SEC Company Response from ExlService Holdings, Inc. (EXLS) (CIK 0001297989) (EXLS) — Oct 24, 2008
ExlService Holdings, Inc. (EXLS) (CIK 0001297989)
Date: Oct. 24, 2008 · CIK: 0001297989 · Accession: 0000950142-08-001711
AI Filing Summary & Sentiment
Reasoning
Referenced dates: September 29, 2008
Letter
United States Securities and Exchange Commission Division of Corporation Finance Attention: H. Christopher Owings Form 10-Qs for the Fiscal Quarters Ended March 31 and June 30, 2008 Filed May 12 and August 11, 2008 Definitive Proxy Statement on Schedule 14A Filed April 29, 2008 File No. 1-33089
Dear Mr. Owings:
We are writing in response to the comments of the staff of the Commission contained in the Commission’s letter addressed to Mr. Rohit Kapoor, President and Chief Executive Officer of ExlService Holdings, Inc. (“we” or the “Company”), dated September 29, 2008 (the ”Comment Letter”) regarding the above referenced filings.
For your convenience, the headings and numbered responses set out below correspond to the headings and numbered comments in the Comment Letter. The Company’s responses to the Commission’s comments are as follows:
Form 10-K for the Fiscal Year Ended December 31, 2007
Item 1. Business, page 1
1.
Please include the revenues by geographic area in Item 1 or provide a cross-reference to that information in your financial statements. See Item 101(d) of Regulation S-K.
Response to Comment 1
The Company will reflect the staff’s comment in its future filings by including in Item 1 a cross reference to its footnote disclosure in its financial statements regarding “Segment Information.”
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 18
2.
Please expand this section to discuss known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on your revenues or income or result in your liquidity decreasing or increasing in any material way. We note that you discuss trends in your Risk Factors, such as the trend concerning negative public reaction in the United States and elsewhere to offshore outsourcing. Discuss whether you expect these trends to continue and the impact on your business. Please provide additional analysis concerning the quality and variability of your earnings and cash flows so that investors can ascertain the likelihood of the extent past performance is indicative of future performance. Please discuss whether you expect levels to remain at this level or to increase or decrease. Also, you should consider discussing the impact of any changes on your earnings. Further, please discuss in reasonable detail:
•
Economic or industry-wide factors relevant to your company, and
•
Material opportunities, challenges, and risks in the short and long term and the actions you are taking to address them.
See Item 303 of Regulation S-K and SEC Release No. 33-8350.
Response to Comment 2
The Company will expand its disclosures in its Management’s Discussion and Analysis of Financial Condition and Results of Operations, where applicable, in its future filings to address known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on its revenues or income or result in its liquidity decreasing or increasing in any material way. Additional material trends and uncertainties that the Company’s management currently foresees addressing, where applicable, in its future filings include:
•
Trends related to increased competition for sufficiently trained employees;
•
Trends among larger prospective clients to enter into multi-vendor relationships; and
•
Trends concerning negative public reaction in the United States and United Kingdom to offshore outsourcing.
The Company will also include in its future filings, where applicable, the additional analysis and discussion regarding the areas identified by the staff in its comment.
Management’s discussion of trends and uncertainties will likely change given the circumstances of the Company, its competitors, its customers and general economic and other conditions affecting the Company in each reporting period.
Results of Operations, page 46
3.
Where you describe two or more factors that contribute to a material change in a financial statement line item between periods, please quantify, to the extent practicable, the incremental impact of each factor identified. For example, please quantify the effect of revenue increases from existing clients attributable to volume increases within existing processes and the addition of new processes and changes attributable to exchange rates. Please also discuss and quantify, to the extent practicable, the factors that contributed to changes in gross profit as a percentage of revenues. See Item 303(a) of Regulation S-K and Financial Reporting Codification 501.04.
Response to Comment 3
In response to the staff’s comment, the Company will, where applicable, in its future filings quantify the foreign exchange impact on our revenue increase or decrease and will discuss the factors contributing to the change in gross profit as a percentage of revenue. The Company’s management information system tracks revenue by existing and new clients. The Company does not separately track revenue by existing processes and new processes and hence it is not in a position to quantify separately the revenue increases from existing clients attributable to volume increases within existing processes and the addition of new processes. However, because we know the number of new processes started or lost during a relevant period, we will disclose the net change in the number of processes in Outsourcing Services where applicable in our future filings. In addition, we will disclose the revenues attributable to new customers added in Transformation Services, where applicable, in our future filings.
Liquidity and Capital Resources, page 51
Contractual Obligations, page 52
4.
Please include estimated benefits to be paid under the Gratuity Plan and contributions to the Government Provident Fund in the table or provide a discussion of these obligations to the extent necessary for an understanding of the timing and amount of the obligations. Refer to Section IV.A and footnote 46 to the Commission’s Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations, SEC Release No. 33-8350, available on our website at http://www.sec.gov/rules/interp/33-8350.htm.
Response to Comment 4
In response to the staff’s comment, the Company will include in its future filings, where applicable, disclosure within its Tabular Disclosure of Contractual Obligations regarding its estimated payments under the Gratuity Plan. The disclosure in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 would have been as follows:
Payments Due by Period (in millions)
Less than
1 year
1-3
years
4-5
years
After 5
years
Total
Other obligations (a)
$ 0.7
$ 0.9
$ 0.7
$ 0.7
$ 3.0
(a)
Represents estimated payments under the Company’s Gratuity Plan.
The Government Provident Fund (the “Fund”) is a government-sponsored defined benefit plan, to which the Company makes contributions on behalf of its employees in India. The Company is only obligated to match the employee contributions and make payments to the Fund while the employee remains employed by the Company. The assets held by the Fund are managed by the Fund and it is the obligation of the Fund to pay the accumulated contributions along with the returns declared by it every year to employees at the time of retirement or request for withdrawal. The Company believes that, given the nature of the Fund (which is substantially the same as the U.S. Social Security program), no disclosure is necessary in its Tabular Disclosure of Contractual Obligations with regard to its contributions to the Fund. However, the Company will include disclosure in its future filings, where applicable, substantially similar to the explanation above regarding the Company’s obligations under the Fund.
Consolidated Financial Statements
Consolidated Statements of Stockholders’ Equity and Comprehensive Income, page 74
5.
We note that net income and dividends and accretion on preferred stock are not separately reported in fiscal 2006 and that such dividends and accretion as well as the adjustment to initially apply SFAS 158 in fiscal 2006 are included in comprehensive income. Comprehensive income includes all changes in equity except those resulting from investment by owners and distributions to owners. Also, amounts recognized from the initial adoption of SFAS 158 should be reported as an adjustment of the ending balance of accumulated comprehensive income. Please revise to separately present net income and dividends and accretion of preferred stock and to properly report comprehensive income. Refer to paragraph 8 of SFAS 130 and paragraph 16.a. of SFAS 158.
Response to Comment 5
In response to the staff’s comment, the Company will in its future filings, where applicable, report net income and dividends and accretion on preferred stock separately as well as remove the adjustment to initially apply SFAS 158 in the computation of comprehensive income within the stockholder’s equity statement in fiscal 2006. Please see the revised Statement of Stockholders’ Equity and Comprehensive Income for the fiscal years ended December 31, 2006 and 2007 below, which the Company will include in its Annual Report on Form 10-K for the fiscal year ended December 31, 2008:
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Shares
Amount
Additional Paid-In Capital
Deferred Stock based Compensation
Retained Earnings
Accumulated Other Comprehensive Income / (Loss)
Treasury Stock
Total
Balance as of December 31, 2004
21,222,294
$10,611
$ 17,198,127
$ (441,889)
$ 8,425,314
$ (345,381)
(14,459)
$ 24,832,323
Common stock and options issued to management
108,220
12,296
—
—
—
—
12,350
Non-employee options
—
—
67,390
—
—
—
—
67,390
Employee stock options forfeited
—
—
(175,744)
175,744
—
—
—
—
Dividends and accretion on preferred stock
—
—
—
—
(249,438)
—
—
(249,438)
Amortization of deferred compensation
—
—
—
65,957
—
—
—
65,957
Comprehensive income:
Translation adjustments
—
—
—
—
—
(186,011)
—
(186,011)
Minimum pension liability
—
—
—
—
—
14,038
—
14,038
Cash flow hedges
—
—
—
—
—
(697,642)
—
(697,642)
Reclassification adjustment:
Cash flow hedges
—
—
—
—
—
25,368
—
25,368
Net Income
—
—
—
—
7,059,548
—
—
7,059,548
Total comprehensive income
6,215,301
Balance as of December 31, 2005
21,330,514
Show Raw Text
CORRESP
1
filename1.htm
ExlService Holdings, Inc.
350 Park Avenue
New York, New York 10022
October 24, 2008
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, DC 20549-3561
Attention: H. Christopher Owings
Re:
ExlService Holdings, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2007
Filed March 17, 2008
Form 10-Qs for the Fiscal Quarters Ended March 31 and June 30, 2008
Filed May 12 and August 11, 2008
Definitive Proxy Statement on Schedule 14A Filed April 29, 2008
File No. 1-33089
Dear Mr. Owings:
We are writing in response to the comments of the staff of the Commission contained in the Commission’s letter addressed to Mr. Rohit Kapoor, President and Chief Executive Officer of ExlService Holdings, Inc. (“we” or the “Company”), dated September 29, 2008 (the ”Comment Letter”) regarding the above referenced filings.
For your convenience, the headings and numbered responses set out below correspond to the headings and numbered comments in the Comment Letter. The Company’s responses to the Commission’s comments are as follows:
Form 10-K for the Fiscal Year Ended December 31, 2007
Item 1. Business, page 1
1.
Please include the revenues by geographic area in Item 1 or provide a cross-reference to that information in your financial statements. See Item 101(d) of Regulation S-K.
Response to Comment 1
The Company will reflect the staff’s comment in its future filings by including in Item 1 a cross reference to its footnote disclosure in its financial statements regarding “Segment Information.”
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 18
2.
Please expand this section to discuss known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on your revenues or income or result in your liquidity decreasing or increasing in any material way. We note that you discuss trends in your Risk Factors, such as the trend concerning negative public reaction in the United States and elsewhere to offshore outsourcing. Discuss whether you expect these
trends to continue and the impact on your business. Please provide additional analysis concerning the quality and variability of your earnings and cash flows so that investors can ascertain the likelihood of the extent past performance is indicative of future performance. Please discuss whether you expect levels to remain at this level or to increase or decrease. Also, you should consider discussing the impact of any changes on your earnings. Further, please discuss
in reasonable detail:
•
Economic or industry-wide factors relevant to your company, and
•
Material opportunities, challenges, and risks in the short and long term and the actions you are taking to address them.
See Item 303 of Regulation S-K and SEC Release No. 33-8350.
Response to Comment 2
The Company will expand its disclosures in its Management’s Discussion and Analysis of Financial Condition and Results of Operations, where applicable, in its future filings to address known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on its revenues or income or result in its liquidity decreasing or increasing in any
material way. Additional material trends and uncertainties that the Company’s management currently foresees addressing, where applicable, in its future filings include:
•
Trends related to increased competition for sufficiently trained employees;
•
Trends among larger prospective clients to enter into multi-vendor relationships; and
•
Trends concerning negative public reaction in the United States and United Kingdom to offshore outsourcing.
The Company will also include in its future filings, where applicable, the additional analysis and discussion regarding the areas identified by the staff in its comment.
Management’s discussion of trends and uncertainties will likely change given the circumstances of the Company, its competitors, its customers and general economic and other conditions affecting the Company in each reporting period.
2
Results of Operations, page 46
3.
Where you describe two or more factors that contribute to a material change in a financial statement line item between periods, please quantify, to the extent practicable, the incremental impact of each factor identified. For example, please quantify the effect of revenue increases from existing clients attributable to volume increases within existing processes and the addition of new processes and changes attributable to exchange rates. Please
also discuss and quantify, to the extent practicable, the factors that contributed to changes in gross profit as a percentage of revenues. See Item 303(a) of Regulation S-K and Financial Reporting Codification 501.04.
Response to Comment 3
In response to the staff’s comment, the Company will, where applicable, in its future filings quantify the foreign exchange impact on our revenue increase or decrease and will discuss the factors contributing to the change in gross profit as a percentage of revenue. The Company’s management information system tracks revenue by existing and new clients. The Company does
not separately track revenue by existing processes and new processes and hence it is not in a position to quantify separately the revenue increases from existing clients attributable to volume increases within existing processes and the addition of new processes. However, because we know the number of new processes started or lost during a relevant period, we will disclose the net change in the number of processes in Outsourcing Services where applicable in our future filings. In
addition, we will disclose the revenues attributable to new customers added in Transformation Services, where applicable, in our future filings.
Liquidity and Capital Resources, page 51
Contractual Obligations, page 52
4.
Please include estimated benefits to be paid under the Gratuity Plan and contributions to the Government Provident Fund in the table or provide a discussion of these obligations to the extent necessary for an understanding of the timing and amount of the obligations. Refer to Section IV.A and footnote 46 to the Commission’s Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations, SEC
Release No. 33-8350, available on our website at http://www.sec.gov/rules/interp/33-8350.htm.
Response to Comment 4
In response to the staff’s comment, the Company will include in its future filings, where applicable, disclosure within its Tabular Disclosure of Contractual Obligations regarding its estimated payments under the Gratuity Plan. The disclosure in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 would have been as follows:
3
Payments Due by Period (in millions)
Less than
1 year
1-3
years
4-5
years
After 5
years
Total
Other obligations (a)
$ 0.7
$ 0.9
$ 0.7
$ 0.7
$ 3.0
(a)
Represents estimated payments under the Company’s Gratuity Plan.
The Government Provident Fund (the “Fund”) is a government-sponsored defined benefit plan, to which the Company makes contributions on behalf of its employees in India. The Company is only obligated to match the employee contributions and make payments to the Fund while the employee remains employed by the Company. The assets held by the Fund are managed by the Fund and
it is the obligation of the Fund to pay the accumulated contributions along with the returns declared by it every year to employees at the time of retirement or request for withdrawal. The Company believes that, given the nature of the Fund (which is substantially the same as the U.S. Social Security program), no disclosure is necessary in its Tabular Disclosure of Contractual Obligations with regard to its contributions to the Fund. However, the Company will include disclosure in
its future filings, where applicable, substantially similar to the explanation above regarding the Company’s obligations under the Fund.
Consolidated Financial Statements
Consolidated Statements of Stockholders’ Equity and Comprehensive Income, page 74
5.
We note that net income and dividends and accretion on preferred stock are not separately reported in fiscal 2006 and that such dividends and accretion as well as the adjustment to initially apply SFAS 158 in fiscal 2006 are included in comprehensive income. Comprehensive income includes all changes in equity except those resulting from investment by owners and distributions to owners. Also, amounts recognized from the initial adoption of SFAS
158 should be reported as an adjustment of the ending balance of accumulated comprehensive income. Please revise to separately present net income and dividends and accretion of preferred stock and to properly report comprehensive income. Refer to paragraph 8 of SFAS 130 and paragraph 16.a. of SFAS 158.
Response to Comment 5
In response to the staff’s comment, the Company will in its future filings, where applicable, report net income and dividends and accretion on preferred stock separately as well as remove the adjustment to initially apply SFAS 158 in the computation of comprehensive income within the stockholder’s equity statement in fiscal 2006. Please see the revised Statement of
Stockholders’ Equity and Comprehensive Income for the fiscal years ended December 31, 2006 and 2007 below, which the Company will include in its Annual Report on Form 10-K for the fiscal year ended December 31, 2008:
4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Shares
Amount
Additional Paid-In Capital
Deferred Stock based Compensation
Retained Earnings
Accumulated Other Comprehensive Income / (Loss)
Treasury Stock
Total
Balance as of December 31, 2004
21,222,294
$10,611
$ 17,198,127
$ (441,889)
$ 8,425,314
$ (345,381)
(14,459)
$ 24,832,323
Common stock and options issued to management
108,220
54
12,296
—
—
—
—
12,350
Non-employee options
—
—
67,390
—
—
—
—
67,390
Employee stock options forfeited
—
—
(175,744)
175,744
—
—
—
—
Dividends and accretion on preferred stock
—
—
—
—
(249,438)
—
—
(249,438)
Amortization of deferred compensation
—
—
—
65,957
—
—
—
65,957
Comprehensive income:
Translation adjustments
—
—
—
—
—
(186,011)
—
(186,011)
Minimum pension liability
—
—
—
—
—
14,038
—
14,038
Cash flow hedges
—
—
—
—
—
(697,642)
—
(697,642)
Reclassification adjustment:
Cash flow hedges
—
—
—
—
—
25,368
—
25,368
Net Income
—
—
—
—
7,059,548
—
—
7,059,548
Total comprehensive income
6,215,301
Balance as of December 31, 2005
21,330,514