EXLService's Q3 2025 Earnings Call: Contradictions Emerge on Demand, AI Growth, Client Engagement, and Operating Model Changes

Date of Call: October 29, 2025

Financials Results

• Revenue: $529.6M, up 12.2% year-over-year (12.3% on a constant currency basis); sequential growth 3.1% on a constant currency basis
• EPS: $0.48 adjusted EPS, up 10.8% year-over-year
• Operating Margin: Adjusted operating margin 19.4%, down 50 basis points year-over-year

Guidance:

• Revenue for full-year 2025 raised to $2.07B–$2.08B (≈13% year-over-year).
• Adjusted EPS raised to $1.88–$1.92 (≈14%–16% year-over-year).
• Expect foreign exchange gain ~$2M–$3M and net interest income ≈$1M.
• Full-year effective tax rate expected 22%–23%.
• Capital expenditures expected $50M–$55M.

Business Commentary:

* Revenue Growth and AI Integration: - EXLService Holdings, Inc. reported revenue of $530 million for Q3 2025, up 12% year-over-year. - The growth was driven by strong demand for AI-led services, with data and AI-led revenue growing 18% year-over-year to represent 56% of total revenue.

• Segment Performance:
• The Insurance segment grew 9% year-over-year, contributing 33% of the quarter's revenue.
• The Healthcare and Life Sciences segment was the fastest-growing, with a 22% increase year-over-year, representing 25% of revenue.

• The Banking, Capital Markets and Diversified Industries segment grew 12%, accounting for nearly 25% of revenue.

• International Expansion:

• The International Growth Markets segment saw an 8% year-over-year growth, contributing 18% of the total revenue.

• This growth was driven by higher volumes with existing clients and new client wins in Banking, Capital Markets, and Diversified Industries.

• Product Launch and Recognition:

• The introduction of the EXLdata.ai solution was highlighted as a significant advancement in making enterprise data AI-ready.
• EXL received recognition in several industry reports, such as being named a market leader in the HFS Research, Horizon Insurance Services 2025 report.

Sentiment Analysis:

Overall Tone: Positive

• Management described a "strong quarter," raised full-year revenue and EPS guidance, highlighted data & AI-led revenue growing to 56% of total (18% YoY) and said the sales pipeline and demand remain positive, indicating confident, constructive outlook.

Q&A:

• Question from Surinder Thind (Jefferies LLC): Rohit, can you maybe just talk a little bit about how you're thinking about the change in the overall demand environment? Would you characterize it as relatively unchanged or are clients maybe getting a little bit more positive when it comes to kind of some of the innovation spend... sustainability of the double-digit organic revenue growth?
  Response: Demand is very strong; TAM has expanded, data & AI-led revenue is 56% of total and grew 18% in Q3, Gen/agentic AI is moving to production, and management is confident this will sustain double-digit company growth.

• Question from Surinder Thind (Jefferies LLC): When work that used to take months can now be done in weeks or hours, where is the incremental revenue coming from? Are you doing multiple times as much work with that client?
  Response: Productivity gains have not reduced EXL's revenue—clients redirect work to EXL and award more engagements (including new AI areas), so revenue remains stable or grows as penetration is still low and new, additive services emerge.

• Question from Bryan Bergin (TD Cowen): Can you unpack expectations for Digital Operations into Q4 and fiscal '26 given first-half comps, and where does comfort lie in Digital Ops longer term (high single digits vs mid/high single)? Also, what's driving top-client strength and sustainability?
  Response: Digital Ops (domain ops, F&A, platform services) grew net 6% while underlying activity is higher because work is migrating into the data & AI-led bucket; the typical path is Digital Ops → AI-enable → expand, and top-client penetration is low, leaving meaningful upside via multi-service expansion.

• Question from Margaret Nolan (William Blair & Company L.L.C.): How are you changing client relationship management and go-to-market motions, and how confident are you in winning additional market share as these shifts happen?
  Response: GTM has shifted: upskilling account teams on data/AI, engaging broader buying centers (COO/CIO/CDO/CEO), scaling single-use cases enterprise-wide, and executing joint GTM with tech and PE partners—improving win rates and share capture.

• Question from Margaret Nolan (William Blair & Company L.L.C.): Can you talk about growth in revenue per employee given data & AI-led growth?
  Response: Revenue per employee is trending up; headcount growth is single-digit while revenue grows double-digit, so productivity and revenue-per-employee should continue improving over time.

• Question from David Koning (Robert W. Baird & Co.): Healthcare has grown dramatically (~50% vs two years ago). Can it keep growing this fast and how are you keeping the pipeline going?
  Response: Healthcare is still early with a very large, data‑rich addressable market; multiple levers (payment integrity, domain ops, data modernization) give substantial headroom to sustain strong growth.

• Question from David Koning (Robert W. Baird & Co.): Margins cadence—Q1 strong, Q3 down; should we expect more stable margin growth in 2026?
  Response: Margins were lumpy this year (H1 19.9% → Q3 19.4%); management expects ~10–20 bps YoY improvement (around 19.5% for the year) and a steadier cadence in 2026 as investments normalize, while continuing to invest in front‑end sales and capabilities.

• Question from Vincent Colicchio (Barrington Research Associates, Inc.): EXLdata.ai sounds promising—what does the competitive landscape look like? Are there similar products?
  Response: Many firms address data readiness, but EXLdata.ai differentiates by using AI agents to automate end‑to‑end data readiness (especially unstructured data) and integrating across platforms; early partner/customer feedback is strong.

• Question from Vincent Colicchio (Barrington Research Associates, Inc.): The International segment should be a large opportunity—what are you doing to accelerate it (e.g., marketing investments)?
  Response: Investing to accelerate international growth via senior local hires, applying U.S. solutions to international markets, and building local partnerships—conscious investment to mature the business.

• Question from David Grossman (Stifel): Are you selling EXLdata.ai as a stand-alone service that then converts into follow-on revenue, and how does that typically expand?
  Response: We pursue two motions: stand‑alone EXLdata.ai engagements that often scale enterprise‑wide (including cloud migrations), and integrated end‑to‑end AI embedding where we handle data, AI and outcomes; both generate follow‑on work.

• Question from David Grossman (Stifel): What is the typical multiplier effect of stand‑alone data engagements versus integrated sells?
  Response: Today the multiplier is modest because data enablement is the dominant, heavier initial spend; AI enablement and follow‑on revenue are smaller now but expected to grow over time.

• Question from David Grossman (Stifel): As you target double-digit growth, how much comes from net revenue retention/same‑client growth versus new bookings?
  Response: Growth is driven largely by existing clients: renewal rates are north of 90%, and new clients contribute under ~5% of annual revenue; expansion within current clients is the primary driver.

• Question from David Grossman (Stifel): You reported a 30% productivity gain for a client yet their revenue remained flat—can you clarify how to think about that and the potential deflationary effect of AI?
  Response: Productivity gains freed capacity that the client redirected to EXL (or toward new work), keeping EXL revenue flat while improving margins and deepening the strategic relationship.

• Question from David Grossman (Stifel): Is that flat result an upfront event and then you grow off a higher‑margin base thereafter?
  Response: Yes—initial flatness can be an upfront effect; it often enables higher‑margin, strategic services (e.g., agentic AI) that expand revenue and value over time.

Contradiction Point 1

Demand Environment and Growth Drivers

It directly impacts expectations regarding the demand environment and growth drivers, which are crucial for understanding the company's growth trajectory and investor expectations.

How has the overall demand environment changed? Are clients becoming more positive about innovation spending? - Surinder Thind (Jefferies LLC)

2025Q3: The overall demand is strong, with a shift visible in EXL's financials. Data and AI-led revenue has increased to 56% of total revenue. The demand for AI-driven solutions and embedding AI in client workflows is rising, and EXL is gaining new clients and market share. - Rohit Kapoor(CEO)

Can you clarify the moat and IP protection of your proprietary solutions compared to competitors? Also, how is the business mix and growth trends in data/AI versus digital operations? - Surinder Singh Thind (Jefferies LLC)

2025Q2: IP protection through proprietary data assets and rapid patent creation. Focus on data and AI-led revenue growth, with AI solutions expanding faster than other operations. - Rohit Kapoor(CEO)

Contradiction Point 2

AI-driven Revenue Growth Sustainability

It involves the company's sustainability of AI-driven revenue growth, which is a critical indicator of the company's strategic direction and market positioning.

How has the overall demand environment changed? Has demand remained stable, or are clients increasing innovation spending? - Surinder Thind (Jefferies LLC)

2025Q3: Data and AI-led revenue has increased to 56% of total revenue. The demand for AI-driven solutions and embedding AI in client workflows is rising, and EXL is gaining new clients and market share. - Rohit Kapoor(Co-Founder, Chairman & CEO)

Is AI-driven revenue growth expected to remain sustainable? - David Koning (Robert W. Baird & Co Inc)

2025Q1: Data and AI-led revenue grew 16% year-over-year. We believe this growth is sustainable as it is driven by both selling more value-added services and embedding AI into client workflows. - Maurizio Nicolelli(CFO)

Contradiction Point 3

Client Engagement and Relationships

It involves the company's approach to client engagement and relationships, which are crucial for business growth and operational success.

How are you adapting client relationship management and go-to-market strategies to market shifts? - Margaret Nolan (William Blair & Company L.L.C.)

2025Q3: EXL is evolving its go-to-market strategy, focusing more on CIO/CDO/business head engagement, and leveraging partnerships with technology providers. - Rohit Kapoor(Co-Founder, Chairman & CEO)

What's the latest on the AI competitive landscape? - Vincent Colicchio (Barrington Research Associates)

2025Q1: Our competitors include nontraditional players, hyperscalers, and large tech companies. Our advantage is understanding clients' business better, existing operations, and delivering business outcomes. - Rohit Kapoor(Chairman and CEO)

Contradiction Point 4

Operating Model Change and Client Engagement

It involves differing explanations of the purpose and impact of an operating model change, which is crucial for understanding the company's strategic direction and execution.

How are you adjusting client management and go-to-market strategies given market shifts? - Margaret Nolan (William Blair & Company L.L.C.)

2025Q3: EXL is evolving its go-to-market strategy, focusing more on CIO/CDO/business head engagement, and leveraging partnerships with technology providers. The shift emphasizes strategic deal sizes and integrated solutions, impacting client relationships positively. - Rohit Kapoor(CEO)

What operational model changes are being implemented? Are there leadership or sales structure changes? - Bryan Bergin (TD Cowen)

2024Q4: Change aims to be closer to clients for deeper relationships and faster new capability deployment. Leadership impact minimal; portfolios reallocated among existing talent. Client executives and account managers remain the same. Industry market units focus on higher value to clients, enhancing collaboration and efficiency. - Rohit Kapoor(CEO)