Q3 2024 ExlService Holdings Inc Earnings Call
Of the formal remarks at which time, you'll be given instructions for the question and answer session.
Also as a reminder, this conference is being recorded today. If you have any objections. Please disconnect at this time.
I will now turn the call over to John Kristoff, Vice President of Investor Relations.
John Kristoff: Thanks, Leila Hello, and thank you for joining Exl's third quarter 2024 financial results Conference call.
On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer, Marcia Niccolo, Lee Chief Financial Officer, we.
We hope you had an opportunity to review the third quarter earnings press release, we issued yesterday afternoon.
We have also posted a slide deck and investor Factsheet in the Investor Relations section of our website.
As a reminder, some of the matters, we'll discuss this morning are forward looking.
Keep in mind that these forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Such risks and uncertainties include but are not limited to general economic conditions. Those factors set forth in today's press release discussed in the company's periodic reports and other documents filed with the SEC from time to time.
EXL assumes no obligation to update the information presented on this conference call today.
During our call we may reference certain non-GAAP financial measures, which we believe provide useful information for investors.
Reconciliation of these measures to GAAP can be found in our press release slide deck and Investor fact sheet.
Speaker Change: And with that I'll turn the call over to Rohit.
Thanks, John Good morning, everyone.
Welcome to Exl's third quarter, 'twenty 'twenty four earnings call.
I'm pleased to be with you. This morning, reviewing our strong financial results.
In the third quarter, we generated revenue of $472 million, an increase of 15% year over year.
We also grew third quarter adjusted EPS by 16% to 44 cents per share.
The sound execution of our data and AI led strategy enabled us to further accelerate our growth momentum across both our analytics and digital operations on solutions businesses during the quarter.
Speaker Change: And the other metrics, we delivered revenue of $204 million for the quarter up 5% sequentially and 11% year over year.
This marks the strongest sequential quarterly growth for analytics in six quarters.
Speaker Change: And we are delivering on our previously stated objective.
Accelerated analytics growth, both sequentially and year over year in the second half of 'twenty 'twenty four.
We continue to drive strong double digit growth across healthcare payment services and data management.
While we remain cautious on overall demand for discretionary projects, we are seeing growth in analytics services across all vertical markets, including insurance healthcare and banking.
Speaker Change: In our digital operations and solutions business during the third quarter, we delivered strong double digit growth as we leverage our domain data and AI capabilities to win in the market.
We grew revenue, 5% sequentially and 18% year over year to $268 million.
This revenue acceleration was driven by double digit growth across all three of our digital operations segments.
Speaker Change: We continue to experience a stable and favorable demand environment and digital operations driven by our clients focus on cost efficiency and digital transformation.
Our strategy to leverage our domain expertise data management capabilities and AI services delivery not only helps our clients achieve real world benefits from <unk>.
Speaker Change: But it also differentiates us from our competitors expands our total addressable market and extends our runway for growth.
This is beginning to manifest itself in our sales pipeline, which is up strong double digits year to date.
We have grown the number of large deals over $25 million in total contract value by more than 25% year over year.
This gives us confidence that our solutions and capabilities are being recognized as industry, leading by our clients.
While it is still early innings, particularly with generative yeah, I would like to provide details on how we are building new revenue streams across two of our primary capabilities.
Data modernization and AI implementation.
Let me describe our business model in each area.
To implement AI, we stocked with data modernization by securing and structuring high quality data a foundational asset for any AI application.
Speaker Change: This includes all aspects of optimizing our clients' data estate, including helping them gather data structure data migrate data to the cloud and then more reliable robust data pipelines.
Speaker Change: We have continued to enhance our data management capabilities during the quarter with the acquisition of ITI data and our expanded partnership with data bricks.
The acquisition of <unk> data not only enhances our data engineering capacity, but also grows our existing client footprint and banking.
Under our expanded partnership with data bricks, we are building a robust team of data break certified talent and deploying new data management and generating of AI solutions into the data breaks ecosystem.
Together these strategic actions are speeding the development and implementation of cutting edge data modernization solutions for our clients.
Speaker Change: Once the data foundation is in place, we select and embedded the best combination of AI models into the workflow in order to optimize for cost and agency and that kind of thing.
Our repertoire of AI models includes advanced pre trained language models.
Domain specific fine tune models, and intelligent AI agent suited for targeted thoughts.
These models have been integrated into the workflow along with human in the loop.
This not only requires technical expertise in designing the most effective AI architecture, but also deep domain knowledge to provide context and increase our adoption to deliver superior business outcomes.
And then Australia client example involves a large multinational pharmaceutical client where we have integrated <unk>.
Into the audit processes to drive significant improvements.
Runway for growth.
This is beginning to manifest itself in our sales pipeline, which is up strong double digits year to date.
The AI multi agent system Redeveloped condos various aspects of the audit process.
We have grown the number of large deals over 25 million dollars in total contract value by more than 25% year over year
Speaker Change: One AI agent specializes in anomaly detection by analyzing documents for compliance issues.
Speaker Change: While another AI agent focuses on summarizing findings for auditors.
This gives us confidence that our solutions and capabilities are being recognized as industry leading by our clients.
Together these AI agent collaborate to cover all ordered stages from identifying risk to generating actionable recommendations and contextualized them against industry frameworks based on the specific needs of each audit.
While it is still early innings, particularly with Generative AI, I would like to provide details on how we are building new revenue streams across two of our primary capabilities.
The results for our clients has been a 60% reduction in that order to completion time and improvement in compliance accuracy.
Jacob Modernization and AI Implementation.
Let me describe our business model in each area.
Speaker Change: And overall greater assurance.
To implement AI, we start with data modernization by securing and structuring high quality data, the foundational asset for any AI application.
Speaker Change: This is just one example of how EXL is leveraging its domain data and AI expertise today to deliver real world tangible benefits to our clients.
This includes all aspects of optimiving our blinds data estate, including helping them gather data, structure data, migrate data to the cloud and build more reliable robust data pipelines
Speaker Change: In addition to our capabilities in data modernization and implementation services.
Speaker Change: <unk> developed a number of proprietary generator of AI solutions.
We have continued to enhance our data management capabilities during the auto with the acquisition of ITI data and our expanded partnership with data bricks.
Speaker Change: One prominent example is our recently announced insurance LLM, which is specifically designed to handle the nuances of auto bodily injury workers compensation and general liability claims.
The acquisition of ITI data, bodily enhances our data engineering capacity, but also grows our existing client footprint in banking.
On an island was built on Exl's 25 years of experience in the insurance industry and more than a decade of proprietary claims related data.
Under our expanded partnership with Databricks, we are building a robust team of Databricks certified talent and deploying new data management and generative AI solutions into the Databricks ecosystem.
We currently have two clients live with this element.
A large U S based casualty and life in China.
Speaker Change: Regional casualty insurer.
Together, these strategic actions are speeding the development and implementation of cutting-edge data modernisation solutions for our clients.
As we implement our proprietary insurance either of them across multiple clients. We can access additional data sets to further fine tune, our EDA them and improve its performance.
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Once the data foundation is in place, we select and embed the best combination of AI models into the workflow in order to optimize for cost, latency and accuracy.
The combination of enhanced productivity and faster claim resolution with Lord indemnity costs and claims leakage is a powerful value driver for our clients.
Our repertoire of AI models includes advanced free trained language models, domain specific point-to-models and intelligent AI agents suited for targeted tasks.
Speaker Change: We intend to continue to build out our I think going forward by developing new proprietary solutions, including additional domain specific elements and autonomous agents.
Speaker Change: We recently launched the new EXL enterprise AI platform to accelerate development of these solutions leveraging Nvidia AI software.
These models are then integrated into the workflow along with human in the loop.
This not only requires technical expertise in designing the most effective AI architecture, but also deep domain knowledge to provide context and increase adoption to deliver superior business outcomes.
And I'm pleased to say that our insurance element.
<unk> agent assist and corn harvest solutions are now live on this platform.
From a revenue perspective, we can embed these proprietary AI solutions into long term services contracts as an integral part of the overall solution or we can offer them as standalone solutions based on client needs.
and a last-traded client example involves a large multinational pharmaceutical client, where we have integrated agenic AI into the audit processes to drive significant improvements.
The AI multi-agent system we developed handles various aspects of the audit process.
One of the keys to maintaining our competitive advantage and data and AI is our ability to attract develop and retain the best talent in the industry.
One AI agent specializes in a novelry detection by analyzing documents for compliance issues, while another AI agent focuses on summarizing findings for auditors.
Our goal is to foster an environment conducive to continuous innovation amongst our more than 57000 employees.
Together, these AI agents collaborate to cover all ordered stages from identifying risks to generating actionable recommendations and contextualizing them against the industry frameworks based on the specific needs of each order.
To that end, we continue to attract top talent to EXL.
We recently welcomed Sunday Joshi, as senior Vice President and global leader for our data management practice.
Subject comes to EXL with extensive leadership experience building data practices across large diverse clients.
The result for our client has been a 60% reduction in their audit completion time and improvement in compliance accuracy and overall greater assurance.
He most recently served as a senior data practice leader at Accenture.
This is just one example of how EXL is leveraging its domain, data and AI expertise today to deliver real world tangible benefits to our clients.
Speaker Change: In addition.
Speaker Change: Fair enough. He recently joined EXL as senior Vice President and global leader for insurance analytics.
Speaker Change: So it has nearly 30 years of experience as a consulting leader in the insurance industry.
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In addition to our capabilities in data modernization and AI implementation services, we have developed a number of proprietary generation AI solutions.
He joins us from cognizant, where he most recently led the North America insurance business unit.
One prominent example is a recently announced insurance eblon which is specifically designed to handle the nuances of auto-portedly injury, workers' compensation and general liberty claims.
We also continue to invest heavily in employee development.
Our employees have completed nearly 1 million hours of training this year.
Nearly 800 of our engineers have completed certification training on our partners' data and AI platforms, and we have another 200 enrolled.
Our fellow members was built on EXL's 25 years of experience in the insurance industry and more than a decade of proprietary claims related data.
Speaker Change: These critical certifications include Boston platforms from Nvidia data breaks, Google AWS and Microsoft Azure.
We currently have two clients live with this LLM, a large US-based casualty and life in Shona and a regional casualty insure.
We are not only creating career opportunities for unemployed by helping them add marketable skills, but we are also enabling them to work with our purpose and our.
As we implement our proprietary insurance LLM across multiple clients, we can access additional data sets to further find you not LLM and improve its performance.
Speaker Change: Growth environment.
Speaker Change: The result has been stable attrition levels and a growing pool of highly skilled talent.
The combination of enhanced productivity and faster claim resolution with lower and the 70 cost and claims leakage is a powerful value driver for our clients.
Speaker Change: In summary.
<unk> strong results in the third quarter and we are encouraged by the continued acceleration of growth across our analytics and digital operations and solutions businesses.
We intend to continue to build our IP going forward by developing new proprietary solutions, including additional domain-specific evidence and autonomous agents.
The investments we are making in developing new AI based solutions, expanding our industry partnerships and developing our employees puts us in a strong position to successfully execute on our data and AI led strategy and continue our growth trajectory.
We recently launched the new EXL Enterprise AI platform to accelerate development of these solutions, leveraging Nvidia AI software.
and I'm pleased to say that our insurance element, smart agent assist and court harbour solutions are now live on this platform.
Speaker Change: With that I'll turn the call over to Maurizio to cover our financial performance in detail.
Maurizio: Thank you Rohit and thanks, everyone for joining us. This morning, I will provide insights into our financial performance for the third quarter and nine months ended September 30th followed by our revised outlook for the full year.
From a revenue perspective, we can embed these proprietary AI solutions into long-term services contracts as an integral part of the overall solution, or we can offer them as standard solutions based on blind means.
We delivered a strong third quarter with revenue of $472 1 million up 14, 9% year over year on a reported basis on a constant currency basis, we grew revenue 14, 5% year over year.
One of the keys to maintaining our competitive advantage and data on AI is our ability to attract, develop and retain the best talent in the industry.
Our goal is to foster an environment conducive to continuous innovation amongst our more than 5,000 employees.
Speaker Change: And four 9% sequentially.
Approximately 1% of our revenue this quarter came from non reoccurring revenue that is not expected to repeat in the subsequent quarter.
To that end, we conclude a track top challenge to EXER.
Adjusted EPS for the quarter was <unk> 44 cents a year over year increase of 16, 3%.
We recently welcomed Sunday Joshee as Senior Vice President and Global Leader for our NATO Management Practice.
All revenue growth percentages mentioned hereafter are on a constant currency basis.
Sunjik comes to EXL with extensive leadership experience building data practices across large diverse lives.
Revenue from our digital operations and solutions businesses as defined by three reportable segments, excluding analytics was $268 1 million, which represents year over year growth of 17, 1%.
He most recently served as a senior data practice leader at Accenture.
In addition, Sirapornasi recently joined EXL, I've seen your vice president and global leader for insurance analytics.
Sequentially from the second quarter of 2024 week grew revenue four 8%.
Surah has nearly 30 years experience as a consulting leader in the insurance industry. He joins us from Congress and where he most recently led their not America insurance business unit.
In the insurance segment, we generated revenue of $157 6 million, an increase of 15, 1% year over year and five 2% sequentially.
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This growth was driven by the expansion of existing client relationships and ramp up of new client wins, the insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 14, 9% year over year with revenue of $197 million.
We also continue to invest heavily in employee development.
Our employees have completed nearly 1 million hours of training this year.
Nearly 800 of our engineers have completed certification training on our partners, data and AI platforms and we have another 1200 enrolled.
In the emerging segment, we grew revenue 21, 7% year over year, and two 8% sequentially to $80 million.
These critical certifications include part of platforms from Nvidia, DataRex, Google, AWS and Microsoft Azure.
This growth was primarily driven by expansion of existing client relationships and ramp up of new client wins in 2024.
We are not only creating career opportunities for our employees by helping them at marketable skills, but we are also enabling them to work with a purpose in a growth environment.
Emerging vertical consisting of both our digital operations and solutions and analytics businesses grew 12, 4% year over year with revenue of.
The result has been stable atrition levels and a growing pool of high-risk skilled AI adult.
$166 9 million.
The health care segment reported revenue of $30 5 million growing 16, 5% year over year and eight 5% sequentially. This growth was driven by higher volumes and expansion of existing client relationships in our clinical services business there.
In summary, the July 5th strong results in the third quarter and we are encouraged by the continued acceleration of growth across our analytics and digital operations and solutions businesses.
The investments we are making in developing new AR-based solutions.
Expanding our industry partnerships and developing our employees puts us in a strong position to successfully execute on our data and AI led strategy and continue our growth trajectory.
Health care vertical consisting of our digital operations and solutions and analytics businesses grew 17, 2% year over year with revenue of $108 1 million.
Speaker Change: In the analytics segment.
We generated revenue of $204 million up 11, 3% year over year and 5% sequentially.
Speaker Change: Thank you Rohit and thanks everyone for joining us this morning. I will provide insights into our financial performance for the third quarter and nine months ended September 30th, followed by our revised outlook for the full year.
Speaker Change: Growth in analytics was driven by higher volumes in payment services, new client wins and expansion in existing client relationships and our data management and analytics services businesses.
Speaker Change: We delivered a strong third quarter with revenue of $472.1 million, up 14.9% year-over-year on a reported basis.
SG&A expenses as a percentage of revenue were down 10 basis points year over year to 21% driven by operating leverage.
Speaker Change: On a constant currency basis, we grew revenue 14.5% year-over-year and 4.9% sequentially.
Our adjusted operating margin for the quarter was 19, 9% down 10 basis points year over year, driven by higher depreciation on new operating centers opened in 2024.
Speaker Change: Approximately 1% of our revenue this quarter came from non-reoccurring revenue that is not expected to repeat in the subsequent quarter.
Our effective tax rate for the quarter was 22, 8% down 60 basis points year over year. This was driven by higher profit in lower tax jurisdictions.
Speaker Change: All revenue growth percentages mentioned hereafter are on a constant currency basis.
Our adjusted EPS for the quarter was <unk> 44 cents, a 16, 3% increase year over year on a reported basis.
Speaker Change: Revenue from our digital operations and solutions businesses, as defined by three reportable segments, excluding analytics, was $268.1 million, which represents year-over-year growth of 17.1 percent.
Turning to our nine months performance our revenue for the period was was up 1.3 dollars 6 billion up 11, 5% year over year on a reported basis and 11, 4% on a constant currency basis year over year on a constant currency basis digital opera.
Speaker Change: Sequentially, from the second quarter of 2024, we grew revenue 4.8%.
<unk> solutions grew 14, 6% and analytics seven 4%.
Speaker Change: In the insurance segment, we generated revenue of $157.6 million, an increase of 15.1% year-over-year and 5.2% sequentially.
Adjusted operating margin for the period was 19, 6% down 20 basis points year over year.
Speaker Change: This growth was driven by the expansion of existing client relationships and ramp-up of new client wins.
Our first nine months adjusted EPS was $1 22 up 12, 1% year over year on a reported basis.
Speaker Change: The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 14.9% year-over-year with revenue of $197 million.
Speaker Change: Our balance sheet remains strong our cash, including short and long term investments as of September 30 was $335 million and our revolver debt was $345 million for a net debt position of $10 million we.
Speaker Change: In the emerging segment, we grew revenue 21.7% year-over-year and 2.8% sequentially to $80 million. This growth was primarily driven by expansion of existing client relationships and ramp-up of new client wins in 2024.
Speaker Change: We generated cash flow from operations of $110 1 million in the third quarter compared to $68 6, million% to 16% increase year over year, driven by profitability and improved working capital management.
Speaker Change: The emerging vertical, consisting of both our digital operations and solutions and analytics businesses, grew 12.4% year-over-year, with revenue of $166.9 million.
Speaker Change: During the first nine months, we spent 36 million on capital expenditures and repurchased approximately 6 million shares at an average cost of $30.70 per share for a total of $184 7 billion. This includes approximately $4 2 million.
Shares received as part of our previously announced $125 million accelerated share repurchase plan.
Now moving onto our outlook for 2024 based on our strong year to date performance and our current visibility for the remainder of the year, we are raising the full year revenue and earnings guidance.
Speaker Change: We now anticipate revenue to be in the range of 1.825 billion to 1.835 billion.
Representing year over year growth of 12% to 13% on a reported basis and approximately 12% on a constant currency basis.
Speaker Change: This represents an increase of $12 million at the midpoint from our previous guidance of 180 5 billion to 1.83 billion.
Current guidance still assumes $7 million to $9 million of revenue from <unk> data.
We expect a foreign exchange gain of approximately $1 million net interest expense of $3 million to $4 million in full year effective tax rate to be in the range of 22, 5% to 23, 5%.
Speaker Change: We also anticipate increased investments in data and AI in the fourth quarter similar similar to the pattern last year.
Based on these assumptions, we anticipate our adjusted EPS to be the range of $1 61 to $1 63, representing year over year growth of 13% to 14%.
One $3 6 billion up 11, 5% year over year on a reported basis and 11, 4% on a constant currency basis.
Speaker Change: This is an increase from our prior adjusted EPS guidance.
Year over year on a constant currency basis digital operation solutions grew 14, 6% and analytics seven 4%.
<unk> 59 to $1 62.
He ITI data acquisition is expected to be neutral to adjusted EPS in 2024.
Adjusted operating margin for the period was 19, 6% down 20 basis points year over year.
We expect capital expenditures to be in the range of $48 million to $52 million.
Our first nine months adjusted EPS was $1 22 up 12, 1% year over year on a reported basis.
In summary, we are pleased with our third quarter results and encouraged by the acceleration of our growth momentum across all of our business segments by continuing to invest in our data and AI led strategy. We are confident in our ability to maintain our double digit growth trajectory.
Our balance sheet remains strong.
Our cash, including short and long term investments.
As of September 30.
Was $335 million and our revolver debt was $345 million for a net debt position of $10 million.
Into the fourth quarter and beyond.
Speaker Change: With that Rowan.
Rowan: We'd now be happy to take your questions.
We generated cash flow from operations of $110 1 million in the third quarter compared to $68 6, million% to 16% increase year over year, driven by profitability and improved working capital management.
Thank you at this time, if you would like to ask a question. Please click on the right hand button, which can be found on the black bar at the bottom of your screen. When it is your turn you will receive a message on your screen from the house, allowing you to talk and then you will hear your name called please accept our need your audio and ask your question.
During the first nine months, we spent $36 million on capital expenditures and repurchased approach.
As a reminder, we are allowing analysts one question and one related follow up today.
We will wait one moment to allow the Q1.
Speaker Change: Our first question comes from Sam Anderson from Jefferies. Please on mute your line and ask a question.
This includes approximately $4 2 million shares received as part of our previously announced $125 million accelerated share repurchase plan.
Sam Anderson: Thank you.
I'd like to start a question about the build out of the proprietary AI models.
Now moving onto our outlook for 2020 before.
Can you talk about the strategy here at this point is the idea to build as many of these proprietary models yourself and.
Based on our strong you'd pay for performance and our current visibility for the remainder of the year, we are raising the fee.
Speaker Change: And how does that fit in with the broader ecosystem of maybe what the Hyperscale orders are building in terms of their models as.
Full year revenue and earnings guidance.
We now anticipate revenue to be in the range of 1.825 billion to 1.835 billion.
Speaker Change: As well as maybe.
More industry specific solutions that are also being built by third parties in the sense of the traditional software developers.
Representing year over year growth of 12%, 13% on a reported basis and approximately 12% on a constant currency basis.
Sure I guess, essentially you becoming much more of a software company at this point.
Speaker Change: Sure So let me try and.
This represents an increase of $12 million at the midpoint from our previous guidance of 180 5 billion to 1.83 billion.
Speaker Change: I'll take that.
Speaker Change: So first off.
Our belief is that you will have a ecosystem of large language models agent.
Our current guidance still assumes $7 million to $9 million of revenue from.
The agenda Guy autonomous agents and proprietary AI models, so you're going to have a you know.
<unk> data.
We expect a foreign exchange gain of approximately $1 million net interest expense of $3 million to $4 million and full year effective tax rate to be in the range of 22, 5% to 23, 5%.
Speaker Change: A whole host of these types of capabilities that are going to be there.
Each one on its own is going to be relevant and useful for either being able to undertake a task order.
We also anticipate increased investments in data and AI in the fourth quarter similar similar to the pattern last year.
Speaker Change: Our manage a process.
Our ultimately using a combination of these different capabilities being able to achieve our goal and objective.
Speaker Change: Based on these assumptions, we anticipate our adjusted EPS to be the range of $1 $61, six representing year over year growth of 13% to 14%.
At EXL, we are thinking about building out our own proprietary AI models in those areas, where we have domain competency.
Speaker Change: This is an increase from our prior adjusted EPS guidance of $1 59 to $1 62.
Speaker Change: And we have access to data sets, which are proprietary what.
What we have seen is as we've built out our first insurance mmm.
Speaker Change: The ICI data acquisition is expected to be neutral to adjusted EPS in 2024.
That's the productivity all sides and all of them is far greater than what's available today in the marketplace. The latency is very low and therefore, we can get real time responsiveness.
Speaker Change: We expect capital expenditures to be in the range of $48 million to $52 million.
Speaker Change: In summary, we're pleased with our third quarter results and encouraged by the acceleration of our growth momentum across all of our business segments by continuing to invest in our data and AI that strategy. We are confident in our ability to maintain our double digit growth trajectory.
Speaker Change: And the cost is a fraction.
Speaker Change: What would be paid for using anything, but the hyperscale or <unk> or any of the other other than things that might be available in the marketplace.
So frankly, our strategy is to forward one to build proprietary AI models, where we can create differentiation and they can create a capability that cannot be developed by others in the marketplace.
Speaker Change: Into the fourth quarter and beyond.
Speaker Change: With that Rowan and I would now be happy to take your questions.
Thank you at this time, if you would like to ask a question. Please click on the rave Hampton, which can be found on the black bar at the bottom of your screen.
Speaker Change: To for us to be able to stitch together the appropriate balance of large language models.
Speaker Change: When it is your target you will receive a message from the house, allowing you to talk and then well hear your name. Please.
Speaker Change: <unk> AI.
Speaker Change: Capabilities autonomous agents and embed our own proprietary AI models.
Speaker Change: Please accept our mute your audio ask your question.
Speaker Change: As a reminder, we are allowing analysts one question and one brief follow up today.
To optimize the best benefit for the client in terms of productivity.
Speaker Change: We will wait one moment to allow that you've won.
Latency and cost.
Speaker Change: Does that makes sense.
Speaker Change: Our first question comes from Sam Anderson from Jefferies. Please on mute your line of asking a question.
Yes, that's helpful. And then just from perhaps a bit more of a near term view can you talk about.
Speaker Change: Thank you.
Sam Anderson: I'd like to start the question about the.
Speaker Change: The investment that's required.
Sam Anderson: The build out of the proprietary AI models can you talk about the strategy here at this point is the idea to build as many of these proprietary models yourself.
Is it you kind of continue with the traditional level of <unk>.
Opex R&D to kind of build this out or do we enter a period of slightly elevated investments, where there's a bit of an arms race to be the first to build some of these models.
Speaker Change: And how does that fit in with the broader ecosystem of maybe what the Hyperscale building in terms of their models.
Sure I'm happy to address that and Joe can add to that as well.
Speaker Change: As well as maybe more.
Speaker Change: More industry specific solutions that are all being built.
So in general our viewpoint is with the rapidly evolving technological landscape there is going to be a need for a much greater level of investment.
Speaker Change: Parties, an instance of the traditional software developers.
Speaker Change: Sure I guess essentially becoming much more of a software company at this point.
Speaker Change: Sure.
Speaker Change: So let me try and.
And at EXL, we will be significantly stepping up our investments both on opex and on capex to be able to create these capabilities and to be able to bid proprietary.
Speaker Change: I'll take that.
Speaker Change: So first off.
Speaker Change: Our belief is that you would have an ecosystem.
Speaker Change: Our large language models.
Speaker Change: <unk>.
Autonomous agents and proprietary AD model, so you're going to have.
<unk> as well as tools that can be leveraged in our client processes.
Speaker Change: A whole host of these types of capabilities that are going to be there.
In specific as we've highlighted and what else you can talk about this we will be investing significant amount.
Speaker Change: Each one on its own is going to be relevant and useful.
In the fourth quarter of this year and continue that investment going forward.
Speaker Change: Being able to undertake a task.
Speaker Change: Because that's the only way in which we can stay ahead on capability and because the landscape is changing so rapidly.
Speaker Change: Or manage a process.
Speaker Change: Ultimately using a combination of these different capabilities being able to achieve our goal.
Speaker Change: These are necessary investments that we will need to make as we go forward, but it too sure sure.
Speaker Change: Cole.
Speaker Change: Okay.
Speaker Change: At EXL, we are thinking about building out our own proprietary <unk> models and those areas, where we have domain competency.
Sure Robert.
To add to to what Robert just said when you really look at just kind of the overall P&L.
We'll be making more investments, particularly in opex.
And we have access to data sets, which are proprietary.
Speaker Change: And in the investment line in our P&L over the next one to three years and that's really going to be funded by us driving value from gross margin or gross margin needs to grow and increase in order to fund this investment, but if we do that by driving price on higher value services.
What we have seen is as we build out our cluster insurance out of that.
Speaker Change: Yeah.
Speaker Change: That the productivity I'll start and Alan is far greater than what's available in market place than.
Speaker Change: The latency is very low and therefore, we can get realigned responsiveness.
Is that where you really start to provide to our clients, particularly in data and AI. So what you'll end up seeing going forward is a higher gross margin offset by a higher amount of investments going forward and that's slowing into ace aid and.
Speaker Change: Cost is a fraction.
Speaker Change: Our fault would be paid.
Speaker Change: While using anything that the hyperscale or any of the other elements that might be available in the market.
Speaker Change: So frankly, our strategy is twofold.
It'll increase in R. L. P M on an annual basis, not a significant increase but an increase on an annual basis going forward.
Speaker Change: One to build proprietary models, where we can create differentiation.
Speaker Change: And we can create.
Speaker Change: Okay.
Speaker Change: Capability that cannot be developed by others in the market place.
Speaker Change: Thank you that's helpful.
Speaker Change: And to for us to be able to stitch together the appropriate balance of large language models egencia.
Speaker Change: Our next question will come from Bryan Bergin with TD Cowen.
Speaker Change: Hi, good morning, Thank you.
I'll start with digital operations.
Speaker Change: <unk> AI capabilities autonomous agents and our own proprietary AI models.
Speaker Change: <unk> quarter here on organic growth.
Let's ask on your conviction and potential sustainability of this elevated growth relative to the medium term outlook for this segment and it's been good to see all industries contributing here.
To be able to optimize the best benefit for the client in terms of productivity.
Speaker Change: Latency and cost.
Higher level of conviction in the near term and sustaining higher growth in any particular digital ops industries.
Speaker Change: Does that makes sense.
Speaker Change: Yes, that's helpful. And then just from perhaps a bit more of a near term view can you talk about.
Speaker Change: Sure Brian.
Speaker Change: So first of all we are very pleased with the growth of our digital operations business and.
Speaker Change: The investment that's required.
Speaker Change: You kind of continue with the traditional and the level of <unk>.
I think that's been at this elevated growth rates for a number of quarters and actually we've seen a bit of acceleration of the growth rate.
Speaker Change: Capex R&D to kind of build this out or do we enter.
Speaker Change: Her peers slightly elevated me mass estimates were.
When we take a look at the demand environment for our services and digital operations.
Speaker Change: A bit of an arms race to be.
Speaker Change: The first is to build somebody models.
Speaker Change: That continues to be strong when we take a look at our pipeline our pipeline is actually growing very nicely and as we've shared previously what we also see is that the number of large deals and the value of large deals in our pipeline continues to increase so far.
Speaker Change: Sure I'm happy to address that merger can add to that as well.
Speaker Change: Sure.
So in general our viewpoint is Smith the rapidly evolving technological landscape there is going to be a need for a much greater level of investment.
Speaker Change: And at EXL, we will be significantly stepping up our investments both on opex and on capex to be able to create these capabilities and to be able to build.
Speaker Change: Thankfully all of these are very encouraging signs about the demand environment, the pipeline and our ability to generate revenue growth in digital operations.
Speaker Change: Proprietary.
There are a couple of things, which I would like to kind of highlight number one.
Speaker Change: Models as well as tools that can be addressed.
Speaker Change: Clients and prospects.
Speaker Change: We think that would be due in terms of.
Speaker Change: In specific as we've highlighted.
Speaker Change: Selling digital pure digital revenue is included as part of our digital operations segment.
Speaker Change: And Melissa can talk about this we will be investing significant amounts.
Speaker Change: And fourth quarter of this year and continue that investment going forward.
Speaker Change: So the growth and the revenue in our digital operations segment.
Speaker Change: Because that's the only way in which we can stay ahead on capability and the content landscape is changing so rapidly.
Speaker Change: <unk> all the revenue that we derive from operations, but it also includes all the revenue that we derive from digital capabilities that are sourced two clients on a standalone basis.
Speaker Change: These are necessary investments that we will need to make as we go forward.
Speaker Change: Sure sure really.
Obviously, the digital capabilities are growing much more rapidly than the digital operations.
Speaker Change: To add to what Robert said, when you really look at just kind of the overall.
Our core piece on a standalone basis and.
Speaker Change: We will be making more investments, particularly in opex in.
In terms of industry segments.
Speaker Change: In our investment line in our P&L over the next one to three years and that's really going to be funded by us driving value from gross margin or gross margin needs to grow and increase in order to fund this investment, but if we do that by driving price on higher value service.
Speaker Change: Frankly, we are seeing a broad strength across the board and we're seeing strength in insurance seeing it in healthcare and in our emerging business unit.
We see this trend.
Speaker Change: Place globally. So we are seeing this strength.
Speaker Change: In the U S as well as in UK, Europe, and Australia, New Zealand.
Speaker Change: You really start to provide to our clients.
Speaker Change: Particularly in data and AI, so what you'll end up seeing.
So there seems to be a broad secular shift in terms of <unk>.
Speaker Change: Going forward is a higher gross margin offset by a higher amount of investment that's going forward.
Speaker Change: Moving forward on this.
Speaker Change: Going forward, our expectation is still that we should be able to grow our digital operations business and a low double digit kind of a trajectory.
Speaker Change: And that fully embraces an incremental increase in our <unk> on an annual basis, not a significant increase but an increase on an annual basis going forward.
And that would be something that would be sustainable for us.
Speaker Change: Okay.
And that's what we would be targeting.
Speaker Change: Thank you that's helpful.
Okay understood and then just shifting to analytics it sounds like payment integrity and data management remained solid throughout the balance of analytics any notable changes in and just the customer marketing do in decision analytics and just how are you forecasting the fourth quarter growth in analytics.
Speaker Change: Our next question will come from Bryan Bergin with T. Kevin Cohen.
Bryan Bergin: Hi, Good morning. Thank you I wanted to start with these operations and others wrong quarter here on organic growth.
Bryan Bergin: Let's ask on your conviction and potential sustainability.
Sure. So look I think we're very very happy that in analytics. The business growth has accelerated we are seeing our analytic services.
Bryan Bergin: Relative to the medium term outlook for the submitted and it's been good to see all industries contributing you give them a higher level of conviction in the near term and sustaining higher growth in any particular digital ops industries.
To be growing as well alongside with our payment integrity business line as well as our data management business line.
Speaker Change: Sure Brian.
I think some of the strength that we're seeing again is reflected very nicely in the pipeline and we see a lot. Many more deals out there. The only thing to note here is the analytics business will always be a.
Speaker Change: So first of all we are very pleased with the growth of our digital operations business and.
Speaker Change: I think it's been at this elevated growth rates for a number of quarters and actually we've seen or the acceleration of the growth rates.
Our shorter cycle business, and therefore, there will be a fairly high level of volatility associated with this business.
Speaker Change: We take a look at the demand environment for our services and digital operations.
The underlying fundamentals and the traction that we're seeing with our clients and the business value that they derive from our services.
Speaker Change: That continues to be strong and we take a look at our pipeline.
Implying that actually growing very nicely.
It's resonating very very nicely.
Speaker Change: And as we've shared previously but we also see is that the number of large deals and the value of large deals in our pipeline.
Speaker Change: Our next fourth.
Speaker Change: Got it.
Speaker Change: To increase so frankly all of these are very encouraging and exciting about the demand environment, the pipeline and our ability to generate revenue growth and digital operations.
Yes about our view for the fourth.
Speaker Change: In the quarter for analytics side for the fourth quarter look I think our we would expect.
Speaker Change: There are a couple of things, which I would like to highlight number.
Our business momentum to continue.
When we had guided for calendar year 2024, we had guided that our digital operations business will grow slightly faster than our analytics business. This year.
Speaker Change: Number one.
Speaker Change: Everything that we do in terms of.
Speaker Change: Selling digital pure digital revenue is included as part of our digital operations segment.
We do see a boat or business lines getting to low double digit growth rates.
Speaker Change: So the growth and the revenue in our digital operations segment includes all the revenue that we drive from operations, but it also includes all revenue that is derived from <unk>.
Forward and therefore, we would expect that trend to kind of may.
Speaker Change: Digital capabilities that are sourced from clients on a standalone basis.
Maintain itself in the fourth quarter.
And keep in mind, Brian when you look at the prior year, we were fairly flat on revenue and analytics between Q2 to Q4. So as we continue this momentum going into Q4 as total revenue continues to increase you do see an increase in the growth rate and that's being reflected now Q2, Q3, and you would see that in Q4.
Speaker Change: Obviously, the digital capabilities are growing much more rapidly.
Speaker Change: And then the digital operations.
Speaker Change: Core piece on a standalone basis in terms of industry segments.
Speaker Change: Frankly, we are seeing broad strength across the board and we're seeing strength in insurance and.
Okay helpful. Thanks, guys.
Speaker Change: In healthcare and in our emerging business units.
Speaker Change: Question will come from Maggie Nolan with William Blair. Please on mute and ask your question.
Speaker Change: We see this strength.
Maggie Nolan: Alright, thank you.
Speaker Change: Take place globally. So we're seeing this.
How are you assessing the risk of a change in conversion rates larger deals for your digital ops business is there anything to note there.
Speaker Change: You know.
The U S.
Speaker Change: Class U K Europe and in Australia.
Speaker Change: So there seems to be a broad secular shift in terms of moving forward on this.
Speaker Change: Hi, Maggie so actually our conversion rates and our win rates in large deals is about the same as what we see with the rest of the portfolio.
Speaker Change: Going forward, our expectation is still that we should be able to grow our digital operations business and a low double digit kind of a trajectory and that would be something that would be sustainable for us and that's what we would be targeting.
Clearly the large deals tend to be a little bit more lumpy and it takes.
A fair amount of time for us to be able to ramp up and implement.
Speaker Change: Okay understood and then just shifting analytics payment integrity and data management remained solid throughout the balance of analytics any notable changes it and just the customer market and Decisioning analytics and just how are you forecasting fourth quarter growth in analytics.
Speaker Change: The large deals.
So far we seem to be in a very good place in terms of our competitiveness and our win rates associated with large deals and I think we've.
We've got fair amount of traction in the pipeline and we've got a fair amount of deals would be one.
Speaker Change: Sure. So look I think we are very very happy.
As we've kind of shared in terms of the client wins.
Speaker Change: In analytics.
Speaker Change: Growth has accelerated we're seeing our analytic services.
Sure still needs to be implemented going forward into 'twenty five.
Speaker Change: To be growing as well alongside with our payment integrity business defined as well as our data management benign.
Speaker Change: Thank you.
You give some commentary on.
Speaker Change: I think some of the strength that we're seeing again reflected very nicely in the pipeline and we see many more deals out there.
Your success in the data and analytics segment.
Organically and then data management in particular organically versus what the acquisition is adding in terms of synergies so far.
Speaker Change: Only thing to note here is the analytics finished will always be onshore.
Speaker Change: Sure.
Our shorter cycle business.
So it in data analytics.
Speaker Change: Therefore, there will be.
Speaker Change: Finally, a higher level of volatility associated with this business, but the underlying fundamentals and the traction that we're seeing with our clients and the business value that they derive from our services.
The organic growth for us are largely has been on analytics services.
And frankly out there we are seeing.
A reversion of the demand coming back and therefore growth of that business taking place.
Speaker Change: It's resonating very very nicely.
Speaker Change: Our marketing analytics for us certainly had decline, but now is less than 10% of our portfolio and therefore is not really having much of a material impact on our data analytics business.
Speaker Change: And any commentary on the fourth quarter.
Speaker Change: Yes.
Speaker Change: Great analytics site to for the fourth quarter look I think our we would expect that.
Speaker Change: The data management part.
Speaker Change: There are a number of capabilities that we have built over the last five years that continue to grow very nicely on an organic basis.
Speaker Change: Business momentum to continue.
Speaker Change: When we had guided for calendar year 'twenty 'twenty four.
Speaker Change: The acquisition of I D. I did add to our revenue growth in the third.
Speaker Change: We had guided that our digital operations business will grow slightly faster than our analytics business. This year.
Speaker Change: Good quarter.
If we excluded the you know the the Rev.
Speaker Change: We do see.
That came from <unk>.
Speaker Change: Our business clients getting to low double digit rates.
Growth off the analytic segment would have been between 9% to 10% growth still.
Speaker Change: Going forward and therefore, we would expect that.
<unk>, it's still continues to accelerate and is still a pretty healthy growth rate even after excluding.
Speaker Change: Trends in Japan.
Maintain itself in the fourth quarter.
Speaker Change: And keep in mind, Brian when you look at the prior year.
Speaker Change: The acquisition of idea.
Speaker Change: <unk> revenue and analytics between Q2 to Q4, so as we continuous momentum going into Q4 as total revenue continues to increase you do see an increase in the growth rate and that's been reflected in our Q2 Q3.
Thank you congrats on the results.
Speaker Change: Thank you.
Our next question will come from Puneet Jain from Jpmorgan. Please go ahead with your question.
Speaker Change: You would see that in Q4.
Hi, Thanks for taking my question and great quarter.
Bryan Bergin: Okay helpful. Thanks, guys.
Uh huh.
Speaker Change: Yeah.
Speaker Change: Alright.
Speaker Change: Question will come from Maggie Nolan with William Blair, Please mute and ask your question.
Speaker Change: I wanted to follow up on Doug's question Maggie.
Speaker Change: The data and analytics.
Alright, thank you.
So the overall Michael Macdonald.
Speaker Change: How are you.
Maggie Nolan: The change in conversion rates on larger deals for your digital business.
Do like 9% to 10% on organic basis.
Speaker Change: Okay.
Maggie Nolan: Anything to note there.
Speaker Change: Perfect.
Speaker Change: Got it.
Speaker Change: Hi, Maggie.
Speaker Change: You didn't ask.
Maggie Nolan: Actually our conversion rates and our win rates and large deals.
Speaker Change: Sure Tycho.
Like the data Amit Thank you.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: It's about the same as what we see.
Hi, Martin.
Speaker Change: The rest of the portfolio.
Speaker Change: But I think like no.
Speaker Change: Clearly the large deals that tends to be a little bit more lumpy and it takes.
Speaker Change: The overall segment.
Thank you Dan.
Speaker Change: Yes.
Speaker Change: A fair amount of time for us will be able to ramp up and implant.
Speaker Change: Okay.
Anthony: Thanks Anthony.
Speaker Change: The large deals.
Speaker Change: Look I think the data analytics businesses changed.
Speaker Change: So far we seem to be in a very good place.
Speaker Change: <unk>.
Changing quite rapidly and the kind of services and the kind of capabilities that we have continued to evolve.
Speaker Change: I shouldn't ask and our win rates associated with logistics.
Speaker Change: And I think I got it.
Speaker Change: Fair amount of traction in the pipeline.
In the past they used to be a fair amount of data visualization that used to be done a lot of reporting that used to be done all of that has completely changed and we've moved up much more towards a.
Speaker Change: And we've got a fair amount of deals that we won as we kind of shared in terms of the client wins, which are still needs to be implemented going forward into 'twenty five.
Speaker Change: AI and much more complex analytical services.
Speaker Change: Thank you.
Speaker Change: The data management part for US continues to build out very nicely and rapidly.
Speaker Change: Can you give some commentary on <unk>.
Speaker Change: Your success in the data and analytics segments.
The partnership that we have with the data bricks that adds.
Speaker Change: Organically and in data management, and particular organically births is why acquisition with adding in terms of synergies so far.
As to our ability to grow this.
Speaker Change: But also the partnership that we have with each of the Hyperscale or you know.
Sure.
Speaker Change: So in data analytics.
With the Google with Amazon with Microsoft.
Speaker Change: You know the.
Speaker Change: Organic growth for us are largely has been on analytics services.
These are all adding to the growth rate of our data analytics business.
The big thing is as clients in confidence with.
Speaker Change: And frankly, there we are seeing.
Speaker Change: A reversion of the demand coming back and therefore gross profit.
US in this space and the the.
Speaker Change: The.
The buying center, which is shifting from the Chief Analytics Officer to also include the Chief Information Officer, and the Chief Technology Officer.
Speaker Change: Business.
Speaker Change: Mrs.
Speaker Change: Marketing analytics for us.
Speaker Change: <unk> has declined but now is less than 10% of our portfolio and therefore is not really having much material impact on our data analytics business.
Speaker Change: That's helping us build and grow this business also very nicely.
Speaker Change: So frankly.
There is a lot of evolution, that's taking place in our decision analytics business.
Speaker Change: Data management part.
Speaker Change: No they're not.
Speaker Change: Capabilities that we have over the last five years that continue to grow very nicely on an organic basis.
Speaker Change: Hard for me to say how much of that growth is coming from new services.
Speaker Change: Versus ordinary people don't.
Speaker Change: The acquisition of ITI <unk> did add to our revenue growth in the.
Speaker Change: Really have.
Data that'd be sure on that extra money right now on that.
Speaker Change: Part of the quarter.
Speaker Change: But if we excluded.
That's great, but no but thanks for the explanation.
Speaker Change: The.
Speaker Change: Revenue that came from <unk>.
And then you talked about insurance.
Speaker Change: Our growth all the analytic segment would have been between 9% to 10%.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: So actually it's still kind of irrational rate and it's already healthy growth rate even opex excluding.
Speaker Change: Martin.
It's not tied to any specific.
Jim.
Speaker Change: Like what data do you play in both markets I know you had some data.
Speaker Change: The acquisition of Ics.
Speaker Change: Yeah.
But are you allowed to use.
Speaker Change: Thank you congrats on the results.
Speaker Change: Yes.
Speaker Change: You.
Speaker Change: B J.
Speaker Change: Our next question will come from Puneet Jain from Jpmorgan. Please go ahead with your question.
Speaker Change: And follow.
Ill come back with like how much autonomy scandal.
Speaker Change: Yes.
Puneet Jain: Thanks for taking my question.
Speaker Change: Thank God.
Speaker Change: Okay.
Puneet Jain: Okay.
Speaker Change: Yes.
Speaker Change: Uh huh.
Speaker Change: Okay.
Puneet Jain: Alright.
Puneet Jain: I wanted to follow up on that could come back to Maggie asks about the data in hand.
Speaker Change: Sure.
Speaker Change: So first off we absolutely have contractual commissioning rights by our clients to be able to use the data and we only use that data, which our clients give us express written permission to be able to use and and the insurance all of them as being trained.
Great.
Puneet Jain: So the overall Michael Macdonald.
Puneet Jain: Do like 90, 10% turnover.
Puneet Jain: Okay.
Puneet Jain: Perfect.
Puneet Jain: Thank you.
Speaker Change: Good day to all.
Speaker Change: Sure.
On Vasco dataset.
The data Amit. Thank you for example.
If you take a look at it over the last 10 years, we've got a lot of claims related to data.
Speaker Change: Thank you.
Speaker Change: Hi, Martin.
Speaker Change: But I think right now so how much of that overall segment.
Speaker Change: <unk> insurance carriers, and those insurance carriers that allow us to use this data. That's that's the data set that we've used to train our insurance.
Dan: Thank you Dan.
Dan: Yes.
Dan: Okay.
Speaker Change: Thanks Anthony.
Speaker Change: <unk>.
Speaker Change: Okay.
Once this work is as this work is on.
Speaker Change: The data analytics businesses.
Speaker Change: Changing quite rapidly and the kind of services and the kind of capabilities, we have continually evolve.
Speaker Change: Auto bodily injury workers compensation.
Speaker Change: And medical liability solved.
Speaker Change: Basically what the data sets that we have is when a claim comes in.
Speaker Change: In the past they used to be.
Speaker Change: A fair amount of data visualization that you should be done ordering that used to be done all of that has completely changed I mean moved up much more clear.
Speaker Change: What is the incident that took place and what was the outcome that was finally settled.
Speaker Change: As a result of that incident and what was a claim that got paid out now that data set.
Speaker Change: AI and much more complex analytical services.
Speaker Change: The data management and smart for US continues to build out very nicely and rapidly.
Speaker Change: Is really really valuable because we can use it to train.
Speaker Change: The partnerships that we have with the data bricks.
Speaker Change: Our models so that the next time, a new claim comes in we already know what is the best pathway for that claim to be settlement negotiated and paid out.
Speaker Change: As to our ability to grow this.
Speaker Change: But also the partnership that we have with each of the Hyperscale.
Speaker Change: With the Google Amazon Microsoft.
And.
From a client perspective, they are very willing to share that data with us because it's not personal identifying information, it's not personal health information, So talk VII and BHI.
Speaker Change: These are all adding to the growth rate of our data analytics business.
Speaker Change: I think the big thing is.
Speaker Change: Clients in confidence with us in this space.
It is basically a dedicated dataset, which allows you to be able to continuously improve the accuracy of that LLS.
And the B.
Speaker Change: Buying center, which is shifting from a chief analytics officer to also include the Chief Information Officer, and Chief Technology Officer.
And as we deploy these <unk> in our client operations, we're actually going to be getting more and more data sets from them and therefore, we can continue to fine tune and train our insurance and Allen and become really unexplored in terms of the productivity and the accuracy.
Speaker Change: I think that's helping us.
Speaker Change: And grow this business very nicely.
Speaker Change: So frankly.
Speaker Change: A lot of evolution, that's taking place in our decision analytics business.
Speaker Change: Hard for me to say how much of that growth is coming from new.
Speaker Change: That these algorithms can be deployed.
Speaker Change: Sources.
Speaker Change: <unk>.
Now keep in mind that that is going to be for a pretty narrow use case and our ability is there how do we take it from that narrow use case and then we expanded into other use cases and because we are in a privileged position, where we do so much of our work with <unk>.
Speaker Change: Really have.
Speaker Change: Our data whether it be share on that extraordinary right now on that.
Speaker Change: That's good but no but thanks for the explanation and then you talked about.
Speaker Change: Hello.
Yeah.
Speaker Change: Thank you Beth.
Speaker Change: Carriers in a particular industry or payers.
Speaker Change: The model thanks.
Payers in a particular industry or banks and financial institutions in the banking industry.
Speaker Change: Alright.
Speaker Change: Alright.
Speaker Change: Like what data do you play into it.
Having access to that data set makes us.
Speaker Change: So I know you have some data.
Speaker Change: Data, but allowed to your client.
Speaker Change: The unique player to be able to develop these types of elements.
Speaker Change: Sure.
Speaker Change: But most of the industry.
And what we're finding is our knowledge about handling the process and our domain expertise combined with our ability to access this data that's what's creating the differentiation for us and that's what is allowing us to be able to build these proprietary models for our clients.
Speaker Change: Hi.
Speaker Change: Follow up on that.
Speaker Change: How much autonomy channel.
Ken: Thank you Ken.
Ken: Yes.
Okay.
Ken: Sure.
Speaker Change: So first off we absolutely have contractual omission.
Speaker Change: Okay. Thank you.
Speaker Change: And our clients to be able to use the data and only use San data, which our clients give us express written permission to be able to yield.
Our next question will come from David Koning from R. W. Baird.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Insurance I remember being trained on.
Speaker Change: Here. We go can you guys hear me.
Speaker Change: On Vasco dataset.
Speaker Change: Yes.
Speaker Change: If you take a look at it.
Speaker Change: Sorry about that.
Speaker Change: The last 10 years, we've got a lot of claims related data.
Speaker Change: Yes, just from a high level perspective.
Speaker Change: It seems like a lot of the industry has struggled recently both I T.
Speaker Change: From insurance carriers.
Speaker Change: And those insurance carriers that allow us to use this data as the data set that we've used to train our insurance.
Speaker Change: E P O et cetera, yet you guys seem to be growing significantly faster than most.
Speaker Change: Is it just functionality like some of the stuff Youre doing is better is that the mix of clients that youre, serving just industries, you're serving like what do you think are the two or three like biggest differentiators that youre doing compared to a lot of your competitors.
Speaker Change: Okay.
Speaker Change: Once this work is as this work is on.
Speaker Change: Auto bodily injury workers compensation and medical liability. So basically what the data sets that we have is when a claim comes in.
Yesterday, so look I think in our business it ultimately boils down to two essential ingredients.
Speaker Change: What is the incident that took place and what was the outcome that was finally settling.
One is execution and to his capability.
Speaker Change: As a result of that incident.
Speaker Change: And what was a claim that got paid out.
Speaker Change: On execution, we've been absolutely mini anchor in terms of being able to deliver to the commitments that we make to our clients and we believe that we have one of the highest customer satisfaction scores in the industry and we just completed our annual customer satisfaction survey.
That dataset.
Speaker Change: Is really really valuable because we can use it to train our models. So that the next time, a new claim comes in.
Speaker Change: Already know what is the best path for that claim to be centrally negotiated and data.
Speaker Change: In the <unk>.
Speaker Change: And from.
In the third quarter, and we've got outstanding results and and that kind of acceptance and reference ability by our existing clients to our prospects and to other players in the industry I think stands out and it generally results in us being able to grow our business at a faster pace the.
Speaker Change: From a client perspective, they've been willing to share that data with us because it's not personal identifying information.
Speaker Change: It's not personal health information to talk VII.
It is basically our deli radio dataset.
Speaker Change: Which allows you to be able to continuously improve the accuracy of that.
The second aspect is capability.
I think we were just a little bit early in terms of investing in analytics investing in digital and building up market relevant capability that can be embedded into the operations and processes of our clients. So today. When every single client is trying to embed.
Speaker Change: And as we deploy these elements in our client operations.
We're actually going to be getting more and more data sets from them and therefore, we can continue to fine tune and train our insurance Allen and become really an expert in terms of the productivity on the accuracy that these elements can be deployed it now.
Speaker Change: AI into the workflow.
Find our capability, our ability to execute on that capability and integrate that in to be differentiated and therefore, our win rates are very healthy and we've been able to build and grow our business. So these two things are very important and I think on a go forward basis.
Speaker Change: Now keep in mind that that is going to be for a pretty narrow use case.
Speaker Change: And our ability is there how do we take it from that narrow use case.
Speaker Change: It into other use cases and.
Speaker Change: And because we are in our quiver.
<unk> position when we do so much of our work with.
Speaker Change: Yes.
Speaker Change: We will need to continue to execute well and we will continue to invest much more to be able to stay ahead on the capability front and be a relevant partner for our clients.
Speaker Change: Carriers in a particular industry or payers.
Speaker Change: Payers in a particular industry or banks and financial institutions in the banking industry.
Speaker Change: Having access to that data set makes us.
Speaker Change: Unique player to be able to develop these types of.
Speaker Change: Thanks, Yes, I mean, you guys are crushing it.
I guess my my follow up question insurance analytics that had been flattish give or take on a year over year basis for the last four quarters or so, but it accelerated to 15% or so growth. This quarter is that we're ITI falls in you know maybe it seems like organically. It's also doing better but why why did it insurance analytics.
Yes.
Speaker Change: And what we're finding is our knowledge about handling the process and our domain expertise combined with our ability to access the data that's what's creating the differentiation for us and that's what is allowing us to be able to release proprietary models for our clients.
Speaker Change: Okay. Thank you.
Speaker Change: Accelerated so much.
So ITI firstly is largely focused in on banking and and a little bit on health care.
Speaker Change: Next question will come from David Koning from R. W. Baird.
But thats, where our most of the revenue stream coming from <unk>.
Speaker Change: Yeah.
David Koning: Here. We go can you guys hear me.
Speaker Change: Insurance analytics has a couple of different pieces to it its got insurance analytic services. It did have marketing analytics in it.
Speaker Change: Yes.
David Koning: Sorry about that.
David Koning: Yes, just from a high level perspective.
David Koning: It seems like.
David Koning: Industry has.
And the marketing analytics as we've shared with you previously was something that declined year over year and that pretty much as stabilized. So that's something which is no longer a drag.
His struggled recently both I E.
David Koning: P P O et cetera.
Speaker Change: Yet you guys seem to be growing significantly faster than most.
Is it functionality like some of the stuff Youre doing is better as the mix of clients that youre, serving just industry would you say like what are the two or three like this differentiators that youre doing compared to lot of your competitors.
Speaker Change: There is.
A huge amount of work that we do around.
Speaker Change: Actuarial.
Speaker Change: Work, we do work around insurance indemnity spend and therefore analytics services are critical.
Speaker Change: Yes.
Speaker Change: Look I think in our business it ultimately boils down to essentially ingredients.
Speaker Change: A critical aspect of the services and the value that we provide to our insurance clients.
Speaker Change: That.
Speaker Change: One is execution.
Seems to be resonating nicely and is growing well and.
Speaker Change: And two is capability.
Speaker Change: On execution, we've been absolutely mini anchor in terms of being able to deliver to the commitments, we make to our clients.
Like we said we've also invested in building up leadership capacity out here and being able to kind of continue to grow that.
Speaker Change: And we believe that we have one of the highest customer satisfaction scores in the industry.
One other aspect is data management within insurance analytics, that's growing strongly as well and.
Speaker Change: We just completed our annual customer satisfaction survey.
Speaker Change: Most of the insurance carriers have got legacy platforms and systems, and therefore data management for them. It becomes a critical element and we're seeing good traction on that as well.
Speaker Change: In the third quarter, and we've got outstanding results and and back.
Speaker Change: Acceptance and reference ability buyouts, assisting clients to our prospects and to other players in the industry I think stands out and generally resulted in us being able to grow our business at a faster pace.
Speaker Change: Great. Thank you.
Yeah.
Our next question will come from David Grossman with Stifel. Please go ahead.
Speaker Change: Thank you.
Speaker Change: The second aspect is capability.
Speaker Change: Rohit.
Speaker Change: I think we were just a little bit early in terms of investing in analytics testing in digital and building up market relevant capability that can be embedded into the operations and processes of our clients. So today. When every single client is trying to Mb.
Perhaps you could further refine the elements of growth.
In the digital ops business as you mentioned, it's been fairly strong for several quarters now and.
Speaker Change: You mentioned it includes some of the pure digital revenue I'm not quite sure what exactly you're including in that bucket, but.
Anything you can do to kind of help us better understand.
Speaker Change: <unk> AI into the workflow.
Speaker Change: They find our capability, our ability to execute on that capability and integrate that to.
The growth dynamics, there versus the legacy core pricing units or whatever it is that you can help us better understand that.
Speaker Change: To be differentiated and therefore, our win rates.
Speaker Change: Sure David.
Speaker Change: Very heavily and we've been able to build and grow our business. So these two things are very important and I think on a go forward basis.
Speaker Change: So first of all the digital revenue that we have you can broadly break up the digital revenue into two pieces.
Speaker Change: We will need to continue to execute well and we will continue to invest much more to be able to stay ahead on the capability front and be a relevant partner for our clients.
One is digital solutions that we have created which our clients buy from us on a standalone basis.
So think about this as digital platforms, our tools or solutions that our clients want to leverage across the enterprise.
Speaker Change: Sure. Thanks, Yeah, I mean, you guys a question yet.
Speaker Change: And I guess my my follow up question insurance analytics that that had been flattish give or take on a year over year basis for the last four quarters or so, but it accelerated to 15% or so growth. This quarter is that we're ITI falls in may it seems like organic we can also do better but why why did it insurance analytics.
Regardless of whether they give us their operations or not and therefore invest one bucket and thats bucket for us has been growing very nicely and very sharply.
The second.
<unk> on the digital side is work that we embed and we combined with the workflow and therefore, it gets embedded into their digital operations work that we're doing and it's digitizing our clients.
Accelerated so much.
Speaker Change: So ITI.
Speaker Change: Firstly is largely focused in on banking and.
Speaker Change: Little bit answer.
Speaker Change: But thats, where our most of the revenue.
Speaker Change: Operating workflow.
Speaker Change: Got it came in from <unk>.
Speaker Change: So both of these.
Speaker Change: Insurance analytics.
And this is much more of an integrated service.
Speaker Change: He has a couple of different pieces to it its got insurance analytics service it.
Speaker Change: They tend to buy from us.
Speaker Change: So those are the two elements within digital and what we're seeing is that clients. When they think about how the future of work should be managed for them. They naturally gravitate towards those players that can not only execute and deliver our operations at a high service delivery.
Speaker Change: Half marketing analytics in it and a marketing analytics.
Speaker Change: Go ahead with your previously was something that declined year over year, and that's pretty much as stabilized. So that's something which is no longer a drag.
Speaker Change: There is a huge amount of work that we do around.
<unk> low cost and deliver exceptional value, but also those that are.
Speaker Change: Actuarial.
Speaker Change: The work, we do work around insurance indemnity spend and therefore analytic sources are.
Forward thinking that can apply data can apply analytics can apply digital.
A critical aspect of the services and the value that we provide to our insurance clients.
And be able to deliver incremental value to them.
Speaker Change: And we've been fortunate that.
That we've been winning a large number of deals out there and our growth rate that has accelerated and is presently at elevated levels.
Speaker Change: That.
Speaker Change: It seems to resonate nicely and it's growing well and.
Speaker Change: Like we said we've also invested in building up leadership capacity Archer and being able to count.
Are these standalone solutions that you mentioned are those like sold as a technology tool is that the revenue model.
Speaker Change: <unk> product.
Speaker Change: One other aspect data management within insurance analytics.
Speaker Change: Yes.
That's correct.
Speaker Change: Growing strongly as well and.
Speaker Change: How big can you can you dimension.
Speaker Change: Also be sure.
How big these components are.
Speaker Change: Some of our legacy platforms and systems and our data management, then becomes a critical element and we're seeing good traction on that as well.
David it's difficult for me to kind of let me not shared the data on that.
Externally, but these are tools that clients will buy keep in mind that they'll buy the tool and pay a license fee for the for the tool as.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question will come from David Grossman with Stifel. Please go ahead.
As well as at our services associated with the implementation of that tool that also needs to be purchased by the client. So anytime we have this IV.
David Grossman: Thank you.
David Grossman: Rohit.
Speaker Change: Grants he could further refined.
David Grossman: Elements of growth.
David Grossman: In the digital ops business as you mentioned, it's been fairly strong for several quarters now and I know you mentioned it includes some of the pure digital revenue I'm not quite sure what exactly you're including in that bucket right.
Speaker Change: I think that our client is buying from us.
Speaker Change: They're paying us on a software license fee for being able to use that but they're also asking us to come in and implement this in <unk> and into their environment and we charge them for for that service right. So is there I mean is it.
David Grossman: Anything you can do to help us better understand.
David Grossman: The growth dynamics, there versus the legacy core pricing isn't it sooner or whatever you can help us better understand that.
Mix shift impacting gross margin as that would.
When you talked about the need to fund incremental investments I mean should we expect the gross margin in the ops to continue to go up.
Speaker Change: Sure David Silver.
David Silver: So first of all it.
So on these standalone solutions as we get scale, we certainly would expect the gross margin to go up.
Speaker Change: Digital revenue that we have who can broadly breakup of digital revenue.
Two pieces.
Speaker Change: One is digital solutions, let me have created which our clients buy from us on a standalone basis.
Because once the solution is better.
It should be able to kind of provide us with higher gross margins, but keep in mind that every single new tools that we introduce actually is a drag on gross margin because in the initial one or two years, when we don't have the size and scale.
Speaker Change: So think about this as a digital platform tools or solutions.
Speaker Change: That our clients want to leverage across the enterprise.
Speaker Change: Regardless of whether they give us their operations or not and therefore invest one bucket and thats bucket for us has been growing very nicely.
Actually it's lower gross margin so it really depends on the portfolio and how fast we are introducing new tools and solutions and how fast we are achieving scale in existing solutions.
Speaker Change: Sure.
Speaker Change: The second.
Speaker Change: On the digital side is.
Work that will be embedded and we combined with the bulk slow and therefore, it gets embedded into their digital operations.
Speaker Change: Got it and sorry, just one more.
It's hard not to notice the volatility in margins this quarter to quarter on the EBIT line.
Speaker Change: We are doing and it's digitizing our clients.
Is that unique to this year or.
Speaker Change: Are we going to see that kind of volatility going forward as well.
Speaker Change: Operating workflow.
Speaker Change: So both of these.
Speaker Change: Hey, David It's mertz here, you've seen a little bit of volatility. This year, we started with a lower margin right around 87% in Q1, an increase of 20% the OPM in Q2, and now Youre seeing about 19, 9%.
Speaker Change: Okay.
Speaker Change: And this is much more of an integrated service that.
Speaker Change: They tend to buy from us.
So those are the two elements are women.
Speaker Change: Thanks, Phil.
Speaker Change: And what we're seeing is that clients.
Speaker Change: When they think about how the future of work should be managed.
Speaker Change: The average for the first half of the year was 19, 4% right in line with last year last year was 19, Threep and we do believe the second half will be right around 19, 4%. So we're a little bit higher in Q3, but as Robert talked about we do have a number of investments that we want to make in Q4. So I think you really got to look.
Naturally gravitate towards those players that can not only execute and deliver applications.
Speaker Change: Hi, <unk>.
Speaker Change: No bust and deliver exceptional items also goes.
Speaker Change: Forward thinking it can help apply data analytics can apply digital.
Look at this on an annual basis, we will we will manage earn a O P M.
Speaker Change: And be able to deliver incremental value to them.
So that is incrementally built on an annual basis.
And we've been fortunate that.
Speaker Change: That we've been winning a number of deals out there.
Marginally, but the quarter to quarter, we'll have a little bit of volatility, but I would I would.
Speaker Change: Our growth rate.
Speaker Change: Has accelerated as well.
Stress less looking at the quarters and really think about the annual.
Speaker Change: Yes elevated levels.
Speaker Change: Who are these standalone solutions that you mentioned are those like <unk>.
Speaker Change: Margin trajectory.
Okay, Alright, guys. Thanks very much.
Technology tool is that our revenue model.
Speaker Change: [laughter].
Yes, that's good.
Speaker Change: Our last question will come from Vincent Colicchio with Barrington Research Associates. Please go ahead.
Speaker Change: And how big can you can you dimension just how big these components are.
Speaker Change: Okay.
Speaker Change: It's difficult for me.
Speaker Change: We have not shared the data on that.
Speaker Change: Externally.
Speaker Change: Vincent Your line is open.
Speaker Change: These are tools for clients whereby.
Speaker Change: Keep in mind that they'll buy the tool and pay a license fee for the other two.
Oh can you hear me.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: As well as there are services associated with the implementation of that tool that also needs to be purchased by the client. So anytime we have this.
Speaker Change: Rohit can you.
Vincent: You talk about the new deals in the quarter.
Speaker Change: He was a particularly large.
Speaker Change: New doubts were seeing and any other relevant.
Our client is buying from us.
Speaker Change: Commentary.
Speaker Change: They're paying us on software license fee for being able to use that.
Rohit: Sure Vincent So I think we are very happy with the new deals that we won this quarter.
Speaker Change: Awesome awesome.
Speaker Change: Implementers.
Rohit: It's pretty well spread out between our digital operations business and our analytics business.
Speaker Change: The environment and we charge them for for that service.
Speaker Change: Right so as they're mixed.
Speaker Change: The mix shift impacting gross margin is that wood.
In terms of the quality of the deals and the quality of the client logos that would be one.
Speaker Change: When you talked about the need to fund incremental investments I mean should we expect gross margin in the us.
It's pretty much similar to the past influence some.
Speaker Change: A year ago.
Rohit: Global 1000 names in and Fortune 1000 names of those are always great.
Speaker Change: So on these standalone solutions as we get scale, we certainly would expect the gross margin to go up.
Rohit: And you know that there are a few that we would expect to ramp up over the next couple of quarters.
Speaker Change: Because once the solution is.
Speaker Change: It should be able to provide us with higher gross margins.
Rohit: And therefore, there should be a significant large deals for us so nothing.
Speaker Change: Keep in mind that every single new tools that we introduce that actually is a drag on gross margin because in the initial one or two years, when we don't have the size and scale.
Rohit: Different from previous quarters are pretty much.
Rohit: The same kind of complexion and.
Already of deals that we would've won in this quarter.
Speaker Change: Actually it's lower gross margin so it really depends on the portfolio.
And are you seeing a substantial M&A pipeline, how evaluation of the market.
How fast we are introducing new tools solutions and how fast we are achieving scale in existing solutions.
Rohit: <unk> ratio.
Rohit: Could you reiterate your capital allocation thinking.
Speaker Change: Got it and sorry, just one more.
Speaker Change: It's hard not to notice the volatility in margins quarter over quarter on the EBITDA line.
Speaker Change: Sure. So in the M&A market, we continue to see plenty of opportunities and assets that come to market. Obviously, we're going to we're going to be very selective in terms of strategic value to us going forward, we purchased <unk> for a number of different reasons, particularly to really draw.
Speaker Change: Is that unique to this year or.
Speaker Change: Are we going to see that kind of volatility going forward as well.
Speaker Change: Hey, David It's merck's here, you've seen a little bit of volatility. This year, we started with a lower margin right around 87%.
Speaker Change: Right more capability and data management and also expand our client base.
Speaker Change: In Q1.
Speaker Change: The increase of 20% L. P. M. In Q2, and now have you seen about 19, 9%.
Going forward <unk>.
Continue to allocate capital to both M&A and share repurchase share repurchase we've allocated about $185 million this year and we've gotten a relatively very good price on that.
Speaker Change: The average for the first half of the year was 19, 4% right in line with last year last year was 19, three we do believe the second half will be right around 19, 4%. So we're a little bit higher in Q3, but as Robert talked about we do have a number of investments that we want to make in Q4. So I think you've really got to look.
Rohit: <unk> on that repurchase activity just slightly north.
Rohit: North of $30 a share so youll see a fairly balanced.
At this on an annual basis, we will we will manage <unk> P M.
Rohit: Capital allocation.
Rohit: Project going forward really tailored between M&A and share repurchase.
Speaker Change: So that incrementally builds on an annual basis.
Speaker Change: Thank you.
Speaker Change: Marginally.
Speaker Change: But the quarter to quarter, we'll have a little bit of volatility, but I would I would.
Speaker Change: We have no further questions at this time I will turn the call back to John Kristoff for closing remarks.
Speaker Change: Stress less looking at the quarters and really think about the annual.
John Kristoff: Okay, well I'd like to thank everyone for joining us this morning, and as always if you have additional questions. Please feel free to reach out to me directly. Thank you.
Speaker Change: Trajectory, okay, Okay, alright, guys. Thanks very much.
Speaker Change: Okay.
Speaker Change: Next question will come from Vincent Colicchio with Barrington Research Associates. Please go ahead.
Speaker Change: Vincent Your line is open.
Vincent Colicchio: Hello can you hear me.
Speaker Change: Yes.
Vincent Colicchio: Rohit can you talk about the new deals.
Sure.
Particularly large.
Vincent Colicchio: What are the new Dallas, we're seeing any other relevant.
Vincent Colicchio: With aerie.
Rohit: Sure and so I think.
We are very happy with the new deal that we won this quarter.
Rohit: It's pretty well spread out between our digital operations business and our analytics business.
Rohit: In terms of the quality of the deals and the millennium client logos in Q1.
Speaker Change: Uh huh.
Speaker Change: Pretty much similar to the past.
Speaker Change: Got it.
Speaker Change: Some global 1000 names in and Fortune 1000 amps.
Speaker Change: Always great.
Speaker Change: And.
Speaker Change: A few of them that we would expect to ramp up over the next.
Speaker Change: <unk>.
Speaker Change: And therefore, there should be significant.
Speaker Change: Significantly larger for us.
Speaker Change: So nothing.
Speaker Change: Yeah.
Speaker Change: Different from previous quarters are pretty much the.
Speaker Change: The same kind of.
Speaker Change: <unk> and.
Audio of deals that we would've won in this quarter.
Speaker Change: And are you seeing I mean, they've got the line.
Speaker Change: How valuation of the market.
Speaker Change: And our ratio.
Speaker Change: Could you reiterate your capital allocation thinking.
Sure. So in the M&A market, we continue to see plenty of opportunities.
Speaker Change: It just didn't come to market.
Speaker Change: We see mortgage we're going to be very selective in terms of the strategic value.
Speaker Change: To us going forward, we purchased <unk> for a number of different reasons, particularly to really drive more capability and data management and also expand our client base.
Speaker Change: Going forward well.
Speaker Change: Continue to allocate capital to both M&A and share repurchase share repurchase we've allocated about $185 million this year and we've gotten a relatively very good price.
Speaker Change: <unk> on that.
Speaker Change: <unk> activity just slightly.
Speaker Change: North of $30 a share.
Speaker Change: So youll see a fairly balanced.