Organization and Basis of Presentation (Policies) | 9 Months Ended |
Sep. 30, 2014 |
Accounting Policies [Abstract] | ' |
Basis of Presentation | ' |
Basis of Presentation |
The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. |
The unaudited interim consolidated financial statements reflect all adjustments (of a normal and recurring nature) that management considers necessary for a fair presentation of such statements for the interim periods presented. The unaudited consolidated statements of income for the interim periods presented are not necessarily indicative of the results for the full year or for any subsequent period. |
Principles of Consolidation | ' |
Principles of Consolidation |
The accompanying unaudited consolidated financial statements include the financial statements of ExlService Holdings and all of its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates | ' |
Use of Estimates |
The preparation of the unaudited consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the financial statements include, but are not limited to, allowance for doubtful receivables, service tax receivables, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, stock-based compensation expense, depreciation and amortization periods, purchase price allocation, recoverability of long-term assets including goodwill and intangibles, and estimates to complete the fixed price contracts. |
Revenue Recognition | ' |
|
Revenue Recognition |
|
On November 1, 2013, the Company received a notice of termination from The Travelers Indemnity Company (“Travelers”) under the Professional Services Agreement, dated as of March 7, 2006, between the Company and Travelers (as amended from time to time, the “Services Agreement”), and is required to provide transition services for a period of up to eighteen months, including reimbursing Travelers for certain of their transition related expenses. The Company recognized $9,626 and $17,815, respectively, of such reimbursements as a reduction of revenues during the three and nine months ended September 30, 2014 in accordance with Accounting Standards Codification (ASC) topic 605-50-45, “Revenue Recognition.” No such payments were made during the three and nine months ended September 30, 2013 (refer to Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details). |
Software Development Costs | ' |
|
Software Development Costs |
|
Costs incurred for developing software or enhancements to the existing software products to be sold are capitalized, including the salaries and benefits of employees that are directly involved in the installation and development, once technological feasibility has been established upon completion of a detailed design program or, in its absence, completion of a working model. The capitalized costs are amortized on a straight-line basis over the estimated useful life. Costs associated with preliminary project stage activities, training, maintenance and all post-implementation stage activities are expensed as incurred. |
Recent Accounting Pronouncements | ' |
|
Recent Accounting Pronouncements |
|
In March 2013, the Financial Accounting Standards Board (“the FASB”) issued Accounting Standards Update (“ASU”) No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). ASU 2013-05 applies to the release of the currency translation adjustment into net income when a parent either sells a part of all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. ASU 2013-05 became effective from January 1, 2014 and the new guidance did not have any material impact on the Company’s unaudited consolidated financial statements. |
|
In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). The provisions of the rule require an unrecognized tax benefit to be presented as a reduction to a deferred tax asset in the financial statements for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward except in circumstances when the carryforward or tax loss is not available at the reporting date under the tax laws of the applicable jurisdiction to settle any additional income taxes or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purposes. When those circumstances exist, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 became effective from January 1, 2014 and the new guidance did not have any material impact on the Company’s unaudited consolidated financial statements. |
|
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The new standard is effective for reporting periods beginning after December 15, 2016 and early adoption is not permitted. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions of the Company. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2017 using either one of two methods: (i) retrospectively to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is currently evaluating the impact of adoption and the implementation approach to be used. |
|
In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target in a share based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition. The amendments in ASU 2014-12 are effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods with early adoption permitted. Entities may apply the amendments in ASU 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b) modified retrospectively to all awards with performance targets that are outstanding on or after the beginning of the first annual period presented as of the adoption date. ASU 2014-12 is not applicable to the Company’s current stock based compensation plan and it does not expect this guidance to have any impact on the consolidated financial statements. |
|
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued and, if so, disclose that fact. Such evaluation is to be done for both annual and interim reporting periods, if applicable. Management is also required to evaluate and disclose whether its plans alleviate that doubt. ASU 2014-15 will become effective from January 1, 2017 and the Company is currently evaluating the impact of adopting this guidance. |
Business Combinations, Goodwill and Intangible Assets | ' |
|
On July 1, 2014, the Company entered into a membership interest purchase agreement (the “Agreement”) with Blue Slate, a provider of Business Process Management and Technology Solutions that specializes in transforming operations through business process automation, use of innovative technologies, data integration and analytics. Pursuant to the Agreement, the Company has purchased all of the membership interests of Blue Slate Solutions, LLC from Blue Slate for a cash consideration of $6,986, including working capital adjustments of $751. The Company has also issued 46,950 restricted shares of common stock with an aggregate fair value of $1,375 to certain key members of Blue Slate, each of whom have accepted employment positions with the Company upon consummation of the combination. |
|
Blue Slate’s approach bolsters the Company’s strategy of embedding process automation and operational analytics into client offerings. As the Company pursues this approach through Business EXLerator Framework, Blue Slate brings the ability to work directly on clients’ core, mission-critical applications inside their IT environments to transform their business processes. This strengthens the Company’s position with regard to IT services providers that have strong technology foundations and enriches the Company’s value proposition to clients in addition to using the Company’s capabilities to deliver greater impact for its client base. Accordingly, the Company paid a premium for the acquisition which is being reflected in the goodwill recognized from the purchase price allocation of the total consideration paid by the Company. |
|
The Company’s preliminary purchase price allocation for the acquisition is as follows: |
|
|
| | | | | | | | | | | | |
| | Amount | | | | | | | | | |
| | (In thousands) | | | | | | | | | |
Net tangible assets | | $ | 1,313 | | | | | | | | | |
Identifiable intangible assets: | | | | | | | | | | | | |
Customer relationships | | | 575 | | | | | | | | | |
Non-compete agreement | | | 48 | | | | | | | | | |
Trade names and trademarks | | | 267 | | | | | | | | | |
Goodwill | | | 4,783 | | | | | | | | | |
| | | | | | | | | | | | |
Total purchase price* | | $ | 6,986 | | | | | | | | | |
| | | | | | | | | | | | |
|
|
* | Includes $750 deposited in escrow accounts in connection with the acquisition. | | | | | | | | | | | |
|
The customer relationships, non-compete agreements and trade names and trademarks intangibles from the Blue Slate acquisition are being amortized over a useful life of five years, four years and three years, respectively. |
|
During the nine months ended September 30, 2014 the company recognized $125 of acquisition related costs. Such amounts are included under general and administrative expenses in the unaudited consolidated statements of income. |
|
The amount of goodwill recognized from the Blue Slate acquisition is deductible for tax purposes. |
|
|
|
Goodwill |
|
The following table sets forth details of the Company’s goodwill balance as of September 30, 2014: |
|
|
| | | | | | | | | | | | |
| | Outsourcing | | | Transformation | | | | |
| | Services | | | Services | | | Total | |
Balance at January 1, 2013 | | $ | 94,163 | | | $ | 16,785 | | | $ | 110,948 | |
Currency translation adjustments | | | (3,291 | ) | | | — | | | | (3,291 | ) |
Allocation on sale of a business unit (1) | | | (250 | ) | | | — | | | | (250 | ) |
| | | | | | | | | | | | |
Balance at December 31, 2013 | | $ | 90,622 | | | $ | 16,785 | | | $ | 107,407 | |
Goodwill arising from Blue Slate acquisition | | | — | | | | 4,783 | | | | 4,783 | |
Currency translation adjustments | | | 13 | | | | — | | | | 13 | |
| | | | | | | | | | | | |
Balance at September 30, 2014 | | $ | 90,635 | | | $ | 21,568 | | | $ | 112,203 | |
| | | | | | | | | | | | |
|
|
-1 | Relates to the sale of a business unit (acquired with the acquisition of Business Process Outsourcing Inc.) during the year ended December 31, 2013. The net loss recognized from the sale of this business unit is $190 and is included under “other income/ (expense)” in the consolidated statements of income for the year ended December 31, 2013 included in the Company’s annual report on Form 10-K for the year ended December 31, 2013. | | | | | | | | | | | |
|
Intangible Assets |
|
Information regarding the Company’s intangible assets is as follows: |
|
|
| | | | | | | | | | | | |
| | As of September 30, 2014 | |
| | Gross | | | Accumulated | | | Net Carrying | |
Carrying | Amortization | Amount |
Amount | | |
Customer relationships | | $ | 39,189 | | | $ | (15,505 | ) | | $ | 23,684 | |
Leasehold benefits | | | 2,988 | | | | (1,668 | ) | | | 1,320 | |
Developed technology | | | 6,013 | | | | (2,036 | ) | | | 3,977 | |
Non-compete agreements | | | 1,365 | | | | (1,320 | ) | | | 45 | |
Trade names and trademarks | | | 3,590 | | | | (2,071 | ) | | | 1,519 | |
| | | | | | | | | | | | |
| | $ | 53,145 | | | $ | (22,600 | ) | | $ | 30,545 | |
| | | | | | | | | | | | |
|
|
| | | | | | | | | | | | |
| | As of December 31, 2013 | |
| | Gross | | | Accumulated | | | Net Carrying | |
Carrying | Amortization | Amount |
Amount | | |
Customer relationships | | $ | 38,614 | | | $ | (12,201 | ) | | $ | 26,413 | |
Leasehold benefits | | | 2,986 | | | | (1,455 | ) | | | 1,531 | |
Developed technology | | | 6,013 | | | | (1,458 | ) | | | 4,555 | |
Non-compete agreements | | | 1,316 | | | | (1,316 | ) | | | — | |
Trade names and trademarks | | | 3,322 | | | | (1,706 | ) | | | 1,616 | |
| | | | | | | | | | | | |
| | $ | 52,251 | | | $ | (18,136 | ) | | $ | 34,115 | |
| | | | | | | | | | | | |
|
|
|
Amortization expense for the three months ended September 30, 2014 and 2013 was $1,441 and $1,534, respectively. Amortization expense for the nine months ended September 30, 2014 and 2013 was $4,467 and $4,764, respectively. The weighted average life of intangible assets was 8.9 years for customer relationships, 8.0 years for leasehold benefits, 8.0 years for developed technology, 4.0 years for non-compete agreements and 4.4 years for trade names and trademarks excluding indefinite life trade names and trademarks. The Company had $900 of indefinite lived trade names and trademarks as of September 30, 2014 and December 31, 2013. |
|
|
|
|
| | | | | | | | | | | | |
Estimated amortization of intangible assets during the year ending September 30, | | | | | | | | | | | |
2015 | | $ | 5,760 | | | | | | | | | |
2016 | | $ | 5,760 | | | | | | | | | |
2017 | | $ | 5,729 | | | | | | | | | |
2018 | | $ | 5,543 | | | | | | | | | |
2019 | | $ | 5,405 | | | | | | | | | |