Exlservice - Earnings Call - Q3 2021

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to Q3 twenty twenty one EXL Service Holdings, Inc. Earnings Conference Call. I would now like to turn the conference over to your host, Mr. Stephen Barlow. Please go ahead, sir.

Speaker 1

Thank you, Grace. Good morning, and thanks to everyone for joining EXL's third quarter twenty twenty one financial results conference call. I'm Steve Barlow, EXL's Vice President of Investor Relations. With me today in our offices in New York are Rohit Kabur, our Vice Chairman

Speaker 2

and Chief

Speaker 1

Executive Officer Maurizio Nicolelli, our Chief Financial Officer. We hope you've had an opportunity to review our Q3 twenty twenty one earnings release we issued this morning as well as the press release announcing a new $300,000,000 share repurchase authorization. We have also updated our investor fact sheet in the Investor Relations section of EXL's website. As you know, some of the matters we'll discuss in this call are forward looking. Please keep in mind that these forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially those expressed or implied by such statements.

Such risks and uncertainties include, but are not limited to, general economic conditions, those factors set forth in

Speaker 3

today's press release, discussed in

Speaker 1

the company's periodic reports and other documents filed with the Securities and Exchange Commission from time to time. EFill assumes no obligation to update the information presented on this conference call. During our call today, we may reference certain non GAAP financial measures, which we believe provide useful information for investors. Reconciliation of these measures to GAAP can be found in our press release as well as on the investor fact sheet. I'll now turn the call over to Rohit Kapoor, EXL's Chief Executive Officer.

Rohit?

Speaker 3

Thank you, Steve. Good morning, everyone. Welcome to our third quarter twenty twenty one earnings call. I hope you and your families are safe and healthy. I'm delighted to report another outstanding quarter.

EXL achieved better than expected results in the third quarter on revenue and adjusted EPS. Our Q3 revenue was $290,300,000 which represents a 5.8% sequential increase and a 20.1% year over year increase, both on a constant currency basis. Adjusted EPS for the quarter was $1.3 per share. Our Analytics business reported revenue of $120,500,000 growing 8.3% sequentially and 32.7% year over year. Consistent with the first half of the year, demand for analytics has increased significantly in the post pandemic environment.

We foresee continued healthy growth in analytics driven by consistent demand for our expertise in data driven solutions. Our Operations Management business also achieved growth this quarter, generating $169,900,000 in revenue, which is up 4.1% quarter over quarter and 12.6% year over year, driven primarily by higher revenues from our suite of Insurance Solutions and new wins in our Emerging business. Our revenue growth this quarter has been broad based. We have continued to win across all industry verticals with analytics and digital being our core differentiators. We see this trend continuing with a strong pipeline of large deals and surging demand for our digital solutions and analytics capabilities.

We feel confident that we will maintain our strong position in the market by continuing to secure strategic wins. To illustrate what we are seeing in the market, I would like to share some insights on a few of our recent engagements that showcase our unique strengths. Starting with our Analytics business. Point of sale financing through buy now, pay later solutions have become a rapidly growing segment in the banking and retail industries. The popularity of the format is due to how seamless and easy it is from the customer perspective.

Real time credit approvals at the point of purchase allows for a much smoother customer experience. This creates significant value for the customer, the bank or lending institution and the merchant. On the merchant side, by integrating our financing solution directly into the purchase journey, we are able to drive higher conversions and higher order value. On the financing side, we are enabling banks to expand their share of wallet with existing customers, attract new customers and create an efficient merchant services workflow. We've developed and implemented a buy now, pay later solution for First National Bank of Omaha, the largest privately held bank subsidiary in The United States.

It is unique for two reasons. First, it allows merchants to provide information about a customer in real time, enabling an instantaneous credit decision with comprehensive credit analytics, pre approvals, fraud prevention, know your customer support bridge directly into the process. Second, it is highly scalable. Working together with our partners, the solution was developed as an in the box capability that can be deployed rapidly across merchants. In the case of First National Bank of Omaha, we built and launched the solution in a live retail environment in just four months.

Given our deep client base in retail banking, we see good traction for this solution going forward. Similarly, our innovative digital solutions built on our proprietary AIOS architecture are helping clients reimagine traditional business functions. EXL partnered with a leading Australian insurer to proactively identify claims payment leakages and prevent regulatory breaches. Our AI powered smart audit solution has helped the insurer automate 100% of the claims reviews, which has streamlined workflows and improved the accuracy of claims processing. Additionally, our powerful algorithms are now tracking data across the claims life cycle to identify over 10x more leakage than previous benchmarks.

The Smart Audit solution is highly scalable. By making simple changes to our algorithms, we have been able to pivot the solution to also address audit and compliance issues within other industries. This expands our addressable market. For example, a major health care payer is using the solution to improve accuracy and compliance across 200 different outbound member communications in multiple languages. Additionally, a leading manufacturer of electrical components leveraged Smart Audit to identify 20% leakages within their vendor payments.

We are also seeing strong demand for our payment integrity solutions. This is evident in our recent contract win with a top 10 national health plan. The engagement initially focuses on complex hospital audit services and deploys several components of our payment integrity solutions. With a strong alignment to our growth strategy, this multiyear win represents a significant step forward for our Payment Services business. The common theme across all these examples is the extensive use of data, analytics, AI and cloud.

As our clients' needs have grown and evolved, we've doubled down on our analytics and digital focus to create solutions that address their biggest challenges, unlock opportunities for growth and drive efficiency. This trajectory has been central to our growth. In order to better communicate our focus on analytics and digital solutions, we launched our bold new brand platform in September. Anchored in the client value proposition, we make sense of data to drive your business forward, the new brand more accurately reflects the critical role we play in our clients' strategic growth agendas. It also emphasizes the critical role data plays in driving better decision making and more intelligent operations, enabling companies to predict trends, deliver hyper personalized customer experiences and streamline workflows.

With greater volumes of data and more focus on delivering real time insights and solutions, making sense of data has become the most important baseline capability for businesses today. This is a noteworthy evolution of our business and positions us well in the marketplace. To realize our brand promise, we are making significant investments in advanced analytics, AI based content extraction, conversational AI and cloud based operations analytics. As we look to the future, we will continue to keep the health and safety of our employees and their families as our top priority. We have conducted vaccination drives for our employees across our geographies and have seen progress over the last quarter.

Currently, seventy percent of our employees globally have received at least one dose of the vaccine. As vaccines become more readily available in geographies such as The Philippines and South Africa, we will continue to push ahead for greater vaccination rates amongst our workforce and enable a safer work environment. We have also built a future of work operating model, which focuses on maintaining a distributed workforce to maximize our resilience and deliver an optimal working environment for our employees. As we've seen over the past several months, the flexibility of a hybrid work from home model has been great for our employees and clients alike. As we have continued to grow and evolve as a company, we have made a very conscious effort to cultivate a strong bench of leaders who will help drive our business forward.

I'm pleased to share that we have elevated two of our senior leaders to our Executive Committee. Ankur Rai, our Chief Digital Officer and Narsimha Kinney, Leader of our Emerging Business, are both now part of the Leadership Executive Committee. Amkur joined EXL in 2006 as part of our acquisition of Inductus and was Co Head of Analytics for several years. Kitty is a twenty one year veteran of EXL and has held numerous leadership roles since joining in 02/2001. I am confident that Ankur and Kitty will play pivotal roles in achieving the promise of our new brand and meeting our growth aspirations.

Going forward, our pipeline remains strong, and our capabilities in the analytics and digital space are resonating well in the market. Similarly, within Operations Management, we continue to see a healthy pipeline of large deals with digital transformation agendas as more of our clients make strategic pivots to becoming truly digital. In conclusion, 2021 is shaping up to be a great year for EXL. We have been able to grow our business across our verticals and form stronger partnerships with our clients. We have created unique solutions using data and analytics, AI and the cloud that solve their most pressing problems.

I am confident in the resilience of our business model and extremely proud of the commitment and ingenuity of our people to support one another and our clients in a fast changing and complex business environment. I will now invite Mauricio to highlight our Q3 financial performance and 2021 guidance.

Speaker 4

Thank you, Rohit, and thanks, everyone, for joining us this morning. I will provide insights into our financial performance for the third quarter of twenty twenty one, followed by our updated outlook for 2021. As Rohit mentioned, we had an outstanding quarter with revenue of 290,300,000.0 up 20.5% year over year, while adjusted earnings per share was $1.3 All revenue growth numbers mentioned hereafter are on a constant currency basis. Revenue from our Operations Management business, as defined by three reportable segments, excluding Analytics, was $169,900,000 up 12.6% year over year. Sequentially from the second quarter, revenue was up 4.1.

Our Insurance segment generated revenue of $98,000,000 up 11.3% year over year, driven by expansion in existing client relationships and higher volumes. Compared to the second quarter of twenty twenty one, revenue was up 3.9%. The insurance vertical consisting of insurance operations management and analytics businesses grew 17% year over year. Healthcare reported revenue of $27,300,000 up 8.9% year over year, driven by new clients signed in 2020, offset by lower volumes in Clinical Services due to a transitioning client. The Healthcare vertical, consisting of Healthcare Operations Management and Analytics businesses grew 12.9% year over year.

Emerging reported revenue of $44,500,000 up 18.2% year over year. This growth was driven by new client wins in 2021 and expansion in existing client relationships in banking and financial services, travel and transportation and utilities. Sequentially, emerging revenue grew 9.7%. The emerging vertical consisting of emerging operations management and analytics businesses grew 30.7% year over year. Analytics revenue totaled $120,500,000 up 32.7% year over year.

Analytics was 41.5% of total revenue in the 2021 compared to 37.5% in the third quarter of twenty twenty. This growth was driven by higher volumes across all industry verticals with expansion in existing client relationships, particularly in banking and financial services and new wins in 2021 as clients embrace our data led advanced analytics, AI and cloud solutions. Compared to the second quarter of twenty twenty one, revenue was up 8.3. Moving down the income statement, our SG and A expenses were 19.9% of total revenue, up two forty basis points year over year driven by investments in front end sales, marketing, capability development, higher compensation and COVID related expenses for health and safety of our employees. Our adjusted operating margin for the quarter was 19.4%, up 20 basis points year over year, driven by operating leverage from higher revenue and partially offset by higher SG and A expenses.

Our adjusted operating margin was up 150 basis points from the second quarter of twenty twenty one. Our adjusted EPS for the quarter was $1.3 up 25% year over year on a reported basis. Now moving to our nine month performance. Our revenue was $826,800,000 up 15.7 year over year. This growth was broad based across all our segments with Operations Management up 9.9% and Analytics up 25.5%.

Our year to date adjusted operating margin is 19.2%, an increase of four sixty basis points over the prior year. Adjusted EPS for the first nine months of 2021 is $3.62 up 51.5% year over year on a reported basis. In the first three quarters of the year, we generated cash flow from operations of 113,800,000 compared to $126,300,000 in the same period last year, driven by higher receivables and incremental income and withholding tax payments. EXL's balance sheet continues to remain strong with a focus on liquidity, flexibility and strong cash flow from operations. Our cash and short term investments at September 30 was $284,000,000 while our bank debt was $185,000,000 for a net cash position of $99,000,000 During the third quarter, we settled our 3.5 convertible senior notes with an aggregate value of $150,000,000 due in 2024 for $200,000,000 in cash and approximately 310,000 shares of common stock.

We are generating significant cash flow to invest in new digital and cloud solutions and have sufficient capital for acquisitions and our share repurchase program. During the first three quarters of twenty twenty one, we repurchased 845,000 shares at an average price of $99 per share, totaling $3,600,000 In addition, today we announced a new repurchase authorization for $300,000,000 effective 01/01/2022. Now turning to guidance. We have increased both our top and bottom line guidance for 2021 based on our strong year to date performance and visibility into the fourth quarter. Our guidance is based on our current flexible work model with more than 90% of our employees working remotely for the remainder of the year.

We are increasing our revenue guidance for 2021 to be in the range of 1,110,000,000.00 to 1,120,000,000.00 up $25,000,000 at the midpoint. This represents a year over year growth rate of 16% to 17% on a reported basis and 15% to 16% on a constant currency basis. In 2021, we expect Analytics to grow in the mid-twenty percent range and Operations Management to grow approximately 10%. For the fourth quarter, we expect the revenue to be comparable to Q3 due to lower volumes in Ops Management, including Healthcare, as mentioned earlier. We expect our adjusted EPS to be in the range of 4.7 to $4.8 up 33% to 36% driven by increased revenue in 2021.

Adjusted EPS is expected to decline in Q4 from Q3 due to advanced hiring for future growth, higher sales and marketing expenses, increased investments in technology and higher compensation in select areas. We expect a foreign exchange gain between 3,000,000 and $4,000,000 net interest expense of $500,000 to $1,000,000 and our effective tax rate to be in the range of 23% to 24. In terms of capital allocation, we continue to invest in analytics, AI, digital solutions and technology. We expect capital expenditures to be in the range of 35,000,000 to $40,000,000 In conclusion, the first three quarters have been strong with a double digit revenue growth of 16.5% and adjusted EPS increasing by 51% over 2020. Our success is attributable to strong demand for our services, outstanding delivery despite challenges faced by the pandemic and a keen focus on fixed and variable costs, which has driven margins higher.

We expect a strong finish to the year. And looking at 2022, we have solid revenue momentum across all our business segments, and we expect much of our margin gains to be sustainable with a hybrid working model. Now Rohit and I will be happy to take your questions.

Speaker 0

Your first question comes from the line of Maggie Nolan from William Blair. Your line is open.

Speaker 5

Hi, thank you. Congrats on the results. I wanted to ask a little bit more about the Healthcare segment within Ops Management. Could you go into maybe what your expectations are for kind of the medium term performance of that segment?

Speaker 3

Yes. Thanks, Maggie. There's nothing unusual going on in the Healthcare segment. From time to time, we do have a transition of a client that might take place where they might be insourcing of work. So we have particular situation out there.

But the Healthcare business in Ops Management is fundamentally sound. It is growing very nicely. We are seeing strong traction amongst the payers, but also amongst the providers where we've started to now serve the provider group in a fairly active way. And the other part is as health care embraces data driven solutions, digital interventions and adopts a much more end to end comprehensive digital transformation of their operating business model, we think we will be able to serve clients in that industry model really, really well. Keep in mind that the health care industry is a little bit behind in terms of the adoption of new technologies as compared to some of the other industry verticals.

And therefore, the headroom for us to be able to continue to serve clients in that vertical are huge. The industry itself is very large. And therefore and of course, it is pretty much recession proof. So it's something which we think is a large market space where our capabilities and our solutions can be really helpful, and we are excited about the potential for us to serve and grow clients in that vertical.

Speaker 5

Okay. And then thinking about the margin profile of the company, obviously, you've seen some structural pickup in the margins. Do you think you can kind of continue to operate at above that at or above that kind of 38% gross margin? And if you do, is even like a 17% adjusted operating margin an easy target or kind of a low target at this point?

Speaker 4

Thanks, Maggie, for the question. When we look at margins, look, when we went through Investor Day back in November, we talked about building margins to between 1617% in 2022. This year, we have done very well with margins in this remote hybrid model that we're all working in. But we have made some significant improvement that is permanent really going forward. If you look at our headcount growth over the last twelve months, it is lower on a year over year basis than our revenue growth pretty significantly.

And that's us just becoming much more efficient. So there is embedded benefit in our margins going forward. So with that guidance that we gave back in at Investor Day, we're trending towards the higher end of that guidance really going forward.

Speaker 5

Makes sense. Thank you.

Speaker 0

Next, we have Bryan Bergin from Cowen.

Speaker 4

Murci, I just wanted

Speaker 3

to follow-up on that and

Speaker 2

that gross margin question. So you did say there are some lasting changes here. I mean it seems like you've got good tailwind for this to continue easily into the early part of next year. Is there any reason you're going to have significant travel costs coming back in the short term? Just trying to frame because it seems like you could outperform even the high end of this 17% right now.

Speaker 4

Brian. So when you think about some of the costs going back into our P and L, we'll start to travel a little bit more, most likely in 2020 We all think that it won't be at the level that we were pre pandemic. But we will have some additional costs coming in from the return from office in this new environment that we work in. We'll still have a portion of our employees working from home, but we will start to go back to the office in 2022. And we're also going to start hiring also to really drive growth in 2022 and 2023.

Having said all of that, right now, we've given guidance from Investor Day going forward, and we're trending towards the higher end of that of those margins going forward. And we'll update that in February of most likely, we'll update it in February 2022 really for the upcoming calendar year. But right now, you are correct in that there's very solid momentum on margins, and we are trending towards the higher end of that guidance and also above that.

Speaker 2

Okay. I appreciate that. And then just on the emerging segments within Ops Management. Can you dig in a bit more there? Is that a travel recovery?

Or is it more broad based across all the varying sub segments within that? And can you just comment, is that expansions of existing clients? Or is it also new logo additions there?

Speaker 3

Sure, Brian. So our Emerging segment has actually seen broad based growth across industry verticals. The Travel segment for us is a very small portion of our revenue within the Emerging business, and that has certainly increased, but it has very little impact because the size is much smaller. What we are seeing is a tremendous amount of improvement in verticals like banking and financial services, in transportation and logistics. And travel certainly has improved and across utilities as well.

In terms of existing clients' expansion and new clients, we're really, really pleased with our existing clients expanding their scope of work with us. But at the same time, we're signing up a number of new clients in the Emerging business. So frankly, it's a very healthy broad based growth that we are seeing in the emerging business, and that provides us great confidence as we step into 2022.

Speaker 2

Thank you.

Speaker 0

Thank you. Next up, we have Dave Koning from Baird. Your line is open, sir.

Speaker 6

Yes. Hey, guys. Thanks. Great job. I guess, first of all, just when I look at Q4 sequential guidance, kind of flattish, kind of up I think up 5,000,000 to down $5,000,000 sequentially, give or take.

Normally, that's up a lot sequentially. Did you kind of talked a little bit. Was there something a little inflated in Q3 that falls off a bit in Q4?

Speaker 3

Dave, thanks for your comments. As Maritza kind of shared in his prepared remarks, we expect Q4 to be flattish to Q3 because of the client that we spoke about in the Healthcare segment. And so that's something which is something which we are anticipating. But there's nothing unusual in Q3 in terms of our revenues. We think we've got strong growth momentum both in Operations Management and in Analytics, and that likely continues going forward.

However, because of this client transition that is taking place, there will be an offset, and that's what we are factoring in our guidance.

Speaker 6

Got you. Okay. That's helpful. And then in the Analytics segment, I mean, talked kind of about how some of

Speaker 1

this

Speaker 6

post pandemic work or it's just coming on. And I mean, you're growing way faster than normal. Is like is there some is there any nonrecurring business in there? Or is this really something that it's just at a higher level? And can it continue to grow at this kind of elevated pace?

Or does it come back to mid teens?

Speaker 3

Sure. So you're absolutely right. The focus on data, the focus on data analytics has certainly shifted into high gear with the pandemic, and the demand environment has become very, very rich and very, very attractive for us. And I think our capability sets are really resonating very well in the marketplace. We don't think that the emphasis on data is going to drop down.

We think it's going to continue to be there. We know that data ends up being the differentiator between success and mediocrity. And we think our clients are going to continue to embrace data led strategies going forward, and we should be in a great position to be able to help them as we step forward. At the same time, you also know that our Analytics business always has about onethree of its business, which is project based. Twothree of our Analytics business is annuity based, and therefore, those revenue streams continue to develop nicely, but we always will carry about onethree of that business, which is project based.

That project based revenue is subject to discretionary decisions on the behalf of our clients, and therefore, there will always be some level of volatility associated with that. But we feel confident about the growth of the Analytics business, which we shared in our Investor Day in November 2020. As Mauricio said, that is something which we are very confident about.

Speaker 6

Got you. Yes, seems like it's a great job. Thank you.

Speaker 0

Thank you. Next up we have Vincent Colicchio from Barrington Research. Your line is open.

Speaker 7

Rohit. I'm curious, has wage inflation gotten significantly worse since last quarter? And I think last quarter you talked about using some equity to retain people. I'm curious if you're doing any of that.

Speaker 3

Yes, Vincent. Certainly, wage inflation is a risk out there that we need to manage and to be able to navigate. What we are seeing is that wage inflation is particularly strong in a few areas of our business, but not across the entire business altogether. So in areas around data analytics and digital, certainly, there is higher level of wage inflation, and we are trying to manage that. As we discussed last quarter, our focus really is to be able to retain and grow our top talent, And we do that through a combination of providing them with a very rich environment where they can learn, grow their professional capabilities, be able to advance their careers and manage a greater and a bigger piece of business, get the right compensation and then as you get more senior in the organization, be able to participate more actively in the equity component, which is a strong retention tool for us.

And as our stock continues to remain buoyant, that's something which does provide a huge return to value to our employees. So I think it's really a continuation of our strategy of focusing in on those areas where we need to be competitive from a compensation perspective and making sure that we provide a holistic experience for our employees that is focusing on the work environment, the work itself, compensation, benefits and the team that is there. So that's something that seems to be playing out nicely.

Speaker 7

And Mauricio, could you give us remind us what you've done on the real estate footprint and if that's a significant opportunity going forward in terms of production?

Speaker 4

Thanks, Vince, for the question. On the real estate side, we have started to review we have been reviewing, I should say, all of our real estate footprint around the world. We've started to become more efficient on real estate in the last twelve months, and we have plans to optimize real estate going forward in the in our 2022 budget. We'll continue to look at real estate. It is an opportunity for us going forward.

We're starting to get finalization just on our work from home or hybrid model for the future working environment going forward. But it does remain a potential opportunity going forward. But again, we will start to incur costs going forward as we start to open up offices. So that will be a little bit of an offset for us to take a little bit of benefit in 2022. But you're correct, we continue to look at real estate in areas that we can optimize, and we'll do so over the next twelve to twenty four months as leases come up.

Speaker 7

Thank you for answering my questions.

Speaker 0

Thank you. Your next question comes from the line of Puneet Jain from JPMorgan. Your line is open.

Speaker 8

Thanks for taking my question and good quarter. Rohit, can you talk about supply environment for analytics? EXL has always had premium talent in that practice, but as demand in data and digital picks up and your needs also increase in analytics, are you able to hire enough people to service demand? Or do you are you also resorting to training internally to service analytics demand?

Speaker 3

Thanks, Puneet. So for our analytics business, investing in talent has been a strategy that we have been investing in for at least the last decade. And we have a two part strategy in terms of managing the talent in Analytics. One is we have a very strong campus recruitment program where we hire from the premier engineering and management institutes in India, in The U. S, And these programs are now sufficiently mature, well developed where our brand as well as name recognition are right on the top.

So we are able to attract sufficient volume of people as well as the right quality of talent from these programs. The second part of our talent development program is really about grooming talent internally within EXL and providing them the inputs necessary to take on more complex work and more advanced analytics capabilities. That program continues to run very well, and it's a combination both of training input that we provide as well as use case experience, which our employees get when they work on client engagements. Again, given the size and scale of our team in Analytics, that is something which we believe we have one of the strongest capabilities of developing internal talent, and therefore, that continues to work very well. So the supply side of talent for data analytics is definitely a challenge.

But at this point of time, we are able to attract, retain and develop adequate numbers of people to be able to support that business. So we feel good about where we are from a talent perspective.

Speaker 8

Got you. And the healthcare client, you talked about, can you size the impact you expect? Will all of that hit in Q4? Or could there be subsequent impact in next year as well on sequential basis? And also, I know you talked mentioned that it happens it's not unusual for clients to in source.

But was there any specific reason that they chose to go that path this time?

Speaker 3

No, Puneet. There's nothing there that's like we discussed that sometimes clients will shift work from a partner to their captive operation, and that's what's happening here. It's not significant for us to be able to call out really separately and provide detail on the quantitative aspect of it. It's something which we'll just settle down, and we don't really expect anything further to go beyond 2021 as far as that transition is concerned.

Speaker 8

Thank you.

Speaker 0

Thank you. Next up, we have David Grossman from Stifel. Your line is open, sir.

Speaker 9

Thank you. Good morning. I guess the the first thing I just wanted to to ask is about the bookings. I know you don't disclose bookings or, quantify them, but perhaps you could provide some qualitative color on net new bookings year to date on a year over year basis or even comment on the backlog and how that's been trending as well.

Speaker 3

Sure, David. So look, I think the demand pipeline for us is very, very strong, and it's strong both in Operations Management and in Analytics. Looking at the numbers, the Operations Management pipeline has gone up very meaningfully. So it's gone up close to about 50% over the last two years or so. The Analytics pipeline has actually more than doubled in terms of size.

So that's something which is very, very strong as well. I think the other part that seems to be happening is that the sales cycle is shortening, and that's something which is helpful for us to be able to grow our business much more rapidly. And the deal sizes are medium to large sized deals. So that's again very chunky and very significant. From a bookings perspective, we don't really share any data pertaining to the bookings.

So it's difficult to kind of talk about it, particularly when it comes to transaction based pricing and outcome based pricing. All of these are, of course, driven off delivering the output to the customer. So it's very difficult to measure that or to provide any kind of color on that. The other part is the pipeline is strong across all the verticals. So across insurance, health care, emerging, analytics, it's very broad based, it's strong across.

So we're very pleased with the quality of the pipeline as well.

Speaker 9

Thanks, Steve. Just the follow-up question is really and I think I'm probably going to ask a question that was asked earlier, but in a slightly different way, and it's about the margins. I'm just curious whether how you view the structural impact of the hybrid work model. This industry historically is pretty quickly priced in efficiencies that get passed through. And I'm just wondering how you feel about the hybrid work model and the benefits and how enduring, if you will, those benefits may be?

Speaker 4

Yes. So when we look at the benefits from the hybrid work model, I think we think of it a little bit as there's benefits, but there's also related costs to it. When you look at the benefits, obviously, if you've got a significant portion of your workforce working from home, you're going to be able to optimize a number of different costs going forward. And we've talked about that, meaning you can optimize to a certain extent real estate, you can optimize some of your transportation costs and a few other kind of costs that are more office related. But on the flip side, we are spending a good amount of money on technology costs to really protect to create that work from home environment that's well protected in terms of data security and just overall ensuring that, that work environment is very similar in terms of security to being in the office.

So when you look at the benefit versus the cost really going forward, there's a little bit of trade off there that we're factoring in really going forward. And we have been investing in technology, and we'll continue to do so going into 2022. So that's a bit of an offset to those benefits from the new environment that we're working

Speaker 3

Yes. Dave, I'll just add a little bit to what Mauricio just said. When you think about margins from our perspective, there are three broad categories where we would see a significant movement on margins. One is operational efficiency. On operational efficiency, we had signaled a couple of years back that, that is something that we would tighten up and we would start to manage our business in a much more disciplined manner.

And that is something that we have consciously and deliberately done, and that is something which we believe will be sustainable going forward. The second is really pertaining to COVID and work from home. That, like Borjeo articulated, there are puts and takes to it, and that does shift around. There are some costs that will come back in 'twenty two, particularly around travel, around working from the office in a much more significant manner. And those costs will offset some of the other changes that are there.

And the third part is probably more fundamental, and that's the business mix. From a business mix perspective, as we continue to do more work around digital, more work around data analytics where we are delivering greater value to the customer, we think we should be able to improve our margins on the basis of the value that we are delivering to our customer. And that's probably a longer term secular trend that we would need to make sure that we can execute upon. But I hope that, that provides you with some perspective on the three broad buckets of margin contribution.

Speaker 9

No, it does. So just on that third point about mix, should we use the data analytics business as a proxy for that mix? Or is it really blended both through OM and analytics?

Speaker 3

Yes. So the Analytics business is certainly one part of the proxy, but most of the digital work that we are doing is all being embedded and infused into Operations Management. And as that business becomes a lot more outcome driven business as well as a digitally infused business, I think you're going to see changes take place in that margin structure.

Speaker 9

Got it. Great. Thank you very much.

Speaker 0

Thank you. That's our last question for today. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now all disconnect.