Q1 2024 ExlService Holdings Inc Earnings Call
Operator: Good day, and thank you for standing by, and welcome to the first quarter 2024 Exlservice Holdings Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Kristoff, VP of Investor Relations. Please go ahead.
Good day, and thank you for standing by and welcome to the first quarter of 2024 E X L Service Holdings, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.
Operator: The speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one on your telephone you didn't hear an automated message advising your hand is raised.
Operator: Your question. Please press Star one again, please be advised that today's conference is being recorded I would now.
Operator: I'd like to hand, the conference over to your Speaker today, John Kristoff VP of Investor Relations. Please go ahead.
John D. Kristoff: Thanks, Justin. Good morning. Thank you for joining EXL's first quarter 2024 Financial Results Conference call. On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer, and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the first quarter earnings release we issued this morning. We have also posted an earnings release slide deck and investor fact sheet in the investor relations section of our website. As a reminder, some of the matters we'll discuss this morning are forward looking.
John D. Kristoff: Thanks, Justin Good morning, Thank you for joining Exl's first quarter 2024 financial results conference call on the call with me today are Rohit Kapoor, our chairman and Chief Executive Officer, and Rich and Nicole Ali Chief Financial Officer.
John D. Kristoff: We hope you've had an opportunity to review the first quarter earnings release, we issued this morning. We have also posted an earnings release slide deck and Investor fact sheet in the Investor Relations section of our website.
John D. Kristoff: As a reminder, some of the matters. We'll 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.
John D. Kristoff: 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.
John D. Kristoff: 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.
John D. Kristoff: <unk> assumes no obligation to update the information presented on this conference call today.
John D. Kristoff: During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of these measures to GAAP can be found in our press release, slide deck, and investor fact sheet. And with that, I'll turn the call over to Rohit.
John D. Kristoff: During our call we may reference certain non-GAAP financial measures, which we believe provide useful information for investors reconciliation of these measures to GAAP can be found in our press release slide deck and industrial factsheet.
John D. Kristoff: With that I'll turn the call over to Rohit.
Rohit Kapoor: Thanks, John. Good morning, everyone.
Rohit: Thanks, John Good morning, everyone welcome to Exl's first quarter 2024 earnings call.
Rohit Kapoor: Welcome to EXL's first quarter 2024 earnings call. I'm pleased to be with you this morning, sharing our strong financial results as we've had a solid start to the year. In the first quarter, we generated revenue of $436 million, an increase of 9% year-over-year. And we grew first quarter adjusted EPS by 9% to $0.38 per share.
Rohit Kapoor: I'm pleased to be with you. This morning sharing our strong financial results as we've had a solid start to the year.
Rohit Kapoor: In the first quarter, we generated revenue of $436 million, an increase of 9% year over year.
Rohit Kapoor: And we grew first quarter adjusted EPS by 9% to 38 cents per share.
Rohit Kapoor: Our data and AI-led strategy has generated a sustainable competitive advantage for eXp. The sound execution of this strategy has enabled us to continue our growth momentum. For analytics, we delivered revenue of $191 million for the quarter, up 5% sequentially and year over year.
Rohit Kapoor: Our data and AI led strategy has generated a sustainable competitive advantage for EXL.
Rohit Kapoor: The sound execution of this strategy has enabled us to continue our growth momentum.
Rohit Kapoor: In analytics, we delivered revenue of $191 million for the quarter up 5% sequentially and year over year.
Rohit Kapoor: I am encouraged by the first quarter performance in our analytics segment, which has been relatively flat for the past three quarters. This is the result of continued strong double-digit growth in health care payment services and data management. Are banking analytics businesses stabilized during the quarter while marketing analytics remains challenged, as discussed previously? In our digital operations and solutions business, during the first quarter, we generated revenue of $246 million with growth of 6% sequentially and 12% year over year.
Rohit Kapoor: I am encouraged by the first quarter performance in our analytics segment, which has been relatively flat for the past three quarters.
Rohit Kapoor: This is the result of continued strong double digit growth in health care payment services.
Rohit Kapoor: And data management.
Rohit Kapoor: Our banking analytics business stabilized during the quarter.
Rohit Kapoor: While marketing analytics remains challenged as discussed previously.
Rohit Kapoor: In our digital operations and solutions business during the first quarter, we generated revenue of $246 million with growth of 6% sequentially and 12% year over year.
Rohit Kapoor: This was driven by continued strong double-digit growth in our insurance and emerging business segments. Looking at the overall demand environment, our new and existing clients remain focused on lowering costs, improving efficiencies, and enhancing the customer experience and growth. Our data and AI-led strategy, combined with our deep domain expertise, is helping them achieve these goals. We have been able to significantly increase our total addressable market by offering innovative new solutions and expanding into new buying centers.
Rohit Kapoor: This was driven by continued strong double digit growth in our insurance and emerging business segments.
Rohit Kapoor: Looking at the overall demand environment.
Rohit Kapoor: And existing clients remain focused on lowering costs, improving efficiencies and <unk>.
Rohit Kapoor: Enhancing customer experience and growth.
Rohit Kapoor: Our data and AI that strategy combined with our deep domain expertise is helping them achieve these goals.
Rohit Kapoor: We have been able to significantly increase our total addressable market by offering innovative new solutions and expanding into new buying centers.
Rohit Kapoor: This is reflected in the continued strength of our sales pipeline, as clients increasingly turn to us for end-to-end solutions. We have also grown our average deal size, which is fueling our above-industry revenue growth. Based on our strong performance in the first quarter, we have raised the lower end of our full year guidance range for both revenue and EPS. Maurizio will review the details in a few minutes.
Rohit Kapoor: This is reflected in the continued strength of our sales pipeline.
Rohit Kapoor: As clients increasingly turn to us for end to end solutions.
Rohit Kapoor: We have also grown our average deal size, which is fueling our above industry revenue growth.
Rohit Kapoor: Okay.
Rohit Kapoor: Based on our strong performance in the first quarter, we have raised the lower end of our full year guidance range for both revenue and EPS.
Rohit Kapoor: Joe will review the details in a few minutes.
Rohit Kapoor: We recently held our AI in Action Virtual Customer Symposium, where attendees heard from EXL and industry leaders on the future of business models and how they are scaling the use of enterprise data to bridge the gap between strategy and operations to make AI real. The event included live demonstrations of practical applications and use cases of embedding AI across all our business segments. The event was attended by over 2,300 clients, prospects, analysts, advisors, and partners, and feedback has been very positive. A replay of the event is available on our website.
Rohit Kapoor: We recently held our AI and actual virtual customer symposium.
Rohit Kapoor: Attendees heard from EXL and industry leaders on the future of business models and how they are scaling the use of enterprise data to bridge the gap between strategy and operations to make AI Ria.
Rohit Kapoor: The event included live demonstration of practical applications and use cases of embedding AI across all our business segments.
Rohit Kapoor: The event was attended by over 2300 clients prospects and other advisers and partners and feedback has been very positive.
Rohit Kapoor: A replay of the event is available on our website.
Rohit Kapoor: Let me share a couple of recent examples of how we are bringing to life all our capabilities at the intersection of data, AI, and domain expertise for our clients to deliver meaningful value. First, we developed a Gen-AI-based conversational business intelligence solution for a leading life and annuity insurer. The solution is designed to help them better understand their captive and independent advisors' interests, behaviors, and demographics.
Rohit Kapoor: Let me share a couple of recent examples of how we are bringing to life all of our capabilities at the intersection of data AI and domain expertise for our clients to deliver meaningful value.
Rohit Kapoor: This helps them optimize targeting and message development to improve their experience and increase sales and return on marketing investment. Effectively developing the solution for the client required bringing together our talented team of Gen AI experts. Data Engineers, Business Subject Matter Experts, and AI Deployment Specialists to work as an integrated team. We harness large volumes of both external and internal client data assets to build a 360-degree profile of each advisor. We fine-tuned LLMs to generate personalized insights for distinct advisor groups with unique traits. Finally, we developed a conversational interface for an easy and intuitive user experience.
Rohit Kapoor: First we developed a gen AI based conversational business intelligence solution for a leading life and annuity insurer.
Rohit Kapoor: The solution is designed to help them better understand their captive and independent advisors interest behaviors and demographics.
Rohit Kapoor: This helps them optimize targeting and message development to improve their experience and increase sales and return on marketing investment.
Rohit Kapoor: Effectively developing the solution for the client required bringing together our talented team of <unk> expects data engineers business subject matter experts and AI deployment specialists to work as an integrated team.
Rohit Kapoor: We harvest large volumes of both external and internal client data assets to build a 360 degree profile of each adviser.
Rohit Kapoor: We fine tuned LLM to generate personalized insights for distinct adviser groups with unique trips.
Rohit Kapoor: Finally, we developed a conversational interface for an easy and intuitive user experience.
Rohit Kapoor: This solution is highly scalable and delivers on-demand, real-time, natural language insights across all our clients' sales and marketing functions. By leveraging additional data sets and embedding digital into our clients' marketing and sales processes, we have created significant value by enabling them to double their new business volume. In another example, EXL has become the preferred AI and data partner for a UK-based leading retailer. We accomplished this through the successful implementation of multiple AI-based solutions to transform their online sales operations.
Rohit Kapoor: This solution is highly scalable and delivers on demand.
Rohit Kapoor: Our time natural language insights across all our client sales and marketing functions.
Rohit Kapoor: By leveraging additional datasets.
Rohit Kapoor: Embedding digital into our clients' marketing and sales processes, we have created significant value by enabling them to double their new business volume.
Rohit Kapoor: In another example, EXL has become the preferred.
Rohit Kapoor: Data partner for a UK based leading retailer.
Rohit Kapoor: We accomplished this through the successful implementation of multiple AI based solutions group transform their online sales operations.
Rohit Kapoor: For example, we deployed our proprietary Gen AI-based smart agent assist solution at scale, which is currently running live across 1,100 customer agents handling 6 million calls annually in the client's captive operations as well as those outsourced to eXp. Our solution provides real-time speech-to-text.
Rohit Kapoor: For example, we deployed a proprietary gen AI based smart agent assist solution at scale, which is currently running light across 1100 customer agents handling 6 million calls annually in the client's captive operations as well as though.
Rohit Kapoor: Outsource to EXL.
Rohit Kapoor: Our solution provides real time speech to text.
Rohit Kapoor: AI nudges for the next best action, Customer Sentiment and Vulnerability Detection, and Call Summary. Early results include a greater than 90% reduction in customer repeat calls, a double-digit agent productivity gain, and vulnerability detection accuracy rates of over 95%. In addition, we have helped our clients reduce return.
Rohit Kapoor: Not just for next best action.
Rohit Kapoor: Customer sentiment and vulnerability detection and call summary.
Rohit Kapoor: All these results include a greater than 90% reduction in customer repeat calls.
Rohit Kapoor: Our double digit agent productivity gain and vulnerability detection accuracy rates of over 95%.
Rohit Kapoor: In addition, we have helped our clients reduce returns streamline order than refiners and improve overall customer experience.
Rohit Kapoor: Streamline orders and refunds and improve overall customer experience. We also deployed EXL's BioAssist solution, which utilizes Gen-AI and natural language processing to generate insights from disjointed and unstructured data from 40 different sources across the web, social media, online reviews, and catalogs. Our solution is adept at handling data in any form, be it text, images, or videos, and feeds it into our Buyer Assist Recommendation Engine. By presenting our client's buyers with customized recommendations, we help them better predict which items to procure based on potential future demand. This has resulted in a 2-3% increase in sales.
Rohit Kapoor: We also deployed EXL buyer assist solution, which utilizes gen AI and natural language processing to generate insights from disjointed and unstructured data from 40 different sources across the web social media online reviews and catalogs.
Rohit Kapoor: Our solution is adapt and handling data in any form via text images or videos and feed that into our buyer recommendation engine.
Rohit Kapoor: By presenting our clients buyers with customized recommendations, we helped them better predict which items to procure based on potential future demand.
Rohit Kapoor: This has resulted in a 2% to 3% increase in sales.
Rohit Kapoor: A 30-40% improvement in buyer productivity and enhanced customer satisfaction. Due to our success with this client, EXL is now their strategic business transformation partner in deploying AI across their enterprise, thereby expanding our TAM and enabling us to continue our growth momentum. These are just a few examples of the proprietary AI-based solutions we have developed and deployed that combine data and AI with our deep industry experience to deliver meaningful business benefits to our clients and their end customers.
Rohit Kapoor: 30% to 40% improvement in buyer productivity and enhance customer satisfaction.
Rohit Kapoor: Due to our success with this client.
Rohit Kapoor: <unk> is now that strategic business transformation partner in deploying AI across their enterprise, thereby expanding our Tam and enabling us to continue our growth momentum.
Rohit Kapoor: These are just a few examples of the proprietary AI based solutions, we have developed and deployed that combine data and AI with our deep industry experience to deliver meaningful business benefits to our clients and their end customers.
Rohit Kapoor: I am pleased to highlight two key appointments we made recently within our senior leadership team. Vikas Bhalla and Vivek Jaitley have each been promoted to President of EXL in addition to their current roles as Head of Insurance and Head of Analytics, respectively.
Rohit Kapoor: Yeah.
Rohit Kapoor: I am pleased to highlight two key appointments, we made recently within our senior leadership team.
Rohit Kapoor: The cost Bella and Vivek jaitley have each been promoted to president of EXL. In addition to the current growth of head of insurance and head of analytics, respectively.
Rohit Kapoor: In their expanded roles, they will take on broader company-wide responsibilities, including being more involved in driving overall corporate performance and executing on our data and AI-led strategy. As we implement our data and AI-led strategy, it is important that we continually optimize our leadership structure to execute on our strategic objectives. Vikas and Vivek are highly talented and strategic leaders who have built strong, sustainable growth businesses and have created tremendous impact for EXL over the past two decades.
Rohit Kapoor: In their expanded roles they will take on broader companywide responsibilities, including being more involved in driving overall corporate performance and executing on our data and AI led strategy.
Rohit Kapoor: As we implement our data and AI that strategy. It is important that we continually optimize our leadership structure to execute on our strategic objectives.
Rohit Kapoor: The cost and will make our highly talented and strategic leaders, who have built strong sustainable growth businesses and have created tremendous impact for EXL over the past two decades.
Rohit Kapoor: In their expanded roles, I look forward to their continued leadership as we transform EXL into the data and AI partner of choice for our clients. We will be holding an investor strategy update event next Tuesday, May 7th, to provide an in-depth overview of our strategy, our pivot to being a data and AI-led company, and our growth opportunities. Registration for the event is available on the investor relations page of our website, and we look forward to seeing you there.
Rohit Kapoor: In their expanded roles I look forward to their continued leadership as we transform EXL to the data and AI partner of choice for our clients.
Rohit Kapoor: We will be holding an investor strategy update event next Tuesday may seven to provide an in depth overview of our strategy.
Rohit Kapoor: Our beverage to being a data and AI led company and our growth opportunities.
Rohit Kapoor: Registration for the event is available on the Investor Relations page of our website and we look forward to seeing you bet.
Rohit Kapoor: In summary, we delivered strong results in the first quarter, and we are encouraged by the continued momentum in our digital operations business as well as the growth in our analytics business. Our winning data and AI-led strategy, combined with consistent execution by our exceptionally talented and dedicated team, positions us well to deliver industry-leading performance for the remainder of 2024 and beyond. With that, I'll turn the call over to Maurizio to cover our financial performance in detail.
Rohit Kapoor: In summary, we delivered strong results in the first quarter and we are encouraged by the continued momentum in our digital operations business as well as the growth in our analytics business.
Maurizio: Our winning data on AD strategy combined with consistent execution by our exceptionally talented and dedicated team position us well to deliver industry, leading performance for the remainder of 2024 and beyond.
Rohit Kapoor: With that I'll turn the call over to Maurizio to cover our financial performance in detail.
Maurizio Nicolelli: Thank you, Rohit, and thanks to everyone for joining us this morning. I will provide insights into our financial performance for the first quarter, followed by our revised outlook for 2024. We delivered a solid first quarter with revenue of $436.5 million, up 9% year-over-year on a reported basis, 8.8% in constant currency, and 5.4% sequentially. Adjusted EPS was $0.38, a year-over-year increase of 8.9%. All revenue growth percentages mentioned hereafter are on a constant currency basis.
Speaker Change: Thank you Robert and thanks, everyone for joining us. This morning, I will provide insights into our financial performance for the first quarter, followed by our revised outlook for 2024 weeks.
Maurizio Nicolelli: We delivered a solid first quarter with revenue of $436 5 million up 9% year over year on a reported basis eight 8% in.
Maurizio Nicolelli: In constant currency and five 4% sequentially adjusted EPS was <unk> 38 a.
Maurizio Nicolelli: A year over year increase of eight 9%.
Maurizio Nicolelli: All revenue growth percentages percentages mentioned hereafter are on a constant currency basis.
Maurizio Nicolelli: Revenue from our digital operations and solutions businesses, as defined by three reportable segments, excluding analytics, was $245.8 million, representing year-over-year growth of 12.3%. Sequentially, we grew revenue 5.9%. In the insurance segment, we generated revenue of $145.1 million, an increase of 15.6% year-over-year and 4.4% sequentially. This growth was driven by the expansion of existing client relationships and new client wins.
Speaker Change: Revenue from our digital operations and solutions businesses as defined by three reportable segments. Excluding analytics was $245 8 million representing year over year growth of 12, 3% sequentially. We grew revenue five 9%.
Maurizio Nicolelli: In the insurance segment, we generated revenue of $145 1 million, an increase of 15, 6% year over year and four 4% sequentially.
Maurizio Nicolelli: This growth was driven by the expansion of existing client relationships and new client wins.
Maurizio Nicolelli: The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 12, 1% year over year with revenue of $183 1 million.
Maurizio Nicolelli: The insurance vertical, consisting of both our digital operations and solutions and analytics businesses, grew 12.1% year-over-year with revenue of $183.1 million. In the emerging segment, we reported revenue of $74.4 million, growing 11.9% year-over-year and 10.7% sequentially. This growth was driven by new client wins and expansion of existing client relationships.
Maurizio Nicolelli: In the emerging segment, we reported revenue of $74 4 million growing 11, 9% year over year and 10, 7% sequentially.
Maurizio Nicolelli: This growth was driven by new client wins and expansion of existing client relationships.
Maurizio Nicolelli: The emerging vertical consisting of both our digital operations and solutions and analytics businesses grew 4% year over year with revenue of $155 6 million.
Maurizio Nicolelli: The emerging vertical, consisting of both our digital operations and solutions and analytics businesses, grew 0.4% year-over-year with revenue of $155.6 million. The healthcare segment reported revenue of $26.3 million, down 1.7% year-over-year and an increase of 1.1% sequentially. The year-over-year decrease was primarily due to one-time revenue in the first quarter of 2023.
Maurizio Nicolelli: The healthcare segment reported revenue of $26 3 million down one 7% year over year and an increase of one 1% sequentially the.
Maurizio Nicolelli: The year over year decrease was primarily due to one time revenue in the first quarter of 2023.
Maurizio Nicolelli: The healthcare vertical, consisting of our digital operations and solutions and analytics businesses, grew 18.1% year-over-year with revenue of $97.8 million. In the analytic segment, we generated revenue of $190.7 million, up 4.6% year-over-year and 4.7% sequentially. Growth in analytics was driven by higher volumes in healthcare payment services and growth in our data management business. However, this was partially offset by a decline in marketing analytics, reflecting an ongoing trend we have highlighted in previous quarters.
Maurizio Nicolelli: The healthcare vertical consisting of our digital operations and solutions and analytics businesses grew 18, 1% year over year with revenue of 97 8 million.
Maurizio Nicolelli: In the analytics segment, we generated revenue of 197 billion up four 6% year over year and four 7% sequentially.
Maurizio Nicolelli: Growth in analytics was driven by higher volumes and healthcare payment services and growth in our data management business.
Maurizio Nicolelli: This was partially offset by a decline in marketing analytics, reflecting an ongoing trend we have highlighted in previous quarters.
Maurizio Nicolelli: SG&A expenses as a percentage of revenue were up 140 basis points year-over-year to 20.4%, driven by investments in generative AI, digital solutions, and Front End Sales partially offset by operating leverage. Our adjusted operating margin for the quarter was 18.9%, down 50 basis points year over year, driven by increased SG&A investment. Our effective tax rate for the quarter was 23.2%, down 80 basis points from 24% in the first quarter of 2023. This was driven by higher profits in lower tax jurisdictions.
Maurizio Nicolelli: SG&A expenses.
Maurizio Nicolelli: As a percentage of revenue.
Maurizio Nicolelli: We're up 140 basis points year over year to 24%.
Maurizio Nicolelli: Driven by investments in generative AI digital solutions.
Maurizio Nicolelli: Front end sales, partially offset by operating leverage.
Maurizio Nicolelli: Our adjusted operating margin for the quarter was 18, 9% down 50 basis points year over year, driven by increased SG&A investments.
Maurizio Nicolelli: Our effective tax rate for the quarter was 23, 2% down 80 basis points from 24% in the first quarter of 2023. This was driven by higher profits in lower tax jurisdictions.
Maurizio Nicolelli: Our adjusted EPS for the quarter was $0.38, up 8.9% year-over-year on a reported basis. Our balance sheet remains strong. Our cash, including short and long-term investments, as of March 31st, was $246 million, and our revolver debt was $345 million for a net debt position of $99 million. Our first quarter cash flow from operations was an outflow of $21.9 million compared to an inflow of $16 million in the first quarter of 2023. This is due to higher working capital requirements and one-time earn-out payments related to a prior acquisition.
Maurizio Nicolelli: Our adjusted EPS for the quarter was <unk> 38 up eight 9% year over year on a reported basis.
Maurizio Nicolelli: Our balance sheet remains strong our cash, including short and long term investments as of March 31 was $246 million.
Maurizio Nicolelli: Our revolver debt was 345 billion for a net debt position of $99 million.
Maurizio Nicolelli: Our first quarter cash flow from operations was an outflow of $21 9 million compared to an inflow of $16 million in the first quarter of 2023.
Maurizio Nicolelli: This is due to higher working capital requirements and onetime earn out payments related to a prior acquisition.
Maurizio Nicolelli: During the quarter, we spent $11.3 million on capital expenditures and repurchased approximately 4 million shares at an average share price of $30 for a total of $119.4 million. This includes 3.35 million shares received up front as part of our previously announced 125 million accelerated share repurchase plan. We expect to receive the remaining shares in the third quarter.
Maurizio Nicolelli: During the quarter, we spent $11 3 million on capital expenditures and repurchased approximately 4 million shares at an average share price of $30 for a total of $119 4 million.
Maurizio Nicolelli: This includes 335 million shares received upfront as part of our previously announced $125 million accelerated share repurchase plan, we expect to receive the remaining shares in the third quarter.
Maurizio Nicolelli: Now, moving on to our outlook for 2024. Although the macroeconomic environment remains unpredictable, we are raising the bottom end of our guidance ranges for both revenue and EPS based on our strong first quarter results. We now anticipate revenue to be in the range of $1.79 billion to $1.82 billion, representing year-over-year growth of 10% to 12% on a reported and constant currency basis. This represents an increase of $5 million at the midpoint and $10 million at the low end of our previous guidance of $1.78 billion to $1.82 billion.
Speaker Change: Now moving onto our outlook for 2024.
Maurizio Nicolelli: Although the macroeconomic environment remains unpredictable, we are raising the bottom end of our guidance ranges for both revenue and EPS based on our strong first quarter results.
Maurizio Nicolelli: We now anticipate revenue to be in the range of $1 79 billion to $1 eight 2 billion representing year over year growth of 10% to 12% on a reported and constant currency basis.
Maurizio Nicolelli: This represents an increase of $5 million at the midpoint and $10 million at the low end of our previous guidance of $1 78 billion to $1 eight 2 billion.
Maurizio Nicolelli: We expect a foreign exchange gain of approximately $1 million, net interest expense of approximately $4 million to $5 million, and our full-year effective tax rate to be in the range of 23 to 24 percent. We anticipate our adjusted EPS to be in the range of $1.58 to $1.62, representing year-over-year growth of 10 to 13 percent. We expect capital expenditures to be in the range of $50 to $55 million. In summary, we started the year strong and are encouraged by the continued double-digit growth momentum in our digital operations business and the growth in our analytics business.
Maurizio Nicolelli: We expect a foreign exchange gain of approximately $1 million net interest expense of approximately 4 million to $5 million and our full year effective tax rate to be in the range of 23% to 24%.
Maurizio Nicolelli: We anticipate our adjusted EPS to be in the range of $1 58 to $1 62, representing year over year growth of 10% to 13%.
Maurizio Nicolelli: We expect capital expenditures to be in the range of $50 million to $55 million.
Maurizio Nicolelli: In summary, we started the year strong and are encouraged by the continued double digit growth momentum in our digital operations business and the growth in our analytics business.
Maurizio Nicolelli: By effectively executing our data and AI-led strategy, including the significant investments we are making to further grow our competitive advantage, we are confident in our ability to maintain our double-digit growth trajectory. With that, Rohit and I will now be happy to take your questions.
Maurizio Nicolelli: By effectively executing executing our data and AI led strategy, including the significant investments, we're making to further grow our competitive advantage. We are confident in our ability to maintain our double digit growth trajectory.
Speaker Change: With that wrote and I will now be happy to take your questions.
Operator: And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question comes from Brian Bergin from TD Cowan. Your line is now open.
Operator: And thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby will be compile the Q&A roster.
Operator: And one moment for your first question.
Bryan C. Bergin: And our first question comes from Bryan Bergin from TD Cowen. Your line is now open.
Bryan C. Bergin: Hi, good morning. Thank you. And congratulations to Vivek and Vikas.
Bryan C. Bergin: Hi, Good morning, Thank you and congrats to Vivek and Vikas.
Bryan C. Bergin: I want to start by saying analytics performed a bit better than expected here sequentially. Can you comment on how you now see analytics growth progressing over the balance of the year? I heard the comment on banking stabilization, which is good. Can you just dig in a little bit more there on what you're seeing? And then customer marketing analytics, just to be clear, is it bouncing along the bottom, or are clients kind of still trimming?
Bryan C. Bergin: I want to start on analytics performed a bit better than expected here sequentially can you comment on how you now see analytics growth progressing over the balance of the year I heard the comment on banking stabilization, which is go can you just dig in a little bit more there on what youre seeing and then customer marketing analytics just to be clear is it bouncing along the bottom or are clients kind of still trimming.
Rohit Kapoor: So first of all, we're very pleased with the progression of our analytics business, and this is the first quarter where we are seeing sequential growth take place quarter on quarter after three years of flattish revenue for the analytics segment.
Speaker Change: Sure Brian.
Speaker Change: So first of all we're very pleased with the progression of our analytics business and this is.
Rohit Kapoor: The first quarter, where we are seeing sequential growth take place quarter on quarter. After three years of flattish revenue for the analytics segment three quarters.
Rohit Kapoor: Two quarters? Three quarters. You said three quarters. Yeah. Yeah.
Rohit Kapoor: Two quarters three quarters, you said three quarters.
Rohit Kapoor: The analytics business, as you know, for us, is made up of different buckets. We've got analytic services, we've got a data management capability, and we've got marketing analytics as part of the portfolio. The data management part of our portfolio is very strong and continues to grow very nicely, and we feel we are well positioned to take advantage of the secular trends that are taking place out there, and particularly with the adoption of Gen AI. The demand for data management has only increased, and we feel that we are well positioned to participate in this growth.
Rohit Kapoor: The analytics business as you know for US is made up of different buckets. We've got analytic services, we've got a data management capability and we've got a marketing analytics as part of the portfolio.
Rohit Kapoor: The data management part of our portfolio is very strong and continues to grow very nicely and we feel we are well positioned to take advantage of the secular trends that are taking place out there and particularly with the adoption of Gen. AI the demand for data management has only increased.
Rohit Kapoor: And we feel that we are well positioned to participate in this growth.
Rohit Kapoor: We are very happy that the analytic services part of our portfolio has now stabilized and recovered nicely. This was being impacted by banking analytic services where discretionary spend was being cut back, and spend on analytic services was being cut back.
Rohit Kapoor: We are very happy that the analytics services part of our portfolio has now stabilized and recovered nicely. This was being impacted by banking analytic services, where discretionary spend was being cut back and spend on analytics services was being cut back that seems to have now stabilized.
Rohit Kapoor: That seems to have now stabilized, and we would expect this to continue to move up as we go forward. However, marketing analytics for us continues to remain challenged, and it continues to decline in revenue, and it is actually a headwind for us at this point in time. We do expect that this will stabilize and that this will be something that will bottom out. But at this point in time, it continues to decline, and it continues to be a drag on us.
Rohit Kapoor: And we would expect this to continue to move up as we go forward.
Rohit Kapoor: Marketing analytics for US continues to remain challenged and it continues to decline in revenue and it was actually a headwind for us at this point of time we.
Rohit Kapoor: We do expect that this will stabilize and that this will be something that will bottom out.
Rohit Kapoor: But at this point of time it continues to decline and it continues to be a drag for our business.
Rohit Kapoor: If you take a look at the overall analytics business. Our expectation is that, in calendar year 24, we would expect to see sequential growth take place in the absolute dollar value of our analytics revenue quarter on quarter. And what that would also imply is that our growth rate year on year is likely to continue to improve from Q1, which was at 5%, and we would expect this to continue to improve sequentially, quarter on quarter, as well as year on year for 2020. I hope that's helpful for your questions.
Rohit Kapoor: If you take a look at the overall analytics business.
Rohit Kapoor: Our expectation is in calendar year 'twenty four we would expect to see sequential growth take place in the absolute dollar value of our analytics revenue quarter on quarter and what that would also imply is that our growth rate year on year.
Rohit Kapoor: It's likely to continue to improve from Q1, which was at 5% and we would expect this to continue to improve sequentially quarter on quarter as well as year on year for training for any fault I hope that's helpful for your questions.
Rohit Kapoor: Yes, very good. Okay, and follow-up here on near-term workforce resourcing plans. Obviously, a recent media report drove some share price volatility, so just wanted to give you a chance to clarify anything around that. I understand your net headcount was up in the quarter here, but do you still benchmark to optimize any areas of talent you're de-emphasizing versus areas you're leaning in on?
Speaker Change: Yes, very good.
Rohit Kapoor: Okay, and then follow up here on near near term workforce Resourcing plants. Obviously, a recent media report drove some share price volatility. So just wanted to give you a chance to clarify anything around that understanding your net head count was up in the quarter here, but do you still have bench to optimize any areas of talent.
Rohit Kapoor: Deemphasizing versus areas you are leaning in.
Rohit Kapoor: Sure. So, you know, Workforce Rationalization and Optimization for us is, firstly, a very, very small piece of our overall employee headcount, and it represents less than 2% of our overall headcount. As you rightly pointed out, we've been growing our headcount quarter-on-quarter as well as year-on-year. If you just compare where we ended up at the end of Q1 in 24 versus the end of Q1 in 23, there was a net addition of 7,000 employees at EXL, and that's consistent with the growth that we are experiencing and our ability to continue to add talent.
Speaker Change: Sure so.
Rohit Kapoor: The workforce rationalization and optimization for US is a very very small piece of our overall employee headcount and it represents less than 2% of our overall head count.
Rohit Kapoor: As you've rightly pointed out we've been growing our head count quarter on quarter as well as year on year. If you just compare where we ended up at the end of Q1 and 24 versus end of Q1 and 23 has been a net addition of 7000 employees at EXL.
Rohit Kapoor: And thats consistent with the growth that we're experiencing and our ability to continue to add on talent.
Rohit Kapoor: We would expect in 2024, we would continue to add employees on a net basis to the company as we continue to build and grow our revenues by 10 to 12% in calendar year 24, over 23. So this workforce rationalization that was done was predominantly done because of a skillset mismatch. And this is something which we had to undertake as a one-time action. This is obviously something which we are very careful about, but with the volatility of how the demand is shaping up and what kind of skillsets are needed, we needed to optimize it.
Rohit Kapoor: We would expect in 2024, we will continue to add employees on a net basis.
Rohit Kapoor: Company as we continue to build and grow our revenues by 10% to 12% in calendar year 'twenty for overtraining III. So this.
Rohit Kapoor: Robust cost rationalization that was done was predominantly done because of our skill set mismatch and this is something which we had to undertake as a one time action.
Rohit Kapoor: Obviously, something which we are very careful about but with the volatility of how the demand is shaping up and what kind of skill sets are needed we needed to optimize it and this is part of our prudent management of our business and I think this is something which.
Rohit Kapoor: And I think this is something which, you know, we'll take in our stride, and we'll continue to build up what we've got. The important thing is that revenue for us continues to scale up, and as our revenue scales up, we're going to need more and more people to do that work, and so we'll be adding staff as we go along.
Rohit Kapoor: We will take it in a stride and will continue to build up we've got the important thing is that revenue for us continues to scale up and as our revenue scales up youre going to need.
Rohit Kapoor: More and more people to do that work and so we'll be adding staff as we go along.
Ryan Potter: And thank you. And one moment for our next question. And our next question comes from Ryan Potter from Citi. Your line is now open.
Speaker Change: Very clear thank you.
Ryan Potter: And thank you.
Ryan Potter: And one moment our next question.
Ryan Potter: And our next question comes from Ryan Potter from Citi. Your line is now open.
Ryan Potter: Hey, thanks for taking my question and congrats on a good quarter. It was nice to see a strong start to the year on a sequential basis across both segments. And I know last quarter you called out sequential growth rates improving through the year. But with the unchanged top end of the outlook, it appears to assume some sequential growth rates stepping down from the 1-2 level. So first, I wanted to be clear, was there anything one-time or timing-related that drove some of the 1Q outperformance? And then is there anything to call out on why sequential performance may decelerate going forward?
Ryan Potter: Hey, Thanks for taking my question and congrats on the good quarter.
Ryan Potter: It was nice to see the strong start to the year on a sequential basis across both segments and I know last quarter, you called out sequential growth rates improving through the year, but with.
Ryan Potter: Change top end of the outlook it appears to assume some sequential growth rates stepping down from <unk> levels.
Ryan Potter: First of all wanted to be clear. It was there anything one time or timing related to that drove some of the <unk> outperformance and then is there anything to call out on why sequential performance may decelerate going forward or is it just being cautious around macro related assumptions.
Maurizio Nicolelli: Hi Ryan. It's Maurizio.
Ryan Potter: Alright.
Maurizio Nicolelli: Richard.
Maurizio Nicolelli: Thanks for the question.
Maurizio Nicolelli: When you look at the quarter, we did outperform.
Maurizio Nicolelli: During the quarter.
Maurizio Nicolelli: Based on discrete consensus.
Maurizio Nicolelli: And we did take a look at our guidance now and looking at our guidance. We did increase the bottom end of our guidance because we think thats, where we were with a very low probability of that occurring this year.
Rohit Kapoor: And thanks for the question. It's when you look at the quarter; we did outperform during the quarter, based on the street consensus. And we did take a look at our guidance. Now, in looking at our guidance, we did increase the bottom end of our guidance because we think that where we were was a very low probability of that happening this year. And also, implied in doing that, the midpoint of our guidance also comes up overall.
Rohit Kapoor: And also implied in doing that the midpoint of our guidance also comes up.
Rohit Kapoor: Given that it's still early in the year, we've only completed one quarter of the year, and we have the rest of the year still to perform, and there's still a bit of uncertainty in the overall marketplace, even though we are very confident of 10 to 12% growth going forward, we thought it was prudent right now to keep our high end at where it is. So our bottom end comes up from where we were.
Rohit Kapoor: Overall, given that it's still early in the year, we've only completed one quarter of the year and we have the rest of the year still to perform and there's still a bit of uncertainty in the overall marketplace.
Rohit Kapoor: Even though we are very confident on 10% to 12% growth going forward. We thought it was prudent right now to remain our high end at where it is so are our bottom end comes up from where we were our midpoint of the range also comes up from where we work, but right now given we're only one quarter into the year. We felt it was prudent to key.
Rohit Kapoor: Our midpoint of the range also comes up from where we were. But right now, given we're only one quarter into the year, we felt it was prudent to keep our top end of the range where it was when we gave guidance in February. So Ryan,
Rohit Kapoor: Keep our top end of the range, where it was when we were when we gave guidance in February.
Rohit Kapoor: So Ryan, let me add a couple of things to this. Number one, there is nothing as one-time revenue in the first quarter. This is part of the normal progression of our business, and we're very happy to see both digital operations and analytics start to grow and kind of perform well. Number two, on a quarterly basis. We would expect the year-on-year growth rate to continue to improve as we go forward in 24. Obviously, the quarter-on-quarter growth rate in Q1 was exceptionally high in Q4 of 2023, but we still expect to see quarter-on-quarter growth in absolute dollar terms in 2024, though the percentage growth rate quarter-on-quarter is going to be lower than the 5% that we experienced in Q1. So I hope that's helpful to you to understand how we see our business.
Speaker Change: So Ryan let me add a couple of things to this number one there is nothing as one time revenue in the first quarter. This is part of our normal progression of our business and we're very happy to see both digital operations and analytics start grow and kind of performed well.
Rohit Kapoor: Number two on a quarterly basis.
Rohit Kapoor: We would expect year on year growth rate to continue to improve as we go forward in 2004.
Rohit Kapoor: Obviously quarter on quarter growth rate in Q1 was exceptionally high over Q4 of 'twenty, three but we'll still expect to see quarter on quarter growth in absolute dollar terms in 2004, while the percentage growth rate quarter on quarter is going to be lower than the 5% that we.
Rohit Kapoor: In Q1.
Rohit Kapoor: Hope that's helpful to you to understand how we're seeing our business.
Rohit Kapoor: I guess, kind of shifting to the digital ops business where our performance center has been very impressive, and you consistently outperform peers, and you seem to outperform some of your expectations. I guess, what would you attribute some of the largest drivers of this outperformance to be? Do you think it's more reflective of the more cost-focused demand environment, or do you believe you're getting momentum and taking share in the marketplace?
Ryan Potter: Yes, that's helpful.
Rohit Kapoor: I guess kind of shifting to the digital ops business, where there has been very impressive.
Rohit Kapoor: Lee outperform peers in June seemed to outperform some of your expectations.
Rohit Kapoor: Do you attribute some of the largest drivers of this upfront to be do you think it's more reflective of the more cost focus demand environment or do you believe you are getting momentum and taking share in the marketplace here.
Rohit Kapoor: Sure, I think it's because of a couple of different fundamental factors that are driving the growth, and we are very pleased with our digital operations and solutions business, growing at 12% in this quarter year-on-year, and for the past several quarters, continuing to grow at these elevated levels. First and foremost is our ability to integrate digital with operations and analytics with operations.
Rohit Kapoor: Sure.
Rohit Kapoor: It's because of a couple of different fundamental factors that are driving the growth and we are very pleased with our digital operations and solutions business growing at 12% in this quarter year on year.
Rohit Kapoor: And for the past several quarters continuing to grow at at these.
Rohit Kapoor: Elevated levels.
Rohit Kapoor: First and foremost is our ability to integrate in digital with operations and analytics with operations.
Rohit Kapoor: That creates the ability for us to win much, much more, you know, in terms of the pipeline and drive the growth rate of this business a lot faster. The second part of this is that we are winning larger deals, and the average deal size has increased for us because clients now expect us to create business impact across a larger part of their portfolio and to handle the business for them end to end. And the third part of this is because we come at it from the lens of applying domain, data, and AI, our ability to go into new buying centers within the same clients and with new prospective clients is a lot better.
Rohit Kapoor: That creates the ability for us to win much much more in terms of the pipeline and drive the growth rate of this business a lot faster.
Rohit Kapoor: The second part of this is we are winning larger deals and the average deal size has increased for us because clients now expect us to create business impact across a larger part of that portfolio and to handle the business for them end to end.
Rohit Kapoor: And the third part of this is because we come at it from a lens of applying domain data and AI.
Rohit Kapoor: Our ability to grow into new buying centers within the same clients and with new prospective clients is a lot better. So frankly, the integration of digital and analytics with operations, where we believe we are very strongly positioned and uniquely positioned the larger deal size.
Rohit Kapoor: So frankly, the integration of digital and analytics with operations, where we believe we are very strongly positioned and uniquely positioned, the larger deal size, and the ability to go into new buying centers is allowing us to grow the digital operations and solutions business at a faster rate. And this is basically our business model responding very strongly with our clients and for us to stand out in the marketplace.
Rohit Kapoor: And the ability to go into new buying centers is allowing us to grow the digital operations and solutions business at a faster rate.
Rohit Kapoor: This is basically our business model resonating very strongly with our clients and for us to standout in the marketplace.
Rohit Kapoor: Great, I understand. Thanks again.
Speaker Change: Great understood. Thanks, Ken.
Speaker Change: And thank you.
Margaret Marie Niesen Nolan: And one moment for our next question. And our next question comes from Maggie Nolan from William and Blair. Your line is now open.
Speaker Change: And one moment our next question.
Margaret Marie Niesen Nolan: And our next question comes from Maggie Nolan from William and Blair. Your line is now open.
Margaret Marie Niesen Nolan: Thanks. Maybe just piggybacking off of that conversation about digital ops, can you talk about recent volume and pricing trends in the digital ops business and any kind of recent or updated thoughts on the health of key client accounts in that business?
Margaret Marie Niesen Nolan: Thanks.
Margaret Marie Niesen Nolan: Maybe just piggybacking off of that conversation around digital ops can you talk about recent volume and pricing trends in the digital business.
Margaret Marie Niesen Nolan: And any kind of recent or updated thoughts on the health of key client accounts in that business.
Rohit Kapoor: Sure, Maggie. So first of all, we are very fortunate that the portfolio that we have in our business for digital operations is in very steady and stable industry sectors. So for us, our insurance is emerging, and our healthcare, you know, business verticals, these are stable and growth-oriented verticals. And so we're not really seeing any change in volume.
Margaret Marie Niesen Nolan: Sure Maggie.
Rohit Kapoor: So first of all we are very fortunate that the portfolio that we have in our business and digital operations.
Rohit Kapoor: And very steady and stable industry sectors. So for us our insurance are emerging in our healthcare.
Rohit Kapoor: Business verticals these are stable and growth oriented verticals and so we're not really seeing any change.
Rohit Kapoor: In these verticals, we're seeing continued traction take place in terms of growth and volume, you know, in these verticals. As far as pricing is concerned, that is something that we are seeing some of our competitors work on trying to use price as a lever, but our focus with our clients has always been about how we can deliver exceptional value to them and then be able to charge them appropriately for that.
Rohit Kapoor: Change in volume in these verticals, we are seeing continued traction take place in terms of the growth in the volume.
Rohit Kapoor: These verticals.
Rohit Kapoor: As far as pricing is concerned.
Rohit Kapoor: That is something that.
Rohit Kapoor: We are seeing some of our competitors.
Rohit Kapoor: Work on on trying to use price as a lever.
Rohit Kapoor: But our focus with our clients is always been about how can we deliver exceptional value to them and then be able to charge them appropriately for that so.
Rohit Kapoor: Our existing clients know the execution and the value delivery that we have demonstrated to them, so they continue to give us more volume of business. But there are times with new customers where we do get challenged on pricing because some of our competitors are resorting to lower prices given their lower growth rates. And that's something where we have to stand out and differentiate and be able to demonstrate our capabilities in digital, in analytics, and the ability to create overall better value for the client.
Rohit Kapoor: Our existing clients no the execution and the value delivery that we have demonstrated to them. So they continue to give us more volume of business.
Rohit Kapoor: But there are times with new customers, where we do get challenged on pricing because.
Rohit Kapoor: Some of our competitors are regarding to a lower pricing given that lower growth rates.
Rohit Kapoor: And that's something where we have to stand out and differentiate and be able to demonstrate our capabilities, our digital analytics and the ability to create overall better value for the client.
Rohit Kapoor: All right, thank you. And then on the full year guidance, you know, I heard the commentary that you expect sequential growth, and that's great to hear. I'm wondering what part of the business would provide the upside to get you to the high end of the guidance? Is it a recovery in marketing analytics? Is it, you know, additional wins in digital operations, or a combination? How do you get there, and what are some of the assumptions baked into the higher end of that guidance range? Sure. As you know,
Speaker Change: Got it. Thank you and then on the full year guidance.
Rohit Kapoor: I heard the commentary that you expect the sequential growth and Thats great to hear I'm wondering.
Rohit Kapoor: What part of the business.
Rohit Kapoor: We'll provide the upside to get you to the high end of the guidance is that a recovery in the marketing analytics or that additional wins in digital ops. The combination how do you get there and what are some of the assumptions baked into the higher end of that guidance range.
Rohit Kapoor: Sure. As you know, digital operations for us represent 55% of our business, and it's a very stable and a very steady growth business for us, and any new wins that we have out there tend to have a revenue impact in out-of-quarters and out-of-year. So there isn't very much that we would expect, you know, in our digital operations business momentum to change. The big change could happen in our analytics business, and certainly with some of the engagements that we've started to undertake with our clients around Gen AI. I think those are the two opportunity areas for us to be able to try and get to the top end of the range for the guidance that we provide.
Rohit Kapoor: Sure.
Rohit Kapoor: As you know in our.
Rohit Kapoor: Digital operations for us represents 55% of our business and it's a very stable and very steady growth oriented business for us.
Rohit Kapoor: And any.
Rohit Kapoor: New wins that we have out there tends to have a revenue impact in outer quarters in outer years.
Rohit Kapoor: So there isn't very much that we would expect.
Rohit Kapoor: Digital operations business momentum to change.
Rohit Kapoor: The big change could happen in our analytics business and certainly with some of the engagements that we've started to undertake with our clients around Gen AI.
Rohit Kapoor: Those are the two opportunity areas for us to be able to try and get to the top end of the range for the guidance that we've provided.
Speaker Change: Thank you very much.
Speaker Change: And thank you.
Speaker Change: And one moment our next question.
Surinder Singh Thind: And one moment for our next question. And our next question comes from Surinder Thind from Jeffries, LLC. Your line is now open.
Rohit Kapoor: And our next question comes from Surinder <unk> from Jefferies. LLC. Your line is now open.
Rohit Kapoor: Thank you. In terms of just looking at some of the Gen-AI implementations or the potential types of projects that you're working on, obviously, there were some good demonstrations on the AI webinar day. Can you talk about, for example, customer service or others where I think there's been some concerns around headcount reductions? How is that model evolving from, like, what kind of productivity are you guys able to provide at this point? Or do you have any benchmarking or data on how we should think about the value that a client is receiving at this point?
Surinder Singh Thind: Thank you.
Rohit Kapoor: In terms of just.
Rohit Kapoor: Looking at some of the Gen AI implementations or the potential types of projects that youre working on.
Rohit Kapoor: Obviously, there were some good demonstrations on the AI Webinar day.
Rohit Kapoor: Can you talk about.
Rohit Kapoor: For example, like in the customer service area or others, where I think there's been some concerns around head count reductions.
Rohit Kapoor: How is that model evolving from like what kind of productivity are you guys able to provide at this point or do you have any benchmarking our data how we should think about that.
Rohit Kapoor: The value that a client is receiving at this point.
Rohit Kapoor: Sure, Soren. So, look, I think Gen AI and the application of digital technology are certainly allowing our clients to be able to have greater cost efficiency but, at the same time, have a much better end customer experience and to be able to target this towards generating growth. What we are finding is because our penetration and our share of wallet within each of our clients is still relatively low, it's less than 15 to 20 percent.
Rohit Kapoor: Sure.
Rohit Kapoor: So look I think Jen AI and the application of digital is certainly.
Rohit Kapoor: Allowing our clients to be able to have greater cost efficiency.
Rohit Kapoor: But at the same time have a much better end customer experience and to be able to target. This towards generating growth. What we are finding is because our penetration and our share of wallet within each of our clients is still relatively low.
Rohit Kapoor: Less than 15% to 20%.
Rohit Kapoor: Anytime we are able to deploy GenAI for our clients' benefit, we actually gain overall volume, and we gain in terms of revenue with that same client, even though we are providing them with greater efficiency, and we are providing them with a greater ability to create impact. The example that I shared in my prepared remarks, that's a classic example where we had an amazing experience with our clients, and we've been able to deploy a proprietary Gen AI-based solution across the enterprise.
Rohit Kapoor: Anytime we are able to deploy gen AI for our clients benefit we actually gain overall volume and we gain in terms of revenue would that same clients, even though we are providing them with greater efficiency and we are providing them with a greater ability to create impact and the example.
Rohit Kapoor: As I shared in my prepared remarks.
Rohit Kapoor: A classic example, where we've had an amazing experience with our clients and we've been able to deploy our proprietary gen. AI based solution across the enterprise and in fact 1100 customer service agents and 6 million calls a year, but what's happened is that the customer has given us.
Rohit Kapoor: And in fact, 1,100 customer service agents and 6 million calls a year. But what's happened is that the customer has given us more work because they want us to deploy this in other areas, in other business lines, and across other providers that they work with, as well as on their own captive operations. So the net impact of that is that our business relationship with our clients becomes a lot more strategic, and it increases in size and value.
Rohit Kapoor: More work because they want us to deploy this in other areas in other business lines and across other providers that they work with as well as on their own captive operations. So the net impact of that is that our business relationship with a client becomes a lot more strategic and it increases in.
Rohit Kapoor: Size and value.
Rohit Kapoor: That's helpful. And then it is just related to that.
Speaker Change: That's helpful and then just as it related to that.
Rohit Kapoor: As you think about implementing these solutions or more from the perspective of clients, what are they getting across or thinking about things like what's an acceptable error rate for an implementation? It seems like, you know, the solutions operate to various extents in terms of the quality of the end result here. Obviously, there are some low-risk cases; there are some higher-risk cases. But how do we think about the timeline on some of these types of projects of going from proof of concept to actually live and what they actually mean from a revenue perspective?
Rohit Kapoor: Okay.
Rohit Kapoor: As you think about implementing <unk> solutions or more.
Rohit Kapoor: From the perspective of clients.
Rohit Kapoor: Or how are they getting across or thinking about things like what's an acceptable error rate for implementation.
Rohit Kapoor: It seems like.
Rohit Kapoor: The solutions are.
Rohit Kapoor: Great.
Rohit Kapoor: We are six steps in terms of the quality of the end result here.
Rohit Kapoor: We see there are some low risk cases, theres some higher risk cases.
Rohit Kapoor: How do we think about the timeline on some of these types of projects are going from these proof of concepts.
Rohit Kapoor: To actually live and what they actually mean from a revenue perspective.
Rohit Kapoor: That's a great question, and I think it's at the crux of how clients and prospects are thinking about using JNN. So, first and foremost... Accuracy of the results is critically important, and second, the adoption of that solution is critically important. And adoption only takes place if the accuracy levels are high enough that they're providing you with a distinct competitive advantage. Our role is to make sure that we can deliver high-quality service and high accuracy and, at the same time, enable change management so that the adoption of using these tools is a lot better and a lot more sustainable.
Speaker Change: That's a great question.
Rohit Kapoor: And then I think the crux of how clients and prospects are thinking about using gen. II, So first and foremost.
Rohit Kapoor: Accuracy of the results is critically important and second the adoption of that solution is critically important and the adoption only takes place if the accuracy levels are high enough that they are providing you with a distinct competitive advantage.
Rohit Kapoor: Our goal is to make sure that we can deliver high quality service and high accuracy and at the same time enable change management. So that the adoption of using these tools is a lot better and a lot more sustainable now there is a fair amount of risk sharing that we undertake with our.
Rohit Kapoor: Now, there is a fair amount of risk sharing that we undertake with our clients and align ourselves to the end outcome. So there is a fair amount of investment that we are making in terms of having pre-built accelerators and pre-built solutions that we can bring to bear on our clients. And they don't need to invest in that early adoption capability. And then there is a lot of fine-tuning and model change that we need to do to get to those levels of accuracy. So when we start with a new solution, the accuracy levels are very low. They're like 65% to 70%.
Rohit Kapoor: Ants and align ourselves to the end outcomes. So there are there is a fair amount of investment that we're making in terms of having prepared.
Rohit Kapoor: Accelerators and prebuilt solutions that we can bring to bear to our clients and they don't need to invest in that early adoption capability and then there is a lot of fine tuning and a model change that we need to do to get to those levels of accuracy. So let me start with a with a new solution the accuracy levels.
Rohit Kapoor: Very low debt like 65% to 70%, but we have to drive that up to 90, 90% to 95% and that is driven by a strong understanding of the domain.
Rohit Kapoor: But we have to drive that up to 90% to 95%. And that is driven by a strong understanding of the domain and understanding of how and what the data is telling us, and therefore the fine-tuning of our algorithms and our ability to embed this into the workflow so that it is actually useful for every single person that is adopting these solutions. And that's where we are unique. And that's where we stand out. And that's how we're deploying it. But at the end of the day, our clients are partnering with us to be able to get to those levels of high accuracy and high adoption.
Rohit Kapoor: Understanding of how when what the data is telling us and therefore, the fine tuning of our algorithms and our ability to embed this into the workflow. So that it is actually useful useful for every single person that is adopting the solution and thats, where we are unique and thats, where we stand.
Rohit Kapoor: Note.
Rohit Kapoor: And.
Rohit Kapoor: That's how we are deploying this but at the end of the day, our clients are partnering with us to be able to get to those levels of high accuracy and high adoption.
Speaker Change: Thank you.
Puneet Jain: and thank you. And one moment for our next question, and our next question comes from Puneet Jain from J.P. Morgan. Your line is now open.
Speaker Change: And thank you.
Puneet Jain: And one moment our next question.
Puneet Jain: And our next question comes from Puneet Jain from Jpmorgan. Your line is now open.
Puneet Jain: Hi, thanks for taking my question and thanks for doing the webinar last week. It was very helpful. A quick question on that. Like, are you seeing that it's clear like that?
Puneet Jain: Hi, Thanks for taking my question and thanks for doing the very benign.
Puneet Jain: Last week it was very helpful.
Puneet Jain: Question on that like are you seeing like it's clear like that.
Rohit Kapoor: AI and Gen AI is helping drive some of the new conversations, new use cases for Excel, and you are well-positioned. But could it also be driving clients to take longer in deciding project awards, like because it's new, like the use cases might be new, like you mentioned, Rohit, just now? The accuracy levels required are also high, so could they be taking longer in deciding? Those project awards when it's about AI implementation in their processes.
Puneet Jain: AI and gender.
Rohit Kapoor: Is helping drive some of the new conversations new use cases for the <unk> position.
Rohit Kapoor: But.
Rohit Kapoor: It also be driving clients to take longer in deciding project awards like because it's new.
Rohit Kapoor: Like the use cases might be new like you mentioned just now.
Rohit Kapoor: The accuracy level required are also high.
Rohit Kapoor: So could there be taking longer in deciding.
Rohit Kapoor: Those project award.
Rohit Kapoor: It's about AI implementation in their processes.
Rohit Kapoor: Yes, Puneet, I think there is a longer lead time in terms of decision making by clients because they are looking at a number of proofs of concepts, and they are looking at experimenting as to where these technologies are going to be impactful, and where the return on investment is not very high. So there is a fair amount of experimentation and doing pilots and proof of concepts that is going on, and the decision making on enterprise-wide scaled deployments of these solutions is definitely taking time.
Rohit Kapoor: Yes.
Rohit Kapoor: I think.
Rohit Kapoor: There is.
Rohit Kapoor: Longer lead time in terms of decision, making by clients because they are looking at a number of proof of concepts and they are looking at experimenting as to where these technologies are going to be impactful and were actually the return on investment is not very high.
Rohit Kapoor: So there is a fair amount of experimentation and doing pilots and proof of concepts that are there and the decision making on enterprise wide scaled up deployments of these solutions is definitely taking time.
Rohit Kapoor: We are in a fortunate position because when we do these proofs of concepts for our clients, we're able to very quickly demonstrate our ability to create impact. And as soon as our clients see that, and that's very visible and transparent to them, then the deployment of that across the enterprise becomes a much easier decision for them and a much quicker decision for them. And so we are, I think, benefiting from an ability to kind of take some of these initial proofs of concepts and deploy them across the enterprise. So I would expect that, in 2024, this is going to be something that is going to result in active decision-making by our clients and our ability to be able to implement and deploy this for them.
Rohit Kapoor: We are in a fortunate position because when we do these proof of concepts for our clients.
Rohit Kapoor: We're able to very quickly demonstrate our ability to create impact.
Rohit Kapoor: And as soon as our clients see that and thats very visible and transparent to them than big deployment of that across the enterprise becomes a much easier decision for them and a much quicker decision for them and so we are.
Rohit Kapoor: I think benefiting from an ability to kind of take some of these initial proof of concepts and deploy them across the enterprise.
Rohit Kapoor: So I would expect in clinic ready for this is going to be something that is going to result in.
Rohit Kapoor: Active decision, making by our clients and our ability to be able to implement in the project for them.
Rohit Kapoor: Got it. Now, that's very helpful.
Speaker Change: Okay, No that's fair.
Speaker Change: Very helpful.
Rohit Kapoor: Prior guidance assumed I think.
Rohit Kapoor: And the prior guidance assumed, I think, that macro will remain unpredictable in the first half and potential normalization in the second half, particularly in analytics. Is that still your assumption? And do you expect marketing analytics to stabilize? When you say that, does that mean it will stabilize on a sequential basis? From here on...
Rohit Kapoor: Macro demand and predictable in the first half and potential normalization in second half.
Rohit Kapoor: Clearly analytics is that still your assumption and do you expect marketing analytics to stabilize when you say that does that mean, it will stabilize on a sequential basis.
Rohit Kapoor: From here on.
Rohit Kapoor: So, there are two parts to your question. One, from a macroeconomic standpoint, our viewpoint is that while the macroeconomic environment seems to be somewhat stabilizing, it continues to remain challenged. And therefore, our assumption is that the macroeconomic environment and our clients will remain cautious in terms of how they think about making investments and how they think about investing in new areas. As far as marketing analytics is concerned, that business for us has declined, and it has a seasonality to it, and the seasonality is that marketing analytics is typically stronger in the first quarter and in the fourth quarter, and in the second and third quarter, it's actually much lower, so we're going to see that play out for 2024 as well, but calendar year 24 over calendar year 23 it would still be.
Rohit Kapoor: So.
Rohit Kapoor: Two parts to your question one from a macroeconomic standpoint.
Rohit Kapoor: Our viewpoint is that while the macroeconomic environment seems to be somewhat stabilizing. It continues to remain challenged and therefore, our assumption is that the macroeconomic environment and our clients will remain cautious in terms of how they think about making investments and how.
Rohit Kapoor: They think about investing in new areas.
Rohit Kapoor: As far as marketing analytics is concerned.
Rohit Kapoor: That business for us.
Rohit Kapoor: Is declined and but it has a seasonality to it.
Rohit Kapoor: And the seasonality is that marketing analytics is typically stronger in the first quarter and in the fourth quarter and in the second and third quarter, it's actually much lower.
Rohit Kapoor: So we're going to see that play out.
Rohit Kapoor: Ford credit journey forward as well.
Rohit Kapoor: But calendar 'twenty four over calendar year 2003, it would still be a decline.
Rohit Kapoor: Okay.
Speaker Change: Got you. Thank you.
Speaker Change: And thank you.
Speaker Change: And one moment our next question.
Rohit Kapoor: And our next question comes from Moshe category from Wedbush. Your line is now open.
Rohit Kapoor: Got it. Thank you.
Speaker Change: Hey, Thanks for taking my call good numbers.
Rohit Kapoor: In Europe in your remarks, you spoke about.
Rohit Kapoor: Sales pipeline strength expanding average deal sizes.
Speaker Change: In that context can you talk a bit about maybe.
Rohit Kapoor: PCB ATV, how does that kind of moving is there any way to kind of quantify those movements and then any.
Speaker Change: Have there been any changes in the pace of sales cycles or pipeline conversion rates. Thanks.
Moshe Katri: And one moment for our next question. And our next question comes from Moshe Katri from Wedbush. Your line is now open.
Speaker Change: Sure. So our sales pipeline continues to remain strong both across digital operations and our data analytics business.
Moshe Katri: Okay. Thanks for taking my call.
Moshe Katri: I think.
Moshe Katri: PCB standpoint, we are seeing larger deals come in so the <unk> are certainly higher and the way we would characterize this is <unk>.
Rohit Kapoor: Good numbers. In your opening remarks, you spoke about sales pipeline strength with expanding average field sizes. In that context, can you talk a bit about TCV, and ACV, how is that kind of moving? Is there any way to kind of quantify those movements? And then any, have there been any changes in the pace of sales cycles or pipeline conversion rates? Thanks.
Rohit Kapoor: Sure. So, Moshe, our sales pipeline continues to remain strong, both across digital operations and our data analytics business. I think from a TCV standpoint, we're seeing larger deals come in, so the TCVs are certainly higher, and the way we would characterize this is that 70% of our pipeline is made up of large deals. We also, and the conversion between a TCV and an ACV, that remains pretty much constant. Typically, our digital operations deals are between three to five years in duration, and the analytics deals are typically one to two years, you know.
Rohit Kapoor: 70% of our pipeline is made up of large deals.
Rohit Kapoor: We also.
Rohit Kapoor: The conversion between a <unk> and an ACB that remains pretty much constant typically our digital operations deals out between three to five years in term and the analytics deals are typically one to one to two years.
Rohit Kapoor: So that ratio remains pretty much the same. As far as win rates are concerned, we've been fortunate that we've been winning at a healthy rate over the last few quarters, and that's what is giving us an elevated rate of growth in our digital operations business. Clearly, we need to have a lot more in our analytics business because the discretionary spend out there is somewhat curtailed, and decision-making on discretionary projects is still suppressed and being held back.
Rohit Kapoor: So that fact ratio remains pretty much the same as.
Rohit Kapoor: As far as the win rates are concerned.
Rohit Kapoor: We've been fortunate that we've been winning.
Rohit Kapoor: At a healthy rate over the last.
Rohit Kapoor: A few quarters and Thats, what is giving us.
Rohit Kapoor: Elevated rate of growth in our digital operations business.
Rohit Kapoor: Clearly, we need to have a lot more in our analytics business.
Rohit Kapoor: Because the discretionary spend out there is somewhat curtailed and that decision, making on discretionary projects is still.
Rohit Kapoor: So as soon as that kind of comes back to normal, we should see that go up. I think what we are seeing is that the banking and financial services sector seems to have stabilized. So that's a good sign for us because that's a large part of our business, and we would expect that as that stabilizes and returns to growth, we would be able to benefit.
Rohit Kapoor: Suppressed and being held back so as soon as that kind of comes back to normalcy.
Rohit Kapoor: I see that go up I think what we're seeing is that the banking and financial services sector.
Rohit Kapoor: <unk> stabilized so that's a good sign for us because that's a large part of our business and we would expect that as that stabilizes and returns back to growth.
Moshe Katri: And just to follow up on the marketing analytics piece, obviously, we're looking for a decline year-over-year this year. Is there a way to kind of quantify that decline in terms of expectations, and maybe, in general, what drives this segment? Maybe talk a bit about, you know, what funds it, how you, how do clients fund it, and what are the kind of reasons to kind of, you know, contract EXL for these kinds of services. Thanks.
Rohit Kapoor: He would be able to benefit from that.
Speaker Change: And then just to follow up on the marketing analytics piece, obviously, we're looking for a decline year over year. This year is there a way to kind of quantify that decline in terms of expectations and then maybe in general what drive this segment, maybe talk a bit about what funds. It how do you kind of client fund it and what are.
Moshe Katri: The reason to kind of.
Moshe Katri: Two contract EXL for these kind of services.
Rohit Kapoor: Sure. So, Moshe, we don't quantify this, you know, service line for us because it's a small service line. But I think the way to think about this is... Our marketing analytics business is largely focused on insurance carriers trying to acquire new customers, and by banks and financial institutions trying to acquire new borrowers. Clearly, with interest rates going up, the acquisitions spent by banks and financial institutions in terms of acquiring new borrowers have declined.
Moshe Katri: Sure.
Rohit Kapoor: So Moshe we don't quantify.
Rohit Kapoor: This.
Rohit Kapoor: Service line for us because it's a small service line.
Rohit Kapoor: But I think the way to think about this is.
Rohit Kapoor: Our marketing analytics business is largely focused in with insurance carriers trying to acquire new customers.
Rohit Kapoor: And by banks and financial institutions trying to acquire new borrowers.
Rohit Kapoor: Currently with the interest rates going up the acquisition spend by banks and financial institutions in terms of acquiring new borrowers.
Rohit Kapoor: That propensity has declined and with the insurance carriers given some of the inflationary pressures that were there.
Rohit Kapoor: And with the insurance carriers, given some of the inflationary pressures that were there, their outreach to acquire new customers has also declined, and that's the reason why the marketing analytics business for us has declined sequentially. Now, what we are doing with our marketing analytics business is two fundamental changes. Number one, we are diversifying our customer base. In fact, we are broadening out our customer base. And now we have clients in healthcare, we have clients from our emerging business unit, and other clients that are taking advantage of the proprietary data assets that we have in marketing analytics and being able to benefit from that in terms of the next best thing to sell to their customers and their ability to cross sell.
Rohit Kapoor: Their outreach to acquire new customers has also declined and Thats. The reason why the marketing analytics business for US has declined sequentially.
Rohit Kapoor: Now what we are doing with our marketing analytics business has two fundamental changes number one we are diversifying our customer base. So actually we are broadening out our customer base and now we have clients from health care, we have clients from our emerging business unit and other clients that are <unk>.
Rohit Kapoor: <unk> advantage of the proprietary data assets that we have in marketing analytics and being able to benefit from that in terms of the next best thing to sell to their customers and their ability to cross sell so thats that diversification is helping and we are expanding the work that we.
Rohit Kapoor: So that diversification is helping, and we are expanding the work that we do in marketing analytics from just customer acquisition to much more of an end-to-end customer engagement profile. So that's been helpful as well. And, you know, obviously, it's going to take us some time to do this. But the diversification of marketing analytics across industry verticals and customers, as well as the broadening out of that service line in marketing analytics, is going to help us manage the volatility of this business.
Rohit Kapoor: Doing marketing analytics from just customer acquisition to much more often end to end customer engagement profile. So that's been helpful as well and obviously, it's going to take us.
Rohit Kapoor: Time to do this but the diversification of marketing analytics across industry verticals and customers as well as the broadening out of that service line in marketing analytics is going to help us manage the volatility of this business.
Speaker Change: Understood. Thanks.
David John Koning: And thank you. And one moment for our next question, and our next question comes from Dave Koning from Baird. Your line is now open.
Rohit Kapoor: Yeah.
Speaker Change: And thank you.
David John Koning: Okay.
David John Koning: And one moment our next question.
David John Koning: And our next question comes from Dave Koning from Baird. Your line is now open.
David John Koning: Yeah, hey guys, thanks. And yeah, great, great results.
David John Koning: Yeah, Hey, guys. Thanks in great Great results.
David John Koning: On health analytics like if we just take total health last year health operations that business line has been remarkably strong and stable.
Rohit Kapoor: On health analytics, like if we just take total health minus your health operations, that business line has been remarkably strong and stable. I think I look back on like eight quarters or so, it's been growing kind of 25 to 36% each quarter. What's so consistent about that? I mean, it seems like it's not having any impact from kind of the macro slowdown.
Rohit Kapoor: I look back for like eight quarters, or so it's been growing kind of 25% to 36% each quarter.
Rohit Kapoor: What's so consistent about that I mean, it seems like it's not having any impact from kind of the macro slowdown.
Rohit Kapoor: Yeah, Dave, thanks for that. As you know, the healthcare industry vertical is actually a huge vertical. And number two, it's got huge challenges with data. And as, you know, payers and providers and participants in the health care services business start to embrace a lot more data and start to embrace a lot more AI, we are certainly benefiting from that. Our healthcare payment services have been growing very, very nicely, but the reason why it is growing very nicely is because our ability to leverage data, to leverage AI, and to leverage digital, alongside our strong understanding of the payment services process, allows us to be able to deliver superior impact for our clients, and our clients love that, and they're embracing more and more of that.
Speaker Change: Yes, Dave Thanks for that.
Rohit Kapoor: As you know the healthcare industry vertical is actually a huge vertical and number two it's got huge challenges with data.
Rohit Kapoor: And as.
Rohit Kapoor: Payers and providers and participants in the healthcare services business start to embrace a lot more of data and start to embrace a lot more of AI, we are certainly benefiting with that.
Rohit Kapoor: Our healthcare payment services has been growing very very nicely, but the reason it is growing very nicely is because our ability to leverage data to leverage AI and to leverage digital alongside with us strong understanding of the payments services process.
Rohit Kapoor: How's us to be able to deliver superior impact for our clients and our clients love that and Theyre embracing more and more of that we're also seeing a lot of growth take place in healthcare analytics and this is a.
Rohit Kapoor: We're also seeing a lot of growth take place in healthcare analytics, and this is a huge opportunity for us to continue to build upon because leveraging data in healthcare analytics can be very, very impactful for all of the major participants in this industry space. So we are very pleased with what we have built out here, the kind of impact we are creating, the kind of traction that we are getting, but I can tell you our penetration in this vertical is still very small because the healthcare business by itself is a $4 trillion business vertical.
Rohit Kapoor: Huge opportunity for us to continue to build upon because leveraging data in healthcare analytics can be very very impactful for all of the major participants in this industry space. So we are very pleased with what we have built out the kind of impact we are creating and the <unk>.
Rohit Kapoor: The traction that we're getting but I can tell you our penetration in this vertical is still very small because the health care business by itself is a four trillion dollar business.
David John Koning: Gotcha. Yeah, no, that's helpful. And then...
Rohit Kapoor: Vertical.
Speaker Change: Gotcha, Yeah, no that's helpful and then.
Maurizio Nicolelli: If I might ask just a super nerd question on the cash flow statement, you mentioned in the prepared remarks about the contingent, the contingent consideration payment. It was split both between the operations and the financing. I've never seen it in operations before. Maybe I think 11 million was in operations, and 4 million of the payment was in financing. Why?
Speaker Change: If I might ask just a super nerdy question.
Maurizio Nicolelli: On the cash flow statement, you mentioned in the prepared remarks about the contingent contingent consideration payment. It was split both between the operations and the financing I've never seen it and operations before maybe I think $11 million in operations and $4 million of the payment was in <unk>.
Maurizio Nicolelli: In financing why why was that.
Maurizio Nicolelli: So we're following acquisition accounting, Dave. And that's the recommendation that we have from our orders that we've worked very closely with.
Speaker Change: So we're following an acquisition accounting Dave.
Maurizio Nicolelli: And Thats the recommendation that we have from our orders that we have worked very closely with.
Maurizio Nicolelli: And so that's where that's where we ended up on look.
Maurizio Nicolelli: We had a.
Maurizio Nicolelli: Outflow because of that during the quarter, but when you look at free cash flow for the year, we still expect it to be comparable to net income for the year.
Maurizio Nicolelli: And so, you know, that's where we ended up. Look, you know, we had an outflow because of that during the quarter, but you know, when you look at free cash flow for the year, we still, you know, expect it to be comparable to net income for the year. So, you know, we had this one blip in Q1, but we do see the full year as free cash flow being comparable to net income. Now that's, that's helpful. We are.
Maurizio Nicolelli: So we had a <unk>.
Maurizio Nicolelli: There's one blip in Q1, but we do see the full year been free cash flow being comparable to net income.
David John Koning: No, that's helpful. We always look at that as a positive. When you're paying out, it usually means the results have been pretty good from them. So, nice job. Thank you, and
Maurizio Nicolelli: No. That's helpful. We always look at that as a positive when you are paying out usually means the results have been pretty good from those so nice job. Thank you.
Speaker Change: And thank you.
David John Koning: And one moment for our next question. And our next question comes from David Grossman from Stifel. Your line is now open.
Speaker Change: And one moment our next question.
David John Koning: And our next question comes from David Grossman from Stifel. Your line is now open.
David Michael Grossman: Thank you. Good morning.
David Michael Grossman: Thank you good morning.
David Michael Grossman: I'm wondering if we could just.
David Michael Grossman: Go back.
David Michael Grossman: Some of the more fundamental things around your commentary on churn.
David Michael Grossman: I'm wondering if we could just, you know, go back to some of the more fundamental things around your commentary on AI. I think I understand what you've been saying about how it's impacting the demand from your customer base and some of the use cases. Perhaps you can spend just a few minutes on what you see as being the secular impact it may have on your business model. I'm thinking contracting, risk, margins, and just how the business is operated overall and how that flows through the P&L and the balance sheet.
David Michael Grossman: Understand.
David Michael Grossman: What you've been saying about how it's impacting the demand from your customer base and some of the use cases.
David Michael Grossman: Perhaps you can spend just a few minutes.
David Michael Grossman: What you see as being the secular impact it may have on your business model.
David Michael Grossman: In contracting.
David Michael Grossman: Risk.
David Michael Grossman: <unk>.
David Michael Grossman: And just how the business is operated overall and how that flows through the P&L and the balance sheet and maybe there's no change maybe this is just another technology wave that all in.
Rohit Kapoor: And maybe there's no change. Maybe this is just another, you know, technological wave that will impact the business model in a similar way. Just curious whether or not this may be different. And if so, how.
Rohit Kapoor: Impact of business model in a similar way just curious whether or not this may be different and if so how.
Rohit Kapoor: Sure, David. So you're absolutely right. Look, there are two fundamental changes taking place. One is the macroeconomic environment, and the second is the adoption of Gen-Air. On Gen AI, I think our business model is certainly going to evolve and change. Certainly, there will be a lot more investment that's going to be required to be able to create some of these adapters and solutions that clients will expect to be pre-built and that they will not be funding themselves.
Speaker Change: Sure David So.
Rohit Kapoor: So you're absolutely right look there are two fundamental changes taking place one of the macroeconomic environment and the second is the adoption of journey II.
Rohit Kapoor: And at the same time, there will be a lot more risk sharing that will be there, so it's going to be a lot more contingent on us being able to deliver the outcome and the business benefit to our clients. I do think the shift in commercial models will take place gradually, but perhaps the first change is going to be to shift from a time and material type of contract towards more fixed price kind of contracts or even initial upfront investment by us on repeatable adapters and accelerators that we'll need to invest in. From a margin standpoint, I think initially, because of the investment and because of our ability to demonstrate impact for our clients, the margins would be initially low.
Rohit Kapoor: On Gen AI I think that our business model is certainly going to evolve and change suddenly there'll be a lot more investment that's going to be required to be able to create.
Rohit Kapoor: Some of these adapters and solutions that clients will expect to be prepared and that they will not be funding themselves.
Rohit Kapoor: And at the same time, there will be a lot more risk sharing that will be there. So it's going to be a lot more contingent on us being able to deliver the outcome and the business benefit to our clients.
Rohit Kapoor: I do think the shift in the commercial models will take place gradually but perhaps the first change is going to be shipped from a time and material type of contract.
Rohit Kapoor: It's more fixed price contracts or even.
Rohit Kapoor: Initial upfront investment by us on repeatable adapters and accelerators.
Rohit Kapoor: That will need to invest in.
Rohit Kapoor: On a margin standpoint, I think initially because of the investment and because of our ability to demonstrate impact for our clients. The margins would be initially low but over a period of time because the value that we can deliver Virginia is significantly higher we would expect the <unk>.
Rohit Kapoor: But over a period of time, because the value that we can deliver with Gen-AI is significantly higher, we would expect the margins to actually go above our corporate average. So as we scale up the business, I think this becomes a much more attractive business for us to be kind of going into. It's much higher value-added, it's much more defensible, and it's gonna have much better margin characteristics. Of course, it's dependent upon our ability to execute and our ability to demonstrate the results.
Rohit Kapoor: Margins to actually go above our corporate average.
Rohit Kapoor: So as we scale up the business I think this becomes a much more attractive business for us to be kind of going into its much higher value added it's much more defensible and it's going to have a much better margin characteristics.
Rohit Kapoor: Of course, it's dependent upon our ability to execute and our ability to demonstrate the results.
Rohit Kapoor: It's also a business that's going to involve a lot of continuous change. Because with Gen-AI, you know, as you know, the LLM models keep changing every couple of weeks. And so we're going to see more models kind of come in. We're going to see more and different ways in which these are going to get adopted. So obsolescence is also going to increase in this space. And therefore, the ability to remain nimble and modular, I think, is going to be critical for long-term success in this space.
Rohit Kapoor: It's also a business that's going to involve a lot of continuous change.
Rohit Kapoor: Because with Gen AI as you know the <unk>.
Rohit Kapoor: Models game changing every couple of weeks and so we're going to see more.
Rohit Kapoor: Model has kind of come in we're going to see more and different ways in which these are going to get adopted so the obsolescence is also going to increase in this space and therefore.
Rohit Kapoor: Ability to remain nimble and modular I think is going to be critical for the long term success in this space.
Rohit Kapoor: So, it's certainly got very different characteristics, and I think as Gen-AI continues to evolve over the next one, two, three, five years, it's going to look and feel quite different as we go along.
Rohit Kapoor: So it's certainly got very different characteristics and I think as Jen AI continues to evolve over the next 1235 years.
Rohit Kapoor: It's going to look at the business is going to look and feel quite different as we go along.
David Michael Grossman: And have you experienced the margin dynamic yet through a full cycle, meaning that you had to, you know, kind of go through the process of building or pre-building a solution or an adapter and seeing the deployments and then seeing the margins lift above the corporate average, or is this still at a peak, you know, kind of your expectations based on what you're seeing in the market, but we're just not there yet?
Speaker Change: And have you.
David Michael Grossman: Experience the margin dynamic through a full cycle meeting that you had a kind of go through the process of building.
David Michael Grossman: Pre building a solution or after seeing the deployment and then seeing the margin lift above the corporate average or because they are still on kind of your expectation based on what youre seeing in the market, but we're just not there yet.
Rohit Kapoor: No, David, we've seen that. So one of the solutions that we built is Paymentor, which helps our clients collect receivables, and it's an entirely digital and AI-based solution. We had very low margins on that piece of the service line initially, and now that we are operating that at scale across multiple clients, our margins on that piece are higher than the corporate average. We are seeing this on solutions that are getting adoption and which are getting to size and scale.
Speaker Change: No David we've seen that so one of the solutions that we built is as payment or which helps our clients collect the receivables and it's entirely digital and an AI based solution. We had very low margins on that piece of service line initially and now that we are operating that.
Rohit Kapoor: At scale across multiple clients, our margins on that piece or higher than the corporate average. So we are seeing this on solutions that are getting adoption and which are getting to size and scale.
Rohit Kapoor: But obviously, those solutions that do not get to size and scale, those investments are things that we will have to recover through the ones that are successful. So it's going to be a portfolio approach for us.
Rohit Kapoor: But obviously those solutions that do not get to size and scale.
Rohit Kapoor: Those investments are.
Rohit Kapoor: Things that we will have to recover.
Rohit Kapoor: Through the ones that are successful.
Rohit Kapoor: So it's kind of being a portfolio approach for us.
David Michael Grossman: Any metrics that you can disclose in terms of where the portfolio is today on that journey, you know, in terms of how many deals? It's still too early for us on that, David, to be able to disclose that, but, you know, when we meet for our investor strategy day on May 7th, we will be unpacking some of this for you. Great, thank you. Just one little quick thing.
Speaker Change: Any metrics that you can disclose in terms of where the portfolio is today on that journey.
David Michael Grossman: Hum.
David Michael Grossman: Yes.
David Michael Grossman: It's still too early for us on that David to be able to disclose that but.
David Michael Grossman: When we meet for our Investor strategy day on May 17th we.
Speaker Change: We will be actually.
David Michael Grossman: Backing some of this for you.
David Michael Grossman: So I know we're going over here just on the working capital comments in terms of the cash flows in the quarter. Is that related to this dynamic of having to invest and some of these pre-built solutions, or is that something just totally different in a quarter?
Speaker Change: Great. Thank you just one little quick thing so I know we're growing over here just on the working capital comments.
David Michael Grossman: Terms of the cash flows in the quarter is that related to this dynamic of having to invest in.
David Michael Grossman: Some of these prebuilt solutions or is that something just totally different quarter.
Maurizio Nicolelli: No, David. It's more kind of one-time items that came through in the quarter and more working capital requirements. It's not really related to our investment process. Our investment process is ongoing. Obviously, we're investing more, particularly in AI, this year, but it's not related. All right, guys. Thanks very much.
Speaker Change: Yes, David it's.
Maurizio Nicolelli: It's more kind of one time items that came through in the quarter and more working capital requirements is not really related to our investment process. Our investment process is ongoing we're obviously investing more particularly into AI. This year, but it's not related to that.
David Michael Grossman: Alright guys, thanks very much.
Speaker Change: Got it alright, guys. Thanks very much.
Speaker Change: And thank you.
Mayank Tandon: And one moment for our next question. And our next question comes from Mayank Tandon from Needham. Your line is now open.
David Michael Grossman: And one moment our next question.
Mayank Tandon: And our next question comes from Mayo Tandon from Needham. Your line is now open.
Mayank Tandon: Thank you. Good morning. Thank you for squeezing me in here. I have just a couple of quick ones.
Mayank Tandon: Thank you. Good morning. Thank you for squeezing me in here I have just a couple of quick ones. One Robert you mentioned earlier about right sizing the workforce given the news out there earlier in the month, but I just wanted to get a sense of as you think about Upskilling and retooling your workforce in anticipation of some of these jennie.
Mayank Tandon: One, Rohit, you mentioned earlier about rightsizing the workforce given the news out there earlier in the month. I just wanted to get a sense of as you think about upskilling and retooling your workforce in anticipation of some of these GEN-AI related engagements. Who are you looking to hire? And where are you finding the talent? Just make sense in terms of your recruiting engine and what some of the changes might take place over time as you position for growth from some of these Gen AI platforms.
Mayank Tandon: Related engagements.
Mayank Tandon: Who are you looking to hire and where are you finding the talent from just any sense in terms of your recruiting and.
Mayank Tandon: And what some of the changes might take place over time as you position for growth from some of these gen AI platforms.
Rohit Kapoor: Sure. So, Mayank, for us to be able to successfully deploy Gen-AI, what we need are AI experts, and what we need are engineers. The Gen-AI experts are things that we think we need to develop on our own because there isn't a very readily experienced skill set out there, but the engineering talent is something that we can acquire from the outside and add to our capabilities. We're obviously investing very heavily in terms of reskilling and upskilling our existing employees.
Speaker Change: Sure So <unk>.
Rohit Kapoor: For us to be able to successfully deploy Jenny I, what we need are AI experts and what we need.
Rohit Kapoor: Engineers.
Rohit Kapoor: The journey of exports are things that we think we need to develop on our own because there isn't a very readily experience skill.
Rohit Kapoor: Skill set out there, but the engineering talent is something that we can acquire from the outside and add onto our capabilities. We are obviously investing very heavily in terms of reskilling and upskilling, our existing employees and thats being done not only through our cagmag coursework that we're making available to us.
Rohit Kapoor: And that's being done not only through academic coursework that we're making available to our employees but also through their direct involvement in projects and in POCs that we're developing so that they get practical experience as well. Today, almost two-thirds of our employees have taken advantage of AI training and development tools. We have a core team of about 1,500 Gen AI experts in the company, and we are going to continue to add engineering talent alongside this AI expertise that we have.
Rohit Kapoor: Employees, but also through that direct involvement in projects and <unk> that we're developing so that they get the practical experience as well.
Mayank Tandon: Got it. Very helpful.
Rohit Kapoor: Today, almost two thirds of our employees have taken advantage of AI training and development tools, we have a core team of about 1500, Jenny experts into the company and we are going to continue to add engineering talent alongside with this AI expertise that we have.
Mayank Tandon: And then just finally, from my side, Maurizio, any thoughts around the M&A pipeline? How are the opportunities in the market? Are you seeing more attractive valuations? And then, just in general, what are your capital allocation priorities as you move forward?
Speaker Change: Got it very helpful. And then just finally from my side.
Speaker Change: Or any thoughts around M&A pipeline.
Maurizio Nicolelli: The opportunities in the market are you seeing more attractive valuations and then just in general with capital allocation priorities as you move forward.
Maurizio Nicolelli: Sure, Mike. So we're in a very good spot in terms of capital allocation. When you look at our position as a company, we have right around $250 million in cash. Our debt is now right around $345 million. And we're generating adjusted EBITDA this year projected to be somewhere between $375 and $400 million. So we have plenty of capital to allocate, and we're fairly under leveraged as a company, which puts us in a very good spot. So for us going forward, our allocation of capital really will be between the share repurchase and
Maurizio Nicolelli: Sure Mike.
Maurizio Nicolelli: So we're in a very good spot in terms of capital allocation.
Maurizio Nicolelli: When you look at our when you look at our position as a company we've got right around $250 million in cash our debt now is right around $345 million.
Maurizio Nicolelli: And we're generating adjusted EBITDA.
Maurizio Nicolelli: This year projected will be somewhere between $375 million to $400 million. So we have plenty of capital to allocate and we're fairly.
Maurizio Nicolelli: Under leveraged as a company, which puts us in a very good spot so for us going forward, our allocation of capital really will be between share repurchase and M&A.
Maurizio Nicolelli: and M&A. And in the M&A pipeline, we are seeing, you know, more opportunities for us going forward, particularly in the core areas that are most important to us. It's capabilities within AI, particularly Gen AI, and data management.
Maurizio Nicolelli: And then the M&A pipeline, we are seeing.
Maurizio Nicolelli: More opportunities for us going forward, particularly in the core areas that are most important to us its capabilities within AI, particularly Gen. AI data management those are really a core areas of capabilities for us in the segments, we really operate in to really build out and further develop our overall business.
Maurizio Nicolelli: Those are really the core areas of capability for us in the segments we really operate in to really build out and further develop our overall business within those two areas. So we're seeing more opportunities there. In terms of valuation, we do see valuations becoming a bit more reasonable than they have been in the past. That gives us more opportunity to really be more active in the M&A market. And you'll probably see that in the next 12 to 24 months as we go forward.
Maurizio Nicolelli: Within those two areas. So that we're seeing more opportunity there in terms of valuations, we do see valuations, becoming a bit more reasonable than they have been in the past so that gives us more opportunity to really be more active in the M&A market and youll, probably see that in the next 12 months to 24 months as we go forward and we have the one.
Maurizio Nicolelli: And we have the ability to lever our capital allocation between share repurchase and M&A, meaning if we do more M&A, we can reduce, if needed, our capital expenditure on share repurchasing. But it's our intention to really push forward on both.
Maurizio Nicolelli: Ability to lever our capital allocation between share repurchase and M&A, meaning if we do more M&A, we can reduce if needed or capital or share repurchases, but it is our intention to really push forward on both.
Mayank Tandon: That's a great color. Thank you so much.
Speaker Change: That's great color. Thank you so much.
John D. Kristoff: and thank you. And I'm showing no further questions. I would now like to turn the call back over to John Kristoff for closing remarks.
Speaker Change: And thank you.
John D. Kristoff: And I'm showing no further questions I would now like to turn the call back over to John Kristoff for closing remarks.
John D. Kristoff: Thanks, Justin. Thank you everyone for joining our call today, and I would again remind you to please register for the investor event on May 7th. Pre-registration is required, so please if you have not done so, go ahead and do that, and, as always, for any follow-up questions, feel free to reach out to me directly. Thank you. Have a good day.
John D. Kristoff: Thanks, Justin Thank you everyone for joining our call today and I would again remind you to please register for the Investor event on May 7th pre registration is required. So please if you have not done. So go ahead and do that and as always for any follow up questions feel free to reach out to me directly. Thank you have a good day this.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Concludes today's conference call. Thank you for participating you may now disconnect.
Operator: Yes.
Operator: [music].
Operator: Okay.
Operator: Good.
Operator: [music].