Release Details

Release Details

Release Details

EXL Reports 2006 Fourth Quarter and Full Year Results and Provides Guidance for Fiscal Year 2007

March 6, 2007
EXL Reports 2006 Fourth Quarter and Full Year Results and Provides Guidance for Fiscal Year 2007

NEW YORK, March 6 /PRNewswire-FirstCall/ -- ExlService Holdings, Inc. (Nasdaq: EXLS), a recognized provider of offshore solutions including business process outsourcing, research and analytics and risk advisory services, today announced its financial results for the fourth quarter ended December 31, 2006.

    The Company's fourth quarter highlights include:

    -- Revenues for the quarter increased 97% to $39.3 million from $20.0
       million in the fourth quarter of 2005 comprised of 63% organic revenue
       growth and 34% acquisition related growth.
    -- Gross margin for the quarter was 42.9% compared to 37.5% in the fourth
       quarter of 2005.
    -- Operating margin for the quarter was 16.4% compared to 10.6% in the
       fourth quarter of 2005; adjusted operating margin for the quarter,
       excluding the impact of stock-based compensation expense and
       amortization of intangibles, was 19.7% compared to 10.6% in the fourth
       quarter of 2005.
    -- Net income to common stock holders for the quarter was $5.9 million
       compared to $3.0 million in the fourth quarter of 2005; net income to
       common stockholders for the quarter includes stock-based compensation
       expense and amortization of intangibles of $1.3 million and $0.0
       million in the fourth quarter of 2006 and 2005, respectively.

Reconciliations of adjusted financial measures from GAAP are included at the end of this release.

Vikram Talwar, CEO and Vice-Chairman of EXL commented: "We are extremely pleased with both our financial and operating performance during the quarter as well as our continued execution of our strategic objectives to sustain long-term growth. EXL's fourth quarter results showed strong revenue growth and a significant expansion in gross margin as well as operating margin. Our fourth quarter results were driven by strong performance across all three of our business lines and increasing acceptance of EXL's solutions that are focused on providing clients a competitive edge by transforming and outsourcing their business processes.

Attrition continues to be a significant issue facing our industry. EXL's attrition rate for billable employees during the fourth quarter was 41.9%. During calendar year 2006, our attrition rate was 38.8% as compared to 55.4% during calendar year 2005. We believe that our continued investment in employee retention, training and development, as well as our changing business mix, will decrease attrition over time and ensure that we continue to deliver to our own and our clients' expectations. We believe that these investments will enable us to deploy the right resources and deliver high quality solutions that meet the business needs of our clients long into the future and that these are the right investments to make for EXL for the long-term.

We are happy to report that we have continued to build on the strength of our management team and have hired Matt Appel to become our Chief Financial Officer after the filing of our annual report on Form 10-K for fiscal year 2006. Matt is exceptionally qualified to become our CFO and brings to us a unique blend of functional experience, a deep background in BPO and a strong familiarity with India. Matt has over 30 years of experience in finance and BPO and was most recently Vice President, BPO Product Management at Electronic Data Systems where he was responsible for strategy and business plan development and investment prioritization for EDS' BPO product portfolio," concluded Mr. Talwar.



Rohit Kapoor, President and Chief Financial Officer of EXL noted: "As we progress in 2007, EXL will be making several key investments that will increase our expenses and decrease our gross margin and operating margin as compared to previous quarters. EXL's sales and marketing expenses will continue to increase as we invest heavily in our front-end sales and client relationship management functions to better serve our clients. With a view to enabling us to scale more effectively, we will continue to strengthen our back-end support and enabling functions, add additional physical infrastructure, and drive additional management development programs and training initiatives. We will also continue to focus on reducing attrition and increasing our recruitment capabilities through various programs.

Our strong fourth quarter results reflect a confluence of several factors - a number of which are not expected to continue in the first quarter of 2007 or subsequent periods. Factors that are not expected to continue include a favorable foreign exchange rate environment, unexpected strength of the Risk Advisory business during the historically slow fourth quarter, higher utilization of our existing physical infrastructure, strong performance in our Research and Analytics business line that is project-based and a voluntary bonus reduction by select senior individuals in our Research and Analytics business line."

Financial Highlights - Fourth Quarter 2006 and Fiscal Year Ended December 31, 2006

    -- Revenues for the quarter ended December 31, 2006 increased 97% to $39.3
       million from $20.0 million in the quarter ended December 31, 2005.
       Revenues for the year ended December 31, 2006 increased 65% to $121.8
       million from $74.0 million in the year ended December 31, 2005.
    -- Gross margin for the quarter ended December 31, 2006 was 42.9% and
       increased 540 basis points from 37.5% in the quarter ended December 31,
       2005. Gross margins expanded primarily as a result of an increased pace
       of ramp ups from existing clients in our BPO business line, favorable
       exchange rate movements, higher utilization of the Company's existing
       infrastructure and continued strong demand for services from the Risk
       Advisory Services and Research and Analytics business lines. Gross
       margin for the year ended December 31, 2006 was 39.4% compared to 35.6%
       in the year ended December 31, 2005.
    -- Operating margin for the quarter ended December 31, 2006 was 16.4%,
       compared to 10.6% in the quarter ended December 31, 2005. Adjusted
       operating margin, excluding the impact of stock-based compensation
       expense and amortization of intangibles, for the quarter ended December
       31, 2006 was 19.7% compared to 10.6% in the quarter ended December 31,
       2005. Operating margin benefited from continued growth in our business,
       a lag in our hiring of senior personnel, and a voluntary bonus
       reduction of $0.6 million during the fourth quarter of 2006 pertaining
       to select senior individuals in our Research and Analytics business
       line permitted under the terms of the Inductis merger agreement in
       order to achieve the earnout amounts set forth in such agreement.
       Operating margin for the year ended December 31, 2006 was 12.4%
       compared to 7.5% in the year ended December 31, 2005. Adjusted
       operating margin, excluding the impact of stock-based compensation
       expense and amortization of intangibles, for the year ended December
       31, 2006 was 15.0% compared to 7.6% in the year ended December 31,
       2005.
    -- Net income to common stockholders for the quarter ended December 31,
       2006 was $5.9 million compared to $3.0 million in the quarter ended
       December 31, 2005; net income to common stockholders for the quarter
       includes stock-based compensation expense and amortization of
       intangibles of $1.3 million and $0.0 million in the fourth quarter of
       2006 and 2005, respectively. Net income to common stockholders for the
       year ended December 31, 2006 was $13.4 million compared to $6.8 million
       in the year ended December 31, 2005; net income to common stockholders
       for the year ended December 31, 2006 includes stock-based compensation
       expense and amortization of intangibles of $3.2 million and $0.1
       million in the year ended December 31, 2006 and 2005, respectively.
    -- Revenues generated from the Company's largest client was 27% for the
       quarter ended December 31, 2006 compared to 44% for the quarter ended
       December 31, 2005. Revenues generated from the Company's three largest
       clients was 58% for the quarter ended December 31, 2006 compared to 64%
       for the quarter ended December 31, 2005. Revenues generated from the
       Company's largest client was 34% for the year ended December 31, 2006
       compared to 49% for the year ended December 31, 2005. Revenues
       generated from the Company's three largest clients was 59% for the year
       ended December 31, 2006 compared to 74% for the year ended December 31,
       2005.

Note: Results may not be comparable due to the inclusion of the financial results of Inductis, Inc. in our consolidated financial statements from July 1, 2006.

    Recent Business Highlights
    -- Strong growth and further penetration of our existing client base
       through significant expansion in both new and existing BPO processes.
       Revenue generated from the Company's five largest clients grew 11%
       sequentially from the third quarter of 2006 to the fourth quarter of
       2006.
    -- Further cross-sell examples within our Research and Analytics business
       line as a result of our acquisition of Inductis. EXL's BPO clients
       continued to transform their businesses by combining higher-value
       analytical solutions and knowledge process outsourcing with BPO.
    -- Hiring of Matt Appel to become our Chief Financial Officer after the
       filing of our annual report on Form 10-K for fiscal year 2006. Matt has
       over 30 years of experience in finance and business process outsourcing
       and was most recently Vice President, BPO Product Management at
       Electronic Data Systems where he was responsible for strategy and
       business plan development and investment prioritization for EDS' BPO
       product portfolio.
    -- Hiring of Sridhar Kadaba as Vice President, Risk Advisory Services.
       Sridhar has over 25 years of experience in financial services and
       consulting industries.  Prior to joining EXL, Sridhar served as a
       global financial services practice leader at Parson Consulting, a
       Principal with Ernst & Young and a Partner within the financial
       services division of Unisys Corporation.  Sridhar will work in
       developing new value-added service offerings within EXL's Risk Advisory
       Services business line.
    -- Signing of a definitive agreement for the provision of services with a
       leading U.S. life insurance company to provide a range of BPO services.
       During its previous earnings call, EXL had announced its entry into a
       letter of agreement with this company.
    -- Construction of a new facility in Noida to accommodate an additional
       1,200 seats of capacity with its scheduled opening in the first quarter
       of 2007.

As of December 31, 2006, EXL had total employees of approximately 8,200, an increase of 49% from approximately 5,500 total employees at December 31, 2005. The Company's headcount during the fourth quarter increased by approximately 300 employees. The attrition rate for billable employees during the fourth quarter was 41.9% as compared to 39.8% in the third quarter of 2006. For calendar year 2006, EXL's attrition rate for billable employees was 38.8% as compared to 55.4% in calendar year 2005.

    2007 Outlook
    The Company is providing the following guidance:

    -- Calendar year 2007 revenue range of $160 to $170 million.
    -- Calendar year 2007 adjusted operating margin range, excluding the
       impact of stock-based compensation expense and amortization of
       intangibles, of 12%.
    -- First quarter of 2007 expectation of slight decline in revenue and
       significant reduction in margins compared to the fourth quarter of 2006
       in line with normal seasonal factors.

    Conference Call

EXL will host a conference call on Tuesday, March 6, at 8:00 a.m. (ET) to discuss the Company's quarterly results and discuss the Company's operating performance and financial outlook. The conference call will be available live via the Internet by accessing the EXL web site at www.exlservice.com, where the accompanying presentation can also be accessed. Please go to the web site 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 1-800-418-7236 or 1-973-935-8757 and reference "EXL." For those who cannot access the live broadcast, a replay will be available by dialing 877-519-4471 or 973-341-3080 and entering "8487475" from two hours after the end of the call until 11:59 p.m. (EST) on March 12, 2007. The replay will also be available at the EXL web site.

About ExlService Holdings, Inc.

ExlService Holdings, Inc. (Nasdaq: EXLS), is a recognized provider of offshore solutions including Business Process Outsourcing (BPO), research and analytics and risk advisory services. It primarily serves the needs of Global 1000 companies in the banking, financial services and insurance sector. EXL is headquartered at 350 Park Avenue, New York, NY. Find additional information about EXL at www.exlservice.com.



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 the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the Company's control. Forward-looking statements include information concerning the Company's possible or assumed future results of operations, including descriptions of its business strategy. These statements often 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 the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect the Company'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 are discussed in more details in the Company's filings with the Securities and Exchange Commission, including the Company's Registration Statement on Form S-1. 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 the Company. The Company 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
                 (Numbers in Thousands except Per Share Data)

                                 Year ended           Three months ended
                                December 31,
             December 31,
                             2006         2005         2006         2005
                         (Unaudited)   (Audited)   (Unaudited)   (Unaudited)

    Total Revenues        $121,768      $73,953      $39,315       $19,979

    Cost of revenues
     (exclusive of
     depreciation and
     amortization)          73,837       47,597       22,459        12,493
    Gross profit            47,931       26,356       16,856         7,486

    Operating expenses:
     General and
      administrative
      expenses              19,180       13,200        6,069         3,493
     Selling and marketing
      expenses               4,740        1,685        1,656           472
     Depreciation and
      amortization           8,940        5,889        2,685         1,411
    Total operating
     expenses               32,860       20,774       10,410         5,376
    Income from operations  15,071        5,582        6,446         2,110

    Other income (expense):
    Foreign exchange
     gain/(loss)              (288)         942          400          (580)
    Interest and other
     income                  1,909          693          996           192
    Interest expense          (580)        (408)        (100)         (125)
    Interest expense-
     redeemable preferred
     stock                       -         (397)           -             -
    Income before income
     taxes                  16,112        6,412        7,742         1,597

    Income tax provision/
     (benefit)               2,055         (647)       1,704        (1,610)
    Net income              14,057        7,059        6,038         3,207

    Dividends and accretion
     on preferred stock       (617)        (249)         (94)         (169)
    Net income to common
     stockholders          $13,440       $6,810       $5,944        $3,038

    Basic earnings per
     share to common
     stockholders           $ 0.59       $ 0.32       $ 0.22         $0.14

    Diluted earnings per
     share to common
     stockholders            $0.58        $0.32        $0.22         $0.14

    Weighted-average number
    of shares used in
    computing earnings
    per share:
    Basic(1) (2)            22,864       21,175       26,663        21,203
    Diluted(1)              23,033       21,591       26,895        21,587

    (1) The number of shares and earnings per share data has been adjusted to
        give effect to a stock split and conversion effected by the Company on
        October 24, 2006 in connection with the consummation of its initial
        public offering.
    (2) As of December 31, 2006, there were 28,262,289 shares of our common
        stock outstanding.


                          EXLSERVICE HOLDINGS, INC.
                         CONSOLIDATED BALANCE SHEETS
                            (Numbers in Thousands)

                                                 December 31,    December 31,
                                                    2006            2005
    Assets                                       (Unaudited)     (Audited)
    Current assets:
    Cash and cash equivalents                      $85,366        $24,241
    Restricted cash                                  1,093            767
    Accounts receivable, net of allowance for
     doubtful accounts                              26,801         14,613
    Accounts receivable from related party             255            149
    Employee receivables                               639            382
    Prepaid expenses                                 1,674          1,038
    Deferred income taxes                            3,571          1,165
    Other current assets                             3,322            959
    Total current assets                           122,721         43,314
    Fixed assets, net                               21,545         16,206
    Intangibles, net of amortization                 1,970              -
    Goodwill                                        16,652              -
    Restricted cash                                    302            211
    Deferred income taxes                              818            871
    Other assets                                     1,601          1,974
    Total assets                                  $165,609        $62,576

    Liabilities and Stockholders' Equity
    Current liabilities:
    Accounts payable                                $3,162        $ 1,392
    Deferred revenue                                 6,377          7,609
    Accrued employee cost                           10,251          3,006
    Other accrued expenses and current liabilities  14,337          6,319
    Income taxes payable                             2,706            778
    Current portion of capital lease obligation        165            215
    Deferred income tax liabilities                    701              -
    Total current liabilities                       37,699         19,319
    Senior long-term debt                                -          5,584
    Capital lease obligations, less current portion    228            256
    Deferred income tax liabilities                    146              -
    Other non current liabilities                      340            402
    Total liabilities                               38,413         25,561
    Preferred Stock                                      -          6,071
    Stockholders' equity                           127,196         30,944
    Total liabilities and stockholders' equity    $165,609        $62,576


                          EXLSERVICE HOLDINGS, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

        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 adjusted operating measures that the Securities and Exchange Commission defines as "non-GAAP financial measures." Management believes that these adjusted financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company's results because the adjustments eliminate the impact of the following two items which are not indicative of the Company's ongoing performance: (i) differences in stock compensation accounting policies between periods and (ii) significant expenses associated with the amortization of Inductis Inc. acquisition-related intangibles. The Company also believes that it is unreasonably difficult to provide its financial outlook in accordance with GAAP for a number of reasons including, without limitation, the Company's inability to predict its future stock-based compensation expense under FAS 123R and the amortization of intangibles associated with further acquisitions. The adjusted financial measures disclosed by the Company 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.

    The following table shows the reconciliation of these adjusted financial
measures from GAAP for the three month period ended December 31, 2006 and
December 31, 2005:
                               ($ in thousands)

                                           Three Months Ended December 31,
                                            2006     Adjustments      2006
                                           US GAAP                  Non-GAAP
    Revenues                               $39,315      $  -         $39,315
    Cost of revenues (exclusive of
     depreciation and amortization)         22,459      (217)(a)      22,242

    Gross profit                            16,856       217          17,073
    Gross Margin %                            42.9%                     43.4%
    Selling, general and administrative
     expenses                                7,725      (477)(a)       7,248
    Depreciation and amortization expense    2,685      (590)(b)       2,095

    Income from operations                   6,446     1,284           7,730
    Operating Margin %                        16.4%                     19.7%


                                           Three Months Ended December 31,
                                            2005     Adjustments      2005
                                           US GAAP                  Non-GAAP
    Revenues                               $19,979      $  -         $19,979
    Cost of revenues (exclusive of
     depreciation and amortization)         12,493         -          12,493

    Gross profit                             7,486         0           7,486
    Gross Margin %                            37.5%                     37.5%
    Selling, general and administrative
     expenses                                3,965       (16)(a)       3,949
    Depreciation and amortization expense    1,411                     1,411

    Income from operations                   2,110        16           2,126
    Operating Margin %                        10.6%                     10.6%


    Note:

The income statement for three months ended December 31, 2005 does not include results from Inductis, Inc. operations

    (a) To exclude stock-based compensation expense under FAS 123R (in 2006)
        and APB 25 (in 2005)
    (b) To exclude amortization of intangibles recorded in the quarter ending
        December 31, 2006 in connection with the Inductis acquisition

The following table shows the reconciliation of these adjusted financial measures from GAAP for the year ended December 31, 2006 and December 31, 2005:

                                                Year Ended December 31,
                                            2006     Adjustments      2006
                                           US GAAP                  Non-GAAP
    Revenues                              $121,768      $  -        $121,768
    Cost of revenues (exclusive of
     depreciation and amortization)         73,837      (465)(a)      73,372

    Gross profit                            47,931       465          48,396
    Gross Margin %                            39.4%                     39.7%
    Selling, general and administrative
     expenses                               23,920    (1,509)(a)      22,411
    Depreciation and amortization expense    8,940    (1,180)(b)       7,760

    Income from operations                  15,071     3,154          18,226
    Operating Margin %                        12.4%                     15.0%

                                                Year Ended December 31,
                                            2005     Adjustments      2005
                                           US GAAP                  Non-GAAP
    Revenues                               $73,953      $  -         $73,953
    Cost of revenues (exclusive of
     depreciation and amortization)         47,597         -          47,597

    Gross profit                            26,356                    26,356
    Gross Margin %                            35.6%                     35.6%
    Selling, general and administrative
     expenses                               14,885       (66)(a)      14,819
    Depreciation and amortization expense    5,889                     5,889

    Income from operations                   5,582        66           5,648
    Operating Margin %                         7.5%                      7.6%

    Note:

The income statement for Year ended December 31, 2005 does not include results from Inductis, Inc. operations

    (a) To exclude stock-based compensation expense under FAS 123R (in 2006)
        and APB 25 (in 2005)
    (b) To exclude amortization of intangibles recorded in the year ending
        December 31, 2006 in connection with the Inductis acquisition

SOURCE
ExlService Holdings, Inc.

CONTACT:
Jarrod Yahes, Head of Investor Relations of ExlService Holdings, Inc., +1-212-277-7109, ir@exlservice.com; Investors: Michael Polyviou, or Press: Kerry Kelly-Guiliano, kerry.guiliano@fd.com, both of Financial Dynamics, +1-617-747-3603