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Good day, and thank you for standing by. Welcome to the Q4 2022 ExlService Holdings, Inc. Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to our speaker today, John Kristoff, Vice President of Investor Relations. The floor is yours, John.
Thank you, Gerald. Hello, and thank you for joining EXL's 2022 Fourth Quarter and Year-end 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 that you've had an opportunity to review the fourth quarter earnings release we issued this morning. We have also posted an earnings slide deck and investor fact sheet in the Investor section of EXL's website.
As a reminder, some of the information we'll discuss this morning is 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 or other documents filed with the SEC from time to time. EXL assumes no obligation to update the information presented on this conference call today. During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of those measures to GAAP can be found in our press release, slide deck and investor fact sheet.
With that, I'll now turn the call over to Rohit.
Thanks, John. Good morning, everyone. Welcome to the EXL Fourth Quarter and 2022 Year-end Earnings Call. I'm pleased to be with you this morning reporting another great quarter. We finished the year strong with great momentum as we enter 2023. Our fourth quarter revenue was $375 million, an increase of 27% year-over-year and 29% on a constant currency basis. And we grew fourth quarter adjusted EPS 29% to $1.56 per share.
We generated strong growth across both analytics and digital operations and solutions. In analytics, we delivered revenue of $171 million for the quarter, up 3% sequentially and 35% year-over-year. For the full year, our analytics business grew 41% and now represents 46% of our total revenue. Our Digital Operations & Solutions business generated revenue of $204 million with year-over-year growth accelerating to 21% in the quarter and nearly 5% sequentially from the third quarter. This growth was driven by 23% year-over-year growth in our insurance business, and 31% year-over-year growth in our emerging business. Our growth was fueled by an expansion of existing client relationships and new client wins in '22.
These impressive results demonstrate that EXL has created 2 strong growth engines by leveraging data across both our analytics and digital operations and solutions businesses. This focus on data-led digital transformation, coupled with our strong domain expertise in key industries is positioning us well for the future.
Our data-led strategy is helping our clients to use data to improve their operations through digital transformation, enable better decisions through advanced analytics and embed intelligence in their workflows to increase speed to insights and outcomes. EXL is using data to connect back office operations with front-end customer platforms to remove friction points and latencies. We generate value for our clients by enabling savings through operational efficiency and business insights to offer a faster, more engaged customer experience. Our mastery of data, combined with our technical expertise and deep domain knowledge enables us to develop industry-specific AI use cases and sets us apart from our competitors. These capabilities and skills have been built over a long period of time and are difficult to replicate providing us with a sustainable competitive advantage.
Our data-led strategy has also significantly expanded our total addressable market across 4 dimensions. First, we are going deeper into our core industry verticals. For example, in insurance, we historically focused on property and casualty and life and annuity clients. Today, we are winning new logos in reinsurance, brokerage, third-party administrators and retirement and group benefits, and we continue to expand our geographic reach.
Second, we are also finding success beyond our traditional markets of insurance, banking and health care into adjacent industries. While we have been quite successful in doing this, we are just scratching the surface with an enormous amount of runway for growth in the coming years. An illustration of the growth potential is the 35% full year revenue growth we delivered in our emerging business on an organic constant currency basis in 2022.
Third, we are pursuing new opportunities across buying centers within our existing client base. In the past, our primary focus was on the Chief Operating Officer and Chief Financial Officer. Today, we work with the Chief Information Officer, Chief Data Officer, Chief Analytics Officer, Chief Marketing Officer, Chief Risk Officer and others across the C-suite.
Finally, we have expanded our scope of solutions and moved upstream with our competencies. We are now operating end-to-end and taking on the entire process as opposed to just a portion of work within the process. In other words, we have the ability to do larger deals across an enterprise, work with larger clients and grow our business. This also allows us to deliver better business outcomes to our clients.
I'd like to share a few of examples that exemplify how our data-led strategy and digital capabilities uniquely position EXL to win in the marketplace. We began a multiyear digital transformation journey with one of the largest multinational brokerage firms in the world with a presence in over 100 countries. We are helping them achieve their goals of driving efficiency while at the same time, redesigning and improving their processes to enhance the customer experience. We are doing this by using AI-powered data extraction and analytics solutions to better understand the customer journey and identify friction points where internal workflows and end customer experience can be improved. This work is being rolled out enterprise-wide and will be the foundation for digital centers of excellence to accelerate quantum improvements to their business model.
Another example is with one of the top 5 disability insurers in the U.S. They operate a large disability intake contact center and wanted to improve efficiency and elevate customer experience. We deployed a conversational AI solution on top of their existing technology stack with 100% of integrated disability claims intake going through our system as the first touch point. This enables instant extraction and analysis of unstructured claims data for straight-through processing of fast and routine claims. Through this large-scale deployment, we were able to improve intake efficiency by 20%. Based on the results of this initiative, the client awarded us downstream processes to transform the end-to-end claims experience for the customer. This is a good illustration of the tangible value we deliver to our clients and how that often leads to expansion of scope.
These are just two examples of how our data-led strategy are helping us win in the marketplace. EXL has emerged as a strategic partner to drive large-scale end-to-end digital transformation, which are increasing in frequency and complexity across our client base.
In addition to having a successful strategy, we continue to deliver on execution as well. I want to recognize our people who have brought our data-led vision to life. We recruit and develop the best talent in the industry, and this continues to help fuel our growth. The combination of interesting work and attractive growth opportunities has led to EXL becoming an employer of choice. I want to thank our global team of more than 45,000 employees for their hard work and relentless pursuit of delivering value to our clients. I am incredibly proud of our employees and feel fortunate to be part of this team.
As we look to 2023, we have solid momentum with the new wins and large deals as well as a robust pipeline of opportunities. Maurizio will review the specifics of our 2023 guidance, but I wanted to provide some color on the general demand environment. We continue to see strong demand in our Analytics business and our overall view has not materially changed from the third quarter. Our clients view their analytics function as a significant driver of growth, profitability and differentiation and continue to invest in analytics in leveraging these capabilities.
In Digital Operations & Solutions, we are seeing steady demand as more clients focus on digital transformation and cost reduction. Deal sizes in our pipeline have been increasing. One of the macro demand trends we are beginning to see is clients shifting towards integrating analytics and digital operations to gain greater value and drive more accountability with their partners. This plays extremely well to our strengths and in the adoption of our unique business model.
In summary, our data-led strategy is working. We delivered exceptional financial results in 2022, and we are well positioned for 2023 and beyond. We have sustainable growth fundamentals with a large and growing total addressable market, and we operate in a very resilient industry. We remain confident in our ability to deliver double-digit revenue and EPS growth in 2023. Our confidence is rooted in EXL's winning strategy, unique data capabilities, competitive positioning and our exceptionally talented and dedicated team.
With that, I'll turn it over to Maurizio to cover our financial performance in detail.
Thank you, Rohit, and thanks, everyone, for joining us this morning. I will provide insights into our financial performance for the fourth quarter and full year 2022, followed by our outlook for 2023. We delivered a strong fourth quarter with revenue of $374.7 million, up 26.8% year-over-year on a reported basis. On a constant currency basis, we grew revenue 28.6% year-over-year and 3.7% sequentially. Adjusted EPS was $1.56, an increase of 28.9% year-over-year.
All revenue growth numbers mentioned hereafter are on an organic constant currency basis. Revenue from our digital operations and solutions businesses as defined by 3 reportable segments, excluding Analytics, was $204 million, which represents year-over-year growth of 23%. Sequentially from the third quarter, we grew revenue 4.6%. In the Insurance segment, we generated revenue of $120.7 million, an increase of 24.6% year-over-year, driven by expansion and existing client relationships and new client wins in 2022. The insurance vertical consisting of both our digital operations and solutions and analytics businesses grew 23.5% year-over-year with revenue of $155.9 million. Emerging reported revenue of $58 million, up 35.8% year-over-year. This growth was driven by new client wins earlier in the year, higher volumes in travel and transportation and expansion in other existing client relationships. The emerging vertical consisting of both our digital operations and solutions and analytics businesses grew 35.5% year-over-year on an organic constant currency basis with revenue of $142 million.
Healthcare reported revenue of $25.3 million down 4.4% year-over-year, driven by lower volume in the clinical services business. The Healthcare segment grew 11% sequentially from the third quarter. The health care vertical consisting of our digital operations and solutions and analytics businesses grew 13.6% year-over-year with revenue of $76.8 million. In the Analytics segment, we generated revenue of $170.7 million, up 25.6% year-over-year on an organic constant currency basis. Growth in the fourth quarter was driven by expansion in existing client relationships in banking and financial services, health care and retail. Clairvoyant contributed $15.1 million of revenue in the fourth quarter. Including Clairvoyant, we grew analytics 36.2% year-over-year. Sequentially from the third quarter of 2022, analytics revenue grew [2.6%].
We reduced SG&A expenses by 220 basis points year-over-year to 19.2%, driven by operating leverage and continued cost discipline. Our adjusted operating margin for the quarter was 18.0%, up 100 basis points year-over-year, driven by operating leverage and partially offset by investments to support the ramp-up of new client wins. Our adjusted EPS for the quarter was $1.56, a 28.9% increase year-over-year on a reported basis.
Now turning to our full year 2022 performance. We grew full year revenue to $1.41 billion, an increase of 27.3% year-over-year on a constant currency basis and 23.1% on an organic constant currency basis. This growth was driven by all our verticals in our digital operations and solutions and analytics businesses. Revenue from our digital operations and solutions businesses was $764.7 million, growing 17.4% year-over-year on a constant currency basis. Our analytics business generated $647.4 million of revenue, an increase of 41.6% year-over-year on a constant currency basis. Analytics represented 46% of total revenue, up 5 percentage points year-over-year. Clairvoyant contributed [$48.9 million] in 2022.
Our adjusted operating margin for the year was 18.3%, down 30 basis points year-over-year driven by investments to support the ramp-up of new business and higher operating expenses associated with a return to the office. Our effective tax rate for the year was 23.2%, up 10 basis points year-over-year. We grew full year adjusted EPS 24.6% year-over-year to $6.02 on a reported basis. Our balance sheet remains strong. Our cash, including short-term and long-term investments on December 31 was $329 million, and our revolver debt was $250 million, for a net cash position of $79 million. We generated cash flow from operations in 2022 of $166 million compared with $184 million in 2021 due to increased accounts receivables driven by higher revenues. During the year, we spent $45 million on capital expenditures and repurchased 68.5 million of our shares at an average cost of $136 per share.
Moving on to our outlook for 2023. We are entering the year with strong momentum across both our digital operations and solutions and analytics businesses. While we have good visibility into the first half of 2023, we are conscious of the macroeconomic uncertainty that remains further into the future. Despite this uncertainty, we are confident in our ability to once again deliver double-digit growth in both revenue and adjusted EPS in 2023 and the outlook ranges we are providing today are consistent with the medium-term targets we presented at our recent Investor Day.
We anticipate revenue in the range of $1.56 billion to $1.6 billion, representing year-over-year growth of 11% to 13% on a reported basis and 11% to 14% on a constant currency basis. We expect to drill operations and solutions to grow 8% to 10% and analytics to grow in the range of 15% to 18% on a constant currency basis. We expect a foreign exchange gain between $4 million and $6 million, net interest expense between $1 million and $2 million and our effective tax rate to be in the range of 22% to 23%. We anticipate adjusted EPS to be in the range of $6.60 to $6.80, representing growth of 10% to 13%. We expect capital expenditures to be in the range of $47 million to $52 million. We believe these guidance ranges are achievable even considering the possibility of macroeconomic headwinds in 2023. Given the successful execution of our data-led growth strategy, the continued expansion of our total addressable market and our talent advantage, we are well positioned to grow our double-digit growth momentum.
With that, Rohit and I will be happy to take your questions.
[Operator Instructions] Our first question comes from Maggie Nolan of William Blair.
Nice quarter. Can you talk a little bit about the level of investment in new client ramp-ups in the quarter and how that compares to recent quarters past in 2022 and maybe what that would look like over the next several quarters?
Sure, Maggie. So we've won a substantial amount of business in 2022 from new clients, and that's reflected in the number of new clients that we signed up which was particularly strong. The new client ramp-ups, there is certainly an increase in investment in people as well as in terms of our infrastructure. And we continue to make sure that we can execute and deliver to our customer expectations and requirements. Some of this implementation and execution of the new client wins will spill over into '23. And we expect that we will continue to execute that, particularly strongly in the first half of the year.
The investment that we make in new client revenue ramp-up generally does have a margin eroding impact because the margin of that new business is at a lower gross margin, while we are ramping up. But we expect that to continue to normalize as we -- as the ramp-ups stabilize for us.
And then could you discuss the balance of kind of more project-based versus annuity type analytics work that you saw in 2022? And whether you expect that mix to change from here?
Right. So when we had provided guidance for Q4 2022, we weren't very sure about the project-based revenue and some of the discretionary spend that our clients might have had in Q4, particularly as they looked towards tightening some of the spend that they had. Actually, the work that we do for clients came in pretty much as we had seen in the previous 3 quarters. And so we haven't really seen any shift in change in terms of the work that we're getting. The balance between annuity-based work and project-based work continues to remain pretty steady. And for us, the fourth quarter ended up being a slightly stronger quarter than as compared to our expectations, and we haven't really seen any shifts in that trend right now.
Our next question comes from Bryan Bergin of Cowen.
I wanted to start on margin here. So can you talk a bit about what you're embedding in the '23 outlook as it relates to adjusted operating margin. And also give us a sense of how you see the underlying digital ops and analytics gross margin trending up. I'm curious -- I hear you on the large deal ramps. I'm also curious if you have fully left headwinds related to travel and [indiscernible] or not.
Sure. Why don't I tackle your margin question there. So when you look at margins for 2022, we ended the year at 18.3%. And right in line with where we thought we would end up for the year. If you look at it by quarterly, there's always going to be a little bit of ups and downs on a quarterly basis. But for the full year, we ended right around [at 18.3%] .
Going into next year, we have a couple of -- we had a couple of headwinds that we did have in 2022. That will give us a little bit of uplift going into 2023. We did have the transitioning clients within health care that hurt our gross margin within health care. And you see that with the numbers during the year that pushed down our [indiscernible] during the year. We also -- particularly in Q3 and then in Q4, we have a number of ramp-ups that we are getting ready for in terms of that revenue being more fully realized in 2023. And -- so we're taking on additional cost to ramp up clients beginning in 2023 in 2022.
And then going into 2023, we do expect a certain level of leverage as we continue to grow. When you put that all together, we do see margins within our guidance, growing modestly another 10 to 20 basis points from where we ended 2022. And we're pretty confident with those margins, even giving a potential macro uncertainty going into the back end of the year in H2. And also assuming a certain level of wage inflation remains constant from 2022.
Okay. That's helpful. And then I guess just on the growth outlook for the year. Can you dig in a little bit more on the underlying macro assumptions you're making? I hear you on calling out the uncertainty. I'm curious kind of what level of visibility you've built this guide to versus years past, particularly on that second half? And how you thought about potential prudence here in building that growth forecast?
I'll address that, Bryan. So when you look at our guidance for revenue, it's 11% to 14% on a constant currency basis. And we are assuming a certain level of uncertainty second half of the year. And that assumes a slowdown in the second half of the year. We are -- as Rohit mentioned in his opening remarks, we are seeing very good momentum going into 2023, and that continues. If we do not see that uncertainty or that potential slowdown in the second half of the year, then yes, that does give us a little bit of upside from our guidance from where we are today. But we've taken a little bit of a prudent approach and assumed a bit of a slowdown towards the -- within the second half of the year.
Our next question comes from Moshe Katri of Wedbush.
Nice quarter. Just a couple of model-related kind of assumptions for calendar '23. How should we think about the quarterly progression in terms of revenues Q1, Q2 and then the second half? That's my first question.
Sure. So when you think about revenue for 2023, I think it's fairly -- when we look at it, it's fairly consistent what we've seen in '22 and prior. It's a gradual increase throughout the year. We don't see any one quarter being significantly higher in terms of percentage growth than any other quarter. So for modeling purposes, I would assume a fairly gradual increase throughout the year.
So like I think last quarter, you had about 10% sequential growth from Q4 to Q1. I think that was the number. Is that still what we should be looking for now?
That seems a little bit high to be quite honest, Moshe. I think separately, we can help you with your modeling.
Yes. Moshe, I think the best way to think about it is we provided our revenue guidance to you. And you can take a look at the annual revenue guidance for '23 over '22 and model out a steady gradual increase in quarterly revenues.
Understood. And stock-based comp assumptions for the year?
They're going to be very similar to 2022 with a modest increase in the single digits.
Okay. Great. And then a big picture question, you spoke about visibility in demand. One of your peers is talking about sales cycle is kind of shrinking given the fact that it seems that some of the clients are looking for cost optimization solutions in this environment. Maybe you could talk a bit about sales cycles and what you're seeing out there? And then maybe the nature of the pipeline is shifting in terms of the pivot towards more cost optimization. Are you seeing that as well?
Sure. I'm happy to take that and address that. And this is something which we've spoken about in the past. So first of all, the overall demand environment for our services and solutions continues to remain strong, and there's really been no change over the last quarter or two quarters that we are seeing. However, to your point, we do see shifts within that demand environment. There are some elements where we are seeing a softness of demand and there are other elements where we are seeing a much stronger growth and much stronger demand elements coming in.
There certainly seems to be a shift towards cost reduction and getting a lot more efficiency and productivity. So clients are certainly trending in that direction. The places where we're seeing softness is around marketing analytics. And there, it tends to be discretionary expenses that can be pushed out. So we're seeing some of that. But at the same time, we are also seeing increased strength in risk analytics and in -- managing fraud and managing abuse of risk. And therefore, we're seeing a greater amount of momentum out there.
In terms of deal sizes, we are seeing pretty large deals in the pipeline. So as such, the demand environment for us on an overall basis continues to be quite healthy and strong. We haven't really seen any conversations with our clients where things are slowing down. The urgency on cost reduction tends to be a much more immediate and much quicker. So that certainly is a trend that we would also be seeing in terms of our pipeline and our activity with clients. But also keep in mind that we signed up a fair amount of client wins in '22 that we are implementing and executing. And so we're going to continue to focus on that.
Our next question comes from Ashwin Shirvaikar of Citibank.
Yes. I want to follow up on kind of demand related questions. You may kind of looking at it -- based on your comments. There is obviously some [security] that you've taken into account as we head into the back half of the year from an economic standpoint. I guess I wanted to differentiate between kind of the tough comp part of the early strength of digital ops that you saw in the second half of ['22].
And I guess the more pointed question is, is the caution you're expressing something that we're actually seeing in terms of decision pushouts, in terms of lower volumes, so on so forth, is it something that you kind of feel obligated to put in your outlook because it feels like in the current environment right thing to do?
Sure, Ashwin. I think your voice coming a little bit muffled. So I hope we've got your questions perfectly. So first off, from a demand environment standpoint and the client activity that we are seeing at this point of time, we're seeing no discernible difference as compared to previous quarters or, let's say, be the 6 months of '22. So that remains very active, very healthy, and we feel very good about the conversations that we're having with our clients and prospects both on digital operations and solutions as well as on analytics.
In terms of the guidance and factoring in the economic headwind that might be there. Yes, there is a cautionary stance that we've taken in terms of our guidance because this is the beginning of the year. Certainly, this has to play out over the next 4 quarters. There is a fair amount of uncertainty in the economic environment. There is definitely a much heightened discussion about a slowdown as well as interest rates remaining high and wage inflation continuing to be at the same level as what it was in '22.
Now, while we have not seen anything in the conversations with our set of clients, we want to be a bit careful and prudent about how that might shape up in the second half of the year. And therefore, we have factored that in, in terms of the guidance that we have provided. It may turn out to be better or worse than expected, and that we don't know. And as we go through the quarters, we'll continue to provide updated guidance in terms of what we'll be able to deliver. I hope that addresses the question that you were seeking because we couldn't hear you quite well in your question.
Yes. Sorry about that. No, that's perfect. I think the follow-up, I want to kind of pick up on what you just said, Rohit with regards to the comment on wage inflation because that is a bit counter to what we've heard from most others who have seen sort of the supply side pressures, whether it's attrition, whether it's wage inflation, whether it's availability of talent has eased for pretty much everyone else that I've kind of spoken with. So could you go into the supply side challenges that you're kind of potentially alluding to and maybe challenge is too stronger word. But could you talk about that?
Sure, sure. Absolutely. So I think on the attrition side, and as we've shared with you, our fourth quarter attrition has dropped down very significantly, and we are certainly seeing a reduction in attrition rates to take place. And we would expect that there will be much more stability in the workforce going forward in 2023.
In terms of wage inflation, I think the difference in the commentary between us and other players might be, one, 46% of our revenue comes from analytics. Two, we have a much higher proportion of digital in our revenue even in operations management. So the places where we are seeing very rapid growth is a place where there is highly skilled talent that we need to bring on and retain so that we can continue to provide them with attractive career opportunities within EXL. And I think it's around the analytics, digital and high complexity subject matter expert positions and roles where we would anticipate that the wage inflation would be similar to what we saw in '22, and that might be a big difference between us and other players.
Our next question comes from Puneet Jain of JPMorgan.
Nice quarter. Question on long term. So I understand like near term, you are seeing clients willing to outsource more to be able to cut cost, but do you expect this upside or this trend to continue when macro improves when that need to cut cost may not be as significant as it is now?
Thanks, Puneet. So I want to reiterate that our business model is a very resilient business model. It's based on a data-led strategy. It's based on helping our clients modernize their existing technology platforms and continue to deliver much more efficiency, but at the same time, also enhance the end customer experience.
So our sense is when there is an economic slowdown, there is a focus that shifts towards cost reduction, and we can help our clients very significantly with that. When things normalize, and there is strong growth, we can actually help our clients in terms of the fulfillment of those growth strategies and the focus shifts towards customer acquisition and the ability to grow and differentiate and create a much better customer experience. So frankly, being able to play on both sides of the spectrum, helping our clients increase their revenue and at the same time, reduce their costs is a very, very resilient business model that we have with our clients. And we think that's what makes this business model very, very attractive.
Got it. And excuse me if you already commented on this. Can you talk about pricing trends you expect given wage inflation might remain high? And how should we think about analytics growth in the first half of this year versus in the second half?
Sure. So on pricing, Puneet, we started to talk to our clients last year about changes to the pricing environment. And certainly, as wage inflation went up and as the value that we were delivering to our clients had significantly been enhanced, our clients who are very comfortable talking to us and making appropriate changes to the pricing and the commercial arrangements that we have with them. That process was instituted for the first time, literally in '21, '22.
We think that, that trend will continue in '23 and beyond. And we are having very good conversations with our clients regarding pricing. So we think as long as we continue to deliver great value to our lines, our clients think of us as strategic partners and the sensitivity to pricing is much lower on higher complexity work and higher value work that we deliver to our clients. And maybe we end up differentiating ourselves from competitors on that basis.
On analytics, we see continued investment by our clients. Every single customer is trying to leverage data and get insights from that data and translate those insights into outcomes and our analytics business helps them manage their data, help them generate insights from that data and convert those insights into outcome. So frankly, we're seeing very, very good traction on our analytics business. We don't really see any differentiation between the first half and the second half of the year. As we provided commentary earlier, we would expect a steady growth to take place for our business in 2023.
Our next question comes from Mayank Tandon of Needham & Co.
Sorry, I didn't catch the first part there. Rohit and Maurizio, congrats on the quarter. Most of my questions have been answered, but I did want to just delve into the outsized growth, Rohit, on the operations piece in the fourth quarter, that's certainly well above trend. Was there something one-off there and if not, if the macro remains healthy or doesn't turn out to be worse and where we are today, is there a potential for that to be growing above your medium-term targets given that we saw this acceleration in the fourth quarter?
Sure, Mayank. So our operations management and solutions business grew at a pretty healthy pace in all of '22. There was certainly an acceleration of that growth rate in the third quarter and the fourth quarter. And our Operations Management & Solutions business in the fourth quarter grew at 21%, which is very, very high, and we're very pleased with that.
There are two fundamental reasons why we think there is strength in our operations management and solutions business. Number one is we are seeing more and more clients come to us and say that they'd like to see an integration of analytics and our digital operations and digital solutions business because that provides them with much greater value, much higher certainty of that value and much easier accountability of us as their partner to deliver that value. So this is a great trend that we are seeing. We are uniquely positioned to take advantage of this and combining analytics and our digital operations and solutions is resonating very, very well in the marketplace.
The second reason for that strength is our capabilities around digital and digital transformation have become very well accepted, and they are delivering terrific outcomes to our clients at speed and at scale. And our clients are giving us much larger mandates after they've seen the initial proof of concepts play out for them, and that's resulting in larger deals and a much faster growth rate. So we're very pleased with both of these 2 fundamental reasons, which are very strategic, much more long term, and we'd expect this to continue to play out.
Now how this kind of shapes up in '23 and how it evolves is something which we'll have to wait and watch. There is definitely a cautionary sense that might be taken by some clients and prospects, and we'll see how this thing progresses. And we'll provide you with updated commentary and guidance on that.
That's very helpful. And then just a quick follow-up on the capital allocation side. Obviously, you bought back stock. Just how are you thinking in terms of for the share repurchases versus potential for M&A? Any thoughts around that?
Yes, sure, Mayank. So when we think about capital allocation for 2023, I think you would see it fairly similar to our thinking in 2022. In terms of buying back shares, we would look to buy back shares very comparably to what we did in 2022, and that's primarily offsetting the dilution from our stock grants that we issued throughout the year.
Then we would look also to a certain extent to pay down a little bit of debt as interest rates rise to really contain that interest expense. And the remainder, we would look to use for internal investments and potential M&A that would arise throughout the year if those opportunities come about.
Our next question comes from Vincent Colicchio of Barrington Research.
Rohit, a question on the health care vertical, had very nice sequential growth overall in Digital and Operation Solutions. Just curious if -- what you would call out there? I know it's been fairly weak sequentially throughout the year. I know you lost that client. Is this one big client or a number of clients? What's driving that? And do you expect the momentum to continue?
Right. So Vincent, you're absolutely right. The decline in the health care clinical part of our business was because of the one client transitioning. That is now pretty much done and complete. So the health care business has stabilized. As we embed more digital into the health care operations, we would expect our digital operations and solutions business to continue to grow and gain traction. The sharp trend that you saw in Q4 over Q3 with 11% sequential growth is one-off. That's not something which we would extrapolate to the full year. But I do think we're going to see steady growth from here on associated with our health care digital operations and solutions business.
And then just one more for me. Is there any difference in client sentiment among your geographies that you would point out?
None that we are seeing, Vincent, we're seeing actually the same level of demand in U.K. and Europe as well as in Australia and New Zealand. It seems like clients are all across the globe are focused on how do they manage their data, how do they get insights from data and drive greater outcomes. And everybody is trying to be a data-led business. And so for us, that fits in very well with our strategy, and we are seeing strength across the board across geographies.
Our next question comes from David Koning of Baird.
Guys, is this for Dave Koning?
It is.
Okay. Yes. It cuts out. So it's hard to hear. But yes, I guess on attrition, you talked a little bit about it's -- you recently were at a pretty high level, higher than usual attrition. You're now down to around the lowest in 10 years. So kind of generationally low attrition. Is that going to help wage inflation? Like are you actually at a point where pricing might actually go up at the same time as wages could be pretty stable for a while, just like a nice little margin lever coming up?
Right. So for us, in '22, the attrition rate was high in the first half of the year, primarily because the attrition in the Philippines was pretty high and that impacted us. We are very, very happy with the attrition rate coming down in the fourth quarter. And sequentially, for us, we think the first quarter tends to be a much lower attrition rate cycle from a seasonality standpoint. So things should be stable out here.
But as far as wage inflation is concerned, the way in which we'd like to think about it is not so much linking it to the attrition rate, but rather looking at it from a market competitiveness standpoint, and a skill set and an ability to be competitive. So for us, we do see skills in digital, in analytics, in consulting, in subject matter experts as being value-added skills. And therefore, we want to make sure that we can compensate our employees appropriately and be very, very competitive out there. So we would delink the attrition rate from the wage inflation rate, and we would much rather have the wage inflation tied to market competitiveness rather than the attrition.
Okay. No, that sounds good. And then I guess on the analytics business, just like a higher level question, I would say 3, 4, 5 years ago, we thought of that as being a little less recurring. And I think you've convinced this over the years that, hey, this is pretty steady and maybe even more so than you expected it to be, but is this now as recurring as the digital ops business? And do you kind of see it going forward at very high levels of recurring revenue?
Yes, David. There are a couple of things why we think this is very stable, very recurring and very high growth, right? One, everybody is trying to invest more and more in analytics and in data. And that's become a pretty large and substantial piece of any client business. So if you take a look at the total number of employees that any client has and see the number of them that might be dedicated to analytics, those numbers in the past used to be a few in 100. Now they're in the thousands and tens of thousands and it's become pretty much a shift that's taken place where this marketplace has become very sizable, very meaningful and it's likely to continue to grow, particularly as -- there is a greater use of AI. There's a greater use of technology and automation. There's a greater use and linkage between data, process and outcome.
So frankly, we think this analytics spend is going to continue to increase going forward. There continues to be a huge scarcity of talent in this space and leveraging a global delivery model for analytics, is absolutely critical for our clients because they just cannot deal with this with only onshore resources. So we end up being very well positioned for helping our clients on this. And frankly, this is certainly playing to our advantage. And it's an investment that we made several years ago, and it's folding out to be a really great story for us.
At this time, I would like to turn it back to the -- to [Tim Kristoff], Vice President, Marketing Relations for closing comments.
Thanks, Gerald. Thank you all for joining us on our call this morning. And as always, if you have additional questions regarding the quarter financials, please don't hesitate to reach out to me directly. Thank you again, and goodbye.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.