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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TO                     
COMMISSION FILE NUMBER 001-33089
_________________________________________________________
EXLSERVICE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
_________________________________________________________
Delaware 82-0572194
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
320 Park Avenue,
29th Floor,
 
New York,New York10022
(Address of principal executive offices) (Zip code)
(212) 277-7100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:Trading symbol(s)Name of Each Exchange on Which Registered:
Common Stock, par value $0.001 per share EXLSNASDAQ
Securities registered pursuant to Section 12(g) of the Act:
None
________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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. (Check one):
Large Accelerated Filer  Accelerated filer 
Non-accelerated filer  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
As of October 27, 2020, there were 33,809,550 shares of the registrant’s common stock outstanding, par value $0.001 per share.



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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
As of
September 30, 2020December 31, 2019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$206,423 $119,165 
Short-term investments156,175 202,238 
Restricted cash7,312 5,453 
Accounts receivable, net154,983 171,864 
Prepaid expenses8,248 13,246 
Advance income tax, net1,138 4,698 
Other current assets30,784 24,594 
Total current assets565,063 541,258 
Property and equipment, net94,103 79,142 
Operating lease right-of-use assets95,873 86,396 
Restricted cash2,277 2,426 
Deferred tax assets, net13,230 11,855 
Intangible assets, net62,941 73,982 
Goodwill348,723 349,529 
Other assets34,280 36,016 
Investment in equity affiliate2,991 2,484 
Total assets$1,219,481 $1,183,088 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$6,213 $6,564 
Current portion of long-term borrowings10,474 40,867 
Deferred revenue13,562 13,436 
Accrued employee costs57,402 68,885 
Accrued expenses and other current liabilities73,043 74,017 
Current portion of operating lease liabilities19,048 24,148 
Income taxes payable, net5,157 1,432 
Total current liabilities184,899 229,349 
Long-term borrowings, less current portion216,235 194,131 
Operating lease liabilities, less current portion89,412 74,709 
Income taxes payable1,790 1,790 
Deferred tax liabilities, net841 966 
Other non-current liabilities16,376 12,142 
Total liabilities509,553 513,087 
Commitments and contingencies (Refer to Note 24)
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued
  
ExlService Holdings, Inc. Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 38,840,890 shares issued and 33,953,536 shares outstanding as of September 30, 2020 and 38,480,654 shares issued and 34,185,241 shares outstanding as of December 31, 2019
39 39 
Additional paid-in capital413,135 391,240 
Retained earnings609,161 551,903 
Accumulated other comprehensive loss(85,217)(84,892)
Total including shares held in treasury937,118 858,290 
Less: 4,887,354 shares as of September 30, 2020 and 4,295,413 shares as of December 31, 2019, held in treasury, at cost
(227,190)(188,289)
Stockholders’ equity709,928 670,001 
Total equity709,928 670,001 
Total liabilities and stockholders’ equity $1,219,481 $1,183,088 
See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per share amounts)

Three months ended September 30,Nine months ended September 30,
2020201920202019
Revenues, net$241,018 $251,392 $709,481 $734,474 
Cost of revenues(1)
152,087 167,542 473,144 487,228 
Gross profit(1)
88,931 83,850 236,337 247,246 
Operating expenses:
General and administrative expenses26,810 29,590 84,501 93,349 
Selling and marketing expenses15,290 18,302 42,797 53,996 
Depreciation and amortization expense12,425 13,047 37,280 39,466 
Impairment and restructuring charges 489  7,296 
Total operating expenses54,525 61,428 164,578 194,107 
Income from operations34,406 22,422 71,759 53,139 
Foreign exchange gain, net716 1,009 3,452 3,471 
Interest expense(2,628)(3,180)(8,583)(10,626)
Other income, net2,485 4,563 9,239 13,088 
Income before income tax expense and earnings from equity affiliates34,979 24,814 75,867 59,072 
Income tax expense8,490 5,701 18,416 12,571 
Income before earnings from equity affiliates26,489 19,113 57,451 46,501 
Loss from equity-method investment71 69 193 198 
Net income attributable to ExlService Holdings, Inc. stockholders$26,418 $19,044 $57,258 $46,303 
Earnings per share attributable to ExlService Holdings, Inc. stockholders:
Basic$0.77 $0.55 $1.66 $1.35 
Diluted$0.76 $0.55 $1.65 $1.33 
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:
Basic34,327,477 34,322,44934,404,798 34,382,787
Diluted34,536,049 34,699,49734,617,830 34,744,968

(1) Exclusive of depreciation and amortization expense.



See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
Three months ended September 30,Nine months ended September 30,
2020201920202019
Net income$26,418 $19,044 $57,258 $46,303 
 Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges12,165 (3,574)5,040 5,631 
Foreign currency translation gain/(loss)11,327 (10,065)524 (5,662)
Reclassification adjustments
Loss/(gain) on cash flow hedges(1)
435 (1,704)633 (3,259)
Retirement benefits(2)
98 (40)296 (119)
Income tax (expense)/benefit relating to above(3)
(4,968)3,588 (6,818)723 
  Total other comprehensive income/(loss)$19,057 $(11,795)$(325)$(2,686)
Total comprehensive income$45,475 $7,249 $56,933 $43,617 

(1)These are reclassified to net income and are included either in cost of revenues or operating expenses, as applicable in the unaudited consolidated statements of income. Refer to Note 16 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements.

(2)These are reclassified to net income and are included in other income, net in the unaudited consolidated statements of income. Refer to Note 19 - Employee Benefit Plans to the unaudited consolidated financial statements.

(3)These are income tax (expense)/benefit recognized on cash flow hedges, retirement benefits and foreign currency translation gains/(losses). Refer to Note 21 - Income Taxes to the unaudited consolidated financial statements.







See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the three months ended September 30, 2020 and 2019
(In thousands, except share and per share amounts)


Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive (Loss)/IncomeTreasury StockTotal Equity
SharesAmountSharesAmount
Balance as of June 30, 202038,818,365 $39 $404,704 $582,743 $(104,274)(4,497,779)$(202,284)$680,928 
Stock issued against stock-based compensation plans22,525 — 85 — — — — 85 
Stock-based compensation— — 8,346 — — — — 8,346 
Acquisition of treasury stock— — — — — (389,575)(24,906)(24,906)
Other comprehensive income— — — — 19,057 — — 19,057 
Net income— — — 26,418 — — — 26,418 
Balance as of September 30, 202038,840,890 $39 $413,135 $609,161 $(85,217)(4,887,354)$(227,190)$709,928 


Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Equity
SharesAmountSharesAmount
Balance as of June 30, 201938,295,083 $38 $378,633 $511,503 $(74,358)(4,088,759)$(174,463)$641,353 
Stock issued against stock-based compensation plans27,271 — — — — — —  
Stock-based compensation— — 7,427 — — — — 7,427 
Acquisition of treasury stock— — — — — (125,744)(8,346)(8,346)
Other comprehensive loss— — — — (11,795)— — (11,795)
Net income— — — 19,044 — — — 19,044 
Balance as of September 30, 201938,322,354 $38 $386,060 $530,547 $(86,153)(4,214,503)$(182,809)$647,683 
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the nine months ended September 30, 2020 and 2019
(In thousands, except share and per share amounts)

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Equity
SharesAmountSharesAmount
Balance as of January 1, 202038,480,654 $39 $391,240 $551,903 $(84,892)(4,295,413)$(188,289)$670,001 
Stock issued against stock-based compensation plans360,236 — 1,045 — — — — 1,045 
Stock-based compensation— — 20,850 — — — — 20,850 
Acquisition of treasury stock— — — — — (591,941)(38,901)(38,901)
Other comprehensive loss— — — — (325)— — (325)
Net income— — — 57,258 — — — 57,258 
Balance as of September 30, 202038,840,890 $39 $413,135 $609,161 $(85,217)(4,887,354)$(227,190)$709,928 


Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockNon - Controlling InterestTotal Equity
SharesAmountSharesAmount
Balance as of January 1, 201937,850,544 $38 $364,179 $484,244 $(83,467)(3,628,068)$(146,925)$250 $618,319 
Stock issued against stock-based compensation plans471,810 — 338 — — — — — 338 
Stock-based compensation— — 21,538 — — — — — 21,538 
Acquisition of treasury stock— — — — — (586,435)(35,884)— (35,884)
Allocation of equity component related to issuance costs on convertible notes— — (13)— — — — — (13)
Non-controlling interest— — 18 — — — — (250)(232)
Other comprehensive loss— — — — (2,686)— — — (2,686)
Net income— — — 46,303 — — — — 46,303 
Balance as of September 30, 201938,322,354 $38 $386,060 $530,547 $(86,153)(4,214,503)$(182,809)$ $647,683 


See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine months ended September 30,
20202019
Cash flows from operating activities:
Net income$57,258 $46,303 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense37,249 39,633 
Stock-based compensation expense20,850 21,538 
Amortization of operating lease right-of-use assets20,484 20,544 
Unrealized gain on short term investments(4,807)(7,443)
Unrealized foreign exchange (gain)/loss, net(437)19 
Deferred income tax benefit(1,572)(6,859)
Allowance for expected credit losses353 433 
Loss from equity-method investment193 198 
Amortization of non-cash interest expense related to convertible senior notes1,943 1,836 
Impairment charges 3,167 
Others, net(935)(148)
Change in operating assets and liabilities:
Accounts receivable16,078 (16,475)
Prepaid expenses and other current assets1,498 752 
Advance income tax, net7,001 6,212 
Other assets3,096 (1,307)
Accounts payable(490)(1,847)
Deferred revenue 295 3,247 
Accrued employee costs(11,854)3,420 
Accrued expenses and other liabilities(109)12,160 
Operating lease liabilities(19,780)(19,428)
Net cash provided by operating activities126,314 105,955 
Cash flows from investing activities:
Purchases of property and equipment(34,614)(32,462)
Proceeds from sale of property and equipment624 154 
Investment in equity affiliate(700) 
Purchase of non-controlling interest (241)
Purchase of investments(57,965)(117,934)
Proceeds from redemption of investments103,718 129,143 
Net cash provided by/(used for) investing activities11,063 (21,340)
Cash flows from financing activities:
Principal payments of finance lease liabilities(180)(274)
Proceeds from borrowings110,000 46,000 
Repayments of borrowings(120,393)(87,763)
Payment of debt issuance costs (117)
Acquisition of treasury stock(38,901)(35,884)
Proceeds from exercise of stock options1,045 338 
Net cash used for financing activities(48,429)(77,700)
Effect of exchange rate changes on cash, cash equivalents and restricted cash20 (1,761)
Net increase in cash, cash equivalents and restricted cash88,968 5,154 
Cash, cash equivalents and restricted cash at the beginning of the period127,044 104,131 
Cash, cash equivalents and restricted cash at the end of the period$216,012 $109,285 

See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(In thousands, except share and per share amounts)
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”), operates in the Business Process Management (“BPM”) industry providing operations management services and analytics services that helps its clients build and grow sustainable businesses. By orchestrating its domain expertise, data, analytics and digital technology, the Company looks deeper to design and manage agile, customer-centric operating models to improve global operations, drive profitability, enhance customer satisfaction, increase data-driven insights, and manage risk and compliance. The Company’s clients are located principally in the United States of America (“U.S.”) and the United Kingdom (“U.K”).

2. Summary of Significant Accounting Policies
(a) Basis of Preparation and Principles of Consolidation

The unaudited consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The unaudited consolidated financial statements reflect all adjustments (of a normal and recurring nature) that management considers necessary for a fair presentation of such statements for the interim periods presented. The unaudited consolidated statements of income for the interim periods presented are not necessarily indicative of the results for the full year or for any subsequent period.
    
The accompanying unaudited consolidated financial statements include the financial statements of ExlService Holdings and all of its subsidiaries. The standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, and gains and losses arising from intra-group transactions, are eliminated while preparing those financial statements.

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

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 is recognized in the unaudited consolidated statements of income.

Effective January 1, 2020, the Company made certain operational and structural changes to more closely integrate the Company’s businesses and to simplify its organizational structure. Under the new structure, the Company reports its financial performance based on new segments described in Note 3 - Segment and Geographical Information to the unaudited consolidated financial statements. In conjunction with the new reporting structure, the Company has recast certain prior period amounts, wherever applicable, to conform to the way the Company internally manages and monitors segment performance. This change primarily impacted Note 3 - Segment and Geographical Information and Note 9 - Goodwill and Intangible Assets
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2020
(In thousands, except share and per share amounts)
to the unaudited consolidated financial statements, with no impact on the unaudited consolidated balance sheets, statements of income, comprehensive (loss)/income, equity and cash flows.

(b) Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, allowance for expected credit losses, expected recoverability from customers with contingent fee arrangements, recoverability of dues from statutory authorities, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, assumptions used to calculate stock-based compensation expense, assumptions used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost, depreciation and amortization periods, purchase price allocation, recoverability of long-lived assets including goodwill and intangibles, and estimated costs to complete fixed price contracts.

As of September 30, 2020, the extent to which the global Coronavirus Disease 2019 pandemic (“COVID-19”) will ultimately impact the Company's business depends on numerous dynamic factors, which the Company still cannot reliably predict. As a result, many of the Company's estimates and assumptions herein required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to COVID-19, the Company’s estimates may materially change in future periods. Any changes in estimates are adjusted prospectively in the Company’s consolidated financial statements.

(c) Leases

The Company determines if an arrangement is a lease at inception of the contract. Operating leases are recorded in "operating lease right-of-use assets", "current portion of operating lease liabilities" and "operating lease liabilities, less current portion" in the Company's unaudited consolidated balance sheets. Finance leases are recorded in "property and equipment", and current and non-current portion of finance lease liabilities are presented within “accrued expenses and other current liabilities” and “other non-current liabilities,” respectively in the Company's unaudited 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. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. 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 for determining the present value of lease payments. Lease terms includes the effects of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately.

The Company accounts for lease-related concessions to mitigate the economic effects of COVID-19 on lessees 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.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2020
(In thousands, except share and per share amounts)
On January 1, 2019, the date of initial application, the Company adopted Topic 842, Leases, using the modified retrospective method. The modified retrospective method provides a method of recognizing those leases which had not expired as of the date of adoption of January 1, 2019.

The adoption resulted in the recognition of ROU assets of $80,328 (net of deferred rent of $8,626) and lease liabilities of $88,954 for operating leases as of January 1, 2019. The Company's accounting for finance leases remained substantially unchanged. The adoption had no impact on opening balance of retained earnings. Refer to Note 20 - Leases to the unaudited consolidated financial statements for details.

(d) Recent Accounting Pronouncements    

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (("Subtopic 715-20")): Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The adoption of this ASU is not expected to have any material effect on the Company’s consolidated financial statements.

In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. The ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The Company is currently evaluating the impact of this ASU.

In August 2020, FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU removes separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and hence most of the instruments will be accounted for as a single model (either debt or equity). The ASU also states that entities must apply the if-converted method to all convertible instruments for calculation of diluted EPS and the treasury stock method is no longer available. An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance. The ASU is effective for fiscal years beginning after December 15, 2021 and may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU.

(e) Recently Adopted Accounting Pronouncements

In June 2016, FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The new guidance replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. The allowance for credit losses is a valuation account that is to be deducted from the amortized cost of the financial asset(s) so as to present the net carrying value at the amount expected to be collected on the financial asset. The Company adopted Topic 326 as of January 1, 2020 using a modified retrospective approach through a cumulative-effect adjustment to its retained earnings. The adoption of the ASU had no impact to equity as of January 1, 2020 with a corresponding offset to accounts receivable. Further, the impact of adoption of this guidance did not have a material effect on the Company's accounting policies, processes, and systems. Refer to Note 4 - Revenues, net to the unaudited consolidated financial statements for details.

In August 2018, FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, by prescribing new disclosure requirements, and the elimination and modification of disclosure
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2020
(In thousands, except share and per share amounts)
requirements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity was permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. The early adoption of this ASU, effective January 1, 2020, did not have any material effect on the Company’s disclosures in the unaudited consolidated financial statements.

In August 2018, FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software ("Subtopic 350-40"): This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the ASU requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in FASB Accounting Standard Codification Subtopic 350-40 on internal-use software to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The ASU 2018-15 also provides guidance on amortization and impairment of any costs capitalized, along with new presentation and disclosure requirements. The new guidance is effective for fiscal years beginning after December 15, 2019 and adoption was allowed prospectively. The adoption of this ASU effective January 1, 2020 did not have any material effect on the Company’s unaudited consolidated financial statements.

In April 2019, FASB issued ASU No. 2019-04, Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments: Targeted Transition Relief (Topic 825). The amendments clarify the scope of the credit losses standard and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. With respect to hedge accounting, the amendments address partial-term fair value hedges, fair value hedge basis adjustments, and certain transition requirements, among other things. With respect to recognizing and measuring financial instruments, the amendment in the ASU address the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. This ASU is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption was permitted. The adoption of this ASU did not have any material effect on the Company’s unaudited consolidated financial statements.

In May 2019, FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. This ASU provides entities with the option to irrevocably elect the fair value option, on an instrument-by-instrument basis in accordance with Subtopic 825-10, for certain financial instruments that are within the scope of Subtopic 326-20, upon adopting Topic 326. The fair value option election does not apply to held-to-maturity debt securities. The amendments in this ASU provide entities with targeted transition relief that is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. The Company adopted Topic 326 as of January 1, 2020, whereby no such fair value election was made, accordingly, the adoption of this ASU did not have any material effect on the Company’s unaudited consolidated financial statements.

(f) Reclassification

Certain reclassifications have been made in the consolidated financial statements of prior periods to conform to the classification used in the current period. The impact of such reclassifications on the consolidated financial statements is not material.

3. Segment and Geographical Information

The Company operates in the BPM industry and is a provider of operations management and analytics services.

Effective January 1, 2020, the Company made certain operational and structural changes to more closely integrate its businesses and to simplify its organizational structure. The Company now manages and reports financial information through its four strategic business units: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management will review financial information and make operating decisions. These business units will develop client-specific solutions, build
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2020
(In thousands, except share and per share amounts)
capabilities, maintain a unified go-to-market approach and be integrally responsible for service delivery, customer satisfaction, growth and profitability. In line with the Company’s strategy of vertical integration and focus on domain expertise, the Company has integrated its Finance & Accounting and Consulting operating segments within each of the Insurance and Healthcare operating segments based on the corresponding industry-specific clients to whom those services are provided. Finance & Accounting and Consulting services to clients outside of the Insurance and Healthcare industries will now be part of the Company’s newly formed business unit and reportable segment Emerging Business. In addition, the Company integrated its former Travel, Transportation and Logistics, Banking and Financial Services, and Utilities operating segments under the Emerging Business unit to further leverage and optimize the operating scale in providing operations management services.

The Company’s new reportable segments effective January 1, 2020 are as follows:

Insurance,
Healthcare,
Emerging Business, and
Analytics

In conjunction with the new reporting structure, the Company has recast its segment disclosures for prior periods presented to conform to the way the Company internally manages and monitors segment performance.

The chief operating decision maker (“CODM”) generally reviews financial information such as revenues, cost of revenues and gross profit, disaggregated by the operating segments to allocate an overall budget among the operating segments.
The Company does not allocate and therefore the CODM does not evaluate, certain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages these assets on a total Company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented.

Revenues and cost of revenues for the three months ended September 30, 2020 and 2019, respectively, for each of the reportable segments, are as follows:
Three months ended September 30, 2020
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$87,830 $25,112 $37,577 $90,499 $241,018 
Cost of revenues(1)
56,831 17,993 20,792 56,471 152,087 
Gross profit(1)
$30,999 $7,119 $16,785 $34,028 $88,931 
Operating expenses54,525 
Foreign exchange gain, interest expense and other income, net573 
Income tax expense8,490 
Loss from equity-method investment71 
Net income$26,418 

(1) Exclusive of depreciation and amortization expense.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2020
(In thousands, except share and per share amounts)
Three months ended September 30, 2019
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$91,096 $25,631 $45,912 $88,753 $251,392 
Cost of revenues(1)
62,233 20,409 27,067 57,833 167,542 
Gross profit(1)
$28,863 $5,222 $18,845 $30,920 $83,850 
Operating expenses61,428 
Foreign exchange gain, interest expense and other income, net2,392 
Income tax expense5,701 
Loss from equity-method investment69 
Net income$19,044 

(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the nine months ended September 30, 2020 and 2019, respectively, for each of the reportable segments, are as follows:

Nine months ended September 30, 2020
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$252,851 $77,119 $114,902 $264,609 $709,481 
Cost of revenues(1)
174,909 57,226 68,689 172,320 473,144 
Gross profit(1)
$77,942 $19,893 $46,213 $92,289 $236,337 
Operating expenses164,578 
Foreign exchange gain, interest expense and other income, net4,108 
Income tax expense18,416 
Loss from equity-method investment193 
Net income$57,258 

(1) Exclusive of depreciation and amortization expense.

Nine months ended September 30, 2019
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$257,963 $69,609 $143,317 $263,585 $734,474 
Cost of revenues(1)
176,890 55,960 82,212 172,166 487,228 
Gross profit(1)
$81,073 $13,649 $61,105 $91,419 $247,246 
Operating expenses194,107 
Foreign exchange gain, interest expense and other income, net5,933 
Income tax expense12,571 
Loss from equity-method investment198 
Net income$46,303 

(1) Exclusive of depreciation and amortization expense.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2020
(In thousands, except share and per share amounts)

Revenues, net by service type, were as follows:
Three months ended September 30,Nine months ended September 30,
2020201920202019
BPM and related services(1)
$150,519 $162,639 $444,872 $470,889 
Analytics services90,499 88,753 264,609 263,585 
Revenues, net$241,018 $251,392 $709,481 $734,474 

(1) BPM and related services include revenues of the Company's Insurance, Healthcare and Emerging Business operating segments. Refer to the reportable segment disclosure above.

The Company attributes the revenues to regions based upon the location of its customers.
 Three months ended September 30,Nine months ended September 30,
 2020201920202019
Revenues, net
United States$203,928 $208,753 $600,840 $602,758 
Non-United States
United Kingdom22,903 27,884 65,011 87,140 
Rest of World14,187 14,755 43,630 44,576 
Total Non-United States37,090 42,639 108,641 131,716 
Revenues, net$241,018 $251,392