ExlService [EXLS] Conference call transcript for 2023 q1
2023-04-29 10:48:08
Fiscal: 2023 q1
Operator: Good day, and thank you for standing by. Welcome to the First Quarter EXL Service Holdings Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, John Kristoff. Please go ahead.
John Kristoff: Thank you, Julia. Hello and thank you for joining EXL's first quarter 2023 financial results conference call. On the call with me today are Rohit Kapoor, Vice Chairman and Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the first quarter press release we issued this morning and we've also posted an earnings slide deck and investor fact sheet to the IR section of our website. As a reminder, some of the matters we'll discuss this morning are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. 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. EXL assumes no obligation to update the information presented on this call. During our call today, we may reference certain non-GAAP financial measures, which we believe provide useful information to investors. Reconciliation of these measures to GAAP can be found in our press release or slide deck and IR fact sheet. Now, I will turn the call over to Rohit.
Rohit Kapoor: Thanks, John. Good morning, everyone. Welcome to EXL's first quarter 2023 earnings call. I'm pleased to be with you this morning reporting another great quarter. We continued our strong momentum into the first quarter with total revenue of $401 million, representing growth of 22% on a reported basis and 23% in constant currency. We grew adjusted diluted EPS 23% to a $1.74 per share. Our data-led strategy has expanded our total addressable market and generated a sustainable competitive advantage for EXL. The consistent execution of this strategy continues to fuel our growth across our data analytics and digital operations and solutions businesses. In analytics, we delivered revenue of $182 million for the quarter, up 6.5% sequentially and 22% year-over-year. This was driven by strong growth in healthcare and banking as well as continued growth in insurance with new and existing clients. Looking at our digital operations and solutions business during the first quarter, we generated revenue of $219 million with growth of more than 7% sequentially and 21% year-over-year. This was driven by continued strong momentum in our insurance and emerging business. This growth was fueled by an expansion of existing client relationships and strong execution on new client wins from 2022. EXL is uniquely positioned to help our clients achieve their goals through our focused data led approach, deep domain expertise and impactful digital transformation capabilities. Let me share a couple of examples of how we are leveraging these strengths and differentiating ourselves in the marketplace. In insurance, we are helping our clients grow their businesses, manage their risks, contain costs, and improve customer experience. For example, we are enabling them to rapidly respond to increasing consumer demand for annuity and insurance products in a rising interest-rate environment. We have built an end-to-end ecosystem for easily configuring pricing and launching a variety of complex life and annuity products for our clients. Our platform is modular and pre-configured to enable regulatory compliance across each state, allowing our clients to launch new products with speed. This ecosystem is fueled by our data led approach. Our market leading AI-powered new business and underwriting solution helps our clients better manage their risk, lower their underwriting costs, and reduce cycle time by increasing straight through processing. Using advanced machine learning algorithms, our platform analyzes vast amounts of underwriting data to identify patterns and trends, helping our clients make informed decisions in a matter of minutes. In another example, we partnered with a global custodian bank to transform their end customer experience across the enterprise with the goal of improving customer satisfaction, and at the same time, reducing costs. The transformation plan focuses on customer experience operations across all major lines of business for the bank. We conducted a detailed diagnostic assessment of the bank's data and technological capabilities and devised a strategic digital roadmap to help them transform and achieve their goals. We re-imagine their customer journeys using our data-led approach. We are accomplishing this by identifying through-call intent using transcript analytics, improving channel effectiveness by stitching cross-channel interactions data and enhancing operational efficiency using agent performance data. These are just two examples of how our data led approach is differentiating us in the marketplace and creating value for our clients. Looking ahead, we are encouraged by the continued momentum across both our businesses and our pipeline of opportunities. Our strong performance in the first quarter and current visibility for the remainder of the year gives us confidence to raise our revenue and EPS guidance. Maurizio will walk you through the details in a few moments. While the macroeconomic environment is likely to remain volatile, EXL has a resilient business model with long-term client relationships and approximately 80% of our revenue is recurring in nature. We also have a diverse mix of business across data analytics and digital operations and solutions in a variety of vertical markets. Finally, our business is focused on helping our clients grow revenue, reduce costs and improve end customer experience. In other words, we are relevant for our clients in all kinds of economic environments. As we see indications of the job market slowing, the potential benefits are lower attrition and wage inflation and an improvement in the recruiting and hiring environment. During the first quarter, we typically see a seasonal uptick in attrition. However, our attrition rates during the quarter remained historically low at 26%. Our digital and analytics attrition was even lower, which is especially encouraging as this represents a critical skill set for us. In addition, we are seeing some improvement in the recruiting environment and we were able to add approximately 2,400 employees during the quarter. We continue to focus on being the employer of choice in our space by offering dynamic, challenging work, career growth opportunities and a supportive and inclusive culture. I'm also pleased to highlight key appointment within our senior leadership team. Andy Logani has been promoted to Chief Digital Officer. In this role, Andy will lead EXL's digital strategy and execution. He is responsible for implementing cutting edge technologies and creating new digital solutions and services. Andy previously led our Life and Annuity business within the insurance segment. He has been with EXL for more than 20 years and brings a wealth of experience, leading client technology transformation initiatives across our company. He has the knowledge to bring the strength of EXL to integrate and align our digital initiatives across all of our business units for our clients. Digital has become an increasingly large and important part of our business and I could not be more confident in Andy's ability to take digital to the next level for EXL and for our clients. Before I conclude, I'd like to spend a few minutes sharing my thoughts on the rapid evolution of generative AI and how EXL is positioning itself to best leverage the technology in our offering to clients. EXL has been incorporating AI as an integral part of our solution set for several years already. We currently have more than 50 AI-based analytics offerings deployed in the marketplace and we continue to invest heavily in this space. We are now developing advanced digital solutions, leveraging generative AI that draw insights from unstructured datasets to create new AI models and re-train existing ones to mitigate risk, create cross-sell and upsell opportunities, and improve the end user experience. As our clients seek to deploy AI models across the enterprise, an enormous amount of work needs to be done to breakdown data silos, migrate data to the cloud, and allow enterprise wide data to be easily accessed. This represents the core of EXL's value proposition. Our unmatched data led capabilities, coupled with our strong relationships and domain expertise in insurance, banking, healthcare, and other industries, position us well to help our clients get the most from these new technologies in the years to come. And with that, I'll turn the call over to Maurizio.
Maurizio Nicolelli: Thank you, Rohit, and thanks everyone for joining us this morning. I will provide insights into our financial performance for the first quarter followed by our revised outlook for 2023. We delivered a strong first quarter with revenue of $400.6 million, up 21.7% year-over-year on a reported basis. On a constant currency basis, we grew revenue 23% year-over-year and 6.6% sequentially. Adjusted EPS was $1.74, an increase of 22.5% year-over-year. All revenue growth percentages mentioned hereafter are on a constant currency basis. Revenue from our digital operations and solutions businesses as defined by three reportable segments, excluding analytics was $218.8 million, which represents year-over-year growth of 23.2%. Sequentially from the fourth quarter of 2022, we grew revenue 6.9%. In the insurance segment, we generated revenue of $125.9 million, an increase of 23.3% year-over-year, driven primarily by expansion of existing client relationships. The insurance vertical, consisting of both our digital operations and solutions and analytics businesses, grew 21.8% year-over-year with revenue of $163.6 million. In the emerging segment, we grew revenues 34% year-over-year to $66.2 million. This growth was driven by new client wins in 2022 and expansion of existing client relationships. The emerging vertical consisting of both our digital operations and solutions and analytics businesses grew 26.5% year-over-year with revenue of $154.2 million. The healthcare segment reported revenue of $26.7 million, growing 2.2% year-over-year and 5.4% sequentially from the fourth quarter of 2022. This growth was driven by higher volumes in the clinical services business. The healthcare vertical consisting of our digital operations and solutions, and analytics businesses grew 19.2% year-over-year, with revenue of $82.8 million. In the analytics segment, we generated revenue of $181.8 million, up 22.7% year-over-year. This growth was driven by expansion in existing client relationships in banking and financial services, healthcare and insurance. Sequentially, we grew analytics revenue 6.3%. We reduced SG&A expenses by 50 basis-points year-over-year to 19%, driven by operating leverage. Our adjusted operating margin for the quarter was 19.4%, up 120 basis points year-over-year, driven by higher profitability on one-time revenue of approximately $6 million and lower SG&A expenses. Our effective tax rate for the quarter was 24%, up 10 basis points year-over-year. Our adjusted EPS for the quarter was $1.74, a 22.5% increase year-over-year on a reported basis. Our balance sheet remains strong. Our cash, including short and long-term investments on March 31 was $236 million and our revolver debt was $200 million for a net cash position of $36 million. We generated cash flow from operations of $16 million in the first quarter compared to a cash outflow of $27 million in the first quarter of 2022. This improvement resulted from the expansion in adjusted operating margins and improved working capital. During the quarter, we spent $12.5 million on capital expenditures and repurchased $36 million of our shares at an average cost of $162. Now, moving on to our outlook for 2023. While we are encouraged by the momentum we carried into the first quarter across all our businesses, it is important to note that approximately 1.5% of our first quarter revenue came from one-time revenue that may not occur in subsequent quarters. As Rohit noted, we also remain cautious about the macroeconomic outlook for the remainder of the year, as there have been an increasing number of indicators pointing towards economic volatility. Based on these factors and our current growth visibility for the remainder of the year, we are adjusting our revenue and earnings guidance for 2023. We now anticipate revenue in the range of $1.595 billion to $1.62 billion, representing year-over-year growth of 13% to 15% on both a reported and constant currency basis. This represents an increase of $27 million at the midpoint of our previous guidance of $1.56 billion to $1.6 billion. We expect a foreign exchange gain between $1 million to $2 million -- $3 million (ph), net interest expense between $1 million to $2 million, and our full year effective tax rate to be in the range of 22% to 23%. Based on this, we anticipate our adjusted EPS to be in the range of $6.75 to $6.90, representing year-over-year growth of 12% to 15%, which is an increase from our prior adjusted EPS guidance of 10% to 13% growth. We expect capital expenditures to be in the range of $47 million to $52 million. Looking at the second quarter, we expect revenue to be comparable to the first quarter due to the one-time revenue in the first-three months of 2023. With a consistent successful execution of our data led strategy, expansion of our total addressable market and our industry talent advantage, we remain well positioned to continue to outperform over the long term. With that, Rohit and I will be happy to take your questions.
Operator: Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Bryan Bergin of TD Cowen. Your line is now open.
Operator: One moment for our next question. Our next question comes from the line of Maggie Nolan of William Blair. Your line is now open.
Operator: One moment for our next question. Thank you. Our next question comes from the line of Ashwin Shirvaikar of Citi. Your line is now open.
Operator: One moment for our next question. Our next question comes from the line of Robbie Bamberger. Your line is now open.
Operator: One moment for our next question. Thank you. Our next question comes from the line of Mayank Tandon of Needham. Your line is now open.
Operator: I will end the call after these comments. This concludes our Q&A session and today's conference call. Thank you all for attending. You may all disconnect.
