Steven N. Barlow - ExlService Holdings, Inc.

Rohit Kapoor - ExlService Holdings, Inc. Vishal Chhibbar - ExlService Holdings, Inc.

Edward S. Caso - Wells Fargo Securities LLC Ashwin Shirvaikar - Citigroup Global Markets, Inc.

Joseph Foresi - Cantor Fitzgerald Securities Maggie Nolan - William Blair & Co. LLC Bryan C.

Bergin - Cowen & Co. LLC Frank C.

Atkins - SunTrust Robinson Humphrey, Inc. Mayank Tandon - Needham & Co.

LLC Puneet Jain - JPMorgan Securities LLC Vincent A. Colicchio - Barrington Research Associates, Inc.

David Michael Grossman - Stifel, Nicolaus & Co., Inc.

Thank you, Victor. Hello and thanks to everyone for joining EXL's first quarter 2018 financial results conference call.

I'm Steve Barlow, EXL's Vice President of Investor Relations. With us today in New York, Rohit Kapoor, our Vice Chairman and Chief Executive Officer; and Vishal Chhibbar, our Chief Financial Officer.

We hope that you've had an opportunity to review the two press releases we issued this morning, the first was our first quarter earnings release and the second was the announcement of our acquisition of SCIO Health Analytics. We've also updated our Investor Fact Sheet in the Investor Relations section of our website.

As you know, 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, discussed in the company's periodic reports and other documents filed with the Securities and Exchange Commission from time to time. EXL assumes no obligation to update the information presented on this 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 Kapoor, EXL's Chief Executive Officer. Rohit?

Thank you, Steve. Good morning, everyone, and welcome to our first quarter 2018 earnings call.

It has been an exciting start to the year for EXL. In the first quarter, we reported revenues of $207 million, representing 13.1% year-on-year growth on a reported basis, and an adjusted EPS of $0.64.

Our growth was driven by expansions from existing clients and ramp-ups from large deals that we won last year. This gives us confidence in our outlook for the year.

While I'm happy with the results for the first quarter, I'm even more excited to share two bold moves that will have a deep impact on EXL's future business trajectory; one, our strategy and positioning on digital; and two, the acquisition of SCIO Health Analytics. As you're all aware, the world is consumed with digital.

Digital strategies have been deployed, digital investments have been made, the digital hype marches on relentlessly. Yet, the promise of digital is not met.

We have been working over the past few months to identify why this is the case and what can be done differently. We believe that what has been missing in the market is what we call digital intelligence.

What is digital intelligence? Digital intelligence is about creating context, orchestration and driving business outcomes.

Digital intelligence is about context, the intersection of domain and data. Many of our competitors focus extensively on data and technology.

Some of our competitors are not as advanced in analytics, but are focused solely on domain. Our heritage in building strong and focused domain capability, coupled with our leadership in analytics, helps us hone in on the intersection of domain and data to create context.

The creation of context is critical to digital success. Digital intelligence is about orchestration.

A successful digital implementation requires the orchestration of multiple new digital technologies, harnessing of market leading partnerships, and leveraging experienced teams in the right combination. Without bringing these together in a coordinated format, any digital implementation will not deliver the optimal business outcome.

Digital intelligence is about delivering outcomes. Successful digital transformation starts with outcomes and not with technology implementation.

Our strength in analytics and our experience in working across the complete value chain of our clients positions us to commit and deliver outcomes. As a part of delivering digital intelligence success for our clients, we continue to invest in building our digital solutions suite, including our digital EXLerator Framework, digital innovation labs, and our digital platforms.

Across all our client industries, we have several examples of the implementation of digital intelligence where the orchestration of domain, data and digital technology has delivered real tangible results. A clear example of broad-basing our digital intelligence is our acquisition of SCIO Health Analytics.

SCIO's use of integrated healthcare data, proprietary analytics, innovative technologies and flexible delivery methodologies transform data into actionable insights and deliver proven outcomes. SCIO represents the largest acquisition in our history and we are truly excited about what it means for both EXL and for our clients.

First, this acquisition will expand our capabilities in an extremely important area for the healthcare industry. Payment integrity is a suite of solutions to eliminate fraud, waste and abuse, which accounts for more than $400 billion paid by health plans each year.

Second, SCIO's capabilities extend beyond payment integrity into broader clinical cost management and revenue management solutions. SCIO addresses revenue and cost-related functions that have historically been hindered by fragmented data and isolated analytics.

By combining domain and analytic capabilities, SCIO helps healthcare clients to manage margins at an enterprise level, which is increasingly important for an industry moving towards value-based payments. Third, SCIO has a strong client base that aligns well with our strategic account focus.

SCIO provides us entry points into new buying centers within leading health insurers and other risk-bearing entities. Together, our combined synergies and innovation in end-to-end cost recovery, care management and population risk management will enable us to develop powerful new solutions for our clients.

At the same time, the combined value proposition of both firms has the potential to be applied to revenue optimization and clinical cost management across multiple industry verticals. Fourth, combining SCIO's talented global team of 1,100 analytics and health professionals to our 2,000-plus clinicians and 3,000-plus data scientists and analytics worldwide significantly increases our ability to meet the needs of our clients at scale.

Finally, there is a strong cultural alignment and an entrepreneurial spirit shared by both our companies. In today's rapidly changing business environment, speed and flexibility are critical success factors and we will continue to exploit market opportunities with this inherent strength of ours.

Our acquisition of SCIO as well as Health Integrated solidify EXL's position at the intersection of healthcare and analytics. Integrating SCIO into our existing payment integrity capabilities enables us to build a more comprehensive end-to-end solution to contain costs and improve revenue.

Adding the proprietary behavioral algorithms of Health Integrated and SCIO's predictive analytics around member and network management to our existing care management capabilities, better positions us to improve health outcomes. With both acquisitions, we have deepened our domain expertise and our data capabilities, which amplifies our digital intelligence strategy.

I'd like to end with a comment on our pipeline. Our pipeline of large opportunities was already very solid coming into 2018 and has continued to mature in the past few months, particularly in our key areas of Insurance, Healthcare, Finance & Accounting, and Analytics.

We expect to sign some large deals over the next several quarters from new clients. Our addition of U.S.-based clinicians from Health Integrated has already influenced a large deal win for us.

We are also engaging our customers strategically in digital transformation discussions through our Consulting organization. Our Consulting business has now shown growth quarter-over-quarter for the past two quarters and our pipeline in Consulting is robust.

To conclude, this has been an extremely exciting start of the year for EXL. In digital intelligence, we have launched a sharply differentiated and powerful approach to digital.

We continue to invest organically and through acquisitions in end-to-end solutions that combine our domain and data expertise to solve our clients' biggest challenges, and we continue to see large deals in the market where our talent and technology are winning factors. With that, I will turn the call over to Vishal.

Thank you, Rohit, and thanks, everyone, for joining us this morning. I would like to start by providing insight into our financial performance for the first quarter of 2018 followed by updated guidance.

We had a strong quarter with revenues of $207 million, up 13.1% year-over-year or 11.9% on a constant-currency basis. Our sequential growth continues to accelerate with highest growth rate on a reported basis in the last 10 quarters of 4.6% or 4.3% on a constant-currency basis.

For the quarter, revenues from our Operations Management business, as defined by five reportable segments excluding Analytics, grew 11.8% year-over-year or 10.4% on a constant currency basis to $149.9 million. Our Operations Management business continues its growth momentum with the highest growth rate in the last 10 quarters.

This growth was primarily driven by clients from our Insurance, Finance & Accounting segments and revenues from Health Integrated. Healthcare grew to 20.4% on a year-over-year basis, driven by Health Integrated, which contributed $6.4 million for the quarter.

Insurance grew 14.3% on a year-over-year basis. This growth was driven by a ramp-up of 2017 wins and expansion in existing clients in both P&C and L&A sectors.

Finance & Accounting continued its momentum from 2017 with double-digit growth of 14.1% on a year-over-year basis. The growth was driven by a ramp up of large deal wins of 2016, 2017 and expansion in existing clients.

All Other segments increased by 2.8% on a year-over-year basis, backed by double-digit growth in Consulting. Sequentially, Operations Management grew 5.4%.

Analytics continued its strong performance with revenues of $57.1 million, up 16.5% year-over-year or 15.8% on a constant currency basis. This growth was driven by BFS, Healthcare and Retail.

Sequentially, Analytics grew 2.6%. Our revenue per employee continues to improve year-over-year, up 8.4% to $30,187 per annum.

Now, moving on to our SG&A expenses. This quarter, we recorded a one-time lawsuit settlement charge of $2.4 million, which is excluded while calculating non-GAAP numbers mentioned subsequently in my remarks for the quarter.

SG&A increased by 40 basis points year-over-year to 20.8% of revenues. We achieved 190 basis points of operating leverage, which was offset by impact of Health Integrated of 50 basis points, higher investments in digital technologies, advanced automation and robotics, and platform of 60 basis points, and the lawsuit impact of 120 bps as mentioned earlier.

Adjusted operating margin for the quarter was 12.8%, a decline of 180 basis points year-over-year. Excluding the anticipated dilutive impact of Health Integrated of 150 basis points for the quarter, our adjusted operating margins were 14.3%, a decline of 30 basis points year-over-year, driven by incremental investments in digital areas, as mentioned earlier.

Sequentially, excluding the impact of Health Integrated, our adjusted operating margins improved by 110 basis points, driven by operating leverage. Our adjusted EBITDA for the quarter was $33.1 million.

Our tax rate for the quarter was a negative 23.7%, which includes the impact of certain discrete items, namely, adjustment to the provisional one-time transition tax recorded in 2017 and excise tax benefit recognized on stock compensation this quarter. Excluding these discrete items, our normalized tax rate is 30%, in line with our expectations.

Our adjusted diluted EPS was $0.64, up 6.7% from $0.60 in Q1 2017. The net impact of Health Integrated was a loss of $0.04.

Excluding the dilutive impact of Health Integrated, our adjusted diluted EPS was $0.68, up 13.3% year-over-year. Now, looking at other financial metrics.

Our DSO for the quarter was 59 days, an improvement of 1 day from Q4. During the quarter, we spent $10.9 million on share repurchases and $13 million on capital expenditure.

Our balance sheet remains strong with $239 million of cash in short-term investments and $67 million drawn on a credit facility as on March 31, 2018. Now, moving to our guidance for 2018.

We are updating our revenue guidance for the year by increasing the lower end of the range. We now expect revenues to be between $835 million to $855 million to reflect a strong Q1 and increase visibility for the year across our business verticals.

This represents a growth of 9% to 12% on a constant currency basis. Other aspects of guidance remain unchanged from prior guidance.

Based on these factors, our adjusted diluted EPS guidance remains unchanged at $2.72 to $2.80. Our guidance does not include the impact of SCIO acquisition.

In terms of quarterly trend for Q2, we expect continued sequential revenue growth and adjusted diluted EPS to be flattish due to annual wage increments, investments in digital transformation, acquisition-related costs, and continued investment in Health Integrated. As Rohit mentioned, we're excited to have SCIO as a part of EXL.

The acquisition is expected to close in the next three months, subject to fulfillment of certain closing conditions, including regulatory and other customary consents. We expect to update our guidance for 2018 post closing.

We expect to fund the $240 million of acquisition using cash on hand and drawing down our credit facility. The current facility is $200 million, of which $67 million has been drawn.

In addition, it has an accordion feature of $100 million giving us an unused capacity of $233 million. In conclusion, we had a strong Q1 with a milestone achievement of over $200 million in revenues for the quarter.

We generated revenue growth of 13.1% year-over-year on a reported basis and achieved 6.7% adjusted diluted EPS growth. Our revenue visibility gives us confidence that 2018 will be strong year.

The addition of SCIO will further support our long-term growth initiative. And now, Rohit and I would be happy to take your questions.

Thank you.

Good morning. Can you provide some framework to your latest acquisition, revenue size, expectations of accretion or not?

Thanks.

Yeah. Good morning, Ed.

So, we're really excited about our acquisition of SCIO. And just to give everybody a perspective on the size, scale and profile of SCIO, the 2017 revenue for SCIO was approximately $73 million.

However, these numbers are subject to a final audit and these are unaudited numbers. We expect SCIO to be accretive to the company in 2019 and beyond.

In 2018, because of the fact that the acquisition will be completed in the next three months and we have integration expenses, we don't expect any impact to our EPS because of the acquisition of SCIO. In terms of growth and profitability, we do expect SCIO to contribute positively to our growth rate and to our profitability in the mid- to long-term as it gains scale and size.

So, hopefully, this gives you a good sense of the size and scale, and the complexion of the assets that we are acquiring and we think that this is a very attractive asset in the space of Healthcare and Analytics. And we think that this is a great strategic bet for the company to be making at this point of time.

Yeah, very helpful. Thank you.

My other question is around RPA, robotics process automation. And just automation in general, how much pressure are you getting from clients to deploy it?

Are they willing to change their pricing model to allow you more flexibility with FTEs? And are you losing work to in-house solutions as clients think that they can do it themselves?

Thanks.

Sure. So, RPA is certainly very topical these days and certainly the engagement by customers with providers such as EXL on RPA continues to increase.

I would characterize that there is a general shift that's taking place in the market where clients are now relying much more heavily on third-party providers like EXL for their implementation and execution of RPA strategies rather than trying to do it internally themselves. The reason for that is getting certainty on business outcomes, making sure that the talent pool and the resources are available for the implementation and execution of RPA, and that there is a sustained business model that gets created to be able to manage, maintain all the robots and the tools that get deployed.

So, we are seeing a much increased demand environment for robotic process automation, and our engagements with our clients continue to increase in robotic process automation. We do that in two buckets; one is as a part of our Consulting organization, where we take on an advisory role to help our clients implement and maintain and execute on our RPA; and the second is, with our existing business and new business that we are winning in the marketplace in Operations Management.

We actually think RPA creates significantly wider business opportunities for us, because it allows us to play not only in the processes that we were managing for our clients, but allows us to play in the entire end-to-end value chain and the businesses of our clients. And therefore, the landscape for us expands and we think that this is a net positive for the company.

Thank you.

Thanks. Hi, Rohit.

Hi, Vishal. So, I guess my first question is with regards to the cadence of revenue and earnings that we should think of as we go through the rest of this year.

Obviously, the slower start because of Health Integrated costs and stuff like that. And then, you're also making fairly significant investments in digital.

How should we think of those as well as the ramp of new contracts through the course of the year?

Sure, Ashwin. So, you're absolutely right.

We are making a big pivot out here around digital and we are making significant investments to position our business for continued long-term success by embracing digital much, much more holistically and at a fundamental level. I think our articulation of how we think about positioning ourselves and building capabilities around digital intelligence, those are very reflective of the way in which we are going to go about making that shift.

As we make that shift, there's certainly will be an opportunity for us to refocus our business and make sure that we can provide sustained revenue growth and profitability and focus on both the elements. Apart from digital, we're also making significant investments in terms of gearing up our Analytics business and taking that to the next level along with the acquisition of SCIO, and then, also building up another industry vertical capability in Healthcare with the acquisition of Health Integrated and SCIO, as well as our existing capabilities in Healthcare.

And we want to acquire the same dominance that we have in insurance in the healthcare industry vertical, particularly on care management, payment integrity and customer engagement. And those are the three pillars that we want to build within the Healthcare business of ours.

So, I think, for us if you take a look at 2018, our revenue growth and our momentum on revenue continues to be good and it continues to be strong. And even in the first quarter, the revenue growth for us has been quite nice.

The profitability certainly has been impacted by the acquisition of Health Integrated. And these are some speed bumps that we will experience as we make this transition and we make that shift, but we are much, much more focused on building the organization for the mid- to long-term than to worry about the short-term quarterly impact that it might have.

We are fully confident of being able to execute to our plan and to meet our guidance that we've delivered at the beginning of the year. And our goal is to continue to build a strong foundation on which we can continue to grow EXL.

Rohit, just to add, as we had mentioned in my prepared remarks, we expected Health Integrated to be (00:28:47) dilutive in our first half, and that's what we had mentioned in our earlier call. So, that investment in our integration and on the Health Integrated side, and CareRadius platform implementation will help us to improve the margins actually in Q3 and exit the year on Health Integrated positive margins.

As I mentioned earlier, excluding the impact of Health Integrated, our margins have improved by 110 basis points quarter-on-quarter, driven by the operating leverage. Based on these facts and the cost optimization initiatives we've planned, we do expect to deliver the 40 basis points to 60 basis points improvement in our margin profile as we had mentioned earlier.

Got it. And then, just conceptually, as you think of balance sheet and leverage and things like that, can you help us sort of think through what level of leverage might you be comfortable with if – and if there is an intention to keep making both organic and inorganic investments in areas like Healthcare and Analytics, what level of leverage are you eventually comfortable with?

Yeah. Sure, Ashwin.

Look, I think for us, having moderate leverage in the business, particularly as we grow in size and scale, is the right strategy for us. In the past, if you took a look at our balance sheet, I think it would have been very conservative in the use of leverage and that's because, A, we do not have the right opportunities; and, B, our size and scale was much smaller at that point of time.

As our size and scale increases and as our clients get a lot more confidence in our broader capabilities, we are going to have a much more efficient and an optimal use of our balance sheet. The amount of leverage that the business can take is actually far greater than where we are today even after the acquisition of SCIO.

And the reason for that is, our business is largely an annuity-based business with highly predictable revenue and cash flow capability. This is a profitable business that grows each year and the acquisitions that we are making are also going to be profitable and adding to our size and scale.

So, frankly, we are going to continue down the path of growing our business organically as well as inorganically. And as you can see, by doing this acquisition, we've demonstrated that for the right kind of strategic asset, we would be willing to leverage our balance sheet and to make those strategic bets, and that's the choice we're making.

Got it. Thank you.

All the best.

I was wondering if you could give us a little more color on the drivers that moved the margins higher. I know you still expect them to expand this year.

Are these cost take-outs at Health Integrated, and I think you mentioned some large deals. Are any of those large deals built into that expectation?

Hi, Joe. This is Vishal.

Yeah. So, I think it will be a combination of delivering the productivity benefits we anticipate in Health Integrated acquisition, which will include the implementation of our platform which will drive productivity benefits and also some cost take-outs.

Secondly, I think as we increase our revenue uptick, and Rohit mentioned that there are good improvement in our Analytics business and our Consulting business, the margin profile will further improve. As you can see in Q1, our Analytics business margins are actually down, but that's driven by one-time impact of their advanced hiring and utilization being low on their project-based revenue.

We do anticipate that the improvement in Analytics business, the Consulting business, will further also add to our margin profile improvement apart from the Health Integrated impact, which will be positive in the second half.

Got it. And then, just on the acquisition, any client concentration and any overlapping relationships we should be made aware of?

And I assume that Health Integrated had served a sort of a test case for your due diligence on them. So, maybe you can give us any color on that and how that changed?

Thanks.

Yeah. Sure.

So, there are some clients which are common clients between EXL and SCIO. However, we think that the overlap is a good opportunity for us, because it allows us to penetrate into additional buying centers.

And keep in mind that SCIO was a smaller organization working with very large clients. And therefore, the ability of these large clients to expand the work that they do with SCIO and EXL combined, the confidence level is going to be much greater because of the combined size and scale of EXL and SCIO.

We think that there is a great opportunity for us to increase our share of wallet in these clients, particularly with these additional buying centers coming in. The business that SCIO runs is actually – it's got multiple service lines within the same customer.

It's got a strong capability in terms of ingesting data, managing data, and deriving insights from that data to deliver business outcomes. It takes multiple years of serving a client to deliver that business outcome, and the revenue stream for SCIO is quite well correlated to the business outcomes that they are able to deliver.

So, this is a very value-based business where the payments are made on the basis of delivering outcomes, and the business is extremely sticky and it's got a very high retention rate and a very high visibility associated with the business. So, we think that this business model is very attractive and it fits in very well particularly with the pivot that EXL is trying to make on digital and to focus on business outcomes.

Thank you.

Hi. Good morning.

I'm wondering what the margin profile of SCIO is like and whether the acquisition is going to require any significant upfront investments beyond kind of those typical integration expenses.

Yeah. Hi, Maggie.

So, as I mentioned earlier in my remarks, we do expect SCIO to contribute positively to the overall margin profile of EXL over the mid-term. However, there are investments that we will be making not only on integration, but also in terms of the data platform that SCIO has and creating a capability that allows us to have a unified data structure to work with clients at scale, in real-time and allow us to make service offerings that shift the business even more significantly towards the prepay side of payment integrity.

So, these are investments which, we think, are necessary and this is the right time for us to be making these investments, and we have factored that into our business case while doing the acquisition of SCIO.

Okay. Thanks.

And then, are there any changes to your organic growth assumptions for the Analytics segment both this year and then beyond too, if you kind of set aside the recent acquisition?

Yeah. So, our expectation is that the SCIO acquisition will get closed over the next three months.

As and when the transaction closes, we will be providing updated guidance to reflect the business combination of SCIO with EXL. And we will certainly provide both revenue and margin and EPS guidance associated with that.

But, that kind of organic 15% Analytics guidance, is that still intact for the Analytics segment ex-SCIO?

Yes. The Analytics business for us continues to perform very nicely, and we do think that that business should be growing in the mid-teens, and we think there is a huge opportunity for us on Analytics standalone, and excluding SCIO as well, absolutely.

Okay. Great.

Thank you.

Hi, guys. Good morning.

Thank you. I'm curious on SCIO if you had previously competed or partnered with them.

Can you talk about whether you're able to leverage some of the onshore synergy you're already developing here in the U.S.? And then, just talk about a little bit about the resources that you're bringing over from them.

Sure. So, we hadn't really overlapped and competed with SCIO previously.

The interesting part is that on the care management side, SCIO had looked at partnering with Health Integrated. And so, actually, it gives us a very strong combination of bringing together the capabilities of SCIO and combining that with Health Integrated and making that care management offering much stronger.

There was a second part to your question.

Resources you are bringing over.

The resources, yeah. So, we absolutely have incredible amount of respect and we've been very impressed with the talent base that SCIO has and the entire leadership team as well as the full talent base of SCIO will be part of EXL.

And for us, this is a pure revenue synergy play. And therefore, we will be leveraging that talent base to be able to exploit the market opportunities and continuing to build on SCIO's capabilities in the market.

Okay. And then, my follow-up relates to large deals that you had mentioned.

Can you talk about the types of large deals that you're pursuing? Are these with existing clients or new ones?

I'm curious on the behavior out there between first time outsourcers and existing clients. Thanks.

Sure. So, when we talk about large deals, we principally talk about large deals with new clients.

We're seeing a fair amount of opportunity around Finance & Accounting, in Insurance. We think that there is strong opportunities out there that we can leverage.

And again, given that we play at the intersection of Finance & Accounting, and Insurance, that becomes a strong suite of offerings for us. We're also seeing in insurance carriers come out for the first time and leverage offshoring and outsourcing.

So, we think there's a tremendous amount of opportunity there. And then, geographically, we are also seeing our footprint expand just from the U.S.

much more into UK and Europe and also into Australia. So, we are seeing some deals that are likely to mature in additional geographies outside the U.S.

as well.

Thanks.

Thanks for taking my questions. Following up on the last question on the Insurance vertical a little bit, can you give us a little bit of color on the margins?

They were particularly strong in the quarter.

Yeah. So, the Insurance business margins, as you can see, have improved over the several past quarters.

And as they build more size and scale and have more integrated offerings, I do expect that the margin profile in the Insurance will continue to improve, driven by more scale in the onshore businesses, the platforms, and/or all the new business they are winning.

Okay. That's helpful.

And then, as we look forward at the pipeline for additional acquisitions in healthcare, how would you describe that environment?

So, I think the market environment for doing acquisitions is actually very attractive right now. It seems like more and more of the private companies are coming up and looking at strategic options, and I think it's a great time for us to take advantage of that as well.

We, of course, will be very disciplined in our approach in terms of doing the right strategic acquisition at the right financial multiple and with the right cultural fit. For us, those three elements are critically important.

But, we do think the opportunity is good. We've got several deals in our pipeline that we are currently exploring and we think there could be additional M&A that we could do here as well.

Okay, great. Thank you very much.

Thank you. Good morning.

Rohit, I just wanted to get a little bit more clarification on the acquisition that you announced today. In terms of their growth profile and margin profile, can you share any numbers or what the trajectory has been the last couple of years at least?

Yeah. So, Mayank, we're going to share full details once we close the acquisition.

As of now, we wanted to give a rough estimate of their size which, like I said, is about $73 million for calendar year 2017. The growth of this business is going to be additive to EXL, and the gross margins are higher than EXL and will be additive to EXL's margin profile.

So, we think this is a business that is of significant size and scale. It's growing nicely, and it has a good margin profile.

But, we'll share more details about that once we close the transaction and we update our guidance for the year.

Sure. Understood.

And then, just a follow-up question on demand. Rohit, obviously, you sound really positive on the demand climate, but you're holding guidance intact.

Give us any sense if there's any soft spots that you're seeing that might be offsetting some of the strength in some of the key verticals that you highlighted as being maybe stronger than you had maybe called out after your fourth quarter numbers?

Sure. We have taken up the lower end of our guidance and taken the midpoint up, and that's on the basis of a strong performance in Q1, as well as the demand environment that we do see.

I think for us, what we're seeing is larger deals enter the pipeline, and the ability of EXL to compete and effectively win these larger deals, that's becoming more and more pronounced. So, we are getting more confident in our ability to build and grow our business.

A second dimension to this, which I'd like to kind of amplify on, if you take a look at our Insurance business, which is a little bit over 40% of our revenue stream, we seem to be hitting our stride on the Insurance business, both in terms of revenue growth, as well as in terms of margin expansion. The same thing is true in Analytics, where Analytics has become a very strong component of EXL's business and that portfolio for us is also growing very nicely.

However, we do need to push the margins up in that business. And I think, we've got an opportunity to create a third engine of growth, which is all around analytics in healthcare and that's something which we're going to build along with SCIO and create that capability for the company.

So, we feel very good about the different areas in the marketplace that we can play in, and that has got good demand characteristics and good margin profile, so that we can build a real solid and a valuable business and a franchise out of this.

That's helpful. Thank you.

Hi. Thanks for taking my question.

So, within your Operations Management, how much of Consulting is legacy advisory services versus new digital consulting? And what are your win rates in Consulting versus the rest of the business?

So, Puneet, I guess, we don't track those metrics as carefully. I would say that the pivot towards some of the newer consulting engagements is roughly about two-thirds of our business, the legacy part of our business is one-third.

But keep in mind that this consulting services portfolio is continuously evolving. And we continue to upgrade some of our consulting capabilities and add on new capabilities, particularly around robotic process automation and around digital transformation.

I think your other question was...

Win rates within Consulting.

Yeah. So, the win rates are – very difficult to give you a specific response on, because many times, the consulting engagements are sole sourced and there of course either the client decides to go ahead with the project.

And if they do decide to ahead with the project, we are the chosen provider. And in other situations, we will compete against the big four, or the – some of the consulting firms as well, which are the broader management consulting firms.

And I would say that we win our fair share of our business out there. And it's a pretty good and strong win rates that we have there.

I don't have any numbers that I can share with you. But qualitatively, I think, we feel good about our ability to compete and win there.

Got it. And second, how are you going to integrate SCIO with the rest of your Healthcare segment?

And given like large deals that you have been winning recently and opportunities with this acquisition, should we expect higher long-term growth for Operations Management business as you add capabilities in that area?

Sure. So, SCIO's business, the way we see it, is largely an Analytics business, and it's got some portion of its business which is Operations Management.

For now, the way in which we're going to integrate SCIO is as a standalone business unit that is going to be kept separate, and we will continue to invest and build and grow SCIO as a part of the EXL portfolio. And over a period of time, we will figure out what's the right way for us to integrate SCIO and to be able to combine it with other capabilities within EXL and operate that.

As we get to the closing of the transaction and once we have closed, we'll be able to share more details with you.

Got it. Thank you.

Yeah. I'm curious, so just one follow-up on the Consulting business.

Is the strength across a large number of clients or is it relatively concentrated?

Yes, Vincent. It's actually across a number of different clients, across industry verticals and that's what gives us confidence that the foundation of the growth of the Consulting business is very strong.

We're also quite happy to be able to attract new talent in our Consulting organization that can be deployed to work on some of these projects that we are winning. And it's really our ability to win new projects and to attract the right talent that gives us strong credentials out here.

Then, what portion of revenue is tied to an outcome-based element and how do you see that trending over the over the coming years?

So, for us, right now, 30% of our business is tied to transaction-based pricing and outcome-based pricing, combined. We think that that is going to shift very significantly and meaningfully.

Certainly, for SCIO, the proportion of their business that is tied to transaction and outcome-based pricing is much, much higher, and therefore, this shift for EXL is going to be in the direction of moving it closer towards 50% or so over the next three years.

Okay. Thank you.

Thank you. Good morning.

Rohit, I think I understand the evolution of the service offering with changes in the end markets as well as the acquisitions. However, perhaps you can help us understand how the change in the end markets and the acquisitions are impacting the legacy business model in terms of offshore onsite mix, scalability, and perhaps most importantly, the interaction of margin and growth, which at times, as you know, has moved in an inverse-type relationship?

Sure, David. So, one of the fundamental changes and shifts that we're seeing is, in the past, clients would outsource a piece of work and want that to be done efficiently and at high service quality at the lowest price point.

I think today, the shift that's taking place is much more towards solving customer problems and providing industry-specific solutions. And those players that can become specialists in providing industry solutions and solving those problems are the ones that are going to grow and remain profitable.

And I think, the shift that we are making is in that direction and we are doing that by leveraging our domain knowledge, our ability to manage data, as well as our ability to integrate technology and particularly some of the newer digital technologies that are emerging and create that value for our clients and create that competitive differentiating factor for them. I think that shift involves risk as you move towards transaction-based pricing and outcome-based pricing, the certainty associated with an annuity revenue stream, I think, declines, but the opportunity to make greater risk if you are successful and can deliver value is much higher.

And therefore, you're moving away from the commoditized end of the business more towards a more complex and an integrated and a well-orchestrated solution set, and the delivery of the business outcome becomes the overriding factor for success. And I think EXL is very well positioned on that, because we're choosing to focus in on a few areas that we can really become a categorical end (00:54:56) and be able to exploit the market opportunity.

So, does that imply the 30% of revenue that's tied to transaction- and outcome-based pricing, it is primarily in the Insurance vertical?

Yeah. It's largely in the Insurance vertical where we have a dominant play, but we do have some of that taking place in our Transportation & Logistics vertical as well.

We also have something in our Utilities business, that is shifted over to that model. So, it's spread out, but I think as we make that shift in verticals where we've got a lot of strength and a leadership position, I think that's where you're likely to see more of these industry-specific solutions emerge.

And Analytics, Rohit, is also around 30%-plus.

Got it. Okay.

Thanks for that. And just one quick follow-up on the financials.

Can you maybe analyze (00:56:00) the organic revenue growth by segment at constant currency in the quarter?

Yeah. So, the Operations Management – overall, the company organic growth rate was about 8.4% on a constant-currency basis.

Operations Management was around 6%; and Analytics, about 15.8%.

Great. Thank you.

Great. Thanks, everyone, for attending our first quarter earnings call.

We are very excited about the pivots that we are making on digital as well as on the acquisition of SCIO. We've had a strong start to the year, and we look forward to building on this momentum and continuing to execute for the rest of the year.

We look forward to hosting our second quarter earnings call and sharing our update on our progress then. Thank you.