Q4 2022 Exlservice Holdings Inc Earnings Call

February 23, 2023

Yeah.

Good day, and thank you for standing by.

Welcome to the Q4 2022.

Yes, Self service Holdings, Inc Conference call.

At this time all participants are in 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 and then Youll hear an automated message advising your hand is raised to withdraw your question Press Star. One one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

John Kristoff Vice President of.

Investor Relations.

The floor is yours.

Thank you Darryl.

Hello, and thank you for joining <unk> 2022 in the fourth quarter and year end financial results Conference call.

On the call with me today are Rohit Kapoor, Vice Chairman and Chief Executive Officer, and Marie Nicola Chief Financial Officer.

We hope you've had an opportunity to review the fourth quarter earnings release, we issued this morning.

<unk> also posted an earnings slide deck and investor.

And the investors section of Exl's website.

As a reminder, some of the information we will discuss this morning is forward.

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.

Factors set forth in today's press release discussed in the company's periodic reports.

Other documents filed with the SEC from time to time.

EXL assumes no obligation to update the information presented on this conference call today.

During our call we may reference certain non-GAAP financial measures, which we believe provide useful information for investors.

Reconciliation of those measures to GAAP can be found in our press release slide deck and Investor fact sheet.

With that I'll now turn the call over to Roger.

Thanks, John Good morning, everyone.

Welcome to the EXL fourth quarter, and 2022 year end earnings call.

I am pleased to be with you. This morning reporting another great quarter.

We finished the year strong with great momentum as we enter 2023.

Our fourth quarter revenue was $375 million, an increase of 27% year over year, and creating 9% on a constant currency basis.

And we grew fourth quarter adjusted EPS, 29%.

Our dollars 56 per share.

We generated strong growth across both analytics and digital operations and solutions.

In analytics, we delivered revenue of $171 million for the quarter.

3% sequentially and 35% year over year.

For the full year, our analytics business grew 41% and now represents 46% of our total revenue.

Our digital operations and solutions business generated revenue of $204 million with year over year growth accelerating to 21% in the quarter and nearly 5% sequentially from the third quarter.

This growth was driven by 23% year over year growth in our insurance business and 31% year over year growth in our emerging business.

Our growth was fueled by an expansion of existing client relationships and new client wins in 2002.

These impressive results demonstrate that EXL has created two strong growth engines by leveraging data across both our analytics and digital operations and solutions businesses.

This focus on data and digital transformation.

With our strong domain expertise in key industries is positioning us well for the future.

Our data led strategy is helping our clients use data to improve their operations through digital transformation enables better decisions through advanced analytics and embedding intelligence in their workflows to increase speed to insight and outcome.

Yes.

EXL is using data to connect back office operations with front end customer platforms to remove friction points and latencies.

We generate value for our clients by enabling savings through operational efficiency and business insights to offer a faster more engaged customer experience.

Our mastery of data combined with our technical expertise and deep domain knowledge enables us to develop industry specific AI use cases and sets us apart from our competitors.

These capabilities and skills have been built over a long period of time and are difficult to replicate providing us with a sustainable competitive advantage.

Our data led strategy has also significantly expanded our total addressable market across four dimensions.

First.

We are going deeper into our core industry verticals.

For example in insurance, we historically focused on property and casualty and life and annuity clients.

Today, we are winning new logos and reinsurance brokerage.

And third party administrators and retirement and group benefits.

And we continue to expand our geographic reach.

Second.

We are also finding success beyond our traditional markets of insurance banking and healthcare into adjacent industries.

While we have been quite successful in doing this we are just scratching the surface with an enormous amount of runway for growth in the coming years.

An illustration of the growth potential is the 35% full year revenue growth we've delivered in our emerging business on an organic constant currency basis in 2022.

Third we are pursuing new opportunities across buying centers within our existing client base.

In the past our primary focus was on the Chief operating officer, and Chief Financial Officer.

Today, we work with the Chief Information Officer, Chief Data Officer, Chief Analytics Officer, Chief Marketing Officer, Chief risk officer, and others across the C suite.

Finally, we have expanded our scope of solutions and moved upstream with our competencies.

We are now operating and stew and and taking on the entire process as opposed to just a portion of work within the process.

In other words, we have the ability to do larger deals across the enterprise.

Work with larger clients and grow our business.

This also allows us to deliver better business outcomes to our clients.

I'd like to share a few examples that exemplify our data led strategy and digital capabilities uniquely position EXL to win in the marketplace.

We began a multi year digital transformation journey, but what's the largest multinational brokerage firms in the world with a presence in over 100 countries.

We are helping them achieve their goals of driving efficiency, while at the same time, redesigning and improving their processes to enhance the customer experience.

We are doing this by using AI powered data extraction and analytic solutions to better understand the customer journey and identify friction points, whereas internal workflows and end customer experience can be improved.

This work is being rolled out enterprise wide and will be the foundation for digital centers of excellence to accelerate quantum improvements to that business model.

Another example is with one of the top five disability insurers in the U S.

They operate a large disability index contact center and wanted to improve efficiency and elevate customer experience.

We deployed a conversational AI solution on top of their existing technology stack with 100% of integrated disability claims intake going to our system as the first touch point.

This enables instant extraction and analysis of unstructured claims data for straight through processing of fast and routine claims.

Through this large scale deployment, we were able to improve intake efficiency by 20%.

Based on the results of this initiative the client awarded us downstream processes to transform the end to end claims experience for the customer.

This is a good illustration of the tangible value, we deliver to our clients and how that often leads to expansion of scope.

These are just two examples of how our data led strategy are helping us win in the marketplace.

EXL has emerged as a strategic partner to drive large scale end to end digital transformation, which are increasing in frequency and complexity across our client base.

In addition to having a successful strategy, we continue to deliver on execution as well.

I want to recognize our people who have brought our data led vision to life.

We recruit and develop the best talent in the industry and this continues to help fuel our growth.

The combination of interesting work and attractive growth opportunities has led to EXL, becoming an employer of choice.

I want to thank our global team of more than 45000 employees for their hard work and relentless pursuit of delivering value to our clients.

I am incredibly proud of our employees and feel fortunate to be part of this team.

As we look to 2023, we have solid momentum with new wins and large deals as well as a robust pipeline of opportunities.

But it still will review the specifics of our 2023 guidance, but I wanted to provide some color on the general demand environment.

We continue to see strong demand in our analytics business and our overall view has not materially changed from the third quarter.

Our clients view that analytics function as a significant driver of growth profitability and differentiation and continue to invest in analytics and leveraging these capabilities.

In digital operations and solutions, we are seeing steady demand as more clients focus on digital transformation and cost reduction.

Deal sizes in our pipeline have been increasing.

One is the macro demand trends, we are beginning to see is clients shifting towards integrating analytics and digital operations to gain greater value and drive more accountability with their partners.

This plays extremely well to our strengths and then the adoption of our unique business model.

In summary, our data led strategy is working we delivered exceptional financial results and 2022, and we are well positioned for 2023 and beyond.

We have sustainable growth fundamentals with a large and growing total addressable market and we operate in a very resilient industry.

We remain confident in our ability to deliver double digit revenue and EPS growth in 'twenty <unk> three.

Our confidence is rooted in EXL, winning strategy unique data capabilities competitive positioning and our exceptionally talented and dedicated team.

With that I'll turn it over to Melissa to cover our financial performance in detail.

Thank you Rohit and thanks, everyone for joining us this morning.

We'll provide insights into our financial performance for the fourth quarter and full year 2022, followed by our outlook for 2023.

We delivered a strong fourth quarter with revenue of $374 7 billion up 26, 8% year over year on a reported basis on a constant currency basis. We grew revenue 28, 6% year over year and three 7% sequentially adjusted EPS.

Yes was a $1 56, an increase of 28, 9% year over year.

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 $204 million, which represents year over year growth of 23%.

Sequentially from the third quarter, we grew revenue four 6%.

The insurance segment, we generated revenue of $127 million, an increase of 24, 6% year over year, driven by expansion in existing client relationships and new client wins in 2022.

The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 23, 5% year over year with revenue of $155 9 million.

Emerging reported revenue of $58 million up 35, 8% year over year.

This growth was driven by new client wins earlier in the year higher volumes and travel and transportation and expansion in other existing client relationships.

The emerging vertical consisting of both our digital operations and solutions and analytics businesses grew 35, 5% year over year on an organic constant currency basis with revenue of $142 million.

Healthcare reported revenue of $25 3 billion down four 4% year over year, driven by lower volume in the clinical services business. The healthcare segment grew 11% sequentially from the third quarter.

The healthcare vertical consisting of our digital operations and solutions and analytics businesses grew 13, 6% year over year with revenue of $76 8 million.

In the analytics segment, we generated revenue of 177 billion.

25, 6% year over year on an organic constant currency basis.

Growth in the fourth quarter was driven by expansion in existing client relationships in banking and financial services healthcare and retail.

Clairvoyant contributed $15 1 million of revenue in the fourth quarter.

Including clairvoyant, we grew analytics 36, 2% year over year sequentially from the third quarter of 2022 analytics revenue grew 22, 6%.

We reduced SG&A expenses by 220 basis points year over year to 19, 2% driven by operating leverage and continued cost discipline.

Our adjusted operating margin for the quarter was 18.0% up a 100 basis points year over year, driven by operating leverage and partially offset by investments to support the ramp up of new client wins.

Our adjusted EPS for the quarter was $1 56, a 28, 9% decrease year over year on a reported basis.

Now turning to our full year 2022 performance. We grew full year revenue to 141 billion, an increase of 27, 3% year over year on a constant currency basis, and 23, 1% on an organic constant currency.

Fee basis.

This growth was driven by all our verticals and our digital operations and solutions and analytics businesses.

Revenue from our digital operations and solutions.

This was $764 7 million growing 17, 4% year over year on a constant currency basis.

Our analytics business generated $647 4 million of revenue an increase of 41, 6% year over year on a constant currency basis.

Analytics represented 46% of total revenue up five percentage points year over year.

<unk> contributed $48 9 billion in 2022.

Our adjusted operating margin for the year was 18, 3% down 30 basis points year over year, driven by investments to support the ramp up of new business and higher operating expenses associated with the return to the office.

Our effective tax rate for the year was 23, 2% up 10 basis points year over year.

We grew full year adjusted EPS of 24, 6% year over year to $6 <unk> on a reported basis.

Our balance sheet remains strong.

Cash, including short term and long term investments.

<unk> 31 was $329 million and our revolver debt was 250 billion for a net cash position of $79 million.

We generated cash flow from operations in 2022 of $166 million compared with $184 million in 2021 due to increased accounts receivables driven by higher revenues.

During the year, we spent $45 million on capital expenditures and repurchased $68 5 million of our shares on an average cost of.

$136 per share.

Moving onto our outlook for 2023.

We are entering the year with strong momentum across both our digital operations and solutions and analytics businesses.

While we have good visibility into the first half of 2023, we are conscious of the macroeconomic uncertainty that remains further into the future.

Despite this uncertainty we are confident in our ability to once again deliver double digit growth in both revenue and adjusted EPS in 2023, and the outlook ranges. We are providing today are consistent with the medium term targets, we presented at our recent Investor day.

We anticipate revenue in the range of 156 billion to $1 6 billion representing year over year growth of 11% to 13% on a reported basis and 11% to 14% on a constant currency basis, we expect digital operations and <unk>.

Allusions to grow 8% to 10% and analytics to grow in the range of 15% to 18% on a constant currency basis.

We expect a foreign exchange gain between 4 million and $6 million net interest expense between 1 million and $2 million and our effective tax rate to be the range of 22% to 23%.

We anticipate adjusted EPS to be in the range of $6 60 to $6 80 reps.

Representing growth of 10% to 13%.

We expect capital expenditures to be in the range of 47 million to $52 million.

We believe these guidance ranges are achievable, even considering the possibility of macroeconomic headwinds in 2023.

Given the successful execution of our data led growth strategy. The continued expansion of our total addressable market and our talent advantage, we are well positioned to grow our double digit growth momentum.

With that Rowan and I would be happy to take your questions.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

He was drawing your question. Please press star one again.

Please ask one question and one follow up please standby, while we compile our Q&A roster.

One moment please.

Our first question comes from Maggie Nolan of William Blair. Your line is now open.

Hi, Thank you nice quarter.

Can you talk a little bit about the.

The level of investment in new client ramp ups in the quarter.

How that compares to recent quarters cashed in 2020, Q, maybe what that would look like over the next several quarters.

Sure Maggie So we've won a substantial amount of business in 2022 from new clients and Thats reflected in the number of new clients that we signed up which was particularly strong.

With the new client ramp ups. There is certainly an increase in investment.

And people as well as in terms of our infrastructure and we continue to make sure that we can execute and deliver to our customer expectations and requirements.

Some of this.

Implementation and execution of the new client wins will spillover into 'twenty three and <unk>.

We expect that we will continue to execute that.

Particularly strongly in the first half of the year.

The investments that we make in new client revenue ramp up generally does have.

Our margin eroding impact because the margin of that new business is at a lower gross margin once we are ramping up but.

But we expect that to continue to normalize as the as the ramp ups stabilized for us.

Thank you and then could you discuss the balance of kind of more project based versus annuity type analytics work that you saw in 2022, and whether you expect that mix to change from here.

Right. So when we had provided guidance for Q4 2022.

We weren't very sure about the project based revenue and some of the discretionary spend that our clients might have had in Q4, particularly as they look towards tightening some of the spend that they had.

Actually the work that we do for clients came in pretty much as we had seen in the previous three quarters and so we haven't really seen any shift in change in terms of the work that they are getting the balance between annuity based work and project based work continues to remain.

Pretty steady and for us the fourth quarter ended up being.

A slightly stronger quarter than as compared to our expectations.

And we haven't really seen any shifts in that trend right now.

Thank you.

Please standby while preparing next question.

Our next question comes from.

Bryan Bergin of Cowen Your line is now open.

Hi, good morning, Thank you I.

I wanted to start on margin here. So can you talk a bit about what you're embedding in the 'twenty three outlook as it relates to adjusted operating margin and also give us a sense of how you see the underlying digital ops and analytics gross margin trending I'm curious I hear you on that on the large deal ramps and I'm also curious if you have fully lapped headwinds related.

The travel London and RTL, we're not.

Sure.

It could be your market question there so.

And you look at margins for 2022, we ended the year at 18, 3% right in line with where we thought we would we would end up for the year. If you look at it by quarterly Theres always going to be a little bit of ups and downs on a quarterly basis, but for the full year. We ended right around <unk> at 18.

Per site going into next year.

We have a couple of we had a couple of headwinds that we did have in 2022.

Will give us a little bit of uplift going into 2023, we did have the transitioning clients within healthcare that got hurt our gross margin within healthcare and you'll see that with the numbers during the year that got pushed down our APM OPM during the year.

Also particularly in Q3 than in Q4, we have a number of ramp ups.

We are getting ready for it in terms of GAAP revenue being more fully realized in 2023. So we're taking out additional cost of ramp up clients beginning in 2023 in 2022.

And then going into 2020, we do expect a certain level of leverage as we continue to grow when.

When you put that altogether, we do see margins within our guidance growing modestly another 10 to 20 basis points from where we ended 2022, and we're pretty confident with those margins, even giving a potential macro uncertainty going into the back end of the year and H two and also.

Assuming a certain level of wage inflation remains constant from 2022.

Okay. That's helpful.

And then I guess just on the on the growth outlook for the year can you dig in a little bit more on the underlying macro assumptions youre, making I hear you on your calling out the uncertainty.

I'm curious kind of what level of visibility you built this guy to versus years past, particularly on that second half.

And how you thought about potential prudence here.

Building that growth forecast.

All dressed up right. So when you look at our guidance for revenue.

It's 11% to 14% on a constant currency basis, and we are assuming a certain level of uncertainty in the second half of the year.

And that assumes a slowdown in the second half of the year.

We are as Robin mentioned in his opening remarks, we are seeing very good good momentum going into 2023 and that continues.

If we do not see that uncertainty or that or that potential slowdown in the second half of the year that yes that does give us a little bit of upside from our guidance from where we are today, but.

But we've taken a little bit of a prudent approach.

And assumed a bit of a slowdown towards the within the second half of the year.

Okay very good thank you.

Thank you one moment weideman pad and the next question.

Our next question comes from Moshe <unk> of.

Wedbush Your line is now open.

Hey, Thanks nice quarter.

Just a couple of model related.

Assumptions for calendar 'twenty three how should we think about the quarterly progression in terms of revenues Q1, Q2, and then the second half that's my first question.

Sure. So when you when you think about revenue for 2023, I think it's fairly when we look at it it's fairly consistent.

We've seen in 'twenty, two and prior it's a gradual increase throughout the year, we don't see any one quarter being significantly higher in terms of percentage growth than any other quarter. So for modeling purposes, I would assume a fairly gradual increase throughout the year.

So like.

Last quarter, you had about 10% sequential growth from Q4 to Q1 I think that was the number is that still.

What we should be looking for now.

That seems a little bit high to be quite honest Moshe I think or you think separately. We can we can help you with your modeling.

I think the best way to think about it is we've provided our revenue guidance to you and.

And you can take a look at the annual revenue guidance for 'twenty, three over 2002 and model out.

Steady gradual increase in quarterly revenues.

Understood and stock based comp assumptions for the year.

They're going to be very they're going to be very similar to 2022.

A model modest increase in the single digits.

Okay, Great and then a big picture question you spoke about visibility.

Visibility in demand.

One of your peers is talking about sales cycles kind of shrinking.

Given the fact that it seems that some of the clients are looking for.

Optimization solutions in this environment, maybe you could talk a bit about sales cycles, and what you're seeing out there and then.

Maybe the nature of the pipeline is shifting in terms of the pivot towards more pulp optimization are you seeing that as well. Thanks.

Sure I'm happy to take that and address that.

And then that's something which we've spoken about in the past. So first of all the overall demand environment for our services and solutions continues to remain strong and Theres really been no change over the last quarter or two quarters, but we are seeing.

However to your point, we do see shifts.

Shifts within that demand environment. There are some elements, where we are seeing a softness of demand and the other elements, where we are seeing a much stronger.

Growth and much stronger demand elements coming in there certainly seems to be a shift towards <unk>.

Cost reduction and getting a lot more efficiency and productivity so clients are suddenly.

Lending in that direction.

Places, where we're seeing softness is around marketing analytics and there it tends to be discretionary expenses that can be pushed out. So we are seeing some of that but at the same time. We're also seeing.

Increased strength and risk analytics and in managing.

Broad and managing.

Abuse of.

Of risk and therefore, we're seeing a greater amount of momentum out there.

In terms of deal sizes, we are seeing.

Large deals in the pipeline so as such the demand environment for us on an overall basis continues to be quite healthy and strong we haven't really seen any conversations with our clients were.

Things are slowing down.

The urgency on cost reduction tends to be in a much more immediate and much quicker, but that certainly is a trend that we would also be seen in terms of our pipeline and our activity with clients.

But also keep in mind that we've signed up a fair amount of.

Client wins in 2002 that we are implementing and executing them and so we're going to continue to focus on that.

Thanks for the color.

Thank you one minute, while we compare our next question.

Our next question comes from Ashwin <unk>.

<unk> of Citibank.

And your line is now on thank you, yes. Thank you.

Okay.

Bob.

Demand.

Expansion.

And then based on your comments.

There is obviously some.

And the team that you've taken.

As we head into the back half of the year.

From a economic standpoint, I guess I wanted to.

Thank you.

Any kind of detail.

Part of that expense.

The second.

Second half.

And I guess the question is.

Question cure expressing.

Actually.

Good morning.

Okay.

Sure.

In terms of.

Lower volumes.

So for the company.

Yeah.

You kind of feel obligated to put in your outlook.

It feels like in the current environment.

Sure Ashwin.

I think youre right.

It's coming in a buffer.

I Hope we've got your question Craig.

So first off from a demand environment standpoint, and the client activity that we're seeing at this point of time, we are seeing no discernible difference as compared to previous quarters or let's say.

Three to six months of 'twenty two.

That remains very active very healthy and we feel very good about the conversations that we're having with our clients and prospects both on digital operations and solutions as well as on analytics.

In terms of the guidance and factoring in the economic.

Headwind that might be there.

Yes, there is a cautionary stance that we've taken in terms of our guidance because this is the beginning of the year suddenly.

This has to play out over the next four quarters. There is a fair amount of uncertainty in the economic environment that is definitely.

A much heightened discussion about a slowdown.

As well as interest rates remaining high and wage inflation continuing to be at the same level.

As what it was in 'twenty two.

Now, while we have not seen anything in the conversations with our set of clients.

<unk> wants to be a bit careful and prudent about how that might shape up in the second half of the year and therefore, we have factored that in in terms of the guidance that we've provided.

It may turn out to be better or worse than expected and we don't know and as we go through the quarters. We'll continue to provide updated guidance in terms of what we will be able to deliver.

I hope that addresses the question that you were speaking because.

Because we couldn't hear you quite well.

Our question.

Yes, sorry about that no that's perfect.

I think the follow up I wanted to kind of.

Pick up on what you just said.

Thats too.

The comment on wage inflation.

Because that is a bit counter to what we've heard from <unk>.

Most others.

Who have seen.

Sort of.

The supply side that shares.

Whether it's attrition where there is wage inflation.

Its availability of tenant has.

For pretty much everyone has kind of spoken mid so could you go into the supply side.

Challenges that you that you've kind of potentially alluding to.

And maybe Kevin just is too strong a word but could you talk about that.

Sure sure absolutely. So I think on the attrition side and as we've shared with you our fourth quarter attrition has dropped down very significantly and we're certainly seeing a reduction in attrition rates take place and we would expect that there'll be much more stability in the workforce going forward in <unk>.

'twenty three.

In terms of wage inflation I think the difference in the commentary between us and other players might be 146% of our revenue comes from analytics.

We have a much higher proportion of digital in our revenue even in operations management.

So the places where we are seeing very rapid growth is a place where there is highly skilled talent that we need to bring on and retain so that we can continue to provide them with attractive career opportunities within EXL and I think it's around the analytics digital and high comps.

Electricity subject matter expert physicians enrolled where we would anticipate that the wage inflation would be similar to what we saw in 'twenty, two and that might be a big difference between us and other players.

Got it thank you for that.

Thank you one minute while preparing next question.

Our next question comes from Puneet Jain of Jpmorgan.

You might just say thanks for taking my question and nice quarter.

A question on long term, so I understand like near term youre seeing clients willing to outsource more and more to be able to cut costs.

But do you expect this upside.

Turning to continue when macro Duluth.

The need to cut costs may not be as significant as it does now.

Thanks, Toni so I want to reiterate that our business model is a very resilient business model. It's based on our data led strategy its based on helping our clients modernize their existing technology platforms.

And continue to deliver much more efficiency, but at the same time also enhancement and customer experience.

So our sense is when there is an economic slowdown there is a focus that shifts towards cost reduction and we can help our clients very significantly with that when things normalize and there is strong growth. We can actually help our clients in terms of the fulfillment of those growth strategies and the focus shifts.

Towards customer acquisition, and the ability to grow and differentiate and create a much better customer experience, so frankly being able to play on both sides.

Spectrum, helping our clients increase their revenue and at the same time reduce the cost is very very resilient business model that we have with our clients and we think that that's what makes this business model very very attractive.

Got it and excuse me if you already commented on this.

Talk about pricing trends.

Given the implementation might remain high and how should we think about analytics growth in the first half of this year in the second half.

Sure so on pricing.

We started to talk to our clients last year about changes to the pricing environment and certainly as wage inflation went up and as the value that we were delivering to our clients and significantly been enhanced apply.

Our clients were very comfortable talking to us and making appropriate changes to the pricing in the commercial arrangements that we have with them that process.

Was instituted for the first time literally.

In 'twenty one 'twenty two we think that that trend will continue in 'twenty, three and beyond and we're having very good conversations with our clients.

Gallium pricing.

So we think as long as we continue to deliver great value to our clients our clients think of us as strategic partners and the sensitivity to pricing is much lower on higher complexity work on higher value work that we deliver to our clients and maybe we end up differentiating ourselves from competitors on that basis.

On analytics.

<unk> continued investment by our clients.

Every single customer is trying to leverage data and get insights from that data and translate those insights into outcomes and our analytics business helps them manage that data helps them generate insights from that data and convert those insights into outcomes. So frankly, we are seeing very very.

Good traction on our analytics business.

We don't really see any differentiation between the first half and the second half of the year as we.

Providing commentary earlier, we would expect a steady growth to take place for our business.

In 2023.

Excellent. Thank you.

Thank you one minute, while we prepare the next question.

Our next question comes from Ken Doug.

<unk> Ham <unk> co. Your line is now open.

Our next question comes from Amit.

<unk> co. Your line is now open.

Thank you sorry, I didn't catch the first part there northern Mauricio congrats on the quarter. Most of my questions have been answered, but I did want to just delve into the outsized growth on the operations piece in the fourth quarter, that's certainly well above trend was there something one off there and if not if the macro remains.

Healthier doesn't turn out to be worse than where we are today is there the potential for that to be growing above your medium term targets given that we saw this acceleration in the fourth quarter.

Sure enough.

So our operations management and solutions business grew at a pretty healthy pace and all of 'twenty two.

<unk> certainly an acceleration of that growth rate in the third quarter and the fourth quarter and our operations management and solutions business in the fourth quarter grew at 21%, which is very very high and.

Very pleased with that.

There are two fundamental reasons why we think there is strength in our operations management and solutions business.

Number one is we are seeing more and more clients come to us and say that they'd like to see and integration of analytics.

And our digital operations and digital solutions business, because that provides them with much greater value much higher certainty of that value and much easier.

Accountability of us as their partner to deliver that value.

So this is a great trend that we are seeing we are uniquely positioned to take advantage of this and combining analytics and our digital operations and solutions is resonating very very well in the marketplace.

The second reason for that strength is.

Our capabilities around digital and digital transformation.

<unk> become very well accepted and they are delivering terrific outcomes to our clients at speed and at scale.

And our clients are giving us much larger mandates after they've seen the initial proof of concepts play out for them and thats, resulting in larger deals in a much faster growth rate.

We're very pleased with both of these two fundamental reasons.

We are very strategic much more long term and we'd expect this to continue to play out now.

This kind of shapes up in 'twenty, three and how it evolves is something which we will have to wait and watch there is definitely a cautionary stance that might be taken by some clients and prospects and we'll see how this thing progresses, and we and we will provide you with updated.

Commentary and guidance on that.

That's very helpful. Thank you for that and then just a quick follow up on the capital allocation side.

Obviously, you bought back stock just how are you thinking in terms of further share repurchases versus potential for M&A any thoughts around that.

Yeah sure Mike So when we think about capital allocation for 2023, I think you would see fairly similar to our thinking in 2022.

In terms of buying back shares we would look to buy back shares very comparably to what we did in 2022, and that's primarily offsetting dilution from our stock grants that we issued throughout the year.

Then we would look also to a certain extent to pay down a little bit of debt.

Interest rates rise to really contain that interest expense and the remainder we would we would look to use for internal investments and potential M&A.

Would arise throughout the year, if those opportunities come about.

Great. Thank you so much.

Thank you.

One minute repair next question.

Our next question comes from Vincent Colicchio.

Of Barrington research.

Right.

Hello Rohit.

On the health care vertical.

It had very nice sequential growth overall in digital and operational solutions.

Just curious of what you would call out there I know, it's been fairly weak sequentially throughout the year I know you lost a client.

Just one big client or number of clients whats driving that and do you expect the momentum to continue.

Great.

So Vincent you're absolutely right.

A client in the health care clinical part of our business was because of the one client transitioning that is now pretty much done and complete so the health care business has stabilized.

As we embed more digital into the health care operations, we would expect our digital operations and solutions business to continue to grow and gain traction.

Sharp trend that you saw in Q4 over Q3 with the 11% sequential growth.

As one off.

That's not something which we would extrapolate to the full year.

I do think we're going to see steady growth from here on.

Uhm.

Healthcare digital operations and solutions business.

And then just one more for me is there any difference in client sentiment among your geographies that you would point out.

None that we are seeing Vincent we're seeing actually the same level of demand.

UK and Europe , as well as in Australia, and New Zealand.

It seems like clients are all across the globe are focusing on how do they manage their data how does it get insights from data and drive greater outcomes and everybody is trying to be a data led business and so for us that fits in very well with our strategy and we are seeing strength across the board across geographies.

Thank you and congrats on the quarter.

Thank you.

Thank you one minute when you pair next question.

Yeah.

Our next question comes from David Koning of.

Baird. Your line is now open.

Oh, Hey, guys just for Dave Koning.

Oh got you, yes, it cuts out so it's hard to hear but yes.

Yes, I guess on attrition you talked a little bit about it.

You recently were at a pretty high level higher than usual attrition you are now down to around the lowest in 10 years. So kind of generationally low attrition is that going to help wage inflation like are you actually at a point where.

Pricing might actually go up at the same time as wages can be pretty stable for a while just like a nice little margin lever coming up.

Right so for us in 'twenty to be attrition rate was high in the first half of the year, primarily because the attrition in the Philippines was pretty high.

That impacted us we are very very happy with the attrition rates coming down in the fourth quarter and sequentially for US we think first quarter tends to be a much lower attrition rate cycle from a seasonality standpoint so.

<unk> should be stable or to grow but.

But as far as wage inflation is concerned the way in which we'd like to think about it is not so much linking it to the attrition rate, but rather looking at it from a market competitiveness standpoint, and a skill set and.

And ability to to be competitive so for us, we do see skills in digital and analytics and consulting in subject matter experts as being value added skills and therefore, we want to make sure that we can compensate our employees appropriately and be.

Very very competitive out there so we would delink the attrition rate from the wage inflation rate.

And we would much rather have the wage inflation type two market competitiveness rather than the attrition.

Okay No that's.

All good.

And then I guess on the analytics business just like a higher level question. You know I would say 345 years ago, we thought of that as being a little less recurring and I think you've convinced this over the years that hey, this is pretty steady and maybe even more so than than you expected it to be but is this now as recurring as the digital ops business and do you kind of.

See it going forward at a very high levels of recurring revenue.

Yes.

Got a couple of things why we think this is very stable very recurring and very high growth rate. One everybody is trying to invest more and more in analytics and data and and that's become a pretty large and substantial piece of any client business. So if you take a look.

At the total number of employees that any client hats, and see the number of them that might be dedicated to analytics those numbers in the past used to be you know a.

A few 100 now they're in the thousands and tens of thousands and it's become pretty much a shift that's taken place where this marketplace has become very sizable very meaningful and it's likely to continue to grow, particularly as there is a greater use of AI, there's a greater use of.

Technology and automation, there is a greater use and linkage between data process and outcome. So frankly, we think.

This analytics.

Spend is going to continue to increase going forward that continues to be a huge scarcity of talent in this space.

And leveraging our global delivery model for analytics is absolutely critical for our clients because they just cannot deal with this with only onshore resources. So we end up being very well positioned for helping our clients on this and frankly this.

Suddenly playing to our advantage.

And it's an investment that we made several years ago, and it's falling out to be a really great story for us.

Yes.

Good thanks, good job thanks.

Thank you.

Thank you at this time I would like to turn it back to the.

Tim Kristoff, Vice President market marketing relations.

For closing comments.

Thanks, Joe and thank you all for joining us on our call. This morning.

If you have additional questions regarding the quarter our financials. Please don't hesitate to reach out to me directly thank.

Thank you again and goodbye.

Yeah.

Thank you for your participation.

This does conclude the program you may now disconnect.

Okay.

The conference will begin shortly two reasons lower Johan during Q&A, you can dial one one.

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Good day, and thank you for standing by.

I'll come to the Q4 2022.

Yes, Al Service Holdings, Inc Conference call.

At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.

A question during the session you will need to press star one on your telephone and then Youll hear an automated message advising your hand as rates to withdraw your question Press Star one one again.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

John Kristoff, Vice President of Investor Relations.

The floor is yours.

Thank you Darryl.

Hello, and thank you for joining <unk> 2022 fourth quarter and year end financial results Conference call.

On the call with me today are Rohit Kapoor, our Vice Chairman and Chief Executive Officer, and Marie Nicola Chief Financial Officer.

We hope that you've had an opportunity to review the fourth quarter earnings release, we issued this morning.

<unk> also posted an earnings slide deck and Investor Factsheet in the Investor section of Exl's website.

As a reminder, some of the information we will discuss this morning is forward looking.

Release discussed in the company's periodic reports or other documents filed with the SEC from time to time.

EXL assumes no obligation to update the information presented on this conference call today.

During our call we may reference certain non-GAAP financial measures, which we believe provide useful information for investors.

Reconciliation of those measures to GAAP can be found in our press release slide deck and investor facts.

With that I'll now turn the call over to Roger.

Thanks, John Good morning, everyone and welcome to the EXL fourth quarter, and 2022 year end earnings call.

I am pleased to be with you. This morning reporting another great quarter.

We finished the year strong with great momentum as we enter 2023.

Our fourth quarter revenue was $375 million, an increase of 27% year over year, and creating 9% on a constant currency basis.

And we grew fourth quarter adjusted EPS, 29% to our dollars 56 per share.

We generated strong growth across both analytics and digital operations and solutions.

In analytics, we delivered revenue of $171 million for the quarter up 3% sequentially and 35% year over year.

For the full year, our analytics business grew 41% and now represents 46% of our total revenue.

Our digital operations and solutions business generated revenue of $204 million with year over year growth accelerating to 21% in the quarter and nearly 5% sequentially from the third quarter.

This growth was driven by 23% year over year growth in our insurance business and 31% year over year growth in our emerging business.

Our growth was fueled by an expansion of existing client relationships and new client wins in 2002.

These impressive results demonstrate that EXL has created two strong growth engines by leveraging data across both our analytics and digital operations and solutions businesses.

This focus on data led digital transformation.

With our strong domain expertise in key industries is positioning us well for the future.

Yes.

EXL is using data to connect back office operations with front end customer platforms to remove friction points and latencies.

We generate value for our clients by enabling savings through operational efficiency and business insights to offer a faster more engaged customer experience.

Our March three of data combined with our technical expertise and deep domain knowledge enables us to develop industry specific AI use cases and sets us apart from our competitors.

These capabilities and skills have been built over a long period of time and are difficult to replicate providing us with a sustainable competitive advantage.

Our data led strategy has also significantly expanded our total addressable market across four dimensions.

First we.

We are going deeper into our core industry verticals.

For example in insurance, we historically focused on property and casualty and life and annuity clients.

Today, we are winning new logos in reinsurance brokerage.

Third party administrators and retirement and group benefits.

And we continue to expand our geographic reach.

Second.

We are also finding success beyond our traditional markets of insurance banking and healthcare into adjacent industries.

While we have been quite successful in doing this we are just scratching the surface with an enormous amount of runway for growth in the coming years.

An illustration of the growth potential is the 35% full year revenue growth, we delivered in our emerging business on an organic constant currency basis in 2022.

Third we are pursuing new opportunities across buying centers within our existing client base.

In the past our primary focus was on the Chief operating officer, and Chief Financial Officer.

Today, we work with the Chief Information Officer, Chief Data Officer, Chief Analytics Officer, Chief Marketing Officer, Chief risk officer, and others across the C suite.

Finally.

We have expanded our scope of solutions and moved upstream with our competencies.

We are now operating earnings to end and taking on the entire process as opposed to just a portion of work within the process.

In other words, we have the ability to do larger deals across an enterprise.

Work with larger clients and grow our business.

This also allows us to deliver better business outcomes to our clients.

I'd like to share a few examples that exemplify our data led strategy and digital capabilities uniquely position EXL to win in the marketplace.

We began a multiyear digital transformation journey with lots of largest multinational brokerage funds in the world with a presence in over 100 countries.

We are helping them achieve their goals of driving efficiency, while at the same time, redesigning and improving their processes to enhance the customer experience.

This work is being rolled out enterprise wide and will be the foundation for digital centers of excellence to accelerate quantum improvements to that business model.

Another example is with one of the top five disability insurers in the U S.

They operate a large disability index contact center and wanted to improve efficiency and elevated customer experience.

We deployed a conversational AI solution on top of their existing technology stack with 100% of integrated disability claims intake going through our system as the first touch point.