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): November 2, 2011
EXLSERVICE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-33089 | 82-0572194 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(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:
| ¨ | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On November 2, 2011, ExlService Holdings, Inc. (the “Company”) reported its results of operations for the three months and nine months ended September 30, 2011. 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.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit |
Description | |
| 99.1 | Press Release, dated November 2, 2011 | |
2
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 hereunto duly authorized.
| EXLSERVICE HOLDINGS, INC. | ||||
| Date: November 2, 2011 | By: | /s/ VISHAL CHHIBBAR | ||
| Vishal Chhibbar | ||||
| Chief Financial Officer (Duly Authorized Signatory, Principal Financial and Accounting Officer) | ||||
3
EXHIBIT INDEX
The following exhibit is being filed as part of this Current Report on Form 8-K:
| 99.1 | Press Release, dated November 2, 2011 |
4
Exhibit 99.1
FOR IMMEDIATE RELEASE
Contact: Jarrod Yahes
Treasurer
ExlService Holdings, Inc.
280 Park Avenue
New York, NY 10017
(212) 277-7109
ir@exlservice.com
EXL REPORTS 2011 THIRD QUARTER RESULTS
Quarterly Revenues of $100.0 Million and Adjusted Operating Margin of 15.2%
Increasing Calendar Year 2011 Revenue Guidance
to the Upper End of the $354.0 Million to $358.0 Million Range
Increasing Adjusted Operating Margin Guidance to Between 14.5% and 15.0%
New York, NY – November 2, 2011 – ExlService Holdings, Inc. (NASDAQ: EXLS), a leading provider of outsourcing and transformation services, today announced its financial results for the quarter ended September 30, 2011.
Rohit Kapoor, President and CEO, commented: “EXL’s third quarter results were marked by strong growth and profitability. Our intent is to stay ahead of the market by pursuing an engagement model that generates a positive business impact for our clients beyond the traditional measures of efficiency and productivity. For example, we recently won a new strategic client relationship with a leading insurance and retirement services provider to provide an end-to-end outsourced solution leveraging our LifePRO® platform. In providing both the technology platform and servicing, this engagement will substantially reduce operational and technology risk for our client, at an overall lower cost structure. Furthermore, our recent Trumbull Services acquisition brings us platform capabilities as well as proprietary technologies and methodologies in subrogation services. We believe the ability to consistently generate greater business impact for EXL’s clients will be a key determinant in our future success.”
Vishal Chhibbar, CFO, commented: “EXL experienced record quarterly revenues driven by volume growth across business lines and the inclusion of a recent acquisition in our financial results. Revenues were $100.0 million, an increase of 48.0% year-over-year, of which 15% was organic growth. Our outsourcing and transformation businesses experienced sequential volume growth, and we have further reduced our client concentration. We are increasing our calendar year 2011 revenue guidance to the upper end of the $354.0 million to $358.0 million range, in spite of a foreign exchange headwind that will negatively impact our revenues in the fourth quarter by approximately $3.0 million. We are also increasing our adjusted operating margin guidance from 13.5% to 14.0% to 14.5% to 15.0%, based on strong year-to-date profitability and prevailing exchange rates.”
1
Financial Highlights
Reconciliations of adjusted financial measures to GAAP are included at the end of this release.
| • | Revenues for the quarter ended September 30, 2011 were $100.0 million compared to $67.6 million for the quarter ended September 30, 2010 and $85.0 million for the quarter ended June 30, 2011. Outsourcing services revenues for the quarter ended September 30, 2011 were $83.2 million compared to $50.5 million in the quarter ended September 30, 2010 and $68.7 million in the quarter ended June 30, 2011. Transformation services revenues for the quarter ended September 30, 2011 were $16.9 million compared to $17.1 million in the quarter ended September 30, 2010 and $16.3 million in the quarter ended June 30, 2011. |
| • | Gross margin for the quarter ended September 30, 2011 was 38.3% compared to 40.0% for the quarter ended September 30, 2010 and 38.8% for the quarter ended June 30, 2011. Outsourcing services gross margin for the quarter ended September 30, 2011 was 38.7% compared to 41.3% for the quarter ended September 30, 2010 and 39.9% for the quarter ended June 30, 2011. Transformation services gross margin for the quarter ended September 30, 2011 was 35.9% compared to 35.9% for the quarter ended September 30, 2010 and 34.6% for the quarter ended June 30, 2011. |
| • | Operating margin for the quarter ended September 30, 2011 was 11.7% compared to 10.3% for the quarter ended September 30, 2010 and 11.1% for the quarter ended June 30, 2011. Adjusted operating margin, excluding the impact of stock-based compensation expense and amortization of intangibles, for the quarter ended September 30, 2011 was 15.2% compared to 14.5% for the quarter ended September 30, 2010 and 15.5% for the quarter ended June 30, 2011. |
| • | Net income for the quarter ended September 30, 2011 was $8.4 million compared to $7.8 million for the quarter ended September 30, 2010 and $8.5 million for the quarter ended June 30, 2011. Adjusted EBITDA for the quarter ended September 30, 2011 was $20.3 million compared to $13.3 million for the quarter ended September 30, 2010 and $17.4 million for the quarter ended June 30, 2011. |
| • | Diluted earnings per share for the quarter ended September 30, 2011 was $0.27 compared to $0.26 for the quarter ended September 30, 2010 and $0.27 for the quarter ended June 30, 2011. Adjusted diluted earnings per share for the quarter ended September 30, 2011 was $0.35 compared to $0.32 in the quarter ended September 30, 2010 and $0.35 for the quarter ended June 30, 2011. |
Business Announcements
| • | Signed a ten-year strategic client contract with a leading insurance and retirement services provider to provide end-to-end servicing and administration for a block of variable annuity policies. EXL will service the policies on a price per policy basis by leveraging its LifePRO® platform and establishing a delivery center in Richmond, Virginia. |
| • | Acquired Trumbull Services, LLC, a market leader in subrogation services for property and casualty insurers from The Hartford Financial Services Group, Inc. With this acquisition, EXL strengthens its leadership in the insurance industry with a highly skilled and experienced employee base, an advanced software platform and a capability for providing complex insurance subrogation outsourcing services. |
| • | Completed an underwritten public equity offering of 4,000,000 shares of common stock of which 3,000,000 shares were sold by certain stockholders and 1,000,000 shares were sold by EXL. |
| • | Repaid all outstanding borrowings under the revolving credit facility using internally generated cash and the net proceeds from the equity offering of approximately $21.6 million. |
| • | Expanded multiple outsourcing services relationships with the migration of 59 new processes, including 25 new processes in the recently formed Finance and Accounting Center of Excellence. |
| • | Experienced attrition in the third quarter of 30.0% for billable employees compared to 32.8% in the quarter ended September 30, 2010 and 32.9% in the quarter ended June 30, 2011. Headcount for the quarter ended September 30, 2011 was approximately 17,900. |
2
2011 Outlook
The Company is increasing its guidance for calendar year 2011 at prevailing exchange rates:
| • | Revenues at the upper end of the range of $354.0 million to $358.0 million. |
| • | Adjusted operating margin, excluding the impact of stock-based compensation expense and amortization of intangibles, of between 14.5% and 15.0%. |
Conference Call
EXL will host a conference call at 8:00 a.m. (ET) on November 3, 2011 to discuss the company’s financial and operating performance. The conference call and event will be available live via the internet by accessing the investor relations section of EXL’s website 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 1-877-303-6384 or 1-224-357-2191 and enter “99096795”. For those who cannot access the live broadcast, a replay will be available by dialing 1-855-859-2056 or 1-404-537-3406 and entering “99096795” from two hours after the end of the call until 11:59 p.m. (ET) on November 17, 2011. The replay will also be available on the EXL website www.exlservice.com.
About ExlService Holdings, Inc.
ExlService Holdings, Inc. (NASDAQ: EXLS) is a leading provider of outsourcing and transformation services. EXL primarily serves the needs of Fortune 1000 companies from global delivery centers in the insurance, utilities, banking and financial services, transportation and logistics, and travel sectors. EXL’s outsourcing services include a full spectrum of business process management services such as transaction processing and finance and accounting services. Transformation services enable continuous improvement of client processes by bringing together EXL’s capabilities in decision analytics, risk and financial management and operations and process excellence services. Find additional information about EXL at www.exlservice.com.
This press release contains forward-looking statements by ExlService Holdings, Inc. (the “Company”). 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 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 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 detail 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, 2010. 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.
3
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share and per share amounts)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Revenues |
$ | 100,026 | $ | 67,585 | $ | 257,961 | $ | 182,713 | ||||||||
| Cost of revenues (exclusive of depreciation and amortization) |
61,755 | 40,584 | 157,971 | 109,516 | ||||||||||||
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| Gross profit |
38,271 | 27,001 | 99,990 | 73,197 | ||||||||||||
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| Operating expenses: |
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| General and administrative expenses |
13,253 | 10,469 | 36,115 | 29,238 | ||||||||||||
| Selling and marketing expenses |
6,915 | 5,331 | 18,894 | 14,080 | ||||||||||||
| Depreciation and amortization |
6,443 | 4,218 | 16,405 | 11,148 | ||||||||||||
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| Total operating expenses |
26,611 | 20,018 | 71,414 | 54,466 | ||||||||||||
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| Income from operations |
11,660 | 6,983 | 28,576 | 18,731 | ||||||||||||
| Other income: |
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| Foreign exchange gain |
495 | 943 | 3,945 | 2,452 | ||||||||||||
| Interest and other income, net |
374 | 262 | 1,344 | 994 | ||||||||||||
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| Income before income taxes |
12,529 | 8,188 | 33,865 | 22,177 | ||||||||||||
| Income tax provision |
4,138 | 384 | 8,639 | 3,881 | ||||||||||||
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| Net income |
$ | 8,391 | $ | 7,804 | $ | 25,226 | $ | 18,296 | ||||||||
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| Earnings per share: |
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| Basic |
$ | 0.28 | $ | 0.27 | $ | 0.84 | $ | 0.63 | ||||||||
| Diluted |
$ | 0.27 | $ | 0.26 | $ | 0.81 | $ | 0.60 | ||||||||
| Weighted-average number of shares used in computing earnings per share: |
||||||||||||||||
| Basic |
30,293,114 | 29,302,862 | 29,926,846 | 29,221,668 | ||||||||||||
| Diluted |
31,586,936 | 30,385,308 | 31,131,513 | 30,248,648 | ||||||||||||
4
EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| September 30, 2011 |
December 31, 2010 |
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| (Unaudited) | ||||||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 72,876 | $ | 111,182 | ||||
| Short-term investments |
9,647 | 3,084 | ||||||
| Restricted cash |
161 | 231 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $131 at September 30, 2011 and $246 at December 31, 2010 |
58,235 | 44,186 | ||||||
| Prepaid expenses |
2,787 | 3,317 | ||||||
| Deferred tax assets, net |
5,211 | 1,721 | ||||||
| Advance income tax, net |
3,217 | 5,364 | ||||||
| Other current assets |
7,715 | 5,244 | ||||||
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| Total current assets |
159,849 | 174,329 | ||||||
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| Fixed assets, net |
41,003 | 34,733 | ||||||
| Restricted cash |
3,423 | 3,432 | ||||||
| Deferred tax assets, net |
15,666 | 14,333 | ||||||
| Intangible assets, net |
37,864 | 18,591 | ||||||
| Goodwill |
96,238 | 43,370 | ||||||
| Other assets |
19,539 | 16,895 | ||||||
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| Total assets |
$ | 373,582 | $ | 305,683 | ||||
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| Liabilities and Stockholders’ Equity |
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| Current liabilities: |
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| Accounts payable |
$ | 5,923 | $ | 4,860 | ||||
| Deferred revenue |
7,284 | 5,108 | ||||||
| Accrued employee cost |
26,460 | 23,947 | ||||||
| Accrued expenses and other current liabilities |
28,790 | 16,560 | ||||||
| Current portion of capital lease obligations |
1,971 | 231 | ||||||
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| Total current liabilities |
70,428 | 50,706 | ||||||
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| Capital lease obligations, less current portion |
4,905 | 389 | ||||||
| Non-current liabilities |
9,528 | 6,042 | ||||||
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| Total liabilities |
84,861 | 57,137 | ||||||
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| Commitments and contingencies |
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| Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued |
— | — | ||||||
| Stockholders’ equity: |
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| Common stock, $0.001 par value; 100,000,000 shares authorized, 31,447,336 shares issued and 31,123,939 shares outstanding as of September 30, 2011 and 29,690,463 shares issued and 29,437,961 shares outstanding as of December 31, 2010 |
31 | 30 | ||||||
| Additional paid-in-capital |
170,401 | 136,173 | ||||||
| Retained earnings |
137,493 | 112,266 | ||||||
| Accumulated other comprehensive (loss)/income |
(16,533 | ) | 1,126 | |||||
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| Total stockholders’ equity including shares held in treasury |
291,392 | 249,595 | ||||||
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| Less: 323,397 shares as of September 30, 2011 and 252,502 shares as of December 31, 2010, held in treasury, at cost |
(2,693 | ) | (1,069 | ) | ||||
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| ExlService Holdings, Inc. stockholders’ equity |
288,699 | 248,526 | ||||||
| Non-controlling interest |
22 | 20 | ||||||
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| Total stockholders’ equity |
288,721 | 248,546 | ||||||
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| Total liabilities and stockholders’ equity |
$ | 373,582 | $ | 305,683 | ||||
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5
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) stock-based compensation 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 ASC Topic 718 and the amortization of intangibles associated with further acquisitions. The Company also incurs significant non-cash charges for depreciation that may not be indicative of our ability to generate cash flow. The Company believes that providing the measure of adjusted EBITDA will help investors better understand the Company’s underlying financial performance and ability to generate cash flows from operations. Adjusted EBITDA does not represent cash flows from operations as defined by GAAP. 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 quarter ended September 30, 2011, September 30, 2010 and June 30, 2011:
Reconciliation of Adjusted Operating Income and Adjusted EBITDA
(Amounts in thousands)
| Three Months Ended September 30, |
Three Months Ended June 30, |
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| 2011 | 2010 | 2011 | ||||||||||
| Net income (GAAP) |
$ | 8,391 | $ | 7,804 | $ | 8,475 | ||||||
| add: Income tax provision and Other income |
3,269 | (821 | ) | 933 | ||||||||
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| Income from continuing operations (GAAP) |
$ | 11,660 | $ | 6,983 | $ | 9,408 | ||||||
| add: Stock-based compensation expense (a) |
2,160 | 2,121 | 2,879 | |||||||||
| add: Amortization of acquisition-related intangibles (b) |
1,395 | 688 | 913 | |||||||||
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| Adjusted operating income (Non-GAAP) |
$ | 15,215 | $ | 9,792 | $ | 13,200 | ||||||
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| Adjusted operating income margin % |
15.2 | % | 14.5 | % | 15.5 | % | ||||||
| add: Depreciation |
5,048 | 3,530 | 4,197 | |||||||||
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| Adjusted EBITDA (Non-GAAP) |
$ | 20,263 | $ | 13,322 | $ | 17,397 | ||||||
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| Adjusted EBITDA margin % |
20.3 | % | 19.7 | % | 20.5 | % | ||||||
6
Reconciliation of Adjusted Net Income and Adjusted Diluted Earnings Per Share
(Amounts in thousands, except per share data)
| Three Months Ended September 30, |
Three Months Ended June 30, |
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| 2011 | 2010 | 2011 | ||||||||||
| Net income (GAAP) |
$ | 8,391 | $ | 7,804 | $ | 8,475 | ||||||
| add: Stock-based compensation expense (a) |
2,160 | 2,121 | 2,879 | |||||||||
| add: Amortization of acquisition-related intangibles (b) |
1,395 | 688 | 913 | |||||||||
| subtract: Tax impact on stock-based compensation expense |
(846 | ) | (639 | ) | (1,125 | ) | ||||||
| subtract: Tax impact on amortization of acquisition-related intangibles |
(186 | ) | (364 | ) | (206 | ) | ||||||
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| Adjusted net income |
$ | 10,914 | $ | 9,610 | $ | 10,936 | ||||||
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| Adjusted diluted earnings per share |
0.35 | 0.32 | 0.35 | |||||||||
| (a) | To exclude stock-based compensation expense under ASC Topic 718. |
| (b) | To exclude amortization of acquisition-related intangibles. |
7