Q3 2020 Exlservice Holdings Inc Earnings Call
Earnings Conference call at this time, all participants are in a listen only mode. After the speaker presentations there will be a question and answer session to ask a question, Gary Sasha Johnny depressed or one thing that's all the phone keypad.
Please be advised us to this conference is being recorded if your car and forget assistance. Please press Star Zero I know why can't the conference over to your speaker today Mr.
Steve Barlow. Thank you. Please go ahead Sir.
Thank you Anthony well and thanks to everyone for joining here. So third quarter 2025 actual results conference call I was thinking Barlow, Vice President Investor Relations with me today by telephone.
Our vice Chairman and Chief Executive Officer, and we're always looking at the <unk>, our Chief Financial Officer.
Hope you've had an opportunity to review our Q between 2020 earnings release, we issued this morning. We've also updated our investor Factsheet in the Investor Relations section of <unk> website.
If you don't sell the batteries will discuss in this call 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 securities.
Exchange Commission from time to time.
Yeah, Phil assumes no obligation to update the information presented on this conference 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 the Investor Factsheet.
Now turning the call over to wrote before you feel Chief Executive Officer.
Thank you Steve Good morning, everyone welcome to our third quarter Btwenty earnings call.
I Hope you and your families are all safe and healthy.
As shown in our interim update our fourth quarter performance was much better than we originally expected.
Both our analytics and our operations management businesses saw a strong bounce back from the second quarter.
Our investment in virtual or transmission capabilities have enabled us to expand relationships with existing clients as well as the ramp up on deals like the one earlier this year.
For the third quarter Twentytwenty, we generated revenues of $241 million, which represents an 8.3% sequential increase on a reported basis and a 7.7% increase on a constant currency basis.
Adjusted EBITDA for the quarter increased 97% quarter over quarter to one dollar and four cents.
The key drivers for the he'd be a school or the strong revenue rebound and the full impact of the cost actions taken earlier this year.
Our operations management business reported $150.5 million in revenue up 6.9% sequentially.
The key driver was revenue growth in insurance due largely to the ramp up of large deals one in the first half of 2020 and lead 2019.
We also saw some recovery in client volumes across all other business lines.
Our analytics business saw significant growth from the second quarter and was up by 10.8% sequentially to $90.5 million.
[noise] glides focus has now shifted from crisis response to winning and growing and the new norm.
This includes one being able to identify and rapidly shift gears to address changes in economic sentiment and consumer behavior and to.
Great adoption off beat up the neighborhood decision, making to better predict and respond to these changes.
As a result, our client data and analytics agenda has expanded and we are seeing robust growth in this space.
Today I want to highlight two key growth trends, we are seeing in the market.
Number one accelerated demand for data and analytics in the new normal and two expansion within strategic lines due to establish credibility.
First our significant investment in building out our data and analytics capabilities over the past several years has positioned us well to capitalize on the increased market demand for analytics across industry verticals and mark.
Our appliance business models are shifting to digital and greater use of cloud based platform.
This shift has led to an increased demand for end to end data and analytics capabilities.
It requires our clients to modernize their data infrastructure maintain clean and readily usable data assets and leveraging cloud based platform.
Oh Boy advanced analytic solutions.
Our clients need to embed deeper insights into real time decision, making.
With our proprietary data assets strong data management capabilities and deep domain expertise, we are helping our clients make this transition.
Dick more informed decisions and run intelligent and resilient operation.
A noteworthy example is a strategic win with a top 10 U S Bank <unk> overall that cyber and fraud prevention capability, leveraging data artificial intelligence and machine learning solutions.
The client selected us over a diverse set of competitors to deliver a strategic capability that enables the bank to secure its digital transactions increased automation reduce operational stuff and bring new digital products faster to market.
Banks are increasingly leveraging E and M M.
If I look at your time cyber threat detection solutions.
Our capability in this rapidly growing space is resonating very well with our clients and we have developed a strong pipeline.
Our capabilities in analytics have always been differentiated and we are now being increasingly recognized both by our clients as well as industry analysts.
Your next up is honored to be named the customer's choice in the Twentytwenty gotten up your insights for data and analytics.
We also proved to be the only company with this distinction from a group all 60, plus data and analytics providers from across the world.
This distinction directly represents the voice of our customers and be a proud off this endorsement by offline.
The second area that I want to highlight is our expansion within strategic client.
Given continued economic uncertainty the focus on supply chain resiliency has become bottom up.
Hi, its up prioritizing partners that are stable strategic and flexible.
Clients want partners with Crdit ability to execute along with the right capabilities and commitment to the partnership.
Our ability to deliver sustained performance during the pandemic.
Speed offering more enablement and transparency of communication has positioned us well to expand our engagement with our strategic plan.
An example of this is the growth we have been discussing with a leading in short pick which is part of a large like idea that has been a strategic line coffee ekso for over 15 years.
We were selected to support that client acquisition efforts during the annual and open enrollment period.
<unk> operating model and the ability to ramp up quickly in multiple geographies, especially across South Africa, and Philippines was one of the key differentiators.
This win is a great example of what ability to penetrate new buying centers, you not strategic lines and expand our share of wallet.
We are pleased with the face and project trajectory of heart recovery and remain cautiously optimistic on growth going forward.
We see strong demand for our offerings, particularly our full stock off data and analytic services.
Within operations management, we are seeing a healthy pipeline of large deals with aggressive digital transformation agendas.
Slides prepared for growth and resiliency in the new normal.
At the same time, despite the overall positive sentiment we are seeing decisions in some deals being delayed.
With continued economic geopolitical and find that make related uncertainty, we anticipate some volatility in the near term.
Despite unprecedented global challenges, we continue to enjoy the trust and confidence of our clients as their strategic partners. We are humbled by the endorsement we have seen from our clients and the commitment from our own teams here at Ekso.
We continue to invest in our capabilities to win new business support large scale transitions and enhance cyber security to grow and develop our business in a walk from anywhere business model.
I feel confident that our teams are prepared to continue to innovate and execute through an uneven recovery.
I want to take the employees at the except for the commitment grit and determination and I feel very proud to be part of this team.
Colleagues have shown innovation and creativity in the face of crisis and demonstrated a sense of purpose that brings us all together as an organization.
With that I'd been handed over to more to do.
Thank you Robert and thanks, everyone for joining us. This morning, I will provide insights into our financial performance for the third quarter and the first nine months of 2020, followed by our outlook for the business.
As Rob mentioned, our quarter was better than we expected as revenue was 241 million.
7.7% sequentially on a constant currency basis.
Adjusted EPS was a dollar and four cents compared to 53 cents in the second quarter.
All revenue growth numbers mentioned hereafter or on a constant currency basis, my discussion discussion on a year over year growth percentages for improvements will be excluding health integrated for 2019 for a true comparison with 2020 performance on less mentioned other.
Yes.
For the quarter, we generated revenue of 241 million down 3.1% year over year. This.
This includes a one time Cobra related pass through revenue 4.4 million sequence.
Sequentially from the second quarter revenue was up 7.7%.
Revenue for the quarter was higher than the interim gardens, we provided in September as we were able to fulfill almost a 100% of demand.
Revenue from our operations management business as defined by three reportable segments, excluding analytics was 150.5 million down 5.7% year over year.
Sequentially from the second quarter revenue was up 6.1%.
Insurance generated revenue of 87.8 million down 3.9% year over year. This decline was driven largely by supply constraints in our field service business compared.
Compared to Q2 of 2020 insurance revenue was up 7.1%.
Healthcare continued its growth momentum with revenue of 25.1 billion.
10.5% year over year.
This growth was driven by the ramp up of new client wins in 2019 in the area of clinical services.
Emerging reported revenue of 37.6 million, which was a year over year decline of 17.3% due to the reduction in travel transportation and logistics volumes offset by decreases in all other categories.
Revenue was up 8% when comparing to the second quarter of this year.
Analytics had revenue of 90.5 million up 1.6% year over year. This growth was driven by higher volumes in the health care and insurance industry verticals sequentially.
Sequentially from the second quarter of this year.
Revenue was up 10.4%.
Our SGN <unk> expenses declined by 130 basis points year over year to 17.5% of revenue driven by cost initiatives, we announced in may and lower discretionary spending.
Our adjusted operating margin for the quarter was 19.2% up 390 basis points year over year, driven by lower costs due to cost control measures lower infrastructure expenses and reduced discretionary spending.
Our GAAP income tax rate for the quarter was 24.3%.
Our adjusted EPS for the quarter was a dollar and four cents.
23.8% year over year on a reported basis.
During this pandemic period liquidity and cash conservation remains a key priority, we exited the quarter with a very strong balance sheet.
Our cash flow from operations for the quarter was 67.4 million up from 58.2 million from the third quarter last year, our dsos for the quarter was 57 days down six days from the previous quarter and the lowest level during the past five years.
We ended September with 363 million of cash and short term investments and borrowings of 239 million, resulting in a net cash position of 124 million up from 87 billion at the end of the second quarter of this year.
Now moving to our nine month performance our revenue for the period was 709.5 million down 1.7% year over year. This decline was driven by kobin related supply and demand constrained as mentioned earlier, our adjusted operating margin for the pure.
<unk> was 14.6% down 20 basis points year over year, driven by lower revenues and net cobot related expenses, partially offset by cost optimization initiatives.
Adjusted EPS for the period $2.39 up 3.9% year over year on a reported basis.
In the first nine months of the year, we generated cash flow from operations of 126.3 million compared to 106 million to the same period last year. This reflects an effective implementation of our cash conservation strategy and efficient working capital management.
During the first nine months of the year, we spent 34.6 million on capital expenditures as we continue to invest in the business for the long term we.
We expect our capital expenditures to be between 36 and 38 million in 2020.
Our effective tax rate for the first nine months of the year was 25% and we expect the 2020 effective tax rate to be between 24.5% and 25%.
We announced beats September that we intend to repurchase up to 80 million of our stock in 2020.
During the first quarter, we repurchased 12 million of our shares.
And in the third quarter, we repurchased $24.9 billion shares.
Yes, we have repurchased 565000 shares.
Average purchase price of $65.
And 25 cents during the first nine months of 2020.
Now moving onto the outlook for the year, the economic environment remains unclear and business sentiment shift given the nature of the pandemic.
There are number of factors that we may not be able to predict accurately, but we feel more confident that our business model is resilient with better visibility into the fourth quarter and 2021.
We are updating our revenue guidance for the year to be in the range of 950 million to 958 million, which is a 4 million increase at the midpoint driven by better performance and increased visibility for the remainder of the year.
Our.
Updated guidance represents a year over year decline between 2% to 3% on a constant currency basis, excluding health integrated.
Based on our updated guidance, we expect our fourth quarter revenue to range between 241 and 249 million.
Analytics should have a higher growth rate than operations management as the pipeline for expansions and new work can be implemented quicker to benefit fourth quarter revenue.
Our updated guidance for adjusted EPS is for a range of $3.40 to $3.48 up four cents at the midpoint.
From previous guidance, driven by better third quarter performance based on our updated guidance our fourth quarter. Adjusted EPS is expected to range between a dollar in one sense in a dollar and nine cents.
In conclusion, we are pleased with our third quarter performance and our outlook for the remainder of the year.
Our ability to quickly adapt to the economic changes brought about by the pandemic has benefited revenue growth since the trough in the second quarter and our efforts to manage our cost has resulted in a significant EPS improvement from a year ago on a lower revenue base.
The current uncertain economic environment, we feel we have the ability to quickly.
Anticipate and adapt and can grow the business during this period.
No Road road, and I will we'd be happy to take your questions.
And as a reminder, that's a question you will need to press star one telephone keypad and to withdraw your question first it down.
And every participant we kindly ask for one question and one follow up on that please.
Please standby, we compile the kuni rather.
And your first question comes from the line of Maggie Nolan from William Blair. Your line is now open.
Yeah, So you're obviously seeing the benefits of the cost actions have been implemented I'm wondering how long you can operate and it's kind of more lean structure and then can you give us some longer term thoughts around modeling margins. When you expect some of those costs may start pacing backend.
Sure Matt this is.
Okay and then thanks for the question.
Look we benefited a you know a few different areas on the cost side, which has really helped our borrower pay off our adjusted operating margins. We've seen two real benefits, one b or the work from home environment really reduce our cost base in some specific areas and.
We're seeing lower costs in our transportation costs in TV in facilities, which has really benefited us and then we've also had the benefit of our cost actions that we put in place back in the second quarter and that is really helping out our margins in the third quarter and were seeing that benefit also.
Moving to the fourth quarter.
When we get to 2021, you know a few a few items will will come back into our piano you know.
One somebody cost measures or temporary in nature.
And so we're going to start to see those costs come back office expenses, specifically in the employee comp area and a few other areas and then also you know in this new environment.
We will have to spend additional money on technology costs. So when we get to our margins you know in 2021, we will see some cost creep back into our piano and.
And so you will see a little bit of a change coming in 2021.
Right now we've really seen those two significant benefits really helping out our margins.
Great. Thank you.
On me analytics work, it's been a little bit more time.
The co then response.
How long do you expect that to benefit from that generate revenue from that kind of 'cause. It's pathetic at work and then do you feel that clients are receptive to the idea that you know that need for real time insights. It it's going to extend beyond kind of significant I mean.
Actual events that they hope it is.
Yeah, Hi, Michael This is real that so you know our data and analytics business has certainly benefited because of the covert response, but.
The shift that has taken place to digital and the shift that is taking place where our clients are shifting most of their platforms to become cloud based platforms and the adoption of digital by end consumers that seems to be a much more of a permanent shift that is taking place.
We've done some research on this and we find that 75% off and consumers once they try out a digital means of communicating with them.
But that providers of services and products and then to continue to use digital so that's been a big shift in terms of the use of digital and as that shift becomes more prominent more deeply penetrated the need for data and analytics services is just going to.
<unk> increased dramatically so we think.
While there is a catalyst.
In the corporate environment that is forcing end consumers to shift to digital it's forcing clients to offer.
Digital mechanisms and channels to engage with the end client a large part of this shift is actually permanent and is a step function change that is taking place and in this new environment with the shift onto the digital and cloud based platforms the need for data and analytics as a.
Suddenly become much much more important and much much more necessary. So we think the benefit on our data and analytics business is likely to continue for a much longer period and the ability to grow this business significantly.
It's going to be there for several years going forward and this is not just a temporary phenomenon that we are witnessing.
Thank you and congrats nice work.
Thank you.
And your next question comes from one Bryan Bergin from Cowen. Your line is now open.
I heard some of the commentary around an uneven recovery and I see that the Fourq. Your implied revenue contraction is somewhat similar to what you didn't threeq you, but as we start to think about 2021 recovery potential can you give us the sense essentially the type of trajectory, we should expect based.
On what you're seeing in client decision, making and then your pipeline activity.
Yes, Brian So Oh, you know right now at the end of the third quarter. The pipeline is actually grown significantly in size Soviet they actually happy with.
The way in which we are seeing customers make decisions and the kind of changes that they need to make because as they think about modernizing that business models are engaging a lot more in digital using a lot more technology and embedding a lot more intelligence into that operating and business processes.
XL is a perfect partner to help them make that transition so that that change and that shift a you know has been very positive for us.
However, the recovery will be on even because Ah you know if it would be a virus, they're all going to be fits and starts that are going to be a jewel geographic impacts that are going to be very uneven. So we might see certain states and certain countries.
Recover quickly or not to cover so quickly and that is going to create a you know some uncertainty and a that might be a you know.
Decision, making that gets impacted because of that so it's very difficult to predict which way. This would go up our best guess at this point of time is that the need for our services both in data and analytics as well as operations management has just gone up and because of that.
We would expect that we'd be able to help our clients and be able to build our business back onto a growth, but as we get into Q4 and as we get into 2021.
Okay.
And or is there I wanted to follow up on on Maggie. His question on margin I could can you quantify some of the key margin out performance drivers, particularly within gross margin. The strong will be out there, what what type of mix or cost savings or lasting versus short term discretionary teeny type items within threeq here.
Oh, so when you look at the benefit.
Q3, there's a there's there's a there's benefit from the work from home environment and then also our cost actions you know the benefits from the work from home environment.
Slightly higher than our cost actions just that and.
In terms of you know you know looking at the overall benefit, but a little bit more of a you know a 60 40 benefit meaning the work from home environment has a bigger benefit.
And a lot of that benefit sits in our gross margin and that's why you see our gross margin added at a fairly high end of 36.9% during during the during the quarter you know going.
Going forward you know.
I did talk a little bit before about you know certain amount of technology costs that we're going to have to spend going forward in 2021 and also some of the additional costs that are going to come back into the piano you know in terms of trying to get to a fight a margin.
No 2021.
We'll be giving guidance when we do our fourth quarter earnings release on 2021, but I would I would take a look to see go back to the first quarter, you see our margins right around 15.6%.
Without any cobot expenses and really build off that you know going forward and its and its you know its arm are ours.
Our desire to really start to grow margins, but you know if you need something to really go back to that's the that's the best measure right now to go back to.
Okay. Thanks for that color.
And your next question, California, Vincent Colicchio from Barrington Research. Your line is now open.
[noise], Yeah, right could you give us some color on the new logos in the quarter, maybe or any of them are potentially strategic over the next a number of years.
Sure Vincent So first of all we are seeing new logos coming both in operations management as well as an analytics.
That is very encouraging to us.
We've seen some pretty quick decision, making on the operations management side, and particularly in those situations, but some of the clients are challenged in terms of being able to deliver and execute to that end customers.
They are embracing operations management, very very actively and very politically which is again very encouraging.
We do see some of these up you know new logos ramping up actually much quicker and being able to provide to our clients the benefit much faster. So that's actually going to be very positive for us.
We also see a new names or you know and this a list of customers that we've acquired which can become a strategic clients for us and fun to be a significant value.
On the analytics side, our engagement with new clients typically start so small and over a period of time it builds up and you know gets to us size and scale. So we would expect a you know the same trend to follow through on the analytic side.
[noise] and strategically a you know what's an uneven recovery what are your thoughts on doing an acquisition to supplement growth.
Yes, so look any kind of volatility will create an opportunity for it you know an ability to acquire and to an ability to add capability. We are out in the fortunate position that we've got a very healthy balance sheet and we've got a you know a fair amount of capital at our disposal.
The book to me to be able to use for acquisitions.
So we are we are in the market and we've got a fairly active pipeline on M&A, but at the same time. A you know this is a period, where you have to be extremely careful of the type of assets that you acquired and the valuations at but you acquire them. So they're going to be very disciplined in our approach and a you know be port.
Well in terms of our ability to do M&A, but.
Finally, very encouraging so first of all.
I'm also the hard held beliefs and assumptions that clients and prospects used to have in the past.
They've been thrown out of the window.
So we've got a totally new set of assumptions coming in which basically means starting from plain white piece of paper and taking a look at what is the art of the possible.
And that to your point means the commercial models will be outcome based and there's a greater propensity for clients to completely outsource end to end work and get to a much better level of operational execution and delivery and resiliency because.
Thats become their number one priority and in order to do that if it requires.
Outcome based pricing model, that's certainly something which that conversation that dialogue is a much more open dialogue at this point of time.
Also seeing.
A big shift take place towards execution, resiliency and value as opposed to pricing.
And therefore, it is about who is a stable secure and dependable partner as opposed to who is the lowest cost provider that we can work with for the next three months or six months. It the conversation has shifted to thinking about this a lot more strategically.
Thinking about it for a much longer term time period, and therefore, the conversation is about value creation productivity stability resiliency and that's much much more important on our clients' agendas than pricing so actually its a very favorable both from.
Hey, rich and fertile customer base, where we are doing very exciting things with our clients.
And that creates a huge opportunity for somebody from the outside to come and join US. We are also on a group spot. So that's something which again is exciting for an individual to come and become part of our team and our ability to attract talent in digital on the cloud.
In big data and AI and ml is actually becoming much stronger just because our message is resonating well the kind of work that we're doing with our clients is very very complex rich and.
Something which is challenging for employees. So they like that kind of work and we are able to attract.
Very good talent there.
Thank you have a good job on the quarter.
Thanks, Mike.
And there are no further questions at this time Mister Rohit turn the call back over to you.
Thank you operator, and thank you all for attending the skull, we really appreciate it I think we've had could rebound in our business and we look forward to continued progress moving forward into the fourth quarter of next year I'd, just like to close by inviting everybody to come and join us for our Investor Day, which is on November 17th.
And we look forward to providing you with more color around operating business model and our future direction of the company. Thank you and see you on November 17th.
Please gentlemen, this concludes to these conference call. Thank you for participating you may now disconnect.
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