ExlService Holdings, Inc. (EXLS) Earnings & Analysis

Latest quarter

EXL reported Q3 FY2026 revenue of $634.0 million, above the consensus estimate of $616.3 million. Its adjusted earnings per share of $0.62 also beat the consensus of $0.56. Revenue rose 19.7% from $529.6 million a year earlier, while diluted earnings per share rose to $0.45 from $0.36.

In its filing, EXL attributed revenue growth to expanded work with existing clients across its segments and new client wins, including the contribution from its iMerit acquisition. Insurance revenue grew 15.5%, healthcare and life sciences grew 18.6%, and banking, capital markets and diversified industries grew 26.8%, according to the filing. CEO Rohit Kapoor said digital operations revenue declined 1.7% as some work moved into the data and AI-led category.

EXL reported a gross margin of 38.0%, down from 38.5% a year earlier; its filing attributed the decline primarily to investments in ramp-ups for existing clients and higher operating expenses. Operating margin fell to 14.0% from 14.4%. The company reported free cash flow of $102.6 million, compared with $106.5 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Rohit Kapoor said demand for EXL’s data and AI work accelerated as clients moved from AI experimentation toward implementation. In response to a question about business momentum, he said the pipeline was expanding faster and that the “decision-making cycle time for clients, that seems to be kind of coming down.” He also said data and AI-led work is short cycle, with relatively quick decisions.

Kapoor said data and AI-led revenue grew 36% on a reported basis and 31% organically in the third quarter. He described the decline in digital operations revenue as deliberate: as EXL embeds AI in operations, some engagements move into the data and AI-led category. Total operations revenue, including both categories, grew 12% year over year, he said.

On competition, Kapoor described an engagement won with Google for a UK bank, saying EXL’s industry knowledge, approach to accelerating the migration and partnership with Google helped distinguish it from engineering-led providers. He also said EXL was integrating iMerit, which contributed $15.3 million in revenue in the two months after the acquisition closed. CFO Maurizio Nicolelli said iMerit’s monthly revenue would fluctuate with demand.

Asked about payment integrity, Kapoor said EXL is paid entirely on an outcome basis for that work. He said some work was shifting from checks after payment toward checks before payment, and that EXL was extending payment integrity from healthcare into insurance. Kapoor also said the margin effect of embedding AI in operations remained unclear because commercial arrangements with clients were changing more slowly than the technology.

On margins and investment, Nicolelli said EXL had guided margins to be fairly flat year over year and would continue investing in employees, infrastructure and technology. He said the expense mix would change as EXL did more data and AI work. Kapoor added that EXL was considering acquisitions in international growth markets to add talent, capabilities, customers and geographic reach.

Guidance

EXL raised its FY2026 revenue outlook to $2.43 billion to $2.44 billion from $2.39 billion to $2.415 billion. Kapoor said the new range represents 16% to 17% reported growth and 15% organic constant-currency growth.

EXL also raised its adjusted diluted EPS guidance to $2.34 to $2.36 from $2.25 to $2.29.