ExlService Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide standalone fourth-quarter results. EXL provides data analytics and digital operations and solutions across insurance, healthcare, analytics, and emerging business markets.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $1,122.3 million | $958.4 million | +17.1% |
| Gross profit / margin | $431.4 million / 38.4% | $334.5 million / 34.9% | Margin +3.5 percentage points |
| Operating income / margin | $155.9 million / 13.9% | $110.0 million / 11.5% | Income +41.7% |
| Net income | $114.8 million | $89.5 million | +28.2% |
| Diluted EPS | $3.35 | $2.59 | Up |
| Cash from operations | $184.4 million | $203.0 million | Down $18.6 million |
Revenue growth was led by Analytics, up 27.0% to $460.7 million. Insurance rose 11.8% to $382.0 million; Healthcare rose 10.9% to $112.4 million; and Emerging Business rose 9.5% to $167.2 million. Management attributed growth principally to expanded work with new and existing clients; Analytics also included a December acquisition.
Operating cash flow declined amid higher working-capital needs, including receivables growth and DSO rising to 56 days from 53. Investing activities used $114.3 million, including $76.8 million net cash for the Clairvoyant acquisition. Financing activities used $146.9 million, including share repurchases and debt repayments. Year-end cash, cash equivalents and short-term investments were $313.9 million, versus $402.8 million a year earlier; cash, cash equivalents and restricted cash were $143.8 million.
At year-end, borrowings were $260.0 million, classified as current, under a $300 million revolving facility maturing November 21, 2022. The $150 million convertible notes were settled in August 2021 for $236.7 million of total consideration, paid with $200 million cash drawn from the facility and 310,394 treasury shares; settlement generated a $12.8 million loss. EXL reported compliance with credit covenants. Operating lease liabilities totaled $87.0 million.
Material changes and unusual items
- Gross margin improvement reflected higher revenue, operational efficiencies and lower COVID-related costs. SG&A rose 30.1% to $226.4 million, increasing from 18.2% to 20.2% of revenue, largely due to employee costs and investment in technology and growth.
- EXL acquired Clairvoyant on December 16, 2021. Preliminary consideration was $89.6 million, including $9.0 million estimated contingent consideration; purchase accounting remains subject to post-closing adjustments. The acquisition added $55.2 million of goodwill. Its results were included from the acquisition date.
- EXL repurchased $115.6 million of stock under its 2019 program in 2021. A new $300 million repurchase program began January 1, 2022. The company does not anticipate cash dividends in the foreseeable future.
Outlook, risks and contingencies
Management described demand for digital, cloud and analytics capabilities as favorable over the longer term, but provided no quantified revenue or earnings guidance in the supplied filing text. EXL expects 2022 capital expenditures of $40–$45 million and believes existing liquidity and operating cash flow will cover requirements over the next 12 months. It expects continued spending on talent, technology, remote-work efficiency and employee security and health.
Key risks include continuing COVID-19 disruption; competition, wage inflation and employee attrition; reliance on large clients (the top ten generated 38.1% of revenue); client termination rights; cybersecurity and privacy exposure; foreign-exchange movements; and the facility’s 2022 maturity. The filing reports Indian tax disputes, including transfer-pricing and permanent-establishment assessments totaling $34.3 million net of advance payments, and VAT demands of $6.4 million, alongside denied GST refunds of $3.3 million. EXL believes its positions are more likely than not to be sustained and has not recorded reserves for these matters. Potential retroactive Indian social-security contributions cannot be reliably estimated. Management reported no goodwill impairment in 2021; future impairment remains possible.
Important facts for investors to verify
- How the $260 million revolving balance was refinanced or repaid after its November 2022 maturity, and subsequent borrowing and liquidity levels.
- Whether receivables and DSO improved after year-end, given the increase in receivables and lower operating cash flow.
- Clairvoyant’s final purchase-price allocation, earn-out performance, and contribution to revenue and profitability.
- Outcomes and potential cash exposure from Indian tax, VAT/GST and social-security matters, plus the effect of expiring Philippine tax incentives.
- Whether revenue growth and margin gains persisted as wage costs, attrition and investment spending increased.