Q2 2023 ExlService Holdings Inc Earnings Call
Was there an automated message advice in your hand is raised to withdraw your question. Please press star one one again. Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today John Christoff.
Vice President of Investor Relations. Please go ahead John .
Thanks, James Hello, and thank you for joining Exl's second quarter of 2023 financial resolved conference call on.
On the call with me today are <unk>, Vice Chairman and Chief Executive Officer, <unk>, Chief Financial Officer.
I hope you've had an opportunity to review the second quarter earnings release, we issued this morning <unk>.
Also posted in earnings slide deck, and Investor fact sheet and the Investor Relations section of our website.
As a reminder, some other matters will discuss this morning are forward looking please keep in mind that these forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Such risks and uncertainties include but are not limited to general economic conditions.
Those factors set forth in today's press release discussed in the company's periodic reports and other documents filed with the SEC from time to time.
<unk> 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 <unk>.
<unk> of these measures to gap can be found in our press release slide deck and Investor Factsheet and.
And with that I'll turn the call over to <unk>.
Thanks, John Good morning, everyone welcome to <unk> second quarter 2023 earnings skull.
I'm pleased to meet with you this morning reporting another strong quarter.
We continued growth momentum in the second quarter with total revenue of $405 million representing growth up 17% on both Ah reported and constant currency basis.
We grew adjusted diluted EPS, 21% to $1.82 cents per share.
Our balance portfolio across data analytics, and digital operations and solutions makes our business resilient by focusing on both growth enablement and cost management for our clients.
This has enabled us to generate continued strong double digit growth despite of slow growth economic environment.
Isn't analytics, we delivered revenue of $182 million for the quarter up 13% year over year, which included strong growth in decision analytics services data management and payment integrity.
This growth was driven by clients leveraging analytics to drive cost efficiencies manage risk.
Increase effectiveness.
Analytics growth was impacted by a decline in marketing analytics, which is a trend we have highlighted previously.
In a small growth and high interest rate environment banks and insurance companies have slowed down their investments for new customer acquisition.
We have been successful in diversifying our marketing analytics client portfolio across other industry verticals.
We have already won some new business and healthcare and marketing analytics for Medicare advantage, which will convert to revenue later this year.
Overall, our analytics business continues to show strong growth across industries angiography, which we expect will be further boosted by our focus on January the V I.
Looking at the digital operations and solutions business during the second quarter regenerated revenue off $223 million with the growth of 2% sequentially and 20% year over year.
This is the ninth consecutive quarter, where we have grown this business by double digits.
This strong growth was driven by momentum across all of our digital operations and solutions businesses.
Have a new and existing client focus on lowering costs.
Improving efficiencies and enhancing and customer experience.
Our data strategy combined with a deep domain expertise continues to resonate with our clients and fuel of growth.
This has significantly increased our total addressable market and grown a sales pipeline, particularly in large transfer major fields.
I'm very encouraged by the size scale and complexity of the deals we are winning which is driven by our ability to embed market leading data analytics.
<unk> and AI competencies into our clients Gore operations.
Looking at the overall and demand environment, we continue to hear from our current and prospective clients that their priorities over the next 12 to 18 months include cost reduction increased efficiency and improve the customer experience.
There is strong demand from clients for using generator AI to achieve these priorities.
As a client plan that generated investments they need a partner who has deep business domain knowledge can harness the data creates the appropriate use cases and implement them as part of the workflow.
Our clients view EXL as an ideal partner, who combines all of these capabilities.
During the quarter, we launched our new generated AI platform, which builds on our strengths and analytics.
And digital operations and solutions.
It includes an AI workbench.
And play AI accelerators.
Data security and compliance framework and enterprise data management capabilities.
Our platform launch attracted more than a thousand attendees and has created a very strong pipeline.
As we engage with our clients we are helping them in three areas.
First we help them evaluate select bears and rollout generated yeah I use cases.
Second we help them make that data AI ready, which includes data engineering unstructured data management data security and data and cloud operations.
And finally, we help them re imagine and design, new AI enabled operations with human in the loop.
I'd like to share a couple of real world examples wherever you're already deploying generated AI solutions for our clients.
The first is with a large international insurance clients.
Declines the objective was to streamline the claims process to reduce costs and improve customer experience.
We developed a generated AI based smart claim solution.
It uses open source Lodge language models and Leverages the latest retrieval augmented generation architecture.
Innovative AI solution swiftly accesses and two N claim information and deliver accurate and concise insights through a user friendly interface.
This streamlines the claim agents workflow and reduces the amount of time needed to process, a claim resulting in lower costs and improve customer experience.
Another example involves a large energy company in the U K E X L is implementing a generated AI lead agent assist solution across all of the contact center operations, which will run on our cloud.
This solution provides live assistance to the contact center executives, while they're engaged with and customers.
It monitors conversations in real time, using large language models to extract relevant information and provides both proactive nudges and on demand procedural guidance.
Our solution not only helps improve compliance and first call resolution rates, but also reduces the amount of time customers spend with contact center executives, thus improving customer experience.
These are just two examples of how we are currently deploying generated AIP solutions differentiating ourselves in the marketplace and creating value for our clients.
We expect generated AI to create new revenue sources for us as well as augment existing data analytics and digital operations on solutions businesses.
We will continue to invest heavily in a generator capabilities, including creating a center of excellence with more than 1500 dedicated generated AI specialists.
With a continued focus on talent I'd like to recognize two new leaders that recently joined our senior leadership team.
First band Harrison joined as Executive Vice President and Chief Human Resources Officer.
Pam has helped execute HR strategies for large and complex global organizations.
Extensive domain expertise will make her an invaluable resource and developing HR strategies as we continue to grow and recoup top talent, particularly in digital and yeah.
And most recently the Shah Chipper has rejoined EXL as our chief growth and strategy officer.
You may recall that Vishal Serfass CFO from 2000 and 922019 when he instituted some of E X as foundational growth strategies.
In his new role the Chavez spearhead growth initiatives, leading strategy marketing sales governance, M&A and strategic partnerships.
As our business continues to grow at a rapid pace.
<unk> practical insights and keen instinct would be tremendously valuable.
I'm thrilled to have both fan and Vishal on our team.
Looking ahead, we are encouraged by the momentum in our revenue in EPS growth are growing sales pipeline and the resiliency in our business model.
We are making significant progress on our generated AI offerings, and we will continue to burn off that momentum as we invest further in advancing our capabilities in the coming quarters.
I want to extend my sincere gratitude to every member of the <unk> for their unwavering dedication and relentless pursuit of innovation to better serve our clients.
Given these factors and our current visibility for the remainder of the.
Raising at 2023 revenue and E P S guidance.
What does it feel will walk you through the details in a few moments.
Finally, I want to reflect on a recent decision to execute a 541 forward stock split.
This split.
Bring several expected benefits, including increased liquidity improved transparency and lower trading costs for our stockholders.
Additionally, the lower force split share price enhances accessibility for our employees to participate in the company's employee stock ownership program.
But perhaps most importantly, it demonstrates the confidence we have in our ability to continue to grow the company and generate long term stockholder value.
We have a highly resilient business model with long term clients, a large percentage of recurring revenue and a balanced portfolio of business across data analytics and digital operations and solutions.
Copper without increasing total addressable market and leading position and data analytics digital and AI in the market. We so I am very excited about the opportunities that lie ahead of us.
And with that I turn the call over to <unk> <unk>.
Thank you wrote and thanks, everyone for joining us. This morning, I will provide insights into our financial performance for the second quarter and the first six months of 2023, followed by a revised outlook for 2023.
We delivered a strong second quarter with revenue of $405 million up 16.8% year over year on a reported basis.
On a constant currency basis, we grew revenue, 17.1% year over year and 1% sequentially.
Just the D. P S with $1.82, an increase of 21.3% year over year.
All revenue growth percentages mentioned hereafter are are on a constant currency basis.
Revenue from our digital operations and solutions businesses as defined by three reportable segments, excluding analytics was $222.8 million, which represents year over year growth of 20.8%.
Sequentially from the first quarter of 2023, we grew revenue 1.8%.
And the insurance segment, we generated revenue of $128.5 million, an increase of 19.2% year over year and 2.2% sequentially.
This growth was driven primarily by the expansion of existing client relationships.
The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 16.5% year over year with revenue of 164.4 million.
In the emerging segment, we grew revenue, 25.4% year over year at 1.1% sequentially to $67.2 million. This growth was driven by the expansion of existing client relationships and new client wins.
The emerging vertical consisting of both our digital operations and solutions and analytics businesses grew 14.3% year over year with revenue of 152.4 million.
E Healthcare segment reported revenue of 27.2 million growing 17.9% year over year and 1.7% sequentially. This growth was driven by higher volumes in our clinical services business.
Health care vertical consisting of our digital operations solutions and analytics businesses grew 23.4% a year over year with revenue of $88.2 million.
And the analytic segment, we generate a revenue about 182.2 million of 12.8% year over year as.
<unk> noted, we generate strong growth in our decision analytic services data management and payment integrity businesses during the quarter.
Partially offset by a sequential and year over year decline in marketing analytics at our clients and insurance and banking continued to reduce their marketing spend.
We've reduced SG&A expenses as a percentage of revenue by 40 basis points year over year to 18.2% driven by continued cost disciplined and operating leverage.
Our adjusted operating margins for the quarter was 20% of 130 basis points year over year, driven by higher volumes and operating leverage.
Ah Justin operating margin for the second quarter includes approximately one per cent of nonrecurring revenue with lower associated costs, and our digital operations and solution business.
Are effective tax rate for the quarter was 23.9% up 60 basis points year over year, driven by higher U S state taxes.
Our adjusted E. P. S for the quarter was $1.82 821.3 per cent increase year over year on a reported basis.
Turning towards six month performance our revenue for the period was $805 6 million up 20% year over year on a constant currency basis. This growth was driven by both our digital operations and solutions and analytics businesses.
Adjusted operating margin for the period was 19.7% off of 130 basis points year over year.
Six month, adjusted EPS was $3 and 56 up 21.9% year over year on a reported basis.
Our balance sheet remain strong.
Cash, including short and long term investments as of June 30th was $263 million and a revolver that was $220 million for a net cash position of $43 million, we generated cash flow from operations of 64 million in the first six months compared to $53 million in the same period.
In 2022.
This was this improvement was driven by the expansion and are adjusted operating margin.
During the first six months, we spent 26 million on capital expenditures and repurchased 65 million of our shares at an average cost of $160 per share.
Now moving onto our outlook for 2023.
Based on our strong performance for the first half of the year and our current visibility across all verticals, we are raising our outlook for the year.
We know anticipate revenue to be in the range of 1.605 billion to $1.625 billion representing year over year growth of 14th of 15% both a reported in constant currency basis.
This represents an increase of 8 million at the midpoint of our previous guidance of 1.595 million to $1.62 billion.
We expect a foreign exchange gain between $1 million to $2 million net interest expense to be approximately $1 million an hour full year effective tax rate to be in the range of 22% to 23%.
Based on this we anticipate are adjusted EPS to be in the range of $6.90 to $7.05 representing year over year growth of 15% to 17%, which is an increase from our prior adjusted ETS guidance.
Of 12% to 15% growth.
We expect capital expenditures to be in the range of $47 million to $52 million.
In summary, our business model remains resilient due to a long term client contracts substantial reoccurring revenue in a well balanced portfolio of course, our data analytics and digital operations and solutions businesses.
Our data led strategy, coupled with are expanding capabilities and data management and general debate.
Has led to a larger total addressable market, placing us in a strong position to consistently outperform in the long run.
With that road and I would be happy to take your questions.
Thank you we all know conduct a question and answer session. As a reminder to ask a question. Please first I want a new telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please stand by while we compile the roster.
Our first question comes through infinite Jane.
J P Morgan.
Hey, Thanks for taking my question. So I quickly wanted to ask about like overall demand trends specifically as it relates to operations management.
For that segment was up 20% has been growing double digits per line given like the potential impact from Timothy I.
Yeah like how should we think about medium term <unk> for that segment.
Yeah, Hi, this is real head.
So from my perspective, the demand environment continues to remain very favorable.
And particularly for digital operations and solutions, we're seeing continued strength in that.
And that segment for us the seems to be resonating very well because our ability to bring in analytics technology and automation and combine that into the operations. That's exactly what clients are seeking.
As we get into the adoption of generated AI, it's becoming clearer and clearer to us that we are likely to see a further.
Increase in demand on digital operations and therefore, we think we are positioned really really well as far as that is concerned.
Keep in mind, one other thing, which is slower growth economic environment is actually causing companies to focus on locked more on expense reduction and at the same time, improving that and customer experience. So what we are seeing is clear.
Clients, which previously would not have part about digital operations and solutions outsourcing and now kind of coming forward and engaging with us and so we are seeing more mid sized companies come forward. We are seeing more neutrals and the insurance segment come forward, we are seeing more clients in Europe .
Come forward.
And I think that's a very good and healthy trend for us. So frankly, the demand environment is is great. It seems to be.
Seeing larger views in the pipeline.
Thank God, the digital operations and solutions business and this kind of an environment will continue to do well.
Got it got it.
And then.
<unk> should benefit analytics on an overall basis like you.
Great to hear like the examples of two projects are talked about in that area, but.
Will that will represent incremental opportunity driving higher than previously expected crew within the segment.
<unk>, just like crowd out like other investments from clients and analytics and the overall <unk> levels over the next few years.
Sure. So you know.
We think in order for any client to adopt generating of AI. There are a few things, which are prerequisites to kind of enabling that now.
Number one is to have a business and you know.
Business understanding and a domain knowledge understanding so that you'll have the applicable use cases that you can apply generally to react to.
The second more important piece, particularly for analytics is the data that needs to be used for large language models.
Data breath, and the data architecture and the ability to use data, there's a huge need from all clients to upgrade their data platforms and the data availability.
We in our analytics business, we think we're gonna get a big boost up on the data management side of the business because we can help clients architect that data manage that data make that data available. There's a lot of data, which is unstructured that is needs to be used for January DVI.
That is a lot of vector rising off the databases that needs to happen is cleansing of the databases that needs to happen. So frankly, there's a lot of work that needs to happen in order for generating the AI to be practically usable by a client.
And therefore, we think the analytics growth rate as well as the analytics portfolio for us.
He's going to see actually a net.
Tailwind behind it because it generated yet.
Perfect. Thank you.
Our next question comes from Brian Bergen from T D Cohen.
Hi, good morning, Thank you.
I wanted to start on analytics here as well it gets more near term view so the underlying analytics performance in a quirky. He commented on how to Q did relative to your plan.
Maybe talk about the current demand trends there versus maybe three months ago and any change in your target for analytics growth in 2023.
Sure Brian So first off the analytics business, we think that's a very attractive high growth.
Article for Us a rethink the growth rate of that particular business segment should be 15% to 18% over the medium term, we think of that growth rate is apps.
Absolutely in fact in kind of in place.
If you take a look at the growth rate of our analytics business in the first half of 2023.
Beneath the growth rate is 17%, so it's actually a very healthy growth rate.
Coming specifically too cute to the queue to growth rate for analytics was lower at 13%. We did see an impact of marketing analytics, which was a negative growth rate for us quarter on quarter as well as year on year and that's what has impacted us.
That is certainly not something which we had in our plan and it was something that you know did reduce our growth rate and analytics for the quarter, but we think that that is a temporary phenomenon and as insurance companies and asked financial institutions get back into the customer acquisition mode.
Our growth rate in analytics should gas climbed right back up keep in mind analytic services data management and payment integrity, which are all parts of analytics. They all grew at a very healthy face and like I, just said would generate a V I, creating more <unk>.
And on data management and data analytics, we think actually this this growth rate of 15% to 18% over the medium term is likely to continue and continue for a long period of time.
Okay understanding that pressure appears transitory and that customer marketing <unk> plan.
Three Q may actually.
The client sequentially too or do you think it's stabilized.
So we we have factored in our assessment of where we think marketing analytics will be in in the second half of the year as we said in the prepared remarks, we have diversified our marketing AD mythics capabilities and we've gone into other industry verticals like health care.
And health care as you know is not interest rate.
<unk> and you know has a very very stable kind of a demand environment. So as we diversify into other industry verticals for marketing analytics, we believe that the the volatility associated with the growth rate of marketing analytics will diminish and it will actually help us protect the portfolio.
And grow the portfolio much much better.
Okay.
If I could sneak one more in a margin so nice outperformance here in the quarter, an operating margin can you just comment on second half cadence expectations.
Yeah, Brian it's it's <unk>. So we we we've performed very well in the first half of the year on margins are adjusted margin was 19.7% for the first half of the year and we got up to 20 per cent in queue to keep.
Keep in mind.
And both quarters, we had the benefit of of of non reoccurring revenues, particularly in the second quarter also about $4 million and that was.
And that had very low associated costs coming through so.
So you have you have a margin that's been elevated to a certain extent, but are non reoccurring revenue in both quarters, including Q to.
Going forward, we have we will be making some significant investments and began AI.
To really drive our revenue growth and borders both digital operations solutions and analytics and then there will also be making investments in front end sales too.
Really drive the business going into 2024. So you should think about margins in the second half of the year much more than the 18% range.
As we talked about earlier in the year.
Alright, Thank you very much.
Our next question comes from Maggie Nolan from William Blair.
Thank you.
You just gave them get color on on the marketing analytics in particular in the second half of the year, but I'm curious are there any other factors for how you're thinking about demand and the growth rate for the business and the second half. The first is the first task at the consolidated company level.
Maggie for Us and if you take a look at our digital operations in the solutions business. We are actually very happy with the new client wins that we have and the expansion of work that we are seeing from our existing clients and.
And then it's all about execution and implementation and rethink the bad momentum pretty much continues into the second half of this year and even going into next year.
The analytics part of our business again, the data management part payment integrity peace as well as analytic services. We continue to see good growth. We think the data management piece will actually accelerate with generate a year. So that's a net positive for us.
The marketing analytics, frankly will likely remain soft for some time Q forward will likely see some increase in the healthcare analytics healthcare marketing analytics, So that's something which we have factored in.
For US you know what we are really really happy with is how the portfolio is performing for the company. So if you take a look at <unk> and our portfolio, we have 55% of our business and digital operations and solutions and that's God, it's grown in the fall.
Half, but at 20%.
We have 45% of our business witches and data analytics, and that's you know growing nicely at 17% as well.
What we like is it between these two business segments that we have there's both of them are high growth segments.
Between the two of them it builds up resiliency, so when when it's a favorable economic environment and there is growth taking place.
Focusing on growth that works out very well for us and and slow growth economic environments that works very well for us and the last pieces.
The integration between analytics and operations.
Is a sweet spot for us and that's why our overall growth rate is much faster than the market place and we think that that business model continues to resonate very heavily and we think we are going to keep driving that and by the way generate of AI is going to further that tight integration between analytics and digital art.
<unk>.
Thank you.
And then.
Can you comment a little bit on <unk>.
Wage dynamics since last quarter, how wage inflation is kind of intersecting with the current man trend to inform your pricing expectations for the next couple of quarters.
Chuck.
So on on page inflation. This is something which we have factored in you know previously.
Typically gift salary increments, which are across the company on first of April we already we're seeing the slowdown in the economic environment in the first quarter and we planned appropriately and I think this year across the industry. The the salary increment have been somewhat moderate as.
Compared to last year. So that's been actually very helpful. I think you can see that some of that is being disciplined execution on the part of the <unk> and we continue to be very very careful.
In terms of how we plan that out.
There are.
Certain skill sets, which do require us to actually have a much higher <unk> inflation, particularly around digital analytics data management and specialized.
Domain skills and in both areas. We have been very very we have a very differentiated policy of making sure that we are market competitive. So so frankly wage inflation. This year has not been that much of a challenge.
But we are differentiated across skill sets and will continue to be very very judicious and careful and discipline in terms of how we manage that.
Thank you.
Our next question comes from Ashwin <unk> from city.
[noise] alright.
Let me start with this is a bit of a involved question but.
You know when you reported one Q.
Your expectation for two Q was that you would be.
Comfortable two one Q for revenues adjusted for one time. It ends in other words you were looking for roughly speaking at the end of the $95 million you did not as you mentioned.
Expect the marketing analyst extinct stink.
Take that into account you you probably outperformed your expectations by about $15 million. So I just wanted to figure out you know.
What.
What was on the other side that helped you was it faster ramps and the and the.
The operation side.
Other parts of analytics come through as you I think always expected because marketing antiques best I understand his blood 15% of people running.
So.
Any details that you can provide with regards to the <unk>.
What work days ma'am.
Yeah.
That's a that's a very good observation to be quite honest. So we closed the quarter of $401 million, we had and we talked about 6 million in nonrecurring revenue, which would have dropped outta because I had a starting base of 395 and in the mid point of out of the range.
If you calculated within our annual guidance, you would've gotten to about $400 million.
And so you're 100% correct.
We saw a marketing legs come down a little bit more than what we had expected what we what we did did not factor in towards continued acceleration or or very good growth within digital operations and solutions cause that that piece of our business grew 23% in in Q1 and continued.
To grow at 20% in Q2, and this is the third quarter in a row that that part of our business has grown 20% plus so that was a differentiated factor.
And that's the area that now.
Now we're seeing some great continued momentum going into the second half of the year and into 2024.
Understood and.
I mean data skiing is a big deal for investors Nowadays in terms of in terms of the numbers. So like you mentioned.
You know that you'd expect marketing to snap back.
Will eventually grill it is important to companies, but when you say snapped back.
Demean beginning next year.
Or are you kind of affecting in step.
Step back later this year.
What sort of explicit assumptions are you, making and it might helping too you know.
If you can break down overall analytics into what percentage marketing what percentage of other parts of it.
And so on so forth Kenneth Dr.
Right <unk>. So you know the marketing analytics, we do expect.
Kind of a recovery.
Think the fourth quarter is likely to see strength in marketing analytics like I mentioned because of the diversification into healthcare marketing analytics. All the work that we do with the bears helping them with marketing for Medicare advantage plans or typically.
Ends up being in the fourth quarter, and we would expect to see that kick in in the fourth quarter.
Keep in mind, a couple of other things today, most insurance carriers have stepped out of California, and then stepped out of Florida and they are simply not expanding.
Presence out there because all the rate increases that they need to get done.
They need regulatory approval going back and that's taking time and that's not been.
Put into place so because of the inflationary pressures that we saw in the previous cycle.
There is a pretty much a standoff in terms of expanding and offering insurance in California, and Florida, which are two of the largest markets in the country. So frankly.
Has to normalize at some point of time with you know.
The price increases are unnecessary to kind of be brought in and for the insurance carriers to go back. There. So we think that's why we think that this is a temporary kind of a phenomenon. We don't think that this is gonna be something that is vast into perpetually and frankly marketing analyst.
It is becoming more and more critical and more and more important because the ability to hyper personalized service offerings to the relevant customer segment, the ability to target on a geographic basis and a ZIP code bases the ability to rely on data and use data signals for effectiveness in marketing.
That's becoming more and more important so frankly, we think marketing analytics is a good place for our analytics business.
But it does have one identity associated with it at this point in time.
[noise] understood if I could ask a quick last question to take the money too.
The cash flow.
You know the 200 million plus.
You know what are the worst in the back half of the year.
And I'm not sure if I might've missed <unk> expectations for.
For free cash flow changed or are they still the same.
We have a free cash flow expectations are very similar and the first half of the year, we have a number of higher cash outlay no events, we pay our annual bonuses in March which is a big number we have some higher tax payments earlier in the year.
Here, it's pretty hard in terms of free cash flow, so you're going to it. So you would see you see less free cash flow in the first half of the year, but in the second half of the year, we'd see very comparable to what we've seen in the past.
Thank you guys.
Our next question comes from <unk> Tandon for need them.
Thank you good morning, congrats on the quarter.
I wanted to ask you on the recruiting front as you think about the implications of January .
Rather on your business, how do you go about changing your.
Crooning engine and what kind of skill sets will you be looking to hire.
Maybe ill related note what does that mean for attrition longer term does that change the dynamic for your business.
Yeah. Thanks.
So the recruitment for us for Jen AI in particular requires us to hire the same type of resources that we were hiring previously for all the machine learning and work that we're doing within analytics. It requires us to provide training to these resources.
In mind, because Jenny I is saw knew that aren't very many experience resources out in the marketplace. So frankly, our ability to train and.
Added that input to these individuals that becomes really really important.
The talent pool that vehicle, we are targeting for Paul <unk>.
It tends to be people, who have a strong understanding of data have a strong understanding of using these large language models.
There's a lot of work that we do around managing databases and moving data of a cloud.
There, we pick up experience talent, but most of the actual usage on January Nevada is internal training that we provide to to these folks. We are fortunate. We've got 8000 data scientists internally in the company and we've got 1500, who are already trained on.
So frankly, we've got a very good bench strength to kind of build up on and all the hiring that we have done this year and that'd be container do.
We'll be able to provide them with this kind of knowledge and upscale them.
And the last piece on on the agenda is the number of the high Tech.
Companies that have actually been laying off people and resources that were doing work around the AI and that is actually a target rich environment for us to be recruiting from.
Understood that's helpful.
And then just a related question on January I again, this might be a little premature but what.
What do you see in terms of the impact on the size and scope of deals overtime and then just given the productivity benefits do you imagine that you'll have to pass on more of that you're in customer versus what you've been providing it'd be and the more traditional.
Digital operations and analytic space.
Yeah, I think that's a very very important question, let me address it in two parts that you asked for it.
One because of generative AI, we think the deal size actually increases. So we think there'll be a larger opportunity for us to play we can actually deploy it generated AI across the enterprise and because we're deploying generated.
Across the enterprise, it's not only on the work that we do but it's the work that our clients are doing with other partners as well as work that they're doing themselves that we can apply this to and therefore, it becomes a much larger opportunity for us.
The second part of it is the productivity benefits and the kind of headwind that that might provide.
Well, we are in a very fortunate position that the work that we do in digital operations is very complex very fragmented and it's at the upper end of the complexity spectrum. So the level of cannibalization of that is very very low and therefore, we think.
The productivity benefits that needs to be provided.
That's not gonna impact our business model by very much. It's really rare you have large all centers in contact center employees.
And workforces or where you have a simple processes being managed I think that'd be impact of the productivity benefit and cannibalization is gonna be unlocked lot higher and you know we.
We will actually benefit from that because we will be the ones implementing this generic Jenny strategy for our clients and therefore, we think it's a net positive for us.
That's very helpful. Thank you so much.
Our next question comes to Moshi Cat tree from Wedbush.
Hey, Thanks, just a couple of follow ups here first uhm. So clearly did the men remains strong can you talk a bit about maybe you can describe from your perspective, what you are seeing in terms of project cramp, especially for the new deal slowed that's coming on board. That's my first.
Question.
Yeah. So.
I think from our perspective, the demand is strong and the decision making cycles continued to be at the same pace as previously.
Rarely have not seen any change up to that happening and so what that means is that the ramps and the project.
Implementation cycles up pretty much the.
The same way as they were previously and so we'd expect that to continue it sort of areas, where there is discretionary expense that needs to be incorrect.
Whether it is discretionary project books. So if it's a consulting work that needs to be done on our advisory work that needs to be done on it is a.
Short term project engagement that is discretionary.
There we are seeing a shift.
But again, we are very very fortunate mostly that at EXL in our portfolio. We have very very limited work that we do around advisory and consulting and very limited walk around discretionary projects, So frankly for us.
Feels like the environment is very conducive to our growth.
Okay. That's great and then we got some questions from investors about any noticeable volume reductions during the quarter.
And I'm, assuming if it does happen did happen, it's probably more on the insurance and banking vertical so that the right way of looking at it.
We have not really seen any volume reduction in the second quarter. If you take a look at our digital operations and solutions business like Morrissey I mentioned, we grew that 20%, that's well above our expectation levels and we don't have any volume reductions out there.
Okay, and then health care continues to look really strong.
What are we doing to kind of continue to to sustain this growth rate that we we're kind of seeing her.
Yeah. So health care is again, a very very large industry vertical. It's also a vertical that they you know.
Rich in terms of the ability to applied digital and apply data in AI into into healthcare I think a lot of clients are moving in that direction. What we're doing is we're expanding our service offerings and solutions for the health care industry vertical. So we've built up more new capabilities and we're investing.
And your capabilities around risk adjustment, we are working around how we can leverage our conversational AI. How we can kind of have a number of January I capabilities be embedded into health care and be helpful to members can be helpful to some of the the contact center.
Reps and actually leverage that capability across the enterprise.
Alright, and then the last one since you mentioned AI.
Can we get any color on the pipeline here U N E kind of indicated there's a lot of interest but.
In terms of sold deals or you know any any sort of color and details on how this is actually this could potentially trigger incremental growth down the road.
Sure. So what I can share with you is on generative AI we have.
More than 150 conversations taking place with clients at this point of time.
We've got several advanced stage deals that have been signed up that we are working on we've got a 120 use cases across industry segments.
We have 20 Ah Jamie I demos that we've created and these are up on our website. So it's available for our clients and our prospects on our partners to see so frankly, there's a lot of activity that's taking place on generated AI and.
We think that gives us a lot of confidence in terms of how this will result in a greater volume of work and a greater amount of revenue for us going forward.
That's great. Thanks for the details.
As a reminder to ask a question. Please press start one one on your telephone and wait for your name to be announced withdraw. Your question. Please press start one one again.
Our next question comes from Vincent's Coachella from Barrington Research.
Yes wrote it on the generator.
Use cases that 120, Oh do you expect that to ramp up considerably in the in the coming quarter.
Yes southern for nothing.
Likely to get clients to sign up on that.
The big Big thing that needs to take place out there is of the data needs to be very and usable for generating most of our clients require a ton of work to be done around the data and we're talking about unstructured data being available on these launched language models, they're talking about.
How do we protect the confident charity and security of this data.
And how do we kind of integrate in various data sources real time because generated AI.
It's only useful and powerful if you can leverage that in real time.
<unk>. So frankly, there's a lot of work that needs to happen on that before the generated a use case can be practically deployed and that's where the bottleneck is right. Now we are in a again in a great place to help our clients on that data data side keep in mind.
Most of our clients.
We're already moving.
Some of that structure datasets onto the cloud and we were helping them and others were helping them, but now what you need to do is you need to do a vectorized nation of these databases and that's become hugely important for applying generating the accident. So that's another whole walk stream that needs to be undertaken before this can be practically a neighbor.
Okay.
And could you provide some color on the new logos editor in the quarter.
Specifically do any of them feel like they can be a strategic clients.
Yes, and I think the portfolio.
Julio a mix of new clients actually is very very heavy we've seen some clients come in which are you know first time users off digital operations on solutions and analytics. We think you know many of these will become strategic and lodge opportunities for us.
Keep in mind, one thing that even a mid sized client for us.
Because we're kind of doing work across the spectrum on digital operations and analytics can become very very meaningful for us very quickly. So so frankly, the quality of that portfolio of new client.
Is very strategic and we think.
It's it's very healthy that will provide us a good run way over the next several years.
Oh, thank you.
Our next question comes from David Grossman from Sniffle.
Thank you.
Good morning.
This question has come up several times and.
Probably in a different way, but so sorry to ask it again, but I guess I I'm just thinking about.
The cadence of the <unk> or the digital outs and solutions business.
Obviously last year was a good bookings here and you saw some acceleration in the beginning of the fourth quarter.
Anniversary of the comparison in the fourth quarter twenty-three.
I know you don't really disclosed bookings in backlog, but maybe.
Maybe you could give us some context of how to think about.
When your anniversary that more difficult compare particularly in the fourth quarter.
And kind of what the setup is into that and as we get into next year cause you did comment that you expect strong growth.
Visual arts into 2024, but just really interested in some context around that particularly given how difficult for computers could be getting in the fourth quarter.
Sure David So as you know in digital operations and solutions for US we sign up you know large clients and we ramp up the work that we're doing for them, but that transition takes place over 18 to 24 months.
<unk>, so frankly for US you know some of the large bookings that we had in 2022.
The full implementation of that cycle is likely to continue into 24, and it's not fully reflected in our twenty-three numbers.
So it is also a business which is.
Much less volatile it's a business that you know when you go up there in terms of the growth rates, it's likely to stay there for a longer period of time and we think you know the bookings that we had in 22 were very healthy and bookings continue to be healthy and twenty-three and.
Some of the large deals that we are seeing right now in the marketplace. Those are very healthy the insurance industry is Ah.
A great industry vertical for us to be playing in because there's a lot of technology modernization that needs to happen out there and there's a lot of cost rationalization that needs to happen over there and we are helping our clients do guys and we are the market leader of that and then we're seeing that in emerging we're seeing that in health care. So frankly, the digital operations.
Our business for us.
Feels that it's got elevated growth rates as compared to a historical growth rate are there and that's something which you know continues to happen and as as more digital gets embedded into operations and as more Jenny I guess embedded into the operations.
We actually think that that's a net positive for us.
Right and then you did make a comment road ahead about healthcare analytics and some activity ramping in the fourth quarter. So.
Is is that seasonal or.
Ah seasonal uptick in the fourth quarter because of the work you're doing for Medicare advantage or is this new business coming out in the fourth quarter that would continue on into 2024.
No no no David you're right that business will be seasonal business. The marketing analytics piece for Medicare advantage is only in the fourth quarter some of that might spill into the first quarter, but it's typically around the end of the vendors the annual enrollment cycle.
It takes place.
Got it thanks for that and then just one last quarter our question excuse me.
On this nonrecurring revenue.
At least I don't recall you reporting that before this year. So is there something changed in that way you're contracting that we would expect this non-recurring type revenue to kind.
Be more of a common occurrence or is this really just an unusual contract where you're.
Chewing something out for your performance space that you're getting some forever.
I think <unk> I think David we bet.
We've had a few things that have occurred over the last couple of quarters. One as we are getting some some of these some of these items are coming up that haven't come up in the past.
Whether it's a one time payment.
Or it's a it's a it's accruing revenue from from an increase that from a previous period.
Just gives investors a little bit more insight into into forecasting going forward it to be quite honest and it does have a pretty big effect on our margin.
We are investing back into the business, but we also have very healthy margins right now, especially in the first half of the year, 19.7%. So we're working on increasing our margins, but what we've had very healthy margins in the first half of the year and a piece of that is attributable to that there's one time revenue. So so we do want to call. It out just to give a little.
More context to investors.
Okay, but it sounds like that's something that I could continue going forward right that you would have each one it's it's it's something that's.
Part of the contracts that you're signing so it wouldn't be unusual for those to just continue to occur in the future.
Potentially what we will have to see but potentially.
Right, Okay, great. Thank you.
Oh now like to turn the conference back to Jonker stuff for any closing remarks.
Okay. Thank you for joining us today and is always if you have additional questions. Please reach out to me directly thank you and goodbye.
This concludes today's conference call. Thank you for participating you may now disconnect.
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