ExlService at TD Cowen Conference: AI and Data Drive Growth

On Thursday, 29 May 2025, ExlService Holdings Inc (NASDAQ:EXLS) presented at TD Cowen’s 53rd Annual Technology, Media & Telecom Conference. The discussion, led by EVP and CFO Maurizio Nicoloy, highlighted ExlService’s strategic shift towards data analytics and AI. While the company anticipates robust revenue growth, it faces challenges in maintaining its workforce expansion in line with revenue. The firm is also focusing on strategic acquisitions to bolster its AI capabilities.

Key Takeaways

• ExlService aims for 11%-13% revenue growth in 2025, driven by data and AI initiatives.
• The company has quadrupled its R&D investment since 2020 to strengthen AI solutions.
• Healthcare segment growth is fueled by AI-powered payment integrity solutions.
• ExlService is prioritizing acquisitions in data management and AI, alongside share buybacks.
• AI integration is expected to slow headcount growth relative to revenue increases.

Financial Results

• Revenue Growth: ExlService targets a revenue increase of 11%-13% for the current year, with visibility into 95% of the projected revenue.
• Capital Allocation: The company is focusing on mergers and acquisitions, particularly small to medium-sized tuck-ins in data management and AI. Additionally, ExlService is committed to share repurchases and maintaining minimal debt levels, with current debt at $300 million and adjusted EBITDA at $450 million.
• AI and Data Revenue: 42% of revenue stems from data analytics, while 11% comes from AI integrated into client workflows.

Operational Updates

• Operating Model Changes: ExlService has reorganized to be more client-focused, with a single front-end group selling all capabilities.
• AI Solutions: The company offers mature solutions like Paymentor and Extracto, alongside new innovations such as Code Harbor and AI agentic agents.
• Healthcare Segment: Payment integrity, driven by AI tools, accounts for over 50% of healthcare revenue, with the segment growing 26% quarter over quarter.

Future Outlook

• Data and AI Expansion: ExlService plans to deepen its penetration in data and AI, enhancing value-added services.
• TAM Expansion: The company aims to enable additional workflows at existing clients and gain market share through advanced technologies like AI and GenAI.
• Hiring Focus: There is an emphasis on recruiting technical experts in data management and technology infrastructure to support AI-driven growth.

For a detailed understanding, refer to the full conference call transcript.

Full transcript - TD Cowen’s 53rd Annual Technology, Media & Telecom Conference 2025:

Brian Bergen, IT Services and Payments Account: We’re gonna get started here. I’m Brian Bergen, IT Services and Payments account. Thanks all for joining us. Very pleased for our next fireside with EXLS. EXLS is a global data analytics and digital operations service provider with over 60,000 employees.

It’s in professional span, India, The Philippines, South Africa and The US and more, where it provides a range of enterprise transformation, operations, data analytics and AI services with particular depth in insurance, health care, and BFS. With us from EXL, we have Maurizio Nicoloy, EVP and CFO. Maurizio, thanks for being here.

Maurizio Nicoloy, EVP and CFO, EXL: Thank you, Brian. Thanks for having me. Happy to As

Brian Bergen, IT Services and Payments Account: well as Jean Christophe, Head of IR in the room. Thank you. So think, Maurizio, to start, an intro standpoint and offering evolution standpoint, think that’s best. As you’ve seen the organization over the last five years, talk about the evolution of the service profile and the strategy that has evolved, particularly COVID and the last several years as well with your data in the eye strategy?

Maurizio Nicoloy, EVP and CFO, EXL: Sure, sure. So when you look at our strategy over the years, we’ve done a very good job in pivoting with the market over the years. If you go back to when we really started the company back in 1999, we really started out as a BPO company in the insurance industry. And we really built up an operations management business between 02/2010. But, in 02/2006, we started the pivot.

We started to pivot in analytics. And we bought a company called Inductus in India to really begin our process to get into data analytics. And that really started to become a big area of growth for us between 2010 and 2020. And you saw that piece of our business really materialize during that time period. So, we think of the first ten years as really building out operations management.

The second ten years is really building out our data analytics business. Which is kind of unique at the time because you’ve had a lot of our competitors back then not really getting into data analytics at the same time we did. We started to pivot again in 2015, ’20 ’16 with technology and digital, when RPA came out. And that’s where we started to include bots in our employee workflow, into our client workflows. And that really started the pivot for us in digital.

And you saw us move from RPA to machine learning to eventually into AI. And now you see us pivoting to GenAI and also to AgenTic AI, which is the new kind of technology that is at the forefront for us also right now. But, you know, when you look at the last five years, it’s been pretty significant because we were a data led company in 2020. We pivoted to where we really focused on client data. We built up our data analytics business significantly.

We really focused on data with the digital capabilities starting to really progress. Now as we get to 2025, you know, we really do think that we are leading with both data and AI. AI is at the forefront of everything that we do now. You know, you look at all of the large integrated deals, they include AI. And they include some element of either data and AI, but really AI is really bringing the overall business together.

And it’s one of the reasons why we also restructured our segments. Because we were really structured between insurance, healthcare emerging, and data analytics was a separate segment. But what we found was AI was really at the forefront of all four. And we really felt, we felt the need to really restructure ourselves and also strategize ourselves around data and AI. Because if you look at our pipeline, virtually every opportunity includes some sort of element of data and AI.

And that’s really helped, you know, being at the forefront and really focusing on data and AI in everything we do and all the opportunities we have, is really at the forefront that’s creating that momentum for us to maintain low double digit growth on an annual basis. And that’s what we believe will propel us beyond 2025.

Brian Bergen, IT Services and Payments Account: Okay. So certainly key changes in the strategy and the offering evolution there over many years. If we’re back here in three years on the stage, how do you expect the mix of your businesses evolved?

Maurizio Nicoloy, EVP and CFO, EXL: I would say in, you know, if you looked at us three years from now, you will see us getting much more deeper in data and AI. You know, we talked about, currently 53% of our business has some form of element of data and AI or both in that revenue base. You know, as we move forward, so much of our opportunities includes data and AI, that you will see us getting more into that area and you’ll see that becoming a much bigger piece of our business overall. And that really changes the complexity of our company, right? Because we are, the percentage of our business will be higher in data and AI.

But it also means that we’re also moving up the value chain within our clients. And we’re providing more value add services to our clients overall. And you would see the tier start to build on data and AI overall. And I think that’s an evolution that’s beginning now that we should see over the next, as you say, three years.

Brian Bergen, IT Services and Payments Account: Okay, okay. Now, if we look back here, the last several years, there’s been consistent performance generally in your business. In broader services, it’s been much more challenging. As you think about what you’ve done and the execution you’ve had, is it something related to strategies? Is it the offering?

Haven’t had unfortunate client exposure? What you attribute the outperformance to relative to the services group?

Maurizio Nicoloy, EVP and CFO, EXL: I think we did a very good job in getting in early in certain capabilities. I think we got in very early on data management in analytics, and particularly in digital. And we have been able to use those capabilities to really build out our business overall, particularly in the operations space. For us to really grow now, it’s really dependent upon large integrated deals. But the way you win those deals now is really through data and AI going forward.

Right? It’s less, it still has a people component to it overall, But the real differentiator is that data and AI piece now going forward. And I think that’s benefiting us in terms of momentum overall. And it’s helping us in a period that there’s been a little bit of choppiness just overall in the market.

Brian Bergen, IT Services and Payments Account: Okay. Let’s talk about that choppiness. So what have you been hearing in client conversations and the broader demand backdrop? And if easier, separated by the types of businesses.

Maurizio Nicoloy, EVP and CFO, EXL: For the segments that we operate in and the services that we provide in, we haven’t seen too much of a change in terms of client demand. We’re very confident with that guidance that we gave for 11% to 13% revenue growth for the current year. And we’re confident on also our medium term guidance. So we extended that to the end of twenty twenty six. Because when we look at our pipeline overall, and we talked about this at Investor Day, we have visibility into 95% of our revenue this year between what’s been committed and also between weighted pipeline, which is consistent with prior years also.

And so we feel we’re in a very good spot right now in terms of 2025 to be consistent with the guidance we gave on revenue. And what we are working on now is really closing revenue for 2026. Right? The deals that we close today is really the driver of revenue in 2026 and beyond at the end of the day. So, you know, in terms of the segments we operate in, we’re in a comfortable spot

Brian Bergen, IT Services and Payments Account: right now. Okay, that’s good to hear. It seems daily, we’re getting changes on the trade and the tariff front. Any anything just in more recent weeks? Any changes at all on the margin in client sentiment?

Maurizio Nicoloy, EVP and CFO, EXL: We haven’t seen anything significant in the recent weeks regarding tariffs. We have not been significantly affected by tariffs, to be quite honest. When, if our clients are get, their businesses get affected by tariffs, you know, historically, they will look to us to help them mitigate through that. And the way they do that is really pushing forward with transformation and reducing cost overall. And so we’ve been a benefactor in periods of macro uncertainty overall just because clients look to us to help them navigate through there by reducing their overall exposure on the cost side.

Brian Bergen, IT Services and Payments Account: Okay. You mentioned the operating model changes. Let’s talk about that. So this was done at the on, I guess, late last year, the onset of this year, some financial reporting changes with that. But aside from the financial reporting, can you just talk about what, again, drove the change in is it go to market, is it how you deliver, what made you make that choice?

Maurizio Nicoloy, EVP and CFO, EXL: We found that so much of what we are pitching to clients now revolves around AI. And when you look at pre reorganization, we were pitching data and AI in opportunities within our industry segments. We were also And we also saw data analytics becoming more AI driven. Meaning analytics services becoming more AI services going forward. Right?

You’re building AI solutions on top of data to be able to extract insights out of that data. And given that AI was very broad between all of our segments, we really felt the need that we needed to reorganize to be more focused around our clients, both on the front end but also on the capability side. And I think it’s been a we’ve communicated that to all our clients and I think it’s resonated well. It also gets the front end group really focused around our strategy of data and AI and really brings the whole thing together for us.

Brian Bergen, IT Services and Payments Account: Okay. As you think about these changes, is there execution risk we need to be mindful of?

Maurizio Nicoloy, EVP and CFO, EXL: Look, we’ve done well in mitigating execution risk overall. We have not had any significant And obviously any change brings potential execution issues, but we have not encountered that, to be quite honest, just

Brian Bergen, IT Services and Payments Account: yet. Okay. As you bring things more closely together, can this potentially accelerate deal cycles or does it change anything on that front end?

Maurizio Nicoloy, EVP and CFO, EXL: It helps us get more organized around the client overall with all of our capabilities. Having a one front end group for each of the areas really selling all of our capabilities going forward. So I think it actually helps us get us more structured and that’s what we’ve seen kind of the benefit since doing this.

Brian Bergen, IT Services and Payments Account: Okay. And as you think about renewals, extensions, the amount of new logos, things like that, are there key major metrics or KPIs you’re tracking to test the benefits of these changes?

Maurizio Nicoloy, EVP and CFO, EXL: So, the big area is seeing how we are managing our clients and how quickly we are closing pipeline and also executing on our pipeline. Conversion. You know, in conversion. You know, if you look at just overall the environment, it’s a bit of an uncertain environment. You’ve seen it from some of our peers.

So, even if, you know, just managing to existing closing rate and conversion rate is a significant positive today in this market.

Brian Bergen, IT Services and Payments Account: Okay, okay. So now with the operating model changes came the financial reporting changes. And you now report AI and data led revenues versus digital operations. Digital operations, I think, is clear, the traditional work that the company had worked through on the operational side. When you talk about AI and data led revenues, can you kind of double click there as far as the underlying pieces?

Maurizio Nicoloy, EVP and CFO, EXL: Sure. So when you look at that 53%, what’s embedded in that 53%? The big piece, the biggest piece in there is our prior data analytics business. So if you take the data analytics segment that we had previously and put it into that bucket, that’s a big chunk of that, right? So if you looked at the 53% of revenue that we had in 2024 in data and AI, forty two percent of that was our data analytics business, right?

The other 11% there is two buckets. One is us doing AI, embedding AI in client workflows overall. And so we include the revenue from that workflow that has AI embedded in that workflow into that 11% overall. And then it’s also individual revenue from us selling AI solutions. That’s not included in the workflow.

So we have separately sold a number of our AI solutions as a separate sale and that’s included in that bucket also. So you have AI from integrated deals and you also have AI from selling the solution separately to a client in that Okay.

Brian Bergen, IT Services and Payments Account: You’ve talked at your investor event, you gave an updated medium term view for the total company. As we think about kind of breaking that down between the AI and data led versus the digital operations, just how do we think about those two offering growth profiles relative to that total company growth?

Maurizio Nicoloy, EVP and CFO, EXL: Yeah. So when you take a look at our data and AI growth of that business, right? Right now it’s 53% of our business. We do believe that that should be growing on an annual basis higher than 53%. That should elevate, which would mean it grows faster than the rest of our business overall.

And what’s going to drive that at the end of the day? There’s two things that are going to drive that going forward. One is new opportunities, whether it’s from existing clients or brand new client opportunities, whereby we embed data or AI or both into that solution or that workflow at the end of the day. But then it’s also going to be driven by us taking a process that we have in our operations piece of our business and embedding AI that business. And it’s part of our process internally at times we do cannibalize ourselves.

We do go into that piece of the business and embed AI. And that becomes part of the data and AI bucket overall. So you have a little bit of both. You have new opportunities that will drive data and AI, but then you’ll also have conversions from the operations piece into data and AI. Okay.

Brian Bergen, IT Services and Payments Account: As those engagements just get more efficient, they move to that side, so a slower growing piece in digital operations. Correct.

Maurizio Nicoloy, EVP and CFO, EXL: But it should still have a healthy growth rate overall as we close.

Brian Bergen, IT Services and Payments Account: And that grew, I mean if we pulled out what digital solutions from last year, that still grew, I think it was high single digits. Correct, correct.

Maurizio Nicoloy, EVP and CFO, EXL: It should still have a fairly reasonable growth rate overall because we still are closing deals in that piece

Brian Bergen, IT Services and Payments Account: of the business. Okay. So now, the solutions, the AI and digital solutions piece, can you talk about some of the bigger components, the specific solutions in there that are seeing the highest demand?

Maurizio Nicoloy, EVP and CFO, EXL: Yes, so when you look at our digital solutions or AI solutions that we’ve built, there’s a number of them. There’s kind of like two buckets when you take a look at it. One is more mature solutions that we’ve been working on for the last three or four years that have higher revenue numbers and also higher margins because we’ve sold it to multiple clients, we’ve been at it for multiple years. So that would be solutions like Paymentor. It would be solutions like Extracto, which is our AI extraction tool.

Exelia is another, you know, our voice recognition AI tool. Those solutions have been in the market for many years and have higher revenues. And then you have newer solutions, right? Stuff that we’ve been working on over the past twelve months, twelve to eighteen months. Those will include our code harbor solution.

It will include our seven LLMs that we’ve built. It’s starting to include our AI agentic agents that we’re starting to build. You know, we have 16 of them now in production. So you have kind of two buckets that are there. But you have mature solutions that have higher revenue, higher margin.

Then you have the newer stuff that is just coming to bear that should start to drive revenue over the coming years.

Brian Bergen, IT Services and Payments Account: Okay. And just to be clear on the component that has higher margin, that’s higher margin than company average?

Maurizio Nicoloy, EVP and CFO, EXL: In general, correct. In

Brian Bergen, IT Services and Payments Account: general, I guess the contracting of these solutions, so you’re able to obviously identify revenue streams from them and profitability. What is the terms and conditions and the kind of contract structures around these solutions?

Maurizio Nicoloy, EVP and CFO, EXL: So, in these solutions, there’s multiple different types of contracting solutions, right? If we embed our AI solution into a large integrated deal, it becomes part of the overall price to the client. Now, internally, we do price it, price those solutions. We’ll price the digital portion at the margin that we believe that it should be at, and then we’ll price the people portion of it at the margin that we believe should be priced at. And then you get a mix that goes to the client.

You know, a blend for us. If we’re selling the solution separately, then we really push to have it on a transaction or outcome base overall. Because we do believe that as the client uses the solution more, and benefits more, we should participate in that benefit. And we use payment integrity as kind of our model. Because payment integrity is completely outcome based.

And it is at scale and has one of the highest gross margins out of all of our products solutions within the company. And it’s a very good kind of example for us to use for all of these AI solutions that we’re building.

Brian Bergen, IT Services and Payments Account: Okay, okay. What’s kind of been the level of investment for the company across these solutions? Have you scaled that or any more recent investment levels that you’re scaling?

Maurizio Nicoloy, EVP and CFO, EXL: So that’s going to be important for going forward. As we get more into digital and technology, we have to make more investment into R and D. And we started that process back in 2020. If you look at the level of investment in R and D over the last four years, it’s gone up almost four times of what it was in 2020. So if you looked at the investment piece in 2024 versus 2020, it’s gone up almost four times.

And that’s going to be really important for us going forward, for us to stay ahead of the curve in this AI intense month by month change environment that we’re in. But that’s also going to require us to have higher gross margins going forward. We will need to drive price and drive gross margin to be able to fund investment overall. And then the net of all that will be an uptick in margins overall for the

Brian Bergen, IT Services and Payments Account: overall company. Okay. Okay. Maybe we’ll talk about the impact of Gen AI. There’s certainly different views about the risks.

You mentioned cannibalization earlier, that you’re proactively doing some of that. But there’s certainly a view on Wall Street that certain services areas ultimately are going to have challenges to get through all this. What’s your view on that generally as it relates to the services kind of

Maurizio Nicoloy, EVP and CFO, EXL: existential threat? We generally believe in each one of these technology evolutions, it has always been a tailwind to us versus a headwind. Because we’re able to take that new technology evolution and be able to embed it into client workflows to make our client workflows more efficient. But what ends up happening in most cases is we end up doing more with our clients. And we had a we had a chart that we used at Investor Day to show how much we have grown existing clients in terms of how many clients have really grown over time over the last four years.

It’s because what ends up happening is we end up transforming a client operation through technology, right? And it could be Gen AI. The client benefits, but at the end of that term, we end up renewing with the client and we end up getting more with the client. And that’s what’s helping us really drive revenue per client overall. And each one of those buckets, whether it’s the total number of clients over 50,000,000, total clients over 25,000,000, each one of those buckets have materially grown because we get into a client operations and then we’re able to land and expand.

And technology evolution is really helping us do that.

Brian Bergen, IT Services and Payments Account: So you’ve got a TAM expansion effectively in excess of whatever incremental productivity may be landing because of this new technology. Correct. Just on that productivity change, is there any scaling you can share as far as what incremental productivity you’re getting or productivity commitments you’re passing back through to clients?

Maurizio Nicoloy, EVP and CFO, EXL: That really varies between different processes of clients, and also it varies by client also. I would say it’s a pretty wide range, so it’s hard to kind of range it, to be quite honest. Okay.

Brian Bergen, IT Services and Payments Account: What are some of the areas that are in that TAM expansion bucket? What are new areas that you’re leaning into as a result of the technology?

Maurizio Nicoloy, EVP and CFO, EXL: So what it’s really enabling us is to bring on additional workflows at existing clients. Right? Being able to use that technology, you know, if we’re in insurance, we’re able to take on more workflows for clients because they’re seeing what we’re doing with existing workflows, and we end up getting more of their internal operation being outsourced to us and giving us the responsibility to transform it and to operate that for them. We’re seeing technology, we’re using the technology in many areas within healthcare. If you just look at payment integrity, that’s becoming more and more AI enabled now going forward, and that’s helping us expand in that area.

If you look at, what we do with the banks, you know, so much more of what we do with the banks revolves around AI. And part of that is us having to restructure their internal data so they are able to effectively use AI, but then it’s also building AI solutions on top of that data. So in each of the areas, we’re able to use that technology, whether it’s AI, Gen AI, and right now the newest technology is GenTeC AI, to be able to gain more market share

Brian Bergen, IT Services and Payments Account: with the client. Okay. I’m going to pause here to see if there’s any questions in the audience. If not, I’ll keep going.

Maurizio Nicoloy, EVP and CFO, EXL: Sure. So as we continue to build out our data and AI piece of our business, That should slow the amount of headcount growth in the overall business as we become more digitally enabled within our client workflows. If you look at the first quarter, as an example, our revenue growth was 15% on a year over year basis, but employee headcount only grew 9.6% organically on a year over year basis. That trend should start to continue now going forward because you should see headcount growth be slower than overall revenue growth, because we’re doing more and more with data and AI, particularly AI with our clients now going forward. So the need for headcount becomes slightly less than what we traditionally needed to grow revenue.

And so you’ll see that going forward. But then also on the hiring front, you will see us need more technical expertise. It’s gonna be more expertise within data management, particularly data management engineers that work with AI databases or AI solutions going forward. You’ll need more technology people because many of the discussions we get to in these large integrated deals now involve the CIO or the CTO organizations of our clients now. So it’s the large integrated deal selling process is becoming differently in that it’s becoming a bit more technology related now going forward.

For us, what’s going to be critical for us is hiring and data management, in our overall technology infrastructure, and in digital overall, to really maintain our momentum in growing the AI solution base of our business. Does that change where Does that

Brian Bergen, IT Services and Payments Account: mean it brings you closer to clients in some cases? Anything onshore that will be different?

Maurizio Nicoloy, EVP and CFO, EXL: There may be cases where we need to hire a bit more onshore, in some cases. I would say a majority still of our hiring will be overseas, particularly in Europe, India, South Africa, and The Philippines, where we have all our large centers. Okay.

Brian Bergen, IT Services and Payments Account: Health care, you guys obviously have a big business there. There are, in The US, questions about what may come from policy. Can you just talk about your health care exposure, any areas within government programs or things like that where you could have risk, is it insulated more with private players?

Maurizio Nicoloy, EVP and CFO, EXL: So when you look at our healthcare business, it’s really, our healthcare business, really the majority of the revenue is driven by four large payers. You know, and you can name the payers, you know who they are. More than 50% of our revenue comes from payment integrity in healthcare. Right? And so that is us going through the payers claims and finding the incorrect payments through our AI developed tools and handing those back to the client and they get a refund from the providers and we get a percentage cut of that.

Completely outcome based. So there is a big incentive for payers to give us more of their claims, because we’re finding so much. And because we have a wide variety of claims that come in from all the different payers, we’ve been able to really build a robust AI model to be able to go through all those claims. So that’s fairly insulated. That actually, we want more business from the payers because, A, they benefit and we benefit at the end of the day.

The next piece of that business is historical healthcare operations business that we’ve had in the And that’s a business that’s ranged between 85 to 90,000,000 in total revenue overall. And you saw that grow pretty significantly in the first quarter because we brought on two large, two significant deals that came on board in the first quarter, which actually, between that and payment integrity, really led the growth of 26% on a quarter over quarter basis for healthcare. And then the last piece is really a small data analytics business that we have within healthcare. So we’re fairly, when you look at those three pieces, we’re fairly insulated overall in that healthcare model, particularly because more than half the business is payment integrity.

Brian Bergen, IT Services and Payments Account: Okay, okay, very good. Final question for you, capital allocation. So as you look forward here in ’25 and into ’26, talk about the prioritization of capital allocation, certainly repo versus M and A versus any debt paid out.

Maurizio Nicoloy, EVP and CFO, EXL: Sure. Traditionally, when we look to allocate capital, it’s really in three buckets. It’s it’s debt reduction, it’s share repurchase, M and A. We have a fairly low amount of debt on our books. It’s only about 300,000,000 in debt that we have on our books.

And our adjusted EBITDA will be somewhere around 450,000,000 this year. And we have a healthy cash balance above 300,000,000. So the amount of capital to have debt reductions is gonna be very minimal. And then you’re allocating between share repurchase and M and A. I would say M and A is probably going to be a bit more of a focus for us, particularly in small to medium size tuck in acquisitions.

Really centered around data management and AI opportunities that augment what we have today. And then really the balance will be in share repurchase. You know, we’ve been active at buying back shares for many years now, particularly last year. We bought almost $200,000,000 worth of our stock last year at a very attractive $30 price. And so we’ll be active again this year in that area.

But it’s really going to be predominantly a mix between share repurchase.

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