EXLS Q2 2026: Data and AI Revenue Surges 30%, iMerit Acquisition Expands AI Model Reach
EXL’s data and AI-led business accelerated to 30% growth, now comprising 61% of revenue, as the company leverages domain expertise for AI deployment in regulated industries. The announced iMerit acquisition deepens AI model training capabilities and broadens client reach, positioning EXL for sustained expansion. Management raised full-year guidance, signaling high confidence in both organic and acquired growth vectors.
Summary
- AI-Led Revenue Mix Shift: Data and AI-led services now dominate, reshaping EXL’s growth profile.
- Operational Leverage from Domain Depth: Industry-specific expertise is driving measurable client outcomes and new wins.
- Strategic Capital Deployment: The iMerit deal and continued buybacks underscore a focus on durable, higher-value growth.
Business Overview
EXL is a digital operations and analytics provider specializing in data, AI, and business process transformation for regulated sectors including insurance, healthcare, banking, and diversified industries. It generates revenue through managed services, proprietary IP, and AI-enabled solutions delivered via four segments: Insurance, Healthcare and Life Sciences, Banking/Capital Markets/Diversified Industries, and International Growth Markets. The company’s business model increasingly emphasizes recurring, IP-led revenue streams, particularly in data and AI.
Performance Analysis
EXL delivered broad-based double-digit growth across all segments, powered by the rapid expansion of its data and AI-led offerings. Data and AI-led revenue grew 30% year-over-year and now accounts for 61% of total revenue, reflecting a deliberate shift away from legacy digital operations. Insurance (one-third of revenue) and Healthcare/Life Sciences (over one-quarter) both posted robust gains, with payment integrity and analytics as standout contributors. International Growth Markets accelerated to 16% growth, driven by new client wins and increased investment in local capabilities.
Operating margin held steady despite increased SG&A from front-end sales and solution investments, while adjusted EPS outpaced revenue growth. The company’s recurring revenue base, diversified client portfolio, and rising share of proprietary IP (now touching 25% of client revenue) underpin its resilient financial profile. Capital allocation remained active, with $179 million deployed for share buybacks in the first half and continued investment in both organic and inorganic growth levers.
- Data and AI-Led Outperformance: Four consecutive quarters of accelerating growth, now the majority of revenue mix.
- Segment Breadth: Insurance, Healthcare, Banking, and International all contributed to top-line momentum, minimizing concentration risk.
- Margin Dynamics: Gross margin modestly compressed sequentially due to wage increments, but operating margin remained stable as investments ramped.
EXL’s ability to embed AI across client workflows is translating into higher-value engagements, deeper client relationships, and a mutually reinforcing cycle of innovation and recurring growth.
Executive Commentary
"As enterprises move from proof of concept to AI implementation, our expertise, solutions, and services sit squarely at the center of the demand vectors where investment dollars are focused, delivering measurable business outcomes and economic efficiencies."
Rohit Kapoor, Chairman and CEO
"Our adjusted operating margin for the quarter was 19.7%, up 10 basis points year-over-year, driven primarily by improved gross margins. We will increase our investments in front-end sales, data and AI capabilities and solutions for the rest of the year."
Maurizio Nicolelli, Chief Financial Officer
Strategic Positioning
1. Data and AI-Led Transformation
EXL’s pivot to data and AI-led services is deliberate and structural. Management clarified that the decline in digital operations revenue is by design, as more work is reclassified under higher-value AI-led categories. This transition is not only driving top-line growth but also enhancing client stickiness and recurring revenue.
2. Industry-Specific AI Deployment
Deep domain expertise is a critical differentiator. EXL’s ability to embed agentic AI into regulated workflows (insurance claims, healthcare payment integrity) enables it to outperform generic technology competitors, as evidenced by recent competitive wins and client benchmarks.
3. International Expansion and Leadership
International Growth Markets are a major focus area. The appointment of Bhupinder Singh as president signals a commitment to scaling EMEA and APAC, with local investment in talent and go-to-market execution to capture rising AI adoption outside the US.
4. Capital Allocation and M&A
The iMerit acquisition is a strategic leap into AI model training, evaluation, and reinforcement learning, expanding EXL’s client base into foundation model companies and tech sectors. Strong free cash flow and a low-leverage balance sheet support both continued share repurchases and targeted M&A.
5. Operational AI and Token Optimization
EXL is investing in tokenomics capabilities to help clients reduce AI infrastructure costs by up to 80%, leveraging workflow knowledge to optimize model deployment and efficiency. This emerging area is expected to be a principal driver of client spend and differentiation.
Key Considerations
EXL’s Q2 results reinforce the durability of its AI-led growth strategy, but also reveal the complexity of scaling AI in regulated domains. Investors should weigh the following:
- AI Revenue Mix Shift: The transition from traditional operations to AI-led services is accelerating, increasing recurring, IP-driven revenue and raising barriers to entry.
- Execution Complexity: Embedding AI into regulated workflows demands bespoke solutions for each client, requiring sustained investment in domain talent and productization.
- Margin Investment: Near-term margin expansion is being traded for accelerated capability buildout, with management signaling a willingness to invest ahead of demand in sales and AI engineering.
- Acquisition Integration: The iMerit deal is transformational but requires careful integration to realize cross-vertical synergies and avoid operational distraction.
- International Diversification: Growth outside the US is gaining momentum, but cross-selling remains an underexploited opportunity that management is actively addressing.
Risks
Macro uncertainty, evolving regulatory frameworks, and the complexity of AI deployment in mission-critical workflows pose ongoing risks. The integration of iMerit introduces execution risk, especially given the need to harmonize culture and delivery models. Margin pressures from wage inflation and increased investment could persist if top-line growth slows. Additionally, the rapid pace of AI innovation raises the risk of technological obsolescence or competitive displacement.
Forward Outlook
For Q3 and the remainder of 2026, EXL guided to:
- Revenue of $2.39 to $2.415 billion for the full year, including $28–32 million from iMerit
- Adjusted diluted EPS of $2.25 to $2.29, up from prior guidance
Management highlighted:
- Ongoing investment in front-end sales and AI capability buildout will lower operating margin in the second half
- Strong pipeline and visibility, with all segments expected to contribute to growth
Takeaways
- AI-Led Revenue Acceleration: The company’s deliberate mix shift to data and AI-led services is driving above-market growth and recurring revenue durability.
- Strategic Capital Deployment: The iMerit acquisition and continued buybacks signal confidence in long-term value creation and market positioning.
- Execution Watchpoints: Investors should monitor the pace of AI adoption in regulated industries, successful integration of iMerit, and margin evolution as investment ramps through year-end.
Conclusion
EXL’s Q2 results confirm its emergence as a data and AI-first partner for regulated industries. The company’s strategic pivot, operational depth, and disciplined capital allocation provide a solid foundation for continued outperformance, though successful integration of new capabilities and sustained investment will be critical to maintaining momentum.
Industry Read-Through
EXL’s results highlight the rapid shift in enterprise AI spending from infrastructure to application enablement, with demand centering on partners who can deliver domain-specific, production-grade AI in regulated environments. Competitors in IT services and digital operations will need to accelerate their own AI transformation and vertical specialization to keep pace. The iMerit acquisition signals that model training and reinforcement learning are becoming strategic battlegrounds, with cross-sector implications for vendors supplying foundation models, healthcare, and insurance. Investors should expect continued M&A and capability buildouts across the sector as AI deployment moves deeper into client workflows and compliance-sensitive use cases.