Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ExlService Holdings Inc (EXLS, Financial) reported a strong financial performance with a revenue of $448 million, marking an 11% year-over-year increase.
- The company achieved a 11% growth in adjusted EPS, reaching $0.40 per share.
- The Analytics segment delivered revenue of $194 million, up 6% year-over-year, driven by strong growth in healthcare payment services and data management.
- ExlService Holdings Inc (EXLS) announced the acquisition of ITI Data, enhancing its data management capabilities and expanding its client footprint.
- The Digital Operations & Solutions business saw a 14% year-over-year revenue growth, driven by strong performance in the Insurance and Emerging business segments.
Negative Points
- SG&A expenses increased by 230 basis points year-over-year to 20.5%, driven by investments in sales and marketing, generative AI, and restructuring costs.
- The company incurred $6.2 million in restructuring and litigation settlement costs in the second quarter.
- Adjusted operating margin for the quarter was 19.8%, down 20 basis points year-over-year due to increased SG&A investments.
- The Healthcare segment reported modest growth of 3.5% year-over-year, indicating slower performance compared to other segments.
- The company noted that the macroeconomic environment remains unpredictable, which could impact future performance.
Q & A Highlights
Q: Can you break down your analytics segment in more detail, highlighting incremental tailwinds and headwinds?
A: Rohit Kapoor, CEO: We are seeing significant growth in healthcare payment services and data management, both driving double-digit growth in our Analytics business. Additionally, we are witnessing strength in retail and banking verticals. However, marketing analytics continues to be a headwind.
Q: Can you elaborate on the adjusted operating margin expansion expectations and SG&A investments for the remainder of the year?
A: Maurizio Nicolelli, CFO: Our adjusted operating margin for the first half of the year was 19.4%. We made significant investments in AI and sales in the first quarter, which normalized in the second quarter. We expect the second half margins to align with our guidance of around 19.3%-19.4%. SG&A investments will be reasonable with no significant increases expected.
Q: How does the ITI Data acquisition complement your existing data management practice, and how has its financial performance been?
A: Rohit Kapoor, CEO: The ITI Data acquisition strengthens our data management capabilities, adds new Global 1000 client relationships, and brings valuable IP and partnerships. It also has a global business mix that complements EXL's capabilities. We expect this combination to accelerate our growth and service offerings.
Q: Can you provide more details on the insurance-specific LLM you trained and its implications for productivity and delivery?
A: Rohit Kapoor, CEO: Our insurance-specific LLM, trained on 2 billion tokens, outperforms foundational models like GPT-4.0. It allows us to offer plug-and-play solutions to multiple clients, reducing costs and improving results. The commercial model will evolve, potentially including licensing agreements or integrated operations management.
Q: How do you train your proprietary LLMs, and how is the IP managed when deploying them with clients?
A: Rohit Kapoor, CEO: We use primary and derivative data from our deep industry knowledge and client relationships. The IP for the trained models belongs to us, but when deployed in client workflows, it is jointly owned. The efficacy of our models, which outperform foundational models, is a key advantage.
Q: How do you see the potential impact on the Digital Operations business as the macroeconomic environment changes?
A: Rohit Kapoor, CEO: In a slowing economic environment with lower interest rates, clients focus more on cost savings, which benefits our Digital Operations business. Our ability to provide immediate ROI through transformation initiatives makes us a credible partner, ensuring continued strong demand.
Q: What are your expectations for in-sourcing versus outsourcing decisions by clients in Digital Operations?
A: Rohit Kapoor, CEO: Clients use multiple avenues, including in-house operations. Our advantage lies in deploying cutting-edge technology, data integration, and AI, which we can do more effectively due to our experience across multiple clients and use cases. We complement in-house operations and maintain a competitive edge through innovation.
Q: How should we think about the use of cash and the cost of the ITI acquisition?
A: Maurizio Nicolelli, CFO: The ITI acquisition cost $26 million in cash. We have been aggressive with share repurchases, totaling around $160 million so far this year. We plan to continue share repurchases and explore M&A opportunities, with a minimum of $90 million in share repurchases expected for the rest of the year.
Q: How do you view the NVIDIA partnership and its potential benefits?
A: Rohit Kapoor, CEO: The NVIDIA partnership is strategic, involving significant investment in talent and resources. NVIDIA's advanced computing capabilities integrated into workflows provide better business outcomes. This partnership is expected to be meaningful for both EXL and our clients.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
