EXL (EXLS) Reports 2009 Third Quarter Results

Nov. 6, 2009 (PR Newswire) — NEW YORK, Nov. 6 /PRNewswire-FirstCall/ — ExlService Holdings, Inc. (Nasdaq: EXLS), a leading provider of outsourcing and transformation services, today announced its financial results for the quarter ended September 30, 2009.

Rohit Kapoor, President and CEO, commented: “We experienced strong revenue growth this quarter and continued momentum in the market place. Our results reflect the investments and efforts that we have directed to execution and client centricity. In our outsourcing business, our team ensured a smooth ramp-up and efficient employee on-boarding for our recently acquired clients. In transformation services, we expanded our existing client relationships while increasing the annuity-based percentage of the business.

We are also pleased to announce a new eight-year agreement to service the back-office operations of American Express Business Travel and the associated acquisition of American Express’ Global Travel Service Center operations in Gurgaon, India. We estimate achieving more than $160 million in revenues over the life of the contract. Through this transaction, we will deepen our relationship with one of our key clients as well as expand our capability set in analytics, exception processing, and transaction processing. This acquisition also adds an experienced management team and an additional delivery center to EXL. We expect the transaction to close first quarter next year.”

Vishal Chhibbar, CFO, commented: “The investments we made in expanding our delivery infrastructure in the first half of this year are paying off. Sequential revenue growth was 13.7% quarter on quarter. We delivered outsourcing revenues of $37.7 million and transformation revenues of $10.5 million. We generated $9.7 million in operating cash flows and ended the quarter with a cash balance of $117.5 million versus $114.3 million last quarter. Adjusted operating margin for the quarter increased to 14.8% due to higher utilization of our physical infrastructure and people as well as strong execution across business lines. We are pleased to increase our calendar year 2009 guidance for revenue to $178.0 million – $180.0 million from $170.0 million – $175.0 million and our adjusted operating margin to 13.0% – 13.5% from 10.0% – 12.0%.”

Financial Highlights

Financial highlights are based on continuing operations of the Company and exclude the sale of the Pune assets providing services to Aviva under the BOT arrangement, 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, 2009 were $48.2 millioncompared to $46.6 million for the quarter ended September 30, 2008 and$42.4 million for the quarter ended June 30, 2009. Revenues attributableto outsourcing services for the quarter ended September 30, 2009 were$37.7 million compared to $34.5 million in the quarter ended September30, 2008 and $34.5 million in the quarter ended June 30, 2009.Transformation services revenues for the quarter ended September 30,2009 were $10.5 million compared to $12.0 million in the quarter endedSeptember 30, 2008 and $7.9 million in the quarter ended June 30, 2009.

— Gross margin for the quarter ended September 30, 2009 was 40.2% comparedto 39.8% for the quarter ended September 30, 2008 and 39.1% for thequarter ended June 30, 2009. Gross margin for outsourcing services was41.0% for the quarter ended September 30, 2009 compared to 41.9% for thequarter ended June 30, 2009. Transformation services gross margin was37.5% for the quarter ended September 30, 2009 compared to 26.8% for thequarter ended June 30, 2009.

— Operating margin for the quarter ended September 30, 2009 was 10.7%compared to 11.3% for the quarter ended September 30, 2008 and 6.6% forthe quarter ended June 30, 2009; adjusted operating margin for thequarter ended September 30, 2009, excluding the impact of stock-basedcompensation expense and amortization of intangibles, was 14.8% comparedto 14.7% for the quarter ended September 30, 2008 and 11.3% for thequarter ended June 30, 2009.

— Diluted earnings per share to common stockholders for the quarter endedSeptember 30, 2009 were $0.14 compared to $0.01 for the quarter endedSeptember 30, 2008 and $0.04 for the quarter ended June 30, 2009.

Business Announcements

— Signed eight-year agreement with American Express to provide businessprocess services in conjunction with the acquisition of AmericanExpress’ Global Travel Service Center operations in Gurgaon, India. Thepurchase price for this transaction will be approximately $30.0 millionnet of working capital adjustments at closing.

— Awarded a five-year outsourcing contract with a global P&C andreinsurance company to provide business process services from both ourIndia facilities and our new Romanian facility currently in development.

— Increased annuity-based transformation revenues to comprise ofapproximately one-third of total transformation.

— Reduced days sales outstanding in the third quarter of 2009 to 59 daysfrom 68 days in the second quarter of 2009 and 76 days in the thirdquarter of 2008.

— Experienced quarterly attrition in the third quarter of 22.0% forbillable employees compared to 22.0% in the second quarter 2009 and37.3% for the third quarter of 2008.

2009 Outlook

The Company is increasing its guidance for calendar year 2009:

— Revenues of $178.0 million to $180.0 million from $170.0 million to$175.0 million.

— Adjusted operating margin, excluding the impact of stock-basedcompensation expense and amortization of intangibles, of 13.0% and 13.5%from 10.0% and 12.0%.

Conference Call

EXL will host a conference call on Friday, November 6, at 8:00 a.m. (ET) to discuss the company’s quarterly results and operating performance. The conference call 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 and an investor factsheet 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 1-800-884-5695 or 1-617-786-2960 and enter “73278987.” 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 “85132426” from two hours after the end of the call until 11:59 p.m. (ET) on November 13, 2009. The replay will also be available on the EXL website (www.exlservice.com).

EXL will host its First Annual Investor Day on Friday, November 6, 2009 at 9:30 a.m. (ET) in New York City at the NASDAQ MarketSite in Times Square. To listen to the investor day events via phone, please dial 1-888-452-4007 or 1-719-325-2481 and reference “EXLService Investor Day 2009.” The event will also be made available via live audio webcast on the investor relations section of EXL’s website at www.exlservice.com. Slides will be made available. For those who cannot access the live broadcast, an archived webcast of the presentations will be available on the EXL website (www.exlservice.com) after the end of the event.

About ExlService Holdings, Inc.

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 decision analytics, risk and financial management and operations and process excellence services. Headquartered in New York, EXL primarily serves the needs of Global 1000 companies in the insurance, utilities, financial services and transportation and logistics 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, 2008. 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)(In thousands, except share and per share amounts)Three months ended Nine months endedSeptember 30, September 30,————- ————-2009 2008 2009 2008—- —- —- —-Revenues $48,186 $46,573 $131,557 $138,019Cost of revenues(exclusive ofdepreciation andamortization) 28,803 28,046 78,986 86,902—— —— —— ——Gross profit 19,383 18,527 52,571 51,117—— —— —— ——Operating expenses:General andadministrativeexpenses 7,770 7,349 22,137 24,193Selling and marketingexpenses 3,516 3,081 10,040 8,366Depreciation andamortization 2,918 2,832 8,137 8,302—– —– —– —–Total operating expenses 14,204 13,262 40,314 40,861—— —— —— ——Income from continuingoperations 5,179 5,265 12,257 10,256Other income/(expense):Foreign exchangegain/(loss) (1,995) (6,637) (5,014) (5,847)Interest and otherincome, net 269 1,157 856 2,294— —– — —–Income/(loss) fromcontinuing operationsbefore income taxes 3,453 (215) 8,099 6,703Income tax provision/(benefit) (541) (589) (169) (984)—- —- —- —-Income from continuingoperations 3,994 374 8,268 7,687Income/(loss) fromdiscontinued operations,net of taxes – (1,449) (139) 3,302- —— —- —–Net income/(loss) tocommon stockholders $3,994 $(1,075) $8,129 $10,989====== ======= ====== =======Earnings/(loss) per share(a):BasicContinuing operations $0.14 $0.01 $0.29 $0.27Discontinued operations – (0.05) – 0.11- —– – —-$0.14 $(0.04) $0.28 $0.38===== ====== ===== =====Diluted:Continuing operations $0.14 $0.01 $0.28 $0.26Discontinued operations – (0.05) – 0.11- —– – —-$0.14 $(0.04) $0.28 $0.38===== ====== ===== =====Weighted-average numberof shares used incomputing earningsper share:Basic 28,930,344 28,846,137 28,893,515 28,801,102Diluted 29,368,390 29,127,304 29,202,856 29,257,254(a) Per share amounts may not foot due to rounding.EXLSERVICE HOLDINGS, INC.CONSOLIDATED BALANCE SHEETS(Unaudited)(In thousands, except share and per share amounts)September 30, December 31,2009 2008—- —-AssetsCurrent assets:Cash and cash equivalents $117,510 $112,174Short-term investments 816 153Restricted cash 1,311 203Accounts receivable, net of allowancefor doubtful accounts of $259 atSeptember 30, 2009 and $128 atDecember 31, 2008 31,578 33,714Deferred tax assets 4,490 3,401Advance income-tax, net 101 2,033Prepaid expenses and other current assets 3,546 6,199—– —–Total current assets 159,352 157,877——- ——-Fixed assets, net of accumulateddepreciation of $35,787 atSeptember 30, 2009 and $27,727 atDecember 31, 2008 22,702 24,518Goodwill 19,595 17,557Intangible assets 710 -Restricted cash 3,744 281Deferred tax assets, net 7,735 3,047Other assets 10,500 8,689—— —–Total assets $224,338 $211,969======== ========Liabilities and Stockholders’ EquityCurrent liabilities:Accounts payable $2,254 $3,371Deferred revenue 3,379 2,961Accrued employee cost 12,176 14,725Accrued expenses and other currentliabilities 12,157 18,011—— ——Total current liabilities 29,966 39,068—— ——Non-current liabilities 3,433 1,569—– —–Total liabilities 33,399 40,637—— ——Commitments and contingenciesPreferred stock, $0.001 par value;15,000,000 shares authorized, none issued – -Stockholders’ equity:Common stock, $0.001 par value;100,000,000 shares authorized,29,179,013 shares issued and outstandingas of September 30, 2009 and 29,054,145shares issued and outstanding as ofDecember 31, 2008 29 29Additional paid-in capital 122,308 116,676Retained earnings 78,150 70,021Accumulated other comprehensive loss (8,572) (14,491)—— ——-191,915 172,235——- ——-Less: 247,030 shares as of September 30,2009 and 237,080 shares as ofDecember 31, 2008, held intreasury, at cost (976) (903)—- —-Total stockholders’ equity 190,939 171,332——- ——-Total liabilities and stockholders’ equity $224,338 $211,969======== ========

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 SFAS 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, 2009, September 30, 2008 and June 30, 2009:

(Amounts in thousands)