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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 SEPTEMBER 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 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 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 October 24, 2023, there were 164,922,767 shares of the registrant’s common stock outstanding, par value $0.001 per share.


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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
September 30, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$122,655 $118,669 
Short-term investments151,581 179,027 
Restricted cash3,257 4,897 
Accounts receivable, net303,378 259,222 
Other current assets70,697 50,979 
Total current assets651,568 612,794 
Property and equipment, net96,729 82,828 
Operating lease right-of-use assets, net56,817 55,347 
Restricted cash2,047 2,055 
Deferred tax assets, net79,767 55,791 
Goodwill405,579 405,637 
Other intangible assets, net53,315 64,819 
Long-term investments5,273 34,779 
Other assets51,398 32,069 
Total assets$1,402,493 $1,346,119 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$3,159 $7,789 
Current portion of long-term borrowings50,000 30,000 
Deferred revenue13,766 18,782 
Accrued employee costs105,535 108,100 
Accrued expenses and other current liabilities107,730 95,352 
Current portion of operating lease liabilities14,008 14,978 
Income taxes payable, net11,948 2,945 
Total current liabilities306,146 277,946 
Long-term borrowings, less current portion160,000 220,000 
Operating lease liabilities, less current portion48,445 48,155 
Deferred tax liabilities, net461 547 
Other non-current liabilities31,354 41,292 
Total liabilities546,406 587,940 
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; 400,000,000 shares authorized, 202,124,185 shares issued and 165,117,859 shares outstanding as of September 30, 2023 and 199,939,880 shares issued and 166,172,220 shares outstanding as of December 31, 2022 (1)
202 200 
Additional paid-in capital (1)
492,577 444,948 
Retained earnings1,043,380 899,105 
Accumulated other comprehensive loss(136,805)(144,143)
Total including shares held in treasury1,399,354 1,200,110 
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Less: 37,006,326 shares as of September 30, 2023 and 33,767,660 shares as of December 31, 2022, held in treasury, at cost (1)
(543,267)(441,931)
Total stockholders’ equity856,087 758,179 
Total liabilities and stockholders’ equity $1,402,493 $1,346,119 

(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.

See accompanying notes to unaudited consolidated financial statements.
4

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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amount and share count)

Three months ended September 30,Nine months ended September 30,
2023202220232022
Revenues, net$410,971 $361,351 $1,216,610 $1,037,341 
Cost of revenues (1)
256,002 230,462 760,691 659,185 
Gross profit (1)
154,969 130,889 455,919 378,156 
Operating expenses:
General and administrative expenses52,213 42,519 144,564 122,898 
Selling and marketing expenses30,943 23,879 88,674 72,034 
Depreciation and amortization expense11,583 14,380 38,192 42,057 
Total operating expenses94,739 80,778 271,430 236,989 
Income from operations60,230 50,111 184,489 141,167 
Foreign exchange gain, net409 1,504 838 4,683 
Interest expense(3,405)(2,442)(10,030)(4,820)
Other income, net778 2,261 6,594 4,498 
Income before income tax expense and earnings from equity affiliates58,012 51,434 181,891 145,528 
Income tax expense14,161 12,447 37,773 34,774 
Income before earnings from equity affiliates43,851 38,987 144,118 110,754 
Gain from equity-method investment25 108 157 365 
Net income attributable to ExlService Holdings, Inc. stockholders$43,876 $39,095 $144,275 $111,119 
Earnings per share attributable to ExlService Holdings, Inc. stockholders (2):
Basic$0.26 $0.24 $0.87 $0.67 
Diluted$0.26 $0.23 $0.86 $0.66 
Weighted average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders (2):
Basic166,159,619 166,189,165166,707,599 166,801,730
Diluted167,688,374 168,888,745168,591,612 169,168,185

(1) Exclusive of depreciation and amortization expense.
(2) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.



See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
Three months ended September 30,Nine months ended September 30,
2023202220232022
Net income$43,876 $39,095 $144,275 $111,119 
 Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges(7,903)(13,489)8,242 (28,638)
Foreign currency translation loss(7,782)(19,144)(2,605)(49,371)
Reclassification adjustments
(Gain)/loss on cash flow hedges(1)
32 1,567 4,261 (1,881)
Retirement benefits(2)
(22)147 (70)451 
Income tax effects relating to above(3)
3,017 10,090 (2,490)14,710 
  Total other comprehensive income/(loss)$(12,658)$(20,829)$7,338 $(64,729)
Total comprehensive income$31,218 $18,266 $151,613 $46,390 


(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, 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.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
For the three months ended September 30, 2023 and 2022
(In thousands, except share count)


Common Stock (1)
Additional Paid-in Capital (1)
Retained EarningsAccumulated Other Comprehensive LossTreasury StockTotal
SharesAmount
Shares (1)
Amount
Balance as of June 30, 2023201,748,635 $202 $471,962 $999,504 $(124,147)(35,985,285)$(513,307)$834,214 
Stock issued against stock-based compensation plans375,550 — 3,548 — — — — 3,548 
Stock-based compensation— — 17,067 — — — — 17,067 
Acquisition of treasury stock— — — — — (1,021,041)(29,960)(29,960)
Other comprehensive income— — — — (12,658)— — (12,658)
Net income— — — 43,876 — — — 43,876 
Balance as of September 30, 2023202,124,185 $202 $492,577 $1,043,380 $(136,805)(37,006,326)$(543,267)$856,087 


Common Stock (1)
Additional Paid-in Capital (1)
Retained EarningsAccumulated Other Comprehensive LossTreasury StockTotal
SharesAmount
Shares (1)
Amount
Balance as of June 30, 2022198,975,805 $199 $420,147 $828,161 $(133,374)(33,355,630)$(429,480)$685,653 
Stock issued against stock-based compensation plans18,975 — — — — — — — 
Stock-based compensation— — 12,186 — — — — 12,186 
Acquisition of treasury stock— — — — — (384,045)(11,521)(11,521)
Other comprehensive loss— — — — (20,829)— — (20,829)
Net income— — — 39,095 — — — 39,095 
Balance as of September 30, 2022198,994,780 $199 $432,333 $867,256 $(154,203)(33,739,675)$(441,001)$704,584 

(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.

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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
For the nine months ended September 30, 2023 and 2022
(In thousands, except share count)

Common Stock (1)
Additional Paid-in Capital (1)
Retained EarningsAccumulated Other Comprehensive Income/(loss)Treasury StockTotal
SharesAmount
Shares (1)
Amount
January 1, 2023199,939,880 $200 $444,948 $899,105 $(144,143)(33,767,660)$(441,931)$758,179 
Stock issued against stock-based compensation plans2,184,305 2 4,644 — — — — 4,646 
Stock-based compensation— — 42,985 — — — — 42,985 
Acquisition of treasury stock— — — — — (3,238,666)(101,336)(101,336)
Other comprehensive income— — — — 7,338 — — 7,338 
Net income— — — 144,275 — — — 144,275 
Balance as of September 30, 2023202,124,185 $202 $492,577 $1,043,380 $(136,805)(37,006,326)$(543,267)$856,087 


Common Stock (1)
Additional Paid-in Capital (1)
Retained EarningsAccumulated Other Comprehensive LossTreasury StockTotal
SharesAmount
Shares (1)
Amount
January 1, 2022197,541,700 $198 $395,584 $756,137 $(89,474)(31,084,290)$(369,289)$693,156 
Stock issued against stock-based compensation plans1,453,080 1 (1)— — — — — 
Stock-based compensation— — 36,750 — — — — 36,750 
Acquisition of treasury stock— — — — — (2,655,385)(71,712)(71,712)
Other comprehensive loss— — — — (64,729)— — (64,729)
Net income— — — 111,119 — — — 111,119 
Balance as of September 30, 2022198,994,780 $199 $432,333 $867,256 $(154,203)(33,739,675)$(441,001)$704,584 

(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.





See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine months ended September 30,
20232022
Cash flows from operating activities:
Net income$144,275 $111,119 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense38,010 41,993 
Stock-based compensation expense42,985 36,750 
Amortization of operating lease right-of-use assets15,171 17,365 
Unrealized loss/(gain) on investments6,003 (475)
Unrealized foreign currency exchange gain, net(862)(16,813)
Deferred income tax benefit(26,555)(5,621)
Allowance for expected credit losses2,444 177 
Fair value changes in contingent consideration2,500 1,000 
Others, net1,384 1,240 
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(46,488)(68,066)
Other current assets(412)2,553 
Income taxes payable, net(12,022)4,043 
Other assets(18,792)(8,428)
Accounts payable(4,624)(1,927)
Deferred revenue 2,319 2,103 
Accrued employee costs(1,853)(11,778)
Accrued expenses and other liabilities4,299 13,685 
Operating lease liabilities(15,622)(17,831)
Net cash provided by operating activities132,160 101,089 
Cash flows from investing activities:
Purchases of property and equipment(41,106)(32,099)
Proceeds from sale of property and equipment640 197 
Investment in equity affiliate(600)— 
Business acquisition (net of cash and cash equivalents acquired)— (3,322)
Purchases of investments(165,021)(164,313)
Proceeds from redemption of investments217,525 124,355 
Net cash provided by/(used for) investing activities11,438 (75,182)
Cash flows from financing activities:
Principal payments of finance lease liabilities(120)(108)
Proceeds from borrowings70,000 35,000 
Repayments of borrowings(110,000)(25,000)
Acquisition of treasury stock(100,542)(71,712)
Payment of contingent consideration(5,000)— 
Proceeds from ESPP contribution and exercise of stock options4,690 — 
Net cash used for financing activities(140,972)(61,820)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(288)(9,626)
Net increase/(decrease) in cash, cash equivalents and restricted cash2,338 (45,539)
Cash, cash equivalents and restricted cash at the beginning of the period125,621 143,810 
Cash, cash equivalents and restricted cash at the end of the period$127,959 $98,271 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$10,580 $4,982 
Income taxes, net of refunds$76,743 $35,192 
Supplemental disclosure of non-cash investing and financing activities:
Assets acquired under finance lease$285 $218 
See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 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)Stock Split

The Company recognizes the effects of a forward stock split in the financial statements if there are changes in the total par value of the increased shares upon such forward stock split. The Company reclassifies an amount equal to the par value of the increased shares resulting from the forward stock split from “Additional paid-in capital” to “Common stock.” The Company presents the effects of a forward stock split on earnings per share in the financial statements retroactively for all the periods
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
presented. The Company has an option to present other effects of the forward stock split, including changes in the total par value of the increased shares and count of shares of common stock, in the consolidated financial statements either retroactively for all the periods presented or only for the period in which the forward stock split of the common stock becomes effective. The Company has elected to present the effects of the forward stock split retroactively for all the periods presented.

(c)Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and 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, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, and stock-based awards, useful life of long-lived assets and other intangible assets, 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, methods to calculate depreciation and amortization for long-lived assets and other intangible assets, and recoverability of long-lived assets, goodwill and other intangible assets.

(d)Recent Accounting Pronouncements

In March 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-01, Leases (“Accounting Standards Codification (“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.
    
(e)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.

In July 2023, the FASB issued ASU No. 2023-03, Presentation of Financial Statements (“ASC Topic 205”), Income Statement-Reporting Comprehensive Income (“ASC Topic 220”), Distinguishing Liabilities from Equity (“ASC Topic 480”), Equity (“ASC Topic 505”), and Compensation-Stock Compensation (“ASC Topic 718”) pursuant to SEC Staff Accounting Bulletin No. 120 and amends various SEC paragraphs in the ASC. The ASU is effective immediately upon issuance and did not have a material impact on the Company’s unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
3. Segment and Geographical Information

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

The Company manages and reports financial information through its 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 September 30, 2023 and 2022, respectively, for each of the reportable segments, are as follows:
Three months ended September 30, 2023
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$136,369 $26,177 $65,316 $183,109 $410,971 
Cost of revenues(1)
86,435 16,533 37,599 115,435 256,002 
Gross profit(1)
$49,934 $9,644 $27,717 $67,674 $154,969 
Operating expenses94,739 
Foreign exchange gain, net, interest expense and other income, net(2,218)
Income tax expense14,161 
Gain from equity-method investment25 
Net income$43,876 
(1) Exclusive of depreciation and amortization expense.

Three months ended September 30, 2022
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$116,198 $22,820 $56,035 $166,298 $361,351 
Cost of revenues(1)
75,041 17,119 32,363 105,939 230,462 
Gross profit(1)
$41,157 $5,701 $23,672 $60,359 $130,889 
Operating expenses80,778 
Foreign exchange gain, net, interest expense and other loss, net1,323 
Income tax expense12,447 
Gain from equity-method investment108 
Net income$39,095 
(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the nine months ended September 30, 2023 and 2022, respectively, for each of the reportable segments, are as follows:
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)

Nine months ended September 30, 2023
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$390,762 $80,036 $198,677 $547,135 $1,216,610 
Cost of revenues(1)
253,081 52,882 111,414 343,314 760,691 
Gross profit(1)
$137,681 $27,154 $87,263 $203,821 $455,919 
Operating expenses271,430 
Foreign exchange gain, net, interest expense and other income, net(2,598)
Income tax expense37,773 
Gain from equity-method investment157 
Net income$144,275 
(1) Exclusive of depreciation and amortization expense.

Nine months ended September 30, 2022
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$328,021 $72,027 $160,655 $476,638 $1,037,341 
Cost of revenues(1)
210,768 52,464 92,790 303,163 659,185 
Gross profit(1)
$117,253 $19,563 $67,865 $173,475 $378,156 
Operating expenses236,989 
Foreign exchange gain, net, interest expense and other income, net4,361 
Income tax expense34,774 
Gain from equity-method investment365 
Net income$111,119 
(1) Exclusive of depreciation and amortization expense.

Revenues, net by service type, were as follows:
Three months ended September 30,Nine months ended September 30,
2023202220232022
Digital operations and solutions(1)
$227,862 $195,053 $669,475 $560,703 
Analytics services183,109 166,298 547,135 476,638 
Revenues, net$410,971 $361,351 $1,216,610 $1,037,341 
(1) Digital operations and solutions include revenues of the Company’s Insurance, Healthcare and Emerging Business reportable segments. Refer to the reportable segment disclosure above.

The Company attributes the revenues to regions based upon the location of its customers.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
 Three months ended September 30,Nine months ended September 30,
 2023202220232022
Revenues, net
United States$343,135 $310,652 $1,022,883 $891,551 
Non-United States
United Kingdom46,327 34,131 131,549 98,994 
Rest of World21,509 16,568 62,178 46,796 
Total Non-United States67,836 50,699 193,727 145,790 
Revenues, net$410,971 $361,351 $1,216,610 $1,037,341 

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
September 30, 2023December 31, 2022
Long-lived assets
United States$62,642 $60,709 
India44,811 50,118 
Philippines21,895 18,406 
Rest of World24,198 8,942 
Long-lived assets$153,546 $138,175 

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
September 30, 2023December 31, 2022
Accounts receivable, net$303,378 $259,222 
Contract assets$11,086 $2,768 
Contract liabilities:
Deferred revenue (consideration received in advance)$11,285 $17,079 
Consideration received for process transition activities$13,893 $5,423 

Accounts receivable includes $152,425 and $126,027 as of September 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.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers. The Company also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract fulfillment costs. Consideration received from customers, if any, relating to such transition activities are classified under contract liabilities and are included within “Deferred revenue” 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 nine months ended September 30, 2023 and 2022, which was included in the contract liabilities balance at the beginning of the respective periods:

Three months ended September 30,Nine months ended September 30,
2023202220232022
Deferred revenue (consideration received in advance)$690 $2,456 $16,682 $16,326 
Consideration received for process transition activities$373 $706 $1,381 $1,370 

Contract acquisition and fulfillment costs

The following table provides details of the Company’s contract acquisition and fulfillment costs:
Contract Acquisition Costs
Three months endedNine months endedYear ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022December 31, 2022
Opening Balance$2,183 $983 $1,095 $511 $511 
Additions115 78 1,591 805 1,014 
Amortization(233)(73)(621)(328)(430)
Closing Balance$2,065 $988 $2,065 $988 $1,095 

Contract Fulfillment Costs
Three months endedNine months endedYear ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022December 31, 2022
Opening Balance$21,445 $10,167 $13,871 $5,795 $5,795 
Additions3,790 2,964 12,633 8,449 15,509 
Amortization(878)(1,170)(2,147)(2,283)(7,433)
Closing Balance$24,357 $11,961 $24,357 $11,961 $13,871 

There was no impairment for contract acquisition and contract fulfillment costs as of September 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.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
As of
September 30, 2023December 31, 2022
Accounts receivable, including unbilled receivables$307,074 $260,554 
Less: Allowance for expected credit losses(3,696)(1,332)
Accounts receivable, net$303,378 $259,222 

The movement in “Allowance for expected credit losses” on customer balances was as follows:
Three months endedNine months endedYear ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022December 31, 2022
Opening Balance$1,800 $844 $1,332 $573 $573 
Additions1,964 9 2,441 752 815 
Reductions due to write-off of accounts receivables(70)— (78)(472)(60)
Currency translation adjustments2 2 1 2 4 
Closing Balance$3,696 $855 $3,696 $855 $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 September 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 September 30,Nine months ended September 30,
 2023202220232022
Numerators:
Net income$43,876 $39,095 $144,275 $111,119 
Denominators(1):
Basic weighted average common shares outstanding166,159,619 166,189,165 166,707,599 166,801,730 
Dilutive effect of stock-based awards1,528,755 2,699,580 1,884,013 2,366,455 
Diluted weighted average common shares outstanding167,688,374 168,888,745 168,591,612 169,168,185 
Earnings per share attributable to ExlService Holdings, Inc. stockholders (1):
Basic$0.26 $0.24 $0.87 $0.67 
Diluted$0.26 $0.23 $0.86 $0.66 
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share (1)
2,899,035 4,680 1,564,844 3,365 
(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note 19 – Capital Structure to the unaudited consolidated financial statements for further details.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
6. Other Income, net
Other income, net consists of the following:
Three months ended September 30,Nine months ended September 30,
2023202220232022
Gain on sale and mark-to-market on investments$1,337 $1,471 $4,076 $3,341 
Interest and dividend income2,106 1,457 5,480 3,674 
Fair value changes of contingent consideration*(2,500)— (2,500)(1,000)
Others, net(165)(667)(462)(1,517)
Other income, net$778 $2,261 $6,594 $4,498 
* Refer to Note 16 - Fair Value Measurements to the unaudited consolidated financial statements for further details.
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
 September 30, 2023September 30, 2022December 31, 2022
Cash and cash equivalents$122,655 $89,262 $118,669 
Restricted cash (current)3,257 7,013 4,897 
Restricted cash (non-current)2,047 1,996 2,055 
Cash, cash equivalents and restricted cash$127,959 $98,271 $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
 September 30, 2023December 31, 2022
Short-term investments
Mutual funds$76,476 $110,964 
Term deposits75,105 68,063 
Total Short-term investments$151,581 $179,027 
Long-term investments
Term deposits$1,078 $31,341 
Investment in equity affiliate4,195 3,438 
Total Long-term investments$5,273 $34,779 
Refer to Note 16 - Fair Value Measurements to the unaudited consolidated financial statements for further details.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
9. Property and Equipment
Property and equipment, net consists of the following:
As of
Estimated useful lives (Years)September 30, 2023December 31, 2022
Owned Assets:
Network equipment and computers
3-5
$143,357 $130,218 
Software
2-5
99,614 88,487 
Leasehold improvements
3-8
39,470 42,890 
Office furniture and equipment
3-8
19,407 20,211 
Motor vehicles
2-5
727 605 
Buildings30958 961 
Land—627 629 
Capital work in progress—15,674 14,459 
319,834 298,460 
Less: Accumulated depreciation and amortization(223,760)(216,132)
96,074 82,328 
Right-of-use assets under finance leases:
Network equipment and computers58 82 
Leasehold improvements605 1,013 
Office furniture and equipment431 662 
Motor vehicles891 742 
1,985 2,499 
Less: Accumulated depreciation and amortization(1,330)(1,999)
655 500 
Property and equipment, net$96,729 $82,828 

Capital work in progress represents advances paid towards acquisition of property and equipment and costs incurred on internally developed software not yet ready for its intended use.

During the three and nine months ended September 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 September 30,Nine months ended September 30,
2023202220232022
Depreciation and amortization expense$8,426 $10,137 $26,682 $29,182 

The effect of foreign exchange loss upon settlement of cash flow hedges recorded under depreciation and amortization expense, was as follows:
Three months ended September 30,Nine months ended September 30,
2023202220232022
Effect of foreign exchange loss$(37)$(126)$(182)$(64)

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2023
(In thousands, except per share amount and share count)
Internally developed software costs, included under Software, was as follows:
As of
September 30, 2023December 31, 2022
Cost$42,585 $31,544 
Less : Accumulated amortization(22,843)(16,134)
Internally developed software, net$19,742 $15,410 

The amortization expense on internally developed software recognized in the unaudited consolidated statements of income was as follows:
Three months ended September 30,Nine months ended September 30,
2023202220232022
Amortization expense$2,311