EXL reports 2007 Q1 results

ExlService Holdings, Inc. (NASDAQ: EXLS), a recognized provider of offshore solutions, including business process outsourcing, research and analytics and advisory services, today announced its financial results for the quarter ended March 31, 2007.

The Company’s highlights for the first quarter of 2007 include:

·         Revenues for the quarter increased 85% to $39.9 million from $21.6 million in the first quarter of 2006 comprised of 65% organic revenue growth and 20% acquisition-related revenue growth.

·         Gross margin for the quarter was 38.6% compared to 35.3% in the first quarter of 2006.

·         Operating margin for the quarter was 12.4% compared to 6.5% in the first quarter of 2006; adjusted operating margin for the quarter, excluding the impact of stock-based compensation expense and amortization of intangibles, was 15.9% compared to 7.5% in the first quarter of 2006.

·         Net income to common stockholders for the quarter was $5.4 million compared to $1.9 million in the first quarter of 2006; net income to common stockholders for the quarter includes stock-based compensation expense and amortization of intangibles of $1.4 million and $0.2 million in the first quarter of 2007 and 2006, respectively.

Reconciliations of adjusted financial measures to GAAP are included at the end of this release.

Vikram Talwar, CEO and Vice-Chairman of EXL, commented:  “EXL delivered a strong quarter both financially and operationally. I am enthusiastic about the continued rapid growth in our BPO business during the quarter. The research and analytics business experienced a slow quarter due to a reduction in project-based work, however we continue to succeed in cross-selling our BPO, research and analytics and advisory services to EXL’s clients. Our world-class research and analytics and advisory services continue to be strong differentiators for us in the marketplace.”

Matt Appel, CFO of EXL, commented: “EXL’s first quarter results reflect revenue growth of 85% year over year and strong operating margins that significantly exceeded our expectations for the quarter. Our first quarter results were driven by continued rapid growth and operating leverage in our BPO and advisory business lines. Despite the slowdown for the quarter in the research and analytics business line, EXL delivered operating profit margins that were almost 400 basis points above our stated guidance.” 

Rohit Kapoor, President of EXL, commented: “The strategic investments we continue to make in our business are  expected to enable sustainable and profitable long-term growth. Based on continuing strong demand we are accelerating our  infrastructure planning and investment, hiring aggressively at the middle and senior management levels in both operations and enabling functions, and continuing to invest in the sales and marketing and relationship management functions. We expect these investments to deliver attractive, sustainable returns.” 

Financial Highlights – First Quarter 2007

·         Revenues for the quarter ended March 31, 2007 increased 85% to $39.9 million from $21.6 million in the quarter ended March 31, 2006. BPO revenue for the quarter of $32.7 million reflects organic growth of 67% year over year.  Research and analytics revenue for the quarter of $4.2 million is not comparable with the first quarter of 2006 since the size of this business line was not significant. Advisory revenue of $2.9 million for the quarter reflects organic growth of 100% year over year.

·         Gross margin for the quarter ended March 31, 2007 was 38.6% compared to 35.3% in the quarter ended March 31, 2006. Gross margins exceeded expectation primarily as a result of continued revenue growth and strong infrastructure utilization in our BPO business. BPO gross margins for the quarter were 42.4%. Research and analytics gross margins for the quarter of 13.4% reflected the impact of lower revenues. Advisory gross margins for the quarter were 32.3% reflecting strong growth and the impact of costs attributable to staff and management additions.

·         Operating margin for the quarter ended March 31, 2007 was 12.4%, compared to 6.5% in the quarter ended March 31, 2006. Adjusted operating margin, excluding the impact of stock-based compensation expense and amortization of intangibles, for the quarter ended March 31, 2007 was 15.9% compared to 7.5% in the quarter ended March 31, 2006. Operating margin was negatively impacted by the reduction in gross margins in the research and analytics business line.

·         Net income to common stockholders for the quarter ended March 31, 2007 was $5.4 million compared to $1.9 million in the quarter ended March 31, 2006; net income to common stockholders for the quarter includes stock-based compensation expense and amortization of intangibles of $1.4 million and $0.2 million in the first quarter of 2007 and 2006, respectively.

·         Revenue generated from our largest client was 28% of total revenues for the quarter ended March 31, 2007 compared to 46% for the quarter ended March 31, 2006. Revenue generated from our three largest clients was 59% of total revenues for the quarter ended March 31, 2007 compared to 66% for the quarter ended March 31, 2006.

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.

Business Highlights – First Quarter 2007

·         Our BPO business line continued to experience rapid revenue growth and grew 11% compared to the preceding quarter while maintaining operational excellence across all major client relationships.

·         Our research and analytics business line experienced a significant reduction in project-based revenue from a major customer during the quarter. However, this business line continued to win new business involving services that are long-term in nature. For example, we signed a three-year agreement to provide modeling and claims analytics services for a leading U.S. insurance company. The research and analytics business line earned revenue from ten new clients in the first quarter in addition to cross-selling to three clients that were existing BPO clients. 

·         Our advisory business line achieved record quarterly revenues and successfully mitigated the seasonality the business has historically experienced by diversifying its service offerings. During the quarter, our advisory business line increased the scope of its finance and accounting services for a leading insurance company and expanded its compliance assistance for a global mail management company.

As of March 31, 2007, EXL had approximately 9,000 total employees, an increase of 45% from approximately 6,200 total employees at March 31, 2006. The Company’s headcount during the first quarter of 2007 increased by approximately 800 employees from the end of the preceding quarter.  The attrition rate for billable employees during the first quarter of 2007 was 43.7% as compared to 41.9% in the fourth quarter of 2006.  We believe that the nominal increase in attrition is the result of an increasingly competitive environment for our India-based employees and does not pose a risk to service delivery quality for our clients.

2007 Outlook

Based on current visibility, the Company is providing the following guidance:

·         Calendar year 2007 revenue and adjusted operating margin guidance remain unchanged.

Second quarter of 2007 expectation that operating margin will be negatively impacted by currency movement and softness in the research and analytics business line.

Sourced From: Hanmer & Partners Communications Pvt. Ltd