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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________
FORM 8-K
_________________________________________________________

CURRENT REPORT
 
Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934
 Date of Report (Date of earliest event reported):  February 28, 2019
 _________________________________________________________
EXLSERVICE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
_________________________________________________________
 
Delaware
(State or other jurisdiction
of incorporation)
001-33089
(Commission File Number)
82-0572194
(I.R.S. Employer
Identification No.)

 
280 Park Avenue, 38th Floor
New York, New York 10017
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code:  (212) 277-7100
 
NOT APPLICABLE
(Former name or address, if changed since last report)
____________________________________________
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the obligation of the registrant under any of the following provisions:
o
Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)
o
Emerging growth company
 
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act


 
 
 
 
 






Item 2.02. Results of Operations and Financial Condition.
 
On February 28, 2019, ExlService Holdings, Inc. (the “Company”) reported its results of operations for the three months and twelve months ended December 31, 2018.  A copy of the press release issued by the Company concerning the foregoing is furnished herewith as Exhibit 99.1 and is incorporated herein by reference. The information provided in Item 2.02 of this report, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.            Description

99.1
Press Release, dated February 28, 2019 (furnished pursuant to Item 2.02).





SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
EXLSERVICE HOLDINGS, INC.
(Registrant)
 
 
 
 
 
Date:  February 28, 2019
By:
/s/ Ajay Ayyappan
 
Name:
Ajay Ayyappan
 
Title:
General Counsel and Corporate Secretary





EXHIBIT INDEX

Exhibit No.             Description

99.1



Exhibit


Exhibit 99.1


EXL REPORTS 2018 FOURTH QUARTER AND FULL YEAR RESULTS
 


2018 Fourth Quarter Revenues of $234.9 Million, up 18.7% year-over-year
Q4 Diluted EPS (GAAP) of $0.11(1), up from ($0.27)(2) in Q4 of 2017
Q4 Adjusted Diluted EPS (Non-GAAP) of $0.74, up from $0.67 in Q4 of 2017

2018 Revenues of $883.1 Million, up 15.8% year-over-year
2018 Diluted EPS (GAAP) of $1.62(1), up from $1.39(2) in 2017
2018 Adjusted Diluted EPS (Non-GAAP) of $2.77, up from $2.66 in 2017

New York, NY - February 28, 2019 - ExlService Holdings, Inc. (NASDAQ: EXLS), a leading operations management and analytics company, today announced its financial results for the quarter and full year ended December 31, 2018.

Rohit Kapoor, Vice Chairman and Chief Executive Officer, said, “EXL generated revenues of $234.9 million during the fourth quarter of 2018, up 18.7% year-over-year. Our adjusted diluted EPS during the fourth quarter of 2018 was $0.74. For the year 2018, EXL generated revenues of $883.1 million, up 15.8% year-over-year. EXL’s revenue growth was led by a 35.9% increase in Analytics revenues, driven by a 16.8% increase in organic revenue and the acquisition of SCIOinspire Holdings, Inc. Analytics represents 32.3% of EXL’s revenue. Revenues from our operations management businesses grew 8.2% for the full year.

“In 2018, EXL laid a strong foundation for growth. Building on our success, EXL enters 2019 with a strong pipeline across all operating segments. Our leadership position in our domains and our ability to orchestrate talent, technologies and data delivers improved client revenue growth, profitability and customer experience.”

Vishal Chhibbar, Chief Financial Officer, said, “In 2018, we generated $92.4 million of cash flow from operations and ended the year with $280.4 million in cash and short term investments, and total borrowings of $284.7 million, for a net debt position of $4.3 million. For 2019, we are providing revenue guidance of $975 million to $1 billion, representing annual revenue growth of 11% to 14% on constant currency basis. Our adjusted diluted earnings per share guidance is $2.90 to $3.05.”









______________________
(1) Includes impact of impairment charges of $20.1 million ($17.0 million net of tax), which reduced our GAAP diluted EPS by $0.49 during the three months ended and year ended December 31, 2018.

(2) Includes impact of one-time provisional income tax expense of $29.2 million related to the U.S. Tax Cuts and Jobs Act (“Tax Reform Act”), which reduced our GAAP diluted EPS by $0.83 during the three months ended and year ended December 31, 2017.





Financial Highlights: Fourth Quarter 2018
We have six reportable segments: Insurance, Healthcare, Travel, Transportation & Logistics, Finance & Accounting, All Other (consisting of our Banking & Financial Services, Utilities and Consulting operating segments) and Analytics. Reconciliations of adjusted (non-GAAP) financial measures to GAAP measures are included at the end of this release.

•
Revenues for the quarter ended December 31, 2018 increased to $234.9 million compared to $197.9 million for the fourth quarter of 2017, an increase of 18.7% on a reported basis and 20.3% on a constant currency basis from the fourth quarter of 2017, as well as an increase of 1.6% sequentially on a reported basis and 2.0% on a constant currency basis, from the third quarter of 2018.
 
 
Revenues
 
Gross Margin
 
 
Three months ended
 
Three months ended
 
 
Dec 31,
 
Dec 31,
 
Sept 30,
 
Dec 31,
 
Dec 31,
 
Sept 30,
Reportable Segments
 
2018
 
2017
 
2018
 
2018
 
2017(1)(2)
 
2018
 
 
(dollars in millions)
 
 
 
 
 
 
Insurance
 
$
65.1

 
$
61.0

 
$
64.3

 
31.0
%
 
31.6
%
 
32.3
%
Healthcare
 
21.4

 
20.3

 
20.4

 
20.5
%
 
37.3
%
 
22.5
%
Travel, Transportation & Logistics
 
16.9

 
17.6

 
17.3

 
40.6
%
 
38.1
%
 
42.4
%
Finance & Accounting
 
25.2

 
22.8

 
24.5

 
40.7
%
 
38.8
%
 
39.2
%
All Other
 
20.4

 
20.6

 
21.9

 
32.5
%
 
31.8
%
 
34.7
%
Analytics
 
85.9

 
55.6

 
82.7

 
36.8
%
 
35.4
%
 
35.1
%
Total revenues, net
 
$
234.9

 
$
197.9

 
$
231.1

 
34.0
%
 
34.7
%
 
34.2
%

•
Operating loss for the quarter ended December 31, 2018 was 0.9%, compared to an operating income of 8.2% for the fourth quarter of 2017 and 8.5% for the third quarter of 2018. During the fourth quarter of 2018, we recorded an impairment charge(3) of $20.1 million related to our Health Integrated acquisition, which reduced our operating income margin by 850 basis points. Adjusted operating income margin for the quarter ended December 31, 2018 was 13.1% compared to 13.3% for the fourth quarter of 2017 and 14.1% for the third quarter of 2018.

•
Diluted earnings per share for the quarter ended December 31, 2018 was $0.11, compared to a diluted loss per share of $0.27 for the fourth quarter of 2017 and diluted earnings per share of $0.43 for the third quarter of 2018. During the quarter ended December 31, 2018, we recorded an impairment charge(3) of $20.1 million ($17.0 million net of tax) related to our Health Integrated acquisition, which reduced our GAAP diluted EPS by $0.49. During the quarter ended December 31, 2017, we recorded a one-time provisional income tax expense of $29.2 million related to the Tax Reform Act which reduced our GAAP diluted EPS by $0.83. Adjusted diluted earnings per share for the quarter ended December 31, 2018 was $0.74 compared to $0.67 for the fourth quarter of 2017 and $0.71 for the third quarter of 2018.

__________________
(1) (2) Refer to the Consolidated Statements of Income for details.
(3) Impairment charge refers to goodwill and intangible assets impairment related to our Health Integrated acquisition which we recorded during the quarter and year ended December 31, 2018. The primary factors contributing to an impairment charge were i) revenues and profitability for the Health Integrated business in 2018 were significantly lower than our budget and ii) significant changes to the Company’s estimated future cash flows and long-term growth assumptions driven by loss of customer contracts, cost pressures and the Company’s most recent views of the long-term outlook for the Health Integrated business.





Financial Highlights: Full Year 2018

•
Revenues for the year ended December 31, 2018 increased to $883.1 million compared to $762.3 million for the year ended December 31, 2017, an increase of 15.8% on a reported basis and 16.3% on a constant currency basis.

 
 
Revenues
 
Gross Margin
 
 
Year ended
 
Year ended
Reportable Segments
 
 Dec 31, 2018
 
 Dec 31, 2017
 
 Dec 31, 2018
 
 Dec 31, 2017(1)(2)
 
 
(dollars in millions)
 
 
 
 
Insurance
 
$
258.1

 
$
234.8

 
32.2
%
 
32.1
%
Healthcare
 
84.4

 
77.0

 
20.9
%
 
35.8
%
Travel, Transportation & Logistics
 
70.2

 
71.0

 
41.5
%
 
41.7
%
Finance & Accounting
 
97.9

 
86.5

 
39.6
%
 
40.6
%
All Other
 
87.2

 
83.1

 
33.0
%
 
31.8
%
Analytics
 
285.3

 
209.9

 
35.3
%
 
34.8
%
Total revenues, net
 
$
883.1

 
$
762.3

 
33.8
%
 
35.0
%

•
Operating income margin for the year ended December 31, 2018 was 5.6% compared to 9.5% for the year ended December 31, 2017. During the fourth quarter of 2018, we recorded an impairment charge(3) of $20.1 million related to our Health Integrated acquisition, which reduced our operating income margin by 230 basis points. Adjusted operating income margin for the year ended December 31, 2018 was 13.5% compared to 14.5% for the year ended December 31, 2017.

•
Diluted earnings per share for the year ended December 31, 2018 was $1.62 compared to diluted earnings per share for the year ended December 31, 2017 of $1.39. During 2018, we recorded an impairment charge(3) of $20.1 million ($17.0 million net of tax) related to our Health Integrated acquisition, which reduced our GAAP diluted EPS by $0.49 for the year ended December 31, 2018. During 2017, we recorded a one-time provisional income tax expense of $29.2 million related to the Tax Reform Act which reduced our GAAP diluted EPS by $0.83 for the year ended December 31, 2017. Adjusted diluted earnings per share for the year ended December 31, 2018 was $2.77 compared to $2.66 for the year ended December 31, 2017.










_______________________
(1) (2) Refer to the Consolidated Statements of Income for details.
(3) Impairment charge refers to goodwill and intangible assets impairment related to our Health Integrated acquisition which we recorded during the quarter and year ended December 31, 2018. The primary factors contributing to an impairment charge were i) revenues and profitability for the Health Integrated business in 2018 were significantly lower than our budget and ii) significant changes to the Company’s estimated future cash flows and long-term growth assumptions driven by loss of customer contracts, cost pressures and the Company’s most recent views of the long-term outlook for the Health Integrated business.





Business Highlights: Fourth Quarter 2018
•
Won 15 new clients in Q4 including five in our operations management businesses and 10 in Analytics. For the full year, we won 50 new clients, 19 in operations management and 31 in Analytics
•
Recognized as a Leader in the Everest Group Healthcare Analytics Services PEAK Matrix™ Assessment 2019
•
Recognized as a Leader in the Everest Group Life and Pensions (L&P) Insurance BPO Services PEAK Matrix™ Assessment 2018
•
Ranked as a top 10 service provider in the HFS Top 10 Travel, Hospitality, and Logistics Service Providers report
•
Appointed Samuel Meckey in the role of Executive Vice President and member of the Executive Committee
•
Appointed Ajay Ayyappan in the role of Senior Vice President, General Counsel, Corporate Secretary and member of the Executive Committee

2019 Guidance
Based on current visibility, and a U.S. Dollar to Indian Rupee exchange rate of 71.0, British Pound to U.S. Dollar exchange rate of 1.30, U.S. Dollar to the Philippine Peso exchange rate of 52.0 and all other currencies at current exchange rates, we are providing the following guidance:
•
Revenue of $975 million to $1 billion, representing an annual revenue growth rate of 11% to 14% on a constant currency basis.
•
Adjusted diluted earnings per share of $2.90 to $3.05.

Conference Call
ExlService Holdings, Inc. will host a conference call on Thursday, February 28, 2019 at 8:00 A.M. ET to discuss the Company’s quarterly operating and financial results. The conference call will be available live via the internet by accessing the investor relations section of EXL’s website at ir.exlservice.com, where an accompanying investor-friendly spreadsheet of historical operating and financial data can also be accessed. Please access 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 1-877-303-6384, or if dialing internationally, 1-224-357-2191 and an operator will assist you. For those who cannot access the live broadcast, a replay will be available on the EXL website ir.exlservice.com for a period of twelve months.




About ExlService Holdings, Inc.
EXL (NASDAQ: EXLS) is a leading operations management and analytics company that designs and enables agile, customer-centric operating models to help businesses enhance revenue growth and profitability. Our delivery model provides market-leading business outcomes using EXL’s proprietary Digital EXLerator Framework™, cutting-edge analytics, digital transformation and domain expertise. At EXL, we look deeper to help companies improve global operations, enhance data-driven insights, increase customer satisfaction, and manage risk and compliance. EXL serves the insurance, healthcare, banking and financial services, utilities, travel, transportation and logistics industries. Headquartered in New York, New York, EXL has more than 29,000 professionals in locations throughout the United States, Europe, Asia (primarily India and Philippines), Latin America, Australia and South Africa. For more information, visit www.exlservice.com.

Continuing Statement Regarding Forward-Looking Statements 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 EXL's operations and business environment, all of which are difficult to predict and many of which are beyond EXL’s control. Forward-looking statements include information concerning EXL’s possible or assumed future results of operations, including descriptions of its business strategy. These statements may 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 EXL believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect EXL’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, which include our ability to successfully close and integrate strategic acquisitions, are discussed in more detail in EXL’s filings with the Securities and Exchange Commission, including EXL’s Annual Report on Form 10-K. 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 EXL. EXL 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
(In thousands, except share and per share amounts)
 
 
 
(Unaudited)
 
Year ended December 31,
 
Three months ended December 31,
 
2018
 
2017(2)
 
2018
 
2017(2)
Revenues, net
$
883,112

 
$
762,310

 
$
234,903

 
$
197,875

Cost of revenues(1)(2)
584,855

 
495,142

 
154,948

 
129,259

Gross profit(1)
298,257

 
267,168

 
79,955

 
68,616

Operating expenses:
 
 
 
 

 

General and administrative expenses(2)
116,202

   
102,515

 
30,592

 
27,508

Selling and marketing expenses(2)
63,612

   
53,379

 
18,019

 
14,748

Depreciation and amortization
48,566

   
38,549

 
13,381

 
10,060

Impairment charges
20,056

 
—

 
20,056

 
—

Total operating expenses(2)
248,436

 
194,443

 
82,048

 
52,316

Income/(loss) from operations
49,821

   
72,725

 
(2,093
)
 
16,300

Foreign exchange gain, net
4,787

   
2,839

 
1,373

 
934

Interest expense
(7,227
)
 
(1,889
)
 
(3,508
)
 
(509
)
Other income, net(2)
12,989

   
11,359

 
4,757

 
2,864

Income before income tax expense
60,370

 
85,034

 
529

 
19,589

Income tax expense/(benefit)
3,397

   
36,146

 
(3,399
)
 
28,944

Loss from equity-method investment
247

 
—

 
71

 
—

Net income/(loss) attributable to ExlService Holdings, Inc. stockholders
$
56,726

 
$
48,888

 
$
3,857

 
$
(9,355
)
Earnings/(loss) per share attributable to ExlService Holdings, Inc. stockholders:
 
 
 
 

 

Basic
$
1.65

   
$
1.44

 
$
0.11

 
$
(0.27
)
Diluted
$
1.62

 
$
1.39

 
$
0.11

 
$
(0.27
)
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings Inc. stockholders:
 
 
 
 
 
 
 
Basic
34,451,008

   
33,897,916

 
34,388,025

 
34,086,711

Diluted
35,030,984

   
35,110,210

 
34,921,388

 
34,086,711

(1) Exclusive of depreciation and amortization.
(2) Adjusted pursuant to adoption of ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost.




EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 
As of
 
December 31, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
95,881

 
$
86,795

Short-term investments
184,489

 
178,479

Restricted cash
5,608

 
3,674

Accounts receivable, net
164,752

 
135,705

Prepaid expenses
11,326

 
9,781

Advance income tax, net
9,639

 
8,801

Other current assets
28,240

 
29,582

Total current assets
499,935

 
452,817

Property and equipment, net
73,510

 
66,757

Restricted cash
2,642

 
3,808

Deferred tax assets, net
6,602

 
9,280

Intangible assets, net
95,495

 
48,958

Goodwill
349,984

 
204,481

Other assets
31,015

 
36,369

Investment in equity affiliate
2,753

 
3,000

Total assets
$
1,061,936

 
$
825,470

Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
5,653

 
$
5,918

Current portion of long-term borrowings
21,423

 
10,318

Deferred revenue
7,722

 
10,716

Accrued employee costs
54,893

 
55,664

Accrued expenses and other current liabilities
64,169

 
61,366

Income taxes payable
1,012

 
—

Current portion of capital lease obligations
223

 
267

Total current liabilities
155,095

 
144,249

Long term borrowings
263,241

 
50,391

Capital lease obligations, less current portion
315

 
331

Income taxes payable
—

 
13,557

Deferred tax liabilities, net
8,445

 
695

Other non-current liabilities
16,521

 
16,202

Total liabilities
443,617

 
225,425

Commitments and contingencies
 
 
 
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued
—

 
—

ExlService Holdings, Inc. Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 100,000,000 shares authorized, 37,850,544 shares issued and 34,222,476 shares outstanding as of December 31, 2018 and 36,790,751 shares issued and 33,888,733 shares outstanding as of December 31, 2017
38

 
37

Additional paid-in capital
364,179

 
322,246

Retained earnings
484,244

 
427,064

Accumulated other comprehensive loss
(83,467
)
 
(45,710
)
Total including shares held in treasury
764,994

 
703,637

Less: 3,628,068 shares as of December 31, 2018 and 2,902,018 shares as of December 31, 2017, held in treasury, at cost
(146,925
)
 
(103,816
)
Stockholders' equity
$
618,069

 
$
599,821

Non-controlling interest
250

 
224

Total equity
$
618,319

 
$
600,045

Total liabilities and equity
$
1,061,936

 
$
825,470





EXLSERVICE HOLDINGS, INC.
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 certain financial measures that are considered non-GAAP financial measures, including the following:
(i) Adjusted operating income and adjusted operating income margin;
(ii) Adjusted EBITDA and adjusted EBITDA margin;
(iii) Adjusted net income and adjusted diluted earnings per share; and
(iv) Revenue growth on a constant currency basis.
These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles, should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. Accordingly, the financial results calculated in accordance with GAAP and reconciliations from those financial statements should be carefully evaluated. EXL believes that providing these non-GAAP financial measures may help investors better understand EXL’s underlying financial performance. Management also believes that these non-GAAP financial measures, when read in conjunction with EXL’s reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company’s results and comparisons of the Company’s results with the results of other companies. Additionally, management considers some of these non-GAAP financial measures to determine variable compensation of its employees. The Company believes that it is unreasonably difficult to provide its earnings per share financial guidance 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 ASC Topic 718, the amortization of intangibles associated with further acquisitions and the currency fluctuations and associated tax impacts. As such, the Company presents guidance with respect to adjusted diluted earnings per share. The Company also incurs significant non-cash charges for depreciation that may not be indicative of the Company’s ability to generate cash flow.
EXL non-GAAP financial measures exclude, where applicable, stock-based compensation expense, provision for litigation settlement, non-cash interest expense on convertible senior notes and acquisition-related expenses. Acquisition-related expenses include, amortization of acquisition-related intangible assets, changes in the fair value of earn-out consideration liabilities, impairment charges of acquired intangible assets including goodwill and other acquisition-related costs and benefits such as external deal costs, integration expenses, direct and incremental travel costs and non-recurring benefits. In addition to excluding the above items, our adjusted net income and adjusted diluted EPS also excludes the effect of incremental income tax expense related to the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), non-recurring other tax adjustments and income tax impact of the above pre-tax items, as applicable. The income tax impact of each item is calculated by applying the statutory rate and local tax regulations in the jurisdiction in which the item was incurred.
A limitation of using non-GAAP financial measures versus financial measures calculated in accordance with GAAP is that non-GAAP financial measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and exclude costs that are recurring, namely stock-based compensation and amortization of acquisition-related intangible assets. EXL compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP financial measures to allow investors to evaluate such non-GAAP financial measures.
Effective second quarter of 2018, EXL excludes other acquisition-related costs such as external deal costs, integration expenses and direct and incremental travel costs pertaining to successful acquisitions from its non-GAAP financial measures, wherever applicable. Considering EXL’s frequent acquisitions of varying scale and size, and the difficulty in predicting expenses relating to acquisitions, EXL’s management believes that providing non-GAAP financial measures that exclude such expenses allows investors to make additional comparisons from period-to-period and between EXL’s operating results and those of other companies. Other acquisition-related costs are excluded in the period in which an acquisition is consummated. To facilitate comparison, the previously reported periods presented have been adjusted with the effects of the exclusion of these other acquisition-related costs.




The information provided on a constant currency basis reflects a comparison of current period results translated at the prior period currency rates. This information is provided because EXL believes that it provides useful comparative incremental information to investors regarding EXL’s true operating performance. EXL’s primary exchange rate exposure is with the Indian Rupee, the U.K. pound sterling and the Philippine Peso. The average exchange rate of the U.S. Dollar against the Indian Rupee increased from 64.36 during the quarter ended December 31, 2017 to 71.10 during the quarter ended December 31, 2018, representing a depreciation of 10.5%. The average exchange rate of the U.S. Dollar against the Philippine Peso increased from 50.60 during the quarter ended December 31, 2017 to 52.86 during the quarter ended December 31, 2018, representing a depreciation of 4.5%. The average exchange rate of the British Pound against the U.S. Dollar decreased from 1.34 during the quarter ended December 31, 2017 to 1.28 during the quarter ended December 31, 2018, representing a depreciation of 4.2%.

The following table shows the reconciliation of these non-GAAP financial measures for the year ended December 31, 2018 and December 31, 2017, the three months ended December 31, 2018 and 2017 and the three months ended September 30, 2018:

Reconciliation of Adjusted Operating Income and Adjusted EBITDA
(Amounts in thousands)
 
 
Year ended
 
Three months ended
 
 
December 31,
 
December 31,
 
September 30,
 
 
2018
 
2017(a)
 
2018
 
2017(a)
 
2018
Net income/(loss) (GAAP)
 
$
56,726

 
$
48,888

 
$
3,857

 
$
(9,355
)
 
$
15,249

add: Income tax expense/(benefit)
 
3,397

 
36,146

 
(3,399
)
 
28,944

 
5,739

subtract: Interest expense, foreign exchange gain, net, loss from equity-method investment and other income, net
 
(10,302
)
 
(12,309
)
 
(2,551
)
 
(3,289
)
 
(1,314
)
Income/(loss) from operations (GAAP)
 
$
49,821

 
$
72,725

 
$
(2,093
)
 
$
16,300

 
$
19,674

add: Stock-based compensation expense
 
23,901

 
23,041

 
6,590

 
6,270

 
5,344

add: Amortization of acquisition-related intangibles
 
20,377

 
13,975

 
5,951

 
3,483

 
6,718

add: Impairment of goodwill and intangibles (b)
 
20,056

 
—

 
20,056

 
—

 
—

add: Provision for litigation settlement (c)
 
2,400

 
—

 
—

 
—

 
—

add: Acquisition-related expenses (d)
 
2,295

 
826

 
236

 
321

 
855

Adjusted operating income (Non-GAAP)
 
$
118,850

 
$
110,567

 
$
30,740

 
$
26,374

 
$
32,591

Adjusted operating income margin as a % of Revenues (Non-GAAP)
 
13.5
%
 
14.5
%
 
13.1
%
 
13.3
%
 
14.1
%
add: Depreciation
 
28,189

 
24,574

 
7,430

 
6,577

 
7,381

Adjusted EBITDA (Non-GAAP)
 
$
147,039

 
$
135,141

 
$
38,170

 
$
32,951

 
$
39,972

Adjusted EBITDA margin as a % of revenue (Non-GAAP)
 
16.7
%
 
17.7
%
 
16.2
%
 
16.7
%
 
17.3
%
(a) Adjusted pursuant to adoption of ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost.
(b) To exclude impairment charges on acquisition-related goodwill and intangibles.
(c) To exclude provision for litigation settlement recorded during the three months ended March 31, 2018.
(d) To exclude acquisition related expenses. See descriptions above for more information.




Reconciliation of Adjusted Net Income and Adjusted Diluted Earnings Per Share
(Amounts in thousands, except per share data)
 
 
Year ended
 
Three months ended
 
 
December 31,
 
December 31,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
2018
Net income/(loss) (GAAP)
 
$
56,726

 
$
48,888

 
$
3,857

 
$
(9,355
)
 
$
15,249

add: Stock-based compensation expense
 
23,901

 
23,041

 
6,590

 
6,270

 
5,344

add: Amortization of acquisition-related intangibles
 
20,377

 
13,975

 
5,951

 
3,483

 
6,718

add: Impairment of goodwill and intangibles (a)
 
20,056

 
—

 
20,056

 
—

 
—

add: Provision for litigation settlement (b)
 
2,400

 
—

 
—

 
—

 
—

add: Acquisition-related expenses/(benefits) (c)
 
1,045

 
826

 
(1,014
)
 
321

 
855

add: Non-cash interest expense related to convertible senior notes (d)
 
600

 
—

 
600

 
—

 
—

subtract: Effect of Tax Reform Act and other one-time tax expenses/(benefits) (e)
 
(7,810
)
 
29,185

 
(2,974
)
 
29,185

 
—

subtract: Tax impact on stock-based compensation expense (f)
 
(12,101
)
 
(18,370
)
 
(2,837
)
 
(5,063
)
 
(1,460
)
subtract: Tax impact on amortization of acquisition-related intangibles
 
(4,351
)
 
(3,789
)
 
(1,511
)
 
(947
)
 
(1,435
)
subtract: Tax impact on impairment of goodwill and intangibles
 
(3,072
)
 
—

 
(3,072
)
 
—

 
—

subtract: Tax impact on provision for litigation settlement
 
(612
)
 
—

 
—

 
—

 
—

subtract: Tax impact on acquisition-related expenses/(benefits)
 
(15
)
 
(330
)
 
253

 
(128
)
 
(218
)
subtract: Tax impact on non-cash interest expense related to convertible senior notes
 
(150
)
 
—

 
(150
)
 
—

 
—

Adjusted net income (Non-GAAP)
 
$
96,994

 
$
93,426

 
$
25,749

 
$
23,766

 
$
25,053

Adjusted diluted earnings per share (Non-GAAP)
 
$
2.77

 
$
2.66

 
$
0.74

 
$
0.67

 
$
0.71

(a) To exclude impairment charges on acquisition-related goodwill and intangibles.
(b) To exclude provision for litigation settlement recorded during the three months ended March 31, 2018.
(c) To exclude acquisition related expenses and one-time benefits. See descriptions above for more information.
(d) To exclude non-cash interest expense related to convertible senior notes.
(e) To exclude impact related to the Tax Reform Act and other one-time tax expenses/(benefits). In 2017, the Company recognized a one-time income tax expense of $29,185 during the three months and year ended December 31, 2017 in connection with the Tax Reform Act. In 2018, the Company finalized its transition tax expense under the Tax Reform Act and recorded an adjustment of $5,012 and $176 during the three months ended and year ended December 31, 2018 respectively. The Company also recorded a one-time tax benefit of $6,274 with respect to its unused 2018 foreign branch income tax credits under IRC regulations issued in December 2018 and certain deferred tax assets of $1,712 during the three months ended and year ended December 31, 2018.
(f) Tax impact includes $7,227 and $9,796 for the year ended December 31, 2018 and 2017 respectively, $1,789 and $2,627 during the three months ended December 31, 2018 and 2017 respectively, and $288 during the three months ended September 30, 2018 related to discrete benefit recognized in income tax expense on adoption of ASU No. 2016-09, Compensation - Stock Compensation.







Contact: Steven N. Barlow
Vice President, Investor Relations
(212) 624-5913
ir@exlservice.com