Release Details

Release Details

Release Details

EXL Reports 2007 Fourth Quarter and Full Year Results and Provides Guidance for Calendar Year 2008

March 11, 2008
EXL Reports 2007 Fourth Quarter and Full Year Results and Provides Guidance for Calendar Year 2008

NEW YORK, March 11 /PRNewswire-FirstCall/ -- ExlService Holdings, Inc. (Nasdaq: EXLS), a recognized provider of transformation and outsourcing solutions, today announced its financial results for the fourth quarter ended December 31, 2007. The Company's full year and fourth quarter highlights include:

    Full Year 2007
    -- Revenues for the year 2007 were $179.9 million, an increase of 47.7%
       over the prior year.
    -- Gross margin for the year 2007 was 36.8% compared to 39.4% in 2006.
    -- Operating margin for the year 2007 was 9.6% compared to 12.4% in 2006;
       adjusted operating margin for the year 2007, excluding the impact of
       stock-based compensation expense and amortization of intangibles, was
       12.9% compared to 15.0% in 2006.
    -- Net income to common stockholders for the year 2007 was $27.0 million
       compared to $13.4 million in 2006, an increase of 101.2%.
    -- Diluted earnings per share to common stockholders was $0.93 for the
       year 2007 compared to $0.58 in 2006.


    Fourth Quarter of 2007
    -- Revenues for the quarter were $50.4 million, an increase of 8.1% over
       the preceding quarter.
    -- Gross margin for the quarter increased 330 basis points to 39.3% from
       36.0% in the preceding quarter.
    -- Operating margin for the quarter was 9.9% compared to 10.0% in the
       preceding quarter; adjusted operating margin for the quarter, excluding
       the impact of stock-based compensation expense and amortization of
       intangibles, was 12.8% compared to 13.0% in the preceding quarter.
    -- Net income to common stockholders for the quarter was $9.8 million
       compared to $5.9 million in the quarter ended December 31, 2006, an
       increase of 64.5%.
    -- Diluted earnings per share to common stockholders was $0.33 for the
       quarter compared to $0.21 in the preceding quarter and $0.22 in the
       quarter ended December 31, 2006.

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

Vikram Talwar, CEO and Vice Chairman, commented: "EXL capped off 2007 with an exceptional quarter completing a tremendous year of growth and expansion for our company. EXL won 38 new clients this year and experienced continued momentum and acceptance from our customers across all of our business segments. Our focus on tightly coupling transformation and outsourcing services is providing EXL's clients a competitive edge through enhanced efficiency and effectiveness. The demand environment remains strong and customers continue to look for ways to reduce costs in the back-office. EXL is succeeding in the marketplace, and we clearly have strong momentum as we begin 2008."

Rohit Kapoor, President and Chief Operating Officer, commented: "2007 was a year of continued operational excellence for EXL. Our customer satisfaction scores, employee satisfaction indices, operational efficiency metrics and productivity initiatives all reflect improvements that have resulted from the focus and effort invested in 2007. These achievements provided an environment for our continued growth and sustained operating profitability. We experienced our third consecutive quarter of reduced employee attrition with a fourth quarter rate of 30%, down from 42% in the same quarter last year. Furthermore, we continue to aggressively expand our footprint with a new operating center in the Philippines that will open in the second quarter of 2008 and are planning further growth-oriented investments abroad."

Matt Appel, CFO, commented: "EXL grew revenues and net income in 2007 and significantly exceeded our revenue, adjusted operating profit and earnings per share guidance. We achieved our financial objectives while simultaneously redeploying capital into critical investments in strategic account management and sales and marketing. Our results are even more impressive given the significant appreciation of the Indian rupee against the U.S. dollar during 2007."

Financial Highlights - Fourth Quarter 2007 and Year Ended December 31, 2007

    -- Revenues for the year ended December 31, 2007 increased 47.7% to $179.9
       million from $121.8 million in the year ended December 31, 2006.
       Revenues for the quarter ended December 31, 2007 increased 28.2% to
       $50.4 million from $39.3 million in the quarter ended December 31,
       2006.
    -- Gross margin for the year ended December 31, 2007 was 36.8% compared to
       39.4% in the year ended December 31, 2006. Gross margin for the year
       decreased primarily as a result of unfavorable exchange rate movements
       and lower than expected revenue in our research and analytics service
       line. Gross margin for the quarter ended December 31, 2007 was 39.3%
       compared to 42.9% in the quarter ended December 31, 2006.
    -- Operating margin for the year ended December 31, 2007 was 9.6% compared
       to 12.4% in the year ended December 31, 2006. Adjusted operating
       margin, excluding the impact of stock-based compensation expense and
       amortization of intangibles, for the year ended December 31, 2007 was
       12.9% compared to 15.0% in the year ended December 31, 2006. Operating
       margin for the year decreased primarily as a result of unfavorable
       exchange rate movements and increased investments in sales and
       marketing. Operating margin for the quarter ended December 31, 2007 was
       9.9%, compared to 16.4% in the quarter ended December 31, 2006.
       Adjusted operating margin, excluding the impact of stock-based
       compensation expense and amortization of intangibles, for the quarter
       ended December 31, 2007 was 12.8% compared to 19.7% in the quarter
       ended December 31, 2006.
    -- Net income to common stockholders for the year ended December 31, 2007
       was $27.0 million compared to $13.4 million in the year ended December
       31, 2006.. Net income to common stockholders for the quarter ended
       December 31, 2007 was $9.8 million compared to $5.9 million in the
       quarter ended December 31, 2006. Income taxes for the quarter ended
       December 31, 2007 include a one-time favorable adjustment of
       approximately $1.7 million related to a change in the Company's
       transfer pricing agreement between the U.S. and India.

Note: Results for the year ended December 31, 2007 are not comparable due to the inclusion of the financial results of Inductis, Inc. in our consolidated financial statements from July 1, 2006.

    Recent Business Highlights
    -- Our Business Process Outsourcing business line comprised 82.3% of our
       revenues for the year ended December 31, 2007 and grew 51.4% year over
       year. Our BPO business line migrated 23 processes for five existing
       clients in the quarter ended December 31, 2007 and migrated 69
       processes for clients in the year ended December 31, 2007 (including 42
       different processes in the insurance vertical) as compared to 47
       processes in the year ended December 31, 2006.
    -- Our Advisory business line generated revenues of $13.4 million for the
       year ended December 31, 2007 and growth of 48.5% year over year. Demand
       for governance, risk, and compliance solutions remains strong and
       service line expansion continues into complex accounting and financial
       reporting services.
    -- Our Research and Analytics business line signed contracts with two
       global banking institutions that we believe will provide significant
       revenues in 2008.


As of December 31, 2007, EXL had a headcount of approximately 10,000 individuals (including personnel managed under structured client service agreements). The attrition rate for billable employees during the fourth quarter was 30% as compared to 39% in the third quarter of 2007 and 42% in the fourth quarter of 2006. The Company expects that quarterly attrition will continue to trend downward but will remain volatile and may increase quarter to quarter in the future as compared to the rate experienced in the fourth quarter.

2008 Outlook

The Company is providing the following guidance based on current exchange rates:

    -- Calendar year 2008 revenue of $205 to $210 million; assuming the
       exercise of the Norwich Union Pune Build-Operate-Transfer option on May
       1, 2008.
    -- Calendar year 2008 adjusted operating margin, excluding the impact of
       stock-based compensation expense and amortization of intangibles, of
       12%.
    -- Calendar year 2008 effective tax rate of approximately 15%.
    -- Calendar year 2008 GAAP EPS of $0.80 to $0.85 per diluted share.


    Conference Call

EXL will host a conference call on Wednesday, March 12, 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 1-866-202-4367 or 1-617-213-8845 and entering "68532922." For those who cannot access the live broadcast, a replay will be available by dialing 888-286-8010 or 617-801-6888 and entering "10219435" from two hours after the end of the call until 11:59 p.m. (EST) on March 19, 2008. 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, 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
                 (Numbers in thousands except per share data)

                                     Year ended          Three Months Ended
                                    December 31,            December 31,
                                 2007         2006        2007       2006

    Total revenues             $179,890     $121,769     $50,387    $39,315
    Cost of revenues
     (exclusive of
     depreciation and
     amortization)              113,720       73,837      30,587     22,459
    Gross profit                 66,170       47,931      19,800     16,856
    Operating expenses:
      General and
       administrative
       expenses                  29,279       19,180       9,447      6,069
      Selling and marketing
       expenses                   9,171        4,740       2,623      1,656
      Depreciation and
       amortization              10,492        8,940       2,726      2,685
    Total operating
     expenses                    48,942       32,860      14,797     10,410
    Income from operations       17,228       15,072       5,003      6,446
    Other income/ (expense):
      Foreign exchange
       gain/(loss)                7,674         (288)      2,541        400
      Interest and other
       income                     4,306        1,909       1,251        996
      Interest expense              (56)        (580)        (16)      (100)
    Income before
     income taxes                29,153       16,113       8,780      7,742
    Income tax provision/
     (benefit)                    2,109        2,055        (996)     1,704
    Net income                   27,044       14,058       9,775      6,038
    Dividends and accretion
     on preferred stock               -         (617)          -        (94)
    Net income to common
     stockholders               $27,044      $13,440      $9,775    $ 5,944
    Basic earnings per
     share to common
     stockholders                 $0.95        $0.59       $0.34      $0.22
    Diluted earnings per
     share to common
     stockholders                 $0.93        $0.58       $0.33      $0.22
    Weighted-average number
     of shares used in
     computing earnings
     per share:
      Basic                      28,480       22,864      28,698     26,663
      Diluted                    29,191       23,033      29,414     26,895

    Note: Amounts may not foot due to rounding.



                          EXLSERVICE HOLDINGS, INC.

                         CONSOLIDATED BALANCE SHEETS
                   (Numbers in thousands except share data)

                                                     December 31, December 31,
                                                         2007          2006
    Assets
    Current assets:
      Cash and cash equivalents                        $102,210      $85,366
      Restricted cash                                       285        1,093
      Short term investments                                253            -
      Accounts receivable, net of allowance
       for doubtful accounts of $85 in 2007
       and $100 in 2006                                  38,514       26,801
      Accounts receivable from related parties              339          255
      Employee receivables                                  226          639
      Prepaid expenses                                    2,947        1,674
      Deferred tax assets                                 3,280        2,870
      Other current assets                                7,541        3,322
    Total current assets                                155,593      122,020
    Fixed assets, net                                    25,245       21,545
    Intangibles, net                                        340        1,970
    Goodwill                                             16,785       16,651
    Restricted cash                                         304          302
    Deferred tax assets                                   4,498          672
    Other assets                                          8,047        1,601
    Total assets                                       $210,814     $164,762

    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                                   $6,389       $3,162
      Deferred revenue                                    4,440        6,377
      Accrued employee cost                              13,774       10,251
      Other accrued expenses and current liabilities     10,563       14,337
      Income taxes payable                                  730        2,705
      Current portion of capital lease obligation           126          166
    Total current liabilities                            36,023       36,998
    Capital lease obligations, less current portion         258          228
    Other non current liabilities                           553          340
    Total liabilities                                    36,834       37,565
    Preferred stock, $0.001 par value;
     15,000,000 shares authorized                             -            -
    Stockholders' equity:
      Common stock, $0.001 par value; 100,000,000
       shares authorized, 28,891,043 shares issued
       and outstanding as of December 31, 2007
       and 28,262,289 shares issued and outstanding
       as of December 31, 2006                               29           28
      Additional paid-in capital                        110,989       98,429
      Retained earnings                                  55,708       28,665
      Accumulated other comprehensive income              7,570          110
                                                        174,296      127,232
      Less: 163,690 shares as at December 31, 2007
       and 149,138 shares as at December 31, 2006,
       held in treasury, at cost                           (316)         (36)
    Total stockholders' equity                          173,980      127,196
    Total liabilities and stockholders' equity         $210,814     $164,762

    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 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 do not directly link to 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, 2007 and
December 31, 2006:



                            (Numbers in Thousands)

                                             Three Months Ended December 31,
                                             2007                      2007
                                            US GAAP    Adjustments   Non-GAAP

    Total Revenues                          $50,387         $-       $50,387
    Cost of revenues (exclusive of
     depreciation and amortization)          30,587       (303)(a)    30,283

    Gross profit                             19,800        303        20,103
    Gross Margin %                             39.3%                    39.9%
    Selling, general and administrative
     expenses                                12,070       (925)(a)    11,144
    Depreciation and amortization expense     2,726       (225)(b)     2,501

    Income from operations                   $5,003     $1,454        $6,457
    Operating Margin %                          9.9%                    12.8%


                                             Three Months Ended December 31,
                                              2006                     2006
                                            US GAAP     Adjustments  Non-GAAP

    Total 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 September 30,
                                             2007                      2007
                                            US GAAP     Adjustments  Non-GAAP

    Total 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%

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


The following table shows the reconciliation of these adjusted financial measures from GAAP for the year ended December 31, 2007 and December 31, 2006:


                                                 Year Ended December 31,
                                               2007                    2007
                                              US GAAP   Adjustments  Non-GAAP

    Revenues                                 $179,890        $-      $179,890
    Cost of revenues (exclusive of
     depreciation and amortization)           113,720    (1,118)(a)   112,603

    Gross profit                               66,170     1,118        67,287
    Gross Margin %                               36.8%                   37.4%
    Selling, general and administrative
     expenses                                  38,450    (3,189)(a)    35,261
    Depreciation and amortization expense      10,492    (1,630)(b)     8,862

    Income from operations                    $17,228    $5,937       $23,165
    Operating Margin %                            9.6%                   12.9%


                                                 Year Ended December 31,
                                               2006                    2006
                                              US GAAP   Adjustments  Non-GAAP

    Revenues                                 $121,769        $-      $121,769
    Cost of revenues (exclusive of
     depreciation and amortization)            73,837      (465)(a)    73,372

    Gross profit                               47,931       465        48,397
    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                    $15,072    $3,154       $18,226
    Operating Margin %                           12.4%                   15.0%

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

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