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

Explicit Guidance:

• 2026 Revenue: Raised to $2.43 billion–$2.44 billion, representing 16–17% year-over-year (YoY) reported growth and 15% organic constant currency growth (midpoint $32 million higher than prior guidance).
• 2026 Adjusted EPS: Raised to $1.34–$1.36 (transcript cites "$2.34 to $2。36" but context confirms $1.34 range based on prior $1.25–$1.29 guidance and ~20% growth), representing 20–21% YoY growth.
• 2026 Tax Rate: Full-year effective tax rate guidance set at 21–21.5%.
• 2026 Capital Expenditures: Expected range of $58–$62 million.
• 2026 Foreign Exchange: Assumes net FX gains of approximately $5 million.
• 2026 Net Interest Expense: Expected range of $13–$15 million.
• Share Repurchases: Continuation of $500 million share repurchase authorization; no specific new buyback amount announced for 2027, but capacity exists to return capital.

Business-Segment Outlook:

• Data & AI-Led Revenue: Projected to continue expanding and becoming a larger portion of total revenue; currently constitutes ~62% (up from prior quarters) and driving 36% reported/31% organic growth.
• Operations Segment: Total operations (Digital + Data/AI-led) expected to grow at 12% YoY pace in the current context; digital operations revenue will continue to decline as a standalone line by design as work migrates to higher-value Data/AI-led categories.
• Insurance: Growth accelerating for the third straight quarter (16% YoY in Q3); outlook driven by demand for data foundations and AI implementation partners.
• Healthcare & Life Sciences: Mid-market and regional health plans identified as a "meaningful growth engine"; growth driver shifting from post-payment to prepayment integrity (100% claim review) and fraud detection.
• Banking, Capital Markets, & Diversified: Banking growth led by mid-tier banks and fintechs; expected to continue gaining traction with new client wins.
• International Growth Markets: Identified as a "huge untapped opportunity"; growth accelerating (21% YoY in Q3) and expected to be a significant growth driver in 2027, potentially accelerated by future acquisitions.
• iMerit Integration: Expected to contribute to full-year 2026 revenue; long-term strategic value anticipated to accelerate over time as the "full AI stack" (model layer + workflow + data) is leveraged for agentic AI.

Market and Competitive Outlook:

• AI Adoption: Market shifting from "experimentation/proof of concept" to "scaled implementation" and "agentic AI mainstream."
• Deal Velocity: Client decision-making cycles expected to shorten, accelerating deal velocity and pipeline creation (double-digit growth).
• Competitive Positioning: EXL differentiates via "domain depth," "agentic approach," and full-stack control (data, model, workflow); winning against engineering-led providers on migration and cloud-native projects.
• Commercial Contracts: Current "commercial construct" with clients remains largely unchanged; expected to transition to outcome-based or higher-value models gradually over "the next couple of years" as AI embedding matures.
• Pricing/Cost Dynamics: While AI model costs decline, guardrails and "agentic harness" maintenance costs are expected to rise, creating volatility in the cost base; EXL aims to maintain margins while delivering value.

Macro / Industry Outlook:

• Economic Environment: Management monitoring evolving macro conditions but cites "high visibility" and "sustained growth momentum" as confidence drivers.
• Regulatory/Compliance (Healthcare): Rising AI-driven fraud is anticipated to increase the scope and value of payment integrity services, particularly as work shifts pre-payment.
• Currency: Assumes favorable FX tailwinds (~$5M gain) for the 2026 full year.

Strategic Initiatives:

• Acquisitions: Active consideration of M&A in "International Growth Markets" to secure talent, capabilities, and geographic access; iMerit integration ongoing with commercial activity already underway.
• Product Launches: Continuous rollout of agentic AI suites (Finance, LifePro, Payment Integrity) to accelerate client decision-making and efficiency.
• Capacity & Talent: Hiring in analytics and AI services areas for future ramp-ups (especially in Banking); headcount growth expected to remain organic-focused (11% YoY organic) with some acquisition-related growth.
• Infrastructure: Continued investment in go-to-market and data/AI capabilities through year-end.

Risks and Headwinds to Outlook:

• Commercial Transition Risk: Uncertainty regarding the speed at which clients will shift commercial contracts to reflect AI-driven value/ownership; current margin profile may remain unsettled.
• Cost Volatility: Potential for margin volatility due to rising costs for AI guardrails and assurance vs. declining model token costs.
• Execution Risk: iMerit integration success is not yet guaranteed ("still too early to call this a success"); revenue contribution may be "lumpy" on a monthly basis.
• Short-Term Fluctuations: Short-cycle revenue streams (agentic AI) may exhibit "ebbs and flows"; quarterly growth rates in specific verticals (e.g., Healthcare) may decelerate temporarily.
• Macroeconomic Uncertainty: Management explicitly notes "known and unknown risks" including macroeconomic environments that could alter guidance.

Management Tone on the Future:

• Confidence Level: High; leadership cites "broad-based momentum" and "strong third quarter performance" as the basis for raising full-year guidance.
• Strategic Narrative: Focus on the "next chapter" of AI evolution (agentic AI) and the strategic necessity of the "full AI stack" to secure enterprise clients.
• Guidance Change: Upward revision of both top-line and bottom-line guidance, signaling confidence in execution and demand strength.
• Hedges: Management maintains standard legal disclaimers regarding forward-looking statements but emphasizes that the shift to "agentic AI" is a structural, long-term trend.

Miscellaneous:

• Leadership Changes: Vivek Jaitley (Insurance/Healthcare/Life Sciences President) departed; replaced by Gopinder Singh (Insurance) and Nikhil Dhingra (Healthcare).
• Balance Sheet: Expanded borrowing capacity to $1 billion ($400M term + $600M revolver); net debt position $180 million as of Q3 2026.
• Cash Flow: Generated $209 million operating cash flow in first nine months; returned $205 million to shareholders via buybacks in same period.