Q1 2025 ExlService Holdings Inc Earnings Call
25 earnings call.
We ask that you. Please hold all questions until the completion 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.
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I will now turn the call over to John Kristoff, Vice President of Investor Relations.
Speaker Change: Thank you Abigail Hello, and thank you for joining <unk> first quarter 2025 financial results Conference call.
Rohit Kapoor: On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer, and Marciano nickel alloy Chief Financial Officer.
Rohit Kapoor: We hope you've had an opportunity to review the first quarter earnings press release, we issued yesterday afternoon.
Rohit Kapoor: We have also posted a slide deck and investor Factsheet on our Investor Relations website.
Rohit Kapoor: As a reminder, some of the matters, we'll discuss this morning are forward looking please.
Rohit Kapoor: 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.
Rohit Kapoor: Such risks and uncertainties include but are not limited to general economic conditions.
Those factors set forth in our press release discussed in the company's periodic reports and other documents filed with the SEC from time to time.
Rohit Kapoor: EXL assumes no obligation to update the information presented on this conference call today.
Rohit Kapoor: During our call we may reference certain non-GAAP financial measures, which we believe provide useful information for investors reconciliation.
Rohit Kapoor: A reconciliation of these measures to GAAP can be found in our press release slide deck and industrial factsheet.
Rohit Kapoor: With that I'll turn the call over to Rohit.
Rohit Kapoor: Thanks, John Good morning, everyone.
Rohit Kapoor: Welcome to Exl's first quarter 2025 earnings call.
Rohit Kapoor: I am pleased to report that we started the year with strong first quarter performance.
Rohit Kapoor: In the first quarter, we generated revenue of $501 million, an increase of 15% year over year.
Rohit Kapoor: And we grew first quarter adjusted EPS by 27% to 48 cents per share.
Rohit Kapoor: Our results demonstrate significant momentum across all our segments.
Rohit Kapoor: Effective this quarter, we are reporting our business performance across four new segments consistent with how we are reviewing financial information and making operating decisions.
Rohit Kapoor: The new segments are insurance.
Rohit Kapoor: Healthcare and life Sciences.
Rohit Kapoor: Banking capital markets and diversified industries.
Rohit Kapoor: And international growth markets.
Rohit Kapoor: We delivered solid growth in the insurance segment, which represented more than a third of our revenue in the quarter.
Rohit Kapoor: Insurance is a core strategic market for us where we have been a consistent leader for many years.
Rohit Kapoor: We are excited about our growth opportunities in insurance as clients move from digital operations to AI powered operations.
Rohit Kapoor: Healthcare and life Sciences is becoming a larger part of our business representing about a quarter of our revenue.
We continued to deliver exceptionally strong revenue growth in this segment driven by higher volumes in payment services and expansion of business with existing clients.
Rohit Kapoor: Powered by our data and AI capabilities.
Rohit Kapoor: Banking capital markets and diversified industries also represented nearly a quarter of our revenue.
Rohit Kapoor: And we were able to accelerate revenue growth in the quarter.
Rohit Kapoor: With a significant customer base in this segment.
The opportunity to drive value through integrated capabilities, leveraging data and AI is tremendous.
Rohit Kapoor: Our international growth market segment enables us to leverage our data and AI strength in growing markets outside the U S.
Rohit Kapoor: Diversifying our business geographically, which is a strategic priority.
Rohit Kapoor: In the first quarter, we grew revenue in this segment and it now represents over 17% of our total revenue.
Rohit Kapoor: We have immense potential to grow our revenue with existing clients in this segment and we have significant opportunities to expand our client base.
Rohit Kapoor: Beginning with the first quarter and going forward, we will be reporting data and AI led revenue on a quarterly basis.
Rohit Kapoor: Our data and AI led revenue is made up of AI powered solutions and services.
Rohit Kapoor: Which we embed data and AI into client workflows.
Rohit Kapoor: As clients evolve from digital operations through data and AI powered operations and outcomes. These capabilities represent the next stage of enterprise transformation.
Rohit Kapoor: During the quarter.
Rohit Kapoor: Our data and the added revenue grew 16% year over year and represented 53% of total revenue with strong performance across all four of our reporting segments.
Rohit Kapoor: The robust execution of our data and AI strategy is.
Rohit Kapoor: Position EXL as an industry leader in embedding AI into the workflow and deliver business outcomes that are much superior for our clients.
Rohit Kapoor: As our clients navigate current economic uncertainty, we are increasingly focused on lowering their costs.
Rohit Kapoor: As a result, our overall market demand environment remains robust.
Rohit Kapoor: Our sales pipeline remains strong and grew both year over year and sequentially in the first quarter.
Rohit Kapoor: We continue to invest in growing and maturing our data and AI capabilities to bolster our competitive advantage and drive revenue growth.
Rohit Kapoor: And we have fully leaned into a gender EI as a key value driver for clients and a differentiator for EXL.
Rohit Kapoor: During the quarter, we launched <unk> dot AI.
Rohit Kapoor: <unk> AI platform, which enables clients to re imagine their workflows by embedding EXL or third party agents into their business operations.
Rohit Kapoor: Our platform enables us to deploy AI much more quickly and at a significantly lower cost, resulting in substantial return on investment.
Rohit Kapoor: Autonomous AI agents have the power to unlock exponential productivity gains, especially when they are domain optimized and seamlessly integrated into the workflow.
Rohit Kapoor: Our open and modular platform includes more than 15 industry specific proprietary AI agents that has been already deployed with clients across our vertical markets.
Rohit Kapoor: Examples of our agent take AI use cases include.
Rohit Kapoor: A leading specialty insurance company using underwriting agents to efficiently such extract and rich and categorize risk from a variety of unstructured data sources.
Rohit Kapoor: Our top 10 global insurer using specialized claims agents to identify and assist in third party recovery.
Rohit Kapoor: Determine accuracy of payments and identify potential fraud.
Rohit Kapoor: A fortune 500 energy company, using EXL governance agents to ensure security and regulatory compliance.
Rohit Kapoor: A large health care tied leveraging our audit agents, who identify potential violations analyzed root causes and ensure compliance with regulatory standards.
Rohit Kapoor: And a large global bank utilizing operational training agents to enable real time knowledge access conversation analysis and simulations.
Rohit Kapoor: These are just few examples of the many agentic AI use cases, we have deployed.
Rohit Kapoor: We are thrilled by the overwhelming client response to EXL rate RTI underscoring our leadership as an AI first move up within the industry.
Rohit Kapoor: We look forward to providing an in depth update on our data and AI strategy and solutions.
Rohit Kapoor: Next Tuesday at our Investor strategy update event here in New York.
Rohit Kapoor: Simply put we are executing with precision and discipline amid a rapidly evolving macroeconomic landscape.
Rohit Kapoor: Our financial results and strong sales pipeline demonstrates the strength and durability of our business model.
Rohit Kapoor: EXL benefits from several differentiators and structural advantages that help insulate us from economic volatility.
Rohit Kapoor: These advantages include a high percentage of annuity like revenue.
Rohit Kapoor: Just tied to mission critical operations for our clients.
Rohit Kapoor: Our strong diversified client base anchored by Fortune 1000 leaders and stable less cyclical sectors like healthcare and insurance.
Rohit Kapoor: And finally, our business model focused on driving efficiencies and cost savings to our clients, which becomes even more relevant during slower economic cycles.
Rohit Kapoor: These factors provide us with an incredibly resilient business model, which has historically performed well in a variety of economic environments.
Rohit Kapoor: While we are encouraged by our strong performance in the first quarter, we are mindful of the potential challenges that our clients face in the current environment.
Rohit Kapoor: Therefore, we remain confident but prudent in our outlook for the year.
Rohit Kapoor: We are raising our revenue guidance range to account for our current business momentum and adjusting for more favorable currency exchange rates.
Rohit Kapoor: In conclusion.
Rohit Kapoor: Our balanced and resilient mix of business.
Rohit Kapoor: Unique industry exposure.
Rohit Kapoor: And the growing demand to reduce cost and improve business outcomes.
Rohit Kapoor: Positions us well to deliver on our 2025 revenue and earnings growth targets, despite broad economic uncertainty.
Maurizio: With that I'll turn the call over to Maurizio.
Maurizio: Thank you rose and thanks, everyone for joining us. This morning, I will provide insights into our financial performance for the first quarter and our revised outlook for 2025.
Maurizio: We delivered a strong first quarter with revenue of $501 million up 14, 8% year over year on a reported basis at 15, 1% on a constant currency basis.
Maurizio: Sequentially, we grew four 3% on a constant currency basis.
Maurizio: Adjusted EPS was <unk> 48.
Maurizio: A year over year increase of 26, 9%.
Maurizio: All revenue growth percentages mentioned hereafter are on a constant currency basis, unless otherwise stated.
Maurizio: Now turning to revenue by segment in the first quarter. The insurance segment grew eight 7% year over year with revenue of $172 1 million.
Maurizio: This was driven by expansion in existing client relationships.
Maurizio: The insurance vertical including revenue from international growth markets grew nine 7% year over year with revenue of $204 million.
Maurizio: The healthcare and life Sciences segment.
Maurizio: Ported revenue of $125 6 billion, representing growth of 24, 8% year over year and 11, 4% sequentially.
Maurizio: The year over year growth was driven by <unk>.
Maurizio: Higher volumes in our payment services business and expansion in existing client relationships.
Maurizio: The healthcare and life sciences vertical including revenue from international growth markets grew 24, 7% year over year with revenue of $125 $8 million.
Maurizio: In the banking capital markets and diversified industry segment, we reported revenue of $117 7 million representing growth of 14, 3% year over year and six 5% sequentially.
Maurizio: This growth was driven by the expansion of existing client relationships and new wins, largely in banking and capital market clients.
Maurizio: Banking capital markets and diversified industries vertical including revenue from international growth markets grew 15, 3% year over year with revenue of $174 8 million.
Maurizio: In the international growth market segment, we generated revenue of $85 7 billion up 17% year over year and 2% sequentially. This growth was driven by ramp ups and higher volumes with existing clients across banking capital markets and diversified industries.
Maurizio: <unk> and insurance.
Maurizio: SG&A expenses as a percentage of revenue declined to 20 basis points year over year to 22% driven by operating leverage.
Maurizio: Our adjusted operating margin for the quarter was 21%.
Maurizio: Up 120 basis points year over year, driven by improved gross margins.
Maurizio: Our effective tax rate for the quarter was 22, 3% down 90 basis points year over year, driven by higher profits in lower tax jurisdictions and reduced U S tax state taxes.
Maurizio: Our adjusted EPS for the quarter was 48.
Maurizio: 26, 9% year over year on a reported basis.
Maurizio: Our balance sheet remains strong.
Maurizio: Cash, including short and long term investments as of March 31 was $346 million and our revolver debt was $307 million or a net cash position of $39 million.
Maurizio: We generated cash flow from operations of $3 million in the quarter against a cash deficit of $22 million in the first quarter of 2024.
Maurizio: This improvement was driven by higher profitability and one time earn out payments related to a prior acquisition in the first quarter of 2024.
Maurizio: During the quarter, we spent $13 million on capital expenditures and $8 million on share repurchases.
Maurizio: Now moving onto our outlook for 2025.
Maurizio: While we remain cautious about the current macro economic climate, we are increasing our revenue guidance for the year.
Maurizio: Based on more favorable currency exchange rates, our current growth momentum and strong pipeline.
Maurizio: We now anticipate 2025 revenue to be in the range of 2.035 billion to 2.065 billion. This represents year over year growth of 11% to 12% on a reported basis.
Maurizio: And 11% to 13% on a constant currency basis with a year over year forecasted foreign exchange headwind of approximately $5 million.
Maurizio: This represents an increase of $7 million at the midpoint of our previous guidance.
Maurizio: We anticipate increased investments in data and AI capabilities and solutions to maintain and expand our competitive advantage going forward and continue to anticipate.
Maurizio: Adjusted operating profit margin improvement of 10 to 20 basis points for the full year.
Maurizio: We expect a foreign exchange gain of approximately $2 million to $3 million net interest expense of approximately $1 million and our full year effective tax rate to be in the range of 22% to 23%.
Maurizio: We expect capital expenditures to be in the range of $50 million to $55 million, we anticipate our adjusted EPS to be in the range of $1 83 to $1 89, representing year over year growth of 11% to 14%.
Maurizio: To conclude we had a great start to the year with industry, leading financial performance, which demonstrates our unique competitive position.
Maurizio: Despite the current market uncertainty, our leading indicators remain positive and we have a highly adaptable and resilient business model setting us up for a solid 2025.
Maurizio: With that road and I would be happy to take your questions.
Speaker Change: Thank you at this time, if you would like to ask a question. Please click on the raise hand button, which can be found on the black bar at the bottom of your screen.
Manny: Manny could you can you will receive a message on your screen from the highest allowing you to talk and then you will hear your name called please.
Speaker Change: Please accept on mute til ODM and ask your question.
Speaker Change: As a reminder, we are allowing and one question and one related follow up today.
Speaker Change: We were ranked one moment to allow the Q T phone.
Speaker Change: Our first question comes from Bryan Bergin at TD Cowen.
Speaker Change: Ryan please.
Speaker Change: And ask your question.
Speaker Change: Hi, Thank you good morning, I'll start with the 25 growth guidance, so fully understand the affirmation here. Despite the <unk> outperformance, but I guess as we all try not test installation into potential macro slowing can you remind us on the level of <unk> revenue.
Speaker Change: And what's contractually committed versus potentially needing to go get and convert within the fiscal 'twenty five growth guidance.
Mircea: Hey, Brian It's it's Mircea when you look at the when you looked at our projections for the rest of the year.
Mircea: You look at our pipeline and our revenue.
Mircea: We have we have about 87% committed in.
Mircea: Revenue for the year at the midpoint of our guidance and right around 95% visibility.
Mircea: Overall at the midpoint, so we feel like we're in a pretty good spot for.
Mircea: For the rest of the year now we're only one quarter in right now.
Mircea: But that's where we stand today, so we're fairly confident for the rest of the year given those numbers.
Mircea: Okay. Good to hear and then my follow up around AI and data related revenue can you just talk about how the labor at Ford is allocated in AI driven processes.
Those increased AI adoption in certain processes definitively cannibalize a portion of revenue and other services areas like digital ops just to talk about that and then the net overall impact that youre seeing.
Mircea: Yes sure Brian.
Mircea: So for us.
Speaker Change: We think AI is going to be adopted with human in the loop and therefore, that's a critical element that continues to be part of the equation.
Speaker Change: What we would expect to see in the data and AI led revenue piece is that our revenue per head count would start to increase out there.
Speaker Change: And that's something which is a favorable trend for the business for us to be able to grow our revenues and grow profits faster than our revenue.
Speaker Change: We think the change in terms of the labor component and the head count that we have that's something which is going to be gradual and that's something which will play out over a long period of time, but.
Speaker Change: But as we embed more data and more AI into the workflow and into the client operations.
Speaker Change: We're going to continue to need to add more head count at probably at a much slower pace.
Alright, thank you.
Speaker Change: Our next question comes from Surinder <unk> at Jefferies. LLC, you May know on mute your audio and ask your question.
Speaker Change: Yeah.
Speaker Change: Maybe just talk a little bit about you emphasized perhaps the first mover advantage in all of the investments that you're making.
Speaker Change: Can you perhaps talk about the.
Speaker Change: What I would call the sustainability of that and how you think thats at both of them at this point.
Speaker Change: Sure.
Speaker Change: So first off some of the foundational elements that we had invested in that's playing to our advantage at this point of time. So as you know for the last 25 years, we've been investing in building up our capability on select industry domains and around processes and.
Speaker Change: Running operations.
Speaker Change: And that gives us a huge leg up when it comes to embedding AI into the workflow.
Speaker Change: Over the past.
Speaker Change: 15, two plus years, we've been investing in building up our analytics capability and therefore, our data science and data engineering capabilities. Those are very well established and they allow us to embed AI into the workflow at a much faster pace with greater confidence and with much better results.
Speaker Change: And over the last several years, we've been investing in building up our data capabilities and having mastery over data. So so these three elements of our domain data and AI give us a huge advantage now that's what has resulted in us being a.
Speaker Change: <unk> to build up <unk>.
Speaker Change: <unk> Dot AI, which is our <unk> platform.
Speaker Change: Page 15, plus a gentle AI use cases, which are already deployed build a 100 plus accelerators.
Speaker Change: And that's given us a slight advantage in terms of our peer group, where we've been able to kind of be a little bit ahead of the game and that's why we see of much faster client adoption of this and a much higher growth rate for our business now in terms of the sustainability of this advantage we think.
Speaker Change: You know we have to continue to invest in building up this capability both from a talent perspective, as well as from our solution and a capability perspective.
Speaker Change: So that's why we're going to be continuing to increase the monetary investment both in terms of the number of people and the expertise that we have that.
Speaker Change: We will have for deploying AI as well as some of the solutions that we would create.
Speaker Change: Leveraging AI and I think as long as we can do that successfully we hopefully should be able to maintain our advantage on a sustained basis.
Speaker Change: From a core and then when we think about.
Speaker Change: We're reorder business cycle, I think you highlighted a lot of the elements that make your business resilience.
Speaker Change: Any color on just.
Speaker Change: The clients willingness or their ability to.
Speaker Change: <unk>.
Speaker Change: The level of technology, I guess that are willing to adapt in the sense that when we look at where things were within <unk> last year.
Speaker Change: Quickly or continue to evolve quickly.
Speaker Change: So how do clients go up making a decision of.
Speaker Change: What they are going to implement are what they are willing to take a risk on in terms of the implementation and is that effectively worthy outcome base comes if it comes into play.
Speaker Change: The second point.
Speaker Change: Yeah, I think that really goes to the heart of our business and here's how.
Speaker Change: We see this.
Speaker Change: Number one our clients continue to make increased investments around technology around AI around data and then making that.
Speaker Change: Work for them and provide them with a huge advantage.
Speaker Change: But the first thing that they have to do is to make room for that and therefore, they need to reduce costs and create ample room. So that they can continue to make these investments. So it's really a dual play that they're making on the one hand, we're looking at places where they can reduce the cost and create room for investment.
Speaker Change: <unk> and on the other side they are making that investment and then they will continue to make that investment despite any kind of an economic environment as long as they get the return on investment.
Speaker Change: So the critical elements are can we provide them with the cost savings that can fuel the investments around technology and AI and then secondly can we take those investment dollars and technology, and AI and create better business outcomes for them and a faster and more impactful.
Speaker Change: Turn on the investment so that they continue to leverage the capabilities that are being created and leverage the new technologies that are being launched and I think that's where we fit in very nicely.
Speaker Change: We already have been helping our clients manage their cost structure and we continue to help them.
Speaker Change: Create more efficiency and productivity around that and on the other side, we are helping them innovate and be able to transform their operations and leverage AI and data in a much more strategic way, so let's kind of pleasant very nicely to what our clients want to do and how EXL can strategically part.
Speaker Change: With our clients.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Puneet Jain at Jpmorgan. Please go ahead with your question.
Puneet Jain: Hey, Thanks for taking my question.
Hugh: Good morning Hugh.
Hugh: Like obviously like in the current macro environment like a lot of concerns.
Hugh: She'll impact on various companies from.
Hugh: Macro cycle.
Hugh: So in the past you've talked about marketing analytics is one area, which could be adversely impacted.
Hugh: That is also an area, which has been weak for last few years.
Hugh: <unk> like for Microsemi, and then even though a macro headwind incremental macro headwinds, but until their personal whatever.
Hugh: How low.
Hugh: Thanks.
Speaker Change: Laura Lang topline discretionary spend from go from current level, maybe if you can talk about your exposure to discrete maybe.
Speaker Change: In an event of that macro outlook.
Speaker Change: Sure. Please.
Speaker Change: So first of all.
Speaker Change: Our viewpoint is that there is going to be increased volatility in the macroeconomic environment.
And you know there may be a slowdown in the macroeconomic environment.
Speaker Change: And that's something which our business model is well prepared for because we've got a very very diversified business model a large percentage of our business is nought tea based and we are diversified globally as well as we're diversified by a number of clients and by the type of work that we do for our clients.
Speaker Change: The discretionary elements.
Speaker Change: Where clients can cut back some of their spend that's always going to be the case.
Speaker Change: And then always focus their effort and energy and investment in areas that produces the highest ROI for them.
Speaker Change: And I think we are in a fortunate place where the kind of work that we do for our clients number one it's mission critical and number two all the transformation and change that were making for them produces an immediate ROI. So that's something which we think we are very well buffeted from even if there is an economic.
Speaker Change: Environment slowdown that might take place.
Speaker Change: Now.
Speaker Change: There may be certain services on certain solutions that might grow slower or Mike.
Speaker Change: Have an impact, but there are other services and solutions that kind of a pickup and.
Speaker Change: That's why the business model is very very resilient and you can see historically as well whenever there's been an economic slowdown our business model has performed really well because as clients shift towards cutting costs and focusing in on cost efficiency.
Speaker Change: We can be a very very powerful lever or helping them achieve that.
Speaker Change: Got it and.
Speaker Change: A follow up to that like how should we think about guidance.
Speaker Change: Revenue growth.
Martin: And Martin.
Speaker Change: Yes.
Speaker Change: So when you when you look at the start of the year in terms of constant currency, we did very well in the first quarter right around 15, 1% now when you when you look at the cadence for the year.
Speaker Change: At the midpoint of our guidance, we're going to have a stronger first half of the year versus the second half of the year and the reason for that is go back to 2024, we had a weaker.
Speaker Change: First half of 2024, and a stronger second half of 2024. So the second half of the year. It has a stroke is a harder comparable on a year over year basis.
Speaker Change: So think about that.
Speaker Change: We're in and how you think about the cadence on a quarterly basis for the rest of the year.
Speaker Change: And then in terms of margins look we had a very strong first quarter at 21% in terms of <unk> we.
Speaker Change: We are still projecting ourselves are 10 to 20 basis points higher than the previous year, which will put us right around $19 five to 19, 6%.
Speaker Change: And what's really Youll see in Q2 through four is a higher level of investment for us to really drive more of our AI services solutions and really build our capabilities over the next three quarters to continue to grow.
Speaker Change: So.
Speaker Change: Increase our growth of our propel our growth going forward into 2026. So you will see a higher level of investment for the rest of the year. So that our margin will be slightly lower than just average for the rest of the year.
Speaker Change: When I talk about 19.5 to 19, 6%.
Speaker Change: Can you quickly also talk about like cadence on sequential growth.
Speaker Change: Like.
Speaker Change: So from Q1 to Q2 to Q3 to Q4.
Speaker Change: For the rest of the year. When you think about just the overall cadence I think it will be fairly similar to how you. How we performed in the prior year. When you look at our cadence in the prior year from Q2 to Q3 to Q4.
Speaker Change: That will be fairly similar we don't see any one significant outlier bumps one way or the other.
Speaker Change: In the sequential quarters.
Speaker Change: No understood I appreciate it thank you.
Operator: Our next question will come from Maggie Nolan with William Blair. Please go ahead with your question.
Maggie Nolan: Thank you and congrats on the quarter.
Maggie Nolan: I'm wondering how your 10, new client additions compared to your internal expectations and then the same question for expansions with existing customers are there any changes or nuances with where you're seeing traction just given the kind of client sentiment is changing in response to the.
Maggie Nolan: Economy.
Maggie Nolan: Thanks Maggie.
Maggie Nolan: The 10, new clients that we signed up.
Maggie Nolan: We think the quality of those client relationships that we have signed up on us.
Maggie Nolan: Very good and positive many of them are what we would call as our named accounts, which means. These are accounts that we are proactively chasing and we've been able to convert them.
Maggie Nolan: The expansion from existing clients has been quite strong.
Maggie Nolan: And I would also add that we've added on a number of new clients and.
Maggie Nolan: New prospects into our pipeline, which increased quarter on quarter and year on year.
Maggie Nolan: So the client activity is pretty healthy and pretty.
Maggie Nolan: Well kind of setup.
Maggie Nolan: The number of new clients that we did sign up in the first quarter is lower than the number of new clients that we signed up each quarter last year, but I think what you need to focus in on is much more on the quality of those names and the size of those business deals that we've signed up and we are pretty happy with what.
Maggie Nolan: We were able to accomplish in Q1.
Maggie Nolan: Thanks, Alright, that's helpful.
Speaker Change: My second question is about that the health care and life Sciences vertical has had a higher percentage of outcome based revenue and it's it's got a notably stronger gross margin profile, which is great do you have the ability to increase outcome based revenue in your other verticals and how are you expecting that to trend over.
Maggie Nolan: Quarters or even several years.
Maggie Nolan: Yes.
Maggie Nolan: I think you will see that trend play out over the next several years would probably not see that on a quarterly cycle.
Maggie Nolan: One of the hopes and the priorities for the company is.
Maggie Nolan: As we embed more data and AI and edge solutions and we offer these to our clients.
Maggie Nolan: These solutions would have a higher gross margin for us because they are directly linked to the outcome that we can generate for our clients.
Maggie Nolan: And we are seeing healthy momentum of buildup of some of these standalone AI solutions that we've created.
Maggie Nolan: Today, we have more than 10 different solutions that we sell on an independent basis and the traction that we are picking up on this is very encouraging and that's something which we will continue to invest behind so over a period of time, we would expect this curve to shift where we would.
Maggie Nolan: Have more off revenue coming in from independent.
Maggie Nolan: AI and data led solutions and more of these would be outcome linked and with higher ability to earn margin out there.
Maggie Nolan: Got it thank you.
Speaker Change: Our next question will be coming from David Koning with Robert W. Baird <unk> Co Inc. Please go ahead with your question.
Speaker Change: Hey, guys, great great job.
Speaker Change: I guess first of all.
Speaker Change: Love, the new segmentation data AI.
Speaker Change: If we look at that and take out the legacy analytics business I think we're left with what we can kind of back into a new kind of AI sub unit and when we looked at that it looks like about $185 million of revenue last year, a 105, the prior year, so $80 million or so of growth like a huge growth driver for you guys is.
Speaker Change: That pretty sustainably growing or is that lumpy or do you think that will grow another $80 million or so this year.
David Koning: Hey, David its virtue and thanks for the question.
Speaker Change: So when you look at our data and AI led revenue it grew 16% on a year over year basis.
Speaker Change: <unk>, we think thats sustainable going forward, that's going to be a big driver now going forward, it's not just us selling more value added services in both data and AI, but it's also adding more AI into our existing client client workflows, and that's becoming part of our data and AI revenue now going.
Speaker Change: Forward overall, so we do believe we should over time, you should continue to see that sustainability in that growth overall of data and AI start to build and become far beyond 53% of our total revenue.
Speaker Change: Okay.
Speaker Change: Good.
Speaker Change: My follow up just the healthcare business, you've called up the massive sequential growth, 11% sequentially I think it was $125 million in the quarter is was there anything lumpy in that business or is that kind of the new the new point to drive higher sequentially from here.
Speaker Change: No look I think we had a couple of new client relationships that started off in.
Speaker Change: In the beginning of the year and we had strength.
Speaker Change: Across some of our service lines as well.
Speaker Change: The healthcare and life Sciences business is a business that we've been investing on very very deliberately for the last eight to 10 years and actually we are very pleased with how this business is shaping up for us.
Speaker Change: That's giving us a very distinct advantage and the ability to leverage data and AI into this vertical and we think this is enormous vertical.
Speaker Change: It's something which we hope to be able to capitalize going forward as well there is a lot of need of being able to leverage data.
Speaker Change: Into the healthcare and life Sciences business and Thats, what we are focused in on and it's a very rich vertical space for us to drive growth.
Speaker Change: Sounds good great job guys.
Speaker Change: As a reminder, at this time, if you would like to ask a question. Please click on the raise hand button, which can be found on the black bar at the bottom of your screen.
Speaker Change: Our next question will come from Vincent Colicchio with banking Research Associates. Please go ahead.
Rohit Kapoor: Yeah Rohit can.
Rohit Kapoor: Can you provide an update on the competitive landscape are you seeing any new competitors enter in a meaningful way.
Speaker Change: Yes, Vincent so on the AISI, we compete actually with many non traditional competitors and there are a number of different players that we would compete with we compete against some startups, we compete against some of the hyper scaler, we compete again.
Speaker Change: Just some of the large technology companies that are building up capability.
Speaker Change: And AI so our competitor set in AI is very large.
Very distributed and it's very specific to the use case.
Speaker Change: The big advantage that we have while competing against many of these players is number one.
Speaker Change: Understand our clients' business the workflow that operation in their process and their data much better than any of the others. So that's a distinct advantage.
Speaker Change: Fact that we are running their operations for them already.
Speaker Change: The fact that we've got very high NPS scores grid satisfied customers.
Speaker Change: Gives us preferential way for us to be able to introduce AI into these client operations and then finally.
Speaker Change: As you all know.
Speaker Change: Ultimately the success of this is driven by the business outcome that you can drive leveraging AI, so a client or a prospect may give you a try.
Speaker Change: On a particular use case, but unless and until the return on investment is significantly high they're not going to continue on with you and we've been very very successful in terms of being able to deliver that business outcomes for our clients and prospects and therefore, we are seeing good traction in <unk>.
Speaker Change: <unk> associated with it we are going to be sharing a lot of detail around this in our Investor day next week, and so we'd encourage everybody to come and attend and.
Speaker Change: And be able to see some of the demos and some of the capabilities that we built.
Speaker Change: That will be sharing next week with all of you.
Speaker Change: And as a follow up.
Speaker Change: How is pricing trending is there any impact from the macro.
Speaker Change: Our pricing is up.
Speaker Change: Definitely when the macroeconomic environment slows down of pricing and cost cutting becomes a priority for clients and prospects. So it is competitive it is something which.
Speaker Change: <unk> is something that comes up quite often.
Speaker Change: Our focus is to continue to demonstrate value to our clients and have the focus be on business outcomes and on on the value that we generate for them and I think at this point of time with.
Speaker Change: A number of our clients, having experienced us not just over a year or over a couple of years, but really over decades.
Speaker Change: That is a huge amount of.
Speaker Change: Goodwill that we carry and therefore, our ability to manage pricing and competitive pressure.
Speaker Change: Well, thanks, good quarter gentlemen.
Speaker Change: Thank you.
Speaker Change: Our next question will come from David Grossman with Stifel Here. David. Please go ahead with your question.
David Grossman: Good morning, Thank you.
Speaker Change: So sorry, if I missed this but I was looking at the restated vertical Senate.
David Grossman: When you include these.
David Grossman: International markets in the insurance piece it looks like you grew about 10% and you had been growing mid teens is there anything.
David Grossman: To discuss there in terms of what are the dynamics that may be impacting the growth of the insurance markets.
David Grossman: As a point of reference I think.
David Grossman: A very large competitor based in India.
David Grossman: You had mentioned weakness in the insurance vertical when they reported their March quarter also so.
David Grossman: That was a little bit of a surprise to me that in seeing this deceleration seems to be consistent with that dynamic.
Speaker Change: Sure David So firstly, our insurance business, including international growth markets in calendar year 2024 grew at 14%.
David Grossman: Which is pretty much it.
Speaker Change: In line with the growth rate of the company.
Speaker Change: Youre right about the first quarter that that growth rate is close to about.
Speaker Change: I think nine five and 10%.
Speaker Change: We've looked at that data and we've looked at what's happening in that we don't think it's an issue. It's just a timing issue because we expect the growth rate of that insurance business to increase in the following part of the year and.
Speaker Change: Don't really read much into that.
Speaker Change: Insurance vertical for us.
Speaker Change: He is a very key vertical it's a vertical where we are an industry leader. It's a vertical that is adopting data and AI in a very aggressive manner. It's a vertical where the return on investment on data and AI is tremendous because it's got a lot of legacy technology and when you overlay.
Speaker Change: Data and AI on top it.
Speaker Change: It can create tremendous value and we think that that market is going to be a great market for us to continue to grow.
Speaker Change: Going forward, so wont read too much into the first quarter, a lower growth rate.
Speaker Change: So you would expect it to grow at least as fast as the overall company and 25.
Yes, I think it should grow in line with the overall company.
Speaker Change: Right.
Speaker Change: And you know.
Speaker Change: I think the.
Speaker Change: This question came up and some context earlier.
Speaker Change: But as you think about the impact of AI as opposed to the.
Speaker Change: The growth opportunity around new opportunities.
Speaker Change: There's obviously a lot of questions about the impact it has on the installed base of business.
Speaker Change: And how the efficiencies get shared with clients.
Speaker Change: The potential deflationary impact it may have and I know this varies by segment.
Speaker Change: There's some nuances between the different verticals that you participate and the impact it may have but maybe you could dig in just a little bit deeper and share some thoughts on how we should think about the deflationary impact if any.
Speaker Change: From deploying AI in the existing book of business.
Speaker Change: Yes sure.
David Koning: So I guess the starting point around that David is the fact that if you take a look at our existing portfolio and existing business mix.
We only have <unk>.
David Koning: Less than 50% of our business.
David Koning: Being that installed base of running operations because.
David Koning: The balance 50% is the work that we do purely around data management analytics and AI.
David Koning: And so that business mix is a very healthy starting point for us because for some of our competitors or other players they might have a much larger component of business operations being.
David Koning: Being the starting point.
David Koning: Number two.
Speaker Change: We've been at this journey of embedding data and AI within digital operations for a while now and we have been actually probably more aggressive and more proactive about embedding AI into this operation.
Speaker Change: <unk> pro.
Speaker Change: Actively cannibalizing revenue wherever we can for our clients advantage and the ironic part is.
Speaker Change: The players that proactively cannibalized revenue and demonstrate value to their clients.
Speaker Change: Grow faster than than anybody else, because our clients and our prospects feel confidence to give us more business out there. So as long as you kind of continue to drive value for our clients.
Speaker Change: On your existing base.
Speaker Change: In a meaningful way actually the growth rates should accelerate not decelerate.
Speaker Change: And we are on that strategic path, we have a very very ambitious goal of continuing to drive data and AI into existing operations in a very very meaningful manner for us to be able to grow new solutions and new business that we acquire leveraging data.
Speaker Change: And then we also wanted to embed data and AI into our enterprise functions and use it ourselves.
Speaker Change: Because it provides us with the cost efficiency in the way in which we operate so frankly, all three of them, which is an installed base new activity and enterprise operations, we're gonna be embedding data and AI into that.
Speaker Change: So if you think about the installed base comment that you just made.
Speaker Change: And you said that you've been you've already began that process.
Speaker Change: Where do you think you are in that journey in terms of.
Speaker Change: Because there is a stair step function right of headwind that comes with that kind of transformation. So would you say you're beyond that point in terms of the biggest impact.
Speaker Change: Or do you think that that's still coming in the future.
Speaker Change: Yeah.
David: The pace of adoption of this David is something which I think.
Speaker Change: People tend to.
Speaker Change: Get it get it wrong.
Speaker Change: I think the pace of adoption when you think about all the challenges of embedding data and AI into existing installed base.
Speaker Change: <unk> going to be gradual and still going to take time, and it's still going to happen over a matter of years and it won't happen immediately and the reason for that is leveraging.
Speaker Change: Leveraging technology.
Speaker Change: Making the algorithm work.
Speaker Change: Scaling that up on the enterprise side being up.
Speaker Change: Responsible in terms of the use of AI in all the security concerns associated with it.
Speaker Change: You have to really balance out all of that so.
Speaker Change: The way I would answer your question is we're still in the early phases of the adoption of AI into the workflow.
Speaker Change: However, it's going to take some time before.
Speaker Change: Majority of the existing installed base has got AI embedded in every aspect of it and thats going to happen over a period of time and we are trying to drive that adoption as quickly as we can we don't think that there is a tipping point out here we think.
Speaker Change: This is a shift that is going to take place that is going to provide the business benefits to our clients and at the same time, it's going to allow us to be able to grow our business.
Speaker Change: Very meaningful way.
Speaker Change: Alright, great very helpful commentary. Thank you for that if I may just one quick question for <unk>, how much of the FX impact or how much of that increase to the revenue guide was FX.
Speaker Change: So David it was right around $5 million overall, so <unk> increase at the bottom end was FX.
Speaker Change: And then the increase at the top end was primarily.
Speaker Change: Got it alright, guys. Thanks again.
Speaker Change: We have no further questions at this time I will turn the call back to John Kristoff for closing remarks.
John Kristoff: Thank you everyone for joining us this morning, as always feel free to reach out directly to me with follow up questions and we look forward to seeing many of you on Tuesday at our Investor event.
Speaker Change: Thank you again.