EXLS Q2 2025: Data & AI Revenue Surges 17%, Now 54% of Mix—Margin Leverage in Focus
EXLS’s Q2 results spotlighted a decisive pivot to data and AI services, now comprising the majority of revenue and driving robust double-digit growth across all segments. Management’s confidence is underpinned by a strong pipeline, annuity-like client relationships, and a deepening moat in proprietary AI solutions, but investment in talent and product means near-term margins will be managed for future scale. Guidance was raised as EXLS bets on its differentiated domain and AI expertise to sustain outperformance into 2026.
Summary
- Data & AI Penetration Accelerates: Over half of revenue now comes from data and AI-led solutions, outpacing legacy services.
- Margin Leverage Deferred: Investments in talent and product temper short-term margin expansion as EXLS prioritizes future growth.
- Pipeline Momentum Signals Durability: Double-digit pipeline growth and annuity-like contracts bolster confidence in sustained double-digit top-line growth.
Performance Analysis
EXLS delivered another quarter of robust growth, with total revenue up 15% year-over-year and adjusted EPS increasing 20%. Segment performance was broad-based: insurance accounted for roughly a third of revenue and grew steadily, while healthcare and life sciences (now a quarter of revenue) led growth, fueled by strong demand for payment services and analytics. Banking, capital markets, and diversified industries contributed nearly another quarter, with growth accelerating for the fourth consecutive quarter. International growth markets, now 18% of revenue, posted strong double-digit gains on client wins and ramp-ups.
Crucially, data and AI-led revenue climbed 17% year-over-year, reaching 54% of the total mix. This shift is reshaping the company’s margin profile and client engagement model. While adjusted operating margin slipped by 20 basis points year-over-year to 19.6%, this was tied to strategic reinvestment in new solutions and talent—especially in technical AI roles. SG&A leverage improved, aided by lower employee costs and cycling out of prior-year restructuring charges. Cash flow from operations was strong, up sharply year-over-year, supporting both share repurchases and ongoing investment.
- Healthcare and Life Sciences Outperformance: Payment integrity and AI-powered domain operations drove 22% growth, outpacing all other segments.
- International Diversification: International growth markets expanded to 18% of revenue, reducing geographic concentration risk.
- Revenue per Employee Rising: Revenue growth outpacing headcount reflects operational leverage from AI solutions.
EXLS is clearly managing a strategic transition: prioritizing AI-led business mix and pipeline expansion over near-term margin maximization, betting that this will yield superior earnings power as adoption scales.
Executive Commentary
"Our business model is fundamentally different from many of our peers. We've deliberately avoided low value work, which is highly vulnerable to disruption from AI. Instead, we have always focused on serving our clients in domain specific complex business workflows. These workflows are mission critical and are crucial to achieving business outcomes for our clients."
Rohit Kapoor, Chairman and Chief Executive Officer
"Revenue per headcount continue to increase quarter over quarter sequentially. What we're doing today as we get that benefit in our P&L is reinvesting it back into data and AI to really drive future growth."
Marizia Nicolelli, Chief Financial Officer
Strategic Positioning
1. Domain-Driven Data & AI Focus
EXLS’s core differentiation lies in its deliberate avoidance of commoditized BPO work—instead, it targets domain-specific, complex workflows in insurance, healthcare, and banking. This approach both insulates revenue from AI disruption and enables higher-value, annuity-like contracts, with over 75% of revenue recurring in nature. The company’s deep domain expertise is paired with proprietary data assets, allowing for differentiated AI model training and solution deployment.
2. Proprietary AI Solutions and IP Moat
EXLS is rapidly expanding its proprietary AI portfolio, including multi-modal large language models (LLMs) for property insurance, finance, and healthcare (payer-focused LLMs for medical code extraction). These models are built on exclusive datasets, creating a defensible moat against fast followers. The company is also accelerating patent filings and proprietary solution development, further reinforcing barriers to entry.
3. Commercial Model Shift and Margin Dynamics
The move toward usage- and outcome-based commercial models is underway, especially for AI-led solutions. Management expects this shift to support margin expansion over time, as value delivered to clients increases and pricing sensitivity declines. However, the near-term impact is muted as EXLS invests in AI talent and product development, intentionally trading off immediate margin for future scalability and stickier client relationships.
4. Strategic Partnerships and Ecosystem Expansion
EXLS is leveraging partnerships, such as the recent collaboration with Genesis (AI-powered customer experience cloud), to extend its reach and embed its AI capabilities into broader enterprise workflows. These alliances serve as force multipliers, enabling access to new clients and accelerating adoption of EXLS’s proprietary platforms.
5. Pipeline and Client Diversification
Sales pipeline growth remains robust, with large integrated deals driving double-digit expansion. The company is seeing healthy contributions from both existing and new logos, aided by its reputation for high implementation success rates (94% vs. 30% industry average for AI deployments). Geographic and industry diversification further insulates the business from sector-specific slowdowns.
Key Considerations
EXLS’s second quarter underscores a business at an inflection point—balancing near-term investment with long-term margin and growth ambitions. The strategic context is one of rapid AI adoption, client demand for outcome-based solutions, and intensifying competition from both incumbents and new entrants.
Key Considerations:
- AI Revenue Mix Transformation: With 54% of revenue now AI-led, EXLS is structurally less exposed to legacy BPO commoditization risk.
- Margin Expansion Deferred for Growth: Reinvestment in talent and product will weigh on margins in the back half, but positions the company for multi-year leverage as AI solutions scale.
- Client Stickiness and Annuity Base: Over 75% of revenue is recurring, supporting visibility and resilience across cycles.
- Competitive Moat in Proprietary Data and IP: Access to unique datasets and rapid IP creation underpin defensibility against fast followers and new entrants.
- International and Sector Diversification: Growing international revenue share and balanced exposure across insurance, healthcare, and banking reduce concentration risk.
Risks
EXLS faces several risks as it executes its AI-led growth strategy. The transition to usage-based models introduces uncertainty around revenue timing and margin realization. Talent acquisition in technical AI roles could pressure costs, and rapid technological change may compress differentiation windows. Competitive intensity is rising, with both startups and global consultancies vying for share. Regulatory changes in healthcare and insurance, as well as macroeconomic volatility, could impact client budgets or project timelines. Management’s ability to balance investment with profitability will be critical to sustaining investor confidence.
Forward Outlook
For Q3 2025, EXLS guided to:
- Continued double-digit revenue growth, led by data and AI solutions.
- Adjusted operating margin in the mid-19% range, with near-term investment moderating expansion.
For full-year 2025, management raised guidance:
- Revenue of $2.05–$2.07 billion (12–13% growth).
- Adjusted EPS of $1.86–$1.90 (13–15% growth).
Management emphasized that pipeline momentum and annuity-like revenue support the outlook, but investment in AI capabilities will be prioritized to ensure durable growth into 2026.
- Pipeline growth and client wins support revenue durability.
- Margin expansion will be gradual as reinvestment continues.
Takeaways
EXLS’s Q2 marks a structural pivot to AI-led services, with scale, IP, and client relationships supporting a durable growth thesis.
- AI-Led Revenue Mix Accelerates: The majority of revenue now comes from data and AI solutions, positioning EXLS ahead of legacy BPO peers and supporting margin upside as adoption scales.
- Margin Leverage on Hold: Short-term profitability will be managed as the company invests aggressively in talent and proprietary product, betting on future returns.
- Focus for Investors: Watch for evidence of commercial model transition, margin inflection as AI mix grows, and sustained pipeline conversion, especially as competitive intensity rises.
Conclusion
EXLS’s second quarter confirms its transition from legacy outsourcing to a differentiated, AI-driven business model. While near-term margins are being reinvested, the company’s domain expertise, proprietary data, and annuity-like revenue provide a strong foundation for long-term earnings power.
Industry Read-Through
EXLS’s results illustrate a broader industry pivot from traditional BPO to AI-powered workflow automation. The company’s ability to capture over half its revenue from data and AI signals that incumbents with domain expertise and proprietary data are best positioned to win as clients demand measurable outcomes and usage-based pricing. For the IT, consulting, and outsourcing sectors, the message is clear: AI adoption is accelerating, but only those with deep workflow integration, IP, and client trust will sustain margin and growth advantages. Rising technical talent costs and competitive intensity will challenge pure-play BPOs and AI startups alike, while diversified players with annuity revenue and global reach will be most resilient.