ExlService Holdings, Inc. :EXLS-US: Earnings Analysis: Q3, 2017 By the Numbers : December 28, 2017

ExlService Holdings, Inc. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of ExlService Holdings, Inc. – Broadridge Financial Solutions, Inc., Innodata Inc., Willdan Group, Inc., AMREP Corporation and Genpact Limited (BR-US, INOD-US, WLDN-US, AXR-US and G-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 192.35 million, Net Earnings of USD 21.08 million.
  • Gross margins narrowed from 30.04% to 30.02% compared to the same period last year, operating (EBITDA) margins now 14.75% from 15.80%.
  • Year-on-year change in operating cash flow of -15.22% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 192.35 189.06 183.03 177.27 171.2
Revenue Growth (%YOY) 12.35 10.9 9.58 6.88 4.71
Earnings (mil) 21.08 20.38 16.79 15.49 16.05
Earnings Growth (%YOY) 31.32 24.45 21.48 4.92 5.86
Net Margin (%) 10.96 10.78 9.17 8.74 9.38
EPS 0.6 0.58 0.48 0.45 0.46
Return on Equity (%) 3.58 3.57 3.07 2.95 3.16
Return on Assets (%) 11.12 11.06 9.28 8.91 9.76

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Market Share Versus Profits

Revenues History
Earnings History

EXLS-US’s change in revenue this period compared to the same period last year of 12.35% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that EXLS-US is holding onto its market share. Also, for comparison purposes, revenues changed by 1.74% and earnings by 3.43% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 30.02% to 30.04% for the same period last year, while operating margins (EBITDA margins) went from 14.75% to 15.80% over the same time frame.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

EXLS-US’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 140.69 days, compared to last year’s level of 133.92 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

EXLS-US’s change in operating cash flow of -15.22% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for ExlService Holdings, Inc.

Company Profile

ExlService Holdings, Inc. engagegs in the provision of transformation and outsourcing services to global companies in industries including insurance, banking, financial services, utilities, transportation, and travel. It operates through the following segments: Insurance; Healthcare; Travel, Transportation, and Logistics; Finance and Accounting, Analytics, and All Other. The Insurance segment serves property and casualty insurance, life insurance, disability insurance, annuity, and retirement services companies. The Healthcare segment offers services related to care management or population health, payment integrity, revenue optimization, and customer engagement. The Travel, Transportation, and Logistics segment includes processing transportation, logistics transactions, supply chain management, warehousing, transportation management, and international logistics services. The Finance and Accounting segment comprises of procure-to-pay, order-to-cash, hire-to-retire, record-to-report, regulatory reporting, financial planning and analysis, audit and assurance, treasury, and tax processes. The Analytics segment consists of driving improved business outcomes for customers by generating data-driven insights. The All Other segment involves in banking, financial, utilities, and consulting services. The company was founded by Vikram Talwar and Rohit Kapoor in April 1999 and is headquartered in New York, NY.

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