ExlService Holdings, Inc. (EXLS) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the EXL Q4 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Charles Murphy, Head of Investor Relations for EXL. Please go ahead.

Thanks very much. Greetings, and thanks to everyone for joining our fourth quarter 2012 earnings call. With us today are Rohit Kapoor, our Vice Chairman and Chief Executive Officer; and Vishal Chhibbar, our Chief Financial Officer. We hope you've had an opportunity to review the fourth quarter earnings press release we issued this morning. We have also made available our updated Investor Fact Sheet on the Investor Relations section of EXL's website at ir.exlservice.com. Some of the matters we'll discuss on 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 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. Reconciliation of those measures to GAAP can be found on the press release. Now I will turn the call over to Rohit.

Thank you, Charlie. Welcome to our fourth quarter 2012 earnings call. The agenda for this morning's call is as follows. First, I will review highlights of 2012. Second, I will provide an overview of the demand outlook for our industry and for EXL specifically. Third, I will describe our key priorities for 2013. Then, I will turn the call over to Vishal for a more detailed financial discussion, following which we would be happy to take your questions. I hope that all of you can join us beginning at 10 a.m. Eastern Standard Time for our Investor Day held in New York at the NASDAQ MarketSite at 4 Times Square. We will discuss in depth the robust growth opportunities that EXL enjoys, featuring several of EXL's senior operating executives. The event will also be webcast at ir.exlservice.com. 2012 was a year of strong growth and internal investment at EXL. Revenue grew 27% year-over-year on a constant currency basis, driven by existing client expansions, record new client wins and acquisitions. Our key near-term growth engine remains expanding relationships with our key clients. In 2012, we were quite successful on this opportunity, particularly in our insurance and health care domains. For example, we initiated sizable engagements providing pharmacy pre-certification, pharmacy sales operations and international guaranty of payment processing for a global health insurance firm; new business issuance processing and agency auditing for a leading global insurer; and variable annuities processing for a large global retirement services firm. In 2012, we continue to generate strong business impact for our key clients. We track a metric called return on outsourcing, which measures the tangible business impact EXL achieves for clients above and beyond labor cost arbitrage. In 2012, our return on outsourcing increased nearly 400 basis points year-over-year to 19% annually. This tells us that we are accomplishing our strategy of providing focused and differentiated operations excellence for our clients. Customer satisfaction ratings improved nicely in 2012, and we will strive to improve them even further in 2013. We won a record 41 new clients in 2012, more than twice what we added in 2011. We won 21 new transformation clients and established a clear leadership position in providing risk analytics to retail banks. Several of these new analytics client additions were awarded and ramped up in a shorter time frame than we have historically seen. We are highly encouraged by our analytics capabilities and growth outlook. We also won 16 and 4 new clients in insurance and health care, respectively. Finally, we won 6 new clients in finance and accounting outsourcing, including 2 large deals in the insurance vertical. These F&A wins validate our investments in this important horizontal, most significantly our acquisition of OPI in 2011. Acquisitions remain an important part of our growth strategy. In October 2012, we completed the acquisition of Landacorp. Landacorp gives us a leading care management platform, which we believe is a highly strategic asset. Landacorp also brings us a sterling client list in the health care industry. We are encouraged by the conversations we've been having with their sales prospects. We see attractive opportunities to introduce other key EXL businesses into their health insurance customer base. 2012 was also a year of strong internal investment at EXL. A key part of our long-term growth strategy is advancing our employees' domain expertise, which they can pass on to our clients. In 2012, we launched the EXL Center for Talent in Noida, India, to ensure we have consistently acquiring and developing individuals with differentiated operations and industry expertise, and a client-centric mindset. We also launched the EXL Healthcare Academy in Manila. This facility is dedicated to cultivate specialized health care operations management skills. These skills are in short supply and heavy demand globally. We think our differentiated health care skill sets will drive a substantial portion of future growth at EXL, with our health care business growing well above EXL's average rate. As of the fourth quarter, EXL had grown to over 1,800 employees in our Philippines facilities, including over 800 nurses, doctors and clinical personnel. Finally, in the fourth quarter of 2012, we entered into a strategic alliance with the Indian Institute of Management in Lucknow, India, to provide a co-branded business management certification program in operations excellence and consulting. In 2012, we invested in several additions to our management team, including a global head of human resources, a chief medical officer, a head of operations consulting and product development, a new head of U.K. and Europe and several domain experts to lead our sales efforts, especially in our insurance and health care businesses. In 2012, we added to EXL's global delivery capability by building up on centers in tax advantage geographies in Pune, India and in Manila. In December, we were thrilled to be ranked as a leader by the Everest Group in their study, "A Peak into the Leaders, Major Contenders and Emerging Players of Insurance BPO." In this study, Everest Group named EXL the largest BPO provider to the U.S. insurance industry with a 24% market share. We view this as a strong proof point for our investments in insurance, our largest domain. As I turn away from 2012, I want to offer a heartfelt thanks to all the EXL employees who worked so hard to make this a great year for our company. Now turning to the demand environment. Both EXL and our industry enjoy a strong and steady growth outlook. Having just returned from NASSCOM's Annual Conference in Mumbai, I can report that the mood in the industry is one of cautious optimism. The global economy is on a gradual path to recovery, although not without risk. Corporations are increasingly hungry for partners who can bring industry tailored expertise in operations management, analytics and technology and deliver to them revenue enhancement and expense optimization and an overall improved operating model. The BPO industry continues to evolve from a FTE-based pricing model to nonlinear models such as outcome and transaction-based pricing, as well as proprietary software-enabled operations management. As buyers grow more sophisticated, their demands have become more complex. We are happy to have begun our investments in proprietary platforms years ago with our acquisitions of LifePRO and Trumbull, and continue to migrate towards transaction-based pricing, where it makes sense for both the clients and EXL. For EXL specifically, we see a robust demand environment. The pipeline amongst new and existing clients in insurance is strong for BPO and platform-based operations management. In particular, we have seen a pickup in large deals for closed book insurance policy administration. We believe we are in a solid position on these deals due both to our leading market share in insurance, as well as our proprietary LifePRO platform. In our banking domain, the pipeline for deals amongst new and existing clients is also robust, particularly for Decision Analytics. Competition for new deals remains intense, but relatively unchanged. We continue to see the large information technology outsources frequently and more than a year ago. Now for the key priorities for 2013. We will aggressively expand our insurance, health care and analytics businesses. We will fuse our analytics and outsourcing operations closer together across all of our focus verticals, leading to a more seamless services suite. In particular, we see several opportunities to cross sell our operations management services to the large banking relationships we have added this year through our risk analytics franchise. We will continue to expand our clinical capabilities in health care, including opening a third center in the Philippines in Cebu and expanding existing centers in Manila. We will drive strong incremental business impact for our key customers and continue to prove the value EXL can create as a partner. We will leverage our leading position in U.K. utilities operations management to further penetrate the European market in which we have a great opportunity over the next several years. We currently enjoy strong delivery capability through our facilities in the Czech Republic, Bulgaria and Romania to service this geography. We will continue to invest in learning and development. And lastly, we will add on productized solutions and implement operations consulting capabilities, and continue migrating our services up the value chain. We enjoy approximately $110 million in cash and short-term investments with no debt, and expect to add to our capability set through acquisitions. In summary, I'm pleased with the growth that we have generated in 2012 and the investments we have made to be able to lead in the most attractive growth markets in our industry. We have tremendous momentum in the market, and clients are recognizing the value that EXL provides for them with our differentiated strategy of focusing intensely on a few select high-potential industry verticals. Our customers are responding to the value we are bringing to them by rewarding us with increased levels of trust and transferring processes to us to manage that are of higher value and of complexity. Our employees are highly engaged and energized, and we have a stable and highly talented management team to allow us to succeed for many years into the future. As we look into the marketplace, we see robust multi-year tailwinds in our selected markets, and are working aggressively to take best advantage of them. EXL's larger size and scale and increased brand awareness is allowing us to see larger and more exciting opportunities than just a few years ago. Lastly, I am pleased with our execution on our dual objective of revenue growth coupled with an equal focus on profitability and EPS growth. This is being realized through prudent business practices in pricing and contracting, excellence in client delivery and operations, as well as thoughtful investments in productivity and intellectual property. We are excited to execute over the course of 2013 and feel quite good about the year we have ahead of us. Now I will turn the call over to Vishal.

Thank you, Rohit. Good morning, everyone, and thanks for joining us today. EXL's 2012 results reflect a year of strong performance and expansion for the company. Our full year revenue increased 23% year-over-year to $442.9 million, in line with our guidance. On a constant currency basis, revenue grew 27%. Revenue for the fourth quarter ended 31 December 2012, increased 4.5% sequentially to $117.7 million. We believe that EXL's reported revenues growth numbers for 2012 are above industry growth rates, and indicative of the overall business momentum we have in the market. We are focused on successfully executing on the exciting secular business growth trend in front of us. On a segment basis, outsourcing grew 24.6% year-over-year to $366.8 million in 2012. On a constant currency basis, the growth was 29%. The sequential growth in the fourth quarter was 4.5%, driven by insurance and health care verticals, which was a major contributor. We saw a strong growth in P&C and life insurance as well as expansion of our clinical offering serving both health care clients as well as our insurance clients. Transformation grew 15.1% in 2012 to $76.2 million. Sequentially, transformation grew by 4.2% in the fourth quarter. Full year and sequential growth was driven by a combination of increased revenues in Decision Analytics, services of global retail bank and an increase in our project-based engagements. Our confidence in the market for growth and demand in Decision Analytics services remains strong. We are encouraged by the high mix of recurring revenue in this business, usually over 50% of annual revenues. Today, we believe EXL is one of the largest providers of Decision Analytics and consulting services in the marketplace, with a team size of over 900 differentiated resources in statistics, mathematics economics and consulting. Looking out to Q1 of 2013, however, we expect growth in the transformation segment to be somewhat muted as it is seasonally a slow quarter, and we remain cautious on the discretionary spending environment for project-based services at the start of the year. We continue to reduce our client concentration. EXL's largest client is now 10% of revenues, down from 12% last year and 15% the year before. Our top 3 clients were 26% of revenues in 2012, down from 32% in 2011 and 41% the year before. It is important to note that EXL's top clients have been growing over this period of time, and we have been able to achieve the dual objective of growing our strategic clients while simultaneously derisking ourselves from concentration with any single client. Gross margin was essentially flat in 2012 at 38.6%, as the benefits from rupee depreciation were offset by higher employee budget cost and full year impact of 2011 acquisitions. Gross margin improved in the last quarter over the other quarter due to Landa acquisition. EXL's adjusted EBITDA and adjusted EBIT margins both grew in 2012 due to the G&A leverage. We expect G&A as a percentage in 2013 to go up by about 100 basis due to the impact of Landacorp acquisition, which has higher gross margin and higher G&A. EXL has been able to achieve the G&A leverage every year for the past 6 years, bringing G&A down from 18.9% in 2006 to 12.9% in 2012. We generated over 120 basis points of G&A leverage in 2012. We constantly endeavor to invest a significant portion of our G&A leverage into our sales and marketing function. Our sales and marketing spend for 2012 was $31 million, up 21% year-over-year. Our sales and marketing spend in 2012 was 7% of revenues, consistent with 2011. As we grow our company, we will seek to keep the sales and marketing at these levels of revenues in order to create a sustainable growth engine capable of consistent growth year-over-year. In 2012, EXL's capital expenditure was approximately $19 million. We established new centers in Noida, Pune and Manila and currently building additional centers in Kochi as well as Cebu in Philippines. In 2013, we expect to spend between $25 million to $30 million on CapEx, primarily for the expansion of our delivery centers and other business and technology enablement projects. Adjusted EBITDA for 2012 was $92 million, up 25% from $74 million the year before. We generated $66 million in cash flow from operations in 2012, and spent close to $60 million on acquisitions and capital expenditures. Our balance sheet remains strong with close to $110 million of cash and equivalent. We plan to make strategic acquisitions in 2013, and have the balance sheet and the management bandwidth to do so. DSOs at the end of 2012 was 56 days, up from 49 days last year. The increase was mainly due to the acquisition of Landacorp, which has greater amount of unbilled receivables. The larger amount of unbilled receivables is due to the large scale and complex integration that medical management system required and the billing milestones that are agreed with the clients. We will continue to remain focused on strong collections management. Tax expense for the year was $15 million, with a tax rate of 26.2% in line with our guidance. For 2013, we expect increased tax rate in the high 20% range. This is due to the greater amount of income we are generating in the U.S. as our business becomes more global, and with the impact of acquisitions we have made. FX losses for 2012 were $2.5 million as a result of the 14% rupee depreciation we experienced over the course of the year. Looking towards 2013, based on prevailing currency rates, we expect an FX loss of approximately $3.5 million to $4 million as comprehensive hedge program has historically done an excellent job of cushioning the EPS impact to a fluctuating currency. As you know, EXL has a balanced approach for foreign currency risk management. We hedged for our clients that see constant dollar pricing, but we are also willing to share the foreign exchanges with clients that prefer to take advantage of depreciation in those currencies where the majority of our costs are based. Net income in 2012 was $41.8 million compared to $34.8 million in 2011, an increase of 20%. Adjusted diluted EPS for the year increased 14% year-over-year to $1.58, above the top end of our guidance. Our fourth quarter diluted EPS -- adjusted EPS was a record $0.44 per share. For the year 2013, based on current visibility and the Indian rupee to U.S. dollar exchange rate of 54, we are providing a guidance of $495 million to $505 million for revenues. This represents a growth of 12% to 14% year-over-year. We're guiding adjusted diluted earnings per share between $1.77 to $1.85. Implicit in our guidance is the combination of steady and visible growth from our existing clients, as well as the revenues from Landacorp that largely offset the client transitions we spoke of last quarter. We feel good about our visibility into our guidance, consistent with our practice. We more than doubled the number of new clients that we won in 2012 year-over-year and expect a nice tailwind from those client's wins as we grow and mature in 2013 and beyond. The amount of new client revenues we are including in our guidance is consistent with prior years. We feel good about the pipeline and the size of the client opportunities that we are seeing in the market, as Rohit had mentioned. In terms of trend in revenue growth over the course of the year, as in prior years, the first quarter will remain seasonally soft, with growth picking up gradually over the course of the year. The transitioning clients, as we discussed last quarter, will likely to be rolling off ratably over the course of the year. In conclusion, 2012 was another year of strong growth and execution for EXL. We delivered another year of profitable growth backed by multiple client wins, strong leadership and scope expansion at existing clients, partnerships and complementary acquisitions. We have tremendous momentum with our existing clients and like what we are seeing in the marketplace for our services as we look into 2013. I would end by saying that we very much look forward to seeing many of you in person at the NASDAQ MarketSite later this morning for our Investor Day and are excited by the turnout. There will be an opportunity to dive deeper into our business as well to interact with the broader EXL executive team over the course of the event. Now we would be happy to take your questions.

[Operator Instructions] Our first question comes from Manish Hemrajani of Oppenheimer. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Your 2013 outlook seems a bit soft. You've shown robust growth over the last 3 years. So why do you expect to see somewhat of a slowdown in 2013? And how much of that growth is inorganic for 2013?

Sure. Manish, this is Rohit. I think as we have announced previously at end of the third quarter, we do expect some client transitions to have a negative impact to our revenue growth in 2013, and that number is between 5% to 6% and that is what is resulting in the slower growth rate only for 2013. As we had also previously stated, this is going to have an impact on our top line, but it has very little impact in terms of our bottom line results. In terms of inorganic growth, the Landacorp acquisition that we did would contribute 3.5% of incremental growth in 2013. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Rohit, you had said, I guess, earlier that due to this client transition you would be impacted by about 4 to 5 points. Are you taking that higher a little bit by 5 to 6 points?

No, I think we have been consistent about it, and our statement was 5% to 6% and we stayed consistently at that level. I don't think there's any change to that level. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Okay. Got it. And then if I look at your attrition, it's up a little bit above 30 in the December quarter. Any reason behind that, especially given that your peers are seeing improving attrition rates?

No. I don't think there's anything to read into that trend. I think attrition rates remain fairly stable for us. They're likely to remain in the high 20s. In certain quarters, they may go up or down a little bit. Some of this is also driven by the fact that our business in the Philippines has been expanding much more rapidly. And as Philippines contributes a greater percentage of our revenues, the attrition rates in the Philippians will start having an impact on our overall attrition rate. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Okay. Got it. Just a bigger picture question. Your growth has been pretty rapid over the last couple of years with the workforce almost doubling since 2010. How are you managing that growth and what impact has that had on your culture? And do you expect to grow headcount around similar lines for the next couple of years?

So the way in which, Manish, we manage our business is not to manage our business on a headcount basis. The way we like to be able to look at our business is on the basis of the business impact and the value that we can create for our customers. For us, hiring and attracting the best talent possible, investing in their training and development so that EXL is a great home for the talent that we've acquired, and having stability in terms of our workforce, these are all critical success factors. We think we have developed the right attributes in terms of being able to provide a very stimulating career path for our employees, invest in their learning and development and therefore enhance their skill sets to become industry-leading experts. And EXL is becoming more and more recognized for being a great employer. We will continue to focus in on these strategies, and we think that we have adequate capability in-house and adequate brand presence in each of the markets that we operate to be able to attract the right talent and to be able to support the business growth needs that we are seeing from our clients. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: One last one for me. What does your pipeline for acquisitions look like? And do you expect to close one or more acquisitions this year?

So our stated goal, as you're aware, is that we will continue to combine inorganic growth with organic growth. We continue to generate surplus and free cash flow in our business. And as you are aware, we carried no debt. Currently, with $110 million of cash on our balance sheet, our ability and our capability and our capacity to do acquisitions is tremendous. The pipeline remains attractive for doing acquisitions, but as you're aware, a transaction would only happen if and when it happens. Until the time it is consummated, we really can't say much about it. If you take a look at our historical track record, we have actually been honing in on our strategy of doing acquisitions in a fairly determined way, and we continue to move down that path of looking at assets that can add incremental capability for the company, doing diligence on them, negotiating those transactions and bringing those assets within EXL and integrating them in nicely. I think we are going to be consistently working on that strategy, and you should expect us to continue to do acquisitions on a go-forward basis.

Our next question comes from Paul Thomas of Goldman Sachs.

Could you talk a little more about the large deals you're seeing in insurance? How many of those deals are you competing for and what stage of decision-making are they at? Is any of that included in your 2013 guidance?

Hi, Paul, and thanks for asking that question. I think this is the second quarter consecutively where we are now reporting that we are seeing larger deals into the pipeline. In the past couple of years, we had started to see smaller deals and multiple deals in the pipeline. But for the last 2 quarters, we have seen now a consistent pattern of some large deals that are coming into our pipeline. We have several large deals in the pipeline. Many of them are platform-based transactions, but there are others which are straight outsourcing deals, and we are also seeing larger deals in transformation. The pipeline remains very, very robust. We think the demand environment has actually picked up a bit, and we are encouraged by the signs that we are seeing with some of these large deals coming into our pipeline. These deals are in various stages of maturity in terms of our prospecting efforts, and we certainly would expect to close a fair share of these deals in 2013. As you know that for us, most of the new client wins will really have a revenue impact really in 2014 and beyond because they do not have a material impact in the current year period in general. So we wouldn't expect any of our wins in 2013 to have a material impact to our revenues in 2013.

Okay. And then on banking and financial services, you had a nice quarter-over-quarter gain there. Can you talk about the drivers there, what you expect next year? Was any of that in the quarter project-based that would go away the first part of next year?

With the banking and financial services space, we certainly had a very, very good execution and performance. Several of the large global financial institutions chose EXL to provide a number of analytical services projects to them. As is common, many of them start out with doing projects with us, and we are able to convert these projects into annuity-based revenue once they get to experience our services and our delivery capability, and once we are able to move the work from onshore to offshore. This is a normal transition that will happen with the clients that we have acquired. And at the same time, we would expect to sign up some new clients as well. So yes, there will be a gradual maturity associated with our client penetration, and this is something which we are likely to see.

[Operator Instructions] Our next question comes from Jason Kupferberg of Jefferies. Jason Kupferberg - Jefferies & Company, Inc., Research Division: I wanted to just pick up on your comments around some of the caution on discretionary spending here in Q1. I realize there's a seasonal component there, but I wanted to learn a little bit more from your perspective in terms of how widespread some of the softness may be. Does it feel like it's more pronounced than just normal seasonality? And how might you contrast it with what you were feeling this time last year regarding Q1 of '12?

Sure, Jason. I think for us, historically, the first quarter is always a quarter which can have a slow start. And I think this year, we are seeing this fall into the same pattern. Even last year, if you take a look at our transformation line of business, in the first quarter, it was a soft quarter for us. So year-on-year, I think there's going to be a tremendous growth in our transformation business. But quarter-on-quarter, we will perhaps not see a similar growth pattern. I think, from a market perspective and a demand perspective, this does not worry us because this is something which is quite normal and is something which happens every year. Our sense of optimism is really guided by the fact that the deals in the pipeline are fairly significant, and the clients that we are winning and the expansion of scope of work that our existing clients are giving to us, that is pretty much at the normal pace. And therefore, we would continue to expect to see a gradual acceleration in our revenue base through the year. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. And that's a helpful clarification because I think people are trying to figure out if it's just the normal seasonality or anything beyond that. And it sounds like it's really just normal seasonality. So do you see that...

That's correct. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. And when we think about the growth rate for 2013, which I guess organically is, what, about 8.5% to 10.5% on the top line. How should we think about the mix of BPO versus transformation as far as how that growth rate might break down? Because I know the growth rates relative to each other were kind of all over the place in 2012.

Right. We don't provide guidance of the breakup between the outsourcing business and the transformation business. But I will make a comment that in general, we expect the transformation business to be about 20% of our revenues and outsourcing to represent about 80% of our revenues. That number fluctuates up or down depending on the quarter and depending on the year, but in general, we've been able to maintain that percentage. For us, the growth rate within transformation is exceptionally strong, particularly in Decision Analytics, and that's something which we are likely to see. And I think we will continue to see the outsourcing business, which is a much more stable and stickier business, continue to develop and grow itself. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. And just last for me, I know you touched on kind of the theme around pricing structure moving from FTE-based to the nonlinear models. Can you give us a sense on what your mix is in that regard right now and where you'd like to take that in 2013 and beyond? What's realistic based on client demand patterns and the mix of offerings that you guys have in the portfolio now?

Jason, this is Vishal. As far as transfer -- transaction-based pricing is concerned, that's largely is in our outsourcing business. And currently, it's about 32%, 33%. And we think that in 2013, we will be able to take it up to 35% to 40%. And that's a trend we have seen, because typically, the transaction-based pricing happens with more mature clients, and we take a lot of time in terms of setting that up with the clients.

Our next question comes from Ashwin Shirvaikar of Citi.

I guess, Rohit, I wanted to follow up, on various times during this call, you had comments that deals are getting larger and more complex. Could you sort of juxtapose that against your current capabilities that you have, the current offerings, current talent? And to what extent would you be -- if you got a couple of these deals tomorrow, would you be able to meet that demand, or do you need to go out and get that expertise?

Yes, Ashwin, thanks for asking that question. I think -- so from a demand perspective, the clients are clearly becoming more sophisticated. We are seeing much larger deals in the pipeline, and we are seeing deals of higher complexity come into the pipeline. Vis-à-vis, our capability, I think EXL is really well positioned to benefit from this trend that we are seeing, because we have started to invest in platforms 3 years ago. And today, we own platforms in our select insurance and health care industry verticals where we can participate in these larger sized and more complex deals, as well as the execution capabilities of EXL, really plays up to this strength. So I think the fitment from a capability standpoint, our ability to execute and to take on these more significant and strategic deals is actually very high. Now at the same time, the capacity for EXL to take on several large deals simultaneously is a constraint. On the outsourcing side, we will be able to take on several large strategic clients simultaneously. But when it comes to platform-based deals, which are transformational in nature and which involve a significant component of our existing platforms, we do have a limitation of capacity to take on these deals, and therefore, we would be fairly selective in terms of choosing the right deals and moving forward with it. In order to enhance our capacity on the transformation side with the platforms, we are looking at ways in which we can partner with firms and can bring on additional flex capacity to be able to take on some of these more substantial and significant clients.

Our next question comes from David Grossman of Stifel. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: I'm wondering -- unless I missed this, perhaps you mentioned it earlier, but I think you're disclosing the health care business bundled with the insurance vertical. Can you give us a sense of just how large that business is right now and what the growth rate was both sequentially and year-over-year?

David, this is Vishal. In 2012, our health care business was roughly around 6% to 7%, because the Landacorp acquisition is only there for a part of the year. But if you will look at 2013 with the full impact of the Landacorp acquisition, we expect health care business to be about 10% of our total revenues. And it's been growing pretty well. I think last year, it grew about 50% -- over 50%, and we expect that growth trend to continue in 2013.

David, just to add to that, the health care industry vertical, from our perspective, we would think is a growth rate of 35%-plus. Therefore, it's a high-growth rate industry vertical. We've made the right investments in terms of developing the clinical capabilities in India and in the Philippines. We made the investment on the health care platform through the acquisition of Landacorp, and we've also made the investment on health care analytics to specifically service and target customers in this space. So I think we are well positioned to take advantage of a high growth and a large market space that is emerging out here. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: And what percentage of that business do you think will be run on the Landacorp platform versus more of a labor-based model?

It's actually very difficult to predict that, David. I think Landacorp on its own is a industry-leading platform, which is installed amongst many of the major payors in the health care space in the country. I think they continue to adopt and use Landacorp, particularly as there is a switchover from ICD-9 to ICD-10. And Landacorp fits in quite nicely with that change that's taking place in the industry as well as the Affordable Care Act change that's taking place. As such, our ability to be able to offer processing capabilities on top of Landacorp is something which we've just started to go out and reach out to our customers, and we'll have to see how this thing plays out. Our hypothesis on this is that, that is something which our clients will find particularly attractive, especially the large and midsized payers for whom -- which are looking to cut costs very, very significantly and dramatically before 2014 and position themselves so that they are in a strong ricket [ph] as the Affordable Care Act becomes operational. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: And just getting back to your comments you made about the pipeline. I think you -- are some of these larger deals -- I mean, I know you mentioned platforms several times. Does that dominate the larger deals that are in the pipeline right now?

No. I think we have a good combination of both platform-based deals as well as straight outsourcing deals, and we also have some deals which are transformation-led which are strategic. So it's actually a very good mix between the platforms, straight outsourcing and transformation. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: And just quickly, in terms of the closed block deal that I think you've taken on, on the LifePRO platform, is the profitability and revenue ramp of that contract -- I think we're about a year into it now. Is that pretty much tracking in line with your expectations?

Yes. As we've mentioned before, for the first 2 years, we would expect these types of deals to be a drag on our profitability. And we are certainly a year into this deal, and we would expect the next year to also be a drag on this deal. But certainly, in terms of the operational delivery capability, it is something which is tracking to our original estimates on the profitability side. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: And would you expect that drag to be consistent with other deals that if you sign them in the future, or do you think that's unique to this particular transaction?

I think we should be able to get into a better position with our clients once we've got the experience and the capability set. And also, the expense side of this would get reduced because as we develop the components for enabling the conversion, our cost of doing the conversion is going to drop quite significantly. And therefore, I think balancing out certain upfront payments as well as our own cost structure should probably yield in a much better lifetime value associated with these deals. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just -- I know you don't provide specific margin guidance, but holding currency constant, how should we think of the pro forma EBIT margins in 2013? Are you thinking kind of a flattish profile, or do you think you can get some margin expansion in 2013?

David, this is Vishal. I think over the course of the year, we should be able to get a slight margin expansion in 2013. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And Vishal, what are your assumptions for stock-based comp and amortization in '13?

It's in line with our prior years. It will remain in the same trend line. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Is that same trend line in absolute dollars or percentages?

David, it's consistent in terms of percentage. In terms of dollars, it will go up.

[Operator Instructions] Our next question comes from Edward Caso of Wells Fargo.

My question is around the Indian budget that just came out. Is there anything in there that you saw that would impact EXL or the industry more broadly?

Ed, this is Vishal. As you know, the Indian budget, which was announced yesterday, had certain increases in the corporate tax rate, which may impact us. But bear in mind that some of our Indian operations are still tax-free under the SEZ regime. So we expect a moderate impact on our tax rate in India. Besides that, there is some marginal impact on procurement from offshore locations, and that will just impact our procurement process. But otherwise, it's been -- it's quite neutral to the service industry, nothing major, positive or negative.

Just so I'm really clear here, versus a year ago, your visibility, where are you? Better, the same, less?

In terms of our growth rates, I think our visibility is pretty good and solid as I mentioned in my script also. And we think that the existing client and potential to grow with the existing clients, which is a key driver for our growth in a particular year, is pretty solid.

But how do you feel versus a year ago? Better or the same?

Ed, our visibility would be the same as a year ago, and I think that's how we do our budgeting and planning and that's how we use those numbers for guidance.

Our next question comes from Mayank Tandon of Needham. Mayank Tandon - Needham & Company, LLC, Research Division: Rohit, I just wanted to ask another question around the big deals you mentioned, these are more complex deals, in your words. Are these first-time outsourcers, or are these takeaway opportunities from other vendors? And also, what is the competition like on these large deals? Are you seeing the large IT services firms start playing in that field, or is it mostly against pure play BPOs?

Mayank, these are all first-time outsourcing deals. So these are not deals where an existing service provider is being displaced. All of these deals are basically first-time take-out deals. The competition for these deals is intense. The IT players are certainly in the fray associated with these larger deals. They certainly have the balance sheet, the size, strength and the credibility to be able to engage in these deals. But when it comes to the domain expertise, when it comes to the actual ownership of the platform and the ability to do the conversion, when it comes to the analytics, I think we stand out much better. So it is something, which is going to be intensely competitive. And particularly, if it's a large deal, it normally will involve an RFP process and will be competitive. But I think EXL is well positioned to win our fair share of these deals. Mayank Tandon - Needham & Company, LLC, Research Division: I know it's kind of early in the game right now, but could you give us a sense of what your win rate's been against some of these large players who are competing in these opportunities?

So last year and the year before, typically, our win rate has been about 33% for some of these larger-sized deals, and I think we'd hope to be able to at least have the same rate or if not, a better win rate than that. Mayank Tandon - Needham & Company, LLC, Research Division: And finally, on the margin impact, I realize that the initial impact could be negative on margins. But once these deals hit steady-state, do you think the margins will be in line with your other deals, or will they be lower than what you currently earn on your deals?

I think on a steady-state basis, we would always target these deals to be in line with our margins, and we would price for them accordingly. I think customers are quite comfortable with those pricing levels, and we should be able to realize margins which are stable.

Our next question comes from Puneet Jain of JPMorgan. Puneet Jain - JP Morgan Chase & Co, Research Division: This is Puneet from [indiscernible]. The transformation margin, it appears deteriorated in this quarter to around 34% from 40% last year. What were the reasons for that?

Puneet, this is Vishal. The transformation business Q4 margins declined driven by 2 factors, One is that we have done some advanced hiring in Q3, and the full year impact of that was felt in Q4; Number two, there was some impact of the utilization rates going down because of the Sandy and there were days of loss of work. And those 2 factors helped us -- or actually were the reasons why this margin declined. But bear in mind in the full year basis, our gross margin for this business was about 36%, and we expect that in 2013 the gross margin for this business will remain between the 36% to 38%. Puneet Jain - JP Morgan Chase & Co, Research Division: All right. And this revenue loss that you had because of Sandy, you expect that to recover in Q1?

No. Those were days lost because the work just happened and some of the clients, their offices were closed for several days. That was a onetime impact. Puneet Jain - JP Morgan Chase & Co, Research Division: Right. But that work -- whatever the work that you lost because clients' offices were closed, you expect that work to come back in Q1?

It just got shifted to the other quarters, and it's not just entirely going to be in Q1. Puneet Jain - JP Morgan Chase & Co, Research Division: Okay. And can you also talk about ramp-up rates in the strategic clients you won last year? I think there was one in transformation and one in outsourcing.

Yes, Puneet, this is Rohit. The transformation client that we won in 2012, that's ramped up in 2012 itself. And in fact, that's something which had a very short sales cycle and a short implementation cycle as is typical of any transformation client. The outsourcing clients that we won, which were strategic, those are ramping up as per plan, and we are executing on their transition, and their ramp-ups are taking place in 2013.

Our next question is a follow-up from Manish Hemrajani of Oppenheimer. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Just a quick follow-up. You talked about intense competition especially from the IT outsourcers. Are you seeing any impact on pricing because of that?

Manish, I think in general, the IT service providers are aggressive on pricing because they're trying to build up their business in BPO. So it is something which we necessarily do need to compete with. But that is not so much of an issue for us. The issue for us is when there is a complex transaction and the nature of the complex transaction is not understood well by the competing players and there's a mispricing that takes place. I think that's the one to worry about, because that's not good for the client and that's not good for the service provider. And particularly as the complexity increases, I think the risk of a mispriced deal happening, that does go up. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Got it. And then you talked about win rates of about 32%. Is this increased competition having any impact on your win rates?

Well, this is our win rate for last year, and last year as well, the IT services players were very, very active. And as you know, they've been active for the last couple of years now.

I'm showing no further questions at this time, and I would like to turn the conference over to Mr. Rohit Kapoor for any closing remarks.

Thank you, operator. Thank you all for joining our call. We look forward to seeing you at our Investor Day here at the NASDAQ MarketSite at 10 a.m. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.