ExlService Holdings (EXLS) Q3 2026 earnings review
EXL's AI sales speed up, but new client wins drop
ExlService Holdings, which runs back-office operations and data software for large companies, grew faster in the third quarter while adding a new AI training business. Revenue rose 20% to $634 million — or about 17% from businesses owned a year ago by our math — as chief executive Rohit Kapoor said every division topped 15% underlying growth. Finance chief Maurizio Nicolelli lifted the full-year plan above what the prior outlook pointed to for the second half, though the new targets still leave fourth-quarter profit growth slowing to 12% by our math.
| Sales from businesses owned a year ago | +17% by our math; reported revenue $634.0M (+19.7%) |
|---|---|
| Data and AI-led underlying sales | +31% nearly two-thirds of total revenue (+36% reported) |
| Profit per share, excluding one-offs | $0.62 +28.5% from a year ago |
| Full-year revenue outlook | Raised $32.5M middle of the range: 16.6% growth (15% underlying) |
⚖️ Verdict: 🟢 Bullish
The story got better because underlying demand for data and AI services sped up to 31% and forced management to raise its full-year underlying growth target from 13–14% to 15%. Closing a $1 billion credit line also removed a near-term debt maturity. One caution: the company won 14 new clients, down from 21 a year ago, and gross margin in the banking and diversified division fell nearly 4 percentage points as iMerit joined.
The question now is how much of the 31% AI growth is new spending versus older outsourcing contracts relabelled with AI tools, and whether iMerit permanently lowers profit margins. Either the shift to AI software will start lifting gross margin, or higher delivery costs and slower client signings will cool growth in 2027. The service-line table and cash flow statement in the third-quarter filing will provide the first test.
🐂 Bull Case
AI Services Keep Speeding Up
ExlService Holdings (EXL), which runs back-office operations and data software for insurers, healthcare firms and banks, is getting more of its growth from artificial intelligence. Chief executive Rohit Kapoor said that "Data and AI-led revenue, almost two-thirds of our business, grew 36% on a reported basis and 31% organically." That marks a fifth straight quarter of faster underlying growth, up from 18% a year ago and 30% last quarter.
- Sales from businesses owned a year ago: up about 17% by our math, with every division above 15%
- Banking, capital markets and diversified industries: up 26.9% to $153.5 million
- International growth markets: up 20.3% to $111.6 million
- Healthcare and life sciences: up 18.6% to $160.4 million
The company also "Completed the acquisition of iMerit, establishing a Model Training Solutions practice" that helps technology companies train and test AI models. By our math, iMerit added about $15 million in the quarter, so underlying demand did most of the work.
What to watch: the service-line table in the quarterly filing. If total operations revenue — which combines older digital outsourcing and newer AI-enabled operations — accelerates past its 10% first-half pace, the AI surge represents new client spending rather than relabelled work.
Third Straight Raise Beat the Second-Half Plan
Three months ago, the full-year outlook pointed to slower underlying growth in the second half of 2026 even though the prior-year comparison was easier. Third-quarter results beat that cautious plan. Finance chief Maurizio Nicolelli said, "Our strong third quarter performance gives us the confidence to raise our full-year outlook once again." Management lifted the full-year underlying constant-currency growth target from 13–14% to 15%.
By our math, third-quarter revenue of $634.0 million and profit per share excluding one-offs of $0.62 put second-half results $32.5 million and 8 cents per share above what the old outlook implied at the middle of the range. That confirms the previous forecast was cautious rather than a sign of weakening demand.
What to watch: fourth-quarter revenue against the $636 million implied by the middle of the new full-year range. Another beat above the top end of $641 million would show customers are still expanding their AI budgets into 2027.
New Credit Line Removed Refinancing Pressure
Last quarter, EXL's entire $381.2 million debt balance sat in current liabilities because its credit agreement was due in April 2027, right as the company needed cash to close the iMerit purchase. In the third quarter, the data and AI group closed a new $1 billion senior secured credit facility.
That agreement pushed borrowings back into long-term debt, which rose to $501.3 million while debt due within a year dropped to $9.7 million. Total debt increased by $212.5 million since December to pay for iMerit and first-half share buybacks, but the maturity wall is gone.
What to watch: interest expense, which rose 28.7% from a year ago to $6.3 million in the quarter. A further rise above $7 million next quarter would eat into the earnings gain from share buybacks.
🐻 Bear Case
New Client Wins Dropped Again
Kapoor highlighted accelerating momentum across the business, and ”Every segment of our business grew more than 15% organically.” Yet the number of new clients signed fell to 14 in the third quarter, down from 17 in the second quarter, 16 in the first, and 21 in the third quarter of last year.
New contracts typically take two to four quarters to turn into full revenue, so this year's surge came from the 42 clients won in the second half of 2025. Signing 47 clients across the first nine months of 2026 gives the sales team a smaller pool of new accounts to ramp up next year. By our math, the raised full-year outlook still has underlying fourth-quarter revenue growth slowing to about 14.4%, down from 16.9% in the third quarter.
What to watch: fourth-quarter new client wins and any commentary on total contract value on the conference call. A fourth straight reading below 18 wins would point to slower revenue growth in the first half of 2027.
Banking and Acquisition Costs Squeezed Gross Margin
Shifting toward data and AI software is supposed to lift profitability, because software-led work carries higher prices than traditional staff outsourcing. Instead, company gross margin fell 0.5 percentage points from a year ago to 38.0%, as the cost of delivering services rose from 61.5% to 62.0% of revenue.
- Banking, capital markets and diversified gross margin: 34.4%, down 3.9 percentage points from a year ago
- Healthcare and life sciences gross margin: 45.2%, up 2.2 percentage points from a year ago
- Operating margin: 14.0%, down 0.4 percentage points as depreciation and intangibles rose 0.1 points of revenue
- Operating margin excluding one-offs: 19.3%, down 0.1 percentage points from a year ago
The sharpest drop happened in the banking and diversified division, where iMerit's model-training work sits, while amortisation of acquired intangibles nearly doubled to $6.3 million.
What to watch: gross margin in the banking and diversified division next quarter. A drop below 34% would indicate that iMerit's data-labelling work carries permanently lower margins than EXL's core business.
Risks This Quarter Didn't Answer
Four standing concerns from prior quarters cannot be checked from the earnings release alone because the detailed tables live in the quarterly filing and conference call.
- Work moved between categories: the release omits the service-type table showing how much Digital Operations shrank and how much old work migrated into Data and AI-led revenue.
- AI pricing pressure on outsourcing: whether automation is shrinking legacy contracts awaits the Total Operations revenue figure in the filing.
- Unbilled customer balances: total accounts receivable jumped 33.3% since December to $457.3 million, and the filing will show how much is unbilled work or contingent fees.
- Staff turnover: headcount passed 74,000 after adding iMerit, up from 68,413 in June, but the quarterly attrition rate was not in the release.
💲 Other KPIs
Share count fell 5.7% from a year ago, turning an 18.2% rise in GAAP net income into 25.3% diluted earnings per share growth. After spending $182.0 million on treasury stock in the first half, buybacks slowed to $26.5 million by our math in the third quarter as cash went toward the iMerit acquisition.
Money owed by clients rose 30.1% from a year ago and 33.3% since December, outpacing the 19.7% rise in third-quarter revenue. While consolidating iMerit added to the balance, receivables have grown faster than sales all year, tying up cash while net debt — borrowings minus cash and investments — reached $157.4 million by our math.
🔮 Guidance
Raised. The middle of the range moved up $32.5 million to 16.6% reported growth, and 15% from businesses owned a year ago in constant currency (up from 13–14%). By our math, that leaves about $636 million for the fourth quarter, or 17.2% reported growth and about 14.4% underlying growth. It is the third raise this year: +$20.0M, +$87.5M (which added iMerit), and +$32.5M.
Raised. The plan lifts the middle of the range by 8 cents to 20.5% growth over 2025. By our math, after earning $1.79 across the first three quarters, the outlook leaves $0.56 for the fourth quarter, or 12.0% growth from a year ago — less than half the third quarter's 28.5% pace. It is the third raise this year: +$0.04, +$0.065, and +$0.08.
❓ Key Questions
How much did Digital Operations shrink in Q3?
The release gave Data and AI-led growth of 31% excluding acquisitions, but left out the Digital Operations and Total Operations figures. Without them, investors cannot tell how much revenue simply moved across categories.
Did iMerit cause the 3.9-point margin drop in Banking?
Gross margin in Banking, Capital Markets and Diversified Industries fell from 38.3% to 34.4% in the same quarter iMerit joined. Management has not disclosed iMerit's standalone gross margin.
Why did new client wins fall to 14?
Quarterly client additions dropped from 21 a year ago to 14. Did EXL sign fewer but larger contracts, or are corporate buyers taking longer to approve new projects?
How much of the $457 million in receivables is unbilled?
Accounts receivable grew 30.1% from a year ago against 19.7% revenue growth. In the first half, unbilled work and contingent healthcare fees drove the increase and hurt cash flow.