On Tuesday, Jarrod Yahes, senior vice president and treasurer, presented at the 34th Annual Growth Stock Conference. We were encouraged to hear that the overall demand environment and pipeline remain healthy. In addition, the company is witnessing traction within its platform offerings as clients are increasingly seeking business process-as-a-service solutions (BPaaS). While the contribution from these solutions remains small, we believe the company’s BPaaS offering will grow at a faster pace than the overall company.
We believe ExlService continues to be well positioned to capture the large outsourcing opportunities in healthcare and insurance (given its deep vertical expertise and robust capabilities), but given continued headwinds from the loss of its largest customer, we would remain on the sidelines for now. Shares currently trade at 14.6 times our calendar 2015 pro forma EPS estimates, a slight discount to the peer group. We maintain our Market Perform rating. Loss of largest customer continues to provide headwinds: ExlService continues to wind down its engagement with its largest customer, which represented roughly 10% of revenues.
The ramp down is expected to continue through calendar year 2015 (there will be no contribution from the customer is 2016). Guidance for 2014 calls for 0%-5% growth, but excluding the ramp down of this customer, revenue growth would be 8%-13%. Analytics is becoming an increasingly important trend in the BPO industry. Representing roughly 10% of revenue, management expects this area (which is part of the transformative business segment) to be a key growth driver moving forward as it provides incremental revenue opportunities at both existing and prospective clients.
With less than 5% of revenues from BPaaS, management believes this segment will continue to outgrow the company’s overall revenue growth over the next several years. We believe these solutions deepen ExlService’s expertise in healthcare and insurance, in addition to providing the benefits of moving toward a transaction-based pricing environment. The continued focus on automation in a client’s business process, combined with the growth of BPaaS and analytics, should allow the company to increase its average revenue per billable employee. Historically, the top line has grown in line with the company’s workforce (and thereby witnessing limited margin uplift); however, we believe leverage in the BPaaS model should incrementally expand operating margin as the company will not be required to increase its workforce at the same pace as revenue growth.