EXLS Q3 Deep Dive: Data and AI Momentum Shapes Growth, Margins Steady

Data analytics and digital solutions company ExlService Holdings (NASDAQ:EXLS) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 12.2% year on year to $529.6 million. The company expects the full year’s revenue to be around $2.08 billion, close to analysts’ estimates. Its non-GAAP profit of $0.48 per share was 3.2% above analysts’ consensus estimates.

Is now the time to buy EXLS? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

EXL’s third quarter results were met with a negative market reaction despite outperforming Wall Street’s revenue and non-GAAP earnings expectations. Management pointed to accelerated adoption of its data and AI-led solutions, which now comprise over half of total revenue, as a primary driver of growth. CEO Rohit Kapoor emphasized, “Our data and AI-led revenue grew 18% year-over-year, reaching 56% of total revenue,” highlighting increased client demand for AI-powered workflow transformation. The Insurance, Healthcare and Life Sciences, and Banking segments all contributed to top-line gains, with particular strength in Healthcare.

Looking forward, management’s revised outlook is built on continued expansion in data and AI services, a strong recurring revenue base, and a pipeline of new client wins. Kapoor stated that EXL’s visibility into upcoming quarters is supported by high renewal rates and healthy demand, adding, “We have momentum to sustain double-digit top line growth into 2026.” Investments in front-end sales, capability development, and the rollout of the EXLdata.ai platform are expected to support both growth and margin improvement, though management acknowledged that spending will remain elevated to capture these opportunities.

Key Insights from Management’s Remarks

Management attributed Q3’s solid growth to increased demand for AI-enabled solutions, robust performance in Healthcare, and a strategic shift toward embedding AI across traditional digital operations.

• Data and AI revenue surge: EXL’s data and AI-led solutions now comprise 56% of total revenue, reflecting a major shift from traditional digital operations. Management noted that demand for AI-powered workflow transformation is accelerating, with these solutions growing 18% year-over-year and driving a reclassification of revenue streams within the business.
• Healthcare outperformance: The Healthcare and Life Sciences segment remained the fastest-growing area, expanding by 22% year-over-year. This was attributed to strong demand for EXL’s data and AI tools in payment services and analytics, as well as successful expansion with both new and existing clients. Kapoor described the business as “in its infancy,” given the large addressable market and ongoing adoption of analytics and AI by healthcare clients.
• International growth potential: International Growth Markets produced 8% year-over-year growth and now represent 18% of total revenue. Management cited investments in local executive talent and partnerships, as well as applying U.S.-developed solutions to new geographies, as key strategies for accelerating progress in these markets.
• EXLdata.ai platform launch: The introduction of EXLdata.ai, an agentic AI suite, was highlighted as a step-change in addressing client data challenges. This platform automates data modernization and governance, reducing implementation times from months to days. Kapoor claimed this solution is unique in its use of AI to make enterprise data accessible and AI-ready, with integration across major cloud and data providers.
• Client relationship evolution: The go-to-market approach has evolved, with sales and account teams now engaging across more client buying centers—such as CIOs, CDOs, and business heads—instead of just operations leaders. Larger, more strategic deals and joint go-to-market efforts with technology partners like Microsoft Azure, Google Cloud, AWS, and Databricks are broadening EXL’s reach and deepening client relationships.

Drivers of Future Performance

EXL expects continued growth to be fueled by rising enterprise adoption of AI-enabled solutions, a stable base of recurring revenue, and targeted investments in sales and capability development.

• AI solutions driving expansion: Management believes that embedding AI into client workflows will continue to be the primary growth lever, with data and AI-led services expected to command double-digit growth rates. Kapoor highlighted that the shift from traditional operations to AI-driven engagements is expanding EXL’s addressable market and driving higher productivity for clients, which in turn opens new revenue streams.
• Margin outlook and investments: CFO Maurizio Nicolelli stated that while adjusted margins have been lumpy in 2025 due to increased spending on sales and new solutions, margins are expected to stabilize and grow by 10 to 20 basis points annually. However, management cautioned that elevated investments will persist as the company ramps up capability development and front-end sales to sustain growth.
• Risks and headwinds: Management acknowledged that the rapid deployment of AI solutions can be deflationary if not offset by increased client penetration and new service offerings. Kapoor explained that while productivity gains could reduce revenue per engagement, EXL’s ability to win more work and expand into new areas has so far mitigated this risk. Nonetheless, the team remains watchful for potential slowdowns in client spending or delays in AI project rollouts.

Catalysts in Upcoming Quarters

Over the coming quarters, the StockStory team will be watching (1) the pace of adoption and monetization for the new EXLdata.ai platform and related AI services, (2) whether international markets and Healthcare sustain their current growth trajectories, and (3) the balance between investment in front-end sales and margin improvement. Additionally, client wins and expansion of recurring, high-value contracts will be critical indicators of execution.

EXL currently trades at $38.16, down from $41.47 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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