Executive Summary

EXLS delivered a clean top-line/EPS beat and raised FY25 guidance. Q2 revenue was $514.5M (+14.7% y/y; +2.7% q/q) and adjusted EPS was $0.49 (+20.3% y/y). Both exceeded S&P Global consensus: revenue $507.2M* and EPS $0.453*, driven by broad-based growth and strong AI-led demand . Q2 consensus figures: revenue $507.19M*, EPS $0.4528*.
Management raised FY25 guidance to revenue of $2.05–$2.07B (from $2.035–$2.065B) and adjusted EPS of $1.86–$1.90 (from $1.83–$1.89), citing momentum in data and AI and a robust pipeline .
Mix/tone: Data & AI-led revenue grew 17% y/y and reached 54% of total, with multiple domain LLM launches and growing adoption of the EXLerate.ai agentic AI platform; secular AI adoption remains the key growth vector .
Capital allocation: Announced a $125M accelerated share repurchase under the existing $500M authorization; balance sheet supports buybacks while funding AI investments, serving as a potential stock support/catalyst alongside the guidance raise .

What Went Well and What Went Wrong

What Went Well
- Broad-based growth and clean beat: Revenue grew 14.7% y/y to $514.5M and adjusted EPS rose 20.3% to $0.49; both exceeded consensus and Q/Q growth continued (+2.7% q/q revenue) .
- AI-led differentiation: Data & AI-led revenue rose 17% y/y, now 54% of total; CEO emphasized proprietary domain models and high implementation success rates as competitive moats. “Data and AI now represent the majority of our revenue, 54% this quarter” .
- Guidance raise and cash generation: FY25 revenue and EPS guidance increased; Q2 operating cash flow of $109M and net cash position of $96M support investment and buybacks .
What Went Wrong
- Slight non-GAAP margin compression: Adjusted operating margin of 19.6% declined 20 bps y/y (vs. 19.8% in Q2’24) as EXLS reinvests in data/AI solutions; management flagged higher 2H investments tempering 2H margins vs. 1H .
- Gross margin ticked down sequentially: Total gross margin was 37.7% vs. 38.6% in Q1’25; Insurance and International Growth Markets saw lower segment gross margins q/q (Insurance 34.8% vs. 36.6% in Q1) .
- Analyst concern on vertical cadence: Questions persisted on Insurance growth moderation and healthcare policy risk; management reiterated healthy Insurance pipeline and payer efficiency demand offsetting policy noise .

Financial Results

Overall P&L trend (oldest → newest)

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($M)	$481.4	$501.0	$514.5
Gross Margin %	38.1%	38.6%	37.7%
Operating Income Margin % (GAAP)	14.8%	15.7%	15.8%
Adjusted Operating Margin %	18.8%	20.1%	19.6%
Diluted EPS (GAAP)	$0.31	$0.40	$0.40
Adjusted Diluted EPS (Non-GAAP)	$0.44	$0.48	$0.49
Adjusted EBITDA ($M)	$102.9	$111.2	$111.6
Adjusted EBITDA Margin %	21.4%	22.2%	21.7%

Consensus vs actual (Q2 2025)

Revenue: $507.19M consensus* vs $514.46M actual → beat
Primary EPS: $0.4528 consensus* vs $0.49 actual → beat
Note: Values marked with asterisks (*) are retrieved from S&P Global.

Segment breakdown (recast) – revenue and gross margin (oldest → newest)

Segment ($M)	Q2 2024 Revenue	Q1 2025 Revenue	Q2 2025 Revenue	Q2 2024 GM%	Q1 2025 GM%	Q2 2025 GM%
Insurance	$158.5	$172.0	$172.2	34.0%	36.6%	34.8%
Healthcare & Life Sciences	$106.1	$125.6	$129.5	43.4%	43.9%	43.5%
Banking, Capital Markets & Diversified Industries	$104.6	$117.7	$121.1	37.6%	37.3%	37.8%
International Growth Markets	$79.2	$85.7	$91.7	34.1%	36.6%	35.1%
Total	$448.4	$501.0	$514.5	37.1%	38.6%	37.7%

KPIs (older → newer)

KPI	Q1 2025	Q2 2025
Data & AI-led revenue (% of total)	53%	54%
New clients won	10	13
Operating cash flow ($M)	$3	$109
Net cash position ($M)	$39	$96

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY2025	$2.035–$2.065B	$2.050–$2.070B	Raised
Adjusted Diluted EPS	FY2025	$1.83–$1.89	$1.86–$1.90	Raised
FX Gain (approx.)	FY2025	~$2–$3M	~$4–$5M	Raised
Net Interest Expense (approx.)	FY2025	~$1M	~$1M	Maintained
Effective Tax Rate	FY2025	22%–23%	22%–23%	Maintained
Capital Expenditures	FY2025	$50–$55M	$50–$55M	Maintained

Earnings Call Themes & Trends

Topic	Q4 2024 (two quarters ago)	Q1 2025 (prior quarter)	Q2 2025 (current)	Trend
AI/technology initiatives	Launched EXLerate.AI; expanded NVIDIA/Databricks/AWS/MSFT/Google partnerships; 53% of FY24 revenue tied to data/AI	Introduced EXLerate.ai platform; 53% of revenue data/AI; strong client use cases	Domain LLMs (insurance, F&A, healthcare); EXLerate.ai adoption; 54% of revenue data/AI	Strengthening
Commercial model	—	More outcome-based rev in healthcare; intent to expand outcome/AI solutions	Shift toward usage/transaction/outcome pricing; potential for margin expansion over time	Shifting to usage/outcome
Margins/investment cadence	FY AOPM +10–20 bps expected with higher AI investments	2H margins to be lower vs 1H given AI investment ramp	2H AOPM toward low-19% to fund AI; long-term growth priority	Invest now for 2026+
Insurance vertical	Strong growth into year-end	Growth slower in Q1 but expected to normalize	Stable Q/Q; pipeline “very strong,” attractive monetization with AI	Healthy/stable
Healthcare vertical	Payment services scaling; payer demand	+24.8% y/y; strong sequential ramp	+22% y/y; ongoing payer efficiency demand despite regulatory noise	Sustained strength
Capital allocation	$196.5M 2024 buybacks	Ongoing repurchases	$125M ASR announced; part of $500M plan	More aggressive
Pipeline/visibility	—	87% revenue committed; ~95% visibility at FY midpoint	Pipeline expanded double digits; integrated AI deals increasing	Improving

Management Commentary

“Data and AI now represent the majority of our revenue, 54% this quarter… As AI adoption accelerates, industry forecasts show AI services growing at twice the pace of overall IT, cloud, and digital services” — Rohit Kapoor, CEO .
“Our adjusted operating margin for the quarter was 19.6%, down 20 basis points year-over-year, driven by investments in new solutions… we have entered into a $125 million accelerated share repurchase program” — Maurizio Nicolelli, CFO .
“EXL is operating at about a 94% success rate associated with the implementation of these data and AI solutions… the commercial model is shifting… to usage-based metrics… an opportunity… to expand margins” — Rohit Kapoor, CEO .

Q&A Highlights

Vertical cadence and healthcare risks: Management sees healthy Insurance growth with a strong pipeline and sustained payer demand in Healthcare despite regulatory developments; diversification across verticals/geographies supports resilience .
AI commercialization and margin: Transitioning to usage/outcome pricing should structurally support margins over time as value capture increases; near-term, EXLS is reinvesting AI-driven productivity back into growth .
Moat and IP: Differentiation comes from proprietary data assets (platforms in insurance/healthcare) used to train domain LLMs, plus accelerating patent/solution development; this underpins defensibility vs. fast followers .
Investment cadence and 2H margins: 1H AOPM at 19.9% will step down in 2H to fund AI solutions for 2026+ growth; full-year still mid‑19% AOPM .
Cash deployment: Q2 operating cash flow improved to $109M, supporting a $125M ASR under the $500M authorization; buybacks remain a key capital allocation lever .

Estimates Context

Q2 2025 vs S&P Global consensus: Revenue $507.19M* vs actual $514.46M (beat); Primary EPS $0.4528* vs actual $0.49 (beat). Eight estimates for both revenue and EPS in the quarter*. Street revenue for Q3 2025 ahead of Q2 at $522.46M*, consistent with sequential growth narrative*. Values retrieved from S&P Global.
Sources: consensus/actuals from S&P Global GetEstimates; actuals reconfirmed in the 8-K .

Key Takeaways for Investors

Quality beat with a guidance raise: Broad-based growth, AI-led mix, and raised FY25 revenue/EPS should support positive estimate momentum and sentiment .
AI flywheel gaining speed: 54% of revenue tied to data/AI, expanding domain LLMs, and agentic platform adoption increase deal size/stickiness; secular AI adoption is the primary growth driver .
Margin strategy is deliberate: Near-term adjusted margin modestly compressed on reinvestment, but usage/outcome pricing and AI mix should be supportive over time; watch 2H margin cadence as investments step up .
Capital returns step up: $125M ASR underpins per-share growth and offers technical support while preserving balance sheet flexibility .
Vertical health remains solid: Healthcare & Life Sciences fastest-growing; Insurance stable with strong pipeline; International Growth Markets >18% of revenue with continued diversification .
Cash generation improved: Q2 cash from operations of $109M and net cash of $96M enable both AI investment and buybacks without stressing the balance sheet .
Watch catalysts: Continued AI solution launches/partnerships (e.g., Genesys collaboration, AWS competency) and conversion of large integrated AI deals are key to sustaining double-digit growth .

Additional Business Updates (Q2 2025)

$125M accelerated share repurchase executed as part of $500M program .
Strategic collaborations/recognitions: Genesys collaboration for AI-powered CX; AWS Generative AI Competency; WEF 2025 MINDS award for Code Harbor .

Notes on non-GAAP measures: EXLS excludes stock-based compensation, amortization of acquisition-related intangibles, certain restructuring/litigation items, and tax effects in adjusted metrics; see reconciliation tables in Q2 release for details .

Footnote on estimates: Values marked with asterisks (*) are retrieved from S&P Global.

ExlService Holdings, Inc. (EXLS)·Q2 2025 Earnings Summary