Q1 2021 Exlservice Holdings Inc Earnings Call
[music].
Yeah.
Good day, and thank you for standing by and welcome to the Q1 2021 EXL Service Holdings, Inc. Earnings call. At this time of all participant lines are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
You asked the question during the session you will need the press star one on your telephone keypad.
Have you quantified the assistance. Please press star Zero I would now like to hand, the conference of Ricky Your figure today, Mr. Steven Barlow. Please go ahead.
Thank you Amanda good morning, everyone. Thank you for joining Exl's first quarter 2021 financial results conference call on Steve Barlow, Exl's, Vice President of Investor Relations.
Today on our offices in New York.
Our vice Chairman and Chief Executive Officer, and the ratio of Nicolelis, Our Chief Financial Officer.
We hope you've had an operating review our Q1 2021 earnings release, we issued this morning. We've also updated on Investor Factsheet in the Investor Relations section of the Exl's website.
As you know some of the matters, we'll discuss in the conference call of the 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 <unk>.
The press release discussing the company's periodic reports and other documents filed with the Securities and Exchange Commission from time to time, Inc.
<unk> assumes no obligation to update the information presented on this conference call.
During our call today in the May reference certain non-GAAP financial measures, which we believe provide useful information for investors reconciliation of those measures to GAAP can be found on the press release as well on the Investor Factsheet on.
Now I'll turn the call over the road Kapoor, Exl's Chief Executive Officer.
Thank you Steve.
Everyone welcome to our Q1, 2021 earnings call.
I hope all of you on your families are safe and healthy.
I'm pleased to report a strong stocks for 2021.
<unk> generated first quarter revenues of 261 $4 million, which represents of four 7% sequential increase and of five 5% year over year of increase.
Note on it.
Constant currency basis.
Our strong performance was led by our analytics business, which secured new wins across multiple industry verticals.
Further we successfully expanded within our existing strategic clients by penetrating new buying centers and offering new solutions.
Adjusted EPS for the quarter grew by 46% Euro of.
The dollar and 18 cents driven by lower operating expenses.
Our analytics business had an outstanding or the crossing $100 million in quarterly revenue for the very first time.
We reported $103 million in revenue, representing a four 1% sequential growth and of 10% year over year of growth.
The primary driver of this growth was on data led marketing solution, which experienced strong demand this quarter.
Of our clients' resumed their customer acquisition and growth initiatives.
We are also seeing accelerating the adoption of our data and I know the big services, which is driving growth in our strategic times across banking healthcare and insurance.
Our operations management business reported revenues of $159 $1 million in the first quarter up five 1% quarter over quarter, driven by the ramp up of large deal wins in health care life.
The life and annuities insurance and banking.
As we focus on growth in 2021.
We recognize that we are working through a period of continued impact from the COVID-19 pandemic.
Specifically, there is a new surge of infections in India the.
Philippines and Columbia.
The situation in India is particularly concerning due to the substantial increase in the number of cases combined with on overwhelmed health care infrastructure.
On delivery locations in Noida could call for May and Bangalore on among.
Amongst the most affected regions in India.
Even though almost everyone is working from home.
The team members and their families who are directly impacted by the virus.
But the top priority for us in this environment is the health and safety of our employees.
We are taking proactive measures and today almost all of our employees are working from home in India.
We're also helping our employees by investing and facilitating easier access to medical care through partnerships and support groups.
Our clients have been very supportive and flexible demonstrating a true spirit of partnership in these trying times.
We are keeping our clients apprised of the situation and of collaborating with them to ensure steady operational resiliency.
To date, we have had minimal disruption to our service delivery and on.
Actively engaged in managing the situation as it evolves.
Our primary client markets are bouncing back as vaccination rates continue to climb throughout the United States U K and Europe.
Increasingly we see a trend towards clients, making bigger.
All of our investments and building on data analytics and digital capabilities.
Our clients on the days are focused on delivering superior customer experiences improving speed and building and scaling future ready operating models.
As a result.
On page on the value creation Facebook is resonating very well in the market and we continue to see momentum across two vectors one of.
Enabling better business decisions by leveraging deep data and analytics capabilities and to delivering.
Delivering superior customer outcomes by applying cloud enabled AI solutions.
The increased demand for data and analytics is moving in lockstep with the large scale transition of customer interactions through digital channels.
Our clients on investing in highly personalized direct to consumer marketing to enable more effective customer acquisition and retention.
This results in a larger addressable market for our data led marketing solutions and proprietary marketing analytics algorithms.
The second vector, where we are gaining market traction is the adoption of E ex of AI powered solutions in the cloud.
Our clients are pursuing speed as the primary goal, which in turn drives enhanced customer experience.
Superior business outcomes and improved efficiency.
However, current business processes are constrained by the legacy technology and heavy dependence on manual intervention.
In order to become data driven and effectively harnessed the power of AI on.
Clients would have had to redesign enterprise wide platforms and processes, which is expensive time consuming and has a low success rate.
In contrast, Exl's AI solutions are deployed upstream on the cloud and not easily configurable.
This generates clean data flows that this the intermediates downstream legacy processes and technology.
The cloud ecosystem allows us to ship to swiftly deploy machine learning and AI driven interventions along with the automation to enable what we call as the AI operating system.
On ability to transition clients to on AI operating system creates powerful business impact.
The understanding of current state business processes, combined with AI powered cloud solutions minimize execution risk and accelerates the speed of transition.
An example of this work in action isn't the engagement, we entered into with one of the largest independent title insurance businesses to modernize the titles such process.
The company's legacy titles, such process was time consuming entirely manual and distributed across several vendors.
Using the <unk> AI operating system the.
<unk> was able to seamlessly migrate entirely cloud based automated such process that improved both of the speed and accuracy of the items, such and will enable our client to capture market share much faster than competition.
This engagement positions EXL as the.
Loud enabled AI transformation partner of choice.
In addition to delivering for our clients.
On mission to find a better way means we are committed to doing our part as a global citizen to build a better future by operating in a responsible and sustainable manner.
<unk>, we have taken several actions to enhance our sustainability programs over the past year.
In the fall of 'twenty 'twenty, we published our first annual sustainability report, which was developed in accordance with the global reporting initiative standards and aligned to the United Nations' sustainability development goals.
We recently signed up to become a part of spend often the United Nations Global compact.
More recently, we expanded our sustainability disclosures in our proxy statement and have provided metrics and long term goals.
Waiting to our environmental commitments and workforce diversity.
Among such goals, we intend to raise the representation of women, particularly in leadership positions at EXL.
From 18% to 25% by 2025.
Lastly, as you know after 19 years of service all of the Guy has decided to retire from the EXL on October one 2021.
Bob on has been an architect of EXL as well as of mental and confidant of many within the company, including myself.
He has been a great partner for me and building the organization into water tests per day.
All of them carryover the ex mirrors the companies on growth.
His leadership established the foundation of our operations management business.
His guidance has developed the analytics business.
And it does his insight that has enabled our shift to digital.
Portland has been instrumental in navigating the company through every challenge it does face.
Bob on the leaf an indelible mark on the organization and for each of us.
Over the next several months Portland responsibilities will be transitioned to other members of the leadership team at EXL.
We are fortunate to have the next cohort of leaders who are now ready to pick up the mantle.
All of us at EXL will miss him.
And we wish him all of the very best.
With that I will turn over the course of tumor itself. Thank.
Thank you Rohit and thanks, everyone for joining us. This morning, I will provide insight into our financial performance for the first quarter of 2021, followed by our updated outlook for 2021.
As Rohit mentioned, our quarter was better than expected with revenue of 261 4 million up six 3% year over year and adjusted earnings per share was $1 18.
All revenue growth numbers mentioned year after or on a constant currency basis.
Revenue from our operations management business as defined by three reportable segments. Excluding analytics was the $159 1 million of two 8% year over year sequentially from the fourth quarter revenue was up five 1%.
Insurance generated revenue of $91 2 million up seven 6% year over year, driven by expansion of existing client relationships.
Compared to the fourth quarter of 2020 revenue was up $2 one per cent.
Healthcare reported revenue of $30 3 billion up 12% year over year, driven by higher volumes and our clinical services business and new wins of 2020 sequentially healthcare grew 25%.
The emerging reported revenue of $37 7 million down 12, 5% year over year due to the reduction in travel and transportation volumes. However, we are seeing good traction in this business now and we won several new logos in the first quarter of <unk>.
'twenty one.
Analytics had revenue of $102 3 million of 10% year over year. This growth was driven by higher volumes across the pool industry verticals with expansion of an existing client relationships and new wins in 2020, it's clients embrace data led solutions.
Compared to the fourth quarter of 2020 revenue was up four 1%.
Our SG&A expenses increased by 100 basis points year over year to 18, 7% of revenue driven by investments in front end sales and marketing.
Our adjusted operating margin for the quarter was 22% of 540 basis points year over year, driven by improved operating margins due to cost optimization measures and the lower infrastructure expenses.
Our GAAP tax rate for the quarter was 21, 9%.
Excluding the impact of discrete items, our normalized effective tax rate for the quarter was 24, 2%.
Our adjusted EPS for the quarter was $1 18 up 45, 7% year over year.
<unk> balance sheet continues to remain strong with a focus on liquidity and cash flow generation from operations, our cash and short term investments at March 31 was $376 million and our debt was $239 million for a net cash position of $137 million.
We generated cash flow from operations in Q1 of $15 2 million compared to a negative cash outflow of $13 6 million in Q1 of 2020.
Our Dsos at March 31 was 30 post 54 days.
During the quarter, we spent $12 7 million on capital expenditures as we continue to invest in the business for long term growth, we repurchased 313000 shares at a cost of $27 million.
Now moving on to our guidance for 2021, the economic environment in the U S and UK is improving while COVID-19 is surging and of our delivery geographies, such as India and the Philippines, We will continue to assess the situation and respond to changing circumstances.
Taxes with the primary focus being the health and safety of our staff, we feel confident that we can manage our delivery commitments. In addition, we know our business model is resilient and agile as demonstrated by our improving sequential quarter over quarter performance since the <unk>.
Trough in the second quarter of 2020.
We are increasing our revenue guidance for 2021 to be in the range of 1.0 for billing into 1.07 billion of $10 million at the top end of the range. The increase in our revenue guidance is driven by our strong first quarter exit momentum and better visibility.
And our business, despite an FX headwind of approximately 1 billion the.
This represents a year over year growth rate of 9% to 12% on a reported basis and 8% to 11% on a constant currency basis.
This guidance also aligns to the medium term revenue targets, we disclosed in our Investor day in November.
We expect analytics to grow over 15% and operations management to grow in the range of 6% to 8%.
We expect of foreign exchange gains between $2 5 million and $3 5 million net interest expense of $3 million to $4 million and our effective tax rate to be in the range of 23, 5% to 24 five per cent.
In terms of capital allocation, we will continue to invest in analytics digital solutions at technology, We expect capital expenditures to be in the range of $35 million to $40 million.
We anticipate buying back our shares at a pace slightly higher to what we did in 2020.
Based on the above we expect our adjusted earnings per share to be in the range of $4 to $4 30.
The 13% to 22% driven by our higher revenue expectation along with increased business efficiencies.
As the year unfolds, we expect our margins to decline in subsequent quarters of the year, we plan to increase our investments in digital data and analytics to accelerate growth in 2022 and beyond.
As we discussed last quarter, we expect to incur increased costs due to the reinstatement of salary increments and higher technology costs related to the hybrid operating model.
In addition, during the latter part of the second half of the year, we anticipate increased operating expenses on facilities transportation and travel dependant on a return to a more normalized operating environment.
In conclusion, we had a good start to 2021, despite the challenges created by the pandemic, we have demonstrated a flexible and resilient business model, which enables us to create new data led and digital solutions to meet our clients' transformation agendas.
Rohit and I would.
Would be happy to take your questions.
Okay.
Yeah.
And the could you queue up the questions. Please.
Yes, my pleasure as a reminder, if you'd like to ask questions. Please press star followed by the number one on your telephone keypad.
That is star one to ask an audio question.
Your first question comes from Bryan Bergin with Cowen.
Wow.
I wanted to ask just on the India surge impact on the risk around that does it does the risk impact of certain businesses more than others can you dig in a bit more of there on the potential service disruption of magnitude and where and how we should be thinking about that and I know you mentioned minimal service disruption so far of that.
What do you think going forward here.
Sure Brian.
So for us.
India geography represents about the.
45% of our revenue delivery capabilities.
And it's really represents.
All industry verticals.
The board, perhaps a little less so in healthcare, which is much more skewed towards the Philippines and end to Colombia.
I think.
At this current point of time like we mentioned on the call on them.
100% of the work that's being done is being done by our employees working from home. So we really do not have anybody coming into the office.
And it really depends on how.
The surge of the virus on the infections continues and for how long it continues in India.
The situation on the ground is not very good right now because the medical infrastructure is.
On able to cope with the demand for health care right now in the country.
And that creates a problem not only for our employees, but also for their families.
And thats, creating.
The the traveling to on the issues.
But the.
The impact is going to be across all of the businesses as such it's not really by the into any one business.
Okay. Thank.
Thank you for the detail.
And the follow up here on margin so specifically.
Management gross margin out of it looks to be at record levels can you unpack the drivers there in the quarter. The mix of work anything that's one time really gives us a sense of.
What is the last thing within that outperformance.
So the so.
The great question, Brian a few things that are happening within that within that margin.
One is as we did have some additional revenue during the during the quarter that flow through to the bottom line.
It really helped the ops management margin.
On top of that we're also seeing a good amount of efficiencies in our ops management.
We've we've been able to really run our business and.
And keep our head count of much more efficient.
Over the last 12 months and you're starting to see some of that come through within within our ops management margin.
And the last part I would say is we are getting a certain amount of benefit right now Inc.
Cost from the environment that we're in so that is also helping the.
The ops management margin.
Moving forward.
The one piece that will got should.
Should the last going forward, it's really that cost efficiency piece.
As we as we really focus on on being on being the leader going forward.
Okay. Thank you.
Your next question comes from Maggie Nolan with William Blair.
Thank you.
I'm curious about what specific considerations are given in the guidance.
Considering the developments in India, and the Philippines and in particular around the margins that you were just talking about right.
Yeah.
Yes, Maggie so.
As of right now.
Our business has not been impacted at all like we said, there's been minimal disruption to our ability to fulfill the demand of our clients and we are seeing strong demand and a strong pipeline the colfax.
With the right now.
Our assumption in terms of our guidance really assumes that.
We will have minimal disruption going forward.
However, that's something which we'd have to see how things play out we really don't know how the spill on forward in India and the Philippines.
In the Philippines the.
Rate of infection seems to have somewhat stabilized.
And that is.
Creating a better hope for us all of them.
In India the rate of infection has really.
Gone very very high and very significantly up.
And.
That does create its own challenges and so it depends on how long it continues to be the as such.
The.
What time period this might subside, then and what the impact to our employee population might be as you can imagine on number one priority is to make sure that we can keep our employees healthy and safe and that's what we're going to do so we're going to make sure that each of them.
Has the best possible medical care and attention that we can provide for them.
And we can keep them isolated and safe and healthy and our focus is going to be based on that.
How this plays out.
Really don't know.
But our guidance assumes that we have had minimal disruption.
Just to dig into that a little bit further are you talking about disruption from the logistical delivery standpoint or are there additional considerations in terms of productivity.
And then my second question is about your AI solutions can you talk a little bit about kind of the proprietary components of that.
On versus what does the park the partner ecosystem around this look like and then how are the AI solutions incorporated into your pricing structure with the contract.
Yes.
Sure. So the disruption is basically on the account of.
The the infection.
<unk> has an impact on our employees or the immediate families as you know.
In India, many of our employees live in an extended family kind of environment.
They have to take care of their family as well so it's really about.
Our employees themselves and their families as to how the kind of fair. Okay. We do have.
Adequate amount of planning and Oh.
Buffer that we maintain in terms of a bench of.
For the resources that we have and it allows us to be able to flex up or down in terms of managing this across the unemployed population, but like I said it just depends on on how this.
Progresses and for how long it stays there.
For the second part of your question pertaining to AI solutions and the.
Proprietary nature of it on the partnerships component of it.
That is something which is.
It is being developed by us very very rapidly and over the last.
12 to 15 months, we have made a tremendous amount of progress on that.
The big bolt proprietary solutions as well as we've embedded software solutions.
The proprietary capabilities the.
The bulk of that.
Is.
Proprietary is also our understanding of the domain of our customers' business and the application of technologies, specifically in those processes within our client industry verticals and the appliance businesses.
We have obviously now got track records on data and performance.
In the scorecards associated with the intervention of these are proprietary capabilities and the.
Our ability to plug and play and do this in a very effective and a very fast manner, that's becoming better and better. So these AI solutions, which are on the cloud and we just placed upstream and the adults need to interfere or disrupt the existing.
The legacy technology or for that matter of how the work is currently being performed.
It's working really well with our clients and our clients are engaging with us more and more actively.
In terms of the adoption of these AI solutions on the cloud and so we see a tremendous amount of opportunity out there.
Thank you nice quarter.
Thank you.
Thank you. Your next question comes from Puneet.
And J P Morgan.
Hey, Thanks for taking my question following up on the Maggie's question in analytics.
You also have moved on.
<unk>.
Its revenue model is also going to be different from what it used to be in the past when the key move.
The base.
Wed like model for some of those offerings.
The FTE basis.
Yeah.
Yes for <unk>.
Thank God.
Overall, we would expect that as we move towards more solutions more proprietary and partner interventions that we're gonna be bringing into bear that theyre going to move towards outcome based pricing models and transaction based pricing models.
Have seen noticeable shift in Q1 towards transaction based and outcome based pricing models.
Both in operations management, where we've started to deploy digital technologies and capabilities.
And use AI based solutions as well as in analytics, where some of the work the P&L undertaking is driven off of.
<unk> based pricing models.
Yes.
Data driven marketing initiatives that we had the which had the strong components to it in first quarter of 2021.
That is primarily driven on the outcome basis as such so we don't see more and more of our outcome of transaction based pricing and analytics.
Not too low.
The incremental license fee revenue that drove much of an upside in the health care vertical.
It goes in this quarter.
There's.
Nothing that would be for.
Sure on the health care.
Vertical from a license perspective, so I'm not sure.
Where that's coming from on.
Our healthcare business in operations management grew very very nicely over the previous quarter and year over year because of a number of new clients that we had signed up in 2020, which we on boarded.
Through the year and the revenue was visible in first quarter.
All of that is Israeli based off of.
The operations management book that we do for our clients.
Got you on.
Thank you.
And again, if you would like to ask a question. Please press star followed by the number one on your telephone keypad that is starwood is asking the Audi a question.
Your next question comes from visit Vincent Colicchio of Barrington Research.
In India the meaningful number.
COVID-19 and their families as of yet.
Vincent I think we missed the first part of your question. So could you please repeat that.
Yes, I am curious if a meaningful portion of your employees in India.
COVID-19.
Colbert around COVID-19 and the family as of yet.
Right.
So we obviously track.
The number of our employees that have.
Impacted by COVID-19, but we don't share that publicly.
What I will share with you is that.
The percentage of our employees that are directly impacted by COVID-19.
Uh huh.
In the low single digits.
With the families being impacted that number of suddenly becomes a much larger so we want to make sure that our employees can take care of themselves first and then also take care of their families and therefore, we are being very very accommodative towards helping them out.
<unk> supporting them at this point of time to be able to.
It takes time and devote our attention to their families.
And then a question on your guidance.
Most of it needs to happen to hit the high end of your revenue outlook for the year.
I think one of the things, which has been really positive for us is that the demand environment is very strong our pipeline is very good.
We would need to have the pipeline conversion take place into real revenue.
And we would need to have.
No real disruption in terms of our ability to fulfill the demand that we're seeing for my clients.
I think we're seeing a tremendous amount of strength in data and analytics.
And in digital as well as the industry verticals of frankly, the demand side seems to be much more broad based.
And that's.
On the vessel for an issue of.
The challenge of might be from of fulfillment standpoint and on.
On the ability to kind of.
Execute and convert the demand into revenue.
Thanks for answering my questions and the nice quarter.
Thank you Vincent.
And your final question comes from David Grossman with Stifel.
Good morning.
I Wonder if you could just.
Review of the commentary about the margin trend during the year.
I'm trying to understand what you have visibility on today in terms of.
The higher expenses as the year rolls out.
And what component of that margin guide, it's more variable depending on the pace of reopening travel.
All of the other elements that come with it.
Getting back to normal.
Sure.
EMEA.
Take a little deeper into our.
Our L P on for margins for the rest of the year book, We had a very good Q1.
In terms of margins just over 20% of lot of that is really driven by the increase in revenue definitely felt to the to the bottom line and also certain amount of cost efficiencies for the environment that we're currently working in.
In terms of this work from home environment that we have some cost optimization from that.
Going forward.
And there is a number of areas.
We're going to be investing it.
Invest in doing some additional investments in digital data and analytics in the.
The next three quarters, we're also going to be investing in technology to have a hybrid operating model going forward to sort of out of technology that we need to.
The investment to have a portion of our workforce really working from home on the longer term basis.
And then the last piece is really the return to office that we project in the second half of the year.
And that is really the a moving target for US right now we had anticipated more of a return to the office in the third quarter of this year.
And that still is the case for <unk> for certain officers in the country here in the U S and maybe the U K, but guidance.
Get pushed out to later on in the year.
The most likely.
In the kind of the fall or.
For early fourth quarter for other locations, especially for India and the Philippines.
That is kind of our thinking in terms of of our margins really going for the rest of the year. There is a certain amount of investment that we're gonna be making later on the year knowing that our margins are going to be significantly higher this year than they were last year.
And right in line with what we talked about at Investor Day, and I would say layered in all of this to a certain extent.
It's a little bit of conservatism because theres uncertainty.
In the market right now in our business to a certain expense just because of of the surge in the.
In the back in the in COVID-19 in India, and the Philippines.
Thanks for so can you can you size some of those items for the three big buckets in terms of.
How much of the margin impact they'll have on the year the investment the hybrid work from home and the.
Return to office, that's the way of a sense for how impactful each of the.
The initiatives are.
I would say if you looked at kind of each one of these.
The additional investments we make the technology investments.
That will end up making and some of the return to office expense.
I think they are fairly similar in terms of the total.
There is not one that significantly more than the other.
So I would I would try and space for the three kind of fairly.
Evenly throughout the rest of the year.
Right.
I'm not sure I heard the strike, but I think keep me I mentioned that in the first quarter of the OEM business.
Some of I don't know if it was one time, but there were some revenue that drove the margin how much of an impact.
In the first quarter.
It had some but the real driver is as more volumes coming back on the ops management side, especially in insurance in health care I mean, that's really the drivers for a certain expense right got.
Got it.
Then just the.
Kind of a higher level question just about how.
This evolves with the clients I know there was.
Just the everyone ahead of kind of.
More for their model immediate just couple of night virtually the last year.
And I'm just wondering how the conversations are going with clients it looks like youre committed to.
The hybrid work from home model on the longer term basis.
How does that impact.
Kind of contracting and pricing if at all with your clients.
Curious what to expect there.
So David the.
Conversation with the clients.
Obviously, very transparent and very very much in a partnership mode are clients of being very very flexible in terms of.
Having us perform the work for them and they are driving more and more responsibility to EXL to take ownership of the book.
In terms of the commercial arrangement and the hybrid the construct that behalf.
It really works both ways because of.
When we do have people in all of our employees coming to work in the office because of social distancing we have.
Have to make sure that there is more space office space available for our employees to work in our offices in our facilities and therefore, the cost of infrastructure for employee goes up.
So the there are pieces of the cost.
The structure of the cost stack that will go up because of.
Working from the office working from home.
Clearly is on.
A little bit lower and on veterans.
The benefit but when you combine the two together and you of combined a certain proportion of the work being done from home and a certain proportion of the work being done from the office.
The cost structure is fairly neutral.
So there's not much of a change.
As of that.
And our clients can see that they can.
They appreciate that and they do want us to get to a structure, where even those employees that are working from home at some point of time will need to come to the office for meetings and for making sure that we can have the right kind of.
Alignment of business objectives of culture creation and innovation. So that we can have them all up we tie them together to the organization and to meeting the needs of our clients.
So for the anticipation of at least at the client level.
Even if they don't come back.
Working full time, they would come back.
No.
Certain days of the week of the month.
Yes, it's going to be very specific by client and by geography, and we have.
On a continuing to work with our clients on that.
And it clearly depends on what they are comfortable with their regulators are comfortable with.
And Brian how this evolves.
Okay.
And so your for your read today, though is that it's the net neutral to the margin going forward, though at this point.
Yes.
I think it's the net neutral to pricing and to margins.
Right Okay.
And then just one last question.
You referenced the pipeline of being pretty strong.
A couple of times on the call already but.
Yes.
Curious as you look at.
What activity, you're you're ramping in 2021.
Since you don't disclose specifics.
Curious.
When you compare new client starts in 'twenty, one, which you had in 2019 I'm wondering if you could just.
Give us a sense for just how that compares.
And then when you look at the pipeline.
We're working on to close in 2021.
That looks like relative to what you are ramping in 2021 for excuse me that you are trying to close in 2020 on it and how the ramp in 'twenty, two maybe compared to the 21 warehouse that youre experiencing.
Sure.
So you know just.
Just to give you a sense on the pipeline the pipeline when we say is strong it is significantly stronger which means.
It's high double digit the stronger than previous periods.
And in terms of velocity of decision, making we are seeing acceleration in the velocity of decision, making so the sales cycle also is much shorter.
For our clients.
Thank God that is very helpful. As we scale up our business and as we support our clients in terms of moving forward on.
Clients.
I think this is all being driven by the fact that their end customers on the consumers.
On adopting digital channels for their interactions with the offering with our clients and therefore, enabling the kind of.
Work is very important and it needs to be undertaken quickly saw very positive momentum from that perspective.
So can you is there any of that pipeline of increase in velocity of decision, making a function of.
Some parts of last year.
Catch up this year or I mean again since you don't disclose the specific numbers, we don't really have that information so perhaps you could.
It will reflect on that.
Sure sure look I think there.
There may be a little bit of a catch up but largely the adoption of the digital channel as a means of interaction for their customers and the hyper personalization that needs to be done on the use of data and analytics.
Thats, just driving the decision making into a much for us to get and so what we're seeing is.
The clients willingness to accept change that's become a lot better and it's not only of catch up from for any 20, it's actually the business model of this change and.
The realization that if you don't.
Speed up some of these changes.
May not be competitive anymore, I think that's become a formal origin that critical.
And your next question comes from Ashwin <unk> with Citi.
<unk>.
Thank you.
Hey, guys.
Good quarter here.
I have the head count question.
I'm going to be down sequentially down year over year.
Against the backdrop, Inc.
Cooling demand and the acceleration there.
But you guys had mentioned one ask first of all.
Much of the head count trend is perhaps due to productivity.
The that you brought on day to automation and things like that versus specific verticals of it.
Demand is down and yet.
Yet the coding Mccallum.
And then the second part of the question would be in the current environment, what's the process.
Thank you using.
Due to higher.
Lower level employees the annuity employees in.
In geographies like India.
Okay.
Let me give you a little bit of instead of just on the.
On your head count question.
So when you look at our head count you do see a bit of a of it.
The decline in Q1 versus Q4, and you do see some productivity gains on a year over year basis. If we bifurcate that if you look at analytics, we've been hiring in analytics. So the head count increase in analytics is more in line with net revenue growth on the year over year basis those are.
The critical employees.
And.
Really in high demand in the market and so we have been investing in that area to really meet the demand. If you look at in the operations management area.
We have gotten some cost efficiencies over.
Over the last 12 months that we can realize and thats and Thats and Thats a little bit more long term now going forward, we've seen a little bit of a decrease in our head count there while our business is starting to expand it and operations management.
And you see that on a year over year basis, you also see it on a on a quarter of sequential quarter to quarter basis, and that's and actually in all three of of of.
Our business segments.
And within the Ops management.
And the Ashford for your question about hiring the hunting is all being done virtually on remote.
<unk>.
So far we've been able to actually hire very effectively and onboard talent.
Nicely. So it hasnt really created an issue for us, but given the surge in the pandemic levels in India in the last for weeks.
Something certainly, which we will need to be watchful about.
Got it and then my second.
The question is with regards to <unk>.
Margins, there's a lot of good color.
The.
The factors that are the puts.
Puts and takes into market.
I was wondering if the.
Why you didnt necessarily provide an updated margin outlook.
For the year of it I mean I would imagine.
We are now picking up.
Yes.
The 56.
50 to 100 basis points higher than where you started the end of the decks here.
Yes, Ashwin if you will.
If you look at the increase in the.
And our adjusted EPS implied in there is going to be the higher margins.
Margins for the rest of the year.
One of the one thing that you have to keep in mind is.
We are cognizant of our margins in terms of making additional investments and then also cognizant of of the uncertainty that still light out there.
Our delivery centers and so.
So we were we wanted to take off margins of but we were cautious when you brought them up.
But there is implied an increase of margins just because of the adjusted EPS coming out.
Okay understand thank you.
And your next question comes from Robbie <unk> with the.
Baird.
Yeah. Thanks, So it's been a couple of years since you did M&A and with $4 a share of net of cash when do you think you'll be ready to do a deal again in I guess, which segments seem the most interesting to you.
Sure.
So you know.
We are still very active in looking at opportunities.
In the market for acquisitions.
Pipeline is fairly significant in terms of what we've been looking at the one thing to keep in mind.
In terms of M&A.
Market is very for.
Rafi right now in terms of valuations so really when we look at M&A targets and we're looking at them throughout our business. We're looking at the I mean in terms of digital who are looking for additional capabilities. We're looking at opportunities within within analytics also district, you can further strengthen our capabilities today.
And we're also looking for solutions within insurance and health care, but really the two big hurdles for us on M&A is one.
Is it the right strategic fit for us going forward and to the if it at the at.
At the right valuation for drive ROIC now going forward given the given the market day.
We're in right now.
Those of two fairly significant hurdles, but I will tell you that we have been looking at a number of opportunities that are in the market and so.
I would foresee at some point youre going to see an M&A acquisition.
Come down the Pike.
And I can't tell you, whether it's going to be three months of six months of 12 months, but guidance.
Of that Theres plenty of activity that we are looking at and that's just it's just an inevitable that that's going to happen.
Even given the amount of capital we have on our balance sheet and the amount of cash flow generation that youre seeing on a quarterly basis.
Yes, that's fair.
Helpful. And then maybe just one question on EPS guidance.
Q1 was $1 18 on the rest of the quarters now it looks like it's about.
Averaging about one dollar per quarter. So I guess, if there's some conservatism in that outlook.
Maybe any color around just the cadence of EPS growth throughout the year.
Sure. So when we look at EPS growth for the year, we're looking to see how what's the growing on a year over year basis and also are we investing.
In the business to really drive growth in 2022, and 2023 and two.
So what's your what youre seeing in that guidance is solid growth on the year over year basis.
With some additional investments that we're making of later on in the year.
And so that's kind of the mindset that we have in terms of when we look at the EPS guidance, we're really looking at the year over year basis.
And then and thinking about where are the areas that we wanted to invest our capital into.
Knowing you guys there was okay.
The little bit of uncertainty in terms of two things one is the.
The pandemic and India, and the Philippines and to also.
We talk about the return to office, but even that is a little bit of a moving target in terms of different geographies. So.
Our EPS guidance that takes into all of that account.
As we go on later on the year, we'll update it as we need to.
Great. Thank you.
Thank you for joining that does conclude today's call you may now disconnect.
Yeah.
Amanda we're totally off.
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