Q1 2022 Exlservice Holdings Inc Earnings Call

April 28, 2022

[music].

Yes.

Good day and thank you for standing by welcome to the first quarter 2020, Q EXL Service Holdings, Inc Earnings Conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation, there will be a question and answer session. So ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker for today, Mr. Steven Barlow Vice President of inverse.

Relations. Please go ahead Sir.

Thank you Eric Good morning, everyone and thanks for joining us today for Exl's first quarter, two financial results Conference call I'm, Steve Barlow, Vice President of Investor Relations.

The call today are Robert Kapoor, Our Vice Chairman and Chief Executive Officer, and Maurizio Nicolelis, our Chief Financial Officer.

You had an opportunity to review our Q1 2022 earnings release, we issued this morning, we've also updated our investor Factsheet in the Investor Relations section of Exl's website.

As you know some of the matters, we'll discuss on this call are forward looking please keep in mind that these forward looking statements are subject to known 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 discuss.

And the Companys periodic reports and other documents filed with the Securities and Exchange Commission from time to time infill assumes no obligation to update the information presented on this call.

During our call today, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors reconciliation of these measures to GAAP can be found in our press release as well as on the Investor Factsheet.

I'll turn the call over to Rohit Kapoor, our Chief Executive Officer Robert.

Thank you Steve Good morning, everyone welcome to our Q1 2022 earnings call.

Hope all of you and your families are safe and healthy.

I'm delighted to report that EXL had a strong stocks for the year.

In terms of revenue and adjusted EPS, we outperformed our expectations for the quarter.

Our first quarter revenue was $329 $2 million up 11, 4% from the previous quarter and up 25, 9% year over year.

For the quarter adjusted EPS was $1 42 per share up 23% year over year.

Our analytics segment.

Another excellent quarter with revenue of $149 million up 17, 8% sequentially and 45, 7% year over year.

Analytics now accounts for 45% of our total revenue.

The majority skill and expertise of our data analytics business has differentiated us from competition and accelerated our overall growth.

Our digital operations and solutions business.

<unk> saw strong growth this quarter with revenue of $182 million up six 6% quarter over quarter and up 13, 2% year over year.

This was driven primarily by double digit revenue growth in our.

Insurance and emerging segments.

We've been able to drive consistent double digit growth rates across our core industry verticals by number one.

Delivering larger enterprise wide digital transformation engagements and number two.

<unk>, new scalable solutions that are being leveraged across multiple clients and industries.

I would like to share a few examples that illustrate these two aspects of our revenue growth acceleration.

In our data analytics business, we recently added a strategic account from the financial services industry, which turned to EXL for our industry, leading strength in customer analytics data engineering and data management.

This client one of the largest investment management funds in the U S initiated its relationship with us across the entire analytics value chain.

We are leveraging our technology and industry expertise to extract insight from this client structured and unstructured data sets.

This is allowing the client to deliver better consumer experiences across digital and non digital channels driving both higher customer engagement and building larger customer lifetime value.

This win is also significant in terms of the scope and scale of the project.

While historically, we would typically start a new client relationship with annualized revenue of 250 to $500000. We are now signing larger engagements with annualized revenue of $1 million or higher.

And this particular client example, annualized revenue for the first year is well above $5 million.

It is a prime example of how clients are increasingly turning to EXL to drive bigger enterprise wide initiatives and our leadership in data analytics is now clearly well established.

An example offered new engagement that allows us to scale. Our offerings is our recent work with a leading credit union in the U S.

This slide wanted to improve customer experience across multiple lending products.

Reducing the time to underwrite and accelerates the pace of customer on boarding.

This transformation included challenges such as legacy lending technologies.

Lack of personalization in the underwriting process and complex manual onboarding workflows that slower the customer acquisition journey.

As the strategic digital partner EXL designed our next generation digital lending platform that allows faster response time and much more personalized offers based on real time customer data.

By combining our AI powered data extraction capabilities and our comprehensive customer analytics, we were able to automate underlying operations and decisions.

This helped our clients immediately offer the right lending products to the right customer at the right time.

This new digital lending platform is fully scalable within our existing client by expanding across multiple product lines and can now be deployed in a plug and play fashion across our entire client base.

This one EXL approach of leveraging data analytics digital and cloud capabilities to create scalable solutions is also helping us secure more wins in our emerging business segment.

Each quarter, we have been increasing the depth and breadth of our client offerings in this vertical while adding a number of new logos.

Our insurance business has become a Prime example of our continued evolution as we become the partner of choice for large scale enterprise transformation projects.

In fact, we have recently announced a trial of major industry recognitions that showcase this leadership capability.

We were ranked second overall in the HFF top 10 for insurance services.

And then this year ISG provider lens for insurance PPO.

<unk> is a leader in all categories in the U S and Australia, including property and casualty life and third Party administration.

For the third straight year EXL are the top spot in Everest group's peak matrix assessment for property and casualty insurance recognized as both a leader and star performer.

The Everest Analyst's note our strength as a digital transformation partner combined with a strong foundational understanding of the insurance domain and operations.

In December of last year, we announced the acquisition of <unk>, a global data AI and cloud services company.

The acquisition adds to our expertise and depth in data engineering design capabilities data management cloud enablement managed services and data security.

The addition of <unk> capabilities and team have strengthened our value proposition for our clients.

We have significantly added to our talent base and enabling a more integrated set of services for our clients to truly unlock the potential of that data.

Over the course of the last quarter.

Combined team has introduced new capabilities to our existing customers and prospects.

We are thrilled with the response and adoption of our expanded value proposition.

We have success based started joint engagements with several of our large strategic customers across all verticals.

This has significantly added to the overall growth potential for our analytics business.

We are pleased that the <unk> acquisition is meeting both our revenue and profitability expectations.

The demand for skilled talent in our space, particularly around digital cloud data and analytics oriented skill sets has.

Significantly increased in the past few months.

Talent management and wage inflation is a top priority that we're managing at EXL.

We have adopted a comprehensive and holistic strategy to ensure employee well being from a 360 degree perspective.

First our culture is a key driver that helps us collaborate as a team and brings out the best in our people.

Our employees cherish, the strong growth collegial environment entrepreneurial culture, and the carrying manner in which we engage with each other.

This includes a continued focus on career pathing.

And growing and developing our talent organically.

EXL has a long history of promoting from within.

And our strong upskilling programs have been embraced wildly.

In 2021, our employees completed almost 571000 hours of training to help them advance in their careers.

Second we have benchmarked, our compensation and benefits to be competitive in the marketplace.

This allows us to retain and attract the best possible talent.

Over the last two years, we have chosen to be flexible in terms of our business operating model.

We have expanded hybrid what models to best align the needs of our employees with our client requirements compliance with regulatory policies and create an environment to collaborate and innovate together.

We have significantly accelerated our focus on employee health and wellbeing with a focus on both physical and mental wellness.

Recruiting from outside EXL is also important as we are growing at a fast pace.

Our growth provides opportunities for advancement and new challenges for our employees.

The kind of work we do for our clients is very stimulating for all employees.

It helps our employees non grow and get exposed to cutting edge technologies and path breaking business models.

In analytics, we continue to be a successful recruit at the worlds, leading universities and technical schools.

We have been a top recruiter for analytical talent for over 15 years.

In summary, our people are our most important asset.

We will continue to endeavor to make EXL, a preferred destination for employees to build a rewarding career.

This is an incredibly exciting time for EXL.

While we are closely monitoring the volatile economic and geopolitical environment, we are enormously confident in our agility and ability to navigate changes in the marketplace.

We are capitalizing on our data driven solutions and strategic investments that have helped us create a great deal of momentum over the past several quarters.

We are well prepared to seize the market opportunity and create meaningful value for our clients.

I will now invite Maurice Chow to highlight our Q1 financial performance and 2022 guidance.

Thank you and thanks, everyone for joining us this morning, I will provide insights into our financial performance for the first quarter, followed by our revised outlook for 2022.

Our quarter was better than expected with revenue of $329 2 million up 22, 6% year over year and eight 6% sequentially on an organic constant currency basis.

Adjusted EPS was $1 42.

All revenue growth numbers mentioned hereafter are on an organic constant currency basis.

Revenue from our digital operations and solutions businesses as defined by three reportable segments. Excluding analytics was $180 2 million up 14% year over year sequentially from the fourth quarter revenue was up six 8%.

Insurance generated revenue of $103 3 million up 13, 9% year over year, driven by expansion in existing client relationships in life and annuities higher volumes in audit and survey business lines and new client wins in 2021 inch.

<unk> vertical consisting of both our digital operations and solutions and analytics businesses grew 15, 1% year over year.

Emerging reported revenue of $50 7 billion up 36, 2% year over year. This growth was driven by new client wins in 2021 and higher volumes in our travel transportation and logistics businesses, the emerging vertical consisting of.

Both our digital operations and solutions and analytics businesses grew 42% year over year.

Healthcare reported revenue of $26 2 million down 13, 5% year over year due to lower volumes in our clinical services business due to a transitioning clients.

The healthcare vertical consisting of digital operations and solutions and analytics businesses grew 11, 7% year over year.

Analytics had revenue of $149 million up 36% year over year.

And organic constant currency basis.

Buoyant contributed $10 2 million of revenue.

Including clairvoyant analytics grew 45, 7% year over year on a reported basis.

This growth was driven by increased volumes in banking and financial services.

<unk> integrity direct marketing and new client wins in 2021 sequentially.

Sequentially from the fourth quarter of 2021 organic constant currency revenue was up 11, 1%, indicating continued strong momentum and demand for analytics services.

Our SG&A expenses increased by 80 basis points year over year to 19, 5% of revenue driven by investment in front end sales and digital capabilities.

Our adjusted operating margin for the quarter was 18, 2% down 200 basis points year over year due to investments needed in ramping up new client wins in 2021 and investments in front end sales and digital capabilities.

Sequentially, our adjusted operating margin increased by 120 basis points, driven by lower marketing expenses and operating leverage.

Our effective tax rate for the quarter was 23, 9% down 30 basis points year over year. This decrease was driven mainly by lower taxes and certain U S jurisdiction.

Our adjusted EPS for the quarter was $1 42 up 23% year over year on a reported basis.

Our balance sheet remains strong.

Our cash and short term investments at March 31 was $269 million and our debt was $295 million for a net debt position of $26 million.

Subsequent to the close of the quarter, we entered into an amended five year credit agreement totaling $400 million with an accordion feature which allows EXL to borrow an additional $200 million.

Our first quarter cash flow from operations was an outflow of $26 9 million compared to an inflow of $15 2 million in the first quarter of 2021.

This is due to the timing of client receivable collections, which were received in early April and higher bonus payouts due to our strong financial performance in 2021.

During the quarter, we repurchased 221000 shares at an average price of $127 totaling $28 million.

In addition, we spent $16 million on capital expenditures as we continued to invest in the business for the long term growth.

Based on our first quarter performance and current growth visibility for the rest of the year in all our verticals, we are increasing our guidance for 2022.

First quarter revenue includes 2% of onetime revenue got may not occur in the subsequent quarters.

Our revised 2022 guidance is as follows.

Revenue is expected to be in the range of 131 5 billion to 1.335 billion. This.

This represents a year over year growth rate of 17% to 19% on a reported basis and 14% to 16% on an organic constant currency basis.

This is an increase of $30 million at the midpoint from the previous guidance of $1 $2 8 billion to $1 three 1 billion.

Our guidance includes $40 million to $45 million of revenue from <unk>, which is in line with our previous guidance.

Our guidance includes higher salary expenses in certain areas, such as analytics AI and cloud compared to 2021, we have started a return to the office in March in a phased manner and expect the percentage of our employees working from the office to rise over the course of the.

Year.

We will have a hybrid model of working going forward. We expect approximately two thirds of our employees to work either full time or part time from the office and one third to work remotely.

We expect.

A foreign exchange gain between three and $4 million net interest income approximately $1 million and our effective tax rate to be in the range of 23% to 25%.

In the Philippines, where we have approximately 8000 employees. The government has issued regulations mandating the percent of employees required to return to the office as of April one.

There is significant uncertainty around the definition of the regulations and the implications on local tax rates.

While we are working to comply with these regulations and managing our workforce any additional one time tax expense in the Philippines has not been included in our guidance.

Based on the above we expect our adjusted EPS to be in the range of $5 40 to $5 65.

Up 12% to 17% from the $4 83, we reported in 2021.

In terms of capital allocation, we continue to look at reasonably priced tuck in acquisitions with revenue growth rates similar to our current business in the areas of analytics digital.

Abilities and solutions in insurance in healthcare.

In addition, we will continue to spend on internally developed capabilities and expect capital expenditures to be in the range of 40 to 45 billion.

We anticipate our buyback program will continue at a pace similar to 2021.

Looking at the second quarter, we expect revenue to be similar to the first quarter results due to onetime revenue in the first three months of 2022.

Adjusted EPS in the second quarter will be lower than the first quarter due to annual wage increments starting April one.

Higher return to office expenses as we gradually returned to the office.

Investments in digital transformation and <unk> acquisition related costs.

In conclusion, we have started 2022 with very good momentum our pipeline of opportunities continues to grow with larger deal sizes expansions of work with our long term clients and new client wins.

In addition, we remain vigilant on our cost structure as the business grows while addressing market volatility.

Just on the visibility we have for the rest of the year. We are confident in our 2022 growth, which will enable us to drive shareholder value.

Now wrote and I would be happy to take your questions.

At this time I would like to remind everyone in order to ask a question you May press star one on your telephone.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Bryan Bergin from Cowen Your line is open.

Okay.

Hi, good morning, Thank you.

Ill start on the outlook here so.

Strong <unk> beat here across the board and you raised the fiscal 'twenty two revenue outlook on top of that one <unk> outperformance.

I know you mentioned Euro <unk> revenue includes I think 2% that may not occur. So can you dig into that more of a what is that and then the EPS. It looks like it shifted around a little bit within the within the year can you talk about any notable changes in the margin expectations are that would draw versus three months ago. Just curious if there is dumping and notably changed or if it's more about.

This is <unk> kind of early in the year dynamic that drove your approach there.

Yeah sure sure Bryan.

Your first question on on the 2% onetime revenue, we did get some unexpected higher volumes in the first quarter in both our digital operations.

Solutions and analytics businesses that we did not.

We did not anticipate or expect.

We're not foreseeing those volumes going forward. So we've categorized them as one time and.

And don't foresee that really going forward. So that's why we wanted to highlight that to everyone on this call.

In terms of the EPS guidance it still very early in the year.

We're only three months into 2022, there are there is a certain level of uncertainty into the rest of the year. We are seeing a certain amount of wage inflation that we're managing in some critical areas of our business.

And we want to make sure that we properly forecast for that we do see a certain amount of attrition.

Certain pieces of our workforce, particularly in the Philippines and again, we're starting to we're starting to return to the office and Thats going to start to increase our expense throughout the year. So circumstance. We have raised our EPS guidance is still early in the year. So you could categorize it as being conservative.

We'll adjust our guidance as we go forward as we get more and more visibility.

Okay, Okay that makes sense and just a follow up on the workforce. Just you did have healthy additions to head count in spite of that attrition spiking can you just digging a little bit more is it any more than just in the Philippines, where youre seeing that occur and then just your comfort levels as far as where in the workforce that's occurring and just plans for remediation.

<unk>.

Sure Brian .

So we've added a significant amount of employees.

First quarter of 2022.

That's largely being driven by the growth that we're seeing from our existing clients and new clients that we've had.

We did have a higher attrition rate in the first quarter of 'twenty, two and that was principally driven by attrition that went up in the Philippines I think it went up pretty much for the entire industry in the Philippines and there is a considerable amount of uncertainty out there that drove that attrition rate up.

We feel confident in our ability to recruit onboard and manage service delivery for our clients and execute the business that we have one we've got a very strong brand positioning amongst our employee base in the market for us to be able to attract and retain.

Got it.

This is something which.

As a core part of our business and we invest very significantly in this area and we feel confident in our ability to continue to add and build and grow our business.

Okay. Thank you.

Your next question comes from the line of Maggie Nolan from William Blair. Your line is open.

Hi, Thank you.

Can you talk a little bit about your top account dynamics.

You are seeing amongst the top couple in those buckets that you break out.

Sure Maggie so our top accounts.

<unk> cut.

Turning to diversify and kind of.

Customer concentration of that continues to kind of come down as we grow our business with existing clients and we add new client relationships.

We've got really strong client relationships.

Reflected in the growth rate of our.

Existing strategic accounts.

I think the top 10.

Accounts continue to grow very very nicely grew very sharply in 2021, and we think we will continue to grow that in 2002 as well.

The number of new service offerings and the share of wallet that we can take with these clients.

<unk> remains a huge opportunity for us.

Penetration with these clients still is relatively low and therefore, our ability to continue to grow and expand with these clients is very high.

As we engage with them in different buying centers in different geographies and different product lines.

We believe that we can continue to grow with our existing clients under our top clients.

Meaningful way.

Okay. Thank you and then can you provide a little more detail on the circumstances at that transitioning healthcare clients and the ops business and what that transition timeline looks like and when you expect the impact to annualize.

Sure. This is something which we had disclosed previously as well and this is a.

Clients that wanted to transition some of the work.

Through our captive.

Format.

It's something which we are.

Helping that client in terms of that transition.

A terrific relationship with that client, where we are helping them on the clinical side in terms of the transition and building up our capabilities on the analytic side, where we can assist them. This type of transition happens pretty much all the time.

<unk>.

It's something which is pretty normal in our business. The key thing to take a look at is the combined growth rate of the analytics of the healthcare business and if you see the combined growth rate of the healthcare business.

Very healthy in double digits. Despite the transition so we're actually very happy with how the overall portfolio is performing.

Thank you.

Your next question comes from the line of Ashwin <unk> from Citibank. Your line is open.

Thank you.

Good results.

I'd like to start asking you about the top line in.

In your prepared remarks, you've mentioned.

The trend towards.

Thank you.

Thanks.

The example, given was specific can be analytics, but I just wanted to see how you're seeing larger contract across the board.

Or is it still more sporadic.

And then on the on the ramping of those.

Those contract.

Is that also happening faster than that.

Just kind of need to.

A sustainably higher growth rate.

Yes.

Thanks, Ashwin. So yes, we are seeing a very strong demand environment in the marketplace right now.

We're seeing large contracts not only in our data analytics business, but also in our digital operations and digital solutions business.

And thats because clients are engaging with us much more holistically theyre looking at.

Enterprise wide processes, they want us to run and manage so that's being very helpful.

Also seeing the speed of decision, making accelerate and in the past the sales cycle might have typically been a 12 to 18 months sales cycle for our digital operations team today, it's about six months in terms of speed, so frankly larger contracts.

Oster decision, making many more services that we can provide to our clients and it's a very demand rich target environment right now.

Got it got it.

On the Philippines with regards to the.

Sort of the regulatory uncertainty, let's just call it that.

With the return to office.

Where did you see and how do you see that playing out I know it's still early.

Early days, but is there sort of a categorization in the type of employees that perhaps.

Seeing no coming back.

The longer term strategic options with regards to moving the work out of country. It could be just broaden out that discussion and talk about it.

Sure.

Look I think in the Philippines.

<unk> hundred authorities have asked for all employees to be brought back to the office.

100%.

That change was effective.

April however.

However, the way in which they are defining that as something which is getting clarified in terms of how many days in a month doesn't employee needs to be in the office what categorizes.

Person, who is working from the office versus working from home.

Versus working remotely.

Thank God this will all get stabilize and it will get clarified over the next few months.

Also in a presidential elections that are taking place in the Philippines in the next quarter or so so that's likely that.

The alignment with the new administration will sort itself out.

As far as the employees are concerned.

We want to make sure that we remain flexible to meet the needs of our employees, but we also want to balance it out with the needs of our clients with the regulatory requirements and an ability for us to get together to collaborate and to innovate.

It's really balancing out the employee flexibility the customer requirement the regulatory regime in a particular jurisdiction and our overall thesis around coming together and collaborating and innovating so theyre going to work.

George that with an optimal mix of that and I'm sure over the next few months this will stabilize.

Right.

Just a clarification the other part of that question was do you have more is it white based.

Health care is.

Is that the higher focus from the Philippines.

Is that not the case.

Yes, that's the case, we do have a clinical resources in the Philippines, which.

Qualified nurses and U S licensed and registered nurses in the Philippines, We do have voice work that we do in the Philippines, but keep in mind a lot of the work that we do all of that is now completely integrated with our digital capabilities. So it's.

It's really high end complex work that we do that Leverages a lot of data analytics digital.

These operations.

Good point thank you.

Your next question comes from the line of Puneet Jain from Jpmorgan. Your line is open.

Hey, Thanks for taking my question.

It's nice to know that you are seeing larger sized deals.

Thanks.

How defensive that business can be in an even tougher macro slowdown like most of the book that's been committed the new contracts how defensive some of that can be that is a macro slowdown and you can also talk about the impact on <unk>.

Still operations and then even the macro slowdown.

Sharpening.

As we have consistently said for several years now.

In an environment, where there is high growth in the economy.

Our services and solutions resonate very strongly with our clients because they need.

Our partnership to help them support that growth.

But in an environment, which is a slowdown on a recessionary environment actually the need to optimize your cost structure and focus and leverage on data to really spend the money that any organization that is investing in the most optimal manner again.

Quasi services, so we feel that.

We've been able to demonstrate this across multiple types of environment, the economic environment cycles and.

The analytics business will.

Well actually the importance of that only increases.

If.

There is a slowdown because every dollar has to be spent.

To be able to generate that return and everything is focusing on return on investment for our clients and as we drive more and more and better and better business outcomes for them I think the need for our services becomes even more strategic so frankly.

It's a growth environment.

Economic slowdown in a recessionary environment, we think our business services will continue to be important to our clients.

Understood and then on wage inflation can you.

Size led the levels of wage inflation Youre seeing I know you talked about you're seeing high wage inflation and analytics cloud.

Can you talk about how much wage inflation, there is compared to last year and also.

Is there any distance and wage inflation across different regions. The Philippines issue is this mostly about taxes or attrition.

Are you also seeing higher with inflation.

Right, so the wage inflation printers.

Very complex topic, because it varies by geography, it varies by level it varies by skill set and.

Because we add.

So many new employees. It also varies by tenure of the employees.

It's a very.

Complicated kind of algorithm, that's being put to work.

What we can tell you is that we factored in a much higher salary increment this year and 'twenty, two as compared to previous year, and thats very meaningful and very significant.

Definitely is.

Much more in the areas where there is.

<unk> of talent.

Which is all around analytics digital and cloud and technology, So those scarce resources definitely.

Areas, where we are seeing the market compensation.

Go up more significantly and in order to remain competitive.

Matching those kinds of increments of debt.

The.

The wage inflation in general that we've got.

We now have a salary increment cycle, which typically is on first of April .

And then we also have another increment cycle for our senior employees, which is typically on first of October . So that's how it kind of gets factor than for us.

Through the year.

Understood. Thank you.

Your next question comes from the line of my Young Tandon from Needham and company. Your line is open.

Good morning, this is actually Pat Peterson on for <unk>, Thanks for taking the questions.

I just wanted to touch a little bit about demand it seems like the growth outlook.

Then really solid in the guide.

<unk> for the year is actually it seems like youre running above your kind of updated medium term targets.

On growth for the coming year, what do you think is the biggest factor driving that is that just the demand environment is is healthier than what you would consider and more of that medium term range or are you guys noticing share gains or what do you think is the biggest driver being the stronger organic growth.

Yes.

There are two fundamental factors one there was definitely a change in the marketplace, which we've spoken about before.

Zuma has adopted digital.

A much more holistic fashion and therefore, all companies are trying to embrace digital transformation and use data analytics in a much more meaningful way and thats driving the demand up.

And the second is the positioning of our company, which has been strategically and thoughtfully and deliberately put together over the past several years is meant to address the most.

Strategic areas of our clients' requirements and we believe that our focus on data is resonating really really strongly in the marketplace.

Single client is looking to create value out of data and they find the partnership with EXL to be very very strategic and very helpful in that endeavor.

<unk> of providing the right kind of an experience to their end consumers and being able to optimize on pricing on underwriting on customer acquisition on settlement of claims across a multiple set of activities. So it seems to be resonating very broadly.

I'd say, both the demand pull factor, which is driven by the consumer changing its behaviour and clients want.

Turning to adopt digital transformation much more aggressively and much more quickly and to our positioning and our capability set which seems to resonate with the highest growth areas in the marketplace.

It makes sense that's helpful. And then just a quick follow up on M&A.

You guys kind of mentioned that you're still on the lookout for kind of reasonably priced.

Tuck in deals.

Have you noticed with the recent market volatility of evaluation has gotten a little more reasonable where.

It's probably a little easier to find.

Attractive targets at good prices or has.

Some of the recent market volatility not really trickled down to some.

Some of the private market and M&A evaluations.

So I would I would categorize the M&A market is still pretty frothy I think.

Valuations are still fairly high right now.

We were active on a weekly basis looking at many different opportunities that come our way.

And.

We looked at that those areas that we have been looking at specifically analytics, it's within digital capabilities and solutions within insurance and healthcare.

But we haven't really seen too much of a change in terms of valuations, but again similar to the clairvoyant transaction.

Did it needs to be very strategic and it needs to be at a reasonable price for us to move forward on M&A, which will become a bigger portion of our growth story going forward.

Yes, good quarter.

Your next question comes from the line.

Most <unk> from Wedbush Securities. Your line is open.

Yeah. Thanks, two questions one.

Specific and the other one is kind of more big picture.

Did you kind of mentioned.

Spoke a bit about got guidance for margins for this calendar year.

I'm not sure if you.

Maybe talk about levels versus a year ago.

And then big picture.

Going back to the question about visibility and a potential economic slowdown.

The past if I remember correctly budgets for.

For GPO and some of the work that you guys were doing were not necessarily coming out of it budgets are coming out of operational budgets.

And these tend to be a bit more defensive.

Has that changed in the past few years in terms of the types of people that you are selling to and any color there would be helpful. Thanks.

Okay.

Yes.

Okay. So I'm wondering why don't I take the first question I had on margins. So we gave our medium term guidance on margins of <unk>.

8%.

For the next two years when you look at our guidance that we gave we don't give specific guidance for 2022 on margins, but when you backtrack kind of the calculation from EPS back the revenue Youll get the margins right around the low 18% range, which is consistent with the guidance that we gave for the for the year back in.

Curious.

We feel fairly comfortable with that for the year I get back to there are a number of <unk>.

Certainties in terms of cost during 2022, but at that range we feel.

Fairly comfortable at a minimum for 2022.

Yeah.

And.

In response to the broader question on the visibility and the defensiveness of our business mix.

I think.

<unk>.

The primary buyer for US continues to remain the chief operating officer, and the business head and frankly.

The budgets are being folded in alongside with the business saw its become part and parcel of running and managing the business. So.

So we do think.

The digital operations and digital solutions business will remain very defensive.

Even if there is a slowdown.

And again the data analytics part of our business is a defensive business because most of the work that we do of the.

All around helping clients.

Sure.

Two customer acquisition and customer management through pricing and risk management and operational analytics and optimize that cost structure. So frankly all of these are ongoing activities that are going to be needed even in the event of a slowdown.

And just a last one here.

During the last cycle, when we get into a slowdown.

We did get an impact.

Sales cycles right.

<unk> got much longer.

When we go through a slowdown that the right way of looking at it.

Yes, I think that's correct you might see.

The sales cycle kind of.

Increase in timeline, but I think in terms of <unk>.

Existing clients wanting to do more business, that's probably going to continue on.

It's probably going to accelerate the lifetime.

Understood. Thanks, it's helpful.

Thank you.

Sure.

Again, if you would like to ask a question. Please press star one on your telephone keypad again Thats Star one on your telephone keypad. Your next question comes from the line of.

Yes.

Vince Colicchio your line is open.

Yes, Rohit can you give us some color on the new logos added in the quarter.

And.

If you had mentioned that.

New deals we're seeing.

Stronger start to the process in terms of rolling out the business are you seeing that was most of the new logos.

Yes.

So one of the things, which we are very happy about is not only the number of new logos that we signed up but the quality of the new logos.

We're also happy that it's well balanced between digital operations and solutions and our data analytics business.

Some of these logos we believe.

Got tremendous opportunity for us to be able to build up and scale up and the.

The initial size of the engagement are much larger as compared to previous years. So frankly, we are very happy with the new logo sign ups.

And.

Im not sure. If you mentioned this already but if you have I apologize.

Sure.

Herb from others.

In the Philippines, there is despite the increase in attrition theres a substantial supply too.

<unk>.

Offset that and manage through this is that would you agree with that that's the case for you.

Yes.

Very true keep in mind, one thing that.

As.

Operating business, we are we've got processes and systems in place to be able to manage through periods of higher attrition because of the additional bench that we carry.

The trained resources that recurring so frankly from a service delivery perspective.

Able to maintain that.

<unk>.

And manage that even if the attrition rate is high in a particular quarter.

The availability of talent in the Philippines continues to be good and we're not finding a challenge in terms of recruiting.

<unk>.

And particularly when it comes to recruiting at the entry level.

The availability of talent.

Is actually pretty strong.

And lastly are there any other regulatory issues bubbling up and other offshore locations, we should be.

Whereof.

No. There are none that have bubbled up but I think the entire piece around the future of work and the future operating business.

Model, that's going to continue to evolve and it's likely going to settle down and so every jurisdiction is going to come up with its own definition of how they'd like the workforce to operate between the.

Facilities between home and the hybrid model and I think this will continue to evolve as we go along and the good thing is it.

It's likely to kind of evolved to a place that will provide for greater flexibility to our employees allow for.

Our clients to be able to take advantage of that and it's going to be.

Good for the overall growth of our industry. So we are very very optimistic in terms of how this might settle down.

Thank you and nice quarter.

Thank you.

We have a follow up question from the line of Ashwin <unk> from Citibank. Your line is open.

Thank you.

The question was on the amended.

Credit agreement sort of the planning as well.

How should we think of this is smaller.

Offense or defense or offense be looking at more M&A defense being.

Hey.

Recessions here sizing and Youre, just being careful and.

Bulking up your Optionality and flexibility.

Hi, Ashwin its over its euro so we we repaid our revolver it was going to become.

Going to terminate in November .

It became current so we wanted to increase it the increase is really for two things, it's really for having the flexibility in terms of operating capacity in terms of capital, but the other piece of it is also should we need capital for M&A going forward, we have that opportunity now with the larger <unk>.

<unk> as we talked about a little bit on M&A, we want to grow the company both organically and also inorganically really going forward that mix will help us.

Leverage the company that much further.

And add capabilities to our to our overall suite. So that we can grow the company.

Much faster so I would say, it's a little bit of both it's one it's for having that operation operational capacity for capital should we need it. But then also having that ability to leverage it for an M&A opportunity that comes in the future.

Got it thank you much.

Okay.

He has.

Your next question comes from the line of David Grossman from Stifel. Your line is open.

Good morning, Thank you.

I was wondering if I could just follow up a couple of the questions that have been announced.

I think you mentioned that.

You typically have.

Wage cycle one in the first of April one of the first of October .

When you think about the guidance that you provided for the year have you provided some incremental.

Wage pressure in that guidance relative to what you are planning on today.

Yes, David we have provided for a higher salary increment in 'twenty, two as compared to previous years and that is factored in our guidance.

Yes, I think the question was whether you go on beyond what you're.

Currently planning.

Kind of a provision if you will.

Incremental wage inflation extending through the year.

So I think we've just gone through that increment cycle, David in April instead of a need for us to be looking at that we will evaluate that a few months down. The line. We do have an opportunity to assess that in the October cycle. So six months down the line, we do have an op.

<unk>.

At this point of time, we believe adequately plan for it and adjusted for that already.

And what do you expect the gross margins how do you expect them to trend over the course of the year should we expect them to remain relatively flat.

Do you see some movement.

Over the course of the year.

So that will trend similarly.

Similarly to where we are today, maybe a little bit of an uptick coming going forward keep in mind. The second quarter. We do have a number of expenses coming on board.

The biggest piece of the increments is April one.

And then there is a smaller piece on October one so.

So that's usually an area that that.

Effects the margin to a certain extent and it's a little bit what I talked about in terms of second quarter guidance, both on revenue and on.

And on EPS, that's affecting it.

But as we grow as we grow going into the rest of the year.

Our margin will be similar to where it is today.

And so should.

Should we think about.

The gross margin remaining relatively flat.

<unk> seen most of the operating leverage in the margin coming from operating expenses is that how you want us to think about the model going forward.

I think youll see I think youll.

Youll see a fairly comparable gross margin going forward.

Just any overall business, where we are.

We've got a lot of expenses coming on board, we have a lot of ramp ups, we have as I talked about the increments. We have returned to office expenses coming on board, but overall, we're going to manage to that adjusted operating margin we gave guidance to.

And also within within the guidance for 2022, and it gets back to focusing on the overall margin for the year.

In the low 80% range, because thats, what thats, what youre going to back calculate from EPS.

Right right and just one last question I know you don't like to talk about specifics around backlog pipeline and bookings.

<unk> came up earlier about that but.

Can you give us any incremental color at all.

The pace and cadence of bookings.

You kind of Youre thinking about bookings on a year over year basis.

Calendar 'twenty two.

Sure David.

First of all we did sign up a large number of new clients in 2021, and so that's something which results in revenue growth and 22, and so that feels very good.

The pipeline strength, we've spoken about in the past that's gone up more than twice the pipeline that used to exist previously so that's been very strong.

Our win rate is actually a very healthy win rate. So we feel very good about the.

The opportunities that we have in the pipeline and our ability to convert.

The shortening of the sales cycle and larger deals coming into the pipeline.

The quality of the pipeline the backlog and the business momentum looks pretty solid.

From a qualitative standpoint.

It's it's all looking very healthy.

Got it great. Thanks very much.

Thank you.

Your last question comes from the line of Robbie Bamberger from Baird Capital. Your line is open.

Yes. Thanks for taking my question are you guys seeing more companies starting to outsource because they can't deal with employee attrition themselves I guess digital solutions and analytics are a big selling point to but are you seeing that accelerating trend toward outsourcing given this tougher hiring environment.

Yes, Ravi I think Thats, a reality, which most of our clients face. So our clients. If you just think about their business model. They are seeing strong growth and they're seeing a talent scarcity.

They're seeing a need for changing their business models, enabling digital transformation, leveraging data and getting into new areas and therefore partnering with clients.

Those like EXL becomes necessity for them. So yes, we are seeing that take place.

Many of our clients, particularly.

And in the markets in which we operate in the U S and UK Europe , and Australia are finding it difficult to recruit talent and.

Leveraging our strategic partner like EXL becomes an imperative for them.

Yes.

Thank you and then one follow up just on inflation. So how easily have you been able to raise pricing for your existing and new clients just given this inflation environment.

So raising pricing is never easy but.

And this kind of an environment.

Absolutely necessary and important.

We've started the dialogue with our clients in terms of making sure that the commercial arrangements are appropriate. So that we can continue to be a strong sustainable partner for them and provide them with the right talent with the right skill sets and the right tenure and the right experience.

This is something which is obviously being done client by client.

And we are working through this.

It is a change from the way in which I think the entire industry operated previously.

So it's a bit of a change management are advantages that the work that we do for our clients is higher on the complexity spectrum and.

Our ability to demonstrate the value that were generating for them is very transparent. So therefore, asking for the price increase is something which.

We hope will be an easier conversation with our clients.

Great. Thank you.

Yes.

Thank you for that question. This concludes today's conference call. Thank you all for joining you may now disconnect.

Okay.

Sure.

Yes.

Sure.

[music].

Right.

Yes.

Sure.

[music].

Yes.

[music].

Yes.

[music].

Okay.

Yes.

[music].

Good day and thank you for standing by welcome to the first quarter 2022 EXL Service Holdings, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question.

During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker for today, Mr. Steven Barlow Vice President of Investor Relations. Please go ahead Sir.

Thank you Eric Good morning, everyone and thanks for joining us today for EXL first quarter 'twenty two financial results Conference call I'm, Steve Barlow, Vice President of Investor Relations on the call today are Rohit Kapoor, our Vice Chairman and Chief Executive Officer, and Maurizio <unk>, Our Chief Financial Officer.

You had an opportunity to review our Q1 2022 earnings release, we issued this morning, we've also updated our investor Factsheet in the Investor Relations section of Exl's website.

As you know some of the matters, we'll discuss on this call 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 <unk>.

The company's periodic reports and other documents filed with the Securities and Exchange Commission from time to time infill assumes no obligation to update the information presented on this call during our call today, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors reconciliation of these measures to GAAP can be found in our press release as well.

On the Investor Factsheet.

I'll turn the call over to Robert <unk>, Our Chief Executive Officer Robert.

Thank you Steve Good morning, everyone welcome to our Q1 2022 earnings call.

Hope all of you and your families are safe and healthy.

Im delighted to report that EXL had a strong start to the year.

In terms of revenue and adjusted EPS, we outperformed our expectations for the quarter.

Our first quarter revenue was $329 $2 million up 11, 4% from the previous quarter and up 25, 9% year over year.

For the quarter adjusted EPS was $1 42 per share up 23% year over year.

Our analytics segment had another excellent quarter with.

Revenue of $149 million up 17, 8% sequentially and 45, 7% year over year.

Analytics now accounts for 45% of our total revenue.

The majority skill and expertise of our data analytics business has differentiated us from competition and accelerated our overall growth.

Our digital operations and solutions business also saw strong growth this quarter with revenue of $182 million up six 6% quarter over quarter and up 13, 2% year over year.

This was driven primarily by double digit revenue growth in our insurance and emerging segments.

We've been able to drive consistent double digit growth rates across our core industry verticals by number one.

Levering larger enterprise wide digital transformation engagements and number two dip.

Deploying new scalable solutions that are being leveraged across multiple clients and industries.

I would like to share a few examples that illustrate these two aspects of our revenue growth acceleration.

In our data analytics business, we recently added a strategic account from the financial services industry, which turned to EXL for our industry, leading strength and customer analytics data engineering and data management.

This slide one of the largest investment management funds in the U S initiated its relationship with us across the entire analytics value chain.

We are leveraging our technology and industry expertise to extract insight from this client's structured and unstructured data sets.

This is allowing our clients to deliver better consumer experiences across digital and non digital channels driving both higher customer engagement and building larger customer lifetime value.

This win is also significant in terms of the scope and scale of the project.

While historically, we would typically start a new client relationship with annualized revenue of 250 to $500000.

We are now signing larger engagements with annualized revenue of $1 million or higher.

In this particular client example, Andrew.

Annualized revenue for the first year is well above $5 million.

It is a prime example of how clients are increasingly turning to EXL to drive bigger enterprise wide initiatives and our leadership in data analytics is now clearly well established.

An example of a new engagement that allows us to scale. Our offerings is our recent work with a leading credit union in the U S.

This slide wanted to improve customer experience across multiple lending products.

Reducing the time to underwrite and accelerates the pace of customer Onboarding.

This transformation included challenges such as legacy lending technologies law.

Back of personalization in the underwriting process and complex manual onboarding workflows that slower the customer acquisition journey.

As the strategic digital partner EXL designed our next generation digital lending platform that allows faster response time and much more personalized offers based on real time customer data.

By combining our AI powered data extraction capabilities and our comprehensive customer analytics, we were able to automate underlying operations and decisions.

This helped our clients immediately offer the right lending products to the right customer at the right time.

This one EXL approach of leveraging data analytics digital and cloud capabilities to create scalable solutions is also helping us secure more wins in our emerging business segment.

Each quarter, we have been increasing the depth and breadth of our client offerings in this vertical while adding a number of new logos.

Our insurance business has become a Prime example of our continued evolution as we become the partner of choice for large scale enterprise transformation projects.

In fact, we have recently announced a trial of major industry recognitions that showcase this leadership capability.

We were ranked second overall in the Hff's top 10 for insurance services.

And then this year ISG provider lens for insurance PPO.

<unk> is a leader in all categories in the U S and Australia, including property and casualty life and third Party administration.

For the third straight year EXL are the top spot in Everest group's peak matrix assessment for property and casualty insurance recognized as both a leader and star performer.

The Everest analysts not our strength as a digital transformation partner combined with a strong foundational understanding of the insurance domain and operations.

In December of last year, we announced the acquisition of <unk>, a global data AI and cloud services company.

The acquisition adds to our expertise and depth in data engineering design capabilities data management cloud enablement managed services and data security.

The addition of <unk> capabilities and team have strengthened our value proposition for our clients.

We have significantly added to our talent base and enabling a more integrated set of services for our clients to truly unlock the potential of that data.

Over the course of the last quarter.

Combined team has introduced new capabilities to our existing customers and prospects.

We are thrilled with the response and adoption of our expanded value proposition.

We have successfully started joint engagements with several of our large strategic customers across all verticals.

This has significantly added to the overall growth potential for our analytics business.

We are pleased that the <unk> acquisition is meeting both our revenue and profitability expectations.

The demand for skilled talent in our space, particularly around digital cloud data and analytics oriented skill sets has.

Significantly increased in the past few months.

Talent management and wage inflation is a top priority that we are managing at EXL.

We have adopted a comprehensive and holistic strategy to ensure employee well being from a 360 degree perspective.

First our culture is a key driver that helps us collaborate as a team and brings out the best in our people.

Our employees cherish, the strong growth collegial environment entrepreneurial culture, and the caring manner in which we engage with each other.

This includes a continued focus on career pathing and growing and developing our talent organically.

EXL has a long history of promoting from within.

And our strong Upskilling program have been embraced wildly.