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

Explicit Guidance:

• 2026 Revenue: Raised to $2.43 billion–$2.44 billion (16–17% reported growth; 15% organic constant currency growth), up from prior guidance of $2.39 billion–$2.415 billion.
• 2026 Adjusted EPS: Raised to $2.34–$2.36 (20–21% year-over-year growth), up from prior guidance of $1.25–$1.29.
• 2026 Full-Year Assumptions: Foreign exchange gains of ~$5 million; net interest expense of $13–$15 million; effective tax rate of 21–21.5%; capital expenditures of $58–$62 million.
• 2026 Guidance Rationale: Assumes continued investment in go-to-market and data/AI capabilities through year-end.

Business-Segment Outlook:

• Data and AI-Led Business: Expected to continue driving growth as "agentic AI" moves from experimentation to scaled implementation; currently comprises ~62% of revenue and is expanding faster than operations.
• Digital Operations: Anticipated to remain low single-digit or negative on a standalone basis as engagements are reclassified into higher-value "Data and AI-led operations," though "Total Operations" (including both) is expected to grow.
• Insurance: Growth projected to accelerate; win rates improving due to AI-forward value proposition; clients prioritizing data foundation before AI implementation.
• Healthcare & Life Sciences: Mid-market and regional health plans identified as a "meaningful growth engine"; growth drivers include payment integrity moving from post-payment to pre-payment review (100% claim coverage) and combating rising AI-driven fraud.
• Banking, Capital Markets, & Diversified: Continued strong momentum expected from mid-tier banks and fintechs; new client wins and iMerit integration contributing to growth.
• International Growth Markets: Expected to become a "big growth driver" with accelerating momentum; viewed as a "huge untapped opportunity" with potential for future acquisitions to accelerate talent and geographic reach.
• iMerit Integration: Initial revenue contribution of $15.3M (over two months post-closing); future revenue expected to be "lumpy" on a monthly basis but steady long-term; platform "Scholars" (30,000+ experts) expected to generate commercial activity.

Market and Competitive Outlook:

• Agentic AI: Identified as the next phase of enterprise AI adoption, driving demand for "agentic EXL data.ai solutions" and full-stack capabilities (data, model training, workflow embedding).
• Deal Velocity: Client decision-making cycles shortening; pipeline creation growing double digits with a shift toward larger, integrated deals involving total operations and AI.
• Commercial Constructs: Current margin pressure anticipated to persist as clients prefer existing commercial models despite AI embedding; long-term expectation is a transition to outcome-based pricing yielding higher margins for EXL over "the next couple of years."
• Pricing & Margins: Expected to remain "fairly flat" year-over-year for 2026 as increased technology/infrastructure/AI investments offset employee cost leverage.

Macro / Industry Outlook:

• Macro Environment: Management monitors evolving macro conditions but cites "strong third quarter performance, high visibility, and sustained growth momentum" as reasons for raised guidance despite macro uncertainty.
• Currency: Outlook assumes net foreign exchange gains of ~$5 million.
• AI Costs: Anticipated decline in per-token costs for AI models, partially offset by increased costs for guardrails, agentic harnesses, and assurance; expects a period of cost base volatility.

Strategic Initiatives:

• iMerit Acquisition: Integration ongoing; extends EXL's reach across the full AI stack (data foundation, training, fine-tuning, workflow embedding); "Scholars" platform launched to fine-tune/validate AI models.
• AI Product Launches: New agentic suites launched for finance, LifePro (life/annuities), and payment integrity; partnerships with Google for cloud-native analytics migrations.
• M&A: Open to pursuing acquisitions in International Growth Markets to gain talent, capabilities, and geographic access; expanded borrowing capacity ($1B total: $400M term loan + $600M revolver) to fund M&A and share repurchases.
• Capital Allocation: Maintaining $500 million share repurchase authorization; returned $205 million to shareholders in the first nine months.
• Leadership: Restructuring reporting lines in Insurance (Bupinder Singh leading both Insurance and International Growth Markets) and Healthcare (Nikhil Dhingra reporting to CEO) to maintain continuity.

Risks and Headwinds to Outlook:

• Margin Pressure: Short-term margin stability challenged by investments in technology, AI infrastructure, and pass-through costs; commercial contract structures may not shift to outcome-based pricing as rapidly as AI embedding.
• Revenue Lumpiness: iMerit revenue expected to fluctuate monthly; short-cycle AI business may experience ebbs and flows.
• Macroeconomic Uncertainties: Broad macroeconomic environment remains a variable to monitor.
• Commercial Transition Risk: Failure to secure outcome-based pricing could limit margin expansion potential despite efficiency gains.

Management Tone on the Future:

• Confidence: High confidence in raising guidance due to broad-based momentum, improved win rates, and successful iMerit integration.
• Differentiation: Emphasis on a "differentiated competitive position" via the full AI stack and domain depth; "durable and adaptable business model" cited as key to sustaining momentum into 2027.
• Sentiment: Optimistic about "agentic AI becoming mainstream"; views current performance as proof of resonance with customer demand for integrated data/AI/operations solutions.

Miscellaneous:

• Backlog/Bookings: Pipeline creation growing double digits; 75% of business is recurring/annuity-based, providing a strong revenue foundation.
• Headcount: Organic headcount growth of 11% YoY; total headcount growth includes iMerit acquisition; revenue growth outpacing headcount growth.
• Success Rate: AI engagement success rate disclosed as well above 90%.