• EXL Reports 2007 Third Quarter Results




EXL Reports 2007 Third Quarter Results


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Nov 13, 2007

EXL Reports 2007 Third Quarter Results

EXL Reports 2007 Third Quarter Results

NEW YORK, Nov. 13 /PRNewswire-FirstCall/ -- ExlService Holdings, Inc. (Nasdaq: EXLS), a recognized business solutions provider, today announced its financial results for the quarter ended September 30, 2007.

Highlights of the Company's financial performance for the third quarter of 2007 include:

     * Revenues for the quarter were $46.6 million and increased 8.4% compared
       to the preceding quarter.
     * Gross margin for the quarter increased 290 basis points to 36.0% from
       33.1% in the preceding quarter.
     * Operating margin for the quarter was 10.0% compared to 6.1% in the
       preceding quarter; adjusted operating margin, excluding the impact of
       stock-based compensation expense and amortization of intangibles, for
       the quarter increased 300 basis points to 13.0% from 10.0% in the
       preceding quarter.
     * Diluted earnings per share to common stockholders was $0.21 for the
       quarter.

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 performed extremely well this quarter and established new relationships with seven clients including three in specific areas of strategic focus. We strengthened our leadership position in the insurance vertical by winning a deal with a leading U.S. insurance carrier, won an important finance and accounting transaction with a global investment bank, and entered into the telecommunications vertical by closing a large deal with a leading UK wireless telecommunications provider. Our hiring in sales and marketing continues to be strong as we execute our plan for talent acquisition to facilitate long-term growth."

Rohit Kapoor, President and COO of EXL, commented: "To accelerate growth with our existing clients, EXL doubled the number of professionals and subject matter experts in our Strategic Account Management function this quarter with a focus on delivering the full breadth of our solution set to key verticals. From an operating perspective, we are pleased to report another quarter of decreased attrition. EXL has also made significant progress toward the opening of our operations in the Philippines scheduled for the end of the second quarter of 2008."

Matt Appel, CFO of EXL, commented: "EXL's revenue and margins were above expectations this quarter. As a result, we are revising upward our 2007 revenue guidance to between $176 million and $178 million from $168 million to $172 million previously. In addition, despite the continued strong rupee, we are maintaining our adjusted operating margin guidance at 12% for the year."

    Financial Highlights - Third Quarter 2007
     * Revenues for the quarter ended September 30, 2007 increased 31% to
       $46.6 million from $35.7 million in the quarter ended September 30,
       2006. BPO revenue for the quarter of $38.0 million reflects growth of
       46% year over year and represented 82% of our revenues.  Research and
       Analytics revenue for the quarter of $5.3 million decreased 23% year
       over year but increased 23% as compared to the preceding quarter.
       Advisory revenue of $3.3 million for the quarter reflects growth of 24%
       year over year.
     * Gross margin for the quarter ended September 30, 2007 was 36.0%
       compared to 39.7% in the quarter ended September 30, 2006 and 33.1% in
       the quarter ended June 30, 2007. BPO gross margin for the quarter was
       35.8%. Research and analytics gross margin for the quarter of 31.9%
       reflects better staff utilization and a significant revenue increase as
       compared to the preceding quarter. Advisory gross margin for the
       quarter was 44.1% reflecting the impact of a change in bonus allocation
       methodology among business lines as compared to last quarter.
     * Operating margin for the quarter ended September 30, 2007 was 10.0%,
       compared to 11.6% in the quarter ended September 30, 2006 and 6.1% in
       the quarter ended June 30, 2007. Adjusted operating margin, excluding
       the impact of stock-based compensation expense and amortization of
       intangibles, for the quarter ended September 30, 2007 was 13.0%
       compared to 15.7% in the quarter ended September 30, 2006 and 10.0% in
       the quarter ended June 30, 2007. Operating margin improved in the third
       quarter as compared to the preceding quarter as a result of strong
       revenue growth and increased efficiency and operating leverage across
       the company.
     * Net income to common stockholders for the quarter ended September 30,
       2007 was $6.2 million compared to $4.1 million in the quarter ended
       September 30, 2006 and $5.6 million in the quarter ended June 30, 2007;
       net income to common stockholders for the quarter includes stock-based
       compensation expense and amortization of intangibles in an aggregate
       amount of $1.4 million and $1.5 million in the third quarter of 2007
       and 2006, respectively and $1.7 million in the second quarter of 2007.
       Net income benefited by approximately $2.3 million of foreign exchange
       gains during the quarter. Net income for the quarter ended September
       30, 2007 was negatively impacted by income tax expense of $1.7 million,
       representing an effective tax rate of 22%, as a result of changes in
       the geographic distribution of our income and the impact of foreign
       exchange fluctuations. Diluted earnings per share was $0.21 for the
       quarter ended September 30, 2007.
     * Revenue generated from our largest client was 27% of total revenues for
       the quarter ended September 30, 2007 compared to 29% for the quarters
       ended September 30, 2006 and June 30, 2007. Revenue generated from our
       ten largest clients was 81% of total revenues for the quarter ended
       September 30, 2007 compared to 85% for the quarter ended September 30,
       2006 and 81% for the quarter ended June 30, 2007.

    Business Highlights - Third Quarter 2007
     * Our BPO business line comprised 82% of our revenues for the third
       quarter and grew 46% year over year. Our BPO business line migrated 24
       new processes for 7 existing clients. EXL won BPO relationships with a
       leading U.S. insurance client, a finance and accounting transaction
       with a global investment bank, and entered into a relationship with a
       leading UK wireless telecommunications provider.
     * Our advisory business line experienced strong performance and we
       continue to invest in the future growth of this business line. We have
       introduced new technology and a software partnership to enable more
       effective dual-shore delivery capability for our risk advisory
       services. Organizationally, we have added a business development and
       operations team to be geographically focused on growing risk advisory
       services in the UK where we believe the opportunity is significant.
     * As expected, the research and analytics business line experienced
       improved results during the third quarter and has more effectively
       diversified the revenue stream. We continue to focus on cross-selling
       to existing clients as well as securing new client relationships

As of September 30, 2007, EXL had a headcount of approximately 10,000 individuals (including personnel managed under structured client service agreements), an increase of 27% from approximately 7,900 at September 30, 2006. The attrition rate for billable employees during the third quarter of 2007 declined to 39% as compared to 42% in the second quarter of 2007.

    2007 Outlook
    Based on current visibility, the Company is providing the following
    guidance:
     * Calendar year 2007 revenue revised upwards to between $176 million
       to $178 million.
     * Calendar year 2007 adjusted operating margin remains unchanged at 12%.
     * Calendar year 2007 GAAP EPS revised upwards to between $0.76 and $0.80
       per diluted share.

    Conference Call

EXL will host a conference call on Tuesday, November 13, at 8:30 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 1-800-573-4754 or 1-617-224-4325 and entering "67280483." 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 "97350560" from two hours after the end of the call until 11:59 p.m. (EST) on November 20, 2007. The replay will also be available at the EXL web site.

About ExlService Holdings, Inc.

ExlService Holdings, Inc. (Nasdaq: EXLS) is a recognized business solutions provider. EXL's offerings provide a competitive edge to its clients by transforming and outsourcing business processes. Transformation services enable continuous improvement of client processes by bringing together EXL's capabilities in reengineering including Six Sigma process improvement, research & analytics, and risk advisory services. EXL's outsourcing services include a full spectrum of business process services from offshore delivery centers requiring ongoing process management skills. Headquartered in New York, EXL primarily serves the needs of Global 1000 companies in the banking, financial services, insurance, utilities, healthcare, telecommunications and transportation sectors. 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           Nine months ended
                              September 30,               September 30,
                           2007          2006           2007          2006
    Revenues           $46,090,300   $35,081,504   $128,240,552   $81,189,101
    Revenues (from
     related parties)      538,750       583,541      1,262,785     1,264,186

    Total revenues     $46,629,050   $35,665,045   $129,503,337   $82,453,287
    Cost of revenues
     (exclusive of
     depreciation and
     amortization)      29,852,667    21,490,479     83,133,280    51,378,118
    Gross profit        16,776,383    14,174,566     46,370,057    31,075,169
    Operating expenses:
      General and
       administrative
       expenses          6,990,766     5,802,239     19,831,654    13,110,619
      Selling and
       marketing
       expenses          2,556,621     1,635,644      6,547,878     3,083,744
      Depreciation and
       amortization      2,560,476     2,614,929      7,765,413     6,254,903
    Total operating
     expenses           12,107,863    10,052,812     34,144,945    22,449,266
    Income from
     operations          4,668,520     4,121,754     12,225,112     8,625,903
    Other income
     (expense):
      Foreign exchange
       gain (loss)       2,267,805        11,681      5,132,816      (688,213)
      Interest and
       other income      1,028,192       310,945      3,054,776       912,327
      Interest expense     (12,837)     (275,310)       (39,917)     (479,077)
    Income before
     income taxes        7,951,680     4,169,070     20,372,787     8,370,940
    Income tax
     provision/
     (benefit)           1,712,240      (152,084)     3,104,673       351,344
    Net income           6,239,440     4,321,154     17,268,114     8,019,596
    Dividends and
     accretion on
     preferred stock             -      (180,794)             -      (523,173)
    Net income to
     common
     stockholders       $6,239,440    $4,140,360    $17,268,114    $7,496,423
    Basic earnings
     per share to
     common
     stockholders            $0.22         $0.19          $0.61         $0.35
    Diluted earnings
     per share to
     common
     stockholders            $0.21         $0.19          $0.59         $0.34
    Weighted-average
     number of shares
     used in computing
     earnings per share:
      Basic (1)         28,644,120    21,603,812     28,387,242    21,583,084
      Diluted (1)       29,115,603    21,997,319     29,096,915    21,912,253

    (1) The number of shares and earnings per share data for the three and
        nine months ended September 30, 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

                                                  September 30,  December 31,
                                                       2007          2006
                                                   (Unaudited)     (Audited)
    Assets
    Current assets:
      Cash and cash equivalents                    $91,015,943   $85,366,103
      Restricted cash                                  495,439     1,093,277
      Accounts receivable, net of allowance for
       doubtful accounts of $27,542 at September
       30, 2007 and $100,828 at December 31, 2006   39,138,896    26,801,058
      Accounts receivable from related parties         466,692       254,803
      Employee receivables                           1,076,522       638,589
      Prepaid expenses                                 881,938     1,673,721
      Deferred tax assets                            3,833,839     3,570,990
      Other current assets                           8,213,152     3,321,992

    Total current assets                           145,122,421   122,720,533
    Fixed assets, net                               23,749,478    21,545,324
    Intangibles, net                                   565,000     1,970,000
    Goodwill                                        16,785,487    16,651,462
    Restricted cash                                    289,499       302,160
    Deferred tax assets                              2,661,870       818,219
    Other assets                                     6,968,475     1,601,244
    Total assets                                  $196,142,230  $165,608,942
    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                              $1,613,595    $3,161,942
      Deferred revenue                               4,288,146     6,376,725
      Accrued employee cost                         11,922,162    10,251,197
      Other accrued expenses and current
       liabilities                                  13,115,860    14,336,829
      Income taxes payable                           1,062,720     2,705,326
      Current portion of capital lease obligation      140,570       165,995
      Deferred tax liabilities                         159,000       700,901
    Total current liabilities                       32,302,053    37,698,915
    Capital lease obligations, less current
     portion                                           298,988       227,651
    Deferred tax liabilities                            73,101       146,200
    Other non current liabilities                      448,517       339,715
    Total liabilities                               33,122,659    38,412,481
    Stockholders' equity:
      Common stock, $0.001 par value; 100,000,000
       shares authorized, 28,825,204 shares issued
       and outstanding as at September 30, 2007
       and 28,262,289 shares issued and outstanding
       as at December 31, 2006                          28,825        28,263
      Additional paid-in capital                   109,005,649    98,429,374
      Retained earnings                             45,932,761    28,664,647
      Accumulated other comprehensive
       income/(loss)                                 8,368,269       109,693
                                                   163,335,504   127,231,977
      Less: 163,690 shares as at September 30,
       2007 and 149,138 shares at December 31,
       2006, held in treasury, at cost                (315,933)      (35,516)
    Total stockholders' equity                     163,019,571   127,196,461
    Total liabilities and stockholders' equity    $196,142,230  $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. 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, 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 versus operating margin calculated in accordance with GAAP is that non-GAAP operating margin 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 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 months ended September 30, 2007, September
30, 2006 and June 30, 2007:



                               ($ in thousands)

                                            Three Months Ended September 30,
                                              2007    Adjustments      2007
                                            US GAAP                 Non-GAAP
    Revenues                                $46,629         $-       $46,629
    Cost of revenues (exclusive of
     depreciation and amortization)          29,853       (313)(a)    29,540

    Gross profit                             16,776        313        17,089
    Gross Margin %                             36.0%                    36.6%
    Selling, general and administrative
     expenses                                 9,547       (846)(a)     8,701
    Depreciation and amortization expense     2,560       (225)(b)     2,335

    Income from operations                   $4,669     $1,384        $6,052
    Operating Margin %                         10.0%                    13.0%


                                            Three Months Ended September 30,
                                              2006    Adjustments      2006
                                            US GAAP                 Non-GAAP
    Revenues                                $35,665         $-       $35,665
    Cost of revenues (exclusive of
     depreciation and amortization)          21,490       (220)(a)    21,270

    Gross profit                             14,175        220        14,395
    Gross Margin %                             39.7%                    40.4%
    Selling, general and administrative
     expenses                                 7,438       (659)(a)     6,779
    Depreciation and amortization expense     2,615       (590)(b)     2,025

    Income from operations                   $4,123     $1,469        $5,591
    Operating Margin %                         11.6%                    15.7%


                                              Three Months Ended June 30,
                                              2007    Adjustments      2007
                                            US GAAP                 Non-GAAP
    Revenues                                $43,020         $-       $43,020
    Cost of revenues (exclusive of
     depreciation and amortization)          28,799       (289)(a)    28,510

    Gross profit                             14,221        289        14,510
    Gross Margin %                             33.1%                    33.7%
    Selling, general and administrative
     expenses                                 8,833       (802)(a)     8,031
    Depreciation and amortization expense     2,764       (590)(b)     2,174

    Income from operations                   $2,624     $1,681        $4,305
    Operating Margin %                          6.1%                    10.0%

    (a) To exclude stock-based compensation expense under FAS 123( R ).
    (b) To exclude amortization of intangibles recorded 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; or Media, Kerry Kelly-
Guiliano of Financial Dynamics, +1-617-747-3603, kerry.guiliano@fd.com, for
ExlService Holdings, Inc./
/Web site: http://www.exlservice.com /
(EXLS)