ExlService Holdings, Inc.
May 1, 2018

EXL Reports 2018 First Quarter Results

2018 First Quarter Revenues of $207.0 Million, up 13.1% year over year
Q1 Diluted EPS (GAAP) of $0.66, up from $0.48 in Q1 of 2017
Q1 Adjusted Diluted EPS (Non-GAAP) of $0.64, up from $0.60 in Q1 of 2017

NEW YORK, May 01, 2018 (GLOBE NEWSWIRE) -- ExlService Holdings, Inc. (NASDAQ:EXLS), a leading operations management and analytics company, today announced its financial results for the quarter ended March 31, 2018.

Rohit Kapoor, Vice Chairman and Chief Executive Officer, said, "EXL delivered strong revenue growth and profitability in the first quarter of 2018, driven by demand from our existing clients and the ramp-up of 2017 wins. Revenues were $207.0 million, up 13.1% year-over-year, and adjusted diluted EPS was $0.64. Our revenue growth was broad-based, led by a 16.5% increase in Analytics revenues and an 11.8% increase in our Operations Management businesses.

"I am pleased to announce that EXL has signed a definitive agreement to acquire SCIOInspire Holdings, Inc. ("SCIO®") for $240 million. This strategic acquisition combines EXL's large-scale healthcare and analytics businesses with SCIO's leading healthcare analytics solutions and services. SCIO generates revenues from two high growth healthcare areas - payment integrity and care optimization.  The acquisition will broaden EXL's capabilities to engage with clients across a variety of healthcare payers, pharmacy benefit managers, healthcare providers and life sciences companies."

Vishal Chhibbar, Chief Financial Officer, said, "We are updating our revenue guidance for 2018 to $835 million - $855 million from $830 million - $855 million reflecting better performance in the first quarter and an improved outlook for the year.  Our guidance represents annual revenue growth of 9% to 12% on a constant currency basis. Our adjusted diluted EPS guidance for 2018 remains $2.70 - $2.80.   Our guidance does not include the impact of the SCIO acquisition. Our cash and short-term investments were $239 million on March 31, 2018."

Financial Highlights: First Quarter 2018

We have six reportable segments: Insurance, Healthcare, Travel, Transportation & Logistics, Finance & Accounting, All Other (Banking & Financial Services, Utilities and Consulting) and Analytics. Reconciliations of adjusted (non-GAAP) financial measures, including those reflecting constant currency, to GAAP measures are included at the end of this release.

 
  Revenues Gross Margin
  Three months ended March 31, Three months ended March 31,
Reportable Segments 2018 2017 2018 2017(1) (2)
  (dollars in millions)    
Insurance $63.9  $ 55.9  33.6% 32.0%
Healthcare 22.8  18.9   24.4% 35.0%
Travel, Transportation & Logistics 17.5  17.1  40.3% 40.5%
Finance & Accounting 24.0  21.0  38.6% 40.9%
All Other 21.7  21.1  30.0% 31.7%
         
Analytics 57.1  49.0  33.3% 35.2%
Total revenues, net $207.0  $183.0  33.3%  34.9%
 

______________________

(1) (2) Refer to the notes to the Unaudited Consolidated Statements of Income for details.

Business Highlights: First Quarter 2018

Post-First Quarter Highlight

Subsequent to the first quarter of 2018, on April 28, 2018, EXL signed a definitive agreement to acquire SCIOInspire Holdings, Inc., doing business as SCIO Health Analytics.  The aggregate merger consideration is $240 million, subject to adjustment based on, among other things, SCIO's cash, debt, working capital position and other adjustments set forth in the Merger Agreement. EXL intends to fund the purchase with available cash on hand and borrowing from its credit facility.  The acquisition is expected to close in the next three months, subject to the fulfillment of certain closing conditions, including regulatory and other customary consents.

2018 Guidance

Based on current visibility, and a U.S. Dollar to Indian Rupee exchange rate of 66.0, British Pound to U.S. Dollar exchange rate of 1.40, U.S. Dollar to the Philippine Peso exchange rate of 52.0 and all other currencies at current exchange rates, we are providing the following guidance:

Conference Call

ExlService Holdings, Inc. will host a conference call on Tuesday, May 1, 2018 at 8:00 A.M. ET to discuss the Company's quarterly operating and financial results.  The conference call will be available live via the internet by accessing the investor relations section of EXL's website at ir.exlservice.com, where an accompanying investor-friendly spreadsheet of historical operating and financial data can also be accessed.  Please access the website at least fifteen minutes prior to the call to register, download and install any necessary audio software.

To listen to the conference call via phone, please dial 1-877-303-6384, or if dialing internationally, 1-224-357-2191 and an operator will assist you.  For those who cannot access the live broadcast, a replay will be available on the EXL website ir.exlservice.com for a period of at least twelve months. 

About ExlService Holdings, Inc.

EXL (NASDAQ:EXLS) is a leading operations management and analytics company that designs and enables agile, customer-centric operating models to help clients improve their revenue growth and profitability. Our delivery model provides market-leading business outcomes using EXL's proprietary Business EXLerator Framework®, cutting-edge analytics, digital transformation and domain expertise. At EXL, we look deeper to help companies improve global operations, enhance data-driven insights, increase customer satisfaction, and manage risk and compliance. EXL serves the insurance, healthcare, banking and financial services, utilities, travel, transportation and logistics industries. Headquartered in New York, New York, EXL has more than 27,000 professionals in locations throughout the United States, Europe, Asia (primarily India and Philippines), Colombia, Australia and South Africa. For more information, visit www.exlservice.com

Continuing Statement Regarding Forward-Looking Statements This press release contains forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to EXL's operations and business environment, all of which are difficult to predict and many of which are beyond EXL's control. Forward-looking statements include information concerning EXL's possible or assumed future results of operations, including descriptions of its business strategy. These statements may include words such as "may," "will," "should," "believe," "expect," "anticipate," "intend," "plan," "estimate" or similar expressions. These statements are based on assumptions that we have made in light of management's experience in the industry as well as its perceptions of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. You should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although EXL believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect EXL's actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors, which include our ability to successfully close and integrate strategic acquisitions, are discussed in more detail in EXL's filings with the Securities and Exchange Commission, including EXL's Annual Report on Form 10-K. These risks could cause actual results to differ materially from those implied by forward-looking statements in this release. You should keep in mind that any forward-looking statement made herein, or elsewhere, speaks only as of the date on which it is made. New risks and uncertainties come up from time to time, and it is impossible to predict these events or how they may affect EXL.  EXL has no obligation to update any forward-looking statements after the date hereof, except as required by federal securities laws.

 
 
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per share amounts)
 
 Three months ended March 31,
 2018 2017(1) (2)
Revenues, net$206,973  $ 183,033 
Cost of revenues (exclusive of depreciation and amortization)138,101  119,072 
Gross profit68,872   63,961 
Operating expenses:   
General and administrative expenses29,266  24,037 
Selling and marketing expenses13,952  13,340 
Depreciation and amortization10,504   9,372 
Total operating expenses53,722  46,749 
Income from operations15,150  17,212 
Foreign exchange gain, net615  382 
Interest expense(538) (432)
Other income, net3,534  3,186 
Income before income tax (benefit)/expense18,761   20,348 
Income tax (benefit)/expense(4,453) 3,560 
Loss from equity-method investment56   
Net income attributable to ExlService Holdings, Inc. stockholders$23,158  $16,788 
Earnings per share attributable to ExlService Holdings, Inc. stockholders:   
Basic$0.67  $0.50 
Diluted$0.66  $0.48 
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders:   
Basic34,446,265  33,845,560 
Diluted35,302,926  35,108,882 
      

(1) The Company early adopted Accounting Standards Update (ASU) 2017-12, Derivative and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. Pursuant to this adoption, effective January 1, 2017, the Company recorded settlement gain/(loss) on cash flow hedges in cost of revenues and operating expenses, as applicable, in the consolidated statements of income for each of the quarters of 2017. In prior periods, such gain/(loss) were recorded under "Foreign exchange gain, net" in the consolidated statements of income.

(2) On January 1, 2018, the Company adopted ASU 2017-07, Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost. Pursuant to this adoption, effective January 1, 2017, the interest cost, expected return on plan assets and amortization of actuarial gains/loss, have been reclassified from cost of revenues and  operating expenses, as applicable to "Other income, net" in the consolidated statements of income for each of the quarters of 2017.

 
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 
  As of
   March 31, 2018 December 31, 2017
  (Unaudited)  
Assets    
Current assets:    
Cash and cash equivalents $69,955  $ 86,795 
Short-term investments 169,461  178,479 
Restricted cash 2,727  3,674 
Accounts receivable, net 137,150  135,705 
Prepaid expenses 10,601  9,781 
Advance income tax, net 17,802  8,801 
Other current assets 28,277  29,582 
Total current assets 435,973  452,817 
Property and equipment, net 67,748  66,757 
Restricted cash 3,783  3,808 
Deferred taxes, net 6,518  8,585 
Intangible assets, net 45,104  48,958 
Goodwill 202,337  204,481 
Other assets 33,863  36,369 
Investment in equity affiliate 2,944  3,000 
Total assets $798,270  $824,775 
Liabilities and Equity    
Current liabilities:     
Accounts payable $4,114  $5,918 
Current portion of long-term borrowings 318  10,318 
Deferred revenue 11,504  10,716 
Accrued employee costs 27,615  55,664 
Accrued expenses and other current liabilities 61,148  61,366 
Current portion of capital lease obligations 246  267 
Total current liabilities 104,945  144,249 
Long term borrowings 67,355  50,391 
Capital lease obligations, less current portion 282  331 
Income taxes payable 8,721  13,557 
Other non-current liabilities 15,262  16,202 
Total liabilities 196,565  224,730 
Commitments and contingencies    
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, 37,568,973 shares issued and 34,442,962 shares outstanding as of March 31, 2018 and 36,790,751 shares issued and 33,888,733 shares outstanding as of December 31, 2017 38  37 
Additional paid-in capital 327,750  322,246 
Retained earnings 450,676  427,064 
Accumulated other comprehensive loss (59,670) (45,710)
Total including shares held in treasury  718,794  703,637 
Less: 3,126,011 shares as of March 31, 2018 and 2,902,018 shares as of December 31, 2017, held in treasury, at cost (117,320) (103,816)
Stockholders' equity $601,474  $599,821 
Non-controlling interest 231  224 
Total equity $601,705  $600,045 
Total liabilities and equity $798,270  $824,775 
 

EXLSERVICE HOLDINGS, INC.

Reconciliation of Adjusted Financial Measures to GAAP Measures

In addition to its reported operating results in accordance with U.S. generally accepted accounting principles (GAAP), EXL has included in this release certain financial measures (adjusted operating income, adjusted operating income margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted diluted earnings per share and information on a constant currency basis) that the Securities and Exchange Commission defines as "non-GAAP financial measures." The non-GAAP financial measures disclosed by EXL should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from those financial statements should be carefully evaluated. EXL believes that providing these non-GAAP financial measures may help investors better understand EXL's underlying financial performance.  Management also believes that these non-GAAP financial measures, when read in conjunction with EXL's reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company's results and comparisons of the Company's results with the results of other companies. Additionally, management considers some of these non-GAAP financial measures to determine variable compensation of its employees. EXL believes that it is unreasonably difficult to provide its earnings per share financial guidance in accordance with GAAP for a number of reasons, including, without limitation, EXL's inability to predict its future stock-based compensation expense under ASC Topic 718, the amortization of intangibles associated with further acquisitions and the currency fluctuations and associated tax impacts: as such EXL presents guidance with respect to adjusted diluted earnings per share. EXL also incurs significant non-cash charges for depreciation that may not be indicative of the Company's ability to generate cash flow.

The information provided on a constant currency basis reflects a comparison of current period results translated at the prior period currency rates. EXL's primary exchange rate exposure is with the Indian Rupee, the U.K. pound sterling and the Philippine Peso. The average exchange rate of the U.S. Dollar against the Indian Rupee decreased from 66.46 during the quarter ended March 31, 2017 to 64.64 during the quarter ended March 31, 2018, representing appreciation of 2.7%. The average exchange rate of the U.S. Dollar against the Philippine Peso increased from 50.05 during the quarter ended March 31, 2017 to 51.85 during the quarter ended March 31, 2018, representing a depreciation of 3.6%. The average exchange rate of the British Pound against the U.S. Dollar increased from 1.24 during the quarter ended March 31, 2017 to 1.40 during the quarter ended March 31, 2018, representing appreciation of 12.9%. This information is provided because EXL believes that it provides useful comparative incremental information to investors regarding EXL's operating performance.

The following table shows the reconciliation of these non-GAAP financial measures for the three months ended March 31, 2018 and March 31, 2017, and the three months ended December 31, 2017:

 
Reconciliation of Adjusted Operating Income and Adjusted EBITDA
(Amounts in thousands)
 
  Three Months Ended
  March 31, December 31,
  2018 2017 2017
Net Income/(loss) (GAAP) $23,158  $16,788   $(9,355)
add: Income tax (benefit)/expense (4,453) 3,560   28,944 
subtract: Interest expense, foreign exchange gain, net, loss from equity-method investment and other income, net (3,555) (3,136) (3,289)
Income from operations (GAAP) $15,150  $17,212  $16,300 
add: Stock-based compensation expense (a) 5,074  5,956  6,270 
add: Amortization of acquisition-related intangibles (b) 3,947  3,498  3,483 
add: Provision for litigation settlement (c) 2,400     
Adjusted operating income (Non-GAAP) $26,571  $26,666  $26,053 
Adjusted operating income margin as a % of Revenues (Non-GAAP) 12.8% 14.6% 13.2%
add: Depreciation 6,557  5,874  6,577 
Adjusted EBITDA (Non-GAAP) $33,128  $32,540  $32,630 
Adjusted EBITDA margin as a % of revenue  (Non-GAAP) 16.0% 17.8% 16.5%
 
(a) To exclude stock-based compensation expense under ASC Topic 718.
(b) To exclude amortization of acquisition-related intangibles.
(c) To exclude provision for litigation settlement during the three months ended March 31, 2018.


 
Reconciliation of Adjusted Net Income and Adjusted Diluted Earnings Per Share
(Amounts in thousands, except per share data)
 
  Three Months Ended
  March 31, December 31,
  2018 2017 2017
Net income/(loss) (GAAP) $ 23,158  $16,788  $(9,355)
add: Stock-based compensation expense (a) 5,074  5,956  6,270 
add: Amortization of acquisition-related intangibles (b) 3,947  3,498  3,483 
add: Effect of tax impact from Tax Reform Act (c) (4,836)   29,185 
subtract: Tax impact on stock-based compensation expense (d) (5,913) (4,260) (5,063)
subtract: Tax impact on amortization of acquisition-related intangibles (726) (951) (947)
add: Provision for litigation settlement, net of tax (e) 1,788     
Adjusted net income (Non-GAAP) $22,492   $21,031  $23,573 
Adjusted diluted earnings per share (Non-GAAP) $0.64  $0.60  $0.67 
             

(a) To exclude stock-based compensation expense under ASC Topic 718.

(b) To exclude amortization of acquisition-related intangibles.

(c) To include impact related to the Tax Reform Act. The Company recognized a one-time income tax expense of $29,185 during the three months ended December 31, 2017, comprised of a provisional deemed repatriation tax expense of $27,236 and a provisional net deferred tax expense of $1,949. During the three months ended March 31, 2018, the Company recorded adjustment of $4,836 reducing the provisional transition tax on the mandatory deemed repatriation of accumulated earnings and profits of foreign subsidiaries recognized during the year ended December 31, 2017. The one-time incremental income tax expense reflects certain assumptions based upon the Company's interpretation of the Tax Reform Act and may change as the Company receives additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. Any further changes would be reflected as a non-GAAP adjustment in the period in which they are recorded.

(d) Tax impact include $4,827 and $2,057 during the three months ended March 31, 2018 and 2017 respectively, and $2,627 during the three months ended December 31, 2017 related to discrete benefit recognized in income tax expense on adoption of ASU No. 2016-09, Compensation - Stock Compensation.

(e) To exclude provision for litigation settlement during the three months ended March 31, 2018.

Contact: Steven N. Barlow
Vice President, Investor Relations
(212) 624-5913 
steven.barlow@exlservice.com 

 

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