After delivering an excellent performance last year driven by acquisition and organic growth (see Exl ‘excels’), offshore BPS pure play ExlService has delivered another strong set of results in Q4/FY12, meeting its targets for the year.
Q4 revenue was up 15% (16% in constant currency), and up 23% in the full year to $442.9m (27% ccy). The acquisition of $20m revenue healthcare BPS player Landacorp in October (see Exl reverses margin trend) is unlikely to have contributed more than a couple of points to the top line, although May 2011's big acquisition of Outsource Partners International (OPI) (see Exl pays $91m for F&A specialist OPI) will have fed some inorganic revenue through. Stripping out the effects of these deals, we suspect organic growth was still in double-digits.
Profitability is also heading in the right direction. The Q4 operating margin rose to 13.2% vs. 12.4%, and in the full year rose to 12.9% from 11.5% last time. Good news is that the margin growth is being driven by increased business, rather than cost cutting seen at some of its rivals like Firstsource (see here). Headcount was up nearly 1,000 over the previous quarter to 21,049, and up 11% on this time last year. Also encouraging is the number of new clients coming on board – 41 in total in 2012 with 17 in analytics including with retail banks and six in F&A, vs. a total of 17 in 2011. This should help keep the top line heading north in FY13. Exl expects FY13 revenue of $495m to $505m (effectively 12% to 14% up on FY12) – we assume this would also be largely organic.
Exl is seeing growth in both its traditional outsourcing (lift and shift) services (up 25% in FY12), and newer transformation services (up 15%), which include its decision analytics and service and solution offerings such as claims process optimisation, integrated marketing and risk analytics, and application fraud detection. The key will be to get the transformation services business feeding off of the traditional outsourcing business, to ensure higher margins from recurring revenue operations. While Exl is growing well in outsourcing there should be plenty of upside potential for transformation services in FY13.