ExlService Holdings, Inc. [EXLS] Filings

10-Q 1 exls-20240630.htm 10-Q exls-20240630

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, 2024


☐			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 30, 2024, there were 161,404,784 shares of the registrant’s common stock outstanding, par value $0.001 per share.

Table of Contents

TABLE OF CONTENTS



		PAGE
ITEM
	Part I. Financial Information	3

1.	FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2024 and 2023	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023	5
	Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2024 and 2023	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	8
	Notes to Consolidated Financial Statements	9

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

3.	Quantitative and Qualitative Disclosures About Market Risk	53

4.	Controls and Procedures	53

	Part II. Other Information	53

1.	Legal Proceedings	53

1A.	Risk Factors	53

2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

3.	Defaults Upon Senior Securities	54

4.	Mine Safety Disclosures	54

5.	Other Information	54

6.	Exhibits	55

Signatures		56

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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
	Notes	June 30, 2024		December 31, 2023

Assets
Current assets:
Cash and cash equivalents	7	$	115,303	$	136,953
Short-term investments	8	160,833		153,881
Restricted cash	7	6,351		4,062
Accounts receivable, net	4	327,613		308,108
Other current assets	11	93,612		76,669
Total current assets		703,712		679,673
Property and equipment, net	9	103,478		100,373
Operating lease right-of-use assets	21	72,822		64,856

Deferred tax assets, net	22	100,993		82,927
Goodwill	10	405,581		405,639
Other intangible assets, net	10	44,003		50,164
Long-term investments	8	19,239		8,816
Other assets	12	53,939		49,524
Total assets		$	1,503,767	$	1,441,972
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	2,996	$	5,055
Current portion of long-term borrowings	18	75,000		65,000
Deferred revenue		15,406		12,318
Accrued employee costs		80,443		117,137
Accrued expenses and other current liabilities	13	97,613		114,113
Current portion of operating lease liabilities	21	15,404		12,780

Total current liabilities		286,862		326,403
Long-term borrowings, less current portion	18	260,000		135,000
Operating lease liabilities, less current portion	21	64,412		58,175
Deferred tax liabilities, net	22	2,271		1,495
Other non-current liabilities	14	37,616		31,462
Total liabilities		651,161		552,535
Commitments and contingencies	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, 204,783,113 shares issued and 162,176,382 shares outstanding as of June 30, 2024 and 203,410,038 shares issued and 165,277,880 shares outstanding as of December 31, 2023	19	204		203
Additional paid-in capital		520,922		508,028
Retained earnings		1,178,251		1,083,663
Accumulated other comprehensive loss	15	(136,108)		(127,040)
Total including shares held in treasury		1,563,269		1,464,854
Less: 42,606,731 shares as of June 30, 2024 and 38,132,158 shares as of December 31, 2023, held in treasury, at cost	19	(710,663)		(575,417)
Total stockholders’ equity		852,606		889,437
Total liabilities and stockholders’ equity		$	1,503,767	$	1,441,972

See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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


		Three months ended June 30,				Six months ended June 30,
	Notes	2024		2023		2024		2023
Revenues, net	3, 4	$	448,366	$	404,996	$	884,873	$	805,639
Cost of revenues (1)		282,106		253,220		555,530		504,689
Gross profit (1)		166,260		151,776		329,343		300,950
Operating expenses:
General and administrative expenses		56,457		45,605		109,700		92,351
Selling and marketing expenses		35,444		28,238		71,414		57,731
Depreciation and amortization expense	9, 10	12,910		13,122		25,256		26,609

Total operating expenses		104,811		86,965		206,370		176,691
Income from operations		61,449		64,811		122,973		124,259
Foreign exchange gain, net		36		324		395		429
Interest expense	18	(5,328)		(3,240)		(8,619)		(6,625)
Other income, net	6	3,550		2,661		7,502		5,816
Income before income tax expense and earnings from equity affiliates		59,707		64,556		122,251		123,879
Income tax expense	22	13,873		15,554		27,626		23,612
Income before earnings from equity affiliates		45,834		49,002		94,625		100,267
Gain/(loss) from equity-method investment		(9)		66		(37)		132
Net income attributable to ExlService Holdings, Inc. stockholders		$	45,825	$	49,068	$	94,588	$	100,399
Earnings per share attributable to ExlService Holdings, Inc. stockholders (2):	5
Basic		$	0.28	$	0.29	$	0.58	$	0.60
Diluted		$	0.28	$	0.29	$	0.57	$	0.59
Weighted average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders (2):	5
Basic		162,794,138		166,776,770		163,938,263		166,986,130
Diluted		163,961,754		168,442,245		165,344,304		169,047,775

(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 June 30,				Six months ended June 30,
	Notes	2024		2023		2024		2023
Net income		$	45,825	$	49,068	$	94,588	$	100,399
Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges	17	(2,778)		8,851		(2,840)		16,145

Currency translation adjustments		(3,189)		(136)		(6,253)		5,177
Reclassification adjustments:
(Gain)/loss on cash flow hedges (1)	17	475		1,164		32		4,229
Retirement benefits (2)	20	(147)		(23)		(302)		(48)
Income tax effects relating to above (3)	22	(33)		(2,516)		295		(5,507)
Total other comprehensive income/(loss)		$	(5,672)	$	7,340	$	(9,068)	$	19,996
Total comprehensive income		$	40,153	$	56,408	$	85,520	$	120,395

(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.

(2)These are reclassified to net income and are included in other income, net in the unaudited consolidated statements of income.

(3)These are income tax effects recognized on cash flow hedges, retirement benefits and currency translation adjustments.

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 June 30, 2024 and 2023

(In thousands, except share count)


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

	Notes	Shares	Amount								Shares	Amount
Balance as of March 31, 2024		204,734,988	$	204	$	502,827	$	1,132,426	$	(130,436)	(42,309,378)	$	(701,766)	$	803,255
Stock issued against stock-based compensation plans	23	48,125	—		—		—		—		—	—		—
Stock-based compensation	23	—	—		18,095		—		—		—	—		18,095
Acquisition of treasury stock	19	—	—		—		—		—		(297,353)	(8,823)		(8,823)
Excise tax on repurchase of common stock, net of stock issuances	19	—	—		—		—		—		—	(74)		(74)

Other comprehensive loss	15	—	—		—		—		(5,672)		—	—		(5,672)
Net income		—	—		—		45,825		—		—	—		45,825
Balance as of June 30, 2024		204,783,113	$	204	$	520,922	$	1,178,251	$	(136,108)	(42,606,731)	$	(710,663)	$	852,606


		Common Stock (1)			Additional Paid-in Capital (1)		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Treasury Stock			Total

	Notes	Shares	Amount								Shares (1)	Amount
Balance as of March 31, 2023		201,671,840	$	202	$	460,365	$	950,436	$	(131,487)	(35,064,565)	$	(484,294)	$	795,222
Stock issued against stock-based compensation plans	23	76,795	—		86		—		—		—	—		86
Stock-based compensation	23	—	—		11,511		—		—		—	—		11,511
Acquisition of treasury stock	19	—	—		—		—		—		(920,720)	(29,013)		(29,013)


Other comprehensive income	15	—	—		—		—		7,340		—	—		7,340
Net income		—	—		—		49,068		—		—	—		49,068
Balance as of June 30, 2023		201,748,635	$	202	$	471,962	$	999,504	$	(124,147)	(35,985,285)	$	(513,307)	$	834,214

(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 six months ended June 30, 2024 and 2023

(In thousands, except share count)


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

	Notes	Shares	Amount								Shares	Amount
January 1, 2024		203,410,038	$	203	$	508,028	$	1,083,663	$	(127,040)	(38,132,158)	$	(575,417)	$	889,437
Stock issued against stock-based compensation plans	23	1,373,075	1		1,947		—		—		—	—		1,948
Stock-based compensation	23	—	—		35,947		—		—		—	—		35,947
Acquisition of treasury stock	19	—	—		—		—		—		(4,474,573)	(134,628)		(134,628)
Excise tax on repurchase of common stock, net of stock issuances	19	—	—		—		—		—		—	(618)		(618)
Accelerated share repurchase	5, 19	—	—		(25,000)		—		—		—	—		(25,000)

Other comprehensive loss	15	—	—		—		—		(9,068)		—	—		(9,068)
Net income		—	—		—		94,588		—		—	—		94,588
Balance as of June 30, 2024		204,783,113	$	204	$	520,922	$	1,178,251	$	(136,108)	(42,606,731)	$	(710,663)	$	852,606


		Common Stock (1)			Additional Paid-in Capital (1)		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Treasury Stock			Total

	Notes	Shares	Amount								Shares (1)	Amount
January 1, 2023		199,939,880	$	200	$	444,948	$	899,105	$	(144,143)	(33,767,660)	$	(441,931)	$	758,179
Stock issued against stock-based compensation plans	23	1,808,755	2		1,096		—		—		—	—		1,098
Stock-based compensation	23	—	—		25,918		—		—		—	—		25,918
Acquisition of treasury stock	19	—	—		—		—		—		(2,217,625)	(71,376)		(71,376)


Other comprehensive income	15	—	—		—		—		19,996		—	—		19,996
Net income		—	—		—		100,399		—		—	—		100,399
Balance as of June 30, 2023		201,748,635	$	202	$	471,962	$	999,504	$	(124,147)	(35,985,285)	$	(513,307)	$	834,214

See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Six months ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	94,588	$	100,399
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	25,230		26,464
Stock-based compensation expense	35,947		25,918
Reduction in the carrying amount of operating lease right-of-use assets	10,349		10,332
Fair value mark-to-market of investments	(301)		7,222
Unrealized foreign currency exchange (gain)/loss, net	(2,919)		1,288
Deferred income tax benefit	(17,076)		(18,283)






Others, net	(70)		1,681
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(20,008)		(28,375)
Other current and non-current assets	(14,507)		(17,159)
Income taxes payable, net	(4,922)		(10,610)


Deferred revenue	3,138		5,380
Accrued employee costs	(35,128)		(24,331)
Accounts payable, accrued expenses and other liabilities	(639)		(5,538)
Operating lease liabilities	(9,645)		(10,829)
Payment of contingent consideration	(11,000)		—
Net cash provided by operating activities	53,037		63,559

Cash flows from investing activities:
Purchases of property and equipment	(23,329)		(26,113)
Proceeds from sale of property and equipment	90		547



Purchases of investments	(159,854)		(113,826)
Proceeds from redemption of investments	139,844		151,178
Net cash (used for)/provided by investing activities	(43,249)		11,786

Cash flows from financing activities:
Principal payments of finance lease liabilities	(132)		(80)
Proceeds from borrowings	180,000		70,000
Repayments of borrowings	(45,000)		(100,000)

Acquisition of treasury stock	(160,647)		(70,638)
Payment of contingent consideration	(4,000)		(5,000)
Proceeds from issuance of common stock	2,474		3,885

Net cash used for financing activities	(27,305)		(101,833)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,844)		1,510
Net decrease in cash, cash equivalents and restricted cash	(19,361)		(24,978)
Cash, cash equivalents and restricted cash at the beginning of the period	141,015		123,566
Cash, cash equivalents and restricted cash at the end of the period	$	121,654	$	98,588

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	8,940	$	6,914
Income taxes	$	50,161	$	53,299
Supplemental disclosure of non-cash investing and financing activities:
Additions to property and equipment not yet paid	$	3,140	$	6,332
Assets acquired under finance lease	$	581	$	91

See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(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. The Company partners with clients using a data and AI-led approach to reinvent business models, drive better business outcomes and unlock growth with speed. The Company harnesses the power of data, analytics, artificial intelligence (“AI”), and deep industry knowledge to transform operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media and retail, among others.

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, 2023.

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.

For purposes of comparability, certain prior period amounts have been reclassified to conform to the current year presentation in accordance with 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 carrying amounts of assets and liabilities and disclosure of contingent assets and liabilities included in the unaudited consolidated financial statements. 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 that affect the unaudited consolidated financial statements include, but are not limited to, estimates of the fair value of

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2024

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

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, and useful life of long-lived assets and other intangible assets. The significant assumptions underneath these estimates include, but are not limited to assumptions to calculate stock-based compensation expense, determine incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, determine lease term to calculate single operating lease cost, determine pattern of generation of economic benefits to calculate depreciation and amortization for long-lived assets and other intangible assets, and recoverability of long-lived assets, goodwill and other intangible assets.

(c)Recent Accounting Pronouncements

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU modifies the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this ASU should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The adoption of this ASU will not have a material impact on the Company’s unaudited consolidated financial statements. The Company will continue to monitor for SEC action, and plan accordingly for adoption.

In November 2023, FASB issued ASU No. 2023-07, Segment Reporting (“Accounting Standards Codification (“ASC”) Topic 280”): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements on an annual and interim basis for all public entities by requiring disclosure of significant segment expenses that are regularly reviewed by the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. The ASU also allows, in addition to the measure that is most consistent with U.S. GAAP, the disclosure of additional measures of segment profit or loss that are used by the CODM in assessing segment performance and deciding how to allocate resources. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its unaudited consolidated financial statements.

In December 2023, FASB issued ASU No. 2023-09, Income Taxes (“ASC Topic 740”), Improvements to Income Tax Disclosures. This ASU expands disclosures relating to the entity’s income tax rate reconciliation, income taxes paid and certain other disclosures related to income taxes. The ASU will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this ASU on its unaudited consolidated financial statements.

(d)Recently adopted Accounting Pronouncements

In March 2023, FASB issued 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 does not have any lease arrangements with entities under common control and the adoption of this ASU did not have a material impact on its unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2024

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

In March 2024, FASB issued ASU No. 2024-01, Compensation-Stock Compensation (“ASC Topic 718”). This ASU clarifies how to evaluate whether profits interest and similar awards given to employees and non-employees are within the scope of share-based payment arrangement under ASC Topic 718. The ASU will be effective for annual periods beginning after December 15, 2024, including interim periods within those years, with early adoption permitted. The Company has early adopted this ASU beginning January 1, 2024. The adoption of this ASU did not have a material impact on the Company’s unaudited consolidated financial statements.

In March 2024, FASB issued ASU No. 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. This ASU contains amendments to the ASC that remove references to various FASB Concepts Statements. The ASU will be effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company has early adopted this ASU beginning January 1, 2024. The adoption of this ASU did not have a material impact on the Company’s unaudited consolidated financial statements.

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 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, 2024 and 2023, respectively, for each of the reportable segments, are as follows:


	Three months ended June 30, 2024
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	149,297	$	28,098	$	77,185	$	193,786	$	448,366
Cost of revenues (1)	95,524		18,802		45,069		122,711		282,106
Gross profit (1)	$	53,773	$	9,296	$	32,116	$	71,075	$	166,260
Operating expenses									104,811
Foreign exchange gain, net, interest expense and other income, net									(1,742)
Income tax expense									13,873
Loss from equity-method investment									(9)
Net income									$	45,825

(1) Exclusive of depreciation and amortization expense.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2024

(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.

Revenues and cost of revenues for the six months ended June 30, 2024 and 2023, respectively, for each of the reportable segments, are as follows:


	Six months ended June 30, 2024
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	294,436	$	54,348	$	151,577	$	384,512	$	884,873
Cost of revenues (1)	187,816		36,119		86,048		245,547		555,530
Gross profit (1)	$	106,620	$	18,229	$	65,529	$	138,965	$	329,343
Operating expenses									206,370
Foreign exchange gain, net, interest expense and other income, net									(722)
Income tax expense									27,626
Loss from equity-method investment									(37)
Net income									$	94,588

(1) Exclusive of depreciation and amortization expense.


	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.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2024

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

Revenues, net by service type, were as follows:


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Digital operations and solutions (1)	$	254,580	$	222,813	$	500,361	$	441,613
Analytics services	193,786		182,183		384,512		364,026
Revenues, net	$	448,366	$	404,996	$	884,873	$	805,639

(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,
	2024		2023		2024		2023
Revenues, net
The United States	$	370,749	$	340,675	$	733,055	$	679,748
Non-United States
The United Kingdom	52,967		43,648		103,369		85,222
Rest of World	24,650		20,673		48,449		40,669
Total Non-United States	77,617		64,321		151,818		125,891
Revenues, net	$	448,366	$	404,996	$	884,873	$	805,639

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


	As of
	June 30, 2024		December 31, 2023
Long-lived assets
India	$	61,157	$	53,813
The United States	58,184		61,592
The Philippines	25,636		21,952
South Africa	25,329		20,890
Rest of World	5,994		6,982
Long-lived assets	$	176,300	$	165,229

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2024

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

4. Revenues, net and Accounts Receivable, 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, 2024		December 31, 2023

Accounts receivable, net	$	327,613	$	308,108
Contract assets	$	6,448	$	9,665
Contract liabilities:
Deferred revenue (consideration received in advance)	$	12,588	$	9,764
Consideration received for process transition activities	$	16,440	$	12,411

Accounts receivable includes $168,408 and $148,735 as of June 30, 2024 and December 31, 2023, 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.

There was no significant impairment of contract assets as of June 30, 2024 and December 31, 2023.

Revenue recognized during the three and six months ended June 30, 2024 and 2023, 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,
	2024		2023		2024		2023
Deferred revenue (consideration received in advance)	$	1,231	$	2,990	$	8,292	$	15,992
Consideration received for process transition activities	$	647	$	305	$	1,279	$	1,008

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, 2024		June 30, 2023		June 30, 2024		June 30, 2023		December 31, 2023
Opening Balance	$	1,901	$	1,994	$	2,122	$	1,095	$	1,095
Additions	364		397		371		1,476		1,841
Amortization	(275)		(208)		(503)		(388)		(814)
Closing Balance	$	1,990	$	2,183	$	1,990	$	2,183	$	2,122

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2024

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


	Contract Fulfillment Costs
	Three months ended				Six months ended				Year ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023		December 31, 2023
Opening Balance	$	27,287	$	17,873	$	24,673	$	13,871	$	13,871
Additions	3,958		4,225		7,284		8,843		13,605
Amortization	(841)		(653)		(1,553)		(1,269)		(2,803)
Closing Balance	$	30,404	$	21,445	$	30,404	$	21,445	$	24,673

There was no significant impairment for contract acquisition and contract fulfillment costs as of June 30, 2024 and December 31, 2023.

Allowance for expected credit losses

The following table provides information about accounts receivable, net of allowance for expected credit losses:


	As of
	June 30, 2024		December 31, 2023
Accounts receivable, including unbilled receivables	$	331,173	$	311,811
Less: Allowance for expected credit losses	(3,560)		(3,703)
Accounts receivable, net	$	327,613	$	308,108

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


	Three months ended				Six months ended				Year ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023		December 31, 2023
Opening Balance	$	3,358	$	1,671	$	3,703	$	1,332	$	1,332
Additions/(reductions)	201		134		(68)		477		2,450
Reductions due to write-off of accounts receivable	—		(5)		(76)		(8)		(79)
Currency translation adjustments	1		—		1		(1)		—
Closing Balance	$	3,560	$	1,800	$	3,560	$	1,800	$	3,703

Customer and credit risk concentration

No single customer accounted for more than 10% of the Company's revenues, net during the three and six months ended June 30, 2024 and 2023. The Company’s management believes that the loss of any of its top ten clients could have a material adverse effect on its financial performance.

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, 2024 and December 31, 2023.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2024

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

5. Earnings Per Share

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


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Numerators:
Net income	$	45,825	$	49,068	$	94,588	$	100,399
Denominators (1):
Basic weighted average common shares outstanding	162,794,138		166,776,770		163,938,263		166,986,130
Dilutive effect of stock-based awards	1,167,616		1,665,475		1,406,041		2,061,645

Diluted weighted average common shares outstanding	163,961,754		168,442,245		165,344,304		169,047,775
Earnings per share attributable to ExlService Holdings, Inc. stockholders (1):
Basic	$	0.28	$	0.29	$	0.58	$	0.60
Diluted	$	0.28	$	0.29	$	0.57	$	0.59
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share	3,314,536		1,249,155		3,247,920		897,750

On March 15, 2024, the Company entered into a master confirmation (the “Master Accelerated Share Repurchase Confirmation”) and a supplemental confirmation (together with the Master Accelerated Share Repurchase Confirmation, the “2024 ASR Agreement”), with Citibank, N.A. (“Citibank”). Refer to Note 19 - Capital Structure to the unaudited consolidated financial statements for further details. During the three months ended March 31, 2024, the Company recorded the initial delivery of shares in treasury stock at cost, which resulted in an immediate reduction of its outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share. The forward contracts indexed to the Company's own common stock met the criteria for equity classification, and prepayment of $25,000 was initially recorded in additional paid-in capital, which reflects the pending settlement of the 2024 ASR Agreement.

Had the 2024 ASR Agreement been settled as of June 30, 2024, determined based on the volume-weighted average price per share since its effective date, Citibank would have been required to deliver additional estimated shares to the Company. The effect of the potential share settlement under the 2024 ASR Agreement was excluded from the computation of diluted earnings per share as its inclusion would have been anti-dilutive.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2024

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

6. Other Income, net

Other income, net consists of the following:


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Gain on sale and fair value mark-to-market on investments	$	1,162	$	1,095	$	2,178	$	2,739
Interest and dividend income	2,375		1,653		4,659		3,374
Fair value changes of contingent consideration (1)	—		—		589		—
Others, net	13		(87)		76		(297)
Other income, net	$	3,550	$	2,661	$	7,502	$	5,816

(1) 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
	June 30, 2024		June 30, 2023		December 31, 2023
Cash and cash equivalents	$	115,303	$	93,960	$	136,953
Restricted cash (current)	6,351		4,628		4,062

Cash, cash equivalents and restricted cash	$	121,654	$	98,588	$	141,015

Restricted cash (current) primarily represents funds held on behalf of customers in dedicated bank accounts. The corresponding liability against the same is included under “Accrued Expenses and other current liabilities.”

8. Investments

Investments consist of the following:


	As of
	June 30, 2024		December 31, 2023
Short-term investments
Mutual funds	$	88,834	$	52,650
Term deposits	71,999		101,231
Total Short-term investments	$	160,833	$	153,881

Long-term investments
Term deposits	$	9,333	$	239
Restricted term deposits (1)	5,752		4,386
Investment in equity affiliate	4,154		4,191
Total Long-term investments	$	19,239	$	8,816

(1) Restricted term deposits represent 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 and Value Added Tax (“VAT”) assessments. These deposits with banks will mature one year after the balance sheet date.

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)

June 30, 2024

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

9. Property and Equipment, net

Property and equipment consists of the following:


	As of
	June 30, 2024		December 31, 2023
Property, plant and equipment, gross	$	340,313	$	324,038
Less: Accumulated depreciation and amortization	(236,835)		(223,665)
Property, plant and equipment, net	$	103,478	$	100,373

During the three and six months ended June 30, 2024, there were no changes in estimated useful lives of property and equipment during the ordinary course of operations.

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


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Depreciation and amortization expense	$	9,833	$	8,918	$	19,099	$	18,256

Internally developed software costs was as follows:


	As of
	June 30, 2024		December 31, 2023
Cost	$	57,916	$	46,625
Less : Accumulated amortization	(30,858)		(25,413)
Internally developed software, net	$	27,058	$	21,212

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,
	2024		2023		2024		2023
Amortization expense	$	2,927	$	2,425	$	5,447	$	4,400

There were no indicators of impairment related to long-lived assets as of June 30, 2024 and December 31, 2023.

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, 2024

50,035