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ExlService Holdings Inc (NASDAQ:EXLS)
Q3 2019 Earnings Call
Oct 29, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Quarter Three 2019 ExlService Holdings, Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. To be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Steven Barlow. Please go ahead, sir.

Steven N. Barlow -- Vice President, Investor Relations

Thank you, Sidney. Good morning and thanks everyone for joining EXL's third quarter 2019 financial results conference call. I'm Steve Barlow, EXL's Vice President, Investor Relations.

With me today in New York are Rohit Kapoor, our Vice Chairman and Chief Executive Officer; and Vishal Chhibbar, our Chief Financial Officer. We hope you had an opportunity to review our third quarter 2019 earnings release we issued this morning. We 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 earnings, 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 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 on the investor fact sheet.

I'll now turn the call over to Rohit Kapoor, EXL's Chief Executive Officer. Rohit?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Thank you, Steve. Good morning, everyone and welcome to our third quarter 2019 earnings call. I'm delighted to report that our third quarter was strong and our revenues this quarter, on an annualized basis exceeded $1 billion, this is a significant milestone in the company's history for which I would like to thank our clients for their trust and our employees for their hard work and dedication.

During the quarter, we generated revenues of $251.4 million, which represents an 8.8% increase on a reported basis and 9.3% increase on a constant currency basis, excluding Health Integrated revenues grew by 9.8% on a constant currency basis. Adjusted EPS for the quarter increased 18.3% to $0.84, excluding Health Integrated, adjusted EPS for the quarter was $0.88. In the first nine months of the year, our revenues grew by 14.3% on a constant currency basis to $734.5 million and our EPS grew by 13.9% to $2.30, the company has performed very well and the year is strong in terms of overall performance.

In the third quarter, our operations management business reported a $162.6 million in revenue, up 9.6% year-on-year and 10.1% on a constant currency basis. Excluding Health Integrated operations management grew by 10.9% on a constant currency basis, which is the highest growth rate since the third quarter of 2015. We had strong performance in the insurance vertical, which grew by 20.9% and the Healthcare vertical, which grew by 26.5%.

I am pleased with the momentum that we have built up in our operations management business. In the first nine months of the year, we achieved a growth rate of 7.2% on a constant currency basis, which is the highest in the past four years. We have grown across geographies [Technical Issues] industry verticals and businesses. Operations management comprises approximately 65% of our revenues which are annuity based and inherently sticky in nature. This creates a great run rate for our future growth. During the quarter analytics revenue grew by 7.8% year-over-year on a constant currency basis to $88.8 million this is the first quarter in which revenues from SICO Health Analytics are included in our overall Analytics revenue on an organic basis. The growth rate of the Analytics business this quarter was impacted by a lower growth rate in SCIO and a proactive exit of some of our small, low margin and non-strategic client engagements. As part of prudent portfolio management, we will continue to drive these types of actions in a systematic manner. However, looking at the first nine months of the year, excluding SCIO, Analytics grew 15.3% on an organic constant currency basis. We continue to bring new clients in both our traditional Analytics business as well as SCIO and our pipeline continues to be strong. We remain confident of our long-term growth expectations of the combined Analytics business at 12% to 14%.

Now I would like to discuss two imperatives, which are critical to our long-term growth and sustainable success. The first, large strategic deals we are winning due to our ability to reimagine business models as a strategic digital transformation partner and two our company wide efforts to enhance our digital talent and leadership. Talking about the first competitive, we are winning large strategic deals that include reimagining business models and driving end to end transformation. Our clients need transformation partner of like EXL, who have a deep understanding of their business and the ability to orchestrate domain knowledge with capabilities across the full stack of data and analytics, technology platforms and digital solutions.

Our ability to reimagine business models and deliver sustainable outcomes has driven increased collaboration with C-suite executives, who have a strong appetite to drive large scale change. We are also able to deliver enhanced value to our clients through a combination of innovative deal constructs, transparent pricing models and partnerships for accessing niche talent and technology. This has enabled us to take on a more strategic role in solving client business problems and ultimately deliver tangible long-term business impact for our clients. This is reflected in the nature of our pipeline as well as our recent wins and I would like to share three such examples today.

First, we were recently chosen as the strategic partner to reimagine, build, and optimize the actuarial function of a leading global insurance company. This is the largest insurance Analytics deal we have ever won. It is a significant win in terms of the complexity of the work and the scale of the program. We have established a unique model that reimagines the actuarial function of the future which redesigns processes to align work with the right skilled resources, automates a significant portion of repetitive actuarial task and leverages our highly skilled global scalable talent pool of actuaries.

EXL partnered with a leading consulting firm to combine our domain expertise, talent and capabilities to drive this multi-year transformation. We plan to leverage this partnership for other deals with our global insurance clients. Second, we were recently awarded the mandate to transform and operate the employee benefits customer services center for a large life and annuities client. This win is a direct consequence of our deep expertise in the employee benefit space, the strength of our front office digital transformation capabilities and our strong understanding of the clients business. This engagement also underscores the growth trajectory of our employee benefits practice and the majority of our service offerings. Moreover, we are currently pursuing other engagements with the same client on the back of the quality of our delivery and the cross we have built over time.

Third in the Healthcare space, we recently expanded our relationship with the commercial services organization of a Fortune 50 company leveraging EXL's customer experience framework we are supporting their members by addressing benefit, eligibility and claims experience from our delivery center in Bogota Colombia. Our team is also able to tightly coordinate with other departments to expedite resolutions and enhance the complete member experience.

Our clients are experiencing profound shifts in their business and expect tangible results from their digital investment. Our ability to their strategic digital transformation partner depends on the talent that we develop. At EXL we have pursued our thoughtful and deliberate strategy to acquire, develop, and organize our talent base as a key source of competitive advantage.

Our talent development strategy is comprehensive and founded on three pillars. Digital leadership, Digital technologies and methodologies, and digital culture and mindset. Digital leadership has the ability to partner with clients on digital solutions end-to-end from strategy to execution. This means developing and acquiring professionals who are proficient in both business and technology. These leaders proactively consult clients on digital transformation opportunities in the context of their industries and orchestrate solutions to deliver tangible outcomes.

Digital technologies and methodologies develop expertise around specific technologies, tools, and framework required to successfully execute projects for our clients. Our capability efforts are directed toward training on technologies such as cloud, big data tools, automation, AI, and methodologies such as agile [Phonetic] and solution development framework.

Finally, digital culture and mindset is all about creating the right DNA [Phonetic] for high performance in a digital economy. This includes developing phase of agility and speed, creating a culture of innovation and collaboration and fostering a mindset to reimagine and think beyond. Digital culture also build the foundation of self-learning and spurs the desire for change among all of our employees.

In addition to attracting market leading talent and organizing our teams in an integrated client facing model we have trained more than 27,000 employees on digital intelligence and our Digital EXLerator Framework. All our leaders are pursuing a digital certification program that is focused on domains, technologies and solutions. More than 6,000 of our digital and analytics experts stay ahead of the market through self learning and programs on advanced analytics, data management and automation. Our client phasing leaders regularly go through programs on how to implement large scale change management and reimagine business models through digital blueprints and diagnostics.

We have always believed our talent to be a differentiating factor, and with this investment we continue to remain ahead of the market and enjoy the confidence of our clients. Additionally, the analyst community has responded very positively to our transformational delivery and digital talent. EXL was positioned as a leader by Everest Group for the fourth year in a row in the 2019 PEAK Matrix for Life and Pensions insurance BPO. We were also recognized as leaders in Everest Clinical Care Management, BPS Services, PEAK Matrix which specifically noted, our leadership position in the category of strategic vision and capability.

In closing, our pipeline remains strong and includes strategic engagement with larger scale and scope with the proposition of end to end transformation integrated technology enabled solutions and innovative deal construct. We have a healthy pipeline in Operations Management across market segments, industry verticals and geographies. We continue to see a strong demand for our Analytics business and have a deep pipeline of large multi-year deals that demonstrate market interest in our full stack of analytics offerings along with end-to-end data management and analytic solutions. Overall, we are positioned very well to meet our growth aspirations. I'm excited as the market activity remains bullish and the opportunity space keeps growing and evolving.

Lastly, as you know, after 10 plus years with EXL, Vishal has decided to pursue other opportunities. We thank him for his contributions and wish him success in his future endeavors. We are working with a global executive search form and we'll provide an update when appropriate.

With that I will hand it over to Vishal.

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

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 third quarter and nine months of 2019 followed by updated guidance. We had a strong quarter with revenues of $251.4 million, up 9.3% year-over-year on a constant currency basis. An adjusted EPS of $0.84, up 18.3% year-over-year.

As you are aware, we are winding down the Health Integrated business substantially by December 31, my discussion of the financial results encompassing revenues in expenses, will exclude the impact of Health Integrated in order to underscore performance of the core business. I will discuss Health Integrated separately later in my remarks. All revenue growth numbers mentioned here and after are on a constant currency basis. We generated revenues of $248.5 million, up 9.8% year-over-year sequentially revenues grew 3.6%.

For the quarter, revenues from our operations management business have defined by five reportable segments excluding Analytics were $159.8 million, up 10.9% year-over-year. This is the highest growth rate in the last 16 quarters. This growth was driven by clients from Insurance, Healthcare, and Finance & Accounting segments. Insurance continued its double-digit revenue growth performance with 21.7% year-over-year growth. This is our highest quarterly growth rates in 2015, this growth was driven by expansion in multiple existing client relationships and ramp ups of 2018 wins. Revenues were further boosted by license sale, revenues of approximately $2.5 million.

Healthcare shows strong improvement with a year-over-year growth of 26.5%. This is the highest growth rate in the last 13 quarters. This growth was driven by new business expansion and existing client relationships. Finance and Accounting grew 8.7% year-over-year -- driven by ramp ups of 2018 events. Analytics continue to perform well with revenues of $88.8 million, up 7.8% year-over-year, or 15.3% year-to-date on our organic business. This growth was driven by a new client -- by new client wins, expansion of existing client relationships in banking and finance and utilities verticals. Sequentially, Analytics grew 1.3%.

Adjusted operating margin for the quarter was 15.3%, down 10 basis points year-over-year due to investments in digital capabilities. Adjusted operating margin was up 70 basis points sequentially primarily driven by operating leverage and investments made in Q2 for planned ramp ups. Our adjusted EBITDA for the quarter was $45.4 million compared to $42.3 million last year, up 7.3% year-over-year. Our GAAP tax rate for the quarter was 23% excluding the impact of discrete items namely prior period benefits and the revaluation of deferred taxes, our normalized tax rate was 27.4%. Our expected range for the tax rate is 26.5% to 27.5%. Our adjusted diluted EPS for the quarter was $0.88 up 15.8% year-over-year.

Now moving to nine month performance excluding Health Integrated. Our revenues for the period were $724.8 [Phonetic] million up from 15.2% year-over-year. This growth was driven by double-digit growth in Insurance, Healthcare, Analytics and Finance & Accounting segments. On our organic business, EXL grew 9.6% with operational environment growing 7.2% and analytics 15.3% year-over-year.

Our revenue per employee was $32,200 up 1.9% year-over-year. Adjusted operating margin for the period was 14.8%, down 30 basis points year-over-year, driven by increased investments in digital capabilities and solutions. Adjusted EPS for the period was $2.47, up 13.3% year-over-year. We generated strong cash flow from operations of $106 million in the first nine months of 2019, compared to $47 million for the same period last year. The increase was driven by higher EBITDA and better working capital management. DSO are flat at 60 days.

During the first nine months of the year, we spent $32.3 million on capital expenditures and repurchased 564,000 shares for $34.5 billion under the share repurchase program and we paid down $40 million, -- $41 million on our revolving credit facility. We are at $280.8 million of cash and short-term investments and borrowing of $244.8 million resulting in net cash of $36 million as of 30th, September 2019.

Now I would like to briefly discuss the Health Integrated business. I'm happy to confirm that Health Integrated will be substantially come down as of 31st, December when we complete our contractual commitments. There will be no revenues in 2020 and hence no material impact to our earnings in 2020. Revenues for Health Integrated were $2.9 million for the quarter compared to $3 million in Q2, 2019. Health Integrated had a dilutive impact of 100 basis points on our adjusted operating margin leading to an adjusted EPS loss of $0.04 for the quarter and $0.18 year-to-date.

In addition, we recorded impairment and restructuring charges of $489,000 for the quarter, which is excluded from the adjusted EPS. For 2019, we expect revenues of approximately $12 million and adjusted EPS loss of approximately $0.25, unchanged from the midpoint of the guidance given last quarter. Year-to-date, we have recorded restructuring charges of $7.3 million and on a full-year basis, we expect to incur pre-tax impairment and restructuring charges in the range of $8.5 million to $10 million as mentioned last quarter.

As the exist [Phonetic] cost are one-time cost, they are excluded from our adjusted EPS and -- are not part of our guidance. Cash expenditures in connection with the wind down are estimated to be in the range of $7 million to $8 million as communicated earlier. Now moving to our guidance for 2019, we are narrowing our revenue guidance to $980 million to $990 million from $976 million to $996 million based upon our first nine months performance and increased visibility for the rest of the year, this includes $12 million of Health Integrated revenues. Our mid-point of a guidance declined by $1 million [Phonetic] to $985 million owing to a $2 million FX headwinds since our last guidance. This guidance represents a 12% to 13% year-over-year constant currency growth, increased from our previous guidance of 11% to 13%.

Sequentially for Q4, we expect revenue to be flattish driven by seasonality and no anticipation of licenses sale in the quarter. Our adjusted EPS guidance has increased to $2.95 to $3.05 from $2.86 to $2.98 for a midpoint of $3, up from $2.92 from our previous guidance. Excluding Health Integrated, our adjusted EPS range is increased to $3.20 to $3.30.

In conclusion as Rohit mentioned, the business is healthy, and we have delivered nine-month revenue growth of 9.6% year-over-year on our organic constant currency basis excluding Health Integrated. Adjusted EPS excluding Health Integrated was $2.47, up 13.3% year-over-year. Our business is performing well with the improving revenue growth trends. We are confident that we will exit the year with strong momentum for 2020.

Now Rohit and I would be happy to take question.

Questions and Answers:

Operator

[Operator Instructions]. And our first question comes from Mayank Tandon with Needham & Company. Please proceed with your question.

Kyle Peterson -- Needham & Company -- Analyst

Hey, good morning. This is actually Kyle Peterson on for Mayank. Thanks for taking the question. I just wanted to touch on the ops management. The growth came in bit stronger, it seems like it's inflecting, in the commentary was all positive. Is this growth rate kind of something we should think about is potentially being sustainable moving forward or whether they're just a few deal wins and kind of everything -- kind of fell into place just wanted to see how we should think about that piece of the business.

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Sure, Kyle. So our ops management business, the momentum is certainly accelerating and we are very, very pleased with how the pipeline is developing, how we've had some of the new wins and saw -- and how some of our clients are ramping up on their business with us. The growth rate in the third quarter of 10.9% did include a one-time license sale that we had which Vishal mentioned of $2.5 million, but the rest of the business was pretty much growth as normal. So our expectations are going to be that the growth rate of the ops management business is going to continue to remain strong as we move forward.

You would have seen that, the growth rate of our Insurance and Healthcare industry verticals in operations management was particularly strong. These are areas where we've got strong leadership positioning as well as the market size and the opportunity out here is enormous. So we are very confident of being able to continue to build and grow our business here. Longer term, our growth rate expectations from the operations management business, continue to remain between 5% to 7% growth rate on our organic constant currency basis.

Kyle Peterson -- Needham & Company -- Analyst

Great, that's helpful color. And then just as a follow-up on the analytics piece. I know you guys mentioned, the SICO revenue came in a little soft, was that just related to either seasonality or kind of lumpiness just in kind of the client [Phonetic] processing or is there something -- anything we should be concerned about with demand or client headwinds or anything like that?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Yes, so revenues from SCIO in the third quarter was certainly softer than what we had expected. However, I think what we are really inspired by is that the pipeline is strong. We've already won a number of new deals in SCIO and some of the implementation and the growth in that business is much more visible to us, Q4 onwards. So we think that's something which will contribute nicely to our growth going forward, and this is just about the implementation and the execution of these client wins that we've had that will drive the growth in the SCIO business.

Kyle Peterson -- Needham & Company -- Analyst

All right, great, thanks guys.

Operator

Thank you. And our next question comes from Dave Koning with Baird. Please proceed with your question.

David Koning -- Robert W. Baird & Co -- Analyst

Yeah, hey, guys. Thank you and congrats on a good quarter.

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Thanks, Dave.

David Koning -- Robert W. Baird & Co -- Analyst

Yeah. And I guess, first of all, just to make sure we understand the Health Integrated, is it fair to basically take the $0.25 out of this year and start with the 2019 base of $3.25 [Phonetic] or so of EPS and grow that next year and then maybe as part of that, are there a little headwinds next year, I mean, that's obviously a nice tailwind but there are headwinds of like taxes and gains and stuff to think about for next year too.

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

So, Dave, hi this is Vishal, you're right. Excluding Health Integrated, as we mentioned, our midpoint of our guidance is $3.25 and as I clearly mentioned in my remarks, we don't expect any impact of Health Integrated in 2020. So that would be a fair way to look at it. Any headwinds in 2020 from taxes, actually, the tax raised because of the new laws which we have in India, we are reviewing them, there is the tax rate in India has been reduced. So we are reviewing those details and we'll probably have better color when we give our guidance in 2020.

David Koning -- Robert W. Baird & Co -- Analyst

Okay, great. And then the one other thing. Just, I know Interest income was a lot higher in Q3 than we expected, was there anything one-time gain related or anything in there that falls off in Q4 or is that level sustainable?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

So, the interest income was slightly higher in Q3, because of the fact that -- because the yields [Phonetic] which we get in India are quite volatile depending on the market conditions and we invest in short-term mutual funds -- not mutual fund but the short-term investments, where some times yields can be volatile. So we did get some benefits in Q3 for that and we probably will have a more normalized yield return in Q4.

David Koning -- Robert W. Baird & Co -- Analyst

Okay, well, thank you. Nice job.

Operator

Thank you. And our next question comes from Joseph Foresi with Cantor Fitzgerald. Please proceed with your question.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi, I'm sorry if I missed it, but what was your organic growth rate in the quarter. I know, you gave 14.3% and maybe you could just give us some color, and what are your expectations for organic growth next year would be?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Yeah, hi, this is Vishal. Organic growth rate excluding Health Integrated for the quarter was 9.8%.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Okay. And then as we talk about 2020. I know you've given some long-term growth rates for each business. Do you expect those to hold in 2020? Is there anything else we should be thinking about as we start to model out that year?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

So our growth rate as Rohit mentioned that we -- we for modeling our 2020 we should expect that the ops management growth rate will go between 5% to 7% and analytics with the minor [Phonetic] growth rates of SICO would be between 12% to 14%.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. And then last question for me, on the margin front, you said I think Health Integrated was up 100 basis point margin drag, will you get that 400 [Phonetic] basis points back next year, I know you're going to start with that three -- I guess 25 starting point, but I'm just trying to get a sense of some of the moving parts?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Yeah, 100 basis points impact was for the quarter but for the year, I think it's about 140 basis points. So that should come back next year.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Okay, thank you.

Operator

Thank you. And our next question comes from Bryan Bergin with Cowen. Please proceed with your question.

Bryan Bergin -- Cowen and Company -- Analyst

Hi, good morning. Thank you. Can you quantify how much the impact of the strategic, I guess was within the analytics that you mentioned during the quarter?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

I'm sorry, Bryan, you want us to quantify the impact of?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

The strategic [Speech Overlap]

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Yeah. So that's not something which we provide disclosure on, but this is something which we do as an ongoing exercise in terms of evaluating our entire portfolio of clients, taking a look at which clients are strategic, which clients are profitable and how should we manage our overall portfolio of relationships. So there were a few clients, which were non-strategic, low margin and we decided to exit those kind of relationships, because as you know, the growth rate in our Analytics business is very strong and we wanted to be able to focus on those client relationships which are strategic and where we can create value and we can grow our business nicely. So this is an ongoing exercise, that we undertake and I think the impact of that basically is falling in the second half of this year.

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

And Bryan, as you will see some benefit of that coming through in the margin line in the coming quarters.

Bryan Bergin -- Cowen and Company -- Analyst

Okay. I was actually going to make -- my next question is for this -- it's been pretty consistent year, I think 35% or so, or just under that gross margins. So I was curious, how should we be thinking about that target level going forward?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Yeah, so as I mentioned, it would be improving trends in the margin profile for the Analytics business and one of the reasons and factors would be the way we are optimizing our portfolio.

Bryan Bergin -- Cowen and Company -- Analyst

Okay. Can you just give a sense of the mix of the Analytics portfolio as far as how much is stand-alone versus embedded? How much is recurring, just an update on that mix?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Yeah, so the revenues we report for Analytics are all on stand-alone basis. What is embedded in operations management, we don't disclose that. It is part of our ability to deliver better outcomes for our clients and the ops management growth rate probably has some impact of that, but in terms of the stand-alone revenues, the numbers which report are all stand-alone Analytics numbers.

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

So, Bryan, just to be doubly clear on that, any Analytics revenue which is embedded is part of our operations management segment. The Analytics revenue that we report separately is all a 100% stand-alone Analytics revenue for us.

Bryan Bergin -- Cowen and Company -- Analyst

Okay. Is it so a one-third, two-thirds mix project versus recurring?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Yeah. So in terms of recurring and energy revenue, as we have been talking about consistently that remains over the one-third -- two-third levels being recurring in the annuity based.

Bryan Bergin -- Cowen and Company -- Analyst

Okay, thanks guys. Good luck, Vishal.

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. And our next question comes from Maggie Nolan with William Blair. Please proceed with your question.

Maggie Nolan -- William Blair & Company -- Analyst

Thank you. In the large Analytics when the rebuild of actuarial programs that you spoke of, is this a change in terms of the type of deal you're seeing and can you talk through how the structure of that contract is either similar or different from typical engagements maybe in terms of contract length, pricing, margin profile, those types of things?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Absolutely, Maggie. So yes, this is a very unique deal, but it's also, I think the beginning of our trend that we are seeing in the Analytics business. So the actuarial win for us is a long-term multi-year deal which goes across five years. It is a deal where the implementation and the revenues will kick in for next year going forward, and it is a transaction, which we have done in partnership with major consulting firm as well.

So this is a unique business model that we've created and we can impact much larger pieces of business for our clients. The pricing on this deal is done on our transaction pricing basis. So it basically allows us to be able to ramp up as we increase the volume of work associated out here. There is a reconfiguration of the work that we'll be doing out here because some part of this will get automated, some part of this will be done with the right skill set, which doesn't require fully qualified actuaries to do this work and the rest of it will be done by actuaries on our -- leveraging our global delivery business model. So it is reflective of much larger sized engagements and deals that we are seeing in the Analytics pipeline and we remain excited by how this will generate much stronger growth for us in the Analytics business.

Maggie Nolan -- William Blair & Company -- Analyst

Great. And then for the Consolidated Company, can you remind us how much is transaction or outcome based and kind of the trends that you're seeing there?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Yeah, so far for the overall company, the transaction based and outcome based pricing model is at 36%.

Maggie Nolan -- William Blair & Company -- Analyst

Or were there trends to call out there?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Yeah, I think this is something which is likely to continue to increase, particularly as clients embrace digital transformation, they're looking for a business impact, which is tangible and realizable, and we are quite comfortable in terms of executing and implementing on that and tying our compensation related to the business outcomes.

So our thinking is that this percentage will continue to increase over the years, but the pace of change is going to be a bit gradual because many of our clients are actually not ready for transaction based and outcome based pricing models, even though we as a service provider, are fully ready for it. So the change will take place gradually, but it should inch up from the 36%.

Maggie Nolan -- William Blair & Company -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Justin Donati with Wells Fargo. Please proceed with your question.

Justin Donati -- Wells Fargo Securities -- Analyst

Hi, thanks for taking my question. Just in light of the growing number of large and then digital deals, can you update us on the level of R&D and digital investments that you're making this year. Do you see a need to accelerate some of those investments to take advantage of this healthy demand environment?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Hi, Justin. This is Vishal. As I mentioned in my prepared remarks that we've continued to invest in building digital capabilities and solutions. We don't disclose that number, but we have had steady increase of investments in the R&D to develop these solutions and digital capabilities and we'll continue to make those investments.

Justin Donati -- Wells Fargo Securities -- Analyst

Okay, thank you. And then, last quarter, you talked about some of -- a number of insurance clients using multiple offerings. Can you provide any similar level of granularity around clients in your healthcare and finance and accounting verticals that are using multiple offerings?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Yes, so I think that's one trend, which we continue to see and we see that where our clients are actually using multiple service offerings from us and therefore the penetration and the depth of the relationship continues to expand with existing clients. We are also seeing that as we develop some integrated industry solutions. These are quickly replicable across multiple clients and therefore we are seeing an advantage on scale, on size, and on our leadership positioning out here. So frankly, the growth in Insurance and Healthcare is being driven both by a greater penetration of work that we do with our clients as well as the adoption of some of these new industry based integrated solutions that we are developing.

Justin Donati -- Wells Fargo Securities -- Analyst

I appreciate the color. Thank you.

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. And our next question comes from Vincent Colicchio with Barrington Research. Please proceed with your question.

Vincent Colicchio -- Barrington Research -- Analyst

Yes. Rohit, I think the mix in the UK declined a little bit a year-over-year. Is there anything real going on there?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

No, there is no real change out there in the UK. Our positioning out there continues to remain strong, the pipeline is very attractive and we continue to win new clients out there, as you also know that for us, most of our UK revenue is FX hedge, so a substantial portion of that with the currency moving up or down, doesn't really have a material impact on our business. We don't really see any real impact of Brexit out there. Our business is operating pretty much as normal, and we continue to build and grow our business there.

Vincent Colicchio -- Barrington Research -- Analyst

And Vishal, question about the tax situation in India. Has it been a decision on how to treat the special economic zones?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

So the special economic zone benefits, which are there which we -- we don't have a huge amount of special economic zone benefit, that's why our tax rate is higher compared to our peers, but as the new tax laws which are -- new laws have been introduced, we have to choose whether you want to regain some of those tax benefits, or you have to go with a lower tax rate, which is at a corporate tax level. So that's some -- that's a study we are performing for all our legal entities in India. And as I said earlier, we would have a better color to give on the tax impact when we give our annual guidance in 2020.

Vincent Colicchio -- Barrington Research -- Analyst

Okay. Nice quarter, guys.

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Thanks, Vincent.

Operator

Thank you. And our next question comes from Puneet Jain with JPMorgan. Please proceed with your question.

Puneet Jain -- JP Morgan -- Analyst

Hey, thanks for taking my question. Can you talk about exposure to macro spending environment with the newer Analytics and consulting within operations management? How much of business is exposed to project based spending?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Sure, Puneet. So first of all, based on the global economic conditions, we do think that our business model is a defensive business model and at times, when the overall economic growth rate is slower, clients are looking to reduce costs and introduce greater amount of transformation and that benefits us. However, there are discretionary expenses and revenues that we have within Analytics and within Consulting. In Consulting, it is pretty much entirely project-based and discretionary. However, the good news is, for us the Consulting business represents a small portion of our overall revenues.

In Analytics, about a third of our business is project-based and is subject to that kind of volatility. However, we -- in the past, we've not seen there to be much of an impact whenever there has been an economic downturn, and the growth at and the pace at which clients are adopting Analytics, our expectation is that this should be pretty smooth even during our time of global economic slowdown.

Puneet Jain -- JP Morgan -- Analyst

Got it. And can you also talk about margin benefit from the license revenue, $2.5 million revenue, you talked about in the quarter? And what do we expect for license revenue for the full year and how much of that should be viewed as non-recurring?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Yeah, so I guess the best way to take a look at it is, every year, we would expect to get some amount of our revenue coming in as license revenue. And that's been our track record for the last several years where each year we will have new client revenue license sales kicking in. The portal in which we get the license revenue, certainly has a material impact on the profitability of our business because the license revenue is a high margin revenue for us. We do not expect any further license revenue in Q4 this year. So whatever we've got this year is already included in our financials, this is something which is episodic and we will continue on year-on-year, but we can't predict this on a quarter-on-quarter basis.

Puneet Jain -- JP Morgan -- Analyst

No, I agreed, agreed, but what is the baseline level of license revenue, having any specific year?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

We typically have a couple of license sales that take place each year. It depends on the size of the client relationship that we sign up. So again, it's very difficult to provide you with a baseline or a number associated with the license sales. For the third quarter, like we disclosed, it's $2.5 million of license sales that we got in the third quarter.

Puneet Jain -- JP Morgan -- Analyst

Got it. And just to be clear like most of your solutions based business is on B pass model not on licensed based, is that correct?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

It's a combination of both. B pass is certainly the larger percentage of our overall platforms business, but we do have license revenue and some associated solutioning revenue along with that -- and services revenue along with that.

Puneet Jain -- JP Morgan -- Analyst

Got it. Thank you.

Operator

Thank you. [Operator Instructions] And our next question comes from Ashwin Shirvaikar with Citi. Please proceed with your question.

Ashwin Shirvaikar -- Citi -- Analyst

Thanks. Hey, Rohit, hi, Vishal. Let me start by saying, Vishal, it's been a pleasure working with you.

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Thanks.

Ashwin Shirvaikar -- Citi -- Analyst

So -- yeah, hopefully you can stay in touch. So I guess the question is more about sustainability of revenue trends. And I guess on the OEM side, it is -- given all the investments you've made, you're getting back toward more of the industry peer growth, it seems to me that this should be sustainable given all the comments on pipeline. I just want to confirm that, that would be true. And then in Analytics, is it -- on the -- considering the impact of normal pruning and all those kinds of things, it also seems like you're getting back down into a more normalized growth rate after multiple years of both organic and inorganic investments? So would that be a fair assumption?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

So, Ashwin, I think that's absolutely correct. I think the biggest area of confidence for us is when we take a look at the demand environment for operations management and for Analytics, both of these segments continued to be very strong. In operations management, we are seeing larger deals, we are seeing more end to end work and we are seeing more transformative deals where the kind of work that we do is much more attractive to our clients and therefore our business model seems to be resonating quite nicely out there.

In Analytics, the demand environment is actually explosive and it's something which is very strong. There is a lot of needs to be able to utilize data, data management, predictive modeling and insight generation, and we are one of the very few companies that has a full vertical stack of capabilities in Analytics. Now, the demand environment is strong, but we are also seeing us when these large deals and we are also seeing the conversations that we're having with our clients and prospects actually get elevated and the conversations are now much more with the CEO and with the C Level executives. So these are much more strategic conversations and therefore, we feel good about both these businesses as to how they're performing.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. And then as I was looking at sort of the gross margin trajectory across various segments, obviously, doing well in Insurance. I'm assuming, Healthcare is -- is because of Health Integrated. The question I have is about Finance and Accounting and what's in that all other -- where it seems to be some kind of either a drop off or an investment that you're making. I know overall, you run the business on the operating margin basis, but I'm just trying to figure out, if there are any drivers to look into because of the gross margin trends here?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Right. So I think you're absolutely correct on that, the Healthcare business does include Health Integrated. So the gross margin out there is reflective of the impact of Health Integrated, the -- all other segments that we report out includes utilities, banking and financial services and consulting. So that's what we've got there. Whenever there is an impact on the revenues of that, there will be an impact on the margins in that particular quarter. But again, I think for us, we are seeing good traction take place in banking and financial services. So that's something which is performing well and we'll continue to drive the management of our overall customer mix and our portfolio out there.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. And then last question is -- as you start putting Health Integrated behind yourself, are you beginning to look again at M&A and obviously with newer process and so on so forth? Or are you going to stay away for some time there?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Right. So for us, M&A is always a strategic pathway to growth and we will continue to look at ways in which we can acquire assets and integrate them. Our experience has shown that when we make the right strategic assets, it's sometimes takes us some time to integrate them fully and realize the strategic value of that asset but these in general have been good investments that we've made, so we continue to remain focused on doing M&A, but we will also be prudent in terms of doing acquisitions going forward.

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

And Ashwin, just to add the impact of Health Integrated on gross margin for Healthcare was about 770 basis points negative.

Ashwin Shirvaikar -- Citi -- Analyst

Understood. Got it. Thank you, guys.

Operator

Thank you. And our next question comes from David Grossman with Stifel. Please proceed with your question.

David Grossman -- Stifel -- Analyst

Hi, thank you. Good morning. Just a couple of quick follow-ups to some of the questions that have already been asked. First, just on the momentum in the business going into next year. Can you -- I know about it, you don't disclose backlog and bookings anymore, but can you give us a sense on a year-over-year basis. What's the backlog in the new bookings that are going to be executed in 2020? How that looks kind of going into the fourth quarter on a year-over-year basis?

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Hi, David. So look, our backlog and our bookings continues to progress nicely and continues to increase. So we have good visibility into -- in terms of our revenues for next year. The size of the pipeline has actually expanded quite significantly from last year. So we are seeing that more larger deals are coming into the pipeline and we have a larger opportunity to be able to win deals out here. So I think the progression is in line with my comments on the growth momentum that we're seeing in both the businesses and we feel good about where we are currently positioned.

David Grossman -- Stifel -- Analyst

Great, thank you for that. And just on the margins. I mean, I think, for sure, you mentioned if I think I heard it right, 140 basis point headwind from Health Integrated. So that would put you round numbers to around 15% margins right for this year. So as we look into next year, not to pigeonhole you and that to -- portion of [Phonetic] that's providing guidance for next year, but just at a high level, I mean that seems like a pretty good expansion on year-over-year basis, just starting at that point going into next year. Should we just assume that there are kind of an investment program that would expect -- much expansion on that base or do you really think that that's your starting point and you're going to expand on that base in 2020?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Hi, David. As I mentioned before to you that we always have levers on terms of how to improve our margins, and we mentioned that how in Analytics, we are doing some portfolio pruning to improve our margins, but there is always a balance between what you would bring to the bottom line versus what you need as a investment and I think we'll take that prudent call and give you more color and guidance when we give our guidance in 2020?

But obviously -- obviously, there are levers for us to improve our margins and there is a benefit of the ramp ups, all the cost that you have taken this year, there is benefit of the investment strategy paying off, there is benefits of portfolio optimization. We'll continue to look at all those and come with a balanced approach, when we have to give guidance for 2020.

David Grossman -- Stifel -- Analyst

Right. So just to be clear, you do want us to think about 2019 on that pro forma basis, right?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Yeah. The Health Integrated impact and the benefit of that on the margins, I will definitely beat there.

David Grossman -- Stifel -- Analyst

Right. And then just lastly, and the second question on the margin, is that, clearly you're -- the most scale you have in terms of domain expertise as an Insurance and an emerging kind of presence in Healthcare, I think you said 770 basis point headwind on the gross margin and Healthcare. So that puts you similar in the 26%, 27% range and I think Insurance is in the low '30s. I know mix among other things are going to affect the gross margins, but it should be strength in Insurance and Healthcare mix favorably on the margins if that trend continues.

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

So if you look at Insurance...

David Grossman -- Stifel -- Analyst

I'm sorry, just reported -- blended the corporate margin.

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

I think you can clearly see this quarter, the Insurance margins, gross margins improved, right, both year-over-year and sequentially. Healthcare, sequentially has also improved, excluding Health Integrated, it's improved year-over-year. So these two segments as we expand and we get a more scale and especially in Healthcare, I think we will get some margin benefits there, but the other segments have puts and takes, but overall, we do expect the gross margin to be a tailwind in 2020.

David Grossman -- Stifel -- Analyst

Right, OK, great. Thanks very much.

Operator

Thank you. This concludes our Q&A session. I would now like to turn it back to Mr. Kapoor with any further remarks.

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Thank you. So thank you all for attending our third quarter earnings call. I think we are excited about the strong growth of our business this year, but more importantly the momentum that we have built up as we think about exiting 2019 and getting into 2020. I think the future for our company is good and we remain excited about the prospects going forward. I do want to turn the call over to Vishal before we end as it is going to be his last call as such. Vishal?

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Thank you, Rohit. I would like to thank our investors and analysts for a wonderful 10 years as the CFO of EXL. I really enjoyed meeting all of you to discuss EXL's investment thesis and the success in creating shareholder value. I will truly miss your friendship and our interactions, but I do look forward to keep in touch with you all. Finally, thank you, Rohit and the management team for a wonderful 10 years, especially Rohit for being a mentor and a friend. I look forward to seeing continued growth of EXL over the next few years. Thank you.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Steven N. Barlow -- Vice President, Investor Relations

Rohit Kapoor -- Vice Chairman and Chief Executive Officer

Vishal Chhibbar -- Executive Vice President and Chief Financial Officer

Kyle Peterson -- Needham & Company -- Analyst

David Koning -- Robert W. Baird & Co -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Bryan Bergin -- Cowen and Company -- Analyst

Maggie Nolan -- William Blair & Company -- Analyst

Justin Donati -- Wells Fargo Securities -- Analyst

Vincent Colicchio -- Barrington Research -- Analyst

Puneet Jain -- JP Morgan -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

David Grossman -- Stifel -- Analyst

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