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    Hexaware Tech.

    HEXT
    Information Technology·25 Jul 2025
    Management Summary

    Hexaware Technologies reported a Q2 CY25 with 8.6% YoY revenue growth, though softer than anticipated due to delayed customer decisions. Despite one-time charges impacting margins by 15 bps, reported EBITDA remained within the 17.1%-17.4% target range, and EPS grew faster than EBITDA. Operational efficiencies improved with utilization at 83.7% and offshore mix up 110 bps. The acquisition of SMC, specializing in GCC setup, was completed and is expected to be immediately EPS accretive, bolstering long-term growth despite current macro headwinds and revised near-term growth expectations.

    Highlights

    5

    • Revenue grew 8.6% YoY, driven by strong performance in IT services (9% growth) and Banking (13.5% QoQ growth).

    • Reported EBITDA margin stood at 17.2%, aligning with the full-year target range of 17.1%-17.4%, with operational improvements contributing 100 bps QoQ.

    • Operational efficiencies improved significantly, with utilization reaching 83.7% (up 160 bps QoQ) and offshore mix improving by 110 bps sequentially.

    • The acquisition of SMC, specializing in Global Capability Center (GCC) setup, was completed in July and is expected to be EPS accretive from day one, enhancing Hexaware's strategic capabilities.

    • The company added 850+ headcount in the quarter (581 in IT, 265 in BPS), indicating robust underlying volume growth and a healthy pipeline for future quarters.

    Concerns

    4

    • Revenue performance for the quarter was softer than anticipated, predominantly due to delayed decision-making from customers.

    • Profitability was impacted by 15 bps from one-time charges, including a $9 million provision for a European client in a legal dispute and a $3.8 million restructuring expense.

    • The Manufacturing & Consumer (M&C) vertical experienced negative growth of -11.5% YoY, being the most impacted by macro factors such as tariffs and trade barriers.

    • Management indicated lower growth expectations for the remainder of the year compared to prior quarter's outlook, though long-term ambition remains unchanged.

    What Changed2

    vs Q2 FY26

    Guidance items4 → 8 (+4)Q&A highlights6 → 8 (+2)
    Key financials

    Metrics

    10

    Periods

    2

    Headline

    9
    • Revenue Growth
      8.6%
      YoY+8.6%
    • EBITDA Growth
      19.4%
      YoY+19.4%
    • Reported EBITDA Margin
      17.2%
      QoQ+0.5%
    • Operational Margin Improvement
      100 bps
    • Utilization Rate
      83.7%
      QoQ+1.6%

    LTM

    1
    • OCF to EBITDA
      76%

    Segment breakdown

    IT Business
    9% Growth
    BPS
    4.7% Growth
    Banking
    13.5% Growth
    M&C
    -11.5% Growth
    List

    Order Book

    medium confidence

    Pipeline

    deal pipeline tcv

    Solid and rapidly growing pipeline, including four mega consolidation deals still in progress.

    Cancellations / Deferrals

    • deferred:Four mega consolidation deals are still in the works but have experienced delayed decision-making.

    "Management notes a solid and rapidly growing pipeline, with several wins and progress on strategic initiatives, despite delayed decision-making on large consolidation deals."

    Source:
    Prepared remarks

    Capital allocation

    2
    high confidence
    CategoryHeadline
    M&A

    SMC

    acquisition · closed

    Liquidity

    Liquidity disclosed

    Company maintains a solid cash balance.

    Guidance & targets

    8
    CategoryTargetPriority
    Profitability
    Reported EBITDA Margin
    17.1%-17.4%
    		High
    Operational Efficiency
    Utilization Rate
    83%-84%
    		High
    Tax Rate
    Effective Tax Rate (ETR)
    24%
    		High
    Cash Conversion
    Operating Cash Flow (OCF) to EBITDA
    70%+
    		High
    Revenue
    Long-term Revenue Ambition
    $3 billion
    		High
    Headcount
    Gross Headcount Addition
    1,500 - 1,800 people
    		Medium
    ERP Costs
    ERP Cost Tapering
    Will go away (modules live)
    		Medium
    Restructuring Cost Benefit
    Benefit Accrual
    Start accruing
    		Medium

    ERP Cost Tapering/Completion

    By end of this year (CY25)
    CurrentContinuing, tapering down
    TargetHopefully live by end of year

    Why it matters

    Management indicated ERP costs would taper, but they are continuing. Verification of progress towards full module go-live is key for margin stability and achieving the full-year EBITDA target.

    Hopefully by the end of this year, we would have gone live by almost all the modules. That's our target.

    How to verify

    guidance_and_targets[metric='ERP Cost Tapering']

    Risks & concerns

    4
    RiskSeverity

    Delayed decision-making from customers

    Predominantly driven by delayed decision-making from customers, leading to softer revenue performance than anticipated. — Management acknowledged

    medium

    Macroeconomic softness (tariffs, geopolitics, trade barriers)

    Continued softness in macros, particularly impacting the M&C vertical with negative growth (-11.5% YoY), and influencing overall growth outlook. — Management acknowledged

    high

    One-time charges impacting profitability

    15 bps impact on margin from one-time charges, including a $9 million provision for a European client, a $3.8 million restructuring expense, and $1.5 million in diligence expenses for the SMC acquisition. — Management acknowledged

    medium

    ERP costs continuing longer than expected

    ERP costs, initially expected to end in Q2, are continuing to taper down, but management states the full-year margin outlook remains unchanged due to other operational improvements. — Management acknowledged

    low

    Q&A highlights

    8

    “Two things. One, we already called out the negative. We said we don't expect further negatives, and that's been true. Second thing we said that one of them is undertaking a large consolidation deal. That hasn't progressed as fast as we thought it will, but what we know now, or recently, is that actually they have suddenly pushed the pedal on that.”

    Clarifies the status of large FS deals, indicating one is accelerating after previous delays, which is a positive signal for future revenue.

    asked by Ankur Rudra

    2 min read6 chapters

    Detailed Narrative

    01

    Q2 CY25 Performance Overview

    Hexaware reported a Q2 CY25 with revenue performance softer than anticipated, primarily due to delayed decision-making from customers. Despite this, the company achieved an 8.6% YoY revenue growth. Reported EBITDA grew solidly at 19.4% YoY, and EPS grew even faster. Management reiterated confidence in their long-term growth trajectory, supported by a strong pipeline and strategic initiatives.

    02

    Strategic Initiatives & SMC Acquisition

    The company continued progress on strategic initiatives, including launching a new AI-based software engineering offering and securing two paid customers for its RapidX legacy modernization solution. A significant event was the acquisition of SMC, specializing in setting up Global Capability Centers (GCCs). This acquisition, which closed in July, is expected to be EPS accretive from day one and positions Hexaware to capture a growing market opportunity for GCC setup, projected to reach 2,700 in India over the next 4-5 years.

    03

    Operational Efficiencies & Profitability

    Hexaware maintained its profitability target, with reported EBITDA at 17.2%, within the 17.1%-17.4% full-year range. Operational improvements contributed 100 bps to margin, driven by increased utilization to 83.7% (up 160 bps QoQ) and a 110 bps sequential improvement in offshore mix. Days Sales Outstanding (DSO) improved to 73 days from 75, and the LTM Operating Cash Flow (OCF) to EBITDA remained strong at 76%, exceeding the 70% target.

    04

    One-time Charges and Margin Impact

    The reported EBITDA margin was impacted by 15 bps from one-time📎 charges. These included a $9 million provision for a European client involved in a legal dispute, a $3.8 million restructuring expense for a workforce reduction program (expected to yield future benefits), and $1.5 million in diligence expenses related to the SMC acquisition. Despite these, management emphasized that underlying operational performance was stronger and the company remains on track for its full-year margin guidance.

    05

    Vertical and Geographic Performance

    Growth was led by five out of six verticals, with Financial Services showing strong YoY growth despite a 1.1% sequential muted performance due to client spend cuts. Banking saw a sharp recovery with 13.5% QoQ growth. The Manufacturing & Consumer (M&C) vertical, however, experienced negative growth of -11.5% YoY, being the most impacted by macro factors like tariffs and trade barriers. IT services grew at approximately 9%, outpacing the 4.7% growth in BPS.

    06

    Outlook and Long-term Ambition

    While near-term growth expectations for the remainder of the year are lower due to continued macro softness and delayed decision-making on mega deals, Hexaware's long-term ambition of $3 billion in revenue by calendar 2029 remains unchanged. Management expects Q3 to show better QoQ CC growth than Q2, with potential for a strong Q4 if delayed large deals materialize. The full-year Effective Tax Rate (ETR) is estimated at 24%.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.