ExlService Holdings, Inc.EXLS
ExlService Holdings, Inc. Income Taxes Disclosure
Income Taxes
The components of income before income tax expense consist of the following:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 71,027 | $ | 72,286 | $ | 100,905 | |||||||||||
| Foreign | 244,025 | 189,061 | 137,036 | ||||||||||||||
Total | $ | 315,052 | $ | 261,347 | $ | 237,941 | |||||||||||
Income tax expense/(benefit) consists of the following:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current provision: | |||||||||||||||||
| Federal | $ | 2,047 | $ | 31,323 | $ | 32,796 | |||||||||||
| State and local | 20,613 | 9,907 | 18,654 | ||||||||||||||
| Foreign | 56,131 | 41,591 | 33,828 | ||||||||||||||
| $ | 78,791 | $ | 82,821 | $ | 85,278 | ||||||||||||
| Deferred provision/(benefit): | |||||||||||||||||
| Federal | $ | (8,309) | $ | (20,812) | $ | (26,079) | |||||||||||
| State and local | (4,462) | 1,640 | (5,945) | ||||||||||||||
| Foreign | (2,292) | (713) | 282 | ||||||||||||||
| (15,063) | (19,885) | (31,742) | |||||||||||||||
| Income tax expense | $ | 63,728 | $ | 62,936 | $ | 53,536 | |||||||||||
Deferred income taxes recognized in OCI were as follows:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Deferred taxes benefit/(expense) recognized on: | |||||||||||||||||
| Unrealized gain/(loss) on cash flow hedges | $ | 3,091 | $ | 2,559 | $ | (3,313) | |||||||||||
| Reclassification adjustment for cash flow hedges | (957) | 339 | (797) | ||||||||||||||
| Retirement benefits | 3,085 | 402 | (63) | ||||||||||||||
| Reclassification adjustment for retirement benefits | (267) | 33 | (74) | ||||||||||||||
| Currency translation adjustments | 4,269 | 3,129 | (156) | ||||||||||||||
| Total | $ | 9,221 | $ | 6,462 | $ | (4,403) | |||||||||||
In accordance with the requirements of ASU 2023-09 for the year ended December 31, 2025, the reconciliation of taxes at the federal statutory rate to the income tax expense was as follows:
| Amount | Percentage | |||||||||||||
| U.S. federal statutory tax rate | $ | 66,097 | 21.0 | % | ||||||||||
State and local income taxes, net of federal income tax effect (1) | 12,341 | 3.9 | % | |||||||||||
| Foreign tax effects | ||||||||||||||
| India | ||||||||||||||
| Statutory tax rate differential | 4,422 | 1.4 | % | |||||||||||
Others (2) | 809 | 0.3 | % | |||||||||||
| Ireland | ||||||||||||||
| Statutory tax rate differential | (5,519) | (1.8) | % | |||||||||||
Others (2) | 1,440 | 0.5 | % | |||||||||||
| Philippines | ||||||||||||||
| Statutory tax rate differential | 918 | 0.3 | % | |||||||||||
| Tax incentives | (4,068) | (1.3) | % | |||||||||||
Others (2) | 3,055 | 1.0 | % | |||||||||||
| Other foreign jurisdictions | 1,537 | 0.5 | % | |||||||||||
| Effect of cross-border tax laws | ||||||||||||||
| Foreign-derived intangible income | (7,429) | (2.4) | % | |||||||||||
| Others | 312 | 0.1 | % | |||||||||||
| Tax credits | ||||||||||||||
| Research and development tax credits | (4,404) | (1.4) | % | |||||||||||
| U.S. foreign tax credit | (4,237) | (1.3) | % | |||||||||||
| Non-taxable or non-deductible items | ||||||||||||||
| Officers compensation | 9,278 | 2.9 | % | |||||||||||
| Excess tax benefit | (13,113) | (4.2) | % | |||||||||||
| Others | 2,072 | 0.7 | % | |||||||||||
| Changes in unrecognized tax benefits | 217 | 0.1 | % | |||||||||||
| Income tax expense | $ | 63,728 | 20.3 | % | ||||||||||
(1) State and local taxes in New York state and city, Kentucky, Rhode Island, California, and Pennsylvania made up the majority of the tax effect in this category.
(2) Others include tax withholdings related to cross-border payments.
The reconciliation of taxes at the federal statutory rate to income tax expense for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:
| Year ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Expected tax expense | $ | 54,883 | $ | 49,968 | |||||||
| Foreign tax rate differential | 1,164 | 5,333 | |||||||||
| Unrecognized tax benefits | 704 | (187) | |||||||||
| State taxes, net of federal taxes | 10,724 | 11,640 | |||||||||
| Non-deductible expenses | 10,330 | 8,655 | |||||||||
| Excess tax benefit on stock-based compensation | (9,714) | (15,055) | |||||||||
| Research and development credits | (5,257) | (5,350) | |||||||||
| Others | 102 | (1,468) | |||||||||
| Income tax expense | $ | 62,936 | $ | 53,536 | |||||||
As of December 31, 2025, the Company has accumulated net earnings of $75,081 from its foreign operations that are not indefinitely reinvested. Most of the accumulated net earnings generated by the foreign operations has already been taxed for U.S. federal and state income tax purposes, and any additional taxes due with respect to the repatriation of such earnings would generally be limited to the tax effect of currency gains or losses recognized on repatriation and foreign withholding taxes.
Income taxes paid, net of refunds, during the year ended December 31, 2025 were as follows:
| Amount | ||||||||
| Federal | $ | 18,906 | ||||||
| State and local | 11,588 | |||||||
| Foreign | ||||||||
| India | 27,213 | |||||||
| United Kingdom | 7,044 | |||||||
| Ireland | 4,361 | |||||||
| Others | 8,119 | |||||||
| Total | $ | 77,231 | ||||||
Income taxes paid, net of refunds, during the years ended December 31, 2024, and 2023 were $108,549 and $106,549, respectively.
The components of the deferred tax balances were as follows:
| As of | |||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Tax credit carry forwards | $ | 9,730 | $ | 8,058 | |||||||
| Depreciation and amortization expense | 21,295 | 18,178 | |||||||||
| Capitalized research and development expenses | 55,693 | 54,844 | |||||||||
| Stock-based compensation | 16,711 | 10,902 | |||||||||
| Accrued employee costs and other expenses | 41,440 | 33,897 | |||||||||
| Net unrealized foreign exchange loss | 20,541 | 20,242 | |||||||||
| Right-of-use assets | 24,854 | 20,125 | |||||||||
| Others | 791 | 620 | |||||||||
| Total deferred tax assets | 191,055 | 166,866 | |||||||||
| Valuation allowance | (2,640) | (3,172) | |||||||||
| Deferred tax assets, net of valuation allowance | $ | 188,415 | $ | 163,694 | |||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | $ | 29,710 | $ | 29,883 | |||||||
| Net unrealized gain on investments | 1,006 | 4,018 | |||||||||
| Capitalized costs | 8,012 | 7,665 | |||||||||
| Lease liabilities | 21,436 | 16,586 | |||||||||
| Others | 408 | 2,198 | |||||||||
| Total deferred tax liabilities | $ | 60,572 | $ | 60,350 | |||||||
| Net deferred tax assets | $ | 127,843 | $ | 103,344 | |||||||
Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying values of assets and liabilities and their respective tax bases. The Company performed an analysis of the realizability of deferred tax assets as of December 31, 2025, and 2024, and recorded a valuation allowance of $2,640 and $3,172, respectively.
The Company has state research and development tax credit carryforwards as of December 31, 2025 of $3,371 ($2,663, net of federal tax impact) that will expire by 2035, if not utilized.
The Company’s income tax expense also includes provisions established for uncertain income tax positions determined in accordance with ASC Topic 740, Income Taxes. The Company monitors and adjusts these reserves in light of changing facts and circumstances. To the extent that the final tax outcome of these matters differs from the amounts recorded, such differences will impact the income tax expense in the period in which such determination is made.
The following table summarizes the activity related to the unrecognized tax benefits:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance as of December 31 | $ | 1,966 | $ | 1,262 | $ | 1,449 | |||||||||||
| Additions based on tax positions related to the current year | 524 | 561 | 423 | ||||||||||||||
| Additions based on tax positions of prior years | 54 | 316 | 112 | ||||||||||||||
| Reductions for tax positions due to lapse of statutes of limitations | (368) | (173) | (722) | ||||||||||||||
| Balance as of December 31 | $ | 2,176 | $ | 1,966 | $ | 1,262 | |||||||||||
The unrecognized tax benefits as of December 31, 2025 of $2,176, if recognized, would impact the effective tax rate.
For the years ended December 31, 2025 and 2024, the Company has not accrued interest and penalties relating to unrecognized tax benefits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Mar 15, 2017 | |
| 2015 | Feb 26, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.