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~~SEPTEMBER 30, 2022


☐			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 every Interactive Data File required to be submitted 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 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.

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 26,~~October 25, 2022, there were ~~33,062,704~~33,064,611 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 (UNAUDITED)		1.	FINANCIAL STATEMENTS (UNAUDITED)
		Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	3		Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
		Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021	5		Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021	5
		Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021	6		Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021	6
		Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2022 and 2021	7		Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2022 and 2021	7
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	9		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	9
		Notes to Consolidated Financial Statements	10		Notes to Consolidated Financial Statements	10

2.	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

3.	3.	Quantitative and Qualitative Disclosures About Market Risk	60	3.	Quantitative and Qualitative Disclosures About Market Risk	61

4.	4.	Controls and Procedures	60	4.	Controls and Procedures	61

		Part II. Other Information	60		Part II. Other Information	61

1.	1.	Legal Proceedings	60	1.	Legal Proceedings	61

1A.	1A.	Risk Factors	60	1A.	Risk Factors	61

2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	61	2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

3.	3.	Defaults Upon Senior Securities	61	3.	Defaults Upon Senior Securities	62

4.	4.	Mine Safety Disclosures	61	4.	Mine Safety Disclosures	62

5.	5.	Other Information	61	5.	Other Information	62

6.	6.	Exhibits	62	6.	Exhibits	63

Signatures	Signatures		63	Signatures		64

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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


		As of
		June 30, 2022		December 31, 2021			As of
							September 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	106,304	$	135,337	Cash and cash equivalents	$	89,262	$	135,337
Short-term investments	Short-term investments	158,941		178,538		Short-term investments	172,889		179,430
Restricted cash	Restricted cash	6,840		6,174		Restricted cash	7,013		6,174
Accounts receivable, net	Accounts receivable, net	237,453		194,232		Accounts receivable, net	256,911		194,232
Prepaid expenses		15,621		14,655
Advance income tax, net		12,712		15,199
Other current assets	Other current assets	23,143		34,009		Other current assets	54,509		62,971
Total current assets	Total current assets	561,014		578,144		Total current assets	580,584		578,144
Property and equipment, net	Property and equipment, net	82,649		86,008		Property and equipment, net	79,933		86,008
Operating lease right-of-use assets	Operating lease right-of-use assets	67,962		76,692		Operating lease right-of-use assets	61,966		76,692
Restricted cash	Restricted cash	2,056		2,299		Restricted cash	1,996		2,299
Deferred tax assets, net	Deferred tax assets, net	40,924		21,404		Deferred tax assets, net	54,898		21,404
Intangible assets, net	Intangible assets, net	73,298		81,082		Intangible assets, net	69,008		81,082
Goodwill	Goodwill	406,575		403,902		Goodwill	405,781		403,902
Long-term investments						Long-term investments	34,724		3,190
Other assets	Other assets	53,195		30,369		Other assets	29,838		30,183
Investment in equity affiliate		3,261		3,004
Total assets	Total assets	$	1,290,934	$	1,282,904	Total assets	$	1,318,728	$	1,282,904
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	4,377	$	5,647	Accounts payable	$	3,487	$	5,647
Current portion of long-term borrowings	Current portion of long-term borrowings	35,000		260,016		Current portion of long-term borrowings	35,000		260,016
Deferred revenue	Deferred revenue	22,013		20,000		Deferred revenue	19,279		20,000
Accrued employee costs	Accrued employee costs	75,698		114,285		Accrued employee costs	92,252		114,285
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	89,030		76,350		Accrued expenses and other current liabilities	96,800		76,350
Current portion of operating lease liabilities	Current portion of operating lease liabilities	18,548		18,487		Current portion of operating lease liabilities	16,740		18,487
Income taxes payable, net	Income taxes payable, net	21,348		901		Income taxes payable, net	23,410		901
Total current liabilities	Total current liabilities	266,014		495,686		Total current liabilities	286,968		495,686
Long-term borrowings, less current portion	Long-term borrowings, less current portion	250,000		—		Long-term borrowings, less current portion	235,000		—
Operating lease liabilities, less current portion	Operating lease liabilities, less current portion	59,224		68,506		Operating lease liabilities, less current portion	54,174		68,506
Income taxes payable		1,790		1,790
Deferred tax liabilities, net	Deferred tax liabilities, net	841		965		Deferred tax liabilities, net	759		965
Other non-current liabilities	Other non-current liabilities	27,412		22,801		Other non-current liabilities	37,243		24,591
Total liabilities	Total liabilities	605,281		589,748		Total liabilities	614,144		589,748
Commitments and contingencies (Refer to Note 24)		0		0
Commitments and contingencies (Refer to Note 25)						Commitments and contingencies (Refer to Note 25)
ExlService Holdings, Inc. Stockholders’ equity:						ExlService Holdings, Inc. Stockholders’ equity:
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued	Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued	—		—		Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued	—		—
ExlService Holdings, Inc. Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 39,795,161 shares issued and 33,124,035 shares outstanding as of June 30, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021		40		40
Common stock, $0.001 par value; 100,000,000 shares authorized, 39,798,956 shares issued and 33,051,021 shares outstanding as of September 30, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021						Common stock, $0.001 par value; 100,000,000 shares authorized, 39,798,956 shares issued and 33,051,021 shares outstanding as of September 30, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021	40		40
Additional paid-in capital	Additional paid-in capital	420,306		395,742		Additional paid-in capital	432,492		395,742
Retained earnings						Retained earnings	867,256		756,137

Table of Contents

Retained earnings 828,161 756,137
Accumulated other comprehensive income/(loss) (133,374) (89,474)
Total including shares held in treasury 1,115,133 1,062,445
Less: 6,671,126 shares as of June 30, 2022 and 6,216,858 shares as of December 31, 2021, held in treasury, at cost (429,480) (369,289)
Stockholders’ equity 685,653 693,156
Total equity 685,653 693,156
Total liabilities and stockholders’ equity $ 1,290,934 $ 1,282,904


Accumulated other comprehensive loss	(154,203)		(89,474)
Total including shares held in treasury	1,145,585		1,062,445
Less: 6,747,935 shares as of September 30, 2022 and 6,216,858 shares as of December 31, 2021, held in treasury, at cost	(441,001)		(369,289)
Total stockholders’ equity	704,584		693,156


Total liabilities and stockholders’ equity	$	1,318,728	$	1,282,904

See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenues, net	Revenues, net	$	346,782	$	275,064	$	675,990	$	536,479	Revenues, net	$	361,351	$	290,325	$	1,037,341	$	826,804
Cost of revenues(1)	Cost of revenues(1)	221,207		170,701		428,723		329,522		Cost of revenues(1)	230,462		177,743		659,185		507,265
Gross profit(1)	Gross profit(1)	125,575		104,363		247,267		206,957		Gross profit(1)	130,889		112,582		378,156		319,539
Operating expenses:	Operating expenses:									Operating expenses:
General and administrative expenses	General and administrative expenses	40,434		36,499		80,379		67,202		General and administrative expenses	42,519		36,167		122,898		103,369
Selling and marketing expenses	Selling and marketing expenses	23,985		19,724		48,155		37,959		Selling and marketing expenses	23,879		21,672		72,034		59,631
Depreciation and amortization expense	Depreciation and amortization expense	14,075		12,310		27,677		24,411		Depreciation and amortization expense	14,380		12,305		42,057		36,716

Total operating expenses	Total operating expenses	78,494		68,533		156,211		129,572		Total operating expenses	80,778		70,144		236,989		199,716
Income from operations	Income from operations	47,081		35,830		91,056		77,385		Income from operations	50,111		42,438		141,167		119,823
Foreign exchange gain, net	Foreign exchange gain, net	1,423		1,353		3,179		1,787		Foreign exchange gain, net	1,504		1,171		4,683		2,958
Interest expense	Interest expense	(1,502)		(2,520)		(2,378)		(4,994)		Interest expense	(2,442)		(1,810)		(4,820)		(6,804)
Other income/(loss), net		(174)		2,215		2,237		3,625
Other income, net										Other income, net	2,261		1,721		4,498		5,346
Loss on settlement of convertible notes										Loss on settlement of convertible notes	—		(12,845)		—		(12,845)
Income before income tax expense and earnings from equity affiliates	Income before income tax expense and earnings from equity affiliates	46,828		36,878		94,094		77,803		Income before income tax expense and earnings from equity affiliates	51,434		30,675		145,528		108,478
Income tax expense	Income tax expense	11,125		8,865		22,327		17,823		Income tax expense	12,447		4,196		34,774		22,019
Income before earnings from equity affiliates	Income before earnings from equity affiliates	35,703		28,013		71,767		59,980		Income before earnings from equity affiliates	38,987		26,479		110,754		86,459
Gain/(loss) from equity-method investment		143		8		257		(28)
Gain from equity-method investment										Gain from equity-method investment	108		28		365		—
Net income attributable to ExlService Holdings, Inc. stockholders	Net income attributable to ExlService Holdings, Inc. stockholders	$	35,846	$	28,021	$	72,024	$	59,952	Net income attributable to ExlService Holdings, Inc. stockholders	$	39,095	$	26,507	$	111,119	$	86,459
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	$	1.07	$	0.83	$	2.15	$	1.78	Basic	$	1.18	$	0.79	$	3.33	$	2.57
Diluted	Diluted	$	1.06	$	0.81	$	2.13	$	1.75	Diluted	$	1.16	$	0.77	$	3.28	$	2.52
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	33,403,411		33,571,074		33,422,618		33,652,146		Basic	33,237,833		33,449,311		33,360,346		33,583,791
Diluted	Diluted	33,830,539		34,389,768		33,862,597		34,353,593		Diluted	33,777,749		34,305,893		33,833,637		34,336,950

(1) Exclusive of depreciation and amortization expense.

See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net income	Net income	$	35,846	$	28,021	$	72,024	$	59,952	Net income	$	39,095	$	26,507	$	111,119	$	86,459
Other comprehensive income/(loss):	Other comprehensive income/(loss):									Other comprehensive income/(loss):
Unrealized loss on cash flow hedges		(14,632)		(871)		(15,149)		(303)
Unrealized gain/(loss) on cash flow hedges										Unrealized gain/(loss) on cash flow hedges	(13,489)		261		(28,638)		(42)
Loss on net investment hedges	Loss on net investment hedges	—		(1,134)		—		(1,134)		Loss on net investment hedges	—		—		—		(1,134)
Foreign currency translation loss	Foreign currency translation loss	(22,782)		(4,775)		(30,227)		(6,686)		Foreign currency translation loss	(19,144)		(3,789)		(49,371)		(10,475)
Reclassification adjustments	Reclassification adjustments									Reclassification adjustments
Gain on cash flow hedges(1)		(1,459)		(2,866)		(3,448)		(5,695)
(Gain)/loss on cash flow hedges(1)										(Gain)/loss on cash flow hedges(1)	1,567		(2,150)		(1,881)		(7,845)
Retirement benefits(2)	Retirement benefits(2)	149		176		304		355		Retirement benefits(2)	147		178		451		533
Income tax effects relating to above(3)	Income tax effects relating to above(3)	3,656		1,478		4,620		1,702		Income tax effects relating to above(3)	10,090		(12)		14,710		1,690
Total other comprehensive income/(loss)		$	(35,068)	$	(7,992)	$	(43,900)	$	(11,761)
Total other comprehensive loss										Total other comprehensive loss	(20,829)		(5,512)		(64,729)		(17,273)
Total comprehensive income	Total comprehensive income	$	778	$	20,029	$	28,124	$	48,191	Total comprehensive income	$	18,266	$	20,995	$	46,390	$	69,186

(1)These are reclassified to net income and are included in cost of revenues, ~~and~~ operating expenses and interest expense, as applicable in the unaudited consolidated statements of income. Refer to Note 1617 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements.

(2)These are reclassified to net income and are included in other ~~income/(loss),~~income, net in the unaudited consolidated statements of income. Refer to Note 1920 - Employee Benefit Plans to the unaudited consolidated financial statements.

(3)These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation ~~gains/(losses).~~loss. Refer to Note 2122 - Income Taxes to the unaudited consolidated financial statements.

See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the three months ended ~~June~~September 30, 2022 and 2021

(In thousands, except share count)


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

					Shares							Amount									Shares						Amount			Shares					Amount						Shares			Amount
Balance as of March 31, 2022		39,794,154	$	40				$	406,966						$	792,315		$	(98,306)			(6,465,410)				$	(400,674)	$	700,341
Balance as of June 30, 2022																									Balance as of June 30, 2022	39,795,161		$	40		$	420,306	$	828,161		$	(133,374)	(6,671,126)	$	(429,480)		$	685,653
Stock issued against stock-based compensation plans	Stock issued against stock-based compensation plans	1,007	—			—				—			—				—		—				—		Stock issued against stock-based compensation plans	3,795		—			—		—			—		—	—			—
Stock-based compensation	Stock-based compensation	—	—			13,340				—			—				—		—				13,340		Stock-based compensation	—		—			12,186		—			—		—	—			12,186
Acquisition of treasury stock	Acquisition of treasury stock	—	—			—				—			—				(205,716)		(28,806)				(28,806)		Acquisition of treasury stock	—		—			—		—			—		(76,809)	(11,521)			(11,521)

Other comprehensive loss	Other comprehensive loss	—	—			—				—			(35,068)				—		—				(35,068)		Other comprehensive loss	—		—			—		—			(20,829)		—	—			(20,829)
Net income	Net income	—	—			—				35,846			—				—		—				35,846		Net income	—		—			—		39,095			—		—	—			39,095
Balance as of June 30, 2022		39,795,161	$	40		$	420,306			$	828,161		$	(133,374)			(6,671,126)		$	(429,480)			$	685,653
Balance as of September 30, 2022																									Balance as of September 30, 2022	39,798,956		$	40		$	432,492	$	867,256		$	(154,203)	(6,747,935)	$	(441,001)		$	704,584


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

					Shares							Amount									Shares						Amount			Shares					Amount						Shares			Amount
Balance as of March 31, 2021		39,273,989	$	39				$	428,882						$	673,310		$	(78,753)			(5,747,100)				$	(297,253)	$	726,225
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
Stock issued against stock-based compensation plans	Stock issued against stock-based compensation plans	9,864	—			99				—			—				—		—				99		Stock issued against stock-based compensation plans	28,372		—			536		—			—		—	—			536
Stock-based compensation	Stock-based compensation	—	—			10,070				—			—				—		—				10,070		Stock-based compensation	—		—			10,894		—			—		—	—			10,894
Acquisition of treasury stock	Acquisition of treasury stock	—	—			—				—			—				(287,044)		(28,409)				(28,409)		Acquisition of treasury stock	—		—			—		—			—		(244,580)	(28,196)			(28,196)
Issuance of treasury stock																									Issuance of treasury stock	—		—			19,436		—			—		310,394	17,306			36,742
Settlement of convertible notes																									Settlement of convertible notes	—		—			(84,000)		—			—		—	—			(84,000)
Other comprehensive loss	Other comprehensive loss	—	—			—				—			(7,992)				—		—				(7,992)		Other comprehensive loss	—		—			—		—			(5,512)		—	—			(5,512)
Net income	Net income	—	—			—				28,021			—				—		—				28,021		Net income	—		—			—		26,507			—		—	—			26,507
Balance as of June 30, 2021		39,283,853	$	39		$	439,051			$	701,331		$	(86,745)			(6,034,144)		$	(325,662)			$	728,014
Balance as of September 30, 2021																									Balance as of September 30, 2021	39,312,225		$	39		$	385,917	$	727,838		$	(92,257)	(5,968,330)	$	(336,552)		$	684,985

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EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021

(In thousands, except share count)


		Common Stock				Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Income/(Loss)				Treasury Stock									Total Equity				Common Stock							Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss						Treasury Stock							Total Equity
												Total Equity			Common Stock	Additional Paid-in Capital							Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Stock											Total Equity
					Shares													Amount										Shares				Amount																Amount						Amount
Balance as of January 1, 2022	Balance as of January 1, 2022	39,508,340	$	40				$	395,742				$	756,137				$	(89,474)			(6,216,858)						$	(369,289)						$		693,156		Balance as of January 1, 2022	39,508,340			$	40		$	395,742		$	756,137		$	(89,474)		(6,216,858)	$	(369,289)			$	693,156
Stock issued against stock-based compensation plans	Stock issued against stock-based compensation plans	286,821	—			—				—			—				—			—											—	Stock issued against stock-based compensation plans	290,616					—				—				—						—			—	—						—
Stock-based compensation	Stock-based compensation	—	—			24,564				—			—				—			—							24,564		Stock-based compensation		—			—				36,750				—				—						—			—				36,750
Acquisition of treasury stock	Acquisition of treasury stock	—	—			—				—			—				(454,268)			(60,191)						(60,191)		Acquisition of treasury stock		—			—				—				—				—						(531,077)			(71,712)				(71,712)

Other comprehensive loss	Other comprehensive loss	—	—			—				—			(43,900)				—			—						(43,900)		Other comprehensive loss		—			—				—				—				(64,729)						—			—				(64,729)
Net income	Net income	—	—			—				72,024			—				—			—						72,024		Net income		—			—				—				111,119				—						—			—				111,119
Balance as of June 30, 2022		39,795,161	$	40		$	420,306			$	828,161		$	(133,374)			(6,671,126)			$	(429,480)					$	685,653
Balance as of September 30, 2022																												Balance as of September 30, 2022		39,798,956			$	40			$	432,492			$	867,256			$	(154,203)					(6,747,935)			$	(441,001)			$	704,584


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

					Shares							Amount									Shares						Amount			Shares							Amount									Shares					Amount
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	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	315,801	—			173				—			—				—		—				173		Stock issued against stock-based compensation plans	344,173		—				709			—				—			—		—				709
Stock-based compensation	Stock-based compensation	—	—			17,902				—			—				—		—				17,902		Stock-based compensation	—		—				28,796			—				—			—		—				28,796
Acquisition of treasury stock	Acquisition of treasury stock	—	—			—				—			—				(625,526)		(57,424)				(57,424)		Acquisition of treasury stock	—		—				—			—				—			(870,106)		(85,620)				(85,620)

Issuance of treasury stock																									Issuance of treasury stock	—		—				19,436			—				—			310,394		17,306				36,742
Settlement of convertible notes																									Settlement of convertible notes	—		—				(84,000)			—				—			—		—				(84,000)
Other comprehensive loss	Other comprehensive loss	—	—			—				—			(11,761)				—		—				(11,761)		Other comprehensive loss	—		—				—			—				(17,273)			—		—				(17,273)
Net income	Net income	—	—			—				59,952			—				—		—				59,952		Net income	—		—				—			86,459				—			—		—				86,459
Balance as of June 30, 2021		39,283,853	$	39		$	439,051			$	701,331		$	(86,745)			(6,034,144)		$	(325,662)			$	728,014
Balance as of September 30, 2021																									Balance as of September 30, 2021	39,312,225		$	39			$	385,917		$	727,838			$	(92,257)		(5,968,330)		$	(336,552)			$	684,985

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,					Nine months ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	72,024	$	59,952	Net income	$	111,119	$	86,459
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	Depreciation and amortization expense	27,739		24,734		Depreciation and amortization expense	41,993		37,159
Stock-based compensation expense	Stock-based compensation expense	24,564		17,902		Stock-based compensation expense	36,750		28,796
Amortization of operating lease right-of-use assets	Amortization of operating lease right-of-use assets	12,005		13,632		Amortization of operating lease right-of-use assets	17,365		20,012
Unrealized (gain)/loss on short term investments		(275)		6,777
Unrealized (gain)/loss on investments						Unrealized (gain)/loss on investments	(475)		5,987
Unrealized foreign currency exchange gain, net	Unrealized foreign currency exchange gain, net	(10,280)		(2,634)		Unrealized foreign currency exchange gain, net	(16,813)		(3,799)
Deferred income tax benefit	Deferred income tax benefit	(1,462)		(14,737)		Deferred income tax benefit	(5,621)		(17,374)
Allowance / (reversal) of expected credit losses	Allowance / (reversal) of expected credit losses	170		(390)		Allowance / (reversal) of expected credit losses	177		(405)
Fair value changes in contingent consideration	Fair value changes in contingent consideration	1,000		—		Fair value changes in contingent consideration	1,000		—

(Gain)/loss from equity-method investment		(257)		28
Loss on settlement of convertible notes						Loss on settlement of convertible notes	—		12,845
Amortization of non-cash interest expense related to convertible senior notes	Amortization of non-cash interest expense related to convertible senior notes	—		1,364		Amortization of non-cash interest expense related to convertible senior notes	—		1,795

Others, net	Others, net	783		144		Others, net	1,240		590
Change in operating assets and liabilities, net of effects of acquisitions:	Change in operating assets and liabilities, net of effects of acquisitions:					Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	Accounts receivable	(46,385)		(34,152)		Accounts receivable	(68,066)		(44,871)
Prepaid expenses and other current assets		2,861		189
Advance income tax, net		8,684		39
Other current assets						Other current assets	2,553		3,033
Income taxes payable, net						Income taxes payable, net	4,043		(5,685)
Other assets	Other assets	(6,584)		1,589		Other assets	(8,428)		2,485
Accounts payable	Accounts payable	(1,107)		(2,458)		Accounts payable	(1,927)		(2,333)
Deferred revenue	Deferred revenue	4,276		(20,832)		Deferred revenue	2,103		(21,196)
Accrued employee costs	Accrued employee costs	(34,016)		3,833		Accrued employee costs	(11,778)		26,664
Accrued expenses and other liabilities	Accrued expenses and other liabilities	11,190		12,290		Accrued expenses and other liabilities	13,685		3,254
Operating lease liabilities	Operating lease liabilities	(11,922)		(13,327)		Operating lease liabilities	(17,831)		(19,654)
Net cash provided by operating activities	Net cash provided by operating activities	53,008		53,943		Net cash provided by operating activities	101,089		113,762

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(25,054)		(19,903)		Purchases of property and equipment	(32,099)		(29,026)
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	154		527		Proceeds from sale of property and equipment	197		825

Business acquisition (net of cash and cash equivalents acquired)	Business acquisition (net of cash and cash equivalents acquired)	(2,572)		—		Business acquisition (net of cash and cash equivalents acquired)	(3,322)		—
Purchases of investments	Purchases of investments	(96,082)		(32,987)		Purchases of investments	(164,313)		(76,500)
Proceeds from redemption of investments	Proceeds from redemption of investments	82,567		64,031		Proceeds from redemption of investments	124,355		83,183
Net cash (used for)/provided by investing activities		(40,987)		11,668
Net cash used for investing activities						Net cash used for investing activities	(75,182)		(21,518)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Principal payments of finance lease liabilities	Principal payments of finance lease liabilities	(75)		(107)		Principal payments of finance lease liabilities	(108)		(157)
Proceeds from borrowings	Proceeds from borrowings	35,000		25,000		Proceeds from borrowings	35,000		225,000
Repayments of borrowings	Repayments of borrowings	(10,000)		(99,000)		Repayments of borrowings	(25,000)		(329,000)

Acquisition of treasury stock	Acquisition of treasury stock	(60,191)		(57,424)		Acquisition of treasury stock	(71,712)		(85,620)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	—		174		Proceeds from exercise of stock options	—		710
Net cash used for financing activities	Net cash used for financing activities	(35,266)		(131,357)		Net cash used for financing activities	(61,820)		(189,067)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(5,365)		(2,237)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(9,626)		(5,003)
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(28,610)		(67,983)		Net decrease in cash, cash equivalents and restricted cash	(45,539)		(101,826)
Cash, cash equivalents and restricted cash at the beginning of the period	Cash, cash equivalents and restricted cash at the beginning of the period	143,810		225,519		Cash, cash equivalents and restricted cash at the beginning of the period	143,810		225,519
Cash, cash equivalents and restricted cash at the end of the period	Cash, cash equivalents and restricted cash at the end of the period	$	115,200	$	157,536	Cash, cash equivalents and restricted cash at the end of the period	$	98,271	$	123,693

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	2,694	$	3,599	Interest	$	4,982	$	5,833
Income taxes, net of refunds	Income taxes, net of refunds	$	14,301	$	18,710	Income taxes, net of refunds	$	35,192	$	31,087
Supplemental disclosure of non-cash investing and financing activities:	Supplemental disclosure of non-cash investing and financing activities:					Supplemental disclosure of non-cash investing and financing activities:

Settlement of portion of convertible notes through issuance of treasury stock						Settlement of portion of convertible notes through issuance of treasury stock	$	—	$	36,742
Assets acquired under finance lease	Assets acquired under finance lease	$	118	$	50	Assets acquired under finance lease	$	218	$	79

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~June~~September 30, 2022

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

1. Organization

ExlService Holdings, Inc. (“ExlService Holdings”) is organized as a corporation under the laws of the state of Delaware. ExlService Holdings, together with its subsidiaries and affiliates (collectively, the “Company”), is a leading data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth. By bringing together deep domain expertise with robust data, powerful analytics, cloud, artificial intelligence and machine learning, the Company creates agile, scalable solutions and executes complex operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media, and retail, among others. The Company’s data-led value creation framework enables better and faster decision making, leveraging its end-to-end data and analytics capabilities to drive improved business outcomes, and re-designing of operating models to integrate advanced technology into operational workflows. The Company embeds digital operations and solutions into clients’ businesses and introduces its data led approach to transform operations. Accordingly, as the Company’s operations management services are now a part of its digital operations and solutions, they are referred to as “digital operations and solutions” herein; however, the Company has not changed the way in which it manages its business or its operating segments or segment reporting structure.

The Company’s clients are located principally in the United States of America (“U.S.”) and the United Kingdom (“U.K.”).

2. Summary of Significant Accounting Policies

(a)Basis of Preparation and Principles of Consolidation

The unaudited 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, 2021.

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 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.

For purposes of comparability, certain prior period amounts have been reclassified to conform to the current year presentation in accordance with U.S. GAAP.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

(b)~~Investments~~

The Company’s short-term investments consist of investments in mutual funds and those term deposits with more than three months of original maturity and less than twelve months of remaining maturity as of the reporting date, while long-term investments consist of term deposits with more than twelve months of remaining maturity as of the reporting date.

The Company’s investments in term deposits with financial institutions are measured and recognized at cost and approximate fair value. Interest earned on such investments is included in interest income.

The Company’s mutual fund investments are in debt funds invested in India. These investments are accounted for in accordance with the fair value option under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 825, ~~Financial Instruments~~, (“Topic 825”). The fair value is represented by original cost on the acquisition date and the net asset value (“NAV”) as quoted, at each reporting period and any changes in fair value are included in other income/(loss), net. Gain or loss on the disposal of these investments is calculated using the weighted average cost of the investments sold or disposed and is included in other income/(loss), net.

~~(c)~~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, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and discount rate applied within the discounted cash flow model for business acquisitions, 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, 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 amortization of ROU, depreciation and amortization periods, and recoverability of long-lived assets, goodwill and intangibles.

(c)Investments

The Company’s investments in term deposits with financial institutions are measured and recognized at amortized cost. Interest earned on such investments is included in other income, net.

The Company’s mutual fund investments are in debt funds in India. These investments are accounted for in accordance with the fair value option under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments. The fair value is represented by original cost on the acquisition date and the net asset value (“NAV”) as quoted, at each reporting period and any changes in fair value are included in other income, net. Gain or loss on the disposal of these investments is calculated using the weighted average cost of the investments sold and is included in other income, net.

(d)Derivative Financial Instruments

In the normal course of business, the Company uses derivative instruments to mitigate the exposure from risk of foreign currency and interest rate fluctuations. The Company enters into foreign currency forward contracts to hedge cash flow risks from forecasted transactions denominated in certain foreign currencies, and interest rate swaps to hedge cash flow risks from its revolving credit facility having variable interest rate obligations. These contracts adhere to the Company’s treasury operations’ objectives and policies to qualify as cash flow hedges, and are with counterparties that are highly rated financial institutions.

Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income/(loss) (“AOCI”), net of tax. The resultant foreign exchange gain/(loss) upon settlement of cash flow hedges of a forecast transaction are recorded in the unaudited consolidated statements of income along with the underlying hedged item in the same line as part of “Cost of revenues,” “General and administrative expenses,” “Selling and marketing expenses,” and “Depreciation and amortization expense,” as applicable. The accumulated changes in the fair value of interest rate swaps recognized in AOCI are reclassed to the unaudited consolidated statements of income and are presented as a part of “Interest expense” over the term of the contract.

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

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

The Company also uses derivatives instruments consisting of foreign currency forward contracts to economically hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the functional currency, 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 consolidated statements of income and are included in foreign exchange gain/(loss).

The Company also uses foreign currency forward contracts designated as net investment hedges to hedge the foreign currency risks related to the Company's investment in foreign subsidiaries. Gains and losses on these forward contracts are recognized in AOCI as part of the foreign currency translation adjustment. All of the assets and liabilities related to the Company’s 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. The Company has presented all of the assets and liabilities related to these contracts on a gross basis, with no offsets, in its consolidated statements of financial position. There is no financial collateral (including cash collateral) provided or received by the Company related to these contracts.

(e)Recent Accounting Pronouncements

In ~~March 2020,~~October 2021, FASB issued Accounting Standard Update (“ASU”) ~~No. 2020-04,~~ ~~Reference Rate Reform (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 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 on its consolidated financial statements.

~~In October 2021, FASB issued ASU~~ No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU provides guidance in Topic 805 to require the acquirer entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers, as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The ASU is effective for fiscal years beginning after December 15, 2022. An entity may early adopt the ASU including adoption in an interim period, with retrospective application to all business combinations within the fiscal year that includes such interim period. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~(f)Recently adopted Accounting Pronouncements

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

~~June 30, 2022~~In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (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 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 adoption of this ASU did not have a material impact on the Company’s unaudited consolidated financial statements.

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

3. Segment and Geographical Information

The Company is a provider of data analytics and digital operations and solutions.

The Company manages and reports financial information through its 4four reportable segments: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes 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.

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

The Company does not allocate and therefore the CODM does not evaluate, 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.

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

The December 2021 and June 2022 acquisition of Clairvoyant AI Inc. (“Clairvoyant”) and Inbound Media Group, LLC (“Inbound”), respectively, are both included in the Analytics reportable segment. Refer to Note 910 - Business ~~Combination,~~Combinations, Goodwill and Intangible Assets to the unaudited consolidated financial statements for further details.

Revenues and cost of revenues for the three months ended ~~June~~September 30, 2022 and 2021, respectively, for each of the reportable segments, are as follows:


		Three months ended June 30, 2022											Three months ended September 30, 2022
		Insurance		Healthcare		Emerging Business		Analytics		Total			Insurance		Healthcare		Emerging Business		Analytics		Total
																							Insurance	Healthcare	Emerging Business	Analytics	Total
Revenues, net	Revenues, net	$	108,557	$	23,051	$	53,873	$	161,301	$	346,782	Revenues, net	$	116,198	$	22,820	$	56,035	$	166,298	$	361,351
Cost of revenues(1)	Cost of revenues(1)	70,645		17,694		31,214		101,654		221,207		Cost of revenues(1)	75,041		17,119		32,363		105,939		230,462
Gross profit(1)	Gross profit(1)	$	37,912	$	5,357	$	22,659	$	59,647	$	125,575	Gross profit(1)	$	41,157	$	5,701	$	23,672	$	60,359	$	130,889
Operating expenses	Operating expenses									78,494		Operating expenses									80,778
Foreign exchange gain, interest expense and other loss, net										(253)
Foreign exchange gain, interest expense and other income, net												Foreign exchange gain, interest expense and other income, net									1,323
Income tax expense	Income tax expense									11,125		Income tax expense									12,447
Gain from equity-method investment	Gain from equity-method investment									143		Gain from equity-method investment									108
Net income	Net income									$	35,846	Net income									$	39,095

(1) Exclusive of depreciation and amortization expense.


		Three months ended June 30, 2021											Three months ended September 30, 2021
		Insurance		Healthcare		Emerging Business		Analytics		Total			Insurance		Healthcare		Emerging Business		Analytics		Total
																							Insurance	Healthcare	Emerging Business	Analytics	Total
Revenues, net	Revenues, net	$	94,719	$	28,250	$	40,690	$	111,405	$	275,064	Revenues, net	$	98,008	$	27,341	$	44,513	$	120,463	$	290,325
Cost of revenues(1)	Cost of revenues(1)	59,359		17,685		22,346		71,311		170,701		Cost of revenues(1)	61,490		17,057		23,660		75,536		177,743
Gross profit(1)	Gross profit(1)	$	35,360	$	10,565	$	18,344	$	40,094	$	104,363	Gross profit(1)	$	36,518	$	10,284	$	20,853	$	44,927	$	112,582
Operating expenses	Operating expenses									68,533		Operating expenses									70,144
Foreign exchange gain, interest expense and other income, net										1,048
Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net												Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net									(11,763)
Income tax expense	Income tax expense									8,865		Income tax expense									4,196
Gain from equity-method investment	Gain from equity-method investment									8		Gain from equity-method investment									28
Net income	Net income									$	28,021	Net income									$	26,507

(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the nine months ended September 30, 2022 and 2021, respectively, for each of the reportable segments, are as follows:

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

~~Revenues and cost of revenues for the six months ended June 30, 2022 and 2021, respectively, for each of the reportable segments, are as follows:~~


		Six months ended June 30, 2022											Nine months ended September 30, 2022
		Insurance		Healthcare		Emerging Business		Analytics		Total			Insurance		Healthcare		Emerging Business		Analytics		Total
																							Insurance	Healthcare	Emerging Business	Analytics	Total
Revenues, net	Revenues, net	$	211,823	$	49,207	$	104,620	$	310,340	$	675,990	Revenues, net	$	328,021	$	72,027	$	160,655	$	476,638	$	1,037,341
Cost of revenues(1)	Cost of revenues(1)	135,727		35,345		60,427		197,224		428,723		Cost of revenues(1)	210,768		52,464		92,790		303,163		659,185
Gross profit(1)	Gross profit(1)	$	76,096	$	13,862	$	44,193	$	113,116	$	247,267	Gross profit(1)	$	117,253	$	19,563	$	67,865	$	173,475	$	378,156
Operating expenses	Operating expenses									156,211		Operating expenses									236,989
Foreign exchange gain, interest expense and other income, net	Foreign exchange gain, interest expense and other income, net									3,038		Foreign exchange gain, interest expense and other income, net									4,361
Income tax expense	Income tax expense									22,327		Income tax expense									34,774
Gain from equity-method investment	Gain from equity-method investment									257		Gain from equity-method investment									365
Net income	Net income									$	72,024	Net income									$	111,119

(1) Exclusive of depreciation and amortization expense.


		Six months ended June 30, 2021											Nine months ended September 30, 2021
		Insurance		Healthcare		Emerging Business		Analytics		Total			Insurance		Healthcare		Emerging Business		Analytics		Total
																							Insurance	Healthcare	Emerging Business	Analytics	Total
Revenues, net	Revenues, net	$	185,879	$	58,515	$	78,358	$	213,727	$	536,479	Revenues, net	$	283,887	$	85,856	$	122,871	$	334,190	$	826,804
Cost of revenues(1)	Cost of revenues(1)	115,452		35,076		43,190		135,804		329,522		Cost of revenues(1)	176,942		52,133		66,850		211,340		507,265
Gross profit(1)	Gross profit(1)	$	70,427	$	23,439	$	35,168	$	77,923	$	206,957	Gross profit(1)	$	106,945	$	33,723	$	56,021	$	122,850	$	319,539
Operating expenses	Operating expenses									129,572		Operating expenses									199,716
Foreign exchange gain, interest expense and other income, net										418
Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net												Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net									(11,345)
Income tax expense	Income tax expense									17,823		Income tax expense									22,019
Loss from equity-method investment										28

Net income	Net income									$	59,952	Net income									$	86,459

(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,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Digital operations and solutions(1)	Digital operations and solutions(1)	$	185,481	$	163,659	$	365,650	$	322,752	Digital operations and solutions(1)	$	195,053	$	169,862	$	560,703	$	492,614
Analytics services	Analytics services	161,301		111,405		310,340		213,727		Analytics services	166,298		120,463		476,638		334,190
Revenues, net	Revenues, net	$	346,782	$	275,064	$	675,990	$	536,479	Revenues, net	$	361,351	$	290,325	$	1,037,341	$	826,804

(1) Digital operations and solutions include revenues of the Company’s Insurance, Healthcare and Emerging Business reportable segments. Refer to the reportable segment disclosure above.

The Company attributes the revenues to regions based upon the location of its customers.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenues, net	Revenues, net									Revenues, net
United States	United States	$	298,520	$	235,288	$	580,899	$	459,656	United States	$	310,652	$	249,726	$	891,551	$	709,382
Non-United States	Non-United States									Non-United States
United Kingdom	United Kingdom	32,090		26,175		64,863		50,926		United Kingdom	34,131		27,433		98,994		78,359
Rest of World	Rest of World	16,172		13,601		30,228		25,897		Rest of World	16,568		13,166		46,796		39,063
Total Non-United States	Total Non-United States	48,262		39,776		95,091		76,823		Total Non-United States	50,699		40,599		145,790		117,422
Revenues, net	Revenues, net	$	346,782	$	275,064	$	675,990	$	536,479	Revenues, net	$	361,351	$	290,325	$	1,037,341	$	826,804

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, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Long-lived assets	Long-lived assets					Long-lived assets
India	India	$	65,899	$	79,604	India	$	58,969	$	79,604
United States	United States	54,085		50,095		United States	55,825		50,095
Philippines	Philippines	20,921		22,011		Philippines	18,899		22,011
Rest of World	Rest of World	9,706		10,990		Rest of World	8,206		10,990
Long-lived assets	Long-lived assets	$	150,611	$	162,700	Long-lived assets	$	141,899	$	162,700

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, 2022		December 31, 2021			September 30, 2022		December 31, 2021

Accounts receivable, net	Accounts receivable, net	$	237,453	$	194,232	Accounts receivable, net	$	256,911	$	194,232
Contract assets	Contract assets	$	1,648	$	2,524	Contract assets	$	1,180	$	2,524
Contract liabilities:	Contract liabilities:					Contract liabilities:
Deferred revenue (consideration received in advance)	Deferred revenue (consideration received in advance)	$	18,617	$	18,247	Deferred revenue (consideration received in advance)	$	16,342	$	18,247
Consideration received for process transition activities	Consideration received for process transition activities	$	4,327	$	2,203	Consideration received for process transition activities	$	4,515	$	2,203

Accounts receivable includes ~~$122,943~~$134,334 and $93,336 as of ~~June~~September 30, 2022 and December 31, 2021, respectively, representing unbilled receivables. The Company has accrued the unbilled receivables for work performed in accordance with the terms of contracts with customers and considers no significant performance risk associated with its unbilled receivables.

Contract assets represent upfront payments such as deal signing discounts or deal signing bonuses made to customers. These costs are amortized over the expected period of the benefit and are recorded as an adjustment to transaction price and reduced from revenues. The Company’s assessment did not indicate any impairment losses on its contract assets for the periods presented.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers. The Company also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract fulfillment costs. Consideration received from customers, if any, relating to such transition activities are classified under contract liabilities and are included within “Deferred revenues” and “Other non-current liabilities” in the ~~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~~nine months ended ~~June~~September 30, 2022 and 2021, 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,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Deferred revenue (consideration received in advance)	Deferred revenue (consideration received in advance)	$	4,306	$	3,332	$	13,870	$	26,953	Deferred revenue (consideration received in advance)	$	2,456	$	1,778	$	16,326	$	28,731
Consideration received for process transition activities	Consideration received for process transition activities	$	298	$	508	$	664	$	1,187	Consideration received for process transition activities	$	706	$	411	$	1,370	$	1,598

Contract acquisition and fulfillment costs

The following table provides details of the Company’s contract acquisition and fulfillment costs:


		Contract Acquisition Costs											Contract Acquisition Costs
		Three months ended				Six months ended				Year ended			Three months ended				Nine months ended				Year ended
		June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021		December 31, 2021			September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		December 31, 2021

Opening Balance	Opening Balance	$	927	$	785	$	511	$	1,027	$	1,027	Opening Balance	$	983	$	867	$	511	$	1,027	$	1,027
Additions		180		374		727		374		277
Additions / (reductions)												Additions / (reductions)	78		(97)		805		277		277
Amortization	Amortization	(124)		(292)		(255)		(534)		(793)		Amortization	(73)		(158)		(328)		(692)		(793)
Closing Balance	Closing Balance	$	983	$	867	$	983	$	867	$	511	Closing Balance	$	988	$	612	$	988	$	612	$	511


		Contract Fulfillment Costs											Contract Fulfillment Costs
		Three months ended				Six months ended				Year ended			Three months ended				Nine months ended				Year ended
		June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021		December 31, 2021			September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		December 31, 2021

Opening Balance	Opening Balance	$	7,435	$	4,419	$	5,795	$	5,631	$	5,631	Opening Balance	$	10,167	$	3,694	$	5,795	$	5,631	$	5,631
Additions	Additions	3,308		158		5,485		164		3,742		Additions	2,964		279		8,449		443		3,742
Amortization	Amortization	(576)		(883)		(1,113)		(2,101)		(3,578)		Amortization	(1,170)		(693)		(2,283)		(2,794)		(3,578)
Closing Balance	Closing Balance	$	10,167	$	3,694	$	10,167	$	3,694	$	5,795	Closing Balance	$	11,961	$	3,280	$	11,961	$	3,280	$	5,795

There was no impairment for contract acquisition and contract fulfillment costs as of ~~June~~September 30, 2022 and December 31, 2021. The capitalized costs are amortized over the expected period of benefit of the contract.

Allowance for expected credit losses

The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

significant customers to estimate the probability of default in the future and estimates relating to the possible effects resulting from COVID-19.

As of
June 30, 2022 December 31, 2021
Accounts receivable, including unbilled receivables $ 238,297 $ 194,805
Less: Allowance for expected credit losses (844) (573)
Accounts receivable, net $ 237,453 $ 194,232

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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


	As of
	September 30, 2022		December 31, 2021
Accounts receivable, including unbilled receivables	$	257,766	$	194,805
Less: Allowance for expected credit losses	(855)		(573)
Accounts receivable, net	$	256,911	$	194,232

The movement in “Allowance for expected credit losses” on customer balances was as follows:

Three months ended Six months ended Year ended
June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 December 31, 2021
Balance at the beginning of the period $ 588 $ 1,183 $ 573 $ 1,189 $ 1,189
Additions / (reductions) during the period 571 (445) 743 (395) (496)
Reductions due to write-off of Accounts Receivables (314) (13) (472) (73) (129)
Translation adjustment (1) 5 — 9 9
Balance at the end of the period $ 844 $ 730 $ 844 $ 730 $ 573


	Three months ended				Nine months ended				Year ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		December 31, 2021
Opening Balance	$	844	$	730	$	573	$	1,189	$	1,189
Additions / (reductions)	9		(19)		752		(414)		(496)
Reductions due to write-off of Accounts Receivables	—		(41)		(472)		(114)		(129)
Translation adjustment	2		1		2		10		9
Closing Balance	$	855	$	671	$	855	$	671	$	573

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 an assumed conversion premium of outstanding convertible notes, using the treasury stock method (as discussed further in the subsequent paragraph). Common stock equivalents 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.

In 2021, diluted weighted-average shares outstanding was affected by the treatment of the Company’s 3.5% per annum Convertible Senior Notes due October 1, 2024 (the “Notes”). The Company had a choice to settle the Notes in cash, shares or any combination of the two. The Company had the ability to settle the principal balance of the Notes in cash, and as such, the Company 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 for the portion of the period until actual settlement and 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. During the third quarter of 2021, the Company settled the Notes by electing a combination of cash and shares of the Company’s common stock and as such included the count of shares issued on settlement in the calculation of basic earnings per share for the portion of the period outstanding.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

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 September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Numerators:	Numerators:									Numerators:
Net income	Net income	$	35,846	$	28,021	$	72,024	$	59,952	Net income	$	39,095	$	26,507	$	111,119	$	86,459
Denominators:	Denominators:									Denominators:
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	33,403,411		33,571,074		33,422,618		33,652,146		Basic weighted average common shares outstanding	33,237,833		33,449,311		33,360,346		33,583,791
Dilutive effect of share-based awards	Dilutive effect of share-based awards	427,128		330,063		439,979		336,528		Dilutive effect of share-based awards	539,916		440,378		473,291		371,145
Dilutive effect of conversion premium on the Notes	Dilutive effect of conversion premium on the Notes	—		488,631		—		364,919		Dilutive effect of conversion premium on the Notes	—		416,204		—		382,014
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	33,830,539		34,389,768		33,862,597		34,353,593		Diluted weighted average common shares outstanding	33,777,749		34,305,893		33,833,637		34,336,950
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	$	1.07	$	0.83	$	2.15	$	1.78	Basic	$	1.18	$	0.79	$	3.33	$	2.57
Diluted	Diluted	$	1.06	$	0.81	$	2.13	$	1.75	Diluted	$	1.16	$	0.77	$	3.28	$	2.52
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	0		1,748		541		874		Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share	936		40,384		673		14,044

6. Cash, Cash Equivalents and Restricted Cash

For the purposes of the unaudited statements of cash flows, cash, cash equivalents and restricted cash comprise of the following:

As of
June 30, 2022 June 30, 2021 December 31, 2021
Cash and cash equivalents $ 106,304 $ 150,211 $ 135,337
Restricted cash (current) 6,840 5,065 6,174
Restricted cash (non-current) 2,056 2,260 2,299
Cash, cash equivalents and restricted cash $ 115,200 $ 157,536 $ 143,810


	As of
	September 30, 2022		September 30, 2021		December 31, 2021
Cash and cash equivalents	$	89,262	$	114,581	$	135,337
Restricted cash (current)	7,013		6,810		6,174
Restricted cash (non-current)	1,996		2,302		2,299
Cash, cash equivalents and restricted cash	$	98,271	$	123,693	$	143,810

7. ~~Other Income/(Loss), net~~Investments

~~Other income/(loss), net consists~~Investments consist of the following:

Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Gain on sale and mark-to-market of mutual funds and money market funds $ 634 $ 1,655 $ 1,870 $ 2,758
Interest and dividend income 847 689 2,217 1,291
Others, net (1,655) (129) (1,850) (424)
Other income/(loss), net $ (174) $ 2,215 $ 2,237 $ 3,625


	As of
	September 30, 2022		December 31, 2021
Short-term investments
Mutual funds	$	99,435	$	127,551
Term deposits	73,454		51,879
Total Short-term investments	$	172,889	$	179,430

Long-term investments
Term deposits	$	31,355	$	186
Investment in equity affiliate	3,369		3,004
Total Long-term investments	$	34,724	$	3,190

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

8. Other Income, net

Other income, net consists of the following:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Gain on sale and mark-to-market of mutual funds and money market funds	$	1,471	$	1,233	$	3,341	$	3,991
Interest and dividend income	1,457		761		3,674		2,052
Others, net	(667)		(273)		(2,517)		(697)
Other income, net	$	2,261	$	1,721	$	4,498	$	5,346

9. 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, 2022		December 31, 2021			(Years)	September 30, 2022		December 31, 2021
Owned Assets:	Owned Assets:						Owned Assets:
Network equipment and computers	Network equipment and computers	3-5	$	123,117	$	116,023	Network equipment and computers	3-5	$	125,523	$	116,023
Software	Software	2-5	105,924		101,884		Software	2-5	106,738		101,884
Leasehold improvements	Leasehold improvements	3-8	44,448		46,401		Leasehold improvements	3-8	43,326		46,401
Office furniture and equipment	Office furniture and equipment	3-8	20,892		22,302		Office furniture and equipment	3-8	20,669		22,302
Motor vehicles	Motor vehicles	2-5	595		693		Motor vehicles	2-5	573		693
Buildings	Buildings	30	1,007		1,070		Buildings	30	978		1,070
Land	Land	—	659		700		Land	—	640		700
Capital work in progress	Capital work in progress	—	8,508		10,288		Capital work in progress	—	10,876		10,288
			305,150		299,361				309,323		299,361
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization		(222,870)		(213,699)		Less: Accumulated depreciation and amortization		(229,813)		(213,699)
			$	82,280	$	85,662			$	79,510	$	85,662
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		$	86	$	91	Network equipment and computers		$	84	$	91
Leasehold improvements	Leasehold improvements		1,061		1,229		Leasehold improvements		1,030		1,229
Office furniture and equipment	Office furniture and equipment		685		787		Office furniture and equipment		666		787
Motor vehicles	Motor vehicles		600		578		Motor vehicles		636		578
			2,432		2,685				2,416		2,685
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization		(2,063)		(2,339)		Less: Accumulated depreciation and amortization		(1,993)		(2,339)
			$	369	$	346			423		346
Property and equipment, net	Property and equipment, net		$	82,649	$	86,008	Property and equipment, net		$	79,933	$	86,008

*Depreciation on assets held under finance leases are computed using the straight-line method over the shorter of the assets estimated useful lives or the lease term.

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.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, there were no changes in estimated useful lives of property and equipment during the ordinary course of operations.

The depreciation and amortization expense, excluding amortization of acquisition-related intangibles, recognized in the unaudited consolidated statements of income was as follows:

Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Depreciation and amortization expense $ 9,929 $ 8,913 $ 19,045 $ 17,653


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Depreciation and amortization expense	$	10,137	$	9,283	$	29,182	$	26,936

The effect of foreign exchange gain/(loss) upon settlement of cash flow hedges recorded under depreciation and amortization, was as follows:

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Effect of foreign exchange gain/(loss) $ (5) $ 158 $ 62 $ 323


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Effect of foreign exchange gain/(loss)	$	(126)	$	120	$	(64)	$	443

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


		As of					As of
		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Cost	Cost	$	27,015	$	19,289	Cost	$	29,015	$	19,289
Less : Accumulated amortization	Less : Accumulated amortization	(12,788)		(10,226)		Less : Accumulated amortization	(14,599)		(10,226)
Internally developed software, net	Internally developed software, net	$	14,227	$	9,063	Internally developed software, net	$	14,416	$	9,063

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,
2022 2021 2022 2021
Amortization expense $ 1,549 $ 1,055 $ 2,582 $ 2,079


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Amortization expense	$	1,832	$	1,086	$	4,414	$	3,165

As of ~~June~~September 30, 2022 and December 31, 2021, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value; however, there can be no ~~assurances~~assurance that long-lived assets will not be impaired in future periods. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, ~~and~~ the asset’s residual value, if ~~any.~~any, and estimates relating to the possible effects resulting from COVID-19. 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.

9.10. Business ~~Combination,~~Combinations, Goodwill and Intangible Assets

Clairvoyant AI Inc.

On December 16, 2021, the Company, through its wholly owned subsidiary ExlService.com, LLC (“Buyer”), completed the acquisition of Clairvoyant, a Delaware corporation, pursuant to an equity securities purchase agreement dated December 16, 2021 (the “Purchase Agreement”). The Company purchased 100% of the issued and outstanding equity securities in Clairvoyant.

Clairvoyant is a global technology consulting and services company that helps organizations in their business transformation by maximizing the value of data through actionable insights. It provides data engineering, analytics, machine learning, product engineering, and cloud-based solutions. The acquisition strengthens the Company’s capabilities by adding additional expertise in data engineering and cloud enablement, further supporting its clients in insurance, healthcare, banking and financial services, and retail.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

The aggregate purchase consideration payable was $90,325, including cash and cash equivalents acquired, debt, other post-closing adjustments and contingent consideration. The base purchase consideration payable at closing of the acquisition (the “Closing”) was $80,080, excluding cash and cash equivalents acquired, debt and estimated other post-closing adjustments. As of ~~June~~September 30, 2022 and December 31, 2021, of the total purchase consideration, the Company has paid ~~$78,234~~$78,984 and $76,831, respectively, net of cash and cash equivalents acquired. The Purchase Agreement also allows sellers the ability to earn up to $20,000 of contingent consideration, based on the achievement of certain performance goals by Clairvoyant during the 2022 and 2023 calendar years. The contingent consideration had an estimated fair value of $10,000 and $9,000, as of ~~June~~September 30, 2022 and December 31, 2021, respectively, and has been presented as contingent consideration under ~~“Other non-current liabilities” and~~ “Accrued expenses and other current liabilities” and “Other non-current liabilities,” as applicable, in the consolidated balance sheets. Changes in the fair value of contingent consideration were recognized in the unaudited consolidated statements of income and presented as a part of

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

~~“Other income/(loss),~~ “Other income, net.” A portion of the purchase consideration otherwise payable was placed into escrow as security for the post-closing working capital adjustments and the indemnification obligations under the Purchase Agreement. To finance the acquisition at the Closing, the Company utilized its revolving Credit Facility in the amount of $75,000 and paid the balance with available cash on hand.

The Company accounted for the business combination using the acquisition method of accounting.

Pursuant to the Company’s business combinations accounting policy, the aggregate purchase consideration for Clairvoyant was allocated to identifiable net tangible and intangible assets based upon their fair values. The excess of the estimated purchase consideration over fair value of identifiable net tangible and intangible assets was recorded as goodwill. In order to allocate the consideration transferred for Clairvoyant, the fair values of all identifiable assets and liabilities must be established. For accounting and financial reporting purposes, fair value is defined under ASC No. 820, Fair Value Measurement and Disclosure, as the price that would be received upon sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. Use of different estimates and judgments could yield different results.

The tables below presents the fair value of the consideration exchanged and the allocation of purchase consideration to the major classes of assets and liabilities of Clairvoyant as of December 16, 2021:


Assets:
Cash and cash equivalents	$	5,598
Accounts receivable, net	8,709
Other current assets	360
Property and equipment, net	398
Intangible assets, net
Customer relationships	31,600
Developed technology	2,070
Trade names and trademarks	300
Non-compete agreements	300
Other assets	217
Total assets	$	49,552

Liabilities:
Accounts payable	$	(1,199)
Accrued expenses and other current liabilities	(4,873)
Deferred tax liabilities	(9,383)
Other non-current liabilities	(1,226)
Total liabilities	(16,681)

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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


Net assets acquired	32,871
Goodwill	57,454
Total purchase consideration*	$	90,325

* Includes contingent consideration of $9,000 recognized at fair value as of the date of acquisition.

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized measurement period adjustments, which led to increase in goodwill in an amount of ~~$1,081~~$nil and $2,229, respectively. These adjustments primarily relate to an increase in income tax liabilities of $988 included under “other non-current liabilities” and post-closing purchase adjustments.

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

The fair values of customer relationships were determined by using an “income approach,” specifically the Multi-Period Excess Earnings Method. The customer relationship assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 7 years.

The fair values of the developed technology intangible assets were determined by using the “cost approach,” specifically the replacement cost method. The technology assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 3 years.

The goodwill recognized represents the acquired capabilities, operating synergies and other benefits expected to result from combining the acquired operations with the Company’s existing operations. The amount of goodwill recognized from Clairvoyant’s acquisition is not deductible for tax purposes. The goodwill has been assigned to the Company’s Analytics reportable segment based upon the Company’s assessment of nature of services rendered by Clairvoyant.

Acquisition-related costs are being expensed as incurred and are included in general and administrative expenses in the unaudited consolidated statements of income. The Company recognized acquisition-related costs of $nil and $134 during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and $761 during the year ended December 31, 2021.

The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition. The acquisition did not materially impact the Company’s financial position, results of operations or cash flows, and therefore, the Company has not provided supplemental pro forma results.

Inbound Media Group, LLC

On June 10, 2022, the Company, through its wholly owned subsidiary ExlService.com, LLC, entered into an Asset Purchase Agreement to acquire certain assets of Inbound, a Wyoming limited liability company, which is a digital marketing business focused primarily on lead generation in the insurance space, for cash consideration of $1,469 and contingent consideration with an estimated fair value of $1,439 as of the date of acquisition based on the achievement of certain performance goals by Inbound during the 2022 to 2024 calendar years.

The Company accounted for this business combination using the acquisition method of accounting. Goodwill and intangible assets of $1,992 and $916, respectively, were recognized by the Company as a result of this transaction. The goodwill recognized for this business is deductible for income tax purposes. The acquisition strengthens the Company’s capabilities in digital direct-to-consumer marketing by adding performance marketing, lead generation and customer engagement capabilities to its suite of end-to-end marketing solutions, proprietary data sets and robust consumer analytics.

The results of operations of the acquired business and the fair value of the net assets acquired are included in the Company’s consolidated financial statements with effect from the date of the acquisition. The acquisition did not materially impact the Company’s financial position, results of operations or cash flows, and therefore, the Company has not provided unaudited supplemental pro forma results.

~~Goodwill~~

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

Insurance Healthcare Emerging Business Analytics Total
Balance at January 1, 2022 $ 50,428 $ 21,942 $ 49,020 $ 282,512 $ 403,902
Acquisition — — — 1,992 1,992
Measurement period adjustments — — — 2,229 2,229
Currency translation adjustments (399) (39) (1,109) (1) (1,548)
Balance at June 30, 2022 $ 50,029 $ 21,903 $ 47,911 $ 286,732 $ 406,575

2122

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

During the fourth quarter of 2021, the Company performed its annual impairment test of goodwill for those reporting units that had goodwill recorded. Based on the results, the fair values of each of the Company’s reporting units exceeded their carrying value and the goodwill was not impaired.Goodwill

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


	Insurance		Healthcare		Emerging Business		Analytics		Total



Balance as of January 1, 2022	$	50,428	$	21,942	$	49,020	$	282,512	$	403,902
Acquisition	—		—		—		1,992		1,992
Measurement period adjustments	—		—		—		2,229		2,229
Currency translation adjustments	(654)		(57)		(1,630)		(1)		(2,342)
Balance as of September 30, 2022	$	49,774	$	21,885	$	47,390	$	286,732	$	405,781

As of ~~June~~September 30, 2022, the Company ~~evaluated~~performed an assessment to determine whether events or circumstances exist that may lead to a determination that it is more likely than not that the ~~continuing effects~~fair value of ~~COVID-19 and~~a reporting unit is less than 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.~~carrying amount. The Company considered ~~certain improvements in~~ current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance induring nine months of the ~~first and second quarters,~~current fiscal year, business forecasts for the remainder of the year, stock price movements, generation and availability of cash and expansion plans. The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the annual impairment test performed during the fourth quarter of 2021. The Company did not identify any triggers or indications of potential impairment for its reporting units as of ~~June~~September 30, 2022.

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 continues 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.

Intangible Assets

Information regarding the Company’s intangible assets is set forth below:


		As of June 30, 2022							As of September 30, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:	Finite-lived intangible assets:							Finite-lived intangible assets:
Customer relationships	Customer relationships	$	99,146	$	(34,139)	$	65,007	Customer relationships	$	99,146	$	(36,999)	$	62,147
Developed technology	Developed technology	24,878		(18,326)		6,552		Developed technology	24,759		(19,539)		5,220
Trade names and trademarks	Trade names and trademarks	1,700		(1,157)		543		Trade names and trademarks	1,700		(1,230)		470
Non-compete agreements	Non-compete agreements	336		(40)		296		Non-compete agreements	336		(65)		271
		$	126,060	$	(53,662)	$	72,398		$	125,941	$	(57,833)	$	68,108
Indefinite-lived intangible assets:	Indefinite-lived intangible assets:							Indefinite-lived intangible assets:
Trade names and trademarks	Trade names and trademarks	$	900	$	—	$	900	Trade names and trademarks	$	900	$	—	$	900
Total intangible assets	Total intangible assets	$	126,960	$	(53,662)	$	73,298	Total intangible assets	$	126,841	$	(57,833)	$	69,008

2223

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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


	As of December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	103,016	$	(33,018)	$	69,998
Developed technology	25,040		(15,850)		9,190
Trade names and trademarks	1,700		(1,006)		694
Non-compete agreements	300		—		300
	$	130,056	$	(49,874)	$	80,182
Indefinite-lived intangible assets:
Trade names and trademarks	$	900	$	—	$	900
Total intangible assets	$	130,956	$	(49,874)	$	81,082

The amortization expense recognized in the unaudited consolidated statements of income was as follows:

Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Amortization expense $ 4,146 $ 3,397 $ 8,632 $ 6,758


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Amortization expense	$	4,243	$	3,022	$	12,875	$	9,780

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


			(in years)
Customer relationships			~~6.0~~5.7
Developed technology			~~1.6~~1.5
Trade names and trademarks (Finite lived)			~~2.0~~1.7
Non-compete agreements			~~3.3~~3.0

Estimated future amortization expense related to finite-lived intangible assets as of June 30, 2022 was as follows:
2022 (July 1 - December 31) $ 8,445
2023 14,595
2024 12,084
2025 10,648
2026 10,313
2027 and thereafter 16,313
Total $ 72,398

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

~~10. Other Current Assets~~

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

As of
June 30, 2022 December 31, 2021
Receivables from statutory authorities $ 13,299 $ 18,023
Derivative instruments 2,865 8,682
Advances to suppliers 2,172 1,464
Deferred contract fulfillment costs 1,315 1,483
Contract assets 872 1,319
Interest accrued on term deposits 645 892
Others 1,975 2,146
Other current assets $ 23,143 $ 34,009

~~11. Other Assets~~

~~Other assets consist of the following:~~

As of
June 30, 2022 December 31, 2021
Long-term investments $ 22,997 $ 186
Lease deposits 9,251 9,649
Deferred contract fulfillment costs 8,852 4,312
Deposits with statutory authorities 6,516 6,417
Derivative instruments 1,043 6,307
Contract assets 776 1,205
Receivable from Statutory authorities 225 222
Others 3,535 2,071
Other assets $ 53,195 $ 30,369


Estimated future amortization expense related to finite-lived intangible assets as of September 30, 2022 was as follows:
2022 (October 1 - December 31)	$	4,228
2023	14,634
2024	12,123
2025	10,686
2026	10,357
2027 and thereafter	16,080
Total	$	68,108

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

11. Other Current Assets

Other current assets consist of the following:


	As of
	September 30, 2022		December 31, 2021
Advance income tax, net	$	19,040	$	15,199
Receivables from statutory authorities	13,929		18,023
Prepaid expenses	13,723		14,655
Advances to suppliers	1,834		1,464
Deferred contract fulfillment costs	1,793		1,483
Derivative instruments	1,362		8,682
Contract assets	564		1,319
Others	2,264		2,146
Other current assets	$	54,509	$	62,971

12. Other Assets

Other assets consist of the following:


	As of
	September 30, 2022		December 31, 2021
Deferred contract fulfillment costs	$	10,168	$	4,312
Lease deposits	8,592		9,649
Deposits with statutory authorities	6,362		6,417
Contract assets	616		1,205
Receivable from statutory authorities	226		222
Derivative instruments	219		6,307
Others	3,655		2,071
Other assets	$	29,838	$	30,183

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

~~12.~~13. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


		As of					As of
		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Accrued expenses	Accrued expenses	$	47,611	$	44,405	Accrued expenses	$	47,351	$	44,405
Payable to statutory authorities	Payable to statutory authorities	15,032		13,902		Payable to statutory authorities	17,230		13,902
Derivative instruments	Derivative instruments	6,617		1,852		Derivative instruments	11,897		1,852
Client liabilities	Client liabilities	6,461		6,097		Client liabilities	6,593		6,097
Contingent consideration	Contingent consideration	5,280		—		Contingent consideration	5,280		—
Accrued capital expenditures	Accrued capital expenditures	2,277		8,630		Accrued capital expenditures	4,274		8,630
Interest payable	Interest payable	282		252		Interest payable	365		252
Finance lease liabilities	Finance lease liabilities	127		141		Finance lease liabilities	140		141
Other current liabilities	Other current liabilities	5,343		1,071		Other current liabilities	3,670		1,071
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	89,030	$	76,350	Accrued expenses and other current liabilities	$	96,800	$	76,350

~~13.~~14. Other Non-Current Liabilities

Other non-current liabilities consist of the following:


		As of					As of
		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Retirement benefits	Retirement benefits	$	11,029	$	9,604	Retirement benefits	$	14,506	$	9,604
Derivative instruments						Derivative instruments	8,114		1,785
Contingent consideration	Contingent consideration	6,159		9,000		Contingent consideration	6,159		9,000
Derivative instruments		3,978		1,785
Deferred transition revenue						Deferred transition revenue	3,272		995
Unrecognized tax benefits	Unrecognized tax benefits	2,142		1,068		Unrecognized tax benefits	2,186		1,068
Deferred transition revenue		2,957		995
Income taxes payable						Income taxes payable	1,790		1,790
Finance lease liabilities	Finance lease liabilities	262		229		Finance lease liabilities	300		229

Others	Others	885		120		Others	916		120
Other non-current liabilities	Other non-current liabilities	$	27,412	$	22,801	Other non-current liabilities	$	37,243	$	24,591

~~14.~~15. Accumulated Other Comprehensive Income/(Loss)

Accumulated other comprehensive income/(loss) (“AOCI”) consists of actuarial gain/(loss) on retirement benefits and foreign currency translation adjustments. In addition, the Company enters into foreign currency ~~exchange~~forward contracts and interest rate swaps, which are designated as cash flow hedges and net investment hedges, as applicable, in accordance with ASC 815. Cumulative changes in the fair values of ~~these foreign currency exchange contracts~~cash flow hedges are recognized in AOCI on the Company’s ~~unaudited~~ consolidated balance sheets. ~~Upon settlement of foreign exchange contracts designated as cash flow hedges,~~The fair value changes are reclassified from AOCI to ~~net~~unaudited consolidated statements of income upon settlement of foreign currency forward contracts designated as cash flow hedges of a forecast transaction, whereas such ~~fair~~changes are for interest rate swaps are reclassified over the term of the contract. Fair value changes related to net investment hedges are included in ~~net~~AOCI and are reclassified to unaudited consolidated statements of income when a foreign operation is disposed or partially disposed. The ~~balances as of June~~following table sets forth the changes in AOCI for the nine months ended September 30, 2022 and ~~2021 are as follows:~~

2021:

2526

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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


		Accumulated Other Comprehensive Income/(Loss)									Accumulated Other Comprehensive Income/(Loss)
		Foreign currency translation loss		Unrealized gain/(loss) on cash flow hedges		Retirement benefits		Total			Foreign currency translation loss		Unrealized gain/(loss) on cash flow hedges		Retirement benefits		Total
Balance as of January 1, 2022	Balance as of January 1, 2022	$	(95,437)	$	8,420	$	(2,457)	$	(89,474)	Balance as of January 1, 2022	$	(95,437)	$	8,420	$	(2,457)	$	(89,474)
Losses recognized during the period	Losses recognized during the period	(30,227)		(15,149)		—		(45,376)		Losses recognized during the period	(49,371)		(28,638)		—		(78,009)

Reclassification to net income (1)	Reclassification to net income (1)	—		(3,448)		304		(3,144)		Reclassification to net income (1)	—		(1,881)		451		(1,430)
Income tax effects (2)	Income tax effects (2)	979		3,733		(92)		4,620		Income tax effects (2)	8,898		5,948		(136)		14,710
Accumulated other comprehensive income/(loss) as of June 30, 2022		$	(124,685)	$	(6,444)	$	(2,245)	$	(133,374)
Accumulated other comprehensive income/(loss) as of September 30, 2022										Accumulated other comprehensive income/(loss) as of September 30, 2022	$	(135,910)	$	(16,151)	$	(2,142)	$	(154,203)

Balance as of January 1, 2021	Balance as of January 1, 2021	$	(86,185)	$	13,799	$	(2,598)	$	(74,984)	Balance as of January 1, 2021	$	(86,185)	$	13,799	$	(2,598)	$	(74,984)
Losses recognized during the period	Losses recognized during the period	(6,686)		(303)		—		(6,989)		Losses recognized during the period	(10,475)		(42)		—		(10,517)
Losses on net investment hedges	Losses on net investment hedges	(1,134)		—		—		(1,134)		Losses on net investment hedges	(1,134)		—		—		(1,134)
Reclassification to net income (1)	Reclassification to net income (1)	—		(5,695)		355		(5,340)		Reclassification to net income (1)	—		(7,845)		533		(7,312)
Income tax effects (2)	Income tax effects (2)	1,229		595		(122)		1,702		Income tax effects (2)	1,859		(15)		(154)		1,690
Accumulated other comprehensive income/(loss) as of June 30, 2021		$	(92,776)	$	8,396	$	(2,365)	$	(86,745)
Accumulated other comprehensive income/(loss) as of September 30, 2021										Accumulated other comprehensive income/(loss) as of September 30, 2021	$	(95,935)	$	5,897	$	(2,219)	$	(92,257)

(1) Refer to Note 1617 - Derivatives and Hedge Accounting and Note 1920 - 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).~~loss. Refer to Note 2122 - Income Taxes to the unaudited consolidated financial statements.

~~15.~~16. Fair Value Measurements

Assets and Liabilities Measured at Fair Value

The following table sets forth the Company’s assets and liabilities that were ~~accounted for~~recognized at fair ~~value as of~~value:

~~June 30, 2022 and December 31, 2021:~~


		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
As of June 30, 2022		(Level 1)		(Level 2)		(Level 3)		Total
As of September 30, 2022										As of September 30, 2022	(Level 1)		(Level 2)		(Level 3)		Total
Assets	Assets									Assets
Cash equivalents - Money market funds*	Cash equivalents - Money market funds*	$	332	$	—	$	—	$	332	Cash equivalents - Money market funds*	$	2,085	$	—	$	—	$	2,085
Mutual funds**	Mutual funds**	107,425		—		—		107,425		Mutual funds**	99,435		—		—		99,435
Derivative financial instruments	Derivative financial instruments	—		3,908		—		3,908		Derivative financial instruments	—		1,581		—		1,581
Total	Total	$	107,757	$	3,908	$	—	$	111,665	Total	$	101,520	$	1,581	$	—	$	103,101
Liabilities	Liabilities									Liabilities
Derivative financial instruments	Derivative financial instruments	$	—	$	10,595	$	—	$	10,595	Derivative financial instruments	$	—	$	20,011	$	—	$	20,011
Contingent consideration***	Contingent consideration***	—		—		11,439		11,439		Contingent consideration***	—		—		11,439		11,439
Total	Total	$	—	$	10,595	$	11,439	$	22,034	Total	$	—	$	20,011	$	11,439	$	31,450

2627

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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


	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
As of December 31, 2021	(Level 1)		(Level 2)		(Level 3)		Total
Assets
Cash equivalents - Money market funds*	$	5,374	$	—	$	—	$	5,374
Mutual funds**	127,551		—		—		127,551
Derivative financial instruments	—		14,989		—		14,989
Total	$	132,925	$	14,989	$	—	$	147,914
Liabilities
Derivative financial instruments	$	—	$	3,637	$	—	$	3,637
Contingent consideration***	—		—		9,000		9,000
Total	$	—	$	3,637	$	9,000	$	12,637

* Represents money market funds which are carried at the fair value option under ASC Topic 825 “Financial Instruments”.

** Represents those short-term investments which are carried at the fair value option under ASC Topic 825 “Financial Instruments”.

*** Contingent consideration is presented under “Accrued Expenses and Other Current Liabilities” and “Other Non-Current Liabilities,” as applicable, in the consolidated balance sheets.

Derivative Financial Instruments:

The Company’s derivative financial instruments consist of foreign currency forward ~~exchange contracts.~~contracts and interest rate swaps. Fair values for derivative financial instruments are based on independent sources including highly rated financial institutions and are classified as Level 2. Refer to Note 1617 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements for further details.

Fair Value of Contingent Consideration:

The fair value measurement of contingent consideration is determined using Level 3 inputs. The Company’s contingent consideration represents a component of the total purchase consideration for its acquisition of Clairvoyant and Inbound. The measurement is calculated using unobservable inputs based on the Company’s own assessment of achievement of certain performance goals by Clairvoyant during the 2022 and 2023 calendar years and Inbound during the 2022 to 2024 calendar years. The Company estimated the fair value of the contingent consideration ~~to be $11,439 and $9,000, as of June 30, 2022 and December 31, 2021, respectively,~~ based on the Monte Carlo simulation model and scenario-based method. Refer to Note 910 - Business ~~Combination,~~Combinations, Goodwill and Intangible Assets to the unaudited consolidated financial statements for further details.

The following table summarizes the changes in the fair value of contingent consideration:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Opening balance	$	11,439	$	—	$	9,000	$	—
Acquisitions	—		—		1,439		—
Fair value changes	—		—		1,000		—
Closing balance	$	11,439	$	—	$	11,439	$	—

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

During the three months and nine months ended September 30, 2022 and 2021 there were no transfers among Level 1, Level 2 and Level 3.

Financial Instruments Not Carried at Fair Value:

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

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

~~16.~~17. Derivatives and Hedge Accounting

The Company uses derivative instruments ~~and hedging transactions~~ to mitigate ~~exposure to~~cash flow volatility from risk of fluctuations in foreign currency ~~fluctuation~~exchange rates and interest rates. The Company enters into foreign currency forward contracts to hedge cash flow risks ~~associated with~~from forecasted transactions denominated in certain foreign currencies, ~~so as~~and interest rate swaps to ~~minimize earnings and~~hedge cash flow ~~volatility associated with changes in foreign currency exchange rates. The Company’s derivative financial instruments are largely forward foreign exchange~~risks from its revolving credit facility having variable interest rate obligations. These contracts ~~that are designated as effective hedges and that~~ qualify as cash flow hedges under ASC ~~815. The~~Topic 815 and are with counterparties that are highly rated financial institutions. As of September 30, 2022 and December 31, 2021, the Company had outstanding ~~cash flow hedges~~foreign currency forward contracts totaling ~~$568,300 as of June 30, 2022~~$604,560 and $514,580, ~~as of December 31, 2021.~~

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 a part of “Cost of revenues,” “Generalrespectively and ~~administrative expenses,” “Selling~~interest rate swaps totaling $75,000 and ~~marketing expenses,” and “Depreciation and amortization expense,” as applicable.~~

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.$nil, respectively.

The Company estimates that approximately ~~$3,795~~$10,757 of derivative losses, net, excluding tax effects, included in AOCI, representing changes in the value of cash flow hedges based on exchange rates prevailing as of ~~June~~September 30, 2022, could be reclassified into earnings within the next twelve months. ~~At June~~As of September 30, 2022, the maximum outstanding term of the cash flow hedges was approximately 4245 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 fluctuations in foreign currency ~~fluctuations~~exchange rates associated with remeasurement of such assets and liabilities to functional currency. These ~~derivatives~~foreign currency forward contracts do not qualify as fair value hedges under ASC Topic 815. Changes in the fair value of these ~~derivatives~~financial instruments are recognized in the unaudited consolidated statements of income and are included in the foreign exchange gain/(loss) line item. The Company’s primary exchange rate exposure is with the Indian rupee, the U.K. pound sterling (GBP) and the Philippine peso. The Company also has exposure to Colombian pesos (COP), Czech 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 USD ~~156,066,~~162,473, GBP ~~8,700,~~9,254, EUR ~~1,736~~1,906 and COP ~~2,777,668~~3,619,127 as of ~~June~~September 30, 2022 and USD 134,612, GBP 6,763, EUR 1,343 and COP 2,541,902 as of December 31, 2021.

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 AOCI 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~~table sets forth the fair value of the foreign currency ~~exchange~~forward contracts and interest rate swaps and their location on the ~~unaudited~~ consolidated ~~financial statements:~~balance sheets:

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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


Derivatives designated as hedging instruments:		As of
Foreign currency exchange contracts		June 30, 2022		December 31, 2021
							Derivatives in cash flow hedging relationships				Derivatives not designated as hedging instruments
							As of				As of
Derivative financial instruments						Derivative financial instruments	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Other current assets	Other current assets	$	2,727	$	8,669	Other current assets	$	995	$	8,669	$	367	$	13
Other assets	Other assets	$	1,043	$	6,307	Other assets	$	219	$	6,307	$	—	$	—
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	6,522	$	1,324	Accrued expenses and other current liabilities	$	11,752	$	1,324	$	145	$	528
Other non-current liabilities	Other non-current liabilities	$	3,978	$	1,785	Other non-current liabilities	$	8,114	$	1,785	$	—	$	—

Derivatives not designated as hedging instruments:		As of
Foreign currency exchange contracts		June 30, 2022		December 31, 2021
Other current assets		$	138	$	13
Accrued expenses and other current liabilities		$	95	$	528

The following tables set forth the effect of foreign currency exchange contracts on accumulated other comprehensive income/(loss) and the unaudited consolidated statements of income for the three and six months ended June 30, 2022 and 2021:

Three months ended June 30, Six months ended June 30,
Forward Exchange Contracts: 2022 2021 2022 2021
Unrealized loss recognized in AOCI
Derivatives in cash flow hedging relationships $ (14,632) $ (871) $ (15,149) $ (303)
Loss recognized in unaudited consolidated statements of income
Derivatives not designated as hedging instruments $ (5,457) $ (805) $ (6,356) $ (589)

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

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,
2022 2021
As per unaudited consolidated
statements of
income Gain
on foreign currency exchange contracts As per unaudited consolidated
statements of
income Gain on foreign currency exchange contracts
Cash flow hedging relationships
Location in unaudited consolidated statements of income where gain was reclassed from AOCI
Cost of revenues $ 221,207 $ 1,194 $ 170,701 $ 2,418
General and administrative expenses $ 40,434 181 $ 36,499 294
Selling and marketing expenses $ 23,985 15 $ 19,724 15
Depreciation and amortization expense $ 14,075 69 $ 12,310 139
Total before tax 1,459 2,866
Income tax effects on above (420) (427)
Net of tax $ 1,039 $ 2,439
Derivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognized
Foreign exchange gain/(loss), net $ 1,423 $ (5,457) $ 1,353 $ (805)
$ 1,423 $ (5,457) $ 1,353 $ (805)
The following tables set forth the effect of foreign currency forward contracts and interest rate swaps on AOCI and the unaudited consolidated statements of income:


	Three months ended September 30,				Nine months ended September 30,
Derivative financial instruments:	2022		2021		2022		2021
Unrealized gain/(loss) recognized in AOCI
Derivatives in cash flow hedging relationships	$	(13,489)	$	261	$	(28,638)	$	(42)

Loss recognized in unaudited consolidated statements of income
Derivatives not designated as hedging instruments	$	(4,889)	$	(464)	$	(11,245)	$	(1,054)


Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments
	Three months ended September 30,
	2022				2021
	As per unaudited consolidated statements of income		Loss on derivative financial instruments		As per unaudited consolidated statements of income		Gain/(loss) on derivative financial instruments
Cash flow hedging relationships
Location in unaudited consolidated statements of income where gain was reclassified from AOCI

Cost of revenues	$	230,462	$	(1,381)	$	177,743	$	1,801
General and administrative expenses	$	42,519	(109)		$	36,167	223
Selling and marketing expenses	$	23,879	(6)		$	21,672	11
Depreciation and amortization expense	$	14,380	(71)		$	12,305	115
Interest expense	$	2,442	—		$	1,810	—
Total before tax			(1,567)				2,150
Income tax effects on above			133				(370)
Net of tax			$	(1,434)			$	1,780

Derivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognized

Foreign exchange gain, net	$	1,504	$	(4,889)	$	1,171	$	(464)
	$	1,504	$	(4,889)	$	1,171	$	(464)

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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


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 derivatives in 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 derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments
		Six months ended June 30,									Nine months ended September 30,
		2022				2021					2022				2021
		As per unaudited consolidated statements of income		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 derivative financial instruments		As per unaudited consolidated statements of income		Gain/(loss) on derivative financial instruments
Cash flow hedging relationships	Cash flow hedging relationships									Cash flow hedging relationships
Location in unaudited consolidated statements of income where gain was reclassed from AOCI
Location in unaudited consolidated statements of income where gain was reclassified from AOCI										Location in unaudited consolidated statements of income where gain was reclassified from AOCI

Cost of revenues	Cost of revenues	$	428,723	$	2,777	$	329,522	$	4,842	Cost of revenues	$	659,185	$	1,396	$	507,265	$	6,643
General and administrative expenses	General and administrative expenses	$	80,379	475		$	67,202	546		General and administrative expenses	$	122,898	366		$	103,369	769
Selling and marketing expenses	Selling and marketing expenses	$	48,155	29		$	37,959	28		Selling and marketing expenses	$	72,034	23		$	59,631	39
Depreciation and amortization expense	Depreciation and amortization expense	$	27,677	167		$	24,411	279		Depreciation and amortization expense	$	42,057	96		$	36,716	394
Interest expense										Interest expense	$	4,820	—		$	6,804	—
Total before tax	Total before tax			3,448				5,695		Total before tax			1,881				7,845
Income tax effects on above	Income tax effects on above			(935)				(816)		Income tax effects on above			(802)				(1,186)
Net of tax	Net of tax			$	2,513			$	4,879	Net of tax			$	1,079			$	6,659

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		$	3,179	$	(6,356)	$	1,787	$	(589)
Foreign exchange gain, net										Foreign exchange gain, net	$	4,683	$	(11,245)	$	2,958	$	(1,054)
		$	3,179	$	(6,356)	$	1,787	$	(589)		$	4,683	$	(11,245)	$	2,958	$	(1,054)

Effect of net investment hedges on accumulated other comprehensive income/(loss):


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
		Amount of loss recognized in AOCI				Amount of loss recognized in AOCI					Amount of loss recognized in AOCI				Amount of loss recognized in AOCI
Net investment hedging relationships	Net investment hedging relationships	2022		2021		2022		2021		Net investment hedging relationships	2022		2021		2022		2021
Foreign exchange contracts		$	—	$	1,134	$	—	$	1,134
Foreign currency forward contracts										Foreign currency forward contracts	$	—	$	—	$	—	$	1,134

~~17.~~18. Borrowings

The following tables summarizes the Company’s debt position:
As of June 30, 2022 As of December 31, 2021
Revolving Credit Facility Total Revolving Credit Facility Total
Current portion of long-term borrowings $ 35,000 $ 35,000 $ 260,016 $ 260,016
Long-term borrowings 250,000 250,000 — —
Total borrowings $ 285,000 $ 285,000 $ 260,016 $ 260,016


	As of September 30, 2022		As of December 31, 2021
	Credit Facility
Current portion of long-term borrowings	$	35,000	$	260,016




Long-term borrowings	235,000		—
Total borrowings	$	270,000	$	260,016

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

Unamortized debt issuance costs for the Company’s revolving Credit Facility of ~~$1,314~~$1,245 and $232 as of ~~June~~September 30, 2022 and December 31, 2021, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.

Credit Agreement

The Company held a $300,000 revolving credit facility pursuant to its credit agreement (the “Credit Agreement”), dated as of November 21, 2017 with certain lenders and Citibank N.A. as Administrative Agent (the “Credit Facility”). The Credit Facility had a maturity date of November 21, 2022 and was voluntarily pre-payable from time to time without premium or penalty.

On April 18, 2022, the Company and each of the Company’s wholly owned material domestic subsidiaries entered into an Amendment and Restatement Agreement with Citibank, N.A. as Administrative Agent and certain lenders (the “2022 Credit Agreement”), pursuant to which the parties thereto amended and restated the Credit Agreement. Among other things, the 2022 Credit Agreement (a) provides for the issuance of new revolving credit commitments such that the aggregate amount of revolving credit commitments available to the Company is equal to $400,000; (b) extends the maturity date of the Credit Facility from November 21, 2022 to April 18, 2027; and (c) replaces LIBOR with Secured Overnight Financing Rate (“SOFR”) as the reference rate for the U.S. dollar borrowings.

The 2022 Credit Agreement provides an option to increase the commitments by up to $200,000, subject to certain approvals and conditions. The 2022 Credit Agreement includes a letter of credit sub facility and is voluntarily pre-payable from time to time without premium or penalty. Borrowings under the 2022 Credit Agreement can be used for working capital and general corporate purposes, including permitted acquisitions.

Obligations under the 2022 Credit Agreement are guaranteed by the Company’s material domestic subsidiaries and are secured by all or substantially all of the assets of the Company and our material domestic subsidiaries. The 2022 Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of certain assets or subsidiaries.

The Credit Facility carried an effective interest rate as shown below:

Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Effective Interest Rate 2.0 % 1.8 % 1.7 % 1.9 %


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Effective Interest Rate	3.4	%	2.3	%	2.3	%	2.0	%

As of ~~June~~September 30, 2022 and December 31, 2021, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.

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 (the “Notes”). The Notes carried interest at a rate of 3.5% per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year. The Notes were convertible at an initial conversion rate of 13.3333 shares of the common stock per one thousand dollar principal amount of the Notes (which represented an initial conversion price of approximately $75 per share). The Company had the option to redeem the principal amount of the Notes, at its option, if the closing sale price of the common stock exceeded 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding the Company’s exercise of this redemption right (including the trading day immediately prior to the date of the notice of redemption).

On August 27, 2021, the Company entered into a Payoff and Termination Agreement with the Purchaser, pursuant to which the Company prepaid and settled its outstanding obligations under the Notes, by electing a combination of cash and shares of the Company’s common stock. During the three and six months ended June 30, 2021, the Company recognized interest expense and amortization of debt discount of $2,003 and $3,989, respectively, on the Notes.

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

shares of the Company’s common stock. During the three and nine months ended September 30, 2021, the Company recognized interest expense and amortization of debt discount of $1,248 and $5,237, respectively, on the Notes.

Expected payments for all of the Company’s borrowings as of ~~June~~September 30, 2022 were as follows:


		Revolving Credit Facility		Interest Payments*			Credit Facility		Interest Payments*
2022 (July 1 - December 31)		$	25,000	$	4,273
2022 (October 1 - December 31)						2022 (October 1 - December 31)	$	20,000	$	2,809
2023	2023	10,000		7,850		2023	15,000		10,505
2024	2024	—		7,734		2024	—		10,154
2025	2025	—		7,734		2025	—		10,154
2026	2026	—		7,734		2026	—		10,154
2027 and thereafter	2027 and thereafter	250,000		2,900		2027 and thereafter	235,000		3,808
Total	Total	$	285,000	$	38,225	Total	$	270,000	$	47,584

* Interest payments are based on effective interest rate as of ~~June~~September 30, 2022.

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~~September 30, 2022 and December 31, 2021, the Company had outstanding letters of credit of $461, each, that were not recognized in the consolidated balance sheets.

~~18.~~19. Capital Structure

Common Stock

The Company has 1one class of common stock outstanding.

The Company purchased shares of its 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, 2022 — $ — $ —
Three months ended June 30, 2021 — $ — $ —
Six months ended June 30, 2022 27,219 $ 3,191 $ 117.23
Six months ended June 30, 2021 25,450 $ 2,015 $ 79.18


	Shares repurchased	Total consideration		Weighted average purchase price per share (1)
Three months ended September 30, 2022	—	$	—	$	—
Three months ended September 30, 2021	—	$	—	$	—

Nine months ended September 30, 2022	27,219	$	3,191	$	117.23
Nine months ended September 30, 2021	25,450	$	2,015	$	79.18

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

On December 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”).

On October 5, 2021, the Company’s Board of Directors authorized a $300,000 common stock repurchase program beginning January 1, 2022 (the “2022 Repurchase Program”), and terminated the 2019 Repurchase Program on December 31, 2021.

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

Under the 2022 Repurchase Program and 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.

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

The Company purchased shares of its common stock, for a total consideration including commissions, under repurchase programs, as below:

Shares repurchased Total consideration Weighted average purchase price per share
Three months ended June 30, 2022 205,716 $ 28,806 $ 140.03
Three months ended June 30, 2021 287,044 $ 28,409 $ 98.97
Six months ended June 30, 2022 427,049 $ 57,000 $ 133.47
Six months ended June 30, 2021 600,076 $ 55,409 $ 92.34


	Shares repurchased	Total consideration		Weighted average purchase price per share
Three months ended September 30, 2022	76,809	$	11,521	$	150.00
Three months ended September 30, 2021	244,580	$	28,196	$	115.28

Nine months ended September 30, 2022	503,858	$	68,521	$	135.99
Nine months ended September 30, 2021	844,656	$	83,605	$	98.98

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.

~~19.~~20. Employee Benefit Plans

The Company’s Gratuity Plan in India (the “India Plan”) 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. 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”). 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 recognized and amortized over the remaining period of service of the employees.

Components of net periodic benefit costs and actuarial loss reclassified from AOCI, were as follows:


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Service cost	Service cost	$	958	$	885	$	1,948	$	1,774	Service cost	$	921	$	874	$	2,869	$	2,648
Interest cost	Interest cost	313		234		636		469		Interest cost	302		231		938		700
Expected return on plan assets	Expected return on plan assets	(221)		(200)		(449)		(401)		Expected return on plan assets	(215)		(199)		(664)		(600)
Amortization of actuarial loss, gross of tax	Amortization of actuarial loss, gross of tax	149		176		304		355		Amortization of actuarial loss, gross of tax	147		178		451		533
Net gratuity cost	Net gratuity cost	$	1,199	$	1,095	$	2,439	$	2,197	Net gratuity cost	$	1,155	$	1,084	$	3,594	$	3,281

Amortization of actuarial loss, gross of tax										Amortization of actuarial loss, gross of tax	$	147	$	178	$	451	$	533
Income tax effects on amortization of actuarial loss	Income tax effects on amortization of actuarial loss	(45)		(71)		(92)		(122)		Income tax effects on amortization of actuarial loss	(44)		(32)		(136)		(154)
Amortization of actuarial loss, net of tax	Amortization of actuarial loss, net of tax	$	104	$	105	$	212	$	233	Amortization of actuarial loss, net of tax	$	103	$	146	$	315	$	379

The India Plan is partially funded whereas the Philippines plan is unfunded. The Company makes annual contributions to the employees’ gratuity fund of the India Plan established with ~~Life Insurance Corporation of India and HDFC Standard Life Insurance Company.~~leading insurance companies. Fund managers manage these funds and calculate the annual contribution required to be made by the Company and manage the India Plan, including any required payouts. These funds are managed on a cash accumulation basis and interest is declared retrospectively on March 31 of

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

each year. The Company expects to earn a return of approximately 7.2% per annum on the India Plan for the year ended December 31, 2022.

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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


Change in Plan Assets
Plan assets atas of January 1, 2022	$	13,605
Actual return	~~453~~656
Employer contribution	—1,431
Benefits paid*	~~(877)~~(1,347)
Effect of exchange rate changes	~~(785)~~(1,206)
Plan assets ~~at June~~as of September 30, 2022	$	~~12,396~~13,139

* Benefits payments were substantially made through the plan assets during the ~~six-months~~nine months ended ~~June~~September 30, ~~2022.~~2022.

The Company maintains several 401(k) plans (the “401(k) Plans”) under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), covering all eligible employees, as defined in the Code as a defined social security contribution plan. The Company may make discretionary contributions of up to a maximum of ~~4.0%~~3.0% of employee compensation within certain limits.

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

Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Contribution to the 401(k) Plans $ 1,026 $ 753 $ 3,043 $ 2,052


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Contribution to the 401(k) Plans	$	1,097	$	789	$	4,140	$	2,841

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

Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Contributions to the defined social security contribution plans $ 4,549 $ 3,418 $ 8,762 $ 6,712


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Contributions to the defined social security contribution plans	$	4,660	$	3,580	$	13,422	$	10,617

~~20.~~21. Leases

The Company conducts its operations using facilities leased under operating lease agreements that expire at various dates. The Company finances its use of certain motor vehicles and other equipment under various lease arrangements provided by financial institutions. 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. As part of the Company’s ~~effort~~efforts to ~~moderate the impact~~optimize its existing network of ~~COVID-19,~~operations centers, the Company continued to evaluate its office facilities to determine where it can exit ~~consolidate,~~ or ~~otherwise optimize~~consolidate its use of office space. ~~The Company recognizes changes to the lease term by remeasuring lease liabilities as of the date of such modification with the resultant adjustment to the ROU assets.~~

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

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

Supplemental balance sheet information


		As of					As of
		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Operating Lease	Operating Lease					Operating Lease
Operating lease right-of-use assets	Operating lease right-of-use assets	$	67,962	$	76,692	Operating lease right-of-use assets	$	61,966	$	76,692

Operating lease liabilities - Current	Operating lease liabilities - Current	$	18,548	$	18,487	Operating lease liabilities - Current	$	16,740	$	18,487
Operating lease liabilities - Non-current	Operating lease liabilities - Non-current	59,224		68,506		Operating lease liabilities - Non-current	54,174		68,506
Total operating lease liabilities	Total operating lease liabilities	$	77,772	$	86,993	Total operating lease liabilities	$	70,914	$	86,993

Finance Lease	Finance Lease					Finance Lease
Property and equipment, gross	Property and equipment, gross	$	2,432	$	2,685	Property and equipment, gross	$	2,416	$	2,685
Accumulated depreciation	Accumulated depreciation	(2,063)		(2,339)		Accumulated depreciation	(1,993)		(2,339)
Property and equipment, net	Property and equipment, net	$	369	$	346	Property and equipment, net	$	423	$	346

Finance lease liabilities - Current	Finance lease liabilities - Current	$	127	$	141	Finance lease liabilities - Current	$	140	$	141
Finance lease liabilities - Non-current	Finance lease liabilities - Non-current	262		229		Finance lease liabilities - Non-current	300		229
Total finance lease liabilities	Total finance lease liabilities	$	389	$	370	Total finance lease liabilities	$	440	$	370

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 ~~unaudited~~ consolidated balance sheets.

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 September 30,				Nine months ended September 30,
Finance lease:	Finance lease:	2022		2021		2022		2021		Finance lease:	2022		2021		2022		2021
Amortization of right-of-use assets	Amortization of right-of-use assets	$	50	$	50	$	88	$	102	Amortization of right-of-use assets	$	28	$	47	$	116	$	149
Interest on lease liabilities	Interest on lease liabilities	14		22		28		39		Interest on lease liabilities	14		10		42		49
		64		72		116		141			42		57		158		198
Operating lease(a)	Operating lease(a)	5,962		6,871		12,005		13,632		Operating lease(a)	5,360		6,380		17,365		20,012
Variable lease costs	Variable lease costs	1,408		2,053		2,529		3,893		Variable lease costs	1,298		1,779		3,827		5,672
		$	7,370	$	8,924	$	14,534	$	17,525
Total lease cost	Total lease cost	$	7,434	$	8,996	$	14,650	$	17,666	Total lease cost	$	6,700	$	8,216	$	21,350	$	25,882

(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,
2022 2021
Cash payments for amounts included in the measurement of lease liabilities :
Operating cash outflows for operating leases $ 11,922 $ 13,327
Operating cash outflows for finance leases $ 28 $ 39
Financing cash outflows for finance leases $ 75 $ 107
Right-of-use assets obtained in exchange for new operating lease liabilities $ 3,540 $ 1,659
Right-of-use assets obtained in exchange for new finance lease liabilities $ 118 $ 50

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

Weighted-average remaining lease term (in years)
Finance lease 2.5 years 1.8 years
Operating lease 5.5 years 5.8 years
Weighted-average discount rate
Finance lease 14.5 % 14.1 %
Operating lease 7.0 % 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.

Supplemental cash flow and other information related to leases are as follows:


	Nine months ended September 30,
	2022			2021
Cash payments for amounts included in the measurement of lease liabilities :
Operating cash outflows for operating leases	$	17,831		$	19,654
Operating cash outflows for finance leases	$	42		$	49
Financing cash outflows for finance leases	$	108		$	157
Right-of-use assets obtained in exchange for new operating lease liabilities	$	3,519		$	4,647
Right-of-use assets obtained in exchange for new finance lease liabilities	$	218		$	79
Weighted-average remaining lease term (in years)
Finance lease	2.7 years			1.9 years
Operating lease	5.5 years			5.9 years
Weighted-average discount rate
Finance lease	14.4		%	14.3		%
Operating lease	7.0		%	7.3		%

The Company modified certain of its operating leases, resulting in an increase of its lease liabilities by ~~$263~~$209 and a decrease of its lease liabilities by ~~$226~~$1,022 during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, with a corresponding adjustment to ROU assets.

As of ~~June~~September 30, 2022 and December 31, 2021, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.

Maturities of lease liabilities as of ~~June~~September 30, 2022 were as follows:


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
2022 (July 1 - December 31)		$	11,801	$	94
2022 (October 1 - December 31)						2022 (October 1 - December 31)	$	5,347	$	46
2023	2023	22,246		175		2023	20,723		197
2024	2024	17,659		106		2024	17,322		129
2025	2025	11,172		62		2025	11,153		84
2026	2026	8,986		35		2026	9,030		59
2027 and thereafter	2027 and thereafter	24,233		15		2027 and thereafter	24,087		50
Total lease payments	Total lease payments	$	96,097	$	487	Total lease payments	87,662		565
Less: Imputed interest	Less: Imputed interest	18,325		98		Less: Imputed interest	16,748		125
Present value of lease liabilities	Present value of lease liabilities	$	77,772	$	389	Present value of lease liabilities	$	70,914	$	440

Maturities of lease liabilities as of December 31, 2021 were as follows:

Operating Leases Finance Leases
2022 $ 24,020 $ 185
2023 22,666 147
2024 17,745 72
2025 10,741 34
2026 8,395 17
2027 and thereafter 25,198 —
Total lease payments $ 108,765 $ 455
Less: Imputed interest 21,772 85
Present value of lease liabilities $ 86,993 $ 370

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

~~June~~September 30, 2022

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

~~21.~~


	Operating Leases		Finance Leases
2022	$	24,020	$	185
2023	22,666		147
2024	17,745		72
2025	10,741		34
2026	8,395		17
2027 and thereafter	25,198		—
Total lease payments	108,765		455
Less: Imputed interest	21,772		85
Present value of lease liabilities	$	86,993	$	370

22. Income Taxes

The Company determines the tax provision for interim periods using an estimate of its annual effective tax 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 continued 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’s effective tax rate ~~decreased~~increased from ~~24.0%~~13.7% during the three months ended ~~June~~September 30, 2021 to ~~23.8%~~24.2% during the three months ended ~~June~~September 30, 2022. The Company recorded income tax expense of ~~$11,125~~$12,447 and ~~$8,865~~$4,196 for the three months ended ~~June~~September 30, 2022 and 2021, respectively. The increase in income tax expense was primarily as a result of higher profit during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, the recording of a one-time deferred tax benefit of $2,400 on settlement of the Notes during the three months ended September 30, 2021, and higher excess tax benefits during the three months ended September 30, 2021.

The Company’s effective tax rate increased from ~~22.9%~~20.3% during the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~23.7%~~23.9% during the ~~six~~nine months ended ~~June~~September 30, 2022. The Company recorded income tax expense of ~~$22,327~~$34,774 and ~~$17,823~~$22,019 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The increase in income tax expense was primarily as a result of higher profit during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, the recording of a one-time deferred tax benefit of $2,400 on settlement of the Notes during the nine months ended September 30, 2021, and an increase in non-deductible expenses, partially offset by higher excess tax benefits during the ~~six~~nine months ended ~~June~~September 30, 2022.

Effective for taxable years beginning after December 31, 2021, Internal Revenue Code Section 174, Amortization of Research and Experimental Expenditures, provides that research and experimentation expenses can no longer be currently deducted, ~~and~~ instead such expenses are required to be capitalized. Such capitalized expenses are to be amortized over a period of five and fifteen years for the U.S. and foreign research, respectively. Although this change has no impact on the income statement due to offsetting current tax expense with corresponding deferred tax benefit, the change has resulted in an aggregate increase of ~~$13,929~~$17,640 in the current tax liability and deferred tax asset balances, presented under “Income taxes payable, net” and “Deferred tax assets, net,” respectively, in the unaudited consolidated balance sheets as of ~~June~~September 30, 2022.

Income tax (deferred) recognized in AOCI were as follows:


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Deferred taxes benefit / (expense) recognized on:	Deferred taxes benefit / (expense) recognized on:									Deferred taxes benefit / (expense) recognized on:
Unrealized loss on cash flow hedges		$	2,801	$	177	$	2,798	$	(221)
Unrealized gain/(loss) on cash flow hedges										Unrealized gain/(loss) on cash flow hedges	$	2,348	$	(980)	$	5,146	$	(1,201)
Reclassification adjustment for cash flow hedges	Reclassification adjustment for cash flow hedges	420		427		935		816		Reclassification adjustment for cash flow hedges	(133)		370		802		1,186
Reclassification adjustment for retirement benefits	Reclassification adjustment for retirement benefits	(45)		(71)		(92)		(122)		Reclassification adjustment for retirement benefits	(44)		(32)		(136)		(154)

Foreign currency translation loss	Foreign currency translation loss	480		945		979		1,229		Foreign currency translation loss	7,919		630		8,898		1,859
Total income tax benefit recognized in AOCI		$	3,656	$	1,478	$	4,620	$	1,702
Total income tax benefit / (expense) recognized in AOCI										Total income tax benefit / (expense) recognized in AOCI	$	10,090	$	(12)	$	14,710	$	1,690

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

~~22.~~23. 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 September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Cost of revenues	Cost of revenues	$	3,131	$	1,854	$	5,772	$	3,390	Cost of revenues	$	2,713	$	2,198	$	8,485	$	5,588��
General and administrative expenses	General and administrative expenses	5,305		4,608		9,700		7,906		General and administrative expenses	5,237		4,431		14,937		12,337
Selling and marketing expenses	Selling and marketing expenses	4,904		3,608		9,092		6,606		Selling and marketing expenses	4,236		4,265		13,328		10,871
Total	Total	$	13,340	$	10,070	$	24,564	$	17,902	Total	$	12,186	$	10,894	$	36,750	$	28,796

Income tax benefit related to share-based compensation, including excess tax benefits	Income tax benefit related to share-based compensation, including excess tax benefits	$	3,216	$	2,074	$	6,022	$	4,432	Income tax benefit related to share-based compensation, including excess tax benefits	$	2,833	$	2,697	$	8,855	$	7,129

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

As of ~~June~~September 30, 2022, the Company had ~~1,250,148~~1,308,384 shares available for grant under the 2018 Omnibus Incentive Plan.

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)		Number of Options	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (Years)
Outstanding at December 31, 2021		3,093	$	27.62	$	362	2.0
Outstanding as of December 31, 2021								Outstanding as of December 31, 2021	3,093	$	27.62	$	362	2.0
Granted	Granted	—	—		—		—	Granted	—	—		—		—
Exercised	Exercised	—	—		—		—	Exercised	—	—		—		—
Forfeited	Forfeited	—	—		—		—	Forfeited	—	—		—		—
Outstanding at June 30, 2022		3,093	$	27.62	$	370	1.5
Vested and exercisable at June 30, 2022		3,093	$	27.62	$	370	1.5
Outstanding as of September 30, 2022								Outstanding as of September 30, 2022	3,093	$	27.62	$	370	1.3
Vested and exercisable as of September 30, 2022								Vested and exercisable as of September 30, 2022	3,093	$	27.62	$	370	1.3

Share Matching Program

Under the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”), the Company established a share matching program (“SMP”) for executive officers and other specified employees. Under the SMP, the Company agreed to issue a number of restricted stock units equal to the number of newly acquired shares of the Company's common stock. For purposes of the match, “newly acquired shares” includes the employee’s first quarter 2022 open market purchase of the common stock, and

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

crediting of equity awards vesting under any existing stock award plan of the Company as having been purchased by such employees, in an amount between $100 to $500 per such employee.

The matching restricted stock units granted under the SMP will vest in 2two installments, with one-third to vest on the second anniversary of the grant date and the remaining two-thirds to vest on the third anniversary of the grant date; the newly acquired shares for which the matching restricted stock units were granted must also be held by the employee until such vesting dates. The Company’s underlying common stock issued pursuant to the vesting of the matching restricted stock units will not be marketable or transferable for a period of two years following the vesting date. Certain forfeiture and other conditions apply.

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company granted 52,636 matching restricted stock units under the SMP.

Restricted Stock Units

Restricted stock unit activity under the Company’s stock-based compensation plans is shown below:


		Restricted Stock Units (Others)			Restricted Stock Units (SMP)				Restricted Stock Units (Others)			Restricted Stock Units (SMP)
		Number	Weighted-Average Fair Value		Number	Weighted-Average Fair Value			Number	Weighted-Average Fair Value		Number	Weighted-Average Fair Value
Outstanding at December 31, 2021*		982,187	$	81.61	—	$	—
Outstanding as of December 31, 2021*								Outstanding as of December 31, 2021*	982,187	$	81.61	—	$	—
Granted	Granted	349,748	120.49		52,636	124.76		Granted	356,983	121.15		52,636	124.76
Vested	Vested	(298,830)	73.89		—	—		Vested	(302,625)	73.86		—	—
Forfeited	Forfeited	(35,723)	95.11		—	—		Forfeited	(77,894)	94.48		(4,177)	124.76
Outstanding at June 30, 2022*		997,382	$	97.08	52,636	$	124.76
Outstanding as of September 30, 2022*								Outstanding as of September 30, 2022*	958,651	$	97.74	48,459	$	124.76

* As of ~~June~~September 30, 2022 and December 31, 2021 restricted stock units vested for which the underlying common stock is yet to be issued are 174,490 and 162,481 respectively.

As of ~~June~~September 30, 2022, unrecognized compensation cost of ~~$85,851~~$73,569 is expected to be expensed over a weighted average period of ~~2.7~~2.5 years.

~~Table of Contents~~

~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

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~~nine months ended ~~June~~September 30, 2022, the Company granted 40% of each award recipient’s equity grants in the form of PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for a three year period. The remaining 60% of each award recipient’s equity grants are PRSUs that are 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. However, the features of the equity incentive compensation program are subject to change by the Compensation Committee of our Board of Directors. The award recipient may earn up to two hundred percent (200%) of the PRSUs granted based on the actual achievement of targets.

Performance restricted stock unit activity under the Company’s stock plans is shown below:

Revenue Based PRSUs Market Condition Based PRSUs
Number Weighted Average
Fair Value Number Weighted Average
Fair Value
Outstanding at December 31, 2021 58,864 $ 78.29 172,042 $ 113.74
Granted 52,702 119.98 79,001 155.67
Vested — — — —
Forfeited (352) 119.98 (528) 155.67
Outstanding at June 30, 2022 111,214 $ 97.91 250,515 $ 126.88

Table of Contents

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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


	Revenue Based PRSUs			Market Condition Based PRSUs
	Number	Weighted Average Fair Value		Number	Weighted Average Fair Value
Outstanding as of December 31, 2021	58,864	$	78.29	172,042	$	113.74
Granted	53,122	119.98		79,631	155.67
Vested	—	—		—	—
Forfeited	(6,113)	97.62		(14,940)	126.10
Outstanding as of September 30, 2022	105,873	$	98.09	236,733	$	127.07

As of ~~June~~September 30, 2022, unrecognized compensation cost of ~~$29,712~~$24,273 is expected to be expensed over a weighted average period of ~~2.2~~2.0 years.

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.

Employee Stock Purchase Plan

On June 21, 2022, at the annual meeting of stockholders of the Company, the Company’s stockholders approved the ExlService Holdings, Inc. 2022 Employee Stock Purchase Plan (the “2022 ESPP”). ~~The 2022 ESPP was approved, subject to stockholder approval, by the board of directors of the Company on April 13, 2022.~~

The 2022 ESPP allows eligible employees to purchase the Company’s shares of common stock through payroll deductions at a pre-specified discount to the lower of closing price of the Company’s common shares on the date of offering or the last business day of each purchase interval. The dollar amount of shares of common stock that can be purchased under the 2022 ESPP must not exceed 15% of the participating employee’s compensation during the offering period, subject to a cap of $25 per employee per calendar year. The first offering period under the 2022 ESPP ~~is expected to occur in the fourth quarter~~commenced on October 1, 2022 with a term of ~~2022.~~three months. The Company has registered 800,000 shares of common stock to be reserved for issuance over the term of the 2022 ESPP.

~~23.~~24. Related Party Disclosures

In April 2022, the Company entered into a service contract for providing analytics services to The Vanguard Group Inc., which beneficially owns more than 10% of the Company’s common stock as of ~~June~~September 30, 2022. During the three and ~~six month periods~~nine months ended ~~June~~September 30, 2022, the Company recognized revenues, net of ~~$574~~$814 and $1,388, respectively related to this service contract. The Company had outstanding accounts receivable, net of ~~$574~~$804 related to this service contract as of ~~June~~September 30, 2022.

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~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

~~24.~~25. Commitments and Contingencies

Capital Commitments

~~At June~~As of September 30, 2022, the Company had committed to spend approximately ~~$5,600~~$6,200 under agreements to purchase property and equipment. This amount is net of capital advances paid which are recognized in the unaudited consolidated balance sheets as “Capital work in progress” under “Property and equipment, net.”

Other Commitments

Certain units of the Company’s Indian subsidiaries were established as 100% Export-Oriented units or under the Software Technology Parks of India or Special Economic Zone scheme promulgated by the Government of India. These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares. The Company has undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. The Company 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. 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 investment criteria and certain other

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

criteria, including but not limited to work-from-office norms, etc. The Company believes that these centers have in the past complied with the requirements.

Contingencies

Transfer pricing regulations generally require that any controlled intercompany transactions involving related entities be at an arm’s-length price. Accordingly, the Company determines the appropriate transfer prices for transactions among its related entities on the basis of a detailed functional and economic analysis involving benchmarking against transactions among unrelated entities. Tax authorities have jurisdiction to review 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. In addition, the Company and a U.S. subsidiary are engaged in tax litigation with Indian tax authorities regarding a permanent establishment matter.

The aggregate amount demanded by Indian tax authorities (net of advance payments) from the Company related to its transfer pricing and other corporate tax issues for tax years 2003 to 2019 and its permanent establishment issues for tax years 2003 to 2006 as of ~~June~~September 30, 2022 and December 31, 2021 is ~~$29,474~~$37,717 and $34,276, respectively. The Company has made payments and/or provided bank guarantees against these demands in the amounts of ~~$7,889~~$7,659 and $7,954, respectively. Amounts paid as deposits in respect of such assessments aggregating to ~~$6,212~~$6,030 and $6,172 as of ~~June~~September 30, 2022 and December 31, 2021, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to ~~$1,677~~$1,629 and $1,782 as of ~~June~~September 30, 2022 and December 31, 2021, 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 consolidated financial statements. 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.

India’s Value Added Tax (“VAT”) regime ended in June 2017 and was replaced by the current Goods and Service Tax (“GST”) regime. Pursuant to reviewing the Company’s annual VAT filings, the Indian tax authorities raised aggregate VAT tax demands for tax years 2015 and 2017 in an amount of ~~$5,788~~$5,619 and $6,387 as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Beginning in the first quarter of 2020, the GST authorities rejected the Company’s refunds claims in an amount of ~~$3,655~~$3,548 and $3,322 as of ~~June~~September 30, 2022 and December 31, 2021, respectively. The Company has filed appeals against these

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~~EXLSERVICE HOLDINGS, INC.~~

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

~~June 30, 2022~~

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

matters and believes that it is more likely than not that upon final examination its position will be sustained based on its technical merits. Accordingly, no provision was recognized as of ~~June~~September 30, 2022 and December 31, 2021.

~~NaN~~One of the Company’s subsidiaries in India ~~is undergoing~~has undergone an assessment with the statutory authority with respect to defined social security contribution plan. ~~The~~Except for some components of the assessment for which the Company has recognized a provision in the financial statements, the Company believes that the amount demanded by such authority is not a meaningful indicator of the potential liabilities of the Company, and that the matter is without ~~merit,~~merit. The Company is defending against the assessment order and has accordingly instituted an appeal against the ~~Company intends~~order before the relevant tribunal while also making a payment under protest of the amount demanded, being a prerequisite for the appeal to ~~vigorously defend against it.~~be admitted. As of the reporting date, ~~based on legal advice,~~ the Company believes it is currently impracticable to reliably estimate the timing and amount of any payments the Company may be required to make in this ongoing matter. The Company will continue to monitor and evaluate its position based on future events and developments in this matter for implications on the Company’s financial statements, if any. The Company’s management does not believe that ~~any~~the ultimate assessment will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. The Company will continue to monitor and evaluate its position based on future events and developments in this matter.

In 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 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

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

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 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, 2021. Some of the statements in the following discussion are forward looking statements.

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 ended June 30, 2022. See “Cautionary Note Regarding Forward-Looking Statements” below, and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 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 have been, and will be, amplified by 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 and financial condition, including the 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 and our ability to withstand the loss of a significant client;

•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;

•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 or breaches, natural or other disasters, medical epidemics or pandemics, or acts of violence or war;

•our ability to realize the entire book value of goodwill and other intangible assets from acquisitions;

•our ability to make accurate estimates and assumptions in connection with the preparation of our consolidated financial statements;

•failure to protect our intellectual property;

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•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;

•credit risk fluctuations in the market values of our investment and derivatives portfolios;

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•legal liability arising out of customer contracts;

•technological innovation;

•our ability to meet our environmental, social and governance-related goals and targets;

•effects of political and economic conditions globally, particularly in the geographies where we ~~operate;~~operate, including potential effects of the Russian invasion of Ukraine;

•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 employee data; and

•adverse outcome of our disputes with the tax authorities, in the geographies where we operate.

These and other factors are more fully discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2021 and under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. 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 data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth. By bringing together deep domain expertise with robust data, powerful analytics, cloud, AI and ML, we create agile, scalable solutions and execute complex operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media, and retail, among others.

We deliver data analytics and digital operations and solutions to our clients, driving enterprise-scale business transformation initiatives that leverage our deep expertise in advanced analytics, AI, ML and cloud. We manage and report financial information through our four strategic business units: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions.

Our reportable segments are as follows:

•Insurance,

•Healthcare,

•Analytics, and

•Emerging Business.

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 United States, the United Kingdom, the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.

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On December 16, 2021, we completed the acquisition of Clairvoyant, a global data, AI, ML, and cloud services firm that helps organizations in their business transformation by maximizing the value of data through actionable insights. It provides data engineering, analytics, AI, ML, product engineering, and cloud-based solutions. The acquisition strengthens our Analytics capabilities by adding additional expertise in data engineering and cloud enablement, further supporting our clients in the insurance, healthcare, banking and financial services, and retail industries.

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On June 10, 2022, the Company, through its wholly owned subsidiary ExlService.com, LLC, entered into an Asset Purchase Agreement to acquire certain assets of Inbound, a digital marketing business focused primarily on lead generation in the insurance space. The acquisition expands our digital direct-to-consumer marketing services by adding proven performance marketing, lead generation and customer engagement capabilities to our suite of end-to-end marketing solutions, proprietary data sets and robust consumer analytics.

Continued Impact of COVID-19 on Our Business

~~Over~~During 2022, we continued to recover from the ~~course of 2020 and 2021, and continuing into first half of 2022, our clients, contractors, suppliers, and other partners adapted in order to conduct business activities in a~~ COVID-19 ~~environment.~~pandemic. As the global economy continued to adapt to the impact of COVID-19, 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 and, going forward, to the shifting business environment, which has led to increased demand for digital capabilities.

Our remote working delivery capability steadily improved throughout 2021 and during the first half of 2022. We are able to deliver a significant portion of our clients’ current requirements in a remote work model. In 2022, we implemented a new work standard under which employees in many of our locations, where permitted by local laws and regulations, and where the role and client requirements permit, ~~will~~ have the opportunity to choose between different work arrangements. Subject to local rules and regulations, these work arrangements include working in a hybrid arrangement or a fully remote arrangement, with occasional work from the office when warranted. We have begun to re-open our operation centers and offices globally with a focus on safety and consistency with applicable local regulations.

We continue to focus on effectively managing the unprecedented challenges and uncertainties of the pandemic on a global basis. Management has prioritized the health and safety of our employees and their families: we have adopted numerous safety procedures at our global facilities, including hygiene and disinfection protocols, testing and contact tracing, social distancing and wearing personal protective equipment. We share best practices throughout our facilities globally in order to standardize effective safety guidelines and procedures across our operations. Our safety guidelines and procedures are updated on a regular basis.

While many of the COVID-19 related restrictions have been lifted in the geographies in which we operate, there have been periodic resurgences of COVID-19 as a result of new strains and variants, which has led us to monitor our work model and / or implement additional safety procedures.

We believe our actions have been successful and that the pandemic has not significantly affected our business, results of operations, financial position and cash flow during the first ~~half~~nine months of 2022, however the impact of the pandemic for the period beyond the first ~~half~~nine months of 2022 will depend on many evolving and uncertain factors that are not within our control.

For additional information and risks related to COVID-19, see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Revenues

For the three months ended ~~June~~September 30, 2022, we had revenues of ~~$346.8~~$361.4 million compared to revenues of ~~$275.1~~$290.3 million for the three months ended ~~June~~September 30, 2021, an increase of ~~$71.7~~$71.1 million, or ~~26.1%~~24.5%. For the ~~six~~nine months ended ~~June~~September 30, 2022, we had revenues of ~~$676.0~~$1,037.3 million compared to revenues of ~~$536.5~~$826.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021, an increase of ~~$139.5~~$210.5 million, or ~~26.0%~~25.5%.

We serve clients mainly in the United States and the United Kingdom, which generated ~~86.1%~~86.0% and ~~9.3%~~9.4%, respectively, of our total revenues for the three months ended ~~June~~September 30, 2022 and ~~85.5%~~2021. These two regions generated 85.9% and 9.5%, respectively, of our total revenues for the ~~three~~nine months ended ~~June 30, 2021. For the six months ended June~~September 30, 2022 ~~these two regions generated 85.9%~~ and ~~9.6%,~~

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~~respectively, of our total revenues and 85.7%~~85.8% and 9.5%, respectively, of our total revenues for the ~~six~~nine months ended ~~June~~September 30, 2021.

For the three months ended ~~June~~September 30, 2022 and 2021, our total revenues from our top ten clients accounted for ~~36.2%~~34.2% and ~~37.8%~~38.7% of our total revenues, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, our total revenues from our top ten clients accounted for ~~36.2%~~33.7% and ~~38.5%~~38.6% of our total revenues, respectively. ~~Our revenue concentration with our top clients remains largely consistent year-over-year and~~Although we continue to develop relationships with new clients to diversify our client ~~base. We~~base, we believe that the loss of any of our top ten clients could have a material adverse effect on our financial performance.

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Our Business

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

Digital Operations and Solutions: We provide our clients with a range of digital operations and solutions from our Insurance, Healthcare and Emerging Business strategic business units, which are focused on solving complex industry problems such as the insurance claims lifecycle and financial transactions processing, and typically involve the use of agile delivery models to implement digital technologies and interventions like hyper-automation, customer experience transformation, advanced automation, robotics, enterprise architecture, end-to-end business function management and transformations. We either administer and manage these functions on an ongoing basis via longer-term arrangements or project work. For a portion of our digital operations and solutions, we hire and train employees to work at our operations centers on the relevant business operations, implement a process migration to these operations centers and then provide services either to the client or directly to the client’s customers. Each client contract has different terms based on the scope, deliverables and complexity of the engagement. We also provide consulting services related to digital operations and solutions that include industry-specific digital transformational services as well as cross-industry finance and accounting services as part of the Emerging Business strategic business unit.

We provide our services under contracts with our clients, which typically have 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 digital operations and solutions 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.

We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models. Outcome-based pricing arrangements are examples of non-linear pricing models where clients link revenues from platforms and solutions and the services we provide to usage or savings rather than the efforts deployed to provide these services. We continue to observe a shift in the industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models. We believe this trend will continue and we use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a 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.

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.

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Analytics: Our analytics services focus on driving improved business outcomes for our clients by unlocking deep insights from data and create data driven solutions across all parts of our clients’ 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 ML and AI capabilities to create insights

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and improve decision making for our clients. Our acquisition of Clairvoyant in December 2021 strengthens our analytics capabilities by adding additional expertise in data engineering and cloud enablement, further supporting our clients in the insurance, healthcare, banking and financial services, and retail industries. We actively cross-sell and, where appropriate, integrate our analytics services with other digital operations and solutions 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.

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the three and ~~six~~nine months ended ~~June~~September 30, 2022, 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” under “Critical Accounting Policies and Estimates” and Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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Results of Operations

The following table summarizes our results of ~~operations for the three months and six months ended June 30, 2022 and 2021:~~operations:


		Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(dollars in millions)				(dollars in millions)					(dollars in millions)				(dollars in millions)
Revenues, net	Revenues, net	$	346.8	$	275.1	$	676.0	$	536.5	Revenues, net	$	361.4	$	290.3	$	1,037.3	$	826.8
Cost of revenues(1)	Cost of revenues(1)	221.2		170.7		428.7		329.5		Cost of revenues(1)	230.5		177.7		659.2		507.2
Gross profit(1)	Gross profit(1)	125.6		104.4		247.3		207.0		Gross profit(1)	130.9		112.6		378.1		319.6
Operating expenses:	Operating expenses:									Operating expenses:
General and administrative expenses	General and administrative expenses	40.5		36.5		80.4		67.2		General and administrative expenses	42.5		36.2		122.9		103.4
Selling and marketing expenses	Selling and marketing expenses	24.0		19.8		48.2		38.0		Selling and marketing expenses	23.9		21.7		72.0		59.7
Depreciation and amortization expense	Depreciation and amortization expense	14.1		12.3		27.7		24.4		Depreciation and amortization expense	14.4		12.3		42.1		36.7

Total operating expenses	Total operating expenses	78.6		68.6		156.3		129.6		Total operating expenses	80.8		70.2		237.0		199.8
Income from operations	Income from operations	47.0		35.8		91.0		77.4		Income from operations	50.1		42.4		141.1		119.8
Foreign exchange gain, net	Foreign exchange gain, net	1.4		1.4		3.2		1.8		Foreign exchange gain, net	1.5		1.2		4.7		3.0
Interest expense	Interest expense	(1.5)		(2.5)		(2.4)		(5.0)		Interest expense	(2.4)		(1.8)		(4.8)		(6.8)
Other income/(loss), net		(0.2)		2.2		2.2		3.6

Other income, net										Other income, net	2.3		1.7		4.5		5.3
Loss on settlement of convertible notes										Loss on settlement of convertible notes	—		(12.8)		—		(12.8)
Income before income tax expense and earnings from equity affiliates	Income before income tax expense and earnings from equity affiliates	46.7		36.9		94.0		77.8		Income before income tax expense and earnings from equity affiliates	51.5		30.7		145.5		108.5
Income tax expense	Income tax expense	11.1		8.9		22.3		17.9		Income tax expense	12.5		4.2		34.8		22.1
Income before earnings from equity affiliates	Income before earnings from equity affiliates	35.6		28.0		71.7		59.9		Income before earnings from equity affiliates	39.0		26.5		110.7		86.4
Gain from equity-method investment	Gain from equity-method investment	0.2		—		0.3		—		Gain from equity-method investment	0.1		—		0.4		—
Net income attributable to ExlService Holdings, Inc. stockholders	Net income attributable to ExlService Holdings, Inc. stockholders	$	35.8	$	28.0	$	72.0	$	59.9	Net income attributable to ExlService Holdings, Inc. stockholders	$	39.1	$	26.5	$	111.1	$	86.4

(1) Exclusive of depreciation and amortization expense.

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Due to rounding, the numbers presented in the tables included in this Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may not add up precisely to the totals provided.

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Three Months Ended ~~June~~September 30, 2022 Compared to Three Months Ended ~~June~~September 30, 2021

Revenues.

The following table summarizes our revenues by reportable segments:


		Three months ended June 30,						Percentage change			Three months ended September 30,						Percentage change
		2022		2021		Change					2022		2021		Change
		(dollars in millions)									(dollars in millions)
Insurance	Insurance	$	108.5	$	94.7	$	13.8	14.6	%	Insurance	$	116.2	$	98.0	$	18.2	18.6	%
Healthcare	Healthcare	23.1		28.3		(5.2)		(18.4)	%	Healthcare	22.8		27.3		(4.5)		(16.5)	%
Emerging Business	Emerging Business	53.9		40.7		13.2		32.4	%	Emerging Business	56.1		44.5		11.6		25.9	%
Analytics	Analytics	161.3		111.4		49.9		44.8	%	Analytics	166.3		120.5		45.8		38.0	%
Total revenues, net	Total revenues, net	$	346.8	$	275.1	$	71.7	26.1	%	Total revenues, net	$	361.4	$	290.3	$	71.1	24.5	%

Revenues for the three months ended ~~June~~September 30, 2022 were ~~$346.8~~$361.4 million, up ~~$71.7~~$71.1 million, or ~~26.1%~~24.5%, compared to the three months ended ~~June~~September 30, 2021, driven primarily by revenue growth in Analytics.

Revenue growth in Insurance of ~~$13.8~~$18.2 million was primarily driven by expansion of business from our new and existing clients aggregating to ~~$15.1~~$19.9 million. This was partially offset by a loss of ~~$1.3~~$1.7 million mainly attributable to the depreciation of the ~~Australian dollar, the~~ U.K. pound sterling, the Australian dollar and the Indian rupee against the U.S. dollar during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021. Insurance revenues were ~~31.3%~~32.2% and ~~34.4%~~33.8% of our total revenues during the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, respectively.

Revenue decline in Healthcare of ~~$5.2~~$4.5 million was primarily driven by the ramp-down in certain existing clients ~~aggregating to $5.2 million~~ during the three months ended ~~June~~September 30, 2022. Healthcare revenues were ~~6.7%~~6.3% and ~~10.3%~~9.4% of our total revenues during the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, respectively.

Revenue growth in Emerging Business of ~~$13.2~~$11.6 million was primarily driven by expansion of business from our new and existing clients aggregating to ~~$14.7~~$13.8 million. This was partially offset by a loss of ~~$1.5~~$2.2 million mainly attributable to the depreciation of the U.K. pound sterling, the Indian rupee and the Euro against the U.S. dollar during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021. Emerging Business revenues were 15.5% and ~~14.8%~~15.3% of our total revenues during the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, respectively.

Revenue growth in Analytics of ~~$49.9~~$45.8 million was ~~attributable to the~~primarily driven by higher volumes in our annuity and project-based engagements from our new and existing clients of ~~$40.2~~$35.0 million, and contributions from our acquisition of Clairvoyant in December 2021 of ~~$11.0~~$12.5 million. This was partially offset by a loss of ~~$1.3~~$1.7 million mainly attributable to the depreciation of the U.K. pound sterling against the U.S. dollar during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021. Analytics revenues were ~~46.5%~~46.0% and ~~40.5%~~41.5% of our total revenues during the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, 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 September 30,					Change				Percentage change				Three months ended September 30,								Change
		2022		2021						2022			2021			2022					2021							2022					2021
		(dollars in millions)																				(dollars in millions)
Insurance	Insurance	$	70.6	$	59.4	$	11.2	19.0	%		34.9	%		37.3	%		(2.4)	%	Insurance	$	75.0		$	61.4		$	13.6			22.0		%		35.4		%		37.3		%		(1.9)		%
Healthcare	Healthcare	17.7		17.7		—		—	%		23.2	%		37.4	%		(14.2)	%	Healthcare	17.1			17.1		—				—		%		25.0		%		37.6		%		(12.6)		%
Emerging Business	Emerging Business	31.2		22.3		8.9		39.7	%		42.1	%		45.1	%		(3.0)	%	Emerging Business	32.4			23.7		8.7				36.8		%		42.2		%		46.8		%		(4.6)		%
Analytics	Analytics	101.7		71.3		30.4		42.6	%		37.0	%		36.0	%		1.0	%	Analytics	106.0			75.5		30.5				40.2		%		36.3		%		37.3		%		(1.0)		%
Total	Total	$	221.2	$	170.7	$	50.5	29.6	%		36.2	%		37.9	%		(1.7)	%	Total	$	230.5		$	177.7	$	52.8			29.7		%		36.2		%		38.8		%		(2.6)		%

For the three months ended ~~June~~September 30, 2022, cost of revenues was ~~$221.2~~$230.5 million compared to ~~$170.7~~$177.7 million for the three months ended ~~June~~September 30, 2021, an increase of ~~$50.5~~$52.8 million, or ~~29.6%~~29.7%. Our gross margin for the three months ended ~~June~~September 30, 2022 was 36.2%, compared to ~~37.9%~~38.8% for the three months ended ~~June~~September 30, 2021, a decrease of ~~170~~260 basis points (“bps”).

The increase in cost of revenues in Insurance of ~~$11.2~~$13.6 million during the three months ended ~~June~~September 30, 2022 was primarily due to increases in employee-related costs of ~~$11.3~~$13.6 million on account of higher headcount ~~performance incentives~~ and wage inflation, and higher technology costs of ~~$1.6~~$2.0 million on account of increased leverage of the remote work model, partially offset by foreign exchange gain, net of hedging of ~~$1.7~~$2.0 million. Gross margin in Insurance decreased by ~~240~~190 bps during the three months ended ~~June~~September 30, 2022, compared to the three months ended June 30, 2021, primarily due to increases in employee-related costs and lower margins in certain new clients due to ramp-ups during the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

The cost of revenues in Healthcare remained unchanged at $17.7 million during the three months ended June 30, 2022 and 2021. This was driven by increases in employee-related costs of $0.4 million on account of higher headcount, performance incentives and wage inflation, offset by lower travel costs and optimization of office space aggregating to $0.4 million. Gross margin in Healthcare decreased by 1,420 bps during the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to lower revenues.

The increase in cost of revenues in Emerging Business of $8.9 million during the three months ended June 30, 2022 was primarily due to increases in employee-related costs of $9.2 million on account of higher headcount, performance incentives and wage inflation, and higher technology costs of $1.0 million on account of increased leverage of the remote work model, partially offset by foreign exchange gain, net of hedging of $1.3 million. Gross margin in Emerging Business decreased by 300 bps during the three months ended June 30, 2022, compared to the three months ended JuneSeptember 30, 2021, primarily due to lower margins associated with ramp-ups in certain new clients during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021.

The cost of revenues in Healthcare remained unchanged at $17.1 million during the three months ended September 30, 2022 and 2021. This was driven by increases in employee-related costs of $0.7 million on account of higher headcount in existing clients and wage inflation, offset by foreign exchange gain, net of hedging of $0.5 million and lower other operating costs of $0.2 million. Gross margin in Healthcare decreased by 1,260 bps during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to lower revenues associated with ramp-down of certain existing clients during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

The increase in cost of revenues in Emerging Business of $8.7 million during the three months ended September 30, 2022 was primarily due to increases in employee-related costs of $8.2 million on account of higher headcount and wage inflation, higher technology costs of $0.9 million on account of increased leverage of the remote work model, higher travel costs of $0.8 million, and higher facilities cost of $0.5 million, partially offset by foreign exchange gain, net of hedging of $1.7 million. Gross margin in Emerging Business decreased by 460 bps during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to lower margins associated with ramp-ups in certain new clients, higher employee-related costs and higher operating expenses during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

The increase in cost of revenues in Analytics of ~~$30.4~~$30.5 million during the three months ended ~~June~~September 30, 2022 was primarily due to increases in employee-related costs of ~~$27.7~~$29.4 million on account of higher headcount ~~performance incentives~~ and wage inflation, including incremental cost related to our acquisition of Clairvoyant in December 2021. The remaining increase was attributable to higher ~~travel costs of $1.1 million, higher~~ technology costs of ~~$0.7~~$1.2 million on account of increased leverage of the remote work model, higher travel costs of $1.1 million, and higher other operating costs of ~~$3.2~~$2.3 million. This was partially offset by foreign exchange gain, net of hedging of ~~$2.3~~$3.5 million. Gross margin in Analytics ~~increased~~decreased by 100 bps during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, primarily due to increases in employee-related costs and higher ~~revenues~~operating expenses during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021.

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Selling, General and Administrative (“SG&A”) Expenses.


		Three months ended June 30,						Change			Percentage change			Three months ended September 30,							Change		Percentage change
		2022			2021					2022					2021
		(dollars in millions)															(dollars in millions)
General and administrative expenses	General and administrative expenses	$	40.5		$	36.5		$	4.0		10.8	%	General and administrative expenses	$	42.5			$	36.2		$	6.3	17.6	%
Selling and marketing expenses	Selling and marketing expenses	24.0			19.8			4.2			21.6	%	Selling and marketing expenses	23.9				21.7			2.2		10.2	%
Selling, general and administrative expenses	Selling, general and administrative expenses	$	64.5		$	56.3		$	8.2		14.6	%	Selling, general and administrative expenses	$	66.4			$	57.9		$	8.5	14.8	%
As a percentage of revenues	As a percentage of revenues	18.6		%	20.4		%						As a percentage of revenues	18.4		%		19.9		%

The increase in SG&A expenses of ~~$8.2~~$8.5 million was primarily due to higher employee-related costs of ~~$6.8~~$7.5 million on account of a higher headcount ~~performance incentives~~ and wage inflation, including incremental costs related to our acquisition of Clairvoyant in December 2021, increase in technology ~~cost~~costs of ~~$1.9~~$2.3 million on account of continued investments in digital capabilities and higher ~~travel costs $1.0 million and~~ other operating costs of ~~$1.8~~$0.3 million, partially offset by ~~higher COVID-19 related expenses of $2.2 million during the three months ended June 30, 2021 and~~ foreign exchange gain, net of hedging of ~~$1.1 million, during the three months ended June 30, 2022.~~$1.6 million.

Depreciation and Amortization.


		Three months ended June 30,						Change			Percentage change			Three months ended September 30,							Change		Percentage change
		2022			2021					2022					2021
		(dollars in millions)															(dollars in millions)
Depreciation expense	Depreciation expense	$	10.0		$	8.9		$	1.1		11.4	%	Depreciation expense	$	10.1			$	9.3		$	0.8	9.2	%
Intangible amortization expense	Intangible amortization expense	4.1			3.4			0.7			22.0	%	Intangible amortization expense	4.3				3.0			1.3		40.4	%
Depreciation and amortization expense	Depreciation and amortization expense	$	14.1		$	12.3		$	1.8		14.3	%	Depreciation and amortization expense	$	14.4			$	12.3		$	2.1	16.9	%
As a percentage of revenues	As a percentage of revenues	4.1		%	4.5		%						As a percentage of revenues	4.0		%		4.2		%

The increase in intangibles amortization expense of ~~$0.7~~$1.3 million was primarily due to amortization of intangibles associated with our acquisition of Clairvoyant and Inbound in December 2021 and June 2022, respectively, during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021. The increase in depreciation expense of ~~$1.1~~$0.8 million was primarily due to depreciation of $1.2 million related to our investments in digital capabilities and computer and networking equipment, ~~of $1.3 million,~~ partially offset by foreign exchange gain, net of hedging of ~~$0.2~~$0.4 million during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021.

Income from Operations. Income from operations increased by ~~$11.2~~$7.7 million, or ~~31.4%~~18.1%, from ~~$35.8~~$42.4 million for the three months ended ~~June~~September 30, 2021 to ~~$47.0~~$50.1 million for the three months ended ~~June~~September 30, 2022, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the three months ended ~~June~~September 30, 2022. As a percentage of revenues, income from operations ~~increased~~decreased from ~~13.0%~~14.6% for the three months ended ~~June~~September 30, 2021 to ~~13.6%~~13.9% for the three months ended ~~June~~September 30, 2022.

Foreign Exchange Gain/(Loss). 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, the Philippine peso and the South African ZAR during the three months ended ~~June~~September 30, 2022. The average exchange rate of the U.S. dollar against the Indian rupee increased from ~~73.67~~73.88 during the three months ended ~~June~~September 30, 2021 to ~~77.68~~80.01 during the three months ended ~~June~~September 30, 2022. The average exchange rate of the U.K. pound sterling against the U.S. dollar decreased from ~~1.40~~1.37 during the three months ended ~~June~~September 30, 2021 to ~~1.24~~1.16 during the three months ended ~~June~~September 30, 2022. The average exchange rate of the U.S. dollar against the Philippine peso increased from ~~48.20~~50.24 during the three months ended ~~June~~September 30, 2021 to ~~53.18~~56.63 during the three months ended ~~June~~September 30, 2022. The average exchange rate of the U.S. dollar against the South African ZAR increased from ~~14.15~~14.76 during the three months ended ~~June~~September 30, 2021 to ~~15.94~~17.21 during the three months ended ~~June~~September 30, 2022.

We recorded a net foreign exchange gain of ~~$1.4~~$1.5 million ~~each,~~ for the three months ended ~~June~~September 30, 2022, ~~and~~compared to net foreign exchange gain of $1.2 million for the three months ended September 30, 2021.

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Interest expense. Interest expense ~~decreased~~increased from ~~$2.5~~$1.8 million for the three months ended ~~June~~September 30, 2021 to ~~$1.5~~$2.4 million for the three months ended ~~June~~September 30, 2022, primarily due to the settlement of outstanding obligations under the Notes (as defined under Note 17 – Borrowings-Convertible Senior Notes to our unaudited consolidated financial statements”) on August 27, 2021, partially offset by higher outstanding obligations under our revolving Credit Facility ~~bearing a relatively lower~~and higher effective interest ~~rate as compared to the Notes~~rates during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021.

Other ~~Income/(Loss),~~Income, net.


		Three months ended June 30,						Percentage change			Three months ended September 30,						Percentage change
		2022		2021		Change					2022		2021		Change
		(dollars in millions)									(dollars in millions)
Gain on sale and mark-to-market of mutual funds and money market funds	Gain on sale and mark-to-market of mutual funds and money market funds	$	0.7	$	1.6	$	(0.9)	(61.7)	%	Gain on sale and mark-to-market of mutual funds and money market funds	$	1.5	$	1.2	$	0.3	19.3	%
Interest income	Interest income	0.8		0.7		0.1		22.9	%	Interest income	1.5		0.8		0.7		91.5	%
Other, net	Other, net	(1.7)		(0.1)		(1.6)		1,182.9	%	Other, net	(0.7)		(0.3)		(0.4)		144.3	%
Other income/(loss), net		$	(0.2)	$	2.2	$	(2.4)	(107.9)	%
Other income, net										Other income, net	$	2.3	$	1.7	$	0.6	31.4	%

Other ~~income/(loss),~~income, net ~~decreased~~increased by ~~$2.4~~$0.6 million, from ~~an income of $2.2~~$1.7 million for the three months ended ~~June~~September 30, 2021 to ~~an expense of $0.2~~$2.3 million for the three months ended ~~June~~September 30, ~~2022. The decrease is~~2022, primarily due to ~~a fair value adjustment to recognize an increase~~higher interest income on investments in ~~contingent consideration liability~~term deposits of ~~$1.0~~$0.7 million ~~related to~~and higher yield on our ~~acquisition of Clairvoyant in December 2021, and lower return on~~ mutual fund investments of ~~$0.9~~$0.3 million.

Loss on settlement of Notes. On August 27, 2021, we settled our outstanding obligations under the Notes and recognized

a loss of $12.8 million during the three months ended ~~June~~September 30, ~~2022, compared~~2021. See Note 18 - Borrowings to ~~the three months ended June 30, 2021.~~our unaudited consolidated financial statements.

Income Tax Expense. The effective tax rate ~~decreased~~increased from ~~24.0%~~13.7% during the three months ended ~~June~~September 30, 2021 to ~~23.8%~~24.2% during the three months ended ~~June~~September 30, 2022. We recorded income tax expense of ~~$11.1~~$12.4 million and ~~$8.9~~$4.2 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. The increase in income tax expense was primarily a result of higher profit during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, the recording of a one-time deferred tax benefit of $2.4 million on settlement of the Notes during the three months ended September 30, 2021, and higher excess tax benefits during the three months ended September 30, 2021.

Net Income. Net income increased from ~~$28.0~~$26.5 million for the three months ended ~~June~~September 30, 2021 to ~~$35.8~~$39.1 million for the three months ended ~~June~~September 30, 2022, primarily due to increase in income from operations of ~~$11.2~~$7.7 million, ~~lower interest expense~~loss on settlement of ~~$1.0~~the Notes of $12.8 million during three months ended September 30, 2021 and higher foreign exchange gain, ~~from equity-method investment~~net of ~~$0.2~~$0.3 million, partially offset by ~~lower other income/(loss), net of $2.4 million and~~ higher income tax expense of ~~$2.2~~$8.3 million. As a percentage of revenues, net income increased ~~marginally~~ from ~~10.2%~~9.1% for the three months ended ~~June~~September 30, 2021 to ~~10.3%~~10.8% for the three months ended ~~June~~September 30, 2022.

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~~Six~~Nine Months Ended ~~June~~September 30, 2022 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2021

Revenues.

The following table summarizes our revenues by reportable segments:


		Six months ended June 30,						Percentage change			Nine months ended September 30,						Percentage change
		2022		2021		Change					2022		2021		Change
		(dollars in millions)									(dollars in millions)
Insurance	Insurance	$	211.8	$	185.8	$	26.0	14.0	%	Insurance	$	328.0	$	283.8	$	44.2	15.5	%
Healthcare	Healthcare	49.3		58.6		(9.3)		(15.9)	%	Healthcare	72.1		85.9		(13.8)		(16.1)	%
Emerging Business	Emerging Business	104.6		78.4		26.2		33.5	%	Emerging Business	160.6		122.9		37.7		30.8	%
Analytics	Analytics	310.3		213.7		96.6		45.2	%	Analytics	476.6		334.2		142.4		42.6	%
Total revenues, net	Total revenues, net	$	676.0	$	536.5	$	139.5	26.0	%	Total revenues, net	$	1,037.3	$	826.8	$	210.5	25.5	%

Revenues for the ~~six~~nine months ended ~~June~~September 30, 2022 were ~~$676.0~~$1,037.3 million, up ~~$139.5~~$210.5 million, or ~~26.0%~~25.5%, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, driven primarily by revenue growth in ~~Analytics.~~Analytics and Insurance.

Revenue growth in Insurance of ~~$26.0~~$44.2 million was primarily driven by expansion of business from our new and existing clients aggregating to ~~$27.8~~$47.6 million. This was partially offset by a loss of ~~$1.8~~$3.4 million mainly attributable to the depreciation of the ~~Australian dollar,~~ U.K. pound sterling, the Australian dollar and the Indian rupee against the U.S. dollar during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021. Insurance revenues were ~~31.3%~~31.6% and ~~34.7%~~34.3% of our total revenues during the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, respectively.

Revenue decline in Healthcare of ~~$9.3~~$13.8 million was primarily driven by the ramp-down in certain existing clients ~~aggregating to $9.3 million~~ during the ~~six~~nine months ended ~~June~~September 30, 2022. Healthcare revenues were ~~7.3%~~6.9% and ~~10.9%~~10.4% of our total revenues during the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, respectively.

Revenue growth in Emerging Business of ~~$26.2~~$37.7 million was primarily driven by expansion of business from our new and existing clients of ~~$28.3~~$42.1 million. This was partially offset by a loss of ~~$2.1~~$4.4 million mainly attributable to the depreciation of the U.K. pound sterling, the Indian rupee and the Euro against the U.S. dollar during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021. Emerging Business revenues were 15.5% and ~~14.6%~~14.9% of our total revenues during the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, respectively.

Revenue growth in Analytics of ~~$96.6~~$142.4 million was ~~attributable to~~primarily driven by the higher volumes in our annuity and project based engagements from our new and existing clients of ~~$77.1~~$112.1 million, and contributions from our acquisition of Clairvoyant in December 2021 of ~~$21.2~~$33.7 million. This was partially offset by a loss of ~~$1.7~~$3.4 million mainly attributable to the depreciation of the U.K. pound sterling against the U.S. dollar during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021. Analytics revenues were 45.9% and ~~39.8%~~40.4% of our total revenues during the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, 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			Nine months ended September 30,								Percentage change				Nine months ended September 30,								Change
		2022		2021		Change				2022			2021			2022					2021			Change			2022					2021
		(dollars in millions)																				(dollars in millions)
Insurance	Insurance	$	135.7	$	115.5	$	20.2	17.6	%		35.9	%		37.9	%		(2.0)	%	Insurance	$	210.7		$	176.9	$	33.8			19.1		%		35.7		%		37.7		%		(2.0)		%
Healthcare	Healthcare	35.3		35.1		0.2		0.8	%		28.2	%		40.1	%		(11.9)	%	Healthcare	52.4			52.2		0.2			0.6		%		27.2		%		39.3		%		(12.1)		%
Emerging Business	Emerging Business	60.4		43.1		17.3		39.9	%		42.2	%		44.9	%		(2.7)	%	Emerging Business	92.8			66.8		26.0			38.8		%		42.2		%		45.6		%		(3.4)		%
Analytics	Analytics	197.3		135.8		61.5		45.2	%		36.5	%		36.5	%		0.0	%	Analytics	303.3			211.3		92.0			43.4		%		36.4		%		36.8		%		(0.4)		%
Total	Total	$	428.7	$	329.5	$	99.2	30.1	%		36.6	%		38.6	%		(2.0)	%	Total	$	659.2		$	507.2	$	152.0		29.9		%		36.5		%		38.6		%		(2.1)		%

For the ~~six~~nine months ended ~~June~~September 30, 2022, cost of revenues was ~~$428.7~~$659.2 million compared to ~~$329.5~~$507.2 million for the ~~six~~nine months ended ~~June~~September 30, 2021, an increase of ~~$99.2~~$152.0 million, or ~~30.1%~~29.9%. Our gross margin for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~36.6%~~36.5% compared to 38.6% for ~~six~~nine months ended ~~June~~September 30, 2021, a decrease of ~~200~~210 bps.

The increase in cost of revenues in Insurance of ~~$20.2~~$33.8 million during the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily due to increases in employee-related costs of ~~$19.1~~$32.8 million on account of higher headcount ~~performance incentives~~ and wage inflation, ~~and~~ higher technology costs of ~~$3.0~~$5.1 million on account of increased leverage of the remote work model and higher travel costs of $1.1 million, partially offset by foreign exchange gain, net of hedging of ~~$1.9~~$4.3 million and lower other operating costs of $0.9 million. Gross margin in Insurance decreased by 200 bps during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to ~~increases~~lower margins associated with ramp-ups in ~~employee-related costs~~certain new clients during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021.

The increase in cost of revenues in Healthcare of $0.2 million during the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily due to increases in employee-related costs of ~~$1.1~~$1.8 million on account of higher headcount in existing clients and wage inflation, partially offset by lower ~~travel~~other operating costs of ~~$0.5~~$0.8 million and foreign exchange gain, net of hedging of ~~$0.4~~$0.8 million. Gross margin in Healthcare decreased by ~~1,190~~1,210 bps during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to lower revenues and higher operating expenses associated with the ramp-down of certain existing clients during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021.

The increase in cost of revenues in Emerging Business of ~~$17.3~~$26.0 million during the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily due to increases in employee-related costs of ~~$16.2~~$24.7 million on account of higher headcount ~~performance incentives~~ and wage inflation, higher technology costs of ~~$2.2~~$3.1 million on account of increased leverage of the remote work model, ~~and~~ higher travel costs of ~~$0.9~~$1.7 million, higher facilities costs of $0.5 million, partially offset by foreign exchange gain, net of hedging of ~~$2.0~~$4.0 million. Gross margin in Emerging Business decreased by ~~270~~340 bps during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to lower margins associated with ramp-ups in certain new clients, higher employee-related costs and higher operating expenses during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021.

The increase in cost of revenues in Analytics of ~~$61.5~~$92.0 million during the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily due to increases in employee-related costs of ~~$56.1~~$85.5 million on account of higher headcount ~~performance incentives~~ and wage inflation, including incremental cost related to our acquisition of Clairvoyant in December 2021. The remaining increase was attributable to higher travel costs of ~~$2.1~~$3.2 million, higher technology costs of ~~$1.2~~$2.5 million on account of increased leverage of the remote work model and higher other operating costs of ~~$5.3~~$7.5 million. This was partially offset by foreign exchange gain, net of hedging of ~~$3.2~~$6.7 million. Gross margin in Analytics ~~remained unchanged~~decreased by 40 bps during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to increases in employee-related costs and higher operating expenses during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

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Selling, General and Administrative (“SG&A”) Expenses.


		Six months ended June 30,								Percentage change			Nine months ended September 30,								Percentage change
		2022			2021			Change					2022			2021			Change
		(dollars in millions)											(dollars in millions)
General and administrative expenses	General and administrative expenses	$	80.4		$	67.2		$	13.2	19.6	%	General and administrative expenses	$	122.9		$	103.4		$	19.5	18.9	%
Selling and marketing expenses	Selling and marketing expenses	48.2			38.0			10.2		26.9	%	Selling and marketing expenses	72.0			59.7			12.3		20.8	%
Selling, general and administrative expenses	Selling, general and administrative expenses	$	128.6		$	105.2		$	23.4	22.2	%	Selling, general and administrative expenses	$	194.9		$	163.1		$	31.8	19.6	%
As a percentage of revenues	As a percentage of revenues	19.0		%	19.6		%					As a percentage of revenues	18.8		%	19.7		%

The increase in SG&A expenses of ~~$23.4~~$31.8 million was primarily due to higher employee-related costs of ~~$17.4~~$28.2 million on account of a higher headcount ~~performance incentives~~ and wage inflation, including incremental costs related to our acquisition of Clairvoyant in December 2021, increase in technology ~~cost~~costs of ~~$5.3~~$7.6 million on account of continued investments in digital capabilities and higher other operating costs of ~~$3.2 million and travel costs of $1.3~~$1.4 million, partially offset by ~~higher~~foreign exchange gain, net of hedging of $3.2 million, during the nine months ended September 30, 2022 and COVID-19 related expenses of $2.2 million during the ~~six~~nine months ended ~~June~~September 30, ~~2021 and foreign exchange gain, net of hedging of $1.6 million, during the six months ended June 30, 2022.~~2021.

Depreciation and Amortization.


		Six months ended June 30,								Percentage change			Nine months ended September 30,								Percentage change
		2022			2021			Change					2022			2021			Change
		(dollars in millions)											(dollars in millions)
Depreciation expense	Depreciation expense	$	19.1		$	17.6		$	1.5	7.9	%	Depreciation expense	$	29.2		$	26.9		$	2.3	8.3	%
Intangible amortization expense	Intangible amortization expense	8.6			6.8			1.8		27.7	%	Intangible amortization expense	12.9			9.8			3.1		31.6	%
Depreciation and amortization expense	Depreciation and amortization expense	$	27.7		$	24.4		$	3.3	13.4	%	Depreciation and amortization expense	$	42.1		$	36.7		$	5.4	14.5	%
As a percentage of revenues	As a percentage of revenues	4.1		%	4.6		%					As a percentage of revenues	4.1		%	4.4		%

The increase in intangibles amortization expense of ~~$1.8~~$3.1 million was primarily due to amortization of intangibles associated with our acquisition of Clairvoyant and Inbound in December 2021 and June 2022, respectively, partially offset by decrease in intangibles amortization expense due to end of useful lives for certain intangible assets during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021. The increase in depreciation expense of ~~$1.5~~$2.3 million was primarily due to depreciation of $3.0 million related to our investments in digital capabilities and computer and networking equipment, ~~of $1.8 million,~~ partially offset by foreign exchange gain, net of hedging of ~~$0.3~~$0.7 million during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021.

Income from Operations. Income from operations increased by ~~$13.6~~$21.3 million, or ~~17.7%~~17.8%, from ~~$77.4~~$119.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$91.0~~$141.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the ~~six~~nine months ended ~~June~~September 30, 2022. As a percentage of revenues, income from operations decreased from ~~14.4%~~14.5% for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~13.5%~~13.6% for the ~~six~~nine months ended ~~June~~September 30, 2022.

Foreign Exchange Gain/(Loss). 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, the Philippine peso and the South African ZAR during the ~~six~~nine months ended ~~June~~September 30, 2022. The average exchange rate of the U.S. dollar against the Indian rupee increased from ~~73.42~~73.57 during the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~76.46~~77.65 during the ~~six~~nine months ended ~~June~~September 30, 2022. The average exchange rate of the U.K. pound sterling against the U.S. dollar decreased from ~~1.39~~1.38 during the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~1.29~~1.25 during the ~~six~~nine months ended ~~June~~September 30, 2022. The average exchange rate of the U.S. dollar against the Philippine peso increased from ~~48.29~~48.94 during the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~52.25~~53.71 during the ~~six~~nine months ended ~~June~~September 30, 2022. The average exchange rate of the U.S. dollar against the South African ZAR increased from ~~14.58~~14.64 during the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~15.54~~16.10 during the ~~six~~nine months ended ~~June~~September 30, 2022.

We recorded a net foreign exchange gain of ~~$3.2~~$4.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the net foreign exchange gain of ~~$1.8~~$3.0 million for the ~~six~~nine months ended ~~June~~September 30, 2021.

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Interest expense. Interest expense decreased from ~~$5.0~~$6.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$2.4~~$4.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily due to the settlement of outstanding obligations under the Notes (as defined under Note 1718 – Borrowings-Convertible Senior Notes to our unaudited consolidated financial statements”) on August 27, 2021, partially offset by higher outstanding obligations under our revolving Credit Facility bearing a relatively lower effective interest rate as compared to the Notes during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021.

Other ~~Income/(Loss),~~Income, net.


		Six months ended June 30,						Percentage change			Nine months ended September 30,						Percentage change
		2022		2021		Change					2022		2021		Change
Gain on sale and mark-to-market of mutual funds and money market funds	Gain on sale and mark-to-market of mutual funds and money market funds	$	1.9	$	2.7	$	(0.8)	(32.2)	%	Gain on sale and mark-to-market of mutual funds and money market funds	$	3.4	$	3.9	$	(0.5)	(16.3)	%
Interest and dividend income	Interest and dividend income	2.2		1.3		0.9		71.7	%	Interest and dividend income	3.7		2.1		1.6		79.0	%
Other, net	Other, net	(1.9)		(0.4)		(1.5)		336.3	%	Other, net	(2.6)		(0.7)		(1.9)		261.1	%
Other income/(loss), net		$	2.2	$	3.6	$	(1.4)	(38.3)	%
Other income, net										Other income, net	$	4.5	$	5.3	$	(0.8)	(15.9)	%

Other ~~income/(loss),~~income, net decreased by ~~$1.4~~$0.8 million, from ~~$3.6~~$5.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$2.2~~$4.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease is primarily due to a fair value adjustment to recognize an increase in contingent consideration liability of $1.0 million related to our acquisition of Clairvoyant in December 2021, interest on statutory payments of $0.7 million, and lower return on mutual fund investments of ~~$0.8~~$0.5 million, partially offset by higher interest income on investments in term deposits of $0.9 million and interest on income tax refunds of $0.7 million.

Loss on settlement of Notes. On August 27, 2021, we settled our outstanding obligations under the Notes and recognized

a loss of $12.8 million during the ~~six~~nine months ended ~~June~~September 30, ~~2022, compared~~2021. See Note 18 - Borrowings to ~~the six months ended June 30, 2021.~~our unaudited consolidated financial statements.

Income Tax Expense. The effective tax rate increased from ~~22.9%~~20.3% during the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~23.7%~~23.9% during the ~~six~~nine months ended ~~June~~September 30, 2022. We recorded income tax expense of ~~$22.3~~$34.8 million and ~~$17.9~~$22.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The increase in income tax expense was primarily as a result of higher profit during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, the recording of a one-time deferred tax benefit of $2.4 million on settlement of the Notes during the nine months ended September 30, 2021, and an increase in non-deductible expenses, partially offset by higher excess tax benefits during the ~~six~~nine months ended ~~June~~September 30, 2022.

Net Income. Net income increased from ~~$59.9~~$86.4 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$72.0~~$111.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily due to increase in income from operations of ~~$13.6~~$21.3 million, loss on settlement of the Notes of $12.8 million during three months ended September 30, 2021, lower interest expense of ~~$2.6~~$2.0 million, higher foreign exchange gain, net of ~~$1.4~~$1.7 million and higher gain from equity-method investment of ~~$0.3~~$0.4 million, partially offset by higher income tax expense of ~~$4.4~~$12.7 million and lower other ~~income/(loss),~~income, net of ~~$1.4~~$0.8 million. As a percentage of revenues, net income ~~decreased~~increased from ~~11.2%~~10.5% for the ~~six~~nine months ended ~~June~~September 30, 2021 to 10.7% for the ~~six~~nine months ended ~~June~~September 30, 2022.

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Liquidity and Capital Resources


		Six months ended June 30,					Nine months ended September 30,
		2022		2021			2022		2021
		(dollars in millions)					(dollars in millions)
Opening cash, cash equivalents and restricted cash	Opening cash, cash equivalents and restricted cash	$	143.8	$	225.5	Opening cash, cash equivalents and restricted cash	$	143.8	$	225.5
Net cash provided by operating activities	Net cash provided by operating activities	53.1		53.9		Net cash provided by operating activities	101.1		113.8
Net cash (used for)/provided by investing activities		(41.0)		11.7
Net cash used for investing activities						Net cash used for investing activities	(75.2)		(21.5)
Net cash used for financing activities	Net cash used for financing activities	(35.3)		(131.4)		Net cash used for financing activities	(61.8)		(189.1)
Effect of exchange rate changes	Effect of exchange rate changes	(5.4)		(2.2)		Effect of exchange rate changes	(9.6)		(5.0)
Closing cash, cash equivalents and restricted cash	Closing cash, cash equivalents and restricted cash	$	115.2	$	157.5	Closing cash, cash equivalents and restricted cash	$	98.3	$	123.7

As of ~~June~~September 30, 2022 and 2021, we had ~~$265.2~~$262.2 million and ~~$294.7~~$284.9 million, respectively, in cash, cash equivalents and short-term investments, of which ~~$241.1~~$237.5 million and ~~$254.2~~$254.8 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes. We periodically evaluate opportunities regarding distribution 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.

Operating Activities: Net cash provided by operating activities was ~~$53.1~~$101.1 million and $113.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022 ~~as compared to net cash provided by operating activities of $53.9 million for the six months ended June 30,~~and 2021, respectively, reflecting ~~our cash earnings and effective management of~~higher working capital ~~needs.~~needs, offset by higher cash earnings. The major drivers contributing to the decrease of ~~$0.8~~$12.7 million year-over-year included the following:

•A decrease in accrued employee costs, offset by an increase in accrued expenses and other liabilities contributed to a lower cash flow of ~~$33.0~~$33.3 million in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021. The decrease was primarily due to higher payments (net of accruals) of annual performance incentives of ~~$39.7~~$43.0 million, offset by higher employee costs accruals of ~~$3.2~~$4.9 million and higher accrued expenses of $4.8 million due to an increase in our cost base to support revenue ~~growth of $3.5 million.~~

•Changes in accounts receivable, including advance billings, contributed higher cash flow of $15.5 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was a result of lower cash flows during the six months ended June 30, 2021 due to higher advance collections during the three months ended December 31, 2020. This was partially offset by higher accounts receivable resulting from revenue growth during the six months ended June 30, 2022 and increase in our accounts receivable days sales outstanding which was 60 days as of June 30, 2022 as compared to 58 days as of June 30, 2021.growth.

•An increase in net income of ~~$12.1~~$24.7 million in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to an increase in income from operations of ~~$13.6~~$21.3 million driven by higher revenues, lower interest expense of ~~$2.6~~$2.0 million and higher foreign exchange gain, ~~from equity-method investment~~net of ~~$0.3 million, partially offset by higher income tax expense of $4.4~~$1.7 million.

•Other drivers ~~increasing~~decreasing cash flows during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021 included: ~~lower~~ income tax payments, net of refunds, of ~~$4.4~~$4.1 million, primarily due to ~~withholding tax payments during the six months ended June 30, 2021, offset by~~ higher ~~advance~~ income tax payments on higher net ~~income during the six months ended June 30, 2022.~~income.

Investing Activities: ~~Cash flows~~Net cash used for investing activities ~~were $41.0~~was $75.2 million and $21.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022 ~~as compared to cash flows provided by investing activities of $11.7 million for the six months ended June 30, 2021.~~and 2021, respectively. The increase in net cash flows used for investing activities of ~~$52.7~~$53.7 million is mainly due to higher net purchase of investments of ~~$13.5~~$40.0 million during ~~six~~nine months ended ~~June~~September 30, 2022 as compared to net redemption of investments of ~~$31.0~~$6.7 million during the ~~six~~nine months ended ~~June~~September 30, 2021. The increase is also due to higher capital expenditures in infrastructure, technology assets, software and product developments of ~~$5.5~~$3.7 million and acquisitions related payouts of ~~$2.6~~$3.3 million during the ~~six~~nine months ended ~~June~~September 30, 2022.

~~Table of Contents~~

Financing Activities: ~~Cash flows~~Net cash used for financing activities ~~were $35.3~~was $61.8 million and $189.1 million during the ~~six~~nine months ended ~~June~~September 30, 2022 ~~as compared to cash flows used for financing activities of $131.4 million during the six months ended June 30, 2021.~~and 2021, respectively. The decrease of ~~$96.1~~$127.2 million was primarily due to net proceeds of our borrowings under our revolving Credit Facility of ~~$25.0~~$10.0 million during the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to net repayment of our borrowings of ~~$74.0~~$104.0 million during the ~~six~~nine months ended ~~June~~September 30, 2021. The remaining decrease was attributable to lower purchases of treasury stock under our share repurchase program of $13.9 million during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This was partially offset by ~~higher purchases~~proceeds from the exercise of ~~treasury~~ stock options by ~~$2.8~~$0.7 million ~~under our share repurchase program~~ during the ~~six~~nine months ended ~~June 30, 2022 as compared to the six months ended June~~September 30, 2021.

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.

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We incurred $~~25.1~~32.1 million of capital expenditures induring the ~~six~~nine months ended ~~June~~September 30, 2022. We expect to incur total capital expenditures of between ~~$40.0~~$37.0 million to ~~$45.0~~$42.0 million in 2022, primarily to meet our growth requirements, including additions to our facilities as well as investments in technology applications, product development, digital technology, advanced automation, robotics and infrastructure.

In connection with any demand orders by the tax ~~assessment orders~~and/or other statutory authorities, 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 2425 - 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 working capital needs, capital expenditures and smaller acquisitions. If we have significant growth through acquisitions, we may need to obtain additional financing.

We believe that our existing cash, cash equivalents and short-term investments and sources of liquidity will be sufficient to satisfy our cash requirements over the next 12 months. Our future cash requirements will depend on many factors, including our rate of revenue growth, our investments in strategic initiatives, applications or technologies, operation centers and acquisition of complementary businesses, continued purchases under our board-authorized stock repurchase program, which may require the use of significant cash resources and/or additional financing. Although we anticipate that we will continue to rely upon cash from operating activities to finance most of our above mentioned requirements, if we have significant growth through acquisitions, we may need to obtain additional financing.

In the ordinary course of business, we enter into contracts and commitments that obligate us to make payments in the future. These obligations include borrowings, including interest obligations, purchase commitments, operating and finance lease commitments, employee benefit payments under Gratuity plans and uncertain tax positions. See Note 1718 - Borrowings, Note 2021 - Leases, and Note 2425 - Commitments and Contingencies to our unaudited consolidated financial statements herein for further information on material cash requirements from known contractual and other obligations.

In the ordinary course of business, we provide standby letters of credit to third parties primarily for facility leases. As of ~~June~~September 30, 2022 and December 31, 2021, we had outstanding letters of credit of $0.5 million, each, that were not recognized in our consolidated balance sheets. 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 sheet arrangements or obligations.

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. The deferred amount is payable as follows: (1) 50% of the deferred amount was 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. Our deferred contributions, net of payments to FICA was $3.1 million as of ~~June~~September 30, 2022 and December 31, 2021, each, which will be paid on or before December 31, 2022.

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Financing Arrangements (Debt Facility)

The following tables summarizes our debt position:


		As of June 30,2022				As of December 31, 2021					As of September 30,2022		As of December 31, 2021
		(dollars in millions)				(dollars in millions)					(dollars in millions)
		Revolving Credit Facility		Total		Revolving Credit Facility		Total			Credit Facility
Current portion of long-term borrowings	Current portion of long-term borrowings	$	35.0	$	35.0	$	260.0	$	260.0	Current portion of long-term borrowings	$	35.0	$	260.0

Long-term borrowings	Long-term borrowings	250.0		250.0		—		—		Long-term borrowings	235.0		—

Total borrowings	Total borrowings	$	285.0	$	285.0	$	260.0	$	260.0	Total borrowings	$	270.0	$	260.0

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Unamortized debt issuance costs for our ~~revolving~~ Credit Facility of ~~$1.3~~$1.2 million and $0.2 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively, is presented under “Other current assets” and “Other assets,” as applicable in our consolidated balance sheets.

See Note 1718 - Borrowings to our unaudited consolidated financial statements herein for further details.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 2—“Recent Accounting Pronouncements” to our unaudited consolidated financial statements contained herein.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

During the three months ended ~~June~~September 30, 2022, 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 Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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~~September 30, 2022. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures, as of ~~June~~September 30, 2022, were effective.

Changes in Internal Control over Financial Reporting

During the three months ended ~~June~~September 30, 2022, 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.

In making its assessment of the changes in internal control over financial reporting during the ~~six~~nine months ended ~~June~~September 30, 2022, our management excluded an evaluation of the disclosure controls and procedures of Clairvoyant and Inbound which we acquired on December 16, 2021 and June 10, 2022, respectively. See Note 910 - Business ~~Combination,~~Combinations, Goodwill and Intangible Assets to our unaudited consolidated financial statements contained herein for details of our acquisition.

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 2425 - Commitments and Contingencies to our unaudited consolidated financial statements contained herein for details.

ITEM 1A. Risk Factors

We have disclosed below, as well as under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 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 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 results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our clients’ businesses and levels of business activity.

The Russian invasion of Ukraine and the resulting economic sanctions imposed by the United States and other countries, along with certain international organizations, have impacted the global economy and given rise to potential global security

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issues that may adversely affect international business and economic conditions. Additional sanctions, and retaliatory acts by Russia in response to such sanctions including state sponsored cyber attacks, could further damage or

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disrupt international commerce. Although we have no operations in Russia or Ukraine, certain of our ~~customers~~clients and suppliers may have been or may in the future be impacted by these events. Moreover, the ongoing effects of the hostilities and sanctions may not be limited to Russia and Russian companies and may spill over to and negatively impact other regional and global economic markets. A prolonged conflict may result in increased inflation, rising energy prices and constrained supply chain, and thus may lead to inflationary global economic environment. At this time, the extent and duration of the military action, resulting sanctions, ~~and~~retaliatory actions, future economic and market disruptions, and the extent of future cyber attack incidents and resulting effects on ~~the Company,~~us, are impossible to predict.

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~~September 30, 2022, purchases of common stock were as follows:

Period Total Number of
Shares Purchased Average Price
Paid per share Total Number of Shares Purchased as Part of Publicly
Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
April 1, 2022 through April 30, 2022 46,778 $ 145.50 46,778 $ 265,000,088
May 1, 2022 through May 31, 2022 75,089 $ 132.59 75,089 $ 255,044,097
June 1, 2022 through June 30, 2022 83,849 $ 143.64 83,849 $ 243,000,163
Total 205,716 $ 140.03 205,716 $ —


Period	Total Number of Shares Purchased	Average Price Paid per share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2022 through July 31, 2022	68,109	$	146.82	68,109	$	233,000,320
August 1, 2022 through August 31, 2022	8,700	$	174.85	8,700	$	231,479,093
September 1, 2022 through September 30, 2022	—	$	—	—	$	231,479,093
Total	76,809	$	150.00	76,809	$	—

On October 5, 2021, the Company’s Board of Directors authorized a $300 million common stock repurchase program beginning January 1, 2022 (the “2022 Repurchase Program”).

Under the 2022 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. The Company has structured open market purchases under the Repurchase Program to comply with Rule 10b-18 under the Exchange Act. Repurchases may be discontinued at any time by management.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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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)

10.1

Amendment to Second Amended and ~~Restatement~~Restated Employment and Non-Competition Agreement dated April 18, 2022, by and among the Company and the other loan parties thereto, the lenders party thereto, and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-33089) filed on April 20, 2022.

~~10.2~~

between ExlService Holdings, Inc. ~~2022 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-33089) filed on June 22,~~and Rohit Kapoor, dated as of August 12, 2022.

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)

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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: ~~July 28,~~October 27, 2022	EXLSERVICE HOLDINGS, INC.

	By:	/S/ MAURIZIO NICOLELLI
		MAURIZIO NICOLELLI Chief Financial Officer (Duly Authorized Signatory, Principal Financial and Accounting Officer)

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Estimated future amortization expense related to finite-lived intangible assets as of June 30, 2022 was as follows:
2022 (July 1 - December 31)	$	8,445
2023	14,595
2024	12,084
2025	10,648
2026	10,313
2027 and thereafter	16,313
Total	$	72,398


	Three months ended June 30,				Six months ended June 30,
Forward Exchange Contracts:	2022		2021		2022		2021
Unrealized loss recognized in AOCI
Derivatives in cash flow hedging relationships	$	(14,632)	$	(871)	$	(15,149)	$	(303)

Loss recognized in unaudited consolidated statements of income
Derivatives not designated as hedging instruments	$	(5,457)	$	(805)	$	(6,356)	$	(589)


Weighted-average remaining lease term (in years)
Finance lease	2.5 years		1.8 years
Operating lease	5.5 years		5.8 years
Weighted-average discount rate
Finance lease	14.5	%	14.1	%
Operating lease	7.0	%	7.4	%