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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 MARCH 31, 2022    
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  Accelerated filer 
Non-accelerated filer  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  

As of April 26, 2022, there were 33,286,190 shares of the registrant’s common stock outstanding, par value $0.001 per share.



Table of Contents
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Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) 
(In thousands, except per share amount and share count)
As of
March 31, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$106,540 $135,337 
Short-term investments162,694 178,538 
Restricted cash6,274 6,174 
Accounts receivable, net239,279 194,232 
Prepaid expenses20,118 14,655 
Advance income tax, net9,336 15,199 
Other current assets28,377 34,009 
Total current assets572,618 578,144 
Property and equipment, net85,610 86,008 
Operating lease right-of-use assets75,147 76,692 
Restricted cash2,255 2,299 
Deferred tax assets, net22,447 21,404 
Intangible assets, net76,578 81,082 
Goodwill404,561 403,902 
Other assets32,215 30,369 
Investment in equity affiliate3,118 3,004 
Total assets$1,274,549 $1,282,904 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$4,796 $5,647 
Current portion of long-term borrowings35,000 260,016 
Deferred revenue22,571 20,000 
Accrued employee costs52,276 114,285 
Accrued expenses and other current liabilities86,911 76,350 
Current portion of operating lease liabilities19,308 18,487 
Income taxes payable, net1,259 901 
Total current liabilities222,121 495,686 
Long-term borrowings, less current portion260,000 — 
Operating lease liabilities, less current portion66,173 68,506 
Income taxes payable1,790 1,790 
Deferred tax liabilities, net928 965 
Other non-current liabilities23,196 22,801 
Total liabilities574,208 589,748 
Commitments and contingencies (Refer to Note 23)
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, 39,794,154 shares issued and 33,328,744 shares outstanding as of March 31, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021
40 40 
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Additional paid-in capital406,966 395,742 
Retained earnings792,315 756,137 
Accumulated other comprehensive income/(loss)(98,306)(89,474)
Total including shares held in treasury1,101,015 1,062,445 
Less: 6,465,410 shares as of March 31, 2022 and 6,216,858 shares as of December 31, 2021, held in treasury, at cost
(400,674)(369,289)
Stockholders’ equity700,341 693,156 
Total equity700,341 693,156 
Total liabilities and stockholders’ equity $1,274,549 $1,282,904 

See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amount and share count)

Three months ended March 31,
20222021
Revenues, net$329,208    $261,415 
Cost of revenues (1)
207,516    158,821 
Gross profit (1)
121,692 102,594 
Operating expenses:   
General and administrative expenses39,945 30,703 
Selling and marketing expenses24,170 18,235 
Depreciation and amortization expense13,602 12,101 
Total operating expenses77,717 61,039 
Income from operations43,975    41,555 
Foreign exchange gain, net1,756    434 
Interest expense(876)(2,474)
Other income, net2,411    1,410 
Income before income tax expense and earnings from equity affiliates47,266 40,925 
Income tax expense11,202 8,958 
Income before earnings from equity affiliates36,064 31,967 
Gain/(loss) from equity-method investment114 (36)
Net income attributable to ExlService Holdings, Inc. stockholders$36,178 $31,931 
Earnings per share attributable to ExlService Holdings, Inc. stockholders:
Basic$1.08 $0.95 
Diluted$1.07 $0.93 
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:   
Basic33,442,038    33,734,118
Diluted33,894,868 34,318,318

(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 March 31,
20222021
Net income$36,178 $31,931 
 Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges(517)568 
Foreign currency translation loss(7,445)(1,911)
Reclassification adjustments
Gain on cash flow hedges(1)
(1,989)(2,829)
Retirement benefits(2)
155 179 
Income tax effects relating to above(3)
964 224 
  Total other comprehensive income/(loss)$(8,832)$(3,769)
Total comprehensive income$27,346 $28,162 


(1)These are reclassified to net income and are included in cost of revenues and 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 effects 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 March 31, 2022 and 2021
(In thousands, except share count)
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income/(Loss)Treasury StockTotal Equity
SharesAmountSharesAmount
Balance as of January 1, 202239,508,340 $40 $395,742 $756,137 $(89,474)(6,216,858)$(369,289)$693,156 
Stock issued against stock-based compensation plans285,814 — — — — — —  
Stock-based compensation— — 11,224 — — — — 11,224 
Acquisition of treasury stock— — — — — (248,552)(31,385)(31,385)
Other comprehensive loss— — — — (8,832)— — (8,832)
Net income— — — 36,178 — — — 36,178 
Balance as of March 31, 202239,794,154 $40 $406,966 $792,315 $(98,306)(6,465,410)$(400,674)$700,341 

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income/(Loss)Treasury StockTotal Equity
SharesAmountSharesAmount
Balance as of January 1, 202138,968,052 $39 $420,976 $641,379 $(74,984)(5,408,618)$(268,238)$719,172 
Stock issued against stock-based compensation plans305,937 — 74 — — — — 74 
Stock-based compensation— — 7,832 — — — — 7,832 
Acquisition of treasury stock— — — — — (338,482)(29,015)(29,015)
Other comprehensive loss— — — — (3,769)— — (3,769)
Net income— — — 31,931 — — — 31,931 
Balance as of March 31, 202139,273,989 $39 $428,882 $673,310 $(78,753)(5,747,100)$(297,253)$726,225 
See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three months ended March 31,
20222021
Cash flows from operating activities:
Net income$36,178 $31,931 
Adjustments to reconcile net income to net cash (used for)/provided by operating activities:
Depreciation and amortization expense13,669 12,266 
Stock-based compensation expense11,224 7,832 
Amortization of operating lease right-of-use assets6,043 6,761 
Unrealized gain on short term investments(384)(1,103)
Unrealized foreign currency exchange gain, net(3,165)(1,139)
Deferred income tax benefit(193)(2,695)
Allowance for expected credit losses34 48 
(Gain)/loss from equity-method investment(114)36 
Amortization of non-cash interest expense related to convertible senior notes 673 
Others, net819 216 
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(45,659)(11,818)
Prepaid expenses and other current assets(1,116)(21)
Advance income tax, net6,185 9,057 
Other assets(2,924)1,268 
Accounts payable(808)1,902 
Deferred revenue3,707 (17,986)
Accrued employee costs(60,008)(23,611)
Accrued expenses and other liabilities15,647 8,456 
Operating lease liabilities(6,005)(6,868)
Net cash (used for)/provided by operating activities(26,870)15,205 
Cash flows from investing activities:
Purchases of property and equipment(16,101)(12,680)
Proceeds from sale of property and equipment63 129 
Business acquisition (net of cash and cash equivalents acquired)(1,367) 
Purchases of investments(36,804)(18,835)
Proceeds from redemption of investments49,515 5,357 
Net cash used for investing activities(4,694)(26,029)
Cash flows from financing activities:
Principal payments of finance lease liabilities(39)(57)
Proceeds from borrowings35,000 25,000 
Repayments of borrowings (25,000)
Acquisition of treasury stock(31,385)(29,015)
Proceeds from exercise of stock options 75 
Net cash provided by/(used for) financing activities3,576 (28,997)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(753)(984)
Net decrease in cash, cash equivalents and restricted cash(28,741)(40,805)
Cash, cash equivalents and restricted cash at the beginning of the period143,810 225,519 
Cash, cash equivalents and restricted cash at the end of the period$115,069 $184,714 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$1,277 $610 
Income taxes, net of refunds$5,404 $2,415 
Supplemental disclosure of non-cash investing and financing activities:
Assets acquired under finance lease$50 $10 
See accompanying notes to unaudited consolidated financial statements.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(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 that partners with clients to improve business outcomes and unlock growth. By bringing together deep domain expertise with robust data, powerful analytics, cloud, artificial intelligence and machine learning, the Company creates agile, scalable solutions and executes complex operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media, and retail, among others. The Company’s data-led value creation framework enables better and faster decision making, leveraging its end-to-end data and analytics capabilities to drive improved business outcomes, and re-designing of operating models to integrate advanced technology into operational workflows. The Company embeds digital operations and solutions into clients’ businesses and introduces its data led approach to transform operations. Accordingly, as the Company’s operations management services are now a part of its digital operations and solutions, they are referred to as “digital operations and solutions” herein; however, the Company has not changed the way in which it manages its business or its operating segments or segment reporting structure.

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, 2021.

The unaudited consolidated financial statements reflect all adjustments (of a normal and recurring nature) that management considers necessary for a fair presentation of such statements for the interim periods presented. The unaudited consolidated statements of income for the interim periods presented are not necessarily indicative of the results for the full year or for any subsequent period.

The accompanying unaudited consolidated financial statements include the financial statements of ExlService Holdings and all of its subsidiaries. The standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis. Intra-group balances and transactions, and gains and losses arising from intra-group transactions, are eliminated while preparing consolidated financial statements.

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 after its acquisition is recognized in the unaudited consolidated statements of income.
(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
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)



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, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and discount rate applied within the discounted cash flow model for business acquisitions, allowance for expected credit losses, 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, 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 amortization of ROU, depreciation and amortization periods, and recoverability of long-lived assets, goodwill and intangibles.

(c) Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 London Inter-Bank Offered Rate (“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 on its consolidated financial statements.

In October 2021, FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU provides guidance in Topic 805 to require the acquirer entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts 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 Company is currently evaluating the impact of this ASU on its 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 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.

The December 2021 acquisition of Clairvoyant AI Inc. (“Clairvoyant”) is included in the Analytics reportable segment. Refer to Note 9 - Business Combination, Goodwill and Intangible Assets to the unaudited consolidated financial statements for further details.
    
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)



Revenues and cost of revenues for the three months ended March 31, 2022 and 2021, respectively, for each of the reportable segments, are as follows:
Three months ended March 31, 2022
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$103,266 $26,156 $50,747 $149,039 $329,208 
Cost of revenues(1)
65,082 17,651 29,213 95,570 207,516 
Gross profit(1)
$38,184 $8,505 $21,534 $53,469 $121,692 
Operating expenses77,717 
Foreign exchange gain, interest expense and other income, net3,291 
Income tax expense11,202 
Gain from equity-method investment114 
Net income$36,178 

(1) Exclusive of depreciation and amortization expense.
Three months ended March 31, 2021
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Revenues, net$91,160 $30,265 $37,668 $102,322 $261,415 
Cost of revenues(1)
56,093 17,391 20,844 64,493 158,821 
Gross profit(1)
$35,067 $12,874 $16,824 $37,829 $102,594 
Operating expenses61,039 
Foreign exchange gain, interest expense and other income, net(630)
Income tax expense8,958 
Loss from equity-method investment36 
Net income$31,931 

(1) Exclusive of depreciation and amortization expense.

Revenues, net by service type, were as follows:
Three months ended March 31,
20222021
Digital operations and solutions(1)
$180,169 $159,093 
Analytics services149,039 102,322 
Revenues, net$329,208 $261,415 

(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.








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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)



The Company attributes the revenues to regions based upon the location of its customers.
 Three months ended March 31,
 20222021
Revenues, net
United States$282,379 $224,368 
Non-United States
United Kingdom32,773 24,751 
Rest of World14,056 12,296 
Total Non-United States46,829 37,047 
Revenues, net$329,208 $261,415 

Long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets were as follows:
As of
March 31, 2022December 31, 2021
Long-lived assets
India$72,793 $79,604 
United States52,856 50,095 
Philippines23,760 22,011 
Rest of World11,348 10,990 
Long-lived assets$160,757 $162,700 

4. Revenues, net

Refer to Note 3 - Segment and Geographical Information to the unaudited consolidated financial statements for revenues disaggregated by reportable segments and geography.

Contract balances
The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers:
As of
March 31, 2022December 31, 2021
Accounts receivable, net$239,279 $194,232 
Contract assets$2,150 $2,524 
Contract liabilities:
   Deferred revenue (consideration received in advance)$19,765 $18,247 
   Consideration received for process transition activities$3,138 $2,203 

Accounts receivable includes $123,123 and $93,336 as of March 31, 2022 and December 31, 2021, 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.

Contract assets represent upfront payments such as deal signing discounts or deal signing bonuses made to customers. These costs are amortized over the expected period of the benefit and are recorded as an adjustment to transaction price and reduced from revenues. The Company’s assessment did not indicate any impairment losses on its contract assets for the periods presented.
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)




Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers. The Company also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract fulfillment costs. Consideration received from customers, if any, relating to such transition activities are classified under contract liabilities and are included within “Deferred revenues” and “Other non-current liabilities” in the unaudited consolidated balance sheets. The revenues are recognized as (or when) the performance obligation is fulfilled under the contract with customer.

Revenue recognized during the three months ended March 31, 2022 and 2021, which was included in the contract liabilities balance at the beginning of the respective periods:

 Three months ended March 31,
20222021
Deferred revenue (consideration received in advance)
$9,564 $23,621 
Consideration received for process transition activities
$366 $679 
Contract acquisition and fulfillment costs
The following table provides details of the Company’s contract acquisition and fulfillment costs:
Contract Acquisition CostsContract Fulfillment Costs
Quarter EndedYear EndedQuarter EndedYear Ended
March 31, 2022March 31, 2021December 31, 2021March 31, 2022March 31, 2021December 31, 2021
Opening Balance$511 $1,027 $1,027 $5,795 $5,631 $5,631 
Additions547  277 2,177 6 3,742 
Amortization(131)(242)(793)(537)(1,218)(3,578)
Closing Balance$927 $785 $511 $7,435 $4,419 $5,795 

There was no impairment for contract acquisition and contract fulfillment costs as of March 31, 2022 and December 31, 2021. The capitalized costs are amortized over the expected period of benefit of the contract.

Allowance 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 and estimates relating to the possible effects resulting from COVID-19.

As of
March 31, 2022December 31, 2021
Accounts receivable, including unbilled receivables$239,867 $194,805 
Less: Allowance for expected credit losses(588)(573)
Accounts receivable, net$239,279 $194,232 




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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)



The movement in “Allowance for expected credit losses” on customer balances was as follows:
Three months endedYear ended
March 31, 2022March 31, 2021December 31, 2021
Balance at the beginning of the period$573 $1,189 $1,189 
Additions / (reductions) during the period172 50 (496)
Reductions due to write-off of Accounts Receivables(158)(60)(129)
Translation adjustment1 4 9 
Balance at the end of the period$588 $1,183 $573 
5. 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 each period. Diluted earnings per share is computed using the weighted average number of common shares plus the potentially dilutive effect of common stock equivalents (outstanding stock options, restricted stock and restricted stock units) issued and outstanding at the reporting date, and an assumed conversion premium of outstanding convertible notes, using the treasury stock method (as discussed further in the subsequent paragraph). Common stock equivalents that are anti-dilutive are excluded from the computation of weighted average shares outstanding. 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.

In 2021, diluted weighted-average shares outstanding was affected by the treatment of the Company's 3.5% per annum Convertible Senior Notes due October 1, 2024 (the “Notes”). The Company had a choice to settle the Notes in cash, shares or any combination of the two. The Company had the ability to settle the principal balance of the Notes in cash, and as such, the Company applied the treasury stock method. The dilution related to the conversion premium, if any, of the Notes is included in the calculation of diluted weighted-average shares outstanding for the portion of the period until actual settlement and to the extent the issuance is dilutive based on the average stock price during the reporting period being greater than the conversion price of $75. During the third quarter of 2021, the Company settled the Notes by electing a combination of cash and shares of the Company’s common stock and as such included the count of shares issued on settlement in the calculation of basic earnings per share for the portion of the period outstanding.

The following table sets forth the computation of basic and diluted earnings per share:
 Three months ended March 31,
 20222021
Numerators:
Net income$36,178 $31,931 
Denominators:
Basic weighted average common shares outstanding33,442,038 33,734,118 
Dilutive effect of share based awards452,830 342,993 
Dilutive effect of conversion premium on the Notes 241,207 
Diluted weighted average common shares outstanding33,894,868 34,318,318 
Earnings per share attributable to ExlService Holdings Inc. stockholders:
Basic$1.08 $0.95 
Diluted$1.07 $0.93 
Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share1,082  


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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)



6. Cash, Cash Equivalents and Restricted Cash

For the purposes of the unaudited statements of cash flows, cash, cash equivalents and restricted cash comprise of the following:
 As of
 March 31, 2022March 31, 2021December 31, 2021
Cash and cash equivalents$106,540 $177,121 $135,337 
Restricted cash (current)6,274 5,295 6,174 
Restricted cash (non-current)2,255 2,298 2,299 
Cash, cash equivalents and restricted cash$115,069 $184,714 $143,810 
7. Other Income, net
Other income, net consists of the following:
Three months ended March 31,
20222021
Gain on sale and mark-to-market of mutual funds and money market funds$1,236 $1,103 
Interest and dividend income1,370 602 
Others, net(195)(295)
Other income, net$2,411 $1,410 
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)



8. Property and Equipment, net
Property and equipment, net consists of the following:
Estimated useful livesAs of
(Years)March 31, 2022December 31, 2021
Owned Assets:
Network equipment and computers
3-5
$122,887 $116,023 
Software
3-5
106,947 101,884 
Leasehold improvements
3-8
45,853 46,401 
Office furniture and equipment
3-8
22,003 22,302 
Motor vehicles
2-5
681 693 
Buildings301,049 1,070 
Land687 700 
Capital work in progress5,812 10,288 
305,919 299,361 
Less: Accumulated depreciation and amortization(220,662)(213,699)
$85,257 $85,662 
Right-of-use assets under finance leases:*
Network equipment and computers$90 $91 
Leasehold improvements1,105 1,229 
Office furniture and equipment711 787 
Motor vehicles583 578 
2,489 2,685 
Less: Accumulated depreciation and amortization(2,136)(2,339)
$353 $346 
Property and equipment, net$85,610 $86,008 

*Depreciation on assets held under finance leases are computed using the straight-line method over the shorter of the assets estimated useful lives or the lease term.

Capital work in progress represents advances paid towards acquisition of property and equipment and costs incurred on internally developed software not yet ready to be placed in service.

During the three months ended March 31, 2022, there were no changes in estimated useful lives of property and equipment during the ordinary course of operations.

The depreciation and amortization expense, excluding amortization of acquisition-related intangibles, recognized in the unaudited consolidated statements of income was as follows:
Three months ended March 31,
20222021
Depreciation and amortization expense$9,116 $8,740 

The effect of foreign exchange gain upon settlement of cash flow hedges recorded under depreciation and amortization, was as follows:
Three months ended March 31,
20222021
Effect of foreign exchange gain$67 $165 
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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)




Internally developed software costs, included under Software, was as follows:
As of
March 31, 2022December 31, 2021
Cost$25,977 $19,289 
Less : Accumulated amortization(11,265)(10,226)
Internally developed software, net$14,712 $9,063 

The amortization expense on internally developed software recognized in the unaudited consolidated statements of income was as follows:
Three months ended March 31
20222021
Amortization expense$1,033 $1,024 

As of March 31, 2022 and December 31, 2021, 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 assurances 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, and the asset’s residual value, if any. It is reasonably possible that the judgments and estimates described above could change in future periods. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on undiscounted cash flows is subject to significant judgment and may cause variability in the Company’s assessment of the existence of any impairment.

9. Business Combination, Goodwill and Intangible Assets
Clairvoyant AI Inc.

On December 16, 2021, the Company, through its wholly owned subsidiary ExlService.com, LLC (“Buyer”), completed the acquisition of Clairvoyant, a Delaware corporation, pursuant to an equity securities purchase agreement dated December 16, 2021 (the "Purchase Agreement"). The Company purchased 100% of the issued and outstanding equity securities in Clairvoyant.

Clairvoyant is a global technology consulting and services company that helps organizations in their business transformation by maximizing the value of data through actionable insights. It provides data engineering, analytics, machine learning, product engineering, and cloud-based solutions. The acquisition strengthens the Company’s capabilities by adding additional expertise in data engineering and cloud enablement, further supporting its clients in insurance, healthcare, banking and financial services, and retail.

The base purchase consideration payable at Closing was $80,080, excluding cash and cash equivalents acquired, debt and other estimated post-closing adjustments. As of March 31, 2022 and December 31, 2021, of the total purchase consideration, the Company has paid $78,198 and $76,831, respectively, net of cash and cash equivalents acquired. The Purchase Agreement also allows sellers the ability to earn up to $20,000 in earn-out payments, based on the achievement of certain performance goals by Clairvoyant during 2022 and 2023 calendar years. The earn-out has an estimated fair value of $9,000 and has been presented as contingent consideration under “Other non-current liabilities” and “Accrued expenses and other current liabilities,” as applicable, as of March 31, 2022 and December 31, 2021 in the consolidated balance sheets. A portion of the purchase consideration otherwise payable was placed into escrow as security for the post-closing working capital adjustments and the indemnification obligations under the Purchase Agreement. To finance the acquisition at Closing, the Company utilized its revolving Credit Facility in the amount of $75,000 and paid the balance with available cash on hand.

The Company accounted for the business combination using the acquisition method of accounting. The measurement period will not exceed one year from the acquisition date.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)



Pursuant to the Company’s business combinations accounting policy, the aggregate purchase consideration for Clairvoyant was allocated to identifiable net tangible and intangible assets based upon their preliminary fair values. The excess of the estimated purchase consideration over fair value of identifiable net tangible and intangible assets was recorded as goodwill. In order to allocate the consideration transferred for Clairvoyant, the fair values of all identifiable assets and liabilities must be established. For accounting and financial reporting purposes, fair value is defined under ASC No. 820, Fair Value Measurement and Disclosure, as the price that would be received upon sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. Use of different estimates and judgments could yield different results.

The Company’s preliminary purchase price allocation to net tangible and intangible assets of Clairvoyant as of December 16, 2021 was as follows:

Assets:
Cash and cash equivalents
$5,606 
Accounts receivable, net
9,042 
Other current assets
352 
Property and equipment, net
399 
Intangible assets, net
Customer relationships
31,600 
Developed technology
2,070 
Trade names and trademarks
300 
Non-compete agreements
300 
Other assets
216 
Total assets
$49,885 
Liabilities:
Accounts payable
$(1,241)
Accrued expenses and other current liabilities
(4,833)
Deferred tax liabilities
(9,383)
Other non-current liabilities
(1,226)
Total liabilities
(16,683)
Net assets acquired
33,202 
Goodwill
56,373 
Total purchase consideration*
$89,575 

* Includes contingent consideration of $9,000 recognized at fair value.

The fair value of assets acquired and liabilities assumed from the acquisition of Clairvoyant is based on a preliminary valuation and, as such, the Company's estimates and assumptions are subject to change within the measurement period. The primary areas of the purchase price allocation that are not yet finalized are related to post-closing working capital and debt adjustments and reflect management’s best estimates and assumptions as of the reporting date.

During the three months ended March 31, 2022, the Company recognized measurement period adjustments, which led to increase in goodwill in an amount of $1,148. The adjustments related to measurement of favorable lease intangibles of $160 included under “other assets” and reserves for various tax matters of $988 included under “other current liabilities.”

The fair values of customer relationships were determined by using an “income approach,” specifically the Multi-Period Excess Earnings Method. The customer relationship assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 7 years.

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EXLSERVICE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2022
(In thousands, except per share amount and share count)



The fair values of the developed technology intangible assets were determined by using the “cost approach,” specifically the replacement cost method. The technology assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 3 years.

The goodwill recognized represents the acquired capabilities, operating synergies and other benefits expected to result from combining the acquired operations with the Company’s existing operations. The amount of goodwill recognized from Clairvoyant’s acquisition is not deductible for tax purposes. The goodwill has been assigned to the Company’s Analytics reportable segment based upon the Company’s assessment of nature of services rendered by Clairvoyant.

Acquisition-related costs are being expensed as incurred and are included in general and administrative expenses in the consolidated statements of income. The Company recognized acquisition-related costs of $134 and $761 during the three months ended and year ended March 31, 2022 and December 31, 2021, respectively.

The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition. The acquisition did not materially impact the Company's financial position, results of operations or cash flows, and therefore, the Company has not provided supplemental pro forma results.

Goodwill

The following table sets forth details of changes in goodwill by reportable segment of the Company:
InsuranceHealthcareEmerging BusinessAnalyticsTotal
Balance at January 1, 2022$50,428 $21,942 $49,020 $282,512 $