Exlservice Holdings Inc (EXLS) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ExlService Holdings fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference may be recorded. I will now turn the call over to your host, Steve Barlow. Please go ahead.

Hello, and thanks, everyone, for joining EXL's fourth-quarter and full-year 2015 financial results conference call. I'm Steve Barlow, EXL's Vice President of Investor Relations. With us here today in New York is Rohit Kapoor, our Vice Chairman and Chief Executive Officer. Vishal Chhibbar, our Chief Financial Officer, is not here today, owing to a death in the family. Pavan Bagai, our President and Chief Operating Officer, will be handling the CFO remarks and is with us here in New York. We hope that you had an opportunity to review our quarterly press release we issued this morning. We've also updated our investor fact sheet in the Investor Relations section of EXL's website.

As you know, some of the matters we will discuss in this call are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risk and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risk and uncertainties include, but are not limited to, general economic conditions, 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 this information presented on this 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 fact sheet.

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

Thank you, Steve. Good morning, everyone, and welcome to our fourth-quarter 2015 earnings call. I'm extremely pleased with our performance and results in 2015. We delivered on the goals we set for ourselves at the beginning of the year and leveraged a robust demand environment to our advantage. Our strategy of building differentiated capabilities and focusing on investments in our chosen domains paid off. We achieved a market-leading growth rate and simultaneously improved profitability.

We finished the year with revenues of $628.5 million and an adjusted EPS of $2.03. On an annual basis, we grew revenues 19.6%, while our organic growth rate, excluding client transitions, at constant currency, was a healthy 14.6%. In 2015, our revenues improved sequentially each quarter. In addition, the execution of our multi-pronged profitability improvement plan resulted in a higher adjusted operating margin of 14.9%.

Our clients are being challenged to grow and remain profitable in a disruptive business environment. As they look to build customer-centric, agile, and competitive operating models, they are turning to EXL for two major needs. One is to design and run best-in-class operations that deploy emerging technologies and domain expertise within a global delivery model. And second is to convert the vast amounts of data generated by digital technologies into meaningful insights for impacting their business.

In order to deliver on these two market needs, we have modified the way in which we manage our business. You will notice that, in our earnings report, we have changed our segment reporting to align with this new approach. The new segments are Operations Management and Analytics. Operations Management includes EXL Consulting, formally known as Business Transformation, and Analytics is now a stand-alone reporting segment. Each of these segments offers exciting opportunities for EXL.

First, let me elaborate on Operations Management. Many clients are investing in major transformation programs that focus on digital enablement, automation, and redesign of their operating models. EXL is now in a very unique position to assist these clients from design to execution of their front, middle, and back-office operations. EXL Consulting helps design agile, cost-effective and customer-centric operating models. For execution, we leverage our Business EXLerator Framework, suite of cloud-enabled BPaaS solutions, and advanced automation capability.

We are excited that our clients see tremendous value in applying the Business EXLerator Framework to create end-to-end, best-in-class operations that have embedded analytics, in order to drive better business outcomes. For example, we have been working with leading P&C insurers across the US and UK, to drive ease of doing business with agents and to optimize the entire underwriting process. We've redesigned their operating model using automation tools and robotics to simplify new business submission and to improve speed to market. We also embedded real-time analytics to improve the underwriting decision.

Now let me talk about Analytics. As clients seek to improve business outcomes and customer experience, they are increasingly investing in digital technology. This generates high-volume, high-velocity, and high-variety data. A need then emerges to manage, manipulate, and interpret this vast amount of data. EXL Analytics, with its core competencies in advance data science and domain expertise, is uniquely positioned to help clients meet these objectives. For example, EXL Analytics built a next-generation analytics platform, that is serviced through the cloud, for one of our healthcare clients. This platform enables instant decisionmaking across marketing and risk, and provides the client with faster time to market and more flexibility in downstream operations.

An illustration of how we help the clients become more customer centric is from our RPM business, where we are using a combination of offline data, proprietary scoring models and our real-time decisioning platform to help a multi-line insurance carrier design a best-in-class consumer journey for their online sales process. Today, EXL generates about 20% of our revenues, and we are very excited by its potential to continue to grow rapidly and deliver superior business outcomes for our clients.

Next, I would like to highlight a few of our achievements in 2015. One, we added many new clients to our portfolio, including multiple strategic Operations Management wins. Overall, we had 34 new business wins in 2015, up from 26 in 2014. The key reasons for winning these strategic deals included: A, experience and credibility in our chosen domains; B, practical solutions, which integrated technology and analytics, while being cost effective and lower risk; and C, speed of execution and strength of our service delivery teams. We expect these deals to provide strong momentum for growth in 2016.

Number two, we expanded our relationships with key accounts, and executed well on our land-and-expand strategy. Our top 30 clients grew by over 15%, while the number of clients where we have greater than $1 million in annual revenues has also increased to 92 in 2015, from 69 in 2014. Our account management teams remain focused on cross selling additional services while continuing to grow existing accounts.

An example of how we have grown our partnership involves an insurance P&C company where, several years ago, we were initially given a mandate to process only claims. Today, we have become a strategic partner for this client, providing operations management support in underwriting and financial accounting, as well as BPaaS solutions that deliver medical record summarization and legal services. In addition, we provide them consulting and analytical services. We have doubled the client's revenue contribution in 2015 from 2014, with strong potential for growth in 2016.

Number three, we strengthened our leadership position in Analytics, delivered high growth and, at the same time, improved profitability. Our Analytics revenue grew 86.2% in 2015, including a $32.8 million contribution from RPM Direct, which we acquired in the first quarter of 2015. Organically, Analytics continues to grow extremely well, at 39.2% for the year. In addition to our strong position in banking, insurance, and healthcare, EXL Analytics also entered the retail and capital market industries. Our Analytics go-to-market strategy targets a variety of business stakeholders, including chief risk and compliance officer, chief marketing officer, chief data officer, and product heads with integrated, outcome-based analytics solutions.

Talent is a key differentiator in Analytics, and EXL is the recruiter of choice at top engineering and premier business schools in India. We recently concluded the finals of the annual case study competition, EXL Excellence Quotient 2016, at our state-of-the-art Analytics office in Gurgaon, India. We started this competition in 2011, and it has been a successful recruiting tool to attract the best talent, while also strengthening our brand.

Lastly, our Analytics business showed that we could sustain rapid growth while improving profitability. This was made possible due to: one, EXL having two-thirds of our Analytics business in the form of long-term annuity contracts; and two, pricing for the value we deliver; three, resource optimization; and four, new transaction- and outcome-based engagement models.

Number four, we expanded our global footprint substantially. Our center in Bogota, Colombia, is operational, and we are currently providing clinical and contact center services for US healthcare companies that need bilingual capabilities. Our South Africa center has had a terrific start, with high-quality service delivery that supports UK and European clients with English-language contact center and back-office services. Additionally, we have opened a sales office in Australia and are seeing early interest in our services there.

Number five, I am pleased with the execution of our profitability improvement plan. Our actions were focused on driving sustainability change to our operating models, without sacrificing growth and investment in capabilities. These changes that included cost re-engineering, pricing, infrastructure optimization, better resource utilization, and enhanced productivity, were reflected in our financial results in 2015.

Our success in 2015 led to EXL being recognized by multiple industry analysts. We were recognized across our domain, validating our strong market position. Details of all these recognitions are included in our press release.

And, finally, before I discuss 2016, I wanted to mention that we recently appointed Nitin Sahney to EXL's Board of Directors, effective January 1, 2016. Nitin has deep healthcare experience, most recently as the CEO of Omnicare, and we look forward to his strategic counsel.

As I look back at what we have accomplished over the last two years, and as I look ahead to 2016, I am very excited about EXL's future, for several reasons. One, the demand environment remains strong. We believe we are in underpenetrated and growing markets. The markets for Operations Management and Analytics are large and growing. Number two, our suite of capabilities position EXL to capitalize on these opportunities. Number three, we have a strong runway for growth in our chosen domains. Our sharp focus on a few core verticals, over the last several years, has enabled us to build domain expertise and specialization, which is deeply valued by the market. Number four, we have a large portfolio of Fortune 500 and Global 2000 clients, where we have strong relationships and an excellent track record of service delivery. The opportunity to partner strategically and grow these relationships is large. And number five, speed and agility are crucial to success in today's disruptive and challenging environment. EXL has shown the ability to pivot and continuously upgrade our capabilities to cater to the evolving needs of our clients. I feel confident that we have the right team in place to continue to innovate and deliver value to our clients.

Before I finish, I wanted to share with you a few focus areas for 2016. We will focus on: one, winning new strategic deals and ramping up our recent wins with excellent service delivery; number two, expanding our existing client relationships, by introducing our clients to the full suite of EXL services across Operations Management and Analytics, including our technology and consulting offerings; number three, upgrade our capabilities, including the next generation of Business EXLerator Framework, advanced automation, including robotics, and new BPaaS solutions; number four, continue to expand our margins and achieve higher returns on the investments we have made; and number five, leverage M&A, a key lever for acquiring new capabilities.

The success of EXL is due to the dedication and passion of our more than 24,000 global employees. And, together, we believe there is always a better way to solve our clients' problem. Additionally, our clients' trust is of utmost importance to us, and we feel privileged that they continue to choose EXL to help them deliver on their business objectives. In summary, we expect the momentum that began in 2014, and accelerated through last year, to carry us into 2016. I look forward to 2016 being another great year for EXL.

With that, I will turn the call over to Pavan, who is covering for Vishal today.

Thank you, Rohit, and thanks, everyone, for joining us this morning. I would like to start off by providing insight into EXL's financial performance for the fourth-quarter and full-year 2015, followed by guidance for 2016. As Rohit mentioned, we have changed our reporting segments to align them in line with how we manage our business. Revenues and expenses related to Business Transformation, which were previously part of the Analytics and Business Transformation segment, are now included in Operations Management. Analytics is now reported as a stand-alone segment.

The quarterly and annual results for 2013, 2014, and 2015 have been reclassified with the new definitions, and are now available in our fact sheet in the Investor Relations section of our website. We will also be updating the relevant sections in our 10-K. I will be referring to the new segment definitions throughout my discussion. Unless otherwise stated, all numbers mentioned are excluding disentanglement cost of a transitioning client, which was accounted for in 2014. There were no disentanglement costs in 2015.

I will begin by talking about our financial performance for the fourth quarter. Revenues for the quarter were $165.9 million, up 15.3% year over year, or 16.8% on a constant-currency basis. Organically, revenues were up 14.4%, year over year, on a constant-currency basis, excluding transitioning clients. Sequentially, revenues grew 1.4%, or 1.8% on a constant-currency basis. Operations Management revenues grew 3.7% year over year. Organically, Operations Management revenues were 9.5%, year over year, on a constant-currency basis, excluding transitioning clients.

Analytics revenues grew 92% year over year, including $9.8 million contribution from RPM. Organically, Analytics grew 41.6%, year over year, on a constant-currency basis. The revenue growth was led by clients from the healthcare, and banking and financial services, verticals. This revenue achievement marks the eighth consecutive quarter where revenues have grown over 35%, year over year. Sequentially, Analytics revenues increased 3.1%, on a constant-currency basis.

Gross margin for the quarter declined by 50 basis points, year over year, to 36%. This was driven by the impact of transitioning clients and a lower gross margin profile of acquired businesses, partially offset by productivity improvements and foreign exchange tailwinds. Sequentially, gross margin declined by 90 basis points. This was driven by a 70-basis-points impact due to higher employee costs, and 20 basis points due to the seasonality of RPM and our consulting business. Operations Management and Analytics gross margin for the quarter were 36.6% and 34%, respectively.

Adjusted operating margin improved by 60 basis points, year over year, to 14.7%, driven by operating leverage and a foreign exchange tailwind, partially offset by the impact of lower gross margins, as explained earlier. Sequentially, adjusted operating margins declined by 230 basis points, due to investments in key initiatives in sales and marketing, robotics, and in product development. Adjusted EPS for the fourth quarter was $0.56, up $0.08 year over year, driven by a strong revenue growth and improved operating margin, as mentioned earlier. DSO for the quarter was 50 days, down 4 days compared to last quarter.

Now turning to our 2015 annual performance. For the year 2015, we delivered revenues of $628.5 million, which represents a growth of 19.6% over 2014. Organically, revenues were up 14.6% year over year, on a constant-currency basis, excluding transitioning clients, indicating that our growth is meeting our expectation of consistent double-digit organic revenue growth.

Operations Management revenues increased 10.1% from 2014. Organically, revenues were up 10.6% year over year, on a constant-currency basis, excluding transitioning clients, which is the highest level of growth since 2012. Analytics revenues grew at 86.2% in 2015, including a $32.8 million contribution from RPM. Organically, revenues were up 32.9% year over year, on a constant-currency basis, excluding transitioning clients. For 2015, Analytics was 19.4% of total revenues, compared to 12.5% in 2014.

For the year, gross margin for EXL declined by 80 business points, to 35.9%. This was driven by the impact of transitioning clients and the lower gross margin profile of acquired businesses, partially offset by higher volume, better utilization, productivity improvements, and a foreign exchange tailwind. SG&A costs increased by 30 basis points, year over year, to 20.2%, driven by investments made in our front-end team, capability development, and employee engagement initiatives. Adjusted operating margin improved by 10 basis points, year over year, to 14.9%, driven by productivity improvements, operating leverage, and a foreign exchange tailwind, which was partially offset by the negative impact of transitioning clients and lower gross margins of acquired businesses.

Adjusted EBITDA for the year was $114.9 million, an increase of 15.5% from $99.4 million in 2014. Foreign exchange gain for 2015 was $2.7 million, despite a 5.1% depreciation of the rupee against the dollar, and a 2.6% depreciation of the Philippine peso versus the dollar, as a result of our systematic cash flow hedging program protecting our pretax income. The effective tax rate for the year was 22% and, excluding one-time discrete items, our effective tax rate for 2015 would have been 28.8%. Adjusted EPS for the year was $2.03, up 11.2% over 2014.

Our balance sheet remains strong, with $219 million of cash, cash equivalents and short-term investments, compared to $188.1 million in 2014. Our net cash position at the end of the year was a healthy $149.4 million, after spending $44.3 million on a strategic acquisition, $25.6 million on capital expenditures, and $14.2 million on share repurchases. Our continued focus on collections and generating operating cash flows resulted in $96.7 million of cash from operations in 2015, as against $66.6 million in 2014. I will now provide some insight into our guidance for 2016.

Based on current visibility, and a rupee/dollar exchange rate of 68, and other currencies at current exchange rates, we are providing revenue guidance of $690 million to $706 million, which assumes an adverse foreign exchange impact of approximately $9 million to $10 million, or 1.5% at current exchange rate. We expect revenue growth to be the range of 10% to 12%, or approximately 11% to 14% on a constant-currency basis. The main drivers of our revenue growth outlook are increased spending by our current clients, ramp-ups from 2015 strategic wins, and a strong pipeline.

We expect adjusted operating margin to increase in 2016 by 80 to100 basis points, due to the margin improvement levers we employed in 2015, which will continue to have positive effects in 2016. Further, we will continue to make investments in technology, products, and capability development. The contributors to our adjusted operating margin increase are 30 to 50 business points from our operations and 50 business points from foreign exchange. Our 2016 effective tax rate should be in the range of 29% to 30%, and we expect our foreign exchange gain to be between $2 million to $3 million.

Our capital expenditures should be in a range of $25 million to $30 million. Our priorities for free cash flow in 2016 will be to invest in our business and operations, to support our growth trajectory, look for acquisitions that expand our capability set, and to repurchase shares. Based on the above, we are providing adjusted diluted EPS guidance of $2.25 to $2.35, an increase of 11% to 16%. In terms of quarterly trends over the course of 2016, the first-quarter revenues and adjusted EPS are expected to be flat, on a constant-currency basis.

In conclusion, we had an extremely strong 2015 in both of our operating segments, and delivered organic revenue growth of 14.6% on constant-currency basis, excluding impact of transitioning clients. We have high visibility for our 2016 revenues and expect to achieve higher profitability in 2016.

And now, Rohit and I will be happy to take your questions.

(Operator Instructions)

Anil Doradla, William Blair.

Congrats on the continued solid execution. I had a couple of questions. Rohit, you talked about 2016 expectations. Given now that analytics is roughly 20% of your revenue composition, how would you characterize your visibility for the whole year, and compared with previous years?

Thanks, Anil. I think for us, the visibility continues to be the same as in previous years. What we do have is a strong growth momentum, because we signed up some major strategic clients in 2015, and the ramp-ups associated with those wins will take place over the next couple of years. We think we have got strong growth momentum associated with those wins in 2015. We continue to see good demand for our services in operations management, and therefore expect to win several new deals in 2016, as well.

On the analytics side, our business continues to grow very, very nicely. The acquisition of RPM has been fully integrated into the analytics business, and we would expect that business continues to grow nicely, as well. And there is good, strong visibility, because two-thirds of our business in analytics is on an annuity basis.

Very good. So is it fair to characterize that FX was a tailwind in 2015, but is turning out to be a headwind in 2016? Did I understand that correctly?

No. I think FX, for revenues of EXL, has been a headwind in 2015, as well as 2016. In 2016, as compared to 2015, the headwind from FX on revenues is between $9 million to $10 million, as Pavan mentioned.

So the $2.7 million FX benefit that you saw in 2015, that was --

The $2.7 million of FX gain is actually to our income line. And that is the foreign exchange gain on the hedging contracts that we had in place. But when we talk about the revenue, we don't hedge revenue --

Right. Right. Very good. Thanks for that clarification. And finally, on the top client, we saw that being down. Is it a reclassification of the top client? Or did you see certain dynamics playing out in your top client?

Yes, I think what you're seeing is good growth amongst all our clients, including our top client. We have looked at our clients, working with us across multiple service lines, and there is a change in the way in which we are classifying our top clients, doing work with us in multiple service lines. And so that is the consequence of that.

So basically, what was considered a top client is split now amongst a couple of clients? Is that a right way of looking at it?

Yes.

Okay, very good. Excellent, all right. And one final thing if you don't mind, attrition has come down quite a bit. Any commentary there?

I'm sorry, could you repeat your question, Anil?

The attrition?

Yes.

So --

The attrition, I think, has trended down positively in the fourth quarter of 2015. But we also think of that (inaudible) something that happens each year in the fourth quarter, where we see attrition trending down. I think the more important metric is to compare attrition rates year on year. And in 2015, our attrition rate actually came down, as compared to 2014. And our goal is to try and sustain that downward trend, and continue to improve our metrics on attrition.

Very good. Congrats guys, and looking forward to a great 2016.

S.K. Prasad Borra with Goldman Sachs.

Thanks for taking my question. Rohit, can you elaborate on the head count plans you have for 2016? You obviously talked about some of the big tailwinds which you have seen in 2015. Especially in context of, as you ramp up the BPaaS business and analytics, which is probably less dependent on head count, how should one think about the growth would you see for 2016? And (inaudible) associated with it?

Right, S.K. I think for us, the -- most of the strategic planning that we do is not really based on head count. What I will say is that the growth that we are seeing is actually becoming fairly non-linear for us, and it's not directly correlated to the employee head count. The reason for that is, we now have a much higher percentage of revenues coming in using our BPaaS solutions, and using technology and automation. We have, obviously, a much faster growth rate in analytics, where the revenue head count increases are much less, as compared to operations management.

So what we are seeing is that we are able to sustain the higher revenue growth with lesser addition to head count. As such, I think that is a trend that is going to continue to go. And one of the metrics that we continue to drive forward with is to try and increase the revenue per head count, and that is going to be a focus of EXL, going forward.

(inaudible) And Rohit, when you think about the verticals, you obviously have a very strong position in insurance, and you seem to be making good inroads for increasing your presence in health care. In terms of vertical which you think are very, very under penetrated, and where you'd probably want to focus your efforts over the mid-term, can you identify any of those end markets where you see huge potential?

The two verticals that you have alluded to are quite different, in terms of their profile. So the insurance industry vertical, for us, is a large market. It has overall slow growth, but it is highly underpenetrated. And the pace of change within insurance carriers continues to be slow, and there continues to be a tremendous room and opportunity for us to expand our share of business with insurance carriers.

Insurance carriers, we also believe, are much more of followers and so therefore, they tend to follow some of the more agile industries, in terms of the adoption of technology and change of their operating models. And we are now beginning to see that trend being adopted by the insurance carriers, and that is playing to our favor.

The health care industry, by contrast, is characterized by significant regulatory change, and a huge amount of growth rate that is taking place in the health care business. And because of the regulatory change and the growth that is taking place in the health care industry vertical, we are seeing a tremendous opportunity for our services in health care.

Okay, and probably just last one, in terms of the changes you are seeing in the sales cycle, obviously, you're getting a lot more revenues from solutions like BPaaS and analytics and robotics. Is that resulting in your sales cycles actually shortening? And are you making any changes to your go to market strategy, to adapt to that? And congratulations again on a solid quarter.

Yes, I would say that the sales cycle remains the same. We have not really seen a shortening of the sales cycle, but the complexity and the quality of -- and the characteristics of the sale cycle have shifted. So today, there's a much greater focus on solutioning, and making sure that we can architect a creative solution for our clients that involves the use of advanced automation, robotics, BPaaS, analytics, and use multiple levers to be able to provide our clients with the benefit.

And the other change we are seeing on the sales cycle is, in the past, we would have many situations where we would pursue a prospect, and at the end of the cycle, the client would actually sometimes delay or postpone their decision making. We are now seeing less of that delay and postponement, and we are seeing a greater amount of adoption of outsourcing. And that actually helps us, in terms of getting to our result on a sales pursuit.

Okay, thank you.

Ashwin Shirvaikar with Citi.

Thanks, Rohit, (inaudible) a good quarter here. My question is really on, as you think of revenue growth this year, I think Pavan had mentioned the pipeline for this year, as well, in the [possible] revenue drivers. And I thought that it was a little unusual, unless you have some good visibility into wins early in the year, just because of how these wins tend to ramp. So can you talk about the visibility that you have in your pipeline?

Thanks, Ashwin. I think there are two aspects to the growth. One is the clients that we signed up in 2015, and the growth that is going to emerge from those signed strategic wins. And the second is the wins that we expect to get in 2016 from our pipeline. The one thing which has happened is, in the past, typically, when we would win deals, our pipeline would diminish in size, because many of these deals would go out of the pipeline.

What we are seeing is, actually, the pipeline is being refilled with new deals, and therefore, the opportunity for us to acquire new clients remains high. We are also seeing that our prospects are trying to base their decisions much earlier in the year and therefore, the pace of activity in Q1 remains high, and we are encouraged by what we might be able to accomplish with this pipeline for calendar year 2016.

That's good to hear. Do you know what is driving this push towards finishing up decision making? What is driving the (inaudible) in decision making?

I think fundamentally, what we are seeing is that growth [for out] lines remains sluggish, and the drive to reduce costs remains high. And not only is the drive to reduce costs high, but there is a real urgency to deliver the cost reduction. The urgency to deliver cost reduction is forcing our clients to take earlier decisions, and move towards strategies that will give them guaranteed benefits in a particular calendar year or a fiscal year.

We are also seeing our clients make public comments and commitments, in terms of cost reductions that they are going to achieve within a stipulated time frame. And as they make these commitments, I think their decisions to execute on these commitments remains firm, and we are seeing a much greater level of activity associated with that.

Okay, understood. One more question. You had mentioned initiatives in both sales and marketing and robotics. And can you update us on size of the sales force currently? And what you expect to get to, by the end of this year?

As well as, when you say robotics, are you talking about robotic process automation? Or is it more on the artificial intelligence side of things? Any comment there, what [special investments] you're making?

Sure. So on sales and marketing, our investment is going to increase, and we are going to increase that investment on two fronts. One is on improving our brand and our marketing focus, and the other is to increase the number of resources that we have on the front end, both for sales, as well as for account management. And we continue to make conscious investments in this area, to try and be closer to our customers and to form intimate relationships with our clients, and enable the growth that is taking place, based on the client wins that we have had, and the ability to cross sell new service lines to our existing client portfolio.

Within robotics, we really classify robotics within a category of advanced automation. And for us, advanced automation includes intelligent technology tools, it includes robotic process automation, and it includes tools that apply intelligence. I don't think we have reached the stage of applying artificial intelligence as yet, but it's much more focused on creating much higher levels of productivity, effectiveness, and efficiency related to our processing.

We have got a number of tools that we have created, and a number of [bots] that we have created, which are organically developed and are EXL proprietary IP. And at same time, we also have formed a number of partnerships with third-party service providers in robotics, to be able to take this to market on a joint basis to our clients. And we are seeing that this approach of developing our own capabilities, as well as partnering with the best of great providers, is allowing us to play as a differentiated player in the marketplace.

Got it. That's good to hear. Those were all my questions. I will follow up (inaudible).

Thanks, Ashwin.

Joseph Foresi with Cantor Fitzgerald.

So I guess we are exiting the year, if I caught it correctly, at maybe a 14% organic growth rate. And it sounds like the pipeline is very good, and it sounds like business and activity is fairly high. Maybe you could just talk about the exit of the year versus, next year, the build in revenues? Because I believe the top end of guidance is similar to this year, but it sounds like you've got a lot of good things going on. So maybe you can just comment on that?

Sure, Joe. So the guidance that we have provided calls for EXL, as a Company, to grow between 11% and 14%, on a constant currency basis. And if you see that growth rate, it's pretty consistent with our growth rate we achieved in 2015. What I would say is that if you take a look at our two reporting segments, we have always said that we expect operations management to grow at about 8% to 10%, and we expect analytics to grow at a much faster pace of somewhere between 20% to 25%.

And it's really the combination of these two reporting segments that results in our growing at 11% to 14%. Obviously, as we go along in the year, and as our revenue materializes, we will get greater visibility, in terms of where we are going to land for the full year 2016.

Got it. Okay. And then on the margin front, I think you're talking about some margin expansion. Maybe you could break that down into how and where that margin expansion is going to come from? And even if you could give us a little color on the margins for each segment, if you're comfortable?

Sure. Joe, the [volume] expansion -- there are two or three elements to it. One is, obviously, there were a number of profitability improvement initiatives that we undertook in 2015. And we talked about some of these in terms of productivity improvements, pricing changes, cost optimization.

We expect to see the full benefit, the full annual benefit, of that in 2016. So that is a major contributor to the margin expansion. There's also the issue of the FX tailwinds, and I think this question was raised earlier by Anil, in terms of the confusion about whether it's a tailwind or headwind.

It's a headwind for revenue, but it's a tailwind for profitability. And I think that's what I mentioned in my remarks. So it's a combination of these two factors that lead us to estimate an improvement in margins in 2016.

In terms of the breakout between the two business lines, we expect to see -- the improvement is broadly going to be equal, and so the contributing factors in the two business lines are a little different. In analytics, we are also looking at better utilization and a bigger contribution coming from price increases, because we believe that, given the demand in the marketplace, there is a price -- there is a higher price attached to the value that we deliver. So does that answer your question?

Yes. And I think you said 30 was from operations and 50 from FX? Was that correct for next year?

That's right.

Okay. And then just on the acquisition front, obviously, we have seen some incremental acquisitions throughout the years. Maybe you could just talk about what the pipeline looks like there? And more specifically, any particular niches you are looking to fill, if you get the opportunity? Thanks.

Sure, Joe. So I think the pipeline for acquisitions remains healthy for us. We have got multiple deals, of various sizes and capabilities, that we are looking at, at present. Our focus areas are to try and improve our depth of specialization within our core industry verticals.

So we look at insurance, health care, banking, and financial services. We look at growing our business within analytics, and we are also looking at broadly diversifying our geography and our footprint, and having a greater exposure to UK and Europe. So those are some of the areas that we are focused on and we think that the ability to acquire, integrate and manage acquisitions is a demonstrated capability set for EXL, and we look forward to executing on that in 2016.

Thank you.

Edward Caso with Wells Fargo.

Congratulations on the numbers. Could you talk about your health care vertical? And whether you have any exposure to the ongoing consolidation among the payers?

Yes, hi, Ed. Thanks for that comment. For us, we continue to work with more on the payer side, and the consolidation is actually not impacting us, as yet. In fact, we think that there's more of an opportunity.

The reason for that is, we work basically with all the major payers today. And therefore, as they consolidate, the opportunity for us to grow with each of them is much more significant. And even the smaller payers that are getting consolidated, the penetration rate with them has been low, and therefore, the opportunity to continue to move down this path remains high for us.

I will also add that, apart from the payers, we are also seeing opportunity to focus in on the provider side of the health care business, and that is another area that we expect to deliver growth to our health care industry vertical.

Is it mostly in the operations management side? Or do you have any analytics exposure to the health care payer side, where maybe a pause in discretionary spending may impact you?

Actually, we serve clients in health care in operations management, as well as analytics, but we also have technology platforms for the health care industry. The work that we do in analytics for health care, a significant percentage of that is focused on payment integrity. And because it's focused on payment integrity and high end analytics, we think that the ability to grow that business is going to remain high.

And this is not discretionary spend that the health care companies have. This is hard dollar savings that these companies are making. And in fact, in periods of slower growth and a need for cost reduction, this is a big imperative for most of our clients.

Can you talk a little bit about share repurchase, exactly what you did in 2015, including Q4? And then, what is the trigger to get you to deploy, going forward? Thank you.

So the total amount of share repurchases that we did in calendar year 2015 was $14.2 million. And our program is designed to be a three-year program, where we intend to have share repurchases to offset the dilution associated with the stock that is issued to employees every year.

In general, the limit that we have for each [unit] is $20 million. And if you take a look at our stock compensation expense, it's somewhere about $15 million. So our expectation is that we would be somewhere between $15 million to $20 million, in terms of stock repurchase every year and we'll do this on a systematic basis, and do it sequentially for the next couple of years.

Great. Last question. Could you describe how much of your business is in annuity or annuity-like form, at this time, and therefore presumably more sticky and stable?

If you break up our business into two buckets, operations management and analytics, our business and operations management is largely annuity based, except for the EXL consulting business, or our business transformation business, which is on a project basis. So I would characterize that revenue as being closer to about 85% to 90% of our business in operations management as annuity based. In analytics, we have already said two-thirds of our business in analytics is annuity-based.

Great. Thank you. Congrats.

Jason Kupferberg with Jefferies.

Hi, guys, this is Amit Singh for Jason. Just staying on some of the discussion about various industries in your focus areas, most of the other industries, insurance, health care, banking, travel, transportation, they seem to be growing decently, when you look at year-over-year basis. Some of the smaller verticals, I just wanted to get your view, they are like utilities. It's declined year over year and sequentially.

And also, the other vertical, I think, which includes some of the tech work that declined, also, year over year. So just wanted to get your view on, what is your long-term strategy in those verticals?

Amit, this is Pavan here. Talking about the utilities vertical, that particular vertical has been characterized by a small number of clients with a large relationship with them. What we believe we are approaching that vertical is to look to, and so far, it's been restricted to energy, to electricity and gas.

What we are looking to do is to tap into opportunities in other utilities, like water, within the UK geography. And also look at a geographical expansion, in terms of opportunities that may exist in the United States and Australia. So the way we view that vertical, at this point in time is, it seems to be at an inflection point and if we were to succeed with regard to this broader approach to the market, then we would see more rapid growth there.

The other opportunity in that particular vertical is the adoption of smart technology, and that opens up a number of opportunities in analytics for us. So in fact, the analytics component of utilities grew faster than the operations management component of utilities in 2015.

So I guess the point I'm making is that there is a degree of uncertainty attached to it. We believe that we are at a point where we could either see that vertical accelerate, and that is the strategy that we are adopting at this point in time.

I will say that, within the analytics business, banking and financial services remains a very strong by vertical for us. And Rohit talked about the dynamics within health care and insurance. I will say that in banking and financial services, the focus on risk management, the greater regulatory scrutiny, the focus on compliance, as well as a greater degree of digitization, with the idea of improving customer experience, all of these are industry factors that play into our analytics capabilities and that remains a highly attractive vertical for us.

All right, great. And then if you could talk about the trend that you have had for utilization in both of your businesses, in operation management and analytics, and over time, if it has the capability to fully improve your overall margins?

Certainly. I alluded to these profitability improvement initiatives that we adopted in 2015. One of the areas that we focused on was improving utilization, both of people as well as infrastructure.

In the ops management business, it's more a question of improving infrastructure utilization, which manifests itself in the shift utilization metric. And I'm happy to report that we have seen a significant improvement in 2015, but we do see a lot of opportunity to further improve that in 2016.

On the analytics side, it's more of a question of resource utilization, of people utilization. Through the year, we were able to tighten management of the deployment of our people. But in that particular business, there is a degree of seasonality, because you need to hire people from campuses at one or two times during the year, and then they get deployed, in a uniform manner, through the year. So we do see a degree of a drop, when the people come on board, in the utilization levels. And then they gradually limp up, as the people get trained and deployed.

But there, too, on a trained basis, we are expecting to see better utilization. We did see it in 2015, and that, too, was a major contributor to the very sharp improvements in margins, in the analytics business, full year on full year.

All right, perfect, thank you very much.

Dave Koning with Baird.

Yes, hey, guys, great job. And I guess my first question, just on margin expansion this year, the 80 to 100 basis points. You talked about 30 to 50 from core, and then an extra 50, just from the way that the FX works. And should we think about that extra 50 as a one-time in nature impact? That the out year should grow the normal 30 to 50 bips, again, the 2017? Or is that 50 basis points something that actually becomes a 50 basis point headwind in 2017? I just want to make sure we understand the dynamics of that part of the guidance.

So the way to look at it is, yes, the 50 basis points FX contribution is a one-time event, assuming that exchange rates stabilize at the levels that we have assumed. The way we look at it, let's assume that they stabilize, and therefore, you will not get that in the following year. I don't see it as something that you give back, or you reverse, unless the currencies that we referred to start appreciating. Which, to us, seems like an unlikely phenomenon.

I will say the 30 to 50 basis points core improvement, we working towards not just maintaining that, but actually accelerating that. We talked about the fact some of our acquisitions have been at lower margins than our core business, and that's actually pulled down the margin that we reported.

We didn't buy these acquisitions to just add them to our portfolio of businesses. The whole idea is to leverage the synergies that they provide to our various businesses, and combine and come up with product and service offerings that actually, over time, will help us to accelerate revenue growth, as well as generate margin expansion. So as we see these, the full benefit of these acquisitions [link] through, I think that there's a degree of positive contribution from that phenomenon, as well.

Dave, just to add to what Pavan has said, we do think that there's an opportunity for us to increase our gross margins, year on year, for multiple years. And therefore, the ability to enhance our margin profile is not just one year limited, but it's rather something that we would expect to see over the next couple of years.

The second thing is that in 2015, as well as in 2016, we have significantly stepped up our investments in automation, robotics, product development, and these increases in investment, we think, are reaching now an optimal level, and a much more of a steady state. So as that level plateaus, again, we would be able to get the benefit of margin expansion in [outer years].

Great. That's great to hear.

And I guess a couple of modeling cleanup questions, too. Is the new -- like the analytics business now separated into the separate segment, is that all US revenue? Or is there an FX component that we should at least think about over time?

There is an FX component. That business actually is, again, distributed between the United States and UK. There are small contributions from the Asia Pacific zone, as well, but that's not significant. But -- so there is a geographical split.

And how much, about, is the UK?

It's probably in line with the rest of the Company. It's in the vicinity of -- it's less than 20% at this point.

Okay, cool. And then finally, how much was Overland -- I know it was a partially quarter in Q4 2015, but how much revenue was that, pre the anniversary?

So your question is, how much is the revenue of Overland annually? Or on a quarter?

No, in the fourth quarter of 2014.

Yes, during Q4, before it anniversaried and started contributing to organic.

Just give us a minute, Dave, and we'll get you the number.

Thank you. And if you want to take the next question, and just --

Yes, why don't we come back to this, and we will provide that to you?

Yes, that's great.

Frank Atkins with SunTrust.

Wanted to ask a little bit about sales capacity and marketing expense, as you allocate that across the two segments, operations management and analytics? Any focus or differing strategy there?

No, I think, for us, we are continuing to invest broadly, in adding more feet on the street and hiring more experienced and domain-centric resources, to help us go deeper into the industrial verticals. One of the things that we have seen is, as our clients look at a complete redesign of their operating model, using digital technologies, the understanding of the domain is becoming even more important and critical. And at the same time, the ability to apply the functional knowledge of how to use technology, and emerging technologies and robotics, and apply that to middle and back office operations becomes critical.

So we are hiring folks within our front end, which have got not only deep customer relationships and understand the domain well, but those that exhibit a much better understanding of the application of technology to the redesign of the operating model of our clients.

Okay, that's helpful. In terms of analytics, you mentioned that banking and financial was slightly more exposed, I believe, than other verticals. Would you expect, as the analytics continues its rate of growth, that vertical would be a larger piece of the pie?

We would expect the banking and financial services segment to keep pace with the overall growth of the analytics segment. We also see great opportunities on the capital market side, in the retail sector, in health care itself, and in insurance and utilities. So it's a pretty broad-based growth opportunity in analytics. Any industry that is digitizing and generating high volumes of data, at high velocity, lends itself to an analytics opportunity.

So I believe the banking and financial services sector, there, too, we -- the initial growth impetus happened because of the greater regulatory scrutiny, and the focus on risks. But now, we are seeing opportunities open up on the marketing side. So within each vertical, there's also this transition that takes place, across different functional areas, as we move from risk to marketing, from middle office to the front office. So we are really excited about the opportunities in this area.

All right, great. Thank you.

We've got the answer. So the Overland revenues in quarter 4 2014 was $12.2 million.

Brian Burgeon with Cowen.

Back onto the outlook by verticals. Within financial services, you mentioned analytic strength. Some peers have cited some weakness there. Have you seen anything within the discretionary and project-based spending, I guess, within the business transformation, that might indicate a pause? Or anything there -- any tentativeness by clients?

So as far as the risk, the regulatory, the compliance, businesses are concerned within analytics for banking and financial services, those are pretty much not discretionary, because they are mandated by regulation. So those opportunities, we expect to continue to be open to us.

The trends, with regard to disruptive technologies within the financial services area, they provide us opportunities, as well. So there is the degree of give and take. While there may be constraints on discretionary spending on marketing in traditional banking organizations, we see opportunities opening up for us in financial services companies that are adopting newer models. So we actually remain confident that this will continue to be a significant component of our portfolio of business within analytics.

So we don't actually characterize that particular segment as one that is slowing down.

Okay. And just one more, on RPM, the integration, and the cross selling efforts there, how that's gone, relative to plan? And any color around increasing the number of services per client?

That integration is going well. So there are two or three objectives that we had when we made that acquisition.

One was to take RPM services to the legacy EXL insurance clients. We are seeing that getting traction, and we have actually seen some wins in that area. The other was to see whether RPM's offerings could be adapted to health care and other industries within the US. On that, we aren't -- we haven't really got going on that, at this point in time.

We are also looking at expanding RPM's offerings into other geographical markets, like the UK, and I think that's a work in progress for us. A very significant opportunity that exists for us is to create new product offerings that combine the RPM business model with the analytics capability that we have, or had, within EXL and we're making some significant progress on that, as well.

In fact, Rohit, in his prepared remarks, talked about a case study, that we'd leveraged RPM technology, and their operating model, to provide some pretty cutting edge real time analytics for an insurance client. So all in all, it's going well, but there's a lot to come.

Okay, great, thank you.

Vincent Colicchio with Berenson Research.

Yes, just one for me. My other questions were asked. Are you seeing increased competition from the IT services firms, given your relatively healthy growth?

Yes, Vincent, I think the competition from the IT players continues to be there. What we are seeing is that the synergy between IT services and BPO services, that is not manifesting itself into any real value for the customer. And therefore, the trend of the combined IT services and BPO services being integrated together seems to be not there.

We do see the competition come in, based on relationships that the IT services companies have, as well as their domain capabilities in BPO, where they would compete against [us with]. I think what we have been able to do is to go deeper into our chosen domains, and build up more capabilities around the use of automation and analytics. And that allows us to be a better partner of choice for our clients.

Thank you, and congrats on a nice quarter.

Thanks, Vincent.

And I'm showing no further questions. I will now turn the call back over to Rohit Kapoor for closing remarks.

I just want to thank everybody for joining this call. We greatly appreciate the time that you have spent with us. EXL is in a terrific position right now, and we have got strong momentum behind us and we see the demand opportunities to be very robust and fulsome. We look forward to executing on a great 2016. Thank you. Good-bye.

Thank you ladies and gentlemen, that does conclude today's conference. You may all disconnect and everyone have a great day.