ExlService (EXLS) - 2025 Q2 - Quarterly Report

Part I. Financial Information This section presents ExlService Holdings, Inc.'s unaudited consolidated financial statements and management's analysis ITEM 1. Financial Statements (Unaudited) This section presents ExlService Holdings, Inc.'s unaudited consolidated financial statements and notes, detailing financial position Consolidated Balance Sheets This section provides consolidated balance sheets, detailing assets, liabilities, and equity Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2024 | June 30, 2025 | Change | % Change | | :----------------------------------- | :----------- | :------------ | :----- | :------- | | Total Assets | $1,618,403 | $1,708,503 | $90,100 | 5.6% | | Total Liabilities | $688,541 | $647,553 | $(40,988) | (5.9)% | | Total Stockholders' Equity | $929,862 | $1,060,950 | $131,088 | 14.1% | | Cash and cash equivalents | $153,355 | $149,134 | $(4,221) | (2.7)% | | Accounts receivable, net | $304,322 | $345,470 | $41,148 | 13.5% | | Long-term borrowings, less current portion | $283,598 | $255,155 | $(28,443) | (10.0)% | | Retained earnings | $1,281,960 | $1,414,572 | $132,612 | 10.3% | | Accumulated other comprehensive loss | $(154,722) | $(134,434) | $20,288 | (13.1)% | Consolidated Statements of Income This section presents consolidated statements of income, detailing revenues, expenses, and net income for the reported periods Consolidated Statements of Income Highlights (in thousands, except per share) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :--------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Revenues, net | $514,460 | $448,366 | 14.7% | $1,015,479 | $884,873 | 14.8% | | Gross profit | $194,188 | $166,260 | 16.8% | $387,502 | $329,343 | 17.7% | | Income from operations | $81,138 | $61,449 | 32.0% | $159,553 | $122,973 | 29.7% | | Net income | $66,051 | $45,825 | 44.1% | $132,612 | $94,588 | 40.2% | | Basic EPS | $0.41 | $0.28 | 46.4% | $0.82 | $0.58 | 41.4% | | Diluted EPS | $0.40 | $0.28 | 42.9% | $0.81 | $0.57 | 42.1% | Consolidated Statements of Comprehensive Income This section presents consolidated statements of comprehensive income, including net income and other comprehensive income Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :----------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Net income | $66,051 | $45,825 | 44.1% | $132,612 | $94,588 | 40.2% | | Total other comprehensive income/(loss) | $8,353 | $(5,672) | N/A | $20,288 | $(9,068) | N/A | | Total comprehensive income | $74,404 | $40,153 | 85.3% | $152,900 | $85,520 | 78.8% | - Other comprehensive income for the six months ended June 30, 2025, was $20.3 million, a significant improvement from a loss of $9.1 million in the prior year, primarily due to unrealized gains on cash flow hedges and positive currency translation adjustments[16][108] Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, including common stock, retained earnings, and AOCI Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Dec 31, 2024 | June 30, 2025 | Change (6 months) | | :----------------------------------- | :----------- | :------------ | :---------------- | | Common Stock (Amount) | $206 | $207 | $1 | | Additional Paid-in Capital | $588,583 | $625,984 | $37,401 | | Retained Earnings | $1,281,960 | $1,414,572 | $132,612 | | Accumulated Other Comprehensive Income/(Loss) | $(154,722) | $(134,434) | $20,288 | | Treasury Stock (Amount) | $(786,165) | $(845,379) | $(59,214) | | Total Stockholders' Equity | $929,862 | $1,060,950 | $131,088 | - Total stockholders' equity increased by $131.1 million (14.1%) from December 31, 2024, to June 30, 2025, primarily due to net income and other comprehensive income[10][23] - Treasury stock acquisitions for the six months ended June 30, 2025, totaled $59.2 million, compared to $134.6 million in the prior year period[23] Consolidated Statements of Cash Flows This section presents consolidated cash flow statements, categorizing movements from operating, investing, and financing Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :----------------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Net cash provided by operating activities | $112,620 | $53,037 | $59,583 | 112.3% | | Net cash used for investing activities | $(36,287) | $(43,249) | $6,962 | (16.1)% | | Net cash used for financing activities | $(84,552) | $(27,305) | $(57,247) | 209.7% | | Cash, cash equivalents and restricted cash at end of period | $170,525 | $121,654 | $48,871 | 40.2% | - Net cash provided by operating activities significantly increased by 112.3% to $112.6 million for the six months ended June 30, 2025, reflecting higher cash earnings and lower working capital needs[27][286] - Net cash used for financing activities increased by 209.7% to $84.6 million, primarily due to net repayments of borrowings, partially offset by lower purchases of treasury stock[27][287] Notes to Consolidated Financial Statements This section provides detailed explanatory notes supporting consolidated financial statements and accounting policies Note 1. Organization This note describes ExlService Holdings, Inc.'s global operations as a data and AI company - ExlService Holdings, Inc. is a global data and AI company offering services and solutions to reinvent client business models, drive better outcomes, and unlock growth[29] - The Company serves leading corporations in industries including insurance, healthcare and life sciences, banking and capital markets, retail, communications and media, and energy and infrastructure[29] - Clients are located principally in the United States of America and the United Kingdom[30] Note 2. Summary of Significant Accounting Policies This note outlines key accounting principles and policies for the unaudited consolidated financial statements - Unaudited consolidated financial statements are prepared in conformity with U.S. GAAP for interim financial information[31] - Operational and structural changes implemented in Q1 2025 led to new segment reporting (Note 3), but did not affect the Company's unaudited consolidated statements of income, balance sheets, or cash flows[34] - The Company is evaluating the impact of new ASUs on income tax disclosures (ASU 2023-09) and expense disaggregation (ASU 2024-03), with ASU 2024-01 (Stock Compensation) early adopted in 2024 without material impact[39][40][41] Note 3. Segment Information This note details the Company's realigned reportable segments and revenue presentation by service type and geography - In Q1 2025, the Company realigned its reportable segments to Industry Market Units (IMUs) and Strategic Growth Units to enhance client value and expand global reach[34][43] - The new reportable segments are Insurance, Healthcare and Life Sciences, Banking, Capital Markets and Diversified Industries, and International Growth Markets[44] - Revenues are now presented by service type (data and AI-led, digital operations) and geographical regions (North America, United Kingdom & Europe, and Rest of World)[48] Revenues, net by Service Type (in thousands) | Service Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :---------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Data and AI-led | $278,770 | $237,403 | 17.4% | $546,699 | $469,127 | 16.5% | | Digital operations | $235,690 | $210,963 | 11.7% | $468,780 | $415,746 | 12.7% | | Total Revenues, net | $514,460 | $448,366 | 14.7% | $1,015,479 | $884,873 | 14.8% | Revenues, net by Geographical Region (in thousands) | Region | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :------------------ | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | North America | $422,822 | $369,148 | 14.5% | $838,171 | $731,324 | 14.6% | | United Kingdom & Europe | $77,635 | $66,494 | 16.8% | $150,019 | $129,812 | 15.6% | | Rest of World | $14,003 | $12,724 | 10.1% | $27,289 | $23,737 | 15.0% | | Total Revenues, net | $514,460 | $448,366 | 14.7% | $1,015,479 | $884,873 | 14.8% | Note 4. Revenues, net and Accounts Receivable, net This note provides details on net revenues and accounts receivable, including unbilled receivables Accounts Receivable, net (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :----------- | :----- | :------- | | Accounts receivable, net | $345,470 | $304,322 | $41,148 | 13.5% | | Accounts receivable, including unbilled receivables | $350,197 | $307,850 | $42,347 | 13.7% | | Less: Allowance for expected credit losses | $(4,727) | $(3,528) | $(1,199) | 34.0% | - Unbilled receivables were $145.5 million as of June 30, 2025, and $121.8 million as of December 31, 2024[71] - No single customer accounted for more than 10% of the Company's revenues or accounts receivable[76][77] Note 5. Earnings Per Share This note presents basic and diluted earnings per share calculations for the reported periods Earnings Per Share (EPS) (in dollars) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :----------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Basic EPS | $0.41 | $0.28 | 46.4% | $0.82 | $0.58 | 41.4% | | Diluted EPS | $0.40 | $0.28 | 42.9% | $0.81 | $0.57 | 42.1% | - Net income for Q2 2025 was $66.1 million, up 44.1% YoY, and for H1 2025 was $132.6 million, up 40.2% YoY[13][78] Note 6. Other Income, net This note details the components of other income, net, including gains on investments and interest income Other Income, net (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :----------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Other income, net | $5,671 | $3,550 | 59.7% | $10,374 | $7,502 | 38.3% | | Gain on sale and fair value mark-to-market on investments | $2,259 | $1,162 | 94.4% | $4,207 | $2,178 | 93.2% | | Interest and dividend income | $2,682 | $2,375 | 12.9% | $5,307 | $4,659 | 13.9% | - The increase in other income, net, was primarily due to higher yield on investments and reversal of certain contingent liabilities[259][281] Note 7. Cash, Cash Equivalents and Restricted Cash This note provides a breakdown of cash, cash equivalents, and restricted cash balances at period end Cash, Cash Equivalents and Restricted Cash (in thousands) | Metric | June 30, 2025 | June 30, 2024 | Dec 31, 2024 | | :----------------------------------- | :------------ | :------------ | :----------- | | Cash and cash equivalents | $149,134 | $115,303 | $153,355 | | Restricted cash (current) | $11,503 | $6,351 | $9,972 | | Restricted cash (non-current) | $9,888 | $0 | $8,071 | | Total Cash, cash equivalents and restricted cash | $170,525 | $121,654 | $171,398 | - Restricted cash (current) primarily represents funds held on behalf of customers and collateral for irrevocable letters of credit[81] - Restricted cash (non-current) represents deposits with banks against bank guarantees for equipment imports and tax registrations[82] Note 8. Investments This note details the Company's short-term and long-term investments Investments (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | Change | % Change | | :-------------------- | :------------ | :----------- | :----- | :------- | | Short-term investments | $204,160 | $187,223 | $16,937 | 9.0% | | Mutual funds | $120,809 | $108,251 | $12,558 | 11.6% | | Term deposits | $83,351 | $78,972 | $4,379 | 5.5% | | Long-term investments | $7,516 | $13,972 | $(6,456) | (46.2)% | | Term deposits | $2,489 | $9,295 | $(6,806) | (73.2)% | | Investment in equity affiliate | $5,027 | $4,677 | $350 | 7.5% | Note 9. Property and Equipment, net This note provides details on property and equipment, net, including depreciation and software Property and Equipment, net (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | Change | % Change | | :----------------------------------- | :------------ | :----------- | :----- | :------- | | Property and equipment, gross | $387,987 | $356,060 | $31,927 | 9.0% | | Less: Accumulated depreciation and amortization | $(273,884) | $(254,223) | $(19,661) | 7.7% | | Property and equipment, net | $114,103 | $101,837 | $12,266 | 12.0% | | Internally developed software, net | $19,468 | $22,204 | $(2,736) | (12.3)% | Depreciation and Amortization Expense (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :----------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Depreciation and amortization expense (excluding acquisition-related intangibles) | $10,778 | $9,833 | 9.6% | $21,089 | $19,099 | 10.4% | | Amortization expense on internally developed software | $2,743 | $2,927 | (6.3)% | $5,483 | $5,447 | 0.7% | Note 10. Goodwill and Other Intangible Assets This note details goodwill and other intangible assets, including re-allocation and amortization Goodwill and Other Intangible Assets (in thousands) | Metric | Dec 31, 2024 | June 30, 2025 | Change | % Change | | :-------------------------- | :----------- | :------------ | :----- | :------- | | Goodwill | $420,387 | $420,573 | $186 | 0.0% | | Other intangible assets, net | $49,331 | $42,825 | $(6,506) | (13.2)% | - Goodwill was re-allocated to reporting units in Q1 2025 due to segment realignment; no impairment was found after testing[90][91][92] Amortization Expense for Other Intangible Assets (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Amortization expense | $3,277 | $3,077 | 6.5% | $6,523 | $6,157 | 5.9% | Note 11. Other Current Assets This note provides a breakdown of other current assets, including advance income tax and derivative instruments Other Current Assets (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | Change | % Change | | :-------------------------- | :------------ | :----------- | :----- | :------- | | Other current assets | $148,049 | $140,317 | $7,732 | 5.5% | | Advance income tax, net | $45,230 | $49,377 | $(4,147) | (8.4)% | | Derivative instruments | $8,195 | $1,973 | $6,222 | 315.4% | Note 12. Other Assets This note details other non-current assets, including deferred contract fulfillment costs and derivatives Other Assets (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | Change | % Change | | :-------------------------- | :------------ | :----------- | :----- | :------- | | Other assets | $64,991 | $56,085 | $8,906 | 15.9% | | Deferred contract fulfillment costs | $33,711 | $31,741 | $1,970 | 6.2% | | Derivative instruments | $3,615 | $852 | $2,763 | 324.3% | Note 13. Accrued Expenses and Other Current Liabilities This note provides a breakdown of accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | Change | % Change | | :----------------------------------- | :------------ | :----------- | :----- | :------- | | Accrued expenses and other current liabilities | $121,548 | $113,597 | $7,951 | 7.0% | | Accrued capital expenditures | $6,186 | $2,059 | $4,127 | 200.4% | | Derivative instruments | $4,133 | $7,454 | $(3,321) | (44.6)% | | Contingent consideration | $0 | $1,280 | $(1,280) | (100.0)% | Note 14. Other Non-Current Liabilities This note details other non-current liabilities, including deferred revenue and contingent consideration Other Non-Current Liabilities (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | Change | % Change | | :----------------------------------- | :------------ | :----------- | :----- | :------- | | Other non-current liabilities | $55,477 | $53,573 | $1,904 | 3.6% | | Deferred transition revenue | $22,762 | $18,213 | $4,549 | 25.0% | | Contingent consideration | $2,700 | $1,420 | $1,280 | 90.1% | | Derivative instruments | $772 | $4,363 | $(3,591) | (82.3)% | Note 15. Accumulated Other Comprehensive Income/(Loss) This note details changes in accumulated other comprehensive income/(loss), including unrealized gains Accumulated Other Comprehensive Income/(Loss) (AOCI) (in thousands) | Metric | Dec 31, 2024 | June 30, 2025 | Change (6 months) | | :----------------------------------- | :----------- | :------------ | :---------------- | | Balance as of period end | $(154,722) | $(134,434) | $20,288 | | Gain recognized during the period | N/A | $23,357 | N/A | | Unrealized gain on cash flow hedges | N/A | $15,424 | N/A | | Currency translation adjustments | N/A | $7,933 | N/A | - AOCI improved significantly from a loss of $154.7 million at December 31, 2024, to a loss of $134.4 million at June 30, 2025, primarily due to a $23.4 million gain recognized during the period[108] Note 16. Fair Value Measurements This note provides fair value measurements for assets and liabilities, categorized by valuation input levels Assets and Liabilities Measured at Fair Value (in thousands) | Metric | Dec 31, 2024 | June 30, 2025 | Change | % Change | | :----------------------------------- | :----------- | :------------ | :----- | :------- | | Total Assets at Fair Value | $166,001 | $183,449 | $17,448 | 10.5% | | Mutual funds (Level 1) | $108,251 | $120,809 | $12,558 | 11.6% | | Derivative financial instruments (Level 2) | $2,825 | $11,810 | $8,985 | 318.8% | | Total Liabilities at Fair Value | $14,517 | $7,605 | $(6,912) | (47.6)% | | Derivative financial instruments (Level 2) | $11,817 | $4,905 | $(6,912) | (58.5)% | | Contingent consideration (Level 3) | $2,700 | $2,700 | $0 | 0.0% | - Contingent consideration is measured using Level 3 inputs based on the Company's assessment of performance goal achievement, calculated using the Monte Carlo simulation model[116] Note 17. Derivatives and Hedge Accounting This note explains the Company's use of derivative instruments for hedging foreign currency and interest rates - The Company uses foreign currency forward contracts and interest rate swaps to mitigate cash flow volatility from foreign currency exchange rates and interest rates[120] Effect of Derivatives on AOCI and Income (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :----------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Unrealized gain/(loss) recognized in OCI (cash flow hedges) | $5,955 | $(2,778) | N/A | $15,424 | $(2,840) | N/A | | Gain/(loss) recognized in income (non-hedging instruments) | $(1,766) | $(2,113) | (16.4)% | $(1,286) | $(2,073) | (38.0)% | - Approximately $4.4 million of derivative gains (net of tax) from cash flow hedges are expected to be reclassified into earnings within the next twelve months[121] Note 18. Borrowings This note details the Company's debt position, including revolving credit and term loan facilities Debt Position (in thousands) | Metric | Dec 31, 2024 | June 30, 2025 | Change | % Change | | :-------------------------- | :----------- | :------------ | :----- | :------- | | Total borrowings | $288,484 | $260,041 | $(28,443) | (9.9)% | | Revolving credit facility | $190,000 | $164,000 | $(26,000) | (13.7)% | | Term loan facility | $98,484 | $96,041 | $(2,443) | (2.5)% | - The Company was in compliance with the financial covenants under its 2024 Credit Agreement as of June 30, 2025[138] - The 2024 Credit Agreement increased revolving credit commitments to $500 million and provided a new term loan facility of $100 million, both maturing on April 18, 2027[136] Note 19. Capital Structure This note provides information on the Company's capital structure, including common stock repurchase programs Share Repurchases (Publicly Announced Programs) | Period | Shares Repurchased | Total Consideration (in thousands) | Weighted Average Purchase Price Per Share | | :--------------------------- | :----------------- | :--------------------------------- | :---------------------------------------- | | 3 Months Ended June 30, 2025 | 906,150 | $41,752 | $46.08 | | 3 Months Ended June 30, 2024 | 297,353 | $8,823 | $29.67 | | 6 Months Ended June 30, 2025 | 1,081,213 | $49,811 | $46.07 | | 6 Months Ended June 30, 2024 | 4,274,171 | $128,253 | $30.01 | - The Company's board authorized a $500 million common stock repurchase program beginning March 1, 2024[145] - In March 2024, the Company entered into a $125 million Accelerated Share Repurchase (ASR) Agreement[146] Note 20. Employee Benefit Plans This note describes the Company's employee benefit plans, including gratuity plans and 401(k) contributions - The Company offers Gratuity Plans in India (partially funded) and the Philippines (unfunded), and 401(k) plans in the US[149][152][154] Net Gratuity Cost (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Net gratuity cost | $1,455 | $1,029 | 41.4% | $2,891 | $2,058 | 40.5% | Contributions to Defined Contribution Plans (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :----------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Contributions to 401(k) Plans | $1,376 | $1,190 | 15.6% | $4,171 | $3,633 | 14.8% | | Contributions to foreign subsidiaries' plans | $8,692 | $6,891 | 26.1% | $16,477 | $13,640 | 20.8% | Note 21. Leases This note provides details on the Company's lease arrangements, including total lease cost and cash outflows Total Lease Cost (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Total lease cost | $7,853 | $6,976 | 12.6% | $15,196 | $13,413 | 13.3% | Lease Information (6 Months Ended June 30) | Metric | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | Operating cash outflows for operating leases | $12,250K | $9,645K | | Weighted average remaining lease term (Operating lease) | 4.7 years | 5.1 years | | Weighted average discount rate (Operating lease) | 8.0% | 7.9% | Note 22. Income Taxes This note details income tax expense and the effective tax rate, explaining factors influencing changes Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Income tax expense (in thousands) | $18,546 | $13,873 | 33.7% | $32,042 | $27,626 | 16.0% | | Effective tax rate | 21.9% | 23.2% | (1.3) pp | 19.5% | 22.6% | (3.1) pp | - The increase in income tax expense was primarily driven by higher profit, partially offset by lower state taxes and higher excess tax benefits[166][167] Note 23. Stock-Based Compensation This note details stock-based compensation expense, including stock options and restricted stock units Stock-Based Compensation Expense (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :----------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Total stock-based compensation expense | $16,392 | $18,095 | (9.4)% | $35,579 | $35,947 | (1.0)% | - Stockholders approved the 2025 Omnibus Incentive Plan, reserving 6,800,000 shares for awards[172] - Unrecognized compensation cost for stock options ($10.4 million) is expected to be expensed over 2.0 years, and for restricted stock units ($91.1 million) over 2.8 years[173][178] Note 24. Related Party Disclosures This note provides details on revenues generated from transactions with related parties Revenues from Related Parties (in thousands) | Related Party | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Corridor Platforms, Inc. | $42 | $151 | $84 | $302 | | PharmaCord LLC | $105 | $0 | $224 | $0 | Note 25. Commitments and Contingencies This note outlines capital commitments, legal proceedings, and tax disputes - Capital commitments include $5.0 million for property and equipment and $2.2 million for investments in a partnership[190] - The Company faces transfer pricing and related income tax disputes with Indian tax authorities, with an aggregate demanded amount of $50.2 million as of June 30, 2025[195] - Indian tax authorities raised aggregate VAT demands of $5.3 million and rejected GST refund claims of $5.7 million as of June 30, 2025[196][197] - Management believes its positions in tax disputes and other legal matters will more likely than not be sustained and does not expect a material adverse effect on its financial condition, results of operations, or cash flows[195][196][197][203] Note 26. Subsequent Events This note discloses significant events occurring after the reporting period, including new legislation - On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA), and the Company is evaluating its impact on consolidated financial statements[204] - On July 29, 2025, the Company entered into a $125 million Accelerated Share Repurchase (ASR) Agreement as part of its 2024 Repurchase Program[205] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, strategic shifts, and future outlook Cautionary Note Regarding Forward-Looking Statements This note advises that the report contains forward-looking statements subject to various risks - The report contains forward-looking statements subject to numerous uncertainties and factors difficult to predict and beyond the Company's control[208] - Key factors include client demand for AI services, successful transition to new organizational structure, earnings fluctuations, employee retention, cybersecurity incidents, and global economic conditions[208][214] - The Company has no obligation to update any forward-looking statements after the report date, except as required by federal securities laws[210] Executive Overview This overview highlights ExlService Holdings' role as a global data and AI company - ExlService Holdings is a global data and AI company focused on reinventing client business models and driving growth[211] - In Q1 2025, the Company implemented operational and structural changes, realigning into Industry Market Units (IMUs) and Strategic Growth Units to deliver higher client value and advance capabilities[213] - New reportable segments include Insurance, Healthcare and Life Sciences, Banking, Capital Markets and Diversified Industries, and International Growth Markets[215][216] - Revenues by service type are now presented as data and AI-led and digital operations services[217] Revenues This section analyzes revenue performance, growth drivers, and geographical contributions Total Revenues, net (in millions) | Period | 2025 | 2024 | Change | % Change | | :--------------------------- | :----- | :----- | :----- | :------- | | 3 Months Ended June 30 | $514.5 | $448.4 | $66.1 | 14.7% | | 6 Months Ended June 30 | $1,015.5 | $884.9 | $130.6 | 14.8% | - Revenue growth was primarily driven by new and existing clients across all reportable segments[242][265] - North America and the United Kingdom & Europe generated 82.2% and 15.1% of total revenues for Q2 2025, respectively[219] - Total revenues from the top ten clients accounted for 33.5% for Q2 2025 and 33.6% for H1 2025[220] Our Business This section describes the Company's service offerings, including data and AI-led and digital operations - The Company provides data and AI-led and digital operations services, leveraging domain knowledge, analytics, data management, and digital engineering expertise[221][222] - Data and AI-led services embed AI into client workflows to accelerate growth, improve customer experience, and enhance efficiency[222] - Digital operations services help clients run essential business functions and form the foundation for future AI transformation opportunities[223] - The Company observes a shift towards transaction-based, outcome-based, and other alternative pricing models in the industry[234] Income Taxes This section discusses the Company's income tax considerations, including Pillar II global minimum tax rules - The Company is monitoring the evolving Pillar II global minimum tax rules, effective January 1, 2024[235] - The Pillar II impacts for operations in the Republic of Ireland and the Philippines, where safe harbor rules are not met, are not significant and have been properly reflected in financial statements[235] Critical Accounting Policies and Estimates This section reviews critical accounting policies and estimates, noting changes related to segment realignment - In Q1 2025, the Company implemented operational and structural changes, resulting in the realignment of reporting segments and re-allocation of goodwill[236] - Goodwill was tested for impairment prior to and immediately after the segment realignment, with no impairment found[237] - There have been no other significant changes in critical accounting policies and estimates during the six months ended June 30, 2025[238] Results of Operations This section analyzes the Company's financial performance for the reported periods - The Company experienced strong financial performance for both the three and six months ended June 30, 2025, with significant increases in revenues, gross profit, income from operations, and net income compared to the prior year periods[240][263] Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This section compares the Company's financial performance for Q2 2025 against the prior year Q2 2025 vs Q2 2024 Financial Performance (in millions) | Metric | Q2 2025 | Q2 2024 | Dollar Change | % Change | | :--------------------------- | :------ | :------ | :------------ | :------- | | Revenues, net | $514.5 | $448.4 | $66.1 | 14.7% | | Gross profit | $194.2 | $166.3 | $27.9 | 16.8% | | Income from operations | $81.2 | $61.5 | $19.7 | 32.0% | | Net income | $66.1 | $45.8 | $20.3 | 44.1% | - Gross margin improved by 60 basis points to 37.7% for Q2 2025, driven by higher revenues and operational efficiencies[247] - SG&A expenses increased by $7.0 million (7.7%) due to higher employee-related costs, investments in digital and generative AI capabilities, and increased sales and marketing costs[253] - Foreign exchange gain, net, was $2.2 million for Q2 2025, compared to a negligible gain in Q2 2024[257] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 This section compares the Company's financial performance for H1 2025 against the prior year H1 2025 vs H1 2024 Financial Performance (in millions) | Metric | H1 2025 | H1 2024 | Dollar Change | % Change | | :--------------------------- | :------ | :------ | :------------ | :------- | | Revenues, net | $1,015.5 | $884.9 | $130.6 | 14.8% | | Gross profit | $387.5 | $329.4 | $58.1 | 17.7% | | Income from operations | $159.5 | $123.0 | $36.5 | 29.7% | | Net income | $132.6 | $94.6 | $38.0 | 40.2% | - Gross margin improved by 100 basis points to 38.2% for H1 2025, driven by higher revenues and operational efficiencies[271] - SG&A expenses increased by $19.3 million (10.6%) due to higher employee-related costs, investments in digital and generative AI capabilities, and other operating costs[276] - Foreign exchange gain, net, was $3.4 million for H1 2025, compared to $0.4 million in H1 2024[280] Liquidity and Capital Resources This section assesses the Company's liquidity position, cash flow generation, and capital expenditure plans Cash Flow Summary (in millions) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Dollar Change | % Change | | :----------------------------------- | :--------------------------- | :--------------------------- | :------------ | :------- | | Net cash provided by operating activities | $112.6 | $53.0 | $59.6 | 112.3% | | Net cash used for investing activities | $(36.3) | $(43.2) | $6.9 | (16.1)% | | Net cash used for financing activities | $(84.6) | $(27.3) | $(57.3) | 209.7% | | Closing cash, cash equivalents and restricted cash | $170.5 | $121.7 | $48.8 | 40.2% | - Net cash provided by operating activities increased significantly due to higher cash earnings and lower working capital needs[286] - Net cash used for financing activities increased primarily due to net repayments of borrowings, partially offset by lower purchases of treasury stock[287] - The Company expects to incur total capital expenditures of $50.0 million to $55.0 million in fiscal 2025, primarily for growth requirements and investments in technology[290] - Existing cash, cash equivalents, and short-term investments are expected to be sufficient to satisfy cash requirements over the next 12 months[292] Financing Arrangements This section details the Company's borrowing facilities and compliance with financial covenants Total Borrowings (in millions) | Metric | Dec 31, 2024 | June 30, 2025 | Change | % Change | | :-------------------------- | :----------- | :------------ | :----- | :------- | | Total borrowings | $288.5 | $260.1 | $(28.4) | (9.9)% | | Revolving credit facility | $190.0 | $164.0 | $(26.0) | (13.7)% | | Term loan facility | $98.5 | $96.1 | $(2.4) | (2.5)% | - The Company was in compliance with the financial covenants under its credit agreement as of June 30, 2025[297] Recent Accounting Pronouncements This section refers to Note 2 for details on recent accounting pronouncements - For a description of recent accounting pronouncements, refer to Note 2 - Summary of Significant Accounting Policies[298] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes in market risk exposure and references the Annual Report - No material changes in market risk exposure occurred during the six months ended June 30, 2025[299] - Discussions on exchange rate risk and interest rate risk are available in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[299] ITEM 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures - The Company's disclosure controls and procedures were effective as of June 30, 2025[300] - The evaluation was carried out under the supervision and with the participation of the CEO and CFO[300] Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting during Q2 2025 - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the three months ended June 30, 2025[301] Part II. Other Information This section covers legal proceedings, risk factors, equity sales, defaults, and other disclosures ITEM 1. Legal Proceedings This section addresses the Company's involvement in various lawsuits and claims - The Company is involved in various lawsuits, claims, and proceedings in the normal course of business[302] - Management believes the disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows[302] - Details regarding tax proceedings are provided in Note 25 - Commitments and Contingencies[302] ITEM 1A. Risk Factors This section directs readers to the Annual Report on Form 10-K for a discussion of business risks - Readers should refer to the 'Risk Factors' section in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, for a discussion of risks[303] - The Company acknowledges that the listed risk factors may not describe every risk, and additional unknown risks may materially adversely affect its business[303] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on unregistered equity sales and details common stock repurchase activities Unregistered Sales of Equity Securities This section confirms no unregistered sales of equity securities were reported during the period - No unregistered sales of equity securities were reported[304] Use of Proceeds This section confirms no use of proceeds from unregistered equity sales was reported - No use of proceeds was reported[305] Purchases of Equity Securities by the Issuer This section details the Company's common stock repurchases under its publicly announced programs Purchases of Equity Securities by the Issuer (Q2 2025) | Period | Number of Shares Purchased | Average Price Paid per Share | | :--------------------------- | :------------------------- | :--------------------------- | | April 1, 2025 through April 30, 2025 | — | $— | | May 1, 2025 through May 31, 2025 | 426,500 | $46.18 | | June 1, 2025 through June 30, 2025 | 479,650 | $45.98 | | Total | 906,150 | $46.08 | - The Company's board of directors authorized a $500 million common stock repurchase program beginning March 1, 2024[307] - As of June 30, 2025, the approximate dollar value of shares that may yet be purchased under the program was $273,095,473[306] ITEM 3. Defaults Upon Senior Securities This section reports that the Company had no defaults upon senior securities during the period - No defaults upon senior securities were reported[308] ITEM 4. Mine Safety Disclosures This section states that the item regarding mine safety disclosures is not applicable - This item is not applicable[309] ITEM 5. Other Information This section reports on Rule 10b5-1 trading arrangements by directors and officers Rule 10b5-1 Trading Plans This section confirms no Rule 10b5-1 trading arrangements were adopted or terminated - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[310] ITEM 6. Exhibits This section lists all exhibits filed with the report, including corporate governance documents - Exhibits include the Fourth Amended and Restated Certificate of Incorporation, Sixth Amended and Restated By-laws, and the 2025 Omnibus Incentive Plan[313] - Certifications from the Chief Executive Officer and Chief Financial Officer are included pursuant to Rule 13a-14(a) and 13a-14(b) of the Exchange Act[313] - Inline XBRL documents for the instance, schema, calculation, definition, label, and presentation linkbases are filed[313] Signatures This section contains the official signatures, confirming the due authorization and filing of the report Signatures This section contains the official signatures, confirming the due authorization and filing of the report - The report was signed on behalf of ExlService Holdings, Inc. by Maurizio Nicolelli, Chief Financial Officer[316] - The signing date of the report was July 29, 2025[316]