UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________________________

FORM 10-Q

_________________________________________________________

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

OR

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

FOR THE TRANSITION PERIOD FROM                      TO                     

COMMISSION FILE NUMBER 001-33089

_________________________________________________________

EXLSERVICE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________

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

(212) 277-7100

(Registrant’s telephone number, including area code)

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

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

None

________________________________________________________

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒    No  ☐

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

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

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

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

As of July 25, 2023, there were 33,144,409 shares of the registrant’s common stock outstanding, par value $0.001 per share.

TABLE OF CONTENTS

		PAGE
ITEM
	Part I. Financial Information	3
1.	FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2023 and 2022	5
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022	6
	Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2023 and 2022	7
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	9
	Notes to Consolidated Financial Statements	10
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
3.	Quantitative and Qualitative Disclosures About Market Risk	57
4.	Controls and Procedures	57
	Part II. Other Information	57
1.	Legal Proceedings	57
1A.	Risk Factors	57
2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
3.	Defaults Upon Senior Securities	58
4.	Mine Safety Disclosures	58
5.	Other Information	58
6.	Exhibits	59
Signatures		60

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	As of
	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	93,960	$	118,669
Short-term investments	156,098		179,027
Restricted cash	4,628		4,897
Accounts receivable, net	288,305		259,222
Other current assets	70,186		50,979
Total current assets	613,177		612,794
Property and equipment, net	93,688		82,828
Operating lease right-of-use assets	58,423		55,347
Restricted cash	2,072		2,055
Deferred tax assets, net	68,612		55,791
Intangible assets, net	56,487		64,819
Goodwill	405,903		405,637
Long-term investments	16,085		34,779
Other assets	48,255		32,069
Total assets	$	1,362,702	$	1,346,119
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,019	$	7,789
Current portion of long-term borrowings	30,000		30,000
Deferred revenue	20,755		18,782
Accrued employee costs	82,044		108,100
Accrued expenses and other current liabilities	104,480		95,352
Current portion of operating lease liabilities	14,482		14,978
Income taxes payable, net	4,283		2,945
Total current liabilities	259,063		277,946
Long-term borrowings, less current portion	190,000		220,000
Operating lease liabilities, less current portion	50,575		48,155
Deferred tax liabilities, net	507		547
Other non-current liabilities	28,343		41,292
Total liabilities	528,488		587,940
Commitments and contingencies (Refer to Note 25)
ExlService Holdings, Inc. Stockholders’ equity:
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued	—		—
Common stock, $0.001 par value; 100,000,000 shares authorized, 40,349,727 shares issued and 33,152,670 shares outstanding as of June 30, 2023 and 39,987,976 shares issued and 33,234,444 shares outstanding as of December 31, 2022	40		40
Additional paid-in capital	472,124		445,108
Retained earnings	999,504		899,105
Accumulated other comprehensive loss	(124,147)		(144,143)
Total including shares held in treasury	1,347,521		1,200,110

3

Less: 7,197,057 shares as of June 30, 2023 and 6,753,532 shares as of December 31, 2022, held in treasury, at cost	(513,307)		(441,931)
Total stockholders’ equity	834,214		758,179
Total liabilities and stockholders’ equity	$	1,362,702	$	1,346,119

See accompanying notes to unaudited consolidated financial statements.

4

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Revenues, net	$	404,996	$	346,782	$	805,639	$	675,990
Cost of revenues (1)	253,220		221,207		504,689		428,723
Gross profit (1)	151,776		125,575		300,950		247,267
Operating expenses:
General and administrative expenses	45,605		40,434		92,351		80,379
Selling and marketing expenses	28,238		23,985		57,731		48,155
Depreciation and amortization expense	13,122		14,075		26,609		27,677
Total operating expenses	86,965		78,494		176,691		156,211
Income from operations	64,811		47,081		124,259		91,056
Foreign exchange gain, net	324		1,423		429		3,179
Interest expense	(3,240)		(1,502)		(6,625)		(2,378)
Other income/(loss), net	2,661		(174)		5,816		2,237
Income before income tax expense and earnings from equity affiliates	64,556		46,828		123,879		94,094
Income tax expense	15,554		11,125		23,612		22,327
Income before earnings from equity affiliates	49,002		35,703		100,267		71,767
Gain from equity-method investment	66		143		132		257
Net income attributable to ExlService Holdings, Inc. stockholders	$	49,068	$	35,846	$	100,399	$	72,024
Earnings per share attributable to ExlService Holdings, Inc. stockholders:
Basic	$	1.47	$	1.07	$	3.01	$	2.15
Diluted	$	1.46	$	1.06	$	2.97	$	2.13
Weighted average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders:
Basic	33,355,354		33,403,411		33,397,226		33,422,618
Diluted	33,688,449		33,830,539		33,809,555		33,862,597

(1) Exclusive of depreciation and amortization expense.

See accompanying notes to unaudited consolidated financial statements.

5

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Net income	$	49,068	$	35,846	$	100,399	$	72,024
Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges	8,851		(14,632)		16,145		(15,149)
Foreign currency translation gain/(loss)	(136)		(22,782)		5,177		(30,227)
Reclassification adjustments
(Gain)/loss on cash flow hedges(1)	1,164		(1,459)		4,229		(3,448)
Retirement benefits(2)	(23)		149		(48)		304
Income tax effects relating to above(3)	(2,516)		3,656		(5,507)		4,620
Total other comprehensive income/(loss)	$	7,340	$	(35,068)	$	19,996	$	(43,900)
Total comprehensive income	$	56,408	$	778	$	120,395	$	28,124

(1)These are reclassified to net income and are included in cost of revenues, operating expenses and interest expense, as applicable in the unaudited consolidated statements of income. Refer to Note 17 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements.

(2)These are reclassified to net income and are included in other income/(loss), net in the unaudited consolidated statements of income. Refer to Note 20 - Employee Benefit Plans to the unaudited consolidated financial statements.

(3)These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation gain/(loss). Refer to Note 22 - Income Taxes to the unaudited consolidated financial statements.

See accompanying notes to unaudited consolidated financial statements.

6

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the three months ended June 30, 2023 and 2022

(In thousands, except share count)

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Treasury Stock			Total
	Shares	Amount								Shares	Amount
Balance as of March 31, 2023	40,334,368	$	40	$	460,527	$	950,436	$	(131,487)	(7,012,913)	$	(484,294)	$	795,222
Stock issued against stock-based compensation plans	15,359	—		86		—		—		—	—		86
Stock-based compensation	—	—		11,511		—		—		—	—		11,511
Acquisition of treasury stock	—	—		—		—		—		(184,144)	(29,013)		(29,013)
Other comprehensive income	—	—		—		—		7,340		—	—		7,340
Net income	—	—		—		49,068		—		—	—		49,068
Balance as of June 30, 2023	40,349,727	$	40	$	472,124	$	999,504	$	(124,147)	(7,197,057)	$	(513,307)	$	834,214

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total
	Shares	Amount								Shares	Amount
Balance as of March 31, 2022	39,794,154	$	40	$	406,966	$	792,315	$	(98,306)	(6,465,410)	$	(400,674)	$	700,341
Stock issued against stock-based compensation plans	1,007	—		—		—		—		—	—		—
Stock-based compensation	—	—		13,340		—		—		—	—		13,340
Acquisition of treasury stock	—	—		—		—		—		(205,716)	(28,806)		(28,806)
Other comprehensive loss	—	—		—		—		(35,068)		—	—		(35,068)
Net income	—	—		—		35,846		—		—	—		35,846
Balance as of June 30, 2022	39,795,161	$	40	$	420,306	$	828,161	$	(133,374)	(6,671,126)	$	(429,480)	$	685,653

7

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the six months ended June 30, 2023 and 2022

(In thousands, except share count)

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Treasury Stock			Total
	Shares	Amount								Shares	Amount
January 1, 2023	39,987,976	$	40	$	445,108	$	899,105	$	(144,143)	(6,753,532)	$	(441,931)	$	758,179
Stock issued against stock-based compensation plans	361,751	—		1,098		—		—		—	—		1,098
Stock-based compensation	—	—		25,918		—		—		—	—		25,918
Acquisition of treasury stock	—	—		—		—		—		(443,525)	(71,376)		(71,376)
Other comprehensive income	—	—		—		—		19,996		—	—		19,996
Net income	—	—		—		100,399		—		—	—		100,399
Balance as of June 30, 2023	40,349,727	$	40	$	472,124	$	999,504	$	(124,147)	(7,197,057)	$	(513,307)	$	834,214

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total
	Shares	Amount								Shares	Amount
January 1, 2022	39,508,340	$	40	$	395,742	$	756,137	$	(89,474)	(6,216,858)	$	(369,289)	$	693,156
Stock issued against stock-based compensation plans	286,821	—		—		—		—		—	—		—
Stock-based compensation	—	—		24,564		—		—		—	—		24,564
Acquisition of treasury stock	—	—		—		—		—		(454,268)	(60,191)		(60,191)
Other comprehensive loss	—	—		—		—		(43,900)		—	—		(43,900)
Net income	—	—		—		72,024		—		—	—		72,024
Balance as of June 30, 2022	39,795,161	$	40	$	420,306	$	828,161	$	(133,374)	(6,671,126)	$	(429,480)	$	685,653

See accompanying notes to unaudited consolidated financial statements.

8

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Six months ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	100,399	$	72,024
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	26,464		27,739
Stock-based compensation expense	25,918		24,564
Amortization of operating lease right-of-use assets	10,332		12,005
Unrealized (gain)/loss on investments	7,222		(275)
Unrealized foreign currency exchange (gain)/loss, net	1,288		(10,280)
Deferred income tax benefit	(18,283)		(1,462)
Allowance for expected credit losses	479		170
Fair value changes in contingent consideration	—		1,000
Others, net	1,202		526
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(28,375)		(46,385)
Other current assets	(4,387)		2,861
Income taxes payable, net	(10,610)		8,684
Other assets	(12,772)		(6,584)
Accounts payable	(4,796)		(1,107)
Deferred revenue	5,380		4,276
Accrued employee costs	(24,331)		(34,016)
Accrued expenses and other liabilities	(742)		11,190
Operating lease liabilities	(10,829)		(11,922)
Net cash provided by operating activities	63,559		53,008
Cash flows from investing activities:
Purchases of property and equipment	(26,113)		(25,054)
Proceeds from sale of property and equipment	547		154
Business acquisition (net of cash and cash equivalents acquired)	—		(2,572)
Purchases of investments	(113,823)		(96,082)
Proceeds from redemption of investments	151,178		82,567
Net cash provided by/(used for) investing activities	11,789		(40,987)
Cash flows from financing activities:
Principal payments of finance lease liabilities	(80)		(75)
Proceeds from borrowings	70,000		35,000
Repayments of borrowings	(100,000)		(10,000)
Acquisition of treasury stock	(70,638)		(60,191)
Payment of contingent consideration	(5,000)		—
Proceeds from ESPP contribution	3,800		—
Proceeds from exercise of stock options	85		—
Net cash used for financing activities	(101,833)		(35,266)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1,524		(5,365)
Net decrease in cash, cash equivalents and restricted cash	(24,961)		(28,610)
Cash, cash equivalents and restricted cash at the beginning of the period	125,621		143,810
Cash, cash equivalents and restricted cash at the end of the period	$	100,660	$	115,200
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	6,914	$	2,694
Income taxes, net of refunds	$	53,299	$	14,301
Supplemental disclosure of non-cash investing and financing activities:
Assets acquired under finance lease	$	91	$	118

See accompanying notes to unaudited consolidated financial statements.

9

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

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

1. Organization

ExlService Holdings, Inc. (“ExlService Holdings”) is organized as a corporation under the laws of the state of Delaware. ExlService Holdings, together with its subsidiaries and affiliates (collectively, the “Company”), is a leading data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth. By bringing together deep domain expertise with robust data, powerful analytics, cloud, artificial intelligence and machine learning, the Company creates agile, scalable solutions and executes complex operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media, and retail, among others. The Company’s data-led value creation framework enables better and faster decision making, leveraging its end-to-end data and analytics capabilities to drive improved business outcomes, and re-designing of operating models to integrate advanced technology into operational workflows. The Company embeds digital operations and solutions into clients’ businesses and introduces its data led approach to transform operations.

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

2. Summary of Significant Accounting Policies

(a)Basis of Preparation and Principles of Consolidation

The unaudited consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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

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

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

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

(b)Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period. Although these estimates are based on management’s best assessment of the current

10

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and the discount rate applied within the discounted cash flow model for business acquisitions, credit risk of customers, 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, stock-based awards, and debt instruments, assumptions used to calculate stock-based compensation expense, assumptions used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate amortization of ROU, depreciation and amortization periods, and recoverability of long-lived assets, goodwill and intangibles.

(c)Recent Accounting Pronouncements

In March 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-01, Leases (“ASC Topic 842”): Common Control Arrangements. This ASU provides guidance in ASC Topic 842 that leasehold improvements associated with common control leases should be (i) amortized by the lessee over the useful life of the leasehold improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset through a lease, and (ii) accounted for as a transfer between entities under common control through an adjustment to equity if and when the lessee no longer controls the use of the underlying asset. The ASU is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. When adopted in an interim period, it must be adopted from the beginning of the year that includes that interim period. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

(d)Recently adopted Accounting Pronouncements

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

3. Segment and Geographical Information

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

The Company manages and reports financial information through its four reportable segments: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions. These business units develop client-specific solutions, build capabilities, maintain a unified go-to-market approach and are integrally responsible for service delivery, customer satisfaction, growth and profitability.

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

The Company does not allocate, and therefore the CODM does not evaluate, certain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages these assets on a total Company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented.

Revenues and cost of revenues for the three months ended June 30, 2023 and 2022, respectively, for each of the reportable segments, are as follows:

11

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

	Three months ended June 30, 2023
	Insurance		Healthcare		Emerging Business		Analytics		Total
Revenues, net	$	128,457	$	27,156	$	67,200	$	182,183	$	404,996
Cost of revenues(1)	84,322		17,540		37,845		113,513		253,220
Gross profit(1)	$	44,135	$	9,616	$	29,355	$	68,670	$	151,776
Operating expenses									86,965
Foreign exchange gain, net, interest expense and other income, net									(255)
Income tax expense									15,554
Gain from equity-method investment									66
Net income									$	49,068

(1) Exclusive of depreciation and amortization expense.

	Three months ended June 30, 2022
	Insurance		Healthcare		Emerging Business		Analytics		Total
Revenues, net	$	108,557	$	23,051	$	53,873	$	161,301	$	346,782
Cost of revenues(1)	70,645		17,694		31,214		101,654		221,207
Gross profit(1)	$	37,912	$	5,357	$	22,659	$	59,647	$	125,575
Operating expenses									78,494
Foreign exchange gain, net, interest expense and other loss, net									(253)
Income tax expense									11,125
Gain from equity-method investment									143
Net income									$	35,846

(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the six months ended June 30, 2023 and 2022, respectively, for each of the reportable segments, are as follows:

	Six months ended June 30, 2023
	Insurance		Healthcare		Emerging Business		Analytics		Total
Revenues, net	$	254,393	$	53,859	$	133,361	$	364,026	$	805,639
Cost of revenues(1)	166,646		36,349		73,815		227,879		504,689
Gross profit(1)	$	87,747	$	17,510	$	59,546	$	136,147	$	300,950
Operating expenses									176,691
Foreign exchange gain, net, interest expense and other income, net									(380)
Income tax expense									23,612
Gain from equity-method investment									132
Net income									$	100,399

(1) Exclusive of depreciation and amortization expense.

12

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

	Six months ended June 30, 2022
	Insurance		Healthcare		Emerging Business		Analytics		Total
Revenues, net	$	211,823	$	49,207	$	104,620	$	310,340	$	675,990
Cost of revenues(1)	135,727		35,345		60,427		197,224		428,723
Gross profit(1)	$	76,096	$	13,862	$	44,193	$	113,116	$	247,267
Operating expenses									156,211
Foreign exchange gain, net, interest expense and other income, net									3,038
Income tax expense									22,327
Gain from equity-method investment									257
Net income									$	72,024

(1) Exclusive of depreciation and amortization expense.

Revenues, net by service type, were as follows:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Digital operations and solutions(1)	$	222,813	$	185,481	$	441,613	$	365,650
Analytics services	182,183		161,301		364,026		310,340
Revenues, net	$	404,996	$	346,782	$	805,639	$	675,990

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

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

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Revenues, net
United States	$	340,675	$	298,520	$	679,748	$	580,899
Non-United States
United Kingdom	43,648		32,090		85,222		64,863
Rest of World	20,673		16,172		40,669		30,228
Total Non-United States	64,321		48,262		125,891		95,091
Revenues, net	$	404,996	$	346,782	$	805,639	$	675,990

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

	As of
	June 30, 2023		December 31, 2022
Long-lived assets
United States	$	62,181	$	60,709
India	45,769		50,118
Philippines	23,983		18,406
Rest of World	20,178		8,942
Long-lived assets	$	152,111	$	138,175

13

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

4. Revenues, net

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

Contract balances

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

	As of
	June 30, 2023		December 31, 2022
Accounts receivable, net	$	288,305	$	259,222
Contract assets	$	7,632	$	2,768
Contract liabilities:
Deferred revenue (consideration received in advance)	$	18,909	$	17,079
Consideration received for process transition activities	$	9,122	$	5,423

Accounts receivable includes $148,370 and $126,027 as of June 30, 2023 and December 31, 2022, respectively, representing unbilled receivables. The Company has accrued the unbilled receivables for work performed in accordance with the terms of contracts with customers and considers no significant performance risk associated with its unbilled receivables.

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

Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers. The Company also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract fulfillment costs. Consideration received from customers, if any, relating to such transition activities are classified under contract liabilities and are included within “Deferred revenues” and “Other non-current liabilities” in the consolidated balance sheets. The revenues are recognized as (or when) the performance obligation is fulfilled under the contract with customer.

Revenue recognized during the three and six months ended June 30, 2023 and 2022, which was included in the contract liabilities balance at the beginning of the respective periods:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Deferred revenue (consideration received in advance)	$	2,990	$	4,306	$	15,992	$	13,870
Consideration received for process transition activities	$	305	$	298	$	1,008	$	664

14

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Contract acquisition and fulfillment costs

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

	Contract Acquisition Costs
	Three months ended				Six months ended				Year ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022		December 31, 2022
Opening Balance	$	1,994	$	927	$	1,095	$	511	$	511
Additions	397		180		1,476		727		1,014
Amortization	(208)		(124)		(388)		(255)		(430)
Closing Balance	$	2,183	$	983	$	2,183	$	983	$	1,095

	Contract Fulfillment Costs
	Three months ended				Six months ended				Year ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022		December 31, 2022
Opening Balance	$	17,873	$	7,435	$	13,871	$	5,795	$	5,795
Additions	4,225		3,308		8,843		5,485		15,509
Amortization	(653)		(576)		(1,269)		(1,113)		(7,433)
Closing Balance	$	21,445	$	10,167	$	21,445	$	10,167	$	13,871

There was no impairment for contract acquisition and contract fulfillment costs as of June 30, 2023 and December 31, 2022. The capitalized costs are amortized over the expected period of benefit of the contract.

Allowance for expected credit losses

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

	As of
	June 30, 2023		December 31, 2022
Accounts receivable, including unbilled receivables	$	290,105	$	260,554
Less: Allowance for expected credit losses	(1,800)		(1,332)
Accounts receivable, net	$	288,305	$	259,222

15

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

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

	Three months ended				Six months ended				Year ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022		December 31, 2022
Opening Balance	$	1,671	$	588	$	1,332	$	573	$	573
Additions	134		571		477		743		815
Reductions due to write-off of Accounts Receivables	(5)		(314)		(8)		(472)		(60)
Currency translation adjustments	—		(1)		(1)		—		4
Closing Balance	$	1,800	$	844	$	1,800	$	844	$	1,332

Concentration of credit risk

To reduce credit risk, the Company conducts ongoing credit evaluations of its customers. No customer accounted for more than 10% of accounts receivable, net, as of June 30, 2023 and December 31, 2022.

5. Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding, adjusted for outstanding shares that are subject to repurchase during each period. Diluted earnings per share is computed using the weighted average number of common shares plus the potentially dilutive effect of common stock equivalents (outstanding stock options, restricted stock, restricted stock units and employee stock purchase plans) issued and outstanding at the reporting date, using the treasury stock method. Common stock equivalents that are anti-dilutive are excluded from the computation of weighted average shares outstanding.

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

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Numerators:
Net income	$	49,068	$	35,846	$	100,399	$	72,024
Denominators:
Basic weighted average common shares outstanding	33,355,354		33,403,411		33,397,226		33,422,618
Dilutive effect of share-based awards	333,095		427,128		412,329		439,979
Diluted weighted average common shares outstanding	33,688,449		33,830,539		33,809,555		33,862,597
Earnings per share attributable to ExlService Holdings, Inc. stockholders:
Basic	$	1.47	$	1.07	$	3.01	$	2.15
Diluted	$	1.46	$	1.06	$	2.97	$	2.13
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share	249,831		—		179,550		541

16

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

6. Other Income/(Loss), net

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

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Gain on sale and mark-to-market on investments	$	1,095	$	634	$	2,739	$	1,870
Interest and dividend income	1,653		847		3,374		2,217
Others, net	(87)		(1,655)		(297)		(1,850)
Other income/(loss), net	$	2,661	$	(174)	$	5,816	$	2,237

7. Cash, Cash Equivalents and Restricted Cash

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

	As of
	June 30, 2023		June 30, 2022		December 31, 2022
Cash and cash equivalents	$	93,960	$	106,304	$	118,669
Restricted cash (current)	4,628		6,840		4,897
Restricted cash (non-current)	2,072		2,056		2,055
Cash, cash equivalents and restricted cash	$	100,660	$	115,200	$	125,621

Restricted cash (current) primarily represents funds held on behalf of clients in dedicated bank accounts. The corresponding liability against the same is included under “Accrued Expenses and other current liabilities.” Restricted cash (non-current) represents amounts on deposit with banks against bank guarantees issued through banks in favor of relevant statutory authorities for equipment imports, deposits for obtaining indirect tax registrations and for demands against pending income tax assessments. These deposits with banks will mature one year after the balance sheet date.

8. Investments

Investments consist of the following:

	As of
	June 30, 2023		December 31, 2022
Short-term investments
Mutual funds	$	68,891	$	110,964
Term deposits	87,207		68,063
Total Short-term investments	$	156,098	$	179,027
Long-term investments
Term deposits	$	12,515	$	31,341
Investment in equity affiliate	3,570		3,438
Total Long-term investments	$	16,085	$	34,779

Refer to Note 16 - Fair Value Measurements to the unaudited consolidated financial statements for further details.

17

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

9. Property and Equipment, net

Property and equipment, net consists of the following:

		As of
	Estimated useful lives (Years)	June 30, 2023		December 31, 2022
Owned Assets:
Network equipment and computers	3-5	$	141,728	$	130,218
Software	2-5	99,828		88,487
Leasehold improvements	3-8	40,566		42,890
Office furniture and equipment	3-8	19,938		20,211
Motor vehicles	2-5	738		605
Buildings	30	970		961
Land	—	634		629
Capital work in progress	—	13,532		14,459
		317,934		298,460
Less: Accumulated depreciation and amortization		(224,764)		(216,132)
		93,170		82,328
Right-of-use assets under finance leases*:
Network equipment and computers		58		82
Leasehold improvements		611		1,013
Office furniture and equipment		435		662
Motor vehicles		802		742
		1,906		2,499
Less: Accumulated depreciation and amortization		(1,388)		(1,999)
		518		500
Property and equipment, net		$	93,688	$	82,828

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

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

During the three and six months ended June 30, 2023, there were no material changes in estimated useful lives of property and equipment during the ordinary course of operations.

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

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Depreciation and amortization expense	$	8,918	$	9,929	$	18,256	$	19,045

18

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

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

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Effect of foreign exchange gain/(loss)	$	(66)	$	(5)	$	(145)	$	62

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

	As of
	June 30, 2023		December 31, 2022
Cost	$	42,478	$	31,544
Less : Accumulated amortization	(20,540)		(16,134)
Internally developed software, net	$	21,938	$	15,410

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

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Amortization expense	$	2,425	$	1,549	$	4,400	$	2,582

As of June 30, 2023 and December 31, 2022, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value; however, there can be no assurance that long-lived assets will not be impaired in future periods. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, the asset’s residual value, if any. It is reasonably possible that the judgments and estimates described above could change in future periods.

10. Goodwill and Other Intangible Assets

Goodwill

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

	Insurance		Healthcare		Emerging Business		Analytics		Total
Balance as of January 1, 2023	$	49,929	$	21,875	$	47,101	$	286,732	$