• EXL Reports 2008 Second Quarter Results




EXL Reports 2008 Second Quarter Results


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Aug 06, 2008

EXL Reports 2008 Second Quarter Results

EXL Reports 2008 Second Quarter Results

EXL Reports 2008 Second Quarter Results

Second Quarter Revenues Grew 25% Year Over Year Adjusted Income From Operations Increased 71% Year Over Year

NEW YORK, Aug. 6 /PRNewswire-FirstCall/ -- ExlService Holdings, Inc. (Nasdaq: EXLS), a leading provider of Outsourcing and Transformation Services, today announced its financial results for the quarter ended June 30, 2008.

    The Company's financial highlights for the second quarter of 2008 include:
    -- Revenues for the quarter increased 25.1% to $53.8 million from $43.0
       million in the quarter ended June 30, 2007.
    -- Gross margin for the quarter was 37.0% compared to 33.1% in the quarter
       ended June 30, 2007.
    -- Operating margin for the quarter was 9.8% compared to 6.1% in the
       quarter ended June 30, 2007; adjusted operating margin for the quarter,
       excluding the impact of stock-based compensation expense and
       amortization of intangibles, was 13.7% compared to 10.0% in the quarter
       ended June 30, 2007.
    -- Income from operations for the quarter was $5.3 million compared to
       $2.6 million for the quarter ended June 30, 2007; adjusted income from
       operations, excluding the impact of stock-based compensation expense
       and amortization of intangibles, for the quarter was $7.4 million
       compared to $4.3 million for the quarter ended June 30, 2007.
    -- Net income to common stockholders for the quarter was $5.3 million
       compared to $5.6 million in the quarter ended June 30, 2007.
    -- Diluted GAAP earnings per share to common stockholders was $0.18 for
       the quarter compared to $0.19 in the quarter ended June 30, 2007;
       adjusted earnings per share on a diluted basis, excluding the impact of
       stock-based compensation expense and amortization of intangibles, was
       $0.23 for the quarter compared to $0.24 in the quarter ended June 30,
       2007.

Reconciliations of adjusted financial measures to GAAP are included at the end of this release. Effective April 1, 2008 the Company has revised its three previous reporting segments into two segments, Outsourcing Services and Transformation Services, to match the way our business now operates and markets its products.

Rohit Kapoor, President and CEO of EXL, commented: "As the economic environment in the US, UK and Europe continues to become more challenging, our clients are actively seeking strategic cost management solutions. We are pleased that EXL's vision of delivering both Outsourcing and Transformation services is playing well to this market trend. Our performance this quarter was led by rapid growth in our Transformation business across a well diversified base of client relationships. From an operational perspective, this quarter we are proud to have achieved record low attrition levels and at the same time we have improved our margins. With the resolution of Aviva's strategic review process and the extension of our contract with two of our largest customers, EXL is now fully focused on adding new client relationships and growing our business. We have an extremely strong balance sheet and are well positioned to execute strategic acquisitions and continue to make growth- oriented investments."

Matt Appel, CFO of EXL, commented: "EXL's second quarter financial results reflect strong profitability performance. Our adjusted operating margins for the second quarter of 2008 expanded to 13.7% from 10.0% a year earlier despite the annual wage increases granted during the quarter as well as the headwind related to the opening of our Philippines facility in April 2008. We are particularly pleased with the growth in our adjusted operating margin which reflects the operating performance of our business. As a result of one time charges related to the transfer of the Aviva Pune BOT, the volatile foreign exchange environment and lower volumes expected at select clients in the second half of 2008 we are adjusting our guidance for 2008. We continue to believe that the fundamentals of our business model, including our long term growth rate and adjusted operating margins, are intact."



    Financial Highlights - Second Quarter 2008

    -- Revenues for the quarter ended June 30, 2008 increased 25.1% to $53.8
       million from $43.0 million in the quarter ended June 30, 2007. Second
       quarter revenues grew by 5.6% as compared to the quarter ended March
       31, 2008 due to sequential revenue growth of 14.3% in Transformation
       Services and 3.6% in Outsourcing Services.
    -- Gross margin for the quarter ended June 30, 2008 was 37.0% compared to
       33.1% for the quarter ended June 30, 2007 and 36.5% for the quarter
       ended March 31, 2008. Second quarter 2008 gross margin increased as
       compared to the previous quarter due to the positive impact of exchange
       rates during the quarter offset by company-wide annual wage increases
       and costs associated with the opening of our new Philippines facility.
    -- Operating margin for the quarter ended June 30, 2008 was 9.8%, compared
       to 6.1% for the quarter ended June 30, 2007 and 9.9% for the quarter
       ended March 31, 2008. Second quarter 2008 operating margin remained
       equal with the previous quarter as a result of increased gross margins
       and favorable exchange rate movements offset by increased stock
       compensation expense for 2008 grants and costs related to the opening
       of our new Philippines facility. Adjusted operating margin, excluding
       the impact of stock-based compensation expense and amortization of
       intangibles, for the quarter ended June 30, 2008 was 13.7% compared to
       10.0% for the quarter ended June 30, 2007 and 12.3% for the quarter
       ended March 31, 2008.
    -- Net income to common stockholders for the quarter ended June 30, 2008
       was $5.3 million compared to $5.6 million for the quarter ended June
       30, 2007 and $6.8 million for the quarter ended March 31, 2008. Net
       income for the second quarter of 2008 was negatively impacted as
       compared to the quarter ended March 31, 2008 by foreign exchange losses
       (on hedge contracts and non-cash balance sheet revaluation) related to
       the significant depreciation of the Indian rupee and Philippine peso
       during the second quarter.
    -- Adjusted earnings per share, excluding the impact of stock-based
       compensation expense and amortization of intangibles, for the quarter
       ended June 30, 2008 was $0.23 as compared to $0.24 for the quarter
       ended June 30, 2007 and $0.26 for the quarter ended March 31, 2008.
    -- Revenues generated from our largest client represented 22.3% of total
       revenues for the quarter ended June 30, 2008 as compared to 28.8% for
       the quarter ended June 30, 2007. Revenues generated from our three
       largest clients represented 51.5% of total revenues for the quarter
       ended June 30, 2008 as compared to 59.4% for the quarter ended June 30,
       2007.


    Business Highlights - Second Quarter 2008

    -- We experienced record low quarterly attrition of 29% compared to 32%
       for the first quarter of 2008 and 42% for the second quarter of 2007.
       As of June 30, 2008, EXL had a headcount of approximately 10,600
       individuals (including personnel managed under structured client
       service agreements) representing an increase of approximately 100 from
       the first quarter of 2008.
    -- In an environment where new customer contracts have been delayed and
       ramp ups on existing clients have been slower than anticipated, we
       have:
        -- Signed two new Outsourcing Services clients and three new
           Transformation Services clients.
        -- Signed contracts with two additional existing insurance clients to
           deliver Outsourcing Services from our new Philippines facility.
        -- Entered into contract extensions with our two largest clients:
           Aviva through February 2012 and Centrica through January 2010.
    -- Appointed Kiran Karnik as an independent director on EXL's board with
       effect from September 25, 2008. Mr. Karnik was the immediate past
       President of NASSCOM, India's industry body representing companies in
       the information technology (IT) and IT-enabled services sectors.


    2008 Outlook

Based on current visibility, the Company is providing the following guidance for calendar year 2008 based on current exchange rates:

    -- Revenues of $200 to $205 million. Adjustment to our previous guidance
       is due to lower volumes expected at select clients during the second
       half of 2008.
    -- Maintaining guidance for adjusted operating margin, excluding the
       impact of stock-based compensation expense and amortization of
       intangibles, at 12.0%
    -- GAAP EPS of $0.65 per diluted share.  The change in GAAP EPS guidance
       is primarily attributable to:
        -- One-time charges of $0.09 comprised of:
           -- Capital gains and dividend distribution taxes arising from the
              transfer of the Aviva Pune BOT of $0.07. Indian tax law imposes
              a capital gains tax on the difference between the value of an
              entity calculated pursuant to certain government regulations and
              the original investment and a separate tax on dividends paid by
              a subsidiary to its parent company.
           -- Transaction costs of $0.02 related to the recent sale of Aviva's
              offshore business.
        -- Losses on foreign exchange hedge contracts and non-cash balance
           sheet revaluation of $0.03 due to timing and volume mismatches for
           the various currencies in which we conduct our business.
        -- Lower volumes at select clients of $0.03.
        -- Timing of revenues and higher costs associated with the opening of
           our Philippines facility of $0.03.
    -- Calendar year guidance includes approximately $16 million of revenue,
       and $0.06 of GAAP EPS related to the Aviva Pune BOT. The subsidiary
       that operates the Aviva Pune BOT is expected to transfer on August 11,
       2008.


    Conference Call

EXL will host a conference call on Thursday, August 7, at 10:00 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 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 +1-800-573-4840 or 1-617-224-4326 and enter "80598656". 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 enter "47181985" from two hours after the end of the call until 11:59 p.m. (EDT) on August 14, 2008. The replay will also be available at the EXL web site.

About ExlService Holdings, Inc.

ExlService Holdings, Inc. (Nasdaq: EXLS) is a leading provider of Outsourcing and Transformation Services. EXL's Outsourcing Services include a full spectrum of business process outsourcing services from offshore delivery centers requiring ongoing process management skills. 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. Headquartered in New York, EXL primarily serves the needs of Global 1000 companies in the insurance, utilities, financial services, 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, 2007. 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            Six months ended
                                   June 30,                    June 30,
                             2008          2007           2008          2007
    Revenues          $53,815,795   $42,646,251   $104,764,425   $82,150,252
    Revenues
    (from related
     parties)                   -       373,588              -       724,035
    Total revenues    $53,815,795   $43,019,839   $104,764,425   $82,874,287
    Cost of revenues
     (exclusive of
      depreciation and
      amortization)    33,911,941    28,798,645     66,276,768    53,280,613
    Gross profit       19,903,854    14,221,194     38,487,657    29,593,674
    Operating expenses:
      General and
       administrative
       expenses         8,599,809     6,805,341     17,064,858    12,840,888
      Selling and
       marketing
       expenses         2,910,467     2,027,727      5,284,817     3,991,257
      Depreciation and
       amortization     3,133,158     2,764,035      5,836,197     5,204,937
    Total operating
     expenses          14,643,434    11,597,103     28,185,872    22,037,082
    Income from
     operations         5,260,420     2,624,091     10,301,785     7,556,592
    Other income/(expense):
      Foreign exchange
       gain/(loss)       (143,581)    2,294,904      1,673,227     2,865,011
      Interest and other
       income             611,446     1,018,782      1,191,924     2,026,584
      Interest expense     (7,631)       (9,559)       (41,931)      (27,080)
    Income before income
     taxes              5,720,654     5,928,218     13,125,005    12,421,107
    Income tax provision/
     (benefit)            456,582       308,170      1,061,121     1,392,433
    Net income to common
     stockholders      $5,264,072    $5,620,048    $12,063,884   $11,028,674
    Basic earnings per
     share to common
     stockholders           $0.18         $0.20          $0.42         $0.39
    Diluted earnings per
     share to common
     stockholders           $0.18         $0.19          $0.41         $0.38
       Basic           28,799,510    28,495,781     28,778,337    28,319,530
       Diluted         29,351,038    29,210,372     29,321,982    29,050,897


    Note: Amounts may not foot due to rounding.



                          EXLSERVICE HOLDINGS, INC.
                         CONSOLIDATED BALANCE SHEETS
                                 (UNAUDITED)

                                        June 30,           December 31,
                                          2008                2007
                                      (Unaudited)           (Audited)
    Assets
    Current assets:
      Cash and cash equivalents      $97,666,533           $102,209,734
      Restricted cash                    242,871                285,089
      Short-term investments             258,368                252,561
      Accounts receivable, net of
       allowance for doubtful accounts
       of $126,030 at June 30, 2008 and
       of $85,539 at December 31,
       2007                           43,985,148             38,513,774
      Accounts receivable from
       related parties                         -                338,629
      Employee receivables               483,474                225,624
      Prepaid expenses                 2,389,727              2,947,064
      Deferred tax assets              3,373,595              3,279,715
      Prepaid income tax                 533,959                      -
      Other current assets             1,987,142              7,541,165
    Total current assets             150,920,817            155,593,355
    Fixed assets, net                 27,797,270             25,244,603
    Intangibles, net of amortization     101,247                340,000
    Goodwill                          17,695,657             16,785,487
    Restricted cash                      324,911                304,316
    Deferred tax assets                4,879,548              4,498,449
    Other assets                       9,956,772              8,047,497
    Total assets                    $211,676,222           $210,813,707
    Liabilities and Stockholders'
     Equity Current liabilities:
      Accounts payable                $1,981,704             $6,389,425
      Deferred revenue                 4,056,755              4,440,261
      Accrued employee cost           10,832,758             13,774,306
      Other accrued expenses and
       current liabilities            22,370,751             10,563,187
      Income taxes payable                     -                729,715
      Current portion of capital
       lease obligation                  118,881                125,960
    Total current liabilities         39,360,849             36,022,854
    Capital lease obligations,
     less current portion                226,965                258,399
    Other non current liabilities      5,655,728                552,685
    Total liabilities                 45,243,542             36,833,938
    Preferred stock, $0.001 par value;
     15,000,000 shares authorized              -                      -
    Stockholders' equity:
      Common stock, $0.001 par value;
       100,000,000 shares authorized,
       28,980,198 shares issued and
       outstanding as of June 30, 2008
       and 28,891,043 shares issued and
       outstanding as of December 31,
       2007                               28,980                 28,891
      Additional paid-in capital     114,335,764            110,988,552
      Retained earnings               67,677,066             55,708,233
      Accumulated other comprehensive
       income/(loss)                 (15,264,369)             7,570,026
                                     166,777,441            174,295,702
      Less: 164,943 shares as at June
       30, 2008 and 163,690 shares as
       at December 31, 2007, held in
       treasury, at cost                (344,761)              (315,933)
    Total stockholders' equity       166,432,680            173,979,769
    Total liabilities and
     stockholders' equity           $211,676,222           $210,813,707


    Note: Amounts may not foot due to rounding.



                          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 financial 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 do not directly link to the Company's ongoing performance: (i) differences in stock compensation accounting policies between periods and (ii) expenses associated with the amortization of 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 measures for the three month and six month periods ended June 30, 2008 and June 30, 2007 and the three months ended March 31, 2008:

                   (Numbers in thousands except share data)



    ExlService Holdings, Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)
                                            Three Months Ended June 30,
                                       2008                           2008
                                      US GAAP      Adjustments      Non-GAAP
    Revenues                          $53,816         $ -            $53,816
    Cost of revenues (exclusive of
     depreciation and amortization)    33,912         (455) (a)       33,457
    Gross profit                       19,904          455            20,358
    Gross Margin%                        37.0%                          37.8%
    Selling, general and
     administrative expenses           11,510       (1,432) (a)       10,078
    Depreciation and amortization
     expense                            3,133         (221) (b)        2,913
    Income from operations             $5,260       $2,107            $7,368
    Operating Margin%                     9.8%                          13.7%
    Net Income to common
     stockholders                      $5,264       $1,552  (c)       $6,816
    Diluted earnings per share          $0.18        $0.05             $0.23
    Weighted average number of
     common and dilutive shares
     outstanding                   29,351,038   29,351,038        29,351,038



                                            Three Months Ended June 30,
                                        2007                          2007
                                      US GAAP      Adjustments      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%
    Net Income to common
     stockholders                      $5,620       $1,368  (c)       $6,988
    Diluted earnings per share          $0.19        $0.05             $0.24
    Weighted average number of
     common and dilutive shares
     outstanding                   29,210,372   29,210,372        29,210,372


    Note: Amounts may not foot due to rounding.
    (a) To exclude stock-based compensation expense under FAS 123R.
    (b) To exclude amortization of acquisition-related intangibles.
    (c) To exclude stock-based compensation expense under FAS 123R and
        amortization of acquisition-related intangibles net of applicable tax
        benefit.



    ExlService Holdings, Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)
                                            Six Months Ended June 30,
                                        2008                          2008
                                      US GAAP      Adjustments      Non-GAAP
    Revenues                         $104,764          $ -          $104,764
    Cost of revenues (exclusive of
     depreciation and amortization)    66,277         (587) (a)       65,689

    Gross profit                       38,488          587            39,075
    Gross Margin%                        36.7%                          37.3%
    Selling, general and
     administrative expenses           22,350       (2,288) (a)       20,063
    Depreciation and amortization
     expense                            5,836         (433) (b)        5,403
    Income from operations            $10,301       $3,308           $13,608
    Operating Margin%                     9.8%                          13.0%
    Net Income to common
     stockholders                     $12,064       $2,386  (c)      $14,450
    Diluted earnings per share          $0.41        $0.08             $0.49
    Weighted average number of
     common and dilutive shares
     outstanding                   29,321,982   29,321,982        29,321,982



                                            Six Months Ended June 30,
                                        2007                          2007
                                      US GAAP      Adjustments      Non-GAAP
    Revenues                          $82,874         $ -            $82,874
    Cost of revenues (exclusive of
     depreciation and amortization)    53,281         (501) (a)       52,779

    Gross profit                       29,594          501           30,0955
    Gross Margin%                        35.7%                          36.3%

    Selling, general and
     administrative expenses           16,832       (1,418) (a)       15,415
    Depreciation and amortization
     expense                            5,205       (1,180) (b)        4,025

    Income from operations             $7,557       $3,099           $10,656
    Operating Margin%                     9.1%                          12.9%
    Net Income to common
     stockholders                     $11,029       $2,206  (c)      $13,235
    Diluted earnings per share          $0.38        $0.08             $0.46
    Weighted average number of
     common and dilutive shares
     outstanding                   29,050,897   29,050,897        29,050,897


    Note: Amounts may not foot due to rounding.
    (a) To exclude stock-based compensation expense under FAS 123R.
    (b) To exclude amortization of acquisition-related intangibles.
    (c) To exclude stock-based compensation expense under FAS 123R and
        amortization of acquisition-related intangibles net of applicable tax
        benefit.



    ExlService Holdings, Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)

                                      Three Months Ended March 31,
                                  2008                             2008
                                US GAAP       Adjustments       Non-GAAP
    Revenues                    $50,949           $ -            $50,949
    Cost of revenues (exclusive
     of depreciation and
     amortization)               32,365           (133) (a)       32,232
    Gross profit                 18,584            133            18,717
    Gross Margin %                 36.5%                            36.7%
    Selling, general and
     administrative expenses     10,839           (856) (a)        9,984
    Depreciation and amortization
     expense                      2,703           (212) (b)        2,491
    Income from operations       $5,041         $1,200            $6,242
    Operating Margin %              9.9%                            12.3%
    Net Income to common
     stockholders                $6,800           $834  (c)       $7,634
    Diluted earnings per share    $0.23          $0.03             $0.26
    Weighted average number of
     common and dilutive shares
     outstanding             29,292,838     29,292,838        29,292,838


    Note: Amounts may not foot due to rounding.
    (a) To exclude stock-based compensation expense under FAS 123R.
    (b) To exclude amortization of acquisition-related intangibles.
    (c) To exclude stock-based compensation expense under FAS 123R and
        amortization of acquisition-related intangibles net of applicable tax
        benefit.

SOURCE  ExlService Holdings, Inc.
    -0-                             08/06/2008
    /CONTACT:  Jarrod Yahes, Head of Investor Relations, ExlService Holdings,
Inc, +1-212-277-7109, ir@exlservice.com/
    /Web site:  http://www.exlservice.com /
    (EXLS)

CO:  ExlService Holdings, Inc.
ST:  New York
IN:  FIN
SU:  CCA ERN ERP

WM-CB
-- NYW118 --
5899 08/06/2008 18:49 EDT http://www.prnewswire.com