ExlService Holdings, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a report limited to 2022 Q4. EXL provides data analytics and digital operations and solutions, primarily to insurance, healthcare, financial services, and other industries. Its four reportable segments are Insurance, Healthcare, Analytics, and Emerging Business.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $1,412.0 million | $1,122.3 million | +25.8% |
| Gross profit / margin | $515.4 million / 36.5% | $431.4 million / 38.4% | Margin down 190 bps |
| Operating income / margin | $192.2 million / 13.6% | $155.9 million / 13.9% | Income +23.3%; margin down 30 bps |
| Net income | $143.0 million | $114.8 million | +24.5% |
| Diluted EPS | $4.23 | $3.35 | +26.3% |
| Cash from operations | $166.1 million | $184.4 million | Down $18.3 million |
| Capital expenditures | $44.8 million | $37.2 million | Up $7.6 million |
| Cash, cash equivalents and short-term investments | $297.7 million | $314.8 million | Down $17.1 million |
| Total borrowings | $250.0 million | $260.0 million | Down $10.0 million |
Operating cash flow less capital expenditures was approximately $121.3 million in 2022 (calculated from the filing’s figures). Cash, cash equivalents and short-term investments exceeded borrowings by approximately $47.7 million; this comparison excludes restricted cash and long-term investments. The company reported $125.6 million of cash, cash equivalents and restricted cash at year-end. Accounts receivable increased to $259.2 million from $194.2 million, and days sales outstanding rose to 61 from 56.
Revenue by segment
| Segment | FY 2022 revenue | Year-over-year change |
|---|---|---|
| Insurance | $448.7 million | +17.5% |
| Healthcare | $97.4 million | −13.4% |
| Emerging Business | $218.6 million | +30.7% |
| Analytics | $647.3 million | +40.5% |
Material changes and business drivers
- Analytics was the largest segment and main growth driver. Its revenue increase included $144.1 million from higher volumes with new and existing clients and $47.4 million from Clairvoyant, acquired in December 2021.
- Insurance and Emerging Business also grew, mainly through business expansion with new and existing clients. Healthcare revenue declined due to ramp-downs at certain existing clients.
- Gross margin fell to 36.5%, primarily due to ramp-up costs for new clients and higher employee-related costs. Healthcare gross margin fell particularly sharply, from 37.9% to 27.1%, amid lower revenue and ramp-down-related costs.
- Operating expenses increased, but selling, general and administrative expenses declined as a share of revenue, to 18.9% from 20.2%.
- The effective tax rate increased to 25.0% from 21.7%. Net income growth also benefited from the absence of the $12.8 million loss on settlement of convertible notes recorded in 2021.
- Operating cash flow was lower primarily because of working-capital requirements, including receivables growth and higher employee incentive and compensation payments.
Outlook, risks and unusual items
- Management expects 2023 capital expenditures of $47 million to $52 million and believes existing cash, investments and other liquidity sources will cover cash requirements over the next 12 months. The filing provides no specific revenue or earnings guidance.
- In April 2022, EXL amended and extended its revolving credit facility: capacity increased to $400 million, maturity moved to April 18, 2027, and U.S. dollar borrowings transitioned from LIBOR to SOFR. Year-end borrowings were $250 million; the company reported compliance with facility covenants.
- EXL acquired certain Inbound Media Group assets in June 2022. Clairvoyant and Inbound acquisitions generated contingent consideration liabilities totaling $18.7 million at year-end; an $8.25 million fair-value charge was recorded in 2022, primarily reflecting Clairvoyant’s performance.
- Indian tax authorities had transfer-pricing and related income-tax demands of $37.1 million net of advance payments; EXL believes its positions will be sustained and recorded no liability for these matters. Separate Indian VAT demands and rejected GST refund claims are also disputed, with no provision recorded. Management says pending litigation losses cannot be reasonably estimated and does not expect currently pending litigation to have a material adverse effect.
- Key risks include client concentration and termination rights, employee attrition and wage inflation, competitive and pricing pressure, cyber and data-privacy events, foreign exchange exposure, regulatory and tax disputes, and the ability to adapt to evolving AI, analytics and cloud technologies. The top ten clients contributed 34.9% of revenue; no client exceeded 10%. Employee attrition for employees with more than 180 days of service was 31.6%, versus 28.3% in 2021.
- Cash and investments held in foreign jurisdictions totaled $260.0 million and may be subject to withholding or other taxes upon distribution. The company does not anticipate paying cash dividends in the foreseeable future.
Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective as of December 31, 2022.
Important facts for investors to verify
- Whether Analytics growth and acquisition contributions can be sustained, and whether Healthcare stabilizes after client ramp-downs.
- Whether gross margins recover as new engagements mature, given wage inflation, attrition, and ongoing hiring and training needs.
- Receivables collection trends, including rising DSO and unbilled receivables, and the effect on future operating cash flow.
- The outcome and potential cash, tax, or collateral consequences of Indian tax disputes and the ability to retain Philippines tax incentives.
- Actual 2023 capital spending, debt repayment and borrowing costs under the floating-rate facility, alongside foreign-exchange hedge performance.