Steve Barlow - VP, IR Rohit Kapoor - CEO Vishal Chhibbar - EVP and CFO.
Edward Caso - Wells Fargo Jeff Rossetti - Janney Montgomery Scott Sashi Tanuku - Citigroup Anil Doradla - William Blair Manish Hemrajani - Oppenheimer Amit Singh - Jefferies Adam Dahms - Baird Puneet Jain - JPMorgan David Grossman - Stifel.
Good day, ladies and gentlemen and welcome to the EXL Second Quarter 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 be given at that time. (Operator Instructions). As a reminder, today’s conference call is being recorded.
I would now like to turn the call over to Mr. Steve Barlow. So you may begin. .
Thank you, Candice. Hello and thanks to everyone for joining EXL's second quarter 2014 financial results conference call. I'm Steve Barlow, EXL's Vice President of Investor Relations.
I recently joined EXL based here in New York and am very much looking forward to working with the investor and analyst community, the various functions we have over the next year or so. With us here 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've had an opportunity to review quarterly financial results in the press release we issued this morning. We have 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 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 in our press release as well as in the investor fact sheet.
Now I'll turn the call over to Rohit Kapoor, EXL's CEO.
Rohit?.
First, I will discuss this quarter's results and describe some of the investments we are making in people and infrastructure to support the business growth EXL is experiencing. Second, I will comment on our pipeline and some of the areas of opportunity we are seeing in the market.
Third, I will comment on our recent acquisition of Blue Slate and the MOU with Carvajal we just announced. I will then turn the call over to Vishal for a more detailed financial discussion, following which, we would be happy to take your questions.
In the second quarter, our revenues grew 13.6% year-over-year to a $125.5 million on a constant currency basis, excluding disentanglement costs and client transitions taking place.
The strong double digit revenue growth was driven across all business lines with our outsourcing business growing 8.5% and our transformation business increasing 36% year-over-year on the same basis. Adjusted EPS increased by 12% year-on-year to $0.41 versus $0.37 a year ago.
Our ability to obtain to new work from our clients beyond the initial mandates is extremely important and our success is evidenced in the quarterly migration of 49 new processes across domains. EXL had seven new client wins in the second quarter; four in transformation and three in outsourcing.
Importantly for the first half of 2014, EXL signed 12 new clients, compared to 10 in the first half of 2013. Looking ahead at our sales pipeline in outsourcing, I am pleased to report that it is strong across our core domains with a diverse group of strategic transactions any one of which would be impactful for EXL.
We continue to see strong activity amongst our existing client portfolio where there is tremendous room for growth. At the same time, the pipeline for new prospective deals in our transformation business is also very robust and we continue to make good progress.
This quarter our decision analytics revenue within the transformation segment grew 48%, leading the growth of all business lines at EXL. Decision analytics grew to 12% of revenues in the second quarter from 9% of revenues in the second quarter of last year.
To provide a sense of the resources we are adding to support this growth, our headcount and decision analytics has increased by 20% sequentially from the last quarter with significant increases in both onshore data scientists in the U.S. as well as in India.
The decision analytics business needs highly skilled people to provide deep insights and analysis for our clients. In order to do so, we have further committed to hire an additional 350 people from university campuses for the full year and are hiring very aggressively to service the demand that we are seeing.
As a result of us making aggressive hires both onshore and offshore, these investments have caused an uptick in our cost structure; but once fully productive, will enable us to return to higher gross margins in the transformation segment than we exhibited this quarter.
We see higher demand across the spectrum of services we offer and are making infrastructure investments to support our growth plan. To support our growth in decision analytics, in the first quarter we opened our Mumbai operation center and are hiring in Johannesburg.
In the second quarter, to support the growth of our healthcare clinical operations, we opened a 300 seat operation center Cebu, making it our third operations facility Philippines.
Our growth in the Philippines has been led by our healthcare vertical with travel, transportation and logistics and banking and financial services also contributing to the growth. In addition we will be opening a fourth operation center in Alabang with 570 seats in the third quarter of 2014.
The net effect of this infrastructure growth is that it does create a short term impact on gross margins until the infrastructure is fully utilized. EXL’s attrition rate increased to 34% from 29% in the first quarter of 2014.
We will remain vigilant in ensuring that we maintain our service delivery quality and do not believe this increase in attrition is a cause for concern. We believe that this attrition will start to decrease once we are done completing some of the client transitions that are currently in progress.
Our headcount increased this quarter by approximately 300 professionals, despite known plant headwinds we’re experiencing. Client concentration is declining as we grow our business. At present no client now represents more than 10% of revenue and the top 10 clients represented 53% of revenue in the second quarter, compared to 60% a year ago.
Looking at revenue by vertical, we continue to develop industry verticals where we want to become a category killer. Each of EXL’s focused verticals now represents at least 10% of total revenues. It is not only our clients who believe we add value to their bottom line but we have recently been recognized by a variety of industry thought leaders.
In the second quarter a Gartner study published in May positioned EXL in the leaders' quadrant of the Magic Quadrant for Finance and Accounting BPO. In addition EXL was positioned as a major player in IBC MarketScape Worldwide Business Analytics BPO Services 2014 Vendor Assessment Survey.
EXL also received an innovation award from the international consulting firm Alsbridge Inc. for the use of analytics and automation to improve receivables management processing of a leading UK energy supplier.
EXL was the first provider to be certified in Eversel [ph] marketing framework for protecting client confidential information and adopting new business process solutions code of conduct.
In previous calls, we have discussed how we continue to invest in EXL’s proprietary business, EXLerator Framework which brings together analytics, technology and operations management. Building on that notion we recognized a need to help our clients optimize processes using leading technologies and process automation tools available in the market.
After an extended search we acquired Blue Slate Solutions on July 1st for $7.6 million. Blue Slate is 14 year old company that will be a great addition to our business process automation component of our business EXLerator Framework. Blue Slate combines deep technology expertise with business acumen to transform client operations.
In particular its people have extensive knowledge of how to leverage best-in-class business process management platform as integral elements of process automation and improvement. Blue Slate works directly on clients call mission critical applications inside their IT environments to fundamentally transform their business processes.
Blue Slate's client list includes Fortune 500 Firms, namely four of the largest commercial healthcares and several global money center banks and 11 Blue Cross, Blue Shield organizations. Blue Slate's clients align well with EXL’s client roaster and create potential new opportunities for EXL.
Additionally Blue Slate's industry experience blends well with our focused domains. An example of a Blue Slate success story is how it helped a Midwest Blue Cross, Blue Shield plan significantly reduce administrative costs to continue to be competitive in the core markets through business process automation.
The health insurance had 64% first pass rate translating into a higher than industry standard cost per claim process. This was impacting their bottom line and their ability to retain and attract new clients. Blue Slate designed and program managed the implementation of new technologies to optimize the claims process.
The first pass rate went up to 80%, making the health insurer more competitive and with increased profitability.
In addition, the solution went several steps further and added a business process automation set of tools to allow management to easily obtain and analyze processing statistics to assist them in determining if they need to change or enhance their workflow in the future.
This morning we also issued a press release on another important strategic development for EXL. We announced that EXL and Carvajal have signed a Memorandum of Understanding to establish an operations management joint venture in Latin America.
The joint venture will address the growing demand for Spanish-language based operations management solutions delivered from Latin America. The solutions provided will include finance and accounting, complex customer service and clinical services.
Carvajal is expected to contribute its existing finance and accounting outsourcing operations to the joint venture, in which EXL will acquire a 51% stake. The joint venture will combine Carvajal’s local knowledge and brand with EXL’s business process expertise and global best practices to service clients from world class Latin American facilities.
The joint venture will be headquartered in Colombia and launched with over 500 skilled and experienced employees working from multiple delivery centers. The joint venture gives EXL the opportunity to tap into the Latin American end client market where we are not present today without the need to make significant investments in sales and marketing.
For Carvajal, partnering with EXL will allow them to expand their business at an even faster pace and take advantage of our global delivery footprint and scale in business pursuits.
We think this is a great opportunity for both companies and are confident we will have additional details to share with our shareholders and employees on our next conference call. Overall, the first half of the year has shown good momentum with organic revenue growth at 13.3% on a constant currency basis and excluding client transitions.
We are pleased to increase our guidance at this point in the year to account for the business momentum we are experiencing and also pleased to have executed two strategic transactions that should benefit our business for many years to come.
We remain confident that the remainder of the year will continue move along our growth trajectory as we work with our clients and pipeline prospects to provide market leading performance and services. With that, I turn it over to Vishal..
Thank you, Rohit and thank you everyone for joining us for this call in this morning. In the second quarter, EXL reported revenues of $119.7 million, which includes a 5.7 million reimbursement for disentanglement costs. Excluding these reimbursements, our revenues were $125.5 million, up 8% year-over-year and up 1% quarter-over-quarter.
Foreign exchange had a negative impact of approximately 1% on our year-over-year revenue growth. On a constant currency basis and excluding previously announced disentanglement costs and impact of transitioning client revenue, our revenues grew 13.6% year-over-year.
On the same basis for the first half of 2014, EXL revenue grew by 13.3% to $249.7 million. In our outsourcing business, year-over-year revenues declined 3.1% on a reported basis and increased 8.5% on a constant currency basis excluding disentanglement cost and transitioning client’s impact.
On a sequential basis, outsourcing revenues fell 5.8% or 2.3% on a constant currency basis and excluding disentanglement cost and transitioning clients' impact. For the first half, outsourcing revenues grew 10.3% on the same business. In transformation services, revenue grew 36% year-over-year and increased 17% sequentially.
Year-over-year growth and sequential growth was fueled by strong primarily in decision analytics business, which grew 48% and our operations consulting and finance transformation business also experienced healthy growth.
As mentioned in our last two calls, we are seeing strong momentum in analytics business which will drive sequential growth in transformation for the rest of the year. In my discussion in subsequent paras, I will be discussing our margins excluding the impact of disentanglement cost.
In the second quarter, gross margins were 35.2%, down 110 basis points year-over-year and 450 basis points sequentially. The sequential gross margin decline was driven by expected wage increments and additional capacity and people we have added to support our revenue growth.
The year-over-year margin decline was driven by setting up of new facility centers, some one-time expenses and a change in business mix, offset by a benefit of weakness of the Indian rupee. Outsourcing gross margins were 37.5%. Gross margins fell 140 basis points year-over-year for the reasons mentioned above.
Gross margin quarter-over-quarter fell 510 basis points driven by a 3% decline in rupee, which accounted for about 100 basis points impact, continue investment in our platform business, which caused of 120 basis point drop, in addition, wage increments hurt margins by 120 basis points and the remainder was due to facility expenses and new client ramp ups.
Transformation services gross margin of 26.2% rose 350 basis points year-over-year and were flat sequentially. The year-over-year increase was due to improved utilization which more than offset the wage increases.
We anticipate gross margin of our transformation service business to continue to improve through the year as our utilization increases driven by new business. G&A expenses were 12.9% of revenue. This was up 100 basis points year-over-year and sequentially due to the M&A activity. Sales and marketing were at 7.5% of revenue, flat year-over-year.
We expect both G&A and sales and marketing spend and as a percentage of revenues to be largely stable for the remainder of the year. Foreign exchange loss was $100,000 in this quarter. We expect foreign exchange to be favorable by about $1.5 million to $1.8 million in the second half of 2014.
Interest and other income was $0.9 million up $300,000 year-over-year driven by higher cash balances. In the second quarter, our tax rate was a negative 13.8% owing to a one-time tax, discrete item reversal and a lower income attributable to our U.S. entity.
Excluding the one-time tax impact, our effective tax rate for the second quarter would have been 17.2%. We anticipate our full year tax rate to be in the mid-20s. We would still expect our tax rate for the next several years beyond 2014 to be in the high 20s as per our prior expectation.
CapEx spend for the second quarter was $5.9 million and $16.6 million in the first six months. CapEx spending in this year is front-end loaded owing to opening of new facilities and the required investment in computer software network equipment.
For the full year, we expect CapEx to be in the range of $25 million to $30 million, which will include a fourth operation center to be opened in Alabang into the Philippines in the third quarter, providing an additional 570 seats of capacity and continued spending in product development and expanding in our business EXLerator Framework.
Adjusted EPS was $0.41, up from $0.37 in the second quarter last year and down from $0.50 in the first quarter of 2014.
As outlined earlier, quarterly adjusted EPS was impacted by our infrastructure expansion, wage increments, certain one-time professional fees and the advanced hiring of DMU ramps which negatively impacted our margin and was positively impacted by the one-time tax benefit experienced in this quarter.
We continue to enjoy a strong balance sheet with over a $168 million in cash and short-term investments and no debt. M&A is strategic to our growth plans and we plan on using our cash primarily for strategic acquisitions.
We have a healthy pipeline of acquisition of opportunities which could give us a decisive advantage in the markets based in our chosen verticals. DSO was 55 days in the second quarter, down two days sequentially.
On back of a strong performance in the first half of 2014, we are raising our revenue guidance to $490 million to $503 million from $480 million to $500 million.
Our higher revenue guidance includes the acquisition of Blue Slate we closed in the beginning of July, which had $3 million of revenue in the first half of 2014 as well as increased confidence that our fast growing analytics business would grow sequentially in the second half of the year.
We are maintaining our adjusted EPS guidance of $1.170 to $1.180 using an Indian rupee exchange rate of Rs. 60. Both revenue and adjusted EPS guidance excludes disentanglement cost impact.
Stepping back on the second quarter results, we remain extremely bullish about the short-term and the long-term prospects in all areas of the business and especially in operations management and decision analytics.
We are continuing to invest in new operation center and are taking on addition capacity in terms of talent and physical infrastructure to support the visible growth. We are looking to make additional acquisitions if they meet our strict requirements and today we do see a good pipeline for actionable opportunities.
Demand from our current clients remain healthy and is rising and we are well positioned to take advantage of new opportunities. And now, we would be happy to take your questions..
Thank you. (Operator Instructions). And our first question comes from the line of Edward Caso of Wells Fargo. Your line is now open. Please check your mute button Mr. Caso..
I was wondering if you could talk a little bit about the Indian budget proposal and if there is anything in there that might impact the Company positively or negatively?.
So Ed, we have reviewed the Indian budget proposal and at the present moment, there isn’t anything in that budget that would impact us in any kind of a significant way. I think we basically remain very, very optimistic about the new administration and some of the changes which directionally seem to be going in the right way.
So we are hopeful that the changes that the new government will bring about will strengthen the Indian economy, will improve the confidence of investing in India and that should actually be positive for our business in the medium to long term.
The short term proposals and some of the changes that were proposed in the budget that was announced this month, really do not have any impact to our business right now..
I was hoping you can clarify a little bit about the market for me. I think you said three outsourcing wins this quarter but I think you also said that there were some large ones in the pipeline. So I assume the three wins weren’t very big.
Could you just make a clear for us what your sense is from the outsourcing side of your business?.
Sure. So for us the pipeline continues to remain very active and strong both across the new clients and existing clients and we do have a number of deals in the pipeline and the pipeline is broadened out, as well as the pipeline has got a number of strategic deals in the pipeline as well.
A few quarters ago we stopped commenting on the wining of strategic deals and we will continue to follow that practice as move along but we continue to believe that there is a tremendous opportunity in the marketplace, EXL continues to remain very well positioned to participate in that opportunity and we continue to add new clients to our business and we’re pleased with the pace of progress that we’re making this year..
I probably missed it, but final question, just what were the latest estimates on the cost of the Travelers ramp down how much is left?.
The Travelers ramp down as we have mentioned previously is a ramp down that will take place over an 18 month period. We expect the Travelers ramp down to be completed by the end of first quarter 2015. We expected for calendar year 2014 the ramp down to have an impact between $12 million to $20 million in terms of revenue for us this year.
In addition to this, there are certain disentanglement costs that we pay associated with this contract. In the second quarter the payment that we made was $5.7 million. We do not have any estimate of what the disentanglement cost would be and we will be reporting out what that number is at the end of each quarter as we incur that expense..
So just to be the clear, the 12 to 20 run off in the revenue run rate that is included in your pro-forma numbers, but the disentanglement cost are not, is that right?.
That’s correct..
Thank you. And our next question comes from the line of Jo Foresi of Janney Montgomery Scott. Your line is now open..
This is Jeff Rossetti on for Jo. I was just wondering if you could comment on your ability to find talent for the transformation business..
This is Jeff Rossetti on for Jo. I was just wondering if you could comment on your ability to find talent for the transformation business..
Certainly Jeff, I think the transformation business for us is a very exciting business because it’s growing at a very rapid pace. For us transformation includes decision analytics, operations management and operations consulting as well as finance transformation work that we out here.
Across the three business lines we basically hire highly skilled professionals.
In data analytics it is data scientists that we higher, in operations consulting it is folks who have got consulting background and experience and who understand a number of the lean Six Sigma methodologies and within finance transformation we typically hire from the Big Four audit in accounting practices where they understand risk compliance and governance.
We have been consciously investing in creating a very strong presence within the universities and college campuses so that we can have a direct recruitment program and as we announced this year, we intend to hire close to about 350 professional directly from universities and college campuses in India and in the U.S.
In addition to this we also do some lateral hiring and that hiring takes place throughout the year and we are very, very fortunate that we’ve built up a very strong presence with this talent community and our ability to attract, retain and develop talent in this area is becoming a big differentiator for us in the marketplace..
Okay, great. And so would it be safe to assume that as you invest short near term the gross margin might see a little bit of pressure or be in that mid-20s range that has been in the past couple of quarters..
Okay, great. And so would it be safe to assume that as you invest short near term the gross margin might see a little bit of pressure or be in that mid-20s range that has been in the past couple of quarters..
Yes Jeff, I think that’s fair because when we hire from college campuses, it’s -- typically the hiring is done between the second quarter and third quarter.
That’s when we get fresh graduates who come and join us and therefore there is an uptick in the number of resources that we’ve hired, we invest in their training and their development and as they become productive we start to recognize the benefits of revenue and utilization and therefore the gross margins would increase as these individuals become more productive..
Jeff this is Vishal. As I mentioned in my script, we do anticipate the gross margin will improve for both our transformation and outsourcing business in the second half as we have better utilization of our infrastructure and people. So we anticipate the gross margins to improve in the second half..
And finally on the transformation side, last question; you called out by vertical financial services and healthcare.
Just any other commentary that you are -- regarding demand for transformation for the other verticals?.
And finally on the transformation side, last question; you called out by vertical financial services and healthcare.
Just any other commentary that you are -- regarding demand for transformation for the other verticals?.
Yes, certainly. For us in within decision analytics, we saw clients across multiple verticals.
We do see strength in banking and financial services as well as in healthcare but we are also establishing a good presence in new verticals and recently we’ve signed up some new clients in the retail industry vertical and we are really happy that we can leverage our skill sets across industry verticals and participate in the growth that’s taking place across business verticals..
Thank you. And our next question comes from the line of Sashi Tanuku of Citigroup. Your line is now open..
So just a few questions on the revenue guidance.
When you are raising the guidance is it fair -- are you assuming at the first half base it $242 million or the $249 million with the disentanglement cost there?.
The is Vishal. The revenue guidance is excluding the disentanglement cost in fact. So we are assuming that the first half is $249.7 million and that is factored into the guidance for $490 million to $503 million..
And I think you guys commented on this. What was the impact from Blue Slate and in terms of the guidance as well, what’s the impact from Blue Slate going forward as well. .
So the first half revenue of Blue Slate was 3 million and we’ve assumed same run rate in our guidance..
And one more question.
In terms of the impact of the disentanglement costs, can you comment on there to margins and the tax rate?.
Sure. So the impact of disentanglement cost on the gross margin is about 3.1%, the impact of disentanglement cost on our G&A line is about 0.6%, on sales and marketing 0.4% and on D&A, 0.3%. On the tax rate, as the disentanglement cost reduces our U.S. income, the tax rate would be better for us as we make less income in U.S.
And that’s why when we give our full year guidance, we expect the tax rate to be in the mid-20s, which is lower than what our previously guided number was..
Thank you. And our next question comes from the line of Anil Doradla of William Blair. Your line is now open..
Hey, guys. I had a couple of questions. You talk about giving more color on the Carvajal in the next earnings, but it sounds like Carvajal is more IT centric and the deal is not binding. So can give us a little bit color, what was the catalyst for the deal? Was it in particular end market or set of customers? And I had a follow up..
Sure Anil. So the joint venture MOU that we have signed with the Carvajal Group is only for the operations management and outsourcing business segment. And as we mentioned in the call, this is for finance and accounting of complex customer service and clinical work that we intend to do within this joint venture.
Carvajal will be contributing its own internal set of people, which is approximately 500 FTEs that will be part of this joint venture and we would have a 51% stake in this joint venture.
Right now this MOU is non-binding and we would work with the Carvajal Group to get to final definitive documents and the signing of this agreement over the next few months..
Okay. And analytics is now about 12%, solid trajectory.
Going forward, do you foresee a situation where you maybe give a little bit more color, breakdown, the transformation part of your business, where you breakdown analytics as the separate line item? And kind of big picture, clearly the trend of BPO plus analytics is influencing not only you but many of your peers.
But stepping back, we would love to hear why you are winning deals with your analytic solutions and how you are differentiating yourself?.
Sure, and I think that’s a great question. Let me just kind of give you our perspective on the decision analytics. So from the bigger picture I think there suddenly seems to be a lot of interest in the marketplace on analytics.
The demand for analytical services is exploding and everybody seems to be moving towards adopting analytics in every part of their business.
I think a couple of years ago, decision analytics and the science of analytics used to be adopted by clients as discrete projects in their work and now they are making it part of their business and it’s being integrated into their business across every function, every division, every operation and I think that’s what is driving the growth out here.
I think for EXL, clearly our decision analytics business is resonating extremely well with our client base and with the marketplace and there are a couple of reasons why we think we’re succeeding in decision analytics and why that’s becoming a much more stronger business line for us.
First of all, I think our positioning within decision analytics is strong. The work that we do is largely in the area of creating business models and in insight generation. And I think that’s an area where we can add tremendous amount of value to our customers and again the need for these types of services is very high.
We are also positioned to do a lot of work around risk management as well as payment integrity in a solution and again particularly within the banking and financial services and healthcare these are core areas of need amongst our client base. We’ve also invested in a dedicated sales force for analytics and that seems to be playing out well.
The quality of talent that we have within the decision analytics business is very, very good and we’ve got top notch professionals who are data scientist and client managers who are engaged in these businesses with our clients.
And I think we have perfected the art of the duel shore operations in decision analytics which allows us to deliver a lower cost structure and a much better benefit to our customers. So I think this is all playing out well and I would also say in closing that I think for us decision analytics plays out two ways.
It plays out by the fact that we’ve started to embed analytics into our operations management business and within the business EXLerator Framework as well as we are able to go to our clients, offer them the insights and then take the insights to execution.
So the ability for us to offer end-to-end services and combine BPO and outsourcing along with analytics becomes a very powerful tool for us to leverage the opportunity in the marketplace..
Thank you. And our next question comes from the line of Manish Hemrajani of Oppenheimer. Your line is now open..
Follow up question on the analytics. You had talked about real urgency among analytics clients to get deployed last quarter and you certainly saw that come through in your results.
Was the ramp-up faster that you had expected and how do you see the rest of the year shaping up on the analytics side?.
Follow up question on the analytics. You had talked about real urgency among analytics clients to get deployed last quarter and you certainly saw that come through in your results.
Was the ramp-up faster that you had expected and how do you see the rest of the year shaping up on the analytics side?.
Yes Manish, I think the visibility for us on the analytics business is becoming better and better as we move towards more annuity based contracts and a greater proportion of our decision analytics business is now done from offshore under an annuity contract format. And so that allows us to get greater visibility.
We have tremendous confidence in the growth of this business and that’s why we’re hiring 350 additional resources from the colleges and campuses.
This is by far the largest set of hiring that we’ve done in any year and we continue to expand our investment in our people, in our training methodologies, in our infrastructure and in our ability to create proprietary tools that we can leverage in our decision analytics business.
So it definitely is an area of growth and investment for us and we are very confident about the growth that we expect to see in the second half of the year..
So Manish as I mentioned earlier, we do expect the DA to have sequential growth in the second half for both the quarters..
Okay, got it. And then you talked DA headcount being up 20% sequentially.
So your analytics headcount will on 1450 is that correct?.
Okay, got it. And then you talked DA headcount being up 20% sequentially.
So your analytics headcount will on 1450 is that correct?.
Yes, I think that is correct..
Okay, got it. Your attrition rate over the last couple of quarters has risen by 900 bps.
Can you throw some more color on that and what steps are you taking to address that rise?.
Okay, got it. Your attrition rate over the last couple of quarters has risen by 900 bps.
Can you throw some more color on that and what steps are you taking to address that rise?.
We think the attrition rate has ticked up due to a couple of reasons. One is there is -- with some of the client transitions that are taking place right now and that is certainly causing an increase in the attrition rate. The second is typically we give out salary increments in April and post April we do see some amount of churn that takes place.
The part that we’ve been very careful on and we monitor very closely is how is the attrition tracking for mid and senior level management within the company, as well as how is the attrition tracking for our high potential employees and I think for us the fact that the attrition rate for our mid management and for our senior management as well as high potential employees, that continues to remain very stable.
So we are very confident that this attrition rate will turn down once the transitions are over and we will return back to the normalized rates of attrition that we had previously..
Thank you. And our next question comes from the line of Jason Kupferberg of Jefferies. Your line is now open..
This is Amit Singh for Jason Kupferberg. So just to come back on the disentanglement cost again, I know you guys don’t provide a natural dollar sort of guidance on this. But in the first quarter you had an expense of around 2.5 million. In the second quarter it was 5.7 million.
So just to give us a general idea of the trend, is that supposed to go up from here or is it more or less plateaued or should we expect it to come down over the next two quarters?.
Amit, this is Rohit. On this subject, we really have no comment because we really do not know where this number will end up and this is something which is extremely difficult for us to estimate or analyze and that’s why we’ve consciously chosen to stay away from making any guesses on it.
Unfortunately we can’t provide you with any further color on this..
Fair enough. And on the Travelers contract, out of the $12 million to $20 million impact that you were expecting in fiscal 14, how much of that has already gone through your P&L? And also on the OPI client transition, I think already you had said that would impact your fiscal ’14 revenues by 2.5% to 3%.
So any update over there?.
So the only updates that we have provided are the annual updates on what we expect the impact to be and those continue to remain consistent with what we had previously shared. And as I have said earlier, the Travelers transition will take place over an 18 month period.
And it’s going to continue to take place through the end of this year and into the first quarter of next year. We do not break out the client transition revenue impact by quarter. And we just know what the annual estimate would be and we’ve shared that with you..
Thank you. And our next question comes from the line of Adam Dahms of Baird. Your line is now open..
Just one quick one on the revenue guidance. It looks like at the midpoint you guys pick it up about $6 million to $7 million and it seems like about half of that comes from your expectations from the Blue Slate acquisition.
Of that remaining like $3 million to $4 million, how much of that is coming from that new joint venture and how much from like just core operations?.
Adam, this is Rohit. We have not factored any revenue increase on account of the joint venture right now.
So this is -- all the increase that’s taking place is on the basis of the strength of the revenue that we have seen in the first half and it’s the organic growth rate that we have experienced, both in the outsourcing and the transformation business.
Once the joint venture is signed, we will provide additional color on the revenue impact onto our guidance..
And then I guess just one quick follow up.
Margins from the Blue Slate acquisition, is that similar to kind of your overall business right now? Is there anything to point out there?.
Yes, this is Vishal. I think the margin profile would be similar to our corporate profile as of now..
Thank you. And our next question comes from the line of Tien-Tsin Huang of JPMorgan. Your line is now open..
This is Puneet in for Tien-Tsin. So I would go back to disentanglement costs.
I understand it’s difficult to predict such expenses, but was 5.7 million and these expenses that you reported in 2Q, were they all related to transitions that has happened until second quarter or did they also include some expense related to upcoming transitions?.
So Puneet, the disentanglement cost that we have referenced and provided color to in our second quarter are the payments that we have made to our client associated with the transition and disentanglement. It basically represents a reduction of our revenue and our profitability by that amount.
And it’s entirely due to the transitions that are taking place..
But are these payments related to the transactions that have already happened or are there payments related say for preparing -- in preparation for future transitions?.
It could be both..
Thank you. (Operator Instructions). And the next question comes from the line of David Grossman of Stifel. Your line is now open..
I wonder if I could just get a couple of details and sorry if I missed these. I think you said that the Travelers piece would be a $12 million to $20 million year-over-year impact this year. When you add OPI, could you just remind us where we are in terms of total dollars year-over-year impact in ’14 and what’s your expectation is for ’15 as well..
Hi, David. As I we had mentioned in the prior earning call, the Travelers impact is $12 million to $20 million and the OPI client transition impact is about $8 million to $10 million..
And is that all -- and that’s 2014 right Vishal?.
Yes..
And how about for 2015?.
The 2015, we can’t comment about it right now.
So David, the way to think about it is that the reduction in revenue in Travelers that takes place, we would expect all of that to go away after Q1 of 2015. So it just depends on what the residual number is for Q1 and at this point of time we don’t have a good estimate of that..
And the second, just another detail I think you mentioned but I didn’t catch it was on the FX impact. Was that for the year or for the second half only, Vishal or maybe you could just share with us again what your expectations are for FX in the back half of the year in terms of dollar impact..
David, you’re talking about the FX gain or loss?.
Yes..
Yes, the $1.5 million to $1.8 million was the second half impact that we expect for the FX gain or loss. So it will be again expectation of a gain of $1.5 million to $1.8 million and we’ll have to then add first half loss to get to the full year number..
Thank you. And I’m showing no further questions at this time. I’d now like to turn the call back over to Rohit Kapoor for any closing remarks..
Thank you operator and thanks everyone for joining this call. We continue to make good progress this year as we build up our business lines across various segments. We look forward to continuing to grow and build EXL and we look forward to you joining our next conference call for the next quarter. Thank you..
Ladies and gentlemen, thank for participating in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone..