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exls-20200930

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


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-33089

_________________________________________________________

EXLSERVICE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________


Delaware		82-0572194
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

320 Park Avenue,	29th Floor,
New York,	New York	10022
(Address of principal executive offices)		(Zip code)

(212) 277-7100

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:	Trading symbol(s)	Name of Each Exchange on Which Registered:
Common Stock, par value $0.001 per share	EXLS	NASDAQ

Securities registered pursuant to Section 12(g) of the Act:

None

________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and

(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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.

Table of Contents

TABLE OF CONTENTS



		PAGE
ITEM
	Part I. Financial Information	3

1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of S eptember 30, 2020 (Unaudited) and December 31, 2019	3
	Consolidated Statements of Income (Unaudited) for the Three and Nine months ended September 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine months ended September 30, 2020 and 2019	5
	Consolidated Statements of Equity (Unaudited) for the Three and Nine months ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows (Unaudited) for the Nine months ended Septe m ber 30, 2020 and 2019	8
	Notes to Consolidated Financial Statements (Unaudited)	9

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

3.	Quantitative and Qualitative Disclosures About Market Risk	59

4.	Controls and Procedures	59

	Part II. Other Information	59

1.	Legal Proceedings	59

1A.	Risk Factors	59

2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

3.	Defaults Upon Senior Securities	61

4.	Mine Safety Disclosures	61

5.	Other Information	61

6.	Exhibits	62

Signatures		63

Table of Contents

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, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	206,423	$	119,165
Short-term investments	156,175		202,238
Restricted cash	7,312		5,453
Accounts receivable, net	154,983		171,864
Prepaid expenses	8,248		13,246
Advance income tax, net	1,138		4,698
Other current assets	30,784		24,594
Total current assets	565,063		541,258
Property and equipment, net	94,103		79,142
Operating lease right-of-use assets	95,873		86,396
Restricted cash	2,277		2,426
Deferred tax assets, net	13,230		11,855
Intangible assets, net	62,941		73,982
Goodwill	348,723		349,529
Other assets	34,280		36,016
Investment in equity affiliate	2,991		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 borrowings	10,474		40,867
Deferred revenue	13,562		13,436
Accrued employee costs	57,402		68,885
Accrued expenses and other current liabilities	73,043		74,017
Current portion of operating lease liabilities	19,048		24,148
Income taxes payable, net	5,157		1,432
Total current liabilities	184,899		229,349
Long-term borrowings, less current portion	216,235		194,131
Operating lease liabilities, less current portion	89,412		74,709
Income taxes payable	1,790		1,790
Deferred tax liabilities, net	841		966
Other non-current liabilities	16,376		12,142
Total liabilities	509,553		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 capital	413,135		391,240
Retained earnings	609,161		551,903
Accumulated other comprehensive loss	(85,217)		(84,892)
Total including shares held in treasury	937,118		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’ equity	709,928		670,001

Total equity	709,928		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,
	2020		2019		2020		2019
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 expenses	26,810		29,590		84,501		93,349
Selling and marketing expenses	15,290		18,302		42,797		53,996
Depreciation and amortization expense	12,425		13,047		37,280		39,466
Impairment and restructuring charges	—		489		—		7,296
Total operating expenses	54,525		61,428		164,578		194,107
Income from operations	34,406		22,422		71,759		53,139
Foreign exchange gain, net	716		1,009		3,452		3,471
Interest expense	(2,628)		(3,180)		(8,583)		(10,626)
Other income, net	2,485		4,563		9,239		13,088
Income before income tax expense and earnings from equity affiliates	34,979		24,814		75,867		59,072
Income tax expense	8,490		5,701		18,416		12,571
Income before earnings from equity affiliates	26,489		19,113		57,451		46,501
Loss from equity-method investment	71		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:
Basic	34,327,477		34,322,449		34,404,798		34,382,787
Diluted	34,536,049		34,699,497		34,617,830		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,
	2020		2019		2020		2019
Net income	$	26,418	$	19,044	$	57,258	$	46,303
Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges	12,165		(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 Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)/Income		Treasury Stock			Total Equity

	Shares	Amount								Shares	Amount
Balance as of June 30, 2020	38,818,365	$	39	$	404,704	$	582,743	$	(104,274)	(4,497,779)	$	(202,284)	$	680,928
Stock issued against stock-based compensation plans	22,525	—		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, 2020	38,840,890	$	39	$	413,135	$	609,161	$	(85,217)	(4,887,354)	$	(227,190)	$	709,928


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total Equity

	Shares	Amount								Shares	Amount
Balance as of June 30, 2019	38,295,083	$	38	$	378,633	$	511,503	$	(74,358)	(4,088,759)	$	(174,463)	$	641,353
Stock issued against stock-based compensation plans	27,271	—		—		—		—		—	—		—
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, 2019	38,322,354	$	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 Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total Equity

	Shares	Amount								Shares	Amount
Balance as of January 1, 2020	38,480,654	$	39	$	391,240	$	551,903	$	(84,892)	(4,295,413)	$	(188,289)	$	670,001
Stock issued against stock-based compensation plans	360,236	—		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, 2020	38,840,890	$	39	$	413,135	$	609,161	$	(85,217)	(4,887,354)	$	(227,190)	$	709,928


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Non - Controlling Interest		Total Equity

	Shares	Amount								Shares	Amount
Balance as of January 1, 2019	37,850,544	$	38	$	364,179	$	484,244	$	(83,467)	(3,628,068)	$	(146,925)	$	250	$	618,319
Stock issued against stock-based compensation plans	471,810	—		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, 2019	38,322,354	$	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,
	2020		2019
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 expense	37,249		39,633
Stock-based compensation expense	20,850		21,538
Amortization of operating lease right-of-use assets	20,484		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 losses	353		433
Loss from equity-method investment	193		198
Amortization of non-cash interest expense related to convertible senior notes	1,943		1,836
Impairment charges	—		3,167
Others, net	(935)		(148)
Change in operating assets and liabilities:
Accounts receivable	16,078		(16,475)
Prepaid expenses and other current assets	1,498		752
Advance income tax, net	7,001		6,212
Other assets	3,096		(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 activities	126,314		105,955

Cash flows from investing activities:
Purchases of property and equipment	(34,614)		(32,462)
Proceeds from sale of property and equipment	624		154
Investment in equity affiliate	(700)		—
Purchase of non-controlling interest	—		(241)
Purchase of investments	(57,965)		(117,934)
Proceeds from redemption of investments	103,718		129,143
Net cash provided by/(used for) investing activities	11,063		(21,340)

Cash flows from financing activities:
Principal payments of finance lease liabilities	(180)		(274)
Proceeds from borrowings	110,000		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 options	1,045		338
Net cash used for financing activities	(48,429)		(77,700)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	20		(1,761)
Net increase in cash, cash equivalents and restricted cash	88,968		5,154
Cash, cash equivalents and restricted cash at the beginning of the period	127,044		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.

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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(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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(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
	Insurance		Healthcare		Emerging Business		Analytics		Total

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 expenses									54,525
Foreign exchange gain, interest expense and other income, net									573
Income tax expense									8,490
Loss from equity-method investment									71
Net income									$	26,418

(1) Exclusive of depreciation and amortization expense.

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	Three months ended September 30, 2019
	Insurance		Healthcare		Emerging Business		Analytics		Total

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 expenses									61,428
Foreign exchange gain, interest expense and other income, net									2,392
Income tax expense									5,701
Loss from equity-method investment									69
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
	Insurance		Healthcare		Emerging Business		Analytics		Total

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 expenses									164,578
Foreign exchange gain, interest expense and other income, net									4,108
Income tax expense									18,416
Loss from equity-method investment									193
Net income									$	57,258

(1) Exclusive of depreciation and amortization expense.


	Nine months ended September 30, 2019
	Insurance		Healthcare		Emerging Business		Analytics		Total

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 expenses									194,107
Foreign exchange gain, interest expense and other income, net									5,933
Income tax expense									12,571
Loss from equity-method investment									198
Net income									$	46,303

(1) Exclusive of depreciation and amortization expense.

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(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,
	2020		2019		2020		2019
BPM and related services(1)	$	150,519	$	162,639	$	444,872	$	470,889
Analytics services	90,499		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,
	2020		2019		2020		2019
Revenues, net
United States	$	203,928	$	208,753	$	600,840	$	602,758
Non-United States
United Kingdom	22,903		27,884		65,011		87,140
Rest of World	14,187		14,755		43,630		44,576
Total Non-United States	37,090		42,639		108,641		131,716
Revenues, net	$	241,018	$	251,392