ExlService Holdings Inc.

08/01/2024 | Press release | Distributed by Public on 08/01/2024 12:09

Quarterly Report for Quarter Ending JUNE 30, 2024 (Form 10-Q)

exls-20240630
Table of Contents
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
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 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
2
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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
(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)
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.
15
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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
(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.
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 $ 21,872 $ 47,001 $ 286,731 $ 405,639
Currency translation adjustments (21) (2) (35) - (58)
Balance as of June 30, 2024 $ 50,014 $ 21,870 $ 46,966 $ 286,731 $ 405,581
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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)
As of June 30, 2024, the Company performed an assessment to determine whether events or circumstances exist that may lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company considered current and forecasted economic and market conditions and qualitative factors, such as the Company's performance during the six months ended June 30, 2024, business forecasts for the remainder of the year, stock price movements, generation and availability of cash and expansion plans. The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the annual impairment test performed during the fourth quarter of 2023. The Company did not identify any triggers or indications of potential impairment for its reporting units as of June 30, 2024.
The recoverability of goodwill is dependent upon the continued growth of cash flows from the Company's business activities. This growth is based on business forecasts and improvement in profitability of its reporting units. The Company continues to maintain its focus on cultivating long-term client relationships as well as attracting new clients.
Other Intangible Assets
Information regarding the Company's intangible assets is set forth below:
As of June 30, 2024 As of December 31, 2023
Gross
Carrying
Amount 		Accumulated
Amortization 		Net
Carrying
Amount 		Gross Carrying
Amount 		Accumulated Amortization Net
Carrying
Amount
Finite-lived intangible assets:
Customer relationships $ 99,050 $ (56,711) $ 42,339 $ 99,050 $ (51,085) $ 47,965
Developed technology 3,542 (2,931) 611 3,552 (2,522) 1,030
Trade names and trademarks 1,400 (1,356) 44 1,400 (1,286) 114
Non-compete agreements 300 (191) 109 336 (181) 155
104,292 (61,189) 43,103 104,338 (55,074) 49,264
Indefinite-lived intangible assets:
Trade names and trademarks 900 - 900 900 - 900
Total intangible assets $ 105,192 $ (61,189) $ 44,003 $ 105,238 $ (55,074) $ 50,164
The amortization expense 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 $ 3,077 $ 4,204 $ 6,157 $ 8,353
Estimated future amortization expense related to finite-lived intangible assets as of June 30, 2024 was as follows:
2024 (July 1 - December 31) $ 5,964
2025 10,698
2026 10,361
2027 9,364
2028 6,716
Total $ 43,103
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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)
11. Other Current Assets
Other current assets consist of the following:
As of
June 30, 2024 December 31, 2023
Advance income tax, net $ 27,022 $ 23,269
Prepaid expenses 25,556 18,171
Receivables from statutory authorities 20,699 18,500
Derivative instruments 6,232 4,308
Advances to suppliers 4,085 1,883
Deferred contract fulfillment costs 3,711 3,303
Contract assets 2,707 2,830
Others 3,600 4,405
Other current assets $ 93,612 $ 76,669
12. Other Assets
Other assets consist of the following:
As of
June 30, 2024 December 31, 2023
Deferred contract fulfillment costs $ 26,693 $ 21,370
Deposits with statutory authorities 7,179 6,960
Lease deposits 6,556 5,159
Derivative instruments 4,166 3,299
Contract assets 3,741 6,835
Others 5,604 5,901
Other assets $ 53,939 $ 49,524
13. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
As of
June 30, 2024 December 31, 2023
Accrued expenses $ 57,488 $ 58,736
Payable to statutory authorities 20,275 20,591
Client liabilities 6,388 6,909
Derivative instruments 5,153 2,009
Accrued capital expenditures 3,243 4,134
Income taxes payable, net 54 1,213
Contingent consideration - 15,000
Others 5,012 5,521
Accrued expenses and other current liabilities $ 97,613 $ 114,113
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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)
14. Other Non-Current Liabilities
Other non-current liabilities consist of the following:
As of
June 30, 2024 December 31, 2023
Retirement benefits $ 17,343 $ 16,666
Deferred transition revenue 13,640 10,195
Derivative instruments 2,487 216
Unrecognized tax benefits 1,474 1,262
Contingent consideration - 589
Others 2,672 2,534
Other non-current liabilities $ 37,616 $ 31,462
15. Accumulated Other Comprehensive Income/(Loss)
Accumulated other comprehensive income/(loss) ("AOCI") consists of actuarial gain/(loss) on retirement benefits and foreign currency translation adjustments. In addition, the Company enters into foreign currency forward contracts and interest rate swaps, which are designated as cash flow hedges and net investment hedges, as applicable, in accordance with ASC Topic 815, Derivatives and Hedging. Cumulative changes in the fair values of cash flow hedges are recognized in AOCI on the Company's consolidated balance sheets. The fair value changes are reclassified from AOCI to unaudited consolidated statements of income upon settlement of foreign currency forward contracts designated as cash flow hedges of a forecast transaction, whereas such changes for interest rate swaps are reclassified over the term of the contract. Fair value changes related to net investment hedges are included in AOCI and are reclassified to unaudited consolidated statements of income when a foreign operation is disposed or partially disposed. The following table sets forth the changes in AOCI during the six months ended June 30, 2024 and 2023:
Accumulated Other Comprehensive Income/(Loss)
Currency translation adjustments Unrealized gain/(loss) on cash flow hedges Retirement benefits Total
Balance as of January 1, 2024 $ (132,643) $ 4,198 $ 1,405 $ (127,040)
Losses recognized during the period (6,253) (2,840) - (9,093)
Reclassification to net income (1)
- 32 (302) (270)
Income tax effects (2)
1,227 (930) (2) 295
Accumulated other comprehensive income/(loss) as of June 30, 2024 $ (137,669) $ 460 $ 1,101 $ (136,108)
Balance as of January 1, 2023 $ (133,139) $ (11,303) $ 299 $ (144,143)
Gains recognized during the period 5,177 16,145 - 21,322
Reclassification to net income (1)
- 4,229 (48) 4,181
Income tax effects (2)
(1,136) (4,334) (37) (5,507)
Accumulated other comprehensive income/(loss) as of June 30, 2023 $ (129,098) $ 4,737 $ 214 $ (124,147)
(1) Refer to Note 17 - Derivatives and Hedge Accounting and Note 20 - Employee Benefit Plans to the unaudited consolidated financial statements for reclassification to net income.
(2) These are income tax effects recognized on cash flow hedges, retirement benefits and currency translation adjustments. Refer to Note 22 - Income Taxes to the 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)
16. Fair Value Measurements
Assets and Liabilities Measured at Fair Value
The following table sets forth the Company's assets and liabilities that were recognized at fair value:
Quoted Prices in
Active Markets for
Identical Assets 		Significant Other
Observable
Inputs 		Significant Other
Unobservable
Inputs
As of June 30, 2024 (Level 1) (Level 2) (Level 3) Total
Assets
Cash equivalents - Money market funds (1)
$ 54,298 $ - $ - $ 54,298
Mutual funds (2)
88,834 - - 88,834
Derivative financial instruments - 10,398 - 10,398
Total $ 143,132 $ 10,398 $ - $ 153,530
Liabilities
Derivative financial instruments $ - $ 7,640 $ - $ 7,640
Total $ - $ 7,640 $ - $ 7,640
Quoted Prices in
Active Markets for
Identical Assets 		Significant Other
Observable
Inputs 		Significant Other
Unobservable
Inputs
As of December 31, 2023 (Level 1) (Level 2) (Level 3) Total
Assets
Cash equivalents - Money market funds (1)
$ 49,806 $ - $ - $ 49,806
Mutual funds (2)
52,650 - - 52,650
Derivative financial instruments - 7,607 - 7,607
Total $ 102,456 $ 7,607 $ - $ 110,063
Liabilities
Derivative financial instruments $ - $ 2,225 $ - $ 2,225
Contingent consideration (3)
- - 15,589 15,589
Total $ - $ 2,225 $ 15,589 $ 17,814
(1) Represents money market funds which are carried at the fair value option under ASC Topic 825 "Financial Instruments".
(2) Represents those short-term investments which are carried at the fair value option under ASC Topic 825 "Financial Instruments".
(3) Contingent consideration is presented under "Accrued Expenses and Other Current Liabilities" and "Other Non-Current Liabilities," as applicable, in the consolidated balance sheets.
Fair Value of Derivative Financial Instruments:
The Company's derivative financial instruments consist of foreign currency forward contracts and interest rate swaps. Fair values for derivative financial instruments are based on independent sources including highly rated financial institutions and are classified as Level 2. Refer to Note 17 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements for further details.
22
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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)
Fair Value of Contingent Consideration:
The fair value measurement of contingent consideration is determined using Level 3 inputs. The Company's contingent consideration represents a component of the total purchase consideration for business acquisitions. The measurement is calculated using unobservable inputs based on the Company's own assessment of achievement of certain performance goals. The Company estimated the fair value of the contingent consideration based on the Monte Carlo simulation model and scenario-based method.
The following table summarizes the changes in the fair value of contingent consideration:
Three months ended June 30, Six months ended June 30,
2024 2023 2024 2023
Opening balance $ - $ 18,689 $ 15,589 $ 18,689
Fair value changes - - (589) -
Payments - (5,000) (15,000) (5,000)
Closing balance $ - $ 13,689 $ - $ 13,689
During the three and six months ended June 30, 2024 and 2023, there were no transfers among Level 1, Level 2 and Level 3.
Financial Instruments Not Carried at Fair Value:
The Company's other financial instruments not carried at fair value consist primarily of cash and cash equivalents (except investments in money market funds, as disclosed above), short-term investments (except investments in mutual funds, as disclosed above), restricted cash, accounts receivable, net, long-term investments, accrued capital expenditures, accrued expenses, client liabilities and interest payable on borrowings for which fair values approximate their carrying amounts. The carrying value of the Company's outstanding revolving credit facility approximates its fair value because the Company's interest rate yield is near current market rates for comparable debt instruments.
17. Derivatives and Hedge Accounting
The Company uses derivative instruments to mitigate cash flow volatility from risk of fluctuations in foreign currency exchange rates and interest rates. The Company enters into foreign currency forward contracts to hedge cash flow risks from forecasted transactions denominated in certain foreign currencies, and interest rate swaps to hedge cash flow risks from its revolving credit facility having variable interest rate obligations. These contracts qualify as cash flow hedges under ASC Topic 815, Derivatives and Hedging, and are with counterparties that are highly rated financial institutions.
The following table sets forth the aggregate notional amount of derivatives in cash flow hedging relationship:
As of
June 30, 2024 December 31, 2023
Foreign currency forward contracts denominated in:
Sell U. S. dollar (USD) 832,900 722,800
Sell U.K. pound sterling (GBP) 1,500 -
Interest rate swaps (Floating to fixed) denominated in:
USD 75,000 75,000
The Company estimates that approximately $953 of derivative gains, net, excluding tax effects, included in AOCI, representing changes in the value of cash flow hedges based on exchange rates prevailing as of June 30, 2024, could be reclassified into earnings within the next twelve months. As of June 30, 2024, the maximum outstanding term of the cash flow hedges was approximately 45 months.
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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 Company also enters into foreign currency forward contracts to hedge its intercompany balances and other monetary assets and liabilities denominated in currencies other than functional currencies, against the risk of fluctuations in foreign currency exchange rates associated with remeasurement of such assets and liabilities to functional currency. These foreign currency forward contracts do not qualify as fair value hedges under ASC Topic 815, Derivatives and Hedging. Changes in the fair value of these financial instruments are recognized in the unaudited consolidated statements of income and are included in the foreign exchange gain/(loss) line item. The Company's primary exchange rate exposure is with the Indian rupee (INR), the Philippine peso (PHP), the U.K. pound sterling (GBP) and South African rand (ZAR). The Company also has exposure to the Colombian peso (COP), the Euro (EUR), the Australian dollar (AUD), the Canadian dollar (CAD) and other local currencies in which it operates.
The following table sets forth the aggregate notional principal amounts of outstanding foreign currency forward contracts for derivatives not designated as hedging instruments:
As of
Foreign currency forward contracts denominated in: June 30, 2024 December 31, 2023
Sell USD 181,450 170,543
Sell GBP 17,745 14,544
Sell EUR 5,901 5,231
Sell AUD 4,819 3,452
Buy USD 11,688 8,161
The following table sets forth the fair value of the foreign currency forward contracts and interest rate swaps and their location on the consolidated balance sheets:
Derivatives in cash flow hedging
relationships 		Derivatives not designated as hedging
instruments
As of As of
June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023
Assets:
Other current assets $ 5,925 $ 4,216 $ 307 $ 92
Other assets $ 4,166 $ 3,299 $ - $ -
Liabilities:
Accrued expenses and other
current liabilities 		$ 4,972 $ 1,859 $ 181 $ 150
Other non-current liabilities $ 2,487 $ 216 $ - $ -
The following table sets forth the effect of foreign currency forward contracts and interest rate swaps on AOCI and the unaudited consolidated statements of income:
Three months ended June 30, Six months ended June 30,
Derivative financial instruments: 2024 2023 2024 2023
Unrealized gain/(loss) recognized in OCI
Derivatives in cash flow hedging relationships $ (2,778) $ 8,851 $ (2,840) $ 16,145
Gain/(loss) recognized in unaudited consolidated statements of income
Derivatives not designated as hedging instruments $ (2,113) $ (370) $ (2,073) $ 2,158
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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 following table sets forth the location and amount of gain/(loss) recognized in unaudited consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments:
Three months ended June 30,
2024 2023
As per unaudited consolidated
statements of
income 		Gain/(loss) on derivative financial instruments As per unaudited consolidated
statements of
income 		Gain/(loss) on derivative financial instruments
Derivatives in cash flow hedging relationships
Location in unaudited consolidated statements of income where gain/(loss) was reclassified from AOCI
Cost of revenues $ 282,106 $ (732) $ 253,220 $ (1,141)
General and administrative expenses $ 56,457 40 $ 45,605 (133)
Selling and marketing expenses $ 35,444 10 $ 28,238 (13)
Depreciation and amortization expense $ 12,910 (34) $ 13,122 (43)
Interest expense $ 5,328 241 $ 3,240 166
Total before tax (475) (1,164)
Income tax effects on above (207) 231
Net of tax $ (682) $ (933)
Derivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognized
Foreign exchange gain/(loss), net $ 36 $ (2,113) $ 324 $ (370)
$ 36 $ (2,113) $ 324 $ (370)
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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 following table sets forth the location and amount of gain/(loss) recognized in unaudited consolidated statements of income for derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments:
Six months ended June 30,
2024 2023
As per unaudited consolidated
statements of
income 		Gain/(loss) on derivative financial instruments As per unaudited consolidated
statements of
income 		Gain/(loss) on derivative financial instruments
Derivatives in cash flow hedging relationships
Location in unaudited consolidated statements of income where gain/(loss) was reclassified from AOCI
Cost of revenues $ 555,530 $ (582) $ 504,689 $ (3,896)
General and administrative expenses $ 109,700 79 $ 92,351 (375)
Selling and marketing expenses $ 71,414 14 $ 57,731 (32)
Depreciation and amortization expense $ 25,256 (26) $ 26,609 (166)
Interest expense $ 8,619 483 $ 6,625 240
Total before tax (32) (4,229)
Income tax effects on above (309) 765
Net of tax $ (341) $ (3,464)
Derivatives not designated as hedging instruments
Location in unaudited consolidated statements of income where gain/(loss) was recognized
Foreign exchange gain/(loss), net $ 395 $ (2,073) $ 429 $ 2,158
$ 395 $ (2,073) $ 429 $ 2,158
18. Borrowings
The following tables summarizes the Company's debt position:
As of
June 30, 2024 December 31, 2023
Revolving credit facility
Current portion of long-term borrowings $ 75,000 $ 65,000
Long-term borrowings
260,000 135,000
Total borrowings $ 335,000 $ 200,000
Unamortized debt issuance costs for the Company's revolving credit facility of $766 and $903 as of June 30, 2024 and December 31, 2023, respectively, are presented under "Other current assets" and "Other assets," as applicable in the consolidated balance sheets.
Credit Agreement
The Company held a $300,000 revolving credit facility pursuant to its credit agreement (the "Credit Agreement"), dated as of November 21, 2017 with certain lenders and Citibank N.A. as Administrative Agent. The revolving credit facility originally had a maturity date of November 21, 2022 and was voluntarily pre-payable from time to time without premium or penalty.
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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)
On April 18, 2022, the Company and each of the Company's wholly owned material domestic subsidiaries entered into an Amendment and Restatement Agreement with Citibank, N.A. as Administrative Agent, and certain lenders (the "2022 Credit Agreement"), pursuant to which the parties thereto amended and restated the Credit Agreement. Among other things, the 2022 Credit Agreement (a) provides for the issuance of new revolving credit commitments such that the aggregate amount of revolving credit commitments available to the Company is equal to $400,000; (b) extends the maturity date of the revolving credit facility from November 21, 2022 to April 18, 2027; and (c) replaces LIBOR with Secured Overnight Financing Rate ("SOFR") as the reference rate for the U.S. dollar borrowings.
The 2022 Credit Agreement provides an option to increase the commitments by up to $200,000, subject to certain approvals and conditions. The 2022 Credit Agreement includes a letter of credit sub facility and is voluntarily pre-payable from time to time without premium or penalty. Borrowings under the 2022 Credit Agreement can be used for working capital and general corporate purposes, including permitted acquisitions.
Obligations under the 2022 Credit Agreement are guaranteed by the Company's material domestic subsidiaries and are secured by all or substantially all of the Company's and its material domestic subsidiaries' assets. The 2022 Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of certain assets or subsidiaries.
The revolving credit facility carried an effective interest rate as shown below:
Three months ended June 30, Six months ended June 30,
2024 2023 2024 2023
Effective Interest Rate 6.5 % 6.2 % 6.6 % 6.1 %
As of June 30, 2024 and December 31, 2023, the Company was in compliance with all financial covenants under the 2022 Credit Agreement.
Expected payments for all of the Company's borrowings outstanding as of June 30, 2024 were as follows:
Revolving credit facility
2024 (July 1 - December 31) $ 75,000
2025 -
2026 -
2027 260,000
Total $ 335,000
Letters of Credit
In the ordinary course of business, the Company provides standby letters of credit to third parties primarily for facility leases. As of each of June 30, 2024 and December 31, 2023, the Company had outstanding letters of credit of $461, that were not recognized in the consolidated balance sheets.
19. Capital Structure
Common Stock
The Company has one class of common stock outstanding.
Forward Stock Split
On June 20, 2023, the Company's stockholders approved an amendment to the Company's Amended and Restated Certificate of Incorporation, which upon filing with the State of Delaware on August 1, 2023, and effectiveness thereof, effected a 5-for-1 forward stock split of the Company's common stock (the "2023 Stock Split") and an increase in the number
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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)
of authorized shares of the Company's common stock from 100,000,000 shares to 400,000,000 shares. The par value of each share of common stock, $0.001, remained unchanged.
Pursuant to the 2023 Stock Split, each stockholder of record on July 25, 2023 holding shares of the Company's common stock received four additional shares of the Company's common stock for every one share held. The additional shares were distributed after the close of business on August 1, 2023. The common shares began trading on the Nasdaq Global Select Market on a post-split basis on August 2, 2023.
All share count and per share amounts in the unaudited consolidated financial statements have been retrospectively adjusted from January 1, 2023 to reflect the 2023 Stock Split as if it occurred at the beginning of the earliest period presented. An amount equal to the par value of the increased shares resulting from the 2023 Stock Split was reclassified from "Additional paid-in capital" to "Common stock."
Share Repurchases
The Company purchased shares of its common stock from certain employees in connection with withholding tax payments related to the vesting of restricted stock units and performance-based restricted stock units, as below:
Shares repurchased Total consideration
Weighted average purchase price per share (1)
Three months ended June 30, 2024 - $ - $ -
Three months ended June 30, 2023 - $ - $ -
Six months ended June 30, 2024 200,402 $ 6,375 $ 31.81
Six months ended June 30, 2023 191,780 $ 6,529 $ 34.04
(1) The weighted average purchase price per share is based on the closing price of the Company's common stock on the Nasdaq Global Select Market on the trading day prior to the applicable vesting date of the shares of restricted stock.
On October 5, 2021, the Company's board of directors authorized a $300,000 (excluding excise tax) common stock repurchase program beginning January 1, 2022 (the "2022 Repurchase Program").
On February 26, 2024, the Company's board of directors authorized a $500,000 (excluding excise tax) common stock repurchase program beginning March 1, 2024 (the "2024 Repurchase Program"), and terminated the 2022 Repurchase Program on February 29, 2024.
On March 15, 2024, the Company entered into a 2024 ASR Agreement with Citibank to repurchase shares of its common stock for an aggregate purchase price of $125,000, as part of the Company's 2024 Repurchase Program. Upon payment of the aggregate purchase price of $125,000, the Company received an initial delivery of 3,350,084 shares of its common stock at an initial price of $29.85 per share, representing 80% of the aggregate purchase price. The Company funded the repurchase with available cash on hand and borrowing from its revolving credit facility. The 2024 ASR Agreement is accounted for as a treasury stock transaction and forward stock purchase agreement indexed to the Company's common stock. The forward stock purchase agreement is classified as an equity instrument under ASC 815-40, Contracts in Entity's Own Equity ("ASC 815- 40") and deemed to have a fair value of zero at the effective date. Under the terms of the 2024 ASR Agreement, the ultimate number of shares of Common Stock that the Company will repurchase, will be based on the average of the daily volume-weighted average prices of the Common Stock during the term of the 2024 ASR Agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the 2024 ASR Agreement. At final settlement, Citibank may be required to deliver additional shares of Common Stock to the Company, or, under certain circumstances, the Company may be required to make a cash payment or deliver shares of Common Stock, at its election, to Citibank.
On July 19, 2024, upon final settlement of the 2024 ASR Agreement, the Company received 820,433 additional shares of its common stock based on a daily volume-weighted average price of $29.97 per share during the term of the 2024 ASR Agreement. The additional shares received were subsequently recorded as treasury stock.
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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)
Under the Company's two repurchase programs, shares may be purchased by the Company from time to time from the open market and through private transactions, or otherwise, as determined by the Company's management as market conditions warrant. Repurchases may be discontinued at any time by the management.
The Company purchased shares of its common stock, for a total consideration including commissions and excluding excise tax, under its two repurchase programs, as below:
Shares repurchased Total consideration Weighted average purchase price per share
Three months ended June 30, 2024 297,353 $ 8,823 $ 29.67
Three months ended June 30, 2023 920,720 $ 29,013 $ 31.51
Six months ended June 30, 2024 4,274,171 $ 128,253 $ 30.01
Six months ended June 30, 2023 2,025,845 $ 64,847 $ 32.01
Repurchased shares have been recorded as treasury shares and will be held until the Company's board of directors designates that these shares be retired or used for other purposes.
Pursuant to the Inflation Reduction Act, effective January 1, 2023, the Company is required to pay a 1% excise tax on the fair market value of each share of common stock repurchased, net of stock issuances. The Company recognized excise tax of $74 and $618, respectively, on repurchase of common stock as a part of cost of such repurchases for the three and six months ended June 30, 2024.
20. Employee Benefit Plans
The Company's Gratuity Plan in India (the "India Plan") provides for a lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee's salary and years of employment with the Company. In addition, the Company's subsidiary operating in the Philippines conforms to the minimum regulatory benefit, which provide for lump sum payment to vested employees on retirement from employment in an amount based on the respective employee's salary and years of employment with the Company (the "Philippines Plan"). Liabilities with regard to the India Plan and the Philippines Plan are determined by actuarial valuation using the projected unit credit method. Current service costs for these plans are accrued in the year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of the employees.
The India Plan is partially funded whereas the Philippines Plan is unfunded. The Company makes annual contributions to the India Plan established with insurance companies. Fund managers manage these funds and calculate the annual contribution required to be made by the Company and manage the India Plan, including any required payouts. These funds are managed on a cash accumulation basis, inclusive of interest which is declared periodically. The Company expects to earn a return of approximately 7.0% per annum on the India Plan for the year ending on December 31, 2024.
Change in Plan Assets
Plan assets as of January 1, 2024 $ 17,134
Actual return 634
Employer contribution 1,489
Benefits paid (667)
Currency translation adjustments (38)
Plan assets as of June 30, 2024
$ 18,552
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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)
Components of net periodic benefit costs recognized in unaudited consolidated statements of income and actuarial (gain)/loss reclassified from AOCI, were as follows:
Three months ended June 30, Six months ended June 30,
2024 2023 2024 2023
Service cost $ 1,100 $ 953 $ 2,208 $ 1,909
Interest cost 386 393 774 788
Expected return on plan assets (310) (264) (622) (527)
Amortization of actuarial (gain)/loss, gross of tax (147) (23) (302) (48)
Net gratuity cost $ 1,029 $ 1,059 $ 2,058 $ 2,122
Amortization of actuarial (gain)/loss, gross of tax $ (147) $ (23) $ (302) $ (48)
Income tax effects on above (1) (18) (2) (37)
Amortization of actuarial (gain)/loss, net of tax $ (148) $ (41) $ (304) $ (85)
The Company maintains several 401(k) plans (the "401(k) Plans") under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), covering all eligible employees, as defined in the Code as a defined contribution plan. The Company may make discretionary contributions of up to a maximum of 3.0% of employee compensation within certain limits.
The Company's contributions to various defined contribution plans was as follows:
Three months ended June 30, Six months ended June 30,
2024 2023 2024 2023
Contribution to the 401(k) Plans $ 1,190 $ 1,178 $ 3,633 $ 3,564
Contributions to the defined contribution plans on behalf of employees in foreign subsidiaries of the Company
$ 6,891 $ 5,604 $ 13,640 $ 10,996
21. Leases
The Company conducts its operations using facilities leased under operating lease agreements that expire at various dates. The Company finances its use of certain motor vehicles and other equipment under various lease arrangements provided by financial institutions. The lease agreements do not contain any covenants to impose any restrictions except for market-standard practice for similar lease arrangements.
The Company had performed an evaluation of its contracts with suppliers in accordance with ASC Topic 842, Leases, and had determined that, except for leases for office facilities, motor vehicles and other equipment as described above, none of the Company's contracts contain a lease.
The components of lease cost, which are included in the Company's unaudited consolidated statements of income, are as follows:
Three months ended June 30, Six months ended June 30,
2024 2023 2024 2023
Finance lease:
Depreciation on underlying ROU assets $ 83 $ 39 $ 150 $ 77
Interest on lease liabilities 45 18 81 38
128 57 231 115
Operating lease (1)
5,743 5,449 11,093 10,332
Variable lease costs 1,105 1,157 2,089 2,164
Total lease cost $ 6,976 $ 6,663 $ 13,413 $ 12,611
(1) Includes short-term leases, which are immaterial.
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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)
Supplemental cash flow and other information related to leases are as follows:
Six months ended June 30,
2024 2023
Cash payments for amounts included in the measurement of lease liabilities :
Operating cash outflows for operating leases $ 9,645 $ 10,829
Operating cash outflows for finance leases $ 81 $ 38
Financing cash outflows for finance leases $ 132 $ 80
ROU assets obtained in exchange for new operating lease liabilities $ 16,445 $ 10,929
ROU assets obtained in exchange for new finance lease liabilities $ 581 $ 91
Weighted average remaining lease term (in years)
Finance lease 3.2 years 2.7 years
Operating lease 5.1 years 5.6 years
Weighted average discount rate
Finance lease 15.0 % 14.0 %
Operating lease 7.9 % 7.3 %
As part of the Company's efforts to optimize its existing network of operations centers, the Company continued to evaluate its office facilities to determine where it can exit or consolidate its use of office space. The Company modified certain of its operating leases, resulting in an increase of its lease liabilities by $3,377 and a decrease of its lease liabilities by $2,466, during the six months ended June 30, 2024 and 2023, respectively, with a corresponding adjustment to ROU assets.
As of June 30, 2024 and December 31, 2023, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.
Maturities of lease liabilities as of June 30, 2024 were as follows:
Operating Leases Finance Leases
2024 (July 1 - December 31) $ 10,503 $ 238
2025 20,810 442
2026 20,037 401
2027 17,655 330
2028 14,335 204
2029 and thereafter 15,233 43
Total lease payments 98,573 1,658
Less: Imputed interest 18,757 407
Present value of lease liabilities $ 79,816 $ 1,251
22. Income Taxes
The Company determines the tax provision for interim periods using an estimate of its annual effective tax rate. Each quarter, the Company updates its estimate of annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment.
The effective tax rate decreased from 24.1% during the three months ended June 30, 2023 to 23.2% during the three months ended June 30, 2024. The Company recorded income tax expense of $13,873 and $15,554 for the three months ended June 30, 2024 and 2023, respectively. The decrease in income tax expense was primarily as a result of lower profit during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, partially offset by higher credits during the three months ended June 30, 2024, compared to the three months ended June 30, 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)
The effective tax rate increased from 19.1% during the six months ended June 30, 2023 to 22.6% during the six months ended June 30, 2024. The Company recorded income tax expense of $27,626 and $23,612 for the six months ended June 30, 2024 and 2023, respectively. The increase in income tax expense was primarily as a result of lower excess tax benefits related to stock-based compensation during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, and an increase in non-deductible expenses, partially offset by lower profit during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
During the six months ended June 30, 2024, the Company's subsidiaries in India repatriated $18,255 (net of $996 withholding taxes) to the United States.
Deferred income taxes recognized in OCI were as follows:
Three months ended June 30, Six months ended June 30,
2024 2023 2024 2023
Deferred taxes benefit / (expense) recognized on:
Unrealized gain/(loss) on cash flow hedges $ (947) $ (2,269) $ (1,239) $ (3,569)
Reclassification adjustment for cash flow hedges 207 (231) 309 (765)
Reclassification adjustment for retirement benefits (1) (18) (2) (37)
Currency translation adjustments 708 2 1,227 (1,136)
Total $ (33) $ (2,516) $ 295 $ (5,507)
23. Stock-Based Compensation
Stock-based compensation expense by nature of function, as below, are included in the unaudited consolidated statements of income:
Three months ended June 30, Six months ended June 30,
2024 2023 2024 2023
Cost of revenues $ 3,858 $ 3,341 $ 7,807 $ 6,907
General and administrative expenses 7,234 3,210 14,121 9,035
Selling and marketing expenses 7,003 4,960 14,019 9,976
Total $ 18,095 $ 11,511 $ 35,947 $ 25,918
Income tax benefit related to share-based compensation (1)
$ (4,619) $ 2,789 $ (9,977) $ 12,619
(1) Includes $18 and $190 during the three months ended June 30, 2024 and 2023, respectively, and $7,541 and $12,710 during the six months ended June 30, 2024 and 2023, respectively, related to discrete benefits recognized in income tax expense in accordance with ASU No. 2016-09, Compensation - Stock Compensation.
As of June 30, 2024 and December 31, 2023, the Company had 1,684,495 and 4,096,102 shares, respectively, available for grant under the 2018 Omnibus Incentive Plan.
Stock Options
During the three and six months ended June 30, 2024, there was no stock option activity under the Company's stock-based compensation plans. The number of stock options that were unvested as of June 30, 2024 and December 31, 2023 were 1,376,540 and 1,790,695 units, respectively. The number of stock options that were vested and exercisable as of June 30, 2024 and December 31, 2023 were 414,155 and nil units, respectively.
As of June 30, 2024, unrecognized compensation cost of $16,040 is expected to be expensed over a weighted average period of 3.0 years.
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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)
Share Matching Program
Under the Company's 2018 Omnibus Incentive Plan (the "2018 Plan"), the Company established a share matching program ("SMP") for executive officers and other specified employees. Under the SMP, the Company agreed to issue a number of restricted stock units equal to the number of newly acquired shares of the Company's common stock.
Restricted stock unit activity under the SMP is shown below:
Restricted Stock Units (SMP)
Number Weighted Average
Fair Value
Outstanding as of December 31, 2023 217,230 $ 24.95
Granted - -
Vested (72,385) 24.95
Forfeited - -
Outstanding as of June 30, 2024* 144,845 $ 24.95
* As of June 30, 2024 and December 31, 2023 restricted stock units vested for which the underlying common stock is yet to be issued are 72,385 and nil, respectively.
As of June 30, 2024, unrecognized compensation cost of $1,355 is expected to be expensed over a weighted average period of 0.8 years.
Restricted Stock Units
Restricted stock unit activity under the Company's stock-based compensation plans is shown below:
Restricted Stock Units
Number Weighted Average
Fair Value
Outstanding as of December 31, 2023* 3,731,512 $ 24.96
Granted 1,526,836 30.34
Vested (1,350,826) 22.69
Forfeited (189,962) 28.31
Outstanding as of June 30, 2024* 3,717,560 $ 27.82
* As of June 30, 2024 and December 31, 2023 restricted stock units vested for which the underlying common stock is yet to be issued are 373,521 and 324,125, respectively.
As of June 30, 2024, unrecognized compensation cost of $80,859 is expected to be expensed over a weighted average period of 2.9 years.
Performance Based Stock Awards
Under the 2018 Plan, the Company grants performance-based restricted stock units ("PRSUs") to executive officers and other specified employees. During the six months ended June 30, 2024, the Company granted 40% of each award recipient's equity grants in the form of PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for a three-year period. The remaining 60% of each award recipient's equity grants are PRSUs that are based on market conditions, contingent on the Company's meeting a total shareholder return relative to a group of peer companies specified under the 2018 Plan, and are measured over a three-year performance period.
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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)
PRSU activity under the Company's stock plans is shown below:
Revenue Based PRSUs Market Condition Based PRSUs
Number Weighted Average
Fair Value 		Number Weighted Average
Fair Value
Outstanding as of December 31, 2023 438,000 $ 29.16 656,450 $ 37.78
Granted 344,535 30.33 516,692 44.17
Vested - - - -
Forfeited (24,886) 28.16 (37,261) 37.64
Outstanding as of June 30, 2024 757,649 $ 29.73 1,135,881 $ 40.69
As of June 30, 2024, unrecognized compensation cost of $47,030 is expected to be expensed over a weighted average period of 2.2 years.
Employee Stock Purchase Plan
On June 21, 2022, at the annual meeting of stockholders of the Company, the Company's stockholders approved the ExlService Holdings, Inc. 2022 Employee Stock Purchase Plan (the "2022 ESPP").
The 2022 ESPP allows eligible employees to purchase the Company's shares of common stock through payroll deductions at a pre-specified discount to the lower of closing price of the Company's common shares on the date of offering or the last business day of each purchase interval. The dollar amount of shares of common stock that can be purchased under the 2022 ESPP must not exceed 15% of the participating employee's compensation during the offering period, subject to a cap of $25 per employee per calendar year. The Company has reserved 4,000,000 shares of common stock for issuance under the 2022 ESPP.
The fourth offering period under the 2022 ESPP commenced on January 1, 2024 with a term of six months.
Activity under the Company's 2022 ESPP is shown below:
Number Total Proceeds Received
Shares available for issuance as of December 31, 2023 3,831,325
Issuance of common stock related to the:
Third offering period 71,645 $ 1,948
Shares available for issuance as of June 30, 2024 3,759,680
Issuance of common stock related to the fourth offering
period made subsequent to June 30, 2024 		86,936 $ 2,414
24. Related Party Disclosures
In April 2022, the Company entered into a service contract for providing analytics services to The Vanguard Group Inc., which reported that it beneficially owns more than 10% of the Company's common stock as of March 31, 2024. During the three months ended June 30, 2024 and 2023, the Company recognized revenues, net of $210 and $379, respectively, related to this service contract. During the six months ended June 30, 2024 and 2023, the Company recognized revenues, net of $376 and $1,330, respectively, related to this service contract. The Company had outstanding accounts receivable, net of $170 and $209, related to this service contract as of June 30, 2024 and December 31, 2023, respectively.
In February 2024, the Company entered into a service contract for providing analytics services to Corridor Platforms, Inc., which is an equity affiliate of the Company. During the three and six months ended June 30, 2024, the Company recognized revenues, net of $151 and $302, respectively, related to this service contract. The Company had outstanding accounts receivable, net of $151 related to this service contract as of June 30, 2024.
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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)
25. Commitments and Contingencies
Capital Commitments
As of June 30, 2024, the Company had committed to spend approximately $5,100 under agreements to purchase property and equipment. This amount is net of capital advances paid which are recognized in unaudited consolidated balance sheets as "Capital work in progress" under "Property and equipment."
On June 15, 2023, the Company, along with other limited partners, entered into a limited partnership agreement with the general partner, PNP Financial Services Fund GP I, LLC and initial limited partner and outgoing partner, to form a partnership with the name Plug and Play Financial Services Fund I, L.P. (the "Partnership") for the primary purpose of making investments in growth-stage technology companies. Subsequent to June 30, 2024, the Company further invested $600 in the Partnership and is committed under the Partnership to make further investments up to an amount of $2,800.
Other Commitments
Certain units of the Company's Indian subsidiaries were established as 100% Export-Oriented units or under the Software Technology Parks of India or Special Economic Zone scheme promulgated by the Government of India. These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares. The Company has undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. The Company believes, however, that these units have in the past satisfied, and will continue to satisfy, the required conditions.
The Company's operations centers in the Philippines are registered as qualified Philippines Economic Zone Authority units, which provides the Company fiscal incentives on the import of capital goods and local purchase of services and materials. The Company is required to meet certain requirements to retain the incentives. The Company has complied, and intends to continue compliance, with the requirements to avail itself of the incentives.
Contingencies
The transfer pricing regulations in the countries where the Company operates require that controlled intercompany transactions be at arm's-length. Accordingly, the Company determines and documents pricing for controlled intercompany transactions based on an economic analysis as prescribed in the respective regulations. The tax authorities have jurisdiction to review the Company's transfer pricing. If the Company's transfer pricing is challenged by the authorities, they could assess additional tax, interest and penalties, thereby impacting the Company's profitability and cash flows.
The Company is currently involved in transfer pricing and related income tax disputes with Indian tax authorities. The aggregate amount demanded by Indian tax authorities (net of advance payments) as of June 30, 2024 and December 31, 2023 is $36,116 and $36,694, respectively. The Company has made payments and/or provided bank guarantees against these demands in the amounts of $7,520 and $7,227, as of June 30, 2024 and December 31, 2023, respectively. The Company believes that its positions will more likely than not be sustained upon final examination by the tax authorities, and accordingly has not accrued any liabilities with respect to these matters in its consolidated financial statements.
India's VAT regime ended in June 2017 and was replaced by the current Goods and Service Tax ("GST") regime. Pursuant to reviewing the Company's annual VAT filings, the Indian tax authorities raised aggregate VAT demands for tax years 2015 and 2017, in the amounts of $5,482 and $5,493, as of June 30, 2024 and December 31, 2023, respectively. The Company has provided bank guarantees against these demands in the amounts of $5,482 and $4,570, as of June 30, 2024 and December 31, 2023, respectively. The GST authorities rejected the Company's refunds claims in the amounts of $5,285 and $4,748 as of June 30, 2024 and December 31, 2023, respectively. The Company has filed appeals against these matters and believes that it is more likely than not that upon final examination its position will be sustained based on its technical merits. Accordingly, no provision was recognized as of June 30, 2024 and December 31, 2023, respectively.
Some of the Company's subsidiaries in India have undergone assessments with the statutory authority with respect to defined contribution plan. Except for some components of the assessments for which the Company has recognized a provision in the financial statements, the Company believes that the amount demanded by such authority is not a meaningful indicator of the potential liabilities of the Company, and that these matters are without merit. The Company is defending against the
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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)
assessment orders and in one case, has instituted an appeal against the order before the relevant tribunal while also making a payment under protest of the amount demanded. As of the reporting date, the Company's management does not believe that the ultimate assessments in any of these matters will have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows. The Company will continue to monitor and evaluate its position based on future events and developments on these matters.
From time to time, the Company, its subsidiaries, and/or their present officers or directors, may be or have been, named as a defendant in litigation matters, including employment-related claims. The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and attorney's fees. With respect to pending litigation matters as of the reporting date, the Company believes that the damages claimed are without merit, and the Company intends to vigorously defend them. The Company will continuously monitor developments on these matters to assess potential impacts to the financial statements.
The outcomes of legal actions are unpredictable and subject to significant uncertainties, and thus it is inherently difficult to determine the likelihood of the Company incurring a material loss or quantification of any such loss. With respect to certain pending litigation matters as of the reporting date, the Company has made provisions based on information currently available, including its evaluation of the facts underlying each matter and legal counsel's advice on the estimated losses or range of reasonably possible losses. Based on the Company's assessment, including the availability of insurance recoveries, the Company's management does not believe that currently pending litigation, individually or in aggregate, will have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows. The Company will continuously monitor these matters to assess potential impacts to the financial statements.
26. Restructuring Costs
In second quarter of 2024, the Company initiated a strategic restructuring plan to align its workforce with market opportunities, business strategies and evolving customer needs. A substantial part of this plan was executed in the second quarter of 2024, which affected less than 1% of the Company's global workforce.
The restructuring costs include costs in relation to employee severance and other associated costs including legal fees and outplacement support costs. These costs have been recognized under cost of revenues (across all reporting segments), general & administrative and selling & marketing expenses in the unaudited consolidated statements of income.
The following table summarizes the activity related to the restructuring costs incurred and paid during the three months ended June 30, 2024:
Employee-Related Costs Other Associated Costs Total
Balance as of April 1, 2024 $ - $ - $ -
Costs incurred during the period 4,397 365 4,762
Payments made during the period 3,760 10 3,770
Balance as of June 30, 2024 $ 637 $ 355 $ 992
27. Subsequent Event
On July 31, 2024, the Company, through its wholly owned subsidiary Clairvoyant AI, Inc., entered into an equity securities purchase agreement to acquire 100% of the equity securities of Incandescent Technologies, Inc., a Delaware Corporation ("ITI") for cash consideration of $26,000, subject to certain post-closing adjustments and contingent consideration of $13,000, based on the achievement of certain performance goals by ITI during the two years ending July 31, 2026. ITI is a data management solutions firm servicing primarily Global 1000 companies in the banking, financial services and healthcare industries.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in connection with our unaudited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Some of the statements in the following discussion are forward looking statements.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These statements often include words such as "may," "will," "should," "believe," "expect," "anticipate," "intend," "plan," "estimate" or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include but are not limited to:
•our ability to maintain and grow client demand for our services and solutions, including anticipating and incorporating the latest technologies, for instance, artificial intelligence ("AI"), including generative AI into our offerings;
•impact on client demand by the selling cycle and terms of our client contracts;
•fluctuations in our earnings;
•our ability to hire and retain enough sufficiently trained employees to support our operations or any changes in the senior management team;
•our ability to accurately estimate and/or manage costs;
•our ability to adjust our pricing terms or effectively manage our asset utilization levels to meet the changing demands of our clients and potential clients;
•cyber security incidents, data breaches, or other unauthorized disclosure of sensitive or confidential client and employee data;
•reliance on third parties to deliver services and infrastructure for client critical services;
•employee wage increases;
•failure to protect our intellectual property;
•our dependence on a limited number of clients in a limited number of industries and our ability to withstand the loss of a significant client;
•our ability to grow our business or effectively manage growth and international operations;
•our ability to successfully consummate or integrate strategic acquisitions including the impact from the impairment of goodwill and other intangible assets, if any;
•legal liability arising out of customer and third party contracts;
•increasing competition in our industry;
•telecommunications or technology disruptions or breaches, natural or other disasters, medical epidemics or pandemics, such as COVID-19, or acts of violence or war;
•operational and information security failures arising as a result of remote work solutions adopted due to COVID-19;
•adverse outcome of our disputes with the tax authorities in the geographies where we operate;
•the introduction of new or unfavorable tax legislation, including legal restrictions on repatriation of funds held abroad;
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•exposure to currency exchange rate fluctuations in the various currencies in which we do business including the potential effects of Russian-Ukraine and Israel-Hamas conflicts, rising inflation, high interest rates and economic recessionary trends on currency exchange rates;
•restrictions on immigration;
•regulatory, legislative and judicial developments, including our ability to adhere to regulations or accreditation or licensing standards that govern our business;
•our ability to service debt or obtain additional financing on favorable terms. Inception of interest rate swaps to hedge interest rate risk;
•negative public reaction in the U.S. or elsewhere to offshore outsourcing;
•effects of political and economic conditions globally, particularly in the geographies where we operate;
•our ability to make accurate estimates and assumptions in connection with the preparation of our consolidated financial statements;
•credit risk fluctuations in the market values of our investment and derivatives portfolios; and
•our ability to meet our sustainability-related goals and targets.
These and other factors are more fully discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. These and other risks could cause actual results to differ materially from those implied by forward-looking statements in this Quarterly Report on Form 10-Q.
The forward-looking statements made by us in this Quarterly Report on Form 10-Q, or elsewhere, speak only as of the date on which they were made. New risks and uncertainties may occur from time to time, and it is impossible for us to predict those events or how they may affect us. We have no obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q after the date of this Quarterly Report on Form 10-Q, except as required by federal securities laws.
Executive Overview
We are a leading data analytics and digital operations and solutions company. We partner with clients using a data and AI-led approach to reinvent business models, drive better business outcomes and unlock growth with speed. We harness the power of data, analytics, 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.
We deliver data analytics and digital operations and solutions to our clients, driving enterprise-scale business transformation initiatives that leverage our deep expertise in advanced analytics, AI, generative AI and cloud technology. We manage and report financial information through our four strategic business units: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions.
Our reportable segments are as follows:
•Insurance,
•Healthcare,
•Analytics, and
•Emerging Business
Our global delivery network, which includes highly trained industry and process specialists across the United States, the United Kingdom, Latin America, South Africa, Europe and Asia (primarily India and the Philippines), is a key asset. We have operations centers in India, the United States, the Philippines, South Africa, Colombia, Bulgaria, Romania, the United Kingdom, the Czech Republic, Mexico and the Republic of Ireland.
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Revenues
For the three months ended June 30, 2024, we generated revenues of $448.4 million compared to revenues of $405.0 million for the three months ended June 30, 2023, an increase of $43.4 million, or 10.7%. For the six months ended June 30, 2024, we generated revenues of $884.9 million compared to revenues of $805.6 million for the six months ended June 30, 2023, an increase of $79.3 million, or 9.8%.
We serve clients mainly in the United States and the United Kingdom, with these two regions generating 82.7% and 11.8%, respectively, of our total revenues for the three months ended June 30, 2024, and 84.1% and 10.8%, respectively, of our total revenues for the three months ended June 30, 2023. For the six months ended June 30, 2024, these two regions generated 82.8% and 11.7%, respectively, of our total revenues and 84.4% and 10.6%, respectively, of our total revenues for the six months ended June 30, 2023.
For the three months ended June 30, 2024 and 2023, our total revenues from our top ten clients accounted for 33.0% and 33.8% of our total revenues, respectively. For the six months ended June 30, 2024 and 2023, our total revenues from our top ten clients accounted for 32.9% and 34.3% of our total revenues, respectively. Although we continue to develop relationships with new clients to diversify our client base, we believe that the loss of any of our top ten clients could have a material adverse effect on our financial performance.
Our Business
We provide data analytics and digital operations and solutions to our clients. We market our services to our existing and prospective clients through our sales and client management teams, which are aligned by key industry verticals and cross-industry domains such as finance and accounting. Our sales and client management teams operate primarily from the United States, Europe and Australia.
Digital Operations and Solutions:We provide our clients with a range of data and AI-led digital operations and solutions from our Insurance, Healthcare and Emerging Business strategic business units, which are focused on solving complex industry challenges, which include: a) multi-modal data ingestion using AI, and converting unstructured content into curated and usable data, b) real-time and comprehensive data insights including end-to-end data management and building a 360-degree view of our clients' customers, c) omni-channel and frictionless customer experience including self-service, conversational AI and smart agent assist, d) intelligent and AI-powered redesign and automation of transaction processing and e) automated quality, compliance and audit. Some of our clients' operations that we have transformed using the above solutions include underwriting operations, claims processing, accounts payables processing, utilization management, member and provider contact center services and collections and accounts receivable. We either manage and digitally transform these operations for our clients by deploying our solutions through a software-as-a-service model via our partners' cloud network or a client's on-cloud deployment model, to digitally transform their retained operations. For a portion of our digital operations and solutions, we hire and train employees to work at our operations centers on the relevant business operations, implement a process migration to these operations centers and then provide services either to the client or directly to the client's customers. Each client contract has different terms based on the scope, deliverables and complexity of the engagement. We also provide consulting services related to digital operations and solutions that include industry-specific digital transformational services as well as cross-industry finance and accounting services as part of the Emerging Business strategic business unit.
We provide our services under contracts with our clients, which typically have terms of three or more years, with some being contracts with no end dates. These contracts provide us with a relatively predictable revenue base for a substantial portion of our digital operations and solutions business. However, our clients can typically terminate these contracts with or without cause and with short notice periods. We have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients. Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.
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We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models. Outcome-based pricing arrangements are examples of non-linear pricing models where clients link revenues from platforms and solutions and the services we provide to usage or savings rather than the efforts deployed to provide these services. We continue to observe a shift in the industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models. We believe this trend will continue and we use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a full-time-equivalent pricing model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins.
We have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their digital operations and solutions needs to seek more favorable contract terms and diversification of the risk of concentration on a few vendors. We believe that the trend toward multi-vendor relationships will continue. A multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor, which can result in significantly reduced gross margins from the provision of services to such client for each vendor. To the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors, our gross margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition.
Analytics:Our analytics services aim to drive better business outcomes for our clients by unlocking deep insights from data and creating data and AI-led solutions across all parts of our clients' business. We provide care optimization and reimbursement optimization services for our clients through our healthcare analytics solutions and services. We also offer integrated solutions to help our clients in cost containment by leveraging technology platforms, customizable and configurable analytics and expertise in healthcare reimbursements to help clients enhance their claim payment accuracy. Our Analytics teams deliver predictive and prescriptive analytics in the areas of customer acquisition and life cycle management, risk underwriting and pricing, operational effectiveness, credit and operational risk monitoring and governance, regulatory reporting and data management. We enhance, modernize and enrich structured and unstructured data and use a spectrum of advanced analytical tools and techniques, including our in-house and third-party AI, generative AI, and ML capabilities and proprietary solutions to create insights, improve decision making for our clients and address a range of complex industry-wide priorities. We actively cross-sell and, where appropriate, integrate our analytics services with other digital operations and solutions as part of a comprehensive offering for our clients. Our project-based analytics services are cyclical and can be significantly affected by variations in business cycles. In addition, our project-based analytics services are documented in contracts with terms generally not exceeding one year and may not produce ongoing or recurring business for us once the project is completed. These contracts also usually contain provisions permitting termination of the contract after a short notice period. The short-term nature and specificity of these projects could lead to fluctuations and uncertainties in the revenues generated from providing analytics services.
We anticipate that revenues from our analytics services will grow as we expand our service offerings and client base, both organically and through acquisitions.
Income Taxes
The Organization for Economic Cooperation and Development, issued a Pillar II model for implementing a 15% global minimum tax effective January 1, 2024. The application of the rules relating to Pillar II continue to evolve, and there are countries that are still in the process of issuing attendant rules and regulations, including available transitional safe harbor rules. The two countries where we operate but do not meet the available safe harbor rules are the Republic of Ireland and the Philippines. The Pillar II impacts for the Republic of Ireland and the Philippines are not significant and have been properly reflected in our financial statements. We will continue to monitor Pillar II developments and assess any future impacts.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates during the three and six months ended June 30, 2024, as compared to the critical accounting policies and estimates referred in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Critical Accounting Policies and Estimates" and Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
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Results of Operations
The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023:
(dollars in millions)
Three months ended June 30, 2024 Percentage of Revenues, net Three months ended June 30, 2023 Percentage of Revenues, net Dollar Change Percentage Change
(A) (B) (C=A-B)
Revenues, net $ 448.4 100.0 % $ 405.0 100.0 % $ 43.4 10.7 %
Cost of revenues (1)
282.1 62.9 % 253.2 62.5 % 28.9 11.4 %
Gross profit (1)
166.3 37.1 % 151.8 37.5 % 14.5 9.5 %
Operating expenses:
General and administrative expenses 56.5 12.6 % 45.6 11.3 % 10.9 23.8 %
Selling and marketing expenses 35.4 7.9 % 28.2 7.0 % 7.2 25.5 %
Depreciation and amortization expense 12.9 2.9 % 13.1 3.2 % (0.2) (1.6) %
Total operating expenses 104.8 23.4 % 86.9 21.5 % 17.9 20.5 %
Income from operations 61.5 13.7 % 64.9 16.0 % (3.4) (5.2) %
Foreign exchange gain, net - - % 0.3 0.1 % (0.3) (88.7) %
Interest expense (5.3) (1.2) % (3.2) (0.8) % (2.1) 64.4 %
Other income, net 3.5 0.8 % 2.6 0.7 % 0.9 33.4 %
Income before income tax expense and earnings from equity affiliates 59.7 13.3 % 64.6 15.9 % (4.9) (7.5) %
Income tax expense 13.9 3.1 % 15.5 3.8 % (1.6) (10.8) %
Income before earnings from equity affiliates 45.8 10.2 % 49.1 12.1 % (3.3) (6.6) %
Gain from equity-method investment - - % - - % - - %
Net income attributable to ExlService Holdings, Inc. stockholders $ 45.8 10.2 % $ 49.1 12.1 % $ (3.3) (6.6) %
(1) Exclusive of depreciation and amortization expense.
Due to rounding, the numbers presented in the tables included in this Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" may not add up precisely to the totals provided.
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Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
Revenues.
The following table summarizes our revenues by reportable segments:
Three months ended June 30, Percentage
change 		Percentage of Total Revenues for the three months ended
2024 2023 Dollar Change 2024 2023
(dollars in millions)
Insurance $ 149.3 $ 128.5 $ 20.8 16.2 % 33.3 % 31.7 %
Healthcare 28.1 27.2 0.9 3.5 % 6.3 % 6.7 %
Emerging Business 77.2 67.1 10.1 14.9 % 17.2 % 16.6 %
Analytics 193.8 182.2 11.6 6.4 % 43.2 % 45.0 %
Total revenues, net $ 448.4 $ 405.0 $ 43.4 10.7 % 100.0 % 100.0 %
Revenues for the three months ended June 30, 2024 were up by $43.4 million, or 10.7%, compared to the three months ended June 30, 2023, driven primarily by revenue growth from our new and existing clients in the Insurance, Emerging Business and Analytics reportable segments.
Revenue growth in Insurance of $20.8 million was primarily driven by expansion of business from our new and existing clients of $20.8 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Revenue growth in Healthcare of $0.9 million was primarily driven by expansion of business from our existing clients of $1.6 million, partially offset by lower revenues associated with the ramp-down of certain existing clients of $0.7 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Revenue growth in Emerging Business of $10.1 million was primarily driven by expansion of business from our new and existing clients of $10.1 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Revenue growth in Analytics of $11.6 million was primarily driven by higher volumes in our annuity and project-based engagements from our new and existing clients of $11.6 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments:
Cost of Revenues Gross Margin
Three months ended June 30, Dollar
Change 		Percentage
change 		Three months ended June 30, Percentage
Change
2024 2023 2024 2023
(dollars in millions)
Insurance $ 95.5 $ 84.3 $ 11.2 13.3 % 36.0 % 34.4 % 1.6 %
Healthcare 18.8 17.6 1.2 7.2 % 33.1 % 35.4 % (2.3) %
Emerging Business 45.1 37.8 7.3 19.1 % 41.6 % 43.7 % (2.1) %
Analytics 122.7 113.5 9.2 8.1 % 36.7 % 37.7 % (1.0) %
Total $ 282.1 $ 253.2 $ 28.9 11.4 % 37.1 % 37.5 % (0.4) %
Cost of revenues for the three months ended June 30, 2024 increased by $28.9 million, or 11.4% compared to the three months ended June 30, 2023. The increase in cost of revenues was primarily due to increases in employee-related costs including restructuring costs and technology costs, partially offset by foreign exchange gain, net of hedging. Our gross margin for the three months ended June 30, 2024 was 37.1%, compared to 37.5% for the three months ended June 30, 2023, a decrease
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of 40 basis points ("bps") primarily driven by the impact of restructuring costs of 70 bps, partially offset by higher revenues during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
The increase in cost of revenues in Insurance of $11.2 million for the three months ended June 30, 2024 was primarily due to increases in employee-related costs of $10.7 million on account of higher headcount, restructuring costs and wage inflation, higher technology costs of $1.2 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model and higher other operating costs of $1.1 million, partially offset by foreign exchange gain, net of hedging of $1.8 million. Gross margin in Insurance increased by 160 bps during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to higher revenues and operational efficiencies during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
The increase in cost of revenues in Healthcare of $1.2 million for the three months ended June 30, 2024 was primarily due to increases in employee-related costs of $1.8 million on account of higher headcount and wage inflation, partially offset by foreign exchange gain, net of hedging of $0.6 million. Gross margin in Healthcare decreased by 230 bps during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to lower revenues associated with the ramp-down of certain existing clients and higher operating expenses during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
The increase in cost of revenues in Emerging Business of $7.3 million for the three months ended June 30, 2024 was primarily due to increases in employee-related costs of $7.6 million on account of higher headcount, restructuring costs and wage inflation and higher technology costs of $0.8 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model, partially offset by foreign exchange gain, net of hedging of $1.1 million. Gross margin in Emerging Business decreased by 210 bps during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to investment in ramp-ups in certain new and existing clients during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
The increase in cost of revenues in Analytics of $9.2 million for the three months ended June 30, 2024 was primarily due to increases in employee-related costs of $7.6 million on account of higher headcount, restructuring costs and wage inflation and higher technology costs of $2.0 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model, partially offset by lower other operating costs of $0.4 million. Gross margin in Analytics decreased by 100 bps during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to the impact of restructuring costs of 120 bps, partially offset by higher revenues during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Selling, General and Administrative ("SG&A") Expenses.
Three months ended June 30, Dollar Change Percentage
change
2024 2023
(dollars in millions)
General and administrative expenses $ 56.5 $ 45.6 $ 10.9 23.8 %
Selling and marketing expenses 35.4 28.2 7.2 25.5 %
Selling, general and administrative expenses $ 91.9 $ 73.8 $ 18.1 24.5 %
The increase in SG&A expenses of $18.1 million was primarily due to increases in employee-related costs of $8.5 million on account of higher headcount and wage inflation, higher investments in digital and generative AI capabilities of $4.4 million, higher sales and marketing spend of $1.4 million, restructuring costs, litigation settlement costs and associated legal fees of $3.1 million and higher other operating costs of $1.2 million. This was partially offset by foreign exchange gain, net of hedging of $0.5 million, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
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Depreciation and Amortization.
Three months ended June 30, Dollar Change Percentage
change
2024 2023
(dollars in millions)
Depreciation expense $ 9.8 $ 8.9 $ 0.9 10.3 %
Intangible amortization expense 3.1 4.2 (1.1) (26.8) %
Depreciation and amortization expense $ 12.9 $ 13.1 $ (0.2) (1.6) %
The increase in depreciation expense of $0.9 million was primarily due to investments in digital capabilities, computers and networking equipment during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The decrease in intangibles amortization expense of $1.1 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023 was primarily due to end of useful lives for certain intangible assets.
Income from Operations.Income from operations decreased by $3.4 million, or 5.2%, from $64.9 million for the three months ended June 30, 2023 to $61.5 million for the three months ended June 30, 2024, primarily due to higher SG&A expenses, partially offset by higher revenues during the three months ended June 30, 2024.
Foreign Exchange Gain, net. Foreign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the Philippine peso, the U.K. pound sterling and the South African rand during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The average exchange rate of the U.S. dollar against the Indian rupee increased from 82.20 during the three months ended June 30, 2023 to 83.42 during the three months ended June 30, 2024. The average exchange rate of the U.S. dollar against the Philippine peso increased from 55.58 during the three months ended June 30, 2023 to 58.29 during the three months ended June 30, 2024. The average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.25 during the three months ended June 30, 2023 to 1.26 during the three months ended June 30, 2024. The average exchange rate of the U.S. dollar against the South African rand decreased from 19.02 during the three months ended June 30, 2023 to 18.53 during the three months ended June 30, 2024.
We recorded a foreign exchange gain, net of $0.3 million for the three months ended June 30, 2023 compared to a foreign exchange gain, net of $nil for the three months ended June 30, 2024.
Interest expense. Interest expense increased from $3.2 million for the three months ended June 30, 2023 to $5.3 million for the three months ended June 30, 2024, primarily due to a higher average outstanding balance under our revolving credit facility and a higher effective interest rate of 6.5% during the three months ended June 30, 2024, compared to 6.2% during the three months ended June 30, 2023.
Other Income, net.
Three months ended June 30, Change Percentage
change
2024 2023
(dollars in millions)
Gain on sale and mark-to-market on investments $ 1.2 $ 1.1 $ 0.1 6.1 %
Interest and dividend income 2.4 1.7 0.7 43.7 %
Other, net (0.1) (0.2) 0.1 (114.9) %
Other income, net $ 3.5 $ 2.6 $ 0.9 33.4 %
Other income, net increased by $0.9 million, from $2.6 million for the three months ended June 30, 2023 to $3.5 million for the three months ended June 30, 2024. The increase is primarily due to higher yield on our investments of $0.8 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
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Income Tax Expense.The effective tax rate decreased from 24.1% during the three months ended June 30, 2023 to 23.2% during the three months ended June 30, 2024. We recorded income tax expense of $13.9 million and $15.6 million for the three months ended June 30, 2024 and 2023, respectively. The decrease in income tax expense was primarily as a result of lower profit during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, partially offset by higher credits during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Net Income.Net income decreased from $49.1 million for the three months ended June 30, 2023 to $45.8 million for the three months ended June 30, 2024, primarily due to a decrease in income from operations of $3.4 million, higher interest expense of $2.1 million and lower foreign exchange gain, net of $0.3 million, partially offset by a lower income tax expense of $1.6 million and higher other income, net of $0.9 million.
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Results of Operations
The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023:
(dollars in millions)
Six months ended June 30, 2024 Percentage of Revenues, net Six months ended June 30, 2023 Percentage of Revenues, net Dollar Change Percentage Change
(A) (B) (C=A-B)
Revenues, net $ 884.9 100.0 % $ 805.6 100.0 % $ 79.3 9.8 %
Cost of revenues (1)
555.5 62.8 % 504.7 62.6 % 50.8 10.1 %
Gross profit (1)
329.4 37.2 % 300.9 37.4 % 28.5 9.4 %
Operating expenses:
General and administrative expenses 109.7 12.4 % 92.3 11.5 % 17.4 18.8 %
Selling and marketing expenses 71.4 8.1 % 57.7 7.2 % 13.7 23.7 %
Depreciation and amortization expense 25.3 2.9 % 26.6 3.3 % (1.3) (5.1) %
Total operating expenses 206.4 23.3 % 176.6 21.9 % 29.8 16.8 %
Income from operations 123.0 13.9 % 124.3 15.4 % (1.3) (1.0) %
Foreign exchange gain, net 0.4 - % 0.4 0.1 % - (7.8) %
Interest expense (8.6) (1.0) % (6.6) (0.8) % (2.0) 30.1 %
Other income, net 7.4 0.8 % 5.8 0.7 % 1.6 29.0 %
Income before income tax expense and earnings from equity affiliates 122.2 13.8 % 123.9 15.4 % (1.7) (1.3) %
Income tax expense 27.6 3.1 % 23.6 2.9 % 4.0 17.0 %
Income before earnings from equity affiliates 94.6 10.7 % 100.3 12.4 % (5.7) (5.6) %
Gain from equity-method investment - - % 0.1 - % (0.1) (128.0) %
Net income attributable to ExlService Holdings, Inc. stockholders $ 94.6 10.7 % $ 100.4 12.5 % $ (5.8) (5.8) %
(1) Exclusive of depreciation and amortization expense.
Due to rounding, the numbers presented in the tables included in this Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" may not add up precisely to the totals provided.
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Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Revenues.
The following table summarizes our revenues by reportable segments:
Six months ended June 30, Percentage
change 		Percentage of Total Revenues for the six months ended
2024 2023 Dollar Change 2024 2023
(dollars in millions)
Insurance $ 294.4 $ 254.4 $ 40.0 15.7 % 33.3 % 31.6 %
Healthcare 54.4 53.9 0.5 0.9 % 6.1 % 6.7 %
Emerging Business 151.6 133.3 18.3 13.7 % 17.1 % 16.6 %
Analytics 384.5 364.0 20.5 5.6 % 43.5 % 45.1 %
Total revenues, net $ 884.9 $ 805.6 $ 79.3 9.8 % 100.0 % 100.0 %
Revenues for the six months ended June 30, 2024 were up by $79.3 million, or 9.8%, compared to the six months ended June 30, 2023, driven primarily by revenue growth from our new and existing clients in the Insurance, Emerging Business and Analytics reportable segments.
Revenue growth in Insurance of $40.0 million was primarily driven by expansion of business from our new and existing clients of $40.5 million. This was partially offset by a loss of $0.5 million, mainly attributable to the depreciation of the Indian rupee and the Australian dollar against the U.S. dollar during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Revenue growth in Healthcare of $0.5 million was primarily driven by expansion of business from our existing clients of $2.5 million, partially offset by lower revenues associated with the ramp-down of certain existing clients of $2.0 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Revenue growth in Emerging Business of $18.3 million was primarily driven by expansion of business from our new and existing clients of $18.0 million and an increase in revenues of $0.3 million that was mainly attributable to the appreciation of the U.K. pound sterling against the U.S. dollar during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Revenue growth in Analytics of $20.5 million was primarily driven by higher volumes in our annuity and project-based engagements from our new and existing clients of $20.1 million and an increase in revenues of $0.4 million that was mainly attributable to the appreciation of the U.K. pound sterling against the U.S. dollar during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
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Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments:
Cost of Revenues Gross Margin
Six months ended June 30, Dollar
Change 		Percentage change Six months ended June 30, Percentage change
2024 2023 2024 2023
(dollars in millions)
Insurance $ 187.8 $ 166.6 $ 21.2 12.7 % 36.2 % 34.5 % 1.7 %
Healthcare 36.1 36.4 (0.3) (0.6) % 33.5 % 32.5 % 1.0 %
Emerging Business 86.1 73.8 12.3 16.6 % 43.2 % 44.6 % (1.4) %
Analytics 245.5 227.9 17.6 7.8 % 36.1 % 37.4 % (1.3) %
Total $ 555.5 $ 504.7 $ 50.8 10.1 % 37.2 % 37.4 % (0.2) %
Cost of revenues for the six months ended June 30, 2024 increased by $50.8 million, or 10.1%, compared to the six months ended June 30, 2023. The increase in cost of revenues was primarily due to increases in employee-related costs including restructuring costs and technology costs, partially offset by foreign exchange gain, net of hedging. Our gross margin for the six months ended June 30, 2024 was 37.2% compared to 37.4% for the six months ended June 30, 2023, a decrease of 20 bps primarily driven by the impact of restructuring costs of 30 bps, partially offset by higher revenues and operational efficiencies during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
The increase in cost of revenues in Insurance of $21.2 million for the six months ended June 30, 2024 was primarily due to increases in employee-related costs of $19.5 million on account of higher headcount, restructuring costs and wage inflation, higher technology costs of $2.5 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model and higher other operating costs of $2.6 million, partially offset by foreign exchange gain, net of hedging of $3.4 million. Gross margin in Insurance increased by 170 bps during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to higher revenues and operational efficiencies during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
The decrease in cost of revenues in Healthcare of $0.3 million for the six months ended June 30, 2024 was primarily due to foreign exchange gain, net of hedging of $0.8 million, lower facilities costs of $0.6 million resulting from optimization of office space and lower other operating costs of $0.3 million, partially offset by increases in employee-related costs of $1.4 million on account of higher headcount and wage inflation. Gross margin in Healthcare increased by 100 bps during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to higher revenues and operational efficiencies during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
The increase in cost of revenues in Emerging Business of $12.3 million for the six months ended June 30, 2024 was primarily due to increases in employee-related costs of $12.7 million on account of higher headcount, restructuring costs and wage inflation, higher technology costs of $1.1 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model and higher other operating costs of $0.5 million, partially offset by foreign exchange gain, net of hedging of $2.0 million. Gross margin in Emerging Business decreased by 140 bps during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to investment in ramp-ups in certain new and existing clients during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
The increase in cost of revenues in Analytics of $17.6 million for the six months ended June 30, 2024 was primarily due to increases in employee-related costs of $16.2 million on account of higher headcount, restructuring costs and wage inflation and higher technology costs of $3.7 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model, partially offset by lower other operating costs of $1.6 million and foreign exchange gain, net of hedging of $0.7 million. Gross margin in Analytics decreased by 130 bps during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to the impact of restructuring costs of 60 bps and increases in employee-related costs, partially offset by higher revenues and operational efficiencies during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
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Selling, General and Administrative ("SG&A") Expenses.
Six months ended June 30, Percentage change
2024 2023 Dollar Change
(dollars in millions)
General and administrative expenses $ 109.7 $ 92.3 $ 17.4 18.8 %
Selling and marketing expenses 71.4 57.7 13.7 23.7 %
Selling, general and administrative expenses $ 181.1 $ 150.0 $ 31.1 20.7 %
The increase in SG&A expenses of $31.1 million was primarily due to higher employee-related costs of $16.6 million on account of higher headcount and wage inflation, higher investments in digital and generative AI capabilities of $8.3 million, higher sales and marketing spend of $1.9 million, restructuring costs, litigation settlement costs and associated legal fees of $3.1 million and higher other operating costs of $2.1 million. This was partially offset by foreign exchange gain, net of hedging of $0.9 million, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Depreciation and Amortization.
Six months ended June 30, Percentage change
2024 2023 Dollar Change
(dollars in millions)
Depreciation expense $ 19.1 $ 18.3 $ 0.8 4.6 %
Intangible amortization expense 6.2 8.3 (2.1) (26.3) %
Depreciation and amortization expense $ 25.3 $ 26.6 $ (1.3) (5.1) %
The increase in depreciation expense of $0.8 million was primarily due to investments in digital capabilities, computers and networking equipment during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The decrease in intangibles amortization expense of $2.1 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023 was primarily due to end of useful lives for certain intangible assets.
Income from Operations.Income from operations decreased by $1.3 million, or 1.0%, from $124.3 million for the six months ended June 30, 2023 to $123.0 million for the six months ended June 30, 2024, primarily due to higher SG&A expenses, partially offset by higher revenues during the six months ended June 30, 2024.
Foreign Exchange Gain, net. Foreign exchange gains and losses are primarily attributable to the movement of the U.S. dollar against the Indian rupee, the Philippine peso, the U.K. pound sterling and the South African rand during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The average exchange rate of the U.S. dollar against the Indian rupee increased from 82.22 during the six months ended June 30, 2023 to 83.27 during the six months ended June 30, 2024. The average exchange rate of the U.S. dollar against the Philippine peso increased from 55.18 during the six months ended June 30, 2023 to 57.27 during the six months ended June 30, 2024. The average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.24 during the six months ended June 30, 2023 to 1.26 during the six months ended June 30, 2024. The average exchange rate of the U.S. dollar against the South African rand increased from 18.46 during the six months ended June 30, 2023 to 18.74 during the six months ended June 30, 2024.
We recorded a foreign exchange gain, net of $0.4 million, each, for the six months ended June 30, 2023 and 2024.
Interest expense. Interest expense increased from $6.6 million for the six months ended June 30, 2023 to $8.6 million for the six months ended June 30, 2024, primarily due to a higher average outstanding balance under our revolving credit facility and a higher effective interest rate of 6.6% during the six months ended June 30, 2024, compared to 6.1% during the six months ended June 30, 2023.
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Other Income, net.
Six months ended June 30, Percentage change
2024 2023 Change
Gain on sale and mark-to-market on investments $ 2.2 $ 2.7 $ (0.5) (20.5) %
Interest and dividend income 4.7 3.4 1.3 38.1 %
Fair value changes of contingent consideration 0.6 - 0.6 100.0 %
Other, net (0.1) (0.3) 0.2 (125.6) %
Other income, net $ 7.4 $ 5.8 $ 1.6 29.0 %
Other income, net increased by $1.6 million, from $5.8 million for the six months ended June 30, 2023 to $7.4 million for the six months ended June 30, 2024. The increase is primarily due to higher yield on our investments of $0.8 million, a decrease of $0.6 million in contingent consideration liability related to our June 2022 acquisition of Inbound Media Group, LLC as a result of fair value adjustment and lower other expenses of $0.2 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Income Tax Expense.The effective tax rate increased from 19.1% during the six months ended June 30, 2023 to 22.6% during the six months ended June 30, 2024. We recorded income tax expense of $27.6 million and $23.6 million for the six months ended June 30, 2024 and 2023, respectively. The increase in income tax expense was primarily as a result of lower excess tax benefits related to stock-based compensation during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, and an increase in non-deductible expenses, partially offset by lower profit during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Net Income. Net income decreased from $100.4 million for the six months ended June 30, 2023 to $94.6 million for the six months ended June 30, 2024, primarily due to higher income tax expense of $4.0 million, higher interest expense of $2.0 million and a decrease in income from operations of $1.3 million, partially offset by higher other income, net of $1.6 million.
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Liquidity and Capital Resources
Six months ended June 30, Dollar Change Percentage Change
2024 2023
(dollars in millions)
Opening cash, cash equivalents and restricted cash $ 141.0 $ 125.6 $ 15.4 14.1 %
Net cash provided by operating activities 53.0 63.6 (10.6) (16.6) %
Net cash (used for)/provided by investing activities (43.2) 11.8 (55.0) (467.0) %
Net cash used for financing activities (27.3) (101.8) 74.5 (73.2) %
Effect of exchange rate changes (1.8) 1.5 (3.3) (222.1) %
Closing cash, cash equivalents and restricted cash $ 121.7 $ 100.7 $ 21.0 23.4 %
As of June 30, 2024 and 2023, we had $276.1 million and $250.0 million, respectively, in cash, cash equivalents and short-term investments, of which $241.3 million and $224.0 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes. We periodically evaluate opportunities to distribute cash among our group entities to fund our operations, expand our business and make strategic acquisitions in the United States and other geographies, and as and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions. During the six months ended June 30, 2024, one of our subsidiaries in India repatriated $18.3 million (net of $1.0 million withholding taxes) to the United States.
Operating Activities:Cash provided by operating activities were $53.0 million during the six months ended June 30, 2024, compared to $63.6 million during six months ended June 30, 2023, reflecting lower cash earnings and higher working capital needs. The major drivers contributing to the decrease of $10.6 million year-over-year included the following:
•Decrease in cash earnings including adjustments for non-cash and other items contributed lower cash flow of $9.3 million during the six months ended June 30, 2024 compared to the six months ended June 30, 2023. These adjustments include fair value mark-to-market of investments, unrealized foreign currency exchange (gain)/loss, net, stock-based compensation expense, depreciation and amortization of long-lived assets and intangibles acquired in business combination, among others.
•Changes in accounts receivable, including advance billings, contributed higher cash flow of $6.1 million in the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Collections in accounts receivable, including advance billings, was driven by revenue growth during the six months ended June 30, 2024. Our days sales outstanding remained flat at 63 days as of June 30, 2024 and 2023.
•Payment of contingent consideration related to our December 2021 acquisition of Clairvoyant AI, Inc. ("Clairvoyant") contributed to a higher cash payout of $11.0 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
•Lower income tax payments, net of refunds, contributed lower cash payouts of $3.7 million.
Investing Activities: Cash used for investing activities were $43.2 million for the six months ended June 30, 2024, compared to cash provided by investing activities of $11.8 million for the six months ended June 30, 2023. The decrease of $55.0 million was primarily due to net purchase of investments $20.0 million during six months ended June 30, 2024, compared to net redemption of investments $37.4 million during the six months ended June 30, 2023. This was partially offset by lower cash paid for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $2.8 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Financing Activities:Cash used for financing activities were $27.3 million during the six months ended June 30, 2024, compared to $101.8 million during the six months ended June 30, 2023. The decrease of $74.5 million was primarily due to net proceeds from borrowings under our revolving credit facility of $135.0 million during the six months ended June 30, 2024, compared to net repayment of our borrowings of $30.0 million during the six months ended June 30, 2023. This was partially offset by higher purchases of treasury stock of $90.0 million under our share repurchase programs for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
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We expect to use cash from operating activities to maintain and expand our business by making investments, primarily related to building new digital capabilities, including generative AI and purchase telecommunications equipment and computer hardware and software in connection with managing client operations.
We incurred $23.3 millionof capital expenditures during the six months ended June 30, 2024. We expect to incur total capital expenditures of between $50.0 millionto $55.0 millionin fiscal 2024, primarily to meet our growth requirements, including additions to our facilities as well as investments in technology applications, product development, digital technology, advanced automation, robotics and infrastructure.
In connection with any tax assessment orders that have been issued, or may be issued against us or our subsidiaries, we may be required to deposit additional amounts with the relevant authorities with respect to such assessment orders. See Note 25 - Commitments and Contingencies to our unaudited consolidated financial statements under Part I, Item 1, "Financial Statements" for further details.
We believe that our existing cash, cash equivalents and short-term investments and sources of liquidity will be sufficient to satisfy our cash requirements over the next 12 months. Our future cash requirements will depend on many factors, including our rate of revenue growth, our investments in strategic initiatives, applications or technologies, operation centers and acquisition of complementary businesses, continued stock repurchases under our board-authorized stock repurchase program, which may require the use of significant cash resources and/or additional financing. We anticipate that we will continue to rely upon cash from operating activities to finance most of our above-mentioned requirements, although if we have significant growth through acquisitions or significant stock repurchases, including any shares purchased under an accelerated stock repurchase program, we may need to obtain additional financing.
In the ordinary course of business, we enter into contracts and commitments that obligate us to make payments in the future. These obligations include borrowings, including interest obligations, purchase commitments, operating and finance lease commitments, employee benefit payments under gratuity plans, payments for contingent consideration and uncertain tax positions. See Note 16 - Fair Value Measurements - Fair Value of Contingent Consideration, Note 18 - Borrowings, Note 21 - Leases and Note 25 - Commitments and Contingencies to our unaudited consolidated financial statements under Part I, Item 1, "Financial Statements" for further information on material cash requirements from known contractual and other obligations.
In the ordinary course of business, we provide standby letters of credit to third parties primarily for facility leases. As of June 30, 2024 and December 31, 2023, we had outstanding letters of credit of $0.5 million, each, that were not recognized in our consolidated balance sheets. These are unlikely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We had no other off-balance sheet arrangements or obligations.
Financing Arrangements (Debt Facility)
The following table summarizes our debt position:
As of June 30,2024 As of December 31, 2023
(dollars in millions)
Revolving credit facility
Current portion of long-term borrowings $ 75.0 $ 65.0
Long-term borrowings 260.0 135.0
Total borrowings $ 335.0 $ 200.0
As of June 30, 2024 and December 31, 2023, we were in compliance with all financial and non-financial covenants under the 2022 Credit Agreement.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements to our unaudited consolidated financial statements under Part I, Item 1, "Financial Statements."
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
During the three months ended June 30, 2024, there were no material changes in our market risk exposure. For a discussion of our market risk associated with exchange rate risk and interest rate risk, see Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO"), to allow timely decisions regarding required disclosure. In connection with the preparation of this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of the CEO and CFO, of the effectiveness and operation of our disclosure controls and procedures as of June 30, 2024. Based upon that evaluation, our CEO and CFO have concluded that the Company's disclosure controls and procedures, as of June 30, 2024, were effective.
Changes in Internal Control over Financial Reporting
During the three months ended June 30, 2024, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In the course of our normal business activities, various lawsuits, claims and proceedings may be instituted or asserted against us. Although there can be no assurance, we believe that the disposition of matters currently instituted or asserted will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. See Note 25 - Commitments and Contingencies to our unaudited consolidated financial statements under Part I, Item 1, "Financial Statements" for details regarding our tax proceedings.
ITEM 1A. Risk Factors
We have disclosed under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, a number of risks which may materially affect our business, financial condition or results of operations. You should carefully consider those risk factors and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us may also materially adversely affect our business, financial condition and/or results of operations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
None.
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Purchases of Equity Securities by the Issuer
During the three months ended June 30, 2024, purchases of common stock were as follows:
Shares Purchased
from Employees in connection with satisfaction of Withholding Tax Obligations 		Shares Purchased as Part of Publicly Announced Programs Total Number of Shares Purchased Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
Period Number of
Shares Purchased 		Average Price
Paid per share 		Number of
Shares Purchased 		Average Price
Paid per share
April 1, 2024 through April 30, 2024
- $ - - $ - - $ 375,000,000
May 1, 2024 through May 31, 2024
- $ - - $ - - $ 375,000,000
June 1, 2024 through June 30, 2024
- $ - 297,353 $ 29.67 297,353 $ 366,176,899
Total - $ - 297,353 $ 29.67 297,353 $ -
On October 5, 2021, our board of directors authorized a $300 million (excluding excise tax) common stock repurchase program beginning January 1, 2022 (the "2022 Repurchase Program").
On February 26, 2024, our board of directors authorized a $500 million (excluding excise tax) common stock repurchase program beginning March 1, 2024 (the "2024 Repurchase Program"), and terminated the 2022 Repurchase Program on February 29, 2024.
Under our two repurchase programs, shares may be purchased by us from time to time from the open market and through private transactions, or otherwise, as determined by our management as market conditions warrant. We have structured open market purchases under our two repurchase programs to comply with Rule 10b-18 under the Exchange Act. Repurchases may be discontinued at any time by management.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended June 30, 2024, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6. Exhibits
The following exhibits are being filed as part of this report or incorporated by reference as indicated therein:
3.1
3.2
31.1
Certification of the Chief Executive Officer of ExlService Holdings, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer of ExlService Holdings, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Extension Presentation Linkbase
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*This exhibit will not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 1, 2024 EXLSERVICE HOLDINGS, INC.
By:
/S/ MAURIZIO NICOLELLI
MAURIZIO NICOLELLI
Chief Financial Officer
(Duly Authorized Signatory, Principal Financial and Accounting Officer)
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