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, ~~2020~~2021


☐			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 York

10022

(Address of principal executive offices)

(Zip code)

(212) 277-7100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:

Trading symbol(s)

Name of Each Exchange on Which Registered:

Common Stock, par value $0.001 per share

EXLS

NASDAQ

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and

(2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ~~34,176,255~~33,174,613 shares of the registrant’s common stock outstanding, par value $0.001 per share.

Table of Contents

TABLE OF CONTENTS


			PAGE					PAGE
ITEM	ITEM			ITEM
		Part I. Financial Information	3			Part I. Financial Information		3

1.	1.	FINANCIAL STATEMENTS		1.		FINANCIAL STATEMENTS (UNAUDITED)
		Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019	3			Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020		3
		Consolidated Statements of Income (Unaudited) for the Three and Six months ended June 30, 2020 and 2019	4			Consolidated Statements of Income for the Three and Six months ended June 30, 2021 and 2020		5
		Consolidated Statements of Comprehensive (Loss)/Income (Unaudited) for the Three and Six months ended June 30, 2020 and 2019	5			Consolidated Statements of Comprehensive Income/(Loss) for the Three and Six months ended June 30, 2021 and 2020		6
		Consolidated Statements of Equity (Unaudited) for the Three and Six months ended June 30, 2020 and 2019	6			Consolidated Statements of Equity for the Three and Six months ended June 30, 2021 and 2020		7
		Consolidated Statements of Cash Flows (Unaudited) for the Six months ended June 30, 2020 and 2019	8			Consolidated Statements of Cash Flows for the Six months ended June 30, 2021 and 2020		9
		Notes to Consolidated Financial Statements (Unaudited)	9			Notes to Consolidated Financial Statements		10

2.	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40	2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		41

3.	3.	Quantitative and Qualitative Disclosures About Market Risk	59	3.		Quantitative and Qualitative Disclosures About Market Risk		59

4.	4.	Controls and Procedures	59	4.		Controls and Procedures		59

		Part II. Other Information	59			Part II. Other Information		59

1.	1.	Legal Proceedings	59	1.		Legal Proceedings		59

1A.	1A.	Risk Factors	59	1A.		Risk Factors		59

2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	61	2.		Unregistered Sales of Equity Securities and Use of Proceeds		60

3.	3.	Defaults Upon Senior Securities	61	3.		Defaults Upon Senior Securities		60

4.	4.	Mine Safety Disclosures	61	4.		Mine Safety Disclosures		60

5.	5.	Other Information	61	5.		Other Information		60

6.	6.	Exhibits	61	6.		Exhibits		61

Signatures	Signatures				63		Signatures		62

Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share amounts)


		As of							As of
		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(Unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	163,619	$	119,165	Cash and cash equivalents	$	150,211	$	218,530
Short-term investments	Short-term investments	171,962		202,238		Short-term investments	144,533		184,286
Restricted cash	Restricted cash	4,858		5,453		Restricted cash	5,065		4,690
Accounts receivable, net	Accounts receivable, net	157,505		171,864		Accounts receivable, net	182,111		147,635
Prepaid expenses	Prepaid expenses	10,121		13,246		Prepaid expenses	12,060		11,344
Advance income tax, net	Advance income tax, net	1,003		4,698		Advance income tax, net	13,567		5,684
Other current assets	Other current assets	27,472		24,594		Other current assets	33,615		37,109
Total current assets	Total current assets	536,540		541,258		Total current assets	541,162		609,278
Property and equipment, net	Property and equipment, net	91,848		79,142		Property and equipment, net	86,511		92,875
Operating lease right-of-use assets	Operating lease right-of-use assets	96,789		86,396		Operating lease right-of-use assets	83,280		91,918
Restricted cash	Restricted cash	2,298		2,426		Restricted cash	2,260		2,299
Deferred tax assets, net	Deferred tax assets, net	17,070		11,855		Deferred tax assets, net	24,132		7,749
Intangible assets, net	Intangible assets, net	66,296		73,982		Intangible assets, net	52,853		59,594
Goodwill	Goodwill	348,110		349,529		Goodwill	348,747		349,088
Other assets	Other assets	31,599		36,016		Other assets	27,472		32,099
Investment in equity affiliate	Investment in equity affiliate	3,063		2,484		Investment in equity affiliate	2,929		2,957
Total assets	Total assets	$	1,193,613	$	1,183,088	Total assets	$	1,169,346	$	1,247,857
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	9,048	$	6,564	Accounts payable	$	3,877	$	6,992
Current portion of long-term borrowings	Current portion of long-term borrowings	20,657		40,867		Current portion of long-term borrowings	15,000		25,000
Deferred revenue	Deferred revenue	16,752		13,436		Deferred revenue	12,017		32,649
Accrued employee costs	Accrued employee costs	42,376		68,885		Accrued employee costs	70,496		67,645
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	74,772		74,017		Accrued expenses and other current liabilities	76,424		66,410
Current portion of operating lease liabilities	Current portion of operating lease liabilities	18,199		24,148		Current portion of operating lease liabilities	18,039		18,894
Income taxes payable, net	Income taxes payable, net	2,359		1,432		Income taxes payable, net	11,256		3,488
Total current liabilities	Total current liabilities	184,163		229,349		Total current liabilities	207,109		221,078
Long-term borrowings, less current portion	Long-term borrowings, less current portion	215,527		194,131		Long-term borrowings, less current portion	139,432		201,961
Operating lease liabilities, less current portion	Operating lease liabilities, less current portion	90,934		74,709		Operating lease liabilities, less current portion	76,518		84,874
Income taxes payable	Income taxes payable	1,790		1,790		Income taxes payable	1,790		1,790
Deferred tax liabilities, net	Deferred tax liabilities, net	705		966		Deferred tax liabilities, net	902		847
Other non-current liabilities	Other non-current liabilities	19,566		12,142		Other non-current liabilities	15,581		18,135
Total liabilities	Total liabilities	512,685		513,087		Total liabilities	441,332		528,685
Commitments and contingencies (Refer to Note 24)	Commitments and contingencies (Refer to Note 24)					Commitments and contingencies (Refer to Note 24)	0		0
Preferred 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	—		—		Preferred stock, $0.001 par value; 15,000,000 shares authorized, NaN issued	0		0
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, 2019		39		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, 2020						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, 2020	39		39
Additional paid-in capital	Additional paid-in capital	404,704		391,240		Additional paid-in capital	439,051		420,976
Retained earnings		582,743		551,903
Accumulated other comprehensive loss		(104,274)		(84,892)
Total including shares held in treasury		883,212		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’ equity		680,928		670,001

Total equity		680,928		670,001
Total liabilities and stockholders’ equity		$	1,193,613	$	1,183,088

Table of Contents


Retained earnings	701,331		641,379
Accumulated other comprehensive loss	(86,745)		(74,984)
Total including shares held in treasury	1,053,676		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’ equity	728,014		719,172

Total equity	728,014		719,172
Total liabilities and stockholders’ equity	$	1,169,346	$	1,247,857

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues, net	Revenues, 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 expenses	General and administrative expenses	28,750		31,228		57,691		63,759		General and administrative expenses	36,499		28,750		67,202		57,691
Selling and marketing expenses	Selling and marketing expenses	13,051		17,647		27,507		35,694		Selling and marketing expenses	19,724		13,051		37,959		27,507
Depreciation and amortization expense	Depreciation and amortization expense	12,405		12,752		24,855		26,419		Depreciation and amortization expense	12,310		12,405		24,411		24,855
Impairment and restructuring charges		—		5,580		—		6,807

Total operating expenses	Total operating expenses	54,206		67,207		110,053		132,679		Total operating expenses	68,533		54,206		129,572		110,053
Income from operations	Income from operations	9,866		13,856		37,353		30,717		Income from operations	35,830		9,866		77,385		37,353
Foreign exchange gain, net	Foreign exchange gain, net	1,359		1,202		2,736		2,462		Foreign exchange gain, net	1,353		1,359		1,787		2,736
Interest expense	Interest expense	(2,883)		(3,864)		(5,955)		(7,446)		Interest expense	(2,520)		(2,883)		(4,994)		(5,955)
Other income, net	Other income, net	4,225		4,102		6,754		8,525		Other income, net	2,215		4,225		3,625		6,754
Income before income tax expense and earnings from equity affiliates	Income before income tax expense and earnings from equity affiliates	12,567		15,296		40,888		34,258		Income before income tax expense and earnings from equity affiliates	36,878		12,567		77,803		40,888
Income tax expense	Income tax expense	4,072		2,670		9,927		6,870		Income tax expense	8,865		4,072		17,823		9,927
Income before earnings from equity affiliates	Income before earnings from equity affiliates	8,495		12,626		30,961		27,388		Income before earnings from equity affiliates	28,013		8,495		59,980		30,961
Loss from equity-method investment		66		62		121		129
Gain / (loss) from equity-method investment										Gain / (loss) from equity-method investment	8		(66)		(28)		(121)
Net income attributable to ExlService Holdings, Inc. stockholders	Net 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:
Basic	Basic	$	0.24	$	0.36	$	0.90	$	0.79	Basic	$	0.83	$	0.24	$	1.78	$	0.90
Diluted	Diluted	$	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:
Basic	Basic	34,486,202		34,451,671		34,443,884		34,413,455		Basic	33,571,074		34,486,202		33,652,146		34,443,884
Diluted	Diluted	34,597,688		34,702,547		34,659,146		34,768,203		Diluted	34,389,768		34,597,688		34,353,593		34,659,146

(1) Exclusive of depreciation and amortization expense.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income	Net 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 hedges	Unrealized gain/(loss) on cash flow hedges	7,721		3,268		(7,125)		9,205		Unrealized gain/(loss) on cash flow hedges	(871)		7,721		(303)		(7,125)
Loss on net investment hedges										Loss on net investment hedges	(1,134)		0		(1,134)		0
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 adjustments	Reclassification adjustments									Reclassification 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)/benefit~~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.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the three months ended June 30, ~~2020~~2021 and ~~2019~~2020

(In thousands, except share and per share amounts)


		Common Stock					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss	Treasury Stock								Total Equity	Common Stock				Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Loss				Treasury Stock					Total Equity
																														Common Stock									Treasury Stock			Total Equity
		Shares	Amount											Shares			Amount				Shares		Amount										Shares								Amount
Balance as of March 31, 2020		38,813,775	$	39	$	396,939	$	574,314	$	(113,104)	(4,497,779)	$	(202,284)		$	655,904
Balance as of March 31, 2021																	Balance as of March 31, 2021	39,273,989	$	39	$	428,882	$	673,310			$	(78,753)		(5,747,100)			$	(297,253)			$	726,225
Stock issued against stock-based compensation plans	Stock issued against stock-based compensation plans	4,590	—		39		—		—		—	—			39		Stock issued against stock-based compensation plans	9,864	—		99		—		—				—		—				99
Stock-based compensation	Stock-based compensation	—	—		7,726		—		—		—	—			7,726		Stock-based compensation	—	—		10,070		—		—				—		—				10,070
Acquisition of treasury stock	Acquisition of treasury stock	—	—		—		—		—		—	—			—		Acquisition of treasury stock	—	—		—		—		—				(287,044)		(28,409)				(28,409)
Other comprehensive income		—	—		—		—		8,830		—	—			8,830
Other comprehensive loss																	Other comprehensive loss	—	—		—		—		(7,992)				—		—				(7,992)
Net income	Net income	—	—		—		8,429		—		—	—			8,429		Net income	—	—		—		28,021		—				—		—				28,021
Balance as of June 30, 2020		38,818,365	$	39	$	404,704	$	582,743	$	(104,274)	(4,497,779)	$	(202,284)		$	680,928
Balance as of June 30, 2021																	Balance as of June 30, 2021	39,283,853	$	39	$	439,051	$	701,331	$	(86,745)			(6,034,144)		$	(325,662)			$	728,014


		Common Stock					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss	Treasury Stock										Non - Controlling Interest		Total Equity	Common Stock						Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Stock					Total Equity
																																			Common Stock			Retained Earnings					Accumulated Other Comprehensive Loss		Treasury Stock	Total Equity
		Shares	Amount											Shares			Amount										Shares			Amount			Additional Paid-in Capital								Shares
Balance as of March 31, 2019		38,256,036	$	38	$	371,144	$	498,939	$	(77,212)	(3,890,599)	$	(162,333)		$	259		$	630,835
Balance as of March 31, 2020																				Balance as of March 31, 2020	38,813,775		$	39	$	396,939		$	574,314		$	(113,104)		(4,497,779)		$	(202,284)				$	655,904
Stock issued against stock-based compensation plans	Stock issued against stock-based compensation plans	39,047	—		316		—		—		—	—			—			316		Stock issued against stock-based compensation plans	4,590		—		39			—			—				—			—			39
Stock-based compensation	Stock-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 income	Other comprehensive income	—	—		—		—		2,854		—	—			—			2,854		Other comprehensive income	—		—		—			—			8,830			—		—			8,830
Net income	Net income	—	—		—		12,564		—		—	—			—			12,564		Net income	—		—		—			8,429			—			—		—			8,429
Balance as of June 30, 2019		38,295,083	$	38	$	378,633	$	511,503	$	(74,358)	(4,088,759)	$	(174,463)		$	—		$	641,353
Balance as of June 30, 2020																				Balance as of June 30, 2020	38,818,365		$	39	$	404,704		$	582,743		$	(104,274)		(4,497,779)		$	(202,284)		$	680,928

Table of Contents

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the six months ended June 30, ~~2020~~2021 and ~~2019~~2020

(In thousands, except share and per share amounts)


		Common Stock					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss	Treasury Stock									Total Equity		Common Stock									Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock						Total Equity
																															Common Stock					Accumulated Other Comprehensive Loss								Treasury Stock				Total Equity
		Shares	Amount											Shares	Amount									Shares				Amount											Shares		Amount				Total Equity
Balance as of January 1, 2020		38,480,654	$	39	$	391,240	$	551,903	$	(84,892)	(4,295,413)	$	(188,289)			$	670,001
Balance as of January 1, 2021																		Balance as of January 1, 2021	38,968,052	$		39			$	420,976			$	641,379							$	(74,984)		(5,408,618)		$	(268,238)			$	719,172
Stock issued against stock-based compensation plans	Stock issued against stock-based compensation plans	337,711	—		960		—		—		—	—				960		Stock issued against stock-based compensation plans	315,801	—			173				—					—			—			—					173
Stock-based compensation	Stock-based compensation	—	—		12,504		—		—		—	—				12,504		Stock-based compensation	—	—			17,902				—					—			—			—					17,902
Acquisition of treasury stock	Acquisition of treasury stock	—	—		—		—		—		(202,366)	(13,995)				(13,995)		Acquisition of treasury stock	—	—			—				—					—		(625,526)			(57,424)					(57,424)
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(19,382)		—	—				(19,382)		Other comprehensive loss	—	—			—				—					(11,761)		—			—					(11,761)
Net income	Net income	—	—		—		30,840		—		—	—				30,840		Net income	—	—			—				59,952					—		—			—					59,952
Balance as of June 30, 2020		38,818,365	$	39	$	404,704	$	582,743	$	(104,274)	(4,497,779)	$	(202,284)			$	680,928
Balance as of June 30, 2021																		Balance as of June 30, 2021	39,283,853	$	39		$	439,051			$	701,331				$	(86,745)	(6,034,144)			$	(325,662)				$	728,014

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss)/Income Treasury Stock Non - Controlling Interest Total Equity
Shares Amount Shares Amount
Balance as of January 1, 2019 37,850,544 $ 38 $ 364,179 $ 484,244 $ (83,467) (3,628,068) $ (146,925) $ 250 $ 618,319
Stock issued against stock-based compensation plans 444,539 — 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, 2019 38,295,083 $ 38 $ 378,633 $ 511,503 $ (74,358) (4,088,759) $ (174,463) $ — $ 641,353


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

	Shares	Amount								Shares	Amount
Balance as of January 1, 2020	38,480,654	$	39	$	391,240	$	551,903	$	(84,892)	(4,295,413)	$	(188,289)	$	670,001
Stock issued against stock-based compensation plans	337,711	—		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, 2020	38,818,365	$	39	$	404,704	$	582,743	$	(104,274)	(4,497,779)	$	(202,284)	$	680,928

~~See accompanying notes to unaudited consolidated financial statements.~~

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~(In thousands)~~

Six months ended June 30,
2020 2019
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 expense 24,806 26,532
Stock-based compensation expense 12,504 14,111
Amortization of operating lease right-of-use assets 13,703 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 losses 389 281
Loss from equity-method investment 121 129
Amortization of non-cash interest expense related to convertible senior notes 1,289 1,218
Impairment charges — 3,167
Others, net (1,204) 961
Change in operating assets and liabilities:
Accounts receivable 12,380 (16,478)
Prepaid expenses and other current assets (1,091) (2,033)
Advance income tax, net 4,446 1,345
Other assets 3,046 126
Accounts payable 1,943 (2,114)
Deferred revenue 3,066 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 activities 58,907 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 investments 72,844 91,669
Net cash provided by investing activities 1,066 953
Cash flows from financing activities:
Principal payments of finance lease liabilities (124) (207)
Proceeds from borrowings 110,000 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 options 960 338
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 cash 43,731 (12,684)
Cash, cash equivalents and restricted cash at the beginning of the period 127,044 104,131
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,
	2021		2020
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 expense	24,734		24,806
Stock-based compensation expense	17,902		12,504
Amortization of operating lease right-of-use assets	13,632		13,703
Unrealized loss / (gain) on short term investments	6,777		(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 investment	28		121
Amortization of non-cash interest expense related to convertible senior notes	1,364		1,289

Others, net	144		(1,204)
Change in operating assets and liabilities:
Accounts receivable	(34,152)		12,380
Prepaid expenses and other current assets	189		(906)
Advance income tax, net	39		4,446
Other assets	1,589		3,046
Accounts payable	(2,458)		1,943
Deferred revenue	(20,832)		3,066
Accrued employee costs	3,833		(23,497)
Accrued expenses and other liabilities	12,290		(4,305)
Operating lease liabilities	(13,327)		(12,831)
Net cash provided by operating activities	53,943		58,907

Cash flows from investing activities:
Purchases of property and equipment	(19,903)		(22,351)
Proceeds from sale of property and equipment	527		300
Investment in equity affiliate	0		(700)

Purchase of investments	(32,987)		(49,027)
Proceeds from redemption of investments	64,031		72,844
Net cash provided by investing activities	11,668		1,066

Cash flows from financing activities:
Principal payments of finance lease liabilities	(107)		(124)
Proceeds from borrowings	25,000		110,000
Repayments of borrowings	(99,000)		(110,210)

Acquisition of treasury stock	(57,424)		(13,995)
Proceeds from exercise of stock options	174		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 period	225,519		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.

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, ~~2020~~2021

(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 ~~those~~consolidated 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.

~~Table of Contents~~

~~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,

Table of Contents

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 unaudited~~Company’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

~~Table of Contents~~

~~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 basis~~Simplifying 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 allowance~~deferred 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 of~~this 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 effect~~has 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 - Goodwill~~Codification 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"): This~~other minor improvements. The amendments in this ASU ~~aligns~~improve the ~~requirements~~consistency 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 that~~the notes to financial statements is ~~a service contract to follow~~codified in the ~~guidance in FASB Accounting Standard Codification Subtopic 350-40~~disclosure 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 ~~any~~a material ~~effect~~impact 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

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(In thousands, except share and per share amounts)

~~In April 2019, FASB issued ASU No. 2019-04,~~ ~~Codification Improvements~~that includes or is subsequent to ~~Financial Instruments-Credit Losses~~ ~~(Topic 326),~~ ~~Derivatives~~March 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 related~~prospectively 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 ~~any~~a material ~~effect~~impact 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.

~~Table of Contents~~

~~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, ~~2020~~2021 and ~~2019,~~2020, respectively, for each of the reportable segments, are as follows:


		Three months ended June 30, 2020																											Three months ended June 30, 2021
				Insurance			Healthcare			Emerging Business			Analytics			Total			Insurance			Healthcare			Emerging Business			Analytics			Total
																																Insurance	Healthcare	Emerging Business	Analytics	Total
Revenues, net	Revenues, 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 expenses	Operating expenses													54,206		Operating expenses													68,533
Foreign exchange gain, interest expense and other income, net	Foreign exchange gain, interest expense and other income, net													2,701		Foreign exchange gain, interest expense and other income, net													1,048
Income tax expense	Income tax expense													4,072		Income tax expense													8,865
Loss from equity-method investment														66
Gain from equity-method investment																Gain from equity-method investment													8
Net income	Net income													$	8,429	Net income													$	28,021

⁽¹⁾ Exclusive of depreciation and amortization expense.


		Three months ended June 30, 2019																											Three months ended June 30, 2020
				Insurance			Healthcare			Emerging Business			Analytics			Total			Insurance			Healthcare			Emerging Business			Analytics			Total
																																Insurance	Healthcare	Emerging Business	Analytics	Total
Revenues, net	Revenues, 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 expenses	Operating expenses													67,207		Operating expenses													54,206
Foreign exchange gain, interest expense and other income, net	Foreign exchange gain, interest expense and other income, net													1,440		Foreign exchange gain, interest expense and other income, net													2,701
Income tax expense	Income tax expense													2,670		Income tax expense													4,072
Loss from equity-method investment	Loss from equity-method investment													62		Loss from equity-method investment													66
Net income	Net income													$	12,564	Net income													$	8,429

¹²

Table of Contents

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
	Insurance		Healthcare		Emerging Business		Analytics		Total

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 expenses									129,572
Foreign exchange gain, interest expense and other income, net									418
Income tax expense									17,823
Loss from equity-method investment									28
Net income									$	59,952

(1) Exclusive of depreciation and amortization expense.


	Six months ended June 30, 2020
	Insurance		Healthcare		Emerging Business		Analytics		Total

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 expenses									110,053
Foreign exchange gain, interest expense and other income, net									3,535
Income tax expense									9,927
Loss from equity-method investment									121
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,
	2021		2020		2021		2020
BPM and related services(1)	$	163,659	$	140,794	$	322,752	$	294,353
Analytics services	111,405		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.

Table of Contents

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
Insurance Healthcare Emerging Business Analytics Total
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 expenses 110,053
Foreign exchange gain, interest expense and other income, net 3,535
Income tax expense 9,927
Loss from equity-method investment 121
Net income $ 30,840

⁽¹⁾ ~~Exclusive of depreciation and amortization expense.~~

Six months ended June 30, 2019
Insurance Healthcare Emerging Business Analytics Total
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 expenses 132,679
Foreign exchange gain, interest expense and other income, net 3,541
Income tax expense 6,870
Loss from equity-method investment 129
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,
2020 2019 2020 2019
BPM and related services⁽¹⁾
$ 140,794 $ 155,638 $ 294,353 $ 308,250
Analytics services 81,679 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.~~

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~June 30, 2020~~2021

(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,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues, net	Revenues, net									Revenues, net
United States	United States	$	189,032	$	197,901	$	396,912	$	394,005	United States	$	235,288	$	189,032	$	459,656	$	396,912
Non-United States	Non-United States									Non-United States
United Kingdom	United Kingdom	18,830		30,155		42,108		59,256		United Kingdom	26,175		18,830		50,926		42,108
Rest of World	Rest of World	14,611		15,453		29,443		29,821		Rest of World	13,601		14,611		25,897		29,443
Total Non-United States	Total Non-United States	33,441		45,608		71,551		89,077		Total Non-United States	39,776		33,441		76,823		71,551
Revenues, net	Revenues, 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 of							As of
		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Long-lived assets	Long-lived assets					Long-lived assets
India	India	$	101,073	$	78,244	India	$	87,234	$	97,261
United States	United States	50,121		52,375		United States	46,965		46,659
Philippines	Philippines	28,558		26,006		Philippines	25,635		29,434
Rest of World	Rest of World	8,885		8,913		Rest of World	9,957		11,439
Long-lived assets	Long-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 of							June 30, 2021		December 31, 2020
		June 30, 2020		December 31, 2019
Accounts receivable, net	Accounts receivable, net	$	157,505	$	171,864	Accounts receivable, net	$	182,111	$	147,635
Contract assets	Contract assets	$	5,074	$	5,391	Contract assets	$	3,547	$	4,437
Contract liabilities	Contract liabilities					Contract 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 activities	Consideration 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, ~~2020~~2021 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.

~~Table of Contents~~

~~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

Table of Contents

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, ~~2020~~2021 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,
2020 2019 2020 2019
Revenue recognized $ 2,226 $ 1,450 $ 8,194 $ 4,226


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
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 ended Six months ended Year ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 December 31, 2019
(Audited)
Opening Balance $ 1,215 $ 513 $ 1,307 $ 713 $ 713
Addition 187 — 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 ended				Six months ended				Year ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		December 31, 2020

Opening Balance	$	785	$	1,215	$	1,027	$	1,307	$	1,307
Additions	374		187		374		187		310
Amortization	(292)		(132)		(534)		(224)		(590)
Closing Balance	$	867	$	1,270	$	867	$	1,270	$	1,027


		Contract Fulfillment Costs																			Contract Fulfillment Costs
		Three months ended						Six months ended								Year ended	Three months ended				Six months ended		Year ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		December 31, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		December 31, 2020
										(Audited)
Opening Balance	Opening Balance	$	6,916	$	4,472	$	7,255	$	4,051	$	4,051	Opening Balance	$	4,419	$	6,916	$	5,631	$	7,255	$	7,255
Addition		363		1,441		647		2,167		4,652
Additions												Additions	158		363		164		647		779
Amortization	Amortization	(499)		(305)		(1,122)		(610)		(1,448)		Amortization	(883)		(499)		(2,101)		(1,122)		(2,403)
Closing Balance	Closing 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, ~~2020~~2021 and December 31, ~~2019.~~2020. The capitalized costs are amortized ~~on a straight line basis~~ over the ~~life~~expected period of benefit of the contract.

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(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 of							As of
		June 30, 2020		January 1, 2020			June 30, 2021		December 31, 2020
Accounts receivable, including unbilled receivables	Accounts 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 loss						Less: Allowance for expected credit loss	(730)		(1,189)
Accounts receivable, net	Accounts 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, ~~2020~~2021 and ~~2019~~2020 and year ended December 31, ~~2019~~2020 was as follows:


		Three months ended						Six months ended								Year ended	Three months ended				Six months ended		Year ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		December 31, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		December 31, 2020
Balance at the beginning of the period	Balance 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, net		186		(33)		381		265		354
Additions / (Reductions) during the period												Additions / (Reductions) during the period	(445)		186		(395)		381		300
Charged against allowance	Charged against allowance	(100)		(53)		(100)		(54)		(156)		Charged against allowance	(13)		(100)		(73)		(100)		(269)
Translation adjustment, if any		2		(1)		(10)		1		9
Translation adjustment												Translation adjustment	5		2		9		(10)		(5)
Balance at the end of the period	Balance 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.

1716

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(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,
		2020		2019		2020		2019			2021		2020		2021		2020
Numerators:	Numerators:									Numerators:
Net income	Net 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 outstanding	Basic weighted average common shares outstanding	34,486,202		34,451,671		34,443,884		34,413,455		Basic weighted average common shares outstanding	33,571,074		34,486,202		33,652,146		34,443,884
Dilutive effect of share-based awards	Dilutive effect of share-based awards	111,486		250,876		215,262		354,748		Dilutive effect of share-based awards	330,063		111,486		336,528		215,262
Dilutive effect of conversion premium on convertible notes										Dilutive effect of conversion premium on convertible notes	488,631		0		364,919		0
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	34,597,688		34,702,547		34,659,146		34,768,203		Diluted weighted average common shares outstanding	34,389,768		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:
Basic	Basic	$	0.24	$	0.36	$	0.90	$	0.79	Basic	$	0.83	$	0.24	$	1.78	$	0.90
Diluted	Diluted	$	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 share	Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share	638,318		69		404,315		212,751		Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share	1,748		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, 2020		June 30, 2019			June 30, 2021		June 30, 2020		December 31, 2020
Cash and cash equivalents	Cash 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 cash	Cash, 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,
		2020		2019		2020		2019			2021		2020		2021		2020
Gain on sale and mark-to-market of mutual funds, net		$	3,109	$	3,318	$	5,166	$	6,844
Interest income		632		697		1,164		1,493
Gain on sale and mark-to-market of mutual funds										Gain on sale and mark-to-market of mutual funds	$	1,655	$	3,109	$	2,758	$	5,166
Interest and dividend income										Interest and dividend income	689		632		1,291		1,164
Others, net	Others, net	484		87		424		188		Others, net	(129)		484		(424)		424
Other income, net	Other income, net	$	4,225	$	4,102	$	6,754	$	8,525	Other income, net	$	2,215	$	4,225	$	3,625	$	6,754

1817

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(In thousands, except share and per share amounts)

8. Property and Equipment, net

Property and equipment, net consists of the following:


		Estimated useful lives	As of						Estimated useful lives		As of
		(Years)	June 30, 2020		December 31, 2019			(Years)	June 30, 2021		December 31, 2020
Owned Assets:	Owned Assets:						Owned Assets:
Network equipment and computers	Network equipment and computers	3-5	$	96,759	$	98,309	Network equipment and computers	3-5	$	110,321	$	107,016
Software	Software	3-5	90,746		79,746		Software	3-5	99,187		99,708
Leasehold improvements	Leasehold improvements	3-8	44,328		44,982		Leasehold improvements	3-8	42,547		48,052
Office furniture and equipment	Office furniture and equipment	3-8	20,675		22,046		Office furniture and equipment	3-8	20,276		22,210
Motor vehicles	Motor vehicles	2-5	578		601		Motor vehicles	2-5	619		599
Buildings	Buildings	30	1,053		1,114		Buildings	30	1,070		1,089
Land	Land	—	689		729		Land	—	700		712
Capital work in progress	Capital work in progress	—	10,784		10,309		Capital work in progress	—	5,766		4,647
			265,612		257,836				280,486		284,033
Less: Accumulated depreciation and amortization	Less: 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 computers							Network equipment and computers		$	91	$	93
Leasehold improvements	Leasehold improvements		$	644	$	738	Leasehold improvements		1,126		817
Office furniture and equipment	Office furniture and equipment		210		308		Office furniture and equipment		725		255
Motor vehicles	Motor vehicles		710		711		Motor vehicles		656		688
			1,564		1,757				2,598		1,853
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization		(995)		(1,120)		Less: Accumulated depreciation and amortization		(2,196)		(1,382)
			$	569	$	637			$	402	$	471
Property and equipment, net	Property 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,
2020 2019 2020 2019
Depreciation and amortization expense $ 8,975 $ 7,198 $ 17,271 $ 15,337


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
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,
2020 2019 2020 2019
Effect of foreign exchange (loss)/gain $ (71) $ 56 $ (49) $ 113


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Effect of foreign exchange gain/(loss)	$	158	$	(71)	$	323	$	(49)

1918

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(In thousands, except share and per share amounts)

Internally developed software costs, included under Software, was as follows:


		As of							As of
		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Cost	Cost	$	14,891	$	15,784	Cost	$	18,827	$	18,371
Less : Accumulated amortization	Less : Accumulated amortization	(4,477)		(4,989)		Less : Accumulated amortization	(8,070)		(5,998)
Internally developed software, net	Internally 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,
2020 2019 2020 2019
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,
	2021		2020		2021		2020
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.

2019

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(In thousands, except share and per share amounts)

The following table sets forth details of changes in goodwill by reportable segment of the Company:

Insurance Healthcare Emerging Business TT&L F&A All Other Analytics Total
Balance at January 1, 2019 $ 38,203 $ 19,276 $ — $ 12,697 $ 47,193 $ 5,326 $ 227,289 $ 349,984
Currency translation adjustments 73 — — (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


	Insurance		Healthcare		Emerging Business		Analytics		Total



Balance at January 1, 2021	$	50,499	$	21,953	$	49,348	$	227,288	$	349,088

Currency translation adjustments	37		0		(377)		(1)		(341)
Balance at June 30, 2021	$	50,536	$	21,953	$	48,971	$	227,287	$	348,747

⁽¹⁾ ~~Represents~~During the ~~reallocation~~fourth 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 goodwill~~its annual impairment test of goodwill for ~~its~~those 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 ~~value~~values of each of the Company’s reporting units exceeded their carrying value and the ~~Company’s~~ goodwill was not impaired.

~~During the second quarter~~As 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 ~~certain~~continued 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.

~~Table of Contents~~

~~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 technology 23,348 (9,511) 13,837
Trade names and trademarks 5,100 (3,261) 1,839
$ 101,608 $ (36,212) $ 65,396
Indefinite-lived intangible assets:
Trade names and trademarks 900 — 900
Total intangible assets $ 102,508 $ (36,212) $ 66,296

Table of Contents

As of December 31, 2019
Gross Carrying Amount Accumulated Amortization Net Carrying
Amount
Finite-lived intangible assets:
Customer relationships $ 97,602 $ (43,330) $ 54,272
Developed technology 26,976 (10,687) 16,289
Trade names and trademarks 5,100 (2,579) 2,521
$ 129,678 $ (56,596) $ 73,082
Indefinite-lived intangible assets:
Trade names and trademarks 900 — 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 technology	23,533		(14,123)		9,410
Trade names and trademarks	5,100		(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 Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	73,357	$	(27,464)	$	45,893
Developed technology	23,510		(11,858)		11,652
Trade names and trademarks	5,100		(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 ~~for~~recognized in the ~~period is~~unaudited consolidated statements of income was as follows:

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Amortization expense $ 3,430 $ 5,554 $ 7,584 $ 11,082


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Amortization expense	$	3,397	$	3,430	$	6,758	$	7,584

The remaining weighted average life of intangible assets is as follows:


			(in years)
Customer relationships			~~7.33~~6.5
Developed technology			~~3.17~~2.3
Trade names and trademarks (Finite lived)			~~2.09~~3.3


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
2022	11,347
2023	9,054
2024	6,712
2025	5,960
2026 and thereafter	12,862
Total	$	51,953

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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, 2021		December 31, 2020
Derivative instruments	$	7,560	$	9,755
Advances to suppliers	2,672		3,906
Receivables from statutory authorities	16,040		15,658
Contract assets	1,742		1,814
Deferred contract fulfillment costs	1,935		2,888
Interest accrued on term deposits	453		169
Others	3,213		2,919
Other current assets	$	33,615	$	37,109

11. Other Assets

Other assets consist of the following:


	As of
	June 30, 2021		December 31, 2020
Lease deposits	$	9,721	$	9,788
Derivative instruments	4,631		6,933
Deposits with statutory authorities	6,255		6,341
Term deposits	180		216
Contract assets	1,805		2,623
Deferred contract fulfillment costs	1,759		2,743
Others	3,121		3,455
Other assets	$	27,472	$	32,099

Table of Contents

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
2021 12,730
2022 11,325
2023 9,036
2024 6,694
2025 and thereafter 18,789
Total $ 65,396

~~10. Other Current Assets~~

~~Other current assets consist of the following:~~

As of
June 30, 2020 December 31, 2019
Derivative instruments $ 4,128 $ 4,076
Advances to suppliers 1,837 1,581
Receivables from statutory authorities 13,827 12,608
Contract assets 1,744 1,414
Deferred contract fulfillment costs 2,208 1,673
Interest accrued on fixed deposits 344 439
Others 3,384 2,803
Other current assets $ 27,472 $ 24,594

~~11. Other Assets~~

~~Other assets consist of the following:~~

As of
June 30, 2020 December 31, 2019
Lease deposits $ 9,738 $ 9,983
Derivative instruments 1,734 3,433
Deposits with statutory authorities 7,423 7,540
Term deposits 1,829 1,983
Contract assets 3,330 3,977
Deferred contract fulfillment costs 4,572 5,582
Others 2,973 3,518
Other assets $ 31,599 $ 36,016

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~June 30, 2020~~2021

(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 of							As of
		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Accrued expenses	Accrued expenses	$	41,724	$	50,097	Accrued expenses	$	42,169	$	39,951
Payable to statutory authorities	Payable to statutory authorities	9,360		9,247		Payable to statutory authorities	17,850		10,594
Accrued capital expenditure		9,043		3,035
Accrued capital expenditures						Accrued capital expenditures	4,921		7,857
Derivative instruments	Derivative instruments	4,749		1,783		Derivative instruments	681		435
Client liabilities	Client liabilities	5,070		6,378		Client liabilities	5,131		4,740
Interest payable	Interest payable	1,416		1,492		Interest payable	1,398		1,399
Other current liabilities	Other current liabilities	3,157		1,732		Other current liabilities	4,080		1,205
Finance lease liabilities	Finance lease liabilities	253		253		Finance lease liabilities	194		229
Accrued expenses and other current liabilities	Accrued 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 of							As of
		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Derivative instruments	Derivative instruments	$	3,496	$	1,250	Derivative instruments	$	1,052	$	29
Unrecognized tax benefits	Unrecognized tax benefits	1,047		1,047		Unrecognized tax benefits	907		907
Retirement benefits	Retirement benefits	6,803		6,517		Retirement benefits	9,332		8,940
Deferred transition revenue	Deferred transition revenue	1,586		1,911		Deferred transition revenue	724		924
Accrued capital expenditure		3,373		—
Others		2,904		987
Accrued capital expenditures						Accrued capital expenditures	0		3,486
Other liabilities						Other liabilities	3,311		3,568
Finance lease liabilities	Finance lease liabilities	357		430		Finance lease liabilities	255		281
Other non-current liabilities	Other 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. ~~Changes~~Cumulative changes in the fair values of these foreign currency exchange contracts are recognized in ~~AOCI~~AOCL on the Company's unaudited consolidated balance ~~sheets until the~~sheets. 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, ~~2020~~2021 and ~~December 31, 2019~~June 30, 2020 are as follows:

As of
June 30, 2020 December 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.

2423

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(In thousands, except share and per share amounts)


	Foreign currency translation (loss)/gain		Unrealized gain/(loss) on cash flow hedges		Retirement benefits		Total
Balance as of January 1, 2021	$	(86,185)	$	13,799	$	(2,598)	$	(74,984)
Losses recognized during the period	(6,686)		(303)		0		(6,989)
Losses on net investment hedges	(1,134)		0		0		(1,134)
Reclassification to net income (1)	0		(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)		0		(26,423)
Reclassification to net income (1)	0		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, ~~2020~~2021 and December 31, ~~2019.~~2020.

As of June 30, 2020 Level 1 Level 2 Level 3 Total
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, 2019 Level 1 Level 2 Level 3 Total
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

Table of Contents

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, 2021	Level 1		Level 2		Level 3		Total
Assets
Mutual funds*	$	96,481	$	0	$	0	$	96,481
Derivative financial instruments	0		12,191		0		12,191
Total	$	96,481	$	12,191	$	0	$	108,672
Liabilities
Derivative financial instruments	$	0	$	1,733	$	0	$	1,733
Total	$	0	$	1,733	$	0	$	1,733

	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
As of December 31, 2020	Level 1		Level 2		Level 3		Total
Assets
Mutual funds*	$	160,441	$	0	$	0	$	160,441
Derivative financial instruments	0		16,688		0		16,688
Total	$	160,441	$	16,688	$	0	$	177,129
Liabilities
Derivative financial instruments	$	0	$	464	$	0	$	464
Total	$	0	$	464	$	0	$	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 ~~investment~~investments 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.

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(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, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$141,023~~$156,121 and ~~$149,934,~~$152,384, respectively. The fair value was determined based on the market yields for similar ~~Notes~~convertible notes as of the June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The Company considers the fair value of the ~~Notes~~convertible 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, ~~2020~~2021 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

~~Table of Contents~~

~~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 ~~9,487~~6,928, EUR 1,425 and ~~EUR 1,453~~COP 8,172,868 as of June 30, ~~2020~~2021 and ~~$124,045,~~USD 143,394, GBP ~~10,843~~6,753, EUR 2,447 and ~~EUR 1,289~~COP 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 contracts June 30, 2020 December 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 contracts June 30, 2020 December 31, 2019
Other current assets $ 58 $ 131
Accrued expenses and other current liabilities $ 118 $ 259

Table of Contents

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 contracts	June 30, 2021		December 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 contracts	June 30, 2021		December 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, ~~2020~~2021 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:	2020		2019		2020		2019		Forward Exchange Contracts:	2021		2020		2021		2020
Unrealized gain/(loss) recognized in AOCI
Unrealized gain/(loss) recognized in AOCL										Unrealized gain/(loss) recognized in AOCL
Derivatives in cash flow hedging relationships	Derivatives 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 income	Gain/(loss) recognized in consolidated statements of income									Gain/(loss) recognized in consolidated statements of income
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments	$	3,204	$	2,923	$	(1,011)	$	4,319	Derivatives not designated as hedging instruments	$	(805)	$	1,897	$	(589)	$	(943)

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(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 instruments	Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments																	Location 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,
		2020						2019							2021				2020
		As per unaudited consolidated statements of income		(Loss)/Gain on foreign currency exchange contracts		As per unaudited consolidated statements of income		Gain on foreign currency exchange contracts			As 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 relationships	Cash flow hedging relationships									Cash 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 AOCL										Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCL

Cost of revenues	Cost of revenues	$	158,401	$	(851)	$	162,446	$	719	Cost of revenues	$	170,701	$	2,418	$	158,401	$	(851)
General and administrative expenses	General 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 expenses										Selling and marketing expenses	$	19,724	15		$	13,051	(9)
Depreciation and amortization expense										Depreciation and amortization expense	$	12,310	139		$	12,405	(80)
Total before tax										Total before tax			2,866				(1,127)
Income tax benefit/(expense) relating to above										Income tax benefit/(expense) relating to above			(427)				124
Net of tax										Net of tax			$	2,439			$	(1,003)

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognized	Location in unaudited consolidated statements of income where gain/(loss) was recognized									Location 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), net										Foreign 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, ~~2020~~2021

(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 instruments	Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments																	Location 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,
		2020						2019							2021				2020
		As per unaudited consolidated statements of income		Loss on foreign currency exchange contracts		As per unaudited consolidated statements of income		Gain on foreign currency exchange contracts			As 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 relationships	Cash flow hedging relationships									Cash 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 AOCL										Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCL

Cost of revenues	Cost of revenues	$	321,057	$	(39)	$	319,686	$	1,250	Cost of revenues	$	329,522	$	4,842	$	321,057	$	(39)
General and administrative expenses	General 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 expenses										Selling and marketing expenses	$	37,959	28		$	27,507	(5)
Depreciation and amortization expense										Depreciation and amortization expense	$	24,411	279		$	24,855	(40)
Total before tax										Total before tax			5,695				(198)
Income tax benefit/(expense) relating to above										Income tax benefit/(expense) relating to above			(816)				22
Net of tax										Net of tax			$	4,879			$	(176)

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognized	Location in unaudited consolidated statements of income where gain/(loss) was recognized									Location 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), net										Foreign 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 AOCL				Amount of loss recognized in AOCL
Net investment hedging relationships	2021		2020		2021		2020
Foreign exchange contracts	$	1,134	$	0	$	1,134	$	0

~~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 Facility Structured Payables Notes Total
Current portion of long-term borrowings $ 20,000 $ 657 $ — $ 20,657
Long-term borrowings 79,000 — 150,000 229,000
Unamortized debt discount — — (12,562) (12,562)
Unamortized debt issuance costs* — — (911) (911)
Long-term borrowings 79,000 — 136,527 215,527
Total borrowings $ 99,000 $ 657 $ 136,527 $ 236,184

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(In thousands, except share and per share amounts)

As of December 31, 2019
Revolver Credit Facility Structured Payables Notes Total
Current portion of long-term borrowings $ 40,000 $ 867 $ — $ 40,867
Long-term borrowings 59,000 — 150,000 209,000
Unamortized debt discount — — (13,851) (13,851)
Unamortized debt issuance costs* — — (1,018) (1,018)
Long-term borrowings 59,000 — 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 Facility		Notes		Total
Current portion of long-term borrowings	$	15,000	$	0	$	15,000

Long-term borrowings	$	0	$	150,000	$	150,000
Unamortized debt discount	0		(9,871)		(9,871)
Unamortized debt issuance costs*	0		(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 Facility		Notes		Total
Current portion of long-term borrowings	$	25,000	$	0	$	25,000

Long-term borrowings	$	64,000	$	150,000	$	214,000
Unamortized debt discount	0		(11,235)		(11,235)
Unamortized debt issuance costs*	0		(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 ~~revolver~~revolving Credit Facility of ~~$619~~$361 and ~~$748~~$490 as of June 30, ~~2020~~2021 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,
2020 2019 2020 2019
Effective interest rate 2.2 % 4.2 % 2.6 % 4.0 %


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Effective Interest Rate	1.8	%	2.2	%	1.9	%	2.6	%

As of June 30, ~~2020~~2021 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,
	2021		2020		2021		2020
Effective Interest Rate	3.7	%	3.7	%	3.7	%	3.7	%

~~Table of Contents~~

~~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, ~~2020~~2021 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,
2020 2019 2020 2019
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,
	2021		2020		2021		2020
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, ~~2020~~2021 were as follows:


		Notes		Revolver Credit Facility		Structured Payables		Total			Notes		Revolving Credit Facility		Total
2020 (July - December)		$	—	$	20,000	$	657	$	20,657
2021		—		20,000		—		20,000
2021 (July - December)										2021 (July - December)	$	0	$	15,000	$	15,000
2022	2022	—		59,000		—		59,000		2022	0		0		0
2023	2023	—		—		—		—		2023	0		0		0
2024	2024	150,000		—		—		150,000		2024	150,000		0		150,000
Total	Total	$	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, ~~2020~~2021 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 repurchased Total 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, 2020 26,601 $ 2,012 $ 75.63
Six months ended June 30, 2019 22,666 $ 1,408 $ 62.11

Table of Contents

^{EXLSERVICE HOLDINGS, INC.}

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)


	Shares repurchased	Total consideration		Weighted average purchase price per share (1)
Three months ended June 30, 2021	0	$	0	$	0
Three months ended June 30, 2020	0	$	0	$	0

Six months ended June 30, 2021	25,450	$	2,015	$	79.18
Six months ended June 30, 2020	26,601	$	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 repurchased	Total consideration		Weighted average purchase price per share (1)
Three months ended June 30, 2021	287,044	$	28,409	$	98.97
Three months ended June 30, 2020	0	$	0	$	0

Six months ended June 30, 2021	600,076	$	55,409	$	92.34
Six months ended June 30, 2020	175,765	$	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

~~Table of Contents~~

~~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 repurchased Total consideration Weighted average purchase price per share
Three months ended June 30, 2020 — $ — $ —
Three months ended June 30, 2019 198,160 $ 12,130 $ 61.21
Six months ended June 30, 2020 175,765 $ 11,983 $ 68.18
Six months ended June 30, 2019 438,025 $ 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 ~~Plans~~Plan in India ~~("Gratuity~~(the "India Plan") ~~provide~~provides for a lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee’s salary and years of employment with the Company. Liabilities with regard to the Gratuity Plans are determined by actuarial valuation using the projected unit credit method. Current service costs for the Gratuity Plan are accrued in the year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of the employees.

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

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(In thousands, except share and per share amounts)

Components of net periodic benefit ~~cost~~costs, were as follows:


		Three months ended June 30,						Six months ended June 30,							Three months ended June 30,				Six months ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Service cost	Service cost	$	664	$	493	$	1,342	$	980	Service cost	$	885	$	664	$	1,774	$	1,342
Interest cost	Interest cost	237		221		480		440		Interest cost	234		237		469		480
Expected return on plan assets	Expected return on plan assets	(157)		(144)		(318)		(286)		Expected return on plan assets	(200)		(157)		(401)		(318)
Amortization of actuarial (gain)/loss		97		(40)		198		(79)
Amortization of actuarial loss, gross of tax										Amortization of actuarial loss, gross of tax	176		97		355		198
Net gratuity cost	Net 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 loss										Income tax benefit on amortization of actuarial loss	(71)		(55)		(122)		(64)
Amortization of actuarial loss, net of tax										Amortization of actuarial loss, net of tax	$	105	$	42	$	233	$	134

The ~~Gratuity~~India Plan ~~in India~~ is partially funded whereas the Philippines plan is unfunded. The Company makes annual contributions to the employees' gratuity fund of the ~~Gratuity~~India 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 Plans~~the 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, ~~2020~~2021	$	~~8,784~~11,512
Actual return	~~285~~394
Employer contribution	—0
Benefits paid*paid	~~(431)~~(774)
Effect of exchange rate changes	~~(477)~~(191)
Plan assets at June 30, ~~2020~~2021	$	~~8,161~~10,941

* ~~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,
2020 2019 2020 2019
Contribution to the 401(k) Plan $ 29 $ 909 $ 255 $ 2,122


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
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,
	2021		2020		2021		2020
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, ~~2020~~2021

(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,
2020 2019 2020 2019
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. ~~The~~As 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 covenant~~term 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 the~~have 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, 2021		December 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-current	76,518		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-current	255		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, ~~2020~~2021

(In thousands, except share and per share amounts)

~~Supplemental balance sheet information~~

As of
June 30, 2020 December 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-current 90,934 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-current 357 430
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 cost	Lease cost	Three months ended June 30,						Six months ended June 30,							Lease cost	Three months ended June 30,				Six months ended June 30,
Finance lease:	Finance lease:	2020		2019		2020		2019		Finance lease:	2021		2020			2021		2020
Amortization of right-of-use assets	Amortization of right-of-use assets	$	63	$	92	$	125	$	187	Amortization of right-of-use assets	$	50	$	63		$	102	$	125
Interest on lease liabilities	Interest on lease liabilities	20		20		50		45		Interest on lease liabilities	22		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 cost	Total 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,
	2021			2020
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 lease	1.8			2.1
Operating lease	5.8			6.8
Weighted-average discount rate
Finance lease	14.1		%	10.2		%
Operating lease	7.4		%	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, ~~2020~~2021

(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,
2020 2019
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 lease 2.1 years 2.4 years
Operating lease 6.8 years 6.5 years
Weighted-average discount rate
Finance lease 10.2 % 8.7 %
Operating lease 7.4 % 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 are~~2021 were as follows:


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
2020 (July 1 - December 31)		$	12,989	$	183
2021		24,909		266
2021 (July 1 - December 31)						2021 (July 1 - December 31)	$	12,366	$	146
2022	2022	23,121		153		2022	24,094		179
2023	2023	21,205		103		2023	22,715		134
2024	2024	16,841		32		2024	17,095		58
2025 and thereafter		43,770		6
2025						2025	9,878		21
2026 and thereafter						2026 and thereafter	33,965		6
Total lease payments	Total lease payments	$	142,835	$	743	Total lease payments	$	120,113	$	544
Less: Imputed interest	Less: Imputed interest	33,702		133		Less: Imputed interest	25,556		95
Present value of lease liabilities	Present value of lease liabilities	$	109,133	$	610	Present value of lease liabilities	$	94,557	$	449

Maturities of ~~minimum~~ lease ~~payments~~liabilities as of December 31, ~~2019 are~~2020 were as follows:

During the next twelve months ending December 31, Operating Leases Capital Leases
2020 $ 26,932 $ 325
2021 23,783 251
2022 21,526 157
2023 19,381 86
2024 14,865 22
2025 and thereafter 23,983 —
Total minimum lease payment $ 130,470 $ 841
Less: Imputed interest 31,613 158
Present value of minimum lease payments $ 98,857 $ 683

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~June 30, 2020~~

~~(In thousands, except share and per share amounts)~~


	Operating Leases		Finance Leases
2021	$	25,829	$	262
2022	24,316		194
2023	22,066		114
2024	17,084		36
2025	9,749		11
2026 and thereafter	34,334		0
Total lease payments	$	133,378	$	617
Less: Imputed interest	29,610		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 ~~increased~~decreased 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 ~~electing~~election of a new tax regime, during the three months ended June 30, 2020, for two of the ~~Company’s~~Company's Indian subsidiaries ~~which~~that 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 ~~increased~~decreased 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 ~~electing~~election of a new tax regime, during the six months ended June 30, 2020, for two of the ~~Company’s~~Company's Indian subsidiaries ~~which~~that 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,
2020 2019 2020 2019
Income tax benefit/(expense) on:
Unrealized gain/(loss) on cash flow hedges $ (2,702) $ (113) $ 2,106 $ (1,656)
Retirement benefits 257 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,
	2021		2020		2021		2020
Deferred taxes benefit / (expense) recognized on:
Unrealized gain / (loss) on cash flow hedges	$	177	$	(2,578)	$	(221)	$	2,128
Reclassification adjustment for cash flow hedges	427		(124)		816		(22)
Reclassification adjustment for retirement benefits	(71)		(55)		(122)		(64)
Effect of tax rate changes on retirement benefits	0		312		0		312
Foreign currency translation loss	945		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,
		2020		2019		2020		2019			2021		2020		2021		2020
Cost of revenues	Cost of revenues	$	1,624	$	1,638	$	3,042	$	2,964	Cost of revenues	$	1,854	$	1,624	$	3,390	$	3,042
General and administrative expenses	General and administrative expenses	3,112		2,781		4,680		5,756		General and administrative expenses	4,608		3,112		7,906		4,680
Selling and marketing expenses	Selling and marketing expenses	2,990		2,736		4,782		5,391		Selling and marketing expenses	3,608		2,990		6,606		4,782
Total	Total	$	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 ~~2,305,155~~1,892,706 shares available for grant under the 2018 Omnibus Incentive Plan.

~~Table of Contents~~

~~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, 2019 98,161 $ 23.39 $ 4,522 1.86
  Granted — — — —
  Exercised (41,422) 23.18 1,993 —
  Forfeited — — — —
Outstanding at June 30, 2020 56,739 $ 23.54 $ 2,261 1.54
Vested and exercisable at June 30, 2020 56,739 $ 23.54 $ 2,261 1.54

Table of Contents

~~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, 2020	31,265	$	25.43	$	1,866	1.9
Granted	0	0		—		—
Exercised	(7,016)	24.77		467		—
Forfeited	0	0		—		—
Outstanding at June 30, 2021	24,249	$	25.63	$	1,955	1.6
Vested and exercisable at June 30, 2021	24,249	$	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 Stock				Restricted Stock Units						Restricted Stock
		Number	Weighted Average Fair Value		Number	Weighted Average Fair Value			Number	Weighted 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		Granted	356,177	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, ~~2020~~2021 and December 31, ~~2019~~2020 restricted stock units vested for which the underlying common stock is yet to be issued ~~were~~was 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 ~~2.85~~2.8 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 PRSUs				Market Condition Based PRSUs						Revenue Based PRSUs			Market Condition Based PRSUs
		Number	Weighted Average Fair Value		Number	Weighted Average Fair Value			Number	Weighted Average Fair Value		Number	Weighted Average Fair Value
Outstanding at December 31, 2019		87,685	$	62.54	87,670	$	82.10
Outstanding at December 31, 2020								Outstanding at December 31, 2020	105,892	$	72.32	105,868	$	97.85
Granted	Granted	61,368	78.29		61,352	102.10		Granted	0	0		121,180	119.80
Vested	Vested	—	—		—	—		Vested	0	0		0	0
Forfeited	Forfeited	(2,063)	62.24		(2,062)	80.33		Forfeited	(157)	78.34		(157)	102.10
Outstanding at June 30, 2020		146,990	$	69.12	146,960	$	90.47
Outstanding at June 30, 2021								Outstanding at June 30, 2021	105,735	$	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 ~~2.01~~2.1 years.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, ~~2020~~2021

(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, ~~2020~~2021 and December 31, ~~2019~~2020 and interest accrued of $1,312 and $1,313 ~~each~~ as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, related to the Investment Agreement.

The Company recognized interest expense on the Notes related to the Investment ~~Agreement s~~Agreements 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,
2020 2019 2020 2019
Interest expense on Notes $ 1,313 $ 1,269 $ 2,625 $ 2,581


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
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 management~~Company believes, however, that these units have in the past satisfied and will continue to satisfy the required conditions.

The Company’s operations centers in the Philippines are registered with the Philippine 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 management~~Company believes that these centers have in the past satisfied and will continue to satisfy the required criteria.

Contingencies

~~The U.S. and Indian transfer~~Transfer pricing regulations generally require that any ~~international transaction~~controlled intercompany transactions involving ~~associated enterprises~~related entities be at an arm’s-length price. Accordingly, the Company determines the appropriate ~~pricing~~transfer prices for ~~the international~~ transactions among its ~~associated enterprises~~related entities on the basis of a detailed functional and economic analysis involving benchmarking against transactions among entities that are ~~not under common control. The tax~~unrelated. Tax authorities have jurisdiction to review ~~this arrangement~~transfer 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, ~~2020~~2021

(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-tax~~Indian tax authorities ~~in India on the issue of~~regarding a permanent ~~establishment. The Company is subject to taxation in~~establishment 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 ~~income~~Indian 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 ~~2015~~2019 and its permanent establishment issues for tax years 2003 to ~~2007~~2006 as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 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 $7,856~~amounts 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, ~~2020~~2021 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, ~~2020~~2021 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, the~~The Company will ~~re-evaluate~~continue to monitor and evaluate its position based on future events and developments in this matter for the ~~amount~~implications 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 ~~its~~their present officers or directors, on individual basis, may be or have been, named as a defendant in litigation matters, including employment-related claims. The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and attorney’s fees. With respect to pending litigation matters as of the reporting date, the Company believes that the damages amounts claimed in such cases are not meaningful indicators of the potential liabilities of the Company, that these matters are without merit, and that the Company intends to vigorously defend each of them.

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

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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 ~~quarter~~three 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 in~~financial 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 ~~authorities~~authorities.

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.

~~Impact~~Continued 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 on~~materially 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 were~~first half of 2021, we saw moderate improvement in key indicators, despite being prevented from conducting business activities as usual ~~including due~~from 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 ~~health~~economy and ~~safety measures~~relief to those affected by the pandemic. As the global

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economy begins to emerge from the impact of COVID-19 in ~~response~~2021, 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 as~~and, 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 been~~at our operations centers requested or mandated by governmental ~~authorities. The shutdown measures disrupted~~authorities, and due to the associated uncertainties, we continue to evaluate the nature and scope of the impact to our ~~ability~~business and may take further strategic actions in order to ~~provide~~manage our ~~services and solutions and resulted in, among other things, loss of revenue, increased~~business 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 maintaining~~ongoing 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 for~~have, since early in the ~~future and the long-term success of our business. These actions included disseminating guidance and information~~pandemic, adapted delivery to ~~our employees, periodic CEO messaging, various programs aimed at employee wellness and facilitating~~a work from home ~~including a global wellness program, enhanced awareness towards information~~model, while actively working to understand our clients’ changing requirements, continuing to ensure data security, ~~cyber security~~prioritizing critical processes, adjusting service levels and ~~data privacy policies~~managing discretionary costs (such as travel costs) and ~~practices for employees while working~~fixed 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 states~~world 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, where~~which we ~~are headquartered, declared states of emergency, some of which are now being slowly lifted~~operate reinstate prior restrictions, stagnate in ~~a piecemeal manner through multi-step~~their reopening ~~policies, while others are being reinstated~~processes, or implement new restrictions in response to new ~~outbreaks. Several countries around~~outbreaks or continued spread, our operations and business could be materially impacted. In late March 2021, a new serious outbreak of the ~~world, including~~COVID-19 virus began affecting India with an exorbitant spike in the ~~United States, have significantly restricted travel. We are actively managing~~number 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 to~~and 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 implemented~~We 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 on~~dollar 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 difficult~~clients and employees to ~~forecast~~support the ~~full impact~~family 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 expect~~response 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 related~~require medical treatment; general economic ~~impact to materially adversely affect our liquidity position~~uncertainty 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 three~~net income, cash flow and ~~six months ended period ended June 30, 2020~~earnings 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 decrease~~2020, 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 decrease~~2020, an increase of ~~$14.6~~$68.0 million, or ~~3.0%~~14.5%.

We serve ~~clients~~clients 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, ~~2020~~2021 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, ~~2020~~2021 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.

~~Table~~We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models. Outcome-based pricing arrangements are examples of ~~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 rate~~full-time-equivalent pricing model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins. ~~In addition, we~~

We have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs. 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 ~~generating~~unlocking deep insights from data and create data-driven ~~insights~~solutions 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~~

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 of~~There have been no significant changes in our critical accounting policies and estimates, ~~refer~~during 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 - Critical~~Operations” under “Critical Accounting Policies and Estimates” and Note 2 - Summary of Significant Accounting Policiesto ~~the~~our 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, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended June 30,						Six months ended June 30,							Three months ended June 30,				Six months ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(dollars in millions)													(dollars in millions)				(dollars in millions)
Revenues, net	Revenues, 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 expenses	General and administrative expenses	28.8		31.2		57.7		63.8		General and administrative expenses	36.5		28.8		67.2		57.7
Selling and marketing expenses	Selling and marketing expenses	13.0		17.6		27.5		35.7		Selling and marketing expenses	19.8		13.0		38.0		27.5
Depreciation and amortization expense	Depreciation and amortization expense	12.4		12.8		24.9		26.4		Depreciation and amortization expense	12.3		12.4		24.4		24.9
Impairment and restructuring charges		—		5.6		—		6.8

Total operating expenses	Total operating expenses	54.2		67.2		110.1		132.7		Total operating expenses	68.6		54.2		129.6		110.1
Income from operations	Income from operations	9.9		13.9		37.3		30.7		Income from operations	35.8		9.9		77.4		37.3
Foreign exchange gain, net	Foreign exchange gain, net	1.4		1.2		2.7		2.5		Foreign exchange gain, net	1.4		1.4		1.8		2.7
Interest expense	Interest expense	(2.9)		(3.9)		(6.0)		(7.4)		Interest expense	(2.5)		(2.9)		(5.0)		(6.0)
Other income, net	Other income, net	4.2		4.1		6.8		8.5		Other income, net	2.2		4.2		3.6		6.8
Income before income tax expense and earnings from equity affiliates	Income before income tax expense and earnings from equity affiliates	12.6		15.3		40.8		34.3		Income before income tax expense and earnings from equity affiliates	36.9		12.6		77.8		40.8
Income tax expense	Income tax expense	4.1		2.7		9.9		6.9		Income tax expense	8.9		4.1		17.9		9.9
Income before earnings from equity affiliates	Income before earnings from equity affiliates	8.5		12.6		30.9		27.4		Income before earnings from equity affiliates	28.0		8.5		59.9		30.9
Loss from equity-method investment	Loss from equity-method investment	0.1		0.1		0.1		0.1		Loss from equity-method investment	—		0.1		—		0.1
Net income attributable to ExlService Holdings, Inc. stockholders	Net 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, ~~2020~~2021 Compared to Three Months Ended June 30, ~~2019~~2020

Revenues.

The following table summarizes our revenues by reportable segments for the three months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended June 30,										Percentage change			Three months ended June 30,												Percentage change
		2020		2019		Change				Percentage change				2021			2020				Change				Percentage change
		(dollars in millions)											(dollars in millions)
Insurance	Insurance	$	81.3	$	85.6	$	(4.3)	(5.0)	%			Insurance	$	94.7			$	81.3			$	13.4			16.5	%
Healthcare	Healthcare	25.0		21.7		3.3		14.9	%	Healthcare	28.3				25.0				3.3				13.1	%
Emerging Business	Emerging Business	34.5		48.3		(13.8)		(28.5)	%	Emerging Business	40.7				34.5				6.2				17.8	%
Analytics	Analytics	81.7		87.9		(6.2)		(7.0)	%	Analytics	111.4				81.7				29.7				36.4	%
Total revenues, net	Total 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, ~~2020~~2021 were ~~$222.5~~$275.1 million, ~~down $21.0~~up $52.6 million, or ~~8.6%~~23.6%, compared to the three months ended June 30, ~~2019.~~2020.

Revenue ~~decline~~growth 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 ~~certain~~our existing clients aggregating to ~~$3.6~~$12.1 million and ~~$0.7~~an increase in revenues of $1.3 million that was mainly attributable to the ~~depreciation~~appreciation 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, ~~2020~~2021 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 $2.9~~aggregating 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, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively.

Revenue ~~decline~~growth in Emerging Business of ~~$13.8~~$6.2 million was primarily driven by ~~lower volumes due to the impact~~expansion of ~~COVID-19~~business from our new and ~~ramp down in certain client contracts~~existing clients aggregating to ~~$13.0~~$5.6 million and ~~$0.8~~an increase in revenues of $0.6 million that was mainly attributable to the ~~depreciation~~appreciation 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, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively.

Revenue ~~decline~~growth in Analytics of ~~$6.2~~$29.7 million was ~~primarily driven by lower revenues from~~attributable to the higher volumes in our ~~recurring~~annuity and project-based engagements ~~due to the impact~~from our new and existing clients of ~~COVID-19 aggregating to $6.0~~$28.7 million and ~~$0.2~~an increase in revenues of $1.0 million mainly attributable to the ~~depreciation~~appreciation 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, ~~2020~~2021 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 Revenues																Gross Margin															Cost of Revenues										Gross Margin
		Three months ended June 30,						Change		Percentage change		Three months ended June 30,									Change		Three months ended June 30,						Change				Percentage change				Three months ended June 30,					Change
		2020		2019								2020		2019					Change			2021			2020			Change			Percentage change				2021				2020		Change
		(dollars in millions)																			(dollars in millions)
Insurance	Insurance	$	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	%
Healthcare	Healthcare	19.6		17.7		1.9		10.7	%	21.4	%	18.3	%	3.1	%	Healthcare	17.7			19.6			(1.9)			(9.7)	%		37.4	%			21.4	%			16.0	%
Emerging Business	Emerging Business	22.5		27.9		(5.4)		(19.5)	%	35.1	%	42.4	%	(7.3)	%	Emerging Business	22.3			22.5			(0.2)			(0.9)	%		45.1	%			35.1	%			10.0	%
Analytics	Analytics	57.2		57.4		(0.2)		(0.3)	%	29.9	%	34.6	%	(4.7)	%	Analytics	71.3			57.2			14.1			24.7	%		36.0	%			29.9	%			6.1	%
Total	Total	$	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 decrease~~2020, an increase of ~~$4.0~~$12.3 million, or ~~2.5%~~7.8%. Our gross margin for the three months ended June 30, ~~2020~~2021 was ~~28.8%~~37.9% compared to ~~33.3%~~28.8% for the three months ended June 30, ~~2019, a decrease~~2020, an increase of ~~450 basis points (“bps”).~~

~~The decrease in cost of revenues in Insurance of $0.3 million was~~9.1% primarily ~~due to decrease in employee-related costs of $1.3 million and currency movements, net of hedging of $0.8 million. This was offset~~driven by higher ~~infrastructure, technology~~revenues and ~~other operating costs of $1.8 million. Gross margin in Insurance decreased by 330 bps~~operational efficiencies during the three months ended June 30, ~~2020~~2021, 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 ~~Healthcare~~Insurance of ~~$1.9~~$0.3 million for the three months ended June 30, 2021 was primarily due to ~~an increase~~increases 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 ~~Healthcare~~Insurance increased by ~~310 bps~~10.0% 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 business~~higher revenues and operational efficiencies during the three months ended June 30, ~~2019 and~~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 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 decrease~~decreases 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 ~~decreased~~increased by ~~730 bps~~10.0% during the three months ended June 30, ~~2020,~~2021, compared to the three months ended June 30, ~~2019,~~2020, primarily due to ~~lower~~higher 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 ~~decrease~~increase 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 increase~~increases 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 ~~decreased~~increased by ~~470 bps~~6.1% during the three months ended June 30, ~~2020,~~2021, compared to the three months ended June 30, ~~2019,~~2020, primarily due to ~~lower~~higher 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,								Change				Percentage change		Three months ended June 30,					Change		Percentage change
		2020			2019											2021			2020
		(dollars in millions)														(dollars in millions)
General and administrative expenses	General 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 expenses	Selling and marketing expenses	13.0			17.6			(4.6)		(26.0)	%	Selling and marketing expenses	19.8			13.0			6.8		52.3	%
Selling, general and administrative expenses	Selling, 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 revenues	As a percentage of revenues	18.8		%	20.1		%					As a percentage of revenues	20.4		%	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,						Change		Percentage change
	2021			2020
	(dollars in millions)
Depreciation expense	$	8.9		$	9.0		$	(0.1)	(1.1)	%
Intangible amortization expense	3.4			3.4			—		—	%
Depreciation and amortization expense	$	12.3		$	12.4		$	(0.1)	(0.8)	%
As a percentage of revenues	4.5		%	5.6		%

The decrease in ~~SG&A expenses~~depreciation expense of ~~$7.0~~$0.1 million was primarily due to ~~COVID-19 cost reduction measures including~~lower 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, Change Percentage
change
2020 2019
(dollars in millions)
Depreciation expense $ 9.0 $ 7.2 $ 1.8 24.7 %
Intangible amortization expense 3.4 5.6 (2.2) (38.2) %
Depreciation and amortization expense $ 12.4 $ 12.8 $ (0.4) (2.7) %
As a percentage of revenues 5.6 % 5.2 %

~~The decrease in intangibles amortization expense of $2.2 million was primarily~~work from home model, due to ~~end~~the impact of ~~useful lives for certain intangible assets~~COVID-19 during the three months ended June 30, ~~2020~~2021, 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
2020 2019 Change
(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 ~~decreased~~increased 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 ~~decreased~~increased 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 69.42~~1.8% under our Credit Facility during the three months ended June 30, ~~2019~~2021, compared to ~~75.41~~2.2% during the three months ended June 30, 2020. ~~The average exchange rate~~

Other Income, net.


	Three months ended June 30,						Percentage change
	2021		2020		Change
	(dollars in millions)
Gain on sale and mark-to-market of mutual funds	$	1.6	$	3.1	$	(1.5)	(48.4)	%
Interest and dividend income	0.7		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, ~~2019~~2021, 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
2020 2019 Change
(dollars in millions)
Gain on sale and mark-to-market of mutual funds $ 3.1 $ 3.3 $ (0.2) (6.3) %
Interest income 0.6 0.7 (0.1) (9.3) %
Other, net 0.5 0.1 0.4 456.3 %
Other income, net $ 4.2 $ 4.1 $ 0.1 3.0 %

~~Other~~2021. We recorded income ~~net increased by $0.1~~tax expense of $8.9 million ~~from~~and $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 recognition~~as a result of ~~non-recurring benefits of $0.5 million related to wind-down of the Health Integrated business~~higher 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, 2020~~2021, compared to the three months ended June 30, ~~2019.~~

~~Income Tax Expense.~~ ~~We recorded income tax expense~~2020, 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 ~~electing~~the election of a new tax regime, during the three months ended June 30, 2020, for two of our Indian subsidiaries ~~which~~that 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 ~~decreased~~increased 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 ~~decrease~~increase 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 ~~decreased~~increased 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, ~~2020~~2021 Compared to Six Months Ended June 30, ~~2019~~2020

Revenues.

The following table summarizes our revenues by reportable segments for the six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Six months ended June 30,										Percentage change			Six months ended June 30,												Percentage change
		2020		2019		Change				Percentage change				2021			2020				Change				Percentage change
		(dollars in millions)											(dollars in millions)
Insurance	Insurance	$	165.0	$	166.9	$	(1.9)	(1.1)	%			Insurance	$	185.8			$	165.0			$	20.8			12.6	%
Healthcare	Healthcare	52.0		44.0		8.0		18.3	%	Healthcare	58.6				52.0				6.6				12.5	%
Emerging Business	Emerging Business	77.4		97.4		(20.0)		(20.6)	%	Emerging Business	78.4				77.4				1.0				1.3	%
Analytics	Analytics	174.1		174.8		(0.7)		(0.4)	%	Analytics	213.7				174.1				39.6				22.8	%
Total revenues, net	Total 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, ~~2020~~2021 were ~~$468.5~~$536.5 million, ~~down $14.6~~up $68.0 million, or ~~3.0%~~14.5%, compared to the six months ended June 30, ~~2019.~~2020.

Revenue ~~decline~~growth 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 ~~certain~~our existing clients aggregating to ~~$0.3~~$18.4 million and ~~$1.6~~an increase in revenues $2.4 million that was mainly attributable to the ~~depreciation~~appreciation 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, ~~2020~~2021, 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, ~~2020~~2021 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, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively.

Revenue ~~decline~~growth in Emerging Business of ~~$20.0~~$1.0 million was primarily driven by ~~lower volumes due to the impact~~expansion of ~~COVID-19~~business from our new clients and ~~ramp down in certain client contracts~~existing clients aggregating to ~~$18.7~~$0.3 million and ~~$1.3~~an increase in revenues of $0.7 million that was mainly attributable to the ~~depreciation~~appreciation of the Indian rupee and the U.K. pound sterling against the U.S. dollar during the six months ended June 30, ~~2020~~2021 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, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively.

Revenue ~~decline~~growth in Analytics of ~~$0.7~~$39.6 million was ~~primarily driven by lower revenues from~~attributable to the higher volumes in our ~~recurring~~annuity and project based engagements ~~due to the impact~~ from our new and existing clientsof ~~COVID-19 aggregating to $0.2~~$37.9 million and ~~$0.5~~an increase in revenues $1.7 million mainly attributable to the ~~depreciation~~appreciation of the U.K. pound sterling and ~~Indian rupee~~the South African ZAR against the U.S. dollar during the six months ended June 30, ~~2020~~2021, 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, ~~2020~~2021 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 Revenues																		Gross Margin											Cost of Revenues										Gross Margin
		Six months ended June 30,								Percentage change			Six months ended June 30,									Change	Six months ended June 30,								Percentage change				Six months ended June 30,					Change
		2020		2019		Change						2020			2019					Change	2021		2020		Change		Percentage change								2020				Change
		(dollars in millions)																			(dollars in millions)
Insurance	Insurance	$	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	%
Healthcare	Healthcare	39.2		35.6		3.6		10.4	%	24.6	%		19.2	%		5.4	%	Healthcare	35.1		39.2		(4.1)		(10.5)	%	40.1	%			24.6	%			15.5	%
Emerging Business	Emerging Business	48.0		55.1		(7.1)		(13.1)	%	38.1	%		43.4	%		(5.3)	%	Emerging Business	43.1		48.0		(4.9)		(10.2)	%	44.9	%			38.1	%			6.8	%
Analytics	Analytics	115.8		114.3		1.5		1.3	%	33.5	%		34.6	%		(1.1)	%	Analytics	135.8		115.8		20.0		17.3	%	36.5	%			33.5	%			3.0	%
Total	Total	$	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, ~~2020~~2021 was ~~31.5%~~38.6% compared to ~~33.8%~~31.5% for six months ended June 30, ~~2019, a decrease~~2020, 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 ~~increase~~decrease 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 increase~~decreases 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 bps~~COVID-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 ~~increase~~decrease 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 increase~~decreases in employee-related costs of ~~$3.3~~$4.3 million, ~~and~~partially 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 bps~~15.5% during the six months ended June 30, ~~2020~~2021, compared to the six months ended June 30, ~~2019,~~2020, primarily due to ~~lower margin in the Heath Integrated business~~higher revenues during the six months ended June 30, ~~2019 and higher revenues~~2021, 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 decrease~~decreases in employee-related costs of ~~$4.8~~$3.8 million, lower ~~infrastructure and technology cost of $1.2 million, currency movements, net of hedging~~other operating costs of $0.9 million and ~~lower travel costs~~foreign exchange gain, net of ~~$0.8 million, partially offset by higher other operating costs of $0.6~~hedging $0.2 million. Gross margin in Emerging Business ~~decreased~~increased by ~~530 bps~~6.8% 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 increase~~increases 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 operating~~travel 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 ~~decreased~~increased by ~~110 bps~~3.0% 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 change				Six months ended June 30,													Percentage change
		2020			2019			Change				Percentage change					2021				2020				Change				Percentage change
		(dollars in millions)														(dollars in millions)
General and administrative expenses	General 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 expenses	Selling and marketing expenses	27.5			35.7			(8.2)		(22.9)	%	Selling and marketing expenses	38.0					27.5					10.5				38.2	%
Selling, general and administrative expenses	Selling, 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 revenues	As a percentage of revenues	18.2		%	20.6		%					As a percentage of revenues	19.6		%			18.2		%

The ~~decrease~~increase 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 lower~~higher employee-related costs of ~~$7.7~~$19.7 million, ~~a decrease in stock-based compensation expense~~COVID-19-related expenses of ~~$2.0~~$2.2 million ~~mostly due to revision in estimates~~primarily related to ~~revenue linked performance based restricted stock units due~~financial support to ~~COVID-19, lower infrastructure and travel costs~~family members of ~~$2.6 million, lower~~deceased 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, net~~lower 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 change				Six months ended June 30,													Percentage change
		2020			2019			Change				Percentage change					2021				2020				Change				Percentage change
		(dollars in millions)														(dollars in millions)
Depreciation expense	Depreciation expense	$	17.3		$	15.3		$	2.0	12.6	%			Depreciation expense		$	17.6				$	17.3			$	0.3			1.7	%
Intangible amortization expense	Intangible amortization expense	7.6			11.1			(3.5)		(31.6)	%	Intangible amortization expense	6.8					7.6					(0.8)				(10.5)	%
Depreciation and amortization expense	Depreciation 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 revenues	As a percentage of revenues	5.3		%	5.5		%					As a percentage of revenues	4.6		%			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, ~~2020~~2021, 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
2020 2019 Change
(dollars in millions)
Impairment and restructuring charges $ — $ 6.8 $ (6.8) (100.0) %
As a percentage of revenues — % 1.4 %

~~During~~certain 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 with~~2021, 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, ~~2019~~2020 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 ~~increased~~decreased 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 ~~decreased~~increased 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 change		Six months ended June 30,									Percentage change
		2020		2019		Change				Percentage change			2021			2020			Change			Percentage change
Gain on sale and mark-to-market of mutual funds	Gain 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 income		1.2		1.5		(0.3)		(22.0)	%
Interest and dividend income										Interest and dividend income	1.3			1.2			0.1			8.3	%
Other, net	Other, net	0.4		0.2		0.2		125.5	%	Other, net	(0.4)			0.4			(0.8)			(200.0)	%
Other income, net	Other 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, ~~2020~~2021, 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 ~~increased~~decreased 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 ~~electing~~the election of a new tax regime, during the six months ended June 30, 2020, for two of our Indian subsidiaries ~~which~~that 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,
		2020		2019			2021		2020
		(dollars in millions)							(dollars in millions)
Opening cash, cash equivalents and restricted cash	Opening 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 activities	Net cash provided by operating activities	58.9		47.7		Net cash provided by operating activities	53.9		58.9
Net cash provided by investing activities	Net cash provided by investing activities	1.1		0.9		Net cash provided by investing activities	11.7		1.1
Net cash used for financing activities	Net cash used for financing activities	(13.4)		(61.1)		Net cash used for financing activities	(131.4)		(13.4)
Effect of exchange rate changes	Effect of exchange rate changes	(2.8)		(0.2)		Effect of exchange rate changes	(2.2)		(2.8)
Closing cash, cash equivalents and restricted cash	Closing 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, ~~2020~~2021 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 intend~~constitute 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 flows~~Net cash provided by operating activities ~~were~~was $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 activities~~flow 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 our~~2021 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 for~~six months ended June 30, 2021 compared to the six months ended June 30, 2020 ~~were $58.9 million. This comprised~~included: income tax payments, net of ~~net income plus the net effect~~refunds, 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, ~~2020~~2021 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 redemptions~~lower 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, ~~2020~~2021 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 ~~decrease~~increase 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)”) during~~higher 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 repayments~~exercise of ~~$0.2~~stock 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, 2020~~2021 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 ended~~As 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, ~~2020~~2021 and December 31, ~~2019.~~2020.

As of June 30, 2020
(dollars in millions)
Revolver Credit Facility Structured Payables Notes Total
Current portion of long-term borrowings $ 20.0 $ 0.7 $ — $ 20.7
Long-term borrowings 79.0 — 150.0 229.0
Unamortized debt discount — — (12.6) (12.6)
Unamortized debt issuance costs* — — (0.9) (0.9)
Long-term borrowings 79.0 — 136.5 215.5
Total borrowings $ 99.0 $ 0.7 $ 136.5 $ 236.2


	As of June 30,2021
	(dollars in millions)
	Revolving Credit Facility		Notes		Total
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 Facility Structured Payables Notes Total
Current portion of long-term borrowings $ 40.0 $ 0.9 $ — $ 40.9
Long-term borrowings 59.0 — 150.0 209.0
Unamortized debt discount — — (13.9) (13.9)
Unamortized debt issuance costs* — — (1.0) (1.0)
Long-term borrowings 59.0 $ — $ 135.1 $ 194.1
Total borrowings $ 99.0 $ 0.9 $ 135.1 $ 235.0


	As of December 31,2020
	(dollars in millions)
	Revolving Credit Facility		Notes		Total
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 facility~~revolving Credit Facility of ~~$0.6~~$0.4 million and ~~$0.7~~$0.5 million as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, is presented under ~~“other~~“Other current assets” and ~~“other~~“Other assets” in ~~the~~our 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, ~~2020~~2021 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 balance~~off-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 Period																	Payment Due by Period
		Less than		1-3		4-5		After					Less than		1-3		4-5		After
		1 year		years		years		5 years		Total			1 year		years		years		5 years		Total
		(dollars in millions)																			(dollars in millions)
Finance leases	Finance 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 obligations	Purchase obligations	9.9		—		—		—		9.9		Purchase obligations	7.1		—		—		—		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 ~~for~~over 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 ~~about~~About 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 as~~discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 (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.

~~Our~~The 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 the~~2021, 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 by~~spike in the number of COVID patients. Although the situation has improved and our Indian and Philippines operations were not materially affected as a ~~novel strain~~result 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-evolving~~COVID-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 the~~operations.

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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:

~~Period~~

Total 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~~

—


Period	Total 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, 2021	85,358	$	93.72	85,358	$	87,182,152
May 1, 2021 through May 31, 2021	126,848	$	98.49	126,848	$	74,688,547
June 1, 2021 through June 30, 2021	74,838	$	105.77	74,838	$	66,772,646
Total	287,044	$	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						Amended and Restated Certificate of Incorporation of the Company, as in effect on the date hereof (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 1-33089) filed on October 25, 2006).

3.2						Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A (File No. 1-33089) filed on April 26, 2019).

3.3						Fifth Amended and Restated By-laws of ExlService Holdings, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 1-33089) filed on June 19, 2019)

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

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

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

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

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Scheme

101.CAL						XBRL Taxonomy Extension Calculation Linkbase

101.DEF						XBRL Taxonomy Extension Definition Linkbase

101.LAB						XBRL Taxonomy Extension Label Linkbase

101.PRE						XBRL Extension Presentation Linkbase

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

6261

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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, 2020~~July 29, 2021

EXLSERVICE HOLDINGS, INC.

By:

/S/ MAURIZIO NICOLELLI

MAURIZIO NICOLELLI
Chief Financial Officer
(Duly Authorized Signatory, Principal Financial and Accounting Officer)

6362


	Six months ended June 30, 2019
			Insurance			Healthcare			Emerging Business			Analytics			Total

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 expenses													132,679
Foreign exchange gain, interest expense and other income, net													3,541
Income tax expense													6,870
Loss from equity-method investment													129
Net income													$	27,259


	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 technology	23,348		(9,511)		13,837
Trade names and trademarks	5,100		(3,261)		1,839
	$	101,608	$	(36,212)	$	65,396
Indefinite-lived intangible assets:
Trade names and trademarks	900		—		900
Total intangible assets	$	102,508	$	(36,212)	$	66,296


	As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	97,602	$	(43,330)	$	54,272
Developed technology	26,976		(10,687)		16,289
Trade names and trademarks	5,100		(2,579)		2,521
	$	129,678	$	(56,596)	$	73,082
Indefinite-lived intangible assets:
Trade names and trademarks	900		—		900
Total intangible assets	$	130,578	$	(56,596)	$	73,982


Estimated future amortization expense related to intangible assets as of June 30, 2020 is as follows:
2020 (July 1 - December 31)	$	6,822
2021	12,730
2022	11,325
2023	9,036
2024	6,694
2025 and thereafter	18,789
Total	$	65,396


During the next twelve months ending December 31,	Operating Leases		Capital Leases
2020	$	26,932	$	325
2021	23,783		251
2022	21,526		157
2023	19,381		86
2024	14,865		22
2025 and thereafter	23,983		—
Total minimum lease payment	$	130,470	$	841
Less: Imputed interest	31,613		158
Present value of minimum lease payments	$	98,857	$	683