• EXL Reports 2007 First Quarter Results




EXL Reports 2007 First Quarter Results


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May 10, 2007

EXL Reports 2007 First Quarter Results

EXL Reports 2007 First Quarter Results

NEW YORK, May 10 /PRNewswire-FirstCall/ -- ExlService Holdings, Inc. (Nasdaq: EXLS), a recognized provider of offshore solutions, including business process outsourcing, research and analytics and advisory services, today announced its financial results for the quarter ended March 31, 2007.

    The Company's highlights for the first quarter of 2007 include:
     -- Revenues for the quarter increased 85% to $39.9 million from $21.6
        million in the first quarter of 2006 comprised of 65% organic revenue
        growth and 20% acquisition-related revenue growth.
     -- Gross margin for the quarter was 38.6% compared to 35.3% in the first
        quarter of 2006.
     -- Operating margin for the quarter was 12.4% compared to 6.5% in the
        first quarter of 2006; adjusted operating margin for the quarter,
        excluding the impact of stock-based compensation expense and
        amortization of intangibles, was 15.9% compared to 7.5% in the first
        quarter of 2006.
     -- Net income to common stockholders for the quarter was $5.4 million
        compared to $1.9 million in the first quarter of 2006; net income to
        common stockholders for the quarter includes stock-based compensation
        expense and amortization of intangibles of $1.4 million and $0.2
        million in the first quarter of 2007 and 2006, respectively.

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

Vikram Talwar, CEO and Vice-Chairman of EXL, commented: "EXL delivered a strong quarter both financially and operationally. I am enthusiastic about the continued rapid growth in our BPO business during the quarter. The research and analytics business experienced a slow quarter due to a reduction in project-based work, however we continue to succeed in cross-selling our BPO, research and analytics and advisory services to EXL's clients. Our world-class research and analytics and advisory services continue to be strong differentiators for us in the marketplace."

Matt Appel, CFO of EXL, commented: "EXL's first quarter results reflect revenue growth of 85% year over year and strong operating margins that significantly exceeded our expectations for the quarter. Our first quarter results were driven by continued rapid growth and operating leverage in our BPO and advisory business lines. Despite the slowdown for the quarter in the research and analytics business line, EXL delivered operating profit margins that were almost 400 basis points above our stated guidance."

Rohit Kapoor, President of EXL, commented: "The strategic investments we continue to make in our business are expected to enable sustainable and profitable long-term growth. Based on continuing strong demand we are accelerating our infrastructure planning and investment, hiring aggressively at the middle and senior management levels in both operations and enabling functions, and continuing to invest in the sales and marketing and relationship management functions. We expect these investments to deliver attractive, sustainable returns."

    Financial Highlights - First Quarter 2007
     -- Revenues for the quarter ended March 31, 2007 increased 85% to $39.9
        million from $21.6 million in the quarter ended March 31, 2006. BPO
        revenue for the quarter of $32.7 million reflects organic growth of
        67% year over year.  Research and analytics revenue for the quarter of
        $4.2 million is not comparable with the first quarter of 2006 since
        the size of this business line was not significant. Advisory revenue
        of $2.9 million for the quarter reflects organic growth of 100% year
        over year.
     -- Gross margin for the quarter ended March 31, 2007 was 38.6% compared
        to 35.3% in the quarter ended March 31, 2006. Gross margins exceeded
        expectation primarily as a result of continued revenue growth and
        strong infrastructure utilization in our BPO business. BPO gross
        margins for the quarter were 42.4%. Research and analytics gross
        margins for the quarter of 13.4% reflected the impact of lower
        revenues. Advisory gross margins for the quarter were 32.3% reflecting
        strong growth and the impact of costs attributable to staff and
        management additions.
     -- Operating margin for the quarter ended March 31, 2007 was 12.4%,
        compared to 6.5% in the quarter ended March 31, 2006. Adjusted
        operating margin, excluding the impact of stock-based compensation
        expense and amortization of intangibles, for the quarter ended March
        31, 2007 was 15.9% compared to 7.5% in the quarter ended March 31,
        2006. Operating margin was negatively impacted by the reduction in
        gross margins in the research and analytics business line.
     -- Net income to common stockholders for the quarter ended March 31, 2007
        was $5.4 million compared to $1.9 million in the quarter ended March
        31, 2006; net income to common stockholders for the quarter includes
        stock-based compensation expense and amortization of intangibles of
        $1.4 million and $0.2 million in the first quarter of 2007 and 2006,
        respectively.
     -- Revenue generated from our largest client was 28% of total revenues
        for the quarter ended March 31, 2007 compared to 46% for the quarter
        ended March 31, 2006. Revenue generated from our three largest clients
        was 59% of total revenues for the quarter ended March 31, 2007
        compared to 66% for the quarter ended March 31, 2006.

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.

    Business Highlights - First Quarter 2007
     -- Our BPO business line continued to experience rapid revenue growth and
        grew 11% compared to the preceding quarter while maintaining
        operational excellence across all major client relationships.
     -- Our research and analytics business line experienced a significant
        reduction in project-based revenue from a major customer during the
        quarter. However, this business line continued to win new business
        involving services that are long-term in nature. For example, we
        signed a three-year agreement to provide modeling and claims analytics
        services for a leading U.S. insurance company. The research and
        analytics business line earned revenue from ten new clients in the
        first quarter in addition to cross-selling to three clients that were
        existing BPO clients.
     -- Our advisory business line achieved record quarterly revenues and
        successfully mitigated the seasonality the business has historically
        experienced by diversifying its service offerings. During the quarter,
        our advisory business line increased the scope of its finance and
        accounting services for a leading insurance company and expanded its
        compliance assistance for a global mail management company.

As of March 31, 2007, EXL had approximately 9,000 total employees, an increase of 45% from approximately 6,200 total employees at March 31, 2006. The Company's headcount during the first quarter of 2007 increased by approximately 800 employees from the end of the preceding quarter. The attrition rate for billable employees during the first quarter of 2007 was 43.7% as compared to 41.9% in the fourth quarter of 2006. We believe that the nominal increase in attrition is the result of an increasingly competitive environment for our India-based employees and does not pose a risk to service delivery quality for our clients.

2007 Outlook

Based on current visibility, the Company is providing the following guidance:

     -- Calendar year 2007 revenue and adjusted operating margin guidance
        remain unchanged.
     -- Second quarter of 2007 expectation that operating margin will be
        negatively impacted by currency movement and softness in the research
        and analytics business line.

    Conference Call

EXL will host a conference call on Thursday, May 10, 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 +1-888-873-4896 or 1-617-213-8850 and reference "EXLS". For those who cannot access the live broadcast, a replay will be available by dialing +1-888-286-8010 or +1-617-801-6888 and entering "38402507" from two hours after the end of the call until 11:59 p.m. (EDT) on May 24, 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 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 Annual Report on Form 10-K for the year ended December 31, 2006. 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
                                 (UNAUDITED)

                                                    Three months ended
                                                         March 31,
                                                    2007           2006

    Total revenues                               $39,854,448   $21,557,984
    Cost of revenues (exclusive of depreciation
     and amortization)                            24,481,968    13,945,943
    Gross profit                                  15,372,480     7,612,041

    Operating expenses:
       General and administrative expenses         6,035,547     3,675,030
       Selling and marketing expenses              1,963,530       762,191
       Depreciation and amortization               2,440,902     1,764,731
    Total operating expenses                      10,439,979     6,201,952
    Income from operations                         4,932,501     1,410,089
    Other income (expense):
       Foreign exchange gain                         570,107       400,821
       Interest and other income                   1,007,802       237,623
       Interest expense                              (17,521)     (102,019)
    Income before income taxes                     6,492,889     1,946,514
    Income tax provision/(benefit)                 1,084,263      (166,768)
    Net income                                     5,408,626     2,113,282
    Dividends and accretion on preferred stock             -      (168,728)
    Net income to common stockholders             $5,408,626    $1,944,554
    Basic earnings per share to common
     stockholders                                      $0.19         $0.09
    Diluted earnings per share to common
     stockholders                                      $0.19         $0.09
    Weighted-average number of shares used in
     computing earnings per share:
          Basic (1)                               28,141,321    21,211,012
          Diluted (1)                             29,084,264    21,683,116

    (1) The number of shares and earnings per share data as at March 31, 2006
        has been adjusted to reflect the stock split and conversion effected
        by the Company in connection with its October 2006 initial public
        offering.



                          EXLSERVICE HOLDINGS, INC.
                         CONSOLIDATED BALANCE SHEETS

                                                  March 31,    December 31,
                                                    2007           2006
    Assets                                       (Unaudited)     (Audited)
    Current assets:
       Cash and cash equivalents                 $73,927,180   $85,366,103
       Restricted cash                               417,946     1,093,277
       Accounts receivable, net of allowance for
        doubtful accounts of $22,539 at March 31,
        2007 and $100,828 at December 31, 2006    34,995,770    26,801,058
       Accounts receivable from related parties      312,342       254,803
       Employee receivables                          831,528       638,589
       Prepaid expenses                            1,578,124     1,673,721
       Deferred tax assets                         3,479,167     3,570,990
       Other current assets                        2,236,267     3,321,992
    Total current assets                         117,778,324   122,720,533

    Fixed assets, net                             23,429,313    21,545,324
    Intangibles, net of amortization               1,380,000     1,970,000
    Goodwill                                      16,585,487    16,651,462
    Restricted cash                                  330,877       302,160
    Deferred tax assets                            1,275,843       818,219
    Other assets                                   5,488,745     1,601,244
    Total assets                                $166,268,589  $165,608,942


    Liabilities and Stockholders' Equity
    Current liabilities:
       Accounts payable                           $3,032,113    $3,161,942
       Deferred revenue                            5,864,736     6,376,725
       Accrued employee cost                       5,752,992    10,251,197
       Other accrued expenses and current
        liabilities                                7,955,351    14,336,829
       Income taxes payable                        1,793,281     2,705,326
       Current portion of capital lease obligation   111,636       165,995
       Deferred tax liabilities                      509,450       700,901
    Total current liabilities                     25,019,559    37,698,915
    Capital lease obligations, less current
     portion                                         195,501       227,651
    Deferred tax liabilities                          73,101       146,200
    Other non current liabilities                    410,910       339,715
    Total liabilities                             25,669,071    38,412,481
    Stockholders' equity:
       Common stock, $0.001 par value; 100,000,000
        shares authorized, 28,609,638 shares issued
        and outstanding as of March 31, 2007 and
        28,262,289 shares issued and outstanding
        as of December 31, 2006                       28,610        28,263
       Additional paid-in capital                104,772,151    98,429,374
       Retained earnings                          34,073,274    28,664,647
       Accumulated other comprehensive
        income (loss)                              1,730,999       109,693
                                                 140,605,034   127,231,977
       Less: 149,138 shares as at March 31,
        2007 and December 31, 2006, held in
        treasury, at cost                            (35,516)      (35,516)

    Total stockholders' equity                   140,569,518   127,196,461
    Total liabilities and stockholders' equity  $166,268,589  $165,608,942



                          EXLSERVICE HOLDINGS, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
        Reconciliation of Adjusted Financial Measures to GAAP Measures

To supplement the consolidated financial statements presented in accordance with GAAP, this press release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: non-GAAP operating margin and non-GAAP diluted earnings per share. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures, the financial statements prepared in accordance with GAAP and reconciliations of EXL's GAAP financial statements to such non-GAAP measures should be carefully evaluated.

For its internal management reporting and budgeting purposes, EXL's management uses financial statements that do not include stock-based compensation expense related to employee stock options and amortization of acquisition-related intangibles for financial and operational decision making, to evaluate period-to-period comparisons or for making comparisons of EXL's operating results to that of its competitors. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting FAS 123( R ), EXL's management believes that providing a non-GAAP financial measure that excludes stock-based compensation and amortization of acquisition-related intangibles allows investors to make additional comparisons between EXL's operating results to those of other companies. 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 123( R ) and the amortization of intangibles associated with further acquisitions. Accordingly, EXL believes that the presentation of non-GAAP operating margin and non-GAAP diluted earnings per share, when read in conjunction with the Company's reported results, can provide useful supplemental information to investors and management regarding financial and business trends relating to its financial condition and results of operations.

A limitation of using non-GAAP operating margin and non-GAAP diluted earnings per share versus operating margin and diluted earnings per share calculated in accordance with GAAP is that non-GAAP operating margin and non- GAAP diluted earnings per share exclude costs, namely, stock-based compensation, that are recurring. Stock-based compensation has been and will continue to be a significant recurring expense in EXL's business for the foreseeable future. Management compensates for this limitation by providing specific information regarding the GAAP amounts excluded from non-GAAP operating margin and non-GAAP diluted earnings per share and evaluating such non-GAAP financial measures with financial measures calculated in accordance with GAAP.

    The following table shows the reconciliation of these adjusted financial
measures from GAAP for the three month periods ended March 31, 2007 and March
31, 2006:


                               ($ in thousands)

                                              Three Months Ended March 31,
                                             2007     Adjustments     2007
                                            US GAAP                Non-GAAP
    Revenues                                $39,854        -        $39,854
    Cost of revenues (exclusive of
     depreciation and amortization)          24,482      (212)(a)    24,270

    Gross profit                             15,372       212        15,584
    Gross Margin %                            38.6%                   39.1%
    Selling, general and administrative
     expenses                                 7,998      (616)(a)     7,382
    Depreciation and amortization expense     2,441      (590)(b)     1,851

    Income from operations                   $4,933     1,418        $6,351
    Operating Margin %                        12.4%                   15.9%



                                                Three Months Ended March 31,
                                               2006    Adjustments     2006
                                             US GAAP                 Non-GAAP
    Revenues                                 $21,558       $-         $21,558
    Cost of revenues (exclusive of
     depreciation and amortization)           13,946        -          13,946

    Gross profit                               7,612         0          7,612
    Gross Margin %                             35.3%                    35.3%
    Selling, general and administrative
     expenses                                  4,437      (200)(a)      4,237
    Depreciation and amortization expense      1,765                    1,765

    Income from operations                    $1,410       200         $1,610
    Operating Margin %                          6.5%                     7.5%

    (a) To exclude stock-based compensation expense under FAS 123(R).
    (b) To exclude amortization of intangibles recorded in the quarter ending
        March 31, 2007 in connection with the Inductis acquisition.

    Note: The income statement for the three months ended March 31, 2006 does
          not include Inductis, Inc.

SOURCE
ExlService Holdings, Inc.

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