ExlService Holdings spent the second quarter of 2026 advancing a transformation that matters more than the headline net-income figure suggests. In late June, management announced an agreement to acquire iMerit, a specialist in AI model training, evaluation, and reinforcement learning, for $170 million in upfront cash plus earn-outs that could reach another $140 million if milestones are met. The deal is aimed at deepening EXLS's work with foundation-model builders and expanding the company's push from traditional business-process outsourcing into AI-enabled outcomes. That strategic move landed alongside strong demand in healthcare and continued broad-based revenue growth across the company's four industry verticals, even as profit margins absorbed the costs of building new AI capabilities.
Revenue for the three months ended June 30, 2026 came in at $594.8 million, up 15.6% from $514.5 million in the year-ago quarter and up 14.7% for the first half of the year to $1,165.1 million. The Healthcare and Life Sciences segment led the way with a 22.0% year-over-year jump to $158.0 million, while Insurance, Banking and Capital Markets, and International Growth Markets all posted double-digit gains. Operating income rose 7.6% to $87.4 million, and diluted earnings per share improved to $0.42 from $0.40 as aggressive share repurchases offset a 2.3% decline in reported net income. The net-income figure was pressured by a higher effective tax rate, lower non-operating investment income, and a $3.0 million fair-value mark-down tied to the contingent consideration from the 2024 ITI Data acquisition.
We read the quarter as evidence that EXLS is successfully pivoting its revenue mix toward higher-value data and AI-led services, but the operating leverage is not yet showing up cleanly in the bottom line. Selling, general, and administrative expenses grew faster than revenue, and the tax rate climbed to 23.1% from 21.9% in the prior-year quarter. The bull case rests on the idea that Healthcare's margin expansion, the iMerit acquisition, and a gradual shift to outcome-based pricing can convert strong top-line momentum into faster earnings growth once integration costs and tax headwinds fade.
At $37.48, the shares trade well off the 52-week low of $24.85 but below the April high of $45.08, reflecting a market that likes the AI narrative yet remains cautious about execution. With a trailing price-to-earnings ratio of 23.57 and a forward multiple of 14.43, investors are pricing in a meaningful earnings recovery. The next tests are the closing and integration of iMerit, the refinancing of borrowings that now sit in current liabilities, and whether management can slow the pace of SG&A growth while preserving Healthcare's momentum. If those pieces fall into place, the narrative shifts from a labor-arbitrage recovery story to a durable AI-services compounder.