Exlservice Holdings Inc

NASDAQ:EXLS

Earnings Call Analysis

Upbeat Earnings and Raised Guidance Amid Investments

The company reported robust year-over-year growth with revenues climbing 14.4% to $170.8 million, driven by expansions in client relationships and new wins, despite a sequential decline due to a client bankruptcy. For the nine-month period, revenue surged by 17.6% to $1.217 billion on a constant currency basis. Substantial growth was witnessed in the Digital Operations & Solutions and Analytics segments, with Healthcare particularly strong at 28.6% growth year-over-year. Adjusted operating margin increased to 19.8%, and adjusted EPS rose 21.8% to $1.09. The balance sheet remains healthy, featuring generated cash flow of $132 million and a net cash position of $65 million. Buoyed by a solid year, 2023 revenue projections have been lifted to between $1.62 billion and $1.628 billion, a 15-16% increase, and adjusted EPS is expected to be $1.40 to $1.42, indicating 16-18% growth. SG&A expenses rose by 180 basis points to fund investments in sales, marketing, and AI, positioning the company for sustained double-digit growth and a promising outlook for 2024.

Robust Revenue Growth and Upbeat Guidance

The company continued its growth trajectory in the third quarter, achieving a revenue of $411 million, which marks an impressive 14% growth year-over-year, or 13% in constant currency terms. This is a testament to the company's sustainable growth strategy, as it projects confidence in maintaining double-digit growth rates for the foreseeable future. The company also raised its revenue and EPS guidance for 2023, signifying a strong third quarter performance and clear visibility for the remainder of the year.

Achievements in Large Integrated Deals

The company's success is evident in its burgeoning sales pipeline, which has grown over 20% year-over-year for six consecutive quarters. This is further highlighted by its securing of several deals exceeding $50 million in total contract value, including a few over $100 million, showcasing the value clients find in the company's comprehensive solutions.

Elevated Digital Operations & Solutions and Data Analytics Performance

The third quarter saw robust performance especially in the Insurance vertical within the Digital Operations & Solutions business, contributing to the 10th consecutive quarter of double-digit growth. The company's Data Analytics segment also performed well with $183 million revenue for the quarter, ascending by 10% year-over-year.

Investing in Innovative Technologies and Expanding Operations

Demonstrating its commitment to innovation, the company has invested in generative AI and is actively involved in over 200 client discussions about its use cases, signifying a strategic move to capture growth opportunities in both Data Analytics and Digital Operations & Solutions businesses. Furthermore, the company plans to bolster its global presence by investing in a new international operations headquarters in Dublin, aiming to hire up to 200 specialized technology positions over three years.

Strengthened Financial Position and Confidence in Continued Growth

The company’s balance sheet reflects strength, with net cash of $65 million and a robust cash flow from operations amounting to $132 million over the first nine months, signaling an improvement over the previous year's $101 million. Shareholder returns have been prioritized, evidenced by $93.5 million spent on share repurchases. Confident in the company's prospects, management anticipates revenue ranging from $1.62 billion to $1.628 billion for the full year, implying a 15-16% growth in constant currency, and an adjusted EPS between $1.40 to $1.42, representing a year-over-year growth of 16% to 18%.

Promising Segments Defining the Future Trajectory

Notable year-over-year growth was observed in segments like Emerging (14.7%), and Healthcare (28.6% within the combined Digital Operations & Solutions and Analytics businesses). These figures reflect the expansion of existing client relationships and new wins, demonstrating the company's diversified and resilient business model despite a client’s bankruptcy influencing a decrease in sequential revenue.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, everyone, and thank you for standing by. Welcome to the Third Quarter 2023 ExlService Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would like to now hand over the conference to your first speaker today, John Kristoff, Vice President of Investor Relations. John?

[John Kristoff, executive]

Thanks, Maria. Hello, and thank you for joining EXL's Third Quarter 2023 Financial Results Conference Call. On the call with me today are Rohit Kapoor, Vice Chairman and Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the third quarter earnings release we issued this morning. We have also posted an earnings release slide deck and investor fact sheet in the Investor Relations section of our website.

As a reminder, some of the matters we'll discuss this morning 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 from 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 today's press release, discussed in the company's periodic reports and other dockets filed with the SEC from time to time. EXL assumes no obligation to update the information presented on this call today.

During our call, 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, slide deck and investor fact sheet.

With that, I'll turn the call over to Rohit.

[Rohit Kapoor, executive]

Thanks, John. Good morning, everyone. Welcome to EXL's Third Quarter 2023 Earnings Call. I'm pleased to be with you this morning reporting another strong quarter. We continued our growth momentum in the third quarter, with total revenue of $411 million representing year-over-year growth of 14% on a reported basis and 13% in constant currency. We grew adjusted diluted EPS 21% to $0.37 per share.

Our data-led strategy and balanced portfolio of businesses, bolstered by our differentiated digital and AI capabilities position us well to consistently deliver superior growth in an unpredictable environment. We delivered Analytics revenue of $183 million for the quarter, up 10% year-over-year and a sequential increase from the second quarter. As anticipated, we experienced weaker demand and lower volumes in marketing analytics. Notwithstanding this headwind, we were able to achieve double-digit growth in our Analytics business. This growth was driven by strength in our payment integrity and data management service lines.

In our Digital Operations & Solutions business, we generated third quarter revenue of $228 million, growing 17% year-over-year and 2% sequentially. This represents the 10th consecutive quarter of double-digit growth, which demonstrates the value clients place on our data-led integrated solutions. Each of our 3 segments within Digital Operations & Solutions delivered double-digit year-over-year growth during the quarter, with particularly robust performance in Insurance.

The slowdown in the macroeconomic growth environment is driving our clients to increase their focus on cost efficiency and improve productivity. As they make this pivot towards a lower cost operating structure, they are also looking to transform their operations. With EXL's technological capabilities of data, digital and AI, combined with our domain expertise, we are able to create significant impact for our clients in an accelerated manner and with much greater certainty than they can achieve on their own.

This has led to a material increase in demand for integrated digital operations which plays to our strengths across both our Data Analytics and Digital Operations & Solutions businesses.

Our success pursuing large integrated deals is evident in our sales pipeline. For the past 6 quarters, we have averaged 20%-plus year-over-year pipeline growth. And both our win rates and average deal sizes have increased. Over the past 12 months, we have won several deals over $50 million in total contract value, including a few deals over $100 million of total contract value. This validates the value clients see in our end-to-end solutions and gives us confidence in our ability to generate sustained double-digit growth going forward.

Let me share an example of a recent win that illustrates size, scope and level of integration to unlock value for our clients. One of the top insurance companies in the United States chose EXL as their partner to operate and transform their claims operation as part of a large multiyear deal. We are the first point of contact for all claims, and responsible for moving the claim through the process. In addition to providing a multi-shore delivery model, we are transforming the operation through extensive use of analytics, digital and AI.

For example, we are implementing an automated digital quality assistant that provides real-time monitoring and dashboard reporting of all KPIs. Our solution also includes an AI-based coaching module, which provides guidance to individual advisers. We are also implementing EXL's smart data signals, which enables 100% real-time claim file review in a fully automated manner. This significantly improves claims outcomes by preventing leakage, improving customer sentiment and ensuring regulatory compliance.

This is just one high-level example of how we are combining all of our capabilities in analytics, data management, AI and domain expertise to maximize value for our clients.

We continue to receive growing interest from our clients regarding use cases and data structure required to support generative AI. This bolsters our confidence that generative AI provides tangible growth opportunities for both our Data Analytics and Digital Operations & Solutions businesses moving forward. We are currently in more than 200 conversations with clients regarding generative AI use cases, and we have dozens of specific projects active in the sales pipeline.

What is particularly encouraging is the diversity of use cases, which are leading us into new areas where we previously did not play. For example, many of our clients struggle with software core management and modernizing legacy codes to contemporary core languages to upscale their analytics infrastructure. This process often entails meticulous code management, translation and testing.

We recently developed a new gen AI-based solution for code conversion, leveraging our domain expertise. Our solution automates the transformation of legacy core to contemporary languages and features a robust debugging capability to ensure accuracy and efficiency. This significantly speeds this translation, while reducing the potential for errors.

We are currently working with a leading global bank on a proof of concept to migrate close to 1 million lines of legacy SaaS code to Python. It will typically take many months to accomplish this. But with our solution, it can be accomplished in a few weeks, allowing our clients to focus on retiring their technical debt. This is an example of how generative AI is helping us penetrate new buying centers as we now have several more customers interested in this solution.

As planned, we have increased our investments in generative AI in the third quarter and will accelerate these investments further in the fourth quarter. This includes developing solutions, training and hiring specialists, and further strengthening our generative AI center of excellence where we currently have active gen AI engagements across all our key industry verticals. We believe these investments will position us well to capitalize on the strong pipeline of gen AI opportunities.

We also recently announced plans to invest in a new international operations headquarters in Dublin, Ireland. As part of the new center, we plan to hire up to 200 AI, data engineering and other specialized technology positions over the next 3 years. This builds upon our existing staff of more than 8,000 data scientists globally who are developing AI, cloud enablement and data integration technologies.

As part of our investment, we will also establish new centers of excellence across our operations to develop best practices, improve efficiencies and reduce costs. This new center will also serve as a hub for intellectual property development and future geographic market expansion.

Looking ahead, we are raising our 2023 revenue and EPS guidance given our strong third quarter performance and current visibility for the remainder of the year. Maurizio will walk you through the details in a few moments.

As we look forward to 2024, we are encouraged by the sustained growth in our revenue and EPS, the momentum in our growing sales pipeline and the underlying strength and resiliency of our business. We are well positioned with our current generative AI offerings and we continue to invest further in advancing our capabilities. This gives us confidence in our ability to sustain double-digit growth.

And with that, I'll turn the call over to Maurizio.

[Maurizio Nicolelli, executive]

Thank you, Rohit, and thank you, everyone, for joining us this morning. I will provide insights into our financial performance for the third quarter and the first 9 months of 2023, followed by our revised outlook.

We delivered a strong third quarter with revenue of $411 million, up 13.7% year-over-year on a reported basis. On constant currency basis, we grew revenue 13.2% year-over-year and 1.5% sequentially. Adjusted EPS was $0.37, an increase of 21.3% year-over-year. All revenue growth percentages mentioned hereafter are on a constant currency basis.

Revenue from our digital operations solutions businesses as defined by 3 reportable segments, excluding Analytics, was $227.9 million, which represents year-over-year growth of 16.4%. Sequentially, we grew revenue 2.3%. In the Insurance segment, we generated revenue of $136.4 million, an increase of 17.6% year-over-year and 6.3% sequentially. This growth was driven by expansion of existing clients and new client relationships. The Insurance vertical, consisting of both our Digital Operations & solutions and Analytics businesses, grew 14.4% year-over-year with revenue of $170.8 million.

In the Emerging segment, we grew revenue 14.7% year-over-year. This growth was driven by the expansion of existing client relationships and new client wins. Sequentially, revenue declined 2.8% to $65.3 million. The sequential revenue decline was driven by the bankruptcy of a client, Yellow Corporation. Excluding the impact of the bankruptcy, we expect revenue would have grown sequentially. The Emerging vertical consists of both our Digital Operations & Solutions and Analytics businesses grew 4% year-over-year with revenue of $147.9 million.

The Healthcare segment reported revenue of $26.2 million, representing growth of 14.8% year-over-year and a decrease of 3.6% sequentially. The year-over-year growth was driven by expansion in existing client relationships. The Healthcare vertical consisting of our Digital Operations & Solutions and Analytics businesses grew 28.6% year-over-year, with revenue [ of ] $92.3 million.

In the Analytics segment, we generated revenue of $183.1 million, up 9.4% year-over-year and up slightly sequentially. Our decision analytics services, payment integrity and data management businesses continue to grow year-on-year, partially offset by the decline in marketing analytics as our clients in insurance and banking continue to reduce their marketing spend.

SG&A expenses as a percentage of revenue were up 180 basis points year-over-year to 20.2%, driven by investments in front-end sales, marketing, digital and AI capabilities. Our adjusted operating margin for the quarter was 20%, up 150 basis points year-over-year driven by higher volumes and revenue. Our effective tax rate for the quarter was 23.4%, down 60 basis points year-over-year, driven by higher profits in lower tax jurisdictions. Our adjusted EPS for the quarter was [ $0.30 ], a 21.3% increase year-over-year on a reported basis.

Turning to our 9-month performance. Our revenue for the period was $1.217 billion, up 17.6% year-over-year on a constant currency basis. This growth was driven by both our Digital Operations & Solutions and Analytics businesses. Adjusted operating margin for the period was 19.8%, up 140 basis points year-over-year. Nine-month adjusted EPS was $1.09, up 21.8% year-over-year on a reported basis.

Our balance sheet remains strong. Our cash, including short- and long-term investments as of September 30, was $275 million and our revolver debt was $210 million, for a net cash position of $65 million. We generated cash flow from operations of $132 million in the first 9 months compared to $101 million for the same period in 2022. This improvement was driven by the expansion in our adjusted operating margin. During the first 9 months, we spent $41 million on capital expenditures and repurchased $93.5 million of our shares at an average cost of $31 per share.

Now moving on to our outlook for 2023. Based on our strong performance for the first 9 months of the year and our current visibility across all verticals, we are raising our outlook for the year. We now anticipate revenue to be in the range of $1.62 billion to $1.628 billion, representing year-over-year growth of 15% on a reported basis, and 15% to 16% on a constant currency basis. This represents an increase of $9 million at the midpoint despite a foreign exchange headwind of $2 million from previous guidance.

We expect a foreign exchange gain of approximately $1 million, net interest expense to be approximately $1 million and our full year effective tax rate to be in the range of 23% to 24%. Based on this, we anticipate our adjusted EPS to be in the range of $1.40 to $1.42, representing year-over-year growth of 16% to 18%, which is an increase from our prior adjusted EPS guidance of 15% to 17% growth. We expect capital expenditures to be in the range of $50 million to $55 million.

In summary, our data-led strategy is sound and is resonating with our clients. Our differentiated business model remains resilient due to our substantial reoccurring revenue and a well-balanced portfolio across our Data Analytics and Digital Operations & Solutions Business. Our strong pipeline and high percentage of annuity revenue provide us with confidence in our ability to continue to deliver double-digit growth going forward. This, coupled with our expanding capabilities in data management and ongoing investments in generative AI, puts us in a strong position as we look to 2024.

With that, Rohit and I would be happy to take your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Bryan Bergin from TD Cowen.

[Bryan Bergin, analyst]

I guess I'll start here with the outlook. Can you just break down how you're expecting Digital Ops and Analytics to grow in 4Q? And then just understanding it's early here and the backdrop is quite uncertain, but we appreciate your commentary on sustaining double-digit growth. Can you just share some qualitative commentary on how you're thinking about what's going to remain consistent in '24 versus 23? What may not reoccur and maybe what might be incremental?

[Rohit Kapoor, executive]

Sure, Bryan. So firstly, in terms of our guidance for the year and the implied guidance for the fourth quarter, we have increased our guidance, as we mentioned, by $9 million at the midpoint. This is despite a $2 million headwind on the currency side. And despite the fact that we have had one of our clients undergo bankruptcy and the volume has fallen off. We expect, after taking all of these things into consideration, that our fourth quarter would be flattish compared to our third quarter, and that's across both of our business lines, and that's how we would anticipate it might play out.

Going forward, in terms of our double-digit growth, what we are seeing is we are seeing a very strong demand in the pipeline. We've seen our win rates increase. We've seen the size of the deals increase. And therefore, we have confidence in terms of being able to sustain double-digit growth. What we are not sure of at this point of time is how would marketing analytics perform, and that's something which, as we have shared with you previously, we're looking to diversify our industry verticals within marketing analytics and focusing on areas of strength, particularly around data management, payment integrity and analytical services.

Our expectation is that when we think about both of our business lines on Digital Operations & Solutions and on Data Analytics, both these business lines should be able to provide us with great growth opportunities. We would expect the Data Analytics business on a secular basis to give us double-digit growth as such. And at this point of time, given the deals that we have already won, we think we've got -- we are in a very good position as far as digital operations is concerned as well. So frankly, the portfolio seems to be performing well and it's very well balanced, and we're very pleased with the way in which things are at this point of time despite a pretty difficult macroeconomic environment.

[Bryan Bergin, analyst]

Okay. I appreciate that color. And then just on the margin here, as we kind of back into the implied 4Q adjusted operating margin, I think it would imply below. Is this just the timing of expenses you mentioned in kind of talent, gen AI solution development or any other top items to consider?

[Maurizio Nicolelli, executive]

Yes, Bryan, it's -- you've hit it a little bit on the head there, it's a bit of timing. If you look at our AOPM for the first 3 quarters, we've had AOPM hovering right around 19.8%. So much higher than what we talked about in our guidance at the beginning of the year. And we talked about low to mid-18%. So we performed very well on profitability in the first 3 quarters.

We do have a number of investments that we want to make in Q4 in front-end sales, in marketing and also in our digital, particularly in gen AI, which we were looking to do in Q3, that -- some of that got postponed to Q4. And so that's reflective in that high 17% to low 18% range of AOPM in the fourth quarter. And that doesn't change our outlook going into 2024, it's more of a timing for Q4. And that's still -- even with those percentage and that AOPM in Q4, you're still at a 19% plus for the year given the performance of the first 3 quarters.

[Operator]

Our next question comes from the line of Maggie Nolan of William Blair.

[Margaret Nolan, analyst]

So it sounds like the recovery trajectory in marketing analytics is still a little difficult to predict and uncertain, which I can definitely appreciate. But what about just kind of where you stand in terms of the amount of pressure that you're seeing. Are you expecting maybe incremental pressure? Or do you see any signs of stabilization even though a recovery is still uncertain at this point?

[Rohit Kapoor, executive]

Sure, Maggie. So first of all, just a bit of color. For us, marketing analytics,declined quarter-on-quarter. So Q3 revenue from marketing analytics was lower than our revenue from marketing analytics in Q2. But as we have shared with you previously, we have won a number of deals in other industry verticals for marketing analytics, particularly around healthcare. So we're going to see how that plays out in Q4, and that will give us a good sense of how that recovery will shape up going forward into '24.

[Margaret Nolan, analyst]

Okay. And then you were -- when you were speaking about Dublin, you mentioned that this could be a hub for additional geographic expansion. Could you elaborate on that a little bit, maybe what you're expecting over the next several years as you think about your geographic mix and where could be areas of growth or drivers for the business?

[Rohit Kapoor, executive]

Absolutely. So for us, first of all, our business in the U.K. has been growing very, very nicely. And the percentage contribution of total revenue from that market has been increasing over the last couple of quarters, and we're very pleased with the progress that we are making out there. Number two, with the setting up of the office in Dublin, Ireland, it actually will open up the market for us in Continental Europe and across the EU. So we think we'll have an opportunity to be able to access talent, access customers and be able to leverage our IP across the continent. And it's a very strategically important decision for us to be able to expand in Europe and actually diversify our revenue base across the world.

So this is something which we are very excited about. It's a conscious and a deliberate investment that we are making, and we hope that it will play out nicely over the next couple of years.

[Operator]

Our next question comes from the line of Ashwin Shirvaikar from Citi.

[Ashwin Shirvaikar, analyst]

I wanted to sort of maybe get a more granular look into digital ops. As I sort of look at Insurance, you keep showing sequential growth. Good trends there. The Healthcare business is -- it's sort of sequentially static for a couple of quarters, same thing with the Emerging part of it. If you could provide more color on what's underlying those 2 pieces? And any kind of a breakout you could provide with regards to Emerging, that helps us from a forward modeling perspective would be great.

[Rohit Kapoor, executive]

Sure. So Ashwin, the first thing is that our Digital Operations & Solutions business is actually performing really, really well. And we think the big reason for that is, number one, the demand for client seeking, cost efficiency and productivity gains has improved in this environment, and clients are looking at aggressively managing their cost structure and getting more efficiency and operational efficiency into that process and business. We have seen that increase the pipeline, and we have seen that our strategy of combining data, digital, AI and domain is resonating very well.

So our win rates have gone up and the deal sizes that we are winning, that has gone up. So frankly, these are all reasons why the Digital Operations & Solution business is actually growing very nicely for us. Within this business, Insurance, as you know, is an industry vertical where we have a leadership position. It is a business which we pride ourselves in terms of our knowledge and understanding of the marketplace there. And I think we're getting rewarded for that knowledge and expertise that we have, because more and more clients are giving us larger pieces of work and that business for us is growing very nicely.

We are seeing a similar kind of a trend shape up in Healthcare and EBU in our Emerging business unit. But certainly, these 2 businesses are much smaller in size as compared to the Insurance business. The Emerging business units in this particular quarter did have one client which transitioned out because of them filing for bankruptcy, so there has been an impact on that. But keep in mind that our Emerging business unit targets actually many, many subverticals. So we target clients in utilities, in travel, transportation and logistics, in retail. And therefore, we're seeing a great amount of, actually, diversified strength coming in into the Emerging business unit.

The Healthcare business for us is largely driven on the operations management sees around clinical operations. And there, we are seeing that there can be increase in volumes at sometimes and there can be a diversification of customer base as well. So our hope is to continue to build that and bring the same kind of value that we are bringing in Insurance, which is the combination of data analytics and operations and bringing that to bear in Healthcare. So frankly, plus, we are very, very happy with the way in which the Digital Operations & Solutions business is growing.

[Ashwin Shirvaikar, analyst]

Understood. Understood. One of the questions we get relatively frequently nowadays from investors is with regards to what's the normalized growth for a company like EXL over time. And I found maybe a potential clue on an interview you had given to a newspaper where you said $2 billion in revenue by 2025, which would imply somewhere in the low double digit, 11% [ and change type ] Growth. If you could kind of provide more color on that. Because that -- relative to how you've grown the last 3, 4 years, that seems quite modest. So any color that you can provide, if stuff is changing in the last 2, 3 years or just anomaly. How would you think of that?

[Rohit Kapoor, executive]

Sure. So I guess, for the last few years, we've grown nicely. But I think the conviction that we have is twofold. One, the portfolio that we have, which is a combination of the Data Analytics business, which represents approximately 45% of our revenue and the Digital Operations & Solutions business, which is 55% of our business, both these businesses for us are strong growth businesses. We would expect on a combined basis to be able to grow double digit on a normalized growth trajectory.

There will be points in time where one of these business lines might grow faster and the other one might grow a bit slower and vice versa, and we've already seen that happen. So for example, in 2022, our Data Analytics business was growing very, very rapidly as such; and the Digital Operations business was growing slightly slower at that point of time. Right now, in this current environment, we are seeing the Digital Operations business really grow much more strongly, and the Data Analytics business has been challenged because of discretionary projects as well as the marketing analytics that we've spoken about.

But long term, on a normalized basis, we expect double-digit growth across both these businesses on an organic constant currency basis. We do think we have the ability to be able to add on to this through inorganic growth. And M&A is certainly something which we'd be looking at and adding on to that. You've seen us do the acquisition of Clairvoyant, and that was a very successful acquisition for us, which added very specific capabilities and expanded our portfolio.

So we feel comfortable about growing our business double digit long term in a normalized way. And it's great to be able to see that regardless of the market environment, our business model is very resilient and very growth oriented, and we can grow our top line and our bottom line at double digits.

[Operator]

Our next question comes from the line of Mayank Tandon from Needham.

[Mayank Tandon, analyst]

Rohit, you talked about the gen AI opportunities. Could you talk in terms of is that changing the existing contract structure with your clients? Is that being integrated into it? And how is that affecting the size and scope of the engagements with your existing client base as they incorporate gen AI into their business models?

[Rohit Kapoor, executive]

Sure, Mayank. I think gen AI is having an impact on the way in which we are growing in multiple ways. Let me try and articulate this to you. Number one, the work that we do with our clients on our existing contracts in digital operations, we are certainly embedding a lot more gen AI into those operations and into those solutions. Number two, we are going to clients, leveraging Jennie and winning large pieces of integrated digital operations deals. So this is helping us win new business from -- either from existing customers or from new customers.

Number three, gen AI is also leading us to be able to deploy gen AI with clients which might have outsourced to work with other providers, and where we may not be handling the digital operations part, but we are applying our domain knowledge and our expertise on and helping them create operational efficiency and productivity gains. And number four, gen AI is creating a huge opportunity for us on the data management side.

So we all know that in order for gen AI to be effective, the data estate of our clients needs to be in order. And right now, there is a huge movement in order of our clients wanting to fix their data estate. Most of them in the past had focused in on moving their structured data to the cloud and getting their structured data organized so that, that data will be useable. Well, what we are finding is that the unstructured data is a much bigger piece of the work that remains to be done, and we can be very, very helpful to our clients, manage their unstructured data sets.

So frankly, there's tremendous opportunity with existing clients and existing work that we have, new business that we can win with it, gen AI, pure gen AI solutions and deployments that we can have and then on the data management side. So we think this is becoming a more strategic lever for growth for us going forward, and that's why we are investing more heavily in this particular area.

[Mayank Tandon, analyst]

That's very helpful color. It sounds like a boon not a curse as some people in the market have believed. So good to see some proof points there. Rohit and Maurizio, a quick follow-up here on margins. Sorry, I did hear your comments, Maurizio, on margins, for fiscal '24, I know you're not giving guidance, but if you are able to grow double digits, should we just expect some margin improvement even off the 19-plus level that you're going to end up in '23 just from scale benefits if nothing else really changes?

[Maurizio Nicolelli, executive]

We have talked about -- and thank you for the question, Mayank. So we have talked about every year making improvements to our margins going forward. We had the big spike up from 2020 to 2022, where we went all way up to 18.3% from a range of 14% to 15%. And now we talked about making improvements to margins on an annual basis, marginally, meaning 10 to 20 basis points a year. And we've been very successful at doing more than that. But we still think in our mindset that we should continue to drive margins higher, just incrementally not these larger big spikes that you've seen in prior years.

[Operator]

Our next question comes from the line of Surinder Thind from Jefferies LLC.

[Surinder Thind, analyst]

So for the first question, I just wanted to kind of understand the new logo wins. As I look across the past few quarters, it seems that you started the year off really strong in Digital Ops. And sequentially, the number of new logo wins has been declining and it's the exact opposite in Analytics. Is there anything to read into that? Or how should we think about demand dynamics between the 2?

[Rohit Kapoor, executive]

Sure, Surinder. So for us, the new client wins and the new logo wins I think looking at it on a quarter-by-quarter basis is not going to provide much help. It's much more to kind of see the trend over several quarters that gives a much better understanding of the kind of wins that we're having. So if you take a look at the 3 quarters of 2023, the number of new logos that we have signed up this year is higher than the number of logos that we signed up last year, and the split between Digital Operations & Solutions and Data Analytics is also very well balanced. So we have 26 clients that we have won in Digital Operations & Solutions this year, and we won 20 clients in Data Analytics. So it's -- we are very happy with the split and the mix as such.

The important part is that these are larger deals, and we already alluded to that when we spoke about and provided some color on the size of the deals that we are winning. And that is something which is very encouraging. So as the company grows and as we are kind of building up our business, the fact that we are signing up much larger deals now gives us confidence in terms of being able to sustain that double-digit growth.

[Surinder Thind, analyst]

That's helpful. And then just a follow-up on the Analytics. Is there any color that you can provide in terms of the visibility into the pipeline that you have? Is there a lot of multiyear projects here where there's a certain amount of kind of reoccurring project-type revenues? Or how much more do you have to do in terms of new wins to kind of hit your medium-term targets here?

[Rohit Kapoor, executive]

Sure. The Data Analytics business for us is a business where 2/3 of the business is annuity-based. So that means we have multiyear contracts associated with it. And we have ongoing support and work that we do for clients, manage their existing analytical operations. 1/3 of the work that we do is project-based and discretionary, and that's the part that is volatile and that kind of moves around quarter-to-quarter. But keep in mind, with the trends that we are seeing around generative AI, the need for that project-based spend has increased.

The work that we are doing, particularly around payment integrity, that's something which is growing very nicely. The work that we do around data management, some portion of that is project-based, but the demand strength out there is very high. So we've got great pockets of growth and opportunity. And there are certainly pockets like marketing analytics, which are project based where there is definitely a headwind for us.

[Surinder Thind, analyst]

Got it. And then just as a final kind of a clarification here. Just any color on what quarter-over-quarter growth in Analytics would have looked like if you take away marketing. So I mean, if we look at the decision analytics, the data management, the payment integrity, any color there on what -- yes.

[Maurizio Nicolelli, executive]

Yes. Surinder, so if you peeled out marketing and analytics, your growth rate would be in the mid-teens for the rest of the business. So all the other parts of the business are growing very nicely. This one piece is bringing -- is dragging our growth rate lower. But you would have seen it right around the mid-teens.

[Operator]

[Operator Instructions] Our next question comes from the line of Vincent Colicchio of Barrington Research.

[Vincent Colicchio, analyst]

Yes. Curious, is the Yellow situation sort of a one-off? Or are there any other clients under financial distress that require monitoring?

[Maurizio Nicolelli, executive]

No. Vince, it's Maurizio, and thanks for the question. But no, it's a -- this is a one-off. We don't have any other client in this type of a situation. And when you look at our DSO and we also look at the health of our clients, this right now really is a one-off at the end of the day and we don't have any other situation that's significant like that.

[Vincent Colicchio, analyst]

Okay. Second question as a follow-up. You haven't done M&A in some time. Your business is in solid shape, I would imagine, better than some others. So as your pipeline is strong and have valuations come down, making it an attractive time to look?

[Maurizio Nicolelli, executive]

Yes. So Vince, M&A is still a significant opportunity for us. We do have a fairly healthy pipeline of M&A opportunities that we're evaluating. And we continue to go through that process. I think valuations have become a bit more reasonable than they had been in 2022, and so you are seeing that. It's -- as we go forward and we want to add capabilities, and given the amount of cash flow that we generate now, this is an area that we truly want to focus on. And it's areas within data, analytics, technology, digital, AI, it's really adding additional capabilities to those key core areas for us to really continue to drive the business.

So going forward, we will be allocating capital between M&A and share repurchase. And you'll start to see more of an allocation between the 2 versus being more on the buyback side over the last kind of 1.5 years.

[Vincent Colicchio, analyst]

Okay. nice quarter.

[Rohit Kapoor, executive]

Thank you.

[Operator]

Our next question comes from the line of David Grossman from Stifel. David Grossman?

Wonderful. So we're going to go ahead and head back to the speaker. I would now like to turn it back to John Kristoff for closing remarks.

[John Kristoff, executive]

Thank you, Maria. Thank you, everyone, for joining our call today. And as always, for follow-up questions, please don't hesitate to reach out to me directly. Thank you again.

[Operator]

Thank you for participating in today's conference. This does conclude the program. You may now disconnect.