Good day, ladies and gentlemen and welcome to the ExlService Holdings' Second Quarter 2015 Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. I would now like to turn the call over to your host for today's conference Mr. Steven Barlow, Vice President of Investor Relations. Sir, you may begin.

Thank you, Bridgett. Hello and thanks to everyone for joining EXL's second quarter 2015 financial results conference call. With us today in New York are Rohit Kapoor, our Vice Chairman and Chief Executive Officer and Vishal Chhibbar, our Chief Financial Officer. We hope that you had an opportunity to review our quarterly press release we issued this morning. We've also updated our investor fact sheet in the Investor Relations section of EXL's website. As you know, some of the matters we’ll discuss in this call this morning 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 forward 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. EXLS assumes no obligation 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 these measures to GAAP can be found on our press release, as well as the investor fact sheet. I'll now turn the call over to Rohit, EXLS Chief Executive Officer. Rohit?

Thank you Steve. Good morning and welcome to our second quarter 2015 earnings call. 2015 is shaping up to be a very good year for EXL, as we delivered excellent results for the second quarter and continued to build on the momentum from the first quarter. I am particularly pleased that our second quarter performance was broad based and that we have made good progress on the execution of our five key strategic priorities. In the second quarter, we delivered revenues of $155.6 million, representing a year-on-year growth of 26% excluding reimbursement of disentanglement cost on a constant currency basis. This is our highest growth rate over the past 12 quarters. On a year-on-year basis, excluding disentanglement cost and transitioning clients, our organic revenues grew a healthy 14.2% on a constant currency basis. We continue to accelerate growth in our operations management business, with revenues growing 12% organically on a constant currency basis, excluding transitioning clients and disentanglement cost. Analytics and business transformation had another terrific quarter and revenues grew organically by 21.6% year-over-year on a constant currency basis excluding transitioning clients. The growth was 71.7% including acquisitions on a constant currency basis. I would now like to share the progress we have made on our strategic priorities for 2015. To recap, EXL’s five strategic priorities that I had shared with you last quarter were: number one, win strategic deals across our chosen domains, leveraging the business EXLerator Framework and our differentiated Business Process as a Service i.e. BPaaS solutions. Number two, strengthen our leadership position in analytics and accelerate growth in healthcare. Number three, successfully integrate our new acquisitions. Number four, diversify our geographic footprint to help support the global expansion of our clients operations; and number five, expand our margins and improve profitability. First, we continue to win…

Thank you Rohit and thanks everyone for joining us this morning. Unless otherwise stated, all 2014 amounts mentioned are excluding disentanglement costs for our transitioning clients which were fully accounted for in 2014. There are no disentanglement costs in 2015. In the second quarter, EXL reported revenues of 155.6 million, up 24% year-over-year or 26% on a constant currency basis. Organically, revenue was up 14.2% year-over-year on a constant currency basis excluding transitioning clients. Sequentially, we grew 8.7% on a constant currency basis. EXL’s revenue growth was broad based across all business segments. Operations management revenues grew 14.3% year-over-year on a constant currency basis including impact of an acquisition. Organically, revenues were up 12% year-over-year on a constant currency basis excluding transitioning clients. This organic revenue growth coupled with tailwind from the impact of the acquisition offset the headwind of approximately 13.5 million from transitioning clients in 2014. Sequentially operation environment revenues increased 2.3% organically on a constant currency basis. Analytics and business transformation revenues grew 71.7% year-over-year on a constant currency basis including the impact of acquisitions. Organically, the segment grew 21.6% year-over-year on a constant currency basis, excluding transitioning clients. Sequentially, analytics and business transformation revenues increased 2.7% organically on a constant currency basis. The core analytics business revenues grew 38.2% year-over-year on a constant currency basis, excluding transitioning clients. Such analytics revenue achievement marks the sixth quarter in a row where revenues have grown more than 35% year-over-year. The revenue growth was led by banking and financial services clients, increases in healthcare and insurance. Sequentially, analytics revenue grew 9.1% organically on a constant currency basis. For the first of 2015, EXL revenues increase d by 19.8% to $299.1 million from $249.7 million, and grew 21.2% on constant currency basis. Our organic constant currency revenue grew excluding transitioning…

[Operator Instructions] Our first question is from the Joseph Foresi with Janney. Your line is open.

My first question here is just on the deal announcements. It sounds like you are seeing a lot of large deals, may be you could talk about what’s causing those to come back in to the market and if so why now.

Yes, we are seeing a strong demand for our services in the market place and we are seeing substantial deals coming in to the pipeline. I think the primary driver of that is two-fold; number one, the model is working and clients are seeing the benefit of using operations management and outsourcing analytical capabilities and business transformation with providers like EXL. And number two, they are looking at optimizing their cost structure because the opportunities for increasing their revenues are fairly limited. So we are seeing more and more companies rationalizing their cost structure and optimizing their cost structure in this environment. I would imagine that there continues to be more consolidation. That activity will continue to keep pace with the market.

Okay. And then in the past the way the BPO model has worked is when you see larger deals you have to take on some cost associated with those and there’s a delay in margin expansion, but clearly it sounds like you’ve got margins going in the right direction. So maybe you could just explain how you are going to balance those two going forward?

Absolutely. I think we are in the cycle right now where we’ve won a number of new clients going back to the second half of 2014. We started to implement and execute on those in the first half of 2015, and they are going to continue to ramp up in the second half of 2015. And at the same time we are adding on new clients. So as the older new clients mature in their relationships with us and in their journeys with us, we’ll be able to get better margins on those client relationships, while at the same time investing in taking on new client relationships that we are signing up right now, and therefore there seems to be a good balance between how our older generation new clients are maturing and some of the new clients that we are signing up. We are also investing in creating new capabilities in multiple new geographies, and like Vishal mentioned, we are investing in South Africa and in Colombia and that’s also a drag on our margins, but we feel confident about the margin improvement plan that we’ve put in to place for the last 9-months or so, and that’s giving us good results.

Got it, and last one from me. Could you just talk about the pipeline going forward, I know you mentioned in your remarks that it was getting better. And the deals that you are seeing are they people who are or companies that are new to outsourcing or are they takeaways. Thanks.

Yea, Joe I think the pipeline continues to be attractive. I think what we are encouraged by is that the pipeline is much more broad based; it’s across multiple industries and across multiple geographies. So that for us is a very good indicator of the demand pipeline. I think the size of the deal is become a bit larger and that’s great, and we think we are well positioned to be able to participate in this growth cycle.

And our next question comes from Anil Doradla with William Blair. Your line is open. [Operator Instructions].

Hey guys congrats on the great result and the outlook for the year. Couple of questions, Rohit, clearly analytics is witnessing and pretty good, now granted you are benefiting some from your recent acquisitions too. If I recall at the analyst day you were talking about getting to about 20% of revenues over a certain amount of time, clearly, you are getting close to that. So when you look at 2017-2018, how do you look at the composition of the company, I know it’s a little longer term, but is analytics going to be part of 30% to 40% of your business or do you think it would be even higher.

For us, the way we’ve thought about our business model in the long range is that we’d like to have analytics be a strong part of our business, and we had put a marker out there of it representing at least 20% of our total revenues, and we seemed to have achieved that in the second quarter of 2015. As we continue to grow at a much faster pace in analytics, we do think that that percentage can shift to a higher number, however, please keep in mind that we will be doing acquisitions as we go forward, and our view point is that it will probably be easier for us to do acquisitions in the operations management business segment and acquisitions in analytics are going to be somewhat at a slower pace I would imagine. So depending on the balance of how we do acquisitions and in which segment we do those acquisitions, the percentage weightage of the analytics business to our overall portfolio can change. So it’s difficult to give you an estimate of where we will be in 2017 on analytics. Certainly if analytics starts to represents a larger percentage of our business, we would be thrilled with that and we’ll continue to make more progress on that. But as I said as we expand geographically, as we think about other acquisitions and capabilities to be acquired in operations management, analytics may continue to be closer to 20% of our business.

Great. And Rohit can you talk about the visibility in your business, because clearly you’ve got analytics as a bigger composition. Does that reduce the overall visibility for the year, or does that improve the visibility for the year given that when you have operations management, I mean the longevity and the yearly visibility may be slightly better than what you have on the analytics.

Sure. So on the visibility front, I think the way we think about it is our operations management business is largely annuity based, and we have strong visibility in to our current year forecast and future year forecast. The analytics business for us, two-thirds of that business on an annuity basis and one-third of that business is on a project basis. So the visibility is much stronger on the annuity side. And then for the transformation business, that is largely on a project basis. So as we continue to increase the percentage contribution of analytics and business transformation, there will be a slight reduction in our visibility. And at the same time keep in mind that our BPaaS solution, that’s something which is going to be volume driven and it’s going to be much more stickier. So it’s going to provide us with, hopefully once we have size and scale achieved in BPaaS, much better visibility in to our numbers there. So an overall basis we think the visibility and the confidence level in to our future revenue streams is still going to be high, and certainly for 2015, our visibility in to our numbers is very high.

And if you don’t mind me speaking one final one, given that the overall demand environment in this industry seems to be improving, there’s more willingness for clients to use companies like yours. What is the impact of that outlook having on inflationary pressures on salaries? Employees see that there are more opportunities; they can switch jobs, are you seeing that impacts of the improving microenvironment percolating down to employee salaries and inflationary pressures.

Anil I don’t think we are seeing as yet; however, we are concerned about the attrition rates, and the attrition rate in the second quarter certainly inched up for us and for the market also it seems to have inched up as well. And as we get stronger growth in our industry and in our businesses, I would imagine that managing attrition will become an even higher priority. And so that’s something which we are going to be focusing on. I think the inflationary wage inflation pressure continue to be stable and I think also the pricing environment continues to be stable.

And our next question is from Frank Atkins with SunTrust. Your line is open.

In your prepared remarks you talked about healthcare M&A as an opportunity. Could you outline kind of what areas do you think will be affected most by this and have you seen this affect in the past, and just any color you could give on the - the [sectors] there.

Sure. So what we mentioned in the prepared remarks is that there is a consolidation taking place in the healthcare industry amongst peers and amongst providers. As that consolidation takes place, there certainly will be opportunities to create larger and stronger relationships with these entities and as they think about cost optimization and innovation. I think companies like EXL will benefit strongly from that consequence. We think we’ve got a good positioning in the healthcare space, where we are doing work with a multitude of peers and providers, and therefore it really does not matter as to whose acquiring whom, because we’ve got relationships that have been built up with both sides, and we think the movement towards utilizing clinical offshore outsourcing in healthcare, looking at population health management, looking at payment integrity solutions, these are areas that clients will continue to use us for.

And I also wanted to get any clients feedback on the LifePRO release, initial thoughts and how that’s going?

Yeah, I think the LifePRO release has gone off really well. We are seeing, our clients are responding favorably to that release being put out. We are also seeing a fair amount of new business traction for LifePRO with a number of new clients that are coming in to the pipeline. So for us that’s a business that we want to continue to invest in and make sure that we stay innovative and stay ahead of the curve. And I think the initial results that we are seeing from our clients there is very positive and we continue to see growth in that business.

And our next question is from Ashwin Shirvaikar with Citi. Your line is open.

My first question is with regards to the payer provider industry consolidation that you mentioned, and I completely agree that the longer term once the consolidation happens and its completed, is a positive story. But are you seeing any sign of near term work stoppages or any kind of pressure while these companies internally grapple with what the ongoing strategy is while they await regulatory approval or things like that. Can you comment on that?

Yes Ashwin. I think what we are seeing is where we’ve got established relationships the pace of activity continues to be fairly normal, but where clients on the cusp of decision making and on the cusp of deciding who to partner with and who to go with, there the programs do get held up till the time the consolidation activity is actually consummated. So we do see that in certain situations clients will hold back their decision till the closing takes place.

And your guidance obviously takes in to account these sorts of eventuality, they are imagined, right?

That’s correct.

At the investor day you had mentioned on margins and the long term margin trajectory going to the upper teens and so on. And since then it looks like you guys have done some internal work with regards to how to get there. Could you share any further granular comments with regards to what are going to be the biggest things you can do with regards to setting up a multi-year trajectory to get to significantly higher margins than today?

Hi Ashwin, this is Vishal. I think you are right and Rohit alluded that in his prepared remarks also that we are looking at multiple levels for improving the margins on a sustainable basis over the long term. The levels we are going to use are number one, we are going to look at price optimization in areas where we think there is a potential to increase price. And that’s something which we’ve already experienced. Number two, we are looking at our cost structure in terms of our operations delivery across businesses and also improving our utilization in analytics and business transformation businesses. Some of that benefit you’ve seen coming through our numbers in this quarter and we think that it will continue to happen over a longer period, as we continue to optimize the business models of delivery. Number three, some of our acquisitions which have been a little bit of a drag, we think that as we integrate well with them, there would be opportunity to improve the margins from the time when we acquired those businesses. And over a longer period we should be able to gradually improve that. And number four, on our SG&A front, I think there is opportunity to continue providing the operating leverage as we grow and have economies of scale and there also we are looking at doing more internal benchmarking and improving our productivity. So those levels will help us to have a continued, sustained, adjusted operating margin improvement profile over the longer run.

That’s great. I think it’s healthy, but having [said] - and industry have sort of similar looking modules. On question if I can sneak in, what’s the go-forward FX impact that you were assuming for the rest of the year?

So we assume the FX rate of 64 to dollar right now for the rest of the year. I think for the first half, as you can see, we had a year-over-year impact of about 220 basis points, but if the rupee remains stable at 64 I think that’s what our guidance is based on as of now.

And our next question is from S.K. Prasad Borra with Goldman Sachs. Your line is open.

This Jordan Fox on for SK. Just a quick one from our side; I was wondering whether you can provide an update on cross-selling opportunities, how those are trending with regards latest acquisitions.

Sure Jordan. I think the cross-selling is pretty much underway. Right now what we can see is that the pipeline for cross-selling activities is actually quite robust. We are seeing a lot of traction for RPM Direct’s capabilities for customer acquisition and we’ve taken that to a number of our clients in insurance and in healthcare, and we’ve got a very strong pipeline associated with that. There is also opportunity for us to cross-sell operations management services to our clients in Overland Solutions, and that’s something which we have started to build up upon. And lastly with Blue Slate, we are not only doing a cross-sell, but we are also integrating their blue print methodologies along with the business EXLerator Framework and that’s creating a much better business outcome for our clients, and that’s seems to be resonating quite nicely as well. So I think it’s still early for us to claim victory on the cross-sell, but the pipeline for cross-selling to existing clients would be new capabilities that we have acquired through the acquisitions, seems to be in a good place.

Okay, that’s helpful. And just a follow-up, what portion of your customer base is still taking the full [suite] of BPO solutions, and then versus the customer base that just rely on more analytics revenue. Thank you.

We’ve got a number of our operations management clients which typically will use the full breadth of our services in finance and accounting, in analytics and in business transformation. And the penetration rate for us to cross-sell these services to our clients in operations management are very high and it’s very strong. I would say it’s somewhere in the neighborhood of 90% or so. On the flipside, the clients that we have in analytics or in RPB Direct there we haven’t yet cross sold fully the operations management services and there’s a better opportunity for us to be able to do so. And we use these relationships with a single line of service and we are looking to expand that to multiple lines of service and we think we’ll be able to achieve that over the next couple of years.

And our next question is from David Koning with Baird. Your line is open.

Hey guys great job. I guess my first question, just looking at analytics there has been a great growth pattern in a very sequential like steady, sequential improvement, obviously this quarter much bigger with the acquisition. But basically I am wondering is that almost a 100% recurring revenue so that you know every quarter that you’re going to get the base business to continue plus you are layering on new revenue, so we should just have a nice dare step function going forward of just steady sequential growth, or what is the potential for lumpiness. We’ve just seen so much steady pattern that I am just wondering is that just continually sustainable sequential growth.

I think for us in the analytics business, we think about the life cycle of a customer journey in analytics as initially starting out with a small project, then expanding to a much larger project and then over a period of time converting over in to an annuity format. So for us what’s really important is, number one, to sign up new logos, have high customer satisfaction and therefore broad base our relationship with these clients, and then eventually switch over to an annuity format which provides the client the benefit of a lower cost (inaudible) a much more predictable business outcome. And as long as that journey continues to be on track, we think the growth in the analytics business is going to be pretty solid and pretty predictable. So right now we are seeing broad acceptance of us being able to sign up new clients and convert them over from a project to an annuity based format and that model seems to be working nicely, and that gives us confidence that this is going to be a sustainable growth story for us.

And what potential right now - it’s about two-thirds, you said two-thirds annuity base. So mostly recurring originally?

That’s right. And you know what happens is, once a client converts over in to an annuity format then the scaling up is much more rapid and much easier.

Yeah, okay. And then just on the overall business, how much growth is from existing clients, I know that’s historically been where a lot of your growth is, and how much from new, and has that changed in all the last couple of years and do you expect it to change much over the next few years, just that mix.

It’s true, but for us in any given calendar year the growth from existing clients is almost 80% to 90% of the total growth, and only 10% to 20% of the growth comes in from new clients. But it also depends on the type of new clients that you sign up and the kind of growths that that will generate in the following subsequent year. And typically what we see is that when we sign up large strategic clients, they will start out small with us in year one, but then in year two their revenues are three to five times the revenue in year one, and then year three, they can be 10 to 15 times revenue of year one. So that’s scaling up effect really takes place over a multi-year period and not over a single year, and therefore I think the right metric to look at is the type of client relationships that we are signing up and how they are scaling up and their potential to scale up in future and subsequent years.

Also Rohit just to add to that, we do have much larger client base now with the acquisitions. As was earlier asked, a question about the cross-sell, I think the opportunity to cross-sell to our existing client base because we have over 600 plus clients now. That also changes the equation between existing clients and new client percentages.

And our next question is from the Puneet Jain with JPMorgan. Your line is open.

Vishal what’s been like the margin impact of some of the recent acquisitions you have done this year and what will be the prime drivers of expansion in second half.

So as I have said earlier, the RPM acquisition actually has same margin profile as the EXL in terms of the corporate gross margin. RPM so has a neutral impact. Overland Solutions is where we have mid-20s gross margin profile, and in the first half that had impact of about 100 basis points or negative to the gross margin. But as we go forward, as I had outlined earlier, we would continue to look at expanding margins in our analytics and transformation business. Our operations management business, we will have productivity again, and we think based on our operating leverage on the SG&A side, we should be able to expand in the second half, getting to a full year adjusted operating margin of 14.2% to 14.4%.

And how does your analytics business compare with similar businesses at peers or private companies that are out there in terms of capabilities, ability to hire in colleges.

So Puneet for us our ability to hire from senior colleges in India and in the US is actually very, very strong. We’ve just completed the recruitment cycle for this year and we’ve hired close to 350 new associates in our analytics practice that will be joining us in the third quarter. Our hiring position in each of these colleges is a day zero or a day one company positioning. So we get to or take a look at everybody that is applying for jobs and we have placed very well as compared to other companies that participate out here. I would say that from a capability standpoint, we are actually building up our capabilities in analytics and that seems to be the big driver of the growth rate for the business as such, and we seem to be outpacing the growth rate of many of our competitors and growing much faster than them. So that capability is clearly coming through. From a margin perspective, our analytics business still has potential to improve its margin, and that is going to be one of levers that we will be focused on as we try to create greater margin in this business over the next couple of years.

Understood. Last one quickly, how much cash was in the US at the end of the second quarter and what’s your view on current leverage?

So we all over total cash position nearly about 35%-36% is in US, about 50% plus is in India and the rest in the rest of the world geographies. And we think in terms usage, we’ll continue with our share buyback program and opportunistically as we’ve already stated look at M&A opportunities. And in terms of leverage, right now our revolver is at $70 million. The total line we have is about $100 million. So if required we can always raise that revolver line and also if it’s a smaller acquisition extend it up to the $100 million revolver line already in place.

And our next question is from Vincent Colicchio with Barrington. Your line is open.

Does the company have any particularly large contracts that will come up for renewal in the second half that we should know about?

No there is nothing that which is out of the ordinary in terms of planned renewal, it’s a normal renewal cycle that we have. And particularly as we have scaled up our business and as we have diversified our client base, now the risk of that client renewal has diminished very significantly.

And Vishal, what was the revenue contribution of acquisitions in the quarter? Sorry, if you said that I missed it.

No, okay. For the second quarter RPM contributed about $10 million, Overland had a contribution of about $17 million, and RPM and Blue Slate from a year-over-year basis had a contribution of $2.5 million (inaudible) $30 million.

[Operator Instructions] And I’m not showing any further questions. Go ahead; please proceed with any further comments.

I just want to thank everyone for joining this call. I think EXL had a great second quarter and a first half. We look forward to executing on the second half of the year. I think for us the story is basically about growth and improving our margins and we are really excited about that. We look forward to talking to you again at the end of the third quarter. Thank you so much.