Earnings Call Transcript - EXLS Q3 2023

Operator, Operator

Good day, everyone, and thank you for standing by. Welcome to the Third Quarter 2023 ExlService Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. 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, Vice President of Investor Relations

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 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 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, Vice Chairman and CEO

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 payments 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 three 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 six quarters, we have averaged over 20% 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 the 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 multi-year 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 enable 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 structures 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 code languages to upscale their analytics infrastructure. This process often entails meticulous code management, translation and testing. We recently developed a new GenAI-based solution for code conversion, leveraging our domain expertise. Our solution automates the transformation of legacy code 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 GenAI engagements across all our key industry verticals. We believe these investments will position us well to capitalize on the strong pipeline of GenAI 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 three 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, CFO

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 nine 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 a 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 three 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 the 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 and 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 $0.37, a 21.3% increase year-over-year on a reported basis. Turning to our nine-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 nine 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 nine 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 nine 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 recurring revenue and a well-balanced portfolio across our Data Analytics and Digital Operations & Solutions businesses. 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

Thank you. Our first question comes from the line of Bryan Bergin from TD Cowen. Bryan, go ahead.

Bryan Bergin, Analyst

Hi, guys. Good morning. Thank you. 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, Vice Chairman and CEO

Sure, Bryan. Firstly, regarding our guidance for the year and the implied guidance for the fourth quarter, we have increased it by $9 million at the midpoint. This is despite facing a $2 million headwind from currency fluctuations and the bankruptcy of one of our clients, which has impacted our volume. After considering these factors, we expect our fourth quarter to remain stable compared to our third quarter across both business lines. Looking ahead, we see strong demand in the pipeline, with increasing win rates and larger deal sizes, which gives us confidence in sustaining double-digit growth. However, we are uncertain about the performance of marketing analytics at this time. As previously mentioned, we are looking to diversify our industry verticals in this area and focusing on our strengths, particularly in data management, payment integrity, and analytical services. We believe both our Digital Operations & Solutions and Data Analytics businesses will offer significant growth opportunities. We expect the Data Analytics side to deliver double-digit growth consistently. Currently, based on the deals we have secured, we are confident about our position in digital operations as well. Overall, our portfolio is performing well and is well balanced, and we are pleased with our current standing despite the challenging macroeconomic environment.

Bryan Bergin, Analyst

Okay. 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 18% or below. Is this just the timing of expenses you mentioned in kind of talent, GenAI solution development or any other top items to consider?

Maurizio Nicolelli, CFO

Yeah, Bryan, you've highlighted an important point about timing. Our adjusted operating profit margin for the first three quarters has been around 19.8%, which is significantly above the low to mid-18% range we projected at the beginning of the year. We've done exceptionally well in terms of profitability during these first three quarters. In Q4, we plan to make several investments in areas like front-end sales, marketing, and especially in our digital initiatives such as GenAI, some of which we had intended for Q3 but were postponed to Q4. This will be reflected in the AOPM range of high 17% to low 18% for the fourth quarter. However, this doesn’t alter our outlook for 2024; it's simply a matter of timing for Q4. Even with the expected AOPM in Q4, we will still exceed 19% for the year due to our strong performance in the first three quarters.

Bryan Bergin, Analyst

Okay. Understood. Thank you.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Maggie Nolan of William Blair. Maggie, your line is now open.

Maggie Nolan, Analyst

Thank you. 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, Vice Chairman and CEO

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.

Maggie Nolan, Analyst

Thank you. When you spoke about Dublin, you mentioned the potential for it to become a hub for further geographic expansion. Could you provide more details on that, including what you anticipate in the coming years regarding your geographic mix and potential growth areas for the business?

Rohit Kapoor, Vice Chairman and CEO

Absolutely. So for us, first of all, our business in the UK 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.

Maggie Nolan, Analyst

Very good. Thank you very much.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Ashwin Shirvaikar from Citi. Go ahead.

Ashwin Shirvaikar, Analyst

Hi, thank you and good morning. I wanted to get a closer look at digital operations. When I examine the Insurance sector, I see consistent growth, which is a positive trend. However, the Healthcare segment has remained relatively static for a few quarters, as has the Emerging part. Could you provide more insight into what’s driving those two areas? Any detailed breakdown regarding the Emerging segment would be helpful for our future forecasting. Thank you.

Rohit Kapoor, Vice Chairman and CEO

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 two 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 a 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, for us, we are very, very happy with the way in which the Digital Operations & Solutions business is growing.

Ashwin Shirvaikar, Analyst

Thank you for your insights. One of the questions we frequently receive from investors pertains to the normalized growth for a company like EXL over time. I noticed a potential indicator in an interview where you mentioned a revenue target of $2 billion by 2025, suggesting a growth rate in the low double digits, around 11%. Could you elaborate on this? Considering how you've grown in the past three to four years, this growth target seems rather modest. Any additional context on whether factors have changed in the last few years or if the previous growth was an anomaly would be appreciated.

Rohit Kapoor, Vice Chairman and CEO

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 digits 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.

Ashwin Shirvaikar, Analyst

Thank you for that.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Mayank Tandon from Needham. Mayank?

Mayank Tandon, Analyst

Thank you. Good morning. Rohit, you talked about the GenAI 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 GenAI into their business models?

Rohit Kapoor, Vice Chairman and CEO

Sure, Mayank. I think GenAI 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 GenAI into those operations and into those solutions. Number two, we are going to clients, leveraging GenAI and winning large pieces of integrated digital operations deals. So this is helping us win new business either from existing customers or from new customers. Number three, GenAI is also leading us to be able to deploy GenAI 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 GenAI and helping them create operational efficiency and productivity gains. And number four, GenAI is creating a huge opportunity for us on the data management side. So we all know that in order for GenAI 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 on moving their structured data to the cloud and getting their structured data organized so that that data will be usable. 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, GenAI, pure GenAI 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, as my quick follow-up here on margins. Sorry, I did hear your comments, Maurizio, on margins, but 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, CFO

We appreciate the question, Mayank. We have consistently discussed improving our margins each year. From 2020 to 2022, we experienced a significant increase, rising from a range of 14% to 15% to 18.3%. We plan to continue making annual improvements to our margins, aiming for a modest increase of 10 to 20 basis points each year. While we've been successful in exceeding this, our focus remains on incrementally driving margins higher rather than experiencing large spikes like we did in previous years.

Mayank Tandon, Analyst

Got it. Thank you so much for taking my questions.

Rohit Kapoor, Vice Chairman and CEO

Thank you.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Surinder Thind from Jefferies LLC. Go ahead.

Surinder Thind, Analyst

Thank you. 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 two?

Rohit Kapoor, Vice Chairman and CEO

Sure, Surinder. Analyzing our new client acquisitions on a quarterly basis may not provide much insight. Instead, it's better to examine trends over multiple quarters for a clearer understanding of our achievements. In the first three quarters of 2023, we have secured more new clients than we did in the same period last year, with a well-balanced distribution between Digital Operations & Solutions and Data Analytics. We have gained 26 clients in Digital Operations & Solutions and 20 in Data Analytics, which we are pleased with. The key takeaway is that these are larger deals, which we highlighted previously. This is very encouraging. As our company grows and we build our business, the fact that we are signing larger deals now gives us confidence in our ability to maintain 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 like 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, Vice Chairman and CEO

Sure. The Data Analytics business for us is a business where two-thirds 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. One-third 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 just to clarify, can you provide details on what quarter-over-quarter growth in Analytics would have looked like if we excluded marketing? Specifically, I’m interested in the areas of decision analytics, data management, and payment integrity.

Maurizio Nicolelli, CFO

If you exclude marketing and analytics, the growth rate for the rest of the business would be in the mid-teens. All other areas are performing well, but this particular segment is causing our overall growth rate to decrease. However, you would have observed growth around the mid-teens.

Surinder Thind, Analyst

Perfect. Thank you, guys.

Operator, Operator

Wonderful. Thank you. One moment while we prepare the next question. Our next question comes from the line of Vincent Colicchio of Barrington Research. Go ahead.

Vincent Colicchio, Analyst

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

Maurizio Nicolelli, CFO

Yeah. Vince, it's Maurizio, and thanks for the question. But no, this is a one-off. We don't have any other client in this type of situation. When you look at our DSO and the health of our clients, this is really a one-off at the end of the day, and we don't have any other significant situation 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, CFO

M&A is still a significant opportunity for us. We have a healthy pipeline of M&A opportunities that we're evaluating, and we continue to advance through that process. Valuations have become more reasonable compared to 2022, which is noticeable. As we move forward, we want to enhance our capabilities, and considering our current cash flow generation, this is an area we want to focus on. We're looking at sectors such as data, analytics, technology, digital, and AI to add additional capabilities in those key areas to drive our business. In the future, we will be allocating capital between M&A and share repurchase, so you'll see a more balanced allocation between the two rather than the greater emphasis on buybacks that we've had over the past year and a half.

Vincent Colicchio, Analyst

Okay. Thank you. Nice quarter.

Rohit Kapoor, Vice Chairman and CEO

Thank you.

Operator, Operator

Thank you. One moment while we prepare the next question. Our next question comes from the line of David Grossman from Stifel. David, go ahead.

David Grossman, Analyst

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, Vice President of Investor Relations

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, Operator

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