Exlservice Holdings Inc at Stifel Cross Sector Insight Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Grossman - Stifel - Analyst : Alright. Great. So before everyone came in, Maurizio and I were talking about some of the conversations that have been [done] or the dialogue that they've had with the investment community over the last several weeks. And not surprisingly, the impact of generative AI on their business has come up obviously more frequently than anything else. So let's just start there just to kind of get that discussion underway, which is you're in a workflow business. It's a very process-oriented business. So repetitive tasks and things like that. And you perform those workflows for your customers. So why don't you take a few minutes, and if you could, distinguish. Because you've got a data business and you've got an operations management business, where AI can have a very different impact. So why don't we first talk about how you think it's impacting the business currently and then we can get into some of the impacts in terms of opportunities and perhaps even competitive threats?

Question: David Grossman - Stifel - Analyst : Right. So actually, I had the benefit. I actually listened -- I watched that. So for those of you in the audience, one of the things that they showed was there was somebody who lost their job. And so it was I think with Centrica, was probably the client. And they're trying to figure out what do I do now that I lost my job because I can't pay my gas bill, right? And so basically, it was prompting a human agent through a sequence of public service agencies that can help that person as well as referring them to certain parts of their customer policies, their customer assistance that they can go through like deferring payments for 30 days, et cetera, so. And also, I think, some empathetic responses for the agents that they could offer to the customer. So as you think about that and how your clients are deploying it, I think one of the concerns out there is what can they do themselves now that they don't need you to do anymore versus what they need you to do. Is it too early or do you have a sense for that now where the lines are being drawn, where clients can kind of take on some of this themselves versus passing it on to someone like you? Because that's like the history of services, is doing things for people they generally don't want to do or can't do themselves. So where does the lines get drawn with AI? Because I think there's a lot of confusion about that right now.

Question: David Grossman - Stifel - Analyst : So actually, before I go on, does anyone in the audience have any questions? Generative AI, that's been a big topic. I don't know if anybody is in the context of this business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 06, 2023 / 2:55PM, EXLS.OQ - Exlservice Holdings Inc at Stifel Cross Sector Insight Conference Why don't you go back to a comment that you just made about coming out of COVID. Because it feels like customer tastes and preferences change. And we all know some of that was this metamorphosis of kind of in person versus remote, right? Both, customers, supply chain, everything, the whole ecosystem changed as a result. And like you said, they can't do it themselves. They don't have the staff. It's hard to find staff, et cetera. But if you're thinking beyond kind of that dislocation that happened in the aftermath, what do you think the biggest change in customer needs and preferences have been coming out of this?

Question: David Grossman - Stifel - Analyst : Right. And I'm not sure you mentioned this in your introduction, but your business, there are two different characteristics in terms of operating models. Whereas the [BPO] business or the operations management is transferring workflows over. Analytics and data is more of a professional services business, right, at least the way we historically think about it. So if you think about what's happening economically, how do you think about all these powerful secular trends that are impacting the data business which you just talked about vis a vis the cyclical dynamics that traditionally impact professional services business, particularly given there's been some signs of weakness in the professional services market over the last several months? So do you want to talk a little bit about the -- does data analytics to the secular trends supersede the cyclical or do the cyclical really start having an impact on the business as we go into the back half of the year?

Question: David Grossman - Stifel - Analyst : Right. So you -- I think your guidance, I believe, implies a pretty significant slowdown in year-over-year growth in the back half of the year, is that -- that's correct.

Question: David Grossman - Stifel - Analyst : So as you think about the range of possibilities aside from the economy, aside from a customer loss, what are the biggest pluses and minuses vis a vis kind of what your guidance is? Because it's a pretty rapid deceleration. The guidance implies a pretty rapid decel in the back half of the year. So what could go better? What could go worse aside from the obvious in terms of the economy in a customer-specific situation?

Question: David Grossman - Stifel - Analyst : Got it. And so when you look at your business mix, you talked about insurance and healthcare. And those are your two biggest verticals, I think, at this point. Insurance is 40% of your business. It's the legacy, obviously how the business started. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 06, 2023 / 2:55PM, EXLS.OQ - Exlservice Holdings Inc at Stifel Cross Sector Insight Conference But where -- is there opportunity that you're seeing near term beyond those two verticals where actually -- and actually, I'd like to talk about healthcare as well. Because healthcare, you've had some fits and starts, right? You had a bad acquisition. You got out from underneath that. You did a good job of getting out from that acquisition. But where are we in the healthcare vertical in terms of that starting to scale again and grow at a more consistent pace? And what other verticals should we be thinking about in terms of where you could be going to create the similar opportunity that you've seen in insurance, which has been a gift that's given for 25 years, so.

Question: David Grossman - Stifel - Analyst : Got it. So when you think beyond healthcare, though, and you've actually made acquisitions to build that practice. What looks interesting to you? You've been in utilities for a long time but that's been kind of relatively stable in terms of growth. You've been in transportation for a while, that hasn't really scaled beyond your existing base much. So how are you thinking about expanding beyond healthcare and insurance?

Question: David Grossman - Stifel - Analyst : So the sports leagues have come up a couple of times, what exactly are you doing for them, for the --?

Question: David Grossman - Stifel - Analyst : Got it. So I want to make sure we hit the margin topic because that's been a pretty consistent topic with your company since the beginning of time. And for those of you that may be newer to the company, there's some margin dynamics when you ramp new customers, where you -- it's counterintuitive as you grow faster in ops management. It has some dampening effect on margin. But you've done a great job of expanding margins after the pandemic and holding them. So do you want to just take a minute to breakdown the core components that have driven the margins from, call it -- if you take out the acquisition stuff aside, let's just leave that out because that's a known that you got up from underneath the bad acquisition. But when you take that out and your ability to sustain margins over 18%, just what other core drivers are? And give us some insight on how to think about margin going forward.

Question: David Grossman - Stifel - Analyst : So can you just go back. You said -- so your headcount heavily skewed operations management, same gross margins. So is that on -- I can understand -- I'm just trying to reconcile the gross margin versus operating expenses. So there's a lot more in terms of the operating infrastructure that goes to supporting the (multiple speakers) management --?

Question: David Grossman - Stifel - Analyst : Right. So do you want to dimension what the difference perhaps in margins could be on the EBIT line between the two?

Question: David Grossman - Stifel - Analyst : So if we look at the business today, should we assume that the analytics business is already operating above the corporate average and operation management below? Is this already at that place?

Question: David Grossman - Stifel - Analyst : Okay. Got it. Alright. Good. Well, we're just about out of time, is there anything else you want to highlight that came up or any questions in the audience? No? Alright. Good. All right. Well, thank you. Thanks for coming.