EXLS · 10-Q · 2026Q1 · Full report

Income Tax Rate Changes

ExlService Holdings, Inc. · 2026-04-28 · Importance 71 · Surprise 82

The effective tax rate increased to 26.6% for the three months ended March 31, 2026 from 16.9% in the comparable 2025 period, producing income tax expense of $24.3 million (vs. $13.5 million), an 80.2% increase. Management attributes the rise primarily to lower excess tax benefits related to stock-based compensation of $13.2 million and higher pretax profit, partially offset by a decrease in non-deductible compensation. The higher tax rate materially increased the company's tax cash expense in the quarter and is called out as a driver of year-over-year earnings variability. The company references ongoing tax-related exposures (e.g., transfer pricing challenges and potential assessments) elsewhere in the MD&A and notes possible deposit requirements if assessments are issued.

Key facts

• Income tax expense for the three months ended March 31, 2026: $24.3 million, up $10.8 million or 80.2% from $13.5 million for the three months ended March 31, 2025.
• Effective tax rate for the three months ended March 31, 2026: 26.6%, up from 16.9% for the three months ended March 31, 2025.
• Increase in income tax expense was primarily due to lower excess tax benefits related to stock-based compensation of $13.2 million and higher profit, partially offset by a decrease in non-deductible compensation expenses.
• The company periodically evaluates opportunities to distribute cash among group entities and noted distributions may require accruing additional taxes under local laws when decided.

Impact estimates