Exlservice Holdings Inc (EXLS) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the EXL First Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Steven Barlow. Sir, please begin.

Thank you, Liz. Hello and thanks to everyone for joining EXL's first quarter 2015 financial results conference call.

I am Steve Barlow, EXL's Vice President of Investor Relations. I am in New York and Rohit Kapoor, our Vice Chairman and Chief Executive Officer and Vishal Chhibbar, our Chief Financial Officer are joining the call from Delhi. We hope you've had an opportunity to review our quarterly press release we issued this morning. We've also updated our investor factsheet in the Investor Relations section of EXL's website.

As you know, some of the matters we'll discuss in this call this morning are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, general economic condition, those factors set forth in today's press release, discussed in the Company's periodic reports and other documents filed with the Securities and Exchange Commission from time to time. EXL assumes no obligation to update the information presented on this conference call.

During our call today, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of these measures to GAAP can be found in our press release as well as the investor factsheet.

Now, I'll turn over the call to Rohit Kapoor, EXL's Chief Executive Officer. Rohit?

Thank you, Steve. Good morning, everyone and welcome to our first quarter 2015 earnings call.

We are extremely pleased with our performance in the first quarter and continued to build on our momentum from the end of 2014. We grew our revenues, won new clients and solidified our leadership position in analytics this quarter. Our strong performance was broad based across our businesses and we made good progress on the execution of our strategy. I am excited to share that our organic revenue growth rate excluding transitioning clients at constant currency was 14.6%, our highest achievement over the last eight quarters.

Overall in the first quarter, we delivered a $143.5 million of revenues, representing a strong year with a growth rate of 15.5% excluding reimbursement of disentanglement costs in the first quarter of 2014. Analytics continues to be a standout business for us with 42.7% year-over-year organic growth in revenue on a constant currency basis excluding transitioning clients. We also accelerated growth in our Operations Management business with revenues growing 7.9% organically on a constant currency basis excluding transitioning clients and disentanglement costs. In the previous quarter, the corresponding growth was 7.4%.

I will now spend some time outlining our priorities for 2015 and subsequently share highlights from the first quarter. The key strategic priorities for 2015 are, number one, win strategic deals across all our chosen domains leveraging our Business EXLerator Framework and differentiated business process as a service that is BPaaS solutions. Number two, strengthen our leadership position in analytics. Number three, accelerate growth in our healthcare businesses. Number four, successfully integrate our acquisitions and number five, expand our margins and improve profitability.

EXL won nine new clients in the first quarter including four in Operations Management and five in Analytics and Business Transformation. The nine wins were our highest in any quarter over the last eight quarters. Of the four wins in Operations Management, two were led by differentiated BPaaS solutions that leverage our proprietary technology platforms. Our BPaaS solutions help our clients meet their cost structure variable, build scalable operations, leverage a flexible pay-per-use pricing model and gain access to the best technology.

I am pleased to share that our BPaaS solutions are gaining traction in the marketplace and helping us completely transform our clients' operating models. A great example is the success we are seeing with MedConnection, our comprehensive medical records and bill analysis solution. In addition to strengthening our leadership in the insurance business and helping us win new deals, MedConnection also recently won recognition in the marketplace. We were named the 2014 Partner of the Year for technology and innovation by Aflac. We are excited by the market potential for MedConnection and have plans to extend it into new industries and markets. Such solutions can develop into industry utilities in specific areas where we have domain knowledge, technology platforms and analytics capabilities.

One important point to note is that the competition in our BPaaS deals is very different to what we observe in our traditional operations management deals. We compete with many smaller and niche players that provide such solutions.

Overall, we remain positive on the demand environment and have a healthy new client pipeline across all our domains. Our pipeline gives us confidence that we can achieve our objective to win new clients over the next several quarters. In addition, a large part of our growth comes from existing clients as they expand the depth and breadth of their relationships with EXL. As we had shared in our Investor Day, we have a large portfolio of clients that provides us with a great opportunity to cross sell our new capabilities and deliver strong organic growth. In the first quarter, our existing clients awarded us 24 new processes in the domains of healthcare, travel, transportation and logistics, utilities, insurance and finance and accounting.

We continue to maintain our leadership position in analytics, a high growth and dynamic part of our portfolio. For the quarter excluding RPM's contribution, Analytics revenue grew to $18.5 million, a growth of 39.8% year-over-year or 42.7% on a constant currency basis. We are pleased that we are able to maintain such strong momentum from the fourth quarter of 2014, as typically the first quarter is a sequential decline. This is primarily due to the greater proportion of annuity revenues and longer term contracts that we have in our analytics business today. We continued to be successful in winning new clients in analytics and have added new clients in retail and insurance. We also renewed some of our large analytics annuity clients with an increase in the total contract value and the scope of work.

Given the strong demand environment and our commitment to strengthening our leadership position in this business, we have now invested in a brand new 100,000 square foot state-of-the-art center in Gurgaon, India. This centre will include our analytics training facility and innovation lab and provide our data scientists the ability to collaborate and develop new analytical tools and techniques. This new centre will provide us considerable room for expansion in line with our aggressive growth projections for this business.

We have also been able to diversify our talent pool in analytics with centers in Mumbai, Noida and Bangalore, and teams working in Singapore, Manila, the UK, and several locations in the US.

EXL Analytics maintained its prime positioning as one of the leading [first wave] recruiters at the top engineering and management institutes in India. Our relationship with these institutes are over a decade old, and we recruited a record 440 graduates across multiple campuses. These campuses include premier institutes like the Indian Institute of Management and the Indian Institute of Technology. The candidates from these institutions will be joining us over the course of 2015. We have also recruited on-shore data scientists in the US as we invest in resources that will work closely with our clients from design solutions that will help them transform decision making in their business. Overall, our analytics headcount in the US is up 50% from a year ago.

Finally, I'm pleased to share that we closed the purchase of RPM Direct this quarter. RPM's proprietary database and marketing analytics expertise is a strong complementary fit with EXL's analytics offerings. Their rich database of 235 million-plus prospects includes access to third-party data on customer demographics, credit scores, and property and auto ownership data. This asset, when combined with cutting-edge predictive models and domain knowledge, will enable us to provide a powerful end-to-end customer acquisition solution across our businesses and markets.

Additionally, RPM's non-linear revenue model provides the ability to grow without significantly increasing headcount and provides us an opportunity to expand margins. We are very excited by the addition of RPM and it makes us one of the few large and differentiated players in the global analytics market with a revenue run rate of over $100 million.

Accelerating growth in our healthcare business and capturing the vast market opportunity is another key focus area for EXL. Our focus is to meet the demand for highly customized and domain specific back-office processing work in healthcare. As an example, for one of the key healthcare clients, we have recently commenced work on high-end claims processes where our resources assist in early stage fraud detection and follow up. In addition, we have specialist and registered nurses providing coding reviews. The client expanded our relationship due to our exceptional service delivery during the first 12 months of running a clinical claims review process. Similarly, we are close to signing another new client, a healthcare [pair] where we will be assisting the client with status and resolution of healthcare claims. Both clients were impressed with our differentiated healthcare capabilities that leverage on large team of nurses, customer experienced academy, analytics models and technology tools.

I am also pleased to share that the integration of Blue Slate and Overland Solutions are proceeding as per plan. We are confident that our strategy of investing in extremely attractive growth areas and in enhancing our capabilities will help us broaden our existing client relationships and win new deals.

Another key area of demand from our clients is to help support the global expansion of their operations. To cater to this demand, we continued to expand our geographic footprint. Later this year, we will commence operations from our center in Colombia. We are working with Carvajal who will be one of our first clients as we build up on this greenfield capability to provide Spanish language services out of Latin America. In addition, we are close to finalizing a deal to service one of our large strategic clients from this center.

In the Philippines, our new business wins in travel, transportation and logistics and healthcare has allowed us to improve capacity utilization in our new centers there. This will positively impact the revenues and help us improve the profitability of this geography.

In the first quarter, our gross margin was 35.1%. This includes a negative impact of a 160 basis points due to the inclusion of a full quarter contribution of Overland Solutions. While we have good visibility into our revenues for the rest of the year, we are focused on executing our plan to enhance margins using multiple levers. These include rationalizing our cost structure, optimizing our pricing, fixing geography specific issues, achieving planned synergies from acquisitions and driving non-linear revenue growth using our BPaaS solutions and products. We remain confident of improving our margins in the second half of the year.

Our client concentration continues to go down. A year ago, top 5 clients represented 35% of revenues, where the number has dropped to 30% in the first quarter of 2015. Likewise, the revenue contribution from our top 10 has fallen to 46% of revenue from 54% a year ago.

Lastly, our strong performance in the quarter has also been recognized in the market where in addition to the award from Aflac, we received a total of seven winner circle or equivalent accolades in this quarter. We are especially pleased that we were positioned in the winner's circle, the top most category in the HfS Blueprint for Population Health and Care Management Services. Only two other players was cited in this category. EXL was recognized by its clients for both execution and for innovation. Our size, scale and capabilities in healthcare ensure that we have the right fundamentals in place to win market share in this high-growth market.

In closing, I'm pleased with the good start to the year and the way in which we are executing on our priorities for 2015. The market dynamics and demand environment remain favorable, our differentiated capabilities are resonating and we are getting recognized in the market. We continue to accelerate growth in the high-growth healthcare market and have strengthened our leadership position in analytics. These achievements and the ability to expand our margins make us confident and excited about the future.

With that, I will turn the call over to Vishal.

Thank you, Rohit and thanks, everyone for joining us this morning.

Unless otherwise stated, all numbers mentioned are excluding disentanglement costs for our transitioning clients, which was accounted for in 2014 and there were no disentanglement costs in this quarter.

In the first quarter, EXL reported revenues of $143.5 million, up year-over-year 15.5% or 16.5% on a constant currency basis. Organically, revenues were up 14.6% year-over-year on a constant currency basis excluding transitioning clients. This growth represents a solid acceleration compared to 12.4% annual growth of 2014.

All segments of EXL's business are contributing to the revenue momentum. Operations Management revenues increased 8.4% year-over-year on a constant currency basis including the impact of acquisitions. Sequentially, organic revenue growth on a constant currency basis excluding transitioning clients in this segment was approximately 2%. This organic or sequential growth compared with the acquisition impact of Overland Solutions mostly mitigated headwind of approximately $7 million from the transitioning clients. There were no revenues from transitioning clients in this quarter.

Analytics and Business Transformation revenues grew 54.7% year-over-year on a constant currency basis, including the impact of acquisitions. Organically on a constant currency basis, excluding transitioning clients, the segment grew 42% year-over-year, driven by 43% growth in Analytics achieved across broad spectrum of clients in banking, financial services, healthcare verticals. Sequentially, Analytics and Business Transformation revenues grew 1.2% organically on a constant currency basis, which is very positive considering the fact that in prior years, the segment experienced seasonal revenue declines in the first quarter. Analytics from RPM added an additional $1.2 million of revenues to the segment during this quarter.

Gross margins declined by 460 basis points year-over-year to 35.1%. The decline was primarily driven by lower gross margin profile of Overland Solutions with an impact of 160 basis points, transitioning clients' impact of 200 basis points, and 100 basis points due to investments we are making in our business and changing business mix. Sequentially, gross margins declined by a 140 basis points due to the increased contribution of Overland Solutions with an impact of 60 basis points, the transitioning clients' impact 60 basis points and 20 basis points due to unfavorable currency movement.

G&A expenses were 13% of revenues compared to 11.9% a year ago. This represents an increase of $3.8 million year-over-year driven by acquisitions' impact of $2.2 million, [the wallet $1.6 million] coming from investments in products, tools and technologies and facilities expansion. Sequentially, our G&A expenses increased by 20 basis points. Sales and marketing expenses were 7.8% of revenues compared to 8.2% a year ago or a decline of 40 basis points. Sequentially, sales and marketing expenses increased by 50 basis points as we proactively target our market opportunities, including cross-selling our enhanced product portfolio. Foreign exchange income for the quarter was $1.1 million gain. We expect foreign exchange gain of approximately $4.5 million to $5 million for 2015 at a rupee-dollar exchange rate of 63.

Tax rate for the first quarter was 39.4%. Sequentially, the effective tax rate increased from 28.6% to 39.4% due to certain tax positions for prior year related to the taxability of some foreign income and other items which amounted to $1.7 million. The true-up resulted in $0.05 decline in our adjusted EPS for the quarter. On a year-over-year basis, our normalized tax rate is approximately 31%, up from the 2014, primarily owing to higher US income and partial expiration of tax holiday for a few of our operating centers in India and Philippines. We expect that our tax rate to be approximately 31% in subsequent quarters of 2015 in line with our prior guidance.

Capital spending in the first quarter was $8.8 million, which was primarily spent on facilities, hardware, software and telecom equipment. For the full year, we expect CapEx to be in the range of $22 million to $25 million.

Adjusted EPS for the first quarter was $0.41 after absorbing the $0.05 of one-time tax impact. This resulted in a decline of $0.09 year-over-year and $0.07 sequentially.

At the end of the quarter, we had cash and short term investments on our balance sheet of approximately $166 million compared to $188 million as of December 2014. We use combination of cash and borrowing from a revolver for the acquisition of RPM paid-in-cash for $47 million. As of March 31, our outstanding revolver debt is $80 million, therefore we have a net cash position of $86 million. DSO has improved by 3 days to 53 days from 56 days a year ago.

Now, let me comment on our revised guidance for the year 2015. We are raising our revenue guidance to $600 million to $620 million from the prior $570 million to $590 million guidance, representing an increase to our revenue guidance of $30 million at the midpoint. This midpoint raise is due to two factors. Firstly, RPM is expected to add approximately $25 million of revenue at the midpoint. Secondly, the strong revenue performance in the first quarter and our outlook for the remainder of the year gives us confidence to take up the top end and bottom end of our range despite a 1% headwind we are facing with respect to foreign exchange. EXL's revised guidance represents strong annual revenue growth of 14% to 18% including an impact of acquisition and a core organic growth of 11% to 14%.

We are maintaining our EPS guidance of $1.85 to $1.95 despite absorbing the one-time tax expense of $0.05 in the first quarter. This revised guidance includes $0.03 to $0.05 of EPS accretion from RPM acquisition, after taking into account certain investments and integration expenses of RPM business as alluded by Rohit. We expect RPM accretion to be stronger next year. In summary, the potential to increase EPS guidance due to RPM acquisition and strong operating performance was offset by the one-time tax hit of $0.05 we took this quarter.

To provide some commentary around our expectations for the second quarter, we expect continued sequential revenue growth due to strong core business momentum as well as the contribution of a full quarter of the RPM acquisition. In the second quarter, we would also expect our adjusted operating margins to decline from the first quarter due to higher single digit annual salary increments that took place in April. We do firmly expect our gross margins and adjusted operating margins and adjusted earnings per share to increase in the second half of the year, consistent with what Rohit has mentioned and with our prior year's [trends].

In conclusion, we are quite pleased with the acceleration of our constant organic revenue growth excluding transitioning clients of 14.6% in the first quarter, and with visibility we have in the rest of the year. The current midpoint of our revised revenue guidance indicates 13% annual organic revenue growth excluding transitioning clients on a constant currency basis, which represents acceleration from last year's base and we believe this is indicative of EXL's momentum in the marketplace.

And now, we will be happy to take your questions.

(Operator Instructions) David Grossman, Stifel Financial.

I am wondering if I could just go through a couple of things, today you had mentioned that -- I may not have all the information, the first thing was on the change to the gross margin year-over-year and sequentially, could you review Vishal, perhaps the impact of currency and the acquisitions and how the gross margin should trend as we go through the balance of the year. I think you said that it should go up, but I just don't understand that progression.

We had a gross margin decline for 460 basis points year-over-year. Foreign exchange had no impact on the decline. This decline was primarily driven by, as I mentioned in my remarks, in fact of Overland acquisition was 160 basis points. The two transitioning clients' impact -- those transitioning clients were at a gross margin higher than our corporate average. That impact was about 200 basis points. 100 basis points was due to the investments we are making in our business as Rohit was mentioning and also because of the changing mix of our business, as we have more business coming in from Philippines and also from onshore business in US.

In terms of our margin profile for this year, I think as we mentioned in our prepared remarks and Rohit also, you did, we expect the margins to improve gross margins and our adjusted operating margins to improve in the second half of the year.

Okay. So if we look at the second quarter, would you expect a sequential decline and then improvement in the back half of the year, or do you think we've seen the bottom because you have the wage increases coming in right in the second quarter. So would you expect margins?

We expect margins to decline in second quarter because of the wage increments, but the wage increment impact would be -- which will make the margins decline by 30 basis points to 40 basis points in Q2.

Okay. And then you mentioned a joint venture down in South America. Is that reflected in guidance -- the revised guidance or that impact guidance again once that comes online?

We've shifted our model in Latin America more towards greenfield operation, which will be majority owned and controlled by EXL and we expect to be able to add new client relationships to this operation out there over the year. We haven't really factored in any revenue from this operation into our guidance as such, but we also don't expect that number to be very significant here.

I see. And then, just going back to the broader business, obviously, the revenue performance in the first quarter was very good, you've raised your hands for the year, you have the RPM contribution. So I'm just curious when you look at sequentially how things change for you, where would you say that the biggest surprise used to be kind of where your expectation were going into the quarter in terms of the performance in that quarter as well as now what your expectations are for the year?

Absolutely, David and this is obviously something which we reflected on ourselves.

So our view is that the beat on the revenue numbers was actually very broad based and there is a combination of four different factors. Number one is, there certainly is $1.2 million on account of the RPM acquisition which closed on March 20 which was not factored in earlier. Number two is our Overland Solutions acquisition performed very strongly and that gave us higher revenues. But I think equally, we were very, very strong on our organic revenue growth both in Analytics and Business Transformation as well as in Operations Management.

Our Analytics and Business Transformation business as you would recall typically declined from the fourth quarter and it goes down in the first quarter as we get geared up with new clients and existing clients and we ramp up on their businesses. However, because we have moved a large percentage of our business in Analytics into an annuity format, this year, our Analytics business as well as our Business Transformation business, both of these are actually remained constant as compared to Q4, and did not decline. And then, our Operations Management business, which is the new clients that we have signed up last year as well as some of the growth that we're seeing from our existing clients that performed well, and we saw some early decision making take place, which gave us much better revenues in the first quarter, and this is likely to sustain itself for the rest of the year.

So, Rohit, you mentioned Overland in your comments about some of the upside in the quarter, and I think you actually mentioned that last quarter as well. So I'm just curious what is it about that acquisition where you're seeing outperformance relative to your expectations?

I think the outperformance in Overland is driven by the market environment and a number of the economic factors. As you know, Overland's business model is pretty much a transaction based model. And they have a core technology solution with which they offer to clients pretty much using a BPaaS [construct]. So as the need for doing a premium audit and surveys increases, we're seeing a greater volume of work flow through the Overland Solution's platform, and that's what has happened in the fourth quarter last year as well as in the first quarter this year.

(Operator Instructions) Anil Doradla, William Blair.

Couple of questions, the nine design wins or contracts, are they new logos or existing logos, and can you give a little bit more color on the total contract value? And I just had a follow-up.

The nine new clients that we referenced are all new clients. We don't currently do any work with them and they are signed up as brand new clients for us. Four of these are in Operations Management, and five of these are in Analytics and Business Transformation. And this is certainly one of the highest number of new client wins that we've had in the last several quarters.

In terms of the annual contract value or the TCV, it is difficult to provide you with a number on that because sometimes we've seen situations where clients will start out with us with very small engagements and over a period of time as these proofs of concepts done are to be positive, they will expand their relationships with us very, very meaningfully and significantly. So it's difficult to give you a sense on the total contract value. But what we will say is that the quality of these nine new customers that we have signed, these definitely include some of the very large and substantial clients and therefore, we think that the opportunity set for us to gain revenue from these new clients is very significant.

As a follow-up, Rohit, you talked about the BPaaS competition is slightly different from your traditional competitive landscape, you talked about the smaller guys playing there. Can you walk us through why that is the case, and who are you really bumping into and how much is that contributing, say even to your current nine new designs?

Sure. So as we mentioned the four clients out the nine are in Operations Management and two out of those four are utilizing our BPaaS solution. So really 50% of our Operational Management wins were on the back of the BPaaS capability that we've got. In BPaaS, the primary competition for us is really in-house work done by our clients onshore, and that's the primary competition for us. We will see a scattered set of smaller players that might come into contribute. The reason for that is the need to invest in the ownership of the underlying technology platform and be able to combine the service alongside with that in order to be able to make a BPaaS offering.

EXL has been investing in these capabilities for the last three years and therefore we have been able to build the underlying platform plus service delivery being integrated very tightly together and take it to market. And as we commercialize this capability, we are seeing that the traction from these types of services along with the underlying technology platform is very strong and therefore, we feel very good and confident about being able to expand these relationships. And we are very positively surprised that we are also winning accolades and awards associated with this kind of an offering, because this is a very innovative way of creating a flexible and a variable cost structure for our clients and allowing our clients to compete with much larger players with the same competitive and variable cost structure.

Edward Caso, Wells Fargo.

A point of clarification here on the organic growth rates that you quoted, are you capturing the organic growth rate of the companies you bought or have you excluded them from the total, because when we do our math, we come up with a lower number?

The number we have calculated is only on the core business without any impact of the acquisitions. But it does take into account the currency impact and also the transitioning clients' revenues from the prior years and those are excluded while calculating the core organic growth.

Thanks. Can you reset us here on what your long-term organic growth expectations are? And for both top line and for the operating -- the adjusted operating margin sort of -- so where are you heading towards, where should we put that target out there?

As we have stated earlier, we think on an overall basis, we would be able to grow our top line at around 11% to 12% per annum. This includes both our Operations Management business as well as our Analytics and Business Transformation business. We think the growth rate in Operations Management is going to be in the high single digits, and we think Analytics and some other business segments like healthcare will grow much faster and these will be in the 20%-plus kind of a growth rate range. So on a combined basis, we would typically look at about 11% to 12% of top line growth.

From a margin perspective, our margins in terms of adjusted operating margins, currently are low. We think there is an opportunity for us to be able to increase our adjusted operating margins as we go forward into the second half of the year and then certainly into 2016 and beyond. So we would be looking to expanding our adjusted operating margins by about a 100 basis points as we go into 2016 and beyond.

Does that help you?

Is that an annual target to increase at a 100 basis points?

We think we'll be able to increase our margins for 2016 by a 100 basis points.

Okay, last question is on automation. How much of -- I've noticed that your headcount numbers have been relatively flat here in recent quarters, is that a reflection -- I assume it's not a reflection of your growth, because you're growing nicely, is that a reflection of you're driving more automation?

Yes, it's a factor of two things or three things that are kind of paying in. Number one, there is a fair amount of automation that is coming into play, particularly, using some of the BPaaS model that we have created. Number two, it is a fair amount of onshore work that we've now started to do. And certainly the Overland Solutions work that we do is largely onshore in the US. And number three, within Analytics and within the RPM acquisition, it's giving us an ability to move towards non-linear revenue models. And that's creating an exciting opportunity for us to grow our top line without really expanding our headcount and being able to increase the revenue per headcount as such.

Adam Dahms, Robert W Baird.

Hello guys, nice job this quarter. Just a question on the acquisition contribution, I caught that RPM contributed $1.2 million, I think you said during the quarter, what did you guys say was the contribution from Overland and Blue Slate in the quarter?

Overland and Blue Slate contributed about $18 million.

In total?

Yes, approximately $18 million.

Okay, great.

[$18 million to $19 million].

Okay, great. Thanks. And then, you guys -- it seems like you guys still have a pretty solid net cash position even like post the RPM acquisition. Can you just talk a little bit about what your priorities for cash usage are at this point? Are some more acquisitions possible or we're just kind of looking at kind of the investments you've been talking about?

Sure, Adam. For us, the cash on our balance sheet is a very strong cash position and it gives us great strength on our balance sheet. We would look to deploy the cash for number one, doing more acquisitions, particularly as we generate increased cash flow in the second half of this year. We also have stated that we will be doing small amount of a stock buyback each year, and that's something which is planned for and we'd be doing over the next three years. And I think those are going to be the principal two users of cash.

The investments that we need to make for product development as well as for creating new BPaaS and Business EXLerator models, those are pretty much what we can fund from our ongoing operations, and we don't think there would be any depletion of cash due to that.

Puneet Jain, JP Morgan.

So your healthcare business increased a lot in this quarter like you talked about, although understand there is seasonality, it is typically strong in Q1, but was there any one time client payment in this quarter?

Our healthcare business actually has been performing quite well in 2014 and continues to perform well with great momentum in 2015. We did not have any one-time client payments in the healthcare business. Instead, we won a number of new client relationships in this segment. And we got a very strong pipeline in healthcare. We think there is a tremendous opportunity for us to be able to build and grow our healthcare practice and therefore we are investing very, very significantly in terms of the registered nurses that we have in the Philippines, the healthcare training academy that we have invested in, some of the platforms that we've got on the state side in population management and analytical capabilities specifically for healthcare. So this is a very, very strong vertical play for us, and it seems to be resonating quite nicely in the marketplace.

Understood. How should we think about incremental margins on the BPaaS deals, new BPaaS deals that you're winning, which got to be higher than your overall margins?

Your are absolutely right. BPaaS requires an upfront investment in technology and the platform and the integration of providing the network of services. Once that investment is being made, all incremental volume that we pick up on top of that is going to be at a much higher margin rate. So as we think about products like MedConnection becoming industry utilities, we do think we will be able to gain on margin from this. The same thing is true also for leveraging the database asset of RPM. So we've got a number of different capabilities within the organization, which as we scale up these businesses, we think we can benefit in terms of our margin profile.

And last one from me, what do you expect for overall contribution from acquisitions like RPM, Blue Slate and Overland in fiscal 2015?

So, Puneet, we are not disclosing that number. But as I mentioned in my remarks, we expect that the midpoint of our guidance, the organic growth rate to be about 13%. And RPM as I said also, the RPM as a midpoint would be about $25 million.

And the other two -- last quarter you said $50 million to $55 million, is that -- does that still stand $50 million to $55 million from Overland and Blue Slate?

Yes. Slightly higher run rate in Q1, but that would be the, correct.

(Operator Instructions) S.K. Prasad Borra, Goldman Sachs.

Hello, this is actually [Jeff Chan] filling in for S.K. Prasad. A quick one, if I may, as we gear up for the next generation for BPO services, what are the key challenges that you're facing, is it [just about execution] or are there structural limits in our markets landscape and I have one follow-up?

For us, I think the key challenges are definitely on the execution side, being a people driven business and that's certainly the ability to attract, retain and train talent is a key element of execution for our growth strategy. But equally important is the ability to use technology in our business, to integrate analytics into our operations and really to be able to put together this trifecta of domain expertise, technology and analytics and combine that together to be able to offer differentiated solutions to our clients.

So this needs to be done in each vertical and it needs to be done in each micro vertical and we are deliberately and consciously building up those capabilities and investing in those capabilities and positioning ourselves better for the future.

Okay, thanks. That's very, very helpful. And then as a follow-up, you highlighted bubbles of margin growth. Can you provide a little bit of a finer split on of what portion of the margin expansion [there expects] to each contribute? For example, how much is coming from revenue growth and what portion from cost optimization?

In terms of margin growth, our revenue growth which we are expecting is going to be at least in the short term in areas where we expect to be at the corporate profile. So, the margin improvement we expect as Rohit had mentioned will come from our operating efficiencies and also scale as we get in some of our BPaaS businesses.

I guess, Jeff, let me just amplify that. For us, please keep in mind that if we grow faster than expected and we're adding on more new clients, typically the margin profile of new clients is much lower than those clients which are in steady state and which are seasoned clients. So, it's actually a counterbalancing factor and we don't really think about how much of our margin increase is going to come from revenue growth or from cost structure optimization. It's really a combination of both and like I said in my prepared remarks, we have multiple levers that we are pulling on and we think the prime area of improvement of margins is going to take place in the gross margin line and that's where it's going to be showing up in our margins.

I'm showing no further questions from the phone lines at this time. I'd like to turn the call back to Mr. Rohit Kapoor for closing remarks.

Thank you, Operator and thanks, everyone for joining EXL's first quarter call. We are really excited about how we've begun 2015 and we look forward to continuing to execute and to be able to build upon our business as we go forward. We look to see you next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.