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Press Releases |
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New York, NY – November
6, 2008 – ExlService Holdings, Inc. (NASDAQ:
EXLS), a leading provider of Outsourcing and Transformation
Services, today announced its financial results
for the quarter ended September 30, 2008.
Rohit Kapoor, President and CEO of EXL, commented:
“In the most challenging economic environment
in recent history, our business model continues
to demonstrate resilience and renewed growth momentum.
Our clients and prospects have become aggressive
in cutting their costs and we therefore expect them
to increase their usage of EXL’s Outsourcing
and Transformation services. In addition, the slowdown
of the GDP growth rate in India and the Philippines
has enhanced our ability to hire, train and retain
talent in our principal delivery locations. While
currency volatility creates interim challenges for
us, in the longer term it should allow us to offer
an effective lower price to our customers. All of
these trends are positively impacting our pipeline,
our business with current clients and employee base.
For the third quarter, EXL had success in terms
of both new client wins and expansions with our
existing strategic clients. Our performance this
quarter was again led by rapid growth in our Transformation
business across an increasingly diversified base
of client relationships. Importantly, our pipeline
of Transformation clients that may evolve into Outsourcing
clients is strong and our overall vision and business
strategy is aligned with the market. With the continued
expansion of our pipeline and some key client wins
and expansions that we are announcing in the third
quarter, our Outsourcing business is well positioned
to meet our long-term growth objectives. Our strong
balance sheet as well as our generation of free
cash flow from operations positions us as a financially
secure partner for our clients and allows us to
maintain our focus on growth oriented investments
during these turbulent times.”
Matt Appel, CFO of EXL, commented: “EXL’s
third quarter financial results reflect a 17.8%
year-over-year increase in revenue from our continuing
operations, net of a 4.3% impact related to the
depreciation of the U.K. pound. Our gross margin
increased to 39.8% from 34.3% a year earlier and
adjusted operating profit increased to 14.7% from
7.9% a year earlier - despite the exercise of the
Aviva BOT call option during the third quarter -
due to improvements in operating efficiency and
the continued depreciation of the Indian rupee.
Cash flow from operations for the quarter was $9.8
million, and we ended the quarter with $101.8 million
of cash and no debt. Due to the extremely volatile
currency environment, earnings per share for the
third quarter were negatively impacted by significant
foreign exchange losses. Effective in the fourth
quarter, we are now hedging a substantial portion
of our balance sheet foreign exchange risk and therefore
expect the negative impact of translation losses
to be significantly lower in the future. Based on
our confidence in our current business outlook as
well as our strong balance sheet and cash flows,
we are announcing a $10 million share repurchase
program that we intend to execute over the next
twelve months.”
Financial Highlights – Third Quarter
2008
Financial highlights are based on continuing
operations of the Company and exclude the Aviva
BOT, which is treated as a discontinued operation
as of the third quarter of 2008. Reconciliations
of adjusted financial measures to GAAP are included
at the end of this release.
| • |
Revenues for the quarter ended September
30, 2008 increased 17.8% to $46.6 million
from $39.5 million in the quarter ended September
30, 2007 and was essentially flat as compared
to $47.0 million in the quarter ended June
30, 2008. Revenues for the quarters ended
September 30, 2008, September 30, 2007, and
June 30, 2008, exclude amounts attributable
to discontinued operations of $3.1 million,
$7.1 million, and $6.8 million, respectively.
Year- over-year revenue growth is net of the
negative impact related to the appreciation
of the U.S. dollar to the U.K. pound amounting
to $1.7 million, or 4.3%, of revenues. Revenues
attributable to Outsourcing Services for the
quarter ended September 30, 2008 increased
10.9% to $34.5 million from $31.1 million
in the quarter ended September 30, 2007, but
declined $1.6 million, or 4.4%, as compared
to $36.1 million for the quarter ended June
30, 2008, partially due to the appreciation
of the U.S. dollar to the U.K. pound. Transformation
Services revenues for the quarter ended September
30, 2008 increased 43.5% to $12.0 million
from $8.4 million in the quarter ended September
30, 2007 and 10.7% as compared to $10.9 million
for the quarter ended June 30, 2008. |
| • |
Gross margin for the quarter ended September
30, 2008 was 39.8% compared to 34.3% for the
quarter ended September 30, 2007 and 35.7%
for the quarter ended June 30, 2008. Third
quarter 2008 gross margin increased as compared
to the previous quarter due to improved utilization
of personnel in Transformation Services and
better utilization of our physical infrastructure.
The positive impact of exchange rates on gross
margin for the third quarter of 2008 compared
to the previous quarter was approximately
$0.1 million. During the third quarter of
2008, the Indian rupee and U.K. pound depreciated
9.2% and 9.5%, respectively, against the U.S.
dollar. |
| • |
Operating margin for the quarter ended
September 30, 2008 was 11.3%, compared to
4.4% for the quarter ended September 30, 2007
and 5.2% for the quarter ended June 30, 2008.
Adjusted operating margin, excluding the impact
of stock-based compensation expense and amortization
of intangibles, for the quarter ended September
30, 2008 was 14.7% compared to 7.9% for the
quarter ended September 30, 2007 and 9.7%
for the quarter ended June 30, 2008. Third
quarter 2008 operating margin increased $2.8
million from the previous quarter, despite
the exercise of the Aviva BOT call option,
primarily due to $0.9 million of general and
administrative cost reductions, increased
gross margin of $1.6 million, and the favorable
impact of exchange rates of $0.4 million. |
| • |
Diluted earnings per share from continuing
operations for the quarter ended September
30, 2008 was $0.01 compared to $0.14 in the
quarter ended September 30, 2007. This decline
is attributable to the foreign exchange losses
incurred during the quarter ended September
30, 2008 of $6.6 million, of which $3.8 million
relates to translation of foreign denominated
monetary assets and liabilities into their
functional currency. Effective in the fourth
quarter, we are hedging a substantial portion
of our balance sheet foreign exchange risk
and therefore expect the negative impact of
translation losses to be significantly lower
in the future. Approximately $1 million of
the foreign exchange losses in the quarter
are expected to be one-time in nature and
are attributable to hedge contracts that were
cancelled during the quarter as a result of
changes to our forecasted U.K. pound revenues.
|
| • |
Revenues generated from our largest client
represented 22.6% of total revenues for the
quarter ended September 30, 2008 as compared
to 30.4% for the quarter ended September 30,
2007. Revenues generated from our three largest
clients represented 44.1% of total revenues
for the quarter ended September 30, 2008 as
compared to 50.0% for the quarter ended September
30, 2007. |
| • |
We experienced quarterly attrition of 36%
for billable employees compared to 39% for
the third quarter of 2007 and 29% for the
second quarter of 2008. As of September 30,
2008, EXL had a headcount of approximately
9,100 individuals (excluding approximately
1,600 personnel in discontinued operations
and including personnel managed under structured
client service agreements) as compared to
8,500 in the third quarter of 2007. |
Business Announcements – Third Quarter
2008
| • |
EXL won four strategic Outsourcing clients
– two in its insurance vertical and
two in its utilities vertical. |
| • |
Our Transformation business continued its
momentum by signing a pilot program to perform
credit card analytics for a leading bank.
Our transformation business has also won an
assignment to provide risk advisory services
for a leading wholesale distribution company
and a U.S. bank. |
| • |
Existing client demand was strong as evidenced
by the award of additional mandates from three
existing strategic clients and the migration
of 19 new processes during the quarter. |
| • |
As a result of increased demand from existing
clients, EXL plans to add an additional delivery
facility with 300 seats in the fourth quarter
of 2008. |
| • |
Growth in the Philippines has continued
with the successful addition of an insurance
client during the quarter; EXL now has four
clients in its Philippines facility. |
| • |
A contract to provide customer service
for a U.K. telecommunications provider has
been terminated effective October 31, 2008
due to the client’s continued consolidation
among its vendors. |
| • |
Announcement of a $10 million share repurchase
program to be executed over the course of
the next twelve months. |
| • |
Our ongoing investment into our client facing
professionals continued and we recently hired
Bruce Polsky as Head of Strategic Account
Management, North America. Bruce will be focused
on helping EXL align its strategic priorities
with client objectives while providing senior
onshore support to grow EXL's strategic accounts.
Bruce joins EXL from Cognizant Technology
Solutions where he was a Managing Client Partner
for the past three years. |
Fourth Quarter of 2008 Outlook
Based on current visibility, the Company
is providing the following guidance for the fourth
quarter of 2008 based on current exchange rates:
| • |
Revenues of approximately $41 million. |
| • |
Adjusted operating margin, excluding the
impact of stock-based compensation expense
and amortization of intangibles, of 7.0%. |
Conference Call
EXL will host a conference call on Thursday,
November 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 website at least fifteen
minutes prior to the call to register, download
and install any necessary audio software.
To listen to the conference call via phone, please
dial +1-800-291-5365 or 1-617-614-3922 and enter
“74033241”. For those who cannot access
the live broadcast, a replay will be available
by dialing +1-888-286-8010 or +1-617-801-6888
and entering “68590148” from two hours
after the end of the call until 11:59 p.m. (EST)
on November 13, 2008. The replay will also be
available at the EXL web site.
ExlService Holdings, Inc. (Nasdaq: EXLS) is a
leading provider of Outsourcing and Transformation
Services. EXL’s Outsourcing Services include
a full spectrum of business process outsourcing
services from offshore delivery centers requiring
ongoing process management skills. Transformation
Services enable continuous improvement of client
processes by bringing together EXL’s capabilities
in reengineering including Six Sigma process improvement,
research & analytics and risk advisory services.
Headquartered in New York, EXL primarily serves
the needs of Global 1000 companies in the insurance,
utilities, financial services, healthcare 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 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
details in the Company’s filings with the
Securities and Exchange Commission, including
the Company’s Annual Report on Form 10-K
for the year ended December 31, 2007. These risks
could cause actual results to differ materially
from those implied by forward-looking statements
in this release.
You should keep in mind that any forward-looking
statement made herein, or elsewhere, speaks only
as of the date on which it is made. New risks
and uncertainties come up from time to time, and
it is impossible to predict these events or how
they may affect the Company. The Company has no
obligation to update any forward-looking statements
after the date hereof, except as required by federal
securities laws.
EXLSERVICE HOLDINGS, INC. CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
EXLSERVICE HOLDINGS, INC. CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
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 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
FAS 123R and the amortization of intangibles associated
with further acquisitions. The adjusted financial
measures disclosed by the Company should not be
considered a substitute for, or superior to, financial
measures calculated in accordance with GAAP, and
the financial results calculated in accordance
with GAAP and reconciliations from those financial
statements should be carefully evaluated.
The following table shows the reconciliation of
these adjusted financial measures from GAAP measures
for the three month periods ended September 30,
2008, September 30, 2007 and June 30, 2008:
(Numbers in thousands)
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