Hexaware Technologies Limited

Hexaware is deeply integrating AI into its operations, focusing on four key areas: building AI into platforms (Tensai, RapidX, Amaze), launching new AI-enabled services, retraining its workforce, and re-engineering processes like SDLC. The company claims to be first-to-market with products like RapidX for legacy reverse engineering and a vibe coding offering, and recently launched 'Zero License' for SaaS replacement. Management believes AI will positively impact every client daily, sooner than originally imagined, despite acknowledging a 20-40% scope reduction for existing work due to AI-driven productivity gains.

For Q4 CY25, Hexaware reported revenues of $389 million, a sequential decline of 1.5% ($6 million). This was primarily attributed to a 70 bps annualized cut from a GSE client, significant client furloughs, and a $7 million drop in license revenues to $11 million. Despite these headwinds, full year CY25 saw reported revenue growth of 7.6% (7.1% in constant currency) and proforma growth of 6.6%. The company's cash balance stood at over $235 million, and it maintained a debt-free balance sheet with DSO at 67 days, below the guided range of 70-72 days.

Q4 CY25 reported EBITDA margin was 17%, normalizing to 15.4% after adjusting for one-time^📎 items, representing a 210 bps sequential drop. Key contributors to this decline included Forex headwinds (20 bps), calendar impact (60 bps), utilization decline (60 bps), and merit increases (90 bps). Full year CY25 normalized EBITDA margin improved by 120 bps YoY to 16.8%. One-time^📎 items in Q4 included a $25 million earnout reversal for the 2024 Softcrylic acquisition, a $15 million impairment charge, and a $4 million credit loss provision. Additionally, a $3.5 million accelerated amortization for unused office space and a $12.5 million labor code impact were noted at the EBIT level.

The company reported strong deal momentum, with its pipeline crossing $4 billion for the first time. Key wins included a large consolidation deal in big tech, a significant deal with a major pet insurance company, and a global CRO deal focused on clinical research process efficiency. Hexaware also expanded its large client base, now serving two clients with over $100 million in revenue (up from one last year) and adding one client in the $50 million+ category. The offshore mix improved by 440 bps YoY, with SMC contributing 100 bps to this improvement.

Hexaware ended CY25 with nearly 34,000 employees and maintained an attrition rate of 11%, which is among the lowest in the IT industry. In Q4, the company added 254 resources, marking its 10th consecutive quarter of headcount addition. For the full year, 1,535 resources were added, with IT adding 2,000 and BPS seeing a reduction of 500. Utilization declined by 300 bps sequentially in Q4, attributed equally to furloughs, higher leaves during the year-end, and strategic bench building for upcoming deal ramp-ups. Management expects utilization to materially improve in the next quarter.

Hexaware expects CY26 revenue growth to be better than the 7.6% reported in CY25, with an EBIT outlook of 13-14% and an ETR of 25-26%. Q1 CY26 is anticipated to be seasonally weak, with calendar headwinds and ongoing GSE client impact. However, growth is expected to accelerate every quarter thereafter. From Q1 CY26, the company will report a new vertical, Technology, Products, and Platform (TPP), which is expected to grow faster from a small base. Banking and H&I are projected to lead growth, while GTT and FS will grow at company average, and M&C and Professional Services will trail.