We're going to get started here. I'm Bryan Bergin, head of our IT Services and Payments account. Thanks all for joining us. Very pleased for our next fireside with EXLS. EXLS is a global data analytics and digital operations service provider with over 60,000 employees. It's in professional span India, the Philippines, South Africa, and the U.S. and more, where it provides a range of enterprise transformation, operations, data analytics, and AI services with particular depth in insurance, healthcare, and BFS. With us from EXL, we have Maurizio Nicolelli, VP and CFO. Maurizio, thanks for being here.
Thank you, Bryan. Thanks for having me.
As well as John Kristoff, Head of IR in the room.
Thank you.
I think, Maurizio, to start, from an intro standpoint and offering evolution standpoint, I think that's best. As you've seen the organization over the last five years, talk about the evolution of the service profile and the strategy as that has evolved, particularly COVID in the last several years as well with your data and the AI strategy.
Sure, sure. When you look at our strategy over the years, we've done a very good job in pivoting with the market over the years. If you go back to when we really started the company back in 1999, we really started out as a BPO company in the insurance industry. We really built up an operations management business between 2000 and 2010. In 2006, we started the pivot. We started the pivot in analytics. We bought a company called Inductus in India to really begin our process to get into data analytics. That really started to become a big area of growth for us between 2010 and 2020. You saw that piece of our business really materialize during that time period. We think of the first 10 years as really building out operations management.
The second 10 years is really building out our data analytics business, which is kind of unique at the time because you had a lot of our competitors back then not really getting into data analytics at the same time we did. We started to pivot again in 2015, 2016 with technology and digital when RPA came out. That is where we started to include bots in our employee workflow, into our client workflows. That really started the pivot for us in digital. You saw us move from RPA to machine learning to eventually into AI. Now you see us pivoting to GenAI and also to agentic AI, which is the new kind of technology that is at the forefront for us also right now. When you look at the last five years, it has been pretty significant because we were a data-led company in 2020.
We pivoted to where we really focused on client data. We had built up our data analytics business significantly. We really focused on data with the digital capabilities starting to really progress. Now, as we get to 2025, we really do think that we are leading with both data and AI. AI is at the forefront of everything that we do now. You look at all of the large integrated deals, they include AI. They include some element of either data and AI. Really, AI is really bringing the overall business together. It is one of the reasons why we also restructured our segments, because we were really structured between insurance, healthcare, emerging, and data analytics was a separate segment. What we found was AI was really at the forefront of all four.
We felt the need to really restructure ourselves and also strategize ourselves around data and AI. Because if you look at our pipeline, virtually every opportunity includes some sort of element of data and AI. That has really helped being at the forefront and really focusing on data and AI in everything we do and all the opportunities we have is really at the forefront. That is creating that momentum for us to maintain low double-digit growth on an annual basis. That is what we believe will propel us beyond 2025.
OK, so certainly key changes in the strategy and the offering evolution there over many years. We're back here in three years on the stage. How do you expect the mix of your businesses evolved?
I would say if you looked at us three years from now, you will see us getting much more deeper in data and AI. We talked about currently 53% of our business has some form of element of data and AI or both in that revenue base. As we move forward, so much of our opportunities includes data and AI that you will see us getting more into that area. You will see that becoming a much bigger piece of our business overall. That really changes the complexity of our company because the percentage of our business will be higher in data and AI. It also means that we're also moving up the value chain within our clients. We're providing more value-added services to our clients overall. You would see the tier start to build on data and AI overall.
I think that's an evolution that's beginning now that we should see over the next, as you say, three years.
OK, OK. Now, if we look back here the last several years, there's been consistent performance generally in your business. In broader services, it's been much more challenging. As you think about what you've done and the execution you've had, is it something related to strategy? Is it the offering? Having had unfortunate client exposures, what do you attribute the outperformance to relative to the services group?
I think we did a very good job in getting in early in certain capabilities. I think we got in very early on data management and analytics, and particularly in digital. We have been able to use those capabilities to really build out our business overall, particularly in the operations space. For us to really grow now, it's really dependent upon large integrated deals. The way you win those deals now is really through data and AI going forward. It still has a people component to it overall. The real differentiator is that data and AI piece now going forward. I think that's benefiting us in terms of momentum overall. It's helping us in a period that there's been a little bit of choppiness just overall in the market.
OK, let's talk about that choppiness. What have you been hearing in client conversations and the broader demand backdrop? If easier, separate it by the types of businesses.
For the segments that we operate in and the services that we provide in, we haven't seen too much of a change in terms of client demand. We're very confident with that guidance that we gave for 11%-13% revenue growth for the current year. We're confident on also our medium-term guidance. We extended that to the end of 2026. Because when we look at our pipeline overall, and we talked about this at Investor Day, we have visibility into 95% of our revenue this year between what's been committed and also between weighted pipeline, which is consistent with prior years also. We feel we're in a very good spot right now in terms of 2025 to be consistent with the guidance we gave on revenue. What we are working on now is really closing revenue for 2026.
The deals that we close today is really the driver of revenue in 2026 and beyond at the end of the day. In terms of the segments we operate in, we're in a comfortable spot right now.
OK, OK, that's good to hear. It seems daily we're getting changes on the trade and the tariff front. Anything just in more recent weeks, any changes at all on the margin in client sentiment?
We haven't seen anything significant in the recent weeks regarding tariffs. We have not been significantly affected by tariffs, to be quite honest. If our clients or their businesses get affected by tariffs potentially, historically, they will look to us to help them mitigate through that. The way they do that is really pushing forward with transformation and reducing cost overall. We have been a benefactor in periods of macro uncertainty overall just because clients look to us to help them navigate through there by reducing their overall exposure on the cost side.
OK, OK. You mentioned the operating model changes. Let's talk about that. This was done at the, I guess, late last year, the onset of this year, some financial reporting changes with that. Aside from the financial reporting, can you just talk about, again, what drove the change in? Is it go-to-market? Is it how you deliver? What made you make that choice?
We found that so much of what we are pitching to clients now revolves around AI. When you look at pre-reorganization, we were pitching data and AI in opportunities within our industry segments. We also saw data analytics becoming more AI-driven, meaning analytic services becoming more AI services going forward. You are building AI solutions on top of data to be able to extract insights out of that data. Given that AI was very broad between all of our segments, we really felt the need that we needed to reorganize to be more focused around our clients, both on the front end, but also on the capability side. I think it has been a, we have communicated that to all our clients. I think it has resonated well.
It also gets the front-end group really focused around our strategy of data and AI and really brings the whole thing together for us.
OK, as you think about these changes, is there execution risk we need to be mindful of?
Look, we've done well in mitigating execution risk overall. We have not had any significant execution issues over the past three, four years, I would say. Obviously, any change brings potential execution issues. We have not encountered that, to be quite honest, just yet.
OK, as you bring things more closely together, can this potentially accelerate deal cycles? Or does it change anything on that front?
It helps us get more organized around the client overall with all of our capabilities, having a one front-end group for each of the areas really selling all of our capabilities going forward. I think it actually helps us get us more structured. That is what we have seen kind of the benefit since doing this.
OK, and as you think about renewals, extensions, the amount of new logos, things like that, are there key major metrics or KPIs you're tracking to test the benefits of these changes?
The big area is seeing how we are managing our clients and how quickly we are closing pipeline and also executing on our pipeline.
Conversion.
In conversion. If you look at just overall the environment, it's a bit of an uncertain environment. You've seen it from some of our peers. Even if just managing to our existing closing rate and conversion rate is a significant positive today in this market.
OK, OK. Now with the operating model changes came the financial reporting changes. You now report AI and data-led revenues versus digital operations. Digital operations, I think, is clear, the traditional work that the company had worked through on the operational side. When you talk about AI and data-led revenues, can you kind of double-click there as far as the underlying pieces?
Sure. When you look at that 53%, what's embedded in that 53%? The biggest piece in there is our prior data analytics business. If you take the data analytics segment that we had previously and put it into that bucket, that's a big chunk of that. If you looked at the 53% of revenue that we had in 2024 in data and AI, 42% of that was our data analytics business. The other 11% there is two buckets. One is us doing AI, embedding AI in client workflows overall. We include the revenue from that workflow that has AI embedded in that workflow into that 11% overall. Then it's also individual revenue from us selling AI solutions. That's not included in the workflow. We have separately sold a number of our AI solutions as a separate sale.
That's included in that bucket also. You have AI from integrated deals, and you also have AI from selling the solution separately to a client in that bucket.
OK, OK. Now, at your Investor event, you gave an updated medium-term view for the total company. As we think about kind of breaking that down between the AI and data-led versus the digital operations, just how do we think about those two offering growth profiles relative to that total company growth?
Yeah, so when you take a look at our data and AI growth of that business, right now it's 53% of our business. We do believe that that should be growing on an annual basis higher than 53%. That should be elevated, which would mean it grows faster than the rest of our business overall. What's going to drive that at the end of the day? There are two things that are going to drive that going forward. One is new opportunities, whether it's from existing clients or brand new client opportunities whereby we embed data or AI or both into that solution or that workflow at the end of the day. It is also going to be driven by us taking a process that we have in our operations piece of our business and embedding AI into that business. It's part of our process internally.
At times, we do cannibalize ourselves. We do go into that piece of the business and embed AI. That becomes part of the data and AI bucket overall. You have a little bit of both. You have new opportunities that will drive data and AI. You will also have conversions from the operations piece into data and AI.
OK, as those engagements just get more efficient, they move to that side. So a slower growing piece in digital operations.
Correct, but it should still have a healthy growth rate overall as we close.
That grew, I mean, if we pulled out what digital solutions from last year, that still grew, I think it was high single digits.
Correct, correct. It should still have a fairly reasonable growth rate overall because we still are closing deals in that piece of the business.
OK, OK. Now the digital solutions, the AI and digital solutions piece, can you talk about some of the bigger components, the specific solutions in there that are seeing the highest demand?
Yeah, so when you look at our digital solutions or AI solutions that we've built, there's a number of them. There's kind of like two buckets when you take a look at it. One is more mature solutions that we've been working on for the last three or four years that have higher revenue numbers and also higher margins because we've sold it to multiple clients. We've been at it for multiple years. That would be solutions like Paymentor. It would be solutions like XTRAKTO, which is our AI extraction tool. EXELIA is another, our voice recognition AI tool. Those solutions have been in the market for many years and have higher revenues. Then you have newer solutions, stuff that we've been working on over the past 12 months, 12 to 18 months. Those will include our Code Harbor solution.
It will include the seven LLMs that we've built. It's starting to include our AI agentic agents that we're starting to build. We have 16 of them now in production. You have kind of two buckets that are there. You have mature solutions that have higher revenue, higher margin. Then you have the newer stuff that is just coming to bear that should start to drive revenue over the coming years.
OK, and just to be clear on the component that has higher margin, that's higher margin than company average?
In general, correct.
In general, yeah, OK, OK. I guess the contracting of these solutions. So you're able to obviously identify revenue streams from them and profitability. What is the terms and conditions and the kind of the contract structures around these solutions?
In these solutions, there's multiple different types of contracting solutions. If we embed our AI solution into a large integrated deal, it becomes part of the overall price to the client. Now, internally, we do price those solutions. We'll price the digital portion at the margin that we believe that it should be at. Then we'll price the people portion of it at the margin that we believe should be priced at. Then you get a mix that goes to the client, a blend for us. If we're selling the solution separately, then we really push to have it on a transaction or outcome base overall. We do believe that as the client uses the solution more and benefits more, we should participate in that benefit. We use payment integrity as kind of our model because payment integrity is completely outcome-based.
It is at scale. It has one of the highest gross margins out of all of our product solutions within the company. It is a very good kind of example for us to use for all of these AI solutions that we're building.
OK, OK. What's kind of been the level of investment for the company across these solutions? Have you scaled that or any more recent investment levels that you're scaling?
That's going to be important for us going forward. As we get more into digital and technology, we have to make more investment into R&D. We started that process back in 2020. If you look at the level of investment in R&D over the last four years, it's gone up almost four times what it was in 2020. If you looked at the investment piece in 2024 versus 2020, it's gone up almost four times. That's going to be really important for us going forward for us to stay ahead of the curve in this AI intense month-by-month change environment that we're in. That's also going to require us to have higher gross margins going forward. We will need to drive price and drive gross margin to be able to fund investment overall.
The net of all that will be an uptick in margins overall for the overall company.
OK, OK. Maybe we'll talk about the impact of GenAI. There's certainly different views about the risks. You mentioned cannibalization earlier that you're proactively doing some of that. There's certainly a view on Wall Street that certain services areas ultimately are going to have challenges to get through all this. What's your view on that generally as it relates to the services kind of existential threat?
We generally believe in each one of these technology evolutions, it has always been a tailwind to us versus a headwind because we're able to take that new technology evolution and be able to embed it into client workflows to make our client workflows more efficient. What ends up happening in most cases is we end up doing more with our clients. We had a chart that we used at Investor Day to show how much we have grown existing clients in terms of how many clients have really grown over time over the last four years. It's because what ends up happening is we end up transforming a client operation through technology. It could be GenAI. The client benefits. At the end of that term, we end up renewing with the client. We end up getting more with the client.
That's what's helping us really drive revenue per client overall. Each one of those buckets, whether it's the total number of clients over $50 million, total clients over $25 million, each one of those buckets have materially grown because we get into a client operations. Then we're able to land and expand. That technology evolution is really helping us do that.
You've got a TAM expansion effectively in excess of whatever incremental productivity may be landing because of this new technology.
Correct, correct.
Just on that productivity change, is there any scaling you can share as far as what incremental productivity you're getting or productivity commitments you're passing back through to clients?
That really varies between different processes of clients. It varies by client also. I would say it's a pretty wide range. It's hard to kind of range it, to be quite honest.
OK, OK. What are some of the areas that are in that TAM expansion bucket? What are new areas that you're leaning into as a result of the technology?
What it's really enabling us is to bring on additional workflows at existing clients. Being able to use that technology, if we're in insurance, we're able to take on more workflows for clients because they're seeing what we're doing with existing workflows. We end up getting more of their internal operation being outsourced to us and giving us the responsibility to transform it and to operate that for them. We're seeing technology. We're using the technology in many areas within health care. If you just look at payment integrity, that's becoming more and more AI-enabled now going forward. That's helping us expand in that area. If you look at what we do with the banks, so much more of what we do with the banks revolves around AI.
Part of that is us having to restructure their internal data so they are able to effectively use AI. It is also building AI solutions on top of that data. In each of the areas, we are able to use that technology, whether it is AI, GenAI, and right now, the newest technology is Agentic AI, to be able to gain more market share within the client.
OK, I'm going to pause here just to see if there's any questions in the audience. If not, I'll keep going.
Can you talk a little bit about your hiring intentions in 2025? What level of expansion are you expecting? Can you also break out maybe the international mix versus domestic? Any sort of color that would be helpful.
Sure. As we continue to build out our data and AI piece of our business, that should slow the amount of headcount growth in the overall business as we become more digitally enabled within our client workflows. If you look at the first quarter, as an example, our revenue growth was 15% on a year-over-year basis. Employee headcount only grew 9.6% organically on a year-over-year basis. That trend should start to continue now going forward because you should see headcount growth be slower than overall revenue growth because we're doing more and more with data and AI, particularly AI with our clients now going forward. The need for headcount becomes slightly less than what we traditionally needed to grow revenue. You will see that going forward. Also, on the hiring front, you will see us need more technical expertise.
It's going to be more expertise within data management, particularly data management engineers that work with AI databases or AI solutions going forward. You'll need more technology people because many of the discussions we get to in these large integrated deals now involve the CIO or the CTO organizations of our clients now. The large integrated deal selling process is becoming differently in that it's becoming a bit more technology-related now going forward. For us, what's going to be critical for us is hiring and data management in our overall technology infrastructure and in digital overall to really maintain our momentum in growing the AI solution base of our business.
Does that change where you have to source down from? Does that mean it brings you closer to clients in some cases? Anything onshore that will be different?
There may be cases where we need to hire a bit more onshore in some cases. I would say a majority still of our hiring will be overseas, particularly in Europe, India, South Africa, and the Philippines where we have all our large centers.
OK, OK. Health care, you guys obviously have a big business there. There are, in the U.S., questions about what may come from policy. Can you just talk about your health care exposure, any areas within government programs or things like that where you could have risk, or is it insulated more with private players?
When you look at our health care business, our health care business, really the majority of the revenue is driven by four large payers. You can name the payers. You know who they are. More than 50% of our revenue comes from payment integrity in health care. That is us going through the payers' claims and finding the incorrect payments through our AI-developed tools and handing those back to the client. They get a refund from the providers. We get a percentage cut of that. Completely outcome-based. There is a big incentive for payers to give us more of their claims because we are finding so much. Because we have a wide variety of claims that come in from all the different payers, we have been able to really build a robust AI model to be able to go through all those claims.
That's fairly insulated. Actually, we want more business from the payers because, A, they benefit. And we benefit at the end of the day. The next piece of that business is the historical health care operations business that we've had in the past. That's a business that's ranged between $85 million-$90 million in total revenue overall. You saw that grow pretty significantly in the first quarter because we brought on two significant deals that came on board in the first quarter, which actually, between that and payment integrity, really led the growth of 26% on a quarter-over-quarter basis for health care. The last piece is really a small data analytics business that we have within health care. When you look at those three pieces, we're fairly insulated overall in that health care model, particularly because more than half the business is payment integrity.
OK, OK. Very good. Final question for you. We'll do capital allocation. As you look forward here in 2025 and into 2026, talk about the prioritization of capital allocation, certainly repo versus M&A versus any debt pay down.
Sure. Traditionally, when we look to allocate capital, it's really in three buckets. It's debt reduction. It's share repurchase, M&A. We have a fairly low amount of debt on our books. It's only about $300 million in debt that we have on our books. And our adjusted EBITDA will be somewhere around $450 million this year. And we have a healthy cash balance above $300 million. So the amount of capital debt reductions is going to be very minimal. And then you're allocating between share repurchase and M&A. I would say M&A is probably going to be a bit more of a focus for us, particularly in small to medium-sized tuck-in acquisitions, really centered around data management and AI opportunities to augment what we have today. And then really the balance will be in share repurchase. We've been active at buying back shares for many years now.
Particularly last year, we bought almost $200 million worth of our stock last year at a very attractive $30 price. We will be active again this year in that area. It is really going to be predominantly a mix between share repurchase.