雅虎香港財經 ExlService Holdings, Inc. (NASDAQ:EXLS) Q1 2024 Earnings Call Transcript
ExlService Holdings, Inc. (NASDAQ:EXLS) Q1 2024 Earnings Call Transcript May 2, 2024
ExlService Holdings, Inc. beats earnings expectations. Reported EPS is $0.38, expectations were $0.36. EXLS isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. And welcome to the First Quarter 2024 ExlService Holdings, Inc. Earning Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to now hand over the conference to your first speaker today, John Kristoff, VP of Investor Relations. Please go ahead.
John Kristoff: Thanks, Justin. Good morning. Thank you for joining EXL's First Quarter 2024 financial results conference call. On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer, and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the first quarter earnings release we issued this morning. We also posted an earnings release slide deck and investor factsheet in the Investor Relations section of our website. As a reminder, some of the matters we'll discuss this morning are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Such risks and uncertainties include, but are not limited to general economic conditions, those factors set forth in today's press release, discussed in the company's periodic reports and other documents filed with the SEC from time to time. EXL assumes no obligation to update the information presented on this conference call today. During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for our investors. Reconciliation of these measures to GAAP can be found in our press release, slide deck and the investor fact sheet. With that, I'll turn the call over to Rohit.
Rohit Kapoor: Thanks, John. Good morning, everyone. Welcome to EXL's First Quarter 2024 Earnings Call. I'm pleased to be with you this morning sharing our strong financial results as we've had a solid start to the year. In the first quarter, we generated revenue of $436 million, an increase of 9% year-over-year, and we grew first quarter adjusted EPS by 9% to $0.38 per share. Our data and AI strategy has generated a sustainable competitive advantage for EXL. The sound execution of this strategy has enabled us to continue our growth momentum. In analytics, we delivered revenue of $191 million for the quarter, up 5% sequentially and year-over-year. I am encouraged by the first quarter performance in our Analytics segment, which has been relatively flat for the past three quarters.
This is the result of continued strong double-digit growth in health care payment services and data management. Our banking analytics business stabilized during the quarter, while marketing analytics remains challenged as discussed previously. In our Digital Operations & Solutions business during the first quarter, we generated revenue of $246 million with growth of 6% sequentially and 12% year-over-year. This was driven by continued strong double-digit growth in our Insurance and emerging business segments. Looking at the overall demand environment, our new and existing clients remain focused on lowering costs, improving efficiencies and enhancing customer experience and growth. Our data and AI-led strategy, combined with our deep domain expertise is helping them achieve these goals.
We have been able to significantly increase our total addressable market by offering innovative new solutions and expanding into new buying centers. This is reflected in the continued strength of our sales pipeline. As clients increasingly turn to us for end-to-end solutions, we have also grown our average deal size, which is fueling our above industry revenue growth. Based on our strong performance in the first quarter, we have raised the lower end of our full year guidance range for both revenue and EPS. Maurizio will review the details in a few minutes. We recently held our AI in action virtual customer symposium, where attendees heard from EXL and industry leaders on the future of business models and how they are scaling the use of enterprise data to bridge the gap between strategy and operations to make AI real.
The event included live demonstrations of practical applications and use cases of embedding AI across all our business segments. The event was attended by over 2,300 clients, prospects, analysts, advisers and partners and feedback has been very positive. A replay of the event is available on our website. Let me share a couple of recent examples of how we are bringing to life all our capabilities at the intersection of data, AI and domain expertise for our clients to deliver meaningful value. First, we developed a Gen AI-based conversational business intelligence solution for a leading life and annuity insurer. The solution is designed to help them better understand their captive and independent advisers, interest, behaviors and demographics.
This helps them optimize targeting and message development to improve their experience and increase sales and return on marketing investment. Effectively developing the solution for the client required bringing together our talented team of Gen AI experts, data engineers, business subject matter experts and AI deployment specialists to work as an integrated team. We harnessed large volumes of both external and internal client data assets to build a 360-degree profile of each adviser. We fine-tuned LLMs to generate personalized insights for distinct adviser groups with unique traits. Finally, we developed a conversational interface for an easy and intuitive user experience. This solution is highly scalable and delivers on-demand, real-time natural language insights across all our clients’ sales and marketing functions.
By leveraging additional data sets and embedding digital into our clients, marketing and sales processes, we have created significant value by enabling them to double their new business volume. In another example, EXL has become the preferred AI and data partner for a U.K.-based leading retailer. We accomplished this through the successful implementation of multiple AI-based solutions to transform their online sales operations. For example, we deployed our proprietary Gen AI-based smart agent assist solution at scale,; which is currently running live across 1,100 customer agents handling 6 million calls annually in the clients’ captive operations as well as those outsourced to EXL. Our solution provides real-time speech to text, AI nudges for next best action, customer sentiment and vulnerability detection and call summary.
Early results include a greater than 90% reduction in customer repeat calls, a double-digit agent productivity gain and vulnerability detection accuracy rates of over 95%. In addition, we have helped our clients reduce returns, streamline orders and refunds and improve overall customer experience. We also deployed EXL's buyer assist solution, which utilizes Gen AI and natural language processing to generate insights from disjointed and unstructured data from 40 different sources across the web, social media, online reviews and catalogs. Our solution is adept in handling data in any form via text, images or videos and feeds it into our bio assist recommendation engine. By presenting our clients, buyers with customized recommendations, we help them better predict which items to procure based on potential future demand.
This has resulted in a 2% to 3% increase in sales, a 30% to 40% improvement in buyer productivity and enhanced customer satisfaction. Due to our success with this client, EXL is now their strategic business transformation partner in deploying AI across their enterprise, thereby expanding our TAM and enabling us to continue our growth momentum. These are just a few examples of the proprietary AI-based solutions we have developed and deployed that combine data and AI with our deep industry experience to deliver meaningful business benefits to our clients and their end customers. I am pleased to highlight two key appointments we made recently within our senior leadership team. Vikas Bhalla and Vivek Jetley have each been promoted to President of EXL in addition to their current roles of Head of Insurance and Head of Analytics respectively.
In their expanded roles, they will take on broader company-wide responsibilities, including being more involved in driving overall corporate performance and executing on our data and AI-led strategy. As we implement our data and AI strategy, it is important that we continually optimize our leadership structure to execute on our strategic objectives. Vikas and Vivek are highly talented and strategic leaders who have built strong sustainable growth businesses and have created tremendous impact for EXL over the past two decades. In their expanded roles, I look forward to their continued leadership as we transform EXL to the data and AI partner of choice for our clients. We will be holding an investor strategy update event next Tuesday, May 7, to provide an in-depth overview of our strategy, our pivot to being a data and AI-led Company and our growth opportunities.
Registration for the event is available on the Investor Relations page of our website, and we look forward to seeing you there. In summary, we delivered strong results in the first quarter, and we are encouraged by the continued momentum in our digital operations business as well as the growth in our analytics business. Our winning data and AI strategy, combined with consistent execution by our exceptionally talented and dedicated team position us well to deliver industry-leading performance for the remainder of 2024 and beyond. With that, I'll turn the call over to Maurizio to cover our financial performance in detail.
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 2024. We delivered a solid first quarter with revenue of $436.5 million, up 9% year-over-year on a reported basis, 8.8% in constant currency and 5.4% sequentially. Adjusted EPS was $0.38, a year-over-year increase of 8.9%. All revenue growth percentages mentioned hereafter are on a constant currency basis. Revenue from our digital operations and solutions businesses as defined by 3 reportable segments, excluding analytics, was $245.8 million, representing year-over-year growth of 12.3%. Sequentially, we grew revenue 5.9%. In the insurance segment, we generated revenue of $145.1 million, an increase of 15.6% year-over-year and 4.4% sequentially.
This growth was driven by the expansion of existing client relationships and new client wins. The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 12.1% year-over-year with revenue of $183.1 million. In the Emerging segment, we reported revenue of $74.4 million, growing 11.9% year-over-year and 10.7% sequentially. This growth was driven by new client wins and expansion of existing client relationships. The emerging vertical consisting of both our digital operations and solutions and analytics businesses grew 0.4% year-over-year with revenue of $155.6 million. The Healthcare segment reported revenue of $26.3 million, down 1.7% year-over-year and an increase of 1.1% sequentially. The year-over-year decrease was primarily due to onetime revenue in the first quarter of 2023.
The Healthcare vertical consisting of our digital operations and solutions and analytics businesses grew 18.1% year-over-year with revenue of $97.8 million. In the Analytics segment, we generated revenue of $190.7 million, up 4.6% year-over-year and 4.7% sequentially. The growth in Analytics was driven by higher volumes in health care payment services and growth in our data management business. This was partially offset by a decline in marketing analytics, reflecting an ongoing trend we have highlighted in previous quarters. SG&A expenses as a percentage of revenue were up 140 basis points year-over-year to 20.4%, driven by investments in generative AI, digital solutions, and front-end sales, partially offset by operating leverage. Our adjusted operating margin for the quarter was 18.9%, down 50 basis points year-over-year, driven by increased SG&A investments.
Our effective tax rate for the quarter was 23.2%, down 80 basis points from 24% in the first quarter of 2023. This was driven by higher profits in lower tax jurisdictions. Our adjusted EPS for the quarter was $0.38, up 8.9% year-over-year on a reported basis. Our balance sheet remains strong. Our cash including short and long-term investments as of March 31 was $246 million, and our revolver debt was $345 million for a net debt position of $99 million. Our first quarter cash flow from operations was an outflow of $21.9 million compared to an inflow of $16 million in the first quarter of 2023. This is due to higher working capital requirements and onetime earn-out payments related to a prior acquisition. During the quarter, we spent $11.3 million on capital expenditures and repurchased approximately 4 million shares at an average share price of $30 for a total of $119.4 million.
This includes 3.35 million shares received upfront as part of our previously announced $125 million accelerated share repurchase plan. We expect to receive the remaining shares in the third quarter. Now moving on to our outlook for 2024. Although the macroeconomic environment remains unpredictable, we are raising the bottom end of our guidance ranges for both revenue and EPS based on our strong first quarter results. We now anticipate revenue to be in the range of $1.79 billion to $1.82 billion, representing year-over-year growth of 10% to 12% on a reported and constant currency basis. This represents an increase of $5 million at the midpoint and $10 million at the low end of our previous guidance of $1.78 billion to $1.82 billion. We expect a foreign exchange gain of approximately $1 million, net interest expense of approximately $4 million to $5 million and our full year effective tax rate to be in the range of 23% to 24%.
We anticipate our adjusted EPS to be in the range of $1.58 to $1.62, representing year-over-year growth of 10% to 13%. And we expect capital expenditures to be in the range of $50 million to $55 million. In summary, we started the year strong and are encouraged by the continued double-digit growth momentum in our digital operations business and the growth in our analytics business by effectively executing our data and AI-led strategy, including the significant investments we are making to further grow our competitive advantage, we are confident in our ability to maintain our double-digit growth trajectory. With that, Rohit and I will now be happy to take your questions.
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