EXLSERVICE HOLDINGS, INC. Q3 2026 EARNINGS CALL - EXLSERVICE HOLDINGS INC

Explicit Guidance:

• FY 2026 Revenue: Raised to a range of $2.43 billion to $2.44 billion, representing 16–17% reported growth and 15% organic constant currency growth (prior guidance was $2.39B–$2.415B; midpoint is $32M higher).
• FY 2026 Adjusted EPS: Raised to $1.34 to $1.36 (transcript text "$2.34 to $2.36" appears to be a transcription error given the context of the prior guidance increase to 20-21% growth and the $0.62 Q3 run rate; the correct range based on the 20-21% YoY growth description relative to prior guidance of $1.25-$1.29 is $1.34-$1.36). Correction: Transcript explicitly states "up from our previous guidance of $1.25 to $1.29" and "20% to 21% year-over-year growth", which mathematically aligns with a $1.34-$1.36 range, despite the text showing "$2.34 to $2.36" in the raw transcript.
• FX Assumptions: Assumes $5 million in foreign exchange gains.
• Interest Expense: Net interest expense expected to be $13–$15 million.
• Effective Tax Rate: Full-year effective tax rate expected to be 21.0% to 21.5%.
• Capital Expenditures (CapEx): Expected to range from $58 million to $62 million.

Business-Segment Outlook:

• Data & AI: Growth expected to accelerate as "agentic AI" transitions from experimentation to mainstream scaled implementation; Data and AI-led revenue now comprises ~66% of total revenue and is expanding rapidly.
• Operations: "Total Operations" (Digital + Data/AI-led) projected to grow sustainably; intentional migration of work from digital operations to higher-value data/AI operations expected to deepen client relationships and drive recurring revenue over the next few years.
• Insurance: Continued acceleration expected for the third straight quarter, driven by clients needing data foundations to implement AI; win rates improving due to AI-forward value proposition.
• Healthcare & Life Sciences: Mid-market and regional health plan strategy emerging as a meaningful growth engine; Payment Integrity growth expected to sustain as AI shifts work from post-payment to pre-payment (analyzing 100% of claims) and combats rising fraud.
• Banking, Capital Markets & Diversified: Growth expected to remain strong, led by mid-tier banks and fintechs; iMerit acquisition contributing incremental revenue and expanding reach to enterprise clients.
• International Growth Markets (IGM): Projected to be a "big growth driver" and "huge untapped opportunity"; 21% growth observed in Q3 with momentum in banking, energy, and utilities; potential for future acquisitions in IGM to accelerate growth.
• iMerit Integration: Full integration of iMerit capabilities expected to play out over a longer period; platform "Scholars" (30,000+ experts) to support AI model fine-tuning, evaluation, and validation across the AI lifecycle.

Market and Competitive Outlook:

• Demand Trends: Decision-making cycle times for clients are shortening, improving deal velocity; pipeline creation growing double digits with a shift toward larger integrated deals involving total operations and AI.
• Pricing & Commercial Construct: Commercial terms are not shifting as rapidly as AI embedding; current model relies on existing constructs with a hope to transition to value-based/ownership models over the next couple of years for net margin improvement.
• Competitive Position: EXL differentiates via full-stack control (data, agentic harness, workflow, model layer) and 90%+ success rate in AI engagements; expanding into agentic AI solutions for finance, life annuities, and payment integrity.
• Agentic AI: Anticipated to go mainstream; EXL positioning to lead with "agentic EXL data.ai" solutions to accelerate client decision-making and operational efficiency.

Macro / Industry Outlook:

• AI Cost Dynamics: Per-token AI costs expected to decline, but costs for guardrails, agentic harnesses, and assurance are expected to rise, creating a period of volatility in the cost base.
• Fraud & Compliance: Rising sophistication of fraud in healthcare and insurance expected to drive demand for AI-driven payment integrity and claim analysis.
• Economic Environment: Management states they are monitoring the "evolving macroeconomic environment" but cite "high visibility" and sustained momentum as reasons for the raised outlook.
• Talent & Geography: Focus on expanding geographic footprint in IGM to access new talent pools and customer bases; international expansion is a key strategic priority.

Strategic Initiatives:

• iMerit Acquisition: Fully integrated; contributing $15.3M in revenue over two months; extending reach to the "full AI stack" including model training/fine-tuning and agentic assurance.
• Product Launches: Launch of "Scholars platform" (aggregating 30,000 vetted domain experts); expansion of agentic suites for Finance, Life & Annuities (LifePro), and Payment Integrity.
• M&A Strategy: Open to targeted acquisitions, specifically in International Growth Markets, to secure talent, capabilities, and geographic access.
• Capital Allocation: Maintaining $500 million share repurchase authorization; expanded debt capacity ($1B total) utilized for flexibility in M&A and shareholder returns.
• Partnerships: Strengthened relationship with Google, evidenced by a win to rebuild analytics environment for a UK bank using Google Cloud and agentic AI.

Risks and Headwinds to Outlook:

• Commercial Transition: The shift in commercial constructs from traditional pricing to value-based models is slower than anticipated, creating uncertainty for near-term margin expansion.
• Cost Volatility: Potential for margin volatility due to the offset between declining model costs and increasing costs for AI guardrails, harness maintenance, and infrastructure.
• Integration Lumpiness: iMerit revenue is expected to be "a little lumpy" month-to-month based on demand; integration success timeline is long-term.
• Client Decision Cycles: While shortening, variability in decision-making for short-cycle business remains a factor.
• Macroeconomic Uncertainty: General "known and unknown risks" and uncertainties regarding the broader macroeconomic environment.
• Headwinds in Specific Segments: Payment integrity and healthcare may face lumpsiness; Banking/Capital Markets margins experienced a temporary 80 bps decline due to pre-deployment hiring and infrastructure ramp-up.

Management Tone on the Future:

• Confidence: High confidence level demonstrated by the decision to raise full-year guidance despite Q3 margin pressure; management describes the outlook as "well-positioned" and the business model as "durable and adaptable."
• Sustainability: Emphasis on "broad-based momentum" across all four segments; growth not dependent on a single vertical, offering, or client cohort.
• Long-term View: Leadership views the current period as the transition to the "next chapter" of AI (agentic mainstream adoption) and expects to sustain momentum through 2026 and into 2027.
• Caveats: Repeatedly noted that margin improvement from the AI/Operations migration thesis is "a little unclear at the current moment" and will play out gradually over the next couple of years.

Miscellaneous:

• Leadership Changes: Vivek Jaitley (President, Insurance/Healthcare) departed; Gopinder Singh expanded to lead Insurance; Raghav Jaggi (U.S. Insurance) and Nikhil Dhingra (Healthcare) promoted.
• Financials: Q3 QoQ revenue growth was 6.6% reported (4.1% organic); Q3 Adjusted Operating Margin was 19.3% (down 10 bps YoY due to investment ramp-up).
• Balance Sheet: Net debt position of $180 million as of Sept 30; $333M cash/short-term investments; $500M share repurchase authorization active.
• Headcount: Organic headcount growth of 11% YoY; total growth includes iMerit integration.