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Angled At Analytics: The New EXL Makes Three Acquisitions In Seven Months And Insures a Health-y Start to 2015

What a difference a year makes for EXL. It entered 2014 under the cloud of the loss of two contracts, including the unfortunate termination Travelers (which had accounted for nearly 10% of total revenues in 2013) because of inappropriate behavior by an employee. So it started the year facing significant revenue headwinds.

A year later, EXL delivered full year 2014 revenues that beat revised non-GAAP guidance by $11.6m, finishing the year with 9% growth in Q4, bolstered by better than expected contribution from the recently acquired Overland Solutions (OSI, $12.2m, against the anticipated $10m).

By service type,

The newly named Operations Management segment (formerly ‘Outsourcing’), continues to represent over three quarters of total revenue and was up 2.7% y/y, or 11% excluding disentanglement costs
The ‘Analytics and Business Transformation’ segment delivered double digit topline growth every quarter, and 31.9% growth in 2014 overall, reaching $110.6m. EXL’s analytics services business grew 44% in 2014, and now account for 13% of revenue, or $66m. Including contributions from its latest acquisition, RPM Direct, EXL expects its analytics business to reach over $100m in annual revenue in 2015 (or ~20% of total revenue).

Though details of the ‘new EXL’ won’t be revealed until the Investor Day next week, the journey that has been made by EXL this year has been marked by three specialist acquisitions within seven months, the third announced only this week.

The spending spree started off reasonably small, with Blue Slate Solutions last July for $7m. Blue Slate generates ~85% of its revenues from health insurers (including Medicare contractors) and brings with it a consulting framework that EXL is integrating into its BPO and healthcare technology and analytics capabilities. Blue Slate brought to EXL a specialist onshore staff with domain experience in the U.S. health insurance sector
The October acquisition for $53m of OSI further added to EXL’s onshore delivery network in the U.S. and to its BPaaS offerings for P&C, particularly in workers’ compensation premium audits
- These two acquisitions will bring in over $105m incremental revenue in 2015, more than offsetting the headwind of ~$49m from transitioning clients. As well as onshore resources, both have developed proprietary tools and frameworks to support their service delivery
The third acquisition, yet to be completed, is of RPM Direct (for $47m in cash plus earn outs of up to $23m). RPM Direct will enhance EXL’s marketing analytics capabilities in U.S. insurance, across P&C, life and health segments. EXL had indicated a year ago that marketing and customer analytics are focus areas within its “Decision Analytics” services unit. RPM will broaden the range of services EXL can offer to insurance sector clients

All in all, EXL will have invested over $130m in these three acquisitions, all of which

Boost its onshore presence in the U.S
Bring in IP (tools, frameworks, marketing database)
Bring in specialist domain capabilities in the health payer and other insurance sectors
Broaden its U.S. client base.

Looking ahead to 2015, EXL has given revenue guidance of $570m to $590m, excluding any impact of RPM, a growth rate of 8.5% to 12.5%. Q1 is the last quarter where revenue headwinds from transitioning clients will have a significant effect.

EXL is developing analytics CoEs, particularly in support of healthcare and insurance and is expecting to sign a number of $10m plus annual revenue clients. Will we see further tuck-in acquisitions to further expand its capabilities in different areas of analytics for insurance and healthcare in 2015? The indications are that this is very possible.

EXL started emphasizing its analytics offerings around 18 months ago: at the time, much of the portfolio was based on India delivery. EXL today has a much richer portfolio to offer in its target verticals in the U.S.

Meanwhile, the U.K. , which accounts for over 20% of global revenues, delivered a strong year; EXL does not provide constant currency growth figures, but reported revenue growth for the U.K. in 2014 was 10%, all of which organic. Were EXL’s spending spree to continue into 2015, maybe U.K./EMEA will come higher up its investment priorities.

Finally, EXL has authorized a three-year $20m annual share repurchase program to offset share dilution from annual employee equity grants.

We note that EXL’s share price is at its highest for over two years and has surged by ~20% since the beginning of the month.

By Fiona Cox and Rachael Stormonth

NelsonHall will be producing its first ever Key Vendor Assesment on EXL in March.

Aligning Cost to Performance: How Digital Transformation is Nurturing the Insurance Industry

Blonde hair, blue eyes, fair skin – we know about our physical make up... what about our digital make up? What does our Code Halo say about us? And more importantly – who does it say it to? How is this “changing the rules”?

Yesterday, Cognizant launched its book: Code Halos, which looks at the way in which our digital composition is changing the way industries operate. Though we can’t see it, we all have a ‘Code Halo’; it is our digital finger print that comprises our tastes, preferences and lifestyle choices, based on our digital interactions.

Although this is far from a new concept, it seems that the world in which we live is moving through different generations of Code Halos, without us necessarily knowing about it. We’re aware of how they impact on our social media interactions, our shopping experiences and our online movie choices, but there is no reason it should stop there. And it isn’t. Code Halos can be used, and are starting to be used in areas such as banking, financial services and insurance with a view to creating the most highly customized products, packages and pricing available to individuals.

After banking, the insurance sector is the most economically impacted by the application of business analytics; this is evident through the number of insurance BPO providers delivering some form of analytics services to insurers today: 100% of major P&C BPO providers offer some form of analytics (notably CAT Modelling, offered by around half of providers - nearly double that of 10-years ago) and ~60% of LA&P BPO providers are doing the same. To date, analytics in insurance has existed to help eliminate, fraud, risk and leakage – that still remains, but the existence of Code Halos is providing another level of detail about the way individuals live, which is allowing insurers to tailor what the bring to market – and how they price it.

An obvious example is in the the increasing use of telematics in the auto insurance industry. So far, insurers have relied on estimates to price policies, but the introduction of the little black boxes in cars enables insurers to know about individual’s behavior behind the wheel: how fast they move off, how suddenly they break and the times of day they drive. This information paints a picture about the sort of drivers that they are and how likely they are to have an accident.

But there is scope to take this further still – Code Halos provide an insight into individuals behaviors before they even get behind the wheel or what they are doing when they reach their destinations, all of which tells a story about the way in which they choose to live their lives which ultimately helps to assess how their auto insurance packages should be tailored and how it should be priced – to ensure the driver gets the most reflective service for how he or she is acting 24/7.

The same is true in health insurance where providers of healthcare can reward customers who choose to maintain good health – to the point where companies are developing tooth sensors to monitor eating habits and oral hygiene. This gives providers of dental cover a true insight into how their customers are living and what sort of products would be most suitable to their lifestyles.

There is simply no longer a need to make estimates on how to price insurance policies or guess which products would suit the needs of individuals based on mass analysis. Code Halos allow insurers to truly know their customers and understand what they need to bring to market for them.

There is understandable concern over who can get hold of all of this data and exactly what can be done with it – especially since much of it is outside the individual’s control. The Code Halos book discusses the need for an ‘Opt-In’ mentality, rather than ‘Opt-out’; this way, consumers of insurance, finance and anything else do not feel that their privacy is violated and the relationship remains ‘truly elective’. Likewise, although there is little chance of the law catching up any time soon with the speed at which technology moves, it is likely that legislation will be implemented in developed countries which will ensure best practices are adhered to with respect to Code Halos usage and hopefully remove any possibility of the ‘dark side of the Halo’.

Ultimately: knowledge is power and in a world where it seems information knows no limits, the important take away from Code Halos is how to best manage the information to ensure individuals and organizations alike can receive reflective and accurate outcomes.

In Q3 2014 NelsonHall will be looking into how digital transformation is impacting the Insurance industry, and how providers of Insurance BPO are working with insurers to make the most of Code Halos to reduce their own costs and provide a more complete customer experience.