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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________
FORM 10-K
_________________________________________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023
OR
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-33089
_________________________________________________________
EXLSERVICE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
__________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
320 Park Avenue, 29 Floor,
New York, New York
th
(Address of principal executive offices)
82-0572194
(I.R.S. Employer
Identification No.)
10022
(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:
Common Stock, par value $0.001 per share
Trading symbol(s)
EXLS
Name of Each Exchange on Which Registered:
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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
Non-accelerated filer
Emerging growth company
☒
☐
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. ☐
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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 June 30, 2023, the aggregate market value of common stock held by non-affiliates was approximately $4,872,965,018.
As of February 27, 2024, there were 165,783,820 shares of the registrant’s common stock outstanding, par value $0.001 per share.
Part III incorporates information from certain portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the
fiscal year ended December 31, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
PART I.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 1C.
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
PART III.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV.
ITEM 15.
ITEM 16.
SIGNATURES
EXHIBIT INDEX
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Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreement with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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ITEM 1. Business
ExlService Holdings, Inc. (“EXL,” “we,” “us,” “our” or the “Company”), incorporated in Delaware in 2002, is a leading data analytics and digital
operations and solutions company. We partner with clients using a data and AI-led approach to reinvent business models, drive better business outcomes and
unlock growth with speed. EXL 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. EXL was founded
in 1999 with the core values of innovation, collaboration, excellence, integrity and respect. We are headquartered in New York and have approximately 54,000
employees spanning six continents.
We deliver data analytics and digital operations and solutions to our clients, driving enterprise-scale business transformation initiatives that leverage our
deep expertise in advanced analytics, AI, generative AI and cloud technology. Data, AI, analytics and digital have become core to virtually every significant
move a business makes to serve customers, optimize business processes, stay competitive and grow. Our vision of being an indispensable partner for data and
AI-led businesses reflects the long-term priorities of our clients' businesses across industry sectors, and we continue to evolve our offerings to drive business
outcomes through advanced analytics and AI-powered solutions on the cloud. Our data and AI-led value creation framework enables better and faster decision
making, leveraging our end-to-end data, analytics, AI capabilities and deep industry knowledge to drive improved business outcomes, and re-designing of
operating models to integrate advanced technology into operational workflows. We embed digital operations and solutions into clients’ businesses and
introduce our data and AI-led approach to transform operations with every new engagement, which helps our clients achieve better customer experience, higher
productivity, cost efficiency and improved business outcomes.
We manage and report financial information through our four reportable segments or strategic business units: Insurance, Healthcare, Analytics and
Emerging Business, which reflects how management reviews financial information and makes operating decisions. Our strategic business units align our
products and services with how we manage our business, approach our key markets and interact with our clients. These business units develop client-specific
solutions, build capabilities, maintain a unified go-to-market approach and are integrally responsible for service delivery, customer satisfaction, growth and
profitability. By integrating data and analytics directly into our client workflows, we drive more intelligence into our clients’ increasingly digital operations that
drive superior customer outcomes, optimize costs and power resilient and agile business models.
Digital Operations and Solutions
Our digital operations and solutions, which we deploy for our clients from our Insurance, Healthcare and Emerging Business strategic business units, are
focused on solving complex industry challenges. We use a focused industry vertical approach, and our solutions are designed to help our clients realize their
business and innovation goals and improve their strategic competitive position.
Some of our data and AI-led digital operations and solutions 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 receivables. We either manage and digitally transform these operations for our clients by deploying our
solutions through a software-as-a-service (“SaaS”) model via our partners’ cloud network or a client’s on-cloud deployment model, to digitally transform their
retained operations.
The key digital and AI capabilities that allow us to drive data and technology-led transformation for our clients include generative AI, reinforcement
learning, hyper-automation, cloud data management, conversational AI, robotics, enterprise architecture development, integration platform as a service and AI
for Operations. Some of our key solutions are:
• Generative AI platform for the development and deployment of our proprietary solutions, including, among others, Smart Agent Assist, Claims Assist,
Conversational Business Intelligence and Code Harbor.
• Xtrakto.AI is a patented and AI-powered solution designed to alleviate the challenges of managing unstructured data.
•
PayMentor is an AI-powered collections and receivables management solution designed to enhance the debt collection process.
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• Digital Finance Suite automates and streamlines financial processes and key finance and accounting tasks, which helps customers gain real-time
visibility into financial operations leading to faster decision making and reduced risks, among others.
• Data and AI-led Customer Experience: Delivers AI-infused customer experiences across multiple customer journeys and touchpoints.
• Digital Lending and Embedded Financing: AI-powered financing solution that reimagines and delivers a seamless and end-to-end origination, service
and payments journeys for multiple credit and loan products across industries.
• Data and AI-led Automation Solution eliminates friction and fragmentation in transaction processing using some of our proprietary workflow
solutions.
We use AI, data, and cloud technology, including our suite of solutions and accelerators, in a standardized, reusable and shared engineering and delivery
infrastructure, enabling us to leverage our investments across multiple clients.
Our strategic business units, through which we provide digital operations and solutions, are described below:
Our Insurance strategic business unit serves property and casualty insurance, life insurance, disability insurance, insurance brokers, reinsurers, annuity
and retirement services and insurtech companies. We provide end-to-end digital transformation solutions and data and AI-led operations services across the
insurance industry in areas such as claims processing, premium and benefit administration, agency management, account reconciliation, policy research,
underwriting support, new business acquisition, policy servicing, premium audit, surveys, billing and collection, commercial and residential survey and
customer service using digital technology, AI, including generative AI, ML and advanced automation. We provide end-to-end third-party administration for life
and annuity insurance policies, which includes digital customer acquisition services using a SaaS delivery model through our LifePRO® and Life Digital Suite
platforms that help clients administer life insurance, annuities and credit life and disability insurance policies. We also provide subrogation services to property
and casualty insurers using a business process-as-a-service delivery model and our proprietary Subrosource® software platform, the largest commercial end-to-
end subrogation platform. Subrosource® integrates with client systems, manages recovery workflow, increases recoveries and reduces costs. We provide a suite
of data and AI-led finance and accounting services that include financial planning and analysis, decision support, GAAP and statutory reporting and compliance
services in addition to core finance operations. We bring a data and AI-led and practical digital approach to finance and accounting, enabling our clients to
simplify and scale their finance and accounting processes, drive stakeholder centricity, improve controls and compliance, reduce operating costs and deliver
rich data and AI-led insights to our clients’ businesses.
Our Healthcare strategic business unit primarily serves U.S.-based healthcare payers, providers and pharmacy benefit managers organizations. We
combine deep healthcare domain expertise with data and AI-led insights and technology-enabled services to transform how care is delivered, managed and
paid. We provide services related to care management, utilization management, disease management, payment integrity, revenue optimization and customer
engagement directly addressing the market need for improved healthcare outcomes, patient and provider experience and access to the healthcare system in the
healthcare market and optimized healthcare spend.
We offer digital operations, SaaS and platform services designed to serve the healthcare industry. Our integrated care management offering, including our
proprietary clinical data, connects payers, providers and members to increase efficiencies and effectiveness across all aspects of care management, including
medical, pharmacy and behavioral health. Our data and AI-led digital operations and solutions infuse advanced analytics, AI, generative AI, cloud, ML and
robotics capabilities to improve efficiency, business outcomes and the consumer experience in healthcare across patient/member management, contracting and
network management, health and care management, claims administration and business operations.
Similar to our Insurance strategic business unit, we also provide finance and accounting services, digital transformation and advisory/consulting services
for our clients in the healthcare industry.
Our Emerging Business strategic business unit provides data and AI-led enterprise solutions in the areas of finance and accounting, customer experience
management and revenue enhancement to clients primarily in the banking and capital markets, utilities, retail and consumer packaged goods, technology,
media, and telecom, travel and leisure, manufacturing, transportation and logistics and business services industries. These enterprise solutions complement our
domain-specific industry solutions enabling our clients to deliver superior performance.
Our data and AI-led finance and accounting services include high-end analytical services, including financial planning and analysis, management
reporting, advanced forecasting and decision support, data management, regulatory reporting and risk and compliance services in addition to core transactional
finance operations. Our Digital Finance Suite, which is
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powered by our integrated cloud-based hyper-automation and insights platform, helps chief financial officers transform finance into a digitally enabled, scalable
data and AI-led function with lower cost to serve, superior business outcomes and improved stakeholder experience.
Our client experience management solutions that run on our proprietary EXL CONNECX platform, help our clients improve their end-customer
experience across the front, middle and back-office, integrating data flows, redesigning customer service processes and leveraging digital omni-channel
platforms. To deliver these solutions, we combine our deep industry knowledge with advanced analytics and digital capabilities, including robotics, proprietary
and partner-driven AI and ML solutions.
TM
Our revenue enhancement solutions include lead generation, inside sales and digital marketing, pricing, customer and marketing analytics, billing and
proprietary revenue assurance solutions, which helps deliver direct topline and margin impact to our clients’ business.
We also provide industry-specific digital operations and solutions. For our clients in the banking and financial services sector, we provide a range of
digital solutions, including residential mortgage lending, title verification and validation, retail banking and credit cards, trust verification, commercial banking
and investment management. In the retail and consumer packaged goods sector, we provide supply chain management services and analytical services including
merchandising, pricing and demand forecasting. For our clients in the utilities sector, we offer digital operations and solutions related to end-to-end customer
life cycle management including onboarding and terminations, engineering field services, customer service, billing and debt management and collections. In the
technology, media, and telecom sector, we manage media and advertising reconciliations, order entry, fulfillment and licensing management operations. For our
clients in the travel and leisure sector, we provide corporate and leisure travel services, including, reservations, customer service and fulfilment services. In the
transportation and logistics sector, we provide our clients with freight billing, collections, claims management, freight audit, freight scheduling, supply chain
management and revenue assurance services.
Analytics
Our Analytics strategic business unit helps clients build data-led businesses using AI, generative AI, advanced analytics solutions and services, and cloud
technology. By leveraging our suite of end-to-end analytics capabilities, we 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 clients’ businesses.
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, including:
• Superior customer experience, driving engagement, loyalty and increasing cross-sell through a deeper understanding of consumer behavior;
• Solutions for risk models, stress testing, Basel risk-weighted assets, reserves, and economic capital calculation;
• ML models for fraud monitoring, loss mitigation, and implementation and execution of fraud strategies;
• Enhanced decision-making in underwriting, claims processing and policy renewal through cognitive image analytics; and
• Payment integrity services in the U.S. healthcare industry ensuring accurate reimbursement and help prevent fraud, denials, and revenue leakage.
Our Analytics team is comprised of approximately 9,100 professionals, including data scientists, data architects, business analysts, statisticians, modelers
and industry domain specialists.
We help our clients leverage internal and external data sources, enhance their data assets, identify and visualize data patterns, and utilize data and AI-led
insights to improve their effectiveness. Our Analytics services for our clients include:
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• Identification, cleansing, matching and use of structured, semi-structured and unstructured data, available internally to our client’s organization and also
externally;
• Integration of data insights and predictive models into real-time, decision-making processes to drive measurable business impact;
• Design and implementation of services that enable data visualization and management reporting enabling business users to segment, drill down, and
filter data;
• Deployment of analytics professionals and data scientists who utilize analytics tools, cutting edge statistical techniques and methodologies in ways
designed to help customers better understand their data to generate actionable business insights; and
• Harnessing the power of AI, including generative AI to elevate decision-making paradigms, enabling our clients to achieve a sustainable competitive
advantage amid rapid technological innovation.
Our Analytics engagements span both project work and longer-term arrangements where we provide ongoing analytics modeling and services for a year
or longer. We utilize our deep industry knowledge to drive these engagements across our various competencies, including, data management and cloud
enablement, AI, generative AI, ML, advanced analytics and insights, data-enabled marketing solutions and strategic data assets.
Our Analytics services support: (1) retail banking, commercial banking and investment banking and management for the banking and financial services
industries; (2) marketing analytics, clinical analytics, patient engagement, pharmaco-economics outcomes and cost optimization solution in the healthcare
industry; (3) marketing and agency analytics, actuarial, servicing and operations, customer management and claims and money movement in the insurance
industry; and (4) marketing analytics, supply chain, logistics and digital operations and solutions in the retail and consumer packaged goods, media and telecom
and utilities and manufacturing industries.
We have seen a significant acceleration in the shift to digital and cloud-based solutions across all our target markets over the past few years. Capturing
data and enriching data has become a key differentiator for clients and their speed of decision making necessitating the adoption of AI, including generative AI
and ML techniques. The accelerated adoption of cloud-based solutions has increased our clients’ needs for a suite of cloud migration and enablement
capabilities.
We expect the trend in increased demand for analytics solutions to continue, and to capture these new opportunities, we have built a scalable and
customizable multi-cloud cross-sector generative AI platform with pre-built accelerators and packaged solutions. Our AI and analytics solutions include Bank
Transaction Insights, which provides insights from bank data and Customer 360 Insights, which provides agent and customer relationship insights.
TM
Our EXLClarity platform supports risk adjustment and quality management for payers and providers and helps to optimize their revenue. Our payment
services support payment integrity and maximize performance and financial-related results by leveraging our multi-payer dataset and applying digital solutions,
such as AI, natural language processing and robotics. These services involve verifying the correct party pays the claim, membership eligibility, contractual
platform offers population health analytics for enhanced care and network
adherence, and detecting and preventing fraud, waste, and abuse. Our EXLVantage
optimization. These analytics models integrate with campaign management and marketing analytics to support member acquisition and clinical program
interventions.
TM
We offer end-to-end data management services to support data strategy, ingestion, normalization, quality, security, governance, visualization and data
architecture development and deployment via agnostic tools and flexible delivery models. We continue to strengthen our expertise in data and product
engineering, ML operations, cloud enablement and managed services. We have expanded our footprint within our existing clients in the insurance, healthcare,
banking and financial services, retail and consumer packaged goods, media and telecom, utilities and manufacturing industries by cross-selling our enhanced
data management and cloud enablement offerings.
Business Strategy
EXL is a leading data analytics and digital operations and solutions company and is a key strategic partner for data and AI-led businesses. We reinvent
business models, drive better business outcomes and unlock growth with speed for our clients through advanced analytics and AI -powered digital solutions on
the cloud. We do this through our data and AI-led value creation framework to enable better and faster decision making, leveraging our end-to-end data and
analytics
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capabilities to drive improved business outcomes, and we re-design operating models to integrate advanced technology into operational workflows. Below are
some of our strategically focused considerations:
Expanding our Services in Large Addressable Markets
We continue to focus on the insurance, healthcare, banking and financial services, retail, media and technology industries, among others, which are large
markets with high demand, as well as pursuing opportunities in emerging industries. We also continue to build our client portfolio in finance and accounting
and consulting services in all our business segments. We are strategically equipped to help clients apply relevant digital technologies to enterprise processes and
business priorities at every step of the digital transformation journey, by bringing together domain expertise with data, advanced analytics, cloud, AI and ML.
Demand for our services is expected to continue to exhibit growth in the next several years.
Integrating our Data and AI-Led and Domain Capabilities
The combination of our data and AI-led capabilities and domain expertise has been central to our market differentiation. We are also well-positioned with
our suite of advanced analytics, data and AI-powered digital solutions on the cloud to create integrated services and solutions under one brand.
Cultivating Long-term Relationships and Expanding our Client Base
We continue to maintain our focus on cultivating long-term client relationships as well as attracting new clients. We believe there are significant
opportunities for additional growth within our existing clients, and we seek to expand these relationships by:
• Increasing the depth and breadth of the services we provide across our clients’ value chains and geographies;
• Offering the full suite of EXL services, which includes AI-powered digital operations and solutions, consulting and data analytics services; and
• Supporting our clients’ geographic expansions by leveraging our global footprint.
We intend to continue building a portfolio of Fortune 500 and Forbes Global 2000 companies in our focus industries that have complex and diverse data-
led processes and, accordingly, stand to benefit significantly from our services. We also intend to cultivate long-term relationships with medium-sized
companies in our focus industries by leveraging our data analytics, and digital operations and solutions offerings.
Optimizing our Global Delivery Footprint and Operational Infrastructure in the Countries and Regions where we Operate
Our network of delivery centers and operational footprint is designed to serve the needs of our business, including delivering for our clients, driving
efficiencies and adapting to hybrid working model. As part of our ongoing evaluation of facilities usage and business needs, we continually optimize our
network and footprint.
Pursuing Strategic Acquisitions and Relationships
We intend to continue making selective acquisitions in our focus industry verticals that enhance our competitive differentiation and that meet our strategic
and financial criteria. We consider selective strategic relationships with industry leaders that add new long-term client relationships, enhance the depth and
breadth of our services and solutions and complement our business strategy. Through our Connected Intelligence Partnership programs, we expand our
technology and innovation ecosystem with select partnerships, alliances or investments. We expect that the digital assets and intellectual property this
ecosystem provides will enhance our go-to-market opportunities, expand the scope and effectiveness of our services and solutions, help us to win new clients,
and allow us to enter new industry verticals and geographic markets.
Our Industry
Digital operations and solutions
As a provider of digital operations and solutions, we work with clients to execute enterprise-scale business transformation initiatives that enable improved
customer experience, revenue growth, operational efficiency and reduced
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risk. Our asset-based operations services combine the industry-specific knowledge of our global workforce with an ecosystem of partner and proprietary digital
solutions. These digital solutions help clients achieve their desired outcomes in three key ways: 1) leveraging advanced analytics that combine publicly
available data, proprietary data sets and clients’ own data to help power faster, more strategic decision making, 2) integrating AI/ML-driven natural language
processing to help streamline manual, labor-intensive workflows and improve end-customer engagement and experience, and 3) implementing AI/ML-powered
operating models that help our clients transition from legacy business operations and get to value faster.
This comprehensive approach acknowledges the critical role that digital capabilities play in both the operational business process and consumer-facing
customer engagement and user experience, as our clients’ customer touch points, interactions and experiences have increasingly shifted to digital channels.
Digital transformation is a long-term strategic commitment for a company that, once begun, is generally not subject to cyclical spending or information
technology budget fluctuations. Increased global demand, cost improvements in international communications and the automation of many business services
have created opportunities for digital operations providers with offshore delivery capabilities, and many companies are moving select office processes to
providers with the capacity to perform these functions from overseas locations.
Data Analytics
As a provider of advanced analytics, AI and data services, we help companies access and deliver real-time data and insights at multiple points in their
overall workflows so that all parts of the organization are working from the same data pool. Leveraging a large number of high-frequency, granular, non-
traditional data elements aggregated across proprietary data sets, client data and publicly available sources, advanced analytics enables clients to deliver
personalized customer experiences at scale, settle consumer issues efficiently and rapidly adapt their business strategies in response to market changes.
The enhanced generation of business data across multiple formats, substantial reduction in data storage costs, growing enterprise demand for data and AI-
led decision making and availability of sophisticated analytics tools, have enabled companies to make better decisions. By leveraging our end-to-end service
offerings, we develop industry-specific AI and advanced analytics solutions and generate data insights, which makes us well-positioned to benefit from this
global trend.
Sales, Marketing and Client Management
We market our services to our existing and prospective clients through our sales and client management teams, which are aligned by industry verticals and
cross-industry domains such as digital solutions, finance and accounting and consulting. Our sales and client management teams operate from the U.S., Europe,
Australia and South Africa are supported by our business development teams.
Our sales, marketing and business development teams are responsible for new client acquisitions, public relations, relations with outsourcing advisory
companies, analyst relations, lead generation, knowledge management, content development, campaign management, digital or web presence, brand awareness
and participation in industry forums and conferences. As of December 31, 2023, we employed approximately 250 sales, marketing, business development and
client management professionals, with the majority of these employees based in either the U.S. or India. Our professionals generally have significant experience
in consulting, analytics, digital operations and solutions services and digital technology within our focus industries.
Clients
EXL generated revenues from approximately 560 clients and 550 clients in 2023 and 2022, respectively (with annual revenue exceeding $50,000 per
client). We won 63 and 59 new clients during 2023 and 2022, respectively.
Our top three, five and ten clients generated 16.4%, 22.9% and 34.0% of our revenues, respectively, in 2023. Our top three, five and ten clients generated
16.3%, 22.9% and 34.9% of our revenues, respectively, in 2022. No client accounted for more than 10% of our total revenues in 2023 or 2022. Our revenue
concentration with our top clients remains consistent year-over-year and we continue to develop relationships with new clients to diversify our client base. We
believe that the loss of any of our ten largest clients could have a material adverse effect on our financial performance. See Part I, Item 1A, “Risk Factors”
under “Risks Related to Our Business––We earn a substantial portion of our revenues from a limited number of clients.”
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Our long-term relationships with our clients typically evolve from providing a single, discrete service or process into providing a series of complex,
integrated processes across multiple business lines. For digital operations and solutions other than consulting, we generally enter into long-term agreements
with our clients with typical initial terms between three to five years. Consulting engagements have typical terms of six to twelve months. Agreements for our
analytics services are either project based or have shorter initial terms, which are typically between one to three years. However, each agreement is individually
negotiated with the client.
Competition
Competition in the data analytics and digital operations and solutions industry is intense and growing. See Part I, Item 1A, “Risk Factors” under “Risks
Related to Our Business––We face competition globally from other providers and from our clients, who may build shared services centers to perform digital
operations and solutions and analytics services themselves, either in-house or other arrangements.” Many companies, including certain of our clients, choose to
perform some or all of their front-, middle- and back-office analytics and processes internally, utilizing their own employees and digital applications to provide
these services as part of their regular business operations. We believe our key advantage over in-house business processes and analytics management is our
ability to orchestrate relevant domain, data, digital, advanced analytics and human design expertise to enable delivery of sustainable outcomes that allow
companies to focus on their customers, core products and markets. We compete primarily against:
• large global companies with digital operations and solutions and operations capabilities, such as Accenture, Cognizant Technology Solutions, Genpact
Limited, IBM, Infosys, NTT DATA, Tata Consultancy Services, and WNS (Holdings);
• niche industry-specific digital operations and solutions providers such as Cotiviti and Optum Health;
• niche analytics services and digital platform providers; and
• leading accounting and management consulting firms.
We compete against these entities by working to differentiate ourselves as a strategic partner for businesses with deep industry expertise, sophisticated
data and analytics capabilities, innovative digital operations and solutions and technology strong client relationships, leading industry talent, superior process
capabilities and differentiated technology, which enable us to respond rapidly to market trends and the evolving needs of our clients.
Intellectual Property
Our intellectual property consists of proprietary platforms, software, data, databases, models, methodologies, know-how, names, designs, domains, user
interfaces, applications and operating procedures among other materials. We consider many of our business processes and implementation methodologies to be
trade secrets or proprietary know-how and confidential information. We seek to protect our intellectual property through a combination of patent, trademark,
copyright and trade secret laws, as well as through confidentiality procedures and contractual provisions. Clients and business partners typically agree in
writing to confidential treatment of our information. Our employees and independent contractors are required to sign work-for-hire agreements containing
confidentiality covenants as a condition to their employment and engagement, respectively. We also have policies requiring our employees, independent
contractors, and associates to respect the intellectual property rights of others, including obtaining appropriate licenses when using, selling or distributing third-
party materials.
The solutions we offer our clients often include our software, data and other intellectual property assets developed by our data scientists and engineers,
combined with software and data licensed by us or by clients from third parties. We also leverage strategic partnerships with third parties to facilitate our
solution offerings to clients, including, among others, robotics and process automation software providers, financing platform providers, and AI solutions
providers. We typically retain ownership of any pre-existing proprietary intellectual property assets, including modifications or enhancements to such pre-
existing proprietary assets developed while providing client services. Independently or while working on client engagements, we also often develop new tools,
methodologies and models, including AI and ML models that can be leveraged for various use cases. We endeavor to negotiate contracts that give us ownership
or broad licenses to use, develop, demonstrate and offer such newly developed intellectual property assets to or for other clients.
We operate in a highly competitive and rapidly evolving global market. We seek to continue providing value to our clients with our deep industry
knowledge, ability to advise clients on how to transform their processes and deliver transformation that drives business value, and ability to provide innovative
services and solutions, including digital offerings
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that incorporate AI and ML capabilities. We also rely on our reputation, client references, ability to sustain long-term client relationships, as well as our global
reach and scale, and competitive pricing to maintain our competitiveness in our industry. While our proprietary intellectual property assets are important to our
business, we believe EXL as a whole is not materially dependent on any particular intellectual property, other than our EXL brand. Our intellectual property
portfolio is comprised of patents, trademarks, copyrights, and domain names to protect our brands, including our EXL brand, which is one of our most valuable
assets.
Human Capital Management
At EXL, our organizational ethos is distinctly shaped by five core values: innovation, collaboration, excellence, integrity and respect. In line with our core
values, we recognize our workforce’s pivotal role in driving our success. We prioritize the ongoing development and progression of our employees, because we
believe it to be critical to our sustained performance and longevity.
As of December 31, 2023, our team is approximately 54,000 strong, with more than 50 offices spanning across six continents. This encompasses
approximately 34,900 employees located in India, 10,700 in the Philippines, 2,600 in the United States, 4,300 in South Africa and 1,500 employees are based in
other locations in which we operate.
As part of our expansion into Ireland in 2023, we formed a new collaboration with University College Dublin, one of Europe’s leading research-intensive
universities, as part of the Irish government’s Human Capital Initiative, which aims to strengthen ties between higher education and enterprises to address future
skills needs.
To date, our operations have remained uninterrupted by labor-related issues, a testament to our favorable employee relations within our organization.
Diversity, Equity and Inclusion
Our diversity, equity and inclusion philosophy aims to create a fair and inclusive work environment that harnesses the power of diversity to drive
organizational success. We recognize that the world we live and work in is diverse and fueled by innovation. To thrive in this environment, we foster a culture
that values diverse perspectives, embraces differences and promotes leadership opportunities in a way that reflects the communities in which we operate.
We consider diversity, equity and inclusion to be a key factor in our recruiting and retention goals and overall business growth strategy. As of
December 31, 2023, our United States reporting workforce comprised approximately 16.2% underrepresented minorities and our global workforce was
approximately 43% women.
EXL is committed to providing a supportive working environment and career opportunities for our employees. Our Diversity and Inclusion Council
consists of a global, diverse mix of leaders and oversees our diversity, equity and inclusion program. We provide trainings to our employees on topics aimed at
improving diversity, equity and inclusion, such as managing unconscious bias, and have formed employee resource groups for select employee communities
that are aimed at supporting diverse groups and interests. EXL has several programs to promote career advancement for women, including leadership
development for women at the mid- to senior- levels, a separate program to improve the retention and engagement of new mothers through employee friendly
parental leave and similar policies, and our WE (Women at EXL) platform, which is designed to enable women at EXL advance their career and achieve
professional growth through discussion, collaboration, networking, training, development and mentorship opportunities. We believe that maintaining diversity
in our leadership is one of the most important gateways to build an inclusive business. In recent years, we have placed a special focus on women leadership
development from mid to senior levels through actively developing women leaders. We also rigorously track attrition risks of women at the rank of Vice
President and above and work at minimizing attrition through diversity, equity and inclusion initiatives and benefits.
We actively work to foster the representation of underrepresented groups as well as promoting the inclusion of lesbian, gay, bisexual, transgender, and
queer (or questioning) (“LGBTQ+”) employees at all levels of the organization. In addition to EXL’s employee resource groups, we maintain “The Umbrella
Project,” an initiative for allyship and inclusion alongside our LGBTQ+ colleagues.
We maintain a supplier diversity program in the United States designed to provide opportunities for qualified diverse businesses.
Recruiting, Developing and Engaging our Employees
We have an integrated talent management framework that employs active collaboration between our recruitment, capability development and business
human resource functions. We deploy innovative methods to recruit, train and retain
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our skilled employees. We focus on recruiting the right talent and developing them further on relevant competencies through our learning academies, rigorous
promotion standards, client and industry-specific training and competitive compensation packages, which include incentive-based compensation.
Our talent strategy is a key driver for EXL’s long-term business strategy of turning data into a sustainable competitive advantage for our clients. To deliver
on this complex work, we focus on identifying the critical skills and roles necessary to our business so that we can attract and retain the talent needed.
We leverage shared resources across our services through personnel who have skill sets applicable to a wide variety of data, digital, cloud and AI/ML
services. We also have specialized experts in various domains, in our chosen industries and subject matters through our training academies. We have established
a comprehensive set of practices, processes and programs, which have made learning easily accessible, collaborative and embedded in workflows. Our
employees participate in trainings and upskilling virtually. Our employee relations function helps us understand our employees’ needs, concerns and interests,
so that we can respond to specific needs and concerns as they arise.
We focus on recruiting, training and retaining our professionals. Our talent acquisition strategy framework revolves around a “Build, Acquire, and
Partner” approach. We have developed effective strategies that enable an efficient recruitment process. The recruitment and training process evolved to an
online model in 2020, which we have since adopted as our permanent model. Some of the strategies we have adopted to increase efficiency in our hiring
practices include AI/ML-based intelligent screening mechanisms, remotely proctored online techniques and automated trainings. Our hiring policies focus on
identifying high-quality employees who demonstrate a propensity for learning, contribution to client services and growth. In certain circumstances, we use an
AI-driven infrastructure to enable our human resources function anticipate and find critical talent when and where we need them. Candidates must undergo
numerous tests and video interviews before we extend offers for employment. We also conduct background checks on candidates, including criminal
background checks where permitted and as required by clients.
We have adopted a hybrid working model, which we refer to as our “future operating model,” that provides our employees with a degree of additional
flexibility. We continue to use and improve digital-first and multi-channel approaches to keep our employees across the globe informed and engaged and moved
from an enterprise-centric approach to human capital management to one that is employee-centric.
Employee Benefits and Experience
We offer our employees competitive compensation packages that include incentive-based compensation and offer a variety of benefits that vary by facility,
including free transport to and from home in certain circumstances, subsidized meals and free access to recreational facilities located within some of our
operations centers.
In addition, we maintain several geographic specific employee health and wellness offerings, including an internal helpline with a central information hub
for resource availability, enhanced insurance coverage including parental insurance for our employees in India, among others.
Capability Development
We continue to promote opportunities for large-scale upskilling and reskilling of our employees, while also fostering a learning environment conducive to
individual skill-building and career advancement. In 2022, we implemented a fundamental shift in our capability development approach, transitioning from a
corporate-driven model to an ecosystem of democratized self-learning, where our employees have access to our digital learning ecosystem. This enables our
employees self-driven learning and growth experiences based on their personal goals and skills by using AI to anticipate and build market-relevant skills and
capabilities, curated libraries and intelligent web-sourced content. Our employees are supplied with specialized learning pathways to build digital capabilities,
skill mapping to direct them to courses as needed, chat groups where they can collaborate and discuss the latest trends, practice questions, practice labs for real-
world and hands-on experience, supervisor dashboards and leaderboards, and learning on the go.
Our talent development strategy is comprehensive and aligned to EXL’s overall business strategy. We aim for our employees to develop expertise around
the specific technologies, tools and frameworks required to successfully execute projects for our clients, as well as a mindset focused on agility, speed,
creativity, innovation and collaboration. We create thought leaders with high industry acumen who are better able to address our clients’ business priorities. We
also provide a career-linked learning path to our employees from new hires to tenured employees to senior levels of leadership.
Our domain academies focus on building domain expertise through certifications and specialization. These include our Insurance Academy, Travel
Academy, Finance and Accounting Academy, Healthcare Academy, Analytics Academy,
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Utilities Academy, Consulting Academy, Sales Academy and Digital Academy. These academies focus on achieving excellence and developing skill sets that
can be used across the different domains. Our training includes behavioral and functional components to enhance and ensure job readiness as well as also
boosting ongoing productivity and effectiveness. We also focus on promoting better diversity, equity and inclusion through our training programs. We have a
global presence catering to the specific learning requirements of each geography. We provide learning through our blended learning methodology comprising of
virtual, classroom, on the job coaching and technology-led learning.
Our talent, training and development objectives focus on “addressing roles critical to strategy,” “placing the right people for the right roles,” “creating a
future ready workforce” and “raising EXL’s baseline” by continuously building EXL-wide culture around a strong understanding of digital technologies.
Employee Retention
Our attrition rate for employees who had been with EXL for more than 180 days was 25.8% and 31.6% for the years ended December 31, 2023 and 2022,
respectively. The attrition rate in 2023 decreased from 2022, which we believe reflects better employee engagement. As competition in our industry increases,
our turnover rate could increase. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business––We may fail to attract and retain enough
sufficiently trained employees to support our operations or professionals with sufficient leadership capabilities, which may result in loss of revenue and an
inability to expand our business” and “Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin.”
Sustainability Strategy
The world we work and live in is powered by innovation. We believe success in such a world will come through passing along social goods to the
communities in which we operate, and ensuring that we conduct our operations in a sustainable and safe manner. These initiatives reflect our core values and
will make us a stronger, more impactful organization to work for and allow us to deliver exceptional results for our clients, employees, communities and
stockholders.
Our most recent Sustainability Report is available on our website. The information contained on our website is not included in, or incorporated by
reference into, this Annual Report on Form 10-K.
Community Activities
EXL finds meaningful ways to help the communities in which we operate. Our community activities focus on passing along the skills that our employees
use in our operations to members of the communities in which we operate to help transform lives. On our own, with outside partners and in partnership with our
clients, we support market-relevant technical and life skill development and education initiatives, disaster relief efforts and global health initiatives. These
programs align with the expectations clients have of service providers and benefit our other stakeholders. In 2023, we continued many of these activities in
hybrid and virtual formats. Examples of our programs include:
• Skills to Win Initiative: This skill development initiative provides participants from communities in which we operate in the United States, the United
Kingdom, the Philippines, India and South Africa with market-relevant skills for the digital economy. In 2022, we added a coding skills focus to the
Skills to Win Initiative, aimed at elevating women and non-binary members of our communities in technology in the United Kingdom, the United
States and South Africa, which was further expanded to the Philippines and India in 2023.
• Education as a Foundation Initiative: This classroom-based initiative currently delivered through online and offline learning platforms provides school-
aged students from communities in which we operate with data and analytics skills, language learning and career guidance.
Environmental, Health and Safety
We strive to continuously improve our environmental, health and safety initiatives (“EHS”), with a focus on reducing our carbon footprint, energy
conservation, waste minimization, green infrastructure and operations. Our EHS team tracks and assesses our progress with respect to key performance
indicators for energy, greenhouse gas emissions and water and waste generation targets annually. We have also established Company-wide and worksite-
specific workplace safety objectives that are integrated into our EHS Management System. Where practical, we seek to integrate EHS with our business
activities, focusing on conducting our activities in an environmentally responsible manner and ensuring the health and safety of our employees, contractors,
customers, visitors and the communities in which we operate. In addition, we seek to maintain a responsible supply chain by stating our expectations for all our
vendors in our Supplier Standards of Conduct
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and by collecting information from our new suppliers with respect to policies and performance on human rights, labor rights and environmental issues.
All our delivery centers worldwide are currently ISO 45001:2018 certified, meeting international standards for occupational health and safety, and ISO
14001:2015 certified, meeting international standards for effective environmental management systems. In 2023, we received a five star rating from the British
Safety Council for best practices in occupational safety for our operations centers in the United Kingdom and India. While we expect to maintain these
certifications and standards, there may be changes to our delivery centers or applicable rules or standards that could affect such certifications and standards.
Regulation
Our operations are subject to rules, regulations and statutes in the countries where we have operations and where we deliver services as a result of the
diverse and complex nature of our service offerings. More often, however, our clients contractually require that we comply with certain rules and regulations
applicable to us in delivering our services to them.
We provide third-party administrator insurance services from India and the Philippines and are currently able to provide these services in the United States
for 49 states (and the District of Columbia) and 48 states (and the District of Columbia), respectively by location. Additionally, our subsidiary in the Philippines
is able to provide utilization review services in the United States for 48 states (and the District of Columbia). Further, through domestic subsidiaries, we are
licensed or otherwise eligible to provide third-party administrator services in all states within the United States, as well as utilization review, claims adjuster and
insurance producer services in select states. We maintain licenses in various jurisdictions (or require certain categories of our professionals to be individually
licensed, as applicable) in service areas such as debt collection, utilization review, workers’ compensation utilization review, claims adjuster, mortgage loan
processing and underwriting and telemarketing services. Our facilities in the Philippines, as well as one domestic subsidiary, are accredited by the Utilization
Review Accreditation Commission (URAC) and National Committee for Quality Assurance (NCQA), the leading healthcare and education accreditation
organizations. We continue to obtain licenses and accreditations required from time to time by our business operations.
Our operations are also subject to compliance with a variety of other laws, including tax laws in the countries where we conduct our business. See Part I,
Item 1A, “Risk Factors” under “Risks Related to the International Nature of Our Business––Our global operations expose us to numerous and sometimes
conflicting legal and regulatory requirements, including, accreditation or licensing standards that govern our business, and violations of these requirements
could harm our business.”
We currently benefit from certain corporate tax holidays for our operations located in qualified Philippines Economic Zone Authority units. We are
managing our business in accordance with the guidelines issued in 2022 by the Philippines Fiscal Incentives Review Board to continue availing the tax
holidays.
We have established a headquarters for international business in Dublin, Ireland, and qualify for a reduced tax rate subject to certain conditions. We
continuously monitor our operations to ensure we continue to qualify for the reduced rate.
We currently operate in the Philippines and Ireland where we will be subject to a minimum tax rate pursuant to the Pillar Two Framework prescribed by
Organization for Economic Co-operation and Development (“OECD”). The OECD continues to release additional guidance on the Pillar Two Framework, with
implementation generally effective for 2024. We will continue to evaluate any potential impact on our operations.
See Part I, Item 1A, “Risk Factors” under “Risks Related to the International Nature of Our Business––Our financial condition could be negatively
affected if governments in the countries we operate in introduce new unfavorable tax legislation, including legal restrictions for repatriation of our earnings.”
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding issuers that file electronically through the EDGAR System. You may access the information filed by us
with the SEC by visiting its website.
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We also maintain a website at http://ir.exlservice.com. Information on our website does not constitute a part of, nor is it incorporated in any way, into this
Annual Report on Form 10-K or any other report we file with or furnish to the SEC. We make available, free of charge, on our website our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, proxy statements, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our
website also includes announcements of investor conferences and events, information on our business strategies and results, sustainability efforts, corporate
governance information, and other news and announcements that investors might find useful or interesting.
In this Annual Report on Form 10-K, we use the terms “EXL,” “we,” “us,” “our” or the “Company” to refer to ExlService Holdings, Inc. and its
subsidiaries.
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ITEM 1A. Risk Factors
Risks Related to Our Business
Our business depends on maintaining and growing client demand for our services and solutions, including by anticipating and incorporating the latest
technology into our offerings, and a significant reduction in such demand, a failure to respond to the evolving technological environment or a change in
our service or solution delivery could materially affect our results of operations.
Our success depends in part on the demand for our services and solutions, which could be negatively affected by a number of factors that may be outside
of our control, including, for example, economic and political volatility or changed market conditions. Our ability to maintain and grow demand for our
services and solutions requires that we continue to develop and implement offerings that keep pace with changes in the industry and anticipate and respond to
rapidly evolving technology and our clients’ evolving needs in areas such as AI, including generative AI, digital transformation and solutions, advanced
analytics, cloud based solutions, data management, robotics and process automation, and data engineering, among others. AI technologies are complex and are
rapidly evolving, and we face significant competition, including from our own clients, who may potentially develop their own internal, or acquire from third
parties, which in each case, can lead to reduced demand for our services and solutions. As these technologies evolve, some services and tasks currently
performed by our employees may be replaced by automation and AI technologies. We may not be successful in addressing these changes on a timely basis, or at
all, or successfully marketing any changes that we implement. In addition, products or technologies developed by others may render our services uncompetitive
or obsolete. If we do not sufficiently invest in new technologies, adapt to industry developments, evolve and expand our business at sufficient speed and scale
and successfully drive innovation, our ability to develop and maintain a competitive advantage, our growth strategy and our results of operations could be
adversely affected. If we are successful in responding to these developments, as we expand our services and solutions into these new areas, we may be exposed
to operational, legal, regulatory, ethical, technological and other risks specific to such new areas, which may negatively affect our reputation and demand for
our services and solutions.
Technological developments may materially affect the cost and use of technology by our clients and, in the case of cloud and as-a-service solutions, could
affect the nature of how we generate revenue. Some of these technological developments have reduced and replaced some of our historical services and
solutions and may continue to do so in the future. This has caused, and may in the future cause, clients to delay spending under existing contracts and
engagements and to delay entering into new contracts while they evaluate new technologies. Such technological developments and spending delays can
negatively impact our results of operations if we are unable to introduce new pricing or commercial models that reflect the value of these technological
developments or if the pace and level of spending on new technologies are not sufficient to make up for any shortfall. Developments in the industries we serve,
which may be rapid, also could shift demand to new services and solutions. If, as a result of new technologies or developments in the industries we serve, our
clients demand new services and solutions, we may be less competitive in these new areas or need to make significant investment to meet that demand. Our
growth strategy focuses on responding to these types of developments by driving innovation that will enable us to expand our business into new growth areas.
Our growing use of AI, including generative AI and ML, in our offerings presents additional risks. AI algorithms may be flawed, and datasets may be
insufficient or contain biased information. Inappropriate or controversial data practices by us or others could impair the acceptance of AI solutions or subject us
to lawsuits and regulatory investigations. These deficiencies could undermine the decisions, predictions or analysis AI applications produce, or lead to
unintentional bias and discrimination, subjecting us to competitive harm, legal liability, and brand or reputational harm.
Client demand may be impacted by the selling cycle and terms of our client contracts.
Client demand may be impacted by the selling cycle and terms of our client contracts. Consistent with industry practice, most of our client contracts may
be terminated by our clients without cause and do not commit our clients to provide us with a specific volume of business. Any failure to meet a client’s
expectations or a change in a client’s strategic direction could result in the cancellation or non-renewal of a contract or a decrease in the scope of services and
solutions that we are able to provide to such client. We may not be able to cover our costs or replace the associated revenues from such lost services or
solutions, which could impact our results of operations in subsequent periods.
The terms of our project-based analytics and consulting services contracts generally do not exceed one year and may not produce ongoing or recurring
business for us once the project is completed, and these contracts typically permit a client to terminate the agreement with shorter term notice. The majority of
our digital operations and solutions contracts have longer terms, typically ranging from three to five years, and generally require a longer notice period for
termination and may include an early termination fee to be paid to us, but this might not be sufficient to cover our costs or make up for the loss of revenues
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and profit upon termination of the contract. In addition, the selling cycle for such contracts, which generally ranges from six to eighteen months, and the
implementation and initial transformation processes, which could take up to an additional six to twelve months, are subject to many risks and delays over which
we have little or no control, including our clients’ decisions to choose alternatives to our services and solutions (such as other providers or in-house offshore
resources) and the timing of our clients’ budget cycles and approval processes, or subsequent changes in technology and offerings, could result in changed
demand. Our clients and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close
sales with potential clients to which we have devoted significant time and resources.
We may fail to attract and retain enough sufficiently trained employees to support our operations or professionals with sufficient leadership capabilities,
which may result in loss of revenue and an inability to expand our business.
Our success depends to a significant extent on our ability to attract, hire, train and retain qualified employees, including our ability to attract employees
with needed skills in the geographies where we operate. Our industry, including us, experiences high employee turnover due to significant competition for
professionals with skills necessary to perform the services we offer to our clients. A significant increase in the turnover rate among our employees, particularly
among our highly skilled workforce, would impact our operating efficiency, productivity and cost of revenues and eventually impact our profit margins due to
higher recruitment, training and retention costs and maintaining larger hiring, training and human resources departments.
If we are unable to invest in reskilling and upskilling our employees in the areas and skills that strategically important to our business, our ability to
effectively lead our current projects and develop new business could be jeopardized, and our business, results of operations and financial condition could be
adversely affected.
Our future success also depends substantially on the continued services and performance of the members of our management team and other key
employees in leadership positions that possess technical and business capabilities, including industry expertise, and are difficult to replace. Specifically, the loss
of the services of our Vice Chairman and Chief Executive Officer could seriously impair our ability to continue to manage and expand our business. Although
we have entered into employment and non-competition agreements with all of our executive officers, certain terms of those agreements may not be enforceable,
particularly in light of recent regulatory scrutiny from the U.S. Federal Trade Commission and others, and in any event these agreements do not ensure the
continued service of these executive officers. We currently do not maintain “key person” insurance covering any member of our management team. The loss of
any of our key management personnel, particularly to competitors, could have a material adverse effect on our business, results of operations, financial
condition and cash flows.
If we are unable to accurately estimate the resources and time for a project, adjust our pricing terms or effectively manage our asset utilization levels to
meet the changing demands of our clients and potential clients, our business, results of operations, financial condition and cash flows may be adversely
affected.
Our profitability is, in part, a function of the efficiency with which we utilize our assets, in particular our people and our operations centers, and the price
we can charge for our services. Our asset utilization levels are affected by a number of factors, including our ability to transition employees from completed
projects to new assignments, attract, train and retain employees, forecast demand for our services (including potential client terminations or reductions in
required resources) and maintain an appropriate headcount in each of our locations, as well as our need to dedicate resources for employee training and
development, other typically non-chargeable activities and optimizing our operational infrastructure. If we fail to estimate accurately the resources and time
required for a contract, or manage our asset utilization levels, future attrition rates, potential productivity benefits over time, future wage inflation rates or
currency exchange rates (or fail to accurately hedge our currency exchange rate exposure) or if we fail to complete our contractual obligations within the
contracted timeframe, our revenues, cash flows and profitability may be negatively affected.
In many of our digital operations and solutions contracts we commit to long-term and other pricing structures (such as full-time equivalent-based pricing,
fixed-price arrangements, transaction-based and outcome-based pricing) with our clients and therefore bear the risk of cost overruns, completion delays,
resource requirements, wage inflation and adverse movements in exchange rates in connection with these contracts. Industry pricing models are evolving, and
clients increasingly request alternative pricing models, rather than annual or hourly billing rates. If we make inaccurate assumptions for contracts with such
alternative pricing models including pricing for our digital capabilities and complex transformation services or are unable to offer competitive pricing, our
profitability may be negatively affected.
Unauthorized disclosure of sensitive or confidential client and employee data, whether through breach of our computer systems or otherwise, could cause
us significant reputational damage, expose us to protracted and costly litigation, and cause us to lose clients.
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We are typically required to process, and sometimes collect and/or store sensitive data, including data regulated by the U.S. Health Insurance Portability
and Accountability Act of 1996, as amended, of our clients’ customers in connection with our services, including names, addresses, social security numbers,
personal health information, credit card account numbers, checking and savings account numbers and payment history records, such as account closures and
returned checks. In addition, we collect and store data regarding our employees. In the United States, several states have enacted or are considering enacting
privacy regulations, including, the California Consumer Privacy Act, as amended; and there are several privacy regulations in other jurisdictions, such as the
General Data Protection Regulation in the European Union, the International Data Transfer Agreement in the United Kingdom and the Digital Personal Data
Protection Act, 2023 in India. These privacy regulations impose privacy and data security compliance obligations and significant penalties for noncompliance.
Other countries have enacted or are considering enacting data localization laws that require certain data to stay within their borders. We may also face audits or
investigations by one or more domestic or foreign government agencies or our clients pursuant to our contractual obligations relating to our compliance with
these regulations. Complying with changing regulatory requirements requires us to incur substantial costs, exposes us to potential regulatory action or litigation,
and may require changes to our business practices in certain jurisdictions. As a result, we are subject to various data protection and privacy laws in the countries
where we operate, and the failure to comply with such laws could result in significant fines and penalties. In addition, we may not be able to limit our liability
to our clients with respect to breaches of our obligation to keep the information we receive from them confidential.
Although we devote substantial resources to protect our information assets and our clients’ confidential information, any network infrastructure is to some
extent vulnerable due to rapidly evolving cyberattacks, employee error, malfeasance, or a combination of the foregoing. The remote work solutions that we
employ in our hybrid working model may also be limited in their ability to replicate the operational oversight and security controls of our office environments
and may pose a higher risk of operational and information security failures. Outside parties may attempt to fraudulently induce employees, users, or clients to
disclose sensitive information in order to gain access to our data or our users’ or clients’ data. Because the techniques used to obtain unauthorized access,
disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not
recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or
perceived breach of our security occurs (or a breach of a client’s security that can be attributed to our fault or is perceived to be our fault), the market perception
of the effectiveness of our security measures could be harmed and we could lose users and clients.
Security breaches expose us to a risk of loss of sensitive information, lawsuits from our employees, clients or their customers for breaching contractual
confidentiality provisions or privacy laws, or investigations and penalties from regulators or criminal prosecution, remediation costs, increased costs for
security measures, loss of revenue, damage to our reputation, and potential liability.
Further, growth in state sponsored cyber activity, including the increased rate of cyberattacks arising from the Russia-Ukraine conflict and the risk that
these cyberattacks could spread globally, showcases the increasing sophistication of cyber threats and could dramatically expand the global threat landscape. If
a material security breach or incident occurs with respect to a cloud services provider, our clients and potential clients may lose trust in cloud solutions
generally, and with respect to security in particular. This could adversely impact our ability to retain existing clients or attract new clients, which, in turn, could
have a serious impact on our reputation. Although we have not experienced a material incident to date, there can be no assurance that these measures will
prevent or limit the impact of a future incident. We may incur significant costs in protecting against or remediating cyberattacks or other cyber incidents.
We rely on third party vendors and partners to deliver services and components for client critical services, which exposes us to a variety of risks that could
have a material adverse effect on our business.
The services we provide are often critical to our clients’ businesses, and any failure to provide those services could result in a reduction in revenues or a
claim for substantial damages against us, regardless of whether we are responsible for that failure.
We depend on certain significant vendors and partners for software, technology and data communications, related equipment and its maintenance, and
third party components that we use to deliver our services, including cloud services. Our offshore operations centers require us to maintain active voice and data
communications among our operations centers, our technology and data hubs and our clients’ offices. Although we maintain our facilities and communications
links with business continuity and disaster recovery plans, disruptions could result from, among other things, technical breakdowns, computer glitches and
viruses and weather conditions. Any performance failure on the part of our vendors or partners, or the discontinuance by such vendors or partners of services
that we rely on them to perform, could delay our performance, or require us to engage alternative third parties to perform the services at our cost or to perform
the services ourselves, any of which could result in a negative impact on our reputation, a loss of revenue or adversely impact our cash flows and profitability.
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Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin.
Our most significant costs are the salaries and related benefits of our operations staff and other employees. For example, wage costs in India and the
Philippines have historically been significantly lower than wage costs in the United States, the United Kingdom and Europe for comparably skilled
professionals, and having a significant number of our employees in those lower wage costs countries has been one of our competitive advantages. However,
because of economic growth in India and the Philippines, increased demand for competitive services from such countries and increased competition for skilled
employees, wages for comparably skilled employees are increasing at a faster rate than in the United States, the United Kingdom and Europe. This may reduce
our competitive advantage. We also may need to increase the levels of employee compensation more rapidly than in the past to remain competitive in attracting
and retaining the quality and number of employees that our business requires. Wages are generally higher for employees performing AI, analytics and digital
transformation services than for employees performing digital operations and solutions. As the scale of such services increases, wages as a percentage of
revenues may increase. In addition, changes to the labor laws in the countries where we operate may also lead to a substantial increase in our wage costs. To the
extent that we are not able to control such costs by our efforts to add capacity in lower wage costs countries or share wage increases with our clients, wage
increases may reduce our margins and cash flows.
Our business could be materially and adversely affected if we do not protect our intellectual property or if our services are found to infringe on the
intellectual property of others.
Our success depends in part on certain methodologies, practices, tools and technical expertise we utilize in providing our services and solutions. Our
intellectual property consists of proprietary and licensed platforms, software, data, databases, methodologies, models, know-how, names, designs, domains, user
interfaces, applications and operating procedures, among other materials. We consider many of our business processes and implementation methodologies to be
trade secrets or proprietary know-how and confidential information. We seek to protect our intellectual property through a combination of patent, trademark,
copyright and trade secret laws, as well as through confidentiality procedures and contractual provisions. Clients and business partners typically agree in
writing to confidential treatment of our information. Our employees and independent contractors are required to sign work-for-hire and confidentiality
covenants as a condition to their employment and engagement, respectively. We also have policies requiring our employees, independent contractors, and
associates to respect the intellectual property rights of others, including obtaining appropriate licenses when using, selling or distributing third party materials.
However, these measures may not prevent misappropriation or infringement of our intellectual property or proprietary information and a resulting loss of
competitive advantage. Additionally, we may not be successful in obtaining or maintaining patents, trademarks or other intellectual property rights protections
for which we have applied or may in the future apply.
We may be unable to protect our intellectual property and proprietary technology effectively, which may allow competitors to duplicate our technology
and products and may adversely affect our ability to compete with them. To the extent that we do not protect our intellectual property effectively through
contractual provisions, confidentiality procedures, patents, trade secret laws or other means including those set forth above, other parties, including former
employees, with knowledge of our intellectual property may leave and seek to exploit our intellectual property for their own or others’ advantage. We may not
be able to detect unauthorized use and take appropriate steps to enforce our rights, and any such steps may not be successful. Infringement by others of our
intellectual property, including the costs of enforcing our intellectual property rights, may have a material adverse effect on our business, results of operations,
financial condition and cash flows.
In addition, competitors or others may allege that our systems, processes, marketing, data usage or technologies infringe on their intellectual property
rights, including patents. Non-practicing entities may also bring baseless, but nonetheless costly to defend, infringement claims. We could be required to
indemnify our clients if they are sued by a third party for intellectual property infringement arising from materials that we have provided to the clients in
connection with our services and solutions. We may not be successful in defending against such intellectual property claims or in obtaining licenses or an
agreement to resolve any intellectual property disputes. Given the complex, rapidly changing and competitive technological and business environment in which
we operate, and the potential risks and uncertainties of intellectual property-related litigation, we cannot provide assurances that a future assertion of an
infringement claim against us or our clients will not cause us to alter our business practices, lose significant revenue, incur significant license, royalty or
technology development expenses, or pay significant monetary damages or legal fees and costs. Any such claim for intellectual property infringement may have
a material adverse effect on our business, results of operations, financial condition and cash flows.
We earn a substantial portion of our revenues from a limited number of clients.
We have earned and believe that we will continue to earn in the near or foreseeable future a substantial portion of our total revenues from a limited
number of large clients. Any change in demand from any of our large clients for any reason could have
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a material adverse effect on our business, results of operations, financial condition and cash flows. Moreover, the loss of a major client could also impact our
reputation in the market, making it more difficult to attract and retain clients more generally.
Our inability to manage our rapid infrastructure and personnel growth across countries and changes to our operating model effectively could have a
material adverse effect on our business, results of operations, financial condition and cash flows.
We have operations centers across India, the United States, the Philippines, South Africa, Colombia, Bulgaria, Romania, the United Kingdom, the Czech
Republic, Mexico and the Republic of Ireland. Our headcount has increased significantly over the past several years. We expect to develop and improve our
internal systems in the locations in which we operate in order to address the anticipated continued growth of our business. We continue to look for operations
centers at locations outside of our current operating geographies. We have also made changes to our operating model driven by delivery of a significant portion
of our services from a hybrid working model, which has led to contraction of our operation centers. Changes in our operating model, such as the foregoing, or
other changes to our infrastructure facilities or how we are organized, as the needs and size of our business change, limit our ability to forecast the need to hire
additional skilled employees as and when they are required to meet the ongoing needs of our clients, and we may not be able to develop and improve our
internal systems. We may not be able to maintain our culture and effectively communicate our core values, policies and procedures, strategies and goals,
particularly given our world-wide operations, rate of new hires, and significant percentage of our employees who have the option to work remotely. We also
need to manage cultural differences among our employee populations and varying legal and regulatory regimes across jurisdictions, and that may create a risk
for employment claims. Our inability to execute our growth strategy, to ensure the continued adequacy of our current systems or to manage our expansion
effectively could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We may engage in strategic acquisitions or transactions, which could have a material adverse effect on our business, results of operations, financial
condition and cash flows, including the impact from the impairment of goodwill and other intangible assets, if any.
As part of our business strategy, we intend to continue to selectively consider acquisitions or investments, some of which may be material. Through the
acquisitions we pursue, we may seek opportunities to expand the scope of our existing services, add new clients or enter new geographic markets. There can be
no assurance that we will successfully identify suitable candidates in the future for strategic transactions at acceptable prices, have sufficient capital resources to
finance potential acquisitions or be able to consummate any desired transactions. Our failure to identify suitable candidates or close transactions with potential
acquisition targets for which we have invested significant time and resources could have a material adverse effect on our financial condition and cash flows.
Acquisitions, including completed acquisitions, involve a number of risks, including diversion of management’s attention, ability to finance the
acquisition on attractive terms, failure to retain key personnel or valuable clients, legal liabilities and the need to amortize acquired intangible assets, any of
which could have a material adverse effect on our business, results of operations, financial condition and cash flows. Future acquisitions may also result in the
incurrence of indebtedness or the issuance of additional equity securities.
The intellectual property of an acquired business may be an important component of the value that we agree to pay for such a business. Although we
conduct due diligence in connection with each of our acquisitions, such acquisitions are subject to the risks that the acquired business may not own the
intellectual property that we believe we are acquiring, that the intellectual property is dependent upon licenses from third parties, that the acquired business
infringes upon the intellectual property rights of others or that the technology does not have the acceptance in the marketplace that we anticipated.
We could also experience financial or other setbacks if transactions encounter unanticipated problems, including problems related to execution,
integration or underperformance relative to prior expectations. Our management may not be able to successfully integrate any acquired business into our
operations or maintain our standards, controls and policies, which could have a material adverse effect on our business, results of operations and financial
condition. Consequently, any acquisition we complete may not result in long-term benefits to us or we may not be able to further develop the acquired business
in the manner we anticipated.
In the event that the carrying amount of goodwill and other intangible assets are impaired, as determined by impairment testing that we conduct on at least
an annual basis, any such impairment would be charged to earnings in the period of impairment. Because this involves the use of critical accounting estimates,
we cannot assure you that future impairment of goodwill and other intangible assets will not have a material adverse effect on our business, financial condition
or results of operations.
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Our business could be negatively affected if we incur financial penalties or legal liability, including with respect to our contractual obligations, in
connection with providing our solutions and services.
Most of our agreements with clients contain service level and performance requirements, including requirements relating to the quality of our services.
Failure to consistently meet the service requirements of a client or errors made by our employees in the course of delivering services to our clients could disrupt
the client’s business and result in a reduction in revenues or a claim for damages against us.
If we fail to meet our contractual obligations or otherwise breach obligations to our clients or vendors, we could be subject to legal liability. We may enter
into non-standard agreements because we perceive an important economic opportunity by doing so or because our personnel did not adequately adhere to our
guidelines. In addition, with respect to our client contracts, the contracting practices of our competitors may cause contract terms and conditions that are
unfavorable to us to become standard in the marketplace. If we cannot, or do not, meet our contractual obligations to provide solutions and services to clients,
and if our exposure is not adequately limited through the enforceable terms of our agreements, we might face significant legal liability and our business could
be adversely affected. Similarly, if we cannot, or do not, meet our contractual obligations with vendors, such as licensors, the vendors may have the right to
terminate the contract, in which case we may not be able to provide client solutions and services dependent on the products or services provided to us by such
contracts.
We face competition globally from other providers and from our clients, who may build shared services centers to perform digital operations and solutions
and analytics services themselves, either in-house or other arrangements.
The market for our services is highly competitive, and we expect competition to intensify and increase in the future as more companies enter the market.
We face competition globally from other providers. We believe that the principal competitive factors in our markets are breadth and depth of process expertise,
offerings, knowledge of industries served, service quality, compliance rigor, global delivery capabilities, pricing, sales and client management capabilities.
Further, a client may choose to use its own internal resources rather than engage an outside firm to perform the types of services we provide. In addition, the
trend toward offshore outsourcing, international expansion by foreign and domestic competitors and continuing technological changes, such as cloud
computing, will result in new and different competition for our services.
These competitors may include entrants from the communications, software and data networking industries or entrants in geographic locations with lower
costs than those in which we operate. Some of these existing and potential competitors may have greater financial, personnel and other resources, a broader
range of service offerings, greater technological expertise, more recognizable brand names and more established relationships in industries that we currently
serve or may serve in the future. In addition, some of our competitors may enter into strategic relationships or mergers or acquisitions with larger, more
established companies in order to increase their ability to address client needs, or enter into similar arrangements with potential clients. The trend in multi-
vendor relationships has been growing, which could reduce our revenues to the extent that we are required to modify the terms of our relationship with clients
or that clients obtain services from other vendors. Increased competition, our inability to compete successfully against competitors, pricing pressures or loss of
market share could impact our business, results of operations, financial condition and cash flows.
We are vulnerable to natural disasters, technical disruptions, pandemics and societally created events that could severely disrupt the normal operations of
our business and if our risk management, business continuity and disaster recovery plans are not effective, it may adversely affect our business, results of
operations, financial condition and cash flows.
Our operations centers and our data and voice communications, particularly in India, the Philippines and South Africa, may be damaged or disrupted as a
result of natural disasters such as earthquakes, floods, volcano eruptions, heavy rains, drought, extreme heat, epidemics or pandemics, such as COVID-19,
tsunamis and cyclones, technical disruptions such as electricity or infrastructure breakdowns, including damage to telecommunications cables, computer
glitches and electronic viruses or man-made events such as political unrest, terrorist attacks, other acts of violence or war, protests, riots and labor unrest. Such
events may lead to the disruption of information systems and telecommunication services or our supply chain for sustained periods. They also may make it
difficult or impossible for employees to reach our business locations and for us to deliver our solutions and services.
In particular, a local or global outbreak of a pandemic, such as the COVID-19 pandemic, may have widespread and unpredictable impacts on global
societies, economies, financial markets and business practices. Any pandemic may in the future materially adversely affect us, our clients, employees,
contractors, suppliers and business partners, all of may be prevented from conducting business activities as usual, including due to the many and varying health
and safety measures in response to such pandemic, including travel restrictions, quarantines, curfews, shelter in place and safer-at-home orders. Measures taken
by governmental authorities may in the future disrupt the continuity of our provision of services to our clients and adversely impacted our business, results of
operations and financial condition.
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Our risk management, business continuity and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions,
particularly in the case of a catastrophic event. Damage or destruction that interrupts our provision of services could adversely affect our reputation, our
relationships with and liability to our clients, our leadership team’s ability to administer and supervise our business or it may cause us to incur substantial
additional expenditure to repair or replace damaged equipment or delivery centers. While we currently have commercial liability insurance, our insurance
coverage may not be sufficient to cover any such liability or other related costs. Furthermore, we may be unable to secure such insurance coverage at premiums
acceptable to us in the future or at all. Prolonged disruption of our services would also entitle our clients to terminate their contracts with us. Any of the above
factors may adversely affect our business, results of operations, financial condition and cash flows.
Risks Related to the International Nature of Our Business
If the transfer pricing arrangements we have for controlled intercompany transactions among our subsidiaries are determined to be inappropriate, our tax
liability may increase.
The transfer pricing regulations in the countries we operate in require that controlled intercompany transactions be at arm’s-length. Accordingly, we
determine and document pricing for controlled intercompany transactions based on an economic analysis as prescribed in the respective regulations. The tax
authorities have jurisdiction to review our transfer pricing. If our transfer pricing is challenged by the authorities, they could assess additional tax, interest and
penalties, thereby impacting our profitability and cash flows.
Our financial condition could be negatively affected if governments in the countries we operate in introduce new unfavorable tax legislation, including
legal restrictions for repatriation of our earnings.
We are subject to taxes in the countries we operate in. Our future tax liabilities could be adversely affected by any new unfavorable tax legislative changes
in the countries we operate in. We continuously monitor such changes to assess and quantify the potential impacts on our consolidated financial statements.
We currently benefit from corporate tax holidays in our qualified Philippines Economic Zone Authority operations centers in the Philippines. Our ability
to utilize these tax holidays could be adversely affected by any new unfavorable tax legislative changes. We continuously monitor such changes to assess and
quantify the potential impacts on our consolidated financial statements.
We have established a headquarters for international business in Dublin, Ireland, and qualify for a reduced tax rate subject to certain conditions. We
continuously monitor our operations to ensure we continue to qualify for the reduced rate.
We currently operate in the Philippines and Ireland where we will be subject to a minimum tax rate pursuant to the Pillar Two Framework prescribed by
Organization for Economic Co-operation and Development (“OECD”). The OECD continues to release additional guidance on the Pillar Two Framework, with
implementation generally effective for 2024. We do not anticipate any significant Pillar Two impacts, but will continue to evaluate any changes and potential
impact on our consolidated financial statements.
We earn a significant amount of our earnings in countries outside of the United States and we periodically evaluate opportunities to repatriate these
earnings to fund our global operations, including acquisitions and debt management. Not all of the undistributed earnings may be available for repatriation due
to foreign legal restrictions that require minimum reserves to be maintained in those countries, which may limit our ability to use such earnings across our
global operations in the United States or other geographies, where needed. Additionally, as and when we decide to repatriate such earnings, we may have to
accrue further taxes associated with such earnings in accordance with local tax laws, rules and regulations in the relevant jurisdictions, which are subject to
change from time to time. All of these risks and uncertainties could have a material adverse effect on our business, results of operations, financial condition and
cash flows.
Currency exchange rate fluctuations in the various currencies in which we do business, or the failure of our hedging strategies to mitigate such
fluctuations, could have a material adverse effect on our results of operations.
We report our operating results in U.S. dollars, yet a portion of our revenues and expenses are denominated in currencies other than the U.S. dollar.
Accordingly, we must translate such revenues and expenses, as well as corresponding assets and liabilities, into U.S. dollars at exchange rates in effect during or
at the end of each reporting period, as applicable. As a result, fluctuations in foreign currency exchange rates can adversely affect our results of operations. The
exchange rates among the Indian rupee, the Philippine peso, the U.K pound sterling, the South African rand and other currencies in which we incur costs
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or earn revenues and the U.S. dollar have changed substantially in recent years and may fluctuate substantially in the future. See Part II, Item 7A, “Quantitative
and Qualitative Disclosures About Market Risk.” Additionally, because a majority of our employees are based in India, Philippines and South Africa and paid
in Indian rupee or Philippine peso or South African rand, while our revenues are primarily reported in U.S. dollars and U.K. pound sterling, our employee costs
as a percentage of revenues may increase or decrease significantly if the exchange rates among the Indian rupee, the Philippine peso, the U.K pound sterling,
the South African rand and the U.S. dollar fluctuate significantly.
In addition, conflicts between Russia and Ukraine, and Israel and Hamas, coupled with high inflationary pressures and interest rates, have led the
International Monetary Fund to downgrade its outlook for the world economy for 2024. This has led to and may continue to lead to uncertainty over global
economic conditions and unpredictable fluctuations in foreign currency exchange rates, and in particular, has impacted and may continue to impact the Indian
rupee, the Philippine peso, the U.K pound sterling, the South African rand and other currencies in which we incur expenses.
Although we take steps to hedge a substantial portion of our Indian rupee/U.S. dollar, U.K pound sterling/U.S. dollar, Philippine peso/U.S. dollar and
South African rand/U.S. dollar foreign currency exposures, there is no assurance that our hedging strategy will be successful or that the hedging markets will
have sufficient liquidity or depth to allow us to implement our hedging strategy in a cost-effective manner. Any failure by our hedging counterparties to meet
their contractual obligations could materially and adversely affect our profitability, business, results of operations, financial condition and cash flows.
Restrictions on visas and work permits may affect our ability to compete for and provide services to clients in the United States and other countries, which
could make it more difficult to staff engagements and could increase our costs, which could have an adverse effect on our net income.
Immigration and work permit laws and regulations in the countries where we have clients are subject to legislative and administrative changes as well as
changes in the application of standards and enforcement.
The ability of some of our executives and employees based in India and other foreign locations to work with and meet clients in the United States and
other countries depends on their ability to obtain the necessary visas and work permits. In recent years, immigration authorities, in the United States as well as
other countries where our clients are based, have increased the level of scrutiny in granting such visas and work permits, which may be affected by changes in
legislation and enforcement due to political and other factors which may be difficult to predict. The ability to move our employees around the world as
necessary to meet client demands is important to our business. If we are unable to efficiently deploy talent because of increased regulation of immigration or
work visas, including limitations placed on the number of visas granted, limitations on the type of work performed or location in which the work can be
performed, and new or higher minimum salary requirements, it could be more difficult to staff our employees on client engagements and could increase our
costs and have an adverse effect on our net income and cash flows.
Investors may have difficulty effecting service of process or enforcing judgments obtained in the United States against our foreign subsidiaries or our
executive officers.
Our primary operating subsidiaries are organized outside the United States and some of our executive officers may reside outside of the United States. A
substantial portion of our assets are located in India and the Philippines. As a result, you may be unable to effect service of process upon our affiliates who
reside in India and the Philippines outside their jurisdiction of residence. In addition, you may be unable to enforce against these persons outside the jurisdiction
of their residence judgments obtained in courts of the United States, including judgments predicated solely upon the federal securities laws of the United States.
Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, including, accreditation or licensing standards
that govern our business, and violations of these requirements could harm our business.
We provide services to clients throughout the world, therefore we and our clients (who sometimes impose those requirements on us) are subject to
numerous, and sometimes conflicting, changing and evolving laws and regulations on matters as diverse as import/export controls, content requirements, trade
restrictions, tariffs, taxation, sanctions, government affairs, internal and disclosure control obligations, securities regulation, including anti-competition, anti-
money-laundering and anti-corruption laws (including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act), data privacy and protection,
government compliance, wage-and-hour standards, employment and labor relations, health and safety, environmental and human rights, state laws on third
party administration services, utilization review services, telemarketing services or state laws on debt collection in the United States and the Financial Services
Act in the United Kingdom as well as similar consumer
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protection laws in other countries where our clients’ customers are based. The global nature of our operations increases the difficulty of compliance. In
addition, we are required under various laws to obtain and maintain accreditations, permits and/or licenses for the conduct of our business in all jurisdictions
where we have operations, and, in some cases where our clients receive our services to enable them to comply with applicable regulations or accreditations or
licensing standards. Compliance with diverse legal requirements is costly, time-consuming and requires significant resources. Violations of any of these laws or
regulations in the conduct of our business, including being unable to maintain our accreditations, licenses or other qualifications while working for our clients,
could result in fines, criminal sanctions against us or our officers, prohibitions on doing business or suspension or disqualification from government contracting
or contracting with private entities in certain highly regulated industries, damage to our reputation and other unintended consequences such as liability for
monetary damages, fines and/or criminal prosecution including in the form of successor liability in certain circumstances for companies we invest in or acquire,
unfavorable publicity, or restrictions on our ability to process information and allegations by our clients that we have not performed our contractual obligations
and loss of clients.
Risks Related to Our Indebtedness
We may not be able to service our debt or obtain additional financing on competitive terms.
We are party to a credit agreement for our bank debt facility that contains covenants, among other things, requiring maintenance of certain financial ratios
and restricting our ability to incur additional indebtedness, create liens, make certain investments and acquisitions, pay dividends, repurchase common shares
and make other restricted payments or undertake certain fundamental changes (including, consolidations, liquidations or disposal of certain assets or
subsidiaries). The credit agreement provides for a $400 million revolving credit facility including a letter of credit sub-facility and is guaranteed by certain
subsidiaries. If we breach any of these covenants and do not cure such breach within the applicable cure periods or obtain a waiver from the lenders, the
outstanding indebtedness could be declared immediately due and payable and such acceleration could adversely affect our liquidity and financial condition.
Our cash flow from operations provides the primary source of funds for our debt service payments. Given the uncertainty over global economic conditions
and regulatory, competitive or other factors outside of our control, including but not limited to conflicts between Russia and Ukraine, and Israel and Hamas,
there can be no assurance that business activity will be maintained at our expected level in order to generate the anticipated cash flows from operations. If our
cash flow from operations declines, we may not be able to service or refinance our current debt or obtain financing on favorable terms to us or at all, which
could adversely affect our business and financial condition. A substantial portion of our floating rate indebtedness is exposed to interest rate fluctuations as only
a portion is hedged through interest rate swaps. Accordingly, any adverse change in interest rates due to market conditions or otherwise could increase our cost
of funding substantially.
We may in the future require additional financing to fund one or more acquisitions and may not be able to obtain such additional financing on competitive
terms or at all, which could restrict our ability to complete such transactions.
Risks Related to Our Common Stock
Our stock price continues to be volatile.
The market price of our common stock has at times experienced or may experience substantial price volatility as a result of, among other reasons,
variations between our actual and anticipated financial results, announcements by us and our competitors, terrorist attacks, natural disasters, epidemics or
pandemics, or other such events impacting countries where we or our clients have operations, loss of one or more significant clients, announcements of
technological developments, projections or speculation about our business or that of our competitors by the media or investment analysts, the effect of any
stock split, or uncertainty about current global economic conditions. The stock market, as a whole, experiences extreme price and volume fluctuations that
affect the market price of many companies, including technology companies, in ways that may have been unrelated to these companies’ operating performance.
The global stock markets have experienced, and may continue to experience, significant volatility from inflation and high interest rates, which could result in a
material adverse effect on our stock price. Furthermore, if we fail to meet expectations relating to future growth and profitability, this may have a materially
adverse effect on the trading price of our common stock.
Delaware law and our restated certificate of incorporation and sixth amended and restated by-laws contain certain anti-takeover provisions that could delay
or discourage business combinations and takeover attempts that stockholders may consider favorable.
Our restated certificate of incorporation and sixth amended and restated by-laws (the “by-laws”) contain provisions that may make it more difficult,
expensive or otherwise discourage a tender offer or a change in control or takeover attempt by a
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third-party that is opposed by our board of directors. These provisions include provisions permitting the board of directors to fill vacancies created by its
expansion, provisions requiring the vote of holders of two thirds of our common stock for certain amendments to our organizational documents, provisions
barring stockholders from calling a special meeting of stockholders or requiring one to be called or from taking action by written consent and provisions that set
forth advance notice procedures for stockholders’ nominations of directors and proposals for consideration at meetings of stockholders. These provisions may
have the effect of delaying or preventing a change of control or changes in management that stockholders consider favorable. Additionally, because we are
incorporated in Delaware, we are subject to Section 203 of the Delaware General Corporation Law (the “DGCL”). Section 203 of the DGCL may prohibit large
stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions of our restated
certificate of incorporation, by-laws and Delaware law could discourage potential takeover attempts and reduce the price that investors might be willing to pay
for shares of our common stock in the future which could reduce the market price of our stock.
We do not intend to pay dividends in the foreseeable future, and, because we are also a holding company, we may be unable to pay dividends.
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying
any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on
then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, including restrictions under
our credit agreement, business prospects and other factors that our board of directors considers relevant. Furthermore, because we are also a holding company,
any dividend payments would also depend on the cash flow from our subsidiaries. Accordingly, under certain circumstances, we may not be able to pay
dividends even if our board of directors would otherwise deem it appropriate.
Risks Related to Our Industry
Our industry may not develop in ways that we currently anticipate due to negative public reaction in the United States and elsewhere to offshore
outsourcing, anti-outsourcing legislation or otherwise.
Offshore outsourcing is a politically sensitive topic in the United States and elsewhere, and many organizations and public figures have publicly expressed
concern about a perceived association between offshore outsourcing providers and the loss of jobs in the United States, where the majority of our clients are
located, and elsewhere. Current or prospective clients may elect to perform such services themselves or may be discouraged from transferring these services to
offshore providers to avoid any negative perception that may be associated with using an offshore provider. Measures aimed at limiting or restricting
outsourcing by U.S. companies have been put forward by the U.S. Congress and in state legislatures to address these concerns. If any such measure is enacted,
our ability to do business with U.S. clients through our non-U.S. affiliates could be negatively impacted.
General Risk Factors
Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our clients’
businesses and levels of business activity.
Global economic and political conditions affect our clients’ businesses and the markets they serve, which are increasingly becoming more interdependent.
The domestic and international capital and credit markets have in the past, and may in the future, experience volatility and disruption and uncertainty from
geopolitical tensions, inflation, economic tensions, changes in legislation in the various jurisdictions in which we and our clients operate, changes in global
trade policies, or global health emergencies or pandemics, which may affect our clients, us directly, or our client industries, and could result in changing
demand patterns. Our business largely depends on continued demand for our services. Weakness in the global labor market could also adversely affect the
demand for our services and impact our ability to recruit, train and retain qualified employees, resulting in a significant negative impact on our business and
results of operations.
Market disruptions may limit our ability to access financing or increase our cost of financing to meet liquidity needs, and affect the ability of our clients to
use credit to purchase our services or to make timely payments to us.
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and
assumptions could adversely affect our financial results.
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The application of U.S.
GAAP requires us to make estimates and assumptions about certain items and future events
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that affect our reported financial condition, and our accompanying disclosure. Our most critical accounting estimates are described in Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Critical Accounting Policies and Estimates.” We base our
estimates on historical experience, contractual commitments and on various other assumptions that we believe to be reasonable under the circumstances and at
the time they are made. These estimates and assumptions involve the use of judgment and are subject to significant uncertainties, some of which are beyond our
control. If our estimates, or the assumptions underlying such estimates, are not correct, actual results may differ materially from our estimates, and we may
need to, among other things, adjust revenues or accrue additional charges that could adversely affect our results of operations.
We are exposed to credit risk and fluctuations in the market values of our investment and derivatives portfolios.
Any deterioration of the credit and capital markets in the United States, the United Kingdom, Europe, Asia or other regions of the world could result in
volatility of our investment earnings and impairments to our investment portfolio, which could negatively impact our financial condition and reported income.
Changes in economic conditions could adversely affect the ability of counterparties, including counterparties to our foreign exchange forward contracts, to meet
their obligations to us, which could materially affect our positions and investments.
We may not be fully insured for all losses we may incur.
We could be sued directly for claims that could be significant, such as claims related to breaches of privacy or network security, infringement of
intellectual property rights, violation of wage and hour laws, or systemic discrimination, and our liability under our contracts may not fully limit or insulate us
from those liabilities. Although we have general liability insurance coverage, including coverage for errors or omissions, cyber security incidents, property
damage or loss and breaches of privacy and network security, that coverage may not continue to be available on reasonable terms or in sufficient amounts to
cover one or more large claims, and our insurers may disclaim coverage as to any future claim. Insurance is not available for certain types of claims, including
patent infringement, violation of wage and hour laws, failure to provide equal pay in the United States, and our indemnification obligations to our clients based
on employment law. The successful assertion of one or more large claims against us that are excluded from our insurance coverage or exceed available
insurance coverage, or changes in our insurance policies (including premium increases, the imposition of large deductible or co-insurance requirements, or our
insurers’ disclaimer of coverage as to future claims), could have a material adverse effect on our business, results of operations, financial condition and cash
flows.
New and changing laws, corporate governance and public disclosure requirements add uncertainty to our compliance policies and increase our costs of
compliance.
New and changing laws, regulations and standards relating to accounting, corporate governance, sustainability and public disclosure, other SEC
regulations, rules and regulations of the Consumer Financial Protection Bureau, the Nasdaq Stock Market LLC (or equivalent or other exchange on which our
common stock may be listed), the Public Company Accounting Oversight Board, generally accepted accounting principles issued by Financial Accounting
Standard Board, and state law can create uncertainty for companies like ours. These laws, regulations and standards may lack specificity and are subject to
varying interpretations. Their application in practice may evolve over time, as new guidance is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such corporate governance standards.
In particular, federal securities laws require us to maintain internal controls over financial reporting. Effective internal controls are necessary for us to
provide reliable and accurate financial information and to effectively prevent fraud. We devote significant financial and managerial resources and time to
comply with the internal control over financial reporting requirements and continue to enhance our controls. Internal control over financial reporting has
inherent limitations, including human error, sample-based testing, the possibility that controls could be circumvented or become inadequate because of changed
conditions, unidentified controls, and fraud, which might not prevent or detect all misstatements or fraud, and could result in adverse consequences to us,
including, but not limited to, a loss of investor confidence in the reliability of our financial results, which could cause the market price of our stock to decline.
While we do not anticipate any material weaknesses in our internal controls framework, we cannot be certain that we will be able to prevent future significant
deficiencies or material weaknesses.
Our sustainability commitments and disclosures may expose us to reputational risks and legal liability.
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Our brand and reputation are also associated with our public commitments to various corporate sustainability initiatives. Our disclosures on these matters
and any failure or perceived failure to achieve or accurately report on our commitments, could harm our reputation. In addition, positions we take or do not take
on social issues may be unpopular with some of our employees, our existing and potential clients and investors, governments, media or advocacy groups, which
may impact our ability to attract or retain employees or the demand for our services. We also may choose not to conduct business with potential clients or
discontinue or not expand business with existing clients due to these positions.
Increasing focus on sustainability matters has resulted in, and is expected to continue to result in, the adoption of new laws and regulations and reporting
requirements and if these are more stringent than the current requirements, we may experience increased compliance burdens and costs to meet such
obligations. In addition, our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and
standards, may change from time to time or may not meet the expectations of investors or other stakeholders. Our ability to achieve our sustainability
commitments, including our goals relating to sustainability, inclusion and diversity, is subject to numerous risks, many of which are outside of our control.
In addition, standards for tracking and reporting on sustainability matters have not been harmonized and continue to evolve. Methodologies for reporting
sustainability data may be updated and previously reported sustainability data may be adjusted to reflect improvement in availability and quality of third-party
data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances. Our processes and controls for reporting
sustainability matters across our operations and supply chain are evolving along with multiple disparate standards for identifying, measuring, and reporting
sustainability metrics, including sustainability-related disclosures that may be required by the SEC and other regulators, including state, and such standards may
change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in
the future.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 1C. Cybersecurity
We maintain a comprehensive information and cybersecurity and data privacy program to safeguard the security, confidentiality, integrity, availability and
protection of the Company’s and our clients’ information. We aim to continually strengthen our cybersecurity posture and protocols. We have invested in
people, processes and technology intended to protect information throughout the business life cycle and to manage cybersecurity risk, and we intend to continue
to do so as cybersecurity risks and methods for preventing against them evolve. We provide no assurance that the policies and procedures outlined below will
be properly followed in every instance or that they will be effective in safeguarding against every possible cybersecurity threat.
We describe how cybersecurity threats are likely to materially affect our business, results of operations, and financial conditions in Part I, Item 1A, “Risk
Factors.” We believe that these risks have not materially affected our business to date, but we can provide no assurance that they will not affect us in the future.
Although we maintain cybersecurity insurance to manage potential liabilities resulting from specific cybersecurity incidents, there is no guarantee that our
insurance coverage limits will protect against any future claims or that such insurance proceeds will be paid to us in a timely manner. See “Risks Related to Our
Business-Unauthorized disclosure of sensitive or confidential client and employee data, whether through breach of our computer systems or otherwise, could
cause us significant reputational damage, expose us to protracted and costly litigation, and cause us to lose clients.”
Cybersecurity Strategy and Risk Management
Our cybersecurity strategy is founded on policies, processes and practices that are integrated into our overall risk management system. These policies,
processes and practices are aimed at building a cyber-resilient organization by implementing and operationalizing cybersecurity capabilities to identify, protect,
detect, respond and recover from cybersecurity threats and incidents and are guided by relevant regulatory and governance bodies, including but not limited to
the Cyber Security Framework of the National Institute of Standards and Technology. We have undertaken measures designed to comply with applicable
privacy laws and regulations that are applicable to our services. These security capabilities are designed to mitigate material vulnerabilities and the impact of
cyber incidents.
We regularly conduct cybersecurity and other risk assessments and compliance audits both internally and through third party auditors that we
independently engage or that we engage in connection with our certification to certain international standards, such as the ISO 27001:2013 standard for
information security management systems, the ISO 22301:2012 for business continuity management systems, the ISO 9001:2008 standard for quality
management systems, among others. We also
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regularly assess and deploy technical safeguards and conduct vulnerability assessment and penetration testing of our technology environment independently and
through third parties. We use the outcome of these assessments to align our cybersecurity program and technical safeguards with the evolving cybersecurity
threat landscape and adjust and augment our security controls environment as required.
We have implemented a third-party risk management program to proactively identify and mitigate any potential risks that emerge from our supplier and
partner ecosystem. There are processes in place to restrict and provide need-based access to sensitive or confidential data for third parties. We conduct periodic
evaluations of key suppliers and partners for ongoing monitoring of the risk environment.
Incident Response and Recovery Planning
While processes are in place to minimize the occurrence of a successful cyberattack, we have institutionalized detailed incident response procedures to
address a cyber threat that may occur despite these safeguards. The response procedures are designed to identify, analyze, isolate and contain, remediate, and, if
applicable, report any such material cyber incidents that occur. We have developed a materiality assessment approach for cyber and a cyber crisis
communication methodology for structured and timely notification to internal and external stakeholders. Further, we have empaneled specialized cyber partners
to provide advanced investigation capabilities and response management support in case of a real cyber incident.
Training and Awareness
We maintain a comprehensive information and cybersecurity awareness and training program for all employees and contracted resources. This includes a
mandatory annual information security training, periodic simulations such as red teaming and tabletops, regular communications on relevant topics and policies
related to data privacy, phishing, email security best practices, among others. We provide specialized security training for certain roles with access to sensitive
data, including human resources or employees who regularly handle personal or sensitive information.
Governance (Management Oversight and Engagement with the Board of Directors)
Cybersecurity is governed by our cross-functional apex body, the Management Security, Continuity and Privacy Forum (“MSCPF”), comprised of
management representatives across all of our business units and enterprise functions such as Legal, Human Resource, Growth and Strategy, Compliance,
Technology and Information Security. The MSCPF periodically reviews the strategy, policy, program effectiveness, standards development, cybersecurity risks,
incident, and response preparedness.
The Audit Committee of our board of directors provides primary oversight and strategic guidance on Cybersecurity. The Audit Committee receives
reports from management, typically on a quarterly basis, regarding our security risk management, including cybersecurity-related risks, vulnerabilities, policies,
practices, and strategic initiatives. Annually, our board of directors receives a report from management on our cybersecurity posture, our readiness and our
capability to reduce the risk of, detect and respond to a cyberattack. In 2022 and 2023, our senior management and board of directors completed cyber tabletop
exercises to further enhance our preparedness in the event of an actual incident.
ITEM 2. Properties
Our corporate headquarters are located in New York, New York. We have multiple operations centers spread across India, the Philippines, South Africa,
Columbia, Bulgaria, Romania, the United Kingdom, the Czech Republic, Mexico and the Republic of Ireland with an aggregate area of approximately
1,579,000 square feet and a current installed capacity of approximately 24,800 workstations, including workstations for training and our employees in enabling
functions. We also have multiple operations centers and regional offices in the United States.
Our corporate headquarters and all of our operations centers are leased under long-term leases with varying expiration dates, except for an operations
center in Pune, India with an area of 86,361 sq. ft. and containing approximately 1,670 agent workstations, which we own. Substantially all of our owned and
leased property is used to service all of our reporting segments.
We believe that our current facilities are adequate to support our existing operations, however we continue to optimize our existing network of operations
centers to service our client, drive efficiencies and adapting the hybrid working model. We also believe that we will be able to obtain suitable additional
facilities on commercially reasonable terms on an “as needed basis.”
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ITEM 3. Legal Proceedings
In the course of our normal business activities, various lawsuits, claims and proceedings may be instituted or asserted against us. Although there can be
no assurance, we believe that the disposition of matters currently instituted or asserted will not have a material adverse effect on our consolidated financial
position, results of operations or cash flows. See Note 25 - Commitments and Contingencies to our consolidated financial statements under Part II, Item 8,
“Financial Statements and Supplementary Data” for details regarding our tax proceedings.
ITEM 4. Mine Safety Disclosures
Not applicable.
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PART II.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the Nasdaq Global Select Market under the symbol “EXLS.”
As of February 27, 2024, there were 9 holders of record of our outstanding common stock. A substantially greater number of holders of our common
stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
Dividend Policy
We do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board
of directors and will be dependent on then-existing conditions, including our financial condition and results of operations, capital requirements, contractual
restrictions, including restrictions under our credit agreement, business prospects and other factors that our board of directors considers relevant.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
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”).
Under the 2022 Repurchase Program, 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 the 2022 Repurchase Program to
comply with Rule 10b-18 under the Exchange Act. Repurchases may be discontinued at any time by our management.
Repurchased shares are recorded as treasury shares and are held until our board of directors designates that these shares be retired or used for other
purposes.
During the three months ended December 31, 2023, 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
Period
Number of
Shares Purchased
Average Price
Paid per share
Number of
Shares Purchased
Average Price
Paid per share
Total Number of
Shares Purchased
Approximate Dollar Value
of Shares That May Yet Be
Purchased Under the Plans
or Programs
October 1, 2023 through October
31, 2023
November 1, 2023 through
November 30, 2023
December 1, 2023 through
December 31, 2023
Total
— $
—
—
— $
—
—
—
—
227,287 $
28.00
227,287 $
131,632,598
533,050
365,495
1,125,832 $
27.42
29.96
28.36
533,050 $
117,014,194
365,495 $
1,125,832
106,063,003
—
During the year ended December 31, 2023, we purchased 4,127,451 shares of our common stock for an aggregate purchase consideration of $125.4
million, including commission and excluding excise tax, representing an average purchase price per share of $30.39.
During the year ended December 31, 2023, we purchased 237,047 shares from employees in connection with withholding tax payments related to the
vesting of restricted stock units for an aggregate purchase consideration of $7.9 million. The weighted average purchase price of $33.13 was the closing price of
our shares of our common stock on the Nasdaq Global Select Market on the trading day prior to the vesting date of the restricted stock units.
Pursuant to the Inflation Reduction Act, effective January 1, 2023, we are required to pay a 1% excise tax on the fair market value of each share of
common stock repurchased, net of stock issuances.
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Equity Compensation Plan Information
The following table provides information as of December 31, 2023 with respect to the shares of our common stock that may be issued under our existing
equity compensation plans. For a description of our equity compensation plans, see Note 23 - Stock-Based Compensation to our consolidated financial
statements under Part II, Item 8, “Financial Statements and Supplementary Data.”
Plan Category
Equity compensation plans approved by security
holders
Equity compensation plans not approved by security
holders
Total
Number of Securities
to be Issued Upon
Exercise/Vesting of
Outstanding
Options, Warrants and
Rights*
Weighted
Average Exercise
Price of
Outstanding
Options, Warrants and
Rights
Number of Securities
Remaining Available for Future
Issuance Under Equity
Compensation Plans (Excluding Securities
Reflected in Column 1)
5,367,317 $
—
5,367,317 $
30.14
—
30.14
3,249,875
—
3,249,875
*
This includes outstanding options and unvested restricted stock units, which include time-based restricted stock units and performance-based restricted stock units. See
Note 23 - Stock-Based Compensation to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data” for further details.
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Performance Graph
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the Nasdaq 100 Index
(capitalization weighted) and our peer group of companies for the period beginning December 31, 2018. Our peer group of companies is comprised of two
companies that we believe are our closest reporting issuer competitors: Genpact Limited and WNS (Holdings) Limited. The returns of the component entities of
our peer group index are weighted according to the market capitalization of each company as of the beginning of each period for which a return is presented.
The returns assume that $100 was invested on December 31, 2018 and that all dividends were reinvested. The stock performance shown on the graph below is
not indicative of future price performance.
This graph will not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This graph will
not be deemed to be incorporated by reference into any prior or subsequent filing under the Securities Act, or the Exchange Act.
ITEM 6. [Reserved]
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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in connection with our consolidated financial statements and the related notes included elsewhere in this
Annual Report on Form 10-K. Some of the statements in the following discussion are forward looking statements.
All references to years, unless otherwise noted, refer to our fiscal year, which ends on December 31. For example, a reference to “2023” or “fiscal 2023”
means the 12-month period that ended on December 31, 2023. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act
of 1995. You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and
business environment, all of which are difficult to predict and many of which are beyond our control. These statements often include words such as “may,”
“will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have
made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors
we believe are appropriate under the circumstances. As you read and consider this Annual Report on Form 10-K, you should understand that these statements
are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although we believe that these forward-
looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations
and could cause actual results to differ materially from those in the forward-looking statements. 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;
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•
•
•
•
•
•
•
•
•
•
•
•
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;
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.
In particular, you should consider the numerous risks outlined in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. These and other
risks could cause actual results to differ materially from those implied by forward-looking statements in this Annual Report on Form 10-K.
The forward-looking statements made by us in this Annual Report on Form 10-K, or elsewhere, speak only as of the date on which they were made. New
risks and uncertainties 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 Annual Report on Form 10-K after the date of this Annual Report on Form 10-K, except as required by federal
securities laws.
Executive Overview
We are a leading data analytics and digital operations and solutions company. 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 fiscal 2023, we generated revenues of $1,630.7 million compared to revenues of $1,412.0 million for fiscal 2022, an increase of $218.7 million, or
15.5%.
We serve clients mainly in the United States and the United Kingdom, with these two regions generating 84.1% and 10.9%, respectively, of our total
revenues for fiscal 2023 and 85.9% and 9.5%, respectively, of our revenues for fiscal 2022.
For fiscal 2023 and 2022, our total revenues from our top ten clients accounted for 34.0% and 34.9% 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 receivables. 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.
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
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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.
Cost of Revenues
Our cost of revenues primarily consists of:
•
•
employee costs, which include salary, bonus and other compensation expenses; retirement benefits, recruitment and training costs; employee health
and life insurance; transport; rewards and recognition for certain employees; and non-cash stock-based compensation expense;
costs relating to our facilities and communications network, which include telecommunication and IT costs; facilities and customer management
support; operational expenses for our operations centers; lease cost;
• Outsourced/subcontractors and professional services costs;
•
•
travel and other billable costs to our clients; and
costs relating to our direct mail operations and other digital operations and solutions.
The most significant components of our cost of revenues are salaries and benefits (including stock-based compensation), retirement benefits, recruitment,
training, transport, meals, rewards and recognition and employee health and life insurance. Salary levels, employee turnover rates and our ability to efficiently
manage and utilize our employees significantly affect our cost of revenues. We make every effort to manage employee and capacity utilization and continuously
monitor service levels and staffing requirements. Although we generally have been able to reallocate our employees as client demand has fluctuated, a contract
termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned
employees, which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount. A significant
increase in the turnover rate among our employees, particularly among the highly skilled workforce needed to execute certain services, would increase our
recruiting and training costs and decrease our operating efficiency, productivity and profit margins. In addition, cost of revenues also includes non-cash
amortization of stock-based compensation expense related to the grant of our equity awards to employees directly involved in providing services to our clients.
We expect our cost of revenues to continue to increase as we continue to add professionals in our operations centers globally to service additional business
and as wages continue to increase globally. In particular, we expect recruitment and training costs to continue to increase as we hire additional staff to service
new clients and train existing staff to provide them with evolving skill sets. There is significant competition for professionals with skills necessary to perform
the services we offer to our clients. As our existing competitors continue to grow, and as new competitors enter the market, we expect competition for skilled
professionals in each of these areas to continue to increase, with corresponding increases in our cost of revenues to reflect increased compensation levels for
such professionals. We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our hybrid working model,
invest in information technology solutions, including adaption to evolving modes of seeking such solutions through cloud-based hosting arrangements and
security measures to
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safeguard against information security risks and costs to protect the health and safety of our employees as they gradually return to the office. See Part I, Item
1A, “Risk Factors” under “Risks Related to Our Business––Employee wage increases may prevent us from sustaining our competitive advantage and may
reduce our profit margin.” However, a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which
partially offset such increase in cost of revenues.
We generally experience a higher cost of revenues as a percentage of revenues during the initial 12 to 18 months in a long-term digital operations and
solutions contract due to upfront investments in infrastructure, resource hiring and training during migration. The cost of revenues as a percentage of revenues
improves as we scale up, achieve operational efficiencies and complete the migration.
Operating expenses
Selling, General and Administrative Expenses ("SG&A")
Our General and Administrative expenses (“G&A”) comprise of expenses relating to salaries and benefits (including stock-based compensation),
retirement benefits as well as costs related to recruitment, training and retention of senior management and other support personnel in enabling functions,
telecommunications, utilities, travel and other miscellaneous administrative costs. G&A expenses also include acquisition-related costs, legal and professional
fees (which represent the costs of third party legal, tax, accounting, immigration and other advisors), litigation claims, cost of technology solutions sought
through evolving modes of cloud-based hosting arrangements, investment in product development, digital technology, advanced automation and robotics,
cloud, AI and ML, bad debt allowance and stock-based compensation expenses related to grant of our equity awards to members of our board of directors. We
expect our G&A costs to increase as we continue to strengthen our support and enabling functions and invest in leadership development, performance
management and training programs.
Selling and marketing expenses primarily consist of salaries and benefits (including stock-based compensation), retirement benefits and other
compensation expenses of sales and marketing and client management personnel, sales commission, travel and brand building, client events and conferences.
We expect that sales and marketing expenses will continue to increase as we invest in our sales and client management functions to better serve our clients and
in our branding.
Depreciation and Amortization Expense
Depreciation and amortization pertains to depreciation of our property and equipment, including network equipment, cabling, computers, office furniture
and equipment, motor vehicles and leasehold improvements and amortization of intangible assets acquired in business combinations. As part of our ongoing
evaluation of our business needs, we continually optimize our operations centers and expect depreciation to decrease on assets related to operations centers,
such as office furniture and equipment and leasehold improvements. As our business continues to expand we expect additional investments in digital
technologies and equipment, including laptops, desktop computers, servers and other infrastructure, and increased reliance on hybrid working model, we expect
increases in depreciation on assets-related to such investments. Property and equipment, if evaluated as being used differently than as originally intended are
assessed for revision of their useful life, thereby revising their future depreciation to reflect the actual use of such property and equipment over the remaining
shortened life. We expect amortization of intangible assets to increase further as we pursue strategic relationships and acquisitions.
Foreign Exchange gain, net
We report our financial results in U.S. dollars.
Our revenues are primarily denominated in the U.S. dollar, however, a portion of our revenues are earned in the U.K. pound sterling representing 10.1%
and 8.6% of our total revenues in fiscal 2023 and 2022, respectively. We also incur a significant portion of our expenses in the Indian rupee, the Philippine peso
and the U.K. pound sterling, representing 28.5%, 8.2% and 3.1%, respectively, of our total expenses in fiscal 2023, compared to 29.1%, 8.2% and 3.0%,
respectively, of our total expenses in fiscal 2022. The exchange rates among the Indian rupee, the Philippine peso, the U.K. pound sterling and the U.S. dollar
have changed substantially in recent years and may fluctuate substantially in the future as well. The results of our operations could be substantially impacted as
the Indian rupee, the Philippine peso and the U.K. pound sterling appreciate or depreciate against the U.S. dollar. See Part I, Item 1A, “Risk Factors” under
“Risks Related to the International Nature of Our Business––Currency exchange rate fluctuations in the various currencies in which we do business, or the
failure of our hedging strategies to mitigate such fluctuations, could have a material adverse effect on our results of operations,” as well as Note 2 - Summary of
Significant Accounting Policies and Note 17 - Derivatives and Hedge Accounting to our consolidated financial statements under Part II, Item 8, “Financial
Statements and Supplementary Data” and Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk-Components of Market Risk-Foreign
Currency Risk.”
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Interest Expense
Interest expense primarily consist of interest on our borrowings under our revolving credit facility and convertible senior notes, finance leases and
notional interest implicit in the purchase of property and equipment.
Other Income/(Expense), net
Other income/(expense), net primarily consists of gain/(loss) on sale, mark to market, dividend income and interest income on our short-term and long-
term investments, cash equivalents, as applicable. Other income/(expense), net also consists of changes in fair value of contingent consideration related to
business combinations, interest on refunds received from income tax authorities in India on completion of tax assessments, profit or loss on disposal of long-
lived assets and components of net periodic benefit cost such as interest cost, expected return on plan assets and amortization of actuarial gain or loss.
Income Taxes
We are subject to taxes in the countries we operate in. Our future tax liabilities could be adversely affected by any new unfavorable tax legislative and
other changes in such countries. We continuously monitor such changes to assess and quantify the potential impacts on our consolidated financial statements.
We periodically evaluate opportunities to distribute cash among our group entities to fund our operations in the United States and other countries, and as
and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign
jurisdictions. These distributions do not constitute a change in our permanent reinvestment assertion.
We recognize deferred tax assets and liabilities for temporary differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carry forwards. We determine if a valuation allowance is required on the basis of an assessment of
whether it is more likely than not that a deferred tax asset will be realized.
We currently benefit from corporate tax holidays in our qualified Philippines Economic Zone Authority operations centers in the Philippines. Our ability
to utilize these tax holidays could be adversely affected by any new unfavorable tax legislative changes. We continuously monitor such changes to assess and
quantify any potential impacts on our consolidated financial statements.
During 2023, we established a headquarters for international business in Dublin, the Republic of Ireland qualifying for the reduced tax rate of 12.5%,
resulting in a nominal reduction in our effective tax rate for 2023. We anticipate that Ireland’s business and related tax rate benefit, net of Pillar Two impact
discussed below, will increase in the future.
In October 2021, more than 130 countries tentatively signed on to the Organization for Economic Co-operation and Development (“OECD”) Pillar Two
Framework that imposes a minimum tax rate of 15%, among other provisions. The OECD continues to release additional guidance on the Pillar Two
Framework, with implementation generally effective for 2024. The countries where we do business impacted by the Pillar Two Framework are the Philippines
and the Republic of Ireland. We do not anticipate any significant impact attributable to the Philippines, and any unfavorable impact attributable to the Republic
of Ireland will be offset against the reduced Ireland tax rate benefit discussed above. We continue to evaluate the potential impact of the Pillar Two Framework
on our consolidated financial statements.
Forward Stock Split
On June 20, 2023, subsequent to the approval and recommendation of our board of directors, our stockholders approved an amendment to our amended
and restated certificate of incorporation, which upon filing with the Secretary of State of the State of Delaware on August 1, 2023, and effectiveness thereof,
effected a 5-for-1 forward stock split of our common stock and an increase in the number of authorized shares of our 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. See Note 19 - Capital Structure to our consolidated financial
statements under Part II, Item 8, “Financial Statements and Supplementary Data” for further details. All prior period information has been adjusted to reflect the
forward stock split.
Subsequent Event
On February 26, 2024, our board of directors authorized a $500 million common stock repurchase program (the “2024 Repurchase Program”), effective
March 1, 2024, for a two-year period, in line with our capital allocation strategy. Under the 2024 Repurchase Program, 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. Repurchases
may be discontinued
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at any time by the management. The 2024 Repurchase Program replaces the prior $300 million stock repurchase program, which was terminated effective
February 29, 2024.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon the financial statements included in this Annual Report on
Form 10-K, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). A summary of our significant
accounting policies is included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements under Part II, Item 8,
“Financial Statements and Supplementary Data.”
We consider the policies discussed below to be critical to an understanding of our consolidated financial statements, as their application places the most
significant demands on management’s judgment regarding matters that are inherently uncertain at the time an estimate is made.
These policies include revenue recognition, allowance for expected credit losses, business combinations, goodwill, stock-based compensation, employee
benefits, leases and income taxes.
The significant estimates and assumptions that affect the consolidated financial statements include, but are not limited to, estimates of the fair value of
stock-based awards, identifiable intangible assets and contingent consideration, assumptions related to 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, determination of incremental borrowing for measuring lease liabilities, deferred tax assets and liabilities, deferred tax valuation allowances,
income-tax contingencies, purchase price allocation, revenue projections and discount rate applied within the discounted cash flow model for business
acquisitions.
These accounting policies, estimates and the associated risks are set out below. Future events may not develop exactly as forecasted and estimates
routinely require adjustment.
Revenue Recognition
Revenue is recognized when services are provided to our customers, in an amount that reflects the consideration which we expect to be entitled to in
exchange for the services provided. We recognize revenue when we satisfy a performance obligation by providing services to a customer.
Revenue is measured based on consideration specified in a contract with a customer and excludes value added tax, business tax, any applicable discounts
and amounts collected on behalf of third parties. Reimbursements of out-of-pocket expenses are included as a part of revenue.
Significant judgments
Arrangements with Multiple Performance Obligations
We sometimes enter into contracts with our customers which include promises to transfer multiple products and services to the customer. Determining
whether products and services are considered as distinct performance obligations that should be accounted for separately rather than as one performance
obligation may require significant judgment. The transaction price is allocated to performance obligations on relative standalone selling price basis.
Judgment is also required to determine the standalone selling price for each distinct performance obligation. In instances where the standalone selling
price is not directly observable, it is determined using information that may include market conditions and other observable inputs.
The contracts with our customers may be modified to add, remove or change existing performance obligations, which requires judgment to evaluate and
determine whether such performance obligations are to be accounted for on a prospective basis as a separate contract or as a termination of an existing contract
and creation of a new contract.
Variable Consideration
Variability in the transaction price arises primarily due to service level agreements, volume discounts entailing variability in revenue earned, and contracts
under our reimbursement optimization services whereby variability in revenue is attributable to the amount we enable our customers to recover.
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We consider our historical experience, including trends with similar transactions and expectations regarding the contract in estimating the amount of
variable consideration that should be recognized during a period.
We believe that the expected value method is most appropriate for determining the variable consideration since we have a large number of contracts with
similar nature of transactions/services.
Type of Contracts Requiring Judgment
a. Revenues for our fixed-price contracts are recognized using costs incurred to date relative to total estimated costs at completion to measure progress
toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby reasonably reflects
transfer of control to the customer. The use of this method requires significant judgment to estimate the cost required to complete the contracted scope
of work, including assumptions and estimates relative to the length of time to complete the project and the nature and complexity of the work to be
performed and resources engaged. We regularly monitor these estimates throughout the execution of the project and record changes in the period in
which a change in an estimate is determined. If a change in an estimate results in a projected loss on a project, such loss is recognized in the period in
which it is first identified.
b. Revenues from reimbursement optimization services having contingent fee arrangements are recognized by us at the point in time when a performance
obligation is satisfied, which is when we identify an overpayment claim. In such contracts, our consideration is contingent upon the actual collections
made by our customers and net of any subsequent retraction claims. Based on guidance on “variable consideration” in Accounting Standards
Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), we use our historical experience and projections to
determine the expected recoveries from our customers and recognize revenue based upon such expected recoveries. Any adjustment required due to
change in estimates are recorded in the period in which such change is identified.
Unbilled Receivables
Unbilled receivables represent revenues recognized for services rendered between the last billing date and the balance sheet date. Unbilled receivables
also include revenues recognized from reimbursement optimization services where we identify an overpayment claim. In such contracts, our consideration is
contingent upon and collectable only when the actual collections are made by our customers. Based on guidance on “variable consideration” in ASC Topic 606,
we use our historical experience and projections to determine the expected recoveries from our customers and recognize revenue and receivables based upon
such expected recoveries.
Allowance for Expected Credit Losses
We record accounts receivable net of allowances for expected credit losses. Allowances for credit losses are established through the evaluation of aging of
accounts receivables, prior collection experience, current market conditions, forecasts about future economic conditions, customers’ financial condition and the
amount of accounts receivable in dispute to estimate the collectability of these accounts receivable. Accounts receivable balances are written-off against the
allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.
Business Combinations
We account for all business combinations using the acquisition method of accounting as prescribed by ASC Topic 805, Business Combinations. The
guidance requires the use of significant estimates and assumptions in determining the fair value of identifiable assets acquired and liabilities assumed, including
intangible assets and contingent consideration, and allocation of purchase price over such assets and liabilities on the acquisition date. The significant estimates
and assumptions include, but are not limited to, the timing and amount of future revenue and cash flows based on, among other things, discount rate reflecting
the risk inherent in future cash flows, customer attrition rates and the long-term growth rate applied within the discounted cash flow model. This requires a high
degree of our judgment and the need to involve fair value specialists to evaluate the reasonableness of our valuation methodology and the selection of inputs to
the valuation.
In addition, assets acquired and liabilities assumed including uncertain tax positions and tax-related valuation allowances in connection with business
combinations are initially estimated as of the acquisition date. We subsequently re-evaluate the assets acquired and liabilities assumed, including additional
assets and liabilities identified subsequent to acquisition date, with any adjustments to our preliminary estimates being recorded to goodwill within the
measurement period (up to one year from the acquisition date).
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Goodwill
Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased in a business
combination. We undertake studies to determine the fair values of assets and liabilities acquired and allocate purchase consideration to assets and liabilities,
including property and equipment, goodwill and other identifiable intangibles. Goodwill is not amortized but is tested for impairment at least on an annual
basis, relying on a number of factors including operating results, business plans and estimated future cash flows of the reporting units to which it is assigned.
We examine the carrying value and fair value of the reporting unit that includes goodwill as and when the circumstances warrant, to determine whether there
are any impairment losses.
We perform an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. Based on the assessment of events or circumstances, we perform a
quantitative assessment of goodwill impairment if we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. If, based on the quantitative impairment analysis, the carrying value of the goodwill of a reporting unit exceeds the fair value of such goodwill, an
impairment loss is recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to that reporting unit. In addition, we perform
a quantitative assessment of goodwill impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount.
Stock-based Compensation
Under the fair value recognition provisions of ASC Topic 718, Compensation-Stock Compensation, cost is measured at the grant date based on the fair
value of the award and is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
Determining the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term over which the
stock awards will be outstanding before they are exercised and the expected volatility of our stock.
We grant performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees. Generally, we grant PRSUs cliff vest
based on an aggregated revenue target (“PUs”) for a three-year period, while grants based on market conditions (“MUs”) are contingent on meeting or
exceeding the total shareholder return relative to a group of peer companies specified under our 2018 Omnibus Incentive Plan (the “2018 Plan”), and are
measured over a three-year performance period.
The fair value of each PU is determined based on the market price of one share of our common stock on the day prior to the date of grant. The grant date
fair value for the MUs is determined using a Monte Carlo simulation model. The Monte Carlo simulation model simulates a range of possible future stock
prices and estimates the probabilities of the potential payouts. The Monte Carlo simulation model also involves the use of additional key assumptions, including
dividend yield and risk-free interest rate. We periodically assess the reasonableness of our assumptions and update our estimates as required. If actual results
differ significantly from our estimates, stock-based compensation expense and our results of operations could be materially affected.
Stock-based compensation expense associated with our 2022 Employee Stock Purchase Plan is measured at fair-value using a Black-Scholes option-
pricing model at commencement of each offering period and recognized over that offering period.
Income Taxes
We account for income tax using the asset and liability method. Under this method, income tax expense is recognized for the amount of taxes payable or
refundable for the current year. In addition, deferred tax assets and liabilities are recognized in respect of future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their tax bases and operating losses carried forward, if any. Deferred tax
assets and liabilities are measured using the anticipated tax rates for the years in which such temporary differences are expected to be recovered or settled. We
recognize the effect of a change in tax rates on deferred tax assets and liabilities during the period in which the new tax rate was enacted or the change in tax
status was filed or approved. Deferred tax assets are recognized in full, subject to a valuation allowance that reduces the amount recognized to that which is
more likely than not to be realized. In assessing the likelihood of realization, we consider all available evidence for each jurisdiction including past operating
results, estimates of future taxable income and the feasibility of tax planning strategies. With respect to any entity that benefits from a corporate tax holiday,
deferred tax assets or liabilities for existing temporary differences are recorded only to the extent such temporary differences are expected to reverse following
the expiration of the tax holiday.
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We also evaluate potential exposures related to tax contingencies or claims made by the tax authorities in various jurisdictions in order to determine
whether a reserve may be required. A reserve is recorded if we believe that a loss is more likely than not, and if the amount of such loss can be reasonably
estimated. Such reserves are based on estimates and, consequently, are subject to changing facts and circumstances, including the progress of ongoing audits,
changes in case law and the passage of new legislation. We have established adequate reserves to cover any potential tax contingencies or claims.
Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, requires companies to recognize, measure,
present and disclose uncertain tax positions. We employ a two-step process for recognizing and measuring uncertain tax positions. The first step is to evaluate
the tax position for recognition by determining, based on the technical merits, that the position will, more likely than not, be sustained upon examination. The
second step is to measure the tax benefit as the largest amount of the tax benefit that is more likely than not to be realized upon settlement. We have established
adequate reserves to cover all uncertain tax positions.
Employee Benefits
We record contributions to defined contribution plans in our consolidated statements of income in the period in which services are rendered by the
covered employees. Current service costs for defined benefit plans are recognized in the period to which they relate. The liability in respect of defined benefit
plans is calculated annually by using the projected unit credit method and various actuarial assumptions including discount rates, mortality, expected return on
assets, expected increase in the compensation rates and attrition rates. We evaluate these critical assumptions at least annually. If actual results differ
significantly from our estimates, current service costs for defined benefit plans and our results of operations could be materially impacted.
Leases
We account for a lease at the inception of the contract. Our assessment is based on whether: (1) the contract involves the use of a distinct identified asset,
(2) we obtain the right to substantially all the economic benefits from the use of the asset throughout the term of the contract, and (3) we have the right to direct
the use of the asset. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end
of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the
remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset.
Right-of-use (“ROU”) assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease
payments arising from the lease arrangement. Lease liabilities are recognized at commencement date based on the present value of lease payments over the
lease term. Operating lease ROU assets are recognized at commencement date in an amount equal to lease liability, adjusted for any lease prepayments, initial
direct costs and lease incentives. For leases in which the rate implicit in the lease is not readily determinable, we use our incremental borrowing rate at
commencement date. We determine the incremental borrowing rate by adjusting the benchmark reference rates with appropriate financing spreads applicable to
the respective geographies where we entered into leases and lease specific adjustments for the effects of collateral, if applicable.
Lease terms includes our assessment for the effects of options to extend or terminate the lease. We consider the extension option as part of our lease term
for those lease arrangements where we are reasonably certain at commencement of the lease that we will exercise that option. Lease expense for operating lease
arrangements is recognized on a straight-line basis over the lease term reflecting single operating lease cost. We evaluate lease agreements to determine lease
and non-lease components, which are accounted for separately.
We review the ROU assets for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.
Contingencies
Loss contingencies are recorded as liabilities when a loss is considered probable and the amount can be reasonably estimated. When a material loss
contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of
the loss or range of loss, if such an estimate can be made. Significant judgment is required in the determination of probability and whether an exposure is
reasonably estimable, both. Our judgments are subjective and based on the information available from the status of the legal or regulatory proceedings, the
merits of our defenses and consultation with in-house and outside legal counsel. As additional information becomes available, we reassess any potential liability
related to any pending litigation and may revise our estimates. Such revisions in estimates of any potential liabilities could have a material impact on our results
of operations, financial position and cash flows.
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Results of Operations
For a discussion of our results of operations for fiscal 2021, including a year-to-year comparison between fiscal 2022 and 2021, refer to Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for fiscal 2022, filed with the
SEC on February 23, 2023.
The following table summarizes our results of operations:
Fiscal
2023
(A)
1,630.7
1,022.9
607.8
$
Percentage of
Revenues, net
100.0 % $
62.7 %
37.3 %
Fiscal
2022
(B)
1,412.0
896.6
515.4
198.3
120.2
50.5
369.0
238.8
1.5
(13.2)
10.8
237.9
53.5
184.4
0.2
12.2 %
7.3 %
3.1 %
22.6 %
14.6 %
0.1 %
(0.8) %
0.7 %
14.6 %
3.3 %
11.3 %
— %
169.0
98.0
56.3
323.3
192.1
6.2
(8.2)
—
190.1
47.5
142.6
0.4
$
184.6
11.3 % $
143.0
(dollars in millions)
Percentage of
Revenues, net
Change in
percentage of
Revenues, net
Dollar Change
(C=A-B)
100.0 %
63.5 %
36.5 %
12.0 %
6.9 %
4.0 %
22.9 %
13.6 %
0.4 %
(0.6) %
— %
13.5 %
3.4 %
10.1 %
— %
10.1 %
— % $
(0.8) %
0.8 %
0.2 %
0.4 %
(0.9) %
(0.3) %
1.0 %
(0.3) %
(0.2) %
0.7 %
1.1 %
(0.1) %
1.2 %
— %
218.7
126.3
92.4
29.3
22.2
(5.8)
45.7
46.7
(4.7)
(5.0)
10.8
47.8
6.0
41.8
(0.2)
1.2 % $
41.6
Revenues, net
Cost of revenues
Gross profit
Operating expenses:
(1)
(1)
General and administrative expenses
Selling and marketing expenses
Depreciation and amortization expense
Total operating expenses
Income from operations
Foreign exchange gain, net
Interest expense
Other income, net
Income before income tax expense and earnings from
equity affiliates
Income tax expense
Income before earnings from equity affiliates
Gain from equity-method investment
Net income attributable to ExlService Holdings, Inc.
stockholders
(1) Exclusive of depreciation and amortization expense.
Due to rounding, the numbers presented in the tables included in this Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” may not add up precisely to the totals provided.
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Fiscal 2023 Compared to Fiscal 2022
Revenues.
The following table summarizes our revenues by reportable segments:
Insurance
Healthcare
Emerging Business
Analytics
Total revenues, net
Fiscal
2023
2022
Dollar Change
(dollars in millions)
$
$
529.9 $
106.0
265.7
729.1
1,630.7 $
448.7 $
97.4
218.6
647.3
1,412.0 $
81.2
8.6
47.1
81.8
218.7
Percentage
change
Percentage of Total Revenues for
Fiscal
2023
2022
18.1 %
8.9 %
21.5 %
12.6 %
15.5 %
32.5 %
6.5 %
16.3 %
44.7 %
100.0 %
31.8 %
6.9 %
15.5 %
45.8 %
100.0 %
Revenues for fiscal 2023 were up by $218.7 million, or 15.5%, compared to fiscal 2022, driven primarily by revenue growth from our new and existing
clients in all of our reportable segments.
Revenue growth in Insurance of $81.2 million was primarily driven by expansion of business from our new and existing clients of $83.9 million. This was
partially offset by a loss of $2.7 million, mainly attributable to the depreciation of the Australian dollar, the Indian rupee and the South African rand against the
U.S. dollar during fiscal 2023, compared to fiscal 2022.
Revenue growth in Healthcare of $8.6 million was primarily driven by expansion of business from our new and existing clients during fiscal 2023.
Revenue growth in Emerging Business of $47.1 million was primarily driven by expansion of business from our new and existing clients of $47.4 million.
This was partially offset by a loss of $0.3 million, net mainly attributable to the depreciation of the Indian rupee against the U.S. dollar during fiscal 2023,
compared to fiscal 2022.
Revenue growth in Analytics of $81.8 million was primarily driven by higher volumes in our annuity and project-based engagements from our new and
existing clients of $80.8 million and an increase in revenues of $1.0 million, mainly attributable to the appreciation of the U.K. pound sterling against the U.S.
dollar during fiscal 2023, compared to fiscal 2022.
Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments:
Cost of Revenues
Fiscal
2023
2022
(dollars in millions)
Dollar
Change
Percentage
change
Gross Margin (%)
Fiscal
2023
2022
Percentage
change
Insurance
Healthcare
Emerging Business
Analytics
Total
$
$
341.8 $
69.3
150.9
460.9
1,022.9 $
287.7 $
71.0
128.0
409.9
896.6 $
54.1
(1.7)
22.9
51.0
126.3
18.8 %
(2.4)%
17.9 %
12.4 %
14.1 %
35.5 %
34.6 %
43.2 %
36.8 %
37.3 %
35.9 %
27.1 %
41.4 %
36.7 %
36.5 %
(0.4)%
7.5 %
1.8 %
0.1 %
0.8 %
Cost of revenues for fiscal 2023 increased by $126.3 million, or 14.1% compared to fiscal 2022. The increase in cost of revenues was primarily due to
increases in employee-related costs and technology costs, partially offset by foreign exchange gain, net of hedging. Our gross margin for fiscal 2023 was 37.3%
compared to 36.5% for fiscal 2022, an increase of 80 basis points ("bps") primarily driven by higher revenues, operational efficiencies and foreign exchange
gain, net of hedging during fiscal 2023, compared to fiscal 2022.
The increase in cost of revenues in Insurance of $54.1 million for fiscal 2023 was primarily due to increases in employee-related costs of $52.2 million on
account of higher headcount and wage inflation, higher technology costs of $8.5 million on account of increased subscription to cloud-based software licenses
and use of the hybrid working model and higher other operating costs of $2.9 million, partially offset by foreign exchange gain, net of hedging of $7.5 million
and lower travel costs
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of $2.0 million. Gross margin in Insurance decreased by 40 bps during fiscal 2023, compared to fiscal 2022, primarily due to lower margins associated with
higher costs during ramp-ups in certain existing and new clients during fiscal 2023, compared to fiscal 2022.
The decrease in cost of revenues in Healthcare of $1.7 million for fiscal 2023 was primarily due to foreign exchange gain, net of hedging of $1.9 million,
lower facilities costs of $1.5 million resulting from optimization of office space, lower other operating costs of $0.2 million, partially offset by increases in
employee-related costs of $1.9 million on account of wage inflation. Gross margin in Healthcare increased by 750 bps during fiscal 2023, compared to fiscal
2022, primarily due to higher revenues and operational efficiencies during fiscal 2023, compared to fiscal 2022.
The increase in cost of revenues in Emerging Business of $22.9 million for fiscal 2023 was primarily due to increases in employee-related costs of
$23.5 million on account of higher headcount and wage inflation, higher technology costs of $3.5 million on account of increased subscription to cloud-based
software licenses and use of the hybrid working model and higher other operating costs $1.5 million, partially offset by foreign exchange gain, net of hedging
of $3.8 million and lower travel costs of $1.8 million. Gross margin in Emerging Business increased by 180 bps during fiscal 2023, compared to fiscal 2022,
primarily due to higher revenues and foreign exchange gain, net of hedging during fiscal 2023, compared to fiscal 2022.
The increase in cost of revenues in Analytics of $51.0 million for fiscal 2023 was primarily due to increases in employee-related costs of $55.3 million on
account of higher headcount and wage inflation, higher technology costs of $1.6 million on account of increased subscription to cloud-based software licenses
and use of the hybrid working model and higher other operating costs $4.0 million, partially offset by foreign exchange gain, net of hedging of $6.4 million and
lower travel costs of $3.5 million. Gross margin in Analytics increased by 10 bps during fiscal 2023, compared to fiscal 2022, primarily due to higher revenues,
partially offset by increases in employee-related costs during fiscal 2023, compared to fiscal 2022.
Selling, General and Administrative (“SG&A”) Expenses.
General and administrative expenses
Selling and marketing expenses
Selling, general and administrative expenses
Fiscal
2023
2022
Dollar Change
Percentage
change
$
$
(dollars in millions)
198.3 $
120.2
318.5 $
169.0 $
98.0
267.0 $
29.3
22.2
51.5
17.3 %
22.7 %
19.3 %
The increase in SG&A expenses of $51.5 million was primarily due to higher employee-related costs of $27.0 million on account of higher headcount and
wage inflation, higher investments in digital and generative AI capabilities of $10.4 million, higher sales and marketing spend of $4.6 million, higher travel
costs of $3.8 million, higher allowance for expected credit losses of $1.7 million, primarily related to a customer bankruptcy event, and higher other operating
costs of $6.6 million. This was partially offset by foreign exchange gain, net of hedging of $2.6 million during fiscal 2023, compared to fiscal 2022.
Depreciation and Amortization.
Depreciation expense
Intangible amortization expense
Depreciation and amortization expense
Fiscal
2023
2022
Dollar Change
Percentage change
$
$
(dollars in millions)
35.8 $
14.7
50.5 $
39.2 $
17.1
56.3 $
(3.4)
(2.4)
(5.8)
(8.6)%
(14.2)%
(10.3)%
The decrease in depreciation expense of $3.4 million was primarily due to lower depreciation of $2.4 million on assets related to operations centers closed
as a result of optimization of office space, increased use of the hybrid working model and foreign exchange gain, net of hedging of $1.0 million during fiscal
2023, compared to fiscal 2022. The decrease in intangibles amortization expense of $2.4 million during fiscal 2023, compared to fiscal 2022 was primarily due
to end of useful lives for certain intangible assets.
Income from Operations. Income from operations increased by $46.7 million, or 24.2%, from $192.1 million for fiscal 2022 to $238.8 million for fiscal
2023, primarily due to higher revenues and higher gross margins, partially offset by higher SG&A expenses during fiscal 2023.
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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 fiscal 2023, compared to fiscal 2022. The average exchange rate of the U.S.
dollar against the Indian rupee increased from 78.81 during fiscal 2022 to 82.60 during fiscal 2023. The average exchange rate of the U.S. dollar against the
Philippine peso increased from 54.47 during fiscal 2022 to 55.56 during fiscal 2023. The average exchange rate of the U.K. pound sterling against the U.S.
dollar increased from 1.23 during fiscal 2022 to 1.25 during fiscal 2023. The average exchange rate of the U.S. dollar against the South African rand increased
from 16.44 during fiscal 2022 to 18.51 during fiscal 2023.
We recorded a foreign exchange gain, net of $6.2 million for fiscal 2022 compared to a foreign exchange gain, net of $1.5 million for fiscal 2023.
Interest expense. Interest expense increased from $8.2 million for fiscal 2022 to $13.2 million for fiscal 2023, primarily due to a higher effective interest
rate of 6.3% during fiscal 2023, compared to 2.9% during fiscal 2022, partially offset by a lower average outstanding balance under our revolving credit facility
during fiscal 2023, compared to fiscal 2022.
Other Income, net.
Gain on sale and fair value mark-to-market on investments $
Interest and dividend income
Fair value changes of contingent consideration
Others, net
Other income, net
$
Fiscal
2023
2022
Dollar Change
(dollars in millions)
Percentage
change
5.0 $
8.0
(1.9)
(0.3)
10.8 $
4.9 $
5.2
(8.3)
(1.8)
— $
0.1
2.8
6.4
1.5
10.8
2.2 %
53.5 %
(77.0)%
(83.9)%
(100.0)%
Other income, net increased by $10.8 million, from $nil for fiscal 2022 to $10.8 million for fiscal 2023. The increase is primarily due to a decrease of $6.4
million in contingent consideration liability related to our acquisitions as a result of fair value adjustment, higher interest and dividend income on our
investments of $2.8 million and lower other expenses of $1.5 million during fiscal 2023, compared to fiscal 2022.
Income Tax Expense. The effective tax rate decreased from 25.0% during fiscal 2022 to 22.5% during fiscal 2023. We recorded income tax expense of
$53.5 million and $47.5 million for fiscal 2023 and 2022, respectively. While the effective tax rate decreased in 2023, the amount of income tax expense
increased primarily as a result of higher profit during fiscal 2023, compared to fiscal 2022, and an increase in non-deductible expenses, partially offset by
higher excess tax benefits related to stock-based compensation during fiscal 2023, compared to fiscal 2022.
Net Income. Net income increased from $143.0 million for fiscal 2022 to $184.6 million for fiscal 2023, primarily due to increase in income from
operations of $46.7 million and higher other income, net of $10.8 million, partially offset by higher interest expense of $5.0 million, lower foreign exchange
gain, net of $4.7 million and higher income tax expense of $6.0 million.
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Liquidity and Capital Resources
Opening cash, cash equivalents and restricted cash
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Effect of exchange rate changes
Closing cash, cash equivalents and restricted cash
Fiscal
2023
2022
Dollar Change
Percentage Change
(dollars in millions)
$
$
125.6 $
211.2
(12.0)
(181.4)
2.0
145.4 $
143.8 $
166.1
(96.5)
(81.7)
(6.1)
125.6 $
(18.2)
45.1
84.5
(99.7)
8.1
19.8
(12.6)%
27.1 %
(87.6)%
122.0 %
(133.5)%
15.7 %
As of December 31, 2023 and 2022, we had $290.8 million and $297.7 million, respectively, in cash, cash equivalents and short-term investments, of
which $237.7 million and $260.0 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. For fiscal 2023, our foreign subsidiaries in India, the United Kingdom, Australia, Bulgaria and the
Czech Republic repatriated an aggregate amount of $136.4 million (net of $5.9 million withholding taxes) to the United States. These distributions do not
constitute a change in our permanent reinvestment assertion.
Operating Activities:
Net cash provided by operating activities was $211.2 million for fiscal 2023, compared to $166.1 million for fiscal 2022, reflecting higher cash earnings,
partially offset by higher working capital needs. The major drivers contributing to the increase of $45.1 million year-over-year included the following:
•
•
Increase in cash earnings, including adjustments for non-cash and other items contributed higher cash flow of $60.4 million for fiscal 2023, compared
to fiscal 2022. These adjustments include fair value changes in investments, unrealized foreign currency exchange gain, deferred tax effects, stock-
based employee compensation, fair value changes in contingent consideration, depreciation and amortization of long-lived assets and intangibles
acquired in business combinations, among others.
Changes in accounts receivable, including advance billings, contributed higher cash flow of $15.5 million for fiscal 2023, compared to fiscal 2022.
Collections in accounts receivable, including advance billings was driven by revenue growth for fiscal 2023. This was partially offset by increase in
our days sales outstanding which was 64 days as of December 31, 2023, compared to 61 days as of December 31, 2022.
• Higher income tax payments, net of refunds, contributed higher cash payouts of $47.7 million, partially offset by provision for income tax and changes
in deferred tax assets and liabilities of $20.6 million for fiscal 2023, compared to fiscal 2022.
•
Changes in other assets, accounts payables including other liabilities contributed higher cash payouts of $3.7 million for fiscal 2023, compared to
fiscal 2022.
Investing Activities: Cash used for investing activities were $12.0 million for fiscal 2023, compared to $96.5 million for fiscal 2022. The decrease in cash
used for investing activities of $84.5 million year-over-year is primarily due to net redemption of investments of $40.7 million for fiscal 2023, compared to net
purchase of investments of $48.1 million for fiscal 2022. The decrease was also due to acquisition-related payouts of $3.9 million for fiscal 2022 with no
corresponding payouts for fiscal 2023. This was partially offset by higher capital expenditures in infrastructure, technology assets, software and product
developments of $8.0 million for fiscal 2023, compared to fiscal 2022.
Financing Activities: Cash used for financing activities were $181.4 million for fiscal 2023, compared to $81.7 million for fiscal 2022. The increase in
cash used for financing activities of $99.7 million year-over-year was primarily due to net repayment of our borrowings under our revolving credit facility of
$50.0 million for fiscal 2023, compared to $10.0 million for fiscal 2022. The increase was also due to higher purchases of treasury stock of $59.2 million under
our share repurchase program for fiscal 2023, compared to fiscal 2022.
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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 $52.8 million of capital expenditures during fiscal 2023. We expect to incur total capital expenditures of between $50 million to $55 million
in 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 consolidated
financial statements under Part II, Item 8, “Financial Statements and Supplementary Data” 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,
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 20- Employee Benefit Plans, Note 21- Leases, Note 22- Income Taxes and Note 25- Commitments and Contingencies to our consolidated
financial statements under Part II, Item 8, “Financial Statements and Supplementary Data” for further information on material cash requirements from known
contractual and other obligations.
In the ordinary course of business, we provide standby letters of credit to third parties primarily for facility leases. As of December 31, 2023 and 2022, 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
The following table summarizes our debt position:
As of December 31
2023
2022
(dollars in millions)
Revolving credit facility
Current portion of long-term borrowings
Long-term borrowings
Total borrowings
$
$
65.0 $
135.0
200.0 $
30.0
220.0
250.0
Credit Agreement
We held a $300.0 million revolving credit facility pursuant to our 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.
On April 18, 2022, we and each of our 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 is equal to $400.0 million; (b) extends the maturity date of the revolving credit facility from
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November 21, 2022 to April 18, 2027; and (c) replaces London Inter-Bank Offered Rate (“LIBOR”) with the 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 $200.0 million, 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 our material domestic subsidiaries and are secured by all or substantially all of our and
our 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 assets or subsidiaries. In addition, the 2022 Credit Agreement contains a
covenant to not permit the interest coverage ratio or the total net leverage ratio, both, as defined, for the four consecutive quarter period ending on the last day
of each fiscal quarter, to be less than 3.0 to 1.0 or more than 3.5 to 1.0, respectively.
The 2022 Credit Agreement bears interest at a rate equal to specified prime rate (alternate base rate) or adjusted SOFR, plus, in each case, an applicable
margin. The applicable margin is tied to our total net leverage ratio and ranges from 0% to 0.75% per annum on loans pegged to the specified prime rate, and
0.88% to 1.75% per annum on loans pegged to the adjusted SOFR. The revolving credit commitments under the 2022 Credit Agreement are subject to a
commitment fee which is also tied to our total net leverage ratio, and ranges from 0.13% to 0.28% per annum on the average daily amount by which the
aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations.
The revolving credit facility carried an effective interest rate as shown below:-
Effective interest rate
Fiscal
2023
2022
6.3 %
2.9 %
As of December 31, 2023 and 2022, 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 consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data.”
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ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
General
Market risk is the volatility of future earnings and cash flows that may result from changes in interest rates and foreign currency exchange rates. The
value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, commodity prices, equity prices and
other market changes that affect market risk sensitive instruments. Market risk is attributable to all market sensitive financial instruments including foreign
currency receivables and payables.
Our exposure to market risk is a function of our expenses and revenue generating activities in foreign currencies. The objective of market risk
management is to avoid excessive exposure to our earnings and equity of such market driven losses. We manage market risk through our treasury operations
using financial instruments. Our senior management and our board of directors approve our treasury operations’ objectives and policies. The responsibilities of
our treasury operations include management of cash resources, including borrowing strategies, implementing hedging strategies for foreign currency exposures,
and ensuring compliance with market risk limits and policies.
Components of Market Risk
Foreign Currency Risk. We are exposed to foreign currency exchange rate risk. Our revenues are primarily denominated in the U.S. dollar representing
86.2% of our total revenues and the U.K. pound sterling representing 10.1% of our total revenues for fiscal 2023. A significant portion of our expenses are
incurred in the Indian rupee, the Philippine peso and the U.K. pound sterling, representing 28.5%, 8.2% and 3.1%, respectively, of our total expenses for fiscal
2023. We also incur expenses in the U.S. dollar and currencies of other countries where we have operations. The exchange rates among the Indian rupee, the
Philippine peso, the U.K. pound sterling and the U.S. dollar have fluctuated within the fiscal 2023, over the recent years and may fluctuate in the future.
Our foreign currency exchange rate risk primarily arises from our foreign currency revenues, expenses incurred by our subsidiaries, including foreign
subsidiaries in foreign currencies and foreign currency accounts receivable and payable. The average exchange rate of the U.S dollar against the Indian rupee
increased from 78.81 for fiscal 2022 to 82.60 for fiscal 2023, representing a depreciation of 4.8% against the U.S dollar. The average exchange rate of the U.S
dollar against the Philippine peso increased from 54.47 for fiscal 2022 to 55.56 for fiscal 2023, representing a depreciation of 2.0% against the U.S dollar. The
average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.23 for fiscal 2022 to 1.25 for fiscal 2023, representing an appreciation
of 1.3% against the U.S dollar. Based upon our level of operations for fiscal 2023 and excluding any hedging arrangements that we had in place during that
period, a 10% appreciation/depreciation in the Indian rupee, the Philippine peso and the U.K. pound sterling against the U.S. dollar would have
increased/decreased our revenues by approximately $7.4 million, $0.6 million and $9.3 million, respectively and increased/decreased our expenses incurred by
approximately $39.7 million, $11.4 million and $4.3 million, respectively for fiscal 2023.
In order to mitigate our exposure to foreign currency fluctuation risks and minimize the earnings and cash flow volatility associated with forecasted
transactions denominated in certain foreign currencies, we enter into foreign currency forward contracts designated as cash flow hedges. These contracts must
be settled on the day of maturity or may be canceled subject to the receipts or payments of any gains or losses respectively, equal to the difference between the
contract exchange rate and the market exchange rate on the date of cancellation. We do not enter into foreign currency forward contracts for speculative or
trading purposes. As such, we may not purchase adequate contracts to insulate ourselves from the foreign exchange currency risks. In addition, any such
contracts may not perform effectively as a hedging mechanism. We may, in the future, make changes to our hedging policies, and have done so in the past. The
principal foreign currencies that are hedged are the Indian rupee and the Philippine peso.
The impact related to these foreign currency forward contracts on earnings and/or cash flows is immaterial as the impact of the maturing cash flow
hedges in respective periods are intended to primarily offset the foreign currency impact on the related expenses. Further, some of our client contracts include
protection against foreign currency exchange rate fluctuations which minimizes the impact of volatility in the exchange rates on our operating results.
As of December 31, 2023 and 2022, we had outstanding cash flow hedges with notional amounts of $722.8 million and $841.6 million, respectively, with
the maximum outstanding term of approximately 42 months and 45 months, respectively. The mark-to-market gain/(loss), net upon fair valuation of outstanding
cash flow hedges as of December 31, 2023 and 2022 was $5.4 million and $(14.2) million, respectively, and is included in “Accumulated other comprehensive
income/(loss)” on our consolidated balance sheets. For fiscal 2023 and 2022, we recognized $5.7 million and $4.3 million, respectively, as foreign exchange
loss from maturing cash flow hedges, which was largely offset by the foreign exchange translation gain on the related expenses.
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We also enter into foreign currency forward contracts from time to time to hedge our 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 our consolidated statements of income and are included in
“Foreign exchange gain, net.” These financial instruments mitigate balance sheet risk due to foreign currency exchange rate movements as gains and losses on
the settlement of these financial instruments are intended to offset the revaluation gains and losses on the foreign currency denominated monetary assets and
monetary liabilities being hedged. Foreign currency forward contracts with notional amounts of the U. S. dollar (USD) 170.5 million, the U.K. pound sterling
(GBP) 14.5 million, the Euro (EUR) 5.2 million, South African rand (ZAR) 150.2 million and the Australian dollar (AUD) 3.5 million were outstanding as of
December 31, 2023 compared to USD 164.0 million, GBP 8.4 million, EUR 2.0 million and AUD 2.0 million outstanding as of December 31, 2022. The fair
values of these financial instruments as of December 31, 2023 and 2022 were insignificant and are included in the “Foreign exchange gain, net” in our
consolidated statements of income. As of December 31, 2023 and 2022, the outstanding derivative instruments had maturities of a maximum of 31 days, each.
Interest Rate Risk. We are also exposed to interest rate risk arising from our indebtedness. In order to mitigate our exposure to fluctuations in interest
rates and minimize the earnings and cash flow volatility associated with floating rate indebtedness, we enter into interest rate swaps to hedge cash flow risks on
our revolving credit facility having floating interest rate obligations. The swap transaction involves the exchange of fixed for floating interest payments.
However, in circumstances where we believe additional fixed-rate debt would be beneficial, we may choose to terminate a previously executed swap, or swap
certain floating interest payments to fixed.
As described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we held our $300.0 million
revolving credit facility and a letter of credit sub-facility pursuant to our Credit Agreement dated November 21, 2017. 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. On April 18, 2022, we entered into
the 2022 Credit Agreement, that provides for a $400.0 million revolving credit facility and a letter of credit sub-facility. We have an option to increase the
commitments under the 2022 Credit Agreement by up to an additional $200.0 million. The revolving credit facility has a maturity date of April 18, 2027 and is
voluntarily pre-payable from time to time without premium or penalty.
The 2022 Credit Agreement bears interest at a rate equal to specified prime rate (alternate base rate) or adjusted SOFR plus, in each case, an applicable
margin. The applicable margin is tied to our total net leverage ratio and ranges from 0% to 0.75% per annum on loans pegged to the specified prime rate, and
0.88% to 1.75% per annum on loans pegged to the adjusted SOFR. The revolving credit commitments under 2022 Credit Agreement are subject to a
commitment fee which is also tied to our total net leverage ratio, and ranges from 0.13% to 0.28% per annum on the average daily amount by which the
aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations. A 50 basis point increase or decrease in
interest rates would have impacted our interest expense for fiscal 2023 by approximately $1.1 million.
We manage a portion of our interest rate risk related to our revolving credit facility having variable interest rate obligations by entering into interest rate
swaps under which we receive floating rate payments based on SOFR and make payments based on a fixed rate. As of December 31, 2023 and 2022, we had
outstanding interest rate swaps having a notional amount of $75.0 million, each.
We had cash, cash equivalents and short-term investments totaling $290.8 million and $297.7 million as of December 31, 2023 and 2022, respectively.
These amounts were invested principally in a short-term investment portfolio primarily comprised of highly-rated debt mutual funds, money market funds and
time deposits. We do not make such investments for trading or speculative purposes. The cash and cash equivalents are held for potential acquisitions of
complementary businesses or assets, capital expenditures, working capital requirements and general corporate purposes. We believe that we have no material
exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. The interest income from these funds is subject to
fluctuations due to changes in interest rates. Declines in interest rates would reduce our future investment income. A 50 basis point increase or decrease in short
term rates would have impacted our interest and dividend income for fiscal 2023 by approximately $0.9 million.
Credit Risk. As of December 31, 2023 and 2022, we have accounts receivable, net $308.1 million and $259.2 million, respectively. We believe that our
credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties and, accordingly, do not require
collateral. Credit losses and write-offs of accounts receivable balances historically have not been material. No single client owed more than 10% of our
accounts receivable, net as on December 31, 2023 and 2022.
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ITEM 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. A list of the financial statements
filed herewith can be found at Part IV, Item 15, “Exhibits and Financial Statement Schedules.”
ITEM 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to 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 Annual Report on Form 10-K, 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 December 31, 2023. Based upon that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures, as of December 31, 2023,
were effective.
Management’s Responsibility for Financial Statements
Responsibility for the objectivity, integrity and presentation of the accompanying financial statements and other financial information presented in this
report rests with our management. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in
the U.S. (“U.S. GAAP”). The financial statements include amounts that are based on estimates and judgments which management believes are reasonable under
the circumstances.
Deloitte & Touche LLP, an independent registered public accounting firm, has been retained to audit our consolidated financial statements and the
effectiveness of our internal control over financial reporting. Its accompanying reports are based on audits conducted in accordance with the standards of the
Public Company Accounting Oversight Board.
The Audit Committee of the board of directors is composed solely of independent directors and is responsible for recommending to the board of directors
the independent public accounting firm to be retained for the coming year. The Audit Committee meets regularly and privately with the independent public
accountants, with our internal auditors and with management to review accounting, auditing, internal control and financial reporting matters.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-
15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the U.S. The Company’s internal control over financial reporting includes those policies and procedures that:
•
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP;
provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorization of our management and our
board of directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a
material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
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Our management, under the supervision and with the participation of the CEO and CFO, assessed the effectiveness of our internal control over financial
reporting as of December 31, 2023. In making this assessment, management used the criteria described in “Internal Control—Integrated Framework” issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Management’s assessment included an evaluation of the design
of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed
the results of its assessment with the Audit Committee of the board of directors. Based on this assessment and those criteria, management concluded that we
maintained effective internal control over financial reporting as of December 31, 2023. See Deloitte & Touche LLP’s accompanying attestation report on their
audit of our internal controls over financial reporting.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2023, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
Rule 10b5-1 Trading Plans
During the three months ended December 31, 2023, 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.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III.
ITEM 10. Directors, Executive Officers and Corporate Governance
Code of Ethics.
We have adopted a code of conduct and ethics that applies to all of our directors, officers and employees, including our principal executive officer,
principal financial officer, principal accounting officer and persons performing similar functions. Our code of conduct and ethics can be found posted in the
investor relations section on our website at http://ir.exlservice.com/corporate-governance. We intend to satisfy the disclosure requirement under Item 5.05 of
Form 8-K regarding an amendment to, or waiver from, a provision of our code of conduct and ethics by posting such information on our website at the address
and the location specified above.
The additional information required by this Item 10 will be set forth in the definitive proxy statement for our 2024 Annual Meeting of Stockholders (the
“Proxy Statement”), including under the headings “Our board of directors,” “Our executive officers” and “Corporate governance — Committees — Audit
Committee,” “— Committees — Nominating and Governance Committee” and, to the extent included, “— Delinquent Section 16(a) Reports,” and is
incorporated herein by reference. We intend to file the Proxy Statement with the SEC within 120 days after the fiscal year ended December 31, 2023.
ITEM 11. Executive Compensation
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the headings “Executive
Compensation — Compensation Discussion and Analysis,” “— Compensation and Talent Management Committee Report,” “— Summary Compensation Table
for Fiscal Year 2023,” “— Grants of Plan-Based Awards Table for Fiscal Year 2023,” “Outstanding Equity Awards at Fiscal 2023 Year-End,” “Option Exercises
and Stock Vested During Fiscal Year 2023,” “— Pension Benefits for Fiscal Year 2023,” “— Potential Payments upon Termination or Change in Control at
Fiscal 2023 Year-End,” “— Director Compensation for Fiscal Year 2023,” “— Risk and Compensation Policies” and “Corporate Governance — Compensation
and Talent Management Committee Interlocks and Insider Participation.”
50
Table of Contents
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the heading “Principal
Stockholders.”
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the headings “Certain
Relationships and Related Person Transactions” and “Corporate Governance — Director Independence.”
ITEM 14. Principal Accountant Fees and Services
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the heading “Ratification of the
Appointment of Independent Registered Public Accounting Firm — Audit and Non-Audit Fees.”
PART IV.
ITEM 15. Exhibits and Financial Statement Schedules
(a)
1. Consolidated Financial Statements.
The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on page F-1 hereof. The required financial
statements appear on pages F-5 through F-58 hereof.
2.
Financial Statement Schedules.
Financial statement schedules have been omitted since they are either not required, not material or the information is otherwise included in our
consolidated financial statements or the notes to our consolidated financial statements.
3.
Exhibits.
The Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately preceding such Exhibits, which
Exhibit Index is incorporated in this Annual Report on Form 10-K by reference.
(b) Exhibits. See Item 15(a)(3) above.
(c)
Financial Statement Schedules. See Item 15(a)(2) above.
ITEM 16. Form 10-K Summary
Not applicable.
51
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned hereunto duly authorized.
Date: February 29, 2024
EXLSERVICE HOLDINGS, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
By:
/S/ MAURIZIO NICOLELLI
MAURIZIO NICOLELLI
Chief Financial Officer
(Duly Authorized Signatory, Principal Financial and Accounting Officer)
Signature
/S/ ROHIT KAPOOR
Rohit Kapoor
/S/ MAURIZIO NICOLELLI
Maurizio Nicolelli
/S/ VIKRAM S. PANDIT
Vikram S. Pandit
/S/ ANDREAS FIBIG
Andreas Fibig
/S/ SOM MITTAL
Som Mittal
/S/ KRISTY PIPES
Kristy Pipes
/S/ NITIN SAHNEY
Nitin Sahney
/S/ JAYNIE M. STUDENMUND
Jaynie M. Studenmund
/S/ SARAH K. WILLIAMSON
Sarah K. Williamson
Title
Date
Chief Executive Officer, Vice-Chairman and Director
(Principal Executive Officer)
February 29, 2024
Chief Financial Officer (Principal Financial and
Accounting Officer)
February 29, 2024
Chairman of the Board
February 29, 2024
Director
Director
Director
Director
Director
Director
52
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
Table of Contents
The following exhibits are being filed as part of this report or incorporated by reference as indicated therein:
INDEX TO EXHIBITS
3.1
3.2
4.1
4.2
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form
Q (File No. 1-33089) filed on October 26, 2023).
Sixth Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form
(File No. 1-33089) filed on June 21, 2023).
Registration Rights Agreement (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K (File No. 1-33089)
filed on October 25, 2006).
Description of Common Stock.
Form of ExlService Holdings, Inc. Employment Agreement (applicable to Executive Officers) (incorporated by reference to Exhibit 10.4 to
Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023.
Second Amended and Restated Employment and Non-Competition Agreement, dated August 3, 2020, between the Company and Rohit Kap
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on October 29, 2020).
Amendment to Second Amended and Restated Employment and Non-Competition Agreement, dated August 12, 2022, between the Comp
and Rohit Kapoor (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed
October 27, 2022).
Amendment No. 2 to Second Amended and Restated Employment and Non-Competition Agreement, effective February 16, 2023, between
Company and Rohit Kapoor (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-330
filed on April 27, 2023).
Employment Agreement, effective as of February 3, 2020, between ExlService Holdings, Inc. and Maurizio Nicolelli (incorporated
reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K (File No. 1-33089) filed on February 25, 2021).
Employment Agreement, effective as of April 18, 2022, between exl Service (India) Private Limited and Vikas Bhalla (incorporated
reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023.
ExlService Holdings, Inc. 2006 Omnibus Plan (incorporated by reference to Exhibit 10.20 of Amendment 3 to the Company’s Registra
Statement on Form S-1 (Registration No. 333-121001) filed July 28, 2006).
Form of Non-Qualified Stock Option Agreement under the 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.32
Amendment 5 to the Company’s Registration Statement on Form S-1 (Registration No. 333-121001) filed October 4, 2006).
ExlService Holdings, Inc. 2006 Omnibus India Subplan 2 (incorporated by reference to Exhibit 10.38 of Amendment 6 to the Compan
Registration Statement on Form S-1 (Registration No. 333-121001) filed October 17, 2006).
Form of Non-Qualified Stock Option Agreement under the 2006 Omnibus India Subplan 2 (incorporated by reference to Exhibit 10.39
Amendment 5 to the Company’s Registration Statement on Form S-1 (Registration No. 333-121001) filed October 4, 2006).
Amendment to ExlService Holdings, Inc. 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.43 of Amendment 5 to
Company’s Registration Statement on Form S-1 (Registration No. 333-121001) filed October 4, 2006).
Amendment No. 2 to ExlService Holdings, Inc. 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.46 of Amendment 6 to
Registration Statement on Form S-1 (Registration No. 333-121001) filed October 17, 2006).
Amendment No. 3 to ExlService Holdings, Inc. 2006 Omnibus Award Plan (incorporated by reference to Exhibit 4.6 to the Compan
Registration Statement on Form S-8 (Registration No. 333-157076) filed February 2, 2009).
Form of Restricted Stock Unit Agreement (U.S.) under the 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.1 to
Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on May 1, 2014).
53
Table of Contents
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25
21.1
23.1
31.1
31.2
32.1
32.2
97
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
ExlService Holdings, Inc. 2015 Amendment and Restatement of the 2006 Omnibus Award Plan (incorporated by reference to Exhibit 10.
the Company’s Current Report on Form 8-K (File No. 1-33089) filed on June 25, 2015).
Form of Restricted Stock Unit Agreement (U.S.) under the ExlService Holdings, Inc. 2015 Amendment and Restatement of the 2006 Omni
Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on Octo
27, 2016).
Form of Restricted Stock Unit Agreement (U.S.) under the ExlService Holdings, Inc. 2015 Amendment and Restatement of the 2006 Omni
Award Plan “(incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K (File No. 1-33089) filed on March
2017).
ExlService Holdings, Inc. 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on F
8-K (File No. 1-33089) filed on June 20, 2018).
Form of Restricted Stock Unit Agreement (applicable to U.S. Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023).
Form of Restricted Stock Unit Agreement (applicable to International Executive Officers) under the 2018 Omnibus Incentive P
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 27, 2023).
Form of Restricted Stock Unit Agreement (Directors) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 to t
Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on April 29, 2021).
Form of Option Agreement (applicable to U.S. Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by referenc
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on July 27, 2023).
Form of Option Agreement (applicable to International Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by refere
to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-33089) filed on July 27, 2023).
ExlService Holdings, Inc. 2022 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Repor
Form 8-K (File No. 1-33089) filed on June 22, 2022).
Amendment and Restatement Agreement, dated April 18, 2022, by and among the Company and the other loan parties thereto, the lenders p
thereto, and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
(File No. 1-33089) filed on April 20, 2022).
Subsidiaries of the Company.
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
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.
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.
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 pursuan
to Section 906 of the Sarbanes-Oxley Act of 2002.
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 pursuan
Section 906 of the Sarbanes-Oxley Act of 2002.
ExlService Holdings, Inc. Clawback Policy.
Inline XBRL Instance Document*
Inline XBRL Taxonomy Extension Schema*
Inline XBRL Taxonomy Extension Calculation Linkbase*
Inline XBRL Taxonomy Extension Definition Linkbase*
Inline XBRL Taxonomy Extension Label Linkbase*
Inline XBRL Extension Presentation Linkbase*
54
Table of Contents
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.
+Indicates management contract or compensatory plan required to be filed as an Exhibit.
55
Table of Contents
EXLSERVICE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Page
F-2
F-5
F-7
F-8
F-9
F-10
F-11
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ExlService Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ExlService Holdings, Inc. (the “Company”) as of December 31, 2023 and 2022, the
related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended
December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2024, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Revenues - Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
Revenue is recognized when services are provided to the Company’s customers, in an amount that reflects the consideration which the Company expects
to be entitled to in exchange for the services provided. Revenue is measured based on consideration specified in a contract with a customer and excludes
discounts and amounts collected on behalf of third parties. Revenues under time-and-material, transaction and outcome-based contracts are recognized as the
services are performed.
At the inception of a new contract with a customer, the Company evaluates the revenue recognition principles, including judgments in identifying
performance obligations in a contract and determining the timing of revenue recognition. The Company’s contracts may be modified to add, remove or change
existing performance obligations, which require judgment to evaluate and determine whether they are to be accounted for on a prospective basis either as a
separate contract, or as a termination of existing contract and creation of a new contract.
F-2
Table of Contents
Auditing revenue recognition requires significant audit effort resulting from the number of customers and related contracts that require evaluation and
auditor judgment as to whether revenue was recorded in accordance with the terms of the contracts and revenue recognition principles under Accounting
Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”).
______________________________________________________________________________________________________
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to whether revenue was recorded in accordance with the terms of the contracts with the Company’s customers and met the
criteria for revenue recognition in accordance with ASC Topic 606 included the following, among others:
• We tested the effectiveness of internal controls over revenue, specifically management’s controls over the identification of performance obligations
within the customer contracts and determining timing of revenue recognition for new customer contracts and contracts with significant scope
modifications.
• We selected a sample of recorded revenue transactions from new customer contracts and evaluated the appropriateness of the performance obligations
identified within the customer contracts and assessed if the revenue recognition principles applied are in accordance with ASC Topic 606.
• We selected a sample of recorded revenue transactions related to the Company’s contracts that were modified to add, remove or change existing
performance obligations and (1) assessed whether the services added to an existing contract are distinct and whether the pricing is at a standalone
selling price; and (2) services added that are distinct and at standalone selling price are accounted for on a prospective basis either as a separate
contract, or as a termination of existing contract and creation of a new contract.
/s/ Deloitte & Touche LLP
New York, New York
February 29, 2024
We have served as the Company's auditor since 2018.
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ExlService Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of ExlService Holdings, Inc. (the “Company”) as of December 31, 2023, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 29, 2024, expressed an unqualified opinion
on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 29, 2024
F-4
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount and share count)
Notes
December 31, 2023
December 31, 2022
As of
Table of Contents
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Restricted cash
Accounts receivable, net
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Restricted cash
Deferred tax assets, net
Goodwill
Other intangible assets, net
Long-term investments
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Current portion of long-term borrowings
Deferred revenue
Accrued employee costs
Accrued expenses and other current liabilities
Current portion of operating lease liabilities
Income taxes payable, net
Total current liabilities
Long-term borrowings, less current portion
Operating lease liabilities, less current portion
Deferred tax liabilities, net
Other non-current liabilities
Total liabilities
Commitments and contingencies
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, 203,410,038 shares issued and 165,277,880
shares outstanding as of December 31, 2023 and 199,939,880 shares issued and 166,172,220 shares
outstanding as of December 31, 2022
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
(1)
(1)
Total including shares held in treasury
F-5
$
$
$
7
8
7
4
11
9
21
7
22
10
10
8
12
18
13
21
22
18
21
22
14
25
19
15
136,953 $
153,881
4,062
308,108
76,669
679,673
100,373
64,856
4,386
82,927
405,639
50,164
4,430
49,524
1,441,972 $
5,055 $
65,000
12,318
117,137
112,900
12,780
1,213
326,403
135,000
58,175
1,495
31,462
552,535
118,669
179,027
4,897
259,222
50,979
612,794
82,828
55,347
2,055
55,791
405,637
64,819
34,779
32,069
1,346,119
7,789
30,000
18,782
108,100
95,352
14,978
2,945
277,946
220,000
48,155
547
41,292
587,940
—
—
203
508,028
1,083,663
(127,040)
1,464,854
200
444,948
899,105
(144,143)
1,200,110
Table of Contents
Less: 38,132,158 shares as of December 31, 2023 and 33,767,660 shares as of December 31, 2022, held in treasury,
at cost
(1)
19
Total stockholders’ equity
Total liabilities and stockholders’ equity
(575,417)
889,437
1,441,972 $
(441,931)
758,179
1,346,119
$
(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023. Refer to Note
19 – Capital Structure to the consolidated financial statements for further details.
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amount and share count)
Revenues, net
Cost of revenues
Gross profit
Operating expenses:
(1)
(1)
General and administrative expenses
Selling and marketing expenses
Depreciation and amortization expense
Total operating expenses
Income from operations
Foreign exchange gain, net
Interest expense
Other income/(expense), net
Loss on settlement of convertible notes
Income before income tax expense and earnings from equity affiliates
Income tax expense
Income before earnings from equity affiliates
Gain from equity-method investment
Net income attributable to ExlService Holdings, Inc. stockholders
Earnings per share attributable to ExlService Holdings, Inc. stockholders
(2)
:
Basic
Diluted
Weighted average number of shares used in computing earnings per share attributable to
ExlService Holdings, Inc. stockholders
(2)
:
Basic
Diluted
Notes
3, 4
$
2023
Year ended December 31,
2022
1,630,668 $
1,022,902
607,766
1,412,044 $
896,595
515,449
2021
1,122,293
690,934
431,359
9, 10
18
6
18
22
5
5
$
$
$
198,294
120,227
50,490
369,011
238,755
1,532
(13,180)
10,834
—
237,941
53,536
184,405
153
184,558
$
169,016
97,989
56,282
323,287
192,162
6,199
(8,252)
(10)
—
190,099
47,565
142,534
434
142,968
$
1.11 $
$
1.10
0.86 $
$
0.85
142,040
84,306
49,132
275,478
155,881
4,313
(7,561)
6,773
(12,845)
146,561
31,850
114,711
47
114,758
0.68
0.67
166,341,213
168,161,371
166,651,585
169,169,290
167,746,375
171,222,390
(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 consolidated financial statements for further details.
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges
Loss on net investment hedges
Foreign currency translation gain/(loss)
Retirement benefits
Reclassification adjustments:
(Gain)/loss on cash flow hedges
Retirement benefits
(2)
(1)
Income tax effects relating to above
(3)
Total other comprehensive income/(loss)
Total comprehensive income
Year ended December 31,
Notes
2023
2022
2021
$
184,558 $
142,968 $
114,758
17
17
20
17
20
22
$
14,403
—
652
1,337
5,208
(94)
(4,403)
17,103
201,661 $
(27,333)
—
(47,734)
2,574
1,295
592
15,937
(54,669)
88,299 $
4,663
(1,134)
(11,134)
(558)
(9,264)
709
2,228
(14,490)
100,268
(1)
(2)
(3)
These are reclassified to net income and are included in cost of revenues, operating expenses and interest expense, as applicable in the consolidated statements of
income.
These are reclassified to net income and are included in other income/(expense), net in the consolidated statements of income.
These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation gain/(loss).
See accompanying notes to consolidated financial statements.
F-8
Table of Contents
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share count)
Common Stock
(1)
Notes
Shares
Amount
Additional
Paid-in Capital
(1)
Retained
Earnings
Accumulated Other
Comprehensive
Income/(Loss)
Treasury Stock
(1)
Shares
(27,043,090) $
Amount
(2)
(268,238) $
—
—
(5,593,170)
1,551,970
—
—
—
—
—
(118,357)
17,306
—
—
—
Total
719,172
710
38,621
(118,357)
36,742
(84,000)
(14,490)
114,758
(31,084,290) $
(369,289) $
693,156
—
—
(2,683,370)
—
—
—
—
(72,642)
—
—
—
49,366
(72,642)
(54,669)
142,968
758,179
4,646
58,437
(133,486)
17,103
184,558
194,840,260
$
195
$
420,820 $
641,379 $
2,701,440
—
—
—
—
—
—
3
—
—
—
—
—
—
707
38,621
—
19,436
(84,000)
—
—
—
—
—
—
—
—
114,758
197,541,700
$
198
$
395,584 $
756,137 $
2,398,180
—
—
—
—
2
—
—
—
—
(2)
49,366
—
—
—
—
—
—
—
142,968
(74,984)
—
—
—
—
—
(14,490)
—
(89,474)
—
—
—
(54,669)
—
Balance as of January 1, 2021
Stock issued against stock-based
compensation plans
Stock-based compensation
Acquisition of treasury stock
Issuance of treasury stock
Settlement of convertible notes
Other comprehensive loss
Net income
Balance as of December 31, 2021
Stock issued against stock-based
compensation plans
Stock-based compensation
Acquisition of treasury stock
Other comprehensive loss
Net income
Balance as of December 31, 2022
Stock issued against stock-based
compensation plans
Stock-based compensation
Acquisition of treasury stock
Other comprehensive income
Net income
23
23
19
15
23
23
19
15
23
23
19
15
199,939,880
$
200
$
444,948 $
899,105 $
(144,143)
(33,767,660) $
(441,931) $
3,470,158
—
—
—
—
3
—
—
—
—
4,643
58,437
—
—
—
—
—
—
—
184,558
—
—
—
17,103
—
—
—
(4,364,498)
—
—
—
—
(133,486)
—
—
Balance as of December 31, 2023
203,410,038
$
203
$
508,028 $ 1,083,663 $
(127,040)
(38,132,158) $
(575,417) $
889,437
(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 consolidated financial statements for further details.
(2) Inclusive of excise tax for the year ended December 31, 2023. Refer to Note 19 – Capital Structure to the consolidated financial statements for further details.
See accompanying notes to consolidated financial statements.
F-9
Table of Contents
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
Stock-based compensation expense
Reduction in the carrying amount of operating lease right-of-use assets
Fair value mark-to-market of short-term investments
Unrealized foreign currency exchange gain, net
Deferred income tax benefit
Allowance/(reversal) for expected credit losses
Loss on settlement of convertible notes
Fair value changes in contingent consideration
Amortization of non-cash interest expense related to convertible notes
Others, net
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
Other current assets
Income taxes payable, net
Other assets
Accounts payable
Deferred revenue
Accrued employee costs
Accrued expenses and other liabilities
Operating lease liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale of property and equipment
Business acquisition (net of cash and cash equivalents acquired)
Purchases of investments
Proceeds from redemption of investments
Investment in equity affiliate
Net cash used for investing activities
Cash flows from financing activities:
Principal payments of finance lease liabilities
Proceeds from borrowings
Repayments of borrowings
Payment of contingent consideration
Acquisition of treasury stock
Proceeds from issuance of common stock
Net cash used for financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase/(decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of the period
Cash, cash equivalents and restricted cash at the end of the period
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
Income taxes
Supplemental disclosure of non-cash investing and financing activities:
Settlement of portion of convertible notes through issuance of treasury stock
Assets acquired under finance lease
Year ended December 31,
2023
2022
2021
$
184,558
$
142,968
$
114,758
50,280
58,437
20,188
17,044
(1,363)
(31,742)
2,453
—
1,900
—
948
(49,242)
(9,506)
(18,282)
(14,833)
(2,757)
(877)
14,090
10,083
(20,181)
211,198
(52,803)
739
—
(235,369)
276,036
(600)
(11,997)
(169)
80,000
(130,000)
(5,000)
(131,847)
5,566
(181,450)
2,029
19,780
125,621
56,102
49,366
21,783
(1,209)
(16,643)
(19,552)
683
—
8,250
—
510
(68,121)
(7,709)
8,779
(10,723)
2,385
2,473
5,551
14,475
(23,227)
166,141
(44,836)
266
(3,872)
(212,607)
164,503
—
(96,546)
(142)
35,000
(45,000)
—
(72,642)
1,060
(81,724)
(6,060)
(18,189)
143,810
$
$
$
$
$
145,401
$
125,621
$
13,895
104,882
—
461
$
$
$
$
8,189
57,058
—
312
$
$
$
$
49,656
38,621
26,326
5,139
(3,821)
(20,326)
(464)
12,845
—
1,795
168
(37,684)
(1,179)
(12,062)
227
(614)
(12,733)
46,475
2,934
(25,674)
184,387
(37,248)
1,300
(76,831)
(96,011)
94,520
—
(114,270)
(201)
300,000
(329,031)
—
(118,357)
710
(146,879)
(4,947)
(81,709)
225,519
143,810
6,589
49,997
36,742
71
See accompanying notes to consolidated financial statements.
F-10
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(In thousands, except per share amount and share count)
1. Organization
ExlService Holdings, Inc. (“ExlService Holdings”) is organized as a corporation under the laws of the State of Delaware. ExlService Holdings, together
with its subsidiaries and affiliates (collectively, the “Company”), is a leading data analytics and digital operations and solutions company. 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 consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”). The
accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of ExlService Holdings, Inc. and all of its
subsidiaries and includes the Company's share in the results of its associates.
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 consolidated statements of income.
Accounting policies of the respective individual subsidiaries and equity affiliates are aligned wherever necessary, so as to ensure consistency with the
accounting policies that are adopted by the Company under U.S. GAAP.
(b) Use of Estimates
The preparation of the 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 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 consolidated financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible
assets and contingent consideration, purchase price allocation, including revenue projections and the discount rate applied within the discounted cash flow
model for business acquisitions, credit risk of customers, the nature and timing of the satisfaction of performance obligations, the standalone selling price of
performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements,
estimated costs to complete fixed price contracts, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax
uncertainties and other contingencies, valuation of derivative financial instruments and stock-based awards, 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
F-11
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
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) Foreign Currency Translation
The functional currency of each entity in the Company is the currency of the primary economic environment in which it operates. Transactions in foreign
currencies are initially recorded into functional currency at the rates of exchange prevailing on the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are remeasured into functional currency at the rates of exchange prevailing at the balance sheet date. Non-monetary assets
and liabilities are remeasured to the functional currency at exchange rates that prevailed on the date of inception of the transaction. All foreign exchange gains
and losses arising on re-measurement are recorded in the Company's consolidated statements of income.
The assets and liabilities of the subsidiaries for which the functional currency is other than the U.S. dollar are translated into U.S. dollars, the reporting
currency, at the rate of exchange prevailing on the balance sheet date. Revenues and expenses are translated into U.S. dollars at the exchange rates prevailing on
the last business day of each month, which approximates the average monthly exchange rate. Share capital and other equity items are translated at exchange
rates that prevailed on the date of inception of the transaction. Resulting translation adjustments are included in “Accumulated other comprehensive
income/(loss)” in the consolidated balance sheets.
(d) Revenue Recognition
Revenue is recognized when services are provided to the Company's customers, in an amount that reflects the consideration which the Company expect to
be entitled to in exchange for the services provided. The Company recognizes revenue when it satisfies a performance obligation by providing services to a
customer.
Revenue is measured based on consideration specified in a contract with a customer and excludes value added tax, business tax, any applicable discounts
and amounts collected on behalf of third parties. Reimbursements of out-of-pocket expenses are included as a part of revenue.
Nature of Services
The Company derives its revenues from digital operations and solutions and analytics services. The Company provides digital operations and solutions and
analytics services helping businesses enhance revenue growth and improve profitability.
Type of Contracts and Basis of Recognition
i.
ii.
a) Revenues under time-and-material, transaction and outcome-based contracts are recognized as the services are performed. When the terms of the
client contract specify service level parameters that must be met (such as turnaround time or accuracy), the Company monitors such service level
parameters to determine if any service credits or penalties have been incurred. Revenues are recognized net of any penalties or service credits that are
due to a client.
b) Revenues from arrangements involving subcontracting, either in part or whole of the assigned work, are recognized after the Company’s
assessment of “Principal versus agent considerations.” The Company evaluates whether it is in control of the services before the same are transferred
to the customer to assess whether it is principal or agent in the arrangement. Revenues are recognized on a gross basis if the Company is in the
capacity of principal and on a net basis if it falls in the capacity of an agent.
Revenues for the Company’s fixed-price contracts, which include business support services provided on a fixed price basis or implementation of
applications or solutions, are recognized considering costs incurred to date relative to total estimated costs at completion to measure progress toward
satisfying the Company’s performance obligations. Incurred cost represents work performed, which corresponds with, and thereby reasonably reflects
transfer of control to the client. The use of this method requires significant judgment to estimate the stage of completion and/or cost required to
complete the contracted scope of work, including assumptions and estimates relative to the length of time to complete the project and the nature and
complexity of the work to be performed and resources engaged. The Company regularly monitors these estimates throughout the execution of the
project and records changes in the
F-12
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
period in which a change in an estimate is determined. If a change in an estimate results in a projected loss on a project, such loss is recognized in the
period in which it is first identified.
iii. Revenue from the Company’s software and related services contracts, which are not significant, are primarily related to annual maintenance renewals
or incremental license fees for additional users. Maintenance revenues are generally recognized on a straight-line basis over the annual contract term.
Fees for incremental license without any associated services are recognized upon delivery of the related incremental license.
To a lesser extent, certain contracts may include offerings such as sale of licenses, which may be perpetual or subscription-based. The Company
recognizes revenue from distinct perpetual licenses upfront at a point in time when the software is made available to the client, whereas for a
combined software license and services performance obligation, revenue is recognized over the period that the services are performed.
Revenue from distinct subscription based licenses is recognized over the period of service performed. Revenue from any associated maintenance or
ongoing support services is recognized over the term of the contract.
iv. Revenues from reimbursement optimization services having contingent fee arrangements are recognized by the Company at the point in time when a
performance obligation is satisfied, which is when it identifies an overpayment claim. In such contracts, the Company’s consideration is contingent
upon the actual collections made by its customers and net of any subsequent retraction claims. Based on guidance on “variable consideration” in
Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), the Company uses its historical
experience and projections to determine the expected recoveries from its customers and recognizes revenue based upon such expected recoveries.
Any adjustment required due to change in estimates are recorded in the period in which such change is identified.
Modification to Contracts
The Company’s contracts may be modified to add, remove or change existing performance obligations. The accounting for modifications to contracts
involves assessing whether the services added to an existing contract are distinct and whether the pricing is at a standalone selling price. Services added that are
distinct and at standalone selling price are accounted on a prospective basis either as a separate contract, or as a termination of existing contract and creation of
a new contract.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers do not generally bundle different services together except for software and related services contracts, which are
not significant, involving implementation services and post contract maintenance services. In such software and related services contracts, revenue is
recognized based upon the transaction price allocated to each performance obligation based on the relative standalone selling price.
Allocation of Transaction Price to Performance Obligations
The transaction price is allocated to performance obligations on a relative standalone selling price basis. Standalone selling prices are estimated by
reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract. In assessing
whether to allocate variable consideration to a specific part of the contract, the Company considers the nature of the variable payment and whether it relates
specifically to its efforts to satisfy a specific part of the contract.
Variable Consideration
Variability in the transaction price arises primarily due to service level agreements, volume discounts entailing variability in revenue earned, and contracts
under the Company’s reimbursement optimization services whereby variability in revenue is attributable to the amount the Company enables its customers to
recover.
The Company considers its historical experience, including trends with similar transactions and expectations regarding the contract in estimating the
amount of variable consideration that should be recognized during a period.
F-13
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The Company believes that the expected value method is most appropriate for determining the variable consideration since the Company has large
number of contracts with similar nature of transactions/services.
Unbilled Receivables
Unbilled receivables represents revenues recognized for services rendered between the last billing date and the balance sheet date. Unbilled receivables
also include revenues recognized from reimbursement optimization services where the Company identifies an overpayment claim. In such contracts,
Company’s consideration is contingent upon and collectable only when the actual collections are made by its customers. Based on guidance on “variable
consideration” in ASC Topic 606, Company use its historical experience and projections to determine the expected recoveries from its customers and recognize
revenue and receivables based upon such expected recoveries. Accordingly, the amounts for which services have been performed and for which invoices have
not been issued to customers on the balance sheet date, (i.e. unbilled receivables) are presented under accounts receivable, net.
Deferred Revenue and Contract Fulfillment Costs
Contract liabilities (deferred revenue) consist of advance billings and billing in excess of revenues recognized. Deferred revenue also includes the amount
for which services have been rendered but other conditions of revenue recognition are not met, for example, where the Company does not have an enforceable
contract.
Further, the Company also defers any upfront payments collected from its customers attributable to certain process transition activities, with respect to its
customers where such activities do not represent separate performance obligations. Revenues related to such transition activities are classified under “Deferred
revenue” and “Other non-current liabilities” in the Company’s consolidated balance sheets and are recognized as (or when) the performance obligation is
fulfilled under the contract with customer.
Costs related to such transition activities are contract fulfillment costs, and thereby classified under “Other current assets” and “Other assets” in the
consolidated balance sheets, and are recognized over the expected duration of the relationship with customers, under “Cost of revenues” in the consolidated
statements of income.
Contract Acquisition Costs
Direct and incremental costs incurred for acquiring contracts, such as sales commissions are contract acquisition costs and thereby classified under “Other
current assets” and “Other assets” in the consolidated balance sheets. Such costs are amortized over the expected duration of the relationship with customers
and recorded under Selling and marketing expenses in the consolidated statements of income.
Upfront Payments Made to Customers
Upfront payments, in nature of deal signing discount or deal signing bonuses made to customers are contract assets and classified under “Other current
assets and Other assets” in the consolidated balance sheets. Such costs are amortized over the expected period of benefit and are recorded as an adjustment to
transaction price and reduced from revenues.
Out-of-Pocket Expenses
Reimbursements of out-of-pocket expenses received from customers are included as part of revenues.
Payment terms
All contracts entered into by the Company specify the payment terms and are defined for each contract separately. Usual payment terms range between
30-60 days. The Company does not have any extended payment terms clauses in existing contracts.
Remaining Performance Obligations
The Company does not disclose the value of remaining performance obligations as a result of applying the practical expedient provided in ASC Topic
606, for contracts that meet any of the following criteria:
F-14
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
i. Contracts with an original expected length of one year or less as determined under ASC Topic 606,
ii. Contracts for which Company recognize revenue based on the right to invoice for service performed.
(e) Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of ninety days or less to be cash equivalents. Pursuant to the
Company’s investment policy, surplus funds are invested in highly-rated debt mutual funds, money market funds and time deposits to reduce its exposure to
market risk with regard to these funds.
The Company’s investment in money market funds is considered as cash equivalents. These investments are accounted for in accordance with the fair value
option under ASC Topic 825, Financial Instruments. The fair value is represented by original cost on the acquisition date and the net asset value (“NAV”) as
quoted, at each reporting period and any changes in fair value are included in other income/(expense), net. Gain or loss on the disposal of these investments is
calculated using the weighted average cost of the investments sold and is included in other income/(expense), net.
Restricted cash includes any cash and cash equivalents that are legally restricted as to withdrawal or usage for the Company’s operations.
For purposes of the statements of cash flows, the Company includes in its cash and cash-equivalent balances those amounts that have been classified as
restricted cash and restricted cash equivalents.
(f) Short-Term and Long-Term Investments
The Company’s short-term investments consist of investments in mutual funds and those term deposits with more than three months of original maturity
and less than twelve months of remaining maturity as of the reporting date, while long-term investments consist of term deposits with more than twelve months
of remaining maturity as of the reporting date and investments in equity affiliate.
The Company’s investments in term deposits with financial institutions are measured and recognized at amortized cost. Interest earned on such
investments is included in other income/(expense), net.
The Company’s mutual fund investments are in debt funds invested in India. These investments are accounted for in accordance with the fair value option
under ASC Topic 825, Financial Instruments. The fair value is represented by original cost on the acquisition date and the net asset value (“NAV”) as quoted, at
each reporting period and any changes in fair value are included in other income/(expense), net. Gain or loss on the disposal of these investments is calculated
using the weighted average cost of the investments sold and is included in other income/(expense), net.
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 consolidated statements of income. The Company periodically reviews the carrying value of its investment to determine if there has been any
other than temporary decline in carrying value. The investment balance for an investee is increased or decreased for cash contribution and distributions to or
from, respectively.
(g) Accounts Receivable and Allowance for Expected Credit Losses
Accounts receivable are recorded net of allowances for expected credit losses. The Company evaluates the credit risk of its customers based on a
combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated
future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the
Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of
default in the future. Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been
exhausted and the potential for recovery is considered remote.
F-15
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Accounts receivable include unbilled accounts receivable which represent revenues on contracts to be billed, in subsequent periods, as per the terms of
the related contracts.
(h) Property and Equipment
Property and equipment are stated at cost, which is generally comprised of the purchase price for such property or equipment, non-refundable duties and
taxes, but excludes any discounts and/or rebates, less accumulated depreciation and impairment. Equipment held under finance leases are capitalized at the
commencement of the lease at an amount equal to the lease liability, adjusted for any lease prepayments, initial direct costs and lease incentives, which usually
approximate the fair value of the underlying asset. Expenditures for replacements and improvements are capitalized, if they enhance the production capacity
and future benefits whereas the costs of maintenance and repairs are charged to earnings as incurred. Advances paid towards acquisition of property and
equipment and the cost of property and equipment not yet placed in service before the end of the reporting period, net of impairment, if any, are classified as
capital work in progress.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets and is presented under “Depreciation and
amortization expense” in the consolidated statements of income.
Property and equipment which are abandoned and disposed other than by sale, are assessed for revision of their useful life, thereby revising the future
depreciation to reflect the use of property and equipment over the remaining shortened life.
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. The estimated useful life have been disclosed in Note 9 - Property and Equipment to the consolidated financial statements.
(i) Software Development Costs
The Company capitalizes certain costs related to the development or enhancements to existing software products to be sold, leased or otherwise marketed
and / or used for internal-use. The Company begins to capitalize costs to develop or enhance software when planning stage efforts are successfully completed,
management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended.
Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred and recorded within “General
and administrative expenses” in the Company’s consolidated statements of income. Costs incurred on internally developed software not yet ready for its
intended use before the end of the reporting period, net of impairment, if any, are classified as capital work in progress. The Company exercises judgment in
determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated
useful lives over which the costs are amortized.
Implementation costs in cloud computing arrangements (“CCAs”), such as software as a service and other hosting arrangements are evaluated to ascertain
if the arrangement includes a license to internal-use software. If a CCA does not provide a contractual right to the Company to take possession of the software
at any time during the hosting period without significant penalty, and it is not feasible to either run the software on the Company’s own hardware, then
implementation costs incurred are accounted for as a service contract. In case of the existence of such a contractual right to take possession of the software and
the Company is able to run the software on its own hardware, then such implementation costs are capitalized as software development costs. The Company
amortizes capitalized implementation costs in a CCA over the life of the service contract.
Annual amortization of internally developed software products meant for sale, lease or otherwise marketing is the greater of the amount computed using
the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method
over the remaining estimated economic life of the software product, generally estimated to be up to 5 years from the date the product became available for use.
Annual amortization of internally developed software products meant for internal-use is based on the straight-line method over the estimated useful lives of the
internally developed software products. Amortization of such internally developed software is presented under “Depreciation and amortization expense” in the
consolidated statements of income.
(j) Business Combinations, Goodwill and Other Intangible Assets
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
ASC Topic 805, Business Combinations, requires that the acquisition method of accounting be used for all business combinations. The guidance specifies
criteria as to intangible assets acquired in a business combination that must be recognized and reported separately from goodwill. Contingent consideration is
recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is re-measured to fair value as of each reporting date until
the contingency is resolved, whereby such changes in fair value are recognized in earnings. Under ASC Topic 350, Intangibles - Goodwill and Other, all assets
and liabilities of the acquired businesses, including goodwill, are assigned to reporting units. Acquisition related costs are expensed as incurred under general
and administrative expenses.
In addition, assets acquired and liabilities assumed including uncertain tax positions and tax-related valuation allowances in connection with business
combinations are initially estimated as of the acquisition date. The Company subsequently re-evaluates the assets acquired and liabilities assumed, including
additional assets and liabilities identified subsequent to acquisition date, with any adjustments to its preliminary estimates being recorded to goodwill within the
measurement period (up to one year from the acquisition date).
Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased in a business
combination. The Company undertakes studies to determine the fair values of assets and liabilities acquired and allocate purchase consideration to assets and
liabilities, including property and equipment, goodwill and other identifiable intangibles. Goodwill is not amortized but is tested for impairment at least on an
annual basis, relying on a number of factors including operating results, business plans and estimated future cash flows of the reporting units to which it is
assigned. The Company examines the carrying value and fair value of the reporting unit that includes goodwill as and when the circumstances warrant, to
determine whether there are any impairment losses.
Refer to Note 10 - Goodwill and Other Intangible Assets to the consolidated financial statements for discussion of the Company's goodwill impairment
testing.
The Company performs an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it
is more likely than not that the fair value of a reporting unit is less than its carrying amount. Based on the assessment of events or circumstances, the Company
performs a quantitative assessment of goodwill impairment if it determines that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. If, based on the quantitative impairment analysis, the carrying value of the goodwill of a reporting unit exceeds the fair value of such
goodwill, an impairment loss is recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to that reporting unit. In addition,
the Company performs a quantitative assessment of goodwill impairment between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying amount.
Intangible assets acquired in a business combination are initially valued and recognized at fair market value using generally accepted valuation methods
appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over the estimated useful lives and are reviewed for impairment, if
indicators of impairment arise. Amortization of intangible assets with definite lives is presented under “Depreciation and amortization expense” in the
consolidated statements of income. The evaluation of impairment is based upon a comparison of the carrying amount of the intangible asset to its fair value,
which is calculated using the estimated future undiscounted net cash flows expected to be generated by the asset. If the fair value of the intangible assets is less
than the carrying amount of the asset, the asset is considered impaired and an impairment expense is recognized equal to any shortfall in the current period.
The Company’s definite lived intangible assets are amortized over their estimated useful lives as listed below using a straight-line method:
Customer relationships
Developed technology
Non-compete agreements
Trade names and trademarks
Useful Lives
(in years)
7-15
3-10
4
10
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
(k) Impairment of Long-lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Such assets are required to be tested for impairment if the carrying amount of the assets is higher than the future undiscounted
net cash flows expected to be generated from the assets. Determining whether an impairment has occurred typically requires various estimates and assumptions,
including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur,
their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best
information available. The Company derives the required undiscounted cash flow estimates from its historical experience and its internal business plans. To
determine fair value, the Company follows the discounted cash flow approach and uses its internal cash flow estimates discounted at an appropriate discount
rate and independent appraisals, as appropriate. The impairment amount to be recognized is measured as the amount by which the carrying value of the assets
exceeds their fair value.
(l)
Derivative Financial Instruments
In the normal course of business, the Company uses derivative instruments to mitigate the exposure from risk of foreign currency and interest rate
fluctuations. 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 adhere to
the Company’s treasury operations’ objectives and policies to qualify as cash flow hedges, and are with counterparties that are highly rated financial
institutions.
Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income/(loss) (“AOCI”), net of tax.
The resultant foreign exchange gain/(loss) upon settlement of cash flow hedges of forecasted transactions are recorded in the consolidated statements of income
along with the underlying hedged item in the same line as part of “Cost of revenues,” “General and administrative expenses,” “Selling and marketing
expenses,” and “Depreciation and amortization expense,” as applicable. The accumulated changes in the fair value of interest rate swaps recognized in AOCI
are reclassified to the consolidated statements of income and are presented as a part of “Interest expense” over the term of the contract.
The Company evaluates hedge effectiveness of cash flow hedges at the time a contract is entered into as well as on an ongoing basis. For hedge
relationships that are discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related
derivative amounts recorded in AOCI are reclassified to earnings.
The Company also uses derivatives instruments consisting of foreign currency forward contracts to hedge intercompany balances and other monetary assets
or liabilities denominated in currencies other than the functional currency, against the risk of foreign currency fluctuations associated with remeasurement of
such assets and liabilities to functional currency. These derivatives do not qualify as fair value hedges under ASC Topic 815. Changes in the fair value of these
derivatives are recognized in the consolidated statements of income and are included in foreign exchange gain, net.
The Company also uses foreign currency forward contracts designated as net investment hedges to hedge the foreign currency risks related to the
Company's investment in foreign subsidiaries. Fair value changes on these forward contracts and gains and losses on settlement of such forward contracts are
recognized in AOCI as part of the foreign currency translation adjustments and are reclassified to consolidated statements of income when a foreign operation
is disposed or partially disposed.
All of the assets and liabilities related to the Company’s forward contracts are subject to master netting arrangements with each individual counterparty.
These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a
termination event. The Company has presented all of the assets and liabilities related to these contracts on a gross basis, with no offsets, in its consolidated
statements of financial position. There is no financial collateral (including cash collateral) provided or received by the Company related to these contracts.
F-18
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Table of Contents
(m) Employee Benefits
Contributions to defined contribution plans are charged to the consolidated statements of income in the period in which services are rendered by the
covered employees. Current service costs for defined benefit plans are recognized in the period to which they relate. The liability in respect of defined benefit
plans is calculated annually by the Company using the projected unit credit method.
The Company records annual amounts relating to its defined benefit plans based on calculations that incorporate various actuarial and other assumptions,
including discount rates, mortality, assumed rates of return on plan assets, future compensation increases and attrition rates. The Company reviews its
assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of
modifications to those assumptions is recorded in other comprehensive income (loss) (“OCI”) and amortized to net periodic benefit cost over the expected
remaining period of service of the covered employees using the corridor method. The Company believes that the assumptions utilized in recording its
obligations under its plans are reasonable based on its experience and market conditions. These assumptions may not be within the control of the Company and
accordingly it is reasonably possible that these assumptions could change in future periods.
The Company includes the service cost component of the net periodic benefit cost in the same line item or items as other compensation costs arising from
services rendered by the respective employees during the period. The interest cost, expected return on plan assets and amortization of actuarial gains/loss, are
included in “Other income/(expense), net.” Refer to Note 20 - Employee Benefit Plans to the consolidated financial statements for details.
The Company recognizes its liabilities for compensated absences depending on whether the obligation is attributable to employee services already
rendered, rights to compensated absences vest or accumulate and payment is probable and estimable.
(n) Stock-Based Compensation
The Company recognizes stock-based compensation expense in the consolidated statements of income for awards of equity instruments to employees and
non-employee directors based on the grant-date fair value of those awards. The Company recognizes these compensation costs on straight-line basis over the
requisite service period of the award, or to the date on which retirement eligibility is achieved, if shorter. Forfeitures are accounted when the actual forfeitures
occur.
Under the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”), which was adopted by the Company's stockholders on June 15, 2018, which
replaces and supersedes the 2015 Amendment and Restatement of the Company’s 2006 Omnibus Award Plan (the “Prior Plan”) and is effective upon the date
approved by the Company’s stockholders, the Company grants performance-based restricted stock units (“PRSU”) to executive officers and other specified
employees. Generally, the Company grants PRSUs that cliff vest based on an aggregated revenue target (“PU”) for a three-year period, and PRSUs that are
based on market conditions (“MU”) and cliff vest upon meeting or exceeding the Company's total shareholder return relative to a group of peer companies
specified under the 2018 Plan, and are measured over a three-year performance period. The award recipient may earn up to 200% of the PRSUs granted based
on the actual achievement of the respective targets. However, the features of the equity incentive compensation program are subject to change by the
Compensation and Talent Management Committee of the Company’s board of directors.
The fair value of each PU is determined based on the market price of one common share of the Company on the day prior to the date of grant, and the
associated compensation expense is calculated on the basis that performance targets at 100% are probable of being achieved. The compensation expense for the
PU is recognized on a straight-line basis over the service period, which is through the end of the third year. Over this period, the number of shares that will be
issued is adjusted upward or downward based upon the probability of achievement of the performance targets. The final number of shares issued and the related
compensation cost recognized as an expense will be based on a comparison of the final performance metrics to the specified targets. The expense related to the
unvested PU as of December 31, 2023 was based on the Company's assessment of performance criteria for these grants that would most likely be met during
the respective years of vesting against the targeted performance level.
The grant date fair value for the MUs is determined using a Monte Carlo simulation model and the related compensation expense is expensed on a
straight-line basis over the vesting period. All compensation expense related to the MU will be recognized if the requisite performance period is fulfilled,
regardless of the extent of the market condition achieved.
F-19
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Stock-based compensation expense associated with the Company's 2022 Employee Stock Purchase Plan (“ESPP”) is measured at fair-value using a Black-
Scholes option-pricing model at the commencement of each offering period and recognized over that offering period.
(o) Forward Stock Split
The Company recognizes the effects of a forward stock split in the financial statements if there are changes in the total par value of the increased shares
upon such forward stock split. The Company reclassifies an amount equal to the par value of the increased shares resulting from the forward stock split from
“Additional paid-in capital” to “Common stock.” The Company presents the effects of a forward stock split on earnings per share in the financial statements
retroactively for all the periods presented. The Company has an option to present other effects of the forward stock split, including changes in the total par value
of the increased shares and count of shares of common stock, in the consolidated financial statements either retroactively for all the periods presented or only
for the period in which the forward stock split of the common stock becomes effective. The Company has elected to present the effects of the forward stock
split retroactively for all the periods presented.
(p) Income Taxes
The Company accounts for income taxes using the asset and liability method of accounting for income taxes. The Company calculates and provides for
income taxes in each of the tax jurisdictions in which it operates. The deferred tax assets and liabilities are recognized for future tax consequences attributable
to temporary differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases and all operating losses
carried forward, if any. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which the applicable
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or tax status is recognized
in the statements of income in the period in which the change is identified. The Company releases (reclassifies) the tax effects from AOCI to the consolidated
statements of income at the time of settlement of cash flows hedges and amortization of deferred actuarial gain/(loss) on retirement benefits. Deferred tax assets
are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be
realized.
The Company establishes provisions for uncertain tax provisions and related interest and penalties when the Company believes those tax positions are not
more likely than not of being sustained, if challenged.
The Company intends to indefinitely reinvest earnings from its foreign subsidiaries and has not recorded deferred tax liabilities for the indefinitely
reinvested earnings.
The Company recognizes the tax effects of Global Intangible Low-Taxed Income of certain foreign subsidiaries as a period cost.
(q) Concentration of Credit Risk in Financial Instruments
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, time deposits,
mutual fund investments, accounts receivable and derivative financial instruments. By their nature, all such financial instruments involve risks including the
credit risks of non-performance by counterparties. Pursuant to the Company’s investment policy, surplus funds are maintained as cash equivalents and short-
term investments, and are invested in highly-rated mutual funds, money market funds and time deposits, placed with highly rated financial institutions to reduce
its exposure to market risk with regard to these funds. The Company’s exposure to credit risk on account receivable is influenced mainly by the individual
characteristic of each customer and the concentration of risk from the top few customers. To mitigate this risk the Company evaluates the creditworthiness of its
customers in conjunction with its revenue recognition processes as well as through its ongoing collectability assessment processes for accounts receivable. The
Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
(r) Fair value measurements
ASC Topic 820, Fair Value Measurements and Disclosures defines fair value as the price that would be received upon sale of an asset or paid upon
transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that
asset or liability. The fair value should be calculated based on
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
assumptions that market participants would use in pricing the asset or liability as against assumptions specific to the entity. In addition, the fair value of
liabilities should include consideration of non-performance risk, including the Company’s own credit risk. The fair value hierarchy consists of the following
three levels:
•
•
•
Level I — Quoted prices for identical instruments in active markets.
Level II — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level III — Instruments whose significant value drivers are unobservable.
(s) Leases
The Company determines if an arrangement is a lease at inception of the contract. The Company’s assessment is based on whether: (1) the contract
involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the
term of the contract, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease if any one of the following criteria
are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably
certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or
exceeds substantially all of the fair value of the asset.
Operating leases are presented within “Operating lease right-of-use assets,” “Current portion of operating lease liabilities” and “Operating lease liabilities,
less current portion” in the Company's consolidated balance sheets. Long-lived assets underlying finance leases are presented within “Property and equipment”
and the current and non-current portion of finance lease liabilities are presented within “Accrued expenses and other current liabilities - others” and “other non-
current liabilities - others,” respectively, in the Company's consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to
make lease payments arising from the lease arrangement. Lease liabilities are recognized at commencement date based on the present value of lease payments
over the lease term. Operating lease ROU assets are recognized at commencement date in an amount equal to lease liability, adjusted for any lease prepayments,
initial direct costs, and lease incentives. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental
borrowing rate based on the information available at commencement date. The Company determines the incremental borrowing rate by adjusting the
benchmark reference rates with appropriate financing spreads applicable to the respective geographies where the leases are entered and lease specific
adjustments for the effects of collateral, if applicable. Lease terms includes the effects of options to extend or terminate the lease when it is reasonably certain at
commencement of the lease that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis
over the lease term reflecting single operating lease cost. The Company evaluates lease agreements to determine lease and non-lease components, which are
accounted for separately.
Lease payments that depend on factors other than an index or rate are considered variable lease payments and are excluded from the operating lease assets
and liabilities and are recognized as expense in the period in which the obligation is incurred. Lease payments include payments for common area maintenance,
utilities such as electricity, heating and water, among others, and property taxes, and other similar payments paid to the landlord, which are treated as non-lease
component.
The Company accounts for lease-related concessions in accordance with guidance in Topic 842, Leases, to determine, on a lease-by-lease basis, whether
the concession provided by lessor should be accounted for as a lease modification.
The Company accounts for a modification as a separate contract when it grants an additional right of use not included in the original lease and the increase
is commensurate with the standalone price for the additional right of use, adjusted for the circumstances of the particular contract. Modifications which are not
accounted for as a separate contract are reassessed as of the effective date of the modification based on its modified terms and conditions and the facts and
circumstances as of that date. Upon modification, the Company remeasures the lease liability to reflect changes to the remaining lease payments and discount
rates and recognizes the amount of the remeasurement of the lease liability as an adjustment to the ROU assets. However, if the carrying amount of the ROU
assets is reduced to zero as a result of modification, any remaining amount of the remeasurement is recognized as an expense in consolidated statements of
income.
F-21
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The Company reviews ROU assets for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be
recoverable.
(t) Government Grants
Government grants are recognized at their fair value when there is a reasonable assurance that the conditions attached to them shall be complied with and
the grants will be received. Government grants relating to income are recognized as a reduction of expenses in the consolidated statements of income.
Government grants relating to a property and equipment are recognized as a reduction from the cost of acquisition of such property and equipment. The grant is
subsequently measured in the consolidated statements of income over the life of the property and equipment in the form of reduced depreciation expense.
(u) Earnings per share
Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares
outstanding, adjusted for outstanding shares that are subject to repurchase during the period. Diluted earnings per share is computed using the weighted average
number of common shares issued and outstanding during the period plus the potentially dilutive effect of common stock equivalents, including, outstanding
stock options, restricted stock, restricted stock units and employee stock purchase plans. For the purposes of calculating diluted earnings per share, the treasury
stock method is used for stock-based awards and outstanding convertible notes except where the results would be anti-dilutive. The Company includes
performance stock unit awards in dilutive potential common shares when they become contingently issuable and have a dilutive impact per authoritative
guidance and excludes such awards when they are not contingently issuable.
The Company calculates the dilutive effect of convertible notes using the treasury stock method through the maturity date of the convertible notes, if it has
the intent and ability to settle the principal amount of the outstanding convertible notes in cash. Under the treasury stock method, the convertible notes shall
have a dilutive impact related to the conversion premium, if any, on diluted earnings per share to the extent the issuance is dilutive based on the average market
price of the Company’s common stock for a reporting period being greater the conversion price.
(v) Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recognized when it is probable that
a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. A disclosure for a contingent liability is made
when there is a possible obligation that may require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the
likelihood of outflow of resources is remote, no provision or disclosure is made. Legal costs incurred in connection with such liabilities are expensed as
incurred. Capital commitments are disclosed in the financial statements.
(w) Recent Accounting Pronouncements
In March 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-01, Leases (“Accounting
Standards Codification (“ASC”) Topic 842”): Common Control Arrangements. This ASU provides guidance in ASC Topic 842 that leasehold improvements
associated with common control leases should be (i) amortized by the lessee over the useful life of the leasehold improvements to the common control group,
regardless of the lease term, as long as the lessee controls the use of the underlying asset through a lease, and (ii) accounted for as a transfer between entities
under common control through an adjustment to equity if and when the lessee no longer controls the use of the underlying asset. The ASU is effective for fiscal
years beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. When
adopted in an interim period, it must be adopted from the beginning of the year that includes that interim period. The Company does not have any lease
arrangements with entities under common control and the adoption of this ASU is not expected to have a material impact on its consolidated financial
statements.
In October 2023, the FASB issued 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
F-22
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
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 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 (“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 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 consolidated financial
statements.
(x) Recently Adopted Accounting Pronouncements
In October 2021, FASB issued ASU No. 2021-08, Business Combinations (“ASC Topic 805”): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers. This ASU provides guidance in ASC Topic 805 to require the acquirer entity to recognize and measure contract assets and
contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contract with Customers, as if it had originated the
contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they
were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The ASU is
effective for fiscal years beginning after December 15, 2022. An entity may early adopt the ASU including adoption in an interim period, with retrospective
application to all business combinations within the fiscal year that includes such interim period. The adoption of this ASU is applicable for future business
combinations.
In July 2023, the FASB issued ASU No. 2023-03, Presentation of Financial Statements (“ASC Topic 205”), Income Statement-Reporting Comprehensive
Income (“ASC Topic 220”), Distinguishing Liabilities from Equity (“ASC Topic 480”), Equity (“ASC Topic 505”), and Compensation-Stock Compensation
(“ASC Topic 718”) pursuant to SEC Staff Accounting Bulletin No. 120 and amends various SEC paragraphs in the ASC. The ASU is effective immediately
upon issuance and did not have a material impact on the Company’s 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
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
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 years ended December 31, 2023, 2022 and 2021, respectively, for each of the reportable segments, are as follows:
Revenues, net
Cost of revenues
Gross profit
(1)
(1)
Insurance
$
$
529,855 $
341,785
188,070 $
Operating expenses
Foreign exchange gain, net, interest expense and other income, net
Income tax expense
Gain from equity-method investment
Net income
(1)
Exclusive of depreciation and amortization expense.
Revenues, net
Cost of revenues
Gross profit
(1)
(1)
Operating expenses
Foreign exchange gain, net, interest expense and other expense,
net
Income tax expense
Gain from equity-method investment
Net income
(1)
Exclusive of depreciation and amortization expense.
Insurance
$
$
448,704 $
287,734
160,970 $
F-24
Year ended December 31, 2023
Emerging
Business
Healthcare
Analytics
Total
105,994 $
69,273
36,721 $
265,692 $
150,943
114,749 $
729,127 $
460,901
268,226 $
1,630,668
1,022,902
607,766
369,011
(814)
53,536
153
184,558
$
Year ended December 31, 2022
Emerging
Business
Healthcare
Analytics
97,351 $
70,951
26,400 $
218,638 $
128,017
90,621 $
647,351 $
409,893
237,458 $
$
Total
1,412,044
896,595
515,449
323,287
(2,063)
47,565
434
142,968
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Revenues, net
Cost of revenues
(1)
(1)
Gross profit
Operating expenses
Loss on settlement of convertible notes, foreign
exchange gain, net, interest expense and other income,
net
Income tax expense
Gain from equity-method investment
Net income
(1)
Exclusive of depreciation and amortization expense.
Revenues, net by service type, were as follows:
Digital operations and solutions
Analytics services
(1)
Revenues, net
Insurance
Healthcare
Emerging
Business
Analytics
Total
Year ended December 31, 2021
$
$
381,999 $
239,529
142,470 $
112,386 $
69,760
42,626 $
167,236 $
91,737
75,499 $
460,672 $
289,908
170,764 $
$
1,122,293
690,934
431,359
275,478
(9,320)
31,850
47
114,758
2023
Year ended December 31,
2022
$
$
901,541 $
729,127
1,630,668 $
764,693 $
647,351
1,412,044 $
2021
661,621
460,672
1,122,293
(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.
Revenues, net
The United States
Non-United States
The United Kingdom
Rest of World
Total Non-United States
Revenues, net
2023
Year ended December 31,
2022
2021
$
1,370,707 $
1,213,477 $
964,059
177,479
82,482
259,961
1,630,668 $
134,630
63,937
198,567
1,412,044 $
105,734
52,500
158,234
1,122,293
$
F-25
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Long-lived assets by geographic area, which consist of property and equipment, net and operating lease ROU assets were as follows:
Long-lived assets
The United States
India
The Philippines
South Africa
Rest of World
Long-lived assets
December 31, 2023
December 31, 2022
As of
$
$
61,592 $
53,813
21,952
20,890
6,982
165,229 $
60,709
50,118
18,406
3,980
4,962
138,175
4. Revenues, net and Accounts Receivable, net
Refer to Note 3 - Segment and Geographical Information to the 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:
Accounts receivable, net
Contract assets
Contract liabilities:
Deferred revenue (consideration received in advance)
Consideration received for process transition activities
As of
December 31, 2023
December 31, 2022
$
$
$
$
308,108 $
9,665 $
9,764 $
12,411 $
259,222
2,768
17,079
5,423
Accounts receivable includes $148,735 and $126,027 as of December 31, 2023 and 2022, respectively, representing unbilled receivables. The Company
has accrued the unbilled receivables for work performed in accordance with the terms of contracts with customers and considers no significant performance risk
associated with its unbilled receivables.
There was no significant impairment of contract assets as of December 31, 2023 and 2022.
Revenue recognized during the years ended December 31, 2023 and 2022, which was included in the contract liabilities balance at the beginning of the
respective periods:
Deferred revenue (consideration received in advance)
Consideration received for process transition activities
Year ended December 31,
2022
2023
$
$
16,967 $
1,762 $
17,964
1,635
F-26
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Contract acquisition and fulfillment costs
The following table provides details of the Company’s contract acquisition and fulfillment costs:
Opening Balance
Additions
Amortization
Closing Balance
Contract Acquisition Costs
Year ended December 31,
2023
2022
Contract Fulfillment Costs
Year ended December 31,
2023
2022
$
$
1,095 $
1,841
(814)
2,122 $
511 $
1,014
(430)
1,095 $
13,871 $
13,605
(2,803)
24,673 $
5,795
15,509
(7,433)
13,871
There was no significant impairment for contract acquisition and contract fulfillment costs as of December 31, 2023 and 2022.
Allowance for expected credit losses
The following table provides information about accounts receivable, net of allowance for expected credit losses:
Accounts receivable, including unbilled receivables
Less: Allowance for expected credit losses
Accounts receivable, net
The movement in “Allowance for expected credit losses” was as follows:
Opening Balance
Additions
Reductions due to write-off of accounts receivables
Currency translation adjustments
Closing Balance
Concentration of credit risk
December 31, 2023
December 31, 2022
As of
311,811 $
(3,703)
308,108 $
260,554
(1,332)
259,222
Year ended December 31,
2023
2022
1,332 $
2,450
(79)
—
3,703 $
573
815
(60)
4
1,332
$
$
$
$
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 December 31, 2023 and 2022.
F-27
Table of Contents
5. Earnings Per Share
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The following table sets forth the computation of basic and diluted earnings per share:
Numerators:
Net income
Denominators
(1)
:
Basic weighted average common shares outstanding
Dilutive effect of stock-based awards
Dilutive effect of conversion premium on the Notes
Diluted weighted average common shares outstanding
(2)
Earnings per share attributable to ExlService Holdings, Inc. stockholders
(1)
:
Basic
Diluted
2023
Year ended December 31,
2022
2021
$
184,558 $
142,968 $
114,758
166,341,213
1,820,158
—
168,161,371
166,651,585
2,517,705
—
169,169,290
167,746,375
2,043,465
1,432,550
171,222,390
$
$
1.11 $
1.10 $
0.86 $
0.85 $
0.68
0.67
Weighted average potentially dilutive shares considered anti-dilutive and not included in
computing diluted earnings per share
(1)
1,628,932
2,830
53,525
(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 consolidated financial statements for further details.
(2) Represents dilution effect related to the conversion premium of the convertible senior notes in the calculation of diluted weighted average shares
outstanding for the portion of the period until actual settlement during the third quarter of 2021. Refer to Note 18 – Borrowings to the consolidated financial
statements for further details.
6. Other Income/(Expense), net
Other income/(expense), net consists of the following:
Gain on sale and fair value mark-to-market on investments
Interest and dividend income
Fair value changes of contingent consideration
Others, net
(1)
Other income/(expense), net
2023
Year ended December 31,
2022
2021
$
$
5,013 $
8,027
(1,900)
(306)
10,834 $
4,907 $
5,229
(8,250)
(1,896)
(10) $
4,891
2,726
—
(844)
6,773
(1) Refer to Note 16 - Fair Value Measurements to the consolidated financial statements for further details.
F-28
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
7. Cash, Cash Equivalents and Restricted Cash
For the purposes of statements of cash flows, cash, cash equivalents and restricted cash consist of the following:
Cash and cash equivalents
Restricted cash (current)
Restricted cash (non-current)
Cash, cash equivalents and restricted cash
December 31, 2023
As of
December 31, 2022
December 31, 2021
$
$
136,953 $
4,062
4,386
145,401 $
118,669 $
4,897
2,055
125,621 $
135,337
6,174
2,299
143,810
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.” Restricted cash (non-current) represents amounts on deposit with banks against bank
guarantees issued through banks in favor of relevant statutory authorities for equipment imports, deposits for obtaining indirect tax registrations and for
demands against pending income tax assessments. These deposits with banks will mature one year after the balance sheet date.
8. Investments
Investments consist of the following:
Short-term investments
Mutual funds
Term deposits
Total Short-term investments
Long-term investments
Term deposits
Investment in equity affiliate
Total Long-term investments
December 31, 2023
December 31, 2022
As of
$
$
$
$
52,650
101,231
153,881
239
4,191
4,430
$
$
$
$
110,964
68,063
179,027
31,341
3,438
34,779
Refer to Note 16 - Fair Value Measurements to the consolidated financial statements for further details.
F-29
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
9. Property and Equipment
Property and equipment consists of the following:
Owned Assets:
Network equipment and computers
Software
Leasehold improvements
Office furniture and equipment
Motor vehicles
Buildings
Land
Capital work in progress
Less: Accumulated depreciation and amortization
ROU assets under finance leases:
Network equipment and computers
Leasehold improvements
Office furniture and equipment
Motor vehicles
Less: Accumulated depreciation
Property and equipment, net
Estimated useful lives
(Years)
December 31, 2023
December 31, 2022
As of
3-5
2-5
3-8
3-8
2-5
30
—
—
$
$
$
$
149,975 $
94,279
41,933
21,199
686
956
625
12,276
321,929
(222,333)
99,596 $
58
604
427
1,020
2,109
(1,332)
777 $
100,373 $
130,218
88,487
42,890
20,211
605
961
629
14,459
298,460
(216,132)
82,328
82
1,013
662
742
2,499
(1,999)
500
82,828
During the years ended December 31, 2023 and 2022, there were no material changes in estimated useful lives of property and equipment during the
ordinary course of operations.
The depreciation and amortization expense, excluding amortization of acquisition-related intangibles, recognized in the consolidated statements of
income was as follows:
Depreciation and amortization expense
$
35,812 $
39,173 $
36,354
The effect of foreign exchange gain/(loss) upon settlement of cash flow hedges recorded under depreciation and amortization expense, was as follows:
Year ended December 31,
2023
2022
2021
Effect of foreign exchange gain/(loss)
Year ended December 31,
2022
2021
2023
$
(210) $
(180) $
524
F-30
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Internally developed software costs, included under Software, was as follows:
Cost
Less : Accumulated amortization
Internally developed software, net
December 31, 2023
December 31, 2022
As of
$
$
46,625 $
(25,413)
21,212 $
31,544
(16,134)
15,410
The amortization expense on internally developed software recognized in the consolidated statements of income was as follows:
Amortization expense
Year ended December 31,
2023
2022
2021
$
9,282 $
5,958 $
4,253
As of December 31, 2023 and 2022, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected
to be generated exceeds its carrying value; however, there can be no assurance that long-lived assets will not be impaired in future periods. Determining
whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly
related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, the asset’s residual value, if any. It is reasonably possible
that the judgments and estimates described above could change in future periods.
10. Goodwill and Other Intangible Assets
Goodwill
The following table sets forth details of changes in goodwill by reportable segment of the Company:
Balance as of January 1, 2022
Acquisition
Measurement period adjustments
Currency translation adjustments
Balance as of December, 2022
Currency translation adjustments
Balance as of December 31, 2023
Insurance
Healthcare
Emerging
Business
Analytics
Total
$
$
50,428 $
—
—
(499)
49,929
106
50,035 $
21,942 $
—
—
(67)
21,875
(3)
21,872 $
49,020 $
—
—
(1,919)
47,101
(100)
47,001 $
282,512 $
1,992
2,229
(1)
286,732
(1)
286,731 $
403,902
1,992
2,229
(2,486)
405,637
2
405,639
During 2023 and 2022, 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. Based on such assessment, the Company concluded that it is not
more likely than not that the fair values of any of the Company’s reporting units are less than their carrying amounts.
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 customers. The Company believes there are significant opportunities for adding new customers and additional growth
and expansion within its existing customers by:
•
Increasing the depth and breadth of the services, including adoption of new technology, for instance, generative AI, the Company provides across its
customers’ value chains and geographies;
F-31
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
• Offering the full suite of the Company's services, which includes AI-powered digital operations and solutions and data and analytics; and
•
Supporting the Company's customers’ geographic expansion leveraging its global footprint.
The Company also considers selective strategic relationships with industry leaders that add new long-term client relationships, enhance the depth and
breadth of its services and solutions, and complement its business strategy. Through its various partnership programs, the Company expands its technology and
innovation ecosystem with select partnerships, alliances or investments that the Company expects will enhance go-to-market opportunities and expand the
scope and effectiveness of the Company’s services and solutions by adding digital assets and intellectual property, which will help the Company to win new
customers or allowing it to enter new industry verticals and geographic markets.
There can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of reporting units requires the use of estimates
and significant judgments that are based on a number of factors including actual operating results. These estimates and judgements may not be within the
control of the Company and accordingly it is reasonably possible that the judgments and estimates described above could change in future periods. The duration
of market volatility is highly uncertain and, as such, the impact on cash flows, long-term debt-free net cash flow growth rate in the terminal year and discount
rates are subject to significant judgments and may cause variability in the Company’s assessment of existence of any impairment. The Company continues to
monitor significant changes in key assumptions that could result in future period impairment charges.
Other Intangible Assets
Information regarding the Company’s intangible assets is set forth below:
Finite-lived intangible assets:
Customer relationships
Developed technology
Trade names and trademarks
Non-compete agreements
Indefinite-lived intangible assets:
Trade names and trademarks
Total intangible assets
As of December 31, 2023
Gross
Carrying Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
99,050 $
3,552
1,400
336
104,338
900
105,238 $
(51,085) $
(2,522)
(1,286)
(181)
(55,074)
—
(55,074) $
47,965
1,030
114
155
49,264
900
50,164
F-32
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Finite-lived intangible assets:
Customer relationships
Developed technology
Trade names and trademarks
Non-compete agreements
Indefinite-lived intangible assets:
Trade names and trademarks
Total intangible assets
As of December 31, 2022
Gross
Carrying Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
99,146 $
24,878
1,700
336
126,060
900
126,960 $
(39,848) $
(20,902)
(1,303)
(88)
(62,141)
—
(62,141) $
59,298
3,976
397
248
63,919
900
64,819
The amortization expense recognized in the consolidated statements of income was as follows:
Amortization expense
$
14,678 $
17,109 $
12,778
2023
Year ended December 31,
2022
2021
Estimated future amortization expense related to finite-lived intangible assets as of December 31, 2023 was as follows:
$
2024
2025
2026
2027
2028
Total
$
12,135
10,699
10,362
9,364
6,704
49,264
11. Other Current Assets
Other current assets consist of the following:
Advance income tax, net
Receivables from statutory authorities
Prepaid expenses
Derivative instruments
Deferred contract fulfillment costs
Contract assets
Advances to suppliers
Others
Other current assets
December 31, 2023
December 31, 2022
As of
23,269 $
18,500
18,171
4,308
3,303
2,830
1,883
4,405
76,669 $
5,716
15,724
18,132
1,526
1,178
904
1,944
5,855
50,979
$
$
F-33
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
12. Other Assets
Other assets consist of the following:
Deferred contract fulfillment costs
Deposits with statutory authorities
Contract assets
Lease deposits
Derivative instruments
Others
Other assets
13. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
Accrued expenses
Payable to statutory authorities
Contingent consideration
Client liabilities
Accrued capital expenditures
Derivative instruments
Others
Accrued expenses and other current liabilities
14. Other Non-Current Liabilities
Other non-current liabilities consist of the following:
Retirement benefits
Deferred transition revenue
Unrecognized tax benefits
Contingent consideration
Derivative instruments
Others
Other non-current liabilities
F-34
December 31, 2023
December 31, 2022
As of
21,370 $
6,960
6,835
5,159
3,299
5,901
49,524 $
12,693
6,276
1,864
6,621
820
3,795
32,069
December 31, 2023
December 31, 2022
As of
58,736 $
20,591
15,000
6,909
4,134
2,009
5,521
112,900 $
47,854
20,430
5,000
5,110
4,032
10,059
2,867
95,352
December 31, 2023
December 31, 2022
As of
16,666 $
10,195
1,262
589
216
2,534
31,462 $
12,982
4,408
2,329
13,689
6,218
1,666
41,292
$
$
$
$
$
$
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
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 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 consolidated
statements of income when a foreign operation is disposed or partially disposed. The following table sets forth the changes in AOCI during the years ended
December 31, 2023, 2022 and 2021:
(2)
Balance as of January 1, 2021
Gains / (losses) recognized during the year
Losses on net investment hedges
(1)
Reclassification to net income
Income tax effects
Accumulated other comprehensive income/(loss) as of
December 31, 2021
Gains / (losses) recognized during the year
Reclassification to net income
Income tax effects
Accumulated other comprehensive income/(loss) as of
December 31, 2022
Gains recognized during the year
(1)
Reclassification to net income
Income tax effects
Accumulated other comprehensive income/(loss) as of
December 31, 2023
(2)
(2)
(1)
Accumulated Other Comprehensive Income/(Loss)
Foreign currency
translation gain/(loss)
Unrealized gain/(loss) on
cash flow hedges
Retirement benefits
Total
$
$
$
$
(86,185) $
(11,134)
(1,134)
—
3,016
(95,437) $
(47,734)
—
10,032
(133,139) $
652
—
(156)
(132,643) $
13,799 $
4,663
—
(9,264)
(778)
8,420 $
(27,333)
1,295
6,315
(11,303) $
14,403
5,208
(4,110)
(2,598) $
(558)
—
709
(10)
(2,457) $
2,574
592
(410)
299 $
1,337
(94)
(137)
(74,984)
(7,029)
(1,134)
(8,555)
2,228
(89,474)
(72,493)
1,887
15,937
(144,143)
16,392
5,114
(4,403)
4,198 $
1,405 $
(127,040)
(1) Refer to Note 17 - Derivatives and Hedge Accounting and Note 20 - Employee Benefit Plans to the consolidated financial statements for reclassification to net income.
(2) These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation gain/(loss). Refer to Note 22 - Income Taxes to the
consolidated financial statements.
F-35
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(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:
As of December 31, 2023
Assets
Cash equivalents - Money market funds
Mutual funds
Derivative financial instruments
Total
(2)
(1)
Liabilities
Derivative financial instruments
Contingent consideration
Total
(3)
As of December 31, 2022
Assets
Cash equivalents - Money market funds
Mutual funds
Derivative financial instruments
Total
(2)
(1)
Liabilities
Derivative financial instruments
Contingent consideration
Total
(3)
Quoted Prices in Active
Markets for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
Significant Other
Unobservable Inputs
(Level 2)
(Level 3)
Total
$
$
$
$
49,806 $
52,650
—
102,456 $
— $
—
— $
— $
—
7,607
7,607 $
2,225 $
—
2,225 $
— $
—
—
— $
— $
15,589
15,589 $
49,806
52,650
7,607
110,063
2,225
15,589
17,814
Quoted Prices in Active
Markets for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
Significant Other
Unobservable Inputs
(Level 2)
(Level 3)
Total
$
$
$
$
1,137 $
110,964
—
112,101 $
— $
—
— $
— $
—
2,346
2,346 $
16,277 $
—
16,277 $
— $
—
—
— $
— $
18,689
18,689 $
1,137
110,964
2,346
114,447
16,277
18,689
34,966
(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
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
classified as Level 2. Refer to Note 17 - Derivatives and Hedge Accounting to the consolidated financial statements for further details.
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:
Opening balance
Acquisitions
Fair value changes
Payments
Closing balance
Year ended December 31,
2023
2022
$
$
18,689 $
—
1,900
(5,000)
15,589 $
9,000
1,439
8,250
—
18,689
During the years ended December 31, 2023 and 2022, 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.
Nonrecurring Fair Value Measurements of Assets:
Nonrecurring fair value measurements include impairment tests of goodwill conducted by the Company during the years ended December 31, 2023 and
2022, as applicable. The fair value determination of the Company's reporting units was based on a combination of the income approach, using a DCF model,
which are Level 3 inputs, and also the market approach, as applicable, using market multiples for reporting units, which are Level 2 inputs. During the years
ended December 31, 2023 and 2022, the Company did not recognize any impairment charges on goodwill as the fair values of the reporting units exceeded their
carrying value. Refer to Note 10 - Goodwill and Other Intangible Assets to the consolidated financial statements for further details.
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. For derivatives in cash flow
hedging relationships as of December 31, 2023 and December 31, 2022, the Company had outstanding foreign currency forward contracts totaling $722,800
and $841,620, respectively and interest rate swaps totaling $75,000, each.
F-37
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EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The Company estimates that approximately $2,357 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 December 31, 2023, could be reclassified into earnings within the next twelve months. As of
December 31, 2023, the maximum outstanding term of the cash flow hedges was approximately 42 months.
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 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 Colombian pesos (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:
Foreign currency forward contracts denominated in:
U. S. dollar (USD)
U.K. pound sterling (GBP)
Euro (EUR)
Australian dollar (AUD)
South African rand (ZAR)
December 31, 2023
December 31, 2022
As of
170,543
14,544
5,231
3,452
150,150
163,990
8,351
1,956
1,951
—
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
As of
Derivatives not designated as hedging instruments
As of
December 31, 2023
December 31, 2022
December 31, 2023
December 31, 2022
Assets:
Other current assets
Other assets
Liabilities:
Accrued expenses and other current
liabilities
Other non-current liabilities
$
$
$
$
4,216 $
3,299 $
1,859 $
216 $
1,271 $
820 $
10,044 $
6,218 $
92 $
— $
150 $
— $
255
—
15
—
The following table sets forth the effect of foreign currency forward contracts and interest rate swaps on AOCI and the consolidated statements of
income:
Derivative financial instruments:
Unrealized gain/(loss) recognized in OCI
Derivatives in cash flow hedging relationships
Gain/(loss) recognized in consolidated statements of income
Derivatives not designated as hedging instruments
2023
Year ended December 31,
2022
2021
$
$
14,403 $
(27,333) $
4,663
296 $
(9,571) $
196
F-38
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The following table sets forth the location and amount of gain/(loss) recognized in consolidated statements of income for derivatives in cash flow hedging
relationships and derivatives not designated as hedging instruments:
2023
Year ended December 31,
2022
2021
As per
consolidated
statements of
income
Gain/(loss) on
derivative
financial
instruments
As per
consolidated
statements of
income
Gain/(loss) on
derivative
financial
instruments
As per
consolidated
statements of
income
Gain
on derivative
financial
instruments
$
$
$
$
$
1,022,902 $
198,294
120,227
50,490
13,180
$
(5,180) $
(454) $
(40) $
(236) $
702 $
(5,208)
797
(4,411)
896,595
169,016
97,989
56,282
8,252
$
$
(1,304) $
141 $
10 $
(32) $
(110) $
(1,295)
(455)
(1,750)
690,934 $
142,040
84,306
49,132
7,561
$
7,785
948
53
478
—
9,264
(1,530)
7,734
Derivatives in cash flow hedging relationships
Location in consolidated statements of income
where gain/(loss) was reclassified from AOCI
Cost of revenues
General and administrative expenses
Selling and marketing expenses
Depreciation and amortization expense
Interest expense
Total before tax
Income tax effects on above
Net of tax
Derivatives not designated as hedging instruments
Location in consolidated statements of income
where gain/(loss) was recognized
Foreign exchange gain/(loss), net
$
1,532 $
296 $
6,199
$
(9,571) $
4,313 $
196
Effect of net investment hedges on OCI:
Net investment hedging relationships
Foreign currency forward contracts
18. Borrowings
The following tables summarizes the Company’s debt position:
Year ended December 31,
Amount of loss recognized in OCI
2023
2022
2021
$
— $
— $
1,134
Current portion of long-term borrowings
Long-term borrowings
Total borrowings
As of December 31,
2023
2022
Revolving credit facility
65,000 $
30,000
135,000
200,000 $
220,000
250,000
$
$
F-39
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Unamortized debt issuance costs for the Company’s revolving credit facility of $903 and $1,177 as of December 31, 2023 and 2022, 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.
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 the 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. In addition, the 2022 Credit
Agreement contains a covenant to not permit the interest coverage ratio or the total net leverage ratio, both, as defined, for the four consecutive quarter period
ending on the last day of each fiscal quarter, to be less than 3.0 to 1.0 or more than 3.5 to 1.0, respectively.
The 2022 Credit Agreement bears interest at a rate equal to specified prime rate (alternate base rate) or adjusted SOFR, plus, in each case, an applicable
margin. The applicable margin is tied to the Company’s total net leverage ratio and ranges from 0% to 0.75% per annum on loans pegged to the specified prime
rate, and 0.88% to 1.75% per annum on loans pegged to the adjusted SOFR. The revolving credit commitments under the 2022 Credit Agreement are subject to
a commitment fee which is also tied to the Company’s total net leverage ratio, and ranges from 0.13% to 0.28% per annum on the average daily amount by
which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations.
The revolving credit facility carried an effective interest rate as shown below:
Effective Interest Rate
Year ended December 31,
2023
2022
2021
6.3 %
2.9 %
1.7 %
As of December 31, 2023 and 2022, the Company was in compliance with all financial covenants under the 2022 Credit Agreement.
Convertible Senior Notes
On October 1, 2018, the Company entered into an investment agreement with Orogen Echo LLC (the “Purchaser”), an affiliate of The Orogen Group
LLC, relating to the issuance to the Purchaser of $150,000, in an aggregate principal amount (the “Notes”). The Notes carried interest at a rate of 3.5% per
annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year. The Notes were convertible at an initial conversion rate of 13.3333
shares of the common stock per one thousand dollar principal amount of the Notes (which represented an initial conversion price of approximately $75 per
share).
F-40
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The Company had the option to redeem the principal amount of the Notes, at its option, if the closing sale price of the common stock exceeded 150% of the
then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding the Company’s exercise of this redemption right
(including the trading day immediately prior to the date of the notice of redemption).
During the year ended December 31, 2021, the Notes carried an effective interest rate of 3.6%.
On August 27, 2021, the Company entered into a Payoff and Termination Agreement with the Purchaser, pursuant to which the Company prepaid and
settled its outstanding obligations under the Notes, by electing a combination of cash and shares of the Company’s common stock. During the year ended
December 31, 2021, the Company recognized a loss on settlement of the Notes of $12,845, representing the difference between the fair value of the
consideration allocated to the debt component and the carrying value of the debt component immediately before settlement, and is presented as “Loss on
settlement of convertible notes,” in the Company’s consolidated statements of income. During the year ended December 31, 2021, the Company recognized
interest expense and amortization of debt discount of $5,237 on the Notes.
Expected payments for all of the Company’s borrowings as of December 31, 2023 were as follows:
2024
2025
2026
2027
Total
Revolving credit facility
Principal Payments
Interest Payments
(1)
$
$
65,000 $
—
—
135,000
200,000 $
11,356
8,547
8,547
3,205
31,655
(1) Interest payments are based on interest rate prevailing as of December 31, 2023.
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 December 31, 2023
and 2022, the Company had outstanding letters of credit of $461, each, that were not recognized in the consolidated balance sheets.
19. Capital Structure
Common Stock
The Company has one class of common stock outstanding. Holders of the Company's common stock are entitled to one vote per share. Upon the
liquidation or dissolution of the Company, its common stockholders are entitled to receive a ratable share of the available net assets of the Company after
payment of all debts and other liabilities. The Company's shares of common stock have no preemptive, subscription, redemption or conversion rights.
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 Secretary of State of 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 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.
F-41
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
All share count and per share amounts in the consolidated financial statements have been retrospectively adjusted from January 1, 2021 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 employees in connection with withholding tax payments related to the vesting of restricted
stock units and performance-based restricted stock units, as below:
Twelve months ended December 31, 2023
Twelve months ended December 31, 2022
Twelve months ended December 31, 2021
Shares repurchased Total consideration
Weighted average
purchase price per share
(1)
237,047 $
164,080 $
156,545 $
7,853 $
4,121 $
2,752 $
33.13
25.12
17.58
(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 restricted stock units.
On December 16, 2019, the Company’s board of directors authorized a $200,000 common stock repurchase program beginning January 1, 2020 through
December 31, 2022 (the “2019 Repurchase Program”).
On October 5, 2021, the Company’s board of directors authorized a $300,000 (excluding excise tax) common stock repurchase program beginning
January 1, 2022 (the “2022 Repurchase Program”), and terminated the 2019 Repurchase Program on December 31, 2021.
Under the 2022 Repurchase Program and 2019 Repurchase Program, shares may be purchased by the Company from time to time from the open market
and through private transactions, or otherwise, as determined by the Company’s management as market conditions warrant. Repurchases may be discontinued
at any time by the management.
The Company purchased shares of its common stock, for a total consideration including commission and excluding excise tax, under repurchase
programs, as below:
Twelve months ended December 31, 2023
Twelve months ended December 31, 2022
Twelve months ended December 31, 2021
4,127,451 $
2,519,290 $
5,436,625 $
Shares repurchased Total consideration
Weighted average
purchase price per share
30.39
27.20
21.26
125,416 $
68,521 $
115,605 $
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 $217 on repurchase of common stock as a part of cost of such
repurchases for the year ended December 31, 2023.
F-42
Table of Contents
Dividends
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The Company has not paid or declared any cash dividends on its common stock during the years ended December 31, 2023, 2022 and 2021. The
Company’s borrowings under its revolving credit facility could restrict its ability to declare or make any dividends or similar distributions.
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
earned a return of approximately 7.6% per annum on the India Plan for the year ended December 31, 2023.
F-43
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The benefit obligation has been measured as of December 31, 2023 and 2022. The following table sets forth the activity and the funded status of the
gratuity plans and the amounts recognized in the Company’s consolidated financial statements at the end of the relevant periods:
Change in projected benefit obligation
Projected benefit obligation as of January 1
Service cost
Interest cost
Benefits paid
Actuarial gain
Effect of exchange rate changes
(1)
Projected benefit obligation as of December 31
Change in plan assets
Plan assets as of January 1
Actual return
Employer contribution
Benefits paid
Effect of exchange rate changes
(2)
Plan assets as of December 31
Unfunded status as of December 31
Unfunded amount recognized in the consolidated balance sheets
Non-current liability (included under other non-current liabilities)
Current liability (included under accrued employee costs)
Total accrued liability
Accumulated benefit obligation as of December 31
Plan assets in excess of accumulated benefit obligation as of December 31
2023
2022
$
$
$
$
$
$
$
$
$
21,531
3,799
1,569
(1,382)
(1,166)
(114)
24,237
$
$
14,449 $
1,220
2,913
(1,343)
(105)
17,134 $
7,103
$
6,925 $
178
7,103 $
16,655 $
479 $
23,271
3,770
1,232
(1,757)
(2,639)
(2,346)
21,531
13,605
798
3,273
(1,737)
(1,490)
14,449
7,082
6,971
111
7,082
14,447
2
(1) During the years ended December 31, 2023 and 2022, actuarial gain was driven by changes in actuarial assumptions, offset by experience
adjustments on present value of benefit obligations.
(2) Benefits payments were substantially made through the plan assets during the years ended December 31, 2023 and 2022.
F-44
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Components of net periodic benefit costs recognized in consolidated statements of income and actuarial (gain)/loss reclassified from AOCI, were as
follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial (gain)/loss, gross of tax
Net gratuity cost
Amortization of actuarial (gain)/loss, gross of tax
Income tax effects on above
Amortization of actuarial (gain)/loss, net of tax
2023
Year ended December 31,
2022
2021
$
$
$
$
3,799 $
1,569
(1,048)
(94)
4,226 $
(94) $
(74)
(168) $
3,770 $
1,232
(872)
592
4,722 $
592 $
(179)
413 $
3,512
929
(796)
709
4,354
709
(204)
505
The components of retirement benefits included in AOCI, excluding tax effects, were as follows:
Net actuarial gain/(loss)
Net prior service cost
Amount recognized in AOCI, excluding tax effects
2023
As of December 31,
2022
2021
$
$
777 $
(5)
772 $
(462) $
(8)
(470) $
(3,624)
(12)
(3,636)
The weighted average actuarial assumptions used to determine benefit obligations and net gratuity cost were:
Discount rate
Rate of increase in compensation levels
Expected long-term rate of return on plan assets per annum
2023
Year ended December 31,
2022
2021
7.1 %
7.0 %
7.3 %
7.3 %
7.8 %
7.3 %
5.6 %
7.6 %
6.8 %
The Company evaluates these assumptions annually based on its long-term plans of growth and industry standards. The discount rates are either based on
current market yields on government securities or yields on government securities adjusted for a suitable risk premium, if available.
Expected benefit payments during the year ending December 31,
2024
2025
2026
2027
2028
2029 to 2033
$
$
$
$
$
$
3,461
3,045
3,027
3,216
2,653
10,476
F-45
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
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 social security 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 accrual for contribution to the 401(k) Plans was as follows:
Contribution to the 401(k) Plans
Year ended December 31,
2023
2022
2021
$
5,967 $
5,205 $
3,693
The Company’s contribution for various defined social security contribution plans on behalf of employees in foreign subsidiaries of the Company was as
follows:
Contributions to the defined social security contribution plans
$
23,045 $
18,215 $
16,340
Year ended December 31,
2022
2023
2021
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.
Supplemental balance sheet information
Operating Lease
Operating lease ROU assets
Operating lease liabilities - Current
Operating lease liabilities - Non-current
Total operating lease liabilities
Finance Lease
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
Finance lease liabilities - Current
Finance lease liabilities - Non-current
Total finance lease liabilities
As of
December 31, 2023
December 31, 2022
$
$
$
$
$
$
$
64,856 $
12,780 $
58,175
70,955 $
2,109 $
(1,332)
777 $
191 $
613
804 $
55,347
14,978
48,155
63,133
2,499
(1,999)
500
164
355
519
F-46
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The components of lease cost, which are included in the Company’s consolidated statements of income, are as follows:
Lease cost
Finance lease:
Depreciation on underlying ROU assets
Interest on lease liabilities
Operating lease
Variable lease costs
(a)
Total lease cost
(a) Includes short-term leases, which are immaterial.
Supplemental cash flow and other information related to leases are as follows:
Year ended December 31,
2023
2022
$
$
181 $
90
271
20,188
4,374
24,833 $
151
59
210
21,783
5,033
27,026
Cash payments for amounts included in the measurement of lease liabilities :
Operating cash outflows for operating leases
Operating cash outflows for finance leases
Financing cash outflows for finance leases
ROU assets obtained in exchange for new operating lease liabilities
ROU assets obtained in exchange for new finance lease liabilities
Weighted average remaining lease term (in years)
$
$
$
$
$
Finance lease
Operating lease
Weighted average discount rate
Finance lease
Operating lease
Year ended December 31
2023
2022
20,181 $
90 $
169 $
24,880 $
461 $
3.1 years
5.5 years
14.6%
7.7%
23,227
59
142
734
312
2.8 years
5.9 years
14.3%
6.8%
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 a net increase of its lease
liabilities by $8,805 during the year ended December 31, 2023 and a decrease of its lease liabilities by $2,723 during the year ended December 31, 2022, with a
corresponding adjustment to ROU assets.
As of December 31, 2023 and 2022, the Company did not have any significant leases that have not yet commenced but that create significant rights and
obligations for the Company.
There was no impairment of ROU assets as of December 31, 2023 and 2022.
F-47
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Maturities of lease liabilities as of December 31, 2023 were as follows:
2024
2025
2026
2027
2028
2029 and thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
Maturities of lease liabilities as of December 31, 2022 were as follows:
2023
2024
2025
2026
2027
2028 and thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
22. Income Taxes
The components of income/(loss) before income taxes consist of the following:
Domestic
Foreign
F-48
Operating Leases
Finance Leases
$
$
17,806 $
16,878
16,220
13,712
10,132
14,018
88,766
17,811
70,955 $
297
256
222
191
98
—
1,064
260
804
Operating Leases
Finance Leases
18,711 $
14,846
10,037
8,941
6,474
19,624
78,633
15,500
63,133 $
228
162
114
88
79
—
671
152
519
2023
Year ended December 31,
2022
2021
100,905 $
137,036
237,941 $
80,949 $
109,150
190,099 $
43,759
102,802
146,561
$
$
$
$
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Income tax expense/(benefit) consists of the following:
Current provision:
Domestic
Foreign
Deferred provision/(benefit):
Domestic
Foreign
Income tax expense
Deferred income taxes recognized in OCI were as follows:
Deferred taxes benefit / (expense) recognized on:
Unrealized gain/(loss) on cash flow hedges
Reclassification adjustment for cash flow hedges
Retirement benefits (incl. effects of tax rate changes)
Reclassification adjustment for retirement benefits
Foreign currency translation adjustments
Total
2023
Year ended December 31,
2022
2021
51,450 $
33,828
85,278 $
(32,024) $
282
(31,742)
53,536 $
43,416 $
23,701
67,117 $
(17,624) $
(1,928)
(19,552)
47,565 $
18,532
33,644
52,176
(15,954)
(4,372)
(20,326)
31,850
2023
Year ended December 31,
2022
2021
(3,313) $
(797)
(63)
(74)
(156)
(4,403) $
5,860 $
455
(231)
(179)
10,032
15,937 $
(2,308)
1,530
194
(204)
3,016
2,228
$
$
$
$
$
$
The effective income tax rate differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes
approximately as follows:
Expected tax expense
Foreign tax rate differential
Deferred tax provision
Unrecognized tax benefits
State taxes, net of Federal taxes
Non-deductible expenses
Excess tax benefit on stock-based compensation
Research and development credits
Prior period items
Benefit on settlement of convertible notes
Others
Tax expense
Year ended December 31,
2022
2021
2023
49,968 $
5,333
2,509
(187)
11,640
4,083
(15,055)
(4,235)
(1,415)
—
895
53,536 $
39,921 $
(1,136)
3,801
273
7,730
6,285
(5,881)
(2,230)
(688)
—
(510)
47,565 $
30,777
1,127
350
161
4,968
3,165
(3,651)
(1,727)
(931)
(2,411)
22
31,850
$
$
F-49
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The effective tax rate decreased from 25.0% during the year ended December 31, 2022 to 22.5% during the year ended December 31, 2023. The Company
recorded income tax expense of $53,536 and $47,565 for the years ended December 31, 2023 and 2022, respectively. While the effective tax rate decreased
during the year ended December 31, 2023, the amount of income tax expense increased primarily as a result of higher profit during the year ended
December 31, 2023, compared to the year ended December 31, 2022, and an increase in non-deductible expenses, partially offset by higher excess tax benefits
related to stock-based compensation during the year ended December 31, 2023, compared to the year ended December 31, 2022.
During the year ended December 31, 2023, the Company’s foreign subsidiaries in India, the United Kingdom, Australia, Bulgaria and the Czech Republic
repatriated an aggregate amount of $136,405 (net of $5,852 withholding taxes) to the United States. These distributions do not constitute a change in the
Company’s permanent reinvestment assertion.
Effective for taxable years beginning after December 31, 2021, Internal Revenue Code Section 174, Amortization of Research and Experimental
Expenditures, provides that research and experimentation expenses can no longer be currently deducted, instead such expenses are required to be capitalized.
Such capitalized expenses are to be amortized over a period of five and fifteen years for the U.S. and foreign research, respectively. However, this change has
no net impact on the consolidated statements of income for the years ended December 31, 2023 and 2022, due to an offset between current and deferred taxes.
The components of the deferred tax balances were as follows:
Deferred tax assets:
Tax credit carry forwards
Depreciation and amortization expense
Capitalized research and development expenses
Stock-based compensation
Accrued employee costs and other expenses
Net operating loss carry forwards
Net unrealized foreign exchange loss
Deferred rent
Others
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Intangible assets
Net unrealized gain on investments
Capitalized costs
Foreign branch accounting
Others
Deferred tax liabilities
Net deferred tax assets
December 31, 2023
December 31, 2022
As of
$
$
$
$
$
12,762 $
14,569
47,276
8,506
21,611
212
21,449
2,853
416
129,654
(482)
129,172 $
27,095 $
3,704
5,999
8,810
2,132
47,740 $
81,432 $
5,716
14,734
24,743
11,425
15,504
412
23,572
3,120
272
99,498
(309)
99,189
27,807
6,006
332
7,618
2,182
43,945
55,244
Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement
carrying values of assets and liabilities and their respective tax bases and operating loss carry forwards. The Company performed an analysis of the realizability
deferred tax assets as of December 31, 2023 and 2022, and recorded a valuation allowance of $482 and $309, respectively.
F-50
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The Company’s income tax expense also includes provisions established for uncertain income tax positions determined in accordance with Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes. The Company monitors and adjusts these reserves in light of
changing facts and circumstances. To the extent that the final tax outcome of these matters differs from the amounts recorded, such differences will impact the
income tax expense in the period in which such determination is made.
The following table summarizes the activity related to the unrecognized tax benefits:
Balance as of January 1
Increases/(decreases) related to prior year tax positions
Increases related to current year tax positions
Balance as of December 31
2023
Year ended December 31,
2022
2021
$
$
1,449 $
(610)
423
1,262 $
1,068 $
158
223
1,449 $
907
(12)
173
1,068
The unrecognized tax benefits as of December 31, 2023 of $1,262, if recognized, would impact the effective tax rate.
As of December 31, 2023 and 2022, the Company has not accrued interest and penalties relating to unrecognized tax benefits.
23. Stock-Based Compensation
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 consolidated financial statements for further details.
On June 15, 2018, at the Company’s 2018 Annual Meeting of Stockholders, the Company's stockholders approved the 2018 Omnibus Incentive Plan,
which among other things, reserves 15,875,000 shares of the Company’s common stock for grants of awards under the 2018 Omnibus Incentive Plan. As of
December 31, 2023, the Company had 3,249,875 shares available for grant under the 2018 Omnibus Incentive Plan.
Under the 2018 Omnibus Incentive Plan, the Compensation and Talent Management Committee (the “Committee”) may grant awards of non-qualified
stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, performance-based compensation
awards (including cash bonus awards and market condition based awards) or any combination of the foregoing.
The Committee determines which employees are eligible to receive the equity awards, the number of equity awards to be granted, the exercise price, the
vesting period and the exercise period. The vesting period for the equity award issued is determined on the date of the grant and is non-transferable during the
life of the equity award. Stock options have a contractual period of ten years from the date of grant and vest ratably over four years. Restricted stock units
generally vest proportionally over a period of four years from the date of grant, unless specified otherwise.
Stock-based compensation expense by nature of function, as below, are included in the consolidated statements of income:
Cost of revenues
General and administrative expenses
Selling and marketing expenses
Total
Income tax benefit related to stock-based compensation
(1)
2023
Year ended December 31,
2022
2021
$
$
$
14,686 $
21,574
22,177
58,437 $
17,333 $
11,535 $
20,016
17,815
49,366 $
9,785 $
7,871
16,396
14,354
38,621
9,424
F-51
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
(1) Includes $15,055, $5,881 and $3,651 during the years ended December 31, 2023, 2022 and 2021, respectively, related to discrete benefits recognized
in income tax expense in accordance with ASU No. 2016-09, Compensation - Stock Compensation.
Stock Options
Stock option activity under the Company’s stock-based compensation plans is shown below:
Number of Options
Weighted Average
Exercise Price
Aggregate
Intrinsic Value
Weighted Average Remaining
Contractual Life (Years)
Outstanding as of December 31, 2022
Granted
Exercised
Forfeited
Outstanding as of December 31, 2023
Vested and exercisable as of December 31, 2023
Weighted average grant date fair value of per unit of stock
option granted during the period
15,465 $
1,790,695
(15,465)
—
1,790,695 $
— $
5.52 $
30.14
5.52
—
30.14 $
— $
439
—
384
—
1,278
—
$
12.03
1.0
9.5
—
—
9.5
—
Stock options granted under the 2018 Omnibus Incentive Plan during the year ended December 31, 2023, have a contractual period of ten years and vest
ratably over four years.
The fair value of each stock option granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions:
Dividend yield
Expected life (years)
Risk free interest rate for expected life
Volatility for expected life
Year ended December
31, 2023
—
6.25
3.8 %
32.4 %
The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option
valuation model.
As of December 31, 2023, unrecognized compensation cost of $18,717 is expected to be expensed over a weighted average period of 3.5 years.
The grant date fair value of stock options exercised and cash received from stock options exercised was as follows:
Grant date fair value
Cash received
$
$
30 $
85 $
— $
— $
257
710
2023
Year ended December 31,
2022
2021
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. For purposes of the match, “newly acquired shares” includes the employee’s first quarter 2022 open market purchase
of the common stock, and
F-52
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
crediting of equity awards vesting under any existing stock award plan of the Company as having been purchased by such employees, in an amount between
$100 to $500 per such employee.
The matching restricted stock units granted under the SMP will vest in two installments, with one-third to vest on the second anniversary of the grant date
and the remaining two-thirds to vest on the third anniversary of the grant date; the newly acquired shares for which the matching restricted stock units were
granted must also be held by the employee until such vesting dates. The Company’s underlying common stock issued pursuant to the vesting of the matching
restricted stock units will not be marketable or transferable for a period of two years following the vesting date. Certain forfeiture and other conditions apply.
Restricted stock unit activity under the SMP is shown below:
Outstanding as of December 31, 2022
Granted
Vested
Forfeited
Outstanding as of December 31, 2023
Restricted Stock Units (SMP)
Number
Weighted Average
Fair Value
238,115 $
—
—
(20,885)
217,230 $
24.95
—
—
24.95
24.95
As of December 31, 2023, unrecognized compensation cost of $2,255 is expected to be expensed over a weighted average period of 1.3 years.
Restricted Stock Units
The Committee is authorized to award restricted stock units to participants. The Committee establishes the terms, conditions and restrictions applicable to
each award of restricted stock units, including the time or times at which restricted stock units will be granted or vested and the number of units to be covered
by each award. The terms and conditions of each restricted stock award will be reflected in a restricted stock unit agreement.
Any cash or in-kind dividends paid with respect to unvested shares of restricted stock units are withheld by the Company and paid to the holder of such
shares of restricted stock, without interest, only if and when such shares of restricted stock units vest. Any unvested shares of restricted stock units are
immediately forfeited without consideration upon the termination of holder’s employment with the Company or its affiliates. Accordingly, the Company’s
unvested restricted stock units do not include non-forfeitable rights to dividends or dividend equivalents and are therefore not considered as participating
securities for purposes of earnings per share calculations pursuant to the two-class method.
Restricted stock unit activity under the Company’s stock-based compensation plans is shown below:
*
Outstanding as of December 31, 2022
Granted
Vested*
Forfeited
*
Outstanding as of December 31, 2023
Restricted Stock Units
Number
Weighted Average
Fair Value
4,615,630 $
1,258,712
(1,784,973)
(357,857)
3,731,512 $
19.74
33.99
18.52
21.60
24.96
* As of December 31, 2023 and 2022, restricted stock units vested for which the underlying common stock is yet to be issued are 324,125 and 872,450, respectively.
F-53
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The fair value of restricted stock units is generally the market price of the Company’s shares on the date of grant. As of December 31, 2023, unrecognized
compensation cost of $59,067 is expected to be expensed over a weighted average period of 2.4 years.
The weighted average fair value of restricted stock units granted and the grant date fair value of restricted stock units vested was as follows:
Weighted average fair value
Grant date fair value
Performance-Based Stock Awards
Year ended December 31,
2023
2022
2021
$
$
33.99 $
33,058 $
24.28 $
24,002 $
18.25
23,845
Under the 2018 Plan, the Company grants performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees.
During the year ended December 31, 2023, 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 (“PU”). The remaining 60% of each award recipient’s equity grants are PRSUs
that are based on market conditions contingent on the Company's meeting the total shareholder return relative to a group of peer companies specified under the
2018 Plan, and are measured over a three-year performance period (“MU”).
The fair value of each PU is determined based on the market price of one common share on a day prior to the date of grant, and the associated stock
compensation expense is calculated on the basis that performance targets at 100% are probable of being achieved. The stock compensation expense for the PUs
is recognized on a straight-line basis over the service period, which is through the end of the third year. Over this period, the number of shares that will be
issued are adjusted upward or downward based upon the probability of achievement of the performance targets. The final number of shares issued and the
related compensation cost recognized as an expense is based on a comparison of the final performance metrics to the specified targets.
The grant date fair value for each MU is determined using a Monte Carlo simulation model and the related stock compensation expense is expensed on a
straight-line basis over the vesting period. The stock compensation expense related to the MUs is recognized once the requisite performance period is fulfilled
regardless of the extent of the market condition achieved.
The Monte Carlo simulation model simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model
also incorporates the following ranges of assumptions:
•
•
•
•
The historical volatilities are used over the most recent three-year period for the components of the peer group.
The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period.
Since the plan stipulates that the awards are based upon the TSR of the Company and the components of the peer group, it is assumed that the
dividends get reinvested in the issuing entity on a continuous basis.
The correlation coefficients are used to model the way in which each entity tends to move in relation to each other are based upon the price data used
to calculate the historical volatilities.
F-54
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
The fair value of each MU granted to employees is estimated on the date of grant using the following weighted average assumptions:
Dividend yield
Expected life (years)
Risk free interest rate for expected life
Volatility for expected life
PRSU activity under the Company’s stock plans is shown below:
Year ended December 31,
2023
2022
2021
—
2.9
4.3 %
32.9 %
—
2.9
1.7 %
38.3 %
—
2.9
0.5 %
65.2 %
Outstanding as of December 31, 2022
Granted
Adjustment upon final determination of level of
performance goal achievement*
Vested
Forfeited
Outstanding as of December 31, 2023
Revenue-Based PRSUs
Market Condition-Based PRSUs
Number
Weighted Average
Fair Value
Number
Weighted Average
Fair Value
247,955 $
219,740
—
(245)
(29,450)
438,000 $
24.00
34.56
—
25.94
25.94
29.16
893,560 $
329,245
476,055
(952,475)
(89,935)
656,450 $
26.94
44.72
23.96
23.96
28.71
37.78
* Represents adjustment of shares vested in respect of MUs granted in February 2021 upon achievement of the performance targets for such awards for
which the underlying common stock was issued subsequent to December 31, 2023.
As of December 31, 2023, unrecognized compensation cost of $22,564 is expected to be expensed over a weighted average period of 1.5 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 third offering period under the 2022 ESPP commenced on July 1, 2023 with a term of six months.
F-55
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
Activity under the Company’s 2022 ESPP is shown below:
Shares available for issuance as of December 31, 2022
Issuance of common stock related to the:
First offering period
Second offering period
Shares available for issuance as of December 31, 2023
Issuance of common stock related to the third offering
period made subsequent to December 31, 2023
Number
Total Proceeds Received
4,000,000
(38,180) $
(130,495) $
3,831,325
71,645 $
1,013
3,548
1,948
The ESPP is compensatory and results in compensation expense. The fair value of common stock to be issued under the ESPP was determined using the
Black-Scholes option pricing model with the following assumptions:
Dividend yield
Expected life (years)
Risk free interest rate for expected life
Volatility for expected life
Discount for illiquidity
24. Related Party Disclosures
Third offering period of
July 1, 2023 to December 31,
2023
Second offering period of
January 1, 2023 to June 30, 2023
First offering period of
October 1, 2022 to December 31,
2022
—
0.5
5.4 %
25.5 %
8.9 %
—
0.5
4.7 %
38.9 %
10.3 %
—
0.3
3.3 %
43.6 %
9.9 %
In April 2022, the Company entered into a service contract for providing analytics services to The Vanguard Group Inc., which beneficially owns more
than 10% of the Company’s common stock as of December 31, 2023. During the year ended December 31, 2023 and 2022, the Company recognized revenues,
net of $1,975 and $2,258, respectively, related to this service contract. The Company had outstanding accounts receivable, net of $209 and $856 related to this
service contract as of December 31, 2023 and 2022, respectively.
On October 1, 2018, the Company entered into the Investment Agreement with the Purchaser relating to the issuance to the Purchaser of $150,000
aggregate principal amount of the Notes. In connection with the investment, Vikram S. Pandit, Chairman and CEO of The Orogen Group LLC (an affiliate of
the Purchaser), was appointed to Company’s board of directors. The Company settled the Notes on August 27, 2021. Refer to Note 18 - Borrowings to the
consolidated financial statements for further details.
The following transactions with the Purchaser were recognized by the Company in connection with the Notes during the year ended December 31, 2021:
Repayment of the Notes in cash
Repayment of the Notes in shares
Interest expense on the Notes
$
$
$
200,000
36,742
3,442
F-56
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
25. Commitments and Contingencies
Capital Commitments
As of December 31, 2023 and 2022, the Company had committed to spend approximately $7,100 and $9,700, respectively, under agreements to purchase
property and equipment. This amount is net of capital advances paid which are recognized in 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. During the year ended December 31, 2023, the
Company invested $600 in the Partnership and is committed under the Partnership to make further investments up to an amount of $3,400.
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 December 31, 2023 and 2022 is $36,694 and $37,088, respectively. The Company has made payments
and/or provided bank guarantees against these demands in the amounts of $7,227 and $7,532, as of December 31, 2023 and 2022, 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 Value Added Tax (“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 $5,493
and $5,526, as of December 31, 2023 and 2022, respectively. The Company has provided bank guarantees against these demands in the amounts of $4,570 and
$nil, as of December 31, 2023 and 2022, respectively. The GST authorities rejected the Company’s refund claims in the amounts of $4,748 and $3,866 as of
December 31, 2023 and 2022, 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 December 31, 2023 and 2022,
respectively.
One of the Company’s subsidiary in India has undergone an assessment with the statutory authority with respect to defined social security contribution
plan. Except for some components of the assessment 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 the matter is without merit. The
Company is defending
F-57
Table of Contents
EXLSERVICE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
December 31, 2023
(In thousands, except per share amount and share count)
against the assessment order and has accordingly 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 assessment 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 in this matter.
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 pending litigation matters as of the reporting date, based on
information currently available, including the Company’s assessment of the facts underlying each matter and advice of counsel, the amount or range of
reasonably possible losses, if any, cannot be reasonably estimated. 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. Subsequent Events
On February 26, 2024, the Company’s board of directors authorized a $500,000 common stock repurchase program (the “2024 Repurchase Program”),
effective March 1, 2024, for a two-year period, in line with its capital allocation strategy. Under the 2024 Repurchase Program, shares may be purchased by the
Company from time to time from the open market and through private transactions, or otherwise, as determined by the Company’s management as market
conditions warrant. Repurchases may be discontinued at any time by the management. The 2024 Repurchase Program replaces the 2022 Repurchase Program,
which was terminated effective February 29, 2024.
F-58
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
As of the date of this Annual Report on Form 10-K, ExlService Holdings, Inc., has one class of securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”): common stock, par value $0.001 per share (“common stock”). The following descriptions of our
capital stock and of certain provisions of our restated certificate of incorporation (“certificate of incorporation”) and sixth amended and restated by-laws (“by-
laws”) and certain provisions of Delaware law do not purport to be complete and are subject to and qualified in their entirety by reference to the full text of our
certificate of incorporation, our by-laws, and the General Corporation Law of the State of Delaware (the “DGCL”). References in this section to the
“Company,” “we,” “us” and “our” refer to ExlService Holdings, Inc. and not to any of its subsidiaries.
Our authorized capital stock consists of 400,000,000 shares of common stock and 15,000,000 of preferred stock. No shares of preferred stock are outstanding.
Exhibit 4.2
Common Stock
Voting Rights
The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders, including the election of directors.
Holders of the common stock do not have cumulative voting rights, which means that the holders of a majority of the shares of common stock cast in the
election of a director in an uncontested election (as defined in our by-laws) can elect each director then being elected.
Preemptive Rights
Holders of the common stock do not have any preemptive rights under our certificate of incorporation or by-laws.
Dividends; Liquidation Rights
The holders of our common stock are entitled to receive dividends when, as, and if declared by our board out of legally available funds. Upon our liquidation or
dissolution, the holders of common stock will be entitled to share ratably in those of our assets that are legally available for distribution to stockholders after
payment of liabilities and subject to the prior rights of any holders of preferred stock then outstanding.
Other Rights
No conversion, redemption or sinking fund provisions apply to our common stock, and all of the outstanding shares of common stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of shares of any series of preferred
stock that may be issued in the future.
Preferred Stock
We are authorized, without shareholder approval, to issue up to 15,000,000 shares of preferred stock. Our board of directors is authorized, subject to limitations
prescribed by Delaware law and our certificate of incorporation, to determine the terms and conditions of the preferred stock, including whether the shares of
preferred stock will be issued in one or more series, the number of shares to be included in each series and the powers, designations, preferences and rights of
the shares. Our board of directors also is authorized to designate any qualifications, limitations or restrictions on the shares without any further vote or action by
the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company and may
adversely affect the voting and other rights of the holders of our common stock.
Certain Certificate of Incorporation, By-Law and Statutory Provisions
Certain of the provisions of our certificate of incorporation and by-laws and of the DGCL summarized below may have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a holder of shares of our common stock might consider in its interest, including an attempt that might
result in a receipt of a premium over the market price for such shares.
Directors’ Liability; Indemnification of Directors and Officers
Our certificate of incorporation provides that a director will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty
as a director, except:
•
•
•
•
for any breach of the duty of loyalty;
for acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law;
for liability under Section 174 of the DGCL (relating to unlawful dividends, stock repurchases, or stock redemptions); or
for any transaction from which the director derived any improper personal benefit.
This provision does not limit or eliminate our rights or those of any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a
breach of a director’s duty of care. The provisions do not alter the liability of directors under federal securities laws. In addition, our certificate of incorporation
and by-laws provide that we indemnify each director and the officers, employees, and agents determined by our board of directors to the fullest extent provided
by the laws of the State of Delaware.
Special Meetings of Stockholders
Our certificate of incorporation provides that special meetings of stockholders may be called only by the chairman or by a majority of the members of our
board. Stockholders are not permitted to call a special meeting of stockholders, to require that the chairman call such a special meeting, or to require that our
board request the calling of a special meeting of stockholders.
Stockholder Action; Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our certificate of incorporation provides that stockholders may not take action by written consent, but may only take action at duly called annual or special
meetings, unless the action to be effected by written consent and the taking of such action by written consent have expressly been approved in advance by the
board. In addition, our by-laws establish advance notice procedures for:
•
•
stockholders to nominate candidates for election as a director; and
stockholders to propose topics for consideration at stockholders’ meetings.
Stockholders must notify our corporate secretary in writing prior to the meeting at which the matters are to be acted upon or directors are to be elected. The
notice must contain the information specified in our by-laws. To be timely, the notice must be received at our corporate headquarters not less than 90 days nor
more than 120 days prior to the first anniversary of the date of the prior year’s annual meeting of stockholders. If the annual meeting is advanced by more than
30 days, or delayed by more than 70 days, from the anniversary of the preceding year’s annual meeting, or if no annual meeting was held in the preceding year
or for the first annual meeting following this offering, notice by the stockholder, to be timely, must be received not earlier than the 120th day prior to the annual
meeting and not later than the later of the 90th day prior to the annual meeting or the 10th day following the day on which we notify stockholders of the date of
the annual meeting, either by mail or other public disclosure. In the case of a special meeting of stockholders called to elect directors, the stockholder notice
must be received not earlier than 120 days prior to the special meeting and not later than the later of the 90th day prior to the special meeting or 10th day
following the day on which we notify stockholders of the date of the special meeting, either by mail or other public disclosure. Notwithstanding the above, in
the event that the number of directors to be elected to the board at an annual meeting is increased and we do not make any public announcement naming the
nominees for the additional directorships at least 100 days before the first anniversary of the preceding year’s annual meeting, a stockholder notice of
nomination shall also be considered timely, but only with respect to nominees for the additional directorships, if it is delivered not later than the close of
business on the tenth day following the day on which such public announcement is first made. These provisions may preclude some stockholders from bringing
matters before the stockholders at an annual or special meeting or from nominating candidates for director at an annual or special meeting.
Election and Removal of Directors
We do not have a classified board of directors. All of our directors are elected annually. The number of directors comprising our board of directors is fixed from
time to time by the board of directors. Our certificate of incorporation and by-laws provide that our stockholders may remove directors with or without cause by
the affirmative vote of the holders of at least a majority of the total voting power of our issued and outstanding capital stock entitled to vote in the election of
directors. Our board of
directors may elect a director to fill a vacancy, including vacancies created by the expansion of the board of directors. This system of electing and removing
directors may discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult
for stockholders to replace a majority of our directors by limiting the methods available for removing directors.
Our certificate of incorporation and by-laws do not provide for cumulative voting in the election of directors.
Amendment of the Certificate of Incorporation and By-Laws
Our certificate of incorporation provides that the affirmative vote of the holders of at least 66⅔% of the voting power of our issued and outstanding capital
stock entitled to vote in the election of directors, is required to amend the following provisions of our certificate of incorporation:
•
•
•
•
the provisions relating to the number and election of directors, the appointment of directors upon an increase in the number of directors or vacancy,
and the provisions relating to the removal of directors;
the provisions requiring a 66⅔% stockholder vote for the amendment of certain provisions of our articles of incorporation and for the adoption,
amendment or repeal of our by-laws;
the provisions relating to the restrictions on stockholder actions by written consent; and
the provisions relating to the calling of meetings of stockholders.
In addition, the board of directors is permitted to alter our by-laws without obtaining stockholder approval and the affirmative vote of holders of at least 66⅔%
of the voting power of our issued and outstanding capital stock entitled to vote in the election of directors is required for any amendment to our by-laws by the
stockholders.
Anti-Takeover Provisions of Delaware Law
We are subject to the provisions of Section 203 of the DGCL. In general, Section 203 prevents an interested stockholder (defined generally as a person owning
15% or more of the corporation’s outstanding capital stock entitled to vote generally in the election of directors) of a Delaware corporation from engaging in a
business combination (as defined) for three years following the date that person became an interested stockholder unless various conditions are satisfied.
Exclusive Forum
Our by-laws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole
and exclusive forum for any state law claim for (i) any derivative action or proceeding brought on our behalf; (ii) any action or proceeding asserting a claim of
breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors, officers, employees and agents to us or our stockholders; (iii) any action or
proceeding asserting a claim arising pursuant to any provision of the DGCL, our certificate of incorporation or our by-laws; (iv) any action or proceeding as to
which the DGCL confers jurisdiction on the Court of Chancery; or (v) any action or proceeding asserting a claim that is governed by the internal affairs
doctrine (the “Delaware Forum Provision”). In the event that the Court of Chancery does not have jurisdiction, the United States District Court for the District
of Delaware shall be the sole and exclusive forum for each of the actions or proceedings described above. In the event that the United States District Court for
the District of Delaware does not have jurisdiction, any competent state court of the State of Delaware shall be the sole and exclusive forum for each of the
actions or proceedings described above. The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act of 1933, as
amended (the “Securities Act”) or the Exchange Act.
Further, our by-laws provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of
America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”).
In addition, our by-laws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice
of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to
have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder. The Delaware Forum Provision and the Federal
Forum Provision may impose additional costs on stockholders, may limit our stockholders’ ability to bring a claim in a forum they find favorable, and the
designated courts may reach different judgments or results than other courts. However, it is possible that a court could find our forum selection provisions to be
inapplicable or unenforceable.
Stock Exchange Listing
Our common stock is listed on the Nasdaq Global Select Market under the symbol “EXLS”.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Computershare Trust Company, N.A.
Subsidiaries of the Registrant
Exhibit 21.1
Name of Subsidiary
Kogni LLC
ExlService Australia Pty Ltd.
ExlService Bulgaria EAD
IQR Consulting, LLC
Clairvoyant Inc.
ExlService Canada Inc.
ExlService Colombia S.A.S.
ExlService Czech Republic S.R.O.
Business Process Outsourcing, LLC
Clairvoyant AI, Inc.
ExlService Technology Solutions, LLC
ExlService.com, LLC
Outsource Partners International, Inc.
Overland Solutions, LLC
ExlService Germany GmbH
Business Process Solutions (India) Private Limited
Clairvoyant India Private Ltd
exl Service.com (India) Private Limited
Inductis (India) Private Limited
IQR Analytics Private Limited
Outsource partners International Private Limited
SCIOinspire Consulting Services (India) Pvt Ltd.
EXLService (Ireland) Limited
Business Process Outsourcing Ltd.
ExlService Mauritius Limited
OPI Limited
EXLS Mexico, S. de R.L. de C.V.
ExlService Philippines, Inc.
ExlService Romania Private Limited S.R.L.
Inductis (Singapore) PTE Limited
EXL Analytics SA (Pty) Ltd.
ExlService South Africa (Pty) Ltd.
ExlService Switzerland GmbH
ExlService (U.K.) Limited
Jurisdiction
Arizona
Australia
Bulgaria
California
Canada
Canada
Colombia
Czech Republic
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Germany
India
India
India
India
India
India
India
Ireland
Mauritius
Mauritius
Mauritius
Mexico
Philippines
Romania
Singapore
South Africa
South Africa
Switzerland
United Kingdom
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in Registration Statement Nos. 333-263076 and 333-179098 on Form S-3 and Nos. 333-265772, 333-139211,
333-157076, 333-206022 and 333-226527 on Form S-8 of our reports dated February 29, 2024, relating to the financial statements of ExlService Holdings, Inc.
and the effectiveness of ExlService Holdings, Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K for the year ended
December 31, 2023.
/s/ Deloitte & Touche LLP
New York, New York
February 29, 2024
Exhibit 31.1
1.
2.
3.
4.
I, Rohit Kapoor, certify that:
I have reviewed this Annual Report of ExlService Holdings, Inc. for the year ended December 31, 2023;
SECTION 302 CERTIFICATION
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
February 29, 2024
/s/ Rohit Kapoor
Rohit Kapoor
Vice-Chairman and Chief Executive Officer
I, Maurizio Nicolelli, certify that:
SECTION 302 CERTIFICATION
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this Annual Report of ExlService Holdings, Inc. for the year ended December 31, 2023;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
February 29, 2024
/s/ Maurizio Nicolelli
Maurizio Nicolelli
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of ExlService Holdings, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2023 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Rohit Kapoor, Vice-Chairman and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Rohit Kapoor
Rohit Kapoor
Vice-Chairman and Chief Executive Officer
February 29, 2024
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of ExlService Holdings, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2023 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Maurizio Nicolelli, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Maurizio Nicolelli
Maurizio Nicolelli
Chief Financial Officer
February 29, 2024
EXLSERVICE HOLDINGS, INC.
Clawback Policy
Exhibit 97
I. Incentive Compensation Clawback Policy
This Clawback Policy (“Policy”) of ExlService Holdings, Inc. (the “Company”) shall be administered by the Board of Directors (the “Board”) (or an
appropriate committee or committees of the Board, as may be designated by the Board). Any determinations made by the Board or committee shall be final and
binding on all affected individuals. Additionally, this Policy incorporates by reference the requirements of Section 954 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and its implementing rules and regulations thereunder and the Nasdaq
listing standards. This Policy operates in addition to any (a) clawback provisions contained in the terms of other compensation awards or programs, and (b)
clawback requirements imposed under applicable laws.
This policy may be amended from time to time in the discretion of the Board or committee thereof.
II. Covered Executives
This Policy applies to all current and former executive officers, as determined by the Board or a committee thereof in accordance with Section 10D of
the Exchange Act and the Nasdaq listing standards (each an “Executive”). This Policy shall be binding and enforceable against all such Executives and their
beneficiaries, heirs, executors, administrators or other legal representatives.
The determination of the Board or committee thereof need not be uniform with respect to one or more Executives.
III. Required Recoupment
a. Compensation Subject to Required Recoupment
For purposes of this Policy, covered compensation subject to clawback (“Covered Compensation”) includes any non-equity incentive plan awards,
bonuses paid from a bonus pool, cash awards, equity or equity-based awards, or proceeds received upon sale of shares acquired through an incentive plan;
provided that, such compensation is granted, earned, and/or vested based wholly or in part on the attainment of a financial performance measure. A financial
performance measure includes those found in financial statements under General Accepted Accounting Principles or derived in whole or in part from such
measure (e.g., total shareholder return, revenue, net income, return on assets, tangible book value).
Covered Compensation shall not include any salaries, discretionary bonuses, non-equity incentive plan awards earned upon satisfying a strategic
measure or operational measure (e.g., completion of a project), or equity-based awards that are not contingent on achieving any financial reporting measure.
b. Required Recoupment Trigger – Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company's material noncompliance
with any financial reporting requirement under the securities laws, the Board or committee shall require reimbursement or forfeiture of any Excess (as defined
below) received by any Executive during the applicable look-back period. Covered accounting restatements include those that either (a) correct an error in a
previously issued financial statement that is material to such previously issued financial statement or (b) correct an error that is not material to a previously
issued financial statement, but would result in a material misstatement if left uncorrected in a current report or the error correction was not recognized in the
current period.
The Excess to be recouped due to the accounting restatement will be the amount received in excess of the amount that would have been paid to the
Executive absent the restatement, calculated on a pre-tax basis. If the Board or committee thereof
cannot determine the amount of Excess received by the Executive directly from the information in the accounting restatement, then it shall make its
determination based on a reasonable estimate of the effect of the accounting restatement.
The look-back period will be the three completed fiscal years immediately preceding the earlier of the date on which (a) the Board or committee
thereof concludes or reasonably should have concluded that an accounting restatement is required or (b) a regulator directs a restatement.
IV. Additional Recoupment; Misconduct
If the Board or committee thereof has determined that (a) any Executive violated material Company policies; misstated financial or other material
information about the Company; committed fraud or misconduct; breached a noncompetition, confidentiality, nonsolicitation, noninterference, corporate
property protection, or other agreement that may apply to the person; or committed other conduct that the Board or committee determines is detrimental to the
business or reputation of the Company, including facts and circumstances discovered after termination of service and/or (b) any employee was identified by the
Department of Justice as having engaged in wrongdoing (or having willfully neglected or ignored wrongdoing by a person or business area he or she
supervised) in connection with conduct under investigation by the Department of Justice, the Board or committee thereof may take, in its sole discretion, such
additional action, if any, as it deems necessary to remedy the misconduct and prevent its recurrence. This may include, but is not limited to, requiring
reimbursement of items excluded from Covered Compensation in Section III(a), such as salaries, discretionary bonuses, non-equity incentive plan awards
earned upon satisfying a strategic measure or operational measure (e.g., completion of a project), or equity-based awards that are not contingent on achieving
any financial reporting measure.
V. Clawback Method
The Board or a committee thereof may determine, in its sole discretion, a reasonably prompt method for recouping Covered Compensation, or other
compensation, under this Policy which may include, without limitation: (a) requiring reimbursement of cash previously paid; (b) seeking recoupment of any
gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity or equity-based awards; (c) offsetting the recouped amount
from any compensation otherwise owed to the Executive; (d) cancelling outstanding vested or unvested equity or equity-based awards; (e) forfeiting any vested
non-qualified deferred compensation account balances; and/or (f) taking any other remedial and recoupment action permitted by law, as determined by the
Board or a committee thereof. The Company may enter into deferred payment plans with Executives to effectuate recoupment to avoid unreasonable economic
hardship.
The Board or a committee thereof shall not be required to seek to recoup Covered Compensation, or other compensation under this Policy, if such
recoupment would be impracticable, violate home country laws, and/or involve tax qualified retirement plans, as determined by the Board or committee in
accordance with the Nasdaq listing standards. Any such determination that recoupment is not required shall be documented by the Board or committee.
The Company shall not, as a result of the application of this Policy, indemnify any Executive Officer against the loss of any Covered Compensation or
other compensation under this Policy.