Q4 2023 ExlService Holdings Inc Earnings Call

February 29, 2024

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising your hand is right 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 VP of Investor Relations. Please go ahead.

Thanks Robin.

Hello, and thank you for joining Exl's fourth quarter 2023 financial results conference call on the call with me today are Rohit Kapoor, Vice Chairman and Chief Executive Officer, and Mercury in Ukulele, Chief Financial Officer, We hope you've had an opportunity to review the fourth quarter earnings release, we issued this morning.

We also posted an earnings release slide deck and Investor Factsheet in the Investor Relations section of our website.

As a reminder, some of the matters, we'll discuss this morning are forward looking please.

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.

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

During our call we may reference certain non-GAAP financial measures, which we believe provide useful information for our investors reconciliations of these measures to GAAP can be found in our press release slide deck and the Investor fact sheet with that I'll turn the call over to Rohit.

Thanks, John Good morning, everyone.

Welcome to Exl's fourth quarter, and 2023 year end earnings call.

I am pleased to be with you. This morning discussing our strong results and continued ability to outperform.

Good day and thank you for standing by welcome to the fourth quarter 2023 E X L Service Holdings, Inc Earnings Conference call.

EXL performed exceptionally well in 2023, despite a challenging macroeconomic environment and weakness for discretionary and project based work across the industry.

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

We grew full year revenue by 16% and delivered EPS growth of 19%.

Draw. Your question. Please press Star one again, please be advised that today's conference is being recorded.

We achieved 13% revenue growth in our analytics business for the year.

I'd like to hand, the conference over to your first speaker today, John Kristoff VP of Investor Relations. Please go ahead.

And then impressive 18% growth in our digital operations and solutions business.

Thanks Robin.

In the fourth quarter, we generated revenue of $414 million, an increase of 11% year over year and 10% in constant currency.

Hello, and thank you for joining Exl's fourth quarter 2023 financial results conference call on the call with me today are Rohit Kapoor, Vice Chairman and Chief Executive Officer, and Mercury and you've got Lilly Chief Financial Officer, We hope you've had an opportunity to review the fourth quarter earnings release, we issued this morning.

And we grew fourth quarter adjusted EPS by 11% to 35.

We also posted an earnings release slide deck and Investor Factsheet in the Investor Relations section of our website.

Our ability to consistently deliver industry, leading double digit growth even in a difficult environment is the result of sound execution of our differentiated strategy and our balanced portfolio of businesses.

Okay.

As a reminder, some of the matters will discuss this morning are forward looking please.

We recognize the importance of data several years ago, and pivoted to being a data led company, which.

This resulted in a three year revenue CAGR of 19%.

Our data led strategy and deep expertise and analytics has uniquely positioned us to embrace AI.

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

And Vivek to now becoming data and AI led in everything that we do.

Just as data led enabled us to drive superior growth over the past several years.

Combining data and AI positions us well for industry, leading performance going forward.

Thanks, John Good morning, everyone.

Data is crucial for the accuracy of AI outputs and is the foundation upon which all successful AI is but.

Welcome to Exl's fourth quarter, and 2023 year end earnings call.

I am pleased to be with you. This morning discussing our strong results.

The more reliable the AIA outputs the better the outcomes for our clients.

Continued ability to outperform.

This enables us to expand our total addressable market and offers our clients a much richer value proposition driving operational efficiencies improving customer experience and growing revenue.

EXL performed exceptionally well in 2023, despite a challenging macroeconomic environment and weakness for discretionary and project based work across the industry.

The value and impact of data and AI together is greater than the sum of parts.

We grew full year revenue by 16%.

And delivered EPS growth of 19%.

Over the past several years, we have been at the forefront of embedding machine learning and AI into our clients' operations to drive greater efficiencies and enhanced customer experience.

We achieved 13% revenue growth in our analytics business for the year.

And then impressive 18% growth in our digital operations and solutions business.

EXL has unique industry, leading data analytics, and AI capabilities, which when combined with deep experience in industry specific business models and operations results in superior business outcomes.

In the fourth quarter, we generated revenue of $414 million, an increase of 11% year over year and 10% in constant currency.

And we grew fourth quarter.

That's what it takes to transform AI from concept to reality and why we are so excited about the opportunity ahead.

We are making meaningful investments to propel our data and AI led strategy going forward.

We have established an AI center of excellence with 1500 specialists.

More than two thirds of our employees have already taken advantage of AI training and development tools to help them expand their knowledge and skills.

We have developed several generated AI applications for enterprise use in areas such as employee self service.

King and finance.

We are collaborating with the leading technology partners, including our most recent announcements with Microsoft and AWS to core develop AI solutions and accelerate go to market plans.

And we embedded AI into our core solutions and continue to build our portfolio of more than 150, <unk> use cases across industries with over 30 deployments with clients.

We are leading the way in helping our clients reinvent their business models fueled by data analytics and AI to deliver higher value with speed.

To support the shift to our data and AI led strategy. We recently expanded our executive leadership team with two new leaders.

Andy Lavalle Executive Vice President and Chief Digital Officer is responsible for advancing <unk> digital and AI initiatives.

And <unk> Jindal thing Executive Vice President Chief Information Officer leads Exs technology, cyber security and enterprise transformation functions.

As we focus on implementing data and AI led solutions to transform our clients businesses, along with our own operations.

It is crucial that our senior leadership team is made up of executive with a deep understanding of digital and AI.

Let me now share a couple of examples of how our data and AI strategy is enabling EXL to deliver more value to our clients.

Yes.

We have been working with a large U S based financial services company to reinvent the collections and payment assistant processes.

We pursued an omnichannel approach leveraging data and generate EBITDA to produce intelligence, which enables our clients to offer that and customers more personalized solutions and reduced potential defaults.

We initially deployed payment term.

<unk> AI based digital payments and collection solution for one of their credit products and are on track to reducing that net credit loss by $30 million per year.

As a result of our initial success, we are extending our payment solution to various other lending products over the next several months.

In addition, we won the mandate to run back collections operations end to end using our data and AI and edge solution with human in the loop.

This delivers not only improved collections outcomes, but also a better customer experience in an area, where the engagement has typically been adverse area.

With the recent high inflation and interest rates environment. Many of our financial services clients are seeing an increase in customers requiring payment assistance and debt restructuring.

We are confident in our ability to help clients overall debt collection functions using the latest data AI and CX technologies.

In another example, we are using AI to help one of our large healthcare clients significantly reduced losses from potential billing errors.

We reviewed our claims data on a running basis to identify audit and recover one hundreds of millions of dollars from incorrect payments each year.

As we further embed generated AI into our solutions.

<unk> enables us to identify a greater number of billing errors in a shorter period of time, while significantly reducing the number of false positive encounters with providers.

We are also using AI based tools to aid, our auditors and finding billing errors faster, creating more productivity gains.

One of the most exciting aspects of journey II is it allows us to identify errors in real time prior to payment and identify root causes of payment our submission errors.

We have put EXL in a leading position by adopting data and AI as part of our core growth strategy and making significant investments to further strengthen our value proposition.

Looking ahead, we have solid momentum in our business.

As we deliver more tangible value to our clients through data and AI, we are winning larger deals and improving our competitive win rates.

This enables us to grow faster than competition.

More of our revenue to an outcome based business model and capture a greater share of the value we create for our clients.

Our board of directors authorized a $500 million stock repurchase program effective March one 2024 for two years.

This reflects confidence in our ability to continue to deliver industry, leading growth and generate significant free cash flow.

As part of our ongoing capital allocation program.

There has been a tremendous amount of change in our business and we would like to keep our stakeholders informed about the transformation of our business.

Therefore, we will be holding an investor strategy update event on may 7th to provide further insights about our data and AI led strategy.

Please mark your calendars, and we will provide advantages in the coming weeks.

In summary, we delivered exceptional results in a challenging environment in 2023.

Our winning strategy.

Meet data analytics, and AI capabilities, and an exceptionally talented and dedicated team position us well to deliver industry, leading performance in 'twenty 'twenty four and beyond.

With that I'll turn the call over to Maurizio to cover our financial performance in detail. Thank.

Thank you Rohit and thanks, everyone for joining us. This morning, I will provide insights into our financial performance for the fourth quarter and the full year 2023, followed by our outlook for 2024.

We delivered a solid fourth quarter with revenue of $414 1 million up 10, 5% year over year on a reported basis 10, 1% in constant currency and 8% sequentially.

Adjusted EPS was <unk> 35.

A year over year increase of 11, 3%.

All revenue growth percentages mentioned hereafter are on a constant currency basis.

Revenue from our digital operations and solutions businesses as defined by three reportable segments, excluding analytics was $232 1 million representing year over year growth of 13, 4%.

Sequentially, we grew revenue one 9%.

In the insurance segment, we generated revenue of $139 1 million, an increase of 15, 3% year over year and one 9% sequentially. This growth was driven.

By the expansion of existing client relationships and new client wins.

The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 11, 7% year over year with revenue of $174 1 million.

In the emerging segment, we reported revenue of $67 million growing 14, 1% year over year and two 8% sequentially.

This growth was driven by the expansion of existing client relationships and new client wins.

Emerging vertical consisting of both our digital operations and solutions and analytics businesses grew one 9% year over year with revenue of $146 1 million.

The healthcare segment reported revenue of $26 million, representing growth of two 5% year over year and a decrease of <unk>, 8% sequentially.

Year over year growth was driven by expansion in existing client relationships.

The healthcare vertical consisting of our digital operations and solutions and analytics businesses grew 22, 2% year over year with revenue of 93 8 million.

And the analytics segment, we generated revenue of $182 million up six 2% year over year.

Growth in analytics was driven by higher volumes in payment revenue.

And from.

Payment revenue.

From our digital operations solutions business was 901.5.

Services. This growth was partially offset by the decline in banking and financial services marketing analytics, reflecting trends we've highlighted in previous quarters.

SG&A expenses as a percentage of revenue were up 140 basis points year over year to 26% driven by investments in generative AI digital solutions front end sales and marketing.

Our adjusted operating margin for the quarter was 17, 8% down 20 basis points year over year, driven by increased SG&A investments.

Our adjusted EPS for the quarter was 30 <unk> up.

11, 3% year over year on a reported basis.

Turning to our full year 2023 performance our revenue for the period was up was 163 billion up 15, 6% year over year.

This was driven by double digit growth in both our digital operations and solutions and analytics businesses.

Revenue from our digital operations and solutions business was $901 5 million, an increase of 18, 3% year over year.

Our insurance emerging and health care segments generated year over year growth of 18, 7% 21, 7% and eight 9%, respectively. Our analytics business generated revenue of $729 1 million representing year over year growth of 12, 5%.

<unk>.

Analytics represented 45% of total revenue.

Adjusted operating margin for the year was 19, 3% up 100 basis points year over year.

Our effective tax rate for the for the year was 23, 2% comparable to our rate in 2022.

Our adjusted EPS for the year was $1 43 up 19, 1% year over year on a reported basis.

Our balance sheet remains strong our cash, including short and long term investments as of December 31 was $209 million and a revolver debt was $200 for a net cash position of $91 million.

We generated cash flow from operations of $211 million in 2023 up 27% year over year compared with 2022.

This improvement was driven by higher revenue and the expansion of our adjusted operating margin.

During the year, we spent $53 million on capital expenditures and $125 million on repurchasing four 1 million shares.

Now moving onto our outlook for 2024.

We believe the macro economic environment will remain unpredictable at least through the first half of the year as inflation remained sticky and the fed maintains interest rates at or near current levels.

But as Rohit mentioned, our business momentum is robust driven by a strong pipeline larger contracts and increasing competitive win rates.

For 2024, we anticipate revenue to be in the range of $1 78 billion to $1 82 billion representing year over year growth of 9% to 12% on both a reported basis and constant currency basis.

We anticipate our adjusted EPS to be in the range of $1 56 to $1 62, representing year over year growth of 9% to 13%.

Our guidance also assumes full year adjusted operating profit margin will be largely in line with 22003.

We expect a foreign exchange gain of approximately 1 million net interest income of approximately $1 million and our full year effective tax rate to be in the range of 23% to 24%, we expect capital expenditures to be in the range of $50 million to $55 million.

In terms of quarterly progression, we anticipate our quarterly year over year revenue growth rates to increase as the year progresses, we expect our adjusted operating profit margin percentage to also increase in line with revenue.

In summary, our differentiated strategy and consistent execution enables us to deliver exceptional results in a challenging environment.

By adopting data NII as part of our growth strategy and making significant investments to further enhance our industry leadership position. We are confident in our ability to generate superior growth in 2024 and beyond.

With that wrote and I will be happy to take your questions.

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

Your question. Please press star one again, please standby, while we compile the Q&A roster.

Okay.

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

Hi, guys. Good morning, Thank you.

Let me start on the fiscal 'twenty four outlook here can you talk a bit more about the underlying growth assumptions across analytics and digital ops and then just maybe a little bit more flavor on the overall client demand conversations in each of those two areas first.

Sure Brian.

So.

Our expectation is to be able to grow our revenues between 9% to 12% for calendar year 2024.

The growth rate between our two operating business segments of digital operations and data analytics are predominant stay about the same with a little bit higher growth rate to be expected in digital operations and a slightly lower growth rate in our data analytics business. This year.

As <unk> outlined we expect that quarterly progression to gradually increase from Q1 to Q4 and our growth rates.

Reflect that.

In terms of the demand environment in both of these two segments. We continue to see very strong demand in digital operations, we're seeing much larger deals come into the pipeline.

And we have already signed up a number of deals that we won in 2023, which we will be executing in 2024 on the analytic side.

The area that was impacted last year, it was marketing analytics as well as some discretionary project based work in banking and financial services unexpected.

Our expectation is that towards the second half of the year, but that should normalize and therefore, we would see the growth come back on that.

As you know in data analytics that has a lot of work that needs to be done on data management on movement and shifting the data to the cloud getting the data ready for the adoption of generator of AI. So frankly.

Demand environment from our perspective is very robust and we think that this is a great opportunity for us to be able to grow our business in double digits.

Okay understood. Good color there and then on the share repo nice to see this new 500 million program can you just comment on any change in capital allocation priority any increased urgency here surrounding this buyback.

Hey, Brian It's Maurizio so when you take a look at our share repurchase program. We did increase it fairly significantly from where we were we were in 2023, we did $125 million.

In 2023, and essentially our plan is to go up to two five.

$501 million over the next two years essentially doubling what we did in 2023. This is still part of our overall capital allocation strategy meeting, we still allocate capital as part of our budgeting plan to internal investments, we still have an ongoing pretty robust M&A pipeline that we still can't continually review.

And and still spend a lot of time on and then lastly, it's allocating.

Allocating dollars to share repurchase and given our confidence in our growth rate, particularly in 2024 and beyond and then also looking at our cash flow from operations being well over $200 million in 2023, and ongoing and growing that into 2024, we have plenty of capital.

To be able to allocate to all three of those areas now going forward.

Okay. Thank you.

One moment for our next question.

Our next question comes from the line of Ashwin Shoemaker of Citigroup. Your line is now open.

Thank you.

Congratulations on the results and outlook and the buyback as well.

Yes.

In the health care.

Where do you guys have mentioned in the past.

The dependence on health care enrollment and how that might help and so on.

Is it possible to kind of.

Walk through sort of the health care opportunity more granular fashion as well.

Remind us if you are.

<unk> seen the.

Flow through is as expected.

Sure Ashwin.

On healthcare.

Had stated that we would expect to see.

Increase in our analytics revenue associated with the enrollment cycle, which typically happens in the fourth quarter. We did see that revenue come in and therefore, our direct marketing actually increased sequentially quarter on quarter between Q3, and Q4, which was a direct.

Results of the health care enrollment is taking place.

But if you take a look at our healthcare business overall.

The work that we do within healthcare is pretty broad and pretty well set up and we really like the portfolio that we have got a very strong the payment integrity business, which continues to grow very nicely given the fact that we can leverage data, we can leverage AI and we are producing much stronger result.

As for our clients than anybody else can produce and therefore, our clients are giving us more and more volume of business out there.

Have a line of business around the clinical operations and that part for US continues to be pretty broad based and well diversified and again the application of AI to help improve the customer experience out there that's been very positive.

There are other areas that we are getting into which are more complex. There are areas, where we have our own proprietary technology platforms within healthcare and again leveraging data and technology in these areas moves to be pretty resilient for us. So overall, our healthcare business has been.

<unk> quite nicely and we expect for this business to continue to be more broad based apply a lot more of data apply a lot more of AI and therefore continue to kind of be able to build and grow in this very very large industry vertical.

Got it and if I could ask you with regards to the collaboration with AWS.

Did have prepared remarks on that.

In terms of.

Getting getting into sort of the building out of our land and so on so forth.

Hum.

Hugh.

Are you kind of moving past.

Ask sort of the.

The POC stage pilot stage into larger.

Project.

And specifically with regards to the collaboration.

Easy oil contribution going to be mainly from the data and process perspective, because you should.

Because if your clients have access to that is that the primary contribution yet.

The other things you can do.

Yes, So let me comment on that.

Essentially the partnership that we have with the Hyperscale us allows us to be able to leverage their cloud infrastructure technology platforms, which are much more horizontal and apply them into a vertical and into a business use case.

And that's why the partnership works extremely well.

Got a number of solutions right now which are hosted on the AWS marketplace. So these are.

Pretty much well developed solutions that can be deployed.

Deployed immediately.

We're also seeing.

A broader.

<unk>.

Acceptance of the solutions that get applied enterprise wide. So when we work with AWS and with other <unk>.

Such providers, our ability to apply the data streamlining generally cuts across the enterprise and across geographies and across business functions and helps build that across the enterprise. So it results in much larger transactions it results in more <unk>.

Strategic transactions and it Embeds us at the forefront of that transformation, that's taking place and finally.

I think the way in which this is all evolving.

The market seems to be evolving in a manner, where the understanding of the business and the understanding of the process and the understanding of data becomes critical to the application of these ela lens and these models and therefore, our ability to help our clients and be a strategic partner on the data and AI.

That site becomes really really important and we're seeing that that is resonating quite strongly in the marketplace and thats why we are winning more in the marketplace.

Okay and to confirm those means.

<unk> been in the marketplace model beyond pilot.

That's right.

Got it thank you.

One moment for our next question.

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

Hi, Good morning. This is Jesse owned for Maggie Thanks for taking our question.

So my first one is on pricing increases have you been able to drive pricing increases.

Jen AI related work given the demand you're seeing and how important do you think pricing will be as a lever for the business.

Sure Jesse pricing is.

More and more of a focus of ours over the over the last two to three years, particularly with wage inflation. In 2022, we have been really focused on on on price throughout our business, but particularly in AI, we are focusing focusing that.

More intensely.

It is it's an area that.

That is still evolving I would say.

And one that becomes more a bit more transaction or outcome based.

And that's where we really wanted to focus.

Our pricing within within Gen II, but also like within AI and.

In itself also so I would say we've done a lot of work on it it's still evolving and it's one where it will evolve as we continue to build out our solution set.

Okay.

And then for my follow up.

Have you seen your partnerships with <unk>.

AWS and Microsoft for example, contributing more to your revenues over the past few quarters has there been any change in the level from historically.

So Jessica we just announced our partnerships.

Partnerships with Microsoft and AWS, and we're tremendously excited about the opportunity to go to market on a joint basis and leverage their horizontal functional capabilities and the application of our domain knowledge as such.

The revenue contribution from these partnerships is likely to build up over the next few quarters and we will.

I think be a strong driver to our growth not only for 'twenty four but beyond that and we think that that's going to be an important channel of growth for us going forward. So thus far the revenue contribution is fairly small, but we expect this to be a pretty sizable channel for us going forward.

Yeah.

It makes sense to me congrats and thanks again.

Thank you.

One moment our next question.

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

Yeah.

Oh, Hey, thanks for taking my question.

Rohit like I wanted to ask about the AI solutions that you talked about like do you infuse those solutions to clients core systems and business processes.

Use that as a tool to improve.

Employee productivity and make them more efficient and who owns IP on those AI models that you create.

Sharpening so the AI solutions that we are creating these are proprietary solutions and the.

IP on this is owned by <unk>.

We have.

Multiple ways of deploying these AI solutions for our clients all of these AI solutions are on the cloud. So what we can do as we can deploy this on our clients' workflow and on their operating platforms.

And attach it to the system, so that they get the benefit of it.

And post it in on the cloud and run our clients' data and their workloads through visa applications on the cloud and lastly, we have the ability to take over our clients' operation and embedded this into that and deployed.

Multiple models.

And which we can work with our clients it really depends upon what the preference of the client is what the maturity level of their platforms and applications and workflows and how they'd like to kind of engage on this going forward.

<unk>.

Cause we have so much of flexibility associated with it we can deploy these very very quickly with our clients. They can see the outcomes and the superior business benefits very quickly and we are seeing a tremendous amount of traction coming out here on the AI solutions that we've developed.

Got it. Thank you and can you also share like the cadence of the quarter revenue throughout this year across different quarters. I know you mentioned it could be more backend loaded.

But like in the first half like can you grew sequentially, especially in analytics.

The next few quarters.

Yes, I think that's a really important question and let me try and address that as transparently as I can number one on an overall basis, our revenue should progress sequentially. So are.

Quarter year on year growth rates quarterly should improve sequentially. So what that means is we can start off slightly lower and progress much higher towards the end of the year. That's on an overall company basis.

As far as analytics is concerned we do think Q4 of 2023.

Was perhaps the bottom off the analytics business.

Business, we expect sequential growth of analytics revenue on Q1 from Q4.

Keep in mind that Q1 of 'twenty three for analytics was a very strong growth rates. So the comp for us in.

In Q1 is actually quite strong, but you should expect sequential growth in our analytics business in Q1 over Q4 of 2023.

We think this is a tremendous.

<unk> signal in terms of the momentum returning back into the analytics business and we think this is going to progress through the rest of the year and obviously the comps become easier as we go forward into Q2, Q3, and Q4 of 'twenty four.

So.

Basically.

The shape of the progression is going to be a sequential increase.

As we go along and you should expect quarter on quarter increase in analytics in Q1 over Q4 of last year.

Okay. Thank you.

My mum and for our next question.

Our next question comes from the line of my Young Tandon of Needham <unk> Company. Your line is now open.

Thank you good morning, Robert them, where it's you know I wanted to ask you about the short cycle work that obviously has been under pressure for the past 12 plus months, what's embedded in the guidance in other words, if the work starts to normalize the level of activity could that be upside or have you already baked that into your outlook.

For 2024.

Yes, Thanks Silvio.

So look I think as you know the short cycle work is difficult to predict and difficult.

To manage we are in a fortunate position, where the sort of short cycle work is a very small percentage of our overall portfolio.

55% of our business is digital operations, which is long term annuity contracts and even within the 45% of data analytics segment, a large percentage of that tends to be longer term annuity contracts.

The short cycle work.

Last year that got impacted was largely marketing analytics as well as some of the short cycle and discretionary work, particularly in banking and financial services. We do think that would normalize in 2024.

We have factored that into our guidance and that's how we've come up with our growth rate.

The recovery in the short cycle work is much faster, we would expect it to be at the top end of our guidance range.

The recovery in the short cycle work is weaker and there are economic environment difficulties that our clients face, we would expect to be towards the lower part of our guidance range, but you know that our revenue growth has strong visibility and our revenue growth guidance range is pretty.

The narrow so we tend to be in a pretty tight band as far as that is concerned and thats, primarily got to do with our portfolio, which has a very small percentage of reliance on project based work.

That's very helpful. Thank you so much for that and then just as a quick follow up I wanted to ask euro at about those examples you gave what has been the financial implications of those deployments. So to speak has it been sort of a revenue impact on the downside because I'm, assuming you are getting more productivity.

Passing on to your clients, but then it would be margin accretive given some of the automation benefits I don't know if I'm getting that right, but would love to get your perspective on the early financial implications of these gen AI deployments.

Sure sure. So so it has the ironic part.

The faster the deployment and more the cannibalization the faster as our overall growth rate because our clients entrust us with more and more business.

And the penetration rate of this is so low that we are able to build and grow actually much faster so on the revenue side.

Generally the AI solutions that we have deployed are delivering the productivity benefits and wildly do cannibalize.

That particular portion of the process that we're working on they actually create a much bigger headroom for us to grow our overall revenues much faster with our clients and get much bigger deals from our clients and deploy this enterprise wide even on the retained part of the organization of our clients, which we.

Typically normally would not be impacting so on the revenue growth side, it's actually a net positive for us and then on the margin side. It certainly starts off being a lower margin on the proof of concept side, but as we scale up these gen AI solutions across the enterprise and as these.

Just kind of get to full volume in full maturity, we are seeing better profitability from from these solutions. So net net it's a positive for US and then it's about how quickly can we deploy this and how quickly can we accelerate our growth rate and get again advantage to our bottom line.

Very helpful. Thank you.

One moment for our next question.

Our next question comes from the line of Moshe <unk> Wedbush Securities. Your line is now open.

Hey, Thanks, and congrats on the strong results.

You spoke.

Spoke about win rates that are having an uptick.

Maybe you can talk a bit about first on what's it should be the run rate uptake and is there any connection here to your two other direct peers that are having some challenges.

Yeah. Thanks Moshe.

Look.

This whole area of deploying data and AI alongside with the domain.

<unk>, a deployment and more the cannibalization the faster as our overall growth rate because our.

Results in a pretty transparent viewpoint for the customer where either they get the business benefit or they don't get the business benefit and therefore, youre going to have a greater amount of differentiation between winners and losers.

Clients entrust us with more and more business.

And the penetration rate of this is so low that we have.

Able to build and grow actually much faster.

So on the revenue side.

Generally the AI solutions that we have deployed are delivering the productivity benefits and wildly do cannibalize that.

And clients are going to gravitate towards those players that will act as strategic partners and deliver the business benefits to them in tangible terms.

For us the portfolio that we are playing with our client base and our prospect base. We are having a tremendous amount of success in terms of being able to actually deliver the business benefit to our clients and therefore, our win rates are increasing and the size of the deals are increasing and we are growing faster as such.

Typically normally would not be impacting so on the revenue growth side, it's actually a net positive for us and then on the margin side. It certainly starts off being a lower margin on the proof of concept site, but as we scale up these gen AI solutions across the enterprise and as these.

So.

It all depends on the efficacy of the solutions and the ability to deliver tangible business benefits to our clients and if you'll be able to do that successfully I think it is going to create greater amount of differentiation. If you are going to be mid yonker in terms of that delivery and execution of that business benefit.

It kind of gets to full volume in full maturity, we are seeing better profitability from from these solutions. So net net it's a positive for US and then it's about how quickly can we deploy this and how quickly can we accelerate our growth rate and get an advantage to our bottom line.

I think the.

The growth and the win rates will come down very very quickly. So this is an area that you have to stay on top of the game.

All the time, we are fortunate that we invested in data early on we are invested in AI early on we invested in domain early on and bringing these three together, it's not an easy task, but we've been able to do that and demonstrate that to our clients and thats whats, resulting in superior growth rate for us.

Very helpful. Thank you.

One moment for our next question.

Our next question comes from the line of Moshe <unk> Wedbush Securities. Your line is now open.

<unk>.

Understood and then you indicated that the deal flow is getting larger.

Hey, Thanks, and congrats on the strong results.

Would you suggest that some of these deals because they are larger are taking longer to convert.

You.

I spoke about win rates that are having an uptick.

Maybe you can talk a bit about first on what's it should be that this win rate uptake and is there any connection here to your two other direct peers that are having some challenges.

Or are there actually converting kind of inline and how is that impacting visibility.

Yeah. So that these are definitely larger.

And the cycle time for them actually is.

Yes, Thanks Moshe look.

It's the same it's not much longer so in the past it used to be the case that if you had a larger deal the deal the cycle time would be much longer.

This whole area of deploying data and AI alongside with the domain.

Today's environment clients want the business benefits to be delivered to them much quicker with speed and therefore, they are taking these bolder decisions actually much faster than they did previously.

And the reason these deals are becoming much bigger and sizes. We are no longer playing with our clients in silos and geographies are in functions. We are playing across the board across the enterprise.

And clients are going to gravitate towards those players that will act as strategic partners and deliver the business benefits to them in tangible terms.

Because that's how data transcends across the enterprise right and that's making these deals much bigger in size and the cycle time is actually the same as a smaller deal size.

Okay. Thank you.

One moment for our next question.

So.

It all depends on the efficacy of the solutions and the ability to deliver tangible business benefits to our clients and if you were able to do that successfully.

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

Thank you good morning.

Rohit.

It's going to create greater amount of differentiation. If you are gonna be majorca in terms of that delivery and execution of that business benefit I think.

If I heard you right you said.

Earlier in the call that.

That the AI infused offerings. This is kind of allowing you to kind of engage in more.

The growth and the win rates will come down very very quickly. So this is an area that you have to stay on top of the game.

Outcome.

Kind of.

So.

Can you elaborate on that and maybe just explain exactly what the dynamic is.

Yes, David.

So look our clients are looking for business outcomes and business benefits in the past it used to be just about providing them with efficiency and efficacy now it's much more about delivering tangible business outcomes to them that can be measured and that can be quantified.

Yeah.

Understood and then you indicated that the deal flow is getting larger.

Would you suggest so.

As that becomes a lot more transparent and a lot more clearly visible as to what is the cause of that increase in business benefit our clients are becoming much more open towards having an outcome based pricing mechanism with us where we take the risk off.

These deals because they are larger are taking longer to convert.

Or they're actually converting kind of inline and how is that impacting visibility.

Yeah. So these are definitely larger.

And the cycle time for them actually is.

It's not much longer so in the past it used to be the case that if you had a larger deal the deal the cycle time would be much longer.

The implementation of the initial investment, but we get the benefit of sharing in that business benefit that we can deliver to our clients and our clients tend to prefer that model because they don't want to invest upfront and they don't want to carry the risk of our ability to deliver that business benefits to them.

Today's environment clients want the business benefits to be delivered to them much quicker with speed and therefore, they are taking these bolder decisions actually much faster than they did.

Previously under.

So we are seeing a gradual shift take place in this outcome based pricing model. We frankly think this is gonna be advantages to our clients and it's going to be advantages to us.

Because that's how data transcends across the enterprise right and that's making these deals much bigger in size and the cycle time is actually the same as a smaller deal size.

For us it's advantageous because we have high confidence in our ability to deliver the business benefit and for our clients. It's beneficial because they don't need to put up the initial upfront investment and they don't carry the risk.

Okay. Thank you.

So can you give us an example, perhaps so.

One moment for our next question.

Our current deal that has that.

Characteristic.

Yes, so like I said in my prepared remarks.

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

A number of these deals that we're doing in healthcare, where we are identifying billing errors.

Thank you good morning.

And identifying them upfront or in terms of collections, where we are able to collect a greater amount of dollar receivables for our clients. Our clients are willing to pay us as a percentage of the collection or as a percentage of the billing errors that were avoiding for them.

Rohit.

If I heard you right.

Said earlier in the call.

That the AI and choose to offerings is kind of allowing you to kind of engage in more.

Outcome.

Kind of.

So can.

And as I guess.

Can you elaborate on that and maybe just explain exactly what the dynamic is.

The second question I had was on your margin guidance, I think you're guiding to flattish margins year over year.

Yes, David.

So look our clients are looking for business outcomes and business benefits.

Maybe you could share it out how much of that is.

The timing of wage and pricing versus.

In the past it used to be just about providing them with efficiency and efficacy now it's much more about delivering tangible business outcomes to them that can be measured and that can be quantified.

Maybe the upfront dilution you take on some of these outcome based deals where like you said you're taking risk.

Upfront, assuming the cost of implementation with the opportunity with downside participation.

And any other dynamics that may be affecting the margin.

2024.

Yes, David we are we are guiding to flat margins with 2023 and keep in mind. We went up 100 basis points in 2023, So we had a significant uptick in 2023.

As Roy talked about and all of the Gen. AI opportunities that are in front of us there's a lot of investments that we're making.

Really.

Grow that large significant opportunity for us going forward and so that is going to be a big area for us to invest in this year and it's going to keep our margins fairly flat. This year now this year being flat is is is is.

So we are seeing a gradual shift take place and this outcome based pricing model. We frankly think this is going to be advantages to our clients and it's going to be advantages to us.

Is comparable to the prior years of having significant margin improvement. So this year is going to really be a year in which we're going to make a number of investments within AI really as we pivot the business.

And thats going to be reflected in our <unk> or our profit margins.

So can you give us an example, perhaps so.

Sorry, if I missed it merits here, but did you mention how we would expect margins would they'd be relatively flat all year or is there going to be some variation across quarters.

Current deal that has.

Characteristic.

Yes, so like I said in my prepared remarks.

A number of these deals that we're doing in healthcare, where we are identifying billing errors.

No no no.

No.

The total operating margin will be flat in total for the year compared to 2023, but when you look at it on a quarterly basis, it's going to be in line with revenue with revenue growth. So you'll see a lower margin.

And identifying them upfront or in terms of collections, where we're able to collect a greater amount of dollar receivables for our clients. Our clients are willing to pay us as a percentage of the collection or as a percentage of the billing errors that we are avoiding for them.

Increased on a quarterly basis, and then the average for the year been at right around flat with 2023.

Okay.

And as I guess.

Got it great. Thank you.

The second question I had was on your margin guidance, I think you're guiding to flattish margins year over year.

One moment for our next question.

Maybe you could fare it out how much of that is.

Our next question comes from the line of Dave Koning of Baird. Your line is now open.

The timing of wage and pricing versus <unk>.

Yeah, Hey, guys, thanks, and nice job.

Maybe the upfront dilution you take on some of these outcome based deals where like you said you're taking risk.

And I guess my question is unemployed as you your sequential growth in employees was the strongest in over two years, maybe which I think is setting up for kind of setting up for good growth good wins for the future.

Front, assuming the cost of <unk>.

Clemente action with the opportunity with downside participation at any other dynamics that may be affecting the margin.

24.

The other way to look at it is to say I think year over year employees grew 19% revenue only grew 10. So do you need more people to get to get the revenue done.

Yes, David we are we are guiding to flat margins with 2023.

Keep in mind, we went up 100 basis points in 2023, So we had a significant uptick in 2023.

How should we look at it on either side of the way kind of I'm looking at it.

Yes, David it's it's Maurizio so when you look at our head count growth and you're correct. It's around 19% slightly right around 18, 8% on a year over year basis would be end of the fourth quarter. If you break that down you will see that analytics head count has grown about 8% on a year over year basis fairly in line with.

You already talked about and all of the Gen. AI opportunities that are in front of us there's a lot of investments that we're making.

Really.

Grove that large significant opportunity for us going forward and so that is going to be a big area for us to invest in this year and it's going to keep our margins fairly flat. This year now this year being flat is is is is is comparable to the prior years.

That revenue growth overall, it's in digital operation solutions, where we're making investments both in digital but also in ramping up new deals that we have.

Of having significant margin improvement. So this year is going to really be a year in which we're going to make a number of investments within AI really as we pivot the business.

Companies that are being implemented today for 2024 that we will start to recognize revenue in 2024, so it's a bit of an investment and also a ramp up in employees, particularly in digital operations. That's that's embedded in that 18, 8% growth year over year for the fourth quarter.

And thats going to be reflected in our <unk> P M.

Profit margins.

Sorry, if I missed it mertz here, but did you mention how we would expect margins would be relatively flat all year or is there going to be some variation across quarters.

Got you, yes that totally makes sense that's great.

And then the one other question revenue by industry.

No no no.

Emerging markets I think in 2022 groups somewhere around 50%. The last couple of quarters have only been kind of low to mid single digits.

So it would be the total operating margin will be flat in total for the year compared to 2023, but when you look at it on a quarterly basis, it's going to be in line with revenue with revenue growth. So you'll see a lower margin increase on a quarterly basis and then the average for the year being.

While the other the other industries in health care and it.

Insurance are doing really well, but what's happening in the emerging market industry for you.

So when you take a look at the revenue growth within our emerging segment.

Right around flat with 2023.

Extremely solid revenue growth in those previous periods that you mentioned I think it's a little bit of it is up a little bit of the comparables on a year over year basis.

Got it great. Thank you.

One moment for our next question.

That make the growth rate a little bit more difficult on a year over year basis. When you look at the emerging pipeline, it's still very significant and all the different segments that we operate in and emerging.

Our next question comes from the line of Dave Koning of Baird. Your line is now open.

Yeah, Hey, guys, thanks, and nice job.

And I guess my question is unemployed your sequential growth in employees was the strongest in I think over two years maybe.

<unk> is a segment of ours that has many smaller segments in it and that creates a lot of opportunity for that group to really bring on new clients.

Which I think is setting up for you just kind of setting up for good growth good wins for the future.

And then really scale up those.

I guess the other way to look at it is to say I think year over year employees grew 19% revenue only grew 10. So do you need more people to get to get the revenue done.

New clients over time, so we still see a significant opportunity within emerging I think you just when you look at the comps over a year over year basis. It makes it a little bit difficult in terms of the growth rate.

How should we look at it on either side of the way kind of I'm looking at it.

Yeah totally makes sense. So thanks, guys good job.

Yes, David.

It's Maria so when you look at our head count growth and you're correct. It's around 19% slightly right around 18, 8% on a year over year basis with the end of the fourth quarter. If you break that down you will see that analytics head count has grown about 8% on a year over year basis fairly in line with that revenue growth overall.

One moment for our next question.

Our next question comes from the line of Vincent Colicchio of Barrington Research. Your line is now open.

Yes, most of mine were asked but I'm curious.

It's in digital operations solutions, where we're making investments both in digital but also in ramping up new deals that we have that are coming that are being implemented today for 2024 that will start to recognize revenue in 2024. So it's a bit of an investment and also a ramp up in employees, particularly.

If you could talk a little bit about the new clients added in the quarter.

With verticals has to come from.

A key driver in adding some of these clients.

Sure Vincent So first of all for the full year, we added 63, new clients and we're very very pleased with the pace at which we're adding new clients.

In digital operations.

That's embedded in that 18, 8% growth year over year for the fourth quarter.

Quality of clients that they are adding up.

Also very good so the there are a number of clients within this that are fortune 1000 clients and like we've mentioned some of these deals are large deals that we are signing up.

Got you, yes that totally makes sense that's great.

And then the one other question revenue by industry.

Emerging markets I think in 2022 groups somewhere around 50%. The last couple of quarters have only been kind of low to mid single digits.

Amongst the industry verticals clearly the insurance industry vertical is seeing a tremendous amount of growth and traction and then we're also seeing.

While the other the other industries in health care.

Insurance are doing really well, but what's happening in the emerging market industry for you.

Growth in our emerging.

Industry vertical.

Keep in mind that the.

So when you take a look at the revenue growth within our emerging segment. They had extremely solid revenue growth in those previous periods that you mentioned I think it's a little bit of it is up a little bit of the comparable on a year over year basis.

The emerging industry vertical is pretty well diversified across a number of different sub industries.

So we see that trend across.

We are signing up some.

Companies that are scaling up their businesses and so in terms of size of companies that we have.

Make the growth rate a little bit more difficult on a year over year basis. When you look at the emerging pipeline, it's still very significant and all the different segments that we operate in and emerging is a is a segment of ours that has many smaller segments in it and that creates a lot of <unk>.

Signed up we're seeing a number of growth companies. We are seeing a number of mature size companies in a number of global companies. They are also seeing our growth rate in UK and Europe to be stronger. So that's a good thing for us because we'd love to be able to diversify our business a lot more.

Opportunity for that group to really bring on new clients.

And then really scale up those those new clients over time, so we still see a significant opportunity within emerging I think you just when you look at the comps over a year over year basis. It makes it a little bit difficult in terms of the growth rate.

Sure you know.

Across the globe.

And we've been very happy with the pace and.

The quality of new client logos that we're signing up.

And did marketing analytics meet your expectations for the quarter and if I heard you right you expect a return to growth in the second half if you can give us a little bit more color on.

Yeah totally makes sense. So thanks, guys good job.

One moment for our next question.

We will give you gives you confidence.

Our next question comes from the line of Vincent Colicchio of Barrington Research. Your line is now open.

Sure So marketing analytics as you know for us.

Yes, most of mine were asked.

As in a number of different segments, it's in insurance in banking and financial services, It's in health care.

Im curious rohit.

You could talk a little bit about the new clients added in the quarter.

With verticals has to come from.

In insurance.

<unk> analytics had come to.

A key driver in adding some of these clients.

It had slowed down quite significantly because caveat, but not being able to get price increases.

Sure Vincent So first of all for the full year, we added 63, new clients and we're very very pleased with the pace at which we're adding new clients.

Over the last couple of quarters that has now changed and regulators insurance regulators are allowing carriers to increase pricing.

Quality of clients that we are adding up.

And therefore, we are seeing insurance companies go back into the market and we're seeing initial signs of that.

So.

Very good so the there are a number of clients within this that are fortune 1000 clients and like we've mentioned some of these deals are large deals that we are signing up.

The acquisition of new customers take place within the banking and financial services.

Amongst the industry verticals clearly the insurance industry vertical is seeing a tremendous amount of growth and traction and then we're also seeing.

The interest rates had gone up and therefore the.

The marketing for new customers had dried up in 2023 if interest rates stabilize out here or start to move down we would expect that the banks and financial services will again restart that.

In our emerging.

Industry vertical.

Keep in mind that.

The emerging industry vertical is pretty well diversified across a number of different sub industries. So we see that.

Acquisition of new customers, and then healthcare was a new segment for us and a new industry vertical for us that we started with target in 'twenty three and we picked up revenue from a number of different players in 'twenty three.

Trend.

Across.

Signing up some.

Some companies that are scaling up their businesses and so in terms of size of companies that we have.

And we got a got a revenue in.

Signed up we're seeing a number of growth companies. We are seeing a number of mature size companies in a number of global companies. They are all.

Is it as much as we.

We'd like to get no. We think there's a lot more opportunity so we'd love to get a lot more revenue out there, but we've got a very nice base, that's been built up on that as such.

Also seeing our growth rate in UK and Europe to be a stronger. So that's a good thing for us because we'd love to be able to diversify our business a lot more.

So our expectation is that these things will continue to reverse out themselves and we should be able to see some growth on that in the second half of the year and then certainly Q1 of 24 in analytics should be higher in absolute dollar terms as compared to Q4 of green tree.

Across the globe and we've been very happy with the pace and the quality of new client logos that we're signing up.

And did marketing analytics meet your expectations for the quarter and if I heard you right you expect a return to growth in the second half could you give us a little bit more color on.

Yeah.

That was helpful color. Thank you.

Thanks.

I'm showing no further questions at this time I would now like to turn it back to John Kristoff for closing remarks.

We will give you gives you confidence.

Sure So marketing analytics as you know for us.

Thank you Rick I just wanted to reiterate our ROE had said we are going to be conducting a strategy update session for investors on may 7th This will be a live event held in New York City and details will be forthcoming on that event, but please mark your calendars and thank you for joining our call today and as always.

As in a number of different segments, it's in insurance in banking and financial services, It's in health care.

In insurance marketing analytics had come to.

Had slowed down quite significantly because caveat, but not being able to get price increases.

A follow up with me or with your individual questions. Thank you.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Over the last couple of quarters that has now changed and regulators insurance regulators are allowing carriers to increase pricing.

And therefore, we are seeing insurance companies go back into the market and we're seeing initial signs of that.

The acquisition of new customers take place within the banking and financial services.

The interest rates had gone up and therefore.

The marketing for new customers had dried up in 2023, if interest rates stabilize out here or start to move down we would expect that the banks and financial services will again restart that.

Acquisition of new customers, and then healthcare was a new segment for us and a new industry vertical for us that we started with target in 'twenty three and we picked up our revenue from a number of different payors in 'twenty three.

And we got a got a revenue in.

Is it as much as <unk>.

We'd like to get no. We think there's a lot more opportunity so we'd love to get a lot more revenue out there, but we've got a very nice base, that's been built up on that as such.

That was helpful color. Thank you.

Thanks.

I am showing no further questions at this time I would now like to turn it back to John Kristoff for closing remarks.

Thank you <unk> I just wanted to reiterate our ROE had said we are going to be conducting a strategy update session for investors on may 7th This will be a live event held in New York City and details will be forthcoming on that event, but please mark your calendars and thank you for joining our call today and as always.

A follow up with me or whats your individual questions. Thank you.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Yeah.

[music].

Sure.

[music].

Yes.

[music].

Okay.

Sure.

Okay.

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