ExlService Hldgs Q2 2026 Earnings Call: Complete Transcript

ExlService Hldgs (NASDAQ: EXLS ) reported second-quarter financial results on Wednesday. The transcript from the company's second-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

59, a 22% increase. 5% as AI integration shifts the business mix. The company announced the acquisition of iMerit, expected to add $28 to $32 million in revenue for the remaining five months of 2026, broadening AI capabilities and expanding the total addressable market. 29, citing strong performance and the iMerit acquisition.

Strong growth was observed across segments: Insurance grew 15%, Healthcare and Life Sciences 22%, and Banking, Capital Markets, and Diversified Industries 11%. The company emphasized AI's role in driving operational efficiency and client outcomes, highlighting token optimization as a key opportunity to enhance AI system efficiency. International growth markets revenue increased by 15%, with strategic focus on expanding in these regions and leveraging AI solutions. ExlService Hldgs plans to continue investing in proprietary IP and M&A to enhance its competitive advantage, supported by strong cash flow and a flexible balance sheet.

Full Transcript OPERATOR Hello and welcome to the ExlService Hldgs second quarter 2026 earnings conference call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time.

I will now turn the call over to Andrew Toot, Head of Investor Relations and Capital Markets. Andrew Toot, Head of Investor Relations and Capital Markets Thanks, Mariana, hello and thank you for joining ExlService Hldgs' second quarter 2026 financial results conference call. On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer, and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the second quarter earnings press release we issued yesterday afternoon.

We have also posted a slide deck and investor fact sheet on our investor relations 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, those factors set forth in yesterday's press release and in ExlService Hldgs' filings with the Securities and Exchange Commission from time to time.

ExlService Hldgs assumes no obligation to update the information presented on the 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 Kapoor.

Rohit Kapoor, Chairman & Chief Executive Officer Thank you, Andrew, and good morning, everyone. 59, an increase of 22% year over year. We entered the year with positive business momentum which has continued to strengthen throughout the first half, with broad-based growth across every segment of our business. We sit here today with very good visibility into the balance of the year and are looking forward to a strong finish to 2026.

We continue to differentiate ourselves with industry-leading growth as enterprises move from proof of concept to AI implementation. Our expertise, solutions, and services sit squarely at the center of the demand vectors where investment dollars are focused, delivering measurable business outcomes and economic efficiencies. Our deep understanding of client workflows and domain context combined with our competencies in data and AI engineering is creating a tailwind as we help clients solve the acute challenge of making AI work effectively in the enterprise. We are pleased with our results that reflect the strength of our data- and AI-led strategy and our focused execution.

Over the last two earnings calls, we have made additional efforts to bring transparency to our financial reporting. In addition to providing a revenue breakout across both data- and AI-led and digital operations, we now provide revenue from total operations as well. Data- and AI-led revenue has accelerated over the past four quarters, growing 18% in Q3 2025, 21% in Q4 2025, 28% in Q1 2026, and now 30% year over year in Q2 2026. Data- and AI-led services and solutions represent 61% of revenue with broad-based growth across data management, AI services and solutions, payment integrity, and data- and AI-led operations.

5% year over year, and I want to be explicit about why because this is important. This decline is by design, and it reflects the evolution of our business mix. As we embed AI into operations engagements, that work becomes more IP-led and higher value, and the related revenue moves into our data- and AI-led category. For this reason, we believe the best way to evaluate the health of our operations business is to look at total operations, which includes both digital and AI-led.

Our total operations revenue in Q2 were up 10% year over year, continuing a trend of healthy, consistent growth. As we go to market with an AI-forward value proposition in operations, it strengthens our data- and AI-led performance and vice versa. Combining operational expertise with proprietary data and AI capabilities, we help clients unlock greater productivity, faster decision-making, and measurable business impact. As AI adoption expands, the value of our operations relationships deepens, enabling us to identify new use cases, accelerate deployment, and drive sustained transformation.

This creates a mutually reinforcing cycle that delivers greater value to clients while supporting durable recurring growth for ExlService Hldgs. We saw strong performance across each of our four operating segments in the quarter. Insurance grew 15% year over year, representing one third of our revenues. Q2 was a defining quarter for ExlService Hldgs' insurance practice, translating multi-year AI investments into demonstrable client outcomes.

Insurers continue to accelerate AI adoption across underwriting, claims, and customer experience, and we are seeing strong deal activity across market segments. Healthcare and life sciences grew 22% year over year, representing more than a quarter of our revenues. Payment integrity continues to be a significant growth driver, and we are seeing strength in analytics, AI services and solutions, and operations. Payers and providers are under meaningful cost and regulatory pressure and are turning to ExlService Hldgs to apply AI at scale to improve productivity and outcomes.

Banking, capital markets, and diversified industries grew 11% year over year, representing a little under a quarter of our revenues. Deal activity was strong in the quarter, and we remain confident in continued progress through the year. International growth markets grew 15% year over year, an acceleration attributable to ramp-ups and new client wins. This quarter we welcomed Bhupinder Singh as President and Head of International Growth Markets.

Bhupinder brings a track record of building and scaling multibillion-dollar businesses in complex international markets, and he has hit the ground running, architecting our EMEA and APAC go-to-market, deepening client relationships, and building pipeline. International represents one of our largest long-term growth opportunities, and Bhupinder's appointment reflects our commitment to capturing it. Let me make our differentiation in the market more concrete with a few examples from the quarter, because the thread running through all of them is the same: You cannot deliver strong business outcomes without deep understanding of the client's domain and their data.

First, in healthcare we went live at a large national health plan with their first-ever customer-facing agentic AI module, delivering a high deflection rate and significant ROI for the client. When the client independently benchmarked our solution against that of a leading hyperscaler, ExlService Hldgs outperformed on every measure. What became apparent is that while technology and AI capabilities are necessary, combining deep contextual knowledge with data and AI is what creates exceptional value, and that is where we differentiate ourselves.

Second, in insurance we entered a competitive multi-vendor hackathon at a global carrier to build an AI-based data ingestion solution. Our approach, leveraging a strong understanding of the client's domain, resulted in us presenting the best solution. That win positions us as their agentic partner as they reimagine their data estate. It is repeatable, referenceable work we can now deploy rapidly across our client base.

Third, a capability that has increasingly become more important and integral to scaling AI services is token optimization. As enterprises operationalize AI at scale, token consumption has become a dominant constraint on cost, speed, and reliability. Working inside client workflows, we are able to reduce client token consumption by as much as 80%, helping them conserve spend and make their AI systems dramatically more efficient without compromising quality or latency. None of this is possible as a simple technology plug-and-play.

It requires deep knowledge of the workflow, experience of the regulatory context, and understanding of ontologies of the data estate within the industries we serve. Also during the quarter, we hosted our Investor and Analyst Day in New York. The core message was straightforward. The AI opportunity for enterprises is immense, and capturing it requires partners that can make AI scalable, effective, and accountable inside complex, regulated environments.

We laid out our view that sustained AI outcomes depends on three things working together: the right data, deep domain context, and proven AI capabilities, coupled with trusted execution at scale. This is the framework that guides how we build, how we invest, and increasingly it is what we hear directly from clients as they move from pilots into production deployments. We also outlined our investment priorities to extend our competitive advantage: continued investment in proprietary IP solutions that move us up the value chain, and targeted M&A. Twenty-five percent of our client revenues today touch our proprietary IP.

Strong free cash flow and an underlevered balance sheet gives us the flexibility to continue our share repurchase program and pursue acquisitions of products and solutions that allow us to better serve our clients' needs. Which brings me to the most significant announcement of the quarter. Last month we announced the acquisition of iMerit, which we expect to close on July 31st. iMerit is a recognized leader in AI model training, evaluation, and reinforcement learning, and we view this deal as a transformational pivot for ExlService Hldgs.

It brings established relationships with leading foundation model companies, a new and strategically important client segment for us. It also deepens our vertically specialized AI capabilities and expands our total addressable market into high-growth AI tech sectors. The landscape is also shifting in a way that makes this timely. Gartner predicts that by 2028, open-source GenAI models will underpin more than 50% of enterprise use cases, up from less than 10% today.

We believe this shift will be especially pronounced in the regulated industries we serve, where domain knowledge, context, and compliance are absolutely critical. Deploying AI reliably in the business-critical workflows requires industry-specific data, rigorous evaluation, and constant reinforcement learning. By combining iMerit's capabilities with ExlService Hldgs' domain expertise and AI platforms, we will be well positioned to help enterprises build, fine-tune, and operationalize AI that performs reliably in production—a natural extension of the data- and AI-led strategy we have been executing for years.

The strength of our business performance and the addition of iMerit give us the confidence to raise our guidance for the full year. 33 billion. iMerit accounts for approximately $28 to $32 million of that revenue for the remaining five months of the year. 23.

As always, I want to thank our clients, partners, and employees for their continued trust and commitment, and our shareholders for their continued support. With that, I'll turn the call over to Maurizio to provide additional details on our financial results and outlook. Maurizio Nicolelli, Chief Financial Officer Thank you, Rohit, and thanks everyone for joining us this morning. I will provide insights into our financial performance for the second quarter and our revised outlook for 2026.

9% on a constant currency basis. 4% on a constant currency basis. 3%. All revenue growth percentages mentioned hereafter are on a constant currency basis unless otherwise stated.

Now turning to the second quarter revenue performance by segment. 9% year over year. This growth was driven by both the expansion and higher volumes in existing client relationships. Sequentially, insurance revenue grew 2%.

7 million. Healthcare and Life Sciences reported revenue of $158 million, representing growth of 22% year over year and 4% sequentially. The year over year growth was driven by higher volumes in our payment services business, expansion in existing client relationships and new client wins. 3 million.

1% sequentially. This growth was driven by new client wins and expansion of existing client relationships. 8 million. 9% sequentially.

This growth was driven by ramp-ups and higher volumes with existing clients and new client wins in Banking, Capital Markets and Diversified Industries and Insurance. 9%, primarily driven by higher investments in front end sales and support. 7%, up 10 basis points year over year, driven primarily by improved gross margins. 3%, down 110 basis points year over year, driven by higher profits in lower tax jurisdictions.

3% year over year on a reported basis. 7% year over year on a reported and constant currency basis. This growth was broad based across all segments, driven by double digit growth in Healthcare and Life Sciences, Insurance and International Growth Markets. 1%, up 20 basis points year over year.

3% year over year on a reported basis. Our balance sheet remains strong. Our cash, including short and long-term investments as of June 30, was $284 million and revolver debt was $381 million for a net debt position of $97 million. We generated cash flow from operations of $90 million for the first six months of the year.

90 per share totaling $179 million. 10. Now moving on to our outlook for 2026.