ExlService Holdings, Inc. (EXLS) Q2 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Second Quarter 2021 ExlService Holdings Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Barlow. Please go ahead.

Thank you, Catherine. Good morning. Thanks to everyone for joining EXL's Second Quarter 2021 Financial Results Conference Call, and I'm Steve Barlow, EXL's Vice President of Investor Relations. With me today in our offices in New York are Rohit Kapoor, our Vice Chairman and Chief Executive Officer; and Maurizio Nicolelli, our Chief Financial Officer. We hope you've had an opportunity to review our Q2 2021 earnings release we issued this morning. We've also updated our investor fact sheet in the Investor Relations section of EXL's website. As you know, some of the matters we'll discuss in this call are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially 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 Securities and Exchange Commission from time to time. EXL assumes no obligation to update the information presented on this conference call. During our call today, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of these measures to GAAP can be found in our press release as well as the investor fact sheet. I'll now turn the call to Rohit Kapoor, EXL's Chief Executive Officer.

Thank you, Steve. Good morning, everyone. Welcome to our Second Quarter 2021 Earnings Call. I hope you and your families are safe and healthy. I'm delighted to report continued strong growth through the first half of 2021. EXL achieved better-than-expected results in the second quarter on revenue and adjusted EPS. Our Q2 revenue was $275.1 million, which represents a 5.2% sequential increase and a 22.3% year-over-year increase, both on a constant currency basis. Adjusted EPS for the quarter more than doubled to $1.14 per share. Our Analytics business reported revenues of $111.4 million, growing 8.8% sequentially and 35.1% year-over-year. The demand for analytics has increased in the post-pandemic environment. This growth is driven by 3 long-term trends: one, adoption of data-driven decision-making across the enterprise; two, hyper-personalization of customer interactions; and three, an accelerated shift to the cloud. Our investment in the advanced analytics, AI capabilities, cloud capabilities and our proprietary data assets gives us a competitive advantage. It has helped us accelerate our growth across all our targeted verticals. Our Operations Management business generated $163.7 million in revenue in the second quarter, up 2.8% quarter-over-quarter and 14.9% year-over-year, driven primarily by higher revenues from our Insurance and Emerging businesses. Before diving further into details of our business performance, I'd first like to give you a brief update on the COVID-19 situation across our geographies. As you know, we have all been through a very challenging period across the globe, and despite progress on many fronts, the threat from the virus remains. We continue to monitor the situation closely and are providing health-related assistance and relief to employees in areas that are still affected. We have reopened our physical office locations in the U.S. with limited capacity and continue to operate a hybrid work-from-home model in India, the Philippines, Europe and Latin America. Company-wide, we anticipate maintaining this hybrid model in the near term. In India, the second wave spikes that occurred in April and May served as a stark reminder of the severity of this pandemic. Several of our employees were directly impacted. We systematically addressed the situation by leveraging our resources, forming strategic partnerships and working closely with our clients. We provided essential medical supplies, isolation centers, vaccination support and financial assistance to help employees and their families. We have an active vaccination program in place and expect to have 75% of our employee population in India fully vaccinated by the fall. Thankfully, the situation in India has improved, but we continue to monitor it closely. I must commend the commitment of our employees and the collaborative spirit of our clients in helping us get through this daunting challenge without any significant interruptions to service delivery. Our employees and clients immediately sprung to action to help. I cannot thank them enough for their support, flexibility and empathy. Getting back to our Q2 performance, I'm delighted to share that our strategic client relationships have strengthened as we advanced our cutting-edge analytics offerings and reinforced our delivery capabilities. We have been successful in growing multiple new engagements while securing significant strategic client renewals. Our analytics and digital capabilities have emerged as key differentiators, helping our clients enhance their end-user customer experiences. We continue to invest in new digital and analytics capabilities and maintain a robust pipeline heading into the second half of 2021. An example of this is our work with a leading global bank with whom we are deploying data flow and decision automation capability to transform their wholesale and retail banking operations. Building on an engagement that started in the midst of the COVID-19 crisis, we created automated data ingestion and decision-making procedures for the bank to process applications and provide timely funding to customers applying for relief under the CARES Act Paycheck Protection Program. Our engagement has now expanded to a multiyear global contract to design and deploy similar solutions in several markets within the U.S., U.K., Europe and APAC regions. The program has already driven significant cost-reduction benefits and improved customer experience. It has also addressed the need for automating manual Sarbanes-Oxley compliance and other operational controls. Similarly, our AI-powered digital collection solution, PayMentor, has been resonating well with our clients. In a recent example, EXL partnered with an international bank to engage and activate customers using multiple channels, including e-mail and two-way SMS. The solution enabled the clients to reduce phone calls significantly and PayMentor's reinforcement, learning-based algorithms achieved response rates that were close to twice the industry standard benchmarks. We also deployed PayMentor at a Fortune 1000 client in a B2B context, enhancing collections and reducing delinquent receivables. We were able to pivot the solution's B2C focus to a B2B use case by making subtle changes to the underlying algorithm, thereby dramatically expanding our addressable market. To support the continued growth of our data-led strategy, we have aggressively ramped up our talent acquisition, training and talent development efforts. We have a particular focus in building competencies in the areas of data, analytics and digital expertise. In order to meet the growing demand of our clients, we have been hiring at a rapid pace in Q2 and have been successful in onboarding new clients, new talent at scale. We have also scaled up our leadership capacity to enable the achievement of our strategic goals. In addition to building our capabilities through talent acquisition, we are also developing internal talent to take on more significant responsibilities. One of the core elements of our capability development program is an agile learning ecosystem called EXL Infinity. This ecosystem provides personalized ongoing development of employees across multiple disciplines. The program is AI-driven and it anticipates individual learning needs to develop diverse skill sets continuous micro-learning. The platform has seen a major shift in learning towards digital and analytics capabilities, helping us build an internal talent pipeline. We also transformed our communication and engagement systems to support real-time feedback loops and enhance employee experience. We expanded our reach and frequency to keep up with the demands of remote working. EXL has demonstrated a true spirit of collaboration, responsiveness and creativity, and this has helped us get through the uncertainty over the last several quarters. We have been able to continually grow our business and form closer partnerships with our clients. I am confident in the resilience of our business model and the commitment of our people to support one another and our clients through a fast-changing and complex business environment. We have emerged stronger from this experience. Our business continues to grow, supported by a stronger pipeline. We are confident in our ability to maintain this momentum in the second half of 2021. I will now invite Maurizio to highlight our Q2 financial performance and 2021 guidance.

Thank you, Rohit, and thanks, everyone, for joining us this morning. I will provide insights into our financial performance for the second quarter of 2021, followed by our updated outlook for 2021. As Rohit mentioned, this was our best result in the last 23 quarters, with revenue of $275.1 million, up 23.6% year-over-year, while adjusted earnings per share was $1.14. All revenue growth numbers mentioned hereafter are on a constant currency basis. Revenue from our Operations Management business as defined by 3 reportable segments, excluding Analytics, was $163.7 million, up 14.9% year-over-year. Sequentially from the first quarter, revenue was up 2.8%. Our Insurance segment generated revenue of $94.7 million, up 14.9% year-over-year, driven by an expansion in existing client relationships and higher volumes. Compared to the first quarter of 2021, revenue was up 3.8%. The Insurance vertical, consisting of insurance operations management and analytics businesses, grew 3.8% sequentially from the first quarter. Healthcare reported revenue of $28.2 million, up 13.1% year-over-year, driven by higher volumes in our Clinical Services business and new wins of 2020. The Healthcare vertical consisting of our health care operations management and analytics businesses grew 3.7% sequentially from the first quarter. Emerging reported revenue of $40.7 million, up 16.2% year-over-year. This growth was driven by new client wins of 2020 and 2021 in Finance & Accounting, banking and utilities. Sequentially, Emerging revenue grew 8.1%. The Emerging vertical, consisting of the emerging operations management and analytics businesses grew 8.2% sequentially from the first quarter. Analytics revenue totaled $111.4 million, up 35.1% year-over-year. Analytics was 40.5% of revenue in the second quarter and had its highest growth rate in the last 8 quarters. This growth was driven by higher volumes across all industry verticals with expansion in client relationships, particularly banking and the ramping up of new wins in 2020 and 2021 as clients embrace our data-led solutions. Compared to the first quarter of 2021, revenue was up 8.8%. Our SG&A expenses were 20.4% of revenue, up 160 basis points year-over-year, driven by investments in front-end sales and onetime COVID-related spending totaling $2.2 million for the health and safety initiatives we undertook for our employees. Our adjusted operating margin for the quarter was 17.9%, up 850 basis points year-over-year, driven by operating leverage from higher revenue, continued cost optimization measures, lower infrastructure expenses and reduced discretionary spending. Our adjusted operating margin was down 230 basis points from the first quarter, driven by annual salary increments and onetime COVID-related expenses as mentioned earlier. Our adjusted EPS for the quarter was $1.14, up 115% year-over-year on a reported basis. EXL's balance sheet continues to remain strong, with a focus on liquidity and cash flow generation from operations. Our cash and short-term investments at June 30 was $295 million, and our debt was $165 million, for a net cash position of $130 million. During the second quarter, we reduced our revolver by $74 million. Our DSO at June 30 was 58 days. Now moving to our 6-month performance. Our revenue for the period was $536.5 million, up 13.5% year-over-year. This growth was broad-based, driven by Analytics, Insurance and Healthcare. Adjusted operating margin for the period was 19%, up 670 basis points year-over-year. Adjusted EPS for the period was $2.32, up 72% year-over-year on a reported basis. In the first 6 months of the year, we generated cash flow from operations of $53.9 million compared to $58.9 million in the same period last year. Now moving on to our outlook for the year. The economic environment in the U.S. and U.K. is improving, and we have a strong pipeline which continues to expand. In our non-U.S. delivery centers, we will continue to assess the impact of the pandemic and respond to changing circumstances with the primary focus being the health and safety of our staff. We have proven that we can manage our delivery commitments, and we will continue to be responsive to changing conditions. Based on our strong first half results, the continued strong demand for our services and solutions, particularly analytics, and improved visibility for the second half of 2021, we are increasing our revenue guidance for 2021 to be in the range of $1.08 billion to $1.1 billion, up $35 million at the midpoint and $30 million at the top end of the range. This represents a year-over-year growth rate of 13% to 15% on a reported basis and 12% to 14% on a constant currency basis. In 2021, we expect Analytics to grow in the low 20% range and Operations Management to grow in the 6% to 8% range. We expect a foreign exchange gain between $3 million to $4 million, net interest expense of $2 million to $3 million and our effective tax rate to be in the range of 23.5% to 24.5%. In terms of capital allocation, we will continue to invest in analytics, digital solutions and technology. We expect capital expenditures to be in the range of $35 million to $40 million. During the first half of the year, we repurchased 600,000 shares at a cost of $55.4 million. We anticipate buying back our shares in the second half of 2021 at a pace similar to the first half of the year. Based on the above, we expect our adjusted EPS to be in the range of $4.30 to $4.50, up 22% to 27%, driven by increased revenue in 2021. In conclusion, we had a good start to 2021 despite the challenges created by the recent pandemic surges. We have demonstrated a flexible and resilient business model. Our investments in analytics, data and digital solutions are successfully meeting our clients' transformation agendas, which is accelerating our pipeline of opportunities. Now Rohit and I will be happy to take your questions.

[Operator Instructions] Our first question comes from Maggie Nolan with William Blair.

So you're obviously experiencing good growth and momentum, nice client additions, et cetera. But I'm wondering, can you kind of frame for us how much of your client base, outside of new additions, is kind of back to pre-COVID-level spending? And can you give detail as it pertains to Ops Management and Analytics somewhat separately if possible?

Sure, Maggie. So for us, you're absolutely right. We are adding on new clients at a very fast pace. We are growing our Ops Management business and our Analytics business nicely. And the growth rate of the Analytics business is obviously a lot higher than the growth rate of our Ops Management business. In terms of the client spending as compared to pre-COVID levels, we would say that almost all of them are back to pre-COVID levels, except for some clients that we have in the travel industry. There, we do see the volumes still being lower than the pre-COVID levels. And as things return back to normalcy, we would expect to see that come back. In terms of Analytics, clearly, the pandemic has accelerated the use of data-based decision-making by clients. And that is powering ahead our Analytics business, and we are engaging with clients in a much more strategic fashion, in a much more certain fashion, and we're able to demonstrate clear value for them as we build our relationships with them. The Operations Management business for us is also growing nicely, and the embedding of digital and analytics and technology into our Operations Management business is what is providing the growth momentum in the Ops Management area. So frankly, we are very pleased with the positioning that we took, the strategy that we have, the capabilities that we've built and the way in which we are executing our business in conjunction with our clients.

Very good. And then there's a lot going on with your employee base. You've obviously touched on that. And attrition seems to be picking back up a little bit since the low of the pandemic. But I'm curious what your expectations are for that, just given the additional support you've provided them, the environment and then even some of these training and development platforms. Are those -- is it feasible that those drive the structural or historical attrition rate a little bit lower?

Sure, Maggie. So first and foremost, the health and safety of our employees is paramount, and we will do everything that is possibly necessary to ensure the health and safety of our employees. Our employees recognize that, and they see that to be a great trust factor and loyalty factor between our employees and the company. In terms of some of the change that's taking place, we are actually investing heavily in terms of reskilling our employees, upskilling our employees and creating the right kind of an environment for them to be able to take on greater responsibilities, work on much more complex products and solutions, and enhance their careers as they continue to work with EXL. The attrition rate in the second quarter has picked up from the first quarter. But as you know, that is a very normal practice, given the fact that we have salary increments that take place on first of April for a majority of our workforce, and we typically will see a higher attrition rate in the second quarter as compared to the first quarter. I think the real issue is about the ability to source talent and develop talent for being able to manage the growth expectations of our clients and some of the work that we are signing up with our clients as we go forward. We are very, very confident about the brand that we have built with our employee base of being able to attract the best talent, develop the talent internally and to be able to meet the growth aspirations of our clients, of EXL and our employees at the same time. So we think we are in a period where there will be an ability to match the growing demands from our clients and match that with the talent side.

[Operator Instructions] Our next question comes from Bryan Bergin with Cowen.

I wanted to dig in a little bit on the Emerging segment. So can you provide some color on the underlying businesses that you saw there in 2Q and the outlook for that going forward. And aside from travel, I'm curious if you're largely past prior issues in some of those areas. And if so, does that allow you to grow Ops Management potentially at a higher pace going forward? And I'm really trying to understand in the context of that 6% to 8% Ops Management growth target, given the first half performance on the second half comps.

Sure, Bryan. So the Emerging Business segment for us certainly has clients from a number of different industry verticals. We are seeing a broad-based engagement and growth take place across our portfolio out there. As you know, we've got clients which are in utilities. We do a fair amount of work there in finance and accounting. We do a fair amount of work with some of the emerging technology companies and support them in terms of their finance and accounting, and back-office operations. We do work with travel clients, we work with transportation and logistics. So there are a whole series of clients across multiple industry verticals. Broadly speaking, we are seeing good demand momentum, and the deployment of digital in ops management for the Emerging sector seems to be resonating really nicely for our clients and for our business. So that's the reason why we think the growth there is taking place. The travel side is still muted because most of the work that we do with clients on the travel side is pertaining to business travel, and that still has not resumed at the same level as consumer travel. So that's something which we think will happen over a period of time, and it might take a few more quarters for that to revert back. There are new areas that we are getting into in the Emerging Business vertical, and that is actually very encouraging for us. And when we talk of a 6% to 8% growth of ops management across industry verticals, we think the Emerging Business will be able to do really well, as they apply more digital technologies and more digital interventions into the ops management for our clients.

Okay. And a follow-up on margin. Did you see any meaningful return of costs associated with T&E or S&M spend? And how should we be thinking about discretionary cost resumption of those as you go forward and as we think about projecting normalized operating margins from here?

Yes. So Bryan, thanks for the question. When we think about margins for the second half of the year, we have a certain amount of expenses starting to creep back into our P&L. And you start to see some of the return to office expenses starting to come in, in Q4 and a little bit of an uptick on travel. But this is going to be a gradual process of these expenses coming back into our P&L. We have an assumption that a certain amount of our employees come back to the office in the fourth quarter of 2021. And that is -- that's something that we continue to review on a monthly basis. That's kind of a fluid situation for us. But we have assumed a certain amount of expenses coming back into the second half of the year, and you can see that also in a little bit in our guidance.

Our next question comes from Moshe Katri with Wedbush.

Congrats on strong results. So the pipeline looks pretty robust. Demand looks pretty strong post-pandemic. I don't know if it's post but hopefully we're towards the end of this. And you spoke about potentially accelerating growth. Are you ready to talk a bit about potential -- the potential for that actual growth rate in the midterm? Maybe talk about where top line growth could be. What should we expect? And then can you talk a bit about wage inflation? What are we seeing there? And obviously, it's been spiking. How is that impacting the P&L? And then how do we offset that down the road?

Sure, Moshe. Thank you for your comment. So in terms of the pipeline, the pipeline is strong. We are seeing larger-sized deals into the pipeline. And the sales velocity of us being able to close deals, while it is about the same as what we've seen in previous quarters, because the size of the pipeline has increased, you can see that the number of new clients that we have won in the first quarter of '21 and the second quarter of '21 is at a good pace. So we're very encouraged by that. The acceleration of growth is clearly visible in data analytics. And you can see that our growth in Analytics in this quarter was about 35% year-on-year. But for the year, as Maurizio shared in his prepared remarks, we expect Analytics for calendar year 2021 to grow above 20%, and that is certainly much higher than the 15% growth rate that we had shared with all of you in our Investor Day back in November. The engagement of digital, that continues to provide growth for us, but the Ops Management business will continue to grow at 6% to 8%. So for 2021, we are seeing acceleration in growth rate. For subsequent periods, we'll provide guidance, as we do normally, in February of next year. Coming to your second question on wage inflation. Certainly, we are seeing a number of things increase on the scarcity of talent and the inflation of wages. But keep in mind that this is actually spread differently across different skill sets and across different geographies. One of the benefits of the obviously for our employees to work from home is also the fact that commute time has been cut back and some of the costs associated with commuting has been brought down. We have to invest a lot more in terms of technology and making sure information security is in place. So those are areas that we are adding on to our expense structure, and we've managed the wage inflation in a balanced and cautious manner. So far, what we are seeing is wage inflation in India and in the U.S. and in other geographies continues to remain pretty much the same as what we have seen previously. But certainly, we understand that with the demand environment actually accelerating and increasing, that, that's something which we have to be careful about and try and manage that appropriately. We will need to engage with our clients in a model that is a lot more sustainable and make sure that the appropriate levels of productivity, digitization, different levers that we can deploy to maintain profitability can be applied and we can continue to build and grow our business, both on the top line and on the bottom line. As we've shared with you in the past, our expectations are to try and grow our top line revenues medium term at low double digits and for us to be able to grow our profitability slightly faster than our revenue growth.

We have a question from Puneet Jain with JP Morgan.

So Rohit, this year is obviously unusual. But given the investments you are making in Analytics and the need for that service from your clients, is there potential for that segment to outperform 13% to 15% long-term growth that you shared at last year's Analyst Day?

Yes. Thanks, Puneet. So clearly, as part of our long-term strategy, we have consciously and proactively invested in Analytics way ahead of competition and our peers. And then we felt that, that was an area where we could create value for our clients. We thought that was an area that would grow rapidly and it was a large addressable market. So we are really, really happy with the progress that we've made with our data analytics business. In calendar year 2021, the acceleration on Analytics is very visible, and it's certainly showing up in our numbers. As of now, based on the kind of pipeline that we are seeing there, the kind of engagement that we're seeing there, we are finding that our clients are all becoming data-led businesses. So our strategy of focusing in on data and helping them with data analytics and make -- create insights from the data analytics piece and embed that into operations seems to be resonating very nicely. Certainly, for 2021, the growth rate of Analytics, like we said, is going to be well above the 13% to 15% growth rate, and it's going to be 20% plus. On a go-forward basis, all the signals that we have to evaluate that seems to suggest a good strong growth rate, but we'll provide you with more color on that as we get to the beginning of next year.

Got you. And that strong -- your headcount addition was in this quarter. You're still back to pre-pandemic level in terms of the overall headcount while your revenue is much higher. So is the mix of the business different? Like you said, like Analytics is much bigger piece than what it was before, or do you need to catch up by adding -- by growing headcount at much higher rate over the next few quarters?

Puneet, it's Maurizio. That's a very good observation you made. When you look at our total headcount at the end of Q2, we're just slightly above where we were at the end of Q1 of 2020. But the mix has changed a little bit. We have 1,000 more people in Analytics in that mix and slightly -- and less in Ops Management. So we've become more efficient in our Ops Management headcount. And we're really driving Analytics going forward with additional headcount. And that's really reflective in our growth rate in Analytics. We're really investing now fairly heavily into Analytics to really power that growth in the upcoming years. So, your assessment is correct. The mix has changed, and we're starting to get back to right around that headcount level of -- for Q1 of 2020, just with a much higher revenue base.

[Operator Instructions] Our next question comes from Vincent Colicchio with Barrington Research.

Yes, Maurizio, if T&E expenses were the same this year as pre-pandemic level, how many points would that take off margin to give us a sense for the impact maybe next year?

So when you think about T&E going forward, the one thing that I would say about T&E is that we had a lot of travel prior to COVID. And we're starting to reassess T&E to see -- to really think about what is really the right level of T&E now going forward. I don't have the exact number on the effect to margin if we went right back to where we were pre-pandemic. But I would tell you that the way we look at T&E right now is that, that mix is going to change a bit going forward, in that, it's going to be a percentage of that T&E spend going forward. So we're not going to -- we don't envision getting right back to that significant T&E that we had in pre-pandemic. So when you look at our margins, it will have some basis point effect, but not -- but nowhere near where it was pre-pandemic.

And can you give us an update of your thinking and perhaps actions you're taking on real estate reductions.

So we're currently working on our new operating model going forward globally. We're going through a process within HR to really understand for each individual, starting with our enabling function, on how many days someone really needs to be in the office or what's that optimal time that someone needs to be in the office on a weekly basis. What we're starting to find is that you're going to have a lot of people that are going to be hybrid-working from home and the office. And that's going to start to change the requirements that we have within our offices, particularly here in the U.S. And so that's going to start our process to reconfigure our offices and potentially start to reduce the amount of space that we have going forward. Our process is going to be to review our leases and start to see when our leases come up, and we know that, and then start to put together a plan on reducing that amount of office space really going into 2022 as we could finish out this process towards the fall, coming winter of 2021.

And then one quick one, if I may. How much exposure do you have in south -- to South Africa? And is the unrest there having any impact on your operation?

Yes. Vincent, I'll take that. So in South Africa, our operations are in Cape Town, and most of the unrest is taking place in other areas within South Africa, particularly around Durban and Johannesburg. We have beefed up our security protocols out there and are doing a number of things to make sure that our employees are safe and secure out there. So far, we've not seen any real impact with the disturbances that have taken place in South Africa on our operations. Our exposure to South Africa continues to be very small. It's not a very substantial part of our business, but it's an important part of our business that is growing nicely, and we've got a very good talent pool out there, and we'd like to build up our capability there.

And our last question comes from David Grossman with Stifel.

I wonder if I could just maybe follow up a couple of questions that have already been asked. And maybe the first one is, I think, there have been a couple of different approaches to the margin question and what's a sustainable equilibrium for the business given all the distortions that we're seeing over the last several months. Is there anything you can add to what you've already said? I mean, you said that T&E probably doesn't go back to pre-pandemic levels, you'd probably require less office space. It sounds like your hiring rate in OM is at a lower rate than your revenue growth. So can you at all convention for us what is -- when we think beyond this year, how we should be thinking about operating margin. Even if you don't give specific guidance, but at least give us some context to think about it.

Sure, David. Let me expand on it a little bit more. So when you look at this year's margins, obviously, we had elevated margins in the first half of the year. When you look at the second half of the year, they start to come down. And so what's happening really within our margins in the second half of the year, we have a number of things that are flowing through. In particular, we restarted our increments or salary increases and we have another round that's going to happen in the fourth quarter of this year. We also are spending on technology, similar to what Rohit talked about, in terms of the work-from-home environment that we're investing in. We gave out margin kind of guidance of 16% to 17% to get to that level in 2022. That is right around where we would be in the second half of the year, more towards the upper end of the year. As we get towards the end of the year, we start -- we're going to start to finalize our new operating model for the go-forward. And that's going to help us make decisions on office real estate. And those changes will bleed into 2022. But we -- within our guidance also, we do talk about, to a certain extent, of the return to office in the fourth quarter of this year. And we have a certain amount of people coming back to the office that we have assumed in the fourth quarter. That may also bleed into Q1. So when you look at margins really on a go-forward basis, I would still focus you on what we talked about at Investor Day, 16% to 17%, but I would be at the upper end of that range, rather than the [ph] minimum really going forward. And that's how we're thinking about it at least right now going into the fourth quarter for 2022. But obviously, as we get into 2022 and if we do foresee more people working from a work-from-home environment and we do start to optimize our footprint and we do have a lower amount of spend that comes back from a number of different areas, particularly T&E, that will give us also additional margin enhancements going for '22. That will help us bridge the gap between 2021 and 2022.

Thank you. And that concludes today's conference call. Thank you for participating. You may now disconnect.