Q4 2020 Exlservice Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the E. Ex service Holdings Q4, and full year 2020 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need the press star one of your telephone please be advised of today's.
Conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Mr. Steven Barlow. Thank you. Please go ahead Sir.
Thank you Jeremy and.
Good morning, Thanks to everyone for joining Exl's fourth quarter and fiscal 2020 financial results conference call out of Steve Barlow, Exl's, Vice President of Investor Relations.
On the call. This morning are wrote Kapoor of cheaper than they.
Our Chief Executive Officer, and Vice Chairman and Maurizio Nicole <unk>, our Chief Financial Officer, We hope you've had an opportunity to review of our Q4 2020 earnings release, we issued this morning. We've 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. 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 discussing the company's periodic reports and other documents filed with Securities and Exchange Commission from time to time EXL 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 the press release as well as the Investor fact sheet.
Now I will turn the call over to Rohit.
The Excel Chief Executive Officer right.
Thank you Steve Good morning, everyone welcome to our 2020 your end earnings call.
As I look back of 2020, I am proud of how the euro has chipped up despite the uncertainties that marked this unprecedented year.
The efforts we put in place early such as shifting our 30000, plus global workforce two of them.
Work from home business model, ensuring the health and safety of our employees and safeguarding the business continuity for our clients help establish the momentum we will carry throughout the year.
Ultimately through a combination of human ingenuity creativity hard work and true collaboration we demonstrated agility and resilience in the face of crisis.
The end result have been stronger client relationships expanded capabilities and the reaffirmation of our mission to work as one team to help our clients transform.
Each person within EXL part of the organization forward the.
The true character and culture of thought of organization stood out more than ever.
'twenty 'twenty each one of us demonstrated a sense of purpose looking.
Looking deeper finding a better way and making it happen.
The truly lived our core values of collaboration innovation.
Excellent integrity and respect.
For the fourth quarter 2020, we generated revenues of $249 million, which represents a three 1% sequential increase on a constant currency basis.
Adjusted EPS for the quarter grew by nine 6% sequentially to one dollar and 14 cents.
This is our highest EPS on an open.
What are the representing 44.3% growth year over year.
All of the analytics business had an outstanding quarter with $98 $1 million in revenue, which represents an eight 4% growth quarter over quarter.
The strong performance was the result of multiple expansions within our strategic banking clients growth from our payment integrity solutions and health care.
And the increased demand for our data led marketing solutions within our insurance clients.
Our operations management business reported $159 million in revenue for the fourth quarter of 'twenty 'twenty flat quarter over quarter.
We continue to sign new business in operations management, and our pipeline remains strong.
As the economy emerges from the impact of the pandemic.
Clients are focused on delivering personalized customer experiences of.
Optimizing costs and supporting resilient operating models.
As a result of data led value creation framework is resonating nicely in the marketplace.
We are seeing growth across two dimensions one.
Celebrating the demand for our full suite of data and analytics capabilities.
And to leveraging AI powered solutions on the cloud to embed the intelligence in operations.
The shift of consumers to digital channels, along with them on the even economic recovery has accelerated the adoption of data driven decisioning.
Clients are partnering with us to lead the enterprise wide data and analytics agenda, and unlock new insights that create a competitive advantage.
One Great example is the new client relationship with the mid sized U S mutual insurance carrier.
Our client engaged us to significantly grow the number of new customers and reduce the acquisition cost per customer.
We are leveraging our proprietary data assets marketing analytics models campaign analytics technology and operations to acquire new customers profitably and at scale.
As a result of relationship expanded meaningfully in the last six months and we have more opportunities for further expansion.
Our differentiated capabilities in data and analytics services are recognized by our customers and analysts alike.
We were recently named a visionary in the 'twenty 'twenty, one Gartner magic quadrant for data and analytics service providers.
We have differentiated ourselves with the combination of deep expertise in selected industry verticals and the skills, we have been able to a day.
Over the last six years of analytics business has grown at the cargo to of 33 per cent.
With over a 150 clients and we have built a deep bench of 4500, plus data scientists analysts and engineers.
The second area I want to highlight is our AI powered solutions on the cloud that are driving growth in our operations management business.
Good day, our operations management clients are looking for more than just automation and efficiency.
They are focused on one fundamentally redesigning the process architecture to fully leverage AI and analytics.
Two.
Auto amazing Decisioning and improving customer experience using domain specific AI and analytics solutions.
And three.
Harvesting untapped data within the legacy processes.
The derived deeper customer insights.
With a strong understanding of client processes, we are leveraging the flexibility and the computing power of cloud to deploy AI solutions that can transform operations at speed.
To strengthen the art cloud competencies across people process and technology, we are investing in a cloud center of excellence.
We are also expanding our partnership ecosystem to develop and go to market with these cloud native AI solutions.
With several solution pilots underway.
We are co innovating with our clients to solve strategic business problems.
One such example is our relationship with the large global insurance broker, where EXL has become the AI transformation partner.
We are deploying our proprietary data extraction solution extract the dot AI to eliminate manual ingestion of text and images.
Hosting the solution on cloud allows the clients to leverage our AI accelerators and use the solution output without disrupting the existing operations.
As a result, the clients can underwrite significant efficiency benefits out of rapid pace.
Moreover, EXL is driving the end to end of implementation, including the integration with existing downstream business workflows, enabling the client to safely and seamlessly scale AI solutions across the enterprise.
Thereby driving significant productivity benefits in the downstream operations that are manual effort intensive.
Our solution also allows for the extraction of data that previously remain untapped and helps deliver deeper customer insights.
Our operating model has shown great resilience and stability amidst the challenging circumstances of 2020.
Two areas, where we saw significant growth what are the health care and all of life insurance businesses.
These businesses implemented highly complex and multi geography engagements seamlessly in the virtual environment.
In order to support our growth, we launched two new delivery centers in Colombia and in the Philippines.
Going forward, we are well positioned for healthy growth across all of our businesses.
The demand for our data led digital solutions is strong as evidenced by our pipeline, which has expanded significantly compared to last year.
Moreover, we have added 45, new logos in 2020, a notable increase from 28 in 2019.
With strong momentum built in our large deals pipeline and by adding new marquee logos to our portfolio, we entered 2021 with great confidence.
Yeah.
For 'twenty 'twenty, one our full year revenue guidance is in the range of 1.0 of 4 billion to $1.06 billion.
The representing a 9% to 11% increase year over year.
This represents an accelerated growth of revenue for EXL, driven by an expanding demand for data Lake solutions to solve high value industry problems.
We expect adjusted diluted EPS to be in the range of $3 of 90.
Two $4.05, representing a 10% to 15% increase over the prior year.
This aligns with our focus on growing profit faster than revenue.
We will continue to expand our margins by focusing on higher value of business and improving productivity.
However, we recognize that we are working through a period of heightened volatility that will continue to affect our clients and our own operations.
The emergence of the new by the strains and the uneven vaccine rollout of creating uncertainties on the timelines for our largest scale return to office.
When we do start that process, our new operating model is going to be a hybrid with some fraction of employees continuing to work from home.
This requires us to invest in information and cyber security technologies and deploy virtual collaboration tools across the enterprise.
We are all sort of doubling down on talent acquisition to ensure that we have of the right skill sets in place to keep growing our analytics business at double digit growth rates.
The explosion of demand in this market has made the recruiting a challenge, but we continue to make strong progress.
Last year caused its fair share of challenges, but it also opened up opportunities for companies to take a holistic look at strategic priorities.
Clients have pulled forward the transformation agendas and all of acting with urgency to be in sync with their customer base.
They are embracing data enabled insights to drive better decisions and embedding intelligence and operations to deliver superior outcomes.
We will continue to be the indispensable partner for data net businesses.
With that I will turn the call over to Maurizio.
Thank you Rohit and thanks, everyone for joining us. This morning, I will provide insights into our financial performance for the fourth quarter and full year 2020, followed by our outlook for 2021.
As Rohit mentioned, our water was better than expected with revenue of 249 million of three 1% sequentially on a constant currency basis. Adjusted EPS was $1 14 exceeded the high end of our guidance by five cents.
All revenue growth numbers mentioned hereafter are on a constant currency basis.
The discussion on year over year of growth percentages or improvements will be excluding health integrated for 2019 break true comparison with 2020 performance unless mentioned the otherwise.
For the quarter, we generated revenue of 249 billion down 2% year over year. This includes onetime COVID-19 related pass through revenue of one 7 billion.
Revenue from our operations management business as defined by three reportable segments, excluding the analytics what's the.
Wondered if 50.9 billion down five 8% year over year.
Sequentially from the third quarter revenue was flat.
Insurance generated revenue of $88 9 million weighted.
4% year over year.
Parents of the third quarter of 2020 insurance revenue was up 1%.
Health care reported revenue of $24 2 million down 3.3 per cent year over year. This decline was due to lower volumes from transitioning customers.
The emerging reported revenue of 37 8 million down 18, 9% year over year due to the reduction in travel transportation and logistics volumes the.
The business has stabilized with revenue up 23 per cent compared to the third quarter of this year.
Analytics had revenue of $98 1 billion up 4.5 per cent year over year. This growth was driven by higher volumes in the insurance and healthcare industry verticals.
Quench, we from the third quarter of this year revenue was up 8.3%, indicating strong momentum and demand for our analytics services.
Our SG&A expenses declined by 120 basis points year over year.
To $18 eight per cent of revenue driven by cost optimization initiatives and lower discretionary spending.
Our adjusted operating margin for the quarter was 19, 7%.
550 basis points year over year, driven by lower spending due to cost control measures lower infrastructure expenses and reduced discretionary spending.
Our adjusted EPS for the quarter was the dollar 14th sets up 44, 3% year over year on a reported basis.
Now reviewing our full year 2020 performance our revenue for the year was $958 4 billion down one 8% year over year. This decline was the result of Covid related supply and demand constraints, primarily in the second quarter.
Yeah.
Our adjusted operating margin for the year was 15, 9% of 130 basis points year over year, driven by cost optimization initiatives offset partially by lower revenues and COVID-19 related expenses.
Our effective tax rate for the year was 24, 8% down 130 basis points from 2019.
This decrease was driven mainly by a favorable change in the geographic profit mix reduced corporate tax rate for certain of Indian entities on the on the election of the.
New tax regime.
Should we offset by lower tax incentives and a higher state income tax rates in the U S.
Adjusted EPS for the year was $3 53 sets of <unk>.
14, 2% year over year on a reported basis.
During this pandemic period liquidity and cash cash conservation remains a key priority.
We exited the year with the very strong balance sheet.
Our cash and short term investments at December 31 was 403 billion and our debt was $239 million for a net cash position of $164 million.
We generated cash flow from operations in 2020 of $203 million up 21% compared to 168 million in 2019.
Our DSO.
December 31 was 53 days the lowest since 2015.
This result reflects an effective implementation of our cash conservation strategy and efficient working capital management.
During the year, we spent 42 million on capital expenditures as we continued to invest in the business for the long term growth.
We repurchased one 1 million shares at a cost of $78 million, which was an increase from the 40 million spent in 2019.
Now moving onto our guidance for 2021.
The economic environment, while better still remains unclear and there are number of factors.
It may not be able to predict accurately, but we feel confident that our business model of model is resilient and agile as demonstrated by our 2020 performance.
We are providing revenue guidance for 2021 to be in the range of 1.0 of 4 billion to 1.06 billion.
This represents a year over year of growth of 9% to 11% on a reported basis and 8% to 10% on a constant currency basis.
This guidance of lines to the medium term revenue targets, we disclosed in our Investor day in November we expect the analytics to grow over 13% in operations management management to growth in the range of 6% to 8%.
We expect a foreign exchange gain between two and $3 million net interest expense of $1 million to $2 million and our effective tax rate to be in the range of 23, 5%. The 24 five per cent.
Based on the above we expect our adjusted EPS to be in the range of $3 94.
$4 and Bob's net of 10 to 15 per se from the $3 53, since we reported today for 2020.
In terms of capital allocation, we continue to invest in analytics digital solutions and technology, we expect capex to be in the range of $35 million to $40 million, we anticipate to buyback our shares at a pace similar to what we did in 2020.
Our hybrid operating model.
Work from home and office is very flexible current.
The majority of our employees continue to work from home.
As the year progresses, we expect an increase in the staffing at our delivery centers while ensuring.
The health and safety of our staff.
That said, we expect our margins to be higher in the first half of the year compared to the second half of the year.
During the first half of the year, we will begin to incur increased cost due.
Due to the reinstatement of salary increments employee promotions and higher technology costs related to our hybrid operating model.
In addition, during the second half of the year, we anticipate increased operating expenses on facilities transportation and travel as we start to return to a more normalized operating environment.
In conclusion, we had a good year. Despite the challenges created by the pandemic and have demonstrated our ability to quickly adapt to market changes our business is solid and resilient with a strong visibility to drive shareholder value in 2021 now.
Now road.
We'd be happy to take your questions.
As a reminder to ask a question you will need the press star one of your telephone to withdraw your question press the pound key part of the request of EXL. Each participant is allowed only one primary question and one follow up question no questions will be allowed from the media. Please standby for the first question.
Your first question will come from Maggie Nolan with William Blair. Please proceed.
Thank you.
I wanted to talk about the 45 new logo additions.
That's obviously quite a nice improvement over the prior year as you pointed out it does favor any particular business segment of our end markets and what were the circumstances that you would attribute the straw.
Growth in that figure of two.
Oh, Thanks, Maggie this is rohit.
So.
We were definitely surprised without the ability to acquire new customers in a pretty challenging environment, all of which was pretty much of virtual environment.
But the 45, new logos that we acquired in 2020 are actually nicely spread both between operations management and analytics.
Also the you know very nicely spread across the industry verticals and across the business lines. So for US This represents.
Our ground up activity and demand, that's taking place and our ability to offer the right kind of products and solutions to our customers and be able to bring them on as new clients.
I think of the exciting part is that some of these clients are real marquee names and we are really very proud of having one of these accounts in this kind of an environment.
Sure.
Okay.
Our next question comes from Bryan Bergin with Cowen. Please proceed.
Hi, Thank you apparel the unwell.
Wanted to ask at a high level first the client budget levels. In 2021 can you comment on what you're seeing and in the overall budgets and understanding there are still levels of macro uncertainty are there any areas where projected client volumes that are being presented to you seem somewhat overly conservative.
Thanks, Brian I think I'd break up the question into a couple of different thoughts.
One is the operating business of our customers and those operating businesses, obviously have to do but the recovery of the economy and the different segments that have been impacted.
So we are seeing a good recovery rate take place out there across our client businesses.
Except for travel all of which continues to remain challenged at the operating level.
In terms of other budget free spend.
Spending and the allocation.
<unk> of expenses, who enable digital transformation.
There is a fair amount of acceleration of the digital transformation agenda, and therefore, we are seeing clients engage.
Are you actively in terms of driving business transformation.
After all of the core operating processes, they're also finding that in this kind of a virtual environment the.
Use of data becomes really really critical and therefore being able to drive the right kind of insights from that data make the right kind of product and service offering to the end customers and to be able to improve customer experience, which has become part of Mt.
So actually spending heavily on the data analytics the spending heavily on digital the spending heavily on the transformation to the cloud. So all of these areas all of receiving a lot of focus and that fits in very well with our capabilities and how we are helping our clients modernize their infrastructure.
And the operating business processes.
Okay, and then just a follow up on health care, So of health care Ops management, so didn't see that that contracted sequentially in the quarter, but your gross margin for that.
Industry looked at the up a lot can you just talk about the underlying dynamics there in health care and how youre seeing that the outlook here in 'twenty, one as well.
Sure.
Health care you are looking at only the operations management piece and the comparison to the previous year needs to exclude out the health integrated.
Because I believe health integrated was there in the previous year and so you need to adjust for that you did have a few clients kind of transition.
In the fourth quarter, but when you take a look at the growth of our operations management business in health care year over year. So you look at it not from the lens of a quarter, but rather from an annual perspective.
That growth rate was 19% excluding health integrated so actually it's a very healthy growing nicely and I think they will always be volatility on a quarter on quarter basis, but we think our health care business is on a strong trajectory.
Just the interest Brian just to add to our to the health care of discussion on gross margin. If you look at the gross margin just sequentially. This year from Q2 onward, you'll see a nice healthy increase in our gross margin in health care and that's really driven by the was really getting some nice operation.
<unk> on a quarter to quarter sequentially with the lowest point of being in Q2, when really depend on the kids.
Okay. Thank you.
Our next question will come from Moshe <unk> with Wedbush Securities. Please proceed.
Hey, Thanks, good morning.
Just going back to the discussion that's related to the new logo adds the they're really impressive maybe you can talk a bit about.
The scenario, where you will have to.
They have some startup costs in terms of ramp.
What does it mean to at least near term margins and then on top of that.
What sort of.
Obviously, if we're looking at the pre pandemic cost base of the business.
And then given the fact that the model has changed and given the fact that maybe part of your T. N. The expenses may not come back what does it mean to your future margin trends kind of of general discussion.
On margins thanks.
Sure most of you when I take that so.
When you when you see the number of new logos come on board there was a certain amount of ramp up cost for those logos.
No different than any other period that we've been in we incur those ramp up of course, we embed that into our overall cost base. So we have already included that into our projections really going forward.
And it really the increasing cost is really comparable to prior periods, even though there's a little bit of an uptick in terms of the number of new logos.
Just overall.
Within our guidance, we do continue to see a healthy gross margin going forward you saw a nice uptick really driven by revenue in Q4.
And then going into 2021, you'll continue to see a healthy gross margin coming down a little bit related to some of the cost of items that I talked about within or within my script.
But the.
Going forward just overall, our gross margin will continue to be healthy going forward.
Okay understood and then you mentioned the comp increases.
The being budgeted into.
The guidance, maybe can you talk a bit about what's sort of the increases were kind of looking at all when you're talking about.
Maybe in the context of the kind of pre pandemic levels.
Yeah. So we started in Q1, you're going to start to see some of our compensation costs come back into our P&L, specifically Q1 will see promotion expense starting to come through and then in Q2 youre going to start to see.
Salary increases start to come through and those increases are very similar to pre pandemic.
Nothing nothing significantly different but really getting back to a more normalized cost the cost structure.
And also.
Rewarding our employees for really the hard work.
But nothing different than what you've seen in the past pre pandemic.
Alright, and then final question just structurally you're looking at the new logo wins is there anything different in terms of how you're structuring some of these engagements.
Compared to where we were pre pandemic.
Yeah.
Okay.
So the pizza.
Go ahead of most of them.
I was going to.
<unk> different.
From pre pandemic.
Out of the engagements are still structured very similarly.
Alright, thanks, guys.
Your next question will come from Ashwin <unk> with Citi. Please proceed.
Hello Ashwin. Your line is open. Please proceed with your question.
Your line maybe muted at this time. Please proceed.
And we will move onto the next question. Your next question will be from David Grossman with Stifel. Please proceed.
Thank you good morning.
I Wonder if we could just talk a little bit about.
Bookings activity and set of <unk>.
Little bit about.
How much of your revenue you know kind of guidance in 2021 is from new contract activity versus the installed base and just how the cadence of that new contract activity is going to ramp over the course of the year.
Sure David.
So you know of.
As I mentioned in my prepared remarks the.
Pipeline for our business is strong and we are we have had a fair amount of conversion. So the bookings are also strong and we've got good visibility into our revenue number that we've guided to for 2021.
Typically in any given year for us.
New clients contribute very little revenue and typically they contribute less than 5% revenue for the year.
And the reason is a start of small and then the expands over the period of time and the real growth in revenue from new clients typically comes in year, two and year three.
For 'twenty 'twenty, one we would expect that trajectory to be pretty much similar so the bulk of the growth will actually come from existing.
<unk> clients doing more work with us and the new clients contributing Inc.
Incrementally to that.
But we feel very comfortable with the level of bookings that we've got and the level of backlog that we've got in terms of our bookings and the pipeline certainly has expanded very significantly and is also moving much quicker. So we are seeing our decision making.
Actually.
Take place at an accelerated pace, so that's very positive.
I see and then.
Quick question on margins of mid merchant you did a good job of exploiting the cadence over the course of the year and the underlying drivers.
I'm just curious you know I know this is kind of a hard question. The answer at this point in time, but.
If we look beyond this year of since it's going to be so noisy including the.
This does change and work from home dynamic.
How should we think about it at the EBIT line beyond this year is it going to be at least near term after 2021, and 2022 difficult to expand margins because of the dynamic of increasing expenses over the course of 2021 or is the way that youre gearing expenses kind of set up in of.
Ways that you can still see margin expansion in 2022. Despite this increase over the course of 'twenty one.
Yep Yep.
Very good very good question.
So I guess.
In the answering your question I would go back to Investor Day, where we talk about increasing margins to between 16 and 17%.
And by 2022, so in a normalized environment, we do see the opportunity to get to higher margins in a normalized environment. If you go back to where we were in Q1.
Without any COVID-19 expenses, we were right around 15, 6%.
What we're seeing today is kind of what you're talking about is kind of this hybrid whereby it's tough to get a handle on just.
Exactly the margin because you're not sure when we get back to a more normalized environment.
We tried our best here to really.
Forecast that out within our guidance to more of the second half of the year. So to answer your question I think the risk opportunity.
We're really focused on getting to what we talked about in Investor day by 2022.
And then then we can then we'll take the we'll take the next initiative to see where the where the next point will be for margins thereafter, but right. Now we're really just focused on getting to that level for 2022, and a more normalized environment.
Your next question will come from Puneet Jain with J P. Morgan. Please proceed.
Hi, Thanks for taking my question.
Can you provide more detail from the transitioning clients within the healthcare.
What was the impact in this quarter will this be Q4 specific.
Who are those clients.
Hi, Bonnie.
Well you know the transition of clients at the place in healthcare in Q4.
It was anticipated and planned it just was planned for the Q4 because the day.
Decisions were taken actually when Covid hit in Q2 of the year and the these are normal timelines and the windows that our clients need to provide a fall of the transition of the ramp downs. There's nothing unusual about it. This is something which is planned I don't think of it impacts our business going forward.
So it is only going to impact Q4, our expectation is that of Q1 onwards, we'll see.
Of the recovery of the operations management part of the health care business and like I said the.
The operations management business for health care grew 19% year on year, despite the pandemic in 2020.
There are some new areas that we have signed up clients in health care in operations management, particularly around providers. That's one area that we did not focus on in the past.
And in 2020, there's been a huge.
Constrained on the providers and they've been looking at ways in which they can get more efficiency and productivity and we've been very very successful in terms of being able to acquire.
Several new providers that will provide us with the operations management of revenue in 2021 and beyond.
On the per site, there's always going to be worth the kind of fluctuate depending on how things go as you know elective surgeries kind of declined very rapidly in 2020. So you are going to see the impact of that so there's nothing unusual about Q4, it's something which is it's pretty much anticipated and planned for.
Sure.
Okay.
How large is the travel verticals like now.
How much of what had been the clause in fiscal 'twenty and what do you expect from the verticals of the field.
So putting it as you know we don't breakout of our travel vertical are completely we haven't emerging business that basically club. So all of these pieces together.
The travel part for us is not very big.
It was about I believe about 3% of soul.
In terms of total revenue, but the work that we do really pertains to business travel and business travel obviously has been very badly hit.
The environment, and that's where the impact of.
Got you. So you expect it to remain the placebos.
Well I I travel recovers I think first we might see a recovery in the personal travel and leisure travel and then you know I think business travel will recover thereafter.
And it will show up in analytics.
Whenever it took all of those for you.
No it shows up in other emerging business.
Got you okay. Okay. Thank you.
Your next question will come from Dave Koning with Baird. Please proceed.
Oh, Yeah, Hey, guys. Thanks nice job.
Thank you the yeah.
So I guess first of all just just trying to get Q1 right.
In terms of I guess first of all of revenue you're by far the toughest comp in Q1.
To me of kind of looks like Q1 might be low single digit growth in the or maybe up a couple of percent sequentially that would be kind of a normal pattern and then the rest of the year is probably over 10% growth to kind of get you the full year, but just trying to get that that quarter right on revenue.
Yes.
Right.
If you take Q4's revenue and you modeled out similar to what you what we've done in the past going from Q4 to Q1 Youll get that sequential growth that you just talked about.
And then you'll see.
The typical pattern.
Of what we've done in the past, where the stronger quarter in Q3 versus the other quarters. So you're when you go out and you model out.
The revenue you can see a similar pattern this year from a more normalized year not 2020.
Yeah, Okay that totally totally makes sense looking at it sequentially like that that's good.
And then margins I know you spent a lot of time on that already but.
You know what it sounds like the the early part of the year like you said first half stronger than second half, but is it fair to think of it looked like full year to us looked like somewhere in the mid <unk>, maybe a little better than that actually is it kind of 17% in the first half and is that pretty stable, whereas Q1, and Q2 different and then the back half would kind of be more of like 16%.
Is that just how to think about it.
Yes, the win so you've done the math of Eddie so.
And our guidance so your 16% range.
If you do the math.
Talking about youre going to get to the mid 16% range and then obviously what you just talked about the first half is going to be slightly higher so inevitably if you're at the mid 16% range youre going to be somewhere in the 17% range of the first half of the year based on based on the guidance.
Model calculation.
Okay, and I just wanted to make sure though that Q1 in Q2 arent dramatically different I, just don't Wanna be like way too high on Q1 or anything but its out of both quarters pretty similar for Q1 and Q2.
The.
They will they will be comparable that won't be exact but there'll be comparable.
Well.
Q2.
You've got to factor in the the salary increments that day, and therefore that will impact the margins in Q2.
Gotcha, great Yeah, Great point, thanks, guys good job.
Thank you.
Your next question will come from Vincent Colicchio with Barrington Research. Please proceed.
Yeah, Yeah, Rohit I'm curious actually on the 15 of new logos added this quarter.
We're you know to what extent do you think the some of them may be strategic longer term for.
For the company.
Sure Vincent.
We are actually very pleased with the profile of the AR 15, new logos that would be at it and it is pretty much balanced between large and strategic deals that we would sign and the normal businesses, where we might do a proof of concepts and what it might do the work to be able to demonstrate the capabilities to our <unk>.
Clients.
So it's kind of fair a mix of that and.
Already started to engage with these clients.
Some of the revenue will kick in you know fairly quickly.
And I think the advantage of working in a virtual world is some.
Some of these are you know.
Our ramp ups can take place much quicker. So we're actually quite happy with the kind of the complexion of that the 15, new clients that we won in Q4.
And I'm curious are you seeing any clients as this pandemic, whereas on for some time now.
Looking for maybe the price relief from at homework.
Well, that's an interesting question that you know often does come up and let me just try and explain the whole thing to you.
So.
While working from home reduces some discretionary costs pertaining to transportation and facility operating costs certainly of travel and entertainment costs are down.
There are increased costs that we have to incur on account of information security collaboration tools and some of the technologies that we're putting into place to be able to make sure that while our employees are working from home. This provides a safe and secure working environment.
So as we kind of factored both of these things in as well as we factor in that we need to have flexibility to move our people from a book from home model to a work from office model.
And there are costs incurred as those transitions take place one way or the other.
And the frequency of that is unknown at this point of time.
The cost equation basically is a wash so.
I think the conversation that we're having with our clients right now is what kind of permanent business operating models to our clients want and what is it that day.
Like us too.
The structure for them and based on back of operating model and the cost associated with that we would have a conversation about whether the pricing needs to be increase or decrease or maintain the exactly where it is on balance.
There isn't much room for changing the cost structure given some of these investments of people would be making.
Thank you and a nice quarter.
Thank you.
Okay.
As a reminder to ask a question you will need the press star one on your telephone per the request of EXL you're allowed one primary question and one follow up question. Your next question in queue is a follow up from Maggie Nolan with William Blair. Please proceed.
Thank you just one more from me on the expansion of the analytic surfaces within financial services clients.
Did those client relationships and the type of work per graphs and do you feel this is repeatable and other clients.
Thanks Maggie.
Financial services certainly is seeing.
A fair amount of volume of activity. That's taking place. There's also more book that needs to be done from a risk management standpoint, as well as you know the customer relationships us thing too.
Primarily of digital relationship.
So actually the use of data and the use of analytics in the banking and financial services World is.
Very very strong and therefore, we see the growth in that the you know.
Our industrial vertical continue to take place as we go forward into 'twenty and 'twenty one.
We are very well positioned on data and data analytics and that is something which I think is shining through in terms of our business model and are now operating financial results.
Thank you very much.
Thank you Mike.
Your next question and final question comes from Ashwin share of Vikar with Citi. Please proceed.
Thank you Hydro Hi, Mauricio.
Sorry could not ask when his current last time is taking the call from my manager.
On the bright side of the Neptune had comps of if anyone on the call wants to.
Look for Citi.
That said.
That's that's out there.
Hey, the one question that wasn't really ask the M&A.
Uh huh.
How are you guys feeling now about.
Stepping back in.
For M&A.
Can you talk a little bit about the processes that have been put in place from the divisions perspective since the.
Since the last one what might be possible targets and so on.
Sure Ashwin.
Let me talk a little bit about what we have been doing on M&A. The.
The the pipeline on M&A.
It's been it has been very.
A significant and theres been a lot of opportunity for us to look at different companies that have come to market.
I would say that the valuations are very high right now.
As you can imagine, especially in the areas that we are interested in and data analytics digital.
When we go through our process of <unk>.
Waiting those opportunities we're really looking at two specific areas. One is what is the what is the what is our return of going forward. What is our ROIC see going forward and that's really important for us to ensure that we can see the visibility and are confident with that return on the capital going.
Forward and that's become a very big focus for us internally not just for M&A, but also for the overall business and our business segments. So we have very sharp line is now on ROIC, which is also in our M&A process and then secondly.
It has to be a very strong strategic fit for us going forward, whereby it brings either of capability or a product of servers that we can we can bundle with the rest of our services and and really drive value going forward.
The enhance the overall business so as we go through our process.
Kind of the two big areas that we're focusing on.
And we continue to look at opportunities that come in front of us.
The the hurdle is a little bit high for us, especially with those with those two.
Items that I've just talked about.
But we are very active in looking at M&A opportunities.
And look forward to the next one net debt we will be doing.
Understood. Thank you for that and then.
The.
<unk> two of previous question on work from home I guess, you guys talked.
The talked about.
Sorry the.
Of the cost offsets, but from the strategic standpoint.
Do you want to continue to offer work from home as of choice down down the road and what sort of demand might QC.
Now that.
Clients there.
Got to become comfortable ear down.
With that as an option could you talk about that.
Sure Ashwin. So I think our work from home is likely to continue to be permanent.
Now option that I think our clients will choose to exercise and we would very much welcome the opportunity to offer that to them I think it's great for our employees, it's great for our clients and it actually works really really well the.
Expectation that we have is that we basically get into our hybrid operating model, where some part of our workforce for the permanent people work from home some part of our workforce with the permanently walked from office, but there'll be a lot of fluidity and flexibility in terms of people who are working from home that might come to work in the office.
For a few days in a week or a few days in the month and we would have the.
The ability to physically interact with them and beat there and on top of the social interactions there.
Our expectation at this point of time is that we're likely to end somewhere closer to about 30% to 40% of the work being done from a work from home business model and the balance of work being done from the office keep in mind, one thing that in the office, we do need to densify the.
The facility operating structure, because we do need to space out.
The book spaces and have people separate it out so that we can make sure that they are safe and healthy and secure.
So a number of these elements are going to change and they're going to evolve as we go along.
But in essence, I think of hybrid operating model seems to be what we would all of it.
All towards and some proportion of working from home you know, maybe 30, 40% and the balance working from the office and certainly there have been times when we would have.
People come into the office or come in and meet with the the.
The colleagues and meet with the supervisors, so that we can have.
And the interaction which is in a in a life of physical format.
Got it about 30 of 30% to 40% even down the road.
That's quite interesting thank you.
At this time there are no further questions in queue I would now like to turn the call back over to Rohit for closing remarks at this time.
Thank you and I just want to thank everybody for attending our earnings call.
Actually in of very very fortunate situation last year, which could have been a really challenging year. We ended up really doing well and coming out of hit the market environment seems to have shifted in our favor and the services solutions and capabilities that we have.
<unk> are resonating with what clients need at this point of time. So we are excited about the possibilities in 'twenty and 'twenty. One as you all know we all focused in on getting our employees safe and secure making sure that our business our relationships of.
The resilient and we could continue to provide services to our clients and focusing on getting our revenue right and then focus on margins and then focusing on capital and that's what we're continuing to do and we look forward to a great 2021, and we'll update you at.
At our first quarter earnings call at the end of April Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Great.
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