Exlservice Holdings Inc Q1 2025 Earnings Call Transcript

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

Question: Bryan Bergin - TD Cowen - Analyst : Hi, thank you. Good morning. I'll start with the '25 growth guidance. So I fully understand the affirmation here despite the 1Q outperformance. But I guess as we all try to test insulation into potential macro slowing, can you remind us on the level of annuitized revenue? And what's contractually committed versus potentially needing to go get and convert within the fiscal '25 growth guidance?

Question: Bryan Bergin - TD Cowen - Analyst : Okay, good to hear. And then my follow-up around AI and data-related revenue. Can you just talk about how the labor effort is allocated in AI-driven processes? And does increased AI adoption in certain processes definitively cannibalize a portion of revenue in other services areas like digital ops. Just talk about that and then the net overall impact that you're seeing?

Question: Bryan Bergin - TD Cowen - Analyst : All right, thank you.

Question: Surinder Thind - Jefferies LLC - Analyst : Can you maybe just talk a little bit about -- you emphasize perhaps the first mover advantage in all of the investments that you're making. Can you perhaps talk about the what I would call the sustainability of that and how you think that's evolving at this point? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 2:00PM, EXLS.OQ - Q1 2025 Exlservice Holdings Inc Earnings Call

Question: Surinder Thind - Jefferies LLC - Analyst : Helpful. And then when we think about where we are in the business cycle, I think you highlighted a lot of the elements that make your business resilient. Any color on just the clients' willingness or their ability to the level of technology, I guess, that they're willing to adapt that in the sense that when we look at where things were with AI last year, they've quickly or continue to evolve quickly. So how do clients go about making a decision of what they're going to implement or what they're willing to take a risk on in terms of the implementation? And is that effectively where the outcome base comes into play as the selling point.

Question: Surinder Thind - Jefferies LLC - Analyst : Thank you.

Question: Puneet Jain - JPMorgan - Analyst : Hey, thanks for taking my question, Rohit, Maurizio. Like, obviously, like in the current macro environment, like a lot of concerns around like potential impact on various companies from macro news cycle. So in the past, you have talked about marketing analytics as one area, which could be adversely impacted, but that is also an area which has been weak for last few years. So in case like my question is, in an event of a macro headwind, incremental macro headwind potential recession or whatever, how low some of like the things that are more aligned to client discrete can go from current levels? Like maybe if you can talk about your exposure to discretionary spend. in an event of adverse macro outlook?

Question: Puneet Jain - JPMorgan - Analyst : Got it. And follow-up to that, like how should we think about tenants of your revenue growth and margin throughout this year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 2:00PM, EXLS.OQ - Q1 2025 Exlservice Holdings Inc Earnings Call

Question: Puneet Jain - JPMorgan - Analyst : Can you quickly also talk about like cadence on sequential growth basis, Maurizio, like from Q1 to Q2 to Q3 to Q4.

Question: Puneet Jain - JPMorgan - Analyst : No, understood. Appreciate it. Thank you.

Question: Maggie Nolan - William Blair - Analyst : Thank you and congrats on the quarter. 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 economy.

Question: Maggie Nolan - William Blair - Analyst : Thanks, Rohit, that's helpful. My second question is about the Healthcare and Life Sciences vertical has a higher percentage of outcome-based revenue, and 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 several quarters or even several years?

Question: Maggie Nolan - William Blair - Analyst : Got it. Thank you.

Question: David Koning - Robert W. Baird and Co Inc. - Analyst : Hey guys, great job. I guess, first of all, I love the new segmentation, data AI. 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 subunit. And when we looked at that, it looked like about $185 million of revenue last year and $105 million of the prior year, so $80 million or so of growth, like a huge growth driver for you guys. Is that pretty sustainably growing? Or is that lumpy? Or do you think that will grow another $80 million or so this year?

Question: David Koning - Robert W. Baird and Co Inc. - Analyst : Okay. Okay. Got it. And I guess my follow-up, just the healthcare business, you called up the massive sequential growth, the 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 point to drive higher sequentially from here?

Question: David Koning - Robert W. Baird and Co Inc. - Analyst : Sounds good. Great job, guys.

Question: Vincent Colicchio - Barrington Research Associates - Analyst : Yeah, Rohit, can you provide an update on the AI competitive landscape? Are you seeing any new competitors enter in a meaningful way?

Question: Vincent Colicchio - Barrington Research Associates - Analyst : And as a follow-up, how is pricing trending? Is there any impact from the macro?

Question: Vincent Colicchio - Barrington Research Associates - Analyst : Thank you. A good quarter gentlemen.

Question: David Grossman - Stifel Europe - Analyst : Good morning. Thank you. So sorry if I missed this, but I was looking at the restated verticals. And when you include the international markets in the insurance piece, it looks like you grew about 10% and you had been growing mid-teens. Is there anything to discuss there in terms of what are the dynamics that may be impacting the growth of the insurance markets. And as a point of reference, I think one very large competitor based in India had mentioned weakness in the insurance vertical when they reported their March quarter also. So that was a little bit of a surprise to me then and seeing this deceleration seems to be consistent with that dynamic.

Question: David Grossman - Stifel Europe - Analyst : So you'd expect it to grow at least as fast as the overall company in '25?

Question: David Grossman - Stifel Europe - Analyst : Right. And I think this question came up in some context earlier. But as you think about the impact of AI as opposed to the growth opportunity around new opportunities. There's obviously a lot of questions about the impact it has on the installed base of business and how the efficiencies get shared with clients and the potential deflationary impact it may have. And I know this varies by segment because there's some nuances between the different verticals that you participate in 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, from deploying AI in the existing book of business?

Question: David Grossman - Stifel Europe - Analyst : So if you think about the installed base comment that you just made and you said that you've been -- you've already began that process. Where do you think you are in that journey in terms of because there's a (inaudible) 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? Or do you think that that's still coming in the future?

Question: David Grossman - Stifel Europe - Analyst : All right, great. Very helpful commentary. Thank you for that. If I may, just one quick question for Maurizio. How much of the FX impact or how much of the increase to the revenue guide was FX.

Question: David Grossman - Stifel Europe - Analyst : Got it. All right, guys, thanks again.