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    EXLS
    Earnings call· Jun 2026(Q2 FY26)

    ExlService Holdings Q2 FY26 earnings call EXLS

    Jul 29, 2026 Source

    Executive summary

    ExlService Holdings, Inc. Q2 FY26 — Strong Performance and Raised Full-Year Guidance Driven by Data & AI

    ExlService Holdings delivered a strong second quarter, exceeding expectations with broad-based growth, particularly in its data and AI-led services. The company raised its full-year guidance, reflecting confidence in its strategy and the recent acquisition of iMerit, which is expected to enhance AI capabilities and expand market reach. Management emphasized its differentiated approach in making AI scalable and effective within complex, regulated environments.

    Highlights

    5

    • Revenue reached $595 million, marking a 16% year-over-year increase.

    • Adjusted earnings per share (EPS) grew 22% year-over-year to $0.59.

    • Data and AI-led revenue accelerated to 30% year-over-year growth in Q2 2026, now representing 61% of total revenue.

    • Full-year 2026 revenue guidance was raised to $2.39 billion-$2.415 billion, and adjusted diluted EPS guidance to $2.25-$2.29.

    • The acquisition of iMerit, expected to close July 31, is anticipated to enhance AI capabilities and expand market reach.

    Concerns

    4

    • Digital operations revenue declined 1.5% year-over-year, though management noted this was a strategic reclassification.

    • SG&A expenses as a percentage of revenue increased 170 basis points year-over-year to 20.9% due to higher investments.

    • Adjusted operating margin is expected to be lower in the second half of 2026 compared to the first half due to increased investments.

    • The iMerit acquisition is projected to have a marginal dilutive impact of $0.01 on adjusted EPS.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year 2026 Revenue
    $2.39B-$2.415B
    high materiality
    High
    Full-year 2026 Revenue (iMerit contribution)
    $28M-$32M
    medium materiality
    High
    Full-year 2026 Revenue (Organic Constant Currency Growth)
    13%-14%
    high materiality
    High
    Full-year 2026 Adjusted Diluted EPS
    $2.25-$2.29
    high materiality
    High
    Full-year 2026 Adjusted EPS (iMerit impact)
    $0.01 dilutive
    low materiality
    High
    Full-year 2026 Effective Tax Rate
    21%-22%
    low materiality
    Medium
    Full-year 2026 Capital Expenditures
    $58M-$62M
    low materiality
    Medium
    Full-year 2026 Foreign Exchange Gain
    ~$3M
    low materiality
    Medium
    Full-year 2026 Net Interest Expense
    $16M-$18M
    low materiality
    Medium
    Adjusted Operating Margin
    lower in the second half of the year compared to the first half
    medium materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Insurance
    Growth driven by expansion and higher volumes in existing client relationships. Total vertical revenue (including International Growth Markets) was $233.7M, up 14.9% YoY.
    		$197.8M14.9%2%—
    Healthcare and Life Sciences
    Year-over-year growth driven by higher volumes in payment services, expansion in existing client relationships, and new client wins. Total vertical revenue (including International Growth Markets) was $158.3M, up 22% YoY.
    		$158M22%4%—
    Banking, Capital Markets and Diversified Industries
    Growth driven by new client wins and expansion of existing client relationships. Total vertical revenue (including International Growth Markets) was $202.8M, up 12.8% YoY.
    		$133.9M10.7%5.1%—
    International Growth Markets
    Acceleration attributable to ramp-ups and new client wins in Banking, Capital Markets and Diversified Industries and insurance.
    		$105.1M16.3%8.9%—
    Data and AI-led revenue
    Accelerated growth across data management, AI services and solutions, payment integrity, and data and AI-led operations.
    		61% of total revenue30%——
    Digital operations revenue
    Decline is 'by design' as AI embedded into operations moves revenue to the data and AI-led category.
    		—-1.5%——
    Total operations revenue
    Includes both digital and AI-led operations, showing healthy, consistent growth.
    		—10%——

    Operational metrics

    14
    SG&A expenses as percentage of revenue
    20.9%up 170 bps YoY
    Q2 FY26

    Primarily driven by higher investments in front-end sales and support.

    Adjusted operating margin
    19.7%up 10 bps YoY
    Q2 FY26

    Driven primarily by improved gross margins.

    Effective tax rate
    21.3%down 110 bps YoY
    Q2 FY26

    Driven by higher profits in lower tax jurisdictions.

    Cash and investments
    $284M
    as of June 30, 2026

    Includes short- and long-term investments.

    Revolver debt
    $381M
    as of June 30, 2026

    Part of the company's balance sheet.

    Net debt position
    $97M
    as of June 30, 2026

    Calculated from cash and revolver debt.

    Capital expenditures
    $27M
    H1 FY26

    Spent during the first 6 months of the year.

    Shares repurchased
    5.8M
    H1 FY26

    Includes shares repurchased under the accelerated share repurchase program.

    Accelerated share repurchase program shares
    4.15M
    H1 FY26

    Shares repurchased under the ASR program.

    Token optimization reduction
    up to 80%
    current

    Reduction in client token consumption, helping conserve spend and improve AI system efficiency.

    Client revenues touching proprietary IP
    25%
    current

    Indicates the penetration of EXL's proprietary solutions.

    Adjusted operating margin
    20.1%up 20 bps YoY
    H1 FY26

    First half performance.

    Revenue
    $1.17Bup 14.7% YoY
    H1 FY26

    First half performance.

    Adjusted EPS
    $1.17up 21.3% YoY
    H1 FY26

    First half performance.

    Deals & partnerships

    1
    iMeritAcquisition of a leader in AI model training, evaluation, and reinforcement learning.

    Brings established relationships with leading foundation model companies, deepens vertically specialized AI capabilities, and expands total addressable market into high-growth AI tech sectors. Considered a transformational pivot for EXL.

    Risks & headwinds

    6
    Macroeconomic uncertaintyongoing

    Unsettled macroeconomic environment

    Mitigation: Prudent guidance and focus on demonstrating ROI to clients.

    Client struggle with AI enablementlong-term

    Massive effort required for AI enablement; clients struggling with this change

    Mitigation: EXL's capabilities and knowledge position it to help clients navigate this complexity.

    Integration of iMerit acquisitionH2 FY26 and beyond

    Requires focus and attention for integration and building new capabilities

    Mitigation: Management's focus on successful integration.

    Digital operations revenue declineQ2 FY26

    Down 1.5% YoY

    Mitigation: Strategic reclassification as AI is embedded, leading to revenue moving to the higher-value data and AI-led category.

    Increased investments impacting profitabilityH2 FY26

    SG&A up 170 bps YoY; adjusted operating margin expected to be lower in H2 FY26 compared to H1 FY26

    Mitigation: Investments are strategic, aimed at driving future top-line growth and building capabilities in front-end sales, data, and AI.

    Dilutive impact from iMerit acquisitionFY26

    $0.01 dilutive to adjusted EPS

    Mitigation: Considered marginal; strategic benefits outweigh short-term dilution.

    What to watch in Q3 FY26

    4

    Data and AI-led revenue growth

    next quarter
    Current30% YoY
    TargetContinued acceleration/high growth

    Why it matters

    This is the primary growth driver and strategic focus for EXL, indicating the success of its AI strategy.

    Data and AI-led revenue has accelerated over the past 4 quarters, growing 18% in Q3 2025, 21% in Q4 2025, 28% in Q1 2026 and now 30% year-over-year in Q2 2026.

    Q&A highlights

    6

    How much of the data and AI-led growth is from new AI native programs versus traditional analytics modernization, and what gives confidence in sustained 20%+ growth?

    Rohit explained that the growth is a mix of both, with newer areas like data management, AI services, and AI solutions growing very rapidly on a small base. He attributed confidence to the strong performance across all service lines within data and AI-led business and the increasing strategic engagement from clients.

    “The reason why it's kind of showing this kind of strength is because each of the service lines within our data and AI-led business are actually performing really well. So Payment Integrity continues to grow very nicely. The data management part of our business is accelerating. The analytics and AI services are -- continues to grow nicely.”

    asked by Bryan Bergin · answered by Rohit Kapoor

    2 min read6 chapters

    Detailed Narrative

    01

    Data and AI-led Strategy and Performance

    EXL's data and AI-led revenue accelerated to 30% year-over-year growth in Q2 2026, now comprising 61% of total revenue. This growth is broad-based across data management, AI services, payment integrity, and AI-led operations, driven by enterprises moving from AI proof-of-concept to implementation. The company's expertise in domain context, data, and AI engineering is central to helping clients operationalize AI effectively, creating a tailwind for investment dollars focused on measurable business outcomes.

    02

    Evolution of Digital Operations

    Digital operations revenue declined 1.5% year-over-year, which management explicitly stated is 'by design.' This reflects a strategic shift where AI embedded into operations engagements moves related revenue into the higher-value data and AI-led category. Total operations revenue, including both digital and AI-led, grew 10% year-over-year, indicating healthy underlying growth and a mutually reinforcing cycle between operational expertise and AI capabilities, driving greater value to clients and supporting durable recurring growth.

    03

    Segment Performance Highlights

    All four operating segments demonstrated strong performance in the quarter. Insurance grew 15% year-over-year, Healthcare and Life Sciences grew 22% year-over-year (driven by payment services and analytics), Banking, Capital Markets and Diversified Industries grew 11% year-over-year, and International Growth Markets accelerated to 15% year-over-year growth due to new client wins and ramp-ups. This broad-based growth across segments contributed to the overall strong Q2 results.

    04

    iMerit Acquisition and Strategic Rationale

    The acquisition of iMerit, a recognized leader in AI model training, evaluation, and reinforcement learning, is expected to close on July 31. This deal is viewed as a transformational pivot for EXL, bringing established relationships with leading foundation model companies and deepening vertically specialized AI capabilities. It expands EXL's total addressable market into high-growth AI tech sectors and aligns with the Gartner prediction that open-source GenAI models will underpin over 50% of enterprise use cases by 2028, particularly in regulated industries.

    05

    Token Optimization and AI Efficiency

    EXL highlighted its capability in token optimization, which is becoming increasingly important for scaling AI services. By working inside client workflows, EXL can reduce client token consumption by as much as 80%, helping them conserve spend and make their AI systems dramatically more efficient without compromising quality or latency. This capability requires deep knowledge of workflows, regulatory context, and data estate ontologies, differentiating EXL from simple technology plug-and-play solutions.

    06

    Investment Priorities and Capital Allocation

    The company outlined investment priorities to extend its competitive advantage, focusing on proprietary IP solutions that move it up the value chain and targeted M&A. Strong free cash flow and an underlevered balance sheet provide flexibility for continued share repurchases and strategic acquisitions. Investments will increase in the second half of 2026 in front-end sales and data/AI capabilities and solutions to drive future growth, even if it leads to a temporarily lower adjusted operating margin.

    AI-generated summary of the company’s earnings call. Not investment advice.