EXL Reports 2023 Fourth Quarter and Year-End Results(1); Issues 2024 Guidance

2023 Fourth Quarter Revenue of $414.1 Million, up 10.5% year-over-year
Q4 Diluted EPS (GAAP) of $0.24, up 28.2% from $0.19 in Q4 of 2022
Q4 Adjusted Diluted EPS (Non-GAAP) (2) of $0.35, up 11.3% from $0.31 in Q4 of 2022

2023 Revenue of $1.63 Billion, up 15.5% year-over-year
2023 Diluted EPS (GAAP) of $1.10, up 29.9% from $0.85 in 2022
2023 Adjusted Diluted EPS (Non-GAAP) (2) of $1.43, up 19.1% from $1.20 in 2022

NEW YORK, Feb. 29, 2024 (GLOBE NEWSWIRE) — ExlService Holdings, Inc. (NASDAQ: EXLS), a leading data analytics and digital operations and solutions company, today announced its financial results for the quarter and full year ended December 31, 2023.

Rohit Kapoor, Vice Chairman and Chief Executive Officer, said, “In 2023, we achieved revenue growth of 16% and EPS growth of 19%, despite a challenging macro-economic environment and lower demand across the IT services industry. During the year, we made a strategic pivot in our strategy – to be data- and AI-led in everything we do. This strategy, and the meaningful investments we have made in our data and AI capabilities, put EXL in a leading market position as clients continue to recognize our differentiated value proposition. With our proven strategy, unique data, analytics and AI capabilities and an exceptionally talented and dedicated team, we believe EXL is well positioned to continue to outperform the industry in 2024 and beyond.”

Maurizio Nicolelli, Chief Financial Officer, said, “We ended 2023 with strong momentum across our business, a healthy balance sheet and solid free cash flow. While we are mindful of the economic uncertainty heading into 2024, we remain confident we will deliver above industry average revenue and EPS growth in 2024. Our guidance for 2024 revenue is in the range of $1.78 billion to $1.82 billion, representing a 9% to 12% increase year-over-year on both a reported and constant currency basis. We expect adjusted diluted EPS to be in the range of $1.56 to $1.62, representing a 9% to 13% increase over 2023.

“Our Board of Directors authorized a $500 million common stock repurchase program, effective March 1, 2024, for a two-year period, in line with our capital allocation strategy. This new authorization of $500 million represents confidence in our ability to continue our growth trajectory and generate significant free cash flow.”

__________________________________________________

  1. Prior period information has been adjusted to reflect the 5-for-1 forward stock split of our common stock effected in August 2023. See Note 19 – Capital Structure to our Annual Report on Form 10-K for the year ended December 31, 2023 for further details.
  2. Reconciliations of adjusted (non-GAAP) financial measures to the most directly comparable GAAP measures, where applicable, are included at the end of this release under “Reconciliation of Adjusted Financial Measures to GAAP Measures.” These non-GAAP measures, including adjusted diluted EPS and constant currency measures, are not measures of financial performance prepared in accordance with GAAP.

Financial Highlights: Fourth Quarter 2023

  • Revenue for the quarter ended December 31, 2023 increased to $414.1 million compared to $374.7 million for the fourth quarter of 2022, an increase of 10.5% on a reported basis and 10.1% on a constant currency basis. Revenue increased by 0.8% sequentially on reported basis and constant currency basis, from the third quarter of 2023.
    Revenue   Gross Margin
    Three months ended   Three months ended
 Reportable Segments   December
31, 2023
  December
31, 2022
  September
30, 2023
  December
31, 2023
  December
31, 2022
  September
30, 2023
    (dollars in millions)        
Insurance   $ 139.1   $ 120.7   $ 136.4   36.2%   36.2%   36.6%
Healthcare   26.0   25.3   26.2   36.9%   27.0%   36.8%
Emerging Business   67.0   58.0   65.3   41.0%   39.2%   42.4%
Analytics   182.0   170.7   183.1   35.4%   37.5%   37.0%
Revenues, net   $ 414.1   $ 374.7   $ 411.0   36.7%   36.6%   37.7%
  • Operating income margin for the quarter ended December 31, 2023 was 13.1%, compared to 13.6% for the fourth quarter of 2022 and 14.7% for the third quarter of 2023. Adjusted operating income margin for the quarter ended December 31, 2023 was 17.8%, compared to 18.0% for the fourth quarter of 2022 and 20.0% for the third quarter of 2023.
  • Diluted earnings per share for the quarter ended December 31, 2023 was $0.24, compared to $0.19 for the fourth quarter of 2022 and $0.26 for the third quarter of 2023. Adjusted diluted earnings per share for the quarter ended December 31, 2023 was $0.35, compared to $0.31 for the fourth quarter of 2022 and $0.37 for the third quarter of 2023.

Financial Highlights: Full Year 2023

  • Revenue for the year ended December 31, 2023 increased to $1.63 billion compared to $1.41 billion for the year ended December 31, 2022, an increase of 15.5% on a reported basis and 15.6% on a constant currency basis.
    Revenue   Gross Margin
    Year ended   Year ended
Reportable Segments   December
31, 2023
  December
31, 2022
  December
31, 2023
  December
31, 2022  
    (dollars in millions)    
Insurance   $ 529.9   $ 448.7   35.5%   35.9%
Healthcare   106.0   97.4   34.6%   27.1%
Emerging Business   265.7   218.6   43.2%   41.4%
Analytics   729.1   647.3   36.8%   36.7%
Revenues, net   $ 1,630.7   $ 1,412.0   37.3%   36.5%
  • Operating income margin for the year ended December 31, 2023 was 14.6%, compared to 13.6% for the year ended December 31, 2022. Adjusted operating income margin for the year ended December 31, 2023 was 19.3%, compared to 18.3% for the year ended December 31, 2022.
  • Diluted earnings per share for the year ended December 31, 2023 was $1.10, compared to $0.85 for the year ended December 31, 2022. Adjusted diluted earnings per share for the year ended December 31, 2023 was $1.43, compared to $1.20 for the year ended December 31, 2022.

Business Highlights: Fourth Quarter 2023

  • Won 17 new clients in the fourth quarter of 2023, with 9 clients in the digital operations and solutions business and 8 clients in analytics. For the year, we won 63 new clients, with 35 of those clients in digital operations and solutions business and 28 in analytics.
  • Formed a new collaboration with AWS for developing and delivering generative AI solutions through a cloud-native AI workbench, including the use of Amazon Bedrock for large language models.
  • Established a new collaboration with Microsoft to co-develop and accelerate generative AI solutions for businesses to help clients drive growth, personalize customer experiences, unlock valuable insights and develop new offerings.
  • Named in Newsweek’s 2024 America’s Most Responsible Companies list for fourth consecutive year.

2024 Guidance
Based on current visibility, and a U.S. dollar to Indian rupee exchange rate of 83.0, U.K. pound sterling to U.S. dollar exchange rate of 1.27, U.S. dollar to the Philippine peso exchange rate of 56.0 and all other currencies at current exchange rates, we are providing the following guidance for the full year 2024:

  • Revenue of $1.78 billion to $1.82 billion, representing an increase of 9% to 12% on a reported basis, and constant currency basis, from 2023; and
  • Adjusted diluted earnings per share of $1.56 to $1.62, representing an increase of 9% to 13% from 2023.

Conference Call

ExlService Holdings, Inc. will host a conference call on Thursday, Feb. 29, 2024, at 10:00 A.M. ET to discuss the Company’s fourth quarter and year-end 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.

Please note that there is a new system to access the live call-in order to ask questions. To join the live call, please register here. A dial-in and unique PIN will be provided to join the call. 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 data analytics and digital operations and solutions company. We partner with clients using a data and AI-led approach to reinvent business models, drive better business outcomes and unlock growth with speed. EXL harnesses the power of data, analytics, AI, and deep industry knowledge to transform operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media and retail, among others. EXL was founded in 1999 with the core values of innovation, collaboration, excellence, integrity and respect. We are headquartered in New York and have more than 54,000 employees spanning six continents. For more information, visit www.exlservice.com.

Cautionary Statement Regarding Forward-Looking Statements This press release contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. 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 maintain and grow client demand, our ability to hire and retain sufficiently trained employees, and our ability to accurately estimate and/or manage costs, rising interest rates, rising inflation and recessionary economic trends, are discussed in more detail in EXL’s filings with the Securities and Exchange Commission, including EXL’s Annual Report on Form 10-K. 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 applicable law.

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amount and share count)

 
          (Unaudited)
  Year ended December 31,   Three months ended December 31,
    2023       2022       2023       2022  
Revenues, net $ 1,630,668     $ 1,412,044     $ 414,058     $ 374,703  
Cost of revenues(1)   1,022,902       896,595       262,211       237,410  
Gross profit(1)   607,766       515,449       151,847       137,293  
Operating expenses:              
General and administrative expenses   198,294       169,016       53,730       46,118  
Selling and marketing expenses   120,227       97,989       31,553       25,955  
Depreciation and amortization expense   50,490       56,282       12,298       14,225  
Total operating expenses   369,011       323,287       97,581       86,298  
Income from operations   238,755       192,162       54,266       50,995  
Foreign exchange gain, net   1,532       6,199       694       1,516  
Interest expense   (13,180 )     (8,252 )     (3,150 )     (3,432 )
Other income/(loss), net   10,834       (10 )     4,240       (4,508 )
Income before income tax expense and earnings from equity affiliates   237,941       190,099       56,050       44,571  
Income tax expense   53,536       47,565       15,763       12,791  
Income before earnings from equity affiliates   184,405       142,534       40,287       31,780  
Gain/(loss) from equity-method investment   153       434       (4 )     69  
Net income attributable to ExlService Holdings, Inc. stockholders $ 184,558     $ 142,968     $ 40,283     $ 31,849  
Earnings per share attributable to ExlService Holdings, Inc. stockholders (2):              
Basic $ 1.11     $ 0.86     $ 0.24     $ 0.19  
Diluted $ 1.10     $ 0.85     $ 0.24     $ 0.19  
Weighted-average number of shares used in computing earnings per share attributable to ExlService Holdings, Inc. stockholders (2):              
Basic   166,341,213       166,651,585       165,254,017       166,206,040  
Diluted   168,161,371       169,169,290       166,880,836       169,177,485  
                               

(1) Exclusive of depreciation and amortization expense.
(2) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023.

EXLSERVICE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount and share count)
     
    As of
    December 31, 2023   December 31, 2022
         
Assets        
Current assets:        
Cash and cash equivalents   $ 136,953     $ 118,669  
Short-term investments     153,881       179,027  
Restricted cash     4,062       4,897  
Accounts receivable, net     308,108       259,222  
Other current assets     76,669       50,979  
Total current assets     679,673       612,794  
Property and equipment, net     100,373       82,828  
Operating lease right-of-use assets     64,856       55,347  
Restricted cash     4,386       2,055  
Deferred tax assets, net     82,927       55,791  
Goodwill     405,639       405,637  
Other intangible assets, net     50,164       64,819  
Long-term investments     4,430       34,779  
Other assets     49,524       32,069  
Total assets   $ 1,441,972     $ 1,346,119  
Liabilities and stockholders’ equity        
Current liabilities:        
Accounts payable   $ 5,055     $ 7,789  
Current portion of long-term borrowings     65,000       30,000  
Deferred revenue     12,318       18,782  
Accrued employee costs     117,137       108,100  
Accrued expenses and other current liabilities     112,900       95,352  
Current portion of operating lease liabilities     12,780       14,978  
Income taxes payable, net     1,213       2,945  
Total current liabilities     326,403       277,946  
Long-term borrowings, less current portion     135,000       220,000  
Operating lease liabilities, less current portion     58,175       48,155  
Deferred tax liabilities, net     1,495       547  
Other non-current liabilities     31,462       41,292  
Total liabilities     552,535       587,940  
Commitments and contingencies        
ExlService Holdings, Inc. Stockholders’ equity:        
Preferred stock, $0.001 par value; 15,000,000 shares authorized, none issued            
Common stock, $0.001 par value; 400,000,000 shares authorized, 203,410,038 shares issued and 165,277,880 shares outstanding as of December 31, 2023 and 199,939,880 shares issued and 166,172,220 shares outstanding as of December 31, 2022 (1)     203       200  
Additional paid-in capital (1)     508,028       444,948  
Retained earnings     1,083,663       899,105  
Accumulated other comprehensive loss     (127,040 )     (144,143 )
Total including shares held in treasury     1,464,854       1,200,110  
Less: 38,132,158 shares as of December 31, 2023 and 33,767,660 shares as of December 31, 2022, held in treasury, at cost (1)     (575,417 )     (441,931 )
Total stockholders’ equity     889,437       758,179  
Total liabilities and stockholders’ equity   $ 1,441,972     $ 1,346,119  

(1) Prior period information has been adjusted to reflect the 5-for-1 forward stock split of the Company’s common stock effected in August 2023.

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 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, or a qualitative reconciliation thereof, 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 future acquisitions and the currency fluctuations and associated tax effects. 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, amortization of acquisition-related intangible assets, provision for litigation matters, effects of termination of leases, certain defined social security contributions, allowance for certain material expected credit losses, other acquisition-related expenses or benefits and effect of any non-recurring tax adjustments. Acquisition-related expenses or benefits include, changes in the fair value of contingent consideration, external deal costs, integration expenses, direct and incremental travel costs and non-recurring benefits or losses. Our adjusted net income and adjusted diluted EPS also excludes the effects of income tax on the above pre-tax items, as applicable. The effects of income tax of each item is calculated by applying the statutory rate of the 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.

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 increased from 82.31 during the quarter ended December 31, 2022 to 83.28 during the quarter ended December 31, 2023, representing a depreciation of 1.2% against the U.S. dollar. The average exchange rate of the U.S. dollar against the Philippine peso decreased from 56.76 during the quarter ended December 31, 2022 to 55.86 during the quarter ended December 31, 2023, representing an appreciation of 1.6% against the U.S. dollar. The average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.19 during the quarter ended December 31, 2022 to 1.25 during the quarter ended December 31, 2023, representing an appreciation of 5.4% against the U.S. dollar.
The following table shows the reconciliation of these non-GAAP financial measures for the year ended December 31, 2023 and 2022, the three months ended December 31, 2023 and 2022 and the three months ended September 30, 2023:

Reconciliation of Adjusted Operating Income and Adjusted EBITDA
(Amounts in thousands)
 
    Year ended   Three months ended
    December 31,   December 31,   September 30,
      2023       2022       2023       2022       2023  
Net Income (GAAP)   $ 184,558     $ 142,968     $ 40,283     $ 31,849     $ 43,876  
add: Income tax expense     53,536       47,565       15,763       12,791       14,161  
add/(subtract): Foreign exchange gain, net, interest expense, gain/(loss) from equity-method investment and other income/(loss), net     661       1,629       (1,780 )     6,355       2,193  
Income from operations (GAAP)   $ 238,755     $ 192,162     $ 54,266     $ 50,995     $ 60,230  
add: Stock-based compensation expense     58,437       49,366       15,452       12,616       17,067  
add: Amortization of acquisition-related intangibles     14,678       17,109       3,168       4,234       3,157  
add/(subtract): Allowance/(reversal) for expected credit losses (a)     1,436             (264 )           1,700  
add/(subtract): Other expenses/(benefits) (b)     1,384       (40 )     895       (560 )      
Adjusted operating income (Non-GAAP)   $ 314,690     $ 258,597     $ 73,517     $ 67,285     $ 82,154  
Adjusted operating income margin as a % of Revenue (Non-GAAP)     19.3 %     18.3 %     17.8 %     18.0 %     20.0 %
add: Depreciation on long-lived assets     34,434       38,869       9,130       9,687       8,426  
Adjusted EBITDA (Non-GAAP)   $ 349,124     $ 297,466     $ 82,647     $ 76,972     $ 90,580  
Adjusted EBITDA margin as a % of revenue (Non-GAAP)     21.4 %     21.1 %     20.0 %     20.5 %     22.0 %
                     

(a) To exclude the effects of material allowance/(reversal) for expected credit losses on accounts receivables related to a customer bankruptcy event.
(b) To exclude provision for litigation matters of $895 and $386, effects of lease termination of $489 and ($560) and other items, individually insignificant of $nil and $134 for the year ended December 31, 2023 and 2022, respectively. To exclude provision for litigation matters of $895 and $nil, and effects of lease termination of $nil and ($560) for the three months ended December 31, 2023 and 2022, respectively.

Reconciliation of Adjusted Net Income and Adjusted Diluted Earnings Per Share
(Amounts in thousands, except per share data)
             
    Year ended   Three months ended
    December 31,   December 31,   September 30,
      2023       2022       2023       2022       2023  
Net income (GAAP)   $ 184,558     $ 142,968     $ 40,283     $ 31,849     $ 43,876  
add: Stock-based compensation expense     58,437       49,366       15,452       12,616       17,067  
add: Amortization of acquisition-related intangibles     14,678       17,109       3,168       4,234       3,157  
add/(subtract): Allowance/(reversal) for expected credit losses (a)     1,436             (264 )           1,700  
add/(subtract): Changes in fair value of contingent consideration     1,900       8,500       (600 )     7,500       2,500  
add/(subtract): Other expenses/(benefits) (b)     1,102       635       613       (560 )      
subtract: Tax impact on stock-based compensation expense (c)     (17,333 )     (9,785 )     (374 )     (930 )     (4,340 )
subtract: Tax impact on amortization of acquisition-related intangibles     (3,622 )     (4,151 )     (792 )     (1,134 )     (771 )
add/(subtract): Tax impact on allowance/(reversal) for expected credit losses     (364 )           65             (429 )
add: Tax impact on changes in fair value of contingent consideration     152             152              
add/(subtract): Tax impact on other expenses/(benefits)     (280 )     (29 )     (157 )     141        
add/(subtract): Other tax expenses/(benefits) (d)     223       (1,079 )     223       (1,079 )      
Adjusted net income (Non-GAAP)   $ 240,887     $ 203,534     $ 57,769     $ 52,637     $ 62,760  
Adjusted diluted earnings per share (Non-GAAP)   $ 1.43     $ 1.20     $ 0.35     $ 0.31     $ 0.37  
                                         

(a) To exclude the effects of material allowance/(reversal) for expected credit losses on accounts receivables related to a customer bankruptcy event.
(b) To exclude provision for litigation matters of $613 and $1,061, effects of lease termination of $489 and ($560) and other items, individually insignificant of $nil and $134 for the year ended December 31, 2023 and 2022, respectively. To exclude provision for litigation matters of $613 and $nil, and effects of lease termination of $nil and ($560) for the three months ended December 31, 2023 and 2022, respectively.
(c) Tax impact includes $15,055 and $5,881 for the year ended December 31, 2023 and 2022 respectively, $1,883 and $2,349 for the three months ended December 31, 2023 and 2022 respectively, and $462 for the three months ended September 30, 2023 related to discrete benefit recognized in income tax expense in accordance with ASU No. 2016-09, Compensation – Stock Compensation.
(d) To exclude other tax expenses/(benefits) related to certain deferred tax assets and liabilities.

Contacts:
Investor Relations
John Kristoff
Vice President, Investor Relations
+1 212 209 4613
[email protected]

Media – US
Keith Little
Senior Manager, Media Relations
+1 703 598 0980
[email protected]

Media – UK, Europe, and APAC
Anna Price
First Light Group
+44 202 617 7240
[email protected]

Media – India
Shailendra Singh
Vice President Corporate Communications
+91 9810476075
[email protected]


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