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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________    
FORM 10-K
_________________________________________________________
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 York10022
(Address of principal executive offices) (Zip code)

(212) 277-7100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:Trading symbol(s)Name of Each Exchange on Which Registered:
Common Stock, par value $0.001 per share EXLSNASDAQ
Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  ý No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically 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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerý  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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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




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As of June 30, 2021, the aggregate market value of common stock held by non-affiliates was approximately $3,440,655,754.

As of February 22, 2022, there were 33,205,469 shares of the registrant’s common stock outstanding, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information from certain portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the fiscal year end of December 31, 2021.



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TABLE OF CONTENTS
  Page
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
F-1



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ITEM 1.     Business
ExlService Holdings, Inc. (“EXL,” “we,” “us,” “our” or the “Company”), incorporated in Delaware in 2002, 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 (“AI”) and machine learning (“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. Focused on driving faster decision-making and transforming operating models, EXL was founded on the core values of innovation, collaboration, excellence, integrity and respect. Headquartered in New York, our team is over 37,400 strong, with more than 50 offices spanning six continents.
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. Data, analytics, and digital have become core to virtually every significant move a business makes to serve customers, optimize business processes, stay competitive and grow. Our vision of being an indispensable partner for data-led businesses is a reflection of where the data and technology-led transformation of our clients’ businesses is trending across industry sectors, and we are evolving our offerings to drive business outcomes through advanced analytics and AI-powered solutions on the cloud. Our data-led value creation framework enables better and faster decision making, leveraging our 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. We embed digital operations and solutions into clients’ businesses and introduce our data led approach to transform operations with every new engagement. Accordingly, as our operations management services are now a part of our digital operations and solutions, they are referred to as “digital operations and solutions” herein; however, we have not changed the way in which we manage our business or our operating segments or segment reporting structure.
We manage and report financial information through our four reportable segments or strategic business units: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions. Our strategic business units align our products and services with how we manage our business, approach our key markets and interact with our clients. 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. By integrating data and analytics directly into our client workflows, we drive more intelligence into our clients’ increasingly digital operations that drive superior customer outcomes, optimize costs and power resilient and agile business models for our clients.
Our December 2021 acquisition of Clairvoyant AI Inc. (“Clairvoyant”) is included in the Analytics reportable segment.
COVID–19 Global Pandemic
The COVID-19 pandemic continues to cause global economic disruption and uncertainty, which affects our business. The global economic disruption of this pandemic has had an adverse impact on our business operations, customers, and suppliers.
The extent to which COVID-19 impacts our future business, strategic initiatives, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration, spread, severity and resurgence, of COVID-19, the effects of COVID-19 on our clients, vendors and employees and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume.
We will continue to evaluate the nature and scope of the impact to our business and may take further actions strategizing our business operations and managing our costs and liquidity that we deem necessary or appropriate to respond to this fast moving and uncertain global health crisis and the resulting global economic consequences.
For a further discussion of the risks, uncertainties and actions taken in response to COVID-19, see Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”
Digital Operations and Solutions
Our digital operations and solutions, which we provide from our Insurance, Healthcare and Emerging Business strategic business units 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
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for our clients on an ongoing basis via longer-term arrangements or project work. We use a focused industry vertical approach, and our solutions are designed to deliver business models that help our clients realize their business and innovation goals and improve their strategic competitive position.
The key differentiators and salient features of our digital operations and solutions include our agile operating and delivery model, which leverages AI/ML-based content extraction, natural language processing and cloud-based operations to automate business processes and improve speed-to-market. Our approach to digital integrates AI/ML and data on to the cloud to digitally transform legacy models and support real-time insights, faster decision-making and streamlined operations. This approach positions us to digitally transform our clients’ enterprise-wide data flows to deliver meaningful customer experience, business outcomes and efficiency improvements to our clients.
Some of our key digital operations and solutions we provide in connection with our analytics capabilities include:
AI:OS: Integrated cloud-native AI solutions with deep domain expertise and process transition experience to deliver a cloud receiving center for business processes.
Xtrakto.AI: AI-driven automation of manual processing of text, image and financial data;
•    Exelia.AI: AI-infused experiences across multiple customer journeys and touchpoints;
•    Paymentor: AI-powered customer centricity and digitization in payment and collection processes; and
•    POS Financing: AI-powered Buy Now Pay Later solution, reimagining an integrated and coherent sales and credit journey.
We deliver digital operations and solutions to clients through multiple technology approaches, including, using client environments, EXL platforms and leveraging third-party solutions from our partner ecosystem. Where possible, our aim is to use standardized and shared technology and operational delivery infrastructure, enabling us to leverage technology and infrastructure investments across multiple clients.
Our strategic business units through which we provide digital operations and solutions are described below:
Our Insurance strategic business unit serves property and casualty insurance, life insurance, disability insurance, insurance brokers, reinsurers, annuity and retirement services companies. We provide digital operations and solutions and analytics-driven services across the insurance industry in areas such as claims processing, premium and benefit administration, agency management, account reconciliation, policy research, underwriting support, new business acquisition, policy servicing, premium audit, surveys, billing and collection, commercial and residential survey, and customer service using digital technology, AI, ML and advanced automation. We provide end-to-end third party administration for life and annuity insurance policies which includes digital customer acquisition services using a software-as-a-service (“SaaS”) delivery model through our LifePRO® and LISS platforms that help clients administer life insurance, annuities and credit life and disability insurance policies. We also provide subrogation services to property and casualty insurers using BPaaS delivery model and our proprietary Subrosource® software platform, the largest commercial end-to-end subrogation platform. Subrosource® integrates with client systems, manages recovery workflow, increases recoveries and reduces costs. We provide a suite of finance and accounting services that include high-end analytics-driven services including financial planning and analysis, decision support, GAAP and statutory reporting and compliance services in addition to core finance operations. We bring a data-driven and practical digital approach to finance and accounting, enabling our clients to simplify and scale their finance and accounting processes, drive stakeholder centricity, improve controls and compliance, reduce operating costs and deliver rich data-driven insights to their businesses.
Our Healthcare strategic business unit primarily serves U.S.-based healthcare payers, providers, pharmacy benefit managers and life sciences organizations. We combine deep healthcare domain expertise with data-driven insights and technology-enabled services to transform how care is delivered, managed and paid. We provide services related to care management, utilization management, disease management, payment integrity, revenue optimization and customer engagement directly addressing the market need for improved healthcare outcomes, patient and provider experience and access to the healthcare system in the healthcare market, and optimized healthcare spend.
We offer SaaS and platform services designed to serve the healthcare industry as well as proprietary technology platforms, robotics and advanced analytics. EXL’s integrated care management offering, including CareRadius® and our proprietary clinical data and analytics, connects payers, providers and members to increase efficiencies and effectiveness across all aspects of care management, including medical, pharmacy and behavioral health. Our digital operations and solutions infuse cloud, data, AI, ML, analytics and robotics capabilities to improve efficiency, business outcomes, and the consumer experience in healthcare across patient/member management, contracting and network management, health and care management, claims administration, and business operations.
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Similar to our Insurance strategic business unit, we also provide finance and accounting services, digital transformation and advisory/consulting services for our clients in the healthcare industry.
Our Emerging Business strategic business unit provides data-driven and digital enterprise solutions in the areas of revenue enhancement, finance & accounting and customer experience management to clients primarily in the banking and capital markets, utilities, travel, transportation and logistics, media and communications, manufacturing and retail and business services industries. These enterprise solutions complement our domain specific industry solutions enabling our clients to maximize performance.
Our revenue enhancement solutions, enabled by our analytics based EXL Revenue Leakage Preventer (formerly RevliftTM) platform include lead generation, inside sales and digital marketing, pricing, customer and marketing analytics, billing and revenue assurance solutions, helping deliver direct topline and margin impact to our clients’ business.
Our data-driven finance and accounting services include high-end analytics driven services, including financial planning and analysis, strategic finance, advanced forecasting and decision support, data management, regulatory reporting and risk and compliance services in addition to core finance operations. Powered by our integrated cloud-based hyper-automation and insights platform EXL Digital Finance Suite, we help CFOs transform finance into a digitally enabled, scalable data-driven function with lower cost to serve, superior business outcomes, and improved stakeholder experience and business partnering.
Our client experience management solutions which run on our CONNECx platform help our clients improve their end-customer experience across the front, middle and back-office, integrating data flows, redesigning customer service processes and leveraging digital omni-channel platforms. In delivering these solutions, we combine our deep domain expertise, digital operations and solutions, advanced analytics and digital capabilities, including robotics, proprietary and partner driven AI and ML solutions.
We also provide industry-specific digital operations and solutions. For our clients in the travel sector, we provide corporate and leisure travel services including reservations, customer service and fulfilment services. In the transportation and logistics sectors, we provide our clients with billing, collections, claims management, freight audit, logistics, supply chain management, revenue assurance and payment services. For our clients in the banking and financial services sector, we provide comprehensive range of digital operations and solutions, including residential mortgage lending, title verification and validation, retail banking and credit cards, trust verification, commercial banking and investment management. In addition to banks and financial services firms, we work with financial technology (Fintech) companies to supplement their marketing and sales operations, support their processing and underwriting as well as enhance their servicing and collections efforts. For our clients in the utilities sector, we offer digital operations and solutions related to end-to-end customer lifecycle management including onboarding and terminations, engineering field services, customer service, billing and debt management and collections.
Analytics
Through our Analytics strategic business unit, we help our clients build data-led businesses. By leveraging our suite of end-to-end analytics capabilities, our analytics services focus on driving improved business outcomes for our clients by unlocking deep insights from data and creating data-driven solutions across all parts of our clients’ businesses.
Our teams deliver predictive and prescriptive analytics in the areas of customer acquisition and life cycle management, risk underwriting and pricing, operational effectiveness, credit and operational risk monitoring and governance, regulatory reporting, and data management.
We enhance, modernize and enrich structured and unstructured data and use a spectrum of advanced analytical tools and techniques, including our in-house AI and ML capabilities, to create insights and improve decision making for our clients. We leverage and deploy our proprietary AI and ML solutions to help deliver improved business outcomes and address a range of complex industry-wide problems, including:
Superior customer experience, driving engagement, loyalty and increasing cross-sell through a deeper understanding of consumer behavior;
Solutions for risk models , stress testing, Basel risk-weighted assets, reserves, and economic capital calculation;
ML models for fraud monitoring, loss mitigation, and implementation and execution of fraud strategies; and
Enhanced decision-making in underwriting, claims processing and policy renewal through cognitive image analytics.
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Our Analytics team is comprised of approximately 6,600 professionals, including data scientists, data architects, business analysts, statisticians, modelers, industry domain specialists and data experts.
We help our clients leverage internal and external data sources, enhance their data assets, identify and visualize data patterns, and utilize data-driven insights to improve their effectiveness. Our Analytics services for our clients include:
Identification, cleansing, matching and use of structured, semi-structured and unstructured data available both internally to our client’s organization and externally;
Integration of data insights and predictive models into real-time decision making processes to drive measurable business impact;
Design and implementation of services that enable data visualization and management reporting enabling business users to segment, drill-down, and filter data; and
Deployment of analytics professionals and data scientists who utilize analytics tools, cutting edge statistical techniques and methodologies in ways designed to help customers better understand their data to generate actionable business insights.
Our Analytics engagements span both project work and longer-term arrangements where EXL provides ongoing analytics modeling and services for a year or more. We utilize our domain and industry knowledge to drive these engagements across our various competencies including data management and cloud enablement, AI, ML and advanced analytics and insights, data-enabled marketing solutions and strategic data assets.
Our Analytics services support: (1) retail banking, commercial banking and investment banking and management for the banking and financial services industries; (2) actuarial, claims, informatics, customer relationship management and marketing analysis; (3) marketing and agency management, actuarial, servicing and operations, customer management, and claims and money movement in the insurance industry; and (4) marketing analytics, supply chain, logistics and digital operations and solutions in the retail, media and entertainment industries.
As a result of the ongoing impact of COVID-19, we have seen a significant acceleration in the shift to digital and cloud-based solutions across all of our target markets. Capturing data and enriching data has become a key differentiator for clients and their speed of decision-making necessitating the adoption of advanced AI and ML techniques. The accelerated adoption of cloud-based solutions has increased our clients’ needs for a suite of cloud migration and enablement capabilities. We expect that this will continue to grow our target addressable market and support higher growth over the next few years.
We expect the long-term trend in demand to be positive and to capture these new opportunities, we are building a scalable and customizable multi-cloud cross-sector analytics platform with pre-built accelerators and packaged solutions. This will enable us to continue to enhance our solutions to scalable industry solutions and as-a-service models.
To position EXL as a market leader in analytics services, we are customizing solutions across our target verticals and markets and deepening our advanced analytics and cloud capabilities and our domain expertise.
Our EXLClarityTM platform supports payers’ and providers’ risk adjustment and quality management programs in order to close clinical gaps and optimize revenue, and our EXLVantageTM platform offers robust population health analytics that can be leveraged by our payer, provider and life science customers to drive insights and associated actions for improved outcomes in quality and efficiency performance for care and network optimization. In addition, our population health analytic models can be leveraged with our campaign management and marketing analytics to support member acquisition and clinical program intervention management. We offer end-to-end data management services to support data strategy, ingestion, normalization, quality, security, governance, visualization and data architecture development and deployment via agnostic tools and flexible delivery models.
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 with additional expertise in data engineering and cloud enablement, further supporting our clients in the insurance, healthcare, banking and financial services, and retail industries.
Business Strategy
EXL is a leading data analytics and digital operations and solutions company and is a key strategic partner for data-led businesses. We drive business outcomes for our clients through advanced analytics and AI/ML-powered digital solutions on the
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cloud. We do this through our data-led value creation framework to enable better and faster decision making and orchestrate re-designing of operating models to integrate advanced technology into operational workflows. Below are some of our strategically focused considerations:
Expanding our services in large addressable markets
We continue to focus on the insurance, healthcare, banking, retail, media and high tech, among other industries, which are large markets with high demand. We will also continue to build our client portfolio in finance and accounting and consulting services in all of our business segments. As we can continue to refine our focus, we are pursuing opportunities in other industries. We are strategically equipped to help clients apply relevant digital technologies to enterprise processes and business problems at every step of the digital transformation, by bringing together deep domain expertise with robust data, powerful analytics, cloud, AI and ML. Demand for our services is expected to exhibit strong growth in the next several years.
Integrating our Capabilities
Our deep domain expertise has been central to our market differentiation. We are also well-positioned with our suite of data and analytics, strong operational excellence and digital toolkit to create integrated services and solutions under one brand.
Cultivating Long-term Relationships and Expanding our Client Base
We continue to maintain our focus on cultivating long-term client relationships as well as attracting new clients. We believe there are significant opportunities for additional growth within our existing clients, and we seek to expand these relationships by:
Increasing the depth and breadth of the services we provide across our clients’ value chains and geographies;
Offering the full suite of EXL services that includes digital operations and solutions, consulting and data analytics services; and
Supporting our clients’ geographic expansion leveraging our global footprint.
We intend to continue building a portfolio of Fortune 500 and Global 2000 companies in our focus industries that have complex and diverse data-led processes and, accordingly, stand to benefit significantly from our services. We also intend to cultivate long-term relationships with medium-sized companies in our focus industries by leveraging our BPaaS and digital offerings.
Optimizing our Global Delivery Footprint and Operational Infrastructure in the Countries and Regions in which we Operate
We intend to further optimize our existing network of delivery centers to service our clients, drive efficiencies and adapting to remote working operating model. As part of our ongoing evaluation of facilities usage, we closed certain facilities in India, the Philippines and in the United States.
Pursuing Strategic Acquisitions and Relationships
We intend to continue making selective acquisitions in our focus industry verticals that enhance our competitive differentiation and facilitate our growth strategy. We consider selective strategic relationships with industry leaders that add new long-term client relationships, enhance the depth and breadth of our services and solutions and complement our business strategy. Through our Connected Intelligence Partnership programs, we expand our technology and innovation ecosystem with select partnerships, alliances or investments that we expect will enhance go-to-market opportunities and expand the scope and effectiveness of our services and solutions by adding digital assets and intellectual property, which will help us to win new clients or allowing us to enter new industry verticals and geographic markets.
Our Industry
Digital operations and solutions
As a digital operations and solutions company, we work with clients to execute enterprise-scale business transformation initiatives that leverage deep expertise in advanced analytics, AI, ML and the cloud. Specifically, digital operations and solutions companies help clients achieve digital transformation in three key ways: 1) advanced analytics that combine publicly available data, proprietary data sets and clients’ own data help power faster, more strategic decision making, 2) AI/ML-driven natural language processing solutions help streamline manual, labor-intensive workflows and improve end-customer engagement and experience, and 3) AI/ML-powered operating models that integrates AI and ML capabilities and data on to the cloud to help transition from legacy models and get to market faster.
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This comprehensive approach acknowledges the critical role that digital capabilities play in both the operational business process and consumer-facing customer engagement and user experience, as touch points, interactions and experiences with companies’ customers have increasingly shifted to digital channels.
Digital transformation is a long-term strategic commitment for a company that, once implemented, is generally not subject to cyclical spending or information technology budget fluctuations. Increased global demand, cost improvements in international communications and the automation of many business services have created a significant opportunity for digital operations providers with offshore delivery capabilities, and many companies are moving select office processes to providers with the capacity to perform these functions from overseas locations. We believe the demand for digital operations and solutions will be primarily led by industries that are transaction-driven and that require significant customer interactions.
Analytics
As an analytics business, we help companies access and deliver real-time data and insights at multiple points in their overall workflows so that all parts of the organization are working from the same data pool. Leveraging a large number of high-frequency, granular, non-traditional data elements aggregated across proprietary data sets, client data and publicly available sources, Analytics helps companies settle consumer issues efficiently, deliver hyper-personalized customer experiences at scale, and rapidly shift their business strategies in response to market changes. The enhanced generation of business data across multiple formats, substantial reduction in data storage costs, growing enterprise demand for data-driven and real-time decision making and availability of sophisticated analytics tools have enabled companies to benefit from global labor markets. Our service offerings develop industry-specific analytics solutions and deep data insights that are well-poised to benefit from this global trend.
Sales, Marketing and Client Management
We market our services to our existing and prospective clients through our sales and client management teams, which are aligned by industry verticals and cross-industry domains such as finance and accounting and consulting. Our sales and client management teams operate from the U.S., Europe, Australia and South Africa are supported by our business development teams.
Our sales, marketing and business development teams are responsible for new client acquisitions, public relations, relations with outsourcing advisory companies, analyst relations and rankings, lead generation, knowledge management, content development, campaign management, digital or web presence, brand awareness and participation in industry forums and conferences. As of December 31, 2021, we employed approximately 214 sales, marketing, business development and client management professionals, with the majority of them based in either the U.S. or Europe. Our professionals generally have significant experience in business process services, technology, operations, analytics and consulting.
Clients
EXL generated revenues from approximately 459 clients and 460 clients in 2021 and 2020, respectively (with annual revenue exceeding $50,000 per client). We have won 58 and 44 new clients during 2021 and 2020, respectively.
Our top three, five and ten clients generated 18.7%, 25.2% and 38.1% of our revenues, respectively, in 2021. Our top three, five and ten clients generated 19.2%, 25.4% and 37.4% of our revenues, respectively, in 2020. No client accounted for more than 10% of our total revenues in 2021 or 2020. Our revenue concentration with our top clients remains consistent year-over-year and we continue to develop relationships with new clients to diversify our client base. We believe that the loss of any of our ten largest clients could have a material adverse effect on our financial performance. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business-We earn a substantial portion of our revenues from a limited number of clients.”
Our long-term relationships with our clients typically evolve from providing a single, discrete service or process into providing a series of complex, integrated processes across multiple business lines. For digital operations and solutions other than consulting, we generally enter into long-term agreements with our clients with typical initial terms of between three to five years. Consulting engagements have typical terms of six to twelve months. Agreements for our analytics services are either project based or have shorter initial terms, which are typically between one to three years. However, each agreement is individually negotiated with the client.
Competition
Competition in the data analytics and digital operations and solutions industry is intense and growing. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business-We face competition from U.S.-based and non-U.S.-based BPM and IT companies and from our clients, who may build shared services centers to perform digital operations and solutions and analytics services themselves, either in-house, in the United States or through offshore groups or other arrangements.” Many companies,
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including certain of our clients, choose to perform some or all of their front-, middle- and back-office analytics and processes internally, utilizing their own employees and digital applications to provide these services as part of their regular business operations. We believe our key advantage over in-house business processes and analytics management is our ability to orchestrate relevant domain, data, digital, advanced analytics and human design expertise to enable delivery of sustainable outcomes that allow companies to focus on their customers, core products and markets. We compete primarily against:
large global companies with digital operations and solutions and operations capabilities, such as Accenture, Cognizant Technology Solutions, Genpact Limited, Infosys, NTT DATA, Tata Consultancy Services, and WNS (Holdings);
niche industry-specific digital operations and solutions providers such as Cotiviti and Optum Health;
niche analytics services and digital platform providers; and
leading accounting and management consulting firms.
We compete against these entities by working to differentiate ourselves as a strategic partner for businesses with deep industry expertise, sophisticated data and analytics capabilities, innovative digital operations and solutions and technology strong client relationships, leading industry talent, superior process capabilities, and differentiated technology, which enable us to respond rapidly to market trends and the evolving needs of our clients.
Intellectual Property
Our intellectual property consists of proprietary and licensed platforms, software and databases, trade secrets, methodologies and know-how, trademarks, service marks, copyrighted software, operating procedures and other materials, and patents and pending patent applications. We consider many of our business processes and implementation methodologies to be trade secrets or proprietary know-how and confidential information. We seek to protect our intellectual property through a combination of patent, trademark, copyright and trade secret laws, confidentiality procedures and contractual provisions. Clients and business partners typically agree in writing to confidential treatment of our information. Our employees and independent contractors are required to sign work-for-hire and agreements containing confidentiality covenants as a condition to their employment and engagement, respectively. We also have policies requiring our associates to respect the intellectual property rights of others.
The solutions we offer our clients often include our intellectual property assets developed by our technology group combined with SaaS, software and data licensed by us or clients from third parties. We also leverage several strategic partnerships with third parties to facilitate our solution offerings to clients, including, among others, robotics and process automation software companies and a financing platform provider. We typically retain ownership of any pre-existing proprietary intellectual property assets, including modifications or enhancements to such pre-existing proprietary assets developed while providing client services. While working on client engagements, we also often develop new tools, methodologies, and models, including robotics and process automation software, or “bots,” AI and ML capabilities. We endeavor to negotiate contracts that give us ownership or licenses to use, develop, demonstrate and offer such tools for other clients.
We operate in a highly competitive and rapidly evolving global market. We seek to continue providing value to our clients with our deep domain expertise, ability to advise clients on how to transform their processes and deliver transformation that drives business value, ability to provide innovative services and products, including digital offerings that incorporate AI and ML capabilities, and our ability to continuously improve processes and consistently add value through digital transformation. We also rely on our reputation, client references, ability to sustain long-term client relationships, as well as our global reach and scale, and competitive pricing to maintain our competitiveness in our industry. While our proprietary intellectual property assets are important to our business, we believe our company as a whole is not materially dependent on any particular intellectual property right, other than our EXL brand. We have a registered, and applied for the registration of, numerous U.S. and international trademarks, service marks, and domain names to protect our brands, including our EXL brand, which is one of our most valuable assets.
Information Security and Data Privacy
Overseen by our senior management and our board of directors, we have a comprehensive program that focuses on information security and cyber security, data privacy and the protection of our clients’ confidential personal and sensitive information. We have invested in strengthening our cyber security posture and protocols to enable compliance with our contractual obligations and the regulations governing our activities. These investments include people, processes and technology intended to protect information throughout the business life cycle.
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EXL’s cyber security strategy aims to build a cyber-resilient organization and focuses on implementing and operating cyber security capabilities to identify, protect, detect, respond and recover from cyber threats, events and incidents; mitigate vulnerabilities and minimize the impact of cyber incidents. We emphasize on institutional governance built upon and supported by policies and processes, tools and technologies, and knowledge and awareness training. EXL takes into account guidelines from relevant regulatory and governance bodies, including but not limited to the Cyber Security Framework of the National Institute of Standards and Technology of the U.S. Department of Commerce, in designing policies and controls regarding security of sensitive and confidential information of EXL's clients, employee, partners, third parties and EXL’s owned products and services. EXL has undertaken measures designed to comply with new privacy regulations, including the European General Data Protection Regulation (EU) 2016/679 (“GDPR”) and the California Consumer Privacy Act (“CCPA”), as well as other national and state laws or regulations.
According to the needs of our clients as well as the regulatory requirements of the geographies where we operate, many of our delivery centers are certified related to information security and health and environmental safety, such as the ISO 27001:2013 standard for information security management systems, the ISO 22301:2012 for Business continuity management systems, the ISO 9001:2008 standard for quality management system, the ISO 14001 for environmental management standards and the OHSAS 18001:2007 standard for occupational health and safety management systems. The required delivery centers and processes are also compliant with HITRUST CSF™ and certified for other similar requirements. Some of our centers in the Philippines and South Africa and certain client processes in other operation centers in India are compliant with the Payment Card Industry Data Security Standard (PCI-DSS) version 3.2 or higher requirements. We engage independent firms to conduct General Controls and business process (SOC1and SOC2 - Type II) assessments on managed hosting environments that we offer in our Insurance and Healthcare verticals. EXL also engages third parties to conduct vulnerability assessment and penetration testing of its technology environment. For disaster recovery purposes, many of our key technology systems are hosted in ISO 27001 certified, SSAE18 SOC1 compliant Tier 4 data centers that are proactively monitored and managed 24 hours a day. In 2021, we also conducted an external security readiness review of our approach to remote work and strengthened the environment further.
In March 2020, as a result of COVID-19 and the implementation of our business continuity plans, a significant portion of our employees began to provide services from their homes, or other remote locations. We augmented our endpoint security capabilities with next generation security controls including strong encryption and a secure virtual private network to access EXL or client application from these global locations. As we were unable to replicate physical controls in place at our delivery centers, we agreed with our clients to implement certain additional logical information security controls on the technology and computers issued by EXL and used by our employees while working from home, including browsers, peripherals and operating systems restrictions, as well additional monitoring from our Cyber Defense Operations Center. All employees providing services from home are required to agree to an undertaking of their compliance with our Telecommuter Policy. However, we continue to face certain risks related to cybersecurity threats in general and our modified delivery models due to COVID-19. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business-Our business, results of operations and financial condition have been adversely affected, and could in the future be materially adversely affected, by COVID-19” and under “Risks Related to Our Industry-Unauthorized disclosure of sensitive or confidential client and employee data, whether through breach of our computer systems or otherwise, could cause us significant reputational damage, expose us to protracted and costly litigation, and cause us to lose clients.”
We have procured from leading global technology providers and other third parties a robust, wide area network and international telecommunications capacity to support our global business operations. Our business continuity management plans include locations, redundancy network infrastructure, power sources and other utilities to mitigate and manage operational risks as well as trained talent across our service delivery locations. These plans are documented, as well as tested on a periodic basis.
EXL has adopted a cloud-first strategy for delivering business and enterprise technology services and has developed a Unified Cloud Infrastructure that addresses requirements across our diverse businesses leveraging public cloud services. This infrastructure spans across a multi-cloud environment for data and digital led business solutions and are covered with globally established service level agreements and best practices.
Human Capital Management
At EXL, our culture is defined by our five core values: innovation, collaboration, excellence, integrity and mutual respect. In line with those values, we consider our employees to be critical to the success of our business and view employee development and growth as key to our performance and sustainability.
As of December 31, 2021, we had a headcount of approximately 37,400 employees. We had approximately 24,800 employees based in India, 8,100 employees in the Philippines, 2,300 employees in the United States, 200 employees in the United Kingdom, 400 employees in Colombia, 400 employees in the Czech Republic, Bulgaria, Romania, and 1,200 employees
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in South Africa and other geographies. None of our employees are unionized. We have never experienced any work stoppages and believe that we enjoy good employee relations.
Diversity, Equity and Inclusion
Our diversity, equity and inclusion philosophy is to create an inclusive work environment and leverage diversity to enable the organization to effectively capitalize on the differing views and contributions that each employee brings to the workplace.
We consider diversity, equity and inclusion to be a key factor in our recruiting and retention goals and overall business growth strategy. As of December 31, 2021, of the United States reporting workforce, approximately 45.4% were racially/ethnically diverse individuals. As of December 31, 2021, our global workforce was approximately 41.0% female, with over 15,180 women employees globally.
EXL is committed to providing a supportive working environment and career opportunities for our employees. Our Diversity and Inclusion Council consists of a global, diverse mix of leaders and oversees our diversity, equity and inclusion program. We provide trainings to our employees on topics aimed at improving diversity, equity and inclusion, such as managing unconscious bias, and have formed employee resource groups for select employee communities that are aimed at supporting diverse groups and interests. For our female employees, EXL has several programs to promote career advancement, including leadership development for women at the mid- to senior- levels, a separate program to improve the retention and engagement of new mothers through employee friendly parental leave and similar policies, and our WE (Women at EXL) platform, which is designed to enable women at EXL advance their career and achieve professional growth through discussion, collaboration, networking, training, development and mentorship opportunities.
In addition, we maintain a supplier diversity program in the United States designed to provide opportunities for qualified diverse businesses.
Recruiting, Developing and Engaging our Employees
We have an integrated talent management framework that employs active collaboration between our recruitment, capability development and business human resource functions. We deploy innovative methods to recruit, train and retain our skilled employees. We focus on recruiting the right talent and developing them further on relevant competencies through our learning academies, rigorous promotion standards, client and industry specific training and competitive compensation packages that include incentive-based compensation. We are able to leverage shared resources across our services through personnel who have skill sets applicable to a wide variety of data, digital, cloud and AI/ML services. We also have specialized experts in various domains, who develop specialization in our chosen industries and subject matters through our training academies. We have established a comprehensive set of practices, processes and programs, which have made learning easily accessible, collaborative and embedded in workflows. Our employees can now participate in trainings and upskilling virtually. Our employee relations function helps us to understand our employees’ needs, concerns and interests, so that we can respond to specific needs and concerns as they arise.
We focus on recruiting, training and retaining our professionals. We have developed effective strategies that enable an efficient recruitment process. The recruitment and training process evolved to an online model in 2020 and continued in 2021. We have over 100 employees dedicated to recruitment. Some of the strategies we have adopted to increase efficiency in our hiring practices include AI/ML-based intelligent screening mechanisms, remotely proctored online techniques and automated trainings. Our hiring policies focus on identifying high quality employees who demonstrate a propensity for learning, contribution to client services and growth. Candidates must undergo numerous tests and video interviews, in 2021, before we extend offers for employment. We also conduct background checks on candidates, including criminal background checks, where permitted and as required by clients. In 2020 and continued in 2021, as a result of COVID-19, much of our recruiting and training of new hires was conducted virtually.
Employee Benefits and Experience
We offer our employees competitive compensation packages that include incentive-based compensation and offer a variety of benefits that vary by facility, including free transport to and from home in certain circumstances, subsidized meals and free access to recreational facilities that are located within some of our operations centers. In 2020 and 2021, given COVID-19, we implemented several new measures to support our employees while working from home, including regular Company-wide town hall meetings, as well as promoting smaller virtual video-based team building activities, and a renewed employee wellness program, made up of specialists such as counselors, physicians and fitness instructors. We also took a number of COVID-19 safety measures, such as chartering a senior management-led Pandemic Management Task Force that is charged with ensuring the safety of our employees and adherence to government guidelines in each of the geographies where we operate, and publishing guidelines for our employees on quarantine protocols, enhanced testing and tracking measures for
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those of our employees who are unable to work remotely due to the nature of their jobs, and providing an additional four weeks of leave for those of our employees who become ill, and additional two weeks of leave for those of our employees who have to care for family members who become ill, and approved salary advances for those employees. We also took actions in response to the pandemic that focused on helping our employees. In the geographies most affected by the recent COVID-19 variants, these actions included healthcare support including securing and administering vaccines for our employees, facilitating our employees’ access to medical equipment, providing ambulance services and online medical consultations, extending medical insurance to our employees’ family members and enhancing the dollar value of such coverage. We also instituted a one-time employee compensation payment to beneficiaries of employees, facilitated voluntary contributions from our clients and employees to support the family members of deceased employees and provide financial support for their children's education.
Capability Development
We maintain a strong focus on capability development, with an emphasis on digital transformation and domain expertise. Our talent development strategy is comprehensive, aligned to overall business strategy and founded on three pillars: Digital Leadership, Digital Technologies & Methodologies, and Digital Culture & Mindset. Digital Leadership is the ability to partner with clients on digital operations and solutions end-to-end, from strategy to execution. Digital Technologies & Methodologies develops expertise around the specific technologies, tools, and frameworks required to successfully execute projects for our clients. Digital Culture and Mindset is all about creating the right DNA for high performance in a digital economy. This includes developing traits of agility and speed, creating a culture of innovation and collaboration, and fostering a mindset to reimagine and think beyond. Digital culture also builds the foundation of self-learning and spurs the desire for change amongst all our employees. We create thought leaders with high industry acumen who are better able to address our clients’ requirements. We also provide a career-linked learning path to our employees from new hires to tenured employees to senior levels of leadership.
Our domain academies focus on building domain expertise through certifications and specialization. These include our Insurance Academy, Travel Academy, Finance and Accounting Academy, Healthcare Academy, Analytics Academy, Utilities Academy, Consulting Academy and Digital Academy. These domain academies focus on achieving excellence and developing skill sets that can be used across the different domains. Our training includes behavioral and functional components to enhance and ensure job readiness as well as also boosting ongoing productivity and effectiveness. We also focus on promoting better diversity, equity and inclusion through our training programs. We have a global presence catering to the specific learning requirements of each geography. We provide learning through our blended learning methodology comprising of virtual, classroom, on the job coaching and technology led learning.
Our new capability development digital ecosystem, EXL Infinity, drives learning from anywhere, anytime, any device. Objective is to harness the collective knowledge base of the Company, drive a culture continuous self-learning, and promote knowledge sharing and learning collaboration. EXL Infinity has over 565,000 learning engagement activities. We have added several new capability development interventions this year on an array of topics, including leadership and team building, diversity and inclusion, and the cloud.
Employee Retention
Our attrition rate for employees who had been with EXL for more than 180 days was 28.3% and 23.4% for the years ended December 31, 2021 and 2020, respectively. The attrition rate in 2020 was lower than our historical average due to the global pandemic, and the attrition rate in 2021 increased from 2020 but remained lower than historical average. It is difficult to estimate the attrition rate in 2022 at this time. As competition in our industry increases, our turnover rate could increase. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business-We may fail to attract and retain enough sufficiently trained employees to support our operations, as competition for highly skilled personnel is intense and we experience significant employee turnover rates, which may result in loss of revenue and an inability to expand our business.” and “Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin.”
Environmental, Social and Governance Strategy
The world we work and live in is powered by innovation. We believe success in such a world will come through passing along social goods to the communities in which we operate, and ensuring that we conduct our operations in a sustainable and safe manner. These initiatives reflect our core values and will make us a stronger, more impactful organization to work for and allow us to deliver exceptional results for our clients, employees, communities and stockholders.
Our most recent Sustainability Report is available on the Company’s website. The information contained on the Company’s website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.
Community Activities
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EXL finds meaningful ways to help the communities in which we operate. Our community activities focus on passing along the skills that our employees use in our operations to members of the communities in which we operate to help transform lives. On our own, with outside partners, and in partnership with our clients, we support market-relevant skill development and education initiatives, disaster relief efforts, and global health initiatives. These programs align with the expectations clients have of service providers, and benefit our other stakeholders. In 2021, we continued many of these activities virtually. Examples of our programs include:
Skills to Win Initiative: This skill development initiative provides participants from communities in which we operate with market-relevant skills, including foundational employability skills required for back-office roles, as well as courses on topics including finance and accounting, data and analytics, and digital skills. This initiative also offers placement assistance to successfully trained participants.
Education as a Foundation Initiative: This classroom-based initiative currently delivered through online and offline learning platforms provides school-aged students from communities in which we operate with data and analytics skills and career guidance.
Environmental, Health and Safety
We strive to continuously improve in the area of environmental, health and safety initiatives (“EHS”), with a focus on reducing our carbon footprint, energy conservation, waste minimization, green infrastructure and operations. Our EHS team tracks and assesses our progress with respect to key performance indicators for energy, greenhouse gas emissions, and water and waste generation targets annually. We have also established Company-wide and worksite-specific workplace safety objectives that are integrated into our EHS Management System. We believe that these measures will also help us in sustainable development efforts. Where practical, we seek to integrate EHS with our business activities, focusing on conducting our activities in an environmentally responsible manner and ensuring the health and safety of the Company’s employees, contractors, customers, visitors and the communities where the Company operates. In addition, we seek to maintain a responsible supply chain by stating our expectations for all of our vendors in our Supplier Standards of Conduct, and through background verifications for new suppliers with respect to policies and performance on human rights, labor rights and environmental issues.
All of our delivery centers worldwide are currently ISO 45001:2018 certified, meeting international standards for occupational health and safety, and all of our delivery centers in India and the Philippines are ISO 14001:2015 certified, meeting international standards for effective environmental management systems. We have begun the ISO 14001:2015 certification process for our delivery centers in Colombia, Europe, South Africa and the U.K. In 2021, we received the COVID-19 assurance statement from the British Safety Council for all of our delivery centers worldwide having appropriate health and safety protocols in place for the return to work of our employees. While we expect to maintain these certifications and standards, there may be changes to our delivery centers or applicable rules or standards that could affect such certifications and standards.
Regulation
Our operations are subject to rules, regulations and statutes in the countries where we have operations and where we deliver services as a result of the diverse and complex nature of our service offerings. More often, however, our clients contractually require that we comply with certain rules and regulations applicable to their specific industries.
We provide third-party administrator insurance services from India and the Philippines and are currently able to provide such services in the United States for 49 states and 48 states (and the District of Columbia), respectively by location. Additionally, our subsidiary in the Philippines is able to provide utilization review services in the United States for 44 states (and the District of Columbia). Further, through domestic subsidiaries, we are licensed or otherwise eligible to provide third-party administrator services in all states within the United States, as well as utilization review, insurance adjuster, and insurance producer services in select states. We maintain licenses in various jurisdictions (or require certain categories of our professionals to be individually licensed) in service areas such as debt collection, utilization review, workers’ compensation utilization review, insurance adjuster, mortgage loan processing and underwriting, and telemarketing services. Our facilities in the Philippines, as well as one domestic subsidiary, are accredited by the Utilization Review Accreditation Commission (URAC) and National Committee for Quality Assurance (NCQA), the leading healthcare and education accreditation organizations. We continue to obtain licenses and accreditations required from time to time by our business operations.
Our operations are also subject to compliance with a variety of other laws, including U.S. federal and state regulations that apply to certain portions of our business. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business-Failure to adhere to the regulations or accreditation or licensing standards that govern our business could have an adverse impact on our
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operations,” and under “General Risk Factors-Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violations of these regulations could harm our business.”
We benefit from tax relief provided by laws and regulations in India and the Philippines from time to time. Regulation of our business by the Indian government affects us in several ways. During the last several years, we either established or acquired new centers that were eligible for tax benefits under the Special Economic Zones Act, 2005 (the “SEZ Act”). Income tax exemption for new SEZ units was applicable only for units that started commercial operations on or before June 30, 2020. In 2019, the Government of India introduced a new tax regime for certain Indian companies by enacting the Taxation Laws (Amendment) Act, 2019. The new tax regime is optional and provides for a lower tax rate for Indian companies, subject to agreeing to certain conditions, which, among other things, include not taking advantage of benefits from any tax holidays associated with SEZs and certain other tax incentives. Once a company has opted in to the new tax regime, it may not in the future opt out. During 2019 and 2020, our Indian subsidiaries opted into this new tax regime and accordingly gave up the tax exemption associated with SEZs that were used prior to opting in.
See Part I, Item 1A, “Risk Factors” under “Risks Related to the International Nature of Our Business-Our financial condition could be negatively affected if foreign governments introduces new legislation, reduce or withdraw tax benefits and other incentives currently provided to companies within our industry or if we are not eligible for these benefits.”
We also benefitted from a corporate tax holiday in the Philippines for some of our operations centers established there over the last several years. The Company registered with the Philippines Economic Zone Authority (“PEZA”) and is therefore eligible for income tax exemption for four years. We anticipate establishing additional operations centers in PEZA or other tax advantaged locations in the future. This exemption incentive may be extended in certain instances upon fulfillment of certain conditions. Following the expiry of the tax exemption, income generated from centers in the Philippines will be taxed at the prevailing annual tax rate. Philippines Fiscal Incentives Review Board recently issued guideline that allows PEZA registered units to work-from-home (WFH) with certain maximum thresholds. We are managing our business in accordance with the guidelines, however, if the prescribed thresholds are not met, it may adversely affect our income tax rate.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically through the EDGAR System. You may access the information filed by us with the SEC by visiting its website.
We also maintain a website at http://www.exlservice.com. Information on our website does not constitute a part of, nor is it incorporated in any way, into this Form 10-K or any other report we file with or furnish to the SEC. We make available, free of charge, on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our website also includes announcements of investor conferences and events, information on our business strategies and results, corporate governance information, and other news and announcements that investors might find useful or interesting.


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ITEM 1A.    Risk Factors
Summary of Material Risk Factors
The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations and could make an investment in our Company speculative or risky. 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. You should read this summary together with the more detailed description of each risk factor contained below. Some of these material risks include:
Risks Related to Our Business
We have been adversely affected, and could in the future be materially adversely affected, by COVID-19.
•    We earn a substantial portion of our revenues from a limited number of clients.
•    Our client contracts contain certain termination and other provisions that could have an adverse effect on us.
•    We often have a long selling and implementation cycle for our digital operations and solutions that requires significant funds, management bandwidth and resource commitments, and, once engaged, it may take several months before we start to recognize significant revenues.
•    Our failure to accurately estimate the resources and time required for our contracts may negatively affect us.
•    Our profitability will suffer if we are not able to price our services appropriately or manage our asset utilization levels or meet the changing demands and needs of our clients and potential clients.

•    Loss of one or more members of our senior management team could harm our business.
•    We may fail to attract and retain enough sufficiently trained employees to support our operations and we experience significant employee turnover rates, which may adversely affect us.
•    Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin.
•    We may engage in strategic acquisitions or transactions, which could have a material adverse effect on us.
Risks Related to the International Nature of Our Business
We are subject to labor and employment laws across jurisdictions and if more stringent labor laws become applicable to us or if our employees unionize, our profitability may be adversely affected.
Risks Related to Our Indebtedness
We may not be able to service our debt or obtain additional financing on competitive terms.
Risks Related to Our Common Stock
Our stock price continues to be volatile.
Risks Related to Our Industry
Our industry may not develop in ways that we currently anticipate due to negative public reaction in the United States and elsewhere to offshore outsourcing, recently proposed legislation or otherwise.
Unauthorized disclosure of sensitive or confidential client and employee data, whether through breach of our computer systems or otherwise, could cause us significant reputational damage, expose us to protracted and costly litigation, and cause us to lose clients.



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A) Material Risk Factors
Risks Related to Our Business
Our business, results of operations and financial condition have been adversely affected, and could in the future be materially adversely affected, by COVID-19.
The global outbreak of COVID-19 continues to rapidly evolve and has widespread and unpredictable impacts on global societies, economies, financial markets and business practices. COVID-19 has adversely affected and may in the future materially adversely affect us, our clients, employees, contractors, suppliers and business partners, all of whom have been prevented from conducting business activities as usual, including due to the many and varying health and safety measures in response to COVID-19, including travel restrictions, quarantines, curfews, shelter in place and safer-at-home orders. The continued spread of COVID-19 and the measures taken by governmental authorities disrupted the continuity of our provision of services to our clients and adversely impacted our business, results of operations and financial condition (see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K).
The ultimate impact of COVID-19 on our business, operations and financial results remains unknown and will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration, scope and severity of the pandemic; the effect on our clients and client demand for our services and our solutions; and our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working remotely.

COVID-19 has also led to, and may continue to lead to, increased costs, as we incur additional costs in order to ensure the continuity of our operations and support our remote work model. We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our remote work model, implement new information technology solutions and security measures to safeguard against information security risks and protect the health and safety of our employees as they gradually return to the office.
All of our business segments, across all of our geographies, have been adversely affected and may in the future be materially adversely affected by COVID-19, but the significance of the full impact of COVID-19 on our business in 2022 and beyond and the duration for which it may have an impact cannot be determined at this time. Any of these events could cause or contribute to risks and uncertainties enumerated in this Annual Report on Form 10-K or our other filings with the SEC, and could materially adversely affect our business, financial condition, results of operations and/or stock price.
We earn a substantial portion of our revenues from a limited number of clients.
We have earned and believe that we will continue to earn in the near future or foreseeable a substantial portion of our total revenues from a limited number of large clients. The loss of or financial difficulties at any of our large clients could have a material adverse effect on our business, results of operations, financial condition and cash flows. Moreover, the loss of a major customer could also impact our reputation in the market, making it more difficult to attract and retain customers more generally.
Our client contracts contain certain termination and other provisions that could have an adverse effect on our business, results of operations, financial condition and cash flows.
Consistent with industry practice, most of our client contracts may be terminated by our clients without cause and do not commit our clients to provide us with a specific volume of business. Any failure to meet a client’s expectations could result in a cancellation or non-renewal of a contract or a decrease in business provided to us. We may not be able to replace any client that elects to terminate or not renew its contract with us, which would reduce our revenues. The loss of or financial difficulties at any of our large clients would have a material adverse effect on our business, results of operations, financial condition and cash flows.
A number of our contracts allow the client, in certain limited circumstances, to request a benchmark study comparing our pricing and performance with that of an agreed list of other service providers for comparable services. Based on the results of the study and depending on the reasons for any unfavorable variance, we may be required to make improvements in the services we provide or reduce the pricing for services on a prospective basis to be performed under the remaining term of the contract or our client could elect to terminate the contract, which could have an adverse effect on our business, results of operations, financial condition and cash flows. Many of our contracts contain provisions that would require us to pay penalties to our clients and/or provide our clients with the right to terminate the contract if we do not meet pre-agreed service level requirements or if we do not provide certain productivity benefits. Failure to meet these requirements or accurately estimate the productivity benefits could result in the payment of significant penalties to our clients which in turn could have a material adverse effect on our business, results of operations, financial condition and cash flows. Some of our contracts with clients specify that if a
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change of control of our company occurs during the term of the contract, the client has the right to terminate the contract. These provisions may result in our contracts being terminated if there is such a change in control, resulting in a potential loss of revenues. In addition, these provisions may act as a deterrent to any attempt by a third party to acquire our company.
Our project-based analytics and consulting services are cyclical and can be significantly affected by variations in business cycles. Changes in the deadlines or the scope of work required for compliance with the requirements of legislation applicable to our clients could curtail significantly those service offerings. The terms of the contracts for our project-based analytics and consulting services generally do not exceed 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 material fluctuations and uncertainties in the revenues generated from providing analytics and consulting services.

We often have a long selling cycle for our digital operations and solutions that requires significant funds and management resources and a long implementation cycle that requires significant resource commitments, and, once engaged, it may take several months before we start to recognize significant revenues.

We often have a long selling cycle for our digital operations and solutions, which requires significant investment of capital, resources and time by both our clients and us. Before committing to use our services, potential clients require us to expend substantial time and resources educating them as to the value of our services, including testing our services for a limited period of time, and assessing the feasibility of integrating our systems and processes with theirs. Our clients then evaluate our services before deciding whether to use them. Therefore, our selling cycle, which generally ranges from six to eighteen months, is subject to many risks and delays over which we have little or no control, including our clients’ decision to choose alternatives to our services (such as other providers or in-house offshore resources) and the timing of our clients’ budget cycles and approval processes. In addition, we may not be able to successfully conclude a contract after the selling cycle is complete.

Implementing our services involves a significant commitment of resources over an extended period of time from both our clients and us. Our clients may also experience delays in obtaining internal approvals or delays associated with technology or system implementations, thereby delaying further the implementation process. Our clients and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients to which we have devoted significant time and resources.

Once engaged, it takes from four to six weeks to integrate the client’s systems with ours, and from three months to six months thereafter to build our services to the client’s requirements and perform any necessary transformation initiatives. Depending on the complexity of the processes being implemented, these time periods may be significantly longer. Implementing processes can be subject to potential delays similar to certain of those affecting the selling cycle. We do not recognize significant revenues until after we have completed the implementation phase, including any delay.

We generally enter into long-term contracts with our clients for our digital operations and solutions, and our failure to accurately estimate the resources and time required for our contracts may negatively affect our revenues, cash flows and profitability.

The initial terms of our digital operations and solutions contracts typically range from three to five years. In many of our digital operations and solutions contracts we commit to long-term and other pricing structures (such as full-time equivalent-based pricing, fixed-price arrangements, transaction-based and outcome-based pricing) with our clients and therefore bear the risk of cost overruns, completion delays, resource requirements, wage inflation and adverse movements in exchange rates in connection with these contracts. If we fail to estimate accurately the resources and time required for a contract, potential productivity benefits over time, future wage inflation rates or currency exchange rates (or fail to accurately hedge our currency exchange rate exposure) or if we fail to complete our contractual obligations within the contracted timeframe, our revenues, cash flows and profitability may be negatively affected.

We may face difficulties in delivering complex and large projects for our clients that could cause clients to discontinue their work with us, which in turn could harm our business.

We have been expanding the nature and scope of our engagements. Our ability to effectively offer a wider breadth of end-to-end business services depends on our ability to attract existing or new clients to these expanded service offerings. To obtain engagements for such complex and large projects, we also are more likely to compete with large, well-established international consulting firms, resulting in increased competition and marketing costs. Accordingly, we cannot be certain that our new service offerings will effectively meet client needs or that we will be able to attract existing and new clients to these expanded service offerings. The increased breadth of our service offerings may result in larger and more complex projects with our
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clients. This will require us to establish closer relationships with our clients and a thorough understanding of their operations. Our ability to establish such relationships will depend on a number of factors, including the proficiency of our employees and management. Our failure to deliver services that meet the requirements specified by our clients could result in termination of client contracts, and we could be liable to our clients for significant penalties or damages. Larger projects may involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for additional stages or may cancel or delay additional planned engagements. These terminations, cancellations or delays may result from factors that have little or nothing to do with the quality of our services, such as the business or financial condition of our clients or the economy generally. Such cancellations or delays make it difficult to plan for project resource requirements and inaccuracies in such resource planning and allocation may have a negative impact on our profitability and cash flows.

If we are unable to adjust our pricing terms or effectively manage our asset utilization levels or the mix of products and services we provide to meet the changing demands of our clients and potential clients, our business, results of operations, financial condition and cash flows may be adversely affected.

Our profitability is, in part, a function of the efficiency with which we utilize our assets, in particular our people and our operations centers, and the prices we are able to charge for our services. A significant portion of our contracts use a pricing model that provides for hourly or annual billing rates. Industry pricing models are evolving and clients increasingly request transaction-based, outcome-based or other pricing models. If we make inaccurate assumptions for contracts with such alternative pricing models, our profitability may be negatively affected. Our asset utilization levels are affected by a number of factors, including our ability to transition employees from completed projects to new assignments, attract, train and retain employees, forecast demand for our services (including potential client terminations or reductions in required resources) and maintain an appropriate headcount in each of our locations, as well as our need to dedicate resources to employee training and development, other typically non-chargeable activities and seat utilization rate of our operations centers. Therefore, if we are unable to adapt our operations to evolving pricing protocols or effectively manage our asset utilization levels, our results of operations may be adversely affected or we may not be able to offer pricing that is attractive relative to our competitors.

In addition, for the services we provide to our clients, the revenues and income from such services may decline or vary as the type and volume of services we provide under those contracts changes over time, including as a result of a shift in the mix of products and services we provide. Furthermore, our clients, some of which have experienced significant and adverse changes in their prospects, substantial price competition and pressures on their profitability, including as a result of COVID-19, have in the past and may in the future demand price reductions, automate some or all of their processes or change their digital operations and solutions strategy by moving more work in-house or to other providers, any of which could reduce our profitability. Any significant reduction in or elimination of any of our clients’ use of the services we provide, or any requirement to lower our prices, would have a material adverse impact on our business.
Our senior management team is critical to our continued success and the loss of one or more members of our senior management team could harm our business.
Our future success substantially depends on the continued services and performance of the members of our management team and other key employees possessing technical and business capabilities, including industry expertise, that are difficult to replace. Specifically, the loss of the services of our Vice Chairman and Chief Executive Officer could seriously impair our ability to continue to manage and expand our business. There is intense competition for experienced senior management and personnel with technical and industry expertise in the industry in which we operate, and we may not be able to retain these officers or key employees. Although we have entered into employment and non-competition agreements with all of our executive officers, certain terms of those agreements may not be enforceable and in any event these agreements do not ensure the continued service of these executive officers.
In addition, we currently do not maintain “key person” insurance covering any member of our management team. The loss of any of our key employees, particularly to competitors, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We may fail to attract and retain enough sufficiently trained employees to support our operations, as competition for highly skilled personnel is intense and we experience significant employee turnover rates, which may result in loss of revenue and an inability to expand our business.
Our success depends to a significant extent on our ability to attract, hire, train and retain qualified employees, including our ability to attract employees with needed skills in the geographies where we operate. Our industry, including us, experiences high employee turnover. There is significant competition for professionals with skills necessary to perform the services we offer to our clients. Increased competition for these professionals could have an adverse effect on us. A significant increase in the turnover rate among our employees, particularly among our highly skilled workforce, would increase our cost of revenues and eventually impact our profit margins due to higher recruitment, training and retention costs and maintaining larger hiring,
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training and human resources departments. These additional costs could decrease our operating efficiency, impact our productivity and profit margins, and could also lead to a decline in demand for our services due to such higher cost getting baked in our pricing of services, making us less competitive. High turnover rates generally do not impact our revenues as we factor the attrition rate into our pricing models by maintaining additional employees for each process.
If we are unable to attract and retain highly-skilled technical personnel and do not invest in reskilling and upskilling our employees, specifically in areas like AI, ML, digital transformation and solutions, advanced analytics, cloud based solutions, bots, hyper-automation, data management professionals, robotics and process automation, and data engineering, our ability to effectively lead our current projects and develop new business could be jeopardized, and our business, results of operations and financial condition could be adversely affected.
Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin.
Our most significant costs are the salaries and related benefits of our operations staff and other employees. For example, wage costs in India and the Philippines have historically been significantly lower than wage costs in the United States and Europe for comparable skilled professionals, and having a significant number of employees in those countries has been one of our competitive advantages. However, because of rapid economic growth in India and the Philippines, increased demand for outsourced services from such countries and increased competition for skilled employees, wages for comparably skilled employees are increasing at a faster rate than in the United States and Europe. This may reduce the competitive advantage. We may need to increase the levels of employee compensation more rapidly than in the past to remain competitive in attracting and retaining the quality and number of employees that our business requires. Wages are generally higher for employees performing analytics services than for employees performing digital operations and solutions. As the scale of our analytics services increases, wages as a percentage of revenues may increase. In addition, changes to the labor laws in the countries where we operate may also lead to a substantial increase in our wage costs. To the extent that we are not able to control or share wage increases with our clients, wage increases may reduce our margins and cash flows. We will attempt to control such costs by our efforts to add capacity in locations where we consider wage levels of skilled personnel to be satisfactory, but we may not be successful in doing so.
Our inability to manage our rapid infrastructure and personnel growth effectively could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Since we were founded in April 1999, we have experienced rapid growth and significantly expanded our operations, and that growth has continued in recent years as well. We have operations centers across India, the United States, the Philippines, Colombia, United Kingdom, South Africa, Bulgaria, Romania, and the Czech Republic. Further, we have acquired multiple regional offices in the United States as part of our acquisitions. Our headcount has increased significantly over the past several years. We expect to develop and improve our internal systems in the locations where we operate in order to address the anticipated continued growth of our business. We are also continuing to look for operations centers at locations outside of our current operating geographies. We believe that expanding our geographic base of operations will provide higher value to our clients by decreasing the risks of operating from a single country (including potential shortages of skilled employees, increases in wage costs during strong economic times and currency fluctuations), while also giving our clients access to a wider talent pool and establishing a base in countries that may be competitive in the future. However, we may not be able to effectively manage our infrastructure due to changes to our operating model driven by delivery of a significant portion of our services from a remote work model leading to potential contraction of our operation centers. Changes in our operating model limit our ability to forecast the need to hire additional skilled employees as and when they are required to meet the ongoing needs of our clients, and we may not be able to develop and improve our internal systems. We may not be able to maintain our culture and effectively communicate our core values, policies and procedures, strategies and goals, particularly given our world-wide operations, rate of new hires, and significant percentage of our employees who have the option to work remotely or who have been required to work remotely because of the COVID-19 related restrictions. We also need to manage cultural differences among our employee populations and varying employment law regimes across jurisdictions, and that may create a risk for employment law claims. In addition, from time to time, we have made, and may continue to make, changes to our operating model, including our infrastructure facilities, how we are organized, as the needs and size of our business change, and if we do not successfully implement the changes or if the key stakeholders such as our employees, clients and regulators are not fully receptive to such changes made or proposed to be made, our business and results of operation may be negatively impacted. Our inability to execute our growth strategy, to ensure the continued adequacy of our current systems or to manage our expansion effectively could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We may engage in strategic acquisitions or transactions, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
As part of our business strategy, we intend to continue to selectively consider acquisitions or investments, some of which may be material. Through the acquisitions we pursue, we may seek opportunities to expand the scope of our existing services, add new clients or enter new geographic markets. There can be no assurance that we will successfully identify suitable
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candidates in the future for strategic transactions at acceptable prices, have sufficient capital resources to finance potential acquisitions or be able to consummate any desired transactions. Our failure to close transactions with potential acquisition targets for which we have invested significant time and resources could have a material adverse effect on our financial condition and cash flows.
Acquisitions, including completed acquisitions, involve a number of risks, including diversion of management’s attention, ability to finance the acquisition on attractive terms, failure to retain key personnel or valuable customers, legal liabilities and the need to amortize acquired intangible assets, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows. Future acquisitions may also result in the incurrence of indebtedness or the issuance of additional equity securities.
The intellectual property of an acquired business may be an important component of the value that we agree to pay for such a business. Although we conduct due diligence in connection with each of our acquisitions, such acquisitions are subject to the risks that the acquired business may not own the intellectual property that we believe we are acquiring, that the intellectual property is dependent upon licenses from third parties, that the acquired business infringes upon the intellectual property rights of others or that the technology does not have the acceptance in the marketplace that we anticipated.
We could also experience financial or other setbacks if transactions encounter unanticipated problems, including problems related to execution, integration or underperformance relative to prior expectations. Our management may not be able to successfully integrate any acquired business into our operations or maintain our standards, controls and policies, which could have a material adverse effect on our business, results of operations and financial condition. Consequently, any acquisition we complete may not result in long-term benefits to us or we may not be able to further develop the acquired business in the manner we anticipated.
Following the completion of some acquisitions, we may need to rely on the seller to provide administrative and other support, including financial reporting and internal controls, and other transition services to the acquired business for a period of time. There can be no assurance that the seller will do so in a manner that is acceptable to us, and failure of such seller to do so could result in a material adverse effect on our business, results of operations and financial condition.
We may not be able to realize the entire book value of goodwill and other intangible assets from acquisitions.
We periodically assess our goodwill and intangible assets to determine if they are impaired and we monitor for impairment of goodwill relating to all acquisitions. Goodwill is not amortized but is tested for impairment at least once on an annual basis in the fourth quarter of each year, based on a number of factors including operating results, business plans and future cash flows. Impairment testing of goodwill may also be performed between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of goodwill below its carrying amount. We perform a quantitative impairment test to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In the event that the carrying amount of goodwill is impaired, any such impairment would be charged to earnings in the period of impairment. Because this involves use of critical accounting estimates, we cannot assure you that future impairment of goodwill will not have a material adverse effect on our business, financial condition or results of operations.
Our business could be materially and adversely affected if we do not protect our intellectual property or if our services are found to infringe on the intellectual property of others.
Our success depends in part on certain methodologies, practices, tools and technical expertise we utilize in providing our services and solutions. Our intellectual property consists of proprietary and licensed platforms, software and databases, trade secrets, methodologies and know-how, trademarks, service marks, copyrighted software, operating procedures and other materials, and patents and pending patent applications. We consider many of our business processes and implementation methodologies to be trade secrets or proprietary know-how and confidential information. We seek to protect our intellectual property through a combination patent, trademark, copyright and trade secret laws, confidentiality procedures and contractual provisions. Clients and business partners typically agree in writing to confidential treatment of our information. Our employees and independent contractors are required to sign work-for-hire and confidentiality covenants as a condition to their employment and engagement, respectively. We also have policies requiring our associates to respect the intellectual property rights of others. However, these measures may not prevent misappropriation or infringement of our intellectual property or proprietary information and a resulting loss of competitive advantage. Additionally, we may not be successful in obtaining or maintaining patents, trademarks or other intellectual property rights protections for which we have applied or may in the future apply.
We may be unable to protect our intellectual property and proprietary technology effectively, which may allow competitors to duplicate our technology and products and may adversely affect our ability to compete with them. To the extent that we do not protect our intellectual property effectively through contractual provisions, confidentiality procedures, patents,
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trade secret laws or other means including those set forth above, other parties, including former employees, with knowledge of our intellectual property may leave and seek to exploit our intellectual property for their own or others’ advantage. We may not be able to detect unauthorized use and take appropriate steps to enforce our rights, and any such steps may not be successful. Infringement by others of our intellectual property, including the costs of enforcing our intellectual property rights, may have a material adverse effect on our business, results of operations, financial condition and cash flows.
In addition, competitors or others may allege that our systems, processes, marketing, data usage or technologies infringe on their intellectual property rights, including patents. Non-practicing entities may also bring baseless, but nonetheless costly to defend, infringement claims. We could be required to indemnify our clients if they are sued by a third party for intellectual property infringement arising from materials that we have provided to the clients in connection with our services and solutions. We may not be successful in defending against such intellectual property claims or in obtaining licenses or an agreement to resolve any intellectual property disputes. Given the complex, rapidly changing and competitive technological and business environment in which we operate, and the potential risks and uncertainties of intellectual property-related litigation, we cannot provide assurances that a future assertion of an infringement claim against us or our clients will not cause us to alter our business practices, lose significant revenues, incur significant license, royalty or technology development expenses, or pay significant monetary damages or legal fees and costs. Any such claim for intellectual property infringement may have a material adverse effect on our business, results of operations, financial condition and cash flows.
We face competition from U.S.-based and non-U.S.-based BPM and IT companies and from our clients, who may build shared services centers to perform digital operations and solutions and analytics services themselves, either in-house, in the United States or through offshore groups or other arrangements.
The market for digital operations and solutions and analytics services is highly competitive, and we expect competition to intensify and increase from a number of sources. We believe that the principal competitive factors in our markets are breadth and depth of process expertise, knowledge of industries served, service quality, compliance rigor, global delivery capabilities, price and sales and client management capabilities. We also face competition from non-U.S.-based outsourcing and IT companies (including those in the United Kingdom and India) and U.S.-based outsourcing and IT companies. Further, a client may choose to use its own internal resources rather than engage an outside firm to perform the types of services we provide. In addition, the trend toward offshore outsourcing, international expansion by foreign and domestic competitors and continuing technological changes, such as cloud computing, will result in new and different competition for our services.
These competitors may include entrants from the communications, software and data networking industries or entrants in geographic locations with lower costs than those in which we operate. Some of these existing and future competitors have greater financial, personnel and other resources, a broader range of service offerings, greater technological expertise, more recognizable brand names and more established relationships in industries that we currently serve or may serve in the future. In addition, some of our competitors may enter into strategic relationships or mergers or acquisitions with larger, more established companies in order to increase their ability to address client needs, or enter into similar arrangements with potential clients. The trend in multi-vendor relationships has been growing, which could reduce our revenues to the extent that we are required to modify the terms of our relationship with clients or that clients obtain services from other vendors. Increased competition, our inability to compete successfully against competitors, pricing pressures or loss of market share could result in reduced gross margins, which could harm our business, results of operations, financial condition and cash flows.
We expect competition to intensify in the future as more companies enter our markets. Increased competition may result in lower prices and volumes, and lower profitability. We may not be able to supply clients with services that they deem superior and at competitive prices and we may lose business to our competitors. Any inability to compete effectively would adversely affect our business, results of operations, financial condition and cash flows.
We may disrupt our clients’ operations as a result of inadequate service or other factors, including telecommunications or technology downtime or interruptions.
The services we provide are often critical to our clients’ businesses, and any failure to provide those services could result in a reduction in revenues or a claim for substantial damages against us, regardless of whether we are responsible for that failure. Most of our agreements with clients contain service level and performance requirements, including requirements relating to the quality of our services. Failure to consistently meet service requirements of a client or errors made by our employees in the course of delivering services to our clients could disrupt the client’s business and result in a reduction in revenues or a claim for damages against us. Lockdowns and other measures imposed by governments around the world, as well as other resulting impacts of COVID-19, may result in our temporary inability to meet the service level and performance requirements of our clients.
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Our business is dependent on the secure and reliable operation of controls within our and our clients’ information systems and processes, whether operated or executed by our clients themselves or by us in connection with our provision of services to them. Although we believe we take adequate measures to safeguard against system-related and other fraud, there can be no assurance that we would be able to prevent fraud or even detect them on a timely basis, particularly where it relates to our clients’ information systems which are not managed by us. We could incur certain liabilities if a process we manage for a client were to result in internal control failures or processing errors, or impair our client’s ability to comply with its own internal control requirements.
Our dependence on our offshore operations centers requires us to maintain active voice and data communications among our operations centers, our international technology hubs and our clients’ offices. Although we maintain redundant facilities and communications links, disruptions could result from, among other things, technical breakdowns, computer glitches and viruses and weather conditions. We also depend on certain significant vendors for facility storage and related maintenance of our main technology equipment and data at those technology hubs, as well as for some of the third party technology and platforms we sometimes use to deliver our services. Any failure by these vendors to perform those services, any temporary or permanent loss of our equipment or systems, or any disruptions to basic infrastructure like power and telecommunications could impede our ability to provide services to our clients, have a negative impact on our reputation, cause us to lose clients, reduce our revenues and cash flows and harm our business.
Our contractual limitations on liability with our clients and third parties may not be enforceable.
Under most of our agreements with our clients, our liability for breach of certain of our obligations is generally limited to actual damages suffered by the client and is typically capped at the fees paid or payable to us for a period of time under the relevant agreement. These limitations and caps on liability may be unenforceable or otherwise may not protect us from liability for damages. In addition, certain liabilities, such as claims of third parties for which we may be required to indemnify our clients, including intellectual property infringement claims, or liability for fraud or breaches of confidentiality or notification costs relating to data breaches may not be limited under those agreements or may be subject to higher limitations. Because our agreements are governed by laws of different jurisdictions, the interpretation of certain provisions, and the availability of certain defenses to us, may vary, which, in certain circumstances, may contribute to uncertainty as to the scope of our potential liability.
Failure to adhere to the regulations or accreditation or licensing standards that govern our business could have an adverse impact on our operations.
Our clients’ business operations are often subject to regulation and accreditation and licensing standards, and our clients may require that we perform our services in a manner that will enable them to comply with applicable regulations or accreditations or licensing standards. Our clients are located around the world, and the laws and regulations that apply include, among others, United States federal laws such as the Gramm-Leach-Bliley Act and the Health Insurance Portability and Accountability Act, the Health Information Technology for Economic and Clinical Health Act, state laws on third party administration services, utilization review services, telemarketing services or state laws on debt collection in the United States and the Financial Services Act in the United Kingdom as well as similar consumer protection laws in other countries in which our clients’ customers are based. Failure to perform our services in a manner that complies with any such requirements could result in breaches of contracts with our clients. In addition, we are required under various laws to obtain and maintain accreditations, permits and/or licenses for the conduct of our business in all jurisdictions in which we have operations and, in some cases, we are additionally required to maintain accreditations, permits and/or licenses where our clients receive our services, including the United States and Europe. If we do not maintain our accreditations, licenses or other qualifications to provide our services or if we do not adapt to changes in legislation or regulation, we may have to cease operations in the relevant jurisdictions and may not be able to provide services to existing clients or be able to attract new clients. In addition, we may be required to expend significant resources in order to comply with laws and regulations in the jurisdictions mentioned above. Any failure to abide by regulations relating either to our business or our clients’ businesses may also, in some limited circumstances, result in civil fines and criminal penalties for us. Any such ceasing of operations or civil or criminal actions may have a material adverse effect on our business, results of operations, financial condition and cash flows.
Risks Related to the International Nature of Our Business
We are subject to labor and employment laws across jurisdictions and if more stringent labor laws become applicable to us or if our employees unionize, our profitability may be adversely affected.
We are subject to labor and employment laws across the jurisdictions in which we operate, and may from time to time be subject to litigation or administrative actions resulting from claims against us by current or former employees, individually or as part of a class action, including for claims of wrongful termination, discrimination (including on grounds of nationality, ethnicity, race, faith, gender, marital status, age or disability), misclassification, redundancy payments described above, or other
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violations of labor laws, or other alleged conduct. If we are found liable for any such claim, such liabilities could have a material adverse effect on our business, reputation, results of operations, financial condition and cash flows. Additionally, some of the geographies where we operate have stringent employee-friendly labor legislation, including legislation that sets forth detailed procedures for dispute resolution, employee separation, provision of benefits or facilities to employees at employer’s costs as well as imposing financial obligations and other compliance on employers upon retrenchment. Though we are exempt from some of these labor laws at present under applicable exceptions in relevant jurisdictions, there can be no assurance that such laws will not become applicable to us in the future. If these labor laws become applicable to our employees, it may become difficult for us to maintain flexible human resource policies and attract and employ the numbers of sufficiently qualified candidates that we need or discharge employees for business or operational reasons, and our compensation expenses may increase significantly. Regulations in other countries in which we operate also regulate our relations with our employees.
In addition, our employees may in the future form unions. If employees at any of our operations centers become eligible for union membership, we may be required to raise wage levels or grant other benefits that could lead to an increase in our compensation expenses, or productivity at relevant operations centers may be adversely affected, resulting, in each case to possible adverse impacts on our profitability and cash flows.
During the quarter ended March 31, 2019, the Supreme Court of India clarified that certain allowances paid by an employer to an employee should be included in the definition of “basic wage” for the purposes of defined social security contribution plans. It still remains unclear whether the interpretation set out in the pronouncement has retrospective application. If applied retrospectively, the interpretation may result in a significant increase in contributions payable by the Company for past periods for certain of its India-based employees and could have a material adverse effect on our results of operations, financial condition and cash flows. Further, 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 and could have a material adverse effect on our results of operations, financial condition and cash flows.
The Government of India in the past few years has focused on the occupational health and safety concerns experienced by workers in the outsourcing industry. The introduction of legislation imposing restrictions on working hours or conditions of professionals in the outsourcing industry could have an adverse effect on our business, results of operations, cash flows and financial condition.
If the transfer pricing arrangements we have among our subsidiaries are determined to be inappropriate, our tax liability may increase.
U.S. and Indian transfer pricing regulations, as well as regulations applicable in other countries in which we operate, require that any international transaction involving associated enterprises be at an arm’s-length price. Transactions among the Company’s subsidiaries and the Company may be required to satisfy such requirements. Accordingly, the Company determines the pricing among its associated enterprises on the basis of detailed functional and economic analysis involving benchmarking against transactions among entities that are not under common control. The tax authorities have jurisdiction to review this arrangement and in the event that they determine that the transfer price applied was not appropriate, the Company may incur increased tax liability, including accrued interest and penalties, which would cause our tax expense to increase, possibly materially, thereby reducing our profitability and cash flows. The Company is currently involved in disputes with the Indian tax authorities over the application of some of its transfer pricing policies for past years. See Note 21 - Income Taxes and Note 25 - Commitments and Contingencies to our consolidated financial statements for details.
We may choose to expand operations to additional countries and may not be successful in maintaining our current profit margins in our new locations due to factors beyond our control.
We have offices and operations in various countries around the world and provide services to customers globally. We continually evaluate additional locations outside our current operating geographies in which to invest in operations centers, in order to maintain an appropriate cost structure for our clients’ needs. In recent years we have opened new operations centers in countries outside of the United States. We cannot predict the extent of government support, availability of qualified workers, or monetary and economic conditions in other countries. Additionally, we may expand into less developed countries that have less political, social or economic stability and less developed infrastructure and legal systems. Although some of these factors will influence our decision to establish operations in another country, there are inherent risks beyond our control, including exposure to currency fluctuations, political uncertainties, foreign exchange restrictions and foreign regulatory restrictions. We may also face difficulties integrating new facilities in different countries into our existing operations. As we expand our business into new countries, we may encounter regulatory, personnel, technological and other difficulties that increase our expenses or delay
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our ability to start up our operations or become profitable in such countries. This may affect our relationships with our clients. One or more of these factors or other factors relating to expanded international operations could result in increased operating expenses and make it more difficult for us to manage our costs and operations, which could harm our business and negatively impact our operating results and cash flows.
Our financial condition could be negatively affected if foreign governments introduces new legislation, reduce or withdraw tax benefits and other incentives currently provided to companies within our industry or if we are not eligible for these benefits.
We are subject to income taxes in the United States and other foreign jurisdictions. Our tax expense and cash tax liability in the future could be adversely affected by various factors, including, but not limited to, changes in tax laws, regulations, accounting principles or interpretations and the potential adverse outcome of tax examinations. Changes in the valuation of deferred tax assets and liabilities, which may result from a decline in our profitability or changes in tax rates or legislation, could have a material adverse effect on our tax expense.
Certain operations centers in India, which were established in Special Economic Zones (“SEZs”), are eligible for a 100% income tax exemption for the first five years of operations and a 50% exemption for a period of five years thereafter. In 2019, the government of India introduced a new tax regime for certain Indian companies by enacting the Taxation Laws (Amendment) Act, 2019. The new tax regime is optional and provides for a lower tax rate for Indian companies, subject to agreeing to certain conditions, which, among other things, include not taking advantage of benefits from any tax holidays associated with SEZs and certain other tax incentives. Once a company has opted in to the new tax regime, it may not in the future opt out. During 2019 and 2020, our Indian subsidiaries opted into this new tax regime and accordingly gave-up the tax exemption associated with SEZs that were used prior to opting in. This decision is based on a number of current assumptions and financial projections. If such assumptions and financial projections are not correct, our election to opt in to the new tax regime may materially increase our effective income tax rate and decrease our earnings per share. Similarly, if alternative minimum taxes are imposed by certain jurisdictions on otherwise exempt income, this may result in increases to our tax expense in future years.
We also benefit from a corporate tax holiday in the Philippines for our operations centers established there over the last several years. The tax holiday already expired for few of our centers and will expire in the future for the other centers, which may lead to an increase in our overall tax rate. We anticipate establishing additional operations centers in PEZA or other tax advantaged locations in the future. Following the expiry of the tax exemption, income generated from centers in the Philippines will be taxed at the prevailing annual tax rate. Guidelines issued by Philippines Fiscal Incentives Review Board allows PEZA registered units to work remotely with certain thresholds. We are managing our business in accordance with the guidelines, however, if the prescribed thresholds are not met, it may adversely affect our income tax rate.

Governments in countries in which we operate or provide services could enact new tax legislation, including the Made in America Tax Plan in the United States, announced in April 2021, and the Finance Act 2021 in the United Kingdom, enacted in June 2021, which could have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, our ability to repatriate surplus earnings from our operations centers in a tax-efficient manner is dependent upon interpretations of local laws, possible changes in such laws and the renegotiation of existing double tax avoidance treaties.
The Company’s legal entity rationalization project is an ongoing endeavor to simplify our global legal entity structure, remove redundancies and reduce compliance risks and costs. Furthermore, we also strive to optimize the tax and financial efficiencies of the group structure. As a result, we may carry out certain re-organizations under the tax laws of various jurisdictions in which we operate and take certain positions to qualify for tax neutrality for such internal re-organization. However, we cannot assure you that any of these projects will be fully implemented or implemented in a manner satisfactory to the Company, or, if it is implemented, that there will not be any adverse actions brought by the tax authorities of certain jurisdictions if this re-organization is implemented.
As a result of the foregoing, our overall effective tax rate may increase in future years and such increase may be material and may have impact on our business, results of operations, financial condition and cash flows.
Our earnings may be adversely affected if we repatriate funds held by our foreign subsidiaries.
We earn a significant amount of our earnings outside of the United States. Not all of the undistributed earnings may be available for repatriation due to foreign legal restrictions that require minimum reserves to be maintained in those countries, which would limit our ability to use these earnings across our global operations in the United States or other geographies, where needed. We periodically evaluate opportunities to repatriate funds held by our foreign subsidiaries to fund our operations, and as and when we decide to repatriate such earnings, we may have to accrue further taxes associated with such earnings in accordance with local tax laws, rules and regulations in the relevant jurisdictions. All of these risks and uncertainties could have a material adverse effect on our business, results of operations, financial condition and cash flows.
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Currency exchange rate fluctuations in the various currencies in which we do business, especially the Indian rupee and Philippine peso, U.K pound sterling versus the U.S. dollar, could have a material adverse effect on our results of operations.
Although we report our operating results in U.S. dollars, a portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. Fluctuations in foreign currency exchange rates can have a number of adverse effects on us. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, expenses and income, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. The exchange rates among the Indian rupee, Philippine peso and other currencies in which we incur costs or receive revenues and the U.S. dollar have changed substantially in recent years and may fluctuate substantially in the future. See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.” Additionally, because a majority of our employees are based in India and the Philippines and paid in Indian rupees or Philippine peso while our revenues are primarily reported in U.S. dollars and U.K. pounds sterling, our employee costs as a percentage of revenues may increase or decrease significantly if the exchange rates among the Indian rupee, Philippine peso and the U.S. dollar fluctuate significantly.
Our results of operations could be adversely affected over time by certain movements in exchange rates, particularly if the Indian rupee or other currencies in which we incur expenses or receive revenues, change substantially against the U.S. dollar. Although we take steps to hedge a substantial portion of our Indian rupee/U.S. dollar, U.K pounds sterling/U.S. dollar and Philippine peso/U.S. dollar foreign currency exposures, there is no assurance that our hedging strategy will be successful or that the hedging markets will have sufficient liquidity or depth to allow us to implement our hedging strategy in a cost-effective manner. Any failure by our hedging counterparties to meet their contractual obligations could materially and adversely affect our profitability. We are subject to legal restrictions on hedging activities as well as the convertibility of currencies in India. This could limit our ability to use cash generated in one country in another country and could limit our ability to hedge our exposures.
In June 2016, the United Kingdom held a referendum in which British citizens approved an exit from the European Union ("EU"), commonly referred to as “Brexit.” Following protracted negotiations, the United Kingdom left the EU on January 31, 2020 and entered into a trade and cooperation agreement with the EU that provides for zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin. The EU-U.K. trade and cooperation agreement was signed on December 30, 2020 and went into force on May 1, 2021.
As a result of the referendum and the recent exit of the United Kingdom from the EU, the global markets and currencies have been and may in the future be adversely impacted, including experiencing a decline in the value of the U.K. pound sterling as compared to the U.S. dollar and causing adverse impacts to our U.K. operations and those of our clients. We are not able to predict the extent of those impacts. As a result, it is possible that events in the U.K. related to Brexit may adversely affect our financial results, operations and cash flows.
Restrictions on visas and work permits may affect our ability to compete for and provide services to clients in the United States and other jurisdictions, which could make it more difficult to staff engagements and could increase our costs, which could have an adverse effect on our net income.
Immigration and work permit laws and regulations in the countries in which we have customers are subject to legislative and administrative changes as well as changes in the application of standards and enforcement.
The ability of some of our executives and employees based in India and other foreign locations to work with and meet clients in the United States and other jurisdictions depends on their ability to obtain the necessary visas and work permits. In recent years, immigration authorities, in the United States as well as other jurisdictions in which our clients are based, have increased the level of scrutiny in granting such visas and work permits. In addition, immigration laws are subject to legislative change and varying standards of application and enforcement due to political forces, economic conditions or other events, including terrorist attacks. We cannot predict the political or economic events that could affect immigration laws or any restrictive impact those events could have on obtaining or monitoring visas or work permits for our employees. The ability to move our employees around the world as necessary to meet client demands is important to our business. If we are unable to efficiently deploy talent because of increased regulation of immigration or work visas, including limitations placed on the number of visas granted, limitations on the type of work performed or location in which the work can be performed, and new or higher minimum salary requirements, it could be more difficult to staff our employees on client engagements and could increase our costs and have an adverse effect on our net income and cash flows. Further, if COVID-19 persists for an extended period, then obtaining visas for our personnel may become difficult and several governments may not grant new visas.
Investors may have difficulty effecting service of process or enforcing judgments obtained in the United States against our subsidiaries in India or our executive officers.
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Our primary operating subsidiaries are organized outside the United States and some of our executive officers may reside outside of the United States. A substantial portion of our assets are located in India and the Philippines. As a result, you may be unable to effect service of process upon our affiliates who reside in India and the Philippines outside their jurisdiction of residence. In addition, you may be unable to enforce against these persons outside the jurisdiction of their residence judgments obtained in courts of the United States, including judgments predicated solely upon the federal securities laws of the United States.
Sections 44A and Section 13 of the Indian Civil Procedure Code, 1908 (the “Civil Code”) govern recognition and enforcement of foreign judgments. Section 44A of the Civil Code provides for recognition and enforcement of a foreign judgment without having to file an original suit in India, provided such judgments have been rendered by courts in a country or territory outside India which the Government of India has declared to be a reciprocating territory. We have been advised by our Indian counsel that the United States and India do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than certain arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not it is predicated upon the federal securities laws of the United States, would not be enforceable in India as such.
If the party in whose favor such final judgment is rendered brings a new suit in a competent court in India based on a final judgment that has been obtained in the United States, Section 13 of the Civil Code provides that the foreign judgment will be conclusive as to certain matters. The suit must be brought in India within three years of the date of the foreign judgment. It is unlikely, however, that a court in India would award damages on the same basis as a court in the United States if an action is brought in India. It is also unlikely that an Indian court would enforce judgments obtained in the United States if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice.
Risks Related to Our Indebtedness
We may not be able to service our debt or obtain additional financing on competitive terms.
We are party to a credit agreement for our bank debt facility that contains covenants, requiring, among other things, maintenance of certain financial ratios, indebtedness and, under certain conditions, restricting our ability to pay dividends, repurchase common shares and make other restricted payments as defined in the credit agreement. The credit agreement provides for a $300 million revolving credit facility including a letter of credit sub-facility. Our credit facility has a maturity date of November 21, 2022 and is voluntarily payable from time to time without premium or penalty. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Liquidity and Capital Resources-Financing Arrangements (Debt Facility and Notes).”
Our cash flow from operations provides the primary source of funds for our debt service payments. If our cash flow from operations declines, we may not be able to service or refinance our current debt which could adversely affect our business and financial condition. In addition, we have limited ability to increase our borrowings under our existing credit agreement.
We may in the future require additional financing to fund one or more acquisitions and may not be able to obtain such additional financing on competitive terms or at all, which could restrict our ability to complete such transactions, or could impose financial or operational restrictions on our business.
Risks Related to Our Common Stock
Our stock price continues to be volatile.
Our stock has at times experienced substantial price volatility as a result of, among other reasons, variations between our actual and anticipated financial results, announcements by us and our competitors, terrorist attacks, natural disasters, epidemics or pandemics, or other such events impacting countries where we or our clients have operations, loss of one or more significant clients, announcements of technological developments, projections or speculation about our business or that of our competitors by the media or investment analysts or uncertainty about current global economic conditions. The stock market, as a whole, experiences extreme price and volume fluctuations that affect the market price of many companies, including technology companies, in ways that may have been unrelated to these companies’ operating performance. Where the global stock markets have experienced, and may continue to experience, significant decline from COVID-19, could result in a material adverse effect on our stock price. Furthermore, we believe our stock price should reflect future growth and profitability expectations and, if we fail to meet these expectations, this may have a materially adverse effect on the trading price of our common stock.
Delaware law and our amended and restated certificate of incorporation and by-laws contain certain anti-takeover provisions that could delay or discourage business combinations and takeover attempts that stockholders may consider favorable.
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Our amended and restated certificate of incorporation and by-laws contain provisions that may make it more difficult, expensive or otherwise discourage a tender offer or a change in control or takeover attempt by a third-party that is opposed by our board of directors. These provisions include provisions permitting the board of directors to fill vacancies created by its expansion, provisions permitting the removal of directors only for cause and with the vote of holders of two thirds of our common stock, provisions requiring the vote of holders of two thirds of our common stock for certain amendments to our organizational documents, provisions barring stockholders from calling a special meeting of stockholders or requiring one to be called or from taking action by written consent and provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals for consideration at meetings of stockholders. These provisions may have the effect of delaying or preventing a change of control or changes in management that stockholders consider favorable. Additionally, because we are incorporated in Delaware, we are subject to Section 203 of the Delaware General Corporation Law. Section 203 may prohibit large stockholders, in particular those owning 15.0% or more of our outstanding voting stock, from merging or combining with us. These provisions of our amended and restated certificate of incorporation, by-laws and Delaware law could discourage potential takeover attempts and reduce the price that investors might be willing to pay for shares of our common stock in the future which could reduce the market price of our stock.
We do not intend to pay dividends in the foreseeable future, and, because we are also a holding company, we may be unable to pay dividends.
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, including restrictions under our credit agreement, business prospects and other factors that our board of directors considers relevant. Furthermore, because we are also a holding company, any dividend payments would also depend on the cash flow from our subsidiaries. Accordingly, under certain circumstances, we may not be able to pay dividends even if our board of directors would otherwise deem it appropriate.
Risks Related to Our Industry
Our industry may not develop in ways that we currently anticipate due to negative public reaction in the United States and elsewhere to offshore outsourcing, recently proposed legislation or otherwise.
We have based our strategy of future growth on certain assumptions regarding our industry and future developments in the market for outsourcing services. For example, we believe that there will continue to be changes in product and service requirements, and investments in the products offered by our clients will continue to increase. However, the trend to outsource business processes may not continue and could reverse. Offshore outsourcing is a politically sensitive topic in the United States and elsewhere, and many organizations and public figures have publicly expressed concern about a perceived association between offshore outsourcing providers and the loss of jobs in the United States and elsewhere. Current or prospective clients may elect to perform such services themselves or may be discouraged from transferring these services to offshore providers to avoid any negative perception that may be associated with using an offshore provider. Any slowdown or reversal of existing industry trends would harm our ability to compete effectively with competitors that operate out of facilities located in the United States and elsewhere.
A variety of U.S. federal and state legislation has been proposed that, if enacted, could restrict or discourage U.S. companies from outsourcing their services to companies with facilities outside the United States. For example, legislation has been proposed that would require offshore providers to identify where they are located and that would require notice to individuals whose personal information is disclosed to non-U.S. companies. In addition, bills have been proposed that would provide tax and other economic incentives for companies that create employment in the United States by reducing their offshore outsourcing, including the Made in America legislation described above. See Part I, Item 1A, “Risk Factors” under “Risks Related to the International Nature of Our Business-Our financial condition could be negatively affected if foreign governments introduces new legislation, reduce or withdraw tax benefits and other incentives currently provided to companies within our industry or if we are not eligible for these benefits.” Other bills have proposed requiring call centers to disclose their geographic locations, requiring notice to individuals whose personal information is disclosed to non-U.S. affiliates or subcontractors, requiring disclosures of companies’ foreign outsourcing practices or restricting U.S. private sector companies that have federal government contracts, federal grants or guaranteed loan programs from outsourcing their services to offshore service providers. In March 2021, Congressional Democrats introduced the “No Tax Breaks for Outsourcing Act” and “Stop Tax Haven Abuse Act,” both of which seek to increase U.S. taxes related to the non-U.S. activities of U.S. headquartered companies. If enacted, these proposed changes could have an impact on our results of operations and cash flows. Because most of our clients are located in the United States, any expansion of existing laws or the enactment of new legislation restricting offshore outsourcing could adversely impact our ability to do business with U.S. clients through our non-U.S. affiliates and have a material and adverse effect on our business, results of operations, financial condition and cash flows.
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In other countries, such as the United Kingdom, there has also been some negative publicity and concern expressed regarding the possible effect of job losses caused by outsourcing. Legislation enacted in the United Kingdom as well as other European jurisdictions provides that if a company transfers or outsources its business or a part of its business to a transferee or a service provider, the employees who were employed in such business are entitled to become employed by the transferee or service provider on the same terms and conditions as they had been employed before the transfer. The dismissal of such employees as a result of such transfer of business is deemed unfair dismissal and entitles the employees to compensation. As a result, we may become liable for redundancy payments to the employees of our clients who outsource business to us from those jurisdictions. We are generally indemnified in our existing contracts with clients in those jurisdictions to the extent we incur losses or additional costs due to the application of this legislation to us, and we intend to obtain indemnification in future contracts with clients. However, if we are unable to obtain indemnification in future contracts with clients or if the existing indemnification is not enforceable or available, we may be liable under those agreements we enter into with clients in the United Kingdom and other European jurisdictions.
Additionally, we cannot accurately predict the impact that COVID-19 might have on our clients’ outsourcing needs and efforts, as some of our clients might decide to refrain from offshore outsourcing due to the pressures they face from increased unemployment in the regions in which they operate as a result of COVID-19.
Unauthorized disclosure of sensitive or confidential client and employee data, whether through breach of our computer systems or otherwise, could cause us significant reputational damage, expose us to protracted and costly litigation, and cause us to lose clients.
We are typically required to process, and sometimes collect and/or store sensitive data, including data regulated by the U.S. Health Insurance Portability and Accountability Act of 1996, as amended, of our clients’ customers in connection with our services, including names, addresses, social security numbers, personal health information, credit card account numbers, checking and savings account numbers and payment history records, such as account closures and returned checks. In addition, we collect and store data regarding our employees. In the United States, several states have enacted or are considering enacting privacy regulations. In California, the California Consumer Privacy Act (the “CCPA”) went into effect in January 2020. The CCPA imposes privacy and data security obligations on companies collecting, accessing or processing the personal information of California residents and provides California consumers with certain rights as data subjects. The CCPA was substantially amended through the passage of the California Privacy Rights Act (the “CPRA”) which takes effect on January 1, 2023. The CPRA expands the definition of personal information to include certain categories of sensitive data, or “sensitive personal information,” which is subject to heightened protection. The CPRA also expanded the scope of coverage to include requirements with respect to employee data and created a new state agency vested with authority to implement and enforce the CCPA and the CPRA. In 2021, Virginia and Colorado enacted comprehensive privacy laws through the passage of the Virginia Consumer Data Protection Act (“VCDPA”) and Colorado Privacy Act (“CPA”), respectively, which embody similar privacy principles underlying the CCPA and CPRA with some notable differences in how such principles are transcribed into law. The VCDPA takes effect on January 1, 2023, and the CPA takes effect on July 1, 2023. In the EU, the General Data Protection Regulation (the “GDPR”) imposes privacy and data security compliance obligations and significant penalties for noncompliance. The GDPR presents numerous privacy-related changes for companies operating in the EU, including rights guaranteed to data subjects, requirements for data portability for EU consumers, data breach notification requirements and significant fines for noncompliance. In GDPR enforcement matters, companies have faced fines for violations of certain provisions. Additionally, in India, the Personal Data Protection Bill, 2019 continues to make progress through the Indian Parliament. If enacted in its current form it would impose stringent obligations on the handling of personal data, including certain localization requirements for sensitive data. Other countries have enacted or are considering enacting data localization laws that require certain data to stay within their borders. We may also face audits or investigations by one or more domestic or foreign government agencies or our clients pursuant to our contractual obligations relating to our compliance with these regulations. Complying with changing regulatory requirements requires us to incur substantial costs, exposes us to potential regulatory action or litigation, and may require changes to our business practices in certain jurisdictions. As a result, we are subject to various data protection and privacy laws in the countries in which we operate, and the failure to comply could result in significant fines and penalties. In addition, many of our agreements with our clients do not include any limitation on our liability to them with respect to breaches of our obligation to keep the information we receive from them confidential.
Although we devote substantial resources to protect our information assets and our clients' confidential information, any network infrastructure is to some extent vulnerable due to rapidly evolving cyber-attacks, employee error, malfeasance, or a combination of the foregoing. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to our data or our users’ or customers’ data. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security occurs (or a breach of a customer’s security that can be attributed to our fault or is perceived to be our fault), the market perception of the effectiveness of our security measures could be harmed and we could lose users and customers. Security
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breaches expose us to a risk of loss of this information, litigation, remediation costs, increased costs for security measures, loss of revenue, damage to our reputation, and potential liability.
Unauthorized access to or disclosure of sensitive or confidential client or employee data by any person, including any of our employees, whether through breach our perimeter or internal network security, data centers, computing infrastructure, computer systems, or systems failure, employee negligence, fraud or misappropriation, or otherwise, could result in negative publicity, subject us to significant liability and lawsuits from our employees, clients or their customers for breaching contractual confidentiality provisions or privacy laws, or investigations and penalties from regulators or criminal prosecution, damage to our reputation and cause us to lose clients. Under some of our client contracts, we have agreed to pay for the costs of remediation or notice to end users or credit monitoring, as well as other costs, in the event of a breach.
Our industry is subject to rapid technological change, and we may not be successful in addressing these changes.
Our industry is characterized by rapid technological change, evolving industry standards, changing client preferences and new product introductions. The success of our business depends, in part, upon our ability to develop services that keep pace with changes in the industry. We may not be successful in addressing these changes on a timely basis, or at all, or successfully marketing any changes that we implement. In addition, products or technologies developed by others may render our services uncompetitive or obsolete. If we do not sufficiently invest in new technology and industry developments or if we do not make the right strategic investments to respond to these developments and successfully drive innovation, our services and solutions, our results of operations, and our ability to develop and maintain a competitive advantage and continue to grow could be negatively affected.
Our growing use of AI (including ML) in our offerings presents additional risks. AI algorithms may be flawed and datasets may be insufficient or contain biased information. Inappropriate or controversial data practices by us or others could impair the acceptance of AI solutions or subject us to lawsuits and regulatory investigations. These deficiencies could undermine the decisions, predictions or analysis AI applications produce, or lead to unintentional bias and discrimination, subjecting us to competitive harm, legal liability, and brand or reputational harm.
B) General Risk Factors
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.
Global economic and political conditions affect our clients’ businesses and the markets they serve, which are increasingly becoming more interdependent. The domestic and international capital and credit markets have been experiencing volatility and disruption for the past several years, resulting in uncertainty in the financial markets in general, which includes companies in the banking, financial services, healthcare and insurance industries to which we provide services, and which industries were further disrupted by COVID-19. Although there has been recent improvement in general economic conditions in these industries, there can be no assurance that the economic environment will continue to improve. Our business largely depends on continued demand for our services from clients and potential clients in these industries. If there is a significant consolidation in these industries or a decrease in growth due to any adverse development or consolidation in other industry verticals on which we focus, such events could materially reduce the demand for our services and negatively affect our revenue and profitability. In addition, we currently earn, and are likely to continue to earn, a significant portion of our revenues from clients located in the United States. Weakness in the U.S. labor market could also adversely affect the demand for our services. Other developments in response to economic events, such as restructurings or reorganizations, particularly involving our clients, could also cause the demand for our services to decline. Many of our operating subsidiaries are incorporated in India and the Philippines, and a substantial portion of our assets and our employees are located in such locations. Although we intend to continue to develop and expand our offshore facilities in such locations, our ability to recruit, train and retain qualified employees, develop and operate our operations centers, and attract and retain clients could be adversely affected due to economic and political uncertainties in such locations.
Market disruptions may limit our ability to access financing or increase our cost of financing to meet liquidity needs, and affect the ability of our clients to use credit to purchase our services or to make timely payments to us.
If we are unable to collect our receivables from, or bill our unbilled services to, our clients, our results of operations and cash flows could be adversely affected.
Our business depends on our ability to successfully obtain payment from our clients for work performed. We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. We maintain allowances against receivables and unbilled services. Actual losses on client balances could differ from those that we currently anticipate and, as a result, we might need to adjust our allowances. We might not accurately assess the creditworthiness of our clients.
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Macroeconomic conditions, such as any domestic or global credit crisis and disruption of the global financial system, including on account of COVID-19, have resulted and may continue to result in financial difficulties for our clients, such as limited access to the credit markets, limited government stimulus support, insolvency or bankruptcy, and, as a result, have caused and may continue to cause, clients to delay payments to us, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations to us. Timely collection of client balances also depends on our ability to complete our contractual commitments and bill and collect our contracted revenues. If we are unable to meet our contractual requirements, we might experience delays in collection of and/or be unable to collect our client balances, and if this occurs, our results of operations and cash flows could be adversely affected. In addition, if we experience an increase in the time to bill and collect for our services, our cash flows could be adversely affected.
Our business could be negatively affected if we incur legal liability, including with respect to our contractual obligations, in connection with providing our solutions and services.
If we fail to meet our contractual obligations or otherwise breach obligations to our clients or vendors, we could be subject to legal liability. We may enter into non-standard agreements because we perceive an important economic opportunity by doing so or because our personnel did not adequately adhere to our guidelines. In addition, with respect to our client contracts, the contracting practices of our competitors may cause contract terms and conditions that are unfavorable to us to become standard in the marketplace. If we cannot or do not perform our obligations with clients or vendors, we could face legal liability and our contracts might not always protect us adequately through limitations on the scope and/or amount of our potential liability. If we cannot, or do not, meet our contractual obligations to provide solutions and services to clients, and if our exposure is not adequately limited through the enforceable terms of our agreements, we might face significant legal liability and our business could be adversely affected. Similarly, if we cannot, or do not, meet our contractual obligations with vendors, such as licensors, the vendors may have the right to terminate the contract, in which case we may not be able to provide client solutions and services dependent on the products or services provided to us by such contracts.
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptions could adversely affect our financial results.
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The application of U.S. GAAP requires us to make estimates and assumptions about certain items and future events that affect our reported financial condition, and our accompanying disclosure. Our most critical accounting estimates are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Critical Accounting Policies and Estimates.” We base our estimates on historical experience, contractual commitments and on various other assumptions that we believe to be reasonable under the circumstances and at the time they are made. These estimates and assumptions involve the use of judgment and are subject to significant uncertainties, some of which are beyond our control. COVID-19 has impacted our business and the extent to which COVID-19 may continue to impact our business depends on numerous dynamic factors, which we still cannot reliably predict. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to COVID-19, our estimates may materially change in future periods. If our estimates, or the assumptions underlying such estimates, are not correct, actual results may differ materially from our estimates, and we may need to, among other things, adjust revenues or accrue additional charges that could adversely affect our results of operations.
We are exposed to credit risk and fluctuations in the market values of our investment and derivatives portfolios.
Any deterioration of the credit and capital markets in the United States, Asia or other regions of the world could result in volatility of our investment earnings and impairments to our investment portfolio, which could negatively impact our financial condition and reported income. Changes in economic conditions could adversely affect the ability of counterparties, including counterparties to our foreign exchange forward contracts, to meet their obligations to us, which could materially affect our positions and investments.
We may not be fully insured for all losses we may incur.
We could be sued directly for claims that could be significant, such as claims related to breaches of privacy or network security, infringement of intellectual property rights, violation of wage and hour laws, or systemic discrimination, and our liability under our contracts may not fully limit or insulate us from those liabilities. Although we have general liability insurance coverage, including coverage for errors or omissions, cyber security incidents, property damage or loss and breaches of privacy and network security, that coverage may not continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims, and our insurers may disclaim coverage as to any future claim. Insurance is not available for certain types of claims, including patent infringement, violation of wage and hour laws, failure to provide equal pay in the U.S., and our indemnification obligations to our clients based on employment law. The successful assertion of one or more large claims against us that are excluded from our insurance coverage or exceed available insurance coverage, or changes in our
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insurance policies (including premium increases, the imposition of large deductible or co-insurance requirements, or our insurers’ disclaimer of coverage as to future claims), could have a material adverse effect on our business, results of operations, financial condition and cash flows.
New and changing laws, corporate governance and public disclosure requirements add uncertainty to our compliance policies and increase our costs of compliance.
Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”), other SEC regulations, rules and regulations of the Consumer Financial Protection Bureau, Public Company Accounting Oversight Board, and the NASDAQ Global Select Market, and generally accepted accounting principles issued by FASB can create uncertainty for companies like ours. These laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time, as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such corporate governance standards.
Effective internal controls are necessary for us to provide reliable and accurate financial statements and to effectively prevent fraud. We devote significant financial and managerial resources and time to comply with the internal control over financial reporting requirements of the Sarbanes Oxley Act of 2002 and continue to enhance our controls. Internal control over financial reporting has inherent limitations, including human error, sample-based testing, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. Because of these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud. While we do not anticipate any material weaknesses, we cannot be certain that we will be able to prevent future significant deficiencies or material weaknesses. Inadequate internal controls could result in adverse consequences to us, including, but not limited to, a loss of investor confidence in the reliability of our financial statements, which could cause the market price of our stock to decline.
We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, the laws, regulations and standards regarding corporate governance may make it more difficult for us to obtain director and officer liability insurance. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with their performance of duties. As a result, we may face difficulties attracting and retaining qualified board members and executive officers, which could harm our business. If we fail to comply with new or changed laws, regulations or standards of corporate governance, our business and reputation may be harmed.
Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violations of these regulations could harm our business.
We provide services to clients throughout the world, therefore we are subject to numerous, and sometimes conflicting, legal rules on matters as diverse as import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, government affairs, internal and disclosure control obligations, securities regulation, including anti-competition, anti-money-laundering, data privacy and protection, government compliance, wage-and-hour standards, employment and labor relations and human rights. The global nature of our operations increases the difficulty of compliance. Compliance with diverse legal requirements is costly, time-consuming and requires significant resources. Violations of any of these laws or regulations in the conduct of our business could result in fines, criminal sanctions against us or our officers, prohibitions on doing business, damage to our reputation and other unintended consequences such as liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process information and allegations by our clients that we have not performed our contractual obligations. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws might be insufficient to protect our rights. Our failure to comply with applicable legal and regulatory requirements could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Governmental bodies, investors, clients and businesses are increasingly focused on environmental, social, and governance (“ESG”) issues, which has resulted and may in the future continue to result in the adoption of new laws and regulations and changing buying practices. If we fail to keep pace with ESG trends and developments or fail to meet the expectations of our clients and investors, our reputation and business could be adversely impacted.
In addition, it may be difficult to enforce our intellectual property rights both within and outside of the United States. India is a member of the Berne Convention, an international intellectual property treaty, and has agreed to recognize protections on intellectual property rights conferred under the laws of other foreign countries, including the laws of the United States. There
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can be no assurance, however, that the laws, rules, regulations and treaties in effect in the United States, India and the other jurisdictions in which we operate and the contractual and other protective measures we take, are adequate to protect us from misappropriation or unauthorized use of our intellectual property, or that such laws will not change.
Among other anti-corruption laws and regulations, including the U.K. Bribery Act, we are subject to the United States Foreign Corrupt Practices Act, or FCPA, which prohibits improper payments or offers of improper payments to foreign officials to obtain business or any other benefit. The FCPA also requires covered companies to make and keep books and records that accurately and fairly reflect the transactions of the company and to devise and maintain an adequate system of internal accounting controls. In many parts of the world, including countries in which we operate, practices in the local business community might not conform to international business standards and could violate these anti-corruption laws or regulations. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance, including with respect to the FCPA, our employees, subcontractors and agents could take actions that violate these policies or procedures or applicable anti-corruption laws or regulations. Furthermore, the U.S. government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire. Violations of these laws or regulations could subject us to criminal or civil enforcement actions, including fines and suspension or disqualification from government contracting or contracting with private entities in certain highly regulated industries, any of which could have a material adverse effect on our business.
We are vulnerable to natural disasters, technical disruptions and man-made events that could severely disrupt the normal operation of our business and if our risk management, business continuity and disaster recovery plans are nor effective, it may adversely affect our business, results of operations, financial condition and cash flows.
Our operations centers and our data and voice communications, particularly in India and the Philippines, may be damaged or disrupted as a result of natural disasters such as earthquakes, floods, volcano eruptions, heavy rains, epidemics or pandemics, tsunamis and cyclones, technical disruptions such as electricity or infrastructure breakdowns, including damage to telecommunications cables, computer glitches and electronic viruses or man-made events such as political unrest, terrorist attacks, other acts of violence or war, protests, riots and labor unrest. Such events may lead to the disruption of information systems and telecommunication services for sustained periods. They also may make it difficult or impossible for employees to reach our business locations. Our risk management, business continuity and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of a catastrophic events. Damage or destruction that interrupts our provision of services could adversely affect our reputation, our relationships with our clients, our leadership team’s ability to administer and supervise our business or it may cause us to incur substantial additional expenditure to repair or replace damaged equipment or delivery centers. We may also be liable to our clients for disruption in service resulting from such damage or destruction. While we currently have commercial liability insurance, our insurance coverage may not be sufficient. Furthermore, we may be unable to secure such insurance coverage at premiums acceptable to us in the future or at all. Prolonged disruption of our services would also entitle our clients to terminate their contracts with us. Any of the above factors may adversely affect our business, results of operations, financial condition and cash flows.

ITEM 1B.    Unresolved Staff Comments
None.
ITEM 2.    Properties
Our corporate headquarters are located in New York, New York. We have multiple operations centers spread across India, the Philippines, the United Kingdom, Colombia, Bulgaria, the Czech Republic, Romania and South Africa with an aggregate area of approximately 2,014,000 square feet and a current installed capacity of approximately 30,400 workstations, including workstations for training and our employees in enabling functions. We also have multiple operations centers and regional offices in the United States. We continue to optimize our existing network of operations centers to service our client, drive efficiencies and adapting the remote working operating model.
Our corporate headquarters and all of our operations centers are leased under long-term leases with varying expiration dates, except for an operations center in Pune, India with an area of 86,361 sq. ft. and containing approximately 1,670 agent workstations, which we own. Substantially all of our owned and leased property is used to service all of our reporting segments. We believe that our current facilities are adequate to support our existing operations. We also believe that we will be able to obtain suitable additional facilities on commercially reasonable terms on an “as needed basis.”

ITEM 3.    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 25 -
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Commitments and Contingencies to our consolidated financial statements contained herein for details regarding our tax proceedings.

ITEM 4.    Mine Safety Disclosures
Not applicable.
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PART II.
 
ITEM 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the Nasdaq Global Select Market under the symbol “EXLS.”
As of February 22, 2022, there were 11 holders of record of our outstanding common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
We do not anticipate paying any cash dividends in the foreseeable future.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
On December 16, 2019, the Company’s Board of Directors authorized a $200 million 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 million common stock repurchase program beginning January 1, 2022 (the “2022 Repurchase Program”), and terminated the 2019 Repurchase Program on December 31, 2021.

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. The Company has structured open market purchases under the Repurchase Programs to comply with Rule 10b-18 under the Exchange Act. Repurchases may be discontinued at any time by management.
Repurchased shares under the Repurchase Programs are recorded as treasury shares and are held until our Board of Directors designates that these shares be retired or used for other purposes.
The following table provides information regarding the purchase of equity securities by the Company under the 2019 Repurchase Program during the three months ended December 31, 2021:
PeriodTotal 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
October 1, 2021 through October 31, 2021(1)
74,902 $124.35 70,316 $29,826,254 
November 1, 2021 through November 30, 2021 (1)
97,398 $134.09 96,747 $16,855,427 
December 1, 2021 through December 31, 2021 (1)
  76,228 $135.94 75,606 
Nil(2)
Total  248,528 $131.72 242,669 — 
(1) Includes 5,859 shares of the Company’s common stock acquired by the Company at the price of $125.78 in connection with satisfaction of tax withholding obligations on vested restricted stock. Price paid per share for the restricted stock was the closing price of common stock on the trading day prior to the vesting date of the restricted stock units.
(2) The Company terminated the 2019 Repurchase Program on December 31, 2021, accordingly the remaining dollar value of stock that may be repurchased under this program is shown as nil.
During the year ended December 31, 2021, the Company purchased 1,087,325 shares of its common stock under the 2019 Repurchase Program, for an aggregate purchase price of $115.6 million including commissions, representing an average purchase price per share of $106.32.
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During the year ended December 31, 2021, the Company purchased 31,309 shares from employees in connection with withholding tax payments related to the vesting of restricted stock units for a total consideration of $2.8 million. The weighted average purchase price of $87.90 was the closing price of the Company’s shares of common stock on the Nasdaq Global Select Market on the trading day prior to the vesting date of the shares of restricted stock.
Equity Compensation Plan Information
The following table provides information as of December 31, 2021 with respect to the shares of our common stock that may be issued under our existing equity compensation plans. For a description of our equity compensation plans, see Note 22 - Stock Based Compensation to our consolidated financial statements.
Plan CategoryNumber of Securities
to be Issued Upon
Exercise/Vesting of
Outstanding
Options, Warrants and Rights*
Weighted
Average Exercise
Price of
Outstanding
Options, Warrants and Rights
Number of Securities
Remaining Available for Future
Issuance Under Equity
Compensation Plans (Excluding Securities
Reflected in Column 1)
Equity compensation plans approved by security holders1,378,667 $27.62    1,777,687 
Equity compensation plans not approved by security holders— — — 
Total1,378,667 $27.62 1,777,687 
*This includes outstanding options and unvested Restricted Stock Units, which include Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units. See Note 22 - Stock Based Compensation to our consolidated financial statements for further details.
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Performance Graph
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the Nasdaq 100 Index (capitalization weighted) and our peer group of companies for the period beginning December 31, 2016. Our peer group of companies is comprised of two companies that we believe are our closest reporting issuer competitors: Genpact Limited and WNS (Holdings) Limited. The returns of the component entities of our peer group index are weighted according to the market capitalization of each company as of the beginning of each period for which a return is presented. The returns assume that $100 was invested on December 31, 2016 and that all dividends were reinvested. The stock performance shown on the graph below is not indicative of future price performance.
This graph will not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This graph will not be deemed to be incorporated by reference into any prior or subsequent filing under the Securities Act, or the Exchange Act.
exls-20211231_g1.jpg

ITEM 6.    [Reserved]













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ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in connection with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the statements in the following discussion are forward looking statements.
We have described in this Annual Report on Form 10-K, the impact of the global Coronavirus Disease 2019 pandemic (“COVID-19”) on our financial results for the year ended December 31, 2021. See "Cautionary Note Regarding Forward-Looking Statements" below and in Part I, Item 1A, “Risk Factors” included elsewhere in this Annual Report on Form 10-K for further information regarding risks and uncertainties relating to COVID-19.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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 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, or medical epidemics or pandemics;
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;
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;
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.
In particular, you should consider the numerous risks outlined in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. These and other risks could cause actual results to differ materially from those implied by forward-looking statements in this Annual Report on Form 10-K.
The forward-looking statements made by us in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K after the date of this Annual Report on Form 10-K, 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, and is in line with certain operational and structural changes we made effective January 1, 2020 to more closely integrate our businesses and to simplify our organizational structure.
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.
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
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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.
Continued Impact of COVID-19 on Our Business
Over the course of 2020, and continuing into 2021, our clients, contractors, suppliers, and other partners adapted in order to conduct business activities in a COVID-19 environment. 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.
Our remote working delivery capability steadily improved throughout 2021. We estimate that we are able to deliver a significant portion of our clients’ current requirements in a remote work model given the current lockdown restrictions in the locations in which we operate and certain clients not authorizing us to perform the remaining process work remotely due to its sensitive nature.

We continue to incur additional costs in order to ensure the continuity of our operations and support our remote work model. Such costs include purchase of desktops and laptops for our employees, software and internet connectivity devices, technology tools for productivity enhancement, accommodation, meal, overtime, transportation and sanitization and cleaning costs of our offices and facilities. We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our remote work model, implement new information technology solutions and security measures to safeguard against information security risks and protect the health and safety of our employees as they gradually return to the office. We believe that these short-to-medium-term costs may benefit us in the long-term, as these steps have broadened our remote working capabilities, which we expect to become a permanent feature in our future delivery model, as well as our business continuity plans.
Certain impacts of COVID-19 on our business, results of operations, financial position and cash flow during 2021 have been described above and below, however the full extent of the impact for the period beyond 2021 is currently uncertain and will depend on many factors that are not within our control.
For additional information and risks related to COVID-19, see Part I, Item 1A, “Risk Factors.”
During the fourth quarter of 2021, we performed our annual goodwill quantitative impairment test for any potential impairment. We considered the effects of COVID-19 on our significant inputs used in determining the fair value of our reporting units. Based on the results, the fair value of each of our reporting units exceeded their carrying value and the goodwill was not impaired. However, there can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. These estimates and judgments may not be within our control and accordingly it is reasonably possible that they could change in future periods.
Revenues
For the year ended December 31, 2021, we generated revenues of $1,122.3 million compared to revenues of $958.4 million for the year ended December 31, 2020, an increase of $163.9 million, or 17.1%.
We serve clients mainly in the United States and the United Kingdom, with these two regions generating 85.9% and 9.4%, respectively, of our total revenues for the year ended December 31, 2021 and 85.0% and 9.3%, respectively, of our revenues for the year ended December 31, 2020.
For the years ended December 31, 2021 and 2020, our total revenues from our top ten clients accounted for 38.1% and 37.4% of our total revenues, respectively. Our revenue concentration with our top clients remains largely consistent year-over-year and we continue to develop relationships with new clients to diversify our client base. We believe that the loss of any of our top ten clients could have a material adverse effect on our financial performance.
Our Business
We provide 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 from the United States, Europe and Australia.
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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.
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 and improve decision making for our clients. Our Clairvoyant acquisition 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.
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Expenses
Cost of Revenues
Our cost of revenues primarily consists of:
employee costs, which include salary, bonus and other compensation expenses; retirement benefits, recruitment and training costs; employee health and life insurance; transport; rewards and recognition for certain employees; and non-cash stock compensation expense; and
costs relating to our facilities and communications network, which include telecommunication and IT costs; facilities and customer management support; operational expenses for our operations centers; rent expenses; and
Outsourced/subcontractors and professional services costs; and
travel and other billable costs to our clients; and
costs relating to our direct mail operations and other digital operations and solutions.
The most significant components of our cost of revenues are salaries and benefits (including stock-based compensation), retirement benefits, recruitment, training, transport, meals, rewards and recognition and employee health and life insurance. Salary levels, employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues. We make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements. Although we generally have been able to reallocate our employees as client demand has fluctuated, a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees, which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount. A significant increase in the turnover rate among our employees, particularly among the highly skilled workforce needed to execute certain services, would increase our recruiting and training costs and decrease our operating efficiency, productivity and profit margins. In addition, cost of revenues also includes non-cash amortization of stock compensation expense relating to our issuance of equity awards to employees directly involved in providing services to our clients.
We expect our cost of revenues to continue to increase as we continue to add professionals in our operating centers globally to service additional business and as wages continue to increase globally. In particular, we expect training costs to continue to increase as we continue to add staff to service new clients and provide existing staff with additional skill sets. There is significant competition for professionals with skills necessary to perform the services we offer to our clients. As our existing competitors continue to grow, and as new competitors enter the market, we expect competition for skilled professionals in each of these areas to continue to increase, with corresponding increases in our cost of revenues to reflect increased compensation levels for such professionals. We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our remote work model, invest in information technology solutions and security measures to safeguard against information security risks and costs to protect the health and safety of our employees as they gradually return to the office. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business-Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin” and under “Risks Related to the International Nature of Our Business-We are subject to labor and employment laws across jurisdictions and if more stringent labor laws become applicable to us or if our employees unionize, our profitability may be adversely affected.” However, a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which partially offset such increase in cost of revenues.
We generally experience a higher cost of revenues as a percentage of revenues during the initial 12 to 18 months in a long-term digital operations and solutions contract due to upfront investments in infrastructure, resource hiring and training during migration. The cost of revenues as a percentage of revenues improves as we scale up, achieve operational efficiencies and complete the migration.
Selling, General and Administrative Expenses ("SG&A")
Our General and Administrative expenses (“G&A”) comprise of expenses relating to salaries and benefits (including stock based compensation), retirement benefits as well as costs related to recruitment, training and retention of senior management and other support personnel in enabling functions, telecommunications, utilities, travel and other miscellaneous administrative costs. G&A expenses also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting, immigration and other advisors), investment in product development, digital technology, advanced automation and robotics, cloud, AI and MI, bad debt allowance and stock compensation expenses related to our issuance of
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equity awards to members of our board of directors. We expect our G&A costs to increase as we continue to strengthen our support and enabling functions and invest in leadership development, performance management and training programs.
Selling and marketing expenses primarily consist of salaries and benefits (including stock based compensation), retirement benefits and other compensation expenses of sales and marketing and client management personnel, sales commission, travel and brand building, client events and conferences. We expect that sales and marketing expenses will continue to increase as we invest in our sales and client management functions to better serve our clients and in our branding.
Depreciation and Amortization Expense
Depreciation and amortization pertains to depreciation of our tangible assets, including network equipment, cabling, computers, office furniture and equipment, motor vehicles and leasehold improvements and amortization of intangible assets. As we add new facilities and expand our existing operations centers, we expect that depreciation expense will increase, reflecting additional investments in equipment such as desktop computers, servers and other infrastructure. The property and equipment which are abandoned, are assessed for revision of their useful life, thereby revising the future depreciation to reflect the use of property and equipment over the remaining shortened life. We expect lower depreciation on assets related to operating centers closed as a result of optimization of office space and increased reliance on remote work model, due to the impact of COVID-19. We expect amortization of intangible assets to increase further as we pursue strategic relationships and acquisitions.
Foreign Exchange
We report our financial results in the U.S. dollar. However, a significant portion of our total revenues are earned in the U.K. pound sterling (8.6% and 8.3%, respectively, for the years ended December 31, 2021 and 2020), while a significant portion of our expenses are incurred and paid in Indian rupees (29.4% and 27.2%, respectively, of our total costs for the years ended December 31, 2021 and 2020) and the Philippine peso (9.5% and 11.5%, of our total costs for the years ended December 31, 2021 and 2020). The exchange rates among the Indian rupee, the Philippine peso, the U.K. pound sterling and the U.S. dollar have changed substantially in recent years and may fluctuate substantially in the future as well. The results of our operations could be substantially impacted as the Indian rupee, the Philippine peso and the U.K. pound sterling appreciate or depreciate against the U.S. dollar. See Note 2 - Summary of Significant Accounting Policies and Note 16 - Derivatives and Hedge Accounting to our consolidated financial statements and Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Risk.”
Interest Expense
Interest expense primarily consist of interest on our borrowings under our credit facility and convertible senior notes, finance lease liabilities and notional interest implicit in the purchase of property and equipment.
Other Income, net
Other income, net primarily consists of gain/(loss) on sale, mark to market and dividend income on our investments in mutual funds and money market funds, and interest on time deposits classified under “Cash and cash equivalents,” “Short-term investments” and “Other assets,” as applicable on our consolidated balance sheets. Other income, net also consists of changes in fair value of earn-out consideration, interest on refunds received from income tax authorities in India on completion of tax assessments and components of net periodic benefit cost such as interest cost, expected return on plan assets, amortization of actuarial gain or loss and profit or loss on disposal of long-lived assets.
Income Taxes
We are subject to income taxes in the United States and other foreign jurisdictions. Our tax expense and cash tax liability in the future could be adversely affected by various factors, including, but not limited to, changes in tax laws, regulations, accounting principles or interpretations and the potential adverse outcome of tax examinations. Changes in the valuation of deferred tax assets and liabilities, which may result from a decline in our profitability or changes in tax rates or legislation, could have a material adverse effect on our tax expense.
During the year 2018, we made an election to change the tax status of most of our controlled foreign corporations (“CFC”) to disregarded entities for U.S. income tax purposes. As a result, we no longer have undistributed earnings in connection with these CFCs. The Transition Tax resulted in previously taxed income (“PTI”) which may be subject to withholding taxes and currency gains or losses upon repatriation. We periodically evaluate opportunities to distribute PTI among our group entities to fund our operations in the United States and other geographies, and as and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions. These distributions do not constitute a change in our permanent reinvestment assertion.
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In 2019, the Government of India introduced a new tax regime for certain Indian companies by enacting the Taxation Laws (Amendment) Act, 2019. The new tax regime is optional and provides for a lower tax rate for Indian companies, subject to certain conditions, which among other things includes not availing of specified exemptions or incentives. During the year 2019 and 2020, we elected this new tax regime for our Indian subsidiaries to obtain the benefit of a lower tax rate.
We also benefited from a corporate tax holiday in the Philippines for our operations centers established there over the last several years. The tax holiday expired for few of our operations centers in last few years and will expire for other operations centers by year 2022, which may lead to an increase in our overall tax rate. Following the expiry of the tax exemption, income generated from operations centers in the Philippines will be taxed at the prevailing annual tax rate, which as of December 31, 2021 was 5.0% on gross income.
We recognize deferred tax assets and liabilities for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. We determine if a valuation allowance is required or not on the basis of an assessment of whether it is more likely than not that a deferred tax asset will be realized.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon the financial statements included in this Annual Report on Form 10-K, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). A summary of our significant accounting policies is included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements. We consider the policies discussed below to be critical to an understanding of our consolidated financial statements, as their application places the most significant demands on management’s judgment regarding matters that are inherently uncertain at the time an estimate is made. These policies include revenue recognition, allowance for expected credit losses, business combinations, goodwill, intangibles and long-lived assets, stock-based compensation, derivative instruments and hedging activity and borrowings. The significant estimates and assumptions that affect the financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, 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 related to lease liabilities, ROU assets, lease cost, income taxes and assets, obligations related to employee benefit plans, revenue projections and discount rate applied within the discounted cash flow model for business acquisitions. These accounting policies and the associated risks are set out below. Future events may not develop exactly as forecasted and estimates routinely require adjustment.
Revenue Recognition
Revenue is recognized when services are provided to our clients, in an amount that reflects the consideration which we expect to be entitled to in exchange for the services provided.
Revenue is measured based on consideration specified in a contract with a customer and excludes discounts and amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by providing services to a customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.
Significant judgments
Arrangements with Multiple Performance Obligations
We sometimes enter into contracts with our clients which include promises to transfer multiple products and services to the client. Determining whether products and services are considered as distinct performance obligations that should be accounted for separately rather than as one performance obligation may require significant judgment. The transaction price is allocated to performance obligations on relative standalone selling price basis.
Judgment is also required to determine the standalone selling price for each distinct performance obligation. In instances where the standalone selling price is not directly observable, it is determined using information that may include market conditions and other observable inputs.
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Variable Consideration
Variability in the transaction price arises primarily due to service level agreements and volume discounts.
We consider our experience with similar transactions and expectations regarding the contract in estimating the amount of variable consideration that should be recognized during a period.
We believe that the expected value method is most appropriate for determining the variable consideration since we have a large number of contracts with similar nature of transactions/services.
Type of Contracts Requiring Judgment
a.Revenues for our fixed-price contracts are recognized using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the client. The use of this method requires significant judgment to estimate the cost required to complete the contracted scope of work, including assumptions and estimates relative to the length of time to complete the project and the nature and complexity of the work to be performed and resources engaged. We regularly monitor these estimates throughout the execution of the project and record changes in the period in which a change in an estimate is determined. If a change in an estimate results in a projected loss on a project, such loss is recognized in the period in which it is first identified.
b.Revenues from reimbursement optimization services having contingent fee arrangements are recognized by us at the point in time when a performance obligation is satisfied, which is when we identify an overpayment claim. In such contracts, our consideration is contingent upon the actual collections made by our clients and net of any subsequent retraction claims. Based on guidance on “variable consideration” in Topic 606, we use our historical experience and projections to determine the expected recoveries from our clients and recognize revenue based upon such expected recoveries. Any adjustment required due to change in estimates are recorded in the period in which such change is identified.
For additional information, see Note 4 - Revenues, net to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data.”
Unbilled Receivables
Unbilled receivables represent revenues recognized for services rendered between the last billing date and the balance sheet date. Unbilled receivables also include revenues recognized from reimbursement optimization services where we identify an overpayment claim. In such contracts, our consideration is contingent upon and collectable only when the actual collections are made by our clients. Based on guidance on “variable consideration” in Topic 606, we use our historical experience and projections to determine the expected recoveries from our clients and recognize revenue and receivables based upon such expected recoveries. Accordingly, the amounts for which services have been performed and for which invoices have not been issued to customers on the balance sheet date, (i.e. unbilled receivables) are presented under accounts receivable.
Deferred Revenue and contract fulfillment costs
We have contract liabilities (deferred revenue) consisting of advance billings and billing in excess of revenues recognized. Deferred revenue also includes the amount for which services have been rendered but other conditions of revenue recognition are not met, for example where we do not have an enforceable contract.
Further, we also defer revenues attributable to certain process transition activities, with respect to our clients where such activities do not represent separate performance obligations. Revenues related to such transition activities are classified under “Deferred revenue” and “Other non-current liabilities” in our consolidated balance sheets and are recognized ratably over the period during which the related services are performed.
Costs related to such transition activities are contract fulfillment costs, and thereby classified under “Other current assets” and “Other assets” in the consolidated balance sheets, and are recognized over the expected duration of the relationship with customers, under “Cost of revenues” in our consolidated statements of income.
Contract Acquisition Costs
Direct and incremental costs incurred for acquiring contracts, such as sales commissions are contract acquisition costs and thereby classified under “Other current assets” and “Other assets” in our consolidated balance sheets. Such costs are amortized
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over the expected duration of the relationship with customers and recorded under Selling and marketing expenses in our consolidated statements of income.
Upfront Payment Made to Customers
Upfront payments in nature of deal signing discount or deal signing bonuses made to customers are contract assets and classified under “Other current assets” and “Other assets” in our consolidated balance sheets. Such costs are amortized over the expected period of benefit and are recorded as an adjustment to transaction price and reduced from revenues.
Allowance for Expected Credit Losses
We record accounts receivable net of allowances for expected credit losses. Allowances for credit losses are established through the evaluation of aging of accounts receivables, prior collection experience, current market conditions, forecasts about future economic conditions, clients’ financial condition and the amount of accounts receivable in dispute to estimate the collectability of these accounts receivable. Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.
Business Combinations
We account for all business combinations using the acquisition method of accounting as prescribed by Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.” The guidance requires the use of significant estimates and assumptions in determining the fair value of identifiable assets acquired and liabilities assumed, including intangible assets and contingent consideration, and allocation of purchase price over such assets and liabilities on the acquisition date. The significant estimates and assumptions include, but are not limited to, the timing and amount of future revenue and cash flows based on, among other things, discount rate reflecting the risk inherent in future cash flows, customer attrition rates and the long-term growth rate applied within the discounted cash flow model. This requires a high degree of the Company’s judgment and the need to involve fair value specialists to evaluate the reasonableness of the Company’s valuation methodology and the selection of inputs to the valuation.
Goodwill, Intangible Assets and Long-lived Assets
Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased in a business combination. Goodwill is not amortized but is tested for impairment at least on an annual basis, relying on a number of factors including operating results, business plans and estimated future cash flows of the reporting units to which it is assigned. We undertake studies to determine the fair values of assets and liabilities acquired and allocate purchase consideration to assets and liabilities, including property and equipment, goodwill and other identifiable intangibles. We examine the carrying value of the goodwill annually in the fourth quarter, or more frequently, as circumstances warrant, to determine whether there are any impairment losses. We test for goodwill impairment at the reporting unit level. We also assess any potential goodwill impairment for our reporting units immediately prior to any segment changes and reallocate goodwill on the basis of the new reporting units.
The goodwill quantitative impairment test involves a comparison of the fair value of a reporting unit with its carrying amount. We estimate the fair value of a reporting unit using a combination of the income approach, using discounted cash flow analysis (“DCF model”), and also the market approach, using market multiples for reporting units whereby the fair value is not substantially in excess of carrying value. Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units. The discount rate is mainly based on judgment of the specific risk inherent within each reporting unit. The variables within the discount rate, many of which are outside of our control, provide us best estimate of all assumptions applied within the DCF model. Discount rates used in our reporting unit valuations range from 12.0% to 12.1%. We also use the “Market approach” to corroborate the results of the income approach for some of our reporting units. Under the market approach, we estimate fair value based on market multiples of revenues and earnings derived from comparable publicly-traded companies with characteristics similar to the reporting unit and comparable market transactions. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.
Determining fair value requires the use of estimates and exercise of significant judgment, including assumptions about appropriate discount rates, perpetual growth rates, amount and timing of expected future cash flows, market multiples of revenues and earnings and comparable market transactions. These estimates and judgements may not be within our control and
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accordingly it is reasonably possible that the estimates and judgments described above could change in future periods. There can be no assurance that operations will achieve the future cash flows reflected in the projections. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss shall be recognized, in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
We review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, we will recognize an impairment loss when the sum of discounted expected future cash flows is less than the carrying amount of such asset. The estimate of discounted cash flows and the fair value of assets require several assumptions and estimates like the weighted average cost of capital, discount rates, risk-free rates, market rate of return and risk premiums and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Although we believe the historical assumptions and estimates we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. See Note 2 - Summary of Significant Accounting Policies - Business Combinations, Goodwill and Other Intangible Assets to our consolidated financial statements for more information.
Stock-based Compensation
Under the fair value recognition provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC No. 718”), cost is measured at the grant date based on the fair value of the award and is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
Determining the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term over which the stock awards will be outstanding before they are exercised and the expected volatility of our stock.
We also grant performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees. Generally the grants provide that 50% of the PRSUs cliff vest at the end of a three-year period based on an aggregated revenue target (“PUs”) for a three-year period. The remaining 50% vest based on a market condition (“MUs”) that is contingent on EXL meeting or exceeding the total shareholder return relative to a group of peer companies specified under the program, measured over a three-year performance period. The award recipient may earn up to 200% of the PRSUs granted based on the actual achievements of both targets. However, the features of our equity incentive compensation program are subject to change by the Compensation Committee of our Board of Directors.
The fair value of each PU is determined based on the market price of one share of our common stock on the day prior to the date of grant. The grant date fair value for the MUs is determined using a Monte Carlo simulation model. The Monte Carlo simulation model simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. The Monte Carlo simulation model also involves the use of additional key assumptions, including dividend yield and risk-free interest rate. We periodically assess the reasonableness of our assumptions and update our estimates as required. If actual results differ significantly from our estimates, stock-based compensation expense and our results of operations could be materially affected.
Derivative Instruments and Hedging Activities
In the normal course of business, we actively look to mitigate the exposure of foreign currency market risk associated with forecasted transactions denominated in certain foreign currencies and to minimize earnings and cash flow volatility associated with changes in foreign currency exchange rates by entering into various foreign currency exchange forward contracts, with counterparties that are highly rated financial institutions.
We hedge forecasted transactions that are subject to foreign exchange exposure with foreign currency exchange contracts that qualify as cash flow hedges. 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 in our consolidated statements of income as a part of “Cost of revenues,” “General and administrative expenses,” “Selling and marketing expenses,” and “Depreciation and amortization expense,” as applicable.
We also use derivative instruments consisting of foreign currency exchange contracts to economically hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the functional currency. These derivatives do not qualify as fair value hedges. Changes in the fair value of these derivatives are recognized in our consolidated statements of income and are included in foreign exchange gain/(loss).
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We determine the fair value of our derivatives based on market observable inputs including both forward and spot prices for currencies. Derivative assets and liabilities included in Level 2 primarily represent foreign currency forward contracts. The quotes are taken primarily from independent sources, including highly rated financial institutions.
We evaluate 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 equity are reclassified to earnings.
Borrowings
We account for convertible notes in accordance with the guidelines established by the ASC No. 470-20, Debt with Conversion and Other Options. We separate the convertible notes into liability and equity components. The Beneficial Conversion Feature ("BCF") of a convertible note, which is the equity component and recorded as additional paid-in capital, is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. We record a BCF related to any issuance of convertible notes.
If a convertible note is within the scope of the Cash Conversion Subsections contains embedded features other than the embedded conversion option, the guidance in ASC No. 815-15, Derivatives and Hedging - Embedded Derivatives (“ASC 815-15”), is applied to determine if any of those features must be separately accounted for as a derivative instrument.
The estimated fair value of the liability component at issuance is determined using a discounted cash flow technique, which considers debt issuances with similar features of our convertible notes, excluding the conversion feature. The excess of the gross proceeds received over the estimated fair value of the liability component is allocated to the BCF, which is credited to additional paid-in-capital with a corresponding offset recognized as a discount to reduce the net carrying value of the convertible notes. The discount is being amortized to interest expense over the expected term of the convertible notes using the effective interest method.
Direct, incremental finance costs related to the convertible notes are amortized over the term instrument through charges to interest expense using the effective interest method.
Pursuant to ASC Subtopic 470-20, total consideration for the settlement of an existing debt obligation is separated into liability and equity components. The fair value of the existing liability is estimated using a discounted cash flow technique, which considers debt issuances with terms similar to that of our debt, however without the conversion feature. The excess of consideration over the fair value of liability component is assigned to the equity component. The effective interest rate used to estimate the fair value of the liability component is based on the income and market based approaches, adjusted for the remaining tenor of the extinguished debt. The difference between the fair value and the carrying value of the extinguished debt, net of the unamortized debt discount and unamortized debt issuance costs, is recorded as a gain or loss on settlement in the consolidated statements of income.
Income Taxes
We account for income tax using the asset and liability method. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized in respect of future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases and operating losses carried forward, if any. Deferred tax assets and liabilities are measured using the anticipated tax rates for the years in which such temporary differences are expected to be recovered or settled. We recognize the effect of a change in tax rates on deferred tax assets and liabilities during the period in which the new tax rate was enacted or the change in tax status was filed or approved. We release the tax effects from accumulated other comprehensive income/(loss) (“AOCI”) at the time of reclassification of cash flows hedges gains/ (losses) from AOCI to the consolidated statements of income. Deferred tax assets are recognized in full, subject to a valuation allowance that reduces the amount recognized to that which is more likely than not to be realized. In assessing the likelihood of realization, we consider all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. With respect to any entity that benefits from a corporate tax holiday, deferred tax assets or liabilities for existing temporary differences are recorded only to the extent such temporary differences are expected to reverse following the expiration of the tax holiday.
We also evaluate potential exposures related to tax contingencies or claims made by the tax authorities in various jurisdictions in order to determine whether a reserve may be required. A reserve is recorded if we believe that a loss is probable and if the amount of such loss can be reasonably estimated. Such reserves are based on estimates and, consequently, are subject to changing facts and circumstances, including the progress of ongoing audits, changes in case law and the passage of new legislation. We believe that we have established adequate reserves to cover any current tax assessments.
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During the year 2018, we made an election to change the tax status of most of our controlled foreign corporations (“CFC”) to disregarded entities for U.S. income tax purposes. As a result, we no longer have undistributed earnings in connection with these CFCs. The Transition Tax resulted in previously taxed income (“PTI”) which may be subject to withholding taxes and currency gains or losses upon repatriation. We periodically evaluate opportunities to repatriate PTI held by our foreign subsidiaries to fund our operations in the United States and other geographies, and as and when we decide to repatriate such PTI, we may have to accrue additional taxes which will be recorded in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions. See Note 21 - Income Taxes to our consolidated financial statements contained herein.
We employ a two-step process for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining, based on the technical merits, that the position will, more likely than not, be sustained upon examination. The second step is to measure the tax benefit as the largest amount of the tax benefit that is more likely than not to be realized upon settlement.
Employee Benefits
We record contributions to defined contribution plans in our consolidated statements of income in the period in which services are rendered by the covered employees. Current service costs for defined benefit plans are recognized in the period to which they relate. The liability in respect of defined benefit plans is calculated annually by using the projected unit credit method and various actuarial assumptions including discount rates, mortality, expected return on assets, expected increase in the compensation rates and attrition rates. We evaluate these critical assumptions at least annually. If actual results differ significantly from our estimates, current service costs for defined benefit plans and our results of operations could be materially impacted.
We include the service cost component of the net periodic benefit cost in the same line item or items as other compensation costs arising from services rendered by the respective employees during the period. The interest cost, expected return on plan assets and amortization of actuarial gains/loss, are included in “Other income, net.” See Note 19 - Employee Benefit Plans to our consolidated financial statements for details.
We recognize the liabilities for compensated absences dependent on whether the obligation is attributable to employee services already rendered, relates to rights that vest or accumulate and payment is probable and estimable.
Leases
We account for a lease at the inception of the contract. Our assessment is based on whether: (1) the contract involves the use of a distinct identified asset, (2) we obtain the right to substantially all the economic benefits from the use of the asset throughout the term of the contract, and (3) we have the right to direct the use of the asset. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. Operating leases are recorded in “Operating lease right-of-use assets,” “Current portion of operating lease liabilities” and “Operating lease liabilities, less current portion” in our consolidated balance sheets. Finance leases are recorded in “Property and equipment, net,” and the current and non-current portion of finance lease liabilities are presented within “Accrued expenses and other current liabilities” and “Other non-current liabilities,” respectively in our consolidated balance sheets.
ROU assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease arrangement. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For leases in which the rate implicit in the lease is not readily determinable, we use our incremental borrowing rate at commencement date by adjusting the benchmark reference rates, applicable to the respective geographies where the leases are entered, with appropriate financing spreads and lease specific adjustments for the effects of collateral.
Lease terms includes our assessment for the effects of options to extend or terminate the lease. We consider the extension option as part of our lease term for those lease arrangements where we are reasonably certain that we will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for separately.
We account for lease-related concessions to mitigate the economic effects of COVID-19 on lessees in accordance with guidance in Topic 842, Leases, to determine, on a lease-by-lease basis, whether the concession provided by lessor should be accounted for as a lease modification.
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We account for a modification as a separate contract when it grants an additional right of use not included in the original lease and the increase is commensurate with the standalone price for the additional right of use, adjusted for the circumstances of the particular contract. Modifications which are not accounted for as a separate contract are reassessed as of the effective date of the modification based on its modified terms and conditions and the facts and circumstances as of that date. The lease liability is remeasured to reflect changes to the remaining lease payments and discount rates and we recognize the amount of the remeasurement of the lease liability as an adjustment to the ROU assets. However, if the carrying amount of the ROU assets is reduced to zero as a result of modification, any remaining amount of the remeasurement is recognized as an expense in our consolidated statements of income.
Contingencies
Loss contingencies are recorded as liabilities when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Significant judgment is required in the determination of probability and whether an exposure is reasonably estimable, both. Our judgments are subjective and based on the information available from the status of the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. As additional information becomes available, we reassess any potential liability related to any pending litigation and may revise our estimates. Such revisions in estimates of any potential liabilities could have a material impact on our results of operations, financial position and cash flows.

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Results of Operations
For a discussion of our results of operations for the year ended December 31, 2019, including a year-to-year comparison between 2020 and 2019, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020.
The following table summarizes our results of operations for the years ended December 31, 2021, 2020 and 2019:
 Year ended December 31,
 202120202019
 (dollars in millions)
Revenues, net$1,122.3 $958.4 $991.3 
Cost of revenues(1)
690.9 623.9 655.5 
Gross profit(1)
431.4 334.5 335.8 
Operating expenses:
General and administrative expenses142.1 113.9 126.9 
Selling and marketing expenses84.3 60.1 71.8 
Depreciation and amortization expense49.1 50.5 52.0 
Impairment and restructuring charges— — 8.7 
Total operating expenses275.5 224.5 259.4 
Income from operations155.9 110.0 76.4 
Foreign exchange gain, net4.3 4.4 3.8 
Interest expense(7.6)(11.2)(13.6)
Other income, net6.8 12.1 16.5 
Loss on settlement of convertible notes(12.8)— — 
Income before income tax expense and earnings from equity affiliates146.6 115.3 83.1 
Income tax expense31.9 25.6 15.2 
Income before earnings from equity affiliates114.7 89.7 67.9 
Loss from equity-method investment— (0.2)(0.3)
Net income attributable to ExlService Holdings, Inc. stockholders$114.7 $89.5 $67.6 
(1) Exclusive of depreciation and amortization expense.
Due to rounding, the numbers presented in the tables included in this Part II, Item 7, “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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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenues.
The following table summarizes our revenues by reportable segments for the years ended December 31, 2021 and 2020:
 Year ended December 31, Percentage
change
 20212020Change
 (dollars in millions)  
Insurance$382.0 $341.8 $40.2 11.8 %
Healthcare112.4 101.2 11.2 10.9 %
Emerging Business167.2 152.7 14.5 9.5 %
Analytics460.7 362.7 98.0 27.0 %
Total revenues, net$1,122.3 $958.4 $163.9 17.1 %

Revenues for the year ended December 31, 2021 were $1,122.3 million, up $163.9 million, or 17.1%, compared to the year ended December 31, 2020.
Revenue growth in Insurance of $40.2 million was primarily driven by expansion of business from our new and existing clients of $37.7 million and an increase in revenues of $2.5 million that was mainly attributable to the appreciation of the Australian dollar, the U.K. pound sterling and the South African ZAR against the U.S. dollar during the year ended December 31, 2021, compared to the year ended December 31, 2020. Insurance revenues were 34.0% and 35.7% of our total revenues during the years ended December 31, 2021 and 2020, respectively.
Revenue growth in Healthcare of $11.2 million was primarily driven by expansion of business from our new and existing clients of $11.2 million during the year ended December 31, 2021. Healthcare revenues were 10.0% and 10.6% of our total revenues during the years ended December 31, 2021 and 2020, respectively.
Revenue growth in Emerging Business of $14.5 million was primarily driven by expansion of business from our new clients and existing clients of $13.9 million and an increase in revenues of $0.6 million that was mainly attributable to the appreciation of the U.K. pound sterling and the Indian rupee against the U.S. dollar during the year ended December 31, 2021, compared to the year ended December 31, 2020. Emerging Business revenues were 14.9% and 15.9% of our total revenues during the years ended December 31, 2021 and 2020, respectively.
Revenue growth in Analytics of $98.0 million was attributable to the higher volumes in our annuity and project based engagements from our new and existing clients of $95.8 million, including contribution from our acquisition of Clairvoyant in December 2021 and an increase in revenues of $2.2 million mainly attributable to the appreciation of the U.K. pound sterling and the South African ZAR against the U.S. dollar during the year ended December 31, 2021, compared to the year ended December 31, 2020. Analytics revenues were 41.0% and 37.8% of our total revenues during the years ended December 31, 2021 and 2020, respectively.


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Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments.
Cost of RevenuesGross Margin
 Year ended December 31,Percentage
change
Year ended December 31,
 20212020Change20212020Change
 (dollars in millions)  
Insurance$239.5 $231.9 $7.6 3.3 %37.3 %32.2 %5.1 %
Healthcare69.8 73.1 (3.3)(4.6)%37.9 %27.8 %10.1 %
Emerging Business91.7 89.5 2.2 2.5 %45.1 %41.4 %3.7 %
Analytics289.9 229.4 60.5 26.3 %37.1 %36.7 %0.4 %
Total$690.9 $623.9 $67.0 10.7 %38.4 %34.9 %3.5 %

For the year ended December 31, 2021, cost of revenues was $690.9 million compared to $623.9 million for the year ended December 31, 2020, an increase of $67.0 million, or 10.7%. Our gross margin for the year ended December 31, 2021 was 38.4% compared to 34.9% for year ended December 31, 2020, an increase of 350 ("bps") primarily driven by higher revenues, operational efficiencies and lower COVID-19 related expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020.
The increase in cost of revenues in Insurance of $7.6 million for the year ended December 31, 2021 was primarily due to increases in employee-related costs of $14.2 million on account of higher headcount and wage inflation, higher annual performance incentives and higher technology costs of $0.7 million on account of increased leverage of remote work model, partially offset by lower travel costs of $6.1 million, lower other operating costs of $0.3 million and foreign exchange gain, net of hedging of $0.9 million. Gross margin in Insurance increased by 510 bps during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher revenues, expansion in margin in certain existing clients, operational efficiencies and lower COVID-19 related expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020.

The decrease in cost of revenues in Healthcare of $3.3 million for the year ended December 31, 2021 was primarily due to improved employee utilization in existing clients, resulting in lower employee-related costs of $2.9 million, and lower travel costs of $0.8 million, partially offset by higher facility costs of $0.4 million. Gross margin in Healthcare increased by 1,010 bps during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher revenues, expansion in margin in certain existing clients, operational efficiencies and lower COVID-19 related expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase in cost of revenues in Emerging Business of $2.2 million for the year ended December 31, 2021 was primarily due to increases in employee-related costs of $2.8 million on account of higher headcount and wage inflation, higher annual performance incentives, higher technology costs of $1.1 million on account of increased leverage of remote work model, partially offset by lower travel costs of $0.3 million, lower facility costs of $0.3 million, lower other operating costs of $0.3 million and foreign exchange gain, net of hedging $0.8 million. Gross margin in Emerging Business increased by 370 bps during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher revenues, operational efficiencies and lower COVID-19 related expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase in cost of revenues in Analytics of $60.5 million for the year ended December 31, 2021 was primarily due to increases in employee-related costs of $50.4 million on account of higher headcount and wage inflation, higher annual performance incentives including incremental cost related to our acquisition of Clairvoyant in December 2021. The remaining increase was attributable to higher other operating costs of $13.8 million. This was partially offset by lower travel costs of $1.4 million, lower facility costs of $1.0 million on account of remote work model and foreign exchange gain, net of hedging of $1.3 million. Gross margin in Analytics increased by 40 bps during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher revenues and operational efficiencies compared to the year ended December 31, 2020.


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Selling, General and Administrative (“SG&A”) Expenses.
 Year ended December 31, Percentage
change
 20212020Change
 (dollars in millions)  
General and administrative expenses$142.1 $113.9 $28.2 24.7 %
Selling and marketing expenses84.3 60.1 24.2 40.2 %
Selling, general and administrative expenses$226.4 $174.0 $52.4 30.1 %
As a percentage of revenues20.2 %18.2 %

The increase in SG&A expenses of $52.4 million was primarily due to higher employee-related costs of $44.8 million on account of higher headcount and wage inflation, higher annual performance incentives, higher other operating costs of $6.0 million, COVID-19 related expenses of $3.1 million primarily related to financial support to family members of deceased employees, increase in technology cost of $2.4 million on account of continued investments, product development, digital technology, advanced automation, robotics, cloud, artificial intelligence, machine learning and acquisition-related cost of $0.8 million on account of our acquisition of Clairvoyant in December 2021, partially offset by lower facilities costs of $4.7 million due to optimization of office space.

Depreciation and Amortization.
 Year ended December 31,Percentage change
 20212020Change
 (dollars in millions)  
Depreciation expense$36.3 $36.1 $0.2 0.6 %
Intangible amortization expense12.8 14.4 (1.6)(11.1)%
Depreciation and amortization expense$49.1 $50.5 $(1.4)(2.8)%
As a percentage of revenues4.4 %5.3 %

The decrease in intangibles amortization expense of $1.6 million was primarily due to end of useful lives for certain intangible assets during the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase in depreciation expense of $0.2 million was primarily due to depreciation related to our investments in new operating centers, internally developed software and accelerated depreciation resulting from a reduction in useful lives related to certain operating centers due to the impact of COVID-19 aggregating to $0.7 million, partially offset by foreign exchange gain, net of hedging $0.5 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020.
Income from Operations. Income from operations increased by $45.9 million, or 41.7%, from $110.0 million for the year ended December 31, 2020 to $155.9 million for the year ended December 31, 2021, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the year ended December 31, 2021. As a percentage of revenues, income from operations increased from 11.5% for the year ended December 31, 2020 to 13.9% for the year ended December 31, 2021.
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Foreign Exchange Gains and Losses. 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 year ended December 31, 2021. The average exchange rate of the U.S. dollar against the Indian rupee decreased from 74.07 during the year ended December 31, 2020 to 73.88 during the year ended December 31, 2021. The average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.29 during the year ended December 31, 2020 to 1.38 during the year ended December 31, 2021. The average exchange rate of the U.S. dollar against the Philippine peso decreased from 49.49 during the year ended December 31, 2020 to 49.36 during the year ended December 31, 2021. The average exchange rate of the U.S. dollar against the South African ZAR decreased from 16.51 during the year ended December 31, 2020 to 14.92 during the year ended December 31, 2021.
We recorded a net foreign exchange gain of $4.3 million for the year ended December 31, 2021 compared to a net foreign exchange gain of $4.4 million for the year ended December 31, 2020.
Interest expense. Interest expense decreased from $11.2 million for the year ended December 31, 2020 to $7.6 million for the year ended December 31, 2021 primarily due to settlement of outstanding obligations under the Notes (as defined below under “Financing Arrangements (Debt Facility and Notes)-Convertible Senior Notes”) on August 27, 2021, and lower effective interest rates of 1.7% under our Credit Facility during the year ended December 31, 2021, compared to 2.3% during the year ended December 31, 2020.
Other Income, net.
 Year ended December 31, Percentage
change
 20212020Change
 (dollars in millions)  
Gain on sale and mark-to-market of mutual funds and money market funds$4.9 $9.6 $(4.7)(49.1)%
Interest and dividend income2.7 2.5 0.2 9.0 %
Others, net(0.8)— (0.8)(100.0)%
Other income, net$6.8 $12.1 $(5.3)(43.9)%

Other income, net decreased by $5.3 million, from $12.1 million for the year ended December 31, 2020 to $6.8 million for the year ended December 31, 2021, primarily due to lower amount invested in mutual funds and lower returns on such investments of $4.7 million during the year ended December 31, 2021, compared to the year ended December 31, 2020.
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 year ended December 31, 2021. See Note 17 - Borrowings to our consolidated financial statements.
Income Tax Expense. The effective tax rate decreased from 22.2% during the year ended December 31, 2020 to 21.7% during the year ended December 31, 2021. We recorded income tax expense of $31.9 million and $25.6 million for the years ended December 31, 2021 and 2020, respectively. The increase in the income tax expense was primarily a result of higher profit during the year ended December 31, 2021, compared to the year ended December 31, 2020, increase in state taxes and increase in non-deductible expenses during the year ended December 31, 2021, partially offset by (i) the recording of higher excess tax benefits related to stock awards of $3.7 million pursuant to ASU No. 2016-09 during the year ended December 31, 2021, compared to $2.4 million during the year ended December 31, 2020, and (ii) the recording of a one-time deferred tax benefit of $2.4 million on settlement of the Notes during the during the year ended December 31, 2021.
Net Income. Net income increased from $89.5 million for the year ended December 31, 2020 to $114.7 million for the year ended December 31, 2021, primarily due to increase in income from operations of $45.9 million, lower interest expense of $3.6 million, partially offset by loss on settlement of the Notes of $12.8 million, lower other income, net of $5.2 million and higher income tax expense of $6.3 million. As a percentage of revenues, net income increased from 9.3% during the year ended December 31, 2020 to 10.2% during the year ended December 31, 2021.



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Liquidity and Capital Resources
 Year ended December 31,
 202120202019
 (dollars in millions)
Opening cash, cash equivalents and restricted cash$225.5 $127.0 $104.1 
Net cash provided by operating activities184.4 203.0 168.4 
Net cash used for investing activities(114.3)(18.3)(51.4)
Net cash used for financing activities(146.9)(89.6)(93.1)
Effect of exchange rate changes(4.9)3.4 (1.0)
Closing cash, cash equivalents and restricted cash$143.8 $225.5 $127.0 

As of December 31, 2021 and 2020, we had $313.9 million and $402.8 million, respectively, in cash, cash equivalents and short-term investments, of which $277.4 million and $335.1 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes. We periodically evaluate opportunities to distribute cash among our group entities to fund our operations in the United States and other geographies, and as and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions. During the year ended December 31, 2021, we repatriated to the United States $66.0 million (net of $3.5 million withholding taxes) from India and $42.5 million (net of $7.5 million withholding taxes) from the Philippines. These distributions do not constitute a change in our permanent reinvestment assertion. We base our decision to continue to indefinitely reinvest earnings in India and the Philippines on our estimate of the working capital required to support our operations in these geographies and periodically review our capital initiatives to support and expand our global operations, as well as whether there exits an economically viable rate of return on our investments made in India and the Philippines as compared to those made in the United States.
Operating Activities:
Net cash provided by operating activities was $184.4 million for the year ended December 31, 2021, compared to $203.0 million for the year ended December 31, 2020, reflecting higher working capital needs, offset by higher cash earnings. The major drivers contributing to the decrease of $18.6 million year-over-year included the following:
Changes in accounts receivable, including unbilled receivable and advance billings, contributed to a lower cash flow of $91.2 million in 2021 compared to 2020. The decrease was a result of the higher accounts receivable resulting from revenue growth. Lower cash flows were also affected by our accounts receivable days sales outstanding, which increased to 56 days as of December 31, 2021 from 53 days as of December 31, 2020.
Increase in net income of $25.2 million in 2021 compared to 2020, primarily due to an increase in income from operations of $45.9 million driven by higher revenues, lower interest expense of $3.6 million, partially offset by loss on settlement of the Notes of $12.8 million, lower other income, net of $5.2 million, and higher income tax expense of $6.3 million.
Increase in accrued employee costs, accrued expenses and other liabilities contributed to a higher cash flow of $76.7 million in 2021 compared to 2020. The increase was primarily due to higher annual performance incentives and other employee costs accruals of $54.3 million and higher accrued expenses due to an increase in our cost base to support revenue growth of $22.4 million.
Other drivers decreasing cash flows in 2021 compared to 2020 included: income tax payments, net of refunds, of $29.3 million, primarily due to higher advance income tax payments on higher net income.

Investing Activities: Cash flows used for investing activities were $114.3 million for the year ended December 31, 2021 as compared to cash flows used for investing activities of $18.3 million for the year ended December 31, 2020. The increase of $96.0 million was primarily due to an increase in cash used for a business acquisition of $76.8 million, net of cash and cash equivalents acquired, during the year ended December 31, 2021, net purchase of investments of $1.5 million during the year ended December 31, 2021 as compared to net redemption of investments of $23.7 million during the year ended December 31, 2020. This was partially offset by lower capital expenditures for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $5.3 million during the year ended December 31, 2021 compared to the year ended December 31, 2020, and acquisition of an additional stake in our equity affiliate of $0.7 million during the year ended December 31, 2020.
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Financing Activities: Cash flows used for financing activities were $146.9 million during the year ended December 31, 2021 as compared to cash flows used for financing activities of $89.6 million during the year ended December 31, 2020. The increase in cash flows used for financing activities was primarily due to net repayment of $29.0 million under our revolving Credit Facility and the Notes during the year ended December 31, 2021 as compared to net repayments of $10.9 million during the year ended December 31, 2020, higher purchases of treasury stock by $38.4 million under our share repurchase program and lower proceeds from the exercise of stock options by $0.8 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020.
We expect to use cash from operating activities to maintain and expand our business by making investments, primarily related to new facilities and capital expenditures associated with leasehold improvements to build our facilities, digital capabilities and purchase telecommunications equipment and computer hardware and software in connection with managing client operations.
We incurred $37.2 million of capital expenditures during the year ended December 31, 2021. We expect to incur total capital expenditures of between $40 million to $45 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 tax assessment orders that have been issued or may be issued against us or our subsidiaries, we may be required to deposit additional amounts with respect to such assessment orders (see Note 25 - Commitments and Contingencies to our 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. We anticipate that we will continue to rely upon cash from operating activities to finance most of our above mentioned requirements, while if we have significant growth through acquisitions, we may need to obtain additional financing.

In the normal 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 17- Borrowings, Note 19- Employee Benefit Plans, Note 20- Leases, Note 21- Income Taxes and Note 25- Commitments and Contingencies to our 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 December 31, 2021 and 2020, 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. 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. As of December 31, 2021 and 2020, we deferred our contributions, net of payments to FICA of $3.1 million and $6.3 million, respectively, under the CARES Act. The deferred amount as of December 31, 2021 will be paid on or before December 31, 2022.
Financing Arrangements (Debt Facility and Notes)
The following tables summarizes our Debt balances as of December 31, 2021 and 2020.
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As of December 31, 2021As of December 31, 2020
  (dollars in millions)  (dollars in millions)
Revolving Credit FacilityTotalRevolving Credit FacilityNotesTotal
Current portion of long-term borrowings$260.0 $260.0 $25.0 $ $25.0 
Long-term borrowings$— $— $64.0 $150.0 $214.0 
Unamortized debt discount— — — (11.2)(11.2)
Unamortized debt issuance costs*— — — (0.8)(0.8)
Long-term borrowings$ $ $64.0 $138.0 $202.0 
Total borrowings$260.0 $260.0 $89.0 $138.0 $227.0 
*Unamortized debt issuance costs for our revolving Credit Facility of $0.2 million and $0.5 million as of December 31, 2021 and December 31, 2020, respectively, are presented under “Other current assets” and “Other assets,” as applicable in our consolidated balance sheets.
Credit Agreement
On November 21, 2017, we and each of our wholly owned material domestic subsidiaries entered into a Credit Agreement with certain lenders, and Citibank, N.A. as Administrative Agent (the “Credit Agreement”). The Credit Agreement provides for a $200.0 million revolving credit facility (the “Credit Facility”) with an option to increase the commitments by up to $100.0 million, subject to certain approvals and conditions as set forth in the Credit Agreement. The Credit Agreement also includes a letter of credit sub facility. The Credit Facility has a maturity date of November 21, 2022 and is voluntarily pre-payable from time to time without premium or penalty. Borrowings under the Credit Agreement may be used for working capital and general corporate purposes, including permitted acquisitions. On July 2, 2018, we exercised our option under the Credit Agreement to increase the commitments by $100.0 million, thereby utilizing the entire revolver under the Credit Facility of $300.0 million to fund our July 2018 acquisition of SCIOinspire Holdings, Inc.

Depending on the type of borrowing, loans under the Credit Agreement bear interest at a rate equal to the specified prime rate (alternate base rate) or adjusted LIBO rate, plus, in each case, an applicable margin. The applicable margin is tied to our total net leverage ratio and ranges from 0% to 0.75% per annum with respect to loans pegged to the specified prime rate, and 1.00% to 1.75% per annum on loans pegged to the adjusted LIBO rate. The revolving credit commitments under the Credit Agreement are subject to a commitment fee which is also tied to our total net leverage ratio, and ranges from 0.15% to 0.30% per annum on the average daily amount by which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations.
The revolving Credit Facility carried an effective interest rate as shown below:-
Year ended December 31,
20212020
Effective interest rate1.7 %2.3 %
Obligations under the Credit Agreement are guaranteed by our material domestic subsidiaries and are secured by all or substantially all of our assets and that of our material domestic subsidiaries. The 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 assets or subsidiaries. In addition, the Credit Agreement contains a covenant to not permit the interest coverage ratio or the total net leverage ratio, both as defined for the four consecutive quarter period ending on the last day of each fiscal quarter, to be less than 3.5 to 1.0 or more than 3.0 to 1.0, respectively. As of December 31, 2021, we were in compliance with all financial and non-financial covenants listed under the Credit Agreement.
We entered into a second amendment (the “Amendment”) to our Credit Agreement, as amended, among the Company, as borrower, with certain lenders, and Citibank, N.A. as Administrative Agent to, among other things, permit the issuance by the Company of the Notes, and settlement upon maturity or conversion thereof, in accordance with the Investment Agreement, the indenture dated as of October 4, 2018 and the other documents entered into in connection therewith.
Convertible Senior Notes
On October 1, 2018, we 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 $150.0 million, in an aggregate
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principal amount of 3.5% per annum Convertible Senior Notes due October 1, 2024 (the “Notes”). The Notes were issued on October 4, 2018. 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 represents an initial conversion price of approximately $75 per share). We had the option to redeem the principal amount of the Notes, at our option, in whole but not in part, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after October 1, 2021, if the closing sale price of our common stock exceeded 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding our exercise of this redemption right (including the trading day immediately prior to the date of the notice of redemption).We had the option elect to settle conversions of the Notes by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock.
On August 27, 2021, we entered into a Payoff and Termination Agreement (the “Payoff and Termination Agreement”) with the Purchaser, pursuant to which we prepaid and settled our outstanding obligations under the Notes for an aggregate consideration of $236.7 million, excluding accrued and unpaid interest under the Notes calculated through and including, August 26, 2021, in the form of a combination of cash and shares of our common stock. As a result, we made a cash payment of $200.0 million to the Purchaser and satisfied the remainder of the obligation under the Notes by issuing to the Purchaser 310,394 shares of our common stock calculated at $118.37 per share based on a 20-day volume weighted average price ending on, and including, August 26, 2021. We satisfied the cash payment obligation under the Payoff and Termination Agreement by drawing $200.0 million from our existing revolving Credit Facility, and our common stock was issued from our existing treasury shares. In addition, except as set forth in the Payoff and Termination Agreement, the Investment Agreement was also terminated. See Note 17 - Borrowings and Note 18 - Capital Structure to our consolidated financial statements herein for further details.
During the years ended December 31, 2021 and 2020, we recognized interest expense and amortization of debt discount, on the Notes as below:
Year ended December 31,
20212020
Interest expense on the Notes$3.4 $5.3 
Amortization of debt discount on the Notes$1.8 $2.6 

Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements to our consolidated financial statements contained herein.
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ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk
General
Market risk is the loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market sensitive financial instruments including foreign currency receivables and payables.
Our exposure to market risk is a function of our expenses and revenue generating activities in foreign currencies. The objective of market risk management is to avoid excessive exposure of our earnings and equity to loss. We manage market risk through our treasury operations. Our senior management and our Board of Directors approve our treasury operations’ objectives and policies. The responsibilities of our treasury operations include management of cash resources, implementing hedging strategies for foreign currency exposures, borrowing strategies and ensuring compliance with market risk limits and policies.
Components of Market Risk
Foreign Currency Risk. Our exposure to market risk arises principally from exchange rate risk. Our revenues are primarily denominated in the U.S. dollar representing 88.2% of our total revenues and the U.K. pound sterling representing 8.6% of our total revenues in the year ended December 31, 2021. However, a significant portion of our total expenses are incurred and paid in Indian rupee and the Philippine peso representing 29.4% and 9.5% respectively, of our total expenses in the year ended December 31, 2021. We also incur expenses in the U.S. dollar and currencies of other countries in which we have operations. The exchange rates among the Indian rupee, the Philippine peso and the U.S. dollar have changed substantially in recent years and may fluctuate substantially in the future.
Our exchange rate risk primarily arises from our foreign currency revenues, expenses incurred by our foreign subsidiaries and foreign currency accounts receivable and payable. The average exchange rate of the Indian rupee against the U.S. dollar decreased from 74.07 during the year ended December 31, 2020 to 73.88 during the year ended December 31, 2021, representing an appreciation of 0.3%. The average exchange rate of the Philippine peso against the U.S. dollar decreased from 49.49 during the year ended December 31, 2020 to 49.36 during the year ended December 31, 2021, representing an appreciation of 0.3%. Based upon our level of operations during the year ended December 31, 2021 and excluding any hedging arrangements that we had in place during that period, a 10% appreciation/depreciation in the Indian rupee against the U.S. dollar would have increased/decreased our revenues by approximately $5.6 million and increased/decreased our expenses incurred and paid in Indian rupees by approximately $28.4 million in the year ended December 31, 2021. Similarly, a 10% appreciation/depreciation in the Philippine peso against the U.S. dollar would have increased/decreased our revenues by approximately $0.3 million and increased/decreased our expenses incurred and paid in Philippine peso by approximately $9.2 million in the year ended December 31, 2021.
In order to mitigate our exposure to foreign currency fluctuation risks and minimize the earnings and cash flow volatility associated with forecasted transactions denominated in certain foreign currencies, we enter into foreign currency forward contracts that are designated as cash flow hedges. These contracts must be settled on the day of maturity or may be canceled subject to the receipts or payments of any gains or losses respectively, equal to the difference between the contract exchange rate and the market exchange rate on the date of cancellation. We do not enter into foreign currency forward contracts for speculative or trading purposes. As such, we may not purchase adequate contracts to insulate ourselves from Indian rupee and the Philippine peso foreign exchange currency risks. In addition, any such contracts may not perform adequately as a hedging mechanism. We may, in the future, adopt more active hedging policies, and have done so in the past.
The impact on earnings and/or cash flows related to these foreign currency forward contracts is immaterial as the impact of the maturing cash flow hedges in respective periods are intended to offset the foreign currency impact on the related expenses. Further, a significant number of our client contracts include protection against foreign exchange rate fluctuations which minimizes the impact of volatility in the exchange rates on our operating results.
Cash flow hedges with notional amounts of $514.6 million and $451.9 million were outstanding as at December 31, 2021 and 2020, respectively, with maturity periods of one to forty-two months. The mark-to-market gain, net upon fair valuation of these cash flow hedges as of December 31, 2021 and 2020 was $11.9 million and $16.5 million, respectively, and is included in “Accumulated other comprehensive income/(loss)” on our consolidated balance sheets. During the year ended December 31, 2021, we recognized $10.0 million as a foreign exchange gain from the maturing cash flow hedges, which was largely offset by the foreign exchange loss on the related expenses of $10.1 million. The net impact on earnings for the year ended December 31, 2021 from the maturing cash flow hedges was insignificant, offset by an insignificant foreign currency impact on the related expenses.
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We also enter into foreign currency forward contracts to economically hedge our intercompany balances and other monetary assets and liabilities denominated in currencies other than functional currencies. These derivatives do not qualify as fair value hedges under ASC Topic 815, Derivatives and Hedging. Changes in the fair value of these derivatives are recognized in our consolidated statements of income and are included in “Foreign exchange gain, net.” These derivative instruments mitigate balance sheet risk due to exchange rate movements because gains and losses on the settlement of these derivatives are intended to offset revaluation losses and gains on the foreign currency denominated monetary assets and monetary liabilities being hedged. Forward exchange contracts with notional amounts of USD 134.6 million, GBP 6.8 million, EUR 1.3 million and COP 2,541.9 million were outstanding as of December 31, 2021 compared to USD 143.4 million, GBP 6.8 million, EUR 2.4 million and COP 8,288.0 million outstanding at December 31, 2020. The fair values of these derivative instruments as of December 31, 2021 and 2020 were insignificant in both year and are included in the “Foreign exchange gain, net” in our consolidated statements of income. As of December 31, 2021, the outstanding derivative instruments had maturities of 31 days.
Interest Rate Risk. As described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” on November 21, 2017 we entered into the Credit Agreement that provides for a $200.0 million revolving credit facility and a letter of credit sub-facility. We have an option to increase the commitments under the Credit Facility by up to an additional $100.0 million. On July 2, 2018, we exercised our option under the Credit Agreement to increase the commitments to $300.0 million. The Credit Facility has a maturity date of November 21, 2022 and is voluntarily pre-payable from time to time without premium or penalty.
Depending on the type of borrowing, loans under the Credit Facility bear interest at a rate equal to the specified prime rate (alternate base rate) or adjusted LIBO rate, plus, in each case, an applicable margin. The applicable margin is tied to the Company’s total net leverage ratio and ranges from 0.00% to 0.75% per annum with respect to loans (“ABR Loans”) pegged to the specified prime rate, and 1.00% to 1.75% per annum on loans (“Eurodollar Loans”) pegged to the adjusted LIBO rate (such applicable margin, the “Applicable Rate”). The revolving credit commitments under the Credit Agreement are subject to a commitment fee. The commitment fee is also tied to the Company’s leverage ratio, and ranges from 0.15% to 0.30% per annum on the average daily amount by which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations. A 50 basis point increase or decrease in interest rates may impact our interest expense for the year ended December 31, 2021 by approximately $0.5 million.
In October 2018, we issued the Notes with an aggregate principal amount of $150.0 million (see Note 17 - Borrowings to our consolidated financial statements). The Notes bear interest at a fixed rate, so we have no financial statement impact from changes in interest rates. During the year ended December 31, 2021 we prepaid and settled our outstanding obligations under the Notes.
We had cash, cash equivalents and short-term investments totaling $313.9 million and $402.8 million at December 31, 2021 and 2020, respectively. These amounts were invested principally in a short-term investment portfolio primarily comprised of highly-rated debt mutual funds, money market accounts and time deposits. The cash and cash equivalents are held for potential acquisitions of complementary businesses or assets, capital expenditures, working capital requirements and general corporate purposes. We do not enter into these investments for trading or speculative purposes. We believe that we have no material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. The interest income from these funds is subject to fluctuations due to changes in interest rates. Declines in interest rates would reduce our future investment income. A 50 basis point increase or decrease in short term rates would have impacted our interest and dividend income for the year ended December 31, 2021 by approximately $1.0 million.
Credit Risk. As of December 31, 2021 and 2020, we have accounts receivable of $194.2 million and $147.6 million, respectively. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties and, accordingly, do not require collateral. Credit losses and write-offs of accounts receivable balances historically have not been material. No single client owed more than 10% of accounts receivable balance as on December 31, 2021 and 2020.
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ITEM 8.    Financial Statements and Supplementary Data

The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. A list of the financial statements filed herewith is found at Part IV, Item 15, “Exhibits and Financial Statement Schedules.”

ITEM 9.    Changes in and Disagreement with Accountants on Accounting and Financial Disclosure
None.

ITEM 9A.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s 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 Annual Report on Form 10-K, the Company’s management carried out an evaluation, under the supervision and with the participation of the CEO and CFO, of the effectiveness and operation of the Company’s disclosure controls and procedures as of December 31, 2021. Based upon that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures, as of December 31, 2021, were effective.
Management’s Responsibility for Financial Statements
Responsibility for the objectivity, integrity and presentation of the accompanying financial statements and other financial information presented in this report rests with our management. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). The financial statements include amounts that are based on estimates and judgments which management believes are reasonable under the circumstances.
Deloitte & Touche LLP, an independent registered public accounting firm, is retained to audit the Company’s consolidated financial statements and the effectiveness of our internal control over financial reporting. Its accompanying reports are based on audits conducted in accordance with the standards of the Public Company Accounting Oversight Board.
The Audit Committee of the board of directors is composed solely of independent directors and is responsible for recommending to the Board of Directors the independent public accounting firm to be retained for the coming year. The Audit Committee meets regularly and privately with the independent public accountants, with the Company’s internal auditors and with management to review accounting, auditing, internal control and financial reporting matters.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S. The Company’s internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the U.S.;
provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorization of our management and our board of directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision and with the participation of the CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria described in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the board of directors. Based on this assessment and those criteria, management concluded that we maintained effective internal control over financial reporting as of December 31, 2021. See Deloitte & Touche LLP’s accompanying report on their audit of our internal controls over financial reporting.
We acquired Clairvoyant AI Inc. (“Clairvoyant”) on December 16, 2021, as discussed in Note 9 to our consolidated financial statements. As permitted by the SEC staff’s Frequently Asked Question 3 on Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (revised September 24, 2007), our management excluded Clairvoyant from its assessment of internal control over financial reporting, which was acquired on December 16, 2021, and whose financial statements constitute 7.4% of total assets and 0.1% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2021. We will include Clairvoyant in our assessment of the effectiveness of internal control over financial reporting starting fiscal 2022.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2021, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    Other Information
None.

ITEM 9C.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.

PART III.
 
ITEM 10.    Directors, Executive Officers and Corporate Governance
Code of Ethics.
We have adopted a code of conduct and ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. Our code of conduct and ethics can be found posted in the investor relations section on our website at http://ir.exlservice.com/corporate-governance. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our code of conduct and ethics by posting such information on our website at the address and the location specified above.
The additional information required by this Item 10 will be set forth in the definitive proxy statement for our 2022 Annual Meeting of Stockholders (the “Proxy Statement”), including under the headings “Our Board of Directors,” “Our Executive Officers” and “Corporate Governance — Committees — Audit Committee,” “— Committees — Nominating and Governance Committee” and, to the extent included, “— Delinquent Section 16(a) Reports,” and is incorporated herein by reference. We intend to file the Proxy Statement with the SEC within 120 days after the fiscal year end of December 31, 2021.
ITEM 11.    Executive Compensation
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the headings “Executive Compensation — Compensation Discussion and Analysis,” “— Compensation Committee Report,” “— Summary Compensation Table for Fiscal Year 2021,” “— Grants of Plan-Based Awards Table for Fiscal Year 2021,” “Outstanding Equity Awards at Fiscal 2021 Year-End,” “Option Exercises and Stock Vested During Fiscal Year 2021,” “— Pension Benefits for Fiscal Year 2021,” “— Potential Payments upon Termination or Change in Control at Fiscal 2021 Year-
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End,” “— Director Compensation for Fiscal Year 2021,” “— Risk and Compensation Policies” and “Corporate Governance —Compensation Committee Interlocks and Insider Participation.”

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the heading “Principal Stockholders.”

ITEM 13.    Certain Relationships and Related Transactions, and Director Independence
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the headings “Certain Relationships and Related Person Transactions” and “Corporate Governance — Director Independence.”

ITEM 14.    Principal Accountant Fees and Services
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the heading “Ratification of the Appointment of Independent Registered Public Accounting Firm — Audit and Non-Audit Fees.”

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PART IV.
 
ITEM 15.    Exhibits and Financial Statement Schedules
(a)1.    Consolidated Financial Statements.
The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on page F-1 hereof. The required financial statements appear on pages F-5 through F-60 hereof.
2.Financial Statement Schedules.
Financial statement schedules have been omitted since they are either not required, not material or the information is otherwise included in our consolidated financial statements or the notes to our consolidated financial statements.
3.Exhibits.
The Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is incorporated in this Annual Report on Form 10-K by reference.
(b)Exhibits. See Item 15(a)(3) above.
(c)Financial Statement Schedules. See Item 15(a)(2) above.

ITEM 16.    Form 10-K Summary

Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned hereunto duly authorized.
Date: February 24, 2022EXLSERVICE HOLDINGS, INC.
By: /S/ MAURIZIO NICOLELLI
 MAURIZIO NICOLELLI
Chief Financial Officer
(Duly Authorized Signatory, Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature  Title Date
/S/    ROHIT KAPOOR 
  Chief Executive Officer, Vice-Chairman and Director (Principal Executive Officer) February 24, 2022
Rohit Kapoor
/S/    MAURIZIO NICOLELLI
  Chief Financial Officer (Principal Financial and Accounting Officer) February 24, 2022
Maurizio Nicolelli
/S/    VIKRAM S. PANDIT
Chairman of the BoardFebruary 24, 2022
Vikram S. Pandit
/S/    GAREN K. STAGLIN
DirectorFebruary 24, 2022
Garen K. Staglin
/S/    ANNE E. MINTO
  Director February 24, 2022
Anne E. Minto
/S/    SOM MITTAL
  Director February 24, 2022
Som Mittal
/S/    CLYDE W. OSTLER
  Director February 24, 2022
Clyde W. Ostler
/S/    KRISTY PIPES
DirectorFebruary 24, 2022
Kristy Pipes
/S/    NITIN SAHNEY
  Director February 24, 2022
Nitin Sahney
/S/    JAYNIE M. STUDENMUND
  Director February 24, 2022
Jaynie M. Studenmund
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INDEX TO EXHIBITS
The following exhibits are being filed as part of this report or incorporated by reference as indicated therein:
3.1
3.2
3.3
4.1
4.2
4.3
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
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10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21
10.22
10.23
10.24
10.25
21.1
23.1
31.1
31.2
32.1
32.2
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101.INSInline XBRL Instance Document*
101.SCHInline XBRL Taxonomy Extension Schema*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase*
101.LABInline XBRL Taxonomy Extension Label Linkbase*
101.PREInline XBRL Extension Presentation Linkbase*
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*This exhibit will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
+Indicates management contract or compensatory plan required to be filed as an Exhibit.
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EXLSERVICE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page
F-2
F-5
F-7
F-8
F-9
F-10
F-11

F-1


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of ExlService Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ExlService Holdings, Inc. (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Business Combination - Refer to Note 9 to the financial statements
Critical Audit Matter Description
On December 16, 2021, ExlService.com, LLC (the “Purchaser”), a wholly owned subsidiary of the Company, entered into a purchase agreement (the “Purchase Agreement”) with Clairvoyant AI Inc. (“Clairvoyant”) to purchase all of the issued and outstanding equity securities of Clairvoyant. The initial purchase consideration was $80,080, excluding cash and cash equivalents acquired, debt and other estimated post-closing adjustments. The Purchase Agreement allows sellers the ability to earn up to $20,000 in earn-out payments, based on the achievement of certain performance goals by Clairvoyant during the 2022 and 2023 calendar years. This contingent consideration has an estimated fair value of $9,000. The purchase consideration remains subject to certain post-closing adjustments, as required under the Purchase Agreement.
The Company accounted for this business combination using the acquisition method of accounting. The aggregate purchase consideration for Clairvoyant was allocated to identifiable net tangible and intangible assets based upon their preliminary fair values. The guidance specifies criteria as to intangible assets acquired in a business combination that must be recognized and reported separately from goodwill. Contingent consideration is recognized at its fair value on the acquisition date. The liability resulting from contingent consideration is re-measured to fair value as of each reporting date until the
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contingency is resolved, whereby such changes in fair value are recognized in earnings. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Under ASC 350, Intangibles - Goodwill and Other, all assets and liabilities of the acquired businesses, including goodwill, are assigned to reporting units. Acquisition related costs are expensed as incurred under general and administrative expenses.

The determination of the fair value of the net assets of Clairvoyant, specifically the estimates of the fair value of the identifiable intangible assets and contingent consideration, requires judgment, and is subjective based on assumptions, the most significant being the related revenue projections within future cash flows, and the discount rate applied within the discounted cash flow model of Clairvoyant.

We identified the valuation of the net assets of Clairvoyant, specifically the estimates of the fair value of the identifiable intangible assets and contingent consideration, as a critical audit matter because of the significant estimates and management assumptions utilized in projecting revenue within future cash flows, and selecting an appropriate discount rate. This required a high degree of auditor judgment and an increased audit effort, including the need to involve our fair value specialists when performing auditor procedures to evaluate the reasonableness of management’s valuation methodology and the selection of inputs to the valuation.

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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the fair value of the net assets of Clairvoyant, specifically the estimates of the fair value of the identifiable intangible assets and contingent consideration, including projections of revenue within future cash flows and the selection of the discount rate included the following, among others:
We evaluated the business rationale for the acquisition;
We tested the operating effectiveness of internal controls over the valuation of the net assets of Clairvoyant, including management’s internal controls over the selection and review of key assumptions used in projected financial information;
We assessed the reasonableness of management's revenue projections by comparing the projections to historical results and market data; and
With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and key valuation inputs utilized in the analysis including the selected discount rate by:
Developing a range of independent estimates of the discount rate and comparing those to the rates selected by management;
Testing the reasonableness of the valuation inputs against observable market data and generally accepted valuation methodologies; and
Testing the mathematical accuracy of the calculations.


/s/ Deloitte & Touche LLP

New York, New York
February 24, 2022
We have served as the Company's auditor since 2018.

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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ExlService Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of ExlService Holdings, Inc. (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 24, 2022, expressed an unqualified opinion on those financial statements.