Exlservice Holdings Inc Q3 2024 Earnings Call Transcript

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

Question: Surinder Thind - Jefferies - Analyst : Thank you. I'd like to start a question about the build-out of the proprietary AI models. Can you talk about the strategy here at this point? Is the idea to build as many of these proprietary models yourself? And how does that fit in with the broader ecosystem of maybe what the hyperscalers are building in terms of their models as well as maybe more industry-specific solutions that are also being built by third-parties in the sense of the traditional software developers. So, I guess, essentially, are you becoming much more of a software company at this point?

Question: Surinder Thind - Jefferies - Analyst : Yes. That's helpful. And then just from perhaps a bit more of a near-term view. Can you talk about the investment that's required? Is it you kind of continue with the traditional level of CapEx, R&D to kind of build this out? Or do we enter a period of slightly elevated investments where there's a bit of an arms race to be the first to build some of these models?

Question: Surinder Thind - Jefferies - Analyst : Thank you. That's helpful.

Question: Bryan Bergin - TD Cowen - Analyst : Hi, good morning. Thank you. I wanted to start with Digital Operations, another strong quarter here on organic growth. Let's ask on your conviction and potential sustainability of this elevated growth relative to the medium-term outlook for the segment. And it's been good to see all industries contributing here. Do you have a higher level of conviction in the near-term and sustaining higher growth in any particular digital ops industries? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 2:00PM, EXLS.OQ - Q3 2024 Exlservice Holdings Inc Earnings Call

Question: Bryan Bergin - TD Cowen - Analyst : Okay. Understood. And then just shifting to analytics, it sounds like Payment Integrity and Data Management remains solid. What about the balance of analytics, any notable changes in just the customer marketing view and decisioning analytics? And just how are you forecasting the fourth quarter growth in analytics?

Question: Bryan Bergin - TD Cowen - Analyst : Any comments on the fourth quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 2:00PM, EXLS.OQ - Q3 2024 Exlservice Holdings Inc Earnings Call

Question: Bryan Bergin - TD Cowen - Analyst : Okay, helpful. Thanks guys.

Question: Maggie Nolan - William Blair - Analyst : Hi, thank you. How are you assessing the risk of a change in conversion rates of larger deals for your digital ops business? Is there anything to note there?

Question: Maggie Nolan - William Blair - Analyst : Thank you. And can you give some commentary on your success in the data and analytics segment organically and in data management, in particular, organically versus what the acquisition is adding in terms of synergies so far?

Question: Maggie Nolan - William Blair - Analyst : Thank you. Congrats on the results.

Question: Puneet Jain - JPMorgan Securities Inc - Analyst : Hey. Thanks for taking my question, great quarter. Excuse me. I wanted to follow up on the question that Maggie asked about like the data and analytics. So the overall segment, like the analytics segment, do like 9% to 10% on an organic basis, like you mentioned, Rohit. How much of that segment stems from services that you didn't offer two or three years ago? Like the data management, for example, came through Play Point and ITI, AI models and the stuff that you're building right now. So how much of that overall segment comes from services that you didn't offer three years ago?

Question: Puneet Jain - JPMorgan Securities Inc - Analyst : That's fair. But thanks for the explanation. And then you talked about Insurance LLM earlier. So as you build some of these models, like which are not tied to any specific client, like what data do you use to train those models? I know you had some proprietary data, but are you allowed to use client's data to build some of these industry-specific LLM? And a follow-up on that would be like how much automation of like existing tasks or processes can be achieved using these AI solutions? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 2:00PM, EXLS.OQ - Q3 2024 Exlservice Holdings Inc Earnings Call

Question: Puneet Jain - JPMorgan Securities Inc - Analyst : Okay. Thank you.

Question: David Koning - R.W. Baird - Analyst : There we go. Can, can you guys hear me? Okay. Sorry about that. So I guess, just from a high-level perspective, it seems like a lot of the industry has struggled recently, both IT, BPO, et cetera, yet you guys seem to be growing significantly faster than most, is it just functionality like some of the stuff you're doing is better? Is it the mix of clients that you're serving and just industries you're serving? Like what do you think are the two or three like biggest differentiators that you're doing compared to a lot of your competitors? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 2:00PM, EXLS.OQ - Q3 2024 Exlservice Holdings Inc Earnings Call

Question: David Koning - R.W. Baird - Analyst : Got you. Thanks. Yes. I mean you guys are crushing it. And I guess my follow-up question, insurance analytics, that had been flattish, give or take, on a year-over-year basis for the last four quarters or so, but it accelerated to about 15% or so growth this quarter. Is that where ITI falls? And it seems like organically, it's also doing better. But why didn't insurance analytics accelerate so much?

Question: Puneet Jain - JPMorgan Securities Inc - Analyst : Great. Thank you.

Question: David Grossman - Stifel Europe - Analyst : Yes, thank you. Rohit, perhaps you could further refine the elements of growth in the digital ops business? As you mentioned, it's been fairly strong for several quarters now. And I know you mentioned it includes some of the pure digital revenue. I'm not quite sure what exactly you're including in that bucket. But anything you could do to kind of help us better understand the growth dynamics there versus the legacy core pricing units, whatever it is that you can help us better understand that.

Question: David Grossman - Stifel Europe - Analyst : So are these stand-alone solutions that you mentioned, are those like sold as a technology tool? Is that the revenue model?

Question: David Grossman - Stifel Europe - Analyst : And how big can you dimension just how big these components are?

Question: David Grossman - Stifel Europe - Analyst : Right. I mean is that mix shift impact in gross margin? When you talked about the need to fund incremental investment, I mean should we expect the gross margin in the ops to continue to go up? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 2:00PM, EXLS.OQ - Q3 2024 Exlservice Holdings Inc Earnings Call

Question: David Grossman - Stifel Europe - Analyst : Got it. And sorry, just one more. It's hard not to notice the volatility in margins quarter-to-quarter on the EBIT line. Is that unique to this year? Or are we going to see that kind of volatility going forward as well?

Question: David Grossman - Stifel Europe - Analyst : Okay. All right guys. Thanks very much.

Question: Vincent Colicchio - Barrington Research Associates - Analyst : Can you hear me?

Question: Vincent Colicchio - Barrington Research Associates - Analyst : Rohit, can you talk about the new deals added in the quarter? Were any of them particularly large? Were they new to outsourcing? Any other relevant commentary? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 2:00PM, EXLS.OQ - Q3 2024 Exlservice Holdings Inc Earnings Call

Question: Vincent Colicchio - Barrington Research Associates - Analyst : And are you seeing a substantial M&A pipeline? How valuation in the market? And Maurizio, could you reiterate your capital allocation thinking?

Question: Vincent Colicchio - Barrington Research Associates - Analyst : Thank you.