ExlService Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 10 speakers on the call.

Operator

Good day, everyone, and thank you for standing by. Welcome to the Third Quarter 2023 EXL Service Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded.

Operator

I would like now to hand over the conference to your first speaker today, John Kristoff, Vice President of Investor Relations.

Speaker 1

John? Thanks, Maria. Hello, and thank you for joining EXL's Q3 2023 financial results conference call. On the call with me today are Rohit Kapoor, Vice Chairman and Chief Executive Officer and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the 3rd quarter earnings release we issued this morning.

Speaker 1

We have also posted an earnings release slide deck and investor fact sheet in the Investor Relations section of our website. As a reminder, some of the matters we'll discuss this morning 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 SEC from time to time. EXL assumes no obligation to update the information presented on this conference call today.

Speaker 1

During our call, 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, slide deck and investor fact sheet. With that, I'll turn the call over to Rohit.

Speaker 2

Thanks, John. Good morning, everyone. Welcome to EXL's 3rd quarter 2023 earnings call. I'm pleased to be with you this morning reporting another strong quarter. We continued our growth momentum in the 3rd quarter with total revenue of $411,000,000 representing year over year growth of 14% on a reported basis and 13% in constant currency.

Speaker 2

We grew adjusted diluted EPS 21% to $0.37 per share. Our data led strategy and balanced portfolio of businesses bolstered by our differentiated digital and AI We delivered analytics revenue of $183,000,000 for the quarter, up 10% year over year and a sequential increase from the Q2. As anticipated, we experienced weaker demand and lower volumes In Marketing Analytics, notwithstanding this headwind, we were able to achieve double digit growth in our analytics business. This growth was driven by strength in our Payment Integrity and Data Management service lines. In our Digital Operations and Solutions business, we generated 3rd quarter revenue of $228,000,000 growing 17% year over year and 2% sequentially.

Speaker 2

This represents The 10th consecutive quarter of double digit growth, which demonstrates the value clients place on our data led integrated solutions. Each of our 3 segments within Digital Operations and Solutions delivered double digit year over year growth during the quarter with particularly robust performance in insurance. The slowdown in the macroeconomic growth is driving our clients to increase their focus on cost efficiency and improved productivity. As they make this pivot towards a lower cost operating structure, they are also looking to transform their operations. With EXL's technological capabilities of data, digital and AI, Combined with our domain expertise, we are able to create significant impact for our clients in an accelerated manner and with much greater certainty than they can achieve on their own.

Speaker 2

This has led to a Material increase in demand for integrated digital operations, which plays to our strength across both our data analytics and Digital Operations and Solutions Businesses. Our success pursuing large Integrated deals is evident in our sales pipeline. For the past 6 quarters, we have averaged 20% plus year over year pipeline growth. And both our win rates and average deal sizes have increased. Over the past 12 months, we have won several deals over $50,000,000 in total contract value, including a few deals over $100,000,000 of total contract value.

Speaker 2

This validates The value clients see in our end to end solutions and gives us confidence in our ability to generate sustained double digit growth going forward. Let me share an example of a recent win that illustrates the size, scope And level of integration to unlock value for our clients. 1 of the top insurance companies in the United States Chose EXL as their partner to operate and transform their claims operation as part of a large multiyear deal. We are the first point of contact for all claims and responsible for moving the claim through the process. In addition to providing a multi shore delivery model, we are transforming the operation through extensive use of analytics, Digital and AI.

Speaker 2

For example, we are implementing an automated digital quality assistant that provides real time monitoring and dashboard reporting of all KPIs. Our solution also includes An AI based coaching module, which provides guidance to individual advisors. We are also implementing EXL's Smart data signals, which enables 100 percent real time claim file review in a fully automated manner. This significantly improves claims outcomes by preventing leakage, improving customer sentiment and ensuring regulatory compliance. This is just one high level example of how we are combining All of our capabilities in analytics, data management, AI and domain expertise to maximize value for our clients.

Speaker 2

We continue to receive growing interest from our clients regarding use cases and data structure Required to support generative AI. This bolsters our confidence that generative AI provides tangible growth opportunities for both our data analytics and digital operations and solutions businesses moving forward. We are currently in more than 200 conversations with clients regarding generative AI use cases And we have dozens of specific projects active in the sales pipeline. What is particularly encouraging It's the diversity of use cases, which are leading us into new areas where we previously did not play. For example, many of our clients struggle with software code management And modernizing legacy code to contemporary code languages to upscale their analytics infrastructure.

Speaker 2

This process often entails medicalist code management, translation and testing. We recently developed a new gen AI based solution for code conversion, leveraging our domain expertise. Our solution automates the translation of legacy code to contemporary languages and features a robust debugging capability to ensure accuracy and efficiency. This significantly speeds this translation While reducing the potential for errors, we are currently working with a leading global bank On a proof of concept to migrate close to 1,000,000 lines of legacy SaaS code to Python. It would typically take many months to accomplish this, but with our solution, it can be accomplished in a few weeks, allowing our clients to focus on retiring their technical debt.

Speaker 2

This is an example of how Generative AI is helping us penetrate new buying centers as we now have several more customers interested in this solution. As planned, we have increased our investments in generative AI in the 3rd quarter and will accelerate these investments further in the Q4. This includes developing solutions, training and hiring specialists And further strengthening our generative AI center of excellence, where we currently have active Gen AI engagements across all our key industry verticals. We believe these investments will position us well to capitalize on the strong pipeline of Gen AI Opportunities. We also recently announced plans to invest in a new international operations headquarters in Dublin, Ireland.

Speaker 2

As part of the new center, we plan to hire up to 200 AI, Data engineering and other specialized technology positions over the next 3 years. This builds upon our existing staff of more than 8,000 data scientists globally who are developing AI, cloud enablement and data integration technologies. As part of our investment, we will also establish new centers of excellence across our operations to develop best practices, improve efficiencies and reduce costs. This new center will also serve as a Hub for intellectual property development and future geographic market expansion. Looking ahead, we are raising our 2023 revenue and EPS guidance given our strong third quarter performance and current visibility for the remainder of the year.

Speaker 2

Mauricio will walk you through the details in a few moments. As we look forward to 2024, we are encouraged by the sustained growth in our revenue and EPS, The momentum in our growing sales pipeline and the underlying strength and resiliency of our business. We are well positioned with our current generative AI offerings and we continue to invest further in advancing our capabilities. This gives us confidence in our ability to sustain double digit growth. And with that, I'll turn the call over to Maurizio.

Speaker 3

Thank you, Rohit, and thank you, everyone, for joining us this morning. I will provide insights into our financial performance for the 3rd quarter and the 1st 9 months of 2023 followed by our revised outlook. We delivered a strong 3rd quarter with revenue of $411,000,000 up 13.7 percent year over year on a reported basis. On a constant currency basis, We grew revenue 13.2% year over year and 1.5% sequentially. Adjusted EPS was $0.37 an increase of 21.3% year over year.

Speaker 3

All revenue growth percentages mentioned hereafter are on a constant currency basis. Revenue from our Digital Operations Solutions businesses As defined by 3 reportable segments, excluding analytics was 227,900,000 which represents year over year growth of 16.4%. Sequentially, we grew revenue 2.3%. In the Insurance segment, we generated revenue of $136,400,000 an increase of 17.6% year over year and 6.3% sequentially. This growth was driven by the expansion of existing clients and new client relationships.

Speaker 3

The insurance vertical consisting of both our Digital Operations and Solutions and Analytics businesses grew 14.4% year over year with revenue of 170,800,000 In the Emerging segment, we grew revenue 14.7% year over year. This growth was driven by the Expansion of existing client relationships and new client wins. Sequentially, revenue declined 2.8 percent to $65,300,000 The sequential revenue decline was driven by the bankruptcy of a client, Yellow Corporation. Excluding the impact of the bankruptcy, we expect revenue would have grown sequentially. The emerging vertical consists of both our Digital Operations and Solutions and Analytics businesses grew 4% year over year with revenue of $147,900,000 The Healthcare segment Reported revenue of $26,200,000 representing growth of 14.8% year over year and a decrease of 3.6% sequentially.

Speaker 3

The year over year growth was driven by expansion in existing client relationships. The Healthcare vertical consisting of our Digital Operations and Solutions and Analytics businesses grew 28.6% year over year with revenue of $92,300,000 In the Analytics segment, we generated revenue of $183,100,000 up 9.4% year over year and up slightly sequentially. Our Decision Analytics Services, Payment Integrity and Data Management businesses continue to grow year on year, partially offset by the decline in marketing analytics as our clients in insurance and banking continue to reduce their marketing spend. SG and A expenses as a percentage of revenue were up 180 basis points year over year to 20.2%, driven by investments in front end sales, marketing, digital and AI capabilities. Our adjusted operating margin for the quarter was 20%, up 150 basis points year over year driven by higher volumes and revenue.

Speaker 3

Our effective tax rate for the quarter was 23.4%, down 60 basis points year over year driven by higher profits in lower tax jurisdictions. Our adjusted EPS for the quarter was $0.37 a 21.3% increase year over year on a reported basis. Turning to our 9 month performance. Our revenue for the period was $1,217,000,000 up 17.6% year over year on a constant currency basis. This growth was driven by both our Digital Operations and Solutions and analytics businesses.

Speaker 3

Adjusted operating margin for the period was 19.8%, up 140 basis points year over year. 9 month adjusted EPS was $1.09 up 21.8% year over year on a reported basis. Our balance sheet remains strong. Our cash, including short and long term investments as of September 30, was $275,000,000 and our revolver debt was $210,000,000 for a net cash position of 65,000,000 We generated cash flow from operations of $132,000,000 in the 1st 9 months compared to $101,000,000 for the same period in 2022. This improvement was driven by the expansion in our adjusted operating margin.

Speaker 3

During the 1st 9 months, we spent $41,000,000 on capital expenditures and repurchased 93,500,000 of our shares at an average cost of $31 per share. Now moving on to our outlook for 2023. Based on our strong performance for the 1st 9 months of the year and our current visibility across all verticals, we are raising our outlook for the year. We now anticipate revenue to be in the range of $1,620,000,000 to 1,628,000,000 representing year over year growth of 15% on a reported basis and 15% to 16% on a constant currency basis. This represents an increase of $9,000,000 at the midpoint Despite a foreign exchange headwind of $2,000,000 from previous guidance, we expect a foreign exchange gain of approximately $1,000,000 net interest expense to be approximately $1,000,000 and our full year effective tax rate to be in the range of 23% to 24%.

Speaker 3

Based on this, we anticipate our adjusted EPS to be in the range of $1.40 to $1.42 representing year over year growth of 16% to 18%, which is an increase from our prior adjusted EPS guidance of 15% to 17% growth. We expect capital expenditures to be in the range of $50,000,000 to 55,000,000 In summary, our data led strategy is sound and is resonating with our clients. Our differentiated business model remains resilient due to our substantial reoccurring revenue and a well balanced portfolio across our data analytics and digital operations and solutions businesses. Our strong pipeline and high percentage of annuity revenue provide us with confidence in our ability to continue to deliver double digit growth going forward. This coupled with our expanding capabilities and data management and ongoing investments in generative AI puts us in a strong position as we look to 2024.

Speaker 3

With that, Rhoda and I would be happy to take your questions.

Operator

Thank you. At this time, we will conduct a question and answer session. Please standby while we compile the Q and A roster. Our first question comes from the line of Brian Bergin from TD Cowen. Brian, go ahead.

Speaker 4

Hi, guys. Good morning. Thank you. I guess I'll start here with the outlook. Can you just break down how you're expecting Digital ops and analytics to grow in 4Q.

Speaker 4

And then just understanding it's early here and the backdrop is quite uncertain, but we appreciate your commentary on Staining double digit growth. Can you just share some qualitative commentary on how you're thinking about what's going to remain consistent in 2024 versus 2023? What may not reoccur and maybe what might be incremental?

Speaker 2

Sure, Brian. So firstly, in terms of our guidance for the year and the implied guidance for the Q4, we have increased our guidance, as we mentioned, by $9,000,000 at the midpoint. This is despite a $2,000,000 headwind on the currency side And despite the fact that we have had one of our clients undergo bankruptcy and the volume has fallen off. We expect after taking all of these things into consideration that our 4th quarter would be flattish compared to our 3rd quarter, And that's across both of our business lines, and that's how we would anticipate it might play out. Going forward, in terms of our double digit growth, what we are seeing is we are seeing A very strong demand in the pipeline.

Speaker 2

We've seen our win rates increase. We've seen the size of the deals increase. And therefore, we have confidence in terms of being able to sustain double digit growth. What we are not sure of at this point of time is How would marketing analytics perform? And that's something which, as we have shared with you previously, We're looking to diversify our industry verticals within marketing analytics and focusing on areas of Strength particularly around data management, payment integrity and analytical services.

Speaker 2

Our expectation is that When we think about both of our business lines on digital operations and solutions and on data analytics, Both these business lines should be able to provide us with great growth opportunities. We would expect The data analytics business on a secular basis to give us double digit growth as such. And at this point of time, given the deals that we have already won, we think we've got we are in a very good position As far as digital operations is concerned as well. So frankly, the portfolio seems to be performing well, and it's very well balanced, And we're very pleased with the way in which things are at this point of time despite a pretty difficult macroeconomic environment.

Speaker 4

Okay. Appreciate that color. And then just on the margin here, as we kind of back into the implied 4Q Just operating margin, I think it would imply 18% or below. Is this just the timing of expenses you mentioned in kind of talent and general solution development or any other Top items to consider?

Speaker 3

Yes, Brian, it's you've hit it a little bit on the head there. It's a bit of timing. If you look at our AOPM for the 1st three quarters, we've had AOPM hovering right around 19.8%, so much higher than what we talked about in our guidance at the beginning of the year and we talked about low to mid-eighteen percent range. So we performed very well on profitability in the 1st three quarters. We do have a number of investments that we want to make in Q4 in front end sales, in marketing And also in our digital area, particularly in GenAI, which we were looking to do in Q3 that some of that got postponed to Q4.

Speaker 3

And so that's reflective in that high 17% to low 18% range of AOPM in the 4th quarter. And that doesn't change our outlook going into 2024. It's more of a timing for Q4. And that's still even with those percentage And that AOPM in Q4, you're still at a 19% -plus for the year given the performance of the 1st three quarters.

Speaker 4

Okay, understood. Thank you.

Operator

Thank you. One moment for our next question. Again, one moment. Our next question comes from the line of Maggie Nolan of William Blair. Maggie, your line is now open.

Speaker 5

Thank you. So it sounds like the recovery trajectory in marketing analytics is still A little difficult to predict and uncertain, which I can definitely appreciate. But what about just kind of Where you stand in terms of the amount of pressure that you're seeing? Are you expecting maybe incremental pressure? Or do you see any signs of Stabilization even though a recovery is still uncertain at this point.

Speaker 2

Sure, Maggie. So first of all, just a bit of color. For us, marketing analytics declined quarter on quarter. So Q3 revenue from Marketing Analytics was lower than our revenue from Marketing Analytics in Q2. But as we have shared with you previously, we have won a number of deals in other industry verticals for marketing and analytics, particularly around Healthcare.

Speaker 2

So we're going to see how that plays out in Q4 and that will give us a good sense Of how that recovery will shape up going forward into 2024.

Speaker 5

Okay. Thank you. And then you were when you were speaking about Dublin, you mentioned that this could be a hub for additional geographic Expansion, could you elaborate on that a little bit, maybe what you're expecting over the next several years as you think about your geographic mix And where could be areas of growth or drivers for the business?

Speaker 2

Absolutely. So for us, 1st of all, our business in the U. K. Has been growing very, very nicely and the percentage contribution of total revenue From that market has been increasing over the last couple of quarters, and they're very pleased with the progress that we are making out there. Number 2, with the setting up of the office in Dublin, Ireland, it actually will open up the market for us in Continental Europe and across the EU.

Speaker 2

So we think we will have an opportunity to be able to access talent, access customers and be able to leverage our IP across And actually diversify our revenue base across the world. So this is something which we are very excited about. It's a subconscious and a deliberate investment that we are making, and we hope that it will play out nicely over the next couple of years.

Speaker 5

Very good. Thank you very much.

Operator

Thank you. One moment for our next question. All right. Our next question comes from the line of Ashwin Shirvaikar from Citi. Go ahead.

Speaker 6

Hi. Thank you and good morning. I wanted to sort of maybe Get a more granular look into digital ops as I sort of look at Insurance, you keep showing sequential growth, good trends there. The Healthcare business It's sort of sequentially static for a couple of quarters, same thing with the emerging part of it. If you could provide more color on what's underlying those two And any kind of a breakout you could provide with regards to emerging that helps From a forward modeling perspective would be great.

Speaker 6

Thanks.

Speaker 2

Sure. So Ashwin, the first thing is that our Digital Operations and Solutions business is actually performing really, really well. And we think the big reason for that is, number 1, the demand for clients seeking Cost efficiency and productivity gains has improved in this environment and clients are looking at aggressively Managing their cost structure and getting more efficiency and operational efficiency into their process and business. We have seen that increase the pipeline and we have seen that our strategy of combining data, Digital, AI and domain is resonating very well. So our win rates have gone up And the deal sizes that we are winning, that has gone up.

Speaker 2

So frankly, these are all reasons why the Digital Operations and Solutions business It's actually growing very nicely for us. Within this business, insurance, as you know, is Industry verticals where we have a leadership position. It is a business which we pride ourselves in terms of Our knowledge and understanding of the marketplace there, and I think we're getting rewarded for that knowledge and expertise that we have because More and more clients are giving us larger pieces of work and that business for us is growing very nicely. We are seeing a similar kind of a trend shape up in Healthcare and EBU in our emerging business unit. But certainly these two businesses are much smaller in size as compared to the insurance business.

Speaker 2

The emerging business unit In this particular quarter, did have one client, which transitioned out because of them filing for bankruptcy. So there has been an impact on that. But keep in mind that our emerging business unit targets actually many, many sub verticals. So we target clients in utilities, In travel, transportation and logistics, in retail, and therefore, we're seeing a great amount of actually Diversified strength coming in into the emerging business unit. The Healthcare business for us is largely driven on the operations management side around clinical operations.

Speaker 2

And there we are seeing That there can be increase in volumes at sometimes and there can be a diversification of a customer base as well. So our hope is to continue to build that and bring the same kind of value that we are bringing in insurance, Which is the combination of data analytics and operations and bringing that to bear in Healthcare. So frankly for us, We are very, very happy with the way in which the Digital Operations and Solutions business is growing.

Speaker 6

Understood, understood. And thank you for all the color. One of the questions we get relatively frequently nowadays from investors With regards to what's the normalized growth for a company like EXL over time? And I found maybe a potential Clue on an interview you had given to an Indian newspaper where you said $2,000,000,000 in revenue by 2025, Which would imply somewhere in the low double digit 11, 11 and change type growth. If you could kind of Provide more color on that because that relative to how you've grown the last 3, 4 years that seems Quite modest.

Speaker 6

So any color that you can provide if stuff is changing, if the last 2, 3 years were just anomaly, How would you think of that?

Speaker 2

Sure. So I guess for the last few years, So we've grown nicely, but I think the conviction that we have is twofold. 1, The portfolio that we have, which is a combination of the data analytics business, which represents approximately 45% of our revenue And the Digital Operations and Solutions business, which is 55% of our business, both these businesses for us Our strong growth businesses. We would expect on a combined basis to be able to grow double digit On a normalized growth trajectory, there will be points in time where one of these business lines might grow faster and the other one might grow a bit slower And vice versa. And we've already seen that happen.

Speaker 2

So for example, in 2022, our data analytics business was growing very, very rapidly As such, and the digital operations business was growing slightly slower at that point of time. Right now, in this Well, in our current environment, we are seeing the digital operations business really grow much more strongly. And The data analytics business has been challenged because of discretionary projects as well as the marketing analytics that we've spoken about. But long term on a normalized basis, we expect double digit growth across both these businesses On an organic constant currency basis, we do think we have the ability to be able to Add on to this through inorganic growth and M and A is certainly something which we'd be looking at and adding on to that. You've seen us do the acquisition of Clairvoyant and that was a very successful acquisition for us, which added very specific capabilities and expanded our portfolio.

Speaker 2

So we feel comfortable about growing our business double digit long term in a normalized way. And it's great to be able to see that regardless of the market environment, Our business model is very resilient and very growth oriented and we can grow our top line and our bottom line At double digits.

Speaker 6

Thank you for that.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Mayank Tandon from Needham. Mayank?

Speaker 7

Thank you. Good morning. Rohit, you talked about the Gen AI opportunities. Could you talk in terms of Is that changing the existing contract structure with your clients? Is that being integrated into it?

Speaker 7

And how is that affecting the size and scope of the engagements with your existing Client base as they incorporate Gen AI into their business models?

Speaker 2

Sure, I think, Gen AI is having an impact on the way in which we are growing in multiple ways. Let me try and articulate these to you. Number 1, the work that we do with our clients on our existing contracts in digital operations, we are certainly embedding a lot more Gen AI Into those operations and into those solutions. Number 2, we are going to clients leveraging Jeneai And winning large pieces of integrated digital operations deals. So this is helping us win new business from either from existing customers or from new customers.

Speaker 2

Number 3, GenAI is also leading us to be able to Deploy Genai with clients which might have outsourced the work with other providers and where we may not be handling The digital operations part, but we are applying our domain knowledge and our expertise on GenAI and helping them create operational efficiency and productivity gains. And number 4, Gen AI is creating a huge opportunity for us on the data management side. So we all know that in order for GenAI to be effective, the data estate of our clients needs to be in order. And right now there is a huge movement in order of our clients wanting to fix their data estate. Most of them in the past Had focused in on moving their structured data to the cloud and getting their structured data organized so that that data would be usable.

Speaker 2

Well, what we are finding is that the unstructured data is a much bigger piece of the work that remains to be done and we can be very, very helpful to our clients Manage their unstructured data sets. So frankly, there's tremendous opportunity with existing clients and existing work that we have, New business that we can win with it, GenAI pure GenAI solutions and deployments that we can have And then on the data management side. So we think this is becoming a more strategic lever for growth for us going forward And that's why we are investing more heavily in this particular area.

Speaker 7

That's very helpful color. It sounds like a boon, not a curse as Some people in the market have believed, so good to see some proof points there. Rohit And Maurizio, as my quick follow-up here on margins. Sorry, I did hear your comments Maurizio on margins, but for fiscal 'twenty four, I know you're not giving guidance, But if you are able to grow double digits, should we just expect some margin improvement even off the 2019 plus level that you're going to end up In 2023, just from scale benefits, if nothing else really changes?

Speaker 3

We have talked about and thank you for the question, Mike. So we have talked about every year making improvements to our margins going forward. We had the big spike up From 2020 to 2022, we're going all the way up to 18.3% from a range of 14% to 15%. And now we talked about making improvements to margins on an annual basis marginally, meaning 10 to 20 basis points a year. And we've been very successful at doing more than that.

Speaker 3

But we still think in our mindset that we should continue to drive margins higher Just incrementally, not these larger big spikes that you've seen in prior years. Got it. Thank you so much for taking my questions. Thank you.

Operator

Thank you. One moment for our next question. Again, just one moment. Our next question comes from the line of Surinder Thindra from Jefferies LLC. Go ahead.

Speaker 8

Thank you. So for the first question, just wanted to kind of understand the new logo wins. As I look across the past few quarters, it seems that you started the year off really strong in digital ops And sequentially the number of new logo wins has been declining and it's the exact opposite in analytics. Is there anything to read into that or how should we think about demand dynamics between the 2?

Speaker 2

Sure, Surinder. So for us, the new client wins and the new logo wins, I think looking at it on a quarter by quarter basis is not going to provide much help. It's much more to kind of see the trend over several quarters that gives a much better understanding of the kind of wins that we're having. So if you take a look at the 3 quarters of 2023, the number of new logos that we have signed up this year It's higher than the number of logos that we signed up last year. And the split between digital operations and solutions and data analytics It's also very well balanced.

Speaker 2

So we have 26 clients that we have won in digital operations and solutions this year, We won 20 clients in data analytics. So it's we are very happy with the split and the mix as such. The important part is that these are larger deals. And we already alluded to that when we Spoke about and provided some color on the size of the deals that we are winning. And that is something which is very encouraging.

Speaker 2

So as the company grows And as we are kind of building up our business, the fact that we are signing up much larger deals now gives us confidence in terms of being able to sustain that double digit

Speaker 8

That's helpful. And then just to follow-up on the analytics. Is there any color that you can provide in terms of the visibility into the pipeline that you have? Is there like a lot of multi year projects here where there's a certain amount of Kind of reoccurring project type revenues or how much more do you have to do in terms of new wins to kind of hit your medium term targets here?

Speaker 2

Sure. The data analytics business for us is a business where 2 thirds of the business It's annuity based. So that means we have multiyear contracts associated with it. And we have ongoing support and work that we do for clients, Manage their existing analytical operations. 1 third of the work that we do is project based And discretionary.

Speaker 2

And that's the part that is volatile and that kind of moves around quarter to quarter. But keep in mind, with the trends that we are seeing around generativeai, the need for that project based spend has increased. The work that we are doing particularly around payment Segrity, that's something which is growing very nicely. The work that we do around data management, Some portion of that is project based, but the demand strength out there is very high. So we've got great pockets Of growth and opportunity and there are certainly pockets like marketing analytics, which are project based, where there is definitely a headwind for us.

Speaker 8

Got it. And then just as a final kind of a clarification here, just any color on what Quarter over quarter growth in analytics would have looked like if you take away marketing. So meaning if we look at the decision analytics, the data management, the payment integrity. Any color there on what's

Speaker 3

going on? Yes. Surinder, if you peeled out marketing analytics, your growth rate would be in the mid teens For the rest of the business. So all the other parts of the business are growing very nicely. This one piece Is bringing is dragging our growth rate lower, but you would have seen it right around the mid teens.

Speaker 8

Perfect. Thank you, guys.

Operator

Wonderful. Thank you. As a reminder, to ask a question, you can press star 11 on your Our next question comes from the line of Vincent Colicchio of Barrington Research. Go ahead.

Speaker 9

Yes. Curious, is the Yellow Corp situation sort of a one off or are there any other clients Under financial distress that require monitoring?

Speaker 3

No, Vince, it's Maurizio and thanks for the question. No, it's a this is a one off. We don't have any other client in this type of a situation. And when I look at Our DSO and we also look at the health of our clients. This right now really is a one off at the end of the day and we don't have any other Situation that's significant like that.

Speaker 9

Okay. Second question is as a follow-up. You haven't done M and A Your business is in solid shape. I would imagine better than some others. So is your pipeline strong and have valuations come down, making it an attractive time to look?

Speaker 3

Yes. So Vince, M and A is still a significant opportunity for us. We do have a fairly Healthy pipeline of M and A opportunities that we're evaluating. And we continue to go down through that process. I think valuations have become a bit more reasonable than they had been in 2022.

Speaker 3

And so you are seeing that. It's as we go forward and we want to add capabilities and given the amount of cash flow that we generate now, this is an area that we truly want to Focus on and its areas within data, analytics, technology, digital, AI. It's really adding additional capabilities to those key core areas for us to really continue to drive the business. So going forward, we will be allocating capital Between M and A and share repurchase. And you'll start to see more of an allocation between the 2 versus Being more on the buyback side over the last kind of year and a half.

Speaker 9

Okay. Thank you. Nice quarter.

Speaker 2

Thank you.

Operator

Thank you. One moment while we prepare the next question. Our next question comes from the line of David Grossman from Stifel. David, go ahead. David Grossman?

Operator

Wonderful. So we're going to go ahead and Head back to the speaker. I would now like to turn it back to John Kristoff for closing remarks.

Speaker 1

Thank you, Maria. Thank you everyone for joining our call today. And as always,

Operator

Thank you for participating in today's conference. This does conclude the program. You may now disconnect.

Powered by Quartr
Earnings Conference Call
ExlService Q3 2023
00:00 / 00:00