Earnings call transcript: ExlService Q2 2025 beats EPS forecast, stock rises

ExlService Holdings Inc (EXLS) reported its financial results for the second quarter of 2025, surpassing market expectations with an adjusted earnings per share (EPS) of $0.49, compared to the forecasted $0.45. The company’s revenue also exceeded projections, reaching $514.5 million against an anticipated $505.89 million. Following the earnings announcement, the company’s stock rose by 2.26% in premarket trading, reflecting investor confidence in its growth trajectory. According to InvestingPro data, EXLS maintains a strong financial health score of 3.1 (rated as GREAT), with particularly high marks in profitability and growth metrics.

Key Takeaways

• ExlService exceeded EPS and revenue forecasts for Q2 2025.
• Stock price increased by 2.26% in premarket trading.
• Data and AI revenue constituted 54% of total revenue.
• The company launched new AI products and expanded strategic partnerships.
• Positive forward guidance with projected revenue growth of 12-13% for 2025.

Company Performance

ExlService demonstrated robust performance in Q2 2025, with significant year-over-year growth. The company’s revenue increased by 14.7% compared to the same period last year, while adjusted EPS saw a 20.3% rise. This growth is bolstered by its strategic focus on data and AI services, which now account for more than half of its total revenue. The company maintains impressive margins with a gross profit margin of 37.9% and operates with a moderate level of debt, as highlighted in InvestingPro’s comprehensive analysis, which includes 12 additional key insights available to subscribers.

Financial Highlights

• Revenue: $514.5 million (+14.7% YoY)
• Earnings per share: $0.49 (+20.3% YoY)
• Cash position: $356 million
• Net cash: $96 million
• Cash flow from operations: $109 million (compared to $75 million in 2024)

Earnings vs. Forecast

ExlService’s Q2 2025 results exceeded market expectations, with an EPS of $0.49, surpassing the forecasted $0.45 by 8.89%. Revenue also outperformed predictions, coming in at $514.5 million against a $505.89 million forecast, marking a 1.7% surprise.

Market Reaction

Following the earnings report, ExlService’s stock rose by 2.26% in premarket trading, reaching $44.85. This increase reflects investor optimism driven by the company’s strong financial performance and positive guidance. The stock remains well-positioned within its 52-week range, with a high of $52.43 and a low of $31.87. The company’s strong fundamentals are reflected in its return on equity of 24% and return on invested capital of 16%, though it currently trades at a relatively high P/E ratio of 33.5x. Detailed valuation metrics and advanced analysis are available through InvestingPro’s exclusive research reports.

Outlook & Guidance

ExlService provided optimistic guidance for the remainder of 2025, projecting revenue between $2.050 billion and $2.070 billion, representing a 12-13% year-over-year increase. The company also anticipates adjusted EPS to range from $1.86 to $1.90, marking a 13-15% growth. Continued investments in data and AI capabilities are expected to drive future growth.

Executive Commentary

CEO Rohit Kapoor emphasized the company’s growth potential, stating, "We have immense potential to grow our client base." CFO Maurizio Nikolay highlighted strategic reinvestments, noting, "We are reinvesting [productivity gains] back into data and AI to really drive future growth."

Risks and Challenges

• Macroeconomic pressures could impact growth.
• Intense competition in the AI and digital services sector.
• Sustaining current growth rates may pose challenges.
• Dependence on strategic partnerships for innovation.
• Potential regulatory changes affecting AI applications.

Q&A

During the earnings call, analysts inquired about the company’s AI adoption strategies and competitive positioning. Executives addressed margin expansion opportunities and clarified their investment strategy in technical talent, underscoring the company’s commitment to maintaining its growth trajectory.

Full transcript - ExlService Holdings Inc (EXLS) Q2 2025:

Call Moderator: Hello, and welcome to the EXL Service Holdings, Inc. Second Quarter twenty twenty five Earnings Conference I will now turn the call over to John Kristoff, Vice President of Investor Relations.

John Kristoff, Vice President of Investor Relations, EXL Service Holdings: Thanks, Jennifer. Hello, and thank you for joining EXL’s second quarter twenty twenty five financial results conference call. On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer and Murcia Nikolay, 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, 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 SEC from time to time. Exel assumes no obligation to update the information presented on this 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.

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Thanks, John. Good morning, everyone. Welcome to EXL’s second quarter twenty twenty five earnings call. I’m pleased to report another strong quarter as we consistently execute on our data and AI growth strategy. In the second quarter, we generated revenue of $514,000,000 an increase of 15% year over year.

And we grew second quarter adjusted EPS by 20% to $0.49 per share. Our results demonstrate significant momentum across all our operating segments. We delivered solid growth in the insurance segment, which represented a third of our revenue in the quarter. Insurance is a stable core strategic market for us with long term growth opportunities as our major clients continue to evolve their operations to be more AI powered. Healthcare and life sciences represented a quarter of our revenue and was once again our fastest growing segment.

This exceptional growth was driven by higher volumes in our payment services business, expansion of domain operations, and analytics services with existing clients in the healthcare payer space fueled by demand for our data and AI solutions. Banking, capital markets, and diversified industries also represented nearly a quarter of our revenue, and we were able to accelerate year over year growth for the fourth consecutive quarter. Leveraging our full data and AI capabilities to drive end to end value and improve business outcomes in this segment is a tremendous opportunity. We also drove strong year over year and sequential growth in our international growth market segment during the quarter as we continue to diversify our business geographically. This segment grew to 18% of our total revenue in the quarter.

We have immense potential to grow our client base in this segment, which is an opportunity to enhance our overall growth rate over time. During the quarter, our data and AI led revenue increased 17% year over year and grew to 54% of total revenue with strong performance across all four of our reporting segments. This demonstrates the strength of our competitive position as a recognized leader in embedding AI in the workflow and delivering superior return on investments for our clients. This strength is reflected not only in our consistent double digit revenue growth, but also in a robust double digit expansion of our sales pipeline this past quarter driven by large integrated deals. We have consistently delivered double digit growth for seven of the past eight years with 2020 being the only exception due to the pandemic.

Looking ahead, we remain confident in our ability to sustain this performance. I’d like to highlight three key areas where EXL is clearly differentiated, setting us apart in our ability to consistently drive double digit long term growth. First, our business model is fundamentally different from many of our peers. We’ve deliberately avoided low value work, which is highly vulnerable to disruption from AI. Instead, we have always focused on serving our clients in domain specific, complex business workflows.

These workflows are mission critical and are crucial to achieving business outcomes for our clients. Over time, we’ve built deep trust by continuously evolving alongside our clients, helping them drive growth and deliver measurable business outcomes. This has resulted into exceptionally high renewal rates with over 75% of our revenue being recurring or annuity like. This provides stability and consistency in our revenue. Second, we’ve spent the last twenty five years continually evolving our solution portfolio with a sharp focus on building analytics, data, and AI.

As generative AI and agentic AI become central to transformation efforts, success increasingly depends on three things, deep domain expertise and a nuanced understanding of process value chain complexity, proficiency with the multimodal data generated and consumed by these processes, and the ability to orchestrate and embed advanced AI into workflows to deliver meaningful outcomes. EXL has a unique combination of strengths across domain, data, and AI. Our decades of domain experience and early investments in data and AI allow us to help clients seamlessly embed AI into operations and achieve tangible results. The third key area where EXL is differentiated is that data and AI now represent the majority of our revenue, 54% this quarter. This makes us one of the only few companies in our space with such a heavy concentration of revenue in these high growth areas.

As AI adoption accelerates, industry forecasts show AI services growing at twice the pace of overall IT, cloud, and digital services. This long term secular trend presents a significant opportunity for EXL. In short, our differentiated business model, deep capabilities in data and AI, and strong alignment with long term market trends position us exceptionally well. We’ve earned the trust of our clients by consistently helping them grow and improve performance, making EXL the partner of choice now and into the future. We continue to invest in next generation data and AI capabilities, solutions, and partnerships to deliver differentiated value for our clients.

During the quarter, we expanded our proprietary large language model offerings. Notably, we launched our first multimodal LLM for property insurance underwriting, leveraging our proprietary survey data. This solution automates the interpretation and classification of property survey images, enhancing our property underwriting services. We also introduced a finance and accounting LLM that integrates structured and unstructured data to power agentic AI across finance workflows. Built with finance specific ontologies, it supports use cases such as invoice extraction, audit q and a, negotiation, and forecasting.

In health care, we unveiled a pair focused LLM designed to automate and enhance the accuracy of medical code extraction and summarize complex clinical data from physician notes, medical records, discharge summaries, and lab reports. Our extensive domain knowledge and access to relevant training data in these specific domains uniquely positions EXL to deliver more effective, generative AI solutions at a lower cost to drive higher ROI for our clients. We also experienced growing adoption of our eaccelerate.ai, agentic AI platform, which enables clients to reimagine operations and deliver transformative business outcomes. For example, we partnered with a major insurance client to modernize its customer communication management. Handling over 4,000,000 correspondence annually, the client faced high operational costs, inconsistent templates, and regulatory compliance risks.

By deploying an agentic AI solution capable of autonomously planning, executing, and adapting complex workflows with minimal human oversight, we help the client significantly reduce costs, improve consistency and documentation, and mitigate compliance risk. We leveraged our AI solutions to expand our client base by adding a large global bank. We partnered with them to modernize their data lineage framework. The client’s legacy systems lacked transparency and were heavily reliant on manual processes. We implemented our agentic AI data harbor solution to produce a comprehensive data lineage map.

Our client achieved over 98% data lineage coverage with a significantly reduced manual effort. This result exceeded the client’s expectations and has enabled us to generate additional opportunities with them in other areas. These are just two examples of how eXcelRate dot ai is enabling us to move into new domains from automating customer communications to delivering full data lineage and traceability, expanding our service offerings, increasing our total addressable market, and sustaining our double digit growth trajectory. We’re also extending our reach through strategic partnerships. Most recently, we announced a collaboration with Genesys, a global cloud leader in AI powered customer experience.

This partnership combines EXL’s deep data AI and domain expertise with Genesys, industry leading contact center as a service platform. Together, we are enabling enterprises across insurance, banking, health care, and retail to transform customer engagement through intelligent personalization, predictive analytics, and enhanced customer experiences. Our progress on data and AI is gaining global recognition and reinforcing EXL’s position as a leader in AI deployment. I recently had the privilege of participating in the World Economic Forum’s annual meeting of the new champions in Tianjin, China. I addressed delegates as an industry leader at an interactive AI hub session and at a press conference where EXL was honored as a twenty twenty five Minds winner for our code harbor solution, an AI powered platform for software code translation.

MINDS, which stands for meaningful, intelligent, novel, deployable solutions, was established to spotlight real world AI applications delivering measurable impact at scale. Not pilots or prototypes, but deployed solutions already transforming industries and lives. As part of this recognition, EXL will actively contribute insights to World Economic Forum initiatives over the next two years and collaborate with other global AI leaders working on similar challenges. We believe this collective approach is critical to unlocking AI’s full potential of positive impact. In conclusion, we are excited about the expanding market opportunities in data and AI with our deep domain knowledge, advanced data and AI capabilities, and proven ability to embed AI into complex workflows, EXL is uniquely positioned to deliver meaningful business outcomes and strong ROI for our clients.

Our business model is well balanced and resilient with a strong track record of performance across economic cycles. Over 75% of our revenue is annuity like, providing excellent visibility and stability for the remainder of the year. Coupled with the continued double digit growth in our sales pipeline, this strong foundation gives us the confidence to raise both our revenue and EPS guidance for the full year. With that, I’ll turn the call over to Maurizio to provide more details on our financial performance.

Maurizio Nikolay, Chief Financial Officer, EXL Service Holdings: 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 2025. We delivered a strong second quarter with revenue of $514,500,000 up 14.7% year over year on a reported basis and 14.6% on a constant currency basis. Sequentially, we grew 2.2 on a constant currency basis. Adjusted EPS was $0.49 a year over year increase of 20.3%.

All revenue growth percentages mentioned hereafter are on a constant currency basis unless otherwise stated. Now turning to revenue by segment in the second quarter. The insurance segment grew 8.6% year over year with revenue of $172,200,000 This was driven by expansion in existing client relationships and new client wins. The insurance vertical, including revenue from international growth markets grew 9.5% year over year with revenue of 203,200,000.0 The Healthcare and Life Sciences segment reported revenue of $129,500,000 representing growth of 22% year over year and 3.1% sequentially. The year over year growth was driven by higher volumes in our payment services business and expansion in existing client relationships.

The healthcare and life sciences vertical, including revenue from international growth markets grew 21.9% year over year with revenue of $129,700,000 In the banking capital markets and diversified industries segment, we reported revenue of $121,100,000 representing growth of 15.8% year over year and 2.7% sequentially. This growth was driven by the expansion of existing client relationships and new wins largely in banking and capital markets clients. The banking capital markets and diversified industries vertical, including revenue from international growth markets grew 15.7% year over year with revenue of $181,500,000 In the international growth markets segment, we generated revenue of $91,700,000 up 15% year over year and 4.7% sequentially. This growth was primarily driven by new client wins, ramp ups and higher volumes with existing clients across insurance and banking capital markets and diversified industries. SG and A expenses as a percentage of revenue declined 130 basis points year over year to 19.2%, driven by the one time restructuring costs we had in the second quarter of last year and lower employee costs.

Our adjusted operating margin for the quarter was 19.6, down 20 basis points year over year, driven by investments in new solutions. Our effective tax rate for the quarter was 22.4%, down 80 basis points year over year driven by higher profits in lower tax jurisdictions and reduced U. S. State taxes. Our adjusted EPS for the quarter was $0.49 up 20.3% year over year on a reported basis.

Turning to our first half performance, our revenue for the period was $1,015,000,000 up 14.9% year over year on a constant currency basis. This increase was driven by double digit growth across both our data and AI led and digital operations services. The adjusted operating margin for the period was 19.9%, up 50 basis points year over year. Our first half adjusted EPS was zero nine seven dollars up 23.5% 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 $356,000,000 and our revolver debt was $260,000,000 for a net cash position of 96,000,000 We generated cash flow from operations of $109,000,000 in the quarter versus $75,000,000 in the 2024. This improvement was driven by higher profitability and improved working capital. During the first six months, we spent $27,000,000 on capital expenditures and $50,000,000 on share repurchases. Given our confidence in the business and strong cash flow generation, we have entered into a $125,000,000 accelerated share repurchase program under our existing $500,000,000 board authorization. The repurchase will be funded through available cash and our credit facility.

Share repurchases are a key component of our capital allocation strategy and an effective way to enhance shareholder value. Now moving on to our outlook for 2025. While we remain prudent in our outlook for the year, our continued momentum and strong sales pipeline gives us confidence to raise our revenue and adjusted diluted EPS guidance for the year. We now anticipate 2025 revenue to be in the range of 2,050,000,000.00 to $2,070,000,000 representing year over year growth of 12 to 13% on reported and constant currency basis. This is an increase of $10,000,000 at the midpoint of our previous guidance.

We expect a foreign exchange gain of approximately 4,000,000 to $5,000,000 net interest expense of approximately $1,000,000 and our full year effective tax rate to be in the range of 22% to 23%. We expect capital expenditures to be in the range of $50,000,000 to $55,000,000 We anticipate our adjusted EPS to be in the range of $1.86 to $1.9 representing year over year growth of 13% to 15%. To conclude, we delivered another exceptional quarter demonstrating our formidable competitive position in embedding AI into the workflow. In addition, we have a highly adaptable and resilient business model and a strong sales pipeline giving us confidence in our ability to maintain our double digit growth momentum. With that, Rohit and I would be happy to take your questions.

Call Moderator: Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk and then you’ll hear your name called. Please accept, unmute your audio and ask your question. Our first question comes from Brian Bergen with TD Cowen.

Brian, unmute your audio and ask your question.

Brian Bergen, Analyst, TD Cowen: Hi, guys. Good morning. Thank you. I wanted to start on some details within your two key sectors in insurance and health care. So in insurance, you see growth was stable quarter on quarter.

Just curious, are there any drivers weighing on that relative growth rate versus the strong growth in the other sectors? Do you see insurance accelerating as you go through the second half? And then on health care, really strong first half. Can you just give some details, though, on your underlying exposures? We’ve gotten some questions as it’s related risks from, beautiful bill cuts to certain programs.

So just curious if you see any impacts potentially in that sector as you move ahead.

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Sure, Brian. So look. I think, first of all, the overall growth of the company is very good and healthy. And as we’ve guided to between 11% to 13%, and that’s very solid growth that we are seeing. In terms of the industry verticals, the growth rate in the insurance industry vertical is a nice healthy growth rate.

And the pipeline that we have in insurance is actually very strong, and it continues to be a very attractive industry vertical for us to continue to modernize, continue to embed more data and AI into the workflows, and continue to help our clients achieve and, you know, get the benefits of AI. So we feel, you know, good about, you know, the industry vertical. In terms of health care, we’ve had strong growth in the health care industry vertical for the last several quarters. The reason for that is that some of the data and AI led solutions that we have out there, particularly around payment integrity as well as some of the domain specific operations that use a fair amount of data and AI led solutions, that’s resonating very strongly with the health care industry payers. And while there has been a number of different regulations that are impacting the healthcare payers, they are constantly looking at ways to introduce more efficiency into their business operations.

And we are a very effective, you know, partner for them to be able to deliver that. So some of this will will ebb and flow as things go along. And I think, you know, some of the industries will rotate out and, you know, some will grow faster, some will grow slower. But in general, if you take a look at our core industry verticals of insurance, health care and life sciences, banking, retail, diversified industries, as well as our international growth markets, there is adequate diversification that we have. And in in general, we see good momentum across the board, across the industries.

Brian Bergen, Analyst, TD Cowen: Okay. Understood. Thank you. And then on GenAI and AgenTex, so very active developments continue. Good to see there.

Understanding it’s early, but as clients are adopting your solutions and and transitioning from traditional contracting to leveraging these tools, can you share any quantitative details on how that’s impacting the relative revenue and margin profiles of the engagements?

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Sure. So you’re absolutely right. I think, with, Generative and AgenTake AI and all of our new solutions in that area, that’s, something which we are very excited about because the adoption of these solutions is now taking place across the board. As we engage with our clients out here, the first and foremost objective for the company is to be able to deliver the business outcome that we are promising to these clients. Keep in mind that the traditional industry, success rate in terms of deploying data and AI solutions leveraging, generative AI is actually quite low at present.

It’s only about 30% success rate. EXL is operating at about a 94% success rate associated with the implementation of these data and AI solutions. So that’s, the number one thing that we are focusing on, which is to deliver that business outcome. In terms of the commercial model, the commercial model is shifting, and it will gravitate down towards much more usage based metrics. So that becomes a lot more on a transaction basis or an outcome basis.

And as that shift takes place, I think there is an opportunity for us to be able to expand margins, and that’s one of the levers that we have over the long term to be able to continue to deliver EPS growth rate, which is faster than revenue. So that’s a a long term trend that we see, which is as we get more data and AI revenue into our portfolio, the opportunity for us to be able to, manage our margins becomes a lot better. And there is less sensitivity to pricing associated with this because the value that we are delivering to our clients is significantly higher. And so as long as we can deliver that value to our clients, I think it’ll afford the opportunity for us and our clients to be able to share in that benefit and continue to build and grow our our margins out there.

Brian Bergen, Analyst, TD Cowen: Thank you.

Call Moderator: Our next question comes from Surinder Thind with Jefferies LLC. Please unmute your audio and ask your question.

Surinder Thind, Analyst, Jefferies LLC: Thank you. I I guess where I’d like to start with is given that we’re building all of these more proprietary type solutions, Rohit, can you talk a little bit about the moat and your ability to protect the IP around that versus competitors, you know, acting as fast followers?

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Sure, Sundar. So there are a couple of things that I’d like to kind of, you know, just point out to. Number one is, you know, at EXL, we own a number of technology platforms on which we serve our clients, particularly in insurance and in health care and then some of the new solutions that we’ve built. These platforms actually allow us access to proprietary datasets. And we’ve used these proprietary datasets to train our models and to be able to implement differentiated solutions for our clients.

And some of the LLMs that I spoke about in my prepared remarks talk about how we’ve trained these models on these proprietary data sets and created differentiated solutions. So one big source of differentiation and IP protection for us comes from these proprietary data assets, which we have access to and others do not have access to. The second part of that IP protection is you would see that, you know, the number of patents and the number of proprietary solutions that we are creating at a rapid pace, that is accelerating very, very strongly. And and so those areas of creation of this IP, creates, again, you know, a proprietary differentiated access point for us, and I think that’s gonna be pretty sustainable. So I I would really point out to those two things.

One is, you know, access to datasets which are not available to to others, and number two, creating proprietary IP solutions.

Surinder Thind, Analyst, Jefferies LLC: That’s helpful. And then when we think about just the the mix of business, obviously, continued demand on the the data and AI led piece. The quarter over quarter growth in digital operations was a little bit slower, than it has been historically. Can you talk a little bit about that and the pipeline of those projects? And and and when you talk about maintaining double digit growth, is that meant for both segments?

Or is that meant to be an overall firm wide growth rate?

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Sure. I think that’s a great question, Sveta. Look, I think what we are focused on is number one to deliver double digit growth overall for the company. That’s most important for us. Now the biggest pivot that we’ve made as an organization is to continue to sharpen our focus on data and AI led revenue.

And as you saw in this quarter, we grew that by about 17%, and that’s growing much faster than the rest of the company. And that’s something which we are going to be very focused on in terms of driving the growth rate, driving our acceptance with our customer base out there, improving our win rate, you know, on those solutions. Because our belief is that over the next one, three, and five year terms, those data and AI services and solutions are going to grow at twice the pace of the rest of the services that are there in the industry. So if we can position ourselves with the majority of our portfolio being in those segments, we can actually grow faster and we can deliver that double digit growth rate for the overall company. Now interestingly enough, the digital operations part of our business also is getting good traction and we’re seeing a fair amount of healthy demand out there as well.

Our job is to take that digital operation and convert that as much as possible with data and AI led solutions so that we are continuously embedding more and more of our solutions into the work that our clients entrust us to do. So frankly, this is a shift in our business mix, but it’s also a shift in terms of being able to access a lot more and expand the playing field that we have, and therefore, the TAM that we kind of target and be able to to be able to kind of sustain a double digit growth rate.

Surinder Thind, Analyst, Jefferies LLC: Thank you.

Call Moderator: Our next question comes from Puneet Jain with JPMorgan. Please unmute your audio and ask your question.

Puneet Jain, Analyst, JPMorgan: Hey. Thanks for taking my question. Rohit, it seems like like the AI adoption traction has increased this year. Do clients typically go with their, like, existing vendors, existing vendors of business process or existing BPO vendors when they’re looking to implement AI solutions or, like, the differences across vendors high enough right now in terms of what they can offer in AI that, they would be okay going with, like, a new vendor to replace, human driven BPO services or automate human driven BPO services.

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Sure, Puneet. So you’re absolutely right. You know, the adoption of data and AI is, you know, accelerating, and it’s actually playing out very, very nicely for EXL. From a client perspective, I will tell you that, clients are focused on seeing where they can get the most amount of value and which service partner of theirs is gonna deliver the most amount of value and help them in this journey of modernizing their their operating and their business stack and being able to serve their end customers in a seamless way. We at EXL have a distinct advantage that we understand the domain and the business of our clients.

We understand the workflow. We understand how to manage, access, and use data. And we know how to apply AI into the workflow. So that unique combination of mastery of domain data and AI definitely creates a positive differentiation for EXL to be the partner of choice for many of these engagements that our clients are undertaking. What we are finding is a number of newer clients are being attracted to us because of our ability to do this, and existing clients are gaining confidence in terms of entrusting us to to be able to work there.

The key thing for us is to be able to also access the CIO and the CTO, you know, of our client organizations. And so we are building up, those relationship, access points so that we can serve our clients on on the operating and the business side alongside with serving the clients on the technology side.

Puneet Jain, Analyst, JPMorgan: Understood. And should we expect, like, the growth trends across data and AI led and digital operations to continue in second half, especially on sequential basis?

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Yes. So so we would expect, our data and AI, you know, business to continue to grow and kind of, increase. And, you should expect, you know, a slightly lower growth rate of the digital operations business. So that’s something, you know, which we would, see on on on a go forward basis. Keep in mind one thing, that as we embed more data and AI into our existing digital operations business, that becomes a lot more valuable for us and for our clients, as we go along.

So the primary metric to focus on is obviously the overall growth rate of the company, but also how quickly we are being able to pivot towards data and AI led operations.

Puneet Jain, Analyst, JPMorgan: Got it. Thank you.

Call Moderator: Our next question comes from Matt D’Soult with William Blair. Please unmute your audio and ask your question.

Matt D’Soult, Analyst, William Blair: Great. Thanks for taking our questions. This is Matt on for Maggie Nolan. Congrats on the sustainable organic growth you’re enjoying. I guess what gives you confidence that that can persist?

And and can you parse out the drivers across volume from existing clients versus new logo additions, and and how do you expect that to to evolve?

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Sure, Matt. So I think, you know, a a few things really stand out for us. Number one is the work that we essentially do for our clients is mission critical work. It’s work that they need to kind of undertake no matter what the economic environment is. And, therefore, despite all the geopolitical noise, despite all the uncertainty in the in the economic environment, our engagement with our clients with over 75% of our business being annuity like, and recurring is a very strong foundation for that sustainable, growth rate.

The second aspect of this is we’ve been able to shift our portfolio where 54% of our total revenue now is data and AI. And that piece is accelerating in growth and the market opportunity is actually expanding. We would say that AI has dramatically increased the TAM that we can now target. And in terms of some of these new services and solutions that we are offering to our clients, it’s a gigantic opportunity that we’ve had in have in front of us. So And we are positioned very well.

And the final piece is execution. I think, you have to execute and deliver the business outcome for your clients and, you know, in order to have sustained growth and be able to have sustained momentum. We are in a fortunate position that we’ve been able to do this consistently across our customer base and be able to drive that. Your last point about existing clients and new clients. I think we’ve got a pretty healthy mix in terms of growth coming in from our existing clients as well as our ability to add on new clients.

So we’re very pleased with how the portfolio is progressing.

Matt D’Soult, Analyst, William Blair: Thanks, Rohit. I guess to follow-up, could I ask you to discuss the competitive environment? How are you seeing that evolve as clients are pressured a little bit by the macro and tariffs and and the drive to adopt AI, which you seem to have an advantage in. Are you seeing sole source deals increase? Is is this, you know, mix of elements, you know, improving the competitive environment for you guys?

Just talk to me about that a little bit. Thanks.

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Sure. The competitive environment, has certainly changed, in this kind of a backdrop. Number one, with AI coming in, there are a number of new startups. There are a number of AI first companies and organizations that are participating. There are a number of large global consulting firms that are getting into the fray, number of large data companies getting into the fray, a number of, you know, new AI companies kind of getting into the fray.

And I think, clients will look at all available options that are are out there. Our advantage lies in the fact that we understand the AI part of it, and we built very, very strong capability around it. But we also understand the domain and the workflow. And that is something which I think some of these new companies lack, which is they don’t have the same domain knowledge and business understanding of the operating processes, which we have by virtue of, you know, being engaged with our clients over this long period of time. So that’s certainly, you know, changing in terms of the competitive competitive landscape.

To your point about geopolitical changes, in terms of economic uncertainty, I think clients are gravitating towards having long term partnerships with select strategic providers. And they’re choosing partners that are gonna be relevant for them today and are gonna be relevant for them three to five years out because these are long term relationships that they’re building. And, you know, necessarily, is a lot of engagement that needs to take place from the client’s organization and from the partner’s organization. So this takes a while to be able to be established. They cannot really work with hundreds of different providers out here because that way, they’ll the the the effort to transform is gonna get diffused.

You’ll end up in different kind of architectures, and and it’s gonna be quite messy. And at the same time, going to a single, partner is also problematic because the ability to access new ideas, the ability to diversify, all of those benefits, you know, go away. So in general, we are seeing them gravitate down to a few strategic partners that they’re gonna work across the value chain. So that’s across business operations, across advanced analytics, around data management, around AI, and and kind of pulling all of that together. And we are again in one of those fortunate positions that we’ve got all the right capabilities to be that strategic partner of choice for our clients.

Call Moderator: Our next question comes from David Grossman with Stifel Europe. Please unmute your audio and ask your question.

David Grossman, Analyst, Stifel Europe: Great. Thank you. You know, I the first question I have is just on the architecture of the guidance. It it would it seemed to your annual guide would seem to imply EPS will be down year over year in the back half of the year. And just curious, maybe you could help us understand that dynamic given what appears to be very strong momentum in the business and plus you’ve got the share repurchase coming in at some point in the back half of the year.

Maurizio Nikolay, Chief Financial Officer, EXL Service Holdings: Hey, David. It’s Maurizio. That is correct. So when you look at the first half of the year, we had a very strong first half of the year financially, both top line and bottom line. And we continue to see that going into the second half of the year.

Now we’ve always guided for our AOPM at slightly higher than what we did last year. In 2024, we had AOPM of 19.4% and we are still targeting this year to be slightly higher 10 basis to 20 basis points this year. We ended the first half of the year at 19.9%. In order for us to continue this our growth trend of being growing double digits well into 2026 and thereafter, we have to continue to invest. And that’s what we’ll be doing in the second half of the year.

So we still project the year to be in the mid-nineteen percent range as we’ve always talked about. But given the strong first half of the year, there’s a little bit of a reflection in the EPS guidance that we will be slightly lower than the midpoint of 19% in the second half of the year, more towards the lower end of 19%. And that’s really for us to continue to invest in in both data and AI solutions to really drive revenue in 2026 and thereafter.

David Grossman, Analyst, Stifel Europe: Okay. And, you know, I I guess to that point, you know, just looking at the headcount trends versus revenue growth, you know, last, I think, two, three, four quarters, your your revenue growth is outpacing the headcount growth. So that, I would think, would be a positive to margins. So maybe you could reflect on, you know, what’s going on in that dynamic. Is it, you know, kind of some of the AI initiatives that get you productivity gains internally and operationally, or maybe there’s something else going on that’s more, you know, kind of point in time than something secular.

But, you know, the fact that you’re growing revenue substantially faster than headcount is an interesting dynamic, and curious of the impact kind of going forward and the impact on margins.

Maurizio Nikolay, Chief Financial Officer, EXL Service Holdings: Yeah. David, that’s a great observation because that’s a key metric for us is to really drive our revenue growth faster than headcount growth. And if you look at it again this quarter, revenue per headcount continued to increase quarter over quarter sequentially. And that’s really important for us going forward. What we’re doing today as we get as we get that benefit in our p and l is reinvesting it back into data and AI to really drive future growth.

And keep in mind, you know, with a lot of our AI solutions that we’re building today, they’re still in the in in a very young phase at the end of the day. And those as we continue to sell those and those get more accepted into the market and we really build on that, that’s when we really get the benefit in in future years. And it goes back to what Robert was talking about, and that we should continue to see that benefit to margins going forward in future years. So we right now, we are reinvesting that into the business continually pushing to drive top top line growth in that low double digit range.

David Grossman, Analyst, Stifel Europe: Right. And and if I could just sneak one more in. Obviously, there was one of your competitors was taken out recently. I don’t know, Rohit, if you have any thoughts you know, consolidation, what the implications may be for EXL, and kind of how you’re viewing that dynamic.

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Sure, David. So, look, first of all, the market space in which we are playing in is very, very large. And, you know, one of our competitors being taken out, I don’t think has any real material impact on us. The real issue for us is we have to focus in on our efforts to be able to be relevant for our clients. And we think with our domain knowledge and understanding of our clients’ business, the, investments that we’ve made in data and AI, that’s actually resonating well, and we are actually very well positioned to compete against any competitor in this space to be able to continue to drive growth and be able to build margins in our business.

I think, you know, you know, what what what how how that particular transaction will pay play out? You know, we’ll see over a period of time. As you very well know, a lot of that depends on execution and and the ability to integrate, and, you know, we’ll see how that plays out. But what I would say is that the market space is so big and so large, and we have a number of competitors that we compete with that this really should not make any difference to our competitive positioning in the market space. And and we are just focused in on just building and growing our business and continuing to add value to our clients.

David Grossman, Analyst, Stifel Europe: Got it. You know, just while I have you sorry, Rohit. If I could just get one more. Just it looks like the new client adds in the first half of the year have decelerated, you know, pretty significantly in from the first half last year. And you obviously had a really strong first half of last year.

But just wondering, is that more a reflection of the size of the clients? Is it kind of the economic backdrop? And anything you can share there since you don’t really report bookings? Yeah. Maybe help us understand that dynamic.

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Yeah. You’re right, David. I think that’s that’s an incorrect observation. But the way we are seeing the business trends, we’re seeing the demand, we’re seeing a look at the pipeline. Our pipeline has actually expanded by very strong double digit growth in the pipeline.

And so the business opportunities for us remain good. The quality of the clients that we have signed up, we are comfortable with that. So we think the growth rate of the business continues to be sustained going forward. There’s nothing that we are seeing which would, you know, cause us, any concern, for our growth rate for the second half of this year or going into ’26. I think, you know, there there is a lot of active dialogue with new clients.

And, like I said, you know, these capabilities are opening up, avenues for us to provide new services to existing clients and new services to new clients as well. And then, frankly, it’s a pretty healthy trend that we have. And the opportunity set for us, you know, globally is is actually huge. So, frankly, there’s a lot for us to do out here, and there’s enough demand for us to be able to target and to be able to build and grow the results.

David Grossman, Analyst, Stifel Europe: Okay. Very good. Thank you for taking my questions.

Call Moderator: Our next question comes from David Koning with Robert W. Baird and Co. Please unmute your line and ask your question.

David Koning, Analyst, Robert W. Baird and Co.: Yes. Thanks, guys. Great job again. You know, I guess, first of all, employee costs, I was just looking through the the 10 q. Employee costs were up 16 to 17% year over year.

Employees themselves up about 9%. I guess, what are the dynamics? Or is this partly a function of kind of a shift to hiring higher value add employees? Or maybe what are some of the dynamics of that?

Maurizio Nikolay, Chief Financial Officer, EXL Service Holdings: Yeah. Dave, the the biggest driver there is is really us hiring more, more high more highly skilled talent going forward overall. You’re right. You do see a slower growth in terms of overall headcount and a higher percentage on employee cost. I would say the biggest driver there is as we get more and more into data and AI, there’s a lot more in terms of technical highly technical skilled employees that we need to hire, and that’s really starting to get reflected in that percentage overall.

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Yeah. And I I would add, David, that, as you know, the second quarter is when we do our salary increments, and so that’s, also being added on to the the cost of the employees in the second quarter.

David Koning, Analyst, Robert W. Baird and Co.: Okay. Gotcha. And then a a lot of great questions already asked. So I’ll I’ll ask just kind of a technical 10 q question. I I saw another line called the other costs within cost of services.

That’s been down quite a bit year to date, both in q one and Q2. I think it was $13,000,000 this quarter, 17,000,000 in the year ago quarter. So that’s it seems like that’s helping margins. What is that? And does that sustainably help margins going forward?

Maurizio Nikolay, Chief Financial Officer, EXL Service Holdings: Yes. Dave, if you look back in the second quarter of last year, we had a onetime restructuring charge during the period. So that was the biggest driver in that. And that you see that fall off this year.

David Koning, Analyst, Robert W. Baird and Co.: Got you. That makes sense. All right. Well, thanks. Great job, guys.

Rohit Kapoor, Chairman and Chief Executive Officer, EXL Service Holdings: Thank you.

Call Moderator: Our next question comes from Vincent Coluccio from Barrington Research Associates. Please unmute your line and ask your question. Apologies, there’s been a technical difficulty. Bear with me one moment. Vincent, please unmute your line and ask your question.

Vincent Gluccio, your line is now open. And with that, we have no further questions at this time. I will turn the call back to John Christophe for closing remarks.

John Kristoff, Vice President of Investor Relations, EXL Service Holdings: Thank you, everyone, for joining us this morning. And as always, if you have additional questions, please don’t hesitate to reach out to me

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