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exls-20220930

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, 2022


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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-33089

_________________________________________________________

EXLSERVICE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________


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

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

(212) 277-7100

(Registrant’s telephone number, including area code)


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

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

None

________________________________________________________

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 25, 2022, there were 33,064,611 shares of the registrant’s common stock outstanding, par value $0.001 per share.

Table of Contents

TABLE OF CONTENTS



		PAGE
ITEM
	Part I. Financial Information	3

1.	FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021	5
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021	6
	Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2022 and 2021	7
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	9
	Notes to Consolidated Financial Statements	10

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

3.	Quantitative and Qualitative Disclosures About Market Risk	61

4.	Controls and Procedures	61

	Part II. Other Information	61

1.	Legal Proceedings	61

1A.	Risk Factors	61

2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

3.	Defaults Upon Senior Securities	62

4.	Mine Safety Disclosures	62

5.	Other Information	62

6.	Exhibits	63

Signatures		64

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except per share amount and share count)


	As of
	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	89,262	$	135,337
Short-term investments	172,889		179,430
Restricted cash	7,013		6,174
Accounts receivable, net	256,911		194,232
Other current assets	54,509		62,971
Total current assets	580,584		578,144
Property and equipment, net	79,933		86,008
Operating lease right-of-use assets	61,966		76,692
Restricted cash	1,996		2,299
Deferred tax assets, net	54,898		21,404
Intangible assets, net	69,008		81,082
Goodwill	405,781		403,902
Long-term investments	34,724		3,190
Other assets	29,838		30,183
Total assets	$	1,318,728	$	1,282,904
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,487	$	5,647
Current portion of long-term borrowings	35,000		260,016
Deferred revenue	19,279		20,000
Accrued employee costs	92,252		114,285
Accrued expenses and other current liabilities	96,800		76,350
Current portion of operating lease liabilities	16,740		18,487
Income taxes payable, net	23,410		901
Total current liabilities	286,968		495,686
Long-term borrowings, less current portion	235,000		—
Operating lease liabilities, less current portion	54,174		68,506
Deferred tax liabilities, net	759		965
Other non-current liabilities	37,243		24,591
Total liabilities	614,144		589,748
Commitments and contingencies (Refer to Note 25)
ExlService Holdings, Inc. Stockholders’ equity:
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued	—		—
Common stock, $0.001 par value; 100,000,000 shares authorized, 39,798,956 shares issued and 33,051,021 shares outstanding as of September 30, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021	40		40
Additional paid-in capital	432,492		395,742
Retained earnings	867,256		756,137

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Accumulated other comprehensive loss	(154,203)		(89,474)
Total including shares held in treasury	1,145,585		1,062,445
Less: 6,747,935 shares as of September 30, 2022 and 6,216,858 shares as of December 31, 2021, held in treasury, at cost	(441,001)		(369,289)
Total stockholders’ equity	704,584		693,156


Total liabilities and stockholders’ equity	$	1,318,728	$	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 September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Revenues, net	$	361,351	$	290,325	$	1,037,341	$	826,804
Cost of revenues(1)	230,462		177,743		659,185		507,265
Gross profit(1)	130,889		112,582		378,156		319,539
Operating expenses:
General and administrative expenses	42,519		36,167		122,898		103,369
Selling and marketing expenses	23,879		21,672		72,034		59,631
Depreciation and amortization expense	14,380		12,305		42,057		36,716

Total operating expenses	80,778		70,144		236,989		199,716
Income from operations	50,111		42,438		141,167		119,823
Foreign exchange gain, net	1,504		1,171		4,683		2,958
Interest expense	(2,442)		(1,810)		(4,820)		(6,804)
Other income, net	2,261		1,721		4,498		5,346
Loss on settlement of convertible notes	—		(12,845)		—		(12,845)
Income before income tax expense and earnings from equity affiliates	51,434		30,675		145,528		108,478
Income tax expense	12,447		4,196		34,774		22,019
Income before earnings from equity affiliates	38,987		26,479		110,754		86,459
Gain from equity-method investment	108		28		365		—
Net income attributable to ExlService Holdings, Inc. stockholders	$	39,095	$	26,507	$	111,119	$	86,459
Earnings per share attributable to ExlService Holdings, Inc. stockholders:
Basic	$	1.18	$	0.79	$	3.33	$	2.57
Diluted	$	1.16	$	0.77	$	3.28	$	2.52
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:
Basic	33,237,833		33,449,311		33,360,346		33,583,791
Diluted	33,777,749		34,305,893		33,833,637		34,336,950

(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,
	2022		2021		2022		2021
Net income	$	39,095	$	26,507	$	111,119	$	86,459
Other comprehensive income/(loss):
Unrealized gain/(loss) on cash flow hedges	(13,489)		261		(28,638)		(42)
Loss on net investment hedges	—		—		—		(1,134)
Foreign currency translation loss	(19,144)		(3,789)		(49,371)		(10,475)
Reclassification adjustments
(Gain)/loss on cash flow hedges(1)	1,567		(2,150)		(1,881)		(7,845)
Retirement benefits(2)	147		178		451		533
Income tax effects relating to above(3)	10,090		(12)		14,710		1,690
Total other comprehensive loss	(20,829)		(5,512)		(64,729)		(17,273)
Total comprehensive income	$	18,266	$	20,995	$	46,390	$	69,186

(1)These are reclassified to net income and are included in cost of revenues, operating expenses and interest expense, as applicable in the unaudited consolidated statements of income. Refer to Note 17 - 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 20 - 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 loss. Refer to Note 22 - 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, 2022 and 2021

(In thousands, except share count)


	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, 2022	39,795,161	$	40	$	420,306	$	828,161	$	(133,374)	(6,671,126)	$	(429,480)	$	685,653
Stock issued against stock-based compensation plans	3,795	—		—		—		—		—	—		—
Stock-based compensation	—	—		12,186		—		—		—	—		12,186
Acquisition of treasury stock	—	—		—		—		—		(76,809)	(11,521)		(11,521)

Other comprehensive loss	—	—		—		—		(20,829)		—	—		(20,829)
Net income	—	—		—		39,095		—		—	—		39,095
Balance as of September 30, 2022	39,798,956	$	40	$	432,492	$	867,256	$	(154,203)	(6,747,935)	$	(441,001)	$	704,584


	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, 2021	39,283,853	$	39	$	439,051	$	701,331	$	(86,745)	(6,034,144)	$	(325,662)	$	728,014
Stock issued against stock-based compensation plans	28,372	—		536		—		—		—	—		536
Stock-based compensation	—	—		10,894		—		—		—	—		10,894
Acquisition of treasury stock	—	—		—		—		—		(244,580)	(28,196)		(28,196)
Issuance of treasury stock	—	—		19,436		—		—		310,394	17,306		36,742
Settlement of convertible notes	—	—		(84,000)		—		—		—	—		(84,000)
Other comprehensive loss	—	—		—		—		(5,512)		—	—		(5,512)
Net income	—	—		—		26,507		—		—	—		26,507
Balance as of September 30, 2021	39,312,225	$	39	$	385,917	$	727,838	$	(92,257)	(5,968,330)	$	(336,552)	$	684,985

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EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the nine months ended September 30, 2022 and 2021

(In thousands, except share count)


	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, 2022	39,508,340	$	40	$	395,742	$	756,137	$	(89,474)	(6,216,858)	$	(369,289)	$	693,156
Stock issued against stock-based compensation plans	290,616	—		—		—		—		—	—		—
Stock-based compensation	—	—		36,750		—		—		—	—		36,750
Acquisition of treasury stock	—	—		—		—		—		(531,077)	(71,712)		(71,712)


Other comprehensive loss	—	—		—		—		(64,729)		—	—		(64,729)
Net income	—	—		—		111,119		—		—	—		111,119
Balance as of September 30, 2022	39,798,956	$	40	$	432,492	$	867,256	$	(154,203)	(6,747,935)	$	(441,001)	$	704,584


	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, 2021	38,968,052	$	39	$	420,976	$	641,379	$	(74,984)	(5,408,618)	$	(268,238)	$	719,172
Stock issued against stock-based compensation plans	344,173	—		709		—		—		—	—		709
Stock-based compensation	—	—		28,796		—		—		—	—		28,796
Acquisition of treasury stock	—	—		—		—		—		(870,106)	(85,620)		(85,620)
Issuance of treasury stock	—	—		19,436		—		—		310,394	17,306		36,742
Settlement of convertible notes	—	—		(84,000)		—		—		—	—		(84,000)
Other comprehensive loss	—	—		—		—		(17,273)		—	—		(17,273)
Net income	—	—		—		86,459		—		—	—		86,459
Balance as of September 30, 2021	39,312,225	$	39	$	385,917	$	727,838	$	(92,257)	(5,968,330)	$	(336,552)	$	684,985

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,
	2022		2021
Cash flows from operating activities:
Net income	$	111,119	$	86,459
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	41,993		37,159
Stock-based compensation expense	36,750		28,796
Amortization of operating lease right-of-use assets	17,365		20,012
Unrealized (gain)/loss on investments	(475)		5,987
Unrealized foreign currency exchange gain, net	(16,813)		(3,799)
Deferred income tax benefit	(5,621)		(17,374)
Allowance / (reversal) of expected credit losses	177		(405)
Fair value changes in contingent consideration	1,000		—
Loss on settlement of convertible notes	—		12,845
Amortization of non-cash interest expense related to convertible senior notes	—		1,795

Others, net	1,240		590
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(68,066)		(44,871)
Other current assets	2,553		3,033
Income taxes payable, net	4,043		(5,685)
Other assets	(8,428)		2,485
Accounts payable	(1,927)		(2,333)
Deferred revenue	2,103		(21,196)
Accrued employee costs	(11,778)		26,664
Accrued expenses and other liabilities	13,685		3,254
Operating lease liabilities	(17,831)		(19,654)
Net cash provided by operating activities	101,089		113,762

Cash flows from investing activities:
Purchases of property and equipment	(32,099)		(29,026)
Proceeds from sale of property and equipment	197		825


Business acquisition (net of cash and cash equivalents acquired)	(3,322)		—
Purchases of investments	(164,313)		(76,500)
Proceeds from redemption of investments	124,355		83,183
Net cash used for investing activities	(75,182)		(21,518)

Cash flows from financing activities:
Principal payments of finance lease liabilities	(108)		(157)
Proceeds from borrowings	35,000		225,000
Repayments of borrowings	(25,000)		(329,000)

Acquisition of treasury stock	(71,712)		(85,620)
Proceeds from exercise of stock options	—		710
Net cash used for financing activities	(61,820)		(189,067)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(9,626)		(5,003)
Net decrease in cash, cash equivalents and restricted cash	(45,539)		(101,826)
Cash, cash equivalents and restricted cash at the beginning of the period	143,810		225,519
Cash, cash equivalents and restricted cash at the end of the period	$	98,271	$	123,693

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	4,982	$	5,833
Income taxes, net of refunds	$	35,192	$	31,087
Supplemental disclosure of non-cash investing and financing activities:
Settlement of portion of convertible notes through issuance of treasury stock	$	—	$	36,742
Assets acquired under finance lease	$	218	$	79

See accompanying notes to unaudited consolidated financial statements.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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.

For purposes of comparability, certain prior period amounts have been reclassified to conform to the current year presentation in accordance with U.S. GAAP.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

(In thousands, except per share amount and share count)

(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, 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)Investments

The Company’s short-term investments consist of investments in mutual funds and those term deposits with more than three months of original maturity and less than twelve months of remaining maturity as of the reporting date, while long-term investments consist of term deposits with more than twelve months of remaining maturity as of the reporting date.

The Company’s investments in term deposits with financial institutions are measured and recognized at amortized cost. Interest earned on such investments is included in other income, net.

The Company’s mutual fund investments are in debt funds in India. These investments are accounted for in accordance with the fair value option under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments. The fair value is represented by original cost on the acquisition date and the net asset value (“NAV”) as quoted, at each reporting period and any changes in fair value are included in other income, net. Gain or loss on the disposal of these investments is calculated using the weighted average cost of the investments sold and is included in other income, net.

(d)Derivative Financial Instruments

In the normal course of business, the Company uses derivative instruments to mitigate the exposure from risk of foreign currency and interest rate fluctuations. The Company enters into foreign currency forward contracts to hedge cash flow risks from forecasted transactions denominated in certain foreign currencies, and interest rate swaps to hedge cash flow risks from its revolving credit facility having variable interest rate obligations. These contracts adhere to the Company’s treasury operations’ objectives and policies to qualify as cash flow hedges, and are with counterparties that are highly rated financial institutions.

Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income/(loss) (“AOCI”), net of tax. The resultant foreign exchange gain/(loss) upon settlement of cash flow hedges of a forecast transaction are recorded in the unaudited consolidated statements of income along with the underlying hedged item in the same line as part of “Cost of revenues,” “General and administrative expenses,” “Selling and marketing expenses,” and “Depreciation and amortization expense,” as applicable. The accumulated changes in the fair value of interest rate swaps recognized in AOCI are reclassed to the unaudited consolidated statements of income and are presented as a part of “Interest expense” over the term of the contract.

The Company evaluates hedge effectiveness of cash flow hedges at the time a contract is entered into as well as on an ongoing basis. For hedge relationships that are discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related derivative amounts recorded in AOCI are reclassified to earnings.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

(In thousands, except per share amount and share count)

The Company also uses derivatives instruments consisting of foreign currency forward contracts to economically hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the functional currency, against the risk of foreign currency fluctuations associated with remeasurement of such assets and liabilities to functional currency. These derivatives do not qualify as fair value hedges under ASC 815. Changes in the fair value of these derivatives are recognized in the unaudited consolidated statements of income and are included in foreign exchange gain/(loss).

The Company also uses foreign currency forward contracts designated as net investment hedges to hedge the foreign currency risks related to the Company's investment in foreign subsidiaries. Gains and losses on these forward contracts are recognized in AOCI as part of the foreign currency translation adjustment. All of the assets and liabilities related to the Company’s forward contracts are subject to master netting arrangements with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. The Company has presented all of the assets and liabilities related to these contracts on a gross basis, with no offsets, in its consolidated statements of financial position. There is no financial collateral (including cash collateral) provided or received by the Company related to these contracts.

(e)Recent Accounting Pronouncements

In October 2021, FASB issued Accounting Standard Update (“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.

(f)Recently adopted Accounting Pronouncements

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 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 adoption of this ASU did not have a material impact on the Company’s unaudited consolidated financial statements.

3. Segment and Geographical Information

The Company is a provider of data analytics and digital operations and solutions.

The Company manages and reports financial information through its four reportable segments: Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions. These business units develop client-specific solutions, build capabilities, maintain a unified go-to-market approach and are integrally responsible for service delivery, customer satisfaction, growth and profitability.

The 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.

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

(In thousands, except per share amount and share count)

The December 2021 and June 2022 acquisition of Clairvoyant AI Inc. (“Clairvoyant”) and Inbound Media Group, LLC (“Inbound”), respectively, are both included in the Analytics reportable segment. Refer to Note 10 - Business Combinations, Goodwill and Intangible Assets to the unaudited consolidated financial statements for further details.

Revenues and cost of revenues for the three months ended September 30, 2022 and 2021, respectively, for each of the reportable segments, are as follows:


	Three months ended September 30, 2022
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	116,198	$	22,820	$	56,035	$	166,298	$	361,351
Cost of revenues(1)	75,041		17,119		32,363		105,939		230,462
Gross profit(1)	$	41,157	$	5,701	$	23,672	$	60,359	$	130,889
Operating expenses									80,778
Foreign exchange gain, interest expense and other income, net									1,323
Income tax expense									12,447
Gain from equity-method investment									108
Net income									$	39,095

(1) Exclusive of depreciation and amortization expense.


	Three months ended September 30, 2021
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	98,008	$	27,341	$	44,513	$	120,463	$	290,325
Cost of revenues(1)	61,490		17,057		23,660		75,536		177,743
Gross profit(1)	$	36,518	$	10,284	$	20,853	$	44,927	$	112,582
Operating expenses									70,144
Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net									(11,763)
Income tax expense									4,196
Gain from equity-method investment									28
Net income									$	26,507

(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the nine months ended September 30, 2022 and 2021, respectively, for each of the reportable segments, are as follows:

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EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

(In thousands, except per share amount and share count)


	Nine months ended September 30, 2022
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	328,021	$	72,027	$	160,655	$	476,638	$	1,037,341
Cost of revenues(1)	210,768		52,464		92,790		303,163		659,185
Gross profit(1)	$	117,253	$	19,563	$	67,865	$	173,475	$	378,156
Operating expenses									236,989
Foreign exchange gain, interest expense and other income, net									4,361
Income tax expense									34,774
Gain from equity-method investment									365
Net income									$	111,119

(1) Exclusive of depreciation and amortization expense.


	Nine months ended September 30, 2021
	Insurance		Healthcare		Emerging Business		Analytics		Total

Revenues, net	$	283,887	$	85,856	$	122,871	$	334,190	$	826,804
Cost of revenues(1)	176,942		52,133		66,850		211,340		507,265
Gross profit(1)	$	106,945	$	33,723	$	56,021	$	122,850	$	319,539
Operating expenses									199,716
Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net									(11,345)
Income tax expense									22,019

Net income									$	86,459

(1) Exclusive of depreciation and amortization expense.

Revenues, net by service type, were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Digital operations and solutions(1)	$	195,053	$	169,862	$	560,703	$	492,614
Analytics services	166,298		120,463		476,638		334,190
Revenues, net	$	361,351	$	290,325	$