Good day, ladies and gentlemen, and welcome to the EXL's Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Charlie Murphy, Head of Investor Relations.

Thank you, operator. Greetings, and thanks to everyone for joining our Fourth Quarter 2011 Earnings Announcement and 2012 Guidance Call. I'm Charlie Murphy, and I recently joined EXL as Head of Investor Relations. While I've met some of you from my prior career as an equity analyst on the buy and sell side, I look forward to meeting and working closely with all of you in the coming days and months. With us today from our corporate headquarters in New York are: Rohit Kapoor, our President and Chief Executive Officer; and Vishal Chhibbar, our Chief Financial Officer. We hope you have had an opportunity to review the fourth quarter earnings press release we issued last evening after the market close. We have also made available the updated investor fact sheet on the Investor Relations section of EXL's website. Some of the matters we'll discuss in this call are forward-looking. Please keep in mind, these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, general economic 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 obligations to update the information presented on this conference call. During our call today, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliations of those measures to GAAP can be found in the press release. Now I will turn the call over to Rohit.

Thank you, Charlie, and welcome to EXL. Welcome, everyone, to our fourth quarter earnings call. The agenda for today's call is, first, I will review some of our successes and key investments from 2011. I will also provide thoughts on 2012 and what we are seeing in terms of the demand environment. I will then turn it over to Vishal for a more in-depth financial discussion of 2011 results and our 2012 guidance. Finally, we'll open it up to your questions. I'm delighted to report that 2011 was a year of strong growth for EXL. We are excited to be at the forefront of growth in the rapidly expanding BPO industry. Our 43% year-over-year revenue growth was broad-based and the result of new client wins, increased volumes with existing customers and complementary acquisitions. Adjusted EPS rose 29% versus year ago, fueled by robust revenue growth and strong G&A leverage. In 2011, we continued to improve our capabilities in order to generate substantial business impact for our clients. We expanded our expertise in analytics, finance and accounting and middle office processes, such as clinical services and legal support services. Through our acquisition of OPI, we greatly enhanced our portfolio of services in our core finance and accounting outsourcing practice. Following this acquisition, we created the Finance and Accounting Center of Excellence, which now houses our F&A outsourcing and finance transformation unit. As finance and accounting is EXL's second-largest domain, we are thrilled to have a powerful combined organization to serve as a meaningful partner for our clients across industry verticals. We continued to win new business in 2011. We signed 2 strategic new client agreements, one in banking and one in insurance, including our first platform deal. These 2 deals represent robust growth opportunities in themselves, but will also serve as…

Thanks, Rohit, and thanks to everyone for joining us today. EXL results for 2011 mark another year of strong performance. Our full year revenues were $360.5 million, up 42.6% year-over-year. We exceeded the top end of our guidance range of $354 million to $358 million due to a combination of budget flush and transformation in Q4, some project work from our recent acquisitions, as well as higher volumes and ramps from some of our existing clients in Q4. I would like to reiterate that we have significantly reduced our client concentration risk this year. Our top 3 clients comprised of 27% of revenues in fourth quarter of 2011, down from 41% in fourth quarter of 2010. Outsourcing revenues grew by over 53% in 2011 to $294.4 million, of which organic revenue growth was over 20%. In 2011, we migrated approximately 150 new processes, including 30 processes migrated in the fourth quarter. Our transformation business grew 9% in 2011 to $66.2 million. The underlying volume growth in transformation during this period was significantly higher than the growth in revenues. However, since most of this volume growth was in offshore annuity-based business, we did not see the revenues grow at the same rate. We view the shift in our revenue mix positively as the increasing volume of offshore annuity contracts sets up for our margin improvement in the future years. The growth in our transformation business in 2011 was primarily driven by our Decision Analytics and Operation & Process Excellence practices, which continue to expand across new and existing clients. The combined revenues from these 2 business grew at over 24% on an organic basis. The Decision Analytics business continues to experience high demand as clients increasingly recognize the strong business impact that such engagements can produce. We recently created a dedicated…

[Operator Instructions] And first on line, we have Edward Caso with Wells Fargo.

We were at the IAOP outsourcing conference last week. And though there was a lot of chatter about outcome-based pricing models, when you talked to the buyers offline, they still felt much more comfortable with the FTE models. It sounded like you were having more traction. Are you doing something different here to get an uptick in your outcome-based pricing?

Ed, this is Rohit. I think what we are seeing more traction on is transaction-based pricing, and not really so much of outcome-based pricing. I think outcome-based pricing for our industry and the kind of work that we do for our clients is something which is difficult to monitor and measure and to contractually agree to between our clients and ourselves. And therefore, I think there is very little of fixed price or outcome-based pricing that we end up doing with our clients or our clients end up asking for us. The transaction-based pricing, however, is something that gives our clients much more flexibility in their cost structure and it variabilizes that cost structure completely. And from our perspective, it allows us to -- across a diversified base of clients, allows us to focus in on productivity improvements so that we can improve our margin profile. At the end of the day, the transaction-based pricing works well for our clients and for us, and that's what we are focusing on.

My second question is on sort of analytics, big data. Just trying to understand where you're positioned in this opportunity, and also maybe the sensitivity to discretionary spending, which we understand sort of got off to a slower start this year.

Sure, Ed. I think analytics and big data remains a very, very attractive market environment for us. And I think EXL is positioned really well to capitalize on that opportunity. We have built up significant capability both onshore and offshore in terms of being able to do work in analytics across multiple platforms, across multiple different types of processes and in multiple domains. And we continue to build up our capability in this area. Our growth rate in analytics and big data continues to be above the industry -- above the company average, and we think that this is going to be a strong area of growth for the company. What we are focused on is developing annuity-based contracts in analytics handled principally from offshore locations so that this business model remains a sustainable and a valuable business model for us as well as for our business clients.

Our next question comes from the line of Joseph Foresi with Janney Montgomery.

My first question here is just on the demand environment, Rohit, how would you compare the environment heading into 2012 versus 2011? And why are our deal sizes getting smaller? And how do you handle that?

Sure. Joe, I think from our perspective, the demand environment continues to remain very strong. We have seen, in fact, a slight uptick in demand and the pipeline that we have has actually picked up a little bit in the first quarter of 2012. We think that companies now understand the leverage that they get and the strategic benefit that they get by outsourcing. And therefore, they are engaging in this business model quite actively. However, at the same time, I think this business is a business that has an impact to the employee base of our clients. And therefore, they would like to move forward in a slow and deliberate manner, which pushes the size of the deals to, starting out with smaller deal sizes and then growing over a period of time. If you take a look at the kind of companies that we are signing up, we are signing up some very large companies, which oftentimes will start out with a small pilot of engagements and gradually ramp up their business with us as they gain more confidence with us, and at the same time, creating minimum disruption at their end from an employee standpoint.

Okay. And then if you could -- is there a way to separate out in the guidance what your growth expectations are for OPI and for the organic growth?

Joe, actually, that's become quite difficult for us because we've combined the OPI business along with EXL's business and added on also our finance transformation business to it, and that's become a combined Finance and Accounting Center of Excellence. So it becomes very difficult for us to track the OPI growth rate, and we won't be able to report that out. What we will be looking at is how this business develops for us on a combined basis.

Okay. So just let me just ask a different one then. Maybe you could give us your thoughts on what you think the long-term margin profile for the business is, either the BPO or on the consolidated side.

You're talking about our entire business or the OPI business?

The entire business.

Yes. So I think the margin profile of our business is now becoming more and more stable. And I think it's a business where we think, long term, we should be able to drive gross margins in the 40% range. And we should be able to have adjusted operating margins, which are in the mid- to high-teens. We continue to think that the margin profile of our business is becoming much, much more visible to us, as well as to many of the other players that are looking at this industry. And I think it continues to remain attractive.

Our next question comes from the line of David Koning with Robert W Baird.

This is actually Nathan Novak on the line for Dave. Along the lines of your strategic pipeline, could you give any color on what's in that, how long you are in discussion? And similar with the discussion on smaller deal sizes, you previously mentioned that the strategic deals may have to be 2 or 3 wins a year to keep with organic growth expectations. Is that now going to have to be maybe 3, 4, 5 with these smaller deals? Or just any color you could provide on that would be great.

Sure. So on the strategic prospect pipeline, at the end of the last quarter, we had announced that we have 2 strategic prospects in the pipeline. Our current position is that, that strategic prospect pipeline of qualified strategic prospects has expanded to 3. We currently have one strategic client, which is actually beginning to do a small pilot with us, and we will see how that gains traction. And we do think that, that decision will get made some time this year. So our strategic prospects have expanded to 3 prospects at this stage. I think from a growth perspective, we will continue to focus in on bringing in new clients. Some of these may be large-name companies, which could be strategic, but may choose to start out with smaller deal sizes with us. And then over a period of time, we would grow these accounts and relationships. At the end of the day, EXL today has close to about more than 180 customer relationships. And we think our ability to grow our business with these clients, as well as to cross-sell new services to these clients is tremendous. And therefore, we get a fair amount of business growth coming in from this existing client base as well.

Got you. And more just a follow-up housekeeping-type question. I know you can't specifically break out OPI revenues implied in 2011 guidance. But you expect to make additional acquisitions as they come available through 2012. You're not assuming any of that revenue other than OPI into 2012 guidance, correct?

That's correct. For 2012 guidance, we're not assuming any revenue from acquisitions that we have not yet announced.

Our next question comes from the line of Bhavan Suri with William Blair & Company.

It's actually Rahul Bhangare in for Bhavan. Just a quick question on the competitive front, particularly in the insurance vertical. Has anything changed there? Are you going up against any particular players more often over the last quarter or so?

Rahul, I think on the insurance industry vertical, one of the things that's changed for us is that we've acquired 2 new platforms, the EXL LifePRO, as well as with Trumbull. And when we pitch for a platform-based deal, the set of competitors is quite different as compared to the set of competitors that we have for the outsourcing business. And for the platform-based deals, I think the competition really ends up being other companies that have similar platforms and which can provide that capability set to clients. Other than that, nothing else has changed as such.

Okay. And then you mentioned that the volumes in the transformation business were far higher than were reflected in the revenue growth. Can you give us a sense of the actual growth in volumes in that transformation business?

I guess, we don't break out the volume growth very explicitly, and we are unable to provide that data to you. I will say this, that the 9% growth rate of the transformation business does underrepresent the volume growth that's taken place and the strength of that business that we are seeing. And we expect to see more growth in that business coming in 2012.

Our next question comes from the line of Manish Hemrajani with Oppenheimer.

If you look at your guidance for 2012, what kind of organic growth are you factoring in?

Manish, I think if you take a look at our guidance for 2012, at the midpoint of our guidance range for revenue, it will imply an organic growth rate of approximately 15%.

Okay, got it. And then at NASSCOM a couple of weeks ago, there was a lot of talk about opportunity in health care for BPOs. And you mentioned -- you alluded to that a little bit at the beginning of the call. Can you talk about what kind of opportunities are you seeing in health care and if there's any benefit that you're seeing from the transition from ICD-9 to ICD-10?

Yes, I think we're seeing a very active pipeline and a fair amount of activity taking place in the health care industry vertical, both on the payor side as well as on the provider side. I think with all the changes that are being brought about by Obamacare, companies are looking at ways in which they can manage their cost structure in a much more optimal and efficient fashion. And as they think about reworking their business models, the opportunity for companies like EXL to partner with them, I think, becomes very strong. We are fortunate that we've signed up a couple of health care providers on the payor side, where we've got very meaningful relationships with them. And that gives us a strong base to build up our revenue in this particular area.

Our next question comes from the line of Tien-Tsin Huang with JPMorgan.

I just wanted to ask a couple questions. On the renewal of Centrica, any surprise there in terms of price or, I guess, terms that might impact our model, all else equal?

Tien-Tsin, on Centrica, this is our second renewal that's taking place on the contract. And as such, I think we've gotten into a very good understanding between Centrica and EXL. And we renewed this contract very, I would say, very comfortably on both sides, and there wasn't any real changes to the terms that took place. I think it was much more about aligning and making sure that the alignment in a few areas was towards the same objective that Centrica wants to pursue, as well as to focus in on some expanded services that Centrica would like to engage with us on.

Okay, good. And then you talked about attrition obviously being down. I'm curious if it's sustainable. And obviously, the employee statistics sound good. But I'm curious if we could actually see that trend higher or do you expect it to stay lower?

There are, I think, 2 or 3 things that are happening on the employee attrition side. Number one is, in India, the growth rate in India itself is slowing down. And therefore, that basically is creating less of a demand on the labor market in India. And I think that's an improving fundamental dynamic for us. But more specifically for EXL itself, I think our investment in learning and development, our investment in building up strong people practices and being focused on developing and career development of our employees is resulting in a much better brand image of EXL as becoming an employer of choice in the marketplace. And I think that's also contributing to a lower attrition rate. And I would foresee that as long as the economic environment remains the same, that we would continue to have stable attrition rates and hopefully sub-30% attrition rates in 2012.

Good. No, that'd be great. If I can just sneak in one more, and I'll jump off. Just the margin progression for the year, first half versus second year half, anything unusual we should be aware of, especially with some of the conversions that might be coming on?

Tien-Tsin, this is Vishal. On the margin side, I think because there is so much of play, because where the FX ends up, I think we are not giving any guidance on the margin. Though in terms of the margin profile, I think as the volume ramp up in the second half, as I mentioned, the margin profile should improve in the second half.

Okay. So weighted more towards the second half? Okay.

Yes. I would just add that as is normal with our business, the second quarter ends up being a lower margin because of the salary increments that we give out in the second quarter. And that's something you should factor into your model.

Our next question comes from the line of David Grossman with Stifel, Nicolaus.

Rohit, could you talk a little bit more about Centrica and the expansion of scope and whether or not we should expect the growth profile of that customer to change at all as a result of the new agreement?

So David, for us, the Centrica renewal, I think, was an important step in terms of the company's relationship with Centrica as a client. I think there are a number of different areas which we had not yet serviced Centrica in. And Centrica is now looking at some of the additional areas where they could leverage our capabilities and strength in. So we do expect a slight increase in the revenue that we get from Centrica. And so we would expect that to expand.

Okay. And then secondly, on the margins, I think I understand your reluctance to provide a look at that because of the fluctuations in currency. That said, if I look at it on a constant currency basis, it looks like the margin guidance is, in fact, down year-over-year, even after you exclude 2 one-time items that would have impacted the margins in '11. So number one, am I looking at it the right way? And if so, what would be the factors that would lead to a year-over-year decline on a constant currency basis, excluding those items?

David, this is Vishal. Just to give a bit of color on the margin, I would say that the margin for 2012 is marginally down. And though there is a tailwind from our operating leverage and the foreign exchange, as you mentioned, but it is also offset by the one-timers we had in 2011, as you alluded. Plus the OPI full 12-month impact in 2012 and the investment we are making in our platform BPO deal would make that margin slightly lower in 2012.

Okay, I'm sorry. What was the -- I didn't catch the last thing. The investment in which platform?

It's the platform deal we won, which we announced last quarter. That has an initial investment into building up that and doing the transition of the work from the client to our platform.

I see. And then just one thing you didn't mention, Vishal, was the tax rate assumption that you're making for 2012. Could you share that with us?

Yes, the tax rate assumption, as I mentioned on my script, it will remain in the mid-20, in line with the way we ended up in 2011, in that range.

Our next question comes from Ashwin Shirvaikar with Citi.

So my question is, are you at a scale yet where setting up new centers should really not affect short-term margins materially? Can you comment on that?

Ashwin, I think you're right. As we scale up, the volatility of the impact to our margins, based on the capacity increases that exist, should come down. And I think that, that is particularly true if we are setting up smaller-sized centers, which have typically a seat capacity of about 500 seats. However, if we do invest in large-sized, campus-type infrastructure like we did in 2011, where we expanded 2,600 seats in a single center, that certainly still will have an impact. But smaller-sized centers of 500 seats or so will not really have much volatility with our margin profile.

And Rohit, just to add, the large center, the impact would also be marginally lower than it would have been when we were smaller scale, so...

Okay. That makes sense. So what I'm really trying to get to is what are the margin variability factors on a shorter-term basis? So if there isn't that much margin variability from the delivery side, is it really signing large platform deals that can give us variability, that and currency basically? Can you sort of lay that out?

Sure. I think there are a couple of factors. Number one is if we were to sign up large platform-based deals or structured deals that require upfront investments, that can still have a material impact to our margin profile. Number two is the transformation business. While we have converted a significant portion of that into annuity-based format, if there is a pullback or an increase in the transformation business in any quarter, that can have an impact on our margin profile. And I think from a currency standpoint, we've been able to protect ourselves adequately both through the structuring of the contract, as well through our hedging program, whereby the volatility in the foreign exchange rates doesn't really have a significant impact on the margin profile of the company.

Okay. So it kind of sounds like you're becoming more and more of a stable growth company compared to before.

I would certainly hope so.

Our next question comes from Kunal Tayal with Bank of America Merrill Lynch.

Firstly, Rohit, you mentioned that the deal pipeline has seen an uptick in the starting months of 2012. So if you could tell us what verticals have these been in? And more specifically, are there any changes in terms of your growth expectations from the banking vertical?

Sure. Kunal, for us, the deal pipeline has actually picked up across industry verticals. We do see strength in health care and insurance. And we're also seeing a lot of strength in terms of prospects in the banking vertical for analytics. So those are areas where I think there's a much greater sense of opportunity for us. I think we are also hopeful that we will see greater amount of deal prospects coming in from Continental Europe. And that's an area that we'd like to kind of push forward and invest in because our share of revenue in that area continues to be small. And we'd like to diversify and build out our deal pipeline in that region.

All right. And what would you have built in, in terms of your expectations for growth in transformational services? Would that be higher than the 15% number you mentioned as your organic growth for 2012?

We don't really break out the growth rate of the different business segments. But in general, our growth rate should be similar to the company average.

Your next question comes from Jason Kupferberg with Jefferies.

This is Amit Singh for Jason Kupferberg. I actually wanted to dig a little bit more on the sales and marketing efforts. You mentioned that into 2012, you would be significantly expanding the efforts in that area. Could you give a little bit more details on that and also if you could provide some -- what type of dollar impact we should see, I mean, as compared to expenses this year?

Sure. Amit, for us, we continue to believe that at this stage of our growth cycle of the company, we should continue to invest in the front-end capability of the company. And as such, we target a spend of close to 7.5% of revenues on sales and marketing on the front end. For us, the area that we want to continue to invest in is in acquiring sales professionals, as well as account management teams. We've just, as we've announced, made a significant investment in marketing and creating greater brand awareness, as well as reaching out in a much more stronger fashion to the advisory community. And I think each one of these investments hopefully would have a payoff. However, the results of this will only come after a period of time, given the long sales cycle in our business.

Okay. And just on the macro front. I know that you said that you're actually seeing the demand environment to be pretty stable. But the general macro volatility stays, and generally, even the macro environment is volatile, the BPO sales cycles tend to elongate a little. Are you seeing any of that?

Yes, we have seen a few situations where the decision cycles have actually gotten extended and the decision-making has gotten pushed back. And I think that continues to be an area of concern if prospects decide to push back their decision-making. I think existing clients tend to make quicker decisions because they've got a strong experience set, as well as their ability to transition work doesn't create that much of a dislocation in their own operating environments.

Okay, great. And then just one last question on the diversification of the client base, you've obviously done very well in reducing the revenue dependence from the top 3 clients. Do you have any sort of goals or targets in that regard, acquiring new clients and reducing your dependence from your top clients?

Well, we'd love to be able to grow our top clients as well and continue to reduce our dependence on them simultaneously. We don't have any fixed metrics or goals. But directionally, we are going to continue to push forward to diversify our client base while growing all of our clients at the same time.

Your next question comes from the line of Vincent Colicchio with Noble Financial.

Yes, are there any other large contracts up for renewal in the near future?

In terms of large contracts that are up for renewal, there's nothing which is significantly bunched up there in 2012. I think we do have some staggered contracts that are up for renewal that happened throughout the year. So there's nothing that's out of cycle or nothing that bunch up these contracts into a particular calendar year or a quarter.

Okay. And then Vishal, what was capital spending and cash from operations in the quarter? I apologize if I missed that.

So capital expenditure in 2011 was approximately $20 million. And in 2012, we expect that to be in the range of $25 million to $30 million.

And then cash from operations?

Cash from operations for the year of 2011 was about $56 million.

Our next question comes from the line of Vincent Lin with Goldman Sachs.

Just given all the factors you talk about, that you just renewed Centrica, seen a slight uptick in terms of pipeline and the recent strategic client win, is it fair to characterize that your revenue visibility for -- in terms of a 2012 target versus, say, a year ago is slightly higher?

Vincent, I would say that the revenue visibility is about the same as it's been in the previous years. For us, the guidance that we've given of $445 million to $455 million is our best estimate of what the eventual revenue will end up being. We think the midpoint of that range is dead center of where we see our revenues coming out to be at.

That makes sense. And then, Rohit, I think you made a comment about competition being -- and the profile of the competition being a little bit different in kind of the platform-based deals versus the traditional kind of the area that you guys compete in. Could you just provide a little bit more color in terms of a competitor's profile?

Sure. So number one, we continue to see a greater amount of competitive activity from the IT services companies which continue to invest in the BPO industry to make inroads in our vertical and continue to offer the value proposition of combining IT and BPO services. On the platform-based deals that we are pitching for, there are a number of larger companies which own platforms, as well as independent platform companies which have platform offerings, and therefore, these are niche companies which we would end up competing against. So the competitive profile ends up being either some very large companies which own platforms or niche companies that have platforms. And that's the competition profile there.

Got it. And then just lastly for Vishal. I think last quarter, your assumptions was that on a sequential basis fourth quarter margin would be slightly down relative to the third quarter. But I think the actual result actually turned out to be a little bit higher. Can you just remind us what were the factors that contributed to the margin outperformance relative to your original expectations?

Yes, Vincent. I think there were 2 or 3. One, I think when we gave our guidance, the rupee was at INR 49, whereas the actual average rate for the quarter ended up close to 41 -- INR 51.40. That gave us a big boost in our margins. And secondly, we also got a few small other incomes, like we had a negative goodwill associated with our Trumbull acquisition of about $0.5 million plus some gains on the FX line on our balance sheet hedging, which boosted our margin profile. These were one-timers in Q4.

And at this time, I'd like to turn it back over to Rohit Kapoor for closing remarks.

Well, I just want to thank everybody for joining our Fourth Quarter Earnings Call. As we have stated, I think the company continues to progress nicely and is positioned very well to take advantage of the opportunity in the marketplace. We look forward to a strong 2012 and continuing to execute on our business plan. We look forward to seeing you on our next earnings call, which will be for the first quarter of 2012 results. Thank you, all, for attending.

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