Q1 2023 ExlService Holdings Inc. Earnings Call
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I would now like to hand, the conference over to your first speaker today, John Kristoff. Please go ahead.
Thank you Julia Hello, and thank you for joining Exl's first quarter 2023 financial results conference call on the call with me today are Rohit Kapoor, Vice Chairman and Chief Executive Officer, and Mercury Nickel Ali Chief Financial Officer.
We hope you've had an opportunity to review the first quarter press release, we issued this morning and.
And we've also posted an earnings slide deck, and Investor fact sheet to the IR section of our website.
As a reminder, some other matters we will discuss this morning are forward looking.
Keep in mind that these forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Such risks and uncertainties include but are not limited to general economic conditions. Those factors set forth in today's press release discussing the company's periodic reports and other documents filed with the SEC.
EXL 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 to investors reconciliations of these measures to GAAP can be found in our press release, our slide deck and IR Factsheet now I'll turn the call over to Rohit.
Thanks, John Good morning, everyone welcome to Exl's first quarter 2023 earnings call.
I am pleased to be reviewed this morning reporting another great quarter.
We continued our strong momentum into the first quarter with total revenue of $401 million representing growth of 22% on a reported basis and 23% in constant currency.
We grew adjusted diluted EPS, 23% to a $1 74 per share.
Our data led strategy has expanded our total addressable market and generated a sustainable competitive advantage for EXL.
The consistent execution of this strategy continues to fuel our growth across our data analytics and digital operations and solutions businesses.
In analytics, we delivered revenue of $182 million for the quarter up six 5% sequentially and 22% year over year.
This was driven by strong growth in healthcare and banking as well as continued growth in insurance with new and existing clients.
Looking at our digital operations and solutions business during the first quarter, we generated revenue of $219 million with growth of more than 7% sequentially and 21% year over year.
This was driven by continued strong momentum in our insurance and emerging business.
This growth was fueled by an expansion of existing client relationships and strong execution on new client wins from 2022.
EXL is uniquely positioned to help our clients achieve their goals through our focused data that approach.
<unk> domain expertise and impactful digital transformation capabilities.
Let me share a couple of examples of how we are leveraging these strengths and differentiating ourselves in the marketplace.
In insurance, we are helping our clients grow their businesses manage their risks contained cost and improve customer experience.
For example, we are enabling them to rapidly respond to increasing consumer demand for our annuity and insurance products in a rising interest rate environment.
We have built an end to end ecosystem for easily configuring pricing and launching a variety of complex life and annuity products for our clients.
Our platform is modular and pre configured to enable regulatory compliance across each state.
Our clients to launch new products with speed.
This ecosystem is fueled by our data led approach.
Our market, leading AI powered new business and underwriting solution helps our clients better manage their risk lower debt underwriting costs and reduce cycle time by increasing straight through processing.
Using advanced machine learning algorithms are platform analyzes vast amounts of underwriting data to identify patterns and trends, helping our clients make informed decisions in a matter of minutes.
In another example, we partnered with a global custodian banks to transform their end customer experience across the enterprise with the goal of improving customer satisfaction and at the same time reducing cost.
The transformation plan focuses on customer experience operations across all major lines of business for the bank.
We conducted a detailed diagnostic assessment of the bank's data and technological capabilities and devise a strategic digital roadmap to help them transform and achieve their goals.
We re imagine their customer journeys using our data led approach we are accomplishing this by identifying two call intent using transcript analytics, improving channel effectiveness by switching cross channel interactions data and enhancing operational efficiency using.
<unk> agent performance data.
These are just two examples of how our data led approach is differentiating us in the marketplace and creating value for our clients.
Looking ahead, we are encouraged by the continued momentum across both of our businesses and our pipeline of opportunities.
Our strong performance in the first quarter and current visibility for the remainder of the year gives us confidence to raise our revenue and EPS guidance.
But it still will walk you through the details in a few moments.
While the macroeconomic environment is likely to remain volatile EXL has a resilient business model with long term client relationships and approximately 80% of our revenue is recurring in nature.
We also have a diverse mix of business across data analytics and digital operations and solutions in a variety of vertical markets.
Finally, our business is focused on helping our clients grow revenue reduce costs and improve end customer experience.
In other words, we are relevant for our clients in all kinds of economic environments.
As we see indications of the job market slowing there.
The potential benefits are lowered attrition and wage inflation and an improvement in the recruiting and hiring environment.
During the first quarter, we typically see a seasonal uptick in attrition.
However, our attrition our attrition rates during the quarter remained historically low at 26%.
Our digital and analytics attrition was even lower.
It is especially encouraging as this represents a critical skill set for us.
In addition, we are seeing some improvement in the recruiting environment and we were able to add approximately 2400 employees during the quarter.
We continue to focus on being the employer of choice in our space by offering dynamic challenging work career growth opportunities and a supportive and inclusive culture.
I'm also pleased to highlight our key appointments within our senior leadership team.
And dealer Ronnie has been promoted to Chief Digital officer.
In this role Andy will lead Exl's digital strategy and execution.
He is responsible for implementing cutting edge technologies, and creating new digital solutions and services.
And we previously led our life and annuity business within the insurance segment.
He has been with EXL for more than 20 years and brings a wealth of experience leading client technology transformation initiatives across our company.
He has the knowledge to bring the strength of EXL to integrate and align our digital initiatives across all of our business units for our clients.
Digital has become an increasingly large and important part of our business and I could not be more confident in <unk> ability to take digital to the next level for EXL and for our clients.
Before I conclude I'd like to spend a few minutes sharing my thoughts on the rapid evolution of generated AI and how EXL is positioning itself to best leverage the technology in our offering to clients.
EXL has been incorporating AI as an integral part of our solution set for several years already.
We currently have more than 50, AI based analytics offerings deployed in the marketplace and we continue to invest heavily in this space.
We are now developing advanced digital solutions, leveraging generative AI that draw insights from unstructured data sets to create new AI models, and retrained existing ones to mitigate risk create cross sell and upsell opportunities.
And improve the end user experience.
As our clients seek to deploy AI models across the enterprise.
An enormous amount of work needs to be done to breakdown data silos migrate data to vitol and allow enterprise wide data to be easily accessed.
This represents the core of EXL value proposition.
Our unmatched data led capabilities.
With our strong relationships and domain expertise in insurance banking healthcare and other industries position us well to help our clients get the most from these new technologies in the years to come.
And with that I'll turn the call over to monitor.
Thank you Rohit 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 2023.
We delivered a strong first quarter with revenue of $400 6 million up 21, 7% year over year on a reported basis on a constant currency basis, we grew revenue, 23% year over year and six 6% sequentially adjusted.
Adjusted EPS was $1 74, an increase of 22, 5% year over year.
All revenue growth percentages mentioned hereafter are on a constant currency basis.
Revenue from our digital operations and solutions businesses.
Find by three reportable segments, excluding analytics was $218 8 million, which represented year over year growth of 23, 2%.
Sequentially from the fourth quarter of 2022, we grew revenue revenue six 9%.
In the insurance segment, we generated revenue of $125 9 million, an increase of 23, 3% year over year, driven primarily by expansion of existing client relationships.
The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 21, 8% year over year with revenue of $163 6 million.
In the emerging segment, we grew revenues, 34% year over year to $66 2 million. This growth was driven by new client wins in 2022 and expansion of existing client relationships the emerging vertical consisting of both our digital opera.
<unk> solutions and analytics businesses grew 26, 5% year over year with revenue of $154 2 million.
The healthcare segment reported revenue of $26 7 million growing two 2% year over year and five 4% sequentially from the fourth quarter of 2022.
This growth was driven by higher volumes in the clinical services business.
The healthcare vertical consisting of our digital operations and solutions and analytics businesses grew 19, 2% year over year with revenue of 82 8 million.
In the analytics segment, we generated revenue of 181 8 million.
Up 22, 7% year over year.
This growth was driven by expansion in existing client relationships in banking and financial services health care and insurance sequentially. We grew analytics revenue six 3%.
We reduced SG&A expenses by 50 basis points year over year to 19% driven by.
Operating leverage our adjusted operating margin for the quarter was 19, 4% of our 120 basis points year over year, driven by higher profitability on one time revenue of approximately $6 million and lower SG&A expenses.
Our effective tax rate for the quarter was 24% up 10 basis points year over year.
Our adjusted EPS for the quarter was $1 74, a 22, 5% increase year over year on a reported basis.
Our balance sheet remains strong our cash, including short and long term investments on March 31.
$236 million and our.
Revolver debt was 200 billion for a net cash position of $36 million.
We generated cash flow from operations of $16 million in the first quarter compared to a cash outflow of $27 million in the first quarter of 2022.
This improvement resulted from the expansion in adjusted operating margins and improved working capital.
During the quarter, we spent $12 5 million on capital expenditures and repurchased $36 million of our shares at an average cost.
$162.
Now moving on to our outlook for 2023.
While we are encouraged by the momentum we carried into the first quarter across all our businesses. It is important to note that approximately one 5% of our first quarter revenue came from one time revenue that may not occur in subsequent quarters.
As Rohit noted we also remain cautious about the macroeconomic outlook for the remainder of the year as there have been an increasing number of indicators pointing towards economic volatility.
Based on these factors and our current growth visibility for the remainder of the year, we are adjusting our revenue and earnings guidance for 2023.
We now anticipate revenue in the range of one $5 95 billion to 162 billion representing year over year growth of 13% to 15% on both a reported and constant currency basis.
This represents an increase of $27 million at the midpoint of our previous guidance of one $5 6 billion to $1 6 billion.
We expect a foreign exchange gain between 1 million to two.
Two 3 million net interest expense between 1 million to $2 million and our full year effective tax rate to be in the range of 22% to 23%.
Based on this we anticipate our adjusted EPS to be in the range of $6 75.
The $6 90.
Representing year over year growth of 12% to 15%, which is an increase from our prior adjusted EPS guidance of 10% to 13% growth.
We expect capital expenditures to be in the range of $47 million to $52 million.
Looking at the second quarter, we expect revenue to be comparable to the first quarter due to the onetime revenue in the first three months of 2023.
With the consistent successful execution of our data led strategy.
Expansion of our total addressable market and our industry talent advantage, we remain well positioned to continue to outperform over the long term.
With that Robert and I will be happy to take your questions.
Okay.
Thank you.
At this time, we will conduct a question and answer session.
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To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Yeah.
Yeah.
Yeah.
Okay.
Okay.
First question comes from the line of Bryan Bergin on TD Cowen. Your line is now open.
Hi, This is actually Jared Levine on for Bryan today in terms of analytics, how did marketing analytics revenue performance <unk> relative to the rest of the analytics segment revenue base and any other project based analytics area performance, we're calling out here.
Sure I'll take that.
We've stated this before that we expected marketing analytics services to be much softer given the economic environment.
Typically for US Q1 is the strongest.
Our marketing analytics services standpoint.
This year for us marketing analytics services actually declined.
Year on year, because clients are holding back the spend on.
Marketing analytics and the acquisition of new customers in this economic environment.
So our analytics business was able to grow by 22%. Despite the fact that we had a slowdown in marketing analytics services and that is certainly a trend that we're seeing where clients are holding back the spend on marketing and on customer acquisitions.
Okay, Great and then continuing with analytics theme here can you talk about what you saw specifically in your bank regulatory analytics business over the last months amid the U S Bank volatility and then also how are you thinking about the medium term opportunity for that business. If the banking industry sees further regulatory changes.
Sure.
Clearly, there's been a lot of volatility and change in the banking industry.
Environment.
First off.
We are actually very happy with the portfolio that we have within banking and <unk>.
Financial services, because we largely deal with larger banks and we have very limited exposure to small banks or community banks, we don't have any exposure to banks that work with.
Capital.
With VC and therefore, we are very well.
<unk> in terms of the mix of customers that we have within the banking industry vertical.
The second part of this is that.
But the the change for us in the quarter in banking and financial services.
Actually there was no real change that we saw as such and.
We continue to see good momentum with the discussions and conversations that we're having with our clients in the banking vertical now there is a possibility that given the volatility in the first quarter, we might see banks.
<unk> backed that decision, making particularly associated with discretionary spending in the second quarter or in the rest of the year.
However, we believe that as the regulatory compliance and risk management has stepped up in the banking industry vertical EXL will benefit from that because our clients will need to strengthen their analytical business models around regulatory compliance and around risk management.
We also think that there is going to be a tailwind to the work that we perform in banking because.
This industry is going to focus a lot more on cost rationalization and that plays to our strengths as well so given the kind of portfolio of customers that we have the type of work that we do within banking and financial services. We think this is going to be net.
Positive for us as we go along there might be some discretionary spend that gets pushed out but longer term. We think there is much more opportunity in banking.
Great. Thank you.
Yes.
One moment for our next question.
Yeah.
Our next question comes from the line of Maggie Nolan of William Blair. Your line is now open.
Yes.
Thank you can.
Can you talk about investments in new deal ramp ups and how that's progressing and what impact we can expect to hear on margins on a quarterly basis.
Sure Maggie.
No.
As you know did win a fair amount of new business in 2002 and that momentum continues on in the first quarter of 'twenty three as well.
As we onboard and ramp up these client wins, particularly in digital operations and solutions are there is an investment that we need to make to be able to onboard. These new clients you can see from the employee head count growth that we've been adding that we've been investing very dealer.
Currently in this particular area. We think this will continue pretty much.
Going forward as well so some of these ramps are Australia, not complete and we think we'll continue to invest out here.
As these deals mature we would expect that these deals will get towards normal operating margin and gross margin levels.
And therefore that would be a benefit to us as we move forward.
Our hope is that we will continue to bring in more new clients and new business. So this is a steady state kind of.
Our operation that we would expect to see and we don't think that there will be much change in terms of the way in which the margins are getting impacted by these new deals.
As Martin mentioned Q1 for Us was.
A standout quarter, because we had a one time revenue of about $6 million in the first quarter that resulted in a higher adjusted operating profit margin in the first quarter, we think that that will normalize in the next few quarters as we go forward.
Got it thank you and he referenced the head count additions and it's great to see that it certainly reinforces that the value proposition is relevant in any type of environment.
That particular skill sets or vertical expertise are you focused in on and with respect to that hiring and has that changed at all in the past few quarters.
Now, it's pretty much a broad based like we said we continue to see strength in our insurance and emerging business and so we added head count out of there.
For us analytics continues to kind of move along nicely. So that's been our skills.
We've been adding.
Frankly.
The change in the economic environment, the ability to recruit people in <unk>.
Analytics and in digital.
It's become a little bit better and we are also very pleased with the attrition rate in analytics and digital dropping down quite significantly in the first quarter.
Thank you.
Hmm.
One moment for our next question.
Yeah.
Hum.
Thank you. Our next question comes from the line of Ashwin <unk> with Citi. Your line is now open.
Hey, thanks.
Good quarter here.
Yes.
The there was a comment in your prepared remarks, where you said.
Looking at the <unk> number of indicators that make you cautious.
Obviously seems.
That's fair.
Regarding what your lead would.
You would need about the environment.
I just wanted to get your take on how much of that comment.
If the broad and wide statement.
Worse is what's going on with your own base of clients.
And sort of how purchase decisions and moving in your base of clients.
Sure Ashwin.
So let me just try and provide a perspective on the demand environment. So.
So first off.
The secular demand for both data analytics and digital operations and solutions, which are the two business segments.
Our company both of them remain utterly fundamentally strong and intact and we don't see that shifting much.
However, we do think that in the interim.
Period, the demand environment has shifted.
Clients as you know would either focusing on growth initiatives, our cost reduction initiatives are improving the end customer experience. We think the balance in this environment has shifted towards cost management efficiency and improving and cut.
<unk> experience at the same time, while reducing costs.
What that means is that the digital operations and solutions or services that we provide to our clients those become a lot more attractive to our customers because we can reduce that cost we can improve that and customer experience and we can create a lot more digitization and automation.
Patients for straight through processing.
It also means that we are seeing larger deals.
Amongst our clients.
Across industry verticals, so frankly.
That's what is powering the growth of our digital operations and solutions business, which is much higher than our expectations and much higher than the historical norm now.
We are seeing marketing analytics services slowdown and that's that's an area where clients are holding back that investments, we may see delayed decision, making around product on some of the discretionary spend that our clients have and that's something which we see specific.
Weekly.
But at the same time, we are very encouraged by new technologies that are coming in particularly generate of AI because it creates.
More work that needs to be done, particularly on the data management side as well as in terms of implementation and execution and the adoption of generative AI models.
But frankly, it's going to be a mix, where we're going to see some pockets.
Half less strength in other pockets actually have greater strength.
Overall, we feel the demand environment is still very robust.
And very positive.
Yes, that's very clear thank you for that.
Other question.
Bit more historical context, I guess, there used to be a time and if you can.
Find.
One or two or three good sized deals the ramping of those deals might be or margins in the short run but that doesn't seem to be happening.
More recent wins.
And I just want to ask is that you.
Just doing client onboarding.
Better.
<unk> scale affecting.
Is it something to do maybe with how contracts are structured any any color or context would be great.
Hey, Ashwin, it's Maurizio so what do I, what I answered that a little bit you will see like like Rohit talked about ebbs and flows in our gross margin Q2 ramps and an example would be if you look at our emerging group you saw a lower margin in the fourth quarter, because we were ramping up a number of large scale wins.
For the first quarter coming up and then you saw in the first quarter of 2023 that gross margin come back up over 500 basis points, and so youre going to see that over time within the segments, but overall, because we've gotten that much larger and that much more of scale it because much more or less of an issue and much more manageable.
Experience at the same time, while reducing costs.
That means is that the digital operations and solutions or services that we provide to our clients those become a lot more attractive to our customers because we can reduce that cost we can improve that and customer experience and we can create a lot more digitization and automation.
Now going forward, but you will see within the segments, the ebbs and flows but it becomes much more manageable at our scale.
Yeah got it so company wide, it's not as much of an issue.
At a lower level understood. Thank you.
<unk> four straight through processing.
One moment for our next question.
It also means that we are seeing larger deals.
Yeah.
Amongst our clients.
Cross industry vertical so frankly.
Our next question comes from the line of Robbie Bamberger.
That's what is powering the growth of our digital operations and solutions business, which is much higher than our expectations at much higher than the historical norms.
Your line is now open.
Yes, Thanks for taking my question maybe.
Maybe can you give a little color about what kind of work that $6 million onetime revenue was and I guess what segment was that in and then what was the margin on that one type of one time revenue.
Now we are seeing marketing analytics services slowed down and that's that's an area where clients are holding back that investments, we may see delayed decision making around.
Sure. So it was the one time revenue during the quarter was about $6 million it.
It was all signed within the first quarter a little bit.
Lot of that revenue was first quarter kind of project one time based revenue a little bit of catch up revenue that actually got signed in Q1 from Q4.
But at the same time, we are very encouraged by new technologies that are coming in particularly generate of AI because it creates.
More work that needs to be done, particularly on the data management side.
And it was predominantly sitting it was a big piece of that or a bigger piece of that was sitting in our healthcare segment.
As well as in terms of implementation and execution and the adoption of generative AI models.
If you look at the gross margin on that was pretty significant and really popped up on our OPM during the quarter, which was the big factor behind that that elevated adjusted operating margin.
Less strength in other pockets actually have greater strength.
Such overall.
Yes that makes sense and maybe just go into guidance real quick any change to the analytics, 15% to 18% and digital operations, 8% to 10% and then you had talked about the macro economy slowing a bit can you maybe talk about how the cadence should look maybe for Q2 through Q4.
Yeah.
One or two of key good size deals the ramping of those deals might be for margins in the short run but that doesn't seem to be happening.
So revenue growth should we expect some mildly decelerating growth throughout the year.
Yes, so on guidance, we're still very comfortable with that those guidance ranges for digital operation solutions and analytics.
And I just want to ask is that you.
Doing client Onboarding.
You look at our if you look at our guidance really for the rest of the year. It has increased from the over performance in Q1, but we're still cautious about the remaining three quarters. So we're still looking at those that those growth numbers.
<unk> scale factoring.
Hey, Ashwin, it's Maurizio so what do I want to answer that a little bit you will see like like Rohit talked about ebbs and flows in our gross margin due to ramps and an example would be if you look at our emerging group you saw a lower margin in the fourth quarter, because we were ramping up a number of large scale wins.
We talked about back in February if you looked at the cadence for the year. When you look at the first quarter yet in order to the cadence of the year you do need to back out the $6 million from the $401 million that we achieved in Q1, so really youre starting point in Q1 will be between 95 and build off that number.
And building off that number you can easily get to the middle to higher end of the range.
Great. Thank you very much.
One moment for our next question.
Yeah.
Okay.
Thank you.
Next question comes from the line of <unk> Tandon of Needham. Your line is now open.
Thank you good morning, Congrats Aurora and where are you on the quarter.
I wanted to start with that.
At a lower level understood. Thank you.
Deals that you won in the quarter of the 16 12 in digital and analytics could you speak to what areas in terms of verticals and also on that same note have you seen any change in the competitive landscape for these deals.
One moment for our next question.
Our next question comes from the line of Robbie Bamberger.
More pressure from the big size or is it still the usual suspects when you're competing on these new opportunities.
Your line is now open.
Yes, Thanks for taking my question maybe.
Thanks Brent.
Maybe can you give a little color about what kind of work that $6 million. One time revenue was and I guess what segment was that in and then what was the margin on that one one time revenue.
No so I think for us.
The deal wins are continuing to show good traction and momentum.
<unk> continues to remain strong our win rates.
Our healthy.
The wins that we had in the first quarter up pretty much broad based across industries.
Sure. So it was the onetime revenue during the quarter was about $6 million it.
It was all signed within the first quarter, a little bit of a lot of that revenue was first quarter kind of project. One time based revenue a little bit of catch up revenue that actually got signed in Q1 from Q4.
Or not.
Nothing out there that was unusual.
I think in terms of competition, we are certainly seeing.
A lot more competition as.
As we traditionally have from players that.
And it was predominantly sitting it was a big piece of that or a bigger piece of that was sitting in our healthcare segment.
Can integrate in a lot more of.
Analytics and operations and technology, so bringing in those three skill sets together.
If you look at the gross margin on that was pretty significant and really popped up on our OPM during the quarter, which was the big factor behind that that elevated adjusted operating margin.
That's where we think client demand is moving towards that's where we are position growth and thats, where we tend to see competition come in and compete for these types of deals.
Yes that makes sense and maybe just go into guidance real quick any change to the analytics, 15% to 18% and digital operations, 8% to 10% and then you had talked about the macro economy slowing a bit can you maybe talk about how the cadence should look maybe for Q2 through <unk>.
I think our understanding of data our understanding of the domain our ability to apply digital in practical terms and deliver the outcome to our clients.
That is what seems to be resonating very nicely with our clients and prospects in the awarding of that business.
Q4 revenue growth should we expect some mildly decelerating growth throughout the year.
So.
Actually very happy with how the pipeline and the new deal activity is progressing for us.
Yeah. So on guidance, we're still very comfortable with that those guidance ranges for digital operation solutions and analytics.
That's great to hear and then just as a follow up question I don't know Maria you touched on this if you did I apologize in advance but in terms of capital allocation what is sort of the agenda. This year and maybe as you look into next year as well around potential stock buybacks versus M&A and in that sense what is the M&A.
You look at our if you look at our guidance really for the rest of the year. It has increased from the over performance in Q1, but we're still cautious about the remaining three quarters. So we're still looking at those that those growth numbers.
<unk> looked like.
We talked about back in February if you looked at the cadence for the year. When you look at the first quarter yet in order to the cadence of the year you do need to back out the $6 million from the $401 million that we achieved in Q1, so really youre starting point in Q1 will be 395 and build off that number.
Sure. So we haven't covered that yet so very good question.
We are generating free cash flow outlook.
A $200 million a year right now and so we do have plenty of capital for us to deploy.
When we look at how we deploy that capital first and foremost we look at internal investments, which we deploy a certain amount of capital to a number of of investments internally to really build out our solution set.
And building off that number you can easily get to the middle to higher end of the range.
Great. Thank you very much.
One moment for our next question.
The second piece.
Is share buyback, yes, we started buying back shares in the first quarter, because we did see a level of accretion in our stock price that we could take advantage of.
Yes.
Okay.
Thank you.
Next question comes from the line of <unk> Tandon of Needham. Your line is now open.
And that that will become a part of our of our capital allocation for the year. So we have initiated our share buyback and that will be comparable to what we did last year, if not a little bit more than what we did last year now that we've already purchased repurchased $36 million of our stock.
Thank you good morning, congrats are lower than where it to you on the quarter.
I wanted to start with.
Deals that you won in the quarter of the 16 12 in digital and foreign analytics could you speak to what areas.
In terms of verticals and also on that same note have you seen any change in the competitive landscape for these deals be more pressure from the big size or is it still the usual suspects when you're competing on these new opportunities.
And then lastly.
Will be M&A and the M&A pipeline is still fairly frothy, we do see valuations, becoming a little bit more reasonable from where they were 12 months ago.
Thanks, Matt.
No. So I think for us the deal wins are continuing to show good traction and momentum.
But we're still being very selective on the M&A front, but given given our growth and given given the given that we need capabilities in certain areas of our business, particularly in analytics digital and certain solutions that will still be active in M&A and that will be part of us allocating that free cash.
Pipeline continues to remain strong our win rates.
Our healthy.
The wins that we had in the first quarter are pretty much broad based across.
Industries so not.
Cash flow that we're generating.
Nothing out there that was unusual.
Got it that's helpful. Thank you so much.
I think in terms of competition, we are certainly seeing a.
A lot more competition as.
Yeah.
I will end the call after these comments.
As we traditionally have from players that.
This concludes our Q&A session and today's conference call.
Can integrate in a lot more of.
Analytics and operations and technology, so bringing in those three skill sets together.
You all for attending you may all disconnect.
That's where we think client demand is moving towards that's where we are positioned well and thats, where we tend to see competition come in and compete for these types of deals.
I think our understanding of data our understanding of the domain our ability to apply digital in practical terms and deliver the outcome to our clients.
That is what seems to be resonating very nicely with our clients and prospects.
The awarding of that business.
So.
Actually very happy with how the pipeline and the new deal activity is progressing for us.
That's great to hear and then just as a follow up question and I don't know Maria you touched on this if you did I apologize in advance but in terms of capital allocation what is sort of the agenda. This year and maybe as you look into next year as well around potential stock buybacks versus M&A and in that sense what is the M&A.
Pipeline look like.
Sure.
We haven't covered that yet so very good question. So we are generating free cash flow.
A $200 million a year right now and so we do have plenty of capital for us to deploy when we look at how we deploy that capital first and foremost we look at internal investments, which we deploy a certain amount of capital to a number of investments internally to really build out our <unk>.
Elution said.
The second piece is share buyback now we started buying back shares in the first quarter, because we did see a level of accretion in our stock price that we could take advantage of.
And that that will become a part of our of our capital allocation for the year. So we have initiated our share buyback and that will be comparable to what we did last year, if not a little bit more than what we did last year now that we've already purchased repurchased $36 million of our stock.
And then lastly will be M&A and the M&A pipeline is still fairly frothy, we do see valuations, becoming a little bit more reasonable from where they were 12 months ago, but we're still being very selective on the M&A front, but given given our growth and given.
Given the given that we need capabilities in certain areas of our business, particularly in analytics digital and certain solutions that will still be active in M&A and that will be part of us allocating that free cash flow that we're generating.
Got it that's helpful. Thank you so much.
Okay.
I will end the call after these comments.
This concludes our Q&A session and today's conference call. Thank you all for attending you may all disconnect.
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Good day and thank you for standing by welcome to the first quarter EXL Service Holdings incorporated earnings Conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone.
You will then hear an automated message advising your hand is raised.
To withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your first speaker today, John Kristoff. Please go ahead.
Thank you Julia Hello, and thank you for joining Exl's first quarter 2023 financial results conference call on the call with me today are Rohit Kapoor, Vice Chairman and Chief Executive Officer and me.
<unk> Nikko Ali Chief Financial Officer.
We hope you've had an opportunity to review the first quarter press release, we issued this morning and.
And we've also posted an earnings slide deck and Investor Factsheet to the IR section of our website.
As a reminder, some of the matters we will discuss this morning are forward looking.
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 discussed in the company's periodic reports and other documents filed with the SEC.
EXL 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 to investors reconciliations of these measures to GAAP can be found in our press release, our slide deck and IR Factsheet now I'll turn the call over to Rohit.
Thanks, John Good morning, everyone welcome to Exl's first quarter 2023 earnings call.
I am pleased to be with you. This morning reporting another great quarter.
We continued our strong momentum into the first quarter with total revenue of $401 million representing growth of 22% on a reported basis and 23% in constant currency.
We grew adjusted diluted EPS, 23% $2 74 per share.
Our data led strategy has expanded our total addressable market and generated a sustainable competitive advantage for EXL.
The consistent execution of this strategy continues to fuel our growth across our data analytics and digital operations and solutions businesses.
In analytics, we delivered revenue of $182 million for the quarter up six 5% sequentially and 22% year over year.
This was driven by strong growth in healthcare and banking as well as continued growth in insurance with new and existing clients.
Looking at our <unk> operations and solutions business during the first quarter, we generated revenue of $219 million with growth of more than 7% sequentially and 21% year over year.
This was driven by continued strong momentum in our insurance and emerging business.
This growth was fueled by an expansion of existing client relationships and strong execution on new client wins from 2022.
EXL is uniquely positioned to help our clients achieve their goals through our focused data on that approach.
Domain expertise and impact for digital transformation capabilities.
Let me share a couple of examples of how we are leveraging these strengths and differentiating ourselves in the marketplace.
In insurance, we are helping our clients grow their businesses manage that risk contained costs and improved customer experience.
For example, we are enabling them to rapidly respond to increasing consumer demand for annuity insurance products.
Rising interest rate environment.
We have built an end to end ecosystem easily configuring pricing and launching a variety of complex life and annuity products for our clients.
Our platform is modular and pre configure to enable regulatory compliance across each state.
Lineup clients to launch new products with speed.
This ecosystem is fueled by our data led approach.
Our market, leading AI powered new business and underwriting solution helps our clients better manage their risk lower debt underwriting costs and reduce cycle time by increasing straight through processing.
Using advanced machine learning algorithms.
Platform analyzes vast amounts of underwriting data to identify patterns and trends, helping our clients make informed decisions in a matter of minutes.
In another example, we partnered with a global custodian banks to transform the end customer experience across the enterprise with the goal of improving customer satisfaction and at the same time reducing cost.
The transformation plan focuses on customer experience operations across all major lines of business for the bank.
We conducted a detailed diagnostic assessment of the bank's data and technological capabilities and devised a strategic roadmap to help them transform and achieve their goals.
We re imagine their customer journeys using our data led approach we are accomplishing this by identifying two call intent using transcript analytics improving channel effectiveness by switching cross channel interactions data.
Enhancing operational efficiency using agent performance data.
These are just two examples of how our data on that approach is differentiating us in the marketplace and creating value for our clients.
Looking ahead, we are encouraged by the continued momentum across both of our businesses and our pipeline of opportunities.
Our strong performance in the first quarter.
And current visibility for the remainder of the year gives us confidence to raise our revenue and EPS guidance.
But it still will walk you through the details in a few moments.
While the macroeconomic environment is likely to remain volatile EXL has a resilient business model with long term client relationships and approximately 80% of our revenue is recurring in nature.
We also have a diverse mix of business across data analytics and digital operations and solutions.
Variety of vertical markets.
Finally, our business is focused on helping our clients grow revenue.
Reduce costs and improve end customer experience.
In other words, we are relevant for our clients in all kinds of economic environments.
As we see indications of the job market slowing.
The potential benefits.
Lower attrition and wage inflation, and then improvement in the recruiting and hiring environment.
During the first quarter, we typically see a seasonal uptick in attrition.
However, our attrition our attrition rates during the quarter remained historically low at 26%.
Our digital and analytics attrition was even lower which is especially encouraging as this represents a critical skill set for us.
In addition, we are seeing some improvement in the recruiting environment and we were able to add approximately 2400 employees during the quarter.
We continue to focus on being the employer of choice in our space by offering dynamic challenging work career growth opportunities and a supportive and inclusive culture.
I'm also pleased to highlight our key appointments within our senior leadership team.
<unk> has been promoted to chief Digital officer.
In this role Andy will lead EXL digital strategy and execution.
He is responsible for implementing cutting edge technologies, and creating new digital solutions and services.
Andy previously led our life and annuity business within the insurance segment.
He has been with EXL for more than 20 years and brings a wealth of experience leading client technology transformation initiatives across our company.
He has the knowledge to bring the strength of EXL to integrate and align our digital initiatives across all of our business units for our clients.
Digital has become an increasingly large and important part of our business and I could not be more confident in <unk> ability to big digital to the next level for EXL and.
For our clients.
Before I conclude I'd like to spend a few minutes sharing my thoughts on the rapid evolution of generated AI and how EXL is positioning itself to best leverage the technology in our offering to clients.
EXL has been incorporating AI as an integral part of our solution set for several years already.
We currently have more than 50, AI based analytics offerings deployed in the marketplace and we continue to invest heavily in this space.
We are now developing advanced digital solutions, leveraging generative AI that draw insights from unstructured data sets to create new AI models, and retraining existing ones to mitigate risk create cross sell and upsell opportunities.
Improve the end user experience.
As our clients seek to deploy AI models across the enterprise.
An enormous amount of work needs to be done to breakdown data silos migrate data to the cloud.
And allow enterprise wide data to be easily accessed.
This represents the core of EXL value proposition.
Our unmatched data link capabilities.
Coupled with our strong relationships and domain expertise in insurance banking healthcare and other industries position us well to help our clients get the most from these new technologies in the us to come.
And with that I'll turn the call over to Martin.
Thank you Rohit 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 2023.
We delivered a strong first quarter with revenue of $400 6 million up 21, 7% year over year on a reported basis on a constant currency basis, we grew revenue, 23% year over year and six 6% sequentially.
<unk> EPS was $1 74, an increase of 22, 5% year over year.
All revenue growth percentages bench at hereafter are on a constant currency basis.
Revenue from our digital operations and solutions businesses as defined by three reportable segments, excluding analytics was $218 8 million, which represents year over year growth of 23, 2%.
Sequentially from the fourth quarter of 2022, we grew revenue revenue six 9%.
In the insurance segment, we generated revenue of $125 9 million, an increase of 23, 3% year over year, driven primarily by expansion of existing client relationships.
The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 21, 8% year over year with revenue of $163 6 million.
In the emerging segment, we grew revenue, 34% year over year to $66 $2 million. This growth was driven by new client wins in 2022 and expansion of existing client relationships.
The emerging vertical consisting of both our digital operations and solutions and analytics businesses grew 26, 5% year over year with revenue of $154 2 million.
The healthcare segment reported revenue of $26 7 billion growing two 2% year over year and five 4% sequentially from the fourth quarter of 2020 to this.
This growth was driven by higher volumes in the clinical services business.
The healthcare vertical consisting of our digital operations and solutions and analytics businesses grew 19, 2% year over year with revenue of 82 8 million.
Okay.
In the analytics segment, we generated revenue of 181 8 million up 22, 7% year over year.
This growth was driven by expansion in existing client relationships in banking and financial services healthcare and insurance.
Sequentially, we grew analytics revenue six 3%.
We reduced SG&A expenses by 50 basis points year over year to 19% driven by.
Operating leverage our adjusted operating margin for the quarter was 19, 4% up 120 basis points year over year, driven by higher profitability on one time revenue of approximately $6 million and lower SG&A expenses.
Our effective tax rate for the quarter was 24% up 10 basis points year over year.
Our adjusted EPS for the quarter was $1 74, a 22, 5% increase year over year on a reported basis.
Our balance sheet remains strong our cash, including short and long term investments on March 31.
$236 million and our.
Revolver debt was 200 billion for a net cash position of $36 million.
We generated cash flow from operations of $16 million in the first quarter compared to a cash outflow of $27 million in the first quarter of 2022.
This improvement resulted from the expansion in adjusted operating margins and improved working capital.
During the quarter, we spent $12 5 million on capital expenditures and repurchased $36 million of our shares at an average cost.
$162.
Now moving on to our outlook for 2023.
While we are encouraged by the momentum we carried into the first quarter across all our businesses. It is important to note that approximately one 5% of our first quarter revenue came from one time revenue that may not occur in subsequent quarters.
As Rohit noted we also remain cautious about the macroeconomic outlook for the remainder of the year as there have been an increasing number of indicators pointing towards economic volatility.
Based on these factors and our current growth visibility for the remainder of the year, we are adjusting our revenue and earnings guidance for 2023.
We now anticipate revenue in the range of one $5 95 billion to 162 billion representing year over year growth of 13% to 15% on both a reported <unk>.
And constant currency basis.
This represents an increase of $27 million at the midpoint of our previous guidance of $1 $5 6 billion to $1 6 billion.
We expect a foreign exchange gain between 1 million to $3 million net interest expense between 1 million to $2 million and our full year effective tax rate to be in the range of 22% to 23%.
Based on this we anticipate our adjusted EPS to be in the range of $6 75.
The $6 90.
Representing year over year growth up 12% to 15%, which is an increase from our prior adjusted EPS guidance of 10% to 13% growth.
We expect capital expenditures to be in the range of $47 million to $52 million.
Looking at the second quarter, we expect revenue to be comparable to the first quarter due to the onetime revenue in the first three months of 2023.
With the consistent successful execution of our data led strategy.
Expansion of our total addressable market and our industry talent advantage, we remain well positioned to continue to outperform over the long term.
With that Robert and I would be happy to take your questions.
Okay.
Thank you.
This time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Yes.
Yes.
Yes.
Okay.
Our first question comes from the line of Brian version of TD Cowen. Your line is now open.
Hi, This is actually Jared Levine on for Bryan today in terms of analytics, how did marketing analytics revenue performance <unk> relative to the rest of the analytics segment revenue base and any other project based analytics area performance, we're calling out here.
Sure I'll take that.
We bought we've stated this before that we expected marketing analytics services to be much softer given the economic environment.
Typically for US Q1 is the strongest.
Marketing analytics services standpoint, but this year for us marketing analytics services actually declined.
Year on year, because clients are holding back the spend on.
Marketing analytics and the acquisition of new customers in this economic environment.
So our analytics business was able to grow by 22%. Despite the fact that we had a slowdown in marketing analytics services and that is certainly a trend that we are seeing where clients are holding back the spend on marketing and customer acquisitions.
Okay.
Okay, Great and then continuing with analytics theme here can you talk about what you saw specifically in your bank regulatory analytics business over the last month amid the U S Bank volatility and then also how are you thinking about the medium term opportunity for that business, if the banking industry seats further regulatory changes.
Sure.
Clearly, there's been a lot of volatility and change in the banking industry.
Environment.
First off.
We are actually very happy with the portfolio that we have within banking and <unk>.
Financial services, because we largely deal with larger banks and we have very limited exposure to small banks or community banks, we don't have any exposure to banks.
Work with.
Crypto.
With VC and therefore, we have very broad.
<unk> in terms of the mix of customers that we have within the banking industry vertical.
The second part of this is that.
Yes.
The change for us in the quarter in banking and financial services.
Actually there was no real change that we saw as such and.
We continue to see good momentum with the discussions and conversations that we're having with our clients in the banking vertical now there is a possibility that given the volatility in the first quarter, we might see banks.
<unk> backed that decision, making particularly associated with discretionary spending in the second quarter or in the rest of the year.
However, we believe that as the regulatory compliance and risk management has stepped up in the banking industry vertical EXL will benefit from that because our clients will need to strengthen that.
The analytical business models around regulatory compliance and around risk management.
Also think that there is going to be a tailwind to the work that we perform in banking because.
This industry is going to focus a lot more on cost rationalization and that plays to our strengths as well so given the kind of portfolio of customers that we have the type of work that we do within banking and financial services. We think this is going to be net.
Net positive for us as we go along there might be some discretionary spend that gets pushed out but longer term. We think there is much more opportunity in banking.
Great. Thank you.
Yes.
One moment for our next question.
Okay.
Our next question comes from the line of Maggie Nolan of William Blair. Your line is now open.
Yes.
Thank you can.
Can you talk about investments in new deal ramp ups and how that's progressing and what impact we can expect to see on margins on a quarterly basis.
Sure Maggie.
No.
As you know did win a fair amount of new business in 2002 and that momentum continues on in the first quarter of 'twenty three as well.
As we onboard and ramp up these client wins, particularly in digital operations and solutions.
There is on the investments that we need to make to be able to onboard. These new clients you can see from the employee head count growth that we've been adding that we've been investing very deliberately in this particular area. We think this will continue pretty much going forward as well.
Some of these ramps are still not complete and we think we'll continue to invest out here.
As these deals mature we would expect that these deals will get towards normal operating margin and gross margin levels.
And therefore that would be a benefit to us as we move forward.
Our hope is that we will continue to bring in more new clients and new business. So this is a steady state kind of.
<unk> operation that we would expect to see and we don't think that there will be much change in terms of.
The way in which the margins will get impacted by these new abuse.
As Martin mentioned Q1 for Us was.
A standout quarter, because we had a one time revenue off about $6 million in the <unk>.
First quarter that resulted in a higher adjusted operating profit margin for the first quarter, we think that that will normalize in the next few quarters as we go forward.
Got it. Thank you and you referenced the head count additions and it's great to see that it certainly reinforces that the value proposition is relevant in any type of environment.
What particular skill sets or vertical expertise are you focused in on at with respect to that hiring and has that changed at all in the past few quarters.
No it's pretty much a broad based like we said we continue to see strength in our insurance and emerging business and so we added head count out there.
For Us analytics, Scott continues to kind of move along nicely.
That's been our skills.
We've been adding on frankly.
The change in the economic environment, the ability to recruit people in <unk>.
Analytics and in digital.
It's become a little bit better and we are also very pleased with the attrition rate in analytics and digital dropping down quite significantly in the first quarter.
Thank you.
One moment for our next question.
Yes.
Yes.
Thank you. Our next question comes from the line of Ashwin <unk> of Citi. Your line is now open.
Hey, thanks.
And.
Good quarter here.
Yes.
Yes.
The there was a comment in your prepared remarks.
Looking at the increased number of indicators that make you cautious.
Yeah, obviously teams.
Yes.
Regarding what the.
I would need about the environment.
I just wanted to get your take on how much of that comment.
If the broad environment statement.
What's going on with your own base of clients.
And sort of how purchase decisions and lowing in your base of clients.
Okay.
Sure Austin.
So let me just try and provide a perspective on the demand environment. So.
So first off.
The secular demand for both data analytics and digital operations and solutions, which are the two business segments.
Our company both of them remain.
Fundamentally strong and intact and we don't see that shifting much.
However, we do think that in the interim.
Period, the demand environment has shifted.
Clients as you know where to either focusing on growth initiatives.
Cost reduction initiatives are improving the end customer experience, we think the balance in this environment has shifted towards cost management efficiency and improving end customer experience at the same time, while reducing costs.
What that means is that the digital operations and solutions services that we provide to our clients those become a lot more attractive to our customers because we can reduce that cost we can improve that and customer experience and we can create a lot more digitization and automation.
Nation for straight through processing.
It also means that we are seeing larger deals.
Amongst our clients.
Across industry verticals, so frankly.
That's what is the powering the growth of our digital operations and solutions business, which is much higher than our expectations at much higher than the historical norms.
Now we are seeing marketing analytics services slowdown and that's that's an area where clients are holding back that investments, we may see delayed decision making.
On some of the discretionary spend that our clients have and that's something which we see specifically.
But at the same time, we are very encouraged by new technologies that are coming in particularly generate of AI because it creates.
More work that needs to be done, particularly on the data management side as well as in terms of implementation and execution and the adoption of generative AI models.
But frankly, it's going to be a mix, where we are going to see some buckets.
Less strength and other buckets actually have greater strength.
Overall, we feel the demand environment is still very robust and very positive.
Yes, that's very clear thank you for that.
Other question.
Bit more historical context, thank you and there used to be a time then.
Line.
One or two or three good sized deals the ramping of those deals.
Our margins in the short run, but that doesn't seem to be happening.
More recent wins.
And I just want to ask is that.
Are you just doing client onboarding better get the size and scale effecting.
Is it something to do maybe with how contracts are structured.
Any color or context would be great.
Hey, Ashwin, it's Maurizio so what do I, what I answered that a little bit you will see like like Rohit talked about ebbs and flows in our gross margin due to ramps and an example would be if you look at our emerging group you saw a lower margin in the fourth quarter, because we were ramping up a number of large scale wins.
For the first quarter coming up and then you saw in the first quarter of 2023 that gross margin come back up over 500 basis points, and so youre going to see that over time within the segments, but overall, because we've gotten that much larger than that much more of scale it because much more or less of an issue and much more manageable.
Now going forward, but you will see within the segments, the ebbs and flows but it becomes much more manageable at our scale.
Yeah got it so company wide, it's not as much of an issue.
At a lower level.
Thank you.
One moment for our next question.
Our next question comes from the line of Robbie Bamberger.
Your line is now open.
Yes, thanks for taking my question.
Maybe can you give a little color about what kind of work that $6 million onetime revenue wise and I guess what segment was that in and then what was the margin on that one one time revenue.
Sure so.
The onetime revenue during the quarter was about $6 million it.
It was all signed within the first quarter a little bit.
Lot of that revenue was first quarter kind of project one time based revenue a little bit of catch up revenue that actually got signed in Q1 from Q4.
And it was predominantly sitting it was a big piece of that or a bigger piece of that was sitting in our healthcare segment.
If you look at the gross margin on that was pretty significant and really popped up on our OPM.
During the quarter, which was the big factor behind that that elevated adjusted operating margin.
Yes that makes sense and maybe just go into guidance real quick any change to the analytics, 15% to 18% and digital operations, 8% to 10% and then you had talked about the macro economy slowing a bit can you maybe talk about how the cadence should look maybe for Q2 through Q4.
So revenue growth should we expect some mildly decelerating growth throughout the year.
Yeah. So on guidance, we're still very comfortable with that those guidance ranges for digital operation solutions and analytics.
You look at our if you look at our guidance really for the rest of year. It has increased from the over performance in Q1, but we're still cautious about the remaining three quarters. So we're still looking at those back those growth numbers.
We talked about back in February if you looked at the cadence for the year. When you look at the first quarter yet in order to the cadence of the year, you do need to back out the $6 million from the $401 million.
We achieved in Q1, so really youre starting point in Q1 will be 395, and build off that number and building off that number you can easily get to the middle to higher end of the range.
Great. Thank you very much.
One moment for our next question.
Yes.
Thank you.
Thank you. Our next question comes from the line of Matt <unk> Tandon of Needham. Your line is now open.
Thank you good morning, congrats on the quarter.
I wanted to start with.
Deals that you won in the quarter of the 16 12 in digital and analytics could you speak to what areas in terms of verticals and also on that same note have you seen any change in the competitive landscape for these deals will be more pressure from the big size or is it still the usual suspects when you're competing on these new opportunities.
Thanks Mac.
No. So I think for us the deal wins are continuing to show good traction and momentum.
Pipeline continues to remain strong our win rates.
Our healthy.
The wins that we had in the first quarter up pretty much broad based across <unk>.
Industries so.
Or not.
Nothing out there that was unusual.
I think in terms of competition, we are certainly seeing.
A lot more competition as.
As we traditionally have from players that.
Again integrate in a lot more of.
Analytics and operations and technology, so bringing in those three skill sets together.
That's where we think client demand is moving towards that's where we are positioned well and thats, where we tend to see competition come in and compete for these types of deals I think our understanding of data our understanding of the domain our ability to apply digital and practical.
Thomson delivered the outcome to our clients.
That is what seems to be resonating very nicely with our clients and prospects.
The awarding of that business.
So.
Actually very happy with how the pipeline and the new deal activity is progressing for us.
That's great to hear and then just as a follow up question I don't know Maria you touched on this if you did I apologize in advance but in terms of capital allocation what is sort of the agenda. This year and maybe as you look into next year as well around potential stock buybacks versus M&A and in that sense what is the M&A.
Pipeline look like.
Sure.
We haven't covered that yet so very good question.
We are generating free cash flow.
A $200 million a year right now and so we do have plenty of capital for us to deploy when we look at how we deploy that capital first and foremost we look at internal investments, which we deploy a certain amount of capital to a number of of investments internally to really build out our <unk>.
Elution said.
The second piece is share buyback, yes, we started buying back shares in the first quarter, because we did see a level of accretion in our stock price that we could take advantage of.
And that that will become a part of our of our capital allocation for the year. So we have initiated our share buyback and that will be comparable to what we did last year, if not a little bit more than what we did last year now that we've already purchased repurchased $36 million of our stock.
And then lastly.
Will be M&A and the M&A pipeline is still fairly frothy, we do see valuations, becoming a little bit more reasonable from where they were 12 months ago, but we're still being very selective on the M&A front, but given given our growth and given given the.
And that we need capabilities in certain areas of our business, particularly in analytics digital and certain solutions that will still be active in M&A and that will be part of us allocating that free cash flow that we're generating.
Got it that's helpful. Thank you so much.
Okay.
I will end the call after these comments.
This concludes our Q&A session and today's conference call. Thank you all for attending you may all disconnect.