30,Six months ended June 30,
2021202020212020
Interest expense on Notes$1,312 $1,312 $2,625 $2,625 



24. Commitments and Contingencies

Capital Commitments

At June 30, 2020,2021, the Company had committed to spend approximately $9,900$7,100 under agreements to purchase property and equipment. This amount is net of capital advances paid as of June 30, 2020 which are recognized in the unaudited consolidated balance sheets as property“Capital work in progress” under “Property and equipment.equipment, net”.

Other Commitments

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

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

Contingencies

The U.S. and Indian transferTransfer pricing regulations generally require that any international transactioncontrolled intercompany transactions involving associated enterprisesrelated entities be at an arm’s-length price. Accordingly, the Company determines the appropriate pricingtransfer prices for the international transactions among its associated enterprisesrelated entities on the basis of a detailed functional and economic analysis involving benchmarking against transactions among entities that are not under common control. The taxunrelated. Tax authorities have jurisdiction to review this arrangementtransfer pricing results, and in the event that they determine that the transfer price applied was not appropriate, the Company may incur additional tax, interest and penalties. The Company is currently involved in transfer pricing disputes with Indian tax authorities regarding transactions with some of its related entities.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
June 30, 20202021
(In thousands, except share and per share amounts)
and in the event that they determine that the transfer price applied was not appropriate, the Company may incur increased tax liability, including accrued interest and penalties. The Company is currently involved in disputes with the Indian tax authorities over the application of some of its transfer pricing policies for some of its subsidiaries. Further, the Company and a U.S. subsidiary are engaged in tax litigation with the income-taxIndian tax authorities in India on the issue ofregarding a permanent establishment. The Company is subject to taxation inestablishment matter. For the United States, and various states and foreign jurisdictions. For the U.S., the Philippines and India, tax year 2016 and subsequent tax years remain open for examination by the tax authorities as of June 30, 2020.2021.

The aggregate amount demanded by incomeIndian tax authorities (net of advance payments, if any) from the Company related to its transfer pricing and other corporate tax issues for tax years 2003 to 20152019 and its permanent establishment issues for tax years 2003 to 20072006 as of June 30, 20202021 and December 31, 20192020 is $16,152$26,180 and $16,220, respectively, of which the$16,748, respectively. The Company has made payments and/or provided bank guarantees toagainst these demands in the extent $7,856amounts of $8,003 and $8,108,$8,120, respectively. Amounts paid as deposits in respect of such assessments aggregating to $6,102$6,221 and $6,252$6,307 as of June 30, 20202021 and December 31, 2019,2020, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $1,754$1,782 and $1,856$1,813 as of June 30, 20202021 and December 31, 2019,2020, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s unaudited consolidated balance sheets.

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

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

In September 2020, the Indian Parliament passed various consolidating labor codes, including the Code on Social Security, 2020 (the “Indian Social Security Code”) which aims to rationalize labor laws. The Indian Social Security Code has implications on defined social security contribution plans, provision of a potential provision, if any, upon further developments.certain benefits or facilities to employees at employer’s costs and post-retirement benefits. Most specifically, it broadens the definition of an employee and wages and liberalizes the definition of “continuous period” for the purpose of determining employee benefits, amongst others. However, the rules for the Indian Social Security Code are yet to be published and the effective date from which these changes are applicable is yet to be notified. The Company will complete its evaluation once the subject rules are notified and will give appropriate impact in the financial statements in the period in which, the Indian Social Security Code becomes effective and the related rules to determine the financial impact are published.

From time to time, the Company, its subsidiaries, and/or itstheir present officers or directors, on individual basis, may be or have been, named as a defendant in litigation matters, including employment-related claims. The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and attorney’s fees. With respect to pending litigation matters as of the reporting date, the Company believes that the damages amounts claimed in such cases are not meaningful indicators of the potential liabilities of the Company, that these matters are without merit, and that the Company intends to vigorously defend each of them.

The outcomes of legal actions are unpredictable and subject to significant uncertainties, and thus it is inherently difficult to determine the likelihood of the Company incurring a material loss or quantification of any such loss. With respect to pending litigation matters as of the reporting date, based on information currently available, including the Company’s assessment of the facts underlying each matter and advice of counsel, the amount or range of reasonably possible losses, if any, cannot be reasonably estimated. Based on the Company’s assessment, including the availability of insurance recoveries, the Company’s management does not believe that currently pending litigation, individually or in aggregate, will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

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

You should read the following discussion in connection with our unaudited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. Some of the statements in the following discussion are forward looking statements. Dollar amounts within Item 2 are presented as actual, rounded, dollar amounts.

We have described in this Quarterly Report on Form 10-Q, the impact of the global Coronavirus Disease 2019 pandemic (“COVID-19”) on our financial results for the quarterthree months ended June 30, 2020. However, it remains difficult to predict at this time what impact, the spread of COVID-19 will have on our 2020 financial results.2021. See "Cautionary Note Regarding Forward-Looking Statements" below, and in Item 1A-“1A -“Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for further information regarding risks and uncertainties relating to COVID-19.
Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. Many of the following risks, uncertainties and other factors identified below are,have been, and will be, amplified by COVID-19.the COVID-19 pandemic (“COVID-19”). These factors include but are not limited to:

the impact of COVID-19 and related response measures on our business, results of operations have been affected and could infinancial condition, including the future be adversely impacted by COVID-19;impact of governmental lockdowns and other restrictions on our operations and processes and those of our clients and suppliers;
our dependence on a limited number of clients in a limited number of industries;
worldwide political, economic or business conditions;
negative public reaction in the U.S. or elsewhere to offshore outsourcing;
fluctuations in our earnings;
our ability to attract and retain clients including in a timely manner;
our ability to successfully consummate or integrate strategic acquisitions;
our ability to accurately estimate and/or manage the costs and/or timing of winding down businesses;
restrictions on immigration;
our ability to hire and retain enough sufficiently trained employees to support our operations;
our ability to grow our business or effectively manage growth and international operations;
any changes in the senior management team;
increasing competition in our industry;
telecommunications or technology disruptions;disruptions or breaches, natural or other disasters, or medical epidemics or pandemics;
our ability to withstand the loss of a significant customer;
our ability to realize the entire book value of goodwill and other intangible assets from acquisitions;
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our 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 in tax laws or decisions regarding repatriation of funds held abroad;
ability to service debt or obtain additional financing on favorable terms;
legal liability arising out of customer contracts;
technological innovation;
political or economic instability in the geographies in which we operate;
operational and information security failures arising as a result of remote work solutions adopted due to COVID-19;
cyber security incidents, data breaches, or other unauthorized disclosure of sensitive or confidential client and customer data; and
adverse outcome of our disputes with the Indian tax authoritiesauthorities.

These and other factors are more fully discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. These and other risks could cause actual results to differ materially from those implied by forward-looking statements in this Quarterly Report on Form 10-Q.

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

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

We operate in the business process management (“BPM”) industry and we provide operations management and analytics services. Effective January 1, 2020, we made certain operational and structural changes to more closely integrate our businesses and to simplify our organizational structure. We now manage and report financial information through our four strategic business units,units: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management will review financial information and make operating decisions. These business units develop client specific solutions, build capabilities, maintain a unified go-to-market approach and are integrally responsible for service delivery, customer satisfaction, growth and profitability. In line with our strategy of vertical integration and focus on domain expertise, we have integrated our Finance & Accounting and Consulting operating segments within each of the Insurance and Healthcare operating segments based on the corresponding industry-specific clients. Finance & Accounting and Consulting services provided to clients outside of the Insurance and Healthcare industries is now the part of our newly formed business unit and reportable segment, Emerging Business. In addition, we integrated our former Travel, Transportation and Logistics, Banking and Financial Services, and Utilities operating segments under Emerging Business to further leverage and optimize the operating scale in providing operations management services.


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Our new reportable segments are as follows:
Insurance,
Healthcare,
Analytics, and
Emerging Business
In conjunction with the new reporting structure, we recasted our segment disclosures for all prior periods presented to conform to the way we internally manage and monitor segment performance.

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

ImpactContinued impact of COVID-19 on Our Business

The global COVID-19 pandemic continues to materially impact worldwide economic activity and levels of business confidence and has had widespread, rapidly-evolving and unpredictable impacts on global societies, economies, financial markets and business practices. During the first fiscal quarter ended March 31, 2020, COVID-19 did not have a significant impact onmaterially impacted our business, however during the second fiscal quarter ended June 30, 2020, COVID-19 materially impacted us and our customers, employees, contractors, suppliers, and other partners, who werefirst half of 2021, we saw moderate improvement in key indicators, despite being prevented from conducting business activities as usual including duefrom geographies affected by new variants of the COVID-19 virus. Over the course of 2020, and continuing into 2021, our customers, contractors, suppliers, and other partners adapted in order to conduct business activities in a COVID-19 environment. The U.S. economy continued on a path to recovery in the first half of 2021 with millions of Americans receiving the COVID-19 vaccine, and states and municipalities increasingly reopening. In addition, the U.S. federal government continued to enact policies to provide fiscal stimulus to the healtheconomy and safety measuresrelief to those affected by the pandemic. As the global
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economy begins to emerge from the impact of COVID-19 in response2021, our clients are focused on receiving personalized customer experiences, optimizing costs and supporting resilient operating models. We remain committed to helping our clients adapt and thrive through the ongoing uncertainties caused by COVID-19 such asand, going forward, to the shifting business environment. Notwithstanding the moderate improvement in conditions during the first half of 2021, the COVID-19 pandemic continues, with temporary shutdowns which have beenat our operations centers requested or mandated by governmental authorities. The shutdown measures disruptedauthorities, and due to the associated uncertainties, we continue to evaluate the nature and scope of the impact to our abilitybusiness and may take further strategic actions in order to providemanage our services and solutions and resulted in, among other things, loss of revenue, increasedbusiness operations, costs and the possibility of enhanced credit risk on our accounts receivable. The continued spread of COVID-19 and the measures taken by the governments of countries affected has disrupted the continuity of our provision of services to our customers and adversely impacted our business, financial condition or results of operations. In the second quarter of 2020, we took actionsliquidity in response to the pandemic that focused on maintainingongoing impacts and changing conditions and markets resulting from COVID-19.

We have a business continuity plan in place and helping our employees and our customers, as well as on preparing forhave, since early in the future and the long-term success of our business. These actions included disseminating guidance and informationpandemic, adapted delivery to our employees, periodic CEO messaging, various programs aimed at employee wellness and facilitatinga work from home including a global wellness program, enhanced awareness towards informationmodel, while actively working to understand our clients’ changing requirements, continuing to ensure data security, cyber securityprioritizing critical processes, adjusting service levels and data privacy policiesmanaging discretionary costs (such as travel costs) and practices for employees while workingfixed costs (such as non-critical personnel costs). We have made ongoing efforts to reduce our reliance on travel by incorporating into our business model the ability to conduct business using virtual conferencing and collaboration tools. Our work from home among others.delivery capability steadily improved throughout 2020 and continued to improve during the first half of 2021. We estimate that we are able to deliver a significant portion of our clients’ current requirements in a work from home model given the current lockdown restrictions in the locations in which we operate and certain clients not authorizing us to perform the remaining process work remotely due to its sensitive nature. In addition, we have also worked, and continue to work with national, state, and local authorities to comply with applicable rules and regulations related to COVID-19. There continues to be significant volatility and economic and geopolitical uncertainty in many markets around the world. Several statesworld due to the emergence and spread of new variants of COVID-19 across geographies. Despite the efforts described above, there is a risk that if jurisdictions in the United States, including New York, wherewhich we are headquartered, declared states of emergency, some of which are now being slowly liftedoperate reinstate prior restrictions, stagnate in a piecemeal manner through multi-steptheir reopening policies, while others are being reinstatedprocesses, or implement new restrictions in response to new outbreaks. Several countries aroundoutbreaks or continued spread, our operations and business could be materially impacted. In late March 2021, a new serious outbreak of the world, includingCOVID-19 virus began affecting India with an exorbitant spike in the United States, have significantly restricted travel. We are actively managingnumber of COVID patients. The Indian government reinstated lockdowns limiting in certain cases the movement of our employees to offices, however these lockdowns were lifted as the situation in India improved. During the same period, the Philippines also began experiencing a spike in the number of COVID patients. Our Indian and Philippines operations were not materially affected as we initiated appropriate business continuity procedures, so as to minimize the effects of these new developments, but it is possible that our business to respond toand results of operations could nevertheless be materially affected if any further developments, including new variants of the impact.COVID-19 virus, emerge.

Given the unprecedented uncertainty of this situation, including the unknown duration, scope and severity of the pandemic and the current and future health and safety measures implementedWe also took actions in response to the pandemic that focused on helping our employees. In the geographies most affected by the recent COVID-19 variants, these actions included healthcare support including securing and administering vaccines for our employees, facilitating our employees’ access to medical equipment, providing ambulance services and online medical consultations, extending medical insurance to our employees’ family members and enhancing the unknown overall impact ondollar value of such coverage. We also instituted a one-time employee compensation payment to beneficiaries of employees, facilitated voluntary contributions from our services, it makes it difficultclients and employees to forecastsupport the full impactfamily members of deceased employees and providing financial support for their children's education. Other actions included disseminating guidance and information to our employees, facilitating work from home, implementing best practices for employees while working from home, periodic CEO messaging, various programs aimed at employee wellness, including a global wellness program, enhanced leave for employees affected by COVID-19, enhanced awareness towards information security, and updated cyber security and data privacy policies, among others. We continue to have broad travel restrictions and largely operating in virtual-only events for the safety of our employees and our customers. We also implemented pandemic-specific protocols for our essential employees whose jobs require them to be on-site or with our customers by implementing additional safety measures at all of our facilities, including increased frequency in cleaning and disinfecting, and enhanced hygiene and social distancing practices.

We continue to incur additional costs in order to ensure the continuity of our operations and support our work from home model. Such costs include purchase of desktops and laptops for our employees, software and internet connectivity devices, technology tools for productivity enhancement, accommodation, meal, overtime, transportation and regular sanitization and cleaning costs of our offices and facilities. We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our work from home model, implement new information technology solutions and security measures to safeguard against information security risks and protect the health and safety of our employees as they gradually return to the office. We believe that these short-to-medium-term costs may benefit us in the long-term, as these steps have broadened our “remote working” capabilities, which we expect to become a permanent feature in our future delivery model, as well as our business continuity plans.

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In response to certain anticipated impacts from COVID-19, we implemented a series of temporary cost reduction measures in 2020 which continued in the first half of 2021 to further preserve financial flexibility. These actions included the postponement of certain discretionary spending including travel and marketing expenses, reevaluating the pace of our capital expenditures, rationalizing certain of our real estate and facilities, deferring non-critical hiring among others.

Certain impacts of COVID-19 on our business, or the duration of such impact; however, we expect that the impacts from COVID-19 and the related economic disruption will have an adverse impact on our consolidated results of operations, consolidated financial position and consolidated cash flow during the first half of 2021 has been described above and below, however the full extent of the impact for the period beyond the first half of 2021 is currently uncertain and will depend on many factors that are not within our control, including, but not limited to: the duration and scope of the pandemic; the effectiveness of actions taken to contain or mitigate the pandemic and prevent or limit any reoccurrence; governmental, business and individuals’ actions that have been and continue to be taken in fiscal 2020. However we do not expectresponse to the pandemic; development and availability of effective treatments and vaccines and the speed at which such vaccines are administered; significant increases in healthcare costs in the event that a significant number of our personnel become infected with COVID-19 and its relatedrequire medical treatment; general economic impact to materially adversely affect our liquidity positionuncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the foreseeable future.pace of recovery when COVID-19 subsides. Due to the above circumstances and as described generally in this Quarterly Report on Form 10-Q, our financial results, ofincluding but not limited to net revenues, income from operations, for the threenet income, cash flow and six months ended period ended June 30, 2020earnings per share, are not necessarily indicative of the results to be expected for the full fiscal year and such impact may not be directly comparable to any historical period.of 2021. We continue to monitor the implications of COVID-19 on our business, as well as our customers’ and suppliers’ businesses.

In response to certain anticipated impacts from COVID-19, we have also implemented a series of temporary cost reduction measures to further preserve financial flexibility. These actions include the postponement of certain discretionary spending and capital expenditures, deferring scheduled increases in base salaries and temporarily reducing the base salaries of our executive officers and certain other groups of employees.



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We have also taken certain precautionary measures to maintain financial flexibility during this time, including drawing $100.0 million from our line of credit under our existing Credit Agreement on March 12, 2020, the proceeds of which were available for working capital, general corporate or other purposes as needed, however it was repaid in full on April 20, 2020. We also temporarily suspended our stock repurchase program during the first and second quarter of 2020, which was resumed as of July 1, 2020.

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

As public health protocols begin to accommodate returning to work at our facilities, we are implementing additional safety measures at all of our facilities, including increased frequency in cleaning and disinfecting as well as hygiene and social distancing practices. However there is a risk that if jurisdictions in which we operate re-instate prior restrictions, our operations and business will be materially impacted.

For additional information and risks related to COVID-19, see Item 1A- "Risk Factors" below.1A - “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Revenues

For the three months ended June 30, 2020,2021, we had revenues of $222.5$275.1 million compared to revenues of $243.5$222.5 million for the three months ended June 30, 2019, a decrease2020, an increase of $21.0$52.6 million, or 8.6%23.6%. For the six months ended June 30, 2020,2021, we had revenues of $468.5$536.5 million compared to revenues of $483.1$468.5 million for the six months ended June 30, 2019, a decrease2020, an increase of $14.6$68.0 million, or 3.0%14.5%.

We serve clientsclients mainly in the United States and the United Kingdom, with these two regions generating 85.5% and 9.5%, respectively, of our total revenues for the three months ended June 30, 2021, and 85.0% and 8.5%, respectively, of our total revenues for the three months ended June 30, 2020, and 81.3% and 12.4%, respectively, of our total revenues for the three months ended June 30, 2019.2020. For the six months ended June 30, 2020,2021, these two regions generated 84.7%85.7% and 9.0%9.5%, respectively, of our total revenues and 81.6%84.7% and 12.3%9.0%, respectively, of our total revenues for the six months ended June 30, 2019.2020.

For the three months ended June 30, 20202021 and 2019,2020, our total revenues from our top ten clients accounted for 38.7%37.8% and 36.5%38.7% of our total revenues, respectively. For the six months ended June 30, 20202021 and 2019,2020, our total revenues from our top ten clients accounted for 37.1%38.5% and 36.5%37.1% of our total revenues, respectively. Our revenue concentration with our top clients remains largely consistent year-over-year and we continue to develop relationships with new clients to diversify our client base. We believe that the loss of any of our top ten clients could have a material adverse effect on our financial performance.
Our Business

We provide operations management and analytics services. We market our services to our existing and prospective clients through our sales and client management teams, which are aligned by key industry verticals and cross-industry domains such as finance and accounting. Our sales and client management teams operate from the U.S.,United States, Europe and Australia.

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

44We provide our services under contracts with our clients, which typically have terms of three or more years, with some being rolling contracts with no end dates. Typically, our clients can terminate these contracts with or without cause and with short notice periods. These contracts provide us with a relatively predictable revenue base for a substantial portion of our operations management business. However, we have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.


TableWe 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 Contents
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 use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a billing ratefull-time-equivalent pricing model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins. In addition, we

We have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs. We believe that the trend toward multi-vendor relationships will continue. A multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor, which can result in significantly reduced gross margins from the provision of services to such client for each vendor. To the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors, our gross margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition.

Our existing agreements with original terms of three or more years provide us with a relatively predictable revenue base for a substantial portion of our operations management business, however, we have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.

Analytics: Our analytics services focus on driving improved business outcomes for our customers by generatingunlocking deep insights from data and create data-driven insightssolutions across all parts of our customers’ business. We also provide care optimization and reimbursement optimization services, for our clients through our healthcare analytics solutions and services. We also offer integrated solutions to help our clients in cost containment by leveraging technology platforms, customizable and configurable analytics and expertise in healthcare reimbursements to help clients enhance their claim payment accuracy. Our teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecycle management, risk underwriting and pricing, operational effectiveness, credit and operational risk monitoring and governance, regulatory reporting, payment integrity and care management and data management. We enhance, modernize and enrich structured and unstructured data and use a spectrum of advanced analytical tools and techniques, including our in-house Machine Learning (“ML”) and Artificial Intelligence (“AI”) capabilities to create insights and improve decision making for our clients. We actively cross-sell and, where appropriate, integrate our Analytics services with other operations management services as part of a comprehensive offering for our clients. Our projects-based analytics services are cyclical and can be significantly affected by variations in business cycles. In addition, our projects-based analytics services are documented in contracts with terms generally not exceeding one year and may not produce ongoing or recurring business for us once the project is completed. These contracts also usually contain provisions permitting termination of the contract after a short notice period. The short-term nature and specificity of these projects could lead to fluctuations and uncertainties in the revenues generated from providing analytics services.

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

We expect that the growth


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

Critical Accounting Policies and Estimates

For a description ofThere have been no significant changes in our critical accounting policies and estimates, referduring the three and six months ended June 30, 2021, 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 Policiesto theour consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019

In addition, due to outbreak of COVID-19, we have reassessed those of our accounting policies whose application places the most significant demands on management’s judgment, for instance, revenue recognition, allowance for expected credit losses, business combinations, goodwill, intangibles and long-lived assets, stock-based compensation, derivative instruments and hedging activity, borrowings, assumptions related to ROU assets, lease cost, income taxes and assets and obligations related to employee benefit plans. Such reassessments did not have a significant impact on our results of operations and cash flows for the periods presented.
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2020.

Results of Operations
The following table summarizes our results of operations for the three months and six months ended June 30, 20202021 and 2019:2020:
Three months ended June 30,Six months ended June 30, Three months ended June 30,Six months ended June 30,
2020201920202019 2021202020212020
(dollars in millions) (dollars in millions)(dollars in millions)
Revenues, netRevenues, net$222.5     $243.5  $468.5  $483.1  Revenues, net$275.1    $222.5 $536.5 $468.5 
Cost of revenues(1)
Cost of revenues(1)
158.4     162.4  321.1  319.7  
Cost of revenues(1)
170.7    158.4 329.5 321.1 
Gross profit(1)
Gross profit(1)
64.1  81.1  147.4  163.4  
Gross profit(1)
104.4 64.1 207.0 147.4 
Operating expenses:Operating expenses:   Operating expenses:   
General and administrative expensesGeneral and administrative expenses28.8     31.2  57.7  63.8  General and administrative expenses36.5    28.8 67.2 57.7 
Selling and marketing expensesSelling and marketing expenses13.0     17.6  27.5  35.7  Selling and marketing expenses19.8    13.0 38.0 27.5 
Depreciation and amortization expenseDepreciation and amortization expense12.4     12.8  24.9  26.4  Depreciation and amortization expense12.3    12.4 24.4 24.9 
Impairment and restructuring charges—  5.6  —  6.8  
Total operating expensesTotal operating expenses54.2  67.2  110.1  132.7  Total operating expenses68.6 54.2 129.6 110.1 
Income from operationsIncome from operations9.9     13.9  37.3  30.7  Income from operations35.8    9.9 77.4 37.3 
Foreign exchange gain, netForeign exchange gain, net1.4     1.2  2.7  2.5  Foreign exchange gain, net1.4    1.4 1.8 2.7 
Interest expenseInterest expense(2.9) (3.9) (6.0) (7.4) Interest expense(2.5)(2.9)(5.0)(6.0)
Other income, netOther income, net4.2     4.1  6.8  8.5  Other income, net2.2    4.2 3.6 6.8 
Income before income tax expense and earnings from equity affiliatesIncome before income tax expense and earnings from equity affiliates12.6  15.3  40.8  34.3  Income before income tax expense and earnings from equity affiliates36.9 12.6 77.8 40.8 
Income tax expenseIncome tax expense4.1  2.7  9.9  6.9  Income tax expense8.9 4.1 17.9 9.9 
Income before earnings from equity affiliatesIncome before earnings from equity affiliates8.5  12.6  30.9  27.4  Income before earnings from equity affiliates28.0 8.5 59.9 30.9 
Loss from equity-method investmentLoss from equity-method investment0.1  0.1  0.1  0.1  Loss from equity-method investment— 0.1 — 0.1 
Net income attributable to ExlService Holdings, Inc. stockholdersNet income attributable to ExlService Holdings, Inc. stockholders$8.4  $12.5  $30.8  $27.3  Net income attributable to ExlService Holdings, Inc. stockholders$28.0 $8.4 $59.9 $30.8 

(1) Exclusive of depreciation and amortization expense.

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Three Months Ended June 30, 20202021 Compared to Three Months Ended June 30, 20192020
Revenues.

The following table summarizes our revenues by reportable segments for the three months ended June 30, 20202021 and 2019:2020:
Three months ended June 30, Percentage
change
Three months ended June 30, Percentage
change
20202019ChangePercentage
change
20212020ChangePercentage
change
(dollars in millions)  (dollars in millions) 
InsuranceInsurance$81.3  $85.6  $(4.3) (5.0)%Insurance$94.7 $81.3 $13.4 16.5 %
HealthcareHealthcare25.0  21.7  3.3  14.9 %Healthcare28.3 25.0 3.3 13.1 %
Emerging BusinessEmerging Business34.5  48.3  (13.8) (28.5)%Emerging Business40.7 34.5 6.2 17.8 %
AnalyticsAnalytics81.7  87.9  (6.2) (7.0)%Analytics111.4 81.7 29.7 36.4 %
Total revenues, netTotal revenues, net$222.5  $243.5  $(21.0) (8.6)%Total revenues, net$275.1 $222.5 $52.6 23.6 %

Revenues for the three months ended June 30, 20202021 were $222.5$275.1 million, down $21.0up $52.6 million, or 8.6%23.6%, compared to the three months ended June 30, 2019.2020.

Revenue declinegrowth in Insurance of $4.3$13.4 million was primarily driven by lower volumes due to the impact of COVID-19, partially offset by expansion of business from certainour existing clients aggregating to $3.6$12.1 million and $0.7an increase in revenues of $1.3 million that was mainly attributable to the depreciationappreciation of the Australian dollar, Indian rupee,the U.K. pound sterling and the South African ZAR against the U.S. dollar during the three months ended June 30, 2020,2021, compared to the three months ended June 30, 2019.2020. Insurance revenues were 36.5%34.4% and 35.1%36.5% of our total revenues in the three months ended June 30, 20202021 and June 30, 2019,2020, respectively.

Revenue growth in Healthcare of $3.3 million was primarily driven by expansion of business from our new and existing clients of $6.2 million, partially offset by our December 2019 wind-down of Health Integrated business revenues of $2.9aggregating to $3.3 million during the three months ended June 30, 2019.2021. Healthcare revenues were 11.2%10.3% and 8.9%11.2% of our total revenues in the three months ended June 30, 20202021 and June 30, 2019,2020, respectively.

Revenue declinegrowth in Emerging Business of $13.8$6.2 million was primarily driven by lower volumes due to the impactexpansion of COVID-19business from our new and ramp down in certain client contractsexisting clients aggregating to $13.0$5.6 million and $0.8an increase in revenues of $0.6 million that was mainly attributable to the depreciationappreciation of the Indian rupee and the U.K. pound sterling against the U.S. dollar during the three months ended June 30, 2020,2021, compared to the three months ended June 30, 2019.2020. Emerging Business revenues were 15.5%14.8% and 19.8%15.5% of our total revenues in the three months ended June 30, 20202021 and June 30, 2019,2020, respectively.

Revenue declinegrowth in Analytics of $6.2$29.7 million was primarily driven by lower revenues fromattributable to the higher volumes in our recurringannuity and project-based engagements due to the impactfrom our new and existing clients of COVID-19 aggregating to $6.0$28.7 million and $0.2an increase in revenues of $1.0 million mainly attributable to the depreciationappreciation of the U.K. pound sterling and Indian rupee against the U.S. dollar during the three months ended June 30, 2020,2021, compared to the three months ended June 30, 2019.2020. Analytics revenues were 36.7%40.5% and 36.1%36.7% of our total revenues in the three months ended June 30, 20202021 and June 30, 2019,2020, respectively.

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Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.
Cost of RevenuesGross MarginCost of RevenuesGross Margin
Three months ended June 30, ChangePercentage
change
Three months ended June 30,Change Three months ended June 30, ChangePercentage
change
Three months ended June 30,Change
2020201920202019Change20212020 ChangePercentage
change
20212020Change
(dollars in millions)  (dollars in millions) 
InsuranceInsurance$59.1  $59.4  $(0.3) (0.5)%27.3 %30.6 %(3.3)%Insurance$59.4 $59.1 $0.3 0.5 %37.3 %27.3 %10.0 %
HealthcareHealthcare19.6  17.7  1.9  10.7 %21.4 %18.3 %3.1 %Healthcare17.7 19.6 (1.9)(9.7)%37.4 %21.4 %16.0 %
Emerging BusinessEmerging Business22.5  27.9  (5.4) (19.5)%35.1 %42.4 %(7.3)%Emerging Business22.3 22.5 (0.2)(0.9)%45.1 %35.1 %10.0 %
AnalyticsAnalytics57.2  57.4  (0.2) (0.3)%29.9 %34.6 %(4.7)%Analytics71.3 57.2 14.1 24.7 %36.0 %29.9 %6.1 %
TotalTotal$158.4  $162.4  $(4.0) (2.5)%28.8 %33.3 %(4.5)%Total$170.7 $158.4 $12.3 7.8 %37.9 %28.8 %9.1 %

For the three months ended June 30, 2020,2021, cost of revenues was $158.4$170.7 million compared to $162.4$158.4 million for the three months ended June 30, 2019, a decrease2020, an increase of $4.0$12.3 million, or 2.5%7.8%. Our gross margin for the three months ended June 30, 20202021 was 28.8%37.9% compared to 33.3%28.8% for the three months ended June 30, 2019, a decrease2020, an increase of 450 basis points (“bps”).

The decrease in cost of revenues in Insurance of $0.3 million was9.1% primarily due to decrease in employee-related costs of $1.3 million and currency movements, net of hedging of $0.8 million. This was offsetdriven by higher infrastructure, technologyrevenues and other operating costs of $1.8 million. Gross margin in Insurance decreased by 330 bpsoperational efficiencies during the three months ended June 30, 20202021, compared to the three months ended June 30, 2019, primarily due to lower revenues and impact of COVID-19 related expenses during the three months ended June 30, 2020.

The increase in cost of revenues in HealthcareInsurance of $1.9$0.3 million for the three months ended June 30, 2021 was primarily due to an increaseincreases in employee-related costs, of $1.6 million and other operating costs of $0.5 million. This was partially offset by currency movements, net of hedging of $0.2 million.lower COVID-19 related expenses. Gross margin in HealthcareInsurance increased by 310 bps10.0% during the three months ended June 30, 2020,2021, compared to the three months ended June 30, 2019,2020, primarily due to lower margin in the Heath Integrated businesshigher revenues and operational efficiencies during the three months ended June 30, 2019 and2021, compared to the impact of COVID-19 related expenses during the three months ended June 30, 2020.

The decrease in cost of revenues in Healthcare of $1.9 million for the three months ended June 30, 2021 was primarily due to decreases in employee-related costs of $1.9 million. Gross margin in Healthcare increased by 16.0% during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to higher revenues during the three months ended June 30, 2021, compared to the impact of COVID-19 related expenses during the three months ended June 30, 2020.

The decrease in cost of revenues in Emerging Business of $5.4$0.2 million for the three months ended June 30, 2021 was primarily due to a decreasedecreases in employee-related costs of $3.5 million, lower travel costs of $0.9 million, lower other operating costs of $0.4 million and currency movements, net of hedging of $0.6 million.costs. Gross margin in Emerging Business decreasedincreased by 730 bps10.0% during the three months ended June 30, 2020,2021, compared to the three months ended June 30, 2019,2020, primarily due to lowerhigher revenues, decrease in employee-related costs and operational efficiencies during the three months ended June 30, 2021, compared to the impact of COVID-19 related expenses during the three months ended June 30, 2020.

The decreaseincrease in cost of revenues in Analytics of $0.2$14.1 million for the three months ended June 30, 2021 was primarily due to lower travel costs of $2.2 million and currency movements, net of hedging of $0.7 million. This was partially offset by an increaseincreases in employee-related costs of $2.2$8.5 million, and higher other operating costs of $0.5$5.2 million and higher technology costs of $0.4 million. Gross margin in Analytics decreasedincreased by 470 bps6.1% during the three months ended June 30, 2020,2021, compared to the three months ended June 30, 2019,2020, primarily due to lowerhigher revenues and higher operating expenses.during the three months ended June 30, 2021, compared to the impact of COVID-19 related expenses during the three months ended June 30, 2020.
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Selling, General and Administrative (“SG&A”) Expenses.
Three months ended June 30, ChangePercentage
change
Three months ended June 30, ChangePercentage
change
20202019 20212020
(dollars in millions)   (dollars in millions)  
General and administrative expensesGeneral and administrative expenses$28.8  $31.2  $(2.4) (7.9)%General and administrative expenses$36.5 $28.8 $7.7 26.7 %
Selling and marketing expensesSelling and marketing expenses13.0  17.6  (4.6) (26.0)%Selling and marketing expenses19.8 13.0 6.8 52.3 %
Selling, general and administrative expensesSelling, general and administrative expenses$41.8  $48.8  $(7.0) (14.5)%Selling, general and administrative expenses$56.3 $41.8 $14.5 34.7 %
As a percentage of revenuesAs a percentage of revenues18.8 %20.1 %As a percentage of revenues20.4 %18.8 %

The increase in SG&A expenses of $14.5 million was primarily due to higher employee-related costs of $13.0 million, COVID-19-related expenses of $2.2 million, primarily related to financial support to family members of deceased employees and higher other operating costs of $0.6 million, partially offset by lower facilities costs of $1.3 million due to optimization of office space.
Depreciation and Amortization.
 Three months ended June 30,ChangePercentage
change
 20212020
 (dollars in millions)  
Depreciation expense$8.9 $9.0 $(0.1)(1.1)%
Intangible amortization expense3.4 3.4 — — %
Depreciation and amortization expense$12.3 $12.4 $(0.1)(0.8)%
As a percentage of revenues4.5 %5.6 %

The decrease in SG&A expensesdepreciation expense of $7.0$0.1 million was primarily due to COVID-19 cost reduction measures includinglower depreciation on assets related to operating centers closed as a result of optimization of office space and increased reliance on the temporary reduction of the base salaries of our executive officers and certain other groups of employees. This was driven by lower employee-related costs of $4.5 million, lower infrastructure and travel costs of $1.9 million and currency movements, net of hedging of $0.6 million.
Depreciation and Amortization.
 Three months ended June 30,ChangePercentage
change
 20202019
 (dollars in millions)  
Depreciation expense$9.0  $7.2  $1.8  24.7 %
Intangible amortization expense3.4  5.6  (2.2) (38.2)%
Depreciation and amortization expense$12.4  $12.8  $(0.4) (2.7)%
As a percentage of revenues5.6 %5.2 %

The decrease in intangibles amortization expense of $2.2 million was primarilywork from home model, due to endthe impact of useful lives for certain intangible assetsCOVID-19 during the three months ended June 30, 20202021, compared to the three months ended June 30, 2019. The increase in depreciation expense of $1.8 million was due to depreciation related to our investments in new operating centers to support our business growth.

Impairment and Restructuring Charges.
 Three months ended June 30,Percentage change
 20202019Change
 (dollars in millions)  
Impairment and restructuring charges$—  $5.6  $(5.6) (100.0)%
As a percentage of revenues— %2.3 %

During the three months ended June 30, 2019, we recorded an impairment charge of $1.9 million and restructuring charges of $3.7 million in connection with the wind-down of our Health Integrated business.2020.

Income from Operations. Income from operations decreasedincreased by $4.0$25.9 million, or 28.8%261.6%, from $13.9 million for the three months ended June 30, 2019 to $9.9 million for the three months ended June 30, 2020.2020 to $35.8 million for the three months ended June 30, 2021, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the three months ended June 30, 2021. As a percentage of revenues, income from operations decreasedincreased from 5.7% for the three months ended June 30, 2019 to 4.4% for the three months ended June 30, 2020.2020 to 13.0% for the three months ended June 30, 2021.

Foreign Exchange Gain/(Loss). Net foreign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the U.K. pound sterling, and the Philippine peso and the South African ZAR during the three months ended June 30, 2021. The average exchange rate of the U.S. dollar against the Indian rupee decreased from 75.41 during the three months ended June 30, 2020 to 73.67 during the three months ended June 30, 2021. The average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.24 during the three months ended June 30, 2020 to 1.40 during the three months ended June 30, 2021. The average exchange rate of the U.S. dollar against the Philippine peso decreased from 50.28 during the three months ended June 30, 2020 to 48.20 during the three months ended June 30, 2021. The average exchange rate of the U.S. dollar against the South African ZAR decreased from 17.66 during the three months ended June 30, 2020 to 14.15 during the three months ended June 30, 2021.

We recorded a net foreign exchange gain of $1.4 million, each, for the three months ended June 30, 2021 and 2020.

Interest expense. Interest expense decreased from $2.9 million for the three months ended June 30, 2020 to $2.5 million for the three months ended June 30, 2021, primarily due to lower outstanding borrowings and lower effective interest rates of
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The average exchange rate of the U.S. dollar against the Indian rupee increased from 69.421.8% under our Credit Facility during the three months ended June 30, 20192021, compared to 75.412.2% during the three months ended June 30, 2020. The average exchange rate
Other Income, net.
 Three months ended June 30, Percentage
change
 20212020Change
(dollars in millions)  
Gain on sale and mark-to-market of mutual funds$1.6 $3.1 $(1.5)(48.4)%
Interest and dividend income0.7 0.6 0.1 16.7 %
Other, net(0.1)0.5 (0.6)(120.0)%
Other income, net$2.2 $4.2 $(2.0)(47.6)%

Other income, net decreased by $2.0 million, from $4.2 million for the three months ended June 30, 2020 to $2.2 million for the three months ended June 30, 2021, primarily due to lower return on mutual fund investments of the U.K. pound sterling against the U.S. dollar decreased from 1.28$1.5 million, partially offset by increase in interest income of $0.1 million during the three months ended June 30, 20192021, compared to 1.24 during the three months ended June 30, 2020. The average exchange rate of the U.S. dollar against the Philippine peso decreased from 51.84 during the three months ended June 30, 2019 to 50.28 during the three months ended June 30, 2020.

We recorded a net foreign exchange gain of $1.4 million for the three months ended June 30, 2020 compared to the net foreign exchange gain of $1.2 million for the three months ended June 30, 2019.

Interest expense. Income Tax Expense.Interest expense The effective tax rate decreased from $3.9 million for the three months ended June 30, 2019 to $2.9 million for the three months ended June 30, 2020 primarily due to lower borrowings and lower effective interest rates under our Credit Facility (as defined below)32.4% during the three months ended June 30, 2020 compared to 24.0% during the three months ended June 30, 2019.
Other Income, net.
 Three months ended June 30, Percentage
change
 20202019Change
(dollars in millions)  
Gain on sale and mark-to-market of mutual funds$3.1  $3.3  $(0.2) (6.3)%
Interest income0.6  0.7  (0.1) (9.3)%
Other, net0.5  0.1  0.4  456.3 %
Other income, net$4.2  $4.1  $0.1  3.0 %

Other2021. We recorded income net increased by $0.1tax expense of $8.9 million fromand $4.1 million for the three months ended June 30, 2019 to $4.2 million for the three months ended June 30,2021 and 2020, respectively. The increase in income tax expense was primarily due to recognitionas a result of non-recurring benefits of $0.5 million related to wind-down of the Health Integrated businesshigher profit during the three months ended June 30, 2020. This was partially offset by lower return on mutual fund investments and interest income of $0.3 million during the three months ended June 30, 20202021, compared to the three months ended June 30, 2019.

Income Tax Expense. We recorded income tax expense2020, partially offset by recording of $4.1 million and $2.7 million for the three months ended June 30, 2020 and 2019, respectively. The effective tax rate increased from 17.5% during the three months ended June 30, 2019 to 32.4% during the three months ended June 30, 2020, primarily as a result of recording a one-time tax expense of $1.3 million due to electingthe election of a new tax regime, during the three months ended June 30, 2020, for two of our Indian subsidiaries whichthat provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits during the three months ended June 30, 2020.credits.

Net Income. Net income decreasedincreased from $12.5 million for the three months ended June 30, 2019 to $8.4 million for the three months ended June 30, 2020 to $28.0 million for the three months ended June 30, 2021, primarily due to decreaseincrease in income from operations of $4.0$25.9 million, lower interest expense of $0.4 million and lower loss from equity-method investment of $0.1 million, partially offset by higher income tax expense of $1.4 million. This was partially offset by$4.8 million and lower interest expense of $1.0 million, higher foreign exchange gain, net of $0.2 million, higher other income, net of $0.1$2.0 million. As a percentage of revenues, net income decreasedincreased from 5.2% for the three months ended June 30, 2019 to 3.8% for the three months ended June 30, 2020.2020 to 10.2% for the three months ended June 30, 2021.

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Six Months Ended June 30, 20202021 Compared to Six Months Ended June 30, 20192020

Revenues.

The following table summarizes our revenues by reportable segments for the six months ended June 30, 20202021 and 2019:2020:

Six months ended June 30,Percentage
change
Six months ended June 30,Percentage
change
20202019ChangePercentage
change
20212020ChangePercentage
change
(dollars in millions)(dollars in millions)
InsuranceInsurance$165.0  $166.9  $(1.9) (1.1)%Insurance$185.8 $165.0 $20.8 12.6 %
HealthcareHealthcare52.0  44.0  8.0  18.3 %Healthcare58.6 52.0 6.6 12.5 %
Emerging BusinessEmerging Business77.4  97.4  (20.0) (20.6)%Emerging Business78.4 77.4 1.0 1.3 %
AnalyticsAnalytics174.1  174.8  (0.7) (0.4)%Analytics213.7 174.1 39.6 22.8 %
Total revenues, netTotal revenues, net$468.5  $483.1  $(14.6) (3.0)%Total revenues, net$536.5 $468.5 $68.0 14.5 %


Revenues for the six months ended June 30, 20202021 were $468.5$536.5 million, down $14.6up $68.0 million, or 3.0%14.5%, compared to the six months ended June 30, 2019.2020.

Revenue declinegrowth in Insurance of $1.9$20.8 million was primarily driven by lower volumes due to the impact of COVID-19, partially offset by expansion of business from certainour existing clients aggregating to $0.3$18.4 million and $1.6an increase in revenues $2.4 million that was mainly attributable to the depreciationappreciation of the Australian dollar, Indian rupee,the U.K. pound sterling and the South African ZAR against the U.S. dollar during the six months ended June 30, 20202021, compared to the six months ended June 30, 2019.2020. Insurance revenues were 35.2%34.6% and 34.5%35.2% of our total revenues in the six months ended June 30, 20202021 and June 30, 2019,2020, respectively.

Revenue growth in Healthcare of $8.0$6.6 million was primarily driven by expansion of business from our new and existing clients and new wins aggregating to $14.9 million, partially offset by our December 2019 wind-down of Health Integrated business revenues of $6.9$6.6 million during the six months ended June 30, 2019.2021. Healthcare revenues were 11.1%10.9% and 9.1%11.1% of our total revenues in the six months ended June 30, 20202021 and June 30, 2019,2020, respectively.

Revenue declinegrowth in Emerging Business of $20.0$1.0 million was primarily driven by lower volumes due to the impactexpansion of COVID-19business from our new clients and ramp down in certain client contractsexisting clients aggregating to $18.7$0.3 million and $1.3an increase in revenues of $0.7 million that was mainly attributable to the depreciationappreciation of the Indian rupee and the U.K. pound sterling against the U.S. dollar during the six months ended June 30, 20202021 compared to the six months ended June 30, 2019. 2020.Emerging Business revenues were 16.5%14.6% and 20.2%16.5% of our total revenues in the six months ended June 30, 20202021 and June 30, 2019,2020, respectively.

Revenue declinegrowth in Analytics of $0.7$39.6 million was primarily driven by lower revenues fromattributable to the higher volumes in our recurringannuity and project based engagements due to the impact from our new and existing clientsof COVID-19 aggregating to $0.2$37.9 million and $0.5an increase in revenues $1.7 million mainly attributable to the depreciationappreciation of the U.K. pound sterling and Indian rupeethe South African ZAR against the U.S. dollar during the six months ended June 30, 20202021, compared to the six months ended June 30, 2019.2020. Analytics revenues were 37.2%39.8% and 36.2%37.2% of our total revenues in the six months ended June 30, 20202021 and June 30, 2019,2020, respectively.

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Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.
Cost of RevenuesGross MarginCost of RevenuesGross Margin
Six months ended June 30,Percentage changeSix months ended June 30,ChangeSix months ended June 30,Percentage changeSix months ended June 30,Change
20202019Change20202019Change20212020ChangePercentage change2020Change
(dollars in millions)(dollars in millions)
InsuranceInsurance$118.1  $114.7  $3.4  3.0 %28.4 %31.3 %(2.9)%Insurance$115.5 $118.1 $(2.6)(2.2)%37.9 %28.4 %9.5 %
HealthcareHealthcare39.2  35.6  3.6  10.4 %24.6 %19.2 %5.4 %Healthcare35.1 39.2 (4.1)(10.5)%40.1 %24.6 %15.5 %
Emerging BusinessEmerging Business48.0  55.1  (7.1) (13.1)%38.1 %43.4 %(5.3)%Emerging Business43.1 48.0 (4.9)(10.2)%44.9 %38.1 %6.8 %
AnalyticsAnalytics115.8  114.3  1.5  1.3 %33.5 %34.6 %(1.1)%Analytics135.8 115.8 20.0 17.3 %36.5 %33.5 %3.0 %
TotalTotal$321.1  $319.7  $1.4  0.4 %31.5 %33.8 %(2.3)%Total$329.5 $321.1 $8.4 2.6 %38.6 %31.5 %7.1 %
For the six months ended June 30, 2020,2021, cost of revenues was $321.1$329.5 million compared to $319.7$321.1 million for the six months ended June 30, 2019,2020, an increase of $1.4$8.4 million, or 0.4%2.6%. Our gross margin for the six months ended June 30, 20202021 was 31.5%38.6% compared to 33.8%31.5% for six months ended June 30, 2019, a decrease2020, an increase of 230 bps.7.1% primarily driven by higher revenues and operational efficiencies during the six months ended June 30, 2021, compared to the impact of COVID-19 related expenses during the six months ended June 30, 2020.

The increasedecrease in cost of revenues in Insurance of $3.4$2.6 million for the six months ended June 30, 2021 was primarily due to an increasedecreases in employee-related costs of $1.7 million, higher infrastructure and technology costs of $2.4 million, and other operating costs of $0.8 million. This was partially offset by currency movements, net$4.4 million, due to the impact of hedging of $1.5 million. Gross margin in Insurance decreased by 290 bpsCOVID-19 related expenses during the six months ended June 30, 2020 and foreign exchange gain, net of hedging of $0.1 million. This was partially offset by higher employee-related costs of $1.9 million. Gross margin in Insurance increased by 9.5% during the six months ended June 30, 2021, compared to the six months ended June 30, 2019,2020, primarily due to higher operating expenses.revenues, expansion in margin in certain existing clients and operational efficiencies during the six months ended June 30, 2021, compared to the impact of COVID-19 related expenses during the six months ended June 30, 2020.

The increasedecrease in cost of revenues in Healthcare of $3.6$4.1 million for the six months ended June 30, 2021 was primarily due to an increasedecreases in employee-related costs of $3.3$4.3 million, andpartially offset by higher other operating costs of $0.9 million. This was partially offset by lower technology costs of $0.3 million and currency movements, net of hedging of $0.3$0.2 million. Gross margin in Healthcare increased by 540 bps15.5% during the six months ended June 30, 20202021, compared to the six months ended June 30, 2019,2020, primarily due to lower margin in the Heath Integrated businesshigher revenues during the six months ended June 30, 2019 and higher revenues2021, compared to the impact of COVID-19 related expenses during the six months ended June 30, 2020.

The decrease in cost of revenues in Emerging Business of $7.1$4.9 million for the six months ended June 30, 2021 was primarily due to a decreasedecreases in employee-related costs of $4.8$3.8 million, lower infrastructure and technology cost of $1.2 million, currency movements, net of hedgingother operating costs of $0.9 million and lower travel costsforeign exchange gain, net of $0.8 million, partially offset by higher other operating costs of $0.6hedging $0.2 million. Gross margin in Emerging Business decreasedincreased by 530 bps6.8% during the six months ended June 30, 2020,2021, compared to the six months ended June 30, 2019,2020, primarily due to lower revenues.higher revenues, decrease in employee-related costs and higher operational efficiencies during the six months ended June 30, 2021, compared to the impact of COVID-19 related expenses during the six months ended June 30, 2020.

The increase in cost of revenues in Analytics of $1.5$20.0 million for the six months ended June 30, 2021 was primarily due to an increaseincreases in employee-related costs of $4.0 million.$13.3 million, higher other operating costs of $7.4 million and higher technology costs of $1.2 million, primarily due to increased usage of the work from home model. This was partially offset by lower other operatingtravel costs of $1.4$1.5 million and currency movements,foreign exchange gain, net of hedging of $1.1$0.4 million. Gross margin in Analytics decreasedincreased by 110 bps3.0% during the six months ended June 30, 2020,2021, compared to the six months ended June 30, 2019,2020, primarily due to higher operating expenses.revenues during the six months ended June 30, 2021, compared to the impact of COVID-19 related expenses during the six months ended June 30, 2020.


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Selling, General and Administrative (“SG&A”) Expenses.
Six months ended June 30,Percentage changeSix months ended June 30,Percentage change
20202019ChangePercentage change20212020ChangePercentage change
(dollars in millions)(dollars in millions)
General and administrative expensesGeneral and administrative expenses$57.7  $63.8  $(6.1) (9.5)%General and administrative expenses$67.2 $57.7 $9.5 16.5 %
Selling and marketing expensesSelling and marketing expenses27.5  35.7  (8.2) (22.9)%Selling and marketing expenses38.0 27.5 10.5 38.2 %
Selling, general and administrative expensesSelling, general and administrative expenses$85.2  $99.5  $(14.3) (14.3)%Selling, general and administrative expenses$105.2 $85.2 $20.0 23.5 %
As a percentage of revenuesAs a percentage of revenues18.2 %20.6 %As a percentage of revenues19.6 %18.2 %

The decreaseincrease in SG&A expenses of $14.3$20.0 million was primarily due to COVID-19 cost reduction measures including the temporary reduction of the base salaries of our executive officers and certain other groups of employees. This was driven by lowerhigher employee-related costs of $7.7$19.7 million, a decrease in stock-based compensation expenseCOVID-19-related expenses of $2.0$2.2 million mostly due to revision in estimatesprimarily related to revenue linked performance based restricted stock units duefinancial support to COVID-19, lower infrastructure and travel costsfamily members of $2.6 million, lowerdeceased employees, higher other operating costs of $1.0$2.0 million, partially offset by lower facilities costs of $2.8 million due to optimization of office space and currency movements, netlower travel costs of hedging of $1.0 million.$1.1 million due to COVID-19 cost reduction measures.

Depreciation and Amortization.
Six months ended June 30,Percentage changeSix months ended June 30,Percentage change
20202019ChangePercentage change20212020ChangePercentage change
(dollars in millions)(dollars in millions)
Depreciation expenseDepreciation expense$17.3  $15.3  $2.0  12.6 %Depreciation expense$17.6 $17.3 $0.3 1.7 %
Intangible amortization expenseIntangible amortization expense7.6  11.1  (3.5) (31.6)%Intangible amortization expense6.8 7.6 (0.8)(10.5)%
Depreciation and amortization expenseDepreciation and amortization expense$24.9  $26.4  $(1.5) (5.9)%Depreciation and amortization expense$24.4 $24.9 $(0.5)(2.0)%
As a percentage of revenuesAs a percentage of revenues5.3 %5.5 %As a percentage of revenues4.6 %5.3 %

The decrease in intangibles amortization expense of $3.5$0.8 million was primarily due to end of useful lives for certain intangible assets during the six months ended June 30, 20202021, compared to the six months ended June 30, 2019.2020. The increase in depreciation expense of $2.0$0.3 million was primarily due to depreciation related to our investments in new operating centers, internally developed software and accelerated depreciation resulting from a reduction in useful lives related to support our business growth.

Impairment and Restructuring Charges.
Six months ended June 30,Percentage change
20202019Change
(dollars in millions)
Impairment and restructuring charges$—  $6.8  $(6.8) (100.0)%
As a percentage of revenues— %1.4 %

Duringcertain operating centers, due to the impact of COVID-19 during the six months ended June 30, 2019, we recorded impairment charges of $3.2 million and restructuring charges of $3.6 million in connection with2021, compared to the wind-down of our Health Integrated business.six months ended June 30, 2020.

Income from Operations. Income from operations increased by $6.6$40.1 million, or 21.6%107.5%, from $30.7$37.3 million for the six months ended June 30, 20192020 to $37.4$77.4 million for the six months ended June 30, 2020.2021, primarily due to higher revenues, partially offset by higher cost of revenues, higher SG&A expenses during the six months ended June 30, 2021. As a percentage of revenues, income from operations increased from 6.4% for the six months ended June 30, 2019 to 8.0% for the six months ended June 30, 2020.2020 to 14.4% for the six months ended June 30, 2021.

Foreign Exchange Gain/(Loss). Net foreign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the U.K. pound sterling, and the Philippine peso and the South African ZAR during the six months ended June 30, 2020.2021. The average exchange rate of the U.S. dollar against the Indian rupee increaseddecreased from 69.87 during the six months ended June 30, 2019 to 74.25 during the six months ended June 30, 2020.2020 to 73.42 during the six months ended June 30, 2021. The average exchange rate of the U.K. pound sterling against the U.S. dollar decreasedincreased from 1.30 during the six months ended June 30, 2019 to 1.26 during the six months ended June 30, 2020.2020 to 1.39 during the six months ended June 30, 2021. The average exchange rate of the U.S. dollar against the Philippine peso decreased from 51.97 during the six months ended June 30, 2019 to 50.55 during the six months ended June 30, 2020 to 48.29 during the six months ended June 30, 2021. The average exchange rate of the U.S. dollar against the South African ZAR decreased from 16.90 during the six months ended June 30, 2020 to 14.58 during the six months ended June 30, 2021.

We recorded a net foreign exchange gain of $1.8 million for the six months ended June 30, 2021, compared to the net foreign exchange gain of $2.7 million for the six months ended June 30, 2020.

Interest expense. Interest expense decreased from $6.0 million for the six months ended June 30, 2020 to $5.0 million for the six months ended June 30, 2021 primarily due tolower outstanding borrowings and lower effective interest rates of 1.9%
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We recorded a net foreign exchange gain of $2.7 million for the six months ended June 30, 2020 compared to the net foreign exchange gain of $2.5 million for the six months ended June 30, 2019.

Interest expense. Interest expense decreased from $7.4 million for the six months ended June 30, 2019 to $6.0 million for the six months ended June 30, 2020 primarily due tolower borrowings and lower effective interest rates under our Credit Facility during the six months ended June 30, 2020,2021, compared to 2.6% during the six months ended June 30, 2019.2020.

Other Income, net.

Six months ended June 30,Percentage changeSix months ended June 30,Percentage change
20202019ChangePercentage change20212020ChangePercentage change
Gain on sale and mark-to-market of mutual fundsGain on sale and mark-to-market of mutual funds$5.2  $6.8�� $(1.6) (24.5)%2.7 $5.2 $(2.5)(48.1)%
Interest income1.2  1.5  (0.3) (22.0)%
Interest and dividend incomeInterest and dividend income1.3 1.2 0.1 8.3 %
Other, netOther, net0.4  0.2  0.2  125.5 %Other, net(0.4)0.4 (0.8)(200.0)%
Other income, netOther income, net$6.8  $8.5  $(1.7) (20.8)%Other income, net$3.6 $6.8 $(3.2)(47.1)%


Other income, net decreased by $1.7$3.2 million, from $8.5 million for the six months ended June 30, 2019 to $6.8 million for the six months ended June 30, 2020 to $3.6 million for the six months ended June 30, 2021, primarily due to lower return on mutual fund investments of $1.6$2.5 million during the six months ended June 30, 20202021, compared to the six months ended June 30, 2019.2020.

Income Tax Expense. We recorded income tax expense of $9.9 million and $6.9 million for the six months ended June 30, 2020 and 2019, respectively. The effective tax rate increaseddecreased from 20.1% during the six months ended June 30, 2019 to 24.3% during the six months ended June 30, 2020 to 22.9% during the six months ended June 30, 2021. We recorded income tax expense of $17.9 million and $9.9 million for the six months ended June 30, 2021 and 2020, respectively. The increase in income tax expense was primarily as a result of higher profit during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, which was partially offset by (i) recording of a one-time tax expense of $1.3 million due to electingthe election of a new tax regime, during the six months ended June 30, 2020, for two of our Indian subsidiaries whichthat provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits during the six months ended June 30, 2020, compared to a benefit of $1.5 million recorded during the six months ended June 30, 2019 and (ii) recording of higher excess tax benefits related to stock awards of $1.8 million pursuant to ASU No. 2016-09 during the six months ended June 30, 2020 compared to $1.1$1.0 million during the six months ended June 30, 2019. See Note 21 - Income Taxes to our unaudited consolidated financial statements.2021.

Net Income. Net income increased from $27.3 million for the six months ended June 30, 2019 to $30.8 million for the six months ended June 30, 2020 to $59.9 million for the six months ended June 30, 2021, primarily due to increase in income from operations of $6.6$40.1 million, lower interest expense of $1.4$1.0 million and lower loss from equity-method investment of $0.1 million, partially offset by higher income tax expense of $8.0 million, lower other income, net of $3.2 million and foreign exchange gain, net of $0.2 million. This was partially offset by lower other income, net of $1.7 million and higher income tax expense of $3.0$0.9 million. As a percentage of revenues, net income increased from 5.6% for the six months ended June 30, 2019 to 6.6% for the six months ended June 30, 2020.2020 to 11.2% for the six months ended June 30, 2021.

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Liquidity and Capital Resources
Six months ended June 30, Six months ended June 30,
20202019 20212020
(dollars in millions) (dollars in millions)
Opening cash, cash equivalents and restricted cashOpening cash, cash equivalents and restricted cash$127.0  $104.1  Opening cash, cash equivalents and restricted cash$225.5 $127.0 
Net cash provided by operating activitiesNet cash provided by operating activities58.9  47.7  Net cash provided by operating activities53.9 58.9 
Net cash provided by investing activitiesNet cash provided by investing activities1.1  0.9  Net cash provided by investing activities11.7 1.1 
Net cash used for financing activitiesNet cash used for financing activities(13.4) (61.1) Net cash used for financing activities(131.4)(13.4)
Effect of exchange rate changesEffect of exchange rate changes(2.8) (0.2) Effect of exchange rate changes(2.2)(2.8)
Closing cash, cash equivalents and restricted cashClosing cash, cash equivalents and restricted cash$170.8  $91.4  Closing cash, cash equivalents and restricted cash$157.5 $170.8 

As of June 30, 20202021 and 2019,2020, we had $335.6$294.7 million and $253.0$335.6 million, respectively, in cash, cash equivalents and short-term investments, of which $275.5$254.2 million and $214.8$275.5 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes. We periodically evaluate opportunities to distribute cash among our group entities to fund our operations 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 jurisdictions. During the three months ended June 30, 2021, we repatriated to the United States $49.0 million (net of $2.6 million withholding taxes) from India, $42.5 million (net of $7.5 million withholding taxes) from the Philippines and $17.0 million (net of $0.9 million withholding taxes) from India in July 2021. These distributions do not currently intendconstitute a change in our permanent reinvestment assertion. We base our decision to distribute such amounts. If,continue to indefinitely reinvest earnings in India and the Philippines on our estimate of the working capital required to support our operations in these geographies and periodically review our capital initiatives to support and expand our global operations, as well as an economically viable rate of return on our investments made in India and the Philippines as compared to those made in the future, we change our intention regarding distributions, additional taxes may be required and would be recorded in the period the intention changes.United States.

Operating Activities: Cash flowsNet cash provided by operating activities werewas $53.9 million for the six months ended June 30, 2021 as compared to net cash provided by operating activities of $58.9 million for the six months ended June 30, 2020, asreflecting higher working capital needs, offset by cash earnings. The major drivers contributing to the decrease of $5.0 million year-over-year included the following:

Changes in accounts receivable, including advance billings, contributed lower cash flow of $71.9 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease was a result of higher accounts receivable resulting from revenue growth, change in credit terms for certain clients during the six months ended June 30, 2021, and advance collections during the three months ended December 31, 2020. This was partially offset by our accounts receivable days sales outstanding, which improved to 58 days as of June 30, 2021 from 63 days as of June 30, 2020.

Increase in net income of $29.1 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to an increase in income from operations of $40.1 million driven by higher revenues, offset by higher income tax expense of $8.0 million and lower other income, net of interest expense of $3.1 million.

Increase in accrued employee costs, accrued expenses and other liabilities contributed higher cash flows provided by operating activitiesflow of $47.7$51.6 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase was primarily due to lower payment and higher provisions of annual performance incentives of $23.3 million, higher other employee cost accruals of $4.0 million and higher accrued expenses and other liabilities of $24.3 million, during the six months ended June 30, 2019. Generally, factors that affect our earnings, for instance, pricing, volume of services, costs and productivity, affect our2021 compared to the six months ended June 30, 2020.

Other drivers decreasing cash flows used or provided from operations in a similar manner. However, while management of working capital, including timing of collections and payments affects operating results only indirectly,during the impact on the working capital requirements and cash flows provided by operating activities can be significant.
Cash flows provided by operating activities forsix months ended June 30, 2021 compared to the six months ended June 30, 2020 were $58.9 million. This comprisedincluded: income tax payments, net of net income plus the net effectrefunds, of non-cash items, such as depreciation and amortization expense, stock-based compensation expense, amortization of operating lease right-of-use assets, unrealized gains on short-term investment, deferred income taxes, and others aggregating$13.8 million, primarily due to $75.6 million. The primary working capital use of cash of $41.6 million during the six months ended June 30, 2020 was driven by decrease in accrued employee costs, operating lease liabilities, accrued expenses and other liabilities and increase in other current assets. The primary working capital sources of cash of $24.9 million was driven by decrease in accounts receivables,higher advance income tax payments on account of higher net other assets, increase in deferred revenues and accounts payable.income.

Investing Activities: Cash flows provided by investing activities were $1.1$11.7 million for the six months ended June 30, 20202021 as compared to cash flows provided by investing activities of $0.9$1.1 million for the six months ended June 30, 2019.2020. The increase is mainly due to higher net redemption of investments of $31.0 million during six months ended June 30, 2021 as compared to
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net redemption of investments of $23.8 million during the six months ended June 30, 2020, as compared to net redemptionslower capital expenditures for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $23.5$2.7 million during the six months ended June 30, 2019.2021 as compared to the six months ended June 30, 2020 and acquisition of an additional stake in our equity affiliate of $0.7 million during the six months ended June 30, 2020.

Financing Activities: Cash flows used for financing activities were $13.4$131.4 million during the six months ended June 30, 20202021 as compared to cash flows used for financing activities of $61.1$13.4 million during the six months ended June 30, 2019.2020. The decreaseincrease in cash flows used for financing activities was primarily due to higher net repayment of $33.6$73.8 million (net of proceeds) under our revolving Credit Facility, (as described below in “Financing Arrangements (Debt Facility)”) duringhigher purchases of treasury stock by $43.4 million under our share repurchase program and lower proceeds from the six months ended June 30, 2019 as compared to net repaymentsexercise of $0.2stock options of $0.8 million during the six months ended June 30, 2020 and lower purchases of treasury stock by $13.5 million under our share repurchase program during the six months ended June 30, 20202021 as compared to the six months ended June 30, 2019.2020.

We expect to use cash from operating activities to maintain and expand our business by making investments primarily related to new facilities and capital expenditures associated with leasehold improvements to build our facilities, digital capabilities and purchase telecommunications equipment and computer hardware and software in connection with managing client operations.

We incurred $22.1$19.9 million of capital expenditures in the six months ended June 30, 2020.2021. We expect to incur capital expenditures of between $32.0$35.0 million and $38.0$40.0 million in 2020,2021, primarily to meet our growth requirements, including
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additions to our facilities as well as investments in technology applications, product development, digital technology, advanced automation, robotics and infrastructure.

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

During the six months ended June 30, 2020, to enhance our liquidity position in response to COVID-19, management has taken certain precautionary measures, including: drawing $100.0 million from our line of credit under our existing Credit Agreement on March 12, 2020, the proceeds of which were available for working capital, general corporate or other purposes as needed, and which was repaid in full on April 20, 2020; and electing to temporarily suspend share repurchases under our 2019 Repurchase Program, and other cost reduction measures related to employee and vendor expenses and capital expenditure plans. The 2019 Repurchase Program remains authorized by the Board of Directors and the management using its discretion has resumed share repurchases effective July 1, 2020, considering improved market conditions, our capital needs and other factors.

The Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”) allows employers to defer the payment of the employer share of Federal Insurance Contributions Act (“FICA”) taxes for the period from April 1, 2020 and ending December 31, 2020. During the six months endedAs of June 30, 2021 and December 31, 2020, we deferred our contributions to FICA payments of $2.4$6.3 million each under the CARES Act and will continue to defer FICA payments through December 31, 2020.Act. The deferred amount will be payable as follows: (1) 50% of the deferred amount will be paid on or before December 31, 2021 and (2) the remaining 50% of the deferred amount will be paid on or before December 31, 2022.
Financing Arrangements (Debt Facility)Facility and Notes)
The following tables summarizes our Debt balances as of June 30, 20202021 and December 31, 2019.2020.
As of June 30, 2020
(dollars in millions)
Revolver Credit FacilityStructured PayablesNotesTotal
Current portion of long-term borrowings$20.0  $0.7  $—  $20.7  
Long-term borrowings79.0  —  150.0  229.0  
Unamortized debt discount—  —  (12.6) (12.6) 
Unamortized debt issuance costs*—  —  (0.9) (0.9) 
Long-term borrowings79.0  —  136.5  215.5  
Total borrowings$99.0  $0.7  $136.5  $236.2  

As of June 30,2021
(dollars in millions)
Revolving Credit FacilityNotesTotal
Current portion of long-term borrowings$15.0 $ $15.0 
Long-term borrowings$— $150.0 $150.0 
Unamortized debt discount— (9.9)(9.9)
Unamortized debt issuance costs*— (0.7)(0.7)
Long-term borrowings$ $139.4 $139.4 
Total borrowings$15.0 $139.4 $154.4 
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As of December 31, 2019
(dollars in millions)
Revolver Credit FacilityStructured PayablesNotesTotal
Current portion of long-term borrowings$40.0  $0.9  $—  $40.9  
Long-term borrowings59.0  —  150.0  209.0  
Unamortized debt discount—  —  (13.9) (13.9) 
Unamortized debt issuance costs*—  —  (1.0) (1.0) 
Long-term borrowings59.0  $—  $135.1  $194.1  
Total borrowings$99.0  $0.9  $135.1  $235.0  

As of December 31,2020
(dollars in millions)
Revolving Credit FacilityNotesTotal
Current portion of long-term borrowings$25.0 $ $25.0 
Long-term borrowings$64.0 $150.0 $214.0 
Unamortized debt discount— (11.2)(11.2)
Unamortized debt issuance costs*— (0.8)(0.8)
Long-term borrowings$64.0 $138.0 $202.0 
Total borrowings$89.0 $138.0 $227.0 

*Unamortized debt issuance costs for our revolver credit facilityrevolving Credit Facility of $0.6$0.4 million and $0.7$0.5 million as of June 30, 20202021 and December 31, 2019,2020, respectively, is presented under “other“Other current assets” and “other“Other assets” in theour consolidated balance sheets.

See Note 17-17 - Borrowings to our unaudited consolidated financial statements herein for further details on our debt facilities.
Off-Balance Sheet Arrangements
In the ordinary course of business, we provide standby letters of credit to third parties primarily for facility leases. As of June 30, 20202021 and December 31, 2019,2020, we had outstanding letters of credit of $0.5 million each, respectively, that were not recognized in our unaudited and audited consolidated balance sheets, respectively. These are not reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We had no other off balanceoff-balance sheet arrangements or obligations.
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Contractual Obligations
The following table sets forth our contractual obligations as of June 30, 2020:2021:
Payment Due by PeriodPayment Due by Period
Less than1-34-5AfterLess than1-34-5After
1 yearyearsyears5 yearsTotal1 yearyearsyears5 yearsTotal
(dollars in millions)(dollars in millions)
Finance leasesFinance leases$0.3  $0.3  $0.1  $—  $0.7  Finance leases$0.2 $0.3 $— $— $0.5 
Operating leases(a)
Operating leases(a)
25.7  46.3  32.3  38.5  142.8  
Operating leases(a)
24.2 44.5 21.5 29.9 120.1 
Purchase obligationsPurchase obligations9.9  —  —  —  9.9  Purchase obligations7.1 — — — 7.1 
Other obligations(b)
Other obligations(b)
2.4  4.2  3.4  5.7  15.7  
Other obligations(b)
2.8 5.0 3.9 7.0 18.7 
Borrowings:Borrowings:Borrowings:
Principal payments(c)Principal payments(c)20.7  79.0  150.0  —  249.7  Principal payments(c)15.0 — 150.0 — 165.0 
Interest payments(c)(d)
Interest payments(c)(d)
6.4  11.5  7.9  —  25.8  
Interest payments(c)(d)
5.3 10.5 2.6 — 18.4 
Total contractual cash obligations(d)(e)
Total contractual cash obligations(d)(e)
$65.4  $141.3  $193.7  $44.2  $444.6  
Total contractual cash obligations(d)(e)
$54.6 $60.3 $178.0 $36.9 $329.8 
(a)Represents undiscounted operating lease liabilities payable forover the expected lease term.
(b)Represents estimated employee benefit payments under the Gratuity Plan.
(c)Represents our intent and ability to settle the principal amount of our Notes of $150 million in cash and does not reflect any assumptions about our ability or intent to settle the Notes before their maturity.
(d)Interest on borrowings is calculated based on the interest rate on the outstanding borrowings as of June 30, 2020.2021.
(d)(e)Excludes $1.0$0.9 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 Software Technology Parks of India (“STPI”) or Special Economic Zone ("SEZ") scheme promulgated by the Government of India. These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares. We have undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores, and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. We believe, however, that these units have in the past satisfied and will continue to satisfy the required conditions.

Our operations centers in the Philippines are registered with the Philippine Economic Zone Authority (“PEZA”).Authority. The registration provides us with certain fiscal incentives on the import of capital goods and local purchase of services and materials and requires that ExlService Philippines, Inc. to meet certain performance and investment criteria. We believe that these centers have in the past satisfied and will continue to satisfy the required criteria.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2—“Recent Accounting Pronouncements” to the unaudited consolidated financial statements contained herein.
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ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk

During the three months ended June 30, 2020,2021, 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��December 31, 2019.2020.


ITEM 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure. In connection with the preparation of this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of the CEO and CFO, of the effectiveness and operation of our disclosure controls and procedures as of June 30, 2020.2021. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures, as of June 30, 2020,2021, were effective.
Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2020,2021, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II.     Other Information
 

ITEM 1.    Legal Proceedings

In the course of our normal business activities, various lawsuits, claims and proceedings may be instituted or asserted against us. Although 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. See Note 24 - Commitments and Contingencies to our unaudited consolidated financial statements contained herein for details regarding our tax proceedings.details.

ITEM 1A.    Risk Factors

We have disclosed below, as well asdiscussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 20192020 (the “2020 Form 10-K”), supplemented by the disclosure below, a number of risks which may materially affect our business, financial condition or results of operations. You should carefully consider these Risk Factors and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us may also materially adversely affect our business, financial condition and/or results of operations.

OurThe following constitutes a supplement to the 2020 Form 10-K, Part I, Item 1A “Risk Factors” under “Our business, results of operations and financial condition have been adversely affected, and could in the future be materially adversely affected, by the coronavirus pandemic.

In late March 2020, the World Health Organization declared the2021, a new serious outbreak of COVID-19 virus began affecting India. The outbreak resulted in an exorbitant spike in the number of COVID patients, which overwhelmed the healthcare infrastructure in India. The Indian government reinstated lockdowns limiting in certain cases the movement of our employees to offices. During the same period, the Philippines also began experiencing a disease caused byspike in the number of COVID patients. Although the situation has improved and our Indian and Philippines operations were not materially affected as a novel strainresult of our appropriate business continuity procedures, it is possible that any further developments, including the emergence of new variants of the coronavirus (COVID-19) to be a global pandemic. This global pandemic is having widespread, rapidly-evolvingCOVID-19 virus, could adversely affect our business and unpredictable impacts on global societies, economies, financial markets and business practices. COVID-19 has affected us, our customers, employees, contractors, suppliers and business partners, who have been prevented from conducting business activities as usual, including due to the many and varying health and safety measures in response to COVID-19, including travel restrictions, quarantines, curfews, shelter in place and safer-at-home orders, and business shutdowns, as well as multi-step reopening policies. The continued spreadresults of COVID-19 and the measures taken by governmental authorities disrupted theoperations.
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continuity of our provision of services to our customers and adversely impacted our business, results of operations and financial condition-, see Part 1, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.

The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption. The ultimate impact of COVID-19 on our business, operations and financial results remains unknown and will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration, scope and severity of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our clients and client demand for our services and our solutions; our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; the ability of our clients to pay for our services and solutions; any closures of our and our clients' offices and facilities, and any additional preventative or protective actions that we, our clients, and governments may implement that may result in a period of continued business interruption.

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

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

the impact of the pandemic on the economies and financial markets of the countries and regions in which we operate, including a potential global recession, a decline in customer confidence and spending;
our inability to obtain rent deferrals or other relief from many of our landlords with respect to our leased corporate offices that were or still remain closed, which could result in litigation or other disruptions;
COVID-19 and remote-work oriented phishing and similar cybersecurity attack attempts;
remote work solutions may be limited in their ability to replicate the operational oversight and security controls of our office environments and we may suffer operational and information security failures as a result of the changed controls;
we may be required to revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of long-lived assets and deferred tax assets, which could have a material adverse effect on our financial position and results of operations;
governmental actions in the geographies in which we operate may prevent us from adjusting the size of our workforce or modifying compensation terms; and
COVID-19 may also have a material adverse effect on our liquidity and cash flows. If our business does not generate sufficient cash flows from operating activities, and sufficient funds are not otherwise available to us from borrowings under our credit facility or other sources, we may not be able to cover our expenses, fund our other liquidity and working capital needs, or execute on our strategic initiatives, each of which could significantly harm our business.

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









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

Unregistered Sales of Equity Securities
None.
    
Use of Proceeds

None.

Purchases of Equity Securities by the Issuer
During the three months ended June 30, 2020,2021, purchases of common stock were as follows:
PeriodTotal Number of
Shares Purchased
Average Price
Paid per share(1)
Total Number of Shares Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
April 1, 2020 through April 30, 2020— $— — $188,016,828 
May 1, 2020 through May 31, 2020— $— — $188,016,828 
June 1, 2020 through June 30, 2020— $— — $188,016,828 
Total— $— — $— 
PeriodTotal Number of
Shares Purchased
Average Price
Paid per share
(1)
Total Number of Shares Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
April 1, 2021 through April 30, 202185,358 $93.72 85,358 $87,182,152 
May 1, 2021 through May 31, 2021126,848 $98.49 126,848 $74,688,547 
June 1, 2021 through June 30, 202174,838 $105.77 74,838 $66,772,646 
Total287,044 $98.97 287,044 $— 
(1) Average of high and low price of common stock on the trading day prior to the vesting date of the shares of restricted stock.

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

During the quarter ended March 31, 2020, to enhance our liquidity position in response to COVID-19, management elected to temporarily suspend share repurchases under the 2019 Repurchase Program. The 2019 Repurchase Program remains authorized by the Board of Directors and the management has resumed share repurchases effective July 1, 2020, considering improved market conditions, our capital and liquidity needs and other factors.

ITEM 3.    Defaults Upon Senior Securities

None.

ITEM 4.    Mine Safety Disclosures
Not applicable.

ITEM 5.    Other Information
None.

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ITEM 6.    Exhibits

The following exhibits are being filed as part of this Quarterly Report on Form 10-Q:
3.1
3.2
3.3
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Scheme
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 6, 2020July 29, 2021EXLSERVICE HOLDINGS, INC.
By: 
/S/ MAURIZIO NICOLELLI
 MAURIZIO NICOLELLI
Chief Financial Officer
(Duly Authorized Signatory, Principal Financial and Accounting Officer)

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