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Press Releases |
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New York, NY – March 6,
2007 – ExlService Holdings, Inc. (NASDAQ:
EXLS), a recognized provider of offshore solutions
including business process outsourcing, research
and analytics and risk advisory services, today
announced its financial results for the fourth quarter
ended December 31, 2006.
The Company’s fourth quarter highlights include:
| • |
Revenues for the quarter increased
97% to $39.3 million from $20.0 million in
the fourth quarter of 2005 comprised of 63%
organic revenue growth and 34% acquisition
related growth. |
| • |
Gross margin for the quarter was
42.9% compared to 37.5% in the fourth quarter
of 2005. |
| • |
Operating margin for the quarter
was 16.4% compared to 10.6% in the fourth
quarter of 2005; adjusted operating margin
for the quarter, excluding the impact of stock-based
compensation expense and amortization of intangibles,
was 19.7% compared to 10.6% in the fourth
quarter of 2005. |
| • |
Net income to common stock holders
for the quarter was $5.9 million compared
to $3.0 million in the fourth quarter of 2005;
net income to common stockholders for the
quarter includes stock-based compensation
expense and amortization of intangibles of
$1.3 million and $0.0 million in the fourth
quarter of 2006 and 2005, respectively. |
Reconciliations of adjusted financial measures from
GAAP are included at the end of this release.
Vikram Talwar, CEO and Vice-Chairman of EXL commented:
“We are extremely pleased with both our financial
and operating performance during the quarter as
well as our continued execution of our strategic
objectives to sustain long-term growth. EXL’s
fourth quarter results showed strong revenue growth
and a significant expansion in gross margin as well
as operating margin. Our fourth quarter results
were driven by strong performance across all three
of our business lines and increasing acceptance
of EXL’s solutions that are focused on providing
clients a competitive edge by transforming and outsourcing
their business processes.
Attrition continues to be a significant issue facing
our industry. EXL’s attrition rate for billable
employees during the fourth quarter was 41.9%. During
calendar year 2006, our attrition rate was 38.8%
as compared to 55.4% during calendar year 2005.
We believe that our continued investment in employee
retention, training and development, as well as
our changing business mix, will decrease attrition
over time and ensure that we continue to deliver
to our own and our clients’ expectations.
We believe that these investments will enable us
to deploy the right resources and deliver high quality
solutions that meet the business needs of our clients
long into the future and that these are the right
investments to make for EXL for the long-term.
We are happy to report that we have continued to
build on the strength of our management team and
have hired Matt Appel to become our Chief Financial
Officer after the filing of our annual report on
Form 10-K for fiscal year 2006. Matt is exceptionally
qualified to become our CFO and brings to us a unique
blend of functional experience, a deep background
in BPO and a strong familiarity with India. Matt
has over 30 years of experience in finance and BPO
and was most recently Vice President, BPO Product
Management at Electronic Data Systems where he was
responsible for strategy and business plan development
and investment prioritization for EDS’ BPO
product portfolio”, concluded Mr. Talwar.
Rohit Kapoor, President and Chief Financial Officer
of EXL noted: “As we progress in 2007, EXL
will be making several key investments that will
increase our expenses and decrease our gross margin
and operating margin as compared to previous quarters.
EXL’s sales and marketing expenses will continue
to increase as we invest heavily in our front-end
sales and client relationship management functions
to better serve our clients. With a view to enabling
us to scale more effectively, we will continue to
strengthen our back-end support and enabling functions,
add additional physical infrastructure, and drive
additional management development programs and training
initiatives. We will also continue to focus on reducing
attrition and increasing our recruitment capabilities
through various programs.
Our strong fourth quarter results reflect a confluence
of several factors – a number of which are
not expected to continue in the first quarter of
2007 or subsequent periods. Factors that are not
expected to continue include a favorable foreign
exchange rate environment, unexpected strength of
the Risk Advisory business during the historically
slow fourth quarter, higher utilization of our existing
physical infrastructure, strong performance in our
Research and Analytics business line that is project-based
and a voluntary bonus reduction by select senior
individuals in our Research and Analytics business
line.”
Financial Highlights – Fourth Quarter
2006 and Fiscal Year Ended December 31, 2006
| • |
Revenues for the quarter ended December
31, 2006 increased 97% to $39.3 million from
$20.0 million in the quarter ended December
31, 2005. Revenues for the year ended December
31, 2006 increased 65% to $121.8 million from
$74.0 million in the year ended December 31,
2005. |
| • |
Gross margin for the quarter ended December
31, 2006 was 42.9% and increased 540 basis
points from 37.5% in the quarter ended December
31, 2005. Gross margins expanded primarily
as a result of an increased pace of ramp ups
from existing clients in our BPO business
line, favorable exchange rate movements, higher
utilization of the Company’s existing
infrastructure and continued strong demand
for services from the Risk Advisory Services
and Research and Analytics business lines.
Gross margin for the year ended December 31,
2006 was 39.4% compared to 35.6% in the year
ended December 31, 2005. |
| • |
Operating margin for the quarter ended
December 31, 2006 was 16.4%, compared to 10.6%
in the quarter ended December 31, 2005. Adjusted
operating margin, excluding the impact of
stock-based compensation expense and amortization
of intangibles, for the quarter ended December
31, 2006 was 19.7% compared to 10.6% in the
quarter ended December 31, 2005. Operating
margin benefited from continued growth in
our business, a lag in our hiring of senior
personnel, and a voluntary bonus reduction
of $0.6 million during the fourth quarter
of 2006 pertaining to select senior individuals
in our Research and Analytics business line
permitted under the terms of the Inductis
merger agreement in order to achieve the earnout
amounts set forth in such agreement. Operating
margin for the year ended December 31, 2006
was 12.4% compared to 7.5% in the year ended
December 31, 2005. Adjusted operating margin,
excluding the impact of stock-based compensation
expense and amortization of intangibles, for
the year ended December 31, 2006 was 15.0%
compared to 7.6% in the year ended December
31, 2005. |
| • |
Net income to common stockholders for the
quarter ended December 31, 2006 was $5.9 million
compared to $3.0 million in the quarter ended
December 31, 2005; net income to common stockholders
for the quarter includes stock-based compensation
expense and amortization of intangibles of
$1.3 million and $0.0 million in the fourth
quarter of 2006 and 2005, respectively. Net
income to common stockholders for the year
ended December 31, 2006 was $13.4 million
compared to $6.8 million in the year ended
December 31, 2005; net income to common stockholders
for the year ended December 31, 2006 includes
stock-based compensation expense and amortization
of intangibles of $3.2 million and $0.1 million
in the year ended December 31, 2006 and 2005,
respectively. |
| • |
Revenues generated from the Company’s
largest client was 27% for the quarter ended
December 31, 2006 compared to 44% for the
quarter ended December 31, 2005. Revenues
generated from the Company’s three largest
clients was 58% for the quarter ended December
31, 2006 compared to 64% for the quarter ended
December 31, 2005. Revenues generated from
the Company’s largest client was 34%
for the year ended December 31, 2006 compared
to 49% for the year ended December 31, 2005.
Revenues generated from the Company’s
three largest clients was 59% for the year
ended December 31, 2006 compared to 74% for
the year ended December 31, 2005. |
Note: Results may not be comparable due to the inclusion
of the financial results of Inductis, Inc. in our
consolidated financial statements from July 1, 2006.
Recent Business Highlights
| • |
Strong growth and further penetration of
our existing client base through significant
expansion in both new and existing BPO processes.
Revenue generated from the Company’s
five largest clients grew 11% sequentially
from the third quarter of 2006 to the fourth
quarter of 2006. |
| • |
Further cross-sell examples within our
Research and Analytics business line as a
result of our acquisition of Inductis. EXL’s
BPO clients continued to transform their businesses
by combining higher-value analytical solutions
and knowledge process outsourcing with BPO.
|
| • |
Hiring of Matt Appel to become our Chief
Financial Officer after the filing of our
annual report on Form 10-K for fiscal year
2006. Matt has over 30 years of experience
in finance and business process outsourcing
and was most recently Vice President, BPO
Product Management at Electronic Data Systems
where he was responsible for strategy and
business plan development and investment prioritization
for EDS’ BPO product portfolio. |
| • |
Hiring of Sridhar Kadaba as Vice President,
Risk Advisory Services. Sridhar has over 25
years of experience in financial services
and consulting industries. Prior to joining
EXL, Sridhar served as a global financial
services practice leader at Parson Consulting,
a Principal with Ernst & Young and a Partner
within the financial services division of
Unisys Corporation. Sridhar will work in developing
new value-added service offerings within EXL’s
Risk Advisory Services business line. |
| • |
Signing of a definitive agreement for the
provision of services with a leading U.S.
life insurance company to provide a range
of BPO services. During its previous earnings
call, EXL had announced its entry into a letter
of agreement with this company. |
| • |
Construction of a new facility in Noida
to accommodate an additional 1,200 seats of
capacity with its scheduled opening in the
first quarter of 2007. |
As of December 31, 2006, EXL had total employees
of approximately 8,200, an increase of 49% from
approximately 5,500 total employees at December
31, 2005. The Company’s headcount during the
fourth quarter increased by approximately 300 employees.
The attrition rate for billable employees during
the fourth quarter was 41.9% as compared to 39.8%
in the third quarter of 2006. For calendar year
2006, EXL’s attrition rate for billable employees
was 38.8% as compared to 55.4% in calendar year
2005.
2007 Outlook
The Company is providing the following
guidance:
| • |
Calendar year 2007 revenue range of $160
to $170 million. |
| • |
Calendar year 2007 adjusted operating margin
range, excluding the impact of stock-based
compensation expense and amortization of intangibles,
of 12%. |
| • |
First quarter of 2007 expectation of slight
decline in revenue and significant reduction
in margins compared to the fourth quarter
of 2006 in line with normal seasonal factors. |
Conference Call
EXL will host a conference call on Tuesday,
March 6, 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 1-800-418-7236 or 1-973-935-8757 and reference
“EXL.” For those who cannot access
the live broadcast, a replay will be available
by dialing 877-519-4471 or 973-341-3080 and entering
“8487475” from two hours after the
end of the call until 11:59 p.m. (EST) on March
12, 2007. The replay will also be available at
the EXL web site.
ExlService Holdings, Inc. (NASDAQ: EXLS), is a
recognized provider of offshore solutions including
Business Process Outsourcing (BPO), research and
analytics and risk advisory services. It primarily
serves the needs of Global 1000 companies in the
banking, financial services and insurance sector.
EXL is headquartered at 350 Park Avenue, New York,
NY. 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 Registration Statement on
Form S-1. 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
December 31, |
Three months
ended December 31, |
| |
2006 |
2005 |
2006 |
2005 |
| |
(Unaudited)
|
(Audited) |
(Unaudited)
|
(Unaudited) |
| |
| Total Revenues |
$121,768 |
$73,953 |
$39,315 |
$19,979 |
| |
Cost of revenues (exclusive
of depreciation
and amortization) |
73,837 |
47,597 |
22,459 |
12,493 |
| Gross profit |
47,931 |
26,356 |
16,856 |
7,486 |
| |
| Operating expenses: |
|
|
|
|
| General and administrative
expenses |
19,180 |
13,200 |
6,069 |
3,493 |
| Selling and marketing expenses |
4,740 |
1,685 |
1,656 |
472 |
| Depreciation and amortization |
8,940 |
5,889 |
2,685 |
1,411 |
| Total operating expenses |
32,860 |
20,774 |
10,410 |
5,376 |
| Income from operations |
15,071 |
5,582 |
6,446 |
2,110 |
| |
| Other income (expense): |
|
|
|
|
| Foreign exchange gain/(loss) |
(288) |
942 |
400 |
(580) |
| Interest and other income |
1,909 |
693 |
996 |
192 |
| Interest expense |
(580) |
(408) |
(100) |
(125) |
| Interest expense-redeemable
preferred stock |
- |
(397) |
- |
- |
| Income before income taxes |
16,112 |
6,412 |
7,742 |
1,597 |
| |
| Income tax provision/(benefit) |
2,055 |
(647) |
1,704 |
(1,610) |
| Net income |
14,057 |
7,059 |
6,038 |
3,207 |
| |
| Dividends and accretion on preferred
stock |
(617) |
(249) |
(94) |
(169) |
| Net income to common stockholders |
$13,440 |
$6,810 |
$5,944 |
$3,038 |
| |
| Basic earnings per share to
common stockholders |
$ 0.59 |
$ 0.32 |
$ 0.22 |
$ 0.14 |
| |
|
|
|
|
| Diluted earnings per share to
common stockholders |
$ 0.58 |
$ 0.32 |
$ 0.22 |
$ 0.14 |
| |
| Weighted-average number of shares
used in computing earnings per share: |
|
|
|
|
| Basic(1) (2) |
22,864 |
21,175 |
26,663 |
21,203 |
| Diluted(1) |
23,033 |
21,591 |
26,895 |
21,587 |
|
(1) The number of shares and earnings per
share data has been adjusted to give effect to
a stock split and conversion effected by the Company
on October 24, 2006 in connection with the consummation
of its initial public offering.
(2) As of December 31, 2006, there were 28,262,289
shares of our common stock outstanding.
EXLSERVICE
HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Numbers in Thousands) |
| |
December
31, 2006
|
December
31, 2005 |
| Assets |
(Unaudited) |
(Audited) |
| Current assets: |
|
|
| Cash and cash equivalents |
$ 85,366 |
$ 24,241 |
| Restricted cash |
1,093 |
767 |
| Accounts receivable, net of allowance
for doubtful accounts |
26,801 |
14,613 |
| Accounts receivable from related
party |
255 |
149 |
| Employee receivables |
639 |
382 |
| Prepaid expenses |
1,674 |
1,038 |
| Deferred income taxes |
3,571 |
1,165 |
| Other current assets |
3,322 |
959 |
| Total current assets |
122,721 |
43,314 |
| Fixed assets, net |
21,545 |
16,206 |
| Intangibles, net of amortization |
1,970 |
- |
| Goodwill |
16,652 |
- |
| Restricted cash |
302 |
211 |
| Deferred income taxes |
818 |
871 |
| Other assets |
1,601 |
1,974 |
| Total assets |
$ 165,609 |
$ 62,576 |
| |
| Liabilities and Stockholders'
Equity |
|
|
| Current liabilities: |
|
|
| Accounts payable |
$ 3,162
|
$ 1,392 |
| Deferred revenue |
6,377
|
7,609 |
| Accrued employee cost |
10,251
|
3,006 |
| Other accrued expenses and current
liabilities |
14,337
|
6,319 |
| Income taxes payable |
2,706
|
778 |
| Current portion of capital lease
obligation |
165
|
215 |
| Deferred income tax liabilities |
701
|
- |
| Total current liabilities |
37,699
|
19,319 |
| Senior long-term debt |
-
|
5,584 |
| Capital lease obligations, less
current portion |
228
|
256 |
| Deferred income
tax liabilities |
146
|
- |
| Other non current liabilities |
340
|
402 |
| Total liabilities |
38,413
|
25,561 |
| Preferred Stock |
-
|
6,071 |
| Stockholders' equity |
127,196
|
30,944 |
| Total liabilities and
stockholders' equity |
$ 165,609
|
$ 62,576 |
|
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 are not indicative of 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, 2006
and December 31, 2005:
| |
Three
Months Ended December 31, |
Three
Months Ended December 31, |
| |
2006
US GAAP |
Adjustments |
2006
Non-GAAP |
2005
US GAAP |
Adjustments |
2005
Non-GAAP |
| Revenues |
$ 39,315
$ |
— |
$ 39,315 |
$ 19,979
$ |
— |
$ 19,979 |
Cost of revenues (exclusive of
depreciation and amortization) |
22,459 |
(217)(a) |
22,242 |
12,493 |
— |
12,493 |
| Gross profit |
16,856 |
217 |
17,073 |
7,486 |
0 |
7,486 |
| Gross Margin % |
42.9% |
|
43.4% |
37.5% |
|
37.5% |
| Selling, general and administrative
expenses |
7,725 |
(477)(a) |
7,248 |
3,965 |
(16)(a) |
3,949 |
| Depreciation and amortization expense |
2,685 |
(590)(b) |
2,095 |
1,411 |
|
1,411 |
| Income from operations |
6,446 |
1,284 |
7,730 |
2,110 |
16 |
2,126 |
| Operating Margin % |
16.4% |
|
19.7% |
10.6% |
|
10.6% |
Note:
The income statement for three months
ended December 31, 2005 does not include
results from Inductis, Inc. operations
(a) To exclude stock-based compensation
expense under FAS 123R (in 2006) and
APB 25 (in 2005)
(b) To exclude amortization of intangibles
recorded in the quarter ending December
31, 2006 in connection with the Inductis
acquisition |
|
The following table shows the reconciliation of
these adjusted financial measures from GAAP for
the year ended December 31, 2006 and December
31, 2005:
| |
Year
Ended December 31, |
Year
Ended December 31, |
| |
2006
US GAAP |
Adjustments |
2006
Non-GAAP |
2005
US GAAP |
Adjustments |
2005
Non-GAAP |
| Revenues |
$ 121,768
$ |
— |
$ 121,768 |
$ 73,953
$ |
— |
$ 73,953 |
Cost of revenues (exclusive of
depreciation and amortization) |
73,837 |
(465)(a) |
73,372 |
47,597 |
— |
47,597 |
| Gross profit |
47,931 |
465 |
48,396 |
26,356 |
|
26,356 |
| Gross Margin % |
39.4% |
|
39.7% |
35.6% |
|
35.6% |
| Selling, general and administrative
expenses |
23,920 |
(1,509)(a) |
22,411 |
14,885 |
(66)(a) |
14,819 |
| Depreciation and
amortization expense |
8,940 |
(1,180)(b) |
7,760 |
5,889 |
|
5,889 |
| Income from operations |
15,071 |
3,154 |
18,226 |
5,582 |
66 |
5,648 |
| Operating Margin % |
12.4% |
|
15.0% |
7.5% |
|
7.6% |
Note:
The income statement for Year ended
December 31, 2005 does not include
results from Inductis, Inc. operations
(a) To exclude stock-based compensation
expense under FAS 123R (in 2006) and
APB 25 (in 2005)
(b) To exclude amortization of intangibles
recorded in the year ending December
31, 2006 in connection with the Inductis
acquisition |
|
|
|
| |
|
|
|
|
