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 MARCH 31, 2021

OR

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

FOR THE TRANSITION PERIOD FROM                      TO                     

COMMISSION FILE NUMBER 001-33089

_________________________________________________________

EXLSERVICE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________

Delaware		82-0572194
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
320 Park Avenue,	29th Floor,
New York,	New York	10022
(Address of principal executive offices)		(Zip code)

(212) 277-7100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:	Trading symbol(s)	Name of Each Exchange on Which Registered:
Common Stock, par value $0.001 per share	EXLS	NASDAQ

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

None

________________________________________________________

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

(2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12

months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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

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

As of April 27, 2021, there were 33,457,656 shares of the registrant’s common stock outstanding, par value $0.001 per share.

TABLE OF CONTENTS

		PAGE
ITEM
	Part I. Financial Information	3
1.	FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	3
	Consolidated Statements of Income for the Three months ended March 31, 2021 and 2020	5
	Consolidated Statements of Comprehensive Income/(Loss) for the Three months ended March 31, 2021 and 2020	6
	Consolidated Statements of Equity for the Three months ended March 31, 2021 and 2020	7
	Consolidated Statements of Cash Flows for the Three months ended March 31, 2021 and 2020	8
	Notes to Consolidated Financial Statements	9
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
3.	Quantitative and Qualitative Disclosures About Market Risk	49
4.	Controls and Procedures	49
	Part II. Other Information	49
1.	Legal Proceedings	49
1A.	Risk Factors	49
2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
3.	Defaults Upon Senior Securities	51
4.	Mine Safety Disclosures	51
5.	Other Information	51
6.	Exhibits	52
Signatures		53

2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share amounts)

	As of
	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	177,121	$	218,530
Short-term investments	198,721		184,286
Restricted cash	5,295		4,690
Accounts receivable, net	159,296		147,635
Prepaid expenses	12,709		11,344
Advance income tax, net	7,580		5,684
Other current assets	35,828		37,109
Total current assets	596,550		609,278
Property and equipment, net	90,153		92,875
Operating lease right-of-use assets	88,777		91,918
Restricted cash	2,298		2,299
Deferred tax assets, net	10,657		7,749
Intangible assets, net	56,243		59,594
Goodwill	349,098		349,088
Other assets	29,669		32,099
Investment in equity affiliate	2,921		2,957
Total assets	$	1,226,366	$	1,247,857
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	8,304	$	6,992
Current portion of long-term borrowings	25,000		25,000
Deferred revenue	14,764		32,649
Accrued employee costs	43,492		67,645
Accrued expenses and other current liabilities	73,241		66,410
Current portion of operating lease liabilities	18,476		18,894
Income taxes payable, net	14,443		3,488
Total current liabilities	197,720		221,078
Long-term borrowings, less current portion	202,687		201,961
Operating lease liabilities, less current portion	81,948		84,874
Income taxes payable	1,790		1,790
Deferred tax liabilities, net	877		847
Other non-current liabilities	15,119		18,135
Total liabilities	500,141		528,685
Commitments and contingencies (Refer to Note 24)
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, 39,273,989 shares issued and 33,526,889 shares outstanding as of March 31, 2021 and 38,968,052 shares issued and 33,559,434 shares outstanding as of December 31, 2020	39		39
Additional paid-in capital	428,882		420,976

3

Retained earnings	673,310		641,379
Accumulated other comprehensive loss	(78,753)		(74,984)
Total including shares held in treasury	1,023,478		987,410
Less: 5,747,100 shares as of March 31, 2021 and 5,408,618 shares as of December 31, 2020, held in treasury, at cost	(297,253)		(268,238)
Stockholders’ equity	726,225		719,172
Total equity	726,225		719,172
Total liabilities and stockholders’ equity	$	1,226,366	$	1,247,857

See accompanying notes to unaudited consolidated financial statements.

4

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except share and per share amounts)

	Three months ended March 31,
	2021		2020
Revenues, net	$	261,415	$	245,990
Cost of revenues(1)	158,821		162,656
Gross profit(1)	102,594		83,334
Operating expenses:
General and administrative expenses	30,703		28,941
Selling and marketing expenses	18,235		14,456
Depreciation and amortization expense	12,101		12,450
Total operating expenses	61,039		55,847
Income from operations	41,555		27,487
Foreign exchange gain, net	434		1,377
Interest expense	(2,474)		(3,072)
Other income, net	1,410		2,529
Income before income tax expense and earnings from equity affiliates	40,925		28,321
Income tax expense	8,958		5,855
Income before earnings from equity affiliates	31,967		22,466
Loss from equity-method investment	36		55
Net income attributable to ExlService Holdings, Inc. stockholders	$	31,931	$	22,411
Earnings per share attributable to ExlService Holdings, Inc. stockholders:
Basic	$	0.95	$	0.65
Diluted	$	0.93	$	0.65
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:
Basic	33,734,118		34,401,565
Diluted	34,318,318		34,720,603

(1) Exclusive of depreciation and amortization expense.

See accompanying notes to unaudited consolidated financial statements.

5

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS) (UNAUDITED)

(In thousands)

	Three months ended March 31,
	2021		2020
Net income	$	31,931	$	22,411
Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges	568		(14,846)
Foreign currency translation loss	(1,911)		(21,571)
Reclassification adjustments
Gain on cash flow hedges(1)	(2,829)		(929)
Retirement benefits(2)	179		101
Income tax effects relating to above(3)	224		9,033
Total other comprehensive loss	$	(3,769)	$	(28,212)
Total comprehensive income/(loss)	$	28,162	$	(5,801)

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

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

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

See accompanying notes to unaudited consolidated financial statements.

6

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the three months ended March 31, 2021 and 2020

(In thousands, except share and per share amounts)

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total Equity
	Shares	Amount								Shares	Amount
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	305,937	—		74		—		—		—	—		74
Stock-based compensation	—	—		7,832		—		—		—	—		7,832
Acquisition of treasury stock	—	—		—		—		—		(338,482)	(29,015)		(29,015)
Other comprehensive loss	—	—		—		—		(3,769)		—	—		(3,769)
Net income	—	—		—		31,931		—		—	—		31,931
Balance as of March 31, 2021	39,273,989	$	39	$	428,882	$	673,310	$	(78,753)	(5,747,100)	$	(297,253)	$	726,225

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total Equity
	Shares	Amount								Shares	Amount
Balance as of January 1, 2020	38,480,654	$	39	$	391,240	$	551,903	$	(84,892)	(4,295,413)	$	(188,289)	$	670,001
Stock issued against stock-based compensation plans	333,121	—		921		—		—		—	—		921
Stock-based compensation	—	—		4,778		—		—		—	—		4,778
Acquisition of treasury stock	—	—		—		—		—		(202,366)	(13,995)		(13,995)
Other comprehensive loss	—	—		—		—		(28,212)		—	—		(28,212)
Net income	—	—		—		22,411		—		—	—		22,411
Balance as of March 31, 2020	38,813,775	$	39	$	396,939	$	574,314	$	(113,104)	(4,497,779)	$	(202,284)	$	655,904

See accompanying notes to unaudited consolidated financial statements.

7

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Three months ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	31,931	$	22,411
Adjustments to reconcile net income to net cash provided by / (used for) operating activities:
Depreciation and amortization expense	12,266		12,472
Stock-based compensation expense	7,832		4,778
Amortization of operating lease right-of-use assets	6,761		6,853
Unrealized (gain) / loss on short term investments	(1,103)		267
Unrealized foreign exchange (gain), net	(1,139)		(6,490)
Deferred income tax (benefit)/expense	(2,695)		3,539
Allowance for expected credit losses	48		195
Loss from equity-method investment	36		55
Amortization of non-cash interest expense related to convertible senior notes	673		635
Others, net	216		(26)
Change in operating assets and liabilities:
Accounts receivable	(11,818)		(17,518)
Prepaid expenses and other current assets	(21)		(1,871)
Advance income tax, net	9,057		(1,109)
Other assets	1,268		925
Accounts payable	1,902		1,400
Deferred revenue	(17,986)		2,579
Accrued employee costs	(23,611)		(37,046)
Accrued expenses and other liabilities	8,456		972
Operating lease liabilities	(6,868)		(6,576)
Net cash provided by /(used for) operating activities	15,205		(13,555)
Cash flows from investing activities:
Purchases of property and equipment	(12,680)		(12,347)
Proceeds from sale of property and equipment	129		73
Investment in equity affiliate	—		(700)
Purchase of investments	(18,835)		(23,830)
Proceeds from redemption of investments	5,357		72,844
Net cash (used for) /provided by investing activities	(26,029)		36,040
Cash flows from financing activities:
Principal payments of finance lease liabilities	(57)		(67)
Proceeds from borrowings	25,000		110,000
Repayments of borrowings	(25,000)		(10,201)
Acquisition of treasury stock	(29,015)		(13,995)
Proceeds from exercise of stock options	75		921
Net cash (used for)/provided by financing activities	(28,997)		86,658
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(984)		(2,653)
Net (decrease)/increase in cash, cash equivalents and restricted cash	(40,805)		106,490
Cash, cash equivalents and restricted cash at the beginning of the period	225,519		127,044
Cash, cash equivalents and restricted cash at the end of the period	$	184,714	$	233,534
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	610	$	775
Income taxes, net of refunds	$	2,415	$	2,646
Supplemental disclosure of non-cash investing and financing activities:
Assets acquired under finance lease	$	10	$	28

See accompanying notes to unaudited consolidated financial statements.

8

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(In thousands, except share and per share amounts)

1. Organization

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

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, 2020.

The unaudited consolidated financial statements reflect all adjustments (of a normal and recurring nature) that management considers necessary for a fair presentation of such statements for the interim periods presented. The unaudited consolidated statements of income for the interim periods presented are not necessarily indicative of the results for the full year or for any subsequent period.

The accompanying unaudited consolidated financial statements include the financial statements of ExlService Holdings and all of its subsidiaries. The standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, and gains and losses arising from intra-group transactions, are eliminated while preparing 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.

(b) Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, allowance for expected credit losses, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements, 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, purchase price allocation and recoverability of long-lived assets, goodwill and intangibles.

9

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

As of March 31, 2021, the extent to which the global Coronavirus Disease 2019 pandemic (“COVID-19”) will ultimately impact the Company's business depends on numerous dynamic factors, which the Company still cannot reliably predict. As a result, many of the Company's estimates and assumptions herein required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to COVID-19, the Company’s estimates may materially change in future periods. Any changes in estimates are adjusted prospectively in the Company’s consolidated financial statements.

(c) Recent Accounting Pronouncements

In January 2021, Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify that all derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment (commonly referred to as the discounting transition) are within the scope of Accounting Standard Codification (“ASC”) 848. The amendments in this ASU further clarify that certain optional expedients and exceptions for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of the discontinuation of the use of LIBOR as a benchmark interest rate due to reference rate reform. This ASU is effective immediately for all entities with the option to be applied retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, and prospectively to any new contract modifications made on or after January 7, 2021 through December 31, 2022. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

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 Company is currently evaluating the impact of this ASU on its consolidated financial statements.

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

(d) Recently Adopted Accounting Pronouncements

In December 2019, FASB issued ASU No. 2019-12, Income Taxes Simplifying the Accounting for Income Taxes. This ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The Company adopted this ASU on January 1, 2021. The adoption of this ASU has a minimal impact on the Company’s unaudited consolidated financial statements.

In October 2020, FASB issued ASU No. 2020-10, Codification Improvements, to provide guidance for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. The amendments in this ASU improve the consistency of the ASC by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the disclosure section of the ASC. The Company adopted this ASU on January 1, 2021. The adoption of this ASU did not have a material impact on the Company’s unaudited consolidated financial statements.

10

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

3. Segment and Geographical Information

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

The Company manages and reports financial information through its four strategic business units: Insurance, Healthcare, Analytics and Emerging Business. 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.

Revenues and cost of revenues for the three months ended March 31, 2021 and 2020, respectively, for each of the reportable segments, are as follows:

	Three months ended March 31, 2021
	Insurance		Healthcare		Emerging Business		Analytics		Total
Revenues, net	$	91,160	$	30,265	$	37,668	$	102,322	$	261,415
Cost of revenues(1)	56,093		17,391		20,844		64,493		158,821
Gross profit(1)	$	35,067	$	12,874	$	16,824	$	37,829	$	102,594
Operating expenses									61,039
Foreign exchange gain, interest expense and other income, net									(630)
Income tax expense									8,958
Loss from equity-method investment									36
Net income									$	31,931

(1) Exclusive of depreciation and amortization expense.

	Three months ended March 31, 2020
	Insurance		Healthcare		Emerging Business		Analytics		Total
Revenues, net	$	83,739	$	27,029	$	42,791	$	92,431	$	245,990
Cost of revenues(1)	58,965		19,593		25,482		58,616		162,656
Gross profit(1)	$	24,774	$	7,436	$	17,309	$	33,815	$	83,334
Operating expenses									55,847
Foreign exchange gain, interest expense and other income, net									834
Income tax expense									5,855
Loss from equity-method investment									55
Net income									$	22,411

(1) Exclusive of depreciation and amortization expense.

11

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Revenues, net by service type, were as follows:

	Three months ended March 31,
	2021		2020
BPM and related services(1)	$	159,093	$	153,559
Analytics services	102,322		92,431
Revenues, net	$	261,415	$	245,990

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

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

	Three months ended March 31,
	2021		2020
Revenues, net
United States	$	224,368	$	207,880
Non-United States
United Kingdom	24,751		23,278
Rest of World	12,296		14,832
Total Non-United States	37,047		38,110
Revenues, net	$	261,415	$	245,990

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

	As of
	March 31, 2021		December 31, 2020
Long-lived assets
India	$	93,329	$	97,261
United States	47,676		46,659
Philippines	27,486		29,434
Rest of World	10,439		11,439
Long-lived assets	$	178,930	$	184,793

4. Revenues, net

Refer to Note 3 - Segment and Geographical Information to the unaudited consolidated financial statements for revenues disaggregated by reportable segments and geography.

Contract balances

The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers:

12

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

	As of
	March 31, 2021		December 31, 2020
Accounts receivable, net	$	159,296	$	147,635
Contract assets	3,984		4,437
Contract liabilities:
Deferred revenue (consideration received in advance)	12,971		30,450
Consideration received for process transition activities	$	2,280	$	2,774

Accounts receivable includes $78,502 and $63,995 as of March 31, 2021 and December 31, 2020, respectively, representing unbilled receivables. The Company has accrued the unbilled receivables for work performed in accordance with the terms of contracts with customers and considers no significant performance risk associated with its unbilled receivables.

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.

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 months ended March 31, 2021 and 2020, which was included in the contract liabilities balance at the beginning of the respective periods:

	Three months ended March 31,
	2021		2020
Deferred revenue (consideration received in advance)	$	23,621	$	5,968
Consideration received for process transition activities	$	679	$	274

Contract acquisition and fulfillment costs

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

	Contract Acquisition Costs						Contract Fulfillment Costs
	Quarter Ended				Year Ended		Quarter Ended				Year Ended
	March 31, 2021		March 31, 2020		December 31, 2020		March 31, 2021		March 31, 2020		December 31, 2020
Opening Balance	$	1,027	$	1,307	$	1,307	$	5,631	$	7,255	$	7,255
Additions	—		—		310		6		284		779
Amortization	(242)		(92)		(590)		(1,218)		(623)		(2,403)
Closing Balance	$	785	$	1,215	$	1,027	$	4,419	$	6,916	$	5,631

There was no impairment for contract acquisition and contract fulfillment costs as of March 31, 2021 and December 31, 2020. The capitalized costs are amortized over the expected period of benefit of the contract.

13

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Allowance for expected credit losses

The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future and estimates relating to the possible effects resulting from COVID-19.

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

	As of
	March 31, 2021		December 31, 2020
Accounts receivable, including unbilled receivables	$	160,479	$	148,824
Less: Allowance for expected credit loss	(1,183)		(1,189)
Accounts receivable, net	$	159,296	$	147,635

The movement in allowance for expected credit loss on customer balances for the three months ended March 31, 2021 and year ended December 31, 2020 was as follows:

	Three months ended				Year ended
	March 31, 2021		March 31, 2020		December 31, 2020
Balance at the beginning of the period	$	1,189	$	1,163	$	1,163
Additions during the period	50		195		300
Charged against allowance	(60)		—		(269)
Translation adjustment	4		(12)		(5)
Balance at the end of the period	$	1,183	$	1,346	$	1,189

5. Earnings Per Share

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

The Company has a choice to settle the Notes in cash, shares or any combination of the two. The Company presently intends and has the ability to settle the principal balance of the Notes in cash, and as such, the Company has applied the treasury stock method. The dilution related to the conversion premium, if any, of the Notes is included in the calculation of diluted weighted-average shares outstanding to the extent the issuance is dilutive based on the average stock price during the reporting period being greater than the conversion price of $75. Refer to Note 17 - Borrowings to the unaudited consolidated financial statements for further details.

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

14

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

	Three months ended March 31,
	2021		2020
Numerators:
Net income	$	31,931	$	22,411
Denominators:
Basic weighted average common shares outstanding	33,734,118		34,401,565
Dilutive effect of share based awards	342,993		319,038
Dilutive effect of conversion premium on convertible notes	241,207		—
Diluted weighted average common shares outstanding	34,318,318		34,720,603
Earnings per share attributable to ExlService Holdings Inc. stockholders:
Basic	$	0.95	$	0.65
Diluted	$	0.93	$	0.65
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share	—		170,313

6. Cash, Cash Equivalents and Restricted Cash

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

	As of
	March 31, 2021		March 31, 2020
Cash and cash equivalents	$	177,121	$	224,874
Restricted cash (current)	5,295		6,369
Restricted cash (non-current)	2,298		2,291
Cash, cash equivalents and restricted cash	$	184,714	$	233,534

7. Other Income, net

Other income, net consists of the following:

	Three months ended March 31,
	2021		2020
Gain on sale and mark-to-market of mutual funds	$	1,103	$	2,056
Interest and dividend income	602		532
Others, net	(295)		(59)
Other income, net	$	1,410	$	2,529

15

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

8. Property and Equipment, net

Property and equipment, net consists of the following:

	Estimated useful lives	As of
	(Years)	March 31, 2021		December 31, 2020
Owned Assets:
Network equipment and computers	3-5	$	107,695	$	107,109
Software	3-5	100,395		99,708
Leasehold improvements	3-8	46,889		48,052
Office furniture and equipment	3-8	21,888		22,117
Motor vehicles	2-5	597		599
Buildings	30	1,088		1,089
Land	—	712		712
Capital work in progress	—	5,316		4,647
		284,580		284,033
Less: Accumulated depreciation and amortization		(194,854)		(191,629)
		$	89,726	$	92,404
Right-of-use assets under finance leases:
Leasehold improvements		$	816	$	817
Office furniture and equipment		347		348
Motor vehicles		669		688
		1,832		1,853
Less: Accumulated depreciation and amortization		(1,405)		(1,382)
		$	427	$	471
Property and equipment, net		$	90,153	$	92,875

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

During the three months ended March 31, 2021, there were no changes in estimated useful lives of property and equipment.

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

	Three months ended March 31,
	2021		2020
Depreciation and amortization expense	$	8,740	$	8,297

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

	Three months ended March 31,
	2021		2020
Effect of foreign exchange gain	$	165	$	22

16

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

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

	As of
	March 31, 2021		December 31, 2020
Cost	$	18,608	$	18,371
Less : Accumulated amortization	(7,022)		(5,998)
Internally developed software, net	$	11,586	$	12,373

The amortization expense on internally developed software recognized in the unaudited consolidated statements of income was as follows:

	Three months ended March 31
	2021		2020
Amortization expense	$	1,024	$	831

As of March 31, 2021 and December 31, 2020, 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 that long-lived assets will not be impaired in future periods. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. It is reasonably possible that the judgments and estimates described above could change in future periods. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on undiscounted cash flows is subject to significant judgment and may cause variability in the Company’s assessment of the existence of any impairment.

9. Goodwill and Intangible Assets

Goodwill

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

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

	Insurance		Healthcare		Emerging Business		Analytics		TT&L		F&A		All Other		Total
Balance at January 1, 2020	$	38,276	$	19,276	$	—	$	227,289	$	12,457	$	46,905	$	5,326	$	349,529
Goodwill reallocation(1)	12,192		2,693		49,803		—		(12,457)		(46,905)		(5,326)		$	—
Currency translation adjustments	31		(16)		(455)		(1)		—		—		—		(441)
Balance at December 31, 2020	$	50,499	$	21,953	$	49,348	$	227,288	$	—	$	—	$	—	$	349,088
Currency translation adjustments	21		—		(11)		—		—		—		—		10
Balance at March 31, 2021	$	50,520	$	21,953	$	49,337	$	227,288	$	—	$	—	$	—	$	349,098

17

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

    (1) Represents the reallocation of goodwill resulting from the Company reorganizing its operating segments as described in Note 3 - Segment and Geographical Information to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

During the fourth quarter of 2020, 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.

As of March 31, 2021, the Company evaluated the continuing effects of COVID-19 and its impact on the global economy on each of the Company’s reporting units to assess whether there was a triggering event during the quarter requiring the Company to perform a goodwill impairment test. The Company considered certain improvements in current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance in the first quarter and business forecasts for the remainder of the year, stock price movements 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 2020. The Company did not identify any triggers or indications of potential impairment for its reporting units as of March 31, 2021.

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

The recoverability of goodwill is dependent upon the continued growth of cash flows from the Company’s business activities. This growth is based on business forecasts and improvement in profitability of its reporting units. The Company continues to maintain its focus on cultivating long-term client relationships as well as attracting new clients.

Intangible Assets

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

	As of March 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	73,373	$	(29,378)	$	43,995
Developed technology	23,523		(12,984)