Q2 2021 Exlservice Holdings Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to the second quarter 2021 ex self service.
[music] Holdings, Inc. Earnings Conference call at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need the press star 1 on your telephone. Please be advised that today's conference is being recorded I would now like turn the conference over to your speaker today, Steve Barlow.
Please go ahead.
Thank you.
Good morning.
Okay.
With me today.
Yeah.
Sure.
Got it.
Okay.
And.
The opportunity to review of our Q2, 2020.1 earnings release this morning.
All of the update of our Investor Factsheet in the Investor Relations section of the Exl's website.
And you know some of the matters, we'll discuss on this call. Please keep in mind.
These forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to.
The differ materially from those expressed or implied by such statements.
The 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 the Securities and Exchange Commission from time to time <unk>.
<unk> assumes no obligation to update the information presented.
And during our call today, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors and reconciliation of these measures to GAAP can be found in our press release as well as the Investor Factsheet of.
And I will turn the call over to <unk>, Chief Executive Officer Rohit.
Thank you Steve good morning, everyone.
Welcome to our second.
Quarter, 2021earnings call.
I Hope you and your families are safe and healthy.
I'm delighted to report continued strong growth through the first half of 'twenty 'twenty 1.
EXL achieved better than expected results and the second quarter on revenue.
And adjusted EPS.
Our Q2 revenue was $275.1 million, which represents a 5.2% sequential increase.
And of 22, 3% year over year increase bolt on a constant currency basis.
Adjusted EPS for the quarter more than doubled to a dollar of 14 cents per share.
Our analytics business reported revenues of $111.4 million growing 8.8% sequentially and 35, 1%.
<unk> year over year.
The demand for analytics has increased and the post pandemic environment.
This growth is driven by 3 long term trends 1.
Adoption of data driven decision, making across the enterprise to high flow personalization of.
Some of the interactions and 3 and accelerate its shift to the cloud.
And the investment in the advanced analytics, and AI capabilities cloud capabilities, and our proprietary data assets gives us a competitive advantage and.
It has helped us accelerate.
The cost growth across all our targeted verticals.
Our operations management and business generated $163.7 million and revenue in the second quarter up.
2.8 per cent quarter over quarter, and 14, 9% year over year driven.
And that'll be by higher revenues from our insurance and emerging businesses.
Before diving further into details of our business performance I'd first like to give you a brief update on the COVID-19 situation across our geographies.
As you know we have all.
<unk> been through a very challenging period across the globe and despite the progress on many fronts the.
From the wireless remains.
We continue to monitor the situation closely and are providing health related assistance and relief to employees and areas that are still effective.
We have reopened our physical office locations and the U S with limited capacity and.
And the continued to operate a hybrid work from home model and India, The Philippines, Europe and Latin America.
Company wide, we anticipate maintaining this hybrid model and the debt.
Total.
Yeah.
And then there are the second wave of spikes that occurred in April and me and served as a Stark reminder of the severity of this pandemic.
Several of our employees went directly impacted.
We systematically address the situation by leveraging our.
Says, forming strategic partnerships and working closely with our clients.
We've provided essential medical supplies and isolation centers vaccination and support and financial assistance to help employees and their families.
We have and active vaccination program.
Graham in place and expect to have 75% of all the employee population in India fully vaccinated by the phone.
Thankfully the filtration and India has improved but we continue to monitor it closely.
I must commend the commitment of unemployed and the.
The collaborative spirit of our clients and helping us get through this daunting challenge without any significant interruptions for service delivery.
Our employees and clients immediately sprung to action to help.
I cannot thank them enough for the support flexibility and empathy.
Getting back to our Q2 performance I'm delighted to share and our strategic client relationships have strengthened as we advanced our cutting edge analytics offerings and reinforced our delivery capabilities.
We have been successful and growing multiple new engagements.
1 of securing significant strategic client renewals.
Our analytics and digital capabilities have emerged as key differentiators and helping our clients enhance the end user customer experiences.
We continued to invest in new digital and analytics capabilities and.
And maintain a robust pipeline heading into the second half of 'twenty 'twenty 1.
And example of this is a walk with the leading global bank with whom we are deploying data flow and the decision automation capability to transform their wholesale and retail banking operations.
Moving on and the engagement that started in the midst of the COVID-19 crisis. The created automated data ingestion and decision, making procedures for the bank to process applications and provide timely funding to customers and.
Flying for relief under the Cares Act Paycheck protection program.
On the engagement has now expanded to a multi year global contract to design and deploy similar solutions in several markets within the U S U K Europe and APAC regions.
The program has already driven significant cost reduction benefits and.
And the improved customer experience.
It has also address the need for automating manual Sarbanes Oxley compliance and other operational controls.
Similarly, our AI powered digital collection solution and mentor has been resonating well with our clients.
Lines and.
And a recent example, EXL partnered with and international banks to engage and activate the customers using multiple channels, including email and 2 way SMS.
The solution and neither of the clients to reduce phone calls significantly and the statement does.
Reinforcement learning based algorithms achieved response rates.
The close to twice the industry standard benchmarks.
We also deployed and mentor and a fortune 1000 clients in the B to b context, enhancing collections and reducing delinquent receivables.
We were able to the.
The solutions beat the C focus.
The to be use case by making subtle changes to the underlying a lot of them, thereby dramatically expanding our addressable market.
To support the continued growth of our data and that strategy.
Have aggressively ramped up our standard acquisition training and the development efforts.
The have a particular focus and building competencies and the areas of data analytics and internal expertise.
In order to meet the growing demand and of our clients we have been hiring.
And at a rapid pace and Q2 and have been successful and Onboarding new clients new talent at scale.
We have also scaled up our leadership capacity to enable the achievement of our strategic goals.
In addition to building our capabilities true talent acquisition.
We are all sort of developing internal talent to take on more significant responsibilities.
1 of the core elements of our capability development program is on agile and learning ecosystem or the EXL infinity.
This ecosystem provides personalized online.
Ongoing development of employees across multiple disciplines.
The program is AI, driven and it anticipates individual learning needs to develop the most skill sets to the newest micro lending.
The platform has seen a major shift and learning towards digital and analog.
Escape abilities, helping us build and internal talent pipeline.
We also transformed our communication and the engagement systems to support real time feedback loops and enhance employee experience.
The expanded the reach and frequency to keep.
Keep up with the demands of the more coffee.
EXL has demonstrated a true spirit of collaboration responsiveness and creativity and this has helped us get through the uncertainty over the last several quarters.
We have been able to continually grow our business and.
And closed the partnerships with our clients.
I'm confident in the resilience of our business model and the commitment of our people to support 1 another and our clients through of fast changing and complex business environment.
We have a much stronger from this experience.
And that continues to grow and supported by a stronger pipeline, we are confident and our ability to maintain this momentum and the second half of 'twenty 'twenty 1.
I will now invite Jo to highlight of Q2 financial performance and 2021guidance.
Thank you Rohit and thanks, everyone for joining us this morning.
Morning.
And will provide insights into our financial performance for the second quarter of 2021, followed by our updated outlook for 2021.
As Rohit mentioned this was our best result, and the last 23 quarters with revenue of $275.1 billion of 23, 6% year.
Year over year, while adjusted earnings per share was $1.14 all.
All revenue growth numbers mentioned hereafter are on a constant currency basis.
Revenue from our operations management business as defined by 3 reportable segments, excluding analytics.
$163.7 million up 14, 9% year over year sequentially from the first quarter revenue was up 2.8 per cent.
Our insurance segment generated revenue of $94.7 million up 14, 9% year over year.
Driven by and expansion in existing client relationships and higher volumes.
Compared to the first quarter of 2021 revenue was up 3.8%.
The insurance vertical consisting of insurance operations management and analytics businesses grew 3.8%.
Sequentially from the first quarter.
Health care and reported revenue of $28.2 million up 13, 1% year over year, driven by higher volumes and our clinical services business and new wins of 2020.
The health care vertical consistent.
Of our healthcare operations management and analytics businesses grew 3.7% sequentially from the first quarter.
The emerging reported revenue of $40.7 million up 16, 2% year over year. This growth was driven by new client wins of 2020.
And 2021, and finance and accounting banking and utilities.
Sequentially emerging revenue grew 8.1%.
The emerging vertical consisting of the emerging operations management and analytics businesses grew 8.2% sequentially.
<unk> from the first quarter.
Analytics revenue totaled 111, 4 million up 35, 1% year over year.
Analytics was 45% of revenue and the second quarter and had its highest growth rate in the last 8.
Weak quarters.
This growth was driven by higher volumes across all industry verticals with expansion and client relationships, particularly banking and the ramping up of new wins in 'twenty, and 2020 'twenty, 1 and clients embrace our data led solutions.
Compared.
For the first quarter of 2021 revenue was up 8.8%.
Our SG&A expenses were 24 per cent of revenue up 160 basis points year over year, driven by investments and front end sales and onetime COVID-19 related spending total.
Totaling $2.2 million for the health and safety initiatives, we undertook 4 of our employees.
Our adjusted operating margin for the quarter was 17, 9% of 850 basis points year over year, driven by operating leverage from higher revenue continued costa.
And optimization measures low.
Lower infrastructure expenses and reduced discretionary spending.
Our adjusted operating margin was down 230 basis points from the first quarter driven by annual salary increments and onetime COVID-19 related expenses as mentioned earlier.
Most of our adjusted EPS for the quarter was $1.14 up 115% year over year on a reported basis.
EXL balance sheet continues to remain strong with a focus on liquidity and cash flow generation from operations, our cash and short term investments.
<unk> at June 30 was $295 million and our debt was $165 million for a net cash position of $130 million during the second quarter, we reduced our revolver by 74 million our DSO at June 30th was 58 days.
Now.
Moving to our 6 month performance.
Our revenue for the period was $536.5 million of 13, 5% year over year. This growth was broad based driven by analytics insurance and health care.
Adjusted operating margin for the period was 19%.
Now of 670 basis points year over year.
Adjusted EPS for the period was $2.32 sets of 72% year over year on a reported basis.
In the first 6 months of the year, we generated cash flow from operations of $53.9 million.
<unk> had the $58.9 million and the same period last year.
Now moving onto our outlook for the year, the economic environment and the U S and U K is improving and we have a strong pipeline, which continues to expand and.
And our non U S delivery centers, we will continue to assess.
The impact of the pandemic and respond to changing circumstances with the primary focus being the health and safety of our staff.
We have proven that we can manage our delivery commitments and we will continue to be responsive to changing conditions.
Based on our strong first.
Both the continued strong demand for our services and solutions, particularly analytics and improve the visibility for the second half of 2021, we are increasing our revenue guidance for 2020.1 the beat in the range of 1.08 billion to 1.1 billion of.
Half for $35 million at the midpoint and $30 million at the top end of the range.
This represents a year over year of growth rate of 13% to 15% on a reported basis and 12% of 14% on a constant currency basis.
In 2021, we expect the analytics.
<unk> to grow in the low 20% range and operations management to grow and the 6% to 8% range.
We expect a foreign exchange gain between $3 million to $4 million net interest expense of $2 million to $3 million and our effective tax rate to be in the range of 23.
0.5, the 24, 5% and.
In terms of capital allocation, we will continue to invest in analytics and digital solutions and technology.
We expect capital expenditures to be and the range of $35 million to $40 million during the first half of the year, we repurchased 600.
And shares at a cost of $55.4 million, we anticipate buying back our shares in the second half of 2021 and at pace similar to the first half of the year.
Based on the above we expect our adjusted EPS to be and the range of $4.30.
The $4 of 50 sets up 22%, 27% driven by increased revenue and 2021.
In conclusion, we had a good start to 2020, 1 and despite the challenges created by the recent pandemic searches we have demonstrated a flexible and resilient.
Thousands of model, our investments and analytics data and digital solutions are successfully meeting our clients' transformation agenda, which is accelerating our pipeline of opportunities.
Now relative to and I will be happy to take your questions.
Thank you as a.
A reminder to ask the question you'll need the press star 1 on your telephone.
Our first question comes from Maggie Nolan with William Blair. Your line is open.
Hi, Thank you so you're obviously experiencing good growth and momentum.
And the nice client editions et cetera.
But I'm wondering can you kind of frame price how much of your client base outside of the new additions is kind of back to pre COVID-19 levels spending and.
Can you give detail.
As it pertains, the ops management and analytics somewhat separately if possible.
Sure Maggie so.
And of phosphate like Youre, absolutely right, we are adding on new clients.
And at a very fast pace, we are growing our ops management business and other analytics business nicely and the growth rate of the analytics business and obviously, a lot higher and the growth rates of our ops management business.
In terms of the client spending as compared to pre COVID-19 levels.
Would say that almost all of them are back to pre COVID-19 levels, except for some clients the behalf.
And the travel industry.
There, we do see of the volume still being lower than the pre COVID-19 levels.
And the.
And things are done and back to normalcy, and we would expect to see that the comeback.
In terms of.
Analytics and clearly the pandemic has accelerated the use of data based decision making by clients.
And that is.
We're going ahead and.
And it takes business and we are engaging with clients and a much more strategic fashion and a much more of certain fashion and and and we're able to demonstrate clear value for them and as we build our relationships with them.
And the operations.
The management business for US is also growing nicely and the embedding of digital and analytics and technology into our operations management business is what is providing the growth momentum.
And the ops management area, So frankly, they're very pleased with the.
The we took.
Our strategy that the behalf the capabilities of the bird and the way in which we are executing our business and in conjunction with our clients.
Very good and then there's a lot going on with your employee base.
And if we touched on that and.
The spread person and it seems to be picking back up a little bit since the low of the pandemic and I'm curious what your expectations are for that just given the additional support you have provided them the environment and then even some of the training and development platforms are those is it feasible that those drive the structural.
For all of our historical Ah.
Attrition rate a little bit lower.
Sure Maggie so first and foremost the health and safety of our employees is Paramount and we will do everything that is possible if necessary to ensure the health and safety of our employees our employees.
And is recognize that and they see that to be of great.
A trust factor and royalty factor between our employees and the Gulf.
In terms of some of the change that's taking place we are actually investing heavily in terms of re skilling our employees ups.
Scaling our employees and creating the right kind of an environment for them to be able to take on greater responsibilities walk on much more complex products and solutions and.
And enhance their careers as they continue to work with EXL.
The the attrition rate and the second quarter has picked.
From the first quarter, but as you know that is a very normal practice given the fact that we have salary increments that take place on first of April for the majority of our workforce and we typically will see a higher attrition rate and the second quarter as compared to the first quarter.
I think the real issue.
About the.
<unk> to source talent and develop talent.
For being able to manage the growth expectations of our clients and some of the work that we are signing up with our clients. As we go forward. We are very very confident about the brand that we built with the employee base.
And if you're able to attract the best talent develop the down and internally and to be able to meet the the growth aspirations of our clients of EXL and unemployed at the same time.
So we think we are and in a period, where there will be oh, and the ability to the match the growing demands.
And from our clients and and match that with the southern and site.
Okay. Thank you.
Thank you and again, if you would like to ask a question press star 1 on your telephone please.
Please limit yourself to 1 question and 1 follow up our next question comes from Brian.
I'll begin with Cowen Your line is open.
Hi, good morning, Thank you.
And I wanted to dig a little bit around the emerging segments can you provide some color on the underlying businesses that you saw there and <unk> and the outlook for that going forward and aside from travel and I'm curious of your largely past.
<unk> merger issues and some of those areas and if so does that allow you to grow ops management essentially at a higher pace going forward and I'm really trying to understand and the context of that 6% to 8% ops management growth target given the first half performance on the comps.
<unk>.
Sure Brian.
So the emerging.
And our business segment for US certainly has other clients from a number of different industry verticals, we have.
Seeing a broad based engagement and growth taking place across our portfolio of our debt.
As you know, we've got clients, which are and utilities.
Probably do a fair amount of work, there and finance and accounting, we do a fair amount of work with some of the emerging technology companies and support them in terms of the of finance and accounting and back office operations are we do work with travel clients, we work with transportation and logistics and so there are a whole.
As you know a series of clients across multiple industry verticals.
Broadly speaking we are seeing.
Good demand momentum and and the.
Deployment of digital in ops management for the emerging sector seems to be the resonating really nicely off of our clients and for all.
The business.
So that's the reason why we think the growth there is its taking place the.
The travel side is still neutral because most of the work that'd be true with time some of the travel side is pertaining to our business travel and that still has the market resumed at the same level as consumer.
And so that's something which we think what will happen over the period of time and it might take a few more quarters for that to revert back.
There are new areas that we are getting into and the emerging business vertical and that is actually very encouraging for us.
And when we talk about a 6% to 8% the growth of ops management across the industry verticals.
Think of the emerging of the business will be able to do really well.
And more digital technologies and more digital interventions into the ops management for our clients.
The dropdown.
And the follow up on margin.
Did you see any any meaningful return of costs associated with teeny or at the net spend and and how should we be thinking about discretionary costs.
And the resumption of those as you go forward and as we think about projecting normalized operating margins from here.
Yeah.
Yes.
Brian Thanks for the thanks for the question.
When we think about margins for the second half of the year.
We have a certain amount of expenses starting to creep back into our P&L.
And you start to see some of the return to office expenses start to come in in Q4 and.
And a little bit of an uptick on travel but this.
And is gonna be a gradual process of each of expenses coming back into our P&L, we have an assumption that a certain amount of our employees come back to the office and the fourth quarter of.
2021, and that is that is a that's.
And that's something that we continue to review on a monthly basis. That's that's.
Fluid situation for us, but we have assumed a certain amount of expenses coming back into the second half of the year and you can see that also and a little bit and and our guidance.
Alright, great. Thanks, guys.
Yeah.
Thank you our next question comes.
And from Moshe <unk> with Wedbush Your line is open.
Hey, Thanks, and congrats on strong results.
And so the pipeline looks pretty robust demand looks pretty strong post pandemic.
And if it's both but you know hopefully we're towards the end of the.
And you spoke about the potential.
Essentially accelerating growth.
Are you ready to talk a bit about price.
Central you know the <unk>.
Central for that actual growth removed and the midterm, maybe talk of that where top line growth could be what should we expect and then.
Can you talk a bit about wage inflation.
What are we.
And there and obviously.
Been spiking.
How is that impacting the the.
P&L and then how do we offset that down the road. Thanks.
Yeah.
So most of the thank you thank.
Thank you for the comment.
So.
In terms of the.
Our pipeline the pipeline is.
Strong we are seeing the larger sized deals enter the pipeline and.
And.
The sales of velocity of us being able to close deals while it is about the same as what we've seen in previous quarters.
And because the size of the pipeline has increased you can see that the number of new clients to pay of 1 in the first quarter of 'twenty, 1 and the second quarter of for anyone.
And at a good pace. So we're very encouraged by that.
The acceleration of growth is clearly visible and.
Data analytics, and you can see that our growth and analytics and this quarter was about the 35% year on year, but for the year as Mauricio shared in his prepared remarks, we expect analytics for calendar year 2021 to grow above 20.
And that is.
Certainly much higher than the 15% growth rates that we had shared with all of you and our Investor day back in November.
B B.
And the engagement of digital and that continues to provide the growth for us.
But the ops management business will continue to grow at 6% to 8%. So for 2021 we are seeing acceleration and growth rate.
For subsequent periods, we'll provide guidance as we do normally in February of next year.
Coming to your second question on wage inflation.
90%.
Certainly we are seeing a number of things and.
Kris on the scarcity.
Scarcity of talent and the inflation of wages, but keep in mind.
This is actually a spread of differently across different skill sets.
And across different geographies.
And 1 of the benefits obviously for our employees to work from home is also the fact that of the commute time is being cut back and some of the costs associated with the commuting is being brought down we have to invest a lot more in terms of.
The technology, and making sure information security and in place. So those are areas of adding onto our expense structure and we manage.
And the wage inflation and inflation and a balanced and cautious smile.
So far what we're seeing is the wage.
Wage inflation and India.
The U S and and other geographies continues to remain pretty much of the same as what we have seen previously, but certainly we understand that the demand and the environment actually accelerating and increasing that that's something which we have to be careful about and and try and manage that appropriately.
We will need.
And then and.
Gage without clients and a model that and there's a lot more sustainable and make sure that the appropriate levels of productivity digitization.
The different levers that we can deploy to maintain profitability that'd be applied and we can continue to build and grow our business.
The 2 both on the top line and on the bottom line as we've shared with you and the bus.
Our expectations are to try and grow our top line revenue medium them at the.
No not the double digits and for us to be able to grow profitability of slightly faster than our revenue growth range.
Understood. Thanks for the color.
Yeah.
Thank you we have a question from Puneet Jain with J P. Morgan Your line is open.
Yeah.
Hey, Thanks for taking my question.
This is obviously.
But given the investments you are making.
And then the Dick's and the need food that's the list.
From the point is that within sales for that segment.
And I'm, hoping to 15% of long term to share that last year. Some of this day.
Yeah.
Yeah. Thanks Puneet.
And clearly as part of our long term strategy, we had consciously and proactively invested and analytics way ahead of competition and our peers and that'd be finished but that wasn't the area, where we could create value for our clients. We felt that that was an area that could grow rapidly and it was a large addressable markets.
So we are really really happy with the progress that we've made with our data analytics business.
In calendar year 2021the.
Acceleration on out of the mix is very visible and it's certainly showing up and our numbers.
As of now the Bay.
Just on the kind of pipeline that we are seeing.
So the kind of engagement and I'm guessing that we're finding that our clients are all becoming Descartes led businesses. So our strategy of focusing in on data and helping them with data analytics and make create insights from the those the data analytics piece and embed that into operations it seems to be.
The thing very nicely.
Certainly for 2021of the <unk>.
And with rates of analytics like we said, it's going to be well above the 13% to 15% growth rate and it's gonna be 20% plus on a go forward basis all of the signals that we have to evaluate that seems to suggest.
A good strong growth rate, but we will provide you with the more color on that as we get into the beginning of next year.
Got you got you and that's tongue.
Yeah, the Edison was.
And this quarter.
And back to pre pandemic level and in terms of.
It doesn't at all of the head count.
The service revenue is much higher.
What was the mix of the business like you said like analytics is much bigger than what the close the food.
Do you need to catch up.
The buy I didn't.
Growing head count at my time, Inc.
Over the next few quarters.
Okay.
I believe it's over to you.
And it's a very good observation and debate you know when you look at our total head count at the end of Q2 words, just slightly above where we were at the end of Q1 of 2020, but the mix has changed a little bit we have a thousand more people and analytics.
Got it.
And that and that mix and slightly and Wes and ops management, So we become more efficient and our ops management head count and we're really driving analytics.
Going forward with additional head count and that's really reflective and our growth rate and analytics and we're really investing now fairly heavily in the.
The really power that growth in the in the upcoming years. So you know your assessment is correct. We did the mix has changed and we're starting to get back to right around that head count level.
For Q1 of 2020, just where the much higher revenue base.
And that's it thank you.
Thank you and as a reminder, if you would like to ask a question press. The Star then the 1 key on your Touchtone telephone.
Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.
Yes ratio and <unk>.
G&A expenses were the same.
This year as of the pre pandemic level, how many points would that take off of margin to give us a sense for you know.
And the impact maybe next year.
So.
When you when you think about <unk>.
Going forward the.
1 thing that I would say about.
Same is that we had a lot of travel prior to.
Prior to Covid.
And we're starting to reassess the P. D C. The really think about what is really the right level of <unk> now.
Moving forward you know.
I don't have the exact number on an on the <unk>.
Back to margin, if we went right back.
And here, we were pre pandemic, but what I would tell you that the.
The way we look at <unk> right now is that that mix is going to change a bit going forward and that it's going to be a percentage of that <unk> spend going forward. So we're not going to we don't envision getting right back to that.
To compete and need that we had in pre pandemic. So when you look at the when you look at our margins you know it'll have some basis point effect with but not but nowhere near where it was pre pandemic.
And can you give us an update on your thinking and.
The perhaps of actions you're taking are.
Significant reductions.
So we're currently working on our new operating model going forward globally, you know, we're going through a process within HR.
Really understand for each individual you know starting with our enabling function on on how many days someone really needs to.
The real star in the office of what's the optimal you know.
And that someone needs to be in the office on a weekly basis, what we're starting to find is that youre going to have a lot of people about gonna be hybrid working from home and the office and that is going to start the change the requirements that we have within our within our offices.
Particularly here in the U S.
And so that's going to start our process to to reconfigure, our offices and potentially start to reduce the amount of space that we have going forward and our office is going to be to review, our leases and start to see when our leases.
And we and we know that and then startup.
Put together a plan on reducing that amount of office space.
Going into 2022.
As we could finish out this process towards the fall early winter of 2021.
And then 1 quick 1 of if I may of how much exposure.
Would you ever the south to South Africa, and it's the interest there having any impact on your operations.
Yeah.
Yeah, Vincent I will take that.
So and South Africa, our operations are in Cape town, and most of the unrest and is taking place and the other.
It is within South Africa.
The cup, particularly around the oven and the Johannesburg.
We have beefed up our security protocols and are doing a number of things to make sure that of employees are safe and secure out that so far we've not seen any real impact.
The southern says that I've taken place and South Africa on other.
And so.
Our exposure to South Africa continues to be very small and it's.
Not of a substantial part of our business, but it's an important part of our business that is growing nicely and you've kind of very good talented pool of debt and we'd like to bring up part of the capability there.
Okay. Thank you and Mike.
Operations quarter guys.
Thank you Vincent.
Thank you.
And our last question comes from David Grossman with Stifel. Your line is open.
Thank you.
I'm wondering if I could just maybe follow up of couple of questions that have already been the house.
And nice and maybe the first 1 is I think there've been a couple of different approaches to the margin question and then and what's the.
And our sustainable equilibrium.
For the business given all of the distortions that we're seeing over the last several months.
Is there anything you can add to what you've already said and he said the T V.
And the.
Probably it doesn't go back to pre pandemic levels, you'd probably require and less office space.
It sounds like you know you're hiring rate and Oh out and this is at a lower rate and your revenue growth. So can.
Can you at all convention for US you know what this when we.
And this year and how we should be thinking about operating margin. Even if you don't give specific guidance, but at least give us.
Some context to think about.
Sure David Let me, let me expand on it a little bit more.
So when you look at this year's margins, obviously, we had elevated margins and the first.
First half of the year.
And you look at the second half of the year, they start to come down and so what's happening and really within our margins and the second half of the year.
We have a number of things that are flowing through in particular, we restarted our increments.
Salary increases and we have another round, that's gonna happening and.
In the fourth quarter of.
Think theater.
We also are spending on technology similar to what we've talked about in terms of the work from home environment that we're investing in.
We gave up margin kind of guidance of 16 and 17%.
To get to that level in 2022, you know that.
The right around where we would be in the second half of the year more towards the upper end of the year.
As we get towards the.
The end of the year, we start we're going to start to finalize our new operating model.
For the go forward and that's going to help us make decisions on office real estate and <unk>.
East Coast and those changes will bleed into 2022, but we you know and it within all of our guidance also we do talk about 2 of certain extent of the <unk>.
Turning to office and the fourth quarter of this year and and we have a certain part of you know we haven't we have a certain amount of people coming back to the office that we have assumed.
And in the fourth quarter of vacuum May also bleed into Q1 so.
And so.
And you look at margins really on a go forward basis I would still focus you on what we talked about.
At Investor day, 16% to 17%, but I would be at the upper end of that range.
At a minimum the minimum really going forward.
A word.
And that's and.
How we're thinking about it at least right now of going into the fourth quarter for 2020, 2 but obviously as we get into 2020.2 and if we do foresee more people are working from a work from home environment, and we do start to optimize our footprint.
And we do have a lower amount of spend that comes back from a number of different areas, particularly T D.
And that'll give us also additional margin.
Enhancements going for 2022 that that.
That will help us bridge the gap between 2021 and 2022.
And thank you and that concludes today's.
The conference call. Thank you for participating you may now disconnect.
Catherine and are we talking them at all of them.
1 moment.
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Yeah.
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