ExlService Holdings, Inc. (EXLS) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the EXL Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Jarrod, EXL's Treasurer. Please go ahead, sir.

Thank you, operator. Greetings, and thanks to everyone for joining our fourth quarter and full year 2013 conference call. I'm Jarrod Yahes, EXL's Treasurer. With us today here in New York are Rohit Kapoor, our Vice Chairman and Chief Executive Officer; and Vishal Chhibbar, Chief Financial Officer. We hope you've had the opportunity to review the fourth quarter and full year financial results press release we issued this morning. We have also updated our investor fact sheet on the Investor Relations section of our website as well as refreshed and updated our Investor Presentation, which also available on EXL's website. Some of the matters we'll 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 risks and uncertainties include, but are not limited to, general economic conditions, those factors set forth in today's press release, disclosed in the company's periodic reports and other documents filed with the SEC from time to time. EXL assumes no obligation to update the information presented on this conference call. During our call today, we may reference certain non-GAAP financial disclosures, which we believe provide useful information for investors. As you know, reconciliation of those measures to GAAP can be found in our press release. Now I'll turn the call over to Rohit, our Chief Executive Officer and Vice Chairman. Rohit?

Thank you, Jarrod. Welcome, everyone, to our fourth quarter earnings call. The agenda for this call is as follows: first, I will review our fourth quarter and full year results; second, I will discuss the new client wins we have signed since we last spoke to you and detail a few key priorities for 2014; third, I will give an overview of the current demand environment; then I will turn to Vishal for more detailed commentary on the financials; finally, we would be happy to take your questions. In the fourth quarter of 2013, EXL reported stronger-than-expected revenue and adjusted diluted EPS, driven by excellent results across all our businesses. In particular, our decision analytics business revenue grew 24% year-over-year and 19% quarter-over-quarter. In addition, our platform businesses, EXL Landa, LifePRO and Trumbull, grew well, driven largely by recent new client wins. Higher revenue with operating efficiencies drove 24% adjusted EPS growth year-over-year. Our proactive and transparent client outreach program over the last 3 months has yielded solid results. Our client relationships remain extremely strong and are proceeding as normal. And I will -- as I will detail in my comments, we have won 3 significant deals with new clients since we last spoke. In the last several months, we have proactively accelerated our document protection protocols to ensure we remain a key trusted partner for our clients. We were recently recognized to be among the top 3 companies in our sector by the NASSCOM DSCI Excellence Award for Security and were rated excellent in the Third Cyber Security Mock Drill for 2013. In the fourth quarter, we were pleased by the recognition we received from the industry analyst community. EXL was recently ranked among the top global providers for insurance BPO by research firms, including Everest Group and HfS Research. And in Everest Group's November 2013 report, Analytics Business Process Services - Deciphering the Analytics Code, EXL was recognized as the only large business process solutions provider with more than 40% of their analytics team engaged in predictive and prescriptive analytics, indicating a high level of solution sophistication. This recognition enhances our brand and we believe will lead to valuable future opportunities. Looking back on 2013, I would like to share a few highlights. First, our new client acquisition engine gathered significant momentum, particularly in the quality of the new relationships won. In 2013, we won 10 new Fortune 500 clients, up from 8 in 2012. These relationships all have great long-term potential for expansion. In total, our revenue from new clients expanded over 40% year-over-year in 2013. These data points tell us that our capabilities are increasing, our sales force is energetically communicating this to prospects and there is a healthy expansion of our relationships. Second, our 3 growth initiatives in analytics, health care and platforms performed well. Our decision analytics business grew 24% for the year, with over 60% growth in annuity-based revenues. Due to the relatively faster growth rate in annuity-based decision analytics, our revenue visibility is increasing. In 2013, annuity revenue rose to over 70% of total decision analytics revenues, up from approximately 55% in 2012. Our rapid growth in analytics is driven by increasingly sophisticated risk and marketing engagements, particularly to the banking, insurance and health care industries. Following aggressive hiring at the beginning of 2013, decision analytics revenue growth accelerated through the year as we anticipated, resulting in expanding gross margins over the course of the year. We began the year with 700 analytics professionals and ended the year with over 1,000 highly talented and technically trained individuals. We added 10 new logos in decision analytics last year and expect to accelerate this growth trajectory in 2014. Further, we have added dedicated analytics sales resources in both the U.S. and U.K., with specific competencies in insurance, health care and banking analytics. Meanwhile, our rapidly expanding healthcare business benefited from strong secular demand. U.S.-based health insurance will continue to face rising volumes, pressure to improve patient outcomes and a need to comply with massive regulatory change. They will continue to aggressively engage focus partners, such as EXL, who understand the intricacies of the health care industry to manage clinical operations for them and help them make better data-driven decisions. Our healthcare business grew close to 20% in 2013 organically and grew 87% year-over-year, including our EXL Landa acquisition. Healthcare rose to 11% of 2013 revenue from nearly nothing 4 years ago due to our focused investment and commitment to operational excellence. During 2013, we won new care management clients at EXL Landa, several new decision analytics engagements and new clinical operations management engagements with both new and existing outsourcing customers. A good portion of our health care growth has been delivered by our fast-growing Philippines geography, which is a success story in its own right. In 2013, revenue delivered from our Philippines geography grew 40% year-over-year to $43 million of revenue across over 15 solid client relationships in multiple industry verticals. And encouragingly, profitability can increase nicely in 2014, as in 2013 we scaled up new facilities and amortize some of the management investments we have made. During the year, we set up our Philippines command center, a significant upgrade to our capabilities. We now run 3 operation centers in the Philippines, one of which is URAC-accredited for complex health care clinical services. Lastly, our platform technology businesses gained traction through strong new client wins, including a major health insurer win at EXL Landa. Our platforms continue to bring differentiation to our service offerings and will play a substantial role in cross-selling going forward. Now turning to new client wins. We begin 2014 highly encouraged, first and foremost, because since we last reported, EXL signed 3 substantial multi-year outsourcing deals with new clients. Two of these deals are in insurance and one is in transportation and logistics. Each of these deals have an initial scope of several million dollars in annual contract value once implemented, and we see great opportunity to expand all of them over the next several years. These deals reemphasize our leading position in our targeted industries, particularly the insurance segment. They are a powerful endorsement of EXL's people, solutions and strategy and increase our momentum in the marketplace. In addition, in our pipeline, we have a few significant deals where we have been chosen as a finalist and are now negotiating legal contracts. I would now like to discuss a few key priorities for EXL in 2014. First, during the fourth quarter of 2013, we introduced the Business EXLerator Framework, EXL's proprietary process framework, which embeds business process automation, analytics and benchmarking into operations management. Our customers are demanding integrated end-to-end solutions, and this framework is a key asset with which to capture this demand. Our framework leverages years of industry and process management experience, volumes of industry data, proprietary analytics methodologies and a large inventory of technology-enabled automation tools, wrappers, and platforms. Our early experience in rolling out the framework has generated terrific success, delivering near-term efficiencies while also generating multiple new opportunities to manage our clients' operations. 2014 will be a key year for implementing the Business EXLerator across the many hundreds of individual business processes we manage for clients. Second, we will continue to expand our share of wallet with our largest clients. Within our top 20 clients, each of which generated over $5 million revenue in 2013, we see multiple large expansion opportunities in our pipeline. We need to focus aggressively on winning these opportunities. One key way is through cross-selling. We recently had some highly encouraging achievements in cross-selling between our EXL Landa business and our decision analytics practice and see many opportunities to grow on this success in 2014. Concurrently, we must execute on the significant opportunities at our next 75 largest clients. Each of these clients has over $1 billion in revenue, they are all large, complex organizations, many of them in our targeted verticals. These 75 accounts offer great potential for EXL, and we believe we can generate demonstrable business impact for them quickly. Third, we have recently refined our operating structure to enhance end-to-end ownership and accountability. Our new structure empowers the leaders of our key verticals and horizontals. We believe this will increase our agility, responsiveness and innovation in each of our key business lines and drive faster growth. Fourth, we will continue investing aggressively in our key growth areas. Top investment areas for 2014 include our Business EXLerator Framework, front-end resources and capability development in our decision analytics business, research and development in our EXL Landa platform and health care capabilities, incremental investment in our information life cycle management processes and our new capacity in our Kochi SEZ and Philippines geographies. And as always, we will continue to invest in our people and in our process expertise within our targeted verticals. As an example, in the last 2 months, we formalized educational partnerships with both the Association of Chartered Certified Accountants, or ACCA, and the Chartered Institute of Management Accountants, or CIMA. Both partnerships will provide our financial accounting focus employees a highly unique opportunity to advance their professional education with leading global institutions. Opportunities like these will translate into more engaged employees and more delighted customers. On this topic, in January, EXL was recognized with the Aon Hewitt Voice of the Employee Award for the IT and the ITES sector in India based on employee opinion scores, recognizing EXL's investment and people practices that attract and retain strong talent. Finally, in 2014, we will pursue strategic acquisitions to enhance our franchise but have the balance sheet flexibility to continue to buy back stock to the extent we don't find the right opportunities that meet our valuation and strategic criteria. Now turning to the demand environment. Our new business pipeline remains strong, both among potentially new clients and existing customers. We are seeing particularly strong prospects in the areas of operations management for insurance and health care, analytics engagements in banking, health care and insurance industries and platform deals in our Landa, LifePRO and Trumbull businesses. We are also encouraged to see an improving pipeline in our U.K. business, in which we have invested strongly over the past 2 years. While 2013 was a challenging year, we finished the year strong and enter 2014 with terrific momentum. I would like to offer a heartfelt thanks to all of EXL's over 22,000 employees for their truly exceptional work, both in 2013 and thus far in 2014. To close, the long-term drivers of our growth remain robust. Our strong fourth quarter performance, recent major new client wins and attractive sales pipeline reflect this. We look forward to executing on the many exciting growth opportunities ahead of us in 2014. And now, I will turn it to Vishal.

Thank you, Rohit, and thank you, everyone, for joining us this morning. For the year 2013, we delivered revenues of $478.5 million, up 8% year-over-year or 11% on a constant currency basis, slightly above our last guidance. On a constant currency basis and excluding previously announced client transitions, full year revenue grew 15% year-over-year. In 2013, we deepened our client relationships while simultaneously reducing our client concentration. In 2013, 51 clients generated more than $1 million in revenues, up from 44 in 2012. Also in 2013, no one client generated more than 10% of our total revenues versus one in 2012. Revenue for the fourth quarter of $124.1 million was up 6% year-over-year and 2% sequentially. On a constant currency basis and excluding previously announced client transitions, fourth quarter revenue grew 12% year-over-year and 3% sequentially. On a segment basis, our sourcing revenues grew 8% year-over-year in 2013 to $395 million. Excluding client transitions and a constant currency basis, 2013 revenues increased 16% year-over-year, driven by new existing client growth as well as from our EXL Landa acquisition. In the fourth quarter, our sourcing revenue grew 4.5% year-over-year on a reported basis and 12% on a constant currency basis, excluding previously announced transitioning clients. Driving year-over-year outsourcing growth in the fourth quarter was strong contributions from our platform technology businesses, the Landa, LifePRO and Trumbull, as well as some large clients in our health care and insurance operations management. Over the course of 2013, traction in our platform business accelerated, particularly in our health care vertical. We are similarly encouraged by the 3 significant outsourcing new client wins, as highlighted by Rohit earlier. Transformation services grew 10% year-over-year in 2013 to $84 million. Fourth quarter transformation services grew $24 million -- revenue of $24 million grew 10% year-over-year and 5% sequentially. Driving both year-over-year and sequential growth in the fourth quarter was decision analytics, which increased revenues 24% year-over-year and 19% sequentially. In the fourth quarter, decision analytics continued to benefit from highly sophisticated risk and marketing analytics engagement in the banking, health care and insurance industries. In fourth quarter, this business represented over 11% of our revenues. We believe decision analytics enjoys among the strongest secular growth opportunities at EXL, driven by corporate demand for data-driven insights into their businesses and a global shortage of quantitative talent. We have built a highly differentiated analytics practice in our targeted verticals, in particular in banking, insurance and health care. Gross margins increased 60 basis points in 2013 to 39.2%, driven largely by depreciation of the Indian rupee versus the U.S. dollar. Fourth quarter gross a margin of 42% was up 190 basis points year-over-year, driven by rupee depreciation, and up 90 basis points sequentially, driven by improved resource utilization in our transformation business. Fourth quarter gross margins of -- for outsourcing was 43.4%, up 190 basis points year-over-year, driven by rupee depreciation. Transformation services gross margin was at 35.7% in the fourth quarter, up 210 basis points year-over-year, due to better resource utilization, and were up 420 basis points sequentially. Transformation services gross margin increased strongly in the second half of 2013 due to productive deployment of significant advanced hires we discussed in the first half of the year. G&A costs as a percent of revenue once again declined in 2013, down 60 basis points year-over-year. EXL has delivered G&A leverage year-over-year for the past 7 years, bringing G&A down 660 basis points from 18.9% in 2006 to 12.3% in 2013. Fourth quarter G&A as a percent of revenue fell 210 basis points year-over-year to 11.7%, driven by operating leverage and cost efficiencies. Consistent with the past practice, EXL redeployed its operating leverage into growth investments. Sales and marketing costs increased in 2013 to 7.6% of revenue, up 60 basis points, driven by investment in our front-end personnel. Investing in domain experts within our targeted industries to lead our customer relationships remains one of our key long-term investments for growth. In 2013, key incremental sales and marketing investments were in building out our marketing and influencer relations team, as well as recognizing a full year of EXL Landa sales core expenses. Fourth quarter sales and marketing expenses as a percentage of revenue declined 60 basis points sequentially driven by the October anniversary of our EXL Landa acquisition. FX losses for 2013 were $5 million, up from $2.5 million in 2012, driven by rupee depreciation. Looking ahead to 2014, we expect FX losses of $2.5 million to $3.5 million at the current exchange rate of INR 62. Despite the unusual 10% rupee depreciation in 2013, we were able to protect our bottom line due to our hedging program, and we expect to continue with this program in 2014. Tax expense for 2013 was $17 million, with a tax rate of 26% for the year. In the fourth quarter, our tax rate was at 27.6%. Looking ahead to 2014, we expect our tax rate to increase year-over-year to high-20s, driven by expiry of tax holiday of some of our facilities in Philippines and India. Adjusted EBITDA for 2013 was $104 million, up 13% from $92.3 million a year before. We generated $83 million in cash flow from operations in 2013. In 2013, EXL's capital expenditure was $16 million. We built out new centers in Cebu and Manila in the Philippines and Kochi in India. In 2013, we expect capital expenditures of $22 million -- $23 million to $25 million, driven by growth investments in facilities, technology as well as some discretionary spending pertaining to our Business EXLerator Framework. Net income in 2013 was $48.1 million compared to $41.8 million in 2012, an increase of 15%. Adjusted diluted EPS for the year increased 14% year-over-year to $1.80, slightly above the top end of our most recent guidance. Our fourth quarter adjusted diluted EPS was a record $0.55 per share, up 24% year-over-year and 14% sequentially. DSO at the end of 2013 was 55 days, down from 56 days last year, driven by strong collections. Our balance sheet remains strong with approximately $154 million of cash and equivalents and short-term investments as of the year end. Acquisitions will remain a key priority for our cash. We have a strong pipeline of opportunities, which could add capabilities in our targeted verticals. During the fourth quarter, we repurchased $21 million of our stock, representing a majority of $25 million authorization, announced on November 7, 2013. We believe this investment represents a strong endorsement of our confidence and a long-term growth outlook. We would expect to quickly exhaust the remainder of our authorization in the quarter one of 2014. Now turning to guidance for 2014. Based on our current visibility and an Indian rupee to U.S. dollar exchange rate of INR 62, we are providing a revenue guidance of $480 million to $500 million. We are expecting adjusted diluted EPS of $1.70 to $1.80. As disclosed earlier, we expect the previously disclosed plan termination to transition over a period of up to 18 months. We are revising our estimated impact of this transition on our revenues for 2014 to between $12 million to $20 million on account of lower volumes. This has been factored in our 2014 revenue guidance. We also expect to incur certain internal transition costs pertaining to this transition, which are also factored in our EPS guidance. However, there may be certain reimbursements of transition and disentanglement costs of a client that we may incur in the future. We are still discussing the termination process with the disclosed clients and, as a result, at this point, cannot reasonably estimate the total amount of reimbursement we may make on this account. These potential additional costs are not factored in our revenue and EPS guidance. We will break out these reimbursements every quarter. In the month of December 2013, these costs were approximately $400,000. From an accounting perspective, because these costs are a reimbursement to clients, they are taken as a reduction in revenues similar to what we experienced in the fourth quarter. Implicit in our revenue guidance is continued strong momentum in our transformation services segment and client transition offsetting otherwise a solid growth in our BPO segment. Within transformation services, our decision analytics business should once again grow its top line over 25% year-over-year. In BPO, client transition will partially offset revenue growth from strong recent new client wins, contract expansion in our insurance, health care and travel operations and new platform technology client wins. If we were to exclude all the revenues from the 2 identifying transitioning clients, we are projecting revenue growth of 8% to 13% in 2014. In terms of trends in revenue growth, over the course of the year, as in prior years, the first quarter will remain seasonally soft, with growth picking up over the course of the year. Implicit in our adjusted EPS guidance is strong operating expense management consistent with our history, with gross margins and adjusted operating margins remaining relatively flat year-over-year. To close, we are highly encouraged by our strong fourth quarter performance and recent large new client wins. We are excited to leverage our strong market position and continue to take advantage of the robust secular growth prospects in our industry. Now we would be happy to take your questions. Thanks.

[Operator Instructions] And our first question comes from Dave Koning from Baird. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: I guess, first of all, I just want to make sure on Q4, maybe you can outline the impacts -- you gave the 12% underlying growth, but could you give the dollar impact just of OPI client transition impacts, I guess, year-over-year, then how much Landa revenue was in Q4 and then the FX impact? So those 3 just in Q4, what the revenue impacts were.

So if you're trying to get to the organic growth in Q4, is that it, Dave? Is that what you're trying to do? David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Yes.

Yes. So organic growth in Q4 over Q4 '12 is about -- excluding the client transitions from the OPI clients and on a constant currency basis is about 8.7% or about 9%. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Got you, okay. So Landa was about 3% to the quarter?

Correct. Landa was about 3%. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Got you. Okay, great. And then when we look into 2014, I guess, the -- you gave the impact of the client loss of $12 million to $20 million, so that's about 3% to 4%. Would you expect the other 5% to 6% then to impact 2015 basically to come out of 2015?

Yes. So there are 2 factors which are impacting the balance. One is the foreign exchange, which is about 1.5% to 2%. And also, the other client will be the balance contributor.

Look, Dave, this is Rohit, I think if you're talking about the client that is transitioning out, we expect that transition to take place over a period of up to 18 months. And in 2014, the impact is estimated to be between $12 million and $20 million and the balance impact will be in 2015. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Yes. Okay, that definitely make sense. And I guess, finally, a couple of other small ones. I guess what's the OPI impact that you expect now in 2014?

The transition impact from the OPI client would be about 3%. 2.5% to 3%. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Okay. So no real change there?

Yes. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: And then last, are there any -- other than the finishing up the buyback in Q1, is there any kind of thought on doing more buybacks, and anything else in guidance or is guidance just inclusive of kind of finishing up the current plan in Q1?

Dave, our current authorization is for $25 million, of which we have executed on a stock buyback of $21 million. We will remain flexible in terms of how to use our capital and we remain committed to doing acquisitions. And doing stock buybacks if -- that's a much more appropriate use of our cash balance.

And our next question comes from Joseph Foresi from Janney capital markets.

I was wondering if you could give us some idea on what you think the margin profile is going to look like as the client starts to transition over the next 12 to 18 months?

Joe, this is Rohit. As you know, we do not disclose client profitability and we will not be discussing the client profitability of any client.

But Joe, as I mentioned in my prepared remarks, the margin profile for our portfolio, for the company as a whole, we would expect to be similar as what we have in 2013.

Okay. And -- okay. And then just on the environment, the large deal signings, obviously, are encouraging, and it sounded like you thought the demand environment was getting better. What has changed in the environment and how are the negotiations with the new and present client base with the large client transition taking place?

Sure. So Joe, our view of this is that the demand has been strong throughout. It isn't necessarily that the demand has increased or decreased. I think it's been fairly stable. What has changed is the signing up of new clients. And for us, that is something which has all got bunched up together. And despite us signing up some new clients, I think the maturity of our pipeline remains strong and the volume of our pipeline remains strong. So for us, it continues to feel like these are long tailed sales cycles and sometimes the signing up of clients can be a bit lumpy. And that's certainly something which we have experienced in 2013. And for us, some of the large client wins signings got bunched up into the fourth quarter of last year.

Got it, okay. Last question for me, do you think that there's been any change in the core industry growth rate? And are you experiencing any changes in the competitive environment?

So I think in terms of the long term growth rate of this industry, we continue to remain very, very bullish about it. There are a few factors which continue to impact this industry. Number one is whenever there is currency depreciation, I think the reported currency growth rate is going to reduce because of the normalization of the currency impact. There's also a continued focus in this industry to maintain a blend of captives versus third-party operations, and I think that continues. But the underlying fundamental secular demand for these services continues to remain strong, and I think participants like EXL continue to benefit from it. The nature of competition certainly changed a few years back but, in the recent past, there hasn't been any further change to it. And I think, again, EXL certainly has learned how to deal with the new competition that came in and we feel very confident of our ability to win our fair share of business in this market environment.

And our next question comes from Ashwin Shirvaikar from Citi.

So I guess, my question is at the midpoint of the range, we are looking for, looks like roughly, let's call it, 3% growth and you said sticking margins, and there's a buyback that you've done which should be beneficial to EPS. So I'm kind of looking for the offset that's taking EPS back down.

Ashwin, this is Vishal. I think the offset will be -- points you highlighted are 3 factors. One is, as I mentioned, our tax rate will be going up year-over-year. That will impact our EPS. Number two, we talked about that there are certain transitioning costs which we are -- already factored into our -- this year's EPS guidance. And number three, there is the change of our portfolio mix due to the transitioning clients, which will also impact our overall bottom line number.

And our next question comes from Jason Kupferberg from Jefferies.

I just wanted to talk a little bit about the employees who are currently assigned to the big contract that's de-converting. I think it's upwards of 2,000 or so. Can you just talk a little bit about operationally, how you're planning to have those folks reassigned? Obviously, you want to try to manage your utilization as well as possible. And do you expect to have to take any standalone charges related to the contract de-conversion, either this year or next?

Yes, Jason. We continue to work with our clients in terms of managing the transition. On our part, we continue to grow our business very well with our other clients. And I think, for us, the opportunity to redeploy the resources is strong. We've chosen to continue to build on the people resources and the talent that we have within the organization. And we'll do whatever is the most appropriate action for our employees and for our company and for our clients. So we continue to be on that part. There's nothing more specific that I could share with you on that.

Okay. But I guess, just directionally, we should probably expect to see overall utilization come down this year? Is that fair or is that not necessarily the case?

That could be a possibility, there could be a transition that might be involved. But it's not going to be something which is very significant or very material.

Okay, that's helpful. And then just turning to the new business angle, obviously, encouraging to hear some of the new wins. And then I think you indicated that in 2013, your percent of revenues or the growth in revenues from new clients, I think you said was up about 40%. Based on what you see in terms of these newer wins ramping, what type of growth rate is -- could we potentially see from new clients in 2014?

So our expectation is that we will continue to see a stable to an increasing contribution from new clients because we've already signed up a few significant large clients towards the end of 2013. We would expect our outsourcing revenues coming from new clients to increase significantly year-over-year. And then for our platform businesses and for our transformation business, those are more project-based pieces, and we'll see how the year progresses and we'll be able to provide more color on that.

[Operator Instructions] And our next question comes from Manish Hemrajani from Oppenheimer.

This is Kunal Doctor on behalf of Manish. Okay, how should we see hiring, basically, employee erosion in 2014, and what utilization rate you are targeting right now?

Kunal, this is Rohit. We typically do not target a utilization rate for our employees. What we do is, for our operations management or outsourcing business, typically, our clients will sign up with adequate lead times and the hiring is done in accordance with those lead times, and it's pretty much just-in-time hiring that takes place. For our transformation business, particularly for decision analytics, we will do campus recruitments once a year where we make significant investments in hiring. But the numbers there are meaningfully smaller and, typically, we will hire anywhere between 300 to 400 graduates from colleges in India to bulk up our pool of talent in the analytics business. But other than that, we really don't plan for any utilization rate of our employees.

All right. And what percentage of wage hikes should we expect in 2014?

We haven't actually gone ahead with that cycle right now. So we -- the implementation of that cycle typically for us is on 1st of April, and that will determine it. Based on everything that we're seeing with our -- the industry, the marketplace, the geography, our competitors, we think the wage hikes this year will be comparable to the ones that we saw last year.

All right. And just last one, what -- how many more new clients would it take to reach to the top end of the guidance?

I think the top end of the guidance factors in growth from the clients that we've signed up, growth from existing clients and some new clients to be brought in. I think for us, typically, we factor a very small number of revenue from additional new clients who are unknown to us at this point of time. So it's always a relatively small number that is there. The big difference is going to be how our existing clients scale up and how our clients that we've signed up -- and the pace of ramp with those.

And our next question comes from David Grossman from Stifel. David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division: Sorry, I hopped on a few minutes late. So I just wanted to clarify a couple of quick points. First is on the 8% to 13%, I think it was organic constant currency growth for 2014. That was x the transitions from both OPI and the other major customer, is that -- did I get that right?

David, that's correct. David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And in terms of the runoff then, if you're assuming, I think the number was down a little bit, $12 million to $20 million, for the de-conversion in '14, does that imply then you would lose another $12 million to $20 million in '15 as well?

Yes, David, the expectation would be that the balance revenue would be declining down to zero in 2015 because, basically, we expect the transition to be completed in a period of up to 18 months. David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division: Right. So Rohit, do you expect to get close to that run rate by the end of this year or do you think it's going to be a fairly linear runoff based on what you're seeing right now?

We are quite unsure of how that might play out and have no real estimate on that, David. David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then, Rohit, you talked about some changes in your go-to-market strategy or, I guess, an evolution of that strategy. And I was just curious, have there been any kind of incremental personnel added to facilitate those changes or is it really just reorganizing the existing sales and marketing function?

So for us, we've basically reorganized the existing team. There are a few areas that we have made conscious investments in. In our healthcare business, we've added on, as you know, a Chief Medical Officer. We're now on the process of bringing on a Chief Actuary for our healthcare business. In our analytics business, we've been hiring dedicated sales and engagement managers dedicated to analytics sales, and we've been doing that for the last couple of years and we continue to make additions out there. So we keep making investments that will make us better domain experts in the areas that we are serving our clients. David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then just perhaps, Vishal, on some of the below the line pro forma adjustments. What should -- how should stock-based comp trend in '14 versus '13?

I think the stock comp would remain more or less the same as 2013 in terms of as a percentage of revenues. David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And just to make sure I got the numbers right, was it about $12 million in 2013?

Yes.

And our next question comes from Puneet Jain from JPMorgan.

This is Puneet from [indiscernible]. Rohit, you talked about this -- you have talked about return on outsourcing in the past and some of your peers also talk about measuring value to clients from outsourcing beyond cost arbitrage. Could you talk about how your new EXLerator Framework is different and how it could help clients -- how it could change clients' perception towards outsourcing?

Sure, Puneet, and thanks for asking that question. In 2013, our return on outsourcing was at 30%. This was above our target and above the level that we were able to achieve in 2012, which was closer to 20%. The Business EXLerator framework allows us to provide significant additional business impact to our customers. And particularly, for new clients that we are starting out or for new processes that we are undertaking, it allows us to be able to provide a return, which could be up to 5x what we might have been able to provide traditionally. And therefore, the opportunity for us to engage with clients on an end-to-end basis and provide them with a significant amount of impact upfront in our journey and our relationship is very significant. So we do think that that's going to be a differentiating factor for us as we go forward.

Understood. Great to see 3 significant wins. Could you talk about regional mix of those deals? And what are you doing in Europe to expand business there?

Sure. For us, the 3 wins have actually been in the U.S. However, as we mentioned in our call, we have a couple of clients where we are now finalizing legal contracts with, and some of those clients are in the U.K.

And last one from me. Sales and marketing was 7.6% of revenue in 2013. So is that at a place where you would like it to be or does it have potential to go up higher?

We actually think that that's an appropriate level of investment on our front end. And while there might be some changes within the mix that we deploy, we think, in percentage of our revenue, it's at an appropriate level.

And I'm not showing any further questions. I would now like to turn the call back to CEO, Rohit Kapoor, for any further remarks.

Thank you, operator, and thank you, everyone, for joining our call. We seem to have exited 2013 very strongly and are very excited about 2014. We look forward to working with our clients and continuing to deliver value to them and building and growing our business. We look forward to you joining us on the call for the next quarter, sometime after the end of the first quarter. Thank you very much.

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