Exlservice Holdings Inc (EXLS) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the EXL Q1 2016 Service Holdings Conference 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 turn the call over to your host, Mr. Steven Barlow.

Mr. Barlow, you may begin.

Thank you, Shirley. Hello, and thanks to everyone for joining EXL's first quarter 2016 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 and Vishal Chhibbar, our Chief Financial Officer. We hope that you've had an opportunity to review our quarterly press release we issued this afternoon. 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 risks 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 the 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 on the investor fact sheet.

Now, I will turn over the call to Rohit.

Thank you, Steve. Good afternoon, everyone, and welcome to our first quarter 2016 earnings call. We are very pleased with our performance in the first quarter of 2016. We continued to build on our strong momentum from 2015 and are now well positioned to meet our goals for 2016. We generated revenues of $167 million in the first quarter, up by 16.4% year over year on a reported basis and by 18.4% on a constant currency basis.

Adjusted EPS increased by 37% to $0.56 per share. Our analytics business delivered market leading growth of over 40% on an organic basis and continued to improve its margins.

In Q1, we won 11 new deals, eight in operations management and three in analytics. The demand environment for our services remained strong. Our clients are striving for growth and profitability in the face of emerging technologies and competition that are disrupting existing business models. We observed great urgency by our clients to enhance profitability and to build an agile operating model. In such an environment our relevance and attractiveness, as a strategic partner is extremely valued. This is because of our capabilities in A, driving customer centricity in a digital world through our front-runner capabilities in analytics, and B, designing and running best-in-class operations that integrate automation and embed real-time analytics through our proprietary Framework Business EXLerator.

We feel confident that this two-pronged approach to helping our clients transform their business is differentiated due to A, our domain expertise that is deep and cohesive. This helps us create and deliver solutions to our clients that are effective, relevant and easily integrated into their business. And B, our early and significant investment in building our analytics practice, including the acquisition of RPM. This has enabled us to effectively address our clients' growing needs to enhance customer experience and develop sharply targeted solutions.

An example of how we integrate our domain expertise and analytics into a transformative solution is the work we are doing with a leading remote patient monitoring company. The company offers solutions that allow providers and health plans to monitor vital signs and activity across several chronic conditions. We analyze the monitoring data to understand the patient population and identify those members who are most at risk for unnecessary emergency room visits or hospitalization.

Next, we design a range of interventions that need to be undertaken to assure that the patient is safe and to coordinate care that leads to an improved health outcome. Beyond designing solutions, we have the capability to work with providers and health plans to execute on these interventions, leveraging our team of clinicians and our care management technology platform.

Next, let me give an example of how analytics is helping us differentiate while enabling our clients become ultra customer-centric. For banks a key need is the capability to integrate customer data across multiple products, transactions and channels. While working with the top five Asian banks, our data scientists have developed real-time recommendations that enable cross-sell of products like cash advances, credit cards and insurance to existing bank customers. This was done using complex machine learning models, which use a 360 degree customer data view and was developed by our data integration team.

Now let me provide a quick update on the progress we have made against the goals of 2016, which I shared on our last earnings call. Number one, win new deals to sustain growth momentum. We won a large deal with an existing finance and accounting client to be their strategic partner as they execute on a global finance transformation program. They are looking to standardize their processes, adopt global best practices and leverage the power of analytics to drive effectiveness in the finance function.

We also won a strategic mandate from an existing healthcare client to deliver bilingual contracts into services out of our new center in Bogota, Colombia.

Additionally, we continue to focus on providing excellent service delivery through our existing clients and manage smooth transitions for our recent strategic deal wins. We believe that the ramp-up from our existing and new clients will provide strong growth in the second half of the year.

Number two, leverage cross sell to expand existing client relationships. As our clients look to EXL to help transform their business, we have been able to win or expand our relationships across multiple lines of business at EXL. These include industry-specific operations management, finance and accounting, analytics, BPaaS and consulting.

One example is our successful cross sell of our RPM's marketing solution to existing insurance clients. We leverage our marketing database and our proprietary targeting models to identify suitable prospects of the insurers. This is a key achievement as it validates one of the core reasons for acquiring RPM, which is to have a compelling value proposition for the marketing organizations at our insurance clients, while being able to effectively monetize our data IP. We remain excited by the opportunity to expand this marketing capability to other industries and potentially new geographies.

Number three, make investments in technology and capabilities. We recently released CareRadius 3.1, EXL's cloud-based total population health management platform. The platform's continuing evolution, including embedding analytics, strengthens our ability to operate as a service on an outcome based model. The newest release will enable our clients to improve performance and delivery of total population health management, consumer engagement, star rating and Medicare risk adjustment factors.

This morning, we announced our partnership with Automation Anywhere, which strengthens our suite of emerging technology solutions. Automation Anywhere robotic platform complements EXL's proprietary automation solution and when combined with our domain expertise and ability to embed analytics, these advanced automation solutions deliver significantly higher business impact to our clients.

We have also invested in building a dedicated team of 40 plus advanced automation and robotics experts, solution architects and implementation analysts who will enable us to seamlessly integrate these solutions into our clients' infrastructure.

Similarly in analytics, we continue to make progress on developing analytical products. Our portfolio of analytical products spans operations, sales, marketing, risk and compliance. Our analytical products will have the following three features; A, scalable solutions for industry specific problem; B, combination of our analytics capability and domain expertise in an easy to deploy solution; and C, minimize upfront costs with a usage or outcome driven payment model.

Our fourth goal was to continue to focus on margins. This quarter on a year-over-year basis, we increased our adjusted operating margins by 120 basis points. This will continue to be a key focus area for us, as we make additional investments in our capabilities, while simultaneously optimizing cost structures. We have a dedicated team in place to drive this important strategic initiative.

Next, I will give some color on our prospect pipeline. Our pipeline is extremely solid in insurance, healthcare, finance and accounting, banking and analytics, including some large strategic deals. We have built a good pipeline in Australia and are seeing interest from clients to leverage our new delivery geographies in Colombia and South Africa.

Our ability to respond in a fast and agile manner with domain specific solutions that seamlessly integrate with existing infrastructure is resonating very well with clients who are looking for tangible and real benefits from leveraging a strategic partner. We have the attention of the C-suite and are engaged in multiple strategic conversations with existing clients and new prospects.

We continue to invest in upgrading the talent and effectiveness of our front-end teams, including the hiring of a senior sales leader in healthcare.

To conclude, I would say that it has been a good start to 2016. We need to remain focused and vigilant in order to navigate this disruptive business environment, while continuing to help our client succeed. We are executing on our strategic priorities for 2016 and remain confident of achieving our goals for the year.

On that note, I will turn the call over to Vishal.

Thank you, Rohit and thanks everyone for joining us this afternoon. I would like to start off by providing insight into EXL's financial performance for the first quarter, followed by guidance for the full year.

Revenues for the quarter were $167 million, up 16.4% year over year or 18.4% on a constant currency basis. Organically, excluding RPM, EXL grew revenues at 8.2% or 10.2% year over year on a constant currency basis. Sequentially, we grew 0.7% or 1.4% on a constant currency basis. This marks the fifth consecutive quarter of sequential quarter-over-quarter organic constant currency growth.

Both our reporting segments continue to grow. Operations management revenues were up 3.4% year over year or 5.6% on a constant currency basis despite softness in our consulting business.

Operations management, excluding consulting, grew 8.1% year-over-year on a constant currency basis. This growth was led by clients from our healthcare, TT&L, banking and financial services verticals. Sequentially operations management revenues declined by 0.4% on a constant currency basis primarily due to consulting, which was down approximately 12%.

Operations management excluding consulting was up 1%. Analytics, which now represents 23% of our total revenue, continued its strong growth momentum and had an outstanding quarter with revenues up 98.2% year over year or 99.7% year over year on a constant currency basis, including the full quarter of RPM. RPM generated revenues of $13.1 million for this quarter. Typically, the first quarter for RPM is the strongest due to the ramp-up in marketing activities in the beginning of the year. Organically, revenues grew at 40% year over year or 41.6% on a constant currency, continued to build on last year's strong organic growth.

This revenue growth was led by clients from our insurance, healthcare, utilities and banking and financial services verticals. Sequentially analytics grew 7.7% on a constant currency basis. In the second quarter, we expect RPM revenues to taper slightly, which may result in a sequentially flat second quarter for the analytics segment.

Our top 10 client concentration continued to decline as a percent of total revenue and was 40.5% in Q1 compared to 43.9% in Q1 of 2015, which is due to our expanding client base and revenue base.

Gross margins remained flat at 35.1% year over year. This was driven by lower utilization in consulting and investments in new geographies offset by an FX tailwind and improved utilization in analytics business. SG&A expenses for the quarter were 20.4% of revenues down 40 basis points year over year. This was driven by lower G&A expenses owing to FX tailwinds and improved operating leverage, which was partially offset by higher sales and marketing expenses.

Adjusted operating margins improved 120 basis points year over year to 15% driven by FX tailwinds, improved utilization in analytics and improved operating leverage offset by lower utilization in project based business. Sequentially, adjusted operating margins improved by 30 basis points due to the operating leverage.

Adjusted EPS for the quarter was $0.56, up 37% year over year driven by strong revenue growth and improved operating margins as mentioned earlier.

Turning to other financial metrics, DSOs were 58 days compared to 50 days last quarter and 53 days in the first quarter of last year. FX gains were $500,000 and we expect FX gains for the year to be in the range of $3 million to $4 million.

Our adjusted EBITDA for the quarter was $30.4 million, up 23% compared to $24.8 million a year ago. Our balance sheet remains strong with $192 million of cash. Our net cash position at the end of Q1 was a healthy $127.9 million after spending during the quarter or $8.5 million on capital expenditures, $6.9 million on share repurchases and $5 million for repayment of our revolver at the end of March.

Looking at some other key operational metrics, we ended the quarter with a global headcount of about 24,400 people, which was up 8% year over year though, whereas our total revenues were up 16% underscoring increasing [non-linearity] of our revenue model.

Now, let me comment on our guidance for the year 2016. Based on our current visibility and the rupee to US dollar exchange rate of INR67 and other currencies at the current exchange rates, we're pleased to raise the low end of our guidance by $4 million to revise our revenue guidance of $694 million to $706 million, representing an annual growth of 12% to 14% on a constant currency basis, and a $2 million increase at the mid-point. This revenue growth outlook is driven by continued strong momentum in analytics, strong pipeline in operations management, in the insurance, healthcare and TT&L verticals coupled with a clear visibility on existing client ramp.

We expect sequential revenue growth of around 2% in Q2. In line with our historical performance, we expect our adjusted operating margin for Q2 to be lower than Q1 due to annual wage increments and revenue seasonality. We expect Q2 adjusted EPS to be lower than Q1.

However, our full year adjusted EPS guidance remains unchanged at $2.25 to $2.35. Our priorities of free cash flow in 2016 will be to make acquisition that expand our capabilities set, invest in our business and operations to support our growth trajectory and to repurchase shares under our Board approved plan.

In conclusion, we had a great start to 2016, delivered revenue growth of 18% on a constant currency basis and we remain confident about the rest of the year.

And now, Rohit and I would be happy to take your questions. Thank you.

Thank you. (Operator Instructions) Ladies and gentlemen, to ensure as many questions can be answered during the allotted amount of time, please limit yourself to one question and one follow-up. Dave Koning, Baird.

Great job again.

Thanks, Dave.

I guess one thing, the analytics business continues to do so well. You've talked before about how much is recurring in there. And I guess maybe you could refresh us on that and if the base -- the Q1 base if it's highly recurring, if you just expect that to continue to grow from the Q1 base or if there was a little bit of lumpiness in Q1?

Sure, Dave. Our analytics business has about 65% of its revenues which is on an annuity format, which means we've got contracts that have been signed up for a period greater than 12 months. We do expect these revenues to be not only recurring but continuing to build and grow from their existing base right now.

As you know, we acquired RPM and RPM has been integrated into our analytics segment. And RPM has a high seasonality in Q1 due to our clients wanting to increase their spending on customer acquisition activities in the first quarter. We would expect the RPM revenues to come down somewhat in Q2 due to this seasonality and because RPM is included within the analytics segment, the growth of the analytics business from Q1 to Q2 is going to be minimal or flat as such.

Okay. Great. And then I guess if you look at the RPM business and then your own core business, is either one of them growing faster than the other or are they both kind of in that same roughly 40% year-over-year growth?

Dave, our expectation is for the analytics business in total to grow at between 20% to 25% on a year-on-year basis. The 40% growth rate that we got in Q1 was based off a much lower comp that was there in Q1 of 2015 for our core analytics business excluding RPM. The growth rate of the RPM business is slightly lower than our traditional analytics business and on a combined basis our expectation remains that the analytics business will grow at about 20% to 25% year on year.

Okay, great. That's great color. Thanks so much.

Joseph Foresi, Cantor Fitzgerald.

So just in the operations business, what was the headwind in consulting, is that a temporary thing and I think you've given some color on what that business looks like for the rest of the -- for the year. How does it look -- how does that color look like as we head for the rest of the year?

The consulting business for us traditionally has a slow start in Q1 and we've seen this happen multiple times each year and this year was no different where there was a softness to the consulting business. This is a business which is completely discretionary. So it is dependent upon our clients' ability to engage with us using these dollars from their budgets. Today consulting represents less than 8% of our total revenues and the kind of work that we end up doing in consulting actually is such that we think there is going to be a recurring need amongst our clients and it's also going to be something that's extremely important for us to be able to work with our clients as they think about transforming their business models.

Most of the work that we do in consulting revolves around compliance and regulatory compliance, operational readiness and operational effectiveness as well as some new work that we've started to do around in the digital area. So these are all areas that we anticipate are going to be continue to remain relevant and important for our clients and we do think that our consulting business is going to bounce back, but probably in the second half of the year, as opposed to the first half of the year.

Okay. And then I had asked about the -- I think you have given some rough growth expectations for that business, the operations business. Are we still holding to those growth expectations for this year?

Yes. So the operations management business which is our core operations management business excluding consulting, we expect that to grow at 8% to 10% year on year. And that growth rate is pretty much intact. We've got a number of existing clients and new clients that we are ramping up on. All those executions are proceeding quite nicely and on schedule and we would expect the revenues associated with these new client ramp-ups and existing client ramp-ups to provide us with the revenue benefit in the second half of the year.

Got it. And just as my follow-up on the F&A side, you mentioned a large deal win. Was that a takeaway from a competitor and is that the large deal that you're talking about that we see sort of ramping in the processes in 1Q?

The F&A win is actually a ramp-up of an existing client relationship, and this is new work being outsourced to us where the client is thinking about this in a much more global and transformative way. It isn't something that we've taken away from another competitor. Instead it is work that's being outsourced for the very first time. And it is something which is under transition currently, and again we'd expect the revenues from this to kick in in the second half of the year.

Got it. Thank you.

Anil Doradla, William Blair.

Congrats from my side too. Couple of questions. Rohit, when you talked about the pipeline, obviously you're pretty bullish and pretty much you listed out most of the segments. But if there is any one particular area that you feel is perhaps a little bit more bullish from a pipeline point of view which one would you say it would be?

Yes. Thanks, Anil. The pipeline is actually very strong and we think it's very broad based. The discussions that we have with our prospects, many of them are strategic in nature and large value deals, many of them have progressed very nicely where we have moved towards the final stages of evaluation. And we do feel very good and confident about the prospect pipeline.

The one area which seems to be resonating extremely well for us is actually the insurance industry vertical. We are seeing our clients and prospects in the insurance industry vertical look at large transformative deals for themselves and again EXL is very well positioned to win some of these deals, and these would be multi-year deals that we'd be able to win and provide growth to the Company.

Rohit, that's pretty interesting, you bring up some of the insurance stuff. We are seeing obviously a lot of commentary on the discretionary spending which is more muted. So it's interesting that you bring up. So it sounds like they're relying on people like you for improving productivity and so forth. But switching gears, so you talked about RPM being flat next quarter, analytics being muted. Now as we go into next year, I mean is this a seasonal trend? Should we be modeling kind of the June quarter for the analytics business flat to down every year going forward or this is just going to be one off just because RPM dominates in the near term?

I think the RPM seasonality is something which is going to repeat itself year on year. We do think that Q1 is traditionally going to be a strong quarter for RPM and then the spending will come down a bit in Q2. So this is something which we would like to model each year into that analytics business.

Very good and congrats once again, guys.

Thank you.

Frank Atkins, SunTrust.

Thanks for taking my questions. First question is on the analytics side. I want to ask a little bit about the competitive landscape and what pricing is like?

The competitive landscape in analytics is very, very fragmented and very diverse. So we see a number of different set of competitors out there, some very large global companies and some very small niche players that are embedded into some of our clients and prospect organizations. The key is really that the demand for analytics is exceptionally strong. The kind of predictive modeling capabilities that we have built around our industry verticals, these seem to be resonating really nicely and our win rates are pretty attractive within the analytics segment. So we think we are very well positioned as far as analytics is concerned and can compete against our competitors here.

From a pricing standpoint, the pricing is largely stable and I think this is something which seems to be settling down quite nicely and this is an area where we do think we should be able to increase our margins as we move along year-on-year and we are focused on that.

And I guess my follow-up would be on just gross margin goals for that analytics segment, where do you see that going? You mentioned some pricing, but what other ways can you drive margin in that business?

Well, the analytics business I think will benefit as we increase our size and scale and we are able to have a much better and higher level of utilization. The analytics business for us also has a large recruitment cycle in the middle of the year where we hire from college campuses and we hire in advance of winning the business and deploying these resources. So, the utilization rate will continue to improve as the size and scale of this business expands. We've also invested in new dedicated Analytics Center of Excellence in Gurgaon and as that utilization is fully absorbed, we would expect the margins to improve. Our expectation is that long term we'd like to see this business get to be closer to a 40% gross margin business from the current 36% that we are right now.

Edward Caso, Wells Fargo.

The big question here, for a long time there was a discussion of sort of the optimal new model would be IT plus BPO and obviously a lot of that was offered by the IT only competitors. We're not hearing that much. Is that sort of theory fading here and is BPO sort of standing on its own here for -- and maybe why?

I think you're absolutely right. We saw the emergence of the IT plus BPO business model being propagated about five years ago when the IT players started to invest into BPO. I think there was a period of uncertainty associated with clients as they thought about the choices that they had whether to go with a pure play service provider or to go with a IPO plus BPO business model.

I think over the past few years that story seems to have played out and it's becoming more and more clear that there isn't any real synergy between IPO work and BPO, but the real value is delivered by a deep domain knowledge and understanding, by the ability to leverage technology and apply technology into the operations and by embedding analytics real time into the operations. And I think players like EXL are very well positioned to be able to benefit from that. So we are seeing less and less of bidding and RFPs which are on an integrated basis. We are seeing less satisfaction amongst clients that went down that path and they're all reverting back to the traditional model. And I think the big players are really going to be, how can we help them in terms of their transformation journeys and their transformation models and that really gets driven from the business side. So I think that change has definitely played out its role and is now playing in our favor.

My other question is on, when you're looking at your pipeline of opportunities, how much of it is take-aways, expansion of existing clients and Greenfield opportunities?

Sure. It's hard for me to put a real number to it. I would say most of our expansion and new wins are largely Greenfield and first-time opportunities with our clients. And that continues to be our dominant part of the business that we're winning. There are a few situations where we might win from our competitors, particularly where their business model may not be resonating nicely with the clients and the clients are looking for a much more impactful and value-added and a strategic partnership that can handle more complex work on a global basis and can be a consistent value-adding strategic partner. So for us still a large part of it is Greenfield and new work. The penetration rate in our business continues to remain low and the headroom for us to continue to expand and grow with these new Greenfield opportunities is very, very vast and enormous.

Bryan Bergin, Cowen.

Thanks for taking my questions. First one on analytics. Can you just talk about the expansion there and really what the mix is between new and existing clients for the strong organic growth?

Sure. So in analytics, we continue to have a very, very healthy mix of new clients as well as expansion from existing clients. Because we have two-thirds of our business which is structured on an annuity based format, there is a strong growth component that comes in from our existing clients, but the number of new logos that we are adding on each year is a fairly significant and is much higher, for example, than what we had on in our operations management business just in terms of the number of new logos of strategic deals in analytics.

I won't be able to give you an exact percentage of the contribution, but just like in our operations management business, the new clients in analytics start off with us with a project and it might be a small engagement that they will initially work with us. And over a period of time, once they are convinced about the capability and the value that we are able to deliver to them, they will expand that relationship very, very significantly and also move to an annuity format. So these new clients in analytics grow very, very rapidly over a period of time and for us to win new clients, it is extremely important and this is a huge white space that is available out there. And that's the reason why we have a dedicated sales force that is solely targeted on selling analytics to our clients in the US and in UK.

Okay. My follow-up, just on your [BPaaS] business, where does that stand as a percent of the total Company and just the demand environment there?

The BPaaS business for us is about 17% to 18% of our revenue. It is a business model that we are constantly investing in and continuing to push hard in terms of building up and scaling up our technology platforms and leveraging our capabilities out there. One of facts that you would be able to see from our Company's revenue and headcount progression is that our revenue per headcount has been increasing at a much faster pace and our headcount is not increasing as fast essentially because of this non-linear business model that we are able to deploy. It is something which we think ultimately will be an important differentiator and particularly for non-core areas of our client operations, we think that there is a much higher chance of them using our BPaaS model and the BPaaS model ultimately will be highly profitable and highly sticky as well.

Ashwin Shirvaikar, Citi.

So my first question is really just on robotics and RPA and perhaps timely given the agreement you signed with Automation Anywhere. But how does RPA and robotics currently get incorporated into new contracts? What's the impact and what sort of productivity promises are you making in the context of deploying RPA, for example?

Sure. So for us RPA is something which has become integral to new contract and pipeline acquisition purposes. The way new clients will engage with us is that they will be looking for a total productivity benefit over the period of the contract. Let's say over a five-year period, they'd be looking for a productivity benefit. RPA is one of the levers that we would use to provide that benefit to the client.

At the end of the day, the investment that we are making in RPA is on three different fronts. Number one, we are making an investment to develop our own robotic (inaudible) which we can embed into our client operations. Number two, we are forming partnerships like the one we've announced today with Automation Anywhere to leverage third-party software and third party robotic automation tools and embed that into our client operations.

And the third area is for us to invest in the domain experts that understands how to leverage these technologies, integrate them in with our clients' infrastructure and make these useful and impactful. And we think that there is a tremendous opportunity for us to not only have an impact on new clients, but also to manage our existing clients and unlock a great amount of value for our clients and for us also.

Thanks. That was quite useful. I missed the attrition number you might have provided. Is there a material difference, first of all, I guess, if you could repeat the number and then is there a material difference between attrition in ops management and analytics? And also that headcount number that you gave 8%, I think, growth, how does that break out across segments?

Sure. So the headcount data and the attrition data is actually in our factsheet, which has been uploaded onto the website.

Okay.

The headcount at the end of Q1 2016 was 24,375 and the attrition for the quarter, the first quarter was 31%. So our attrition rate actually has come down year on year compared to the first quarter of 2015, and it's down significantly. Between operations management and analytics, our attrition rate is much lower in analytics as opposed to operations management, primarily due to the fact that a large part of the work that we do in operations management is done during the night shift and therefore it does have a natural higher level of attrition. And then you asked about the growth in the headcount?

Yes, the growth in headcount was what I was asking, not the headcount itself?

The growth in headcount was spread across all of our businesses, in operations management and in analytics. We don't provide a break-up of this by quarter.

Okay. I have a couple of others, but they are smaller questions. I'll follow up later. Thanks.

Puneet Jain, JPMorgan.

Thanks for taking my question. Follow-up to Ashwin's question, what do you expect for productivity gains offered to customers this year? Do you see need to offer higher than usual benefits to clients given competition or RPA like you mentioned?

Hi, Puneet. It really depends on the client processes. As you know robotics is very useful for repetitive tasks which are done at high volume. So if these are simple, repetitive tasks which are done at high volume than RPA can be very effective. However, if you are managing complex domain-specific fragmented processes then RPA is not as relevant, but it's really the Business EXLerator Framework which becomes much more relevant and much more important.

So we use a combination of the RPA capability and the Business EXLerator Framework to provide benefits to our clients. Typically, our clients are looking for about a 4% to 5% productivity improvement each year and over the life of a contract, maybe over a five-year period they'd be looking at about a 20% to 25% productivity improvement. We would expect some portion of that to come from RPA and the other to come from our Business EXLerator Framework.

Typically, the portion that can from RPA is about maybe a third to a fourth of the total benefit would come from RPA, but the larger piece will come from the Business EXLerator Framework, because most of the work that we end up doing for our clients is much more complex, much more domain specific, much more fragmented and that requires a complete restructuring.

Understood. That's helpful. And can you also talk about your partnership with Automation Anywhere? It seems like you are going to use this to lower TCO for your clients. So, will you contract with them and how will revenue sharing work in that case?

Yes, so our partnership with Automation Anywhere is a pretty comprehensive partnership that we've created. We have the exclusive rights to be able to access their technology and their capability. A number of their automation solution experts and implementation leads will work with us and we've got a dedicated team of resources at our end that are going to be working with them. We are going to be leveraging their capabilities with a number of our client relationships and taking them to our clients.

In situations where we've got transaction-based pricing models, we'll make the investment and we'll get some sharing of the benefit out there. In other cases where there is an FTE-based pricing model, we will be able to offer their [boards] to our clients and our service in order to be able to make a margin on that. So, it just depends on what kind of a format and business model our client wants to leverage and use.

Vincent Colicchio, Barrington.

Rohit, you had a nice decline in the revenue concentration of clients three, top three and tope 10 year over year, will that continue to progress that way as the year progresses?

I think our objective is to continue to grow our business nicely. We are not really -- if you take a look at our client concentration now with our top client being at about 7% and top 10 being at about 41% we think that that's a fairly well diversified customer portfolio that we've got. So, we are looking at continuing to grow our existing client relationships and adding on new client relationships and the natural diversification that's going to be taking place is what we'd be looking for. There isn't a real compelling strategic priority for us to look at this one way or the other.

And one more, what is the contract mix look like, FTE versus non-FTE in the quarter and how do you expect it to progress for the rest of the year?

For the total Company, we've got around 30% of our revenues which are on a transaction-based pricing or an outcome-based pricing model and the balance is actually on an FTE based pricing model. So our hope is that as we continue to move forward that we can continue to have more of our engagements to be on a transaction based pricing model or an outcome based pricing model, and we would look to increasing that percentage as we go forward.

David Grossman, Stifel Financial.

Just wondering, if we could -- I've missed the sort of front end of the call, but you talked about both revenue segments sequentially the June quarter. I think you talked about the consulting business being a bit of a headwind and/or analytics being relatively flat in the June quarter I think. I am not sure seasonally that consulting kicks off in the June quarter or not just based on historical patterns. So when you roll that together with the operations piece and what you saw in the quarter, are you guiding to a flattish revenue in the June quarter, is that the message?

Hi, David. This is Vishal. As I said in my prepared remarks, we expect revenues to be around sequentially growing around 2%.

Is that constant currency or at actual?

On a constant currency basis.

Okay. And did you also make a comment about EPS?

Yes, the EPS we also -- said in my prepared remarks, the EPS will come down. As you know, typically we include two, we have increments that has an impact on our EPS and that will bring down the EPS quarter on quarter.

All right. Since the salary increases are going to April 1?

Yes.

Okay. And then secondly, Rohit, there are obviously a lot of questions and a lot of talk about the use of automation and as you know that's been out there for a long time. And I'm just curious understanding that technology is just maturing and probably much better positioned to use in your processes, how much they gain from automation are really responses to pricing and productivity demands of the customer base and commoditization within the industry versus opportunities really for you to drive meaningful margin improvement?

Right, David, I think the use of technology in business process is definitely maturing and there are multiple options that are available to clients to leverage the technology.

One is for clients to completely change their underlying core technology platforms, and these are of course expensive changes that need to be made. These are long-term projects and the payback is over a much longer period of time. And then the second is to leverage some bolt-on tools, use robotic process automation or other technology tools that can be put in a non-intrusive manner on top of legacy platforms and provide the leverage and the productivity benefits. What we are seeing is some of the clients are shifting towards the second model and they are adopting this change in a much more aggressive way because they can then get the productivity benefits, get a lower cost structure and if needed then they can make an investment in terms of changing the underlying core technology platform.

The change of the underlying core technology platform is by definition a highly risky bet, it's a high-value bet and it is something which doesn't always result in a benefit to the client. So clients are somewhat skeptical and somewhat cautious about taking that approach. What we've seen is in terms of productivity benefits, we can deliver somewhere close to about 20% to 25% productivity benefit over a five-year period using a combination of robotic process automation, some of the business process automation tools and leveraging our Business EXLerator Framework. And combined that with a lower cost structure of operating in an offshore environment, the client gets a huge benefit in terms of moving forward with our model, and that seems to be resonating in the marketplace, right now.

And are you able then to capture meaningful incremental margin in that model?

Yes. I think there is a greater propensity to share margin and to share the gain. And certainly that's something which is attractive about going down on this path because you need to have a strong knowledge and understanding of your clients' business and if you do, you can actually get a much greater benefit by doing this kind of work.

I see. Okay. And just -- I'm sorry, I had one other question. I'm wondering, Vishal, can you just update us on the non-GAAP adjustments for the year including the FX gain or loss? Is there any change to your guidance from three months ago?

Yes. So, we expect the FX gain for 2016 at the current guidance range which we have given between $3 million to $4 million. So, I think that's gone up from the prior number of $2 million to $3 million because the rupee has strengthened from the last time I gave guidance which was at INR68.

Okay. And how about stock-based comp and the amortization of intangible?

Yes, so we expect the amortization of intangibles to be in the range of $10 million $11 million. Tax rate is the same as we had mentioned earlier and stock comps were to be in the range of $19 million to $20 million.

Did you say $19 million to $20 million?

$19 million to $20 million, yes.

Yes, very good. Okay, guys, thanks very much.

Thank you. I would now like to turn the call back over to Rohit for any closing remarks.

Thank you operator. And thank you everyone for joining our first quarter earnings call. EXL has had a very good first quarter and we look forward to continuing to execute in the second quarter and for the remainder of the year to meet our goals for 2016. We look forward to you joining us at the next quarterly earnings call which will be sometime in the end of July. Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.