2019 Third Quarter Revenues of $251.4 Million, up 8.8% year-over-year
Q3 Diluted EPS (GAAP) of $0.55, up from $0.43 in Q3 of 2018
Q3 Adjusted Diluted EPS (Non-GAAP) of $0.84, up from $0.71 in Q3 of 2018

NEW YORK, Oct. 29, 2019 (GLOBE NEWSWIRE) -- ExlService Holdings, Inc. (NASDAQ: EXLS), a leading operations management and analytics company, today announced its financial results for the quarter ended September 30, 2019.

Rohit Kapoor, Vice Chairman and Chief Executive Officer, said, “EXL generated revenues of $251.4 million during the third quarter of 2019, up 8.8% year-over-year, and adjusted diluted EPS of $0.84, up 18.3%, year-over-year.

“The strong growth in operations management this quarter is reflective of the investment EXL has made to create digital solutions and digitally-enabled operating models to deliver business outcomes for our clients. These solutions orchestrate our deep domain expertise with data capabilities, advanced analytics and digital technologies, enhancing our position as a strategic digital transformation partner in our markets. Our pipeline across insurance, healthcare and analytics remains strong as we end 2019 and look forward to continued growth momentum in 2020.”

Vishal Chhibbar, Chief Financial Officer, said, “We are narrowing our revenue guidance for 2019 to $980 million - $990 million from $976 million - $996 million. The mid-point of our guidance is at $985 million to reflect better performance in the third quarter, an annual revenue forecast of approximately $12 million for Health Integrated offset by a foreign exchange headwind of $2 million. Our guidance now represents annual revenue growth of 12% to 13% on a constant currency basis. Our adjusted diluted EPS guidance for 2019 is being increased to $2.95 - $3.05 from $2.86 - $2.98. Our balance sheet remains strong with cash and short-term investments of $280.8 million as of September 30, 2019.”

Financial Highlights: Third Quarter 2019

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 September 30, 2019 increased to $251.4 million compared to $231.1 million for the third quarter of 2018, an increase of 8.8% on a reported basis and 9.3% on a constant currency basis from the third quarter of 2018, as well as an increase of 3.2% sequentially on a reported basis and 3.5% on a constant currency basis, from the second quarter of 2019.
  Revenues Gross Margin
  Three months ended Three months ended
  September 30, September 30, June 30, September 30, September 30, June 30,
Reportable Segments 2019 2018 2019 2019 2018 2019
  (dollars in millions)  
Insurance $77.7  $64.3  $72.2  33.7% 32.3% 30.9%
Healthcare 24.0  20.4  20.0  19.1% 22.5% 15.7%
Travel, Transportation & Logistics 17.0  17.3  17.5  42.2% 42.4% 43.1%
Finance & Accounting 26.5  24.5  26.4  37.3% 39.2% 39.5%
All Other 17.4  21.9  19.5  29.1% 34.7% 36.9%
             
Analytics 88.8  82.7  87.9  34.8% 35.1% 34.6%
Total revenues, net $251.4  $231.1  $243.5  33.4% 34.2% 33.3%
  • Operating income margin for the quarter ended September 30, 2019 was 8.9%, compared to an operating income margin of 8.5% for the third quarter of 2018 and operating income margin of 5.7% for the second quarter of 2019. During the quarters ended September 30, 2019 and June 30, 2019 we recorded impairment and restructuring charges of $0.5 million and $5.6 million respectively, related to the wind down of the Health Integrated business, which is ongoing and expected to be substantially complete by the end of 2019. Adjusted operating income margin for the quarter ended September 30, 2019 was 14.3% compared to 14.1% for the third quarter of 2018 and 13.2% for the second quarter of 2019.

  • Diluted earnings per share for the quarter ended September 30, 2019 was $0.55 compared to $0.43 for the third quarter of 2018 and diluted earnings per share of $0.36 for the second quarter of 2019. During the quarters ended September 30, 2019 and June 30, 2019 we recorded impairment and restructuring charges of $0.5 million and $5.6 million respectively, related to the wind down of the Health Integrated business, which reduced our GAAP diluted EPS by $0.01 and $0.12, respectively. Adjusted diluted earnings per share for the quarter ended September 30, 2019 was $0.84 compared to $0.71 for the third quarter of 2018 and $0.74 for the second quarter of 2019.

Business Highlights: Third Quarter 2019

  • Won 11 new clients in Q3 including eight in our operations management businesses and three in Analytics
  • Recognized as a Leader and Star Performer in the Everest Group Life and Pensions Insurance BPO Services PEAK Matrix™ Assessment 2019
  • Recognized as a Leader in the Everest Group Clinical and Care Management BPS Services PEAK Matrix™ Assessment 2019
  • Recognized as a Major Contender in the Everest Group Healthcare Payer Payment Integrity Solutions PEAK Matrix™ Assessment 2020

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 1.27, 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 $980 million to $990 million, representing an annual revenue growth rate of 12% to 13% on a constant currency basis and which includes approximately $12 million of revenues from the Health Integrated business for 2019,  offset by foreign exchange headwind of $2 million.
  • Adjusted diluted earnings per share of $2.95 to $3.05, which includes adjusted EPS losses of approximately $0.25 from the Health Integrated business and excludes one-time wind down costs of $8.5 million to $10 million.

Conference Call

ExlService Holdings, Inc. will host a conference call on Tuesday, October 29, 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 31,000 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 (UNAUDITED)
(In thousands, except share and per share amounts)

 Three months ended September 30, Nine months ended September 30,
 2019 2018 2019 2018
Revenues, net$251,392  $231,124  $734,474  $648,209 
Cost of revenues(1)167,542  152,157  487,228  429,907 
Gross profit(1)83,850  78,967  247,246  218,302 
Operating expenses:       
General and administrative expenses29,590  28,704  93,349  85,610 
Selling and marketing expenses18,302  16,490  53,996  45,593 
Depreciation and amortization13,047  14,099  39,466  35,185 
Impairment and restructuring charges489  —  7,296  — 
Total operating expenses61,428  59,293  194,107  166,388 
Income from operations22,422  19,674  53,139  51,914 
Foreign exchange gain, net1,009  1,385  3,471  3,414 
Interest expense(3,180) (2,475) (10,626) (3,719)
Other income, net4,563  2,466  13,088  8,232 
Income before income tax expense and earnings from equity affiliates24,814  21,050  59,072  59,841 
Income tax expense5,701  5,739  12,571  6,796 
Income before earnings from equity affiliates19,113  15,311  46,501  53,045 
Loss from equity-method investment69  62  198  176 
Net income attributable to ExlService Holdings, Inc. stockholders$19,044  $15,249  $46,303  $52,869 
Earnings per share attributable to ExlService Holdings, Inc. stockholders:       
Basic$0.55  $0.44  $1.35  $1.53 
Diluted$0.55  $0.43  $1.33  $1.50 
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders:       
Basic34,322,449  34,458,520  34,382,787  34,472,232 
Diluted34,699,497  35,207,991  34,744,968  35,217,814 

(1) Exclusive of depreciation and amortization.


EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

  As of
 
  September 30, 2019 December 31, 2018 
  (Unaudited)   
Assets     
Current assets:     
Cash and cash equivalents $101,432  $95,881  
Short-term investments 179,340  184,489  
Restricted cash 5,412  5,608  
Accounts receivable, net 179,702  164,752  
Prepaid expenses 9,364  11,326  
Advance income tax, net 3,002  9,639  
Other current assets 27,974  28,240  
Total current assets 506,226  499,935  
Property and equipment, net 78,471  73,510  
Operating lease right-of-use assets 88,753  —  
Restricted cash 2,441  2,642  
Deferred tax assets, net 6,190  6,602  
Intangible assets, net 78,845  95,495  
Goodwill 349,530  349,984  
Other assets 32,967  31,015  
Investment in equity affiliate 2,555  2,753  
Total assets $1,145,978  $1,061,936  
Liabilities and equity     
Current liabilities:     
Accounts payable $3,658  $5,653  
Current portion of long-term borrowings 20,876  21,423  
Deferred revenue 9,585  7,722  
Accrued employee costs 59,568  54,893  
Accrued expenses and other current liabilities 69,876  64,169  
Current portion of operating lease liabilities 23,516  —  
Income taxes payable 575  1,012  
Current portion of finance lease obligations 248  223  
Total current liabilities 187,902  155,095  
Long term borrowings 223,916  263,241  
Finance lease obligations, less current portion 436  315  
Deferred tax liabilities, net 720  8,445  
Operating lease liabilities, less current portion 76,080  —  
Other non-current liabilities 9,241  16,521  
Total liabilities 498,295  443,617  
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, 38,322,354 shares issued and 34,107,851 shares outstanding as of September 30, 2019 and 37,850,544 shares issued and 34,222,476 shares outstanding as of December 31, 2018 38  38  
Additional paid-in capital 386,060  364,179  
Retained earnings 530,547  484,244  
Accumulated other comprehensive loss (86,153) (83,467) 
Total including shares held in treasury 830,492  764,994  
Less: 4,214,503 shares as of September 30, 2019 and 3,628,068 shares as of December 31, 2018, held in treasury, at cost (182,809) (146,925) 
Stockholders’ equity 647,683  618,069  
Non-controlling interest —  250  
Total equity 647,683  618,319  
Total liabilities and equity $1,145,978  $1,061,936  

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, restructuring charges 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 long-lived and 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.

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 decreased from 70.67 during the quarter ended September 30, 2018 to 70.35 during the quarter ended September 30, 2019, representing an appreciation of 0.4%. The average exchange rate of the U.S. Dollar against the Philippine Peso decreased from 53.53 during the quarter ended September 30, 2018 to 51.59 during the quarter ended September 30, 2019, representing an appreciation of 3.6%. The average exchange rate of the British Pound against the U.S. Dollar decreased from 1.31 during the quarter ended September 30, 2018 to 1.22 during the quarter ended September 30, 2019, representing a depreciation of 6.8%.

The following table shows the reconciliation of these non-GAAP financial measures for the three months ended September 30, 2019 and September 30, 2018, and the three months ended June 30, 2019:

Reconciliation of Adjusted Operating Income and Adjusted EBITDA
(Amounts in thousands)

  Three months ended
  September 30, June 30,
  2019 2018 2019
Net Income (GAAP) $19,044  $15,249  $12,564 
add: Income tax expense 5,701  5,739  2,670 
subtract: Interest expense, foreign exchange gain, net, loss from equity-method investment and other income, net (2,323) (1,314) (1,378)
Income from operations (GAAP) $22,422  $19,674  $13,856 
add: Stock-based compensation expense 7,427  5,344  7,155 
add: Amortization of acquisition-related intangibles 5,502  6,718  5,554 
add: Impairment and restructuring charges (a) 489  —  5,580 
add: Acquisition-related expenses (b) —  855  — 
Adjusted operating income (Non-GAAP) $35,840  $32,591  $32,145 
Adjusted operating income margin as a % of Revenues (Non-GAAP) 14.3% 14.1% 13.2%
add: Depreciation 7,545  7,381  7,198 
Adjusted EBITDA (Non-GAAP) $43,385  $39,972  $39,343 
Adjusted EBITDA margin as a % of revenue  (Non-GAAP) 17.3% 17.3% 16.2%

(a) To exclude impairment and restructuring charges related to wind down of the Health Integrated business.

(b) 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)

  Three Months Ended
  September 30, June 30,
  2019 2018 2019
Net income (GAAP) $19,044  $15,249  $12,564 
add: Stock-based compensation expense 7,427  5,344  7,155 
add: Amortization of acquisition-related intangibles 5,502  6,718  5,554 
add: Impairment and restructuring charges (a) 489  —  5,580 
add: Acquisition-related expenses/(benefits) (b) (761) 855  — 
add: Non-cash interest expense related to convertible senior notes (c) 618  —  618 
subtract: Tax impact on stock-based compensation expense (d) (1,790) (1,460) (1,571)
subtract: Tax impact on amortization of acquisition-related intangibles (1,188) (1,435) (1,198)
subtract: Tax impact on impairment and restructuring charges (120) —  (1,367)
subtract: Tax impact on acquisition-related expenses/(benefits) 186  (218) — 
subtract: Tax impact on non-cash interest expense related to convertible senior notes (150) —  (150)
subtract: Non-recurring tax benefit (e) —  —  (1,471)
Adjusted net income (Non-GAAP) $29,257  $25,053  $25,714 
Adjusted diluted earnings per share (Non-GAAP) $0.84  $0.71  $0.74 

(a) To exclude impairment and restructuring charges related to wind down of the Health Integrated business.

(b) To exclude acquisition-related expenses and one-time benefits. See descriptions above for more information.

(c) To exclude non-cash interest expense related to convertible senior notes.

(d) Tax impact includes $21 and $288 during the three months ended September 30, 2019 and 2018 respectively, and $57 during the three months ended June 30, 2019 related to discrete benefit recognized in income tax expense on adoption of ASU No. 2016-09, Compensation - Stock Compensation.

(e) To exclude non-recurring tax benefit related to certain deferred tax assets and liabilities.

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

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