Revenue
Margin
Demand
Guidance
Tone
Metrics raised 2
- H&I vertical full-year growth outlook raised to lead all verticals (from second position)
- Year-end exit revenue growth guided to double-digit or more YoY (newly set; no prior level stated)
Metrics cut 3
- CY2026 revenue growth guidance cut to 6%-7% including ~50 bps from CP rebadging (from prior ~7.6% path)
- Travel & Transportation full-year growth outlook cut to "lag materially" (prior outlook not stated)
- Ramp timing for three to four deals won earlier in the year deferred to late Q3-Q4 (from expected Q2 ramp)
Event Participants
Executives
3 Niraj Khemka, R. Srikrishna, Vikash Jain
Analysts
2 Aditi Patil, Vibhor Singhal
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | $405 million | +4.4% QoQ; ~$9M volume-led with ~$5M calendar benefit; broad-based growth, with 5 of 7 verticals growing both YoY and sequentially |
| EBIT Margin | 13.6% | +60 bps QoQ; 160 bps FX/calendar and 30 bps utilization tailwinds offset by 70 bps Q2 seasonality/investments and 50 bps people investments |
| Net Headcount Addition | 708 (IT ~180, BPS ~530) | 12th consecutive quarter of IT headcount additions; BPS additions ahead of expected H2 seasonal volumes |
| Attrition | ~11% | Stable |
| Utilization | 84.8% | +20 bps QoQ; methodology change excluding platform employees added ~80 bps (prior periods not restated); expected range-bound at 83%-84% |
| Clients >$10M Annual Revenue | 34 | +3 YoY; tracked as an indicator of broad-based client growth |
| Revenue Mix | Offshore mix improved meaningfully YoY | Onsite mix ticked up slightly QoQ, driven by rebadge deals |
| Cash Balance | ~$176 million | -$45M QoQ after $105M payouts ($55M dividend, $27M acquisitions, ~$24M CY2025 incentives) |
| DSO | Elevated | ERP transition invoicing blackout impact; expected to normalize to 70-75 days by year end |
| Cash Conversion (LTM OCF/PAT) | ~125% | Remains strong despite ERP transition |
| ATR | 25.1 | Within full-year guidance band of 25-26 |
| Hedge & Translation Losses | ~$8 million (EPS impact) | Driven by forwards per hedge policy; expected to reduce to ~$5M in Q3 and ~$3M in Q4 |
Geographic & Segment Commentary
- Healthcare & Insurance (H&I): Strong sequential and YoY growth driven by large deal ramp-ups and broad-based growth across Europe. Has consistently grown faster than the company average as previously guided; now expected to lead full-year growth.
- Banking: Strong sequential and YoY growth with consistent momentum over recent quarters; expected to remain strong throughout CY 2026.
- Manufacturing & Consumer (M&C): Deal closures converting into revenue from both existing accounts and new logos. Delivered YoY growth since H2 CY 2025 after tariff-related headwinds; expected to be a full-year growth contributor.
- Financial Services (FS): Continued sequential and YoY growth; revenue from the GSC client remains stable, with healthy volume growth expected in coming quarters.
- Professional Services (PS): Sequential growth reflects seasonality - largest client follows a July-June fiscal calendar, with year-end budget utilization driving revenue tailwinds.
- Travel & Transportation (GTT): Sequential softness and ~18% YoY decline; tighter external environment, particularly in the Middle East; expected to lag materially for the full year.
- Geographies: Every geography delivered sequential and YoY growth. Europe returned to strong growth and is expected to lead full-year growth on account ramp-ups and new logos; APAC grew strongly despite the Middle East drag.
Company-Specific & Strategic Commentary
- AI Service Launch Cadence: One new service launched per month; on track for the 100-customer-in-90-days target for the second service; champion squads of 30-75 AI champions per business unit drive proactive customer execution.
- Zero License: 65 parsers built (growing weekly) to discover business logic across 65 SaaS platforms; first deals closed with a substantial pipeline; three traction archetypes emerging; example win: capital markets client exiting a platform that only returns PDF outputs, moving to a modern AI/agent-built core.
- Agentverse: Horizontal AI platform launched during Q2, complementing service-line platforms (Kenzie, RapidX, AMAs) and an increasing range of vertical products.
- AI Economics (Tokenomics): Experimenting with 8-10 pricing models (input, output, outcome-based); proposals now offer token cost options; built a Claude harness with 9 token-optimization methods; expected to enable participation in client token budgets and improve profitability over time.
- Partnership Philosophy: Three lanes - foundational LLM (Anthropic), domain models (SLMs/fine-tuned LLMs), and workflow/context layer; differentiation positioned above the model layer via vertical depth and client-specific context.
- Go-to-Market Transformation (Phase II): Shantanu appointed North America hunting head; Param Iyer and Vijay to lead Europe and Asia respectively; focus on large proactive deal creation, significant team expansion, and AI-augmented sales at every stage.
- Deal Wins: Two-year German biotech clinical data consolidation program converting to an agentic platform; two capital markets deals (Zero License exit; AI-led middle-office cash/settlements transformation); >$10M music-rights modernization; double-digit $M CRO CRM transformation; London university shared-services tech/BPO program for the education industry; ANZ digital IPO; APAC fintech payments outsourcing and transformation.
- Emerging Deal Archetypes: Strategic AI-partner RFPs with quick decision cycles (won two of a handful in Q2, first four use cases to deliver in ~2 months); increased momentum in >$10M legacy modernization deals; top-15 client consolidation win (now down to three strategic vendors).
- ERP Cutover: Three-year program fully live, including financial modules; first complete reporting cycle from the new system executed "without a hitch."
- New Centers: GIFT City (India) and Bogota (Colombia) added during the quarter.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Growth (CY 2026) | 6%-7%, including ~50 bps from CP rebadging | Reduced from prior ~7.6% path; delayed ramps on deals won earlier in the year (now late Q3-Q4) and worse-than-expected Middle East macro in GTT; implies 2.7% CQGR from this point, which management is confident of delivering |
| EBIT Margin (CY 2026) | 13%-14% | Reiterated |
| ATR (CY 2026) | 25-26 | Reiterated |
| DSO | 70-75 days by year end | Expected normalization after ERP transition-related elevation |
| Hedge & Translation Losses | ~$5M in Q3; ~$3M in Q4 | Based on current hedge book and June-end exchange rates |
| Year-End Exit Growth | Double-digit or more YoY | Growth expected across both Q3 and Q4, not concentrated in Q3 |
| Vertical Growth Leadership | H&I, Banking, M&C to lead; PS and FS follow; Travel lags materially | H&I moved to first position from second; GTT -18% YoY in Q2 |
Risks & Constraints
| Risk | Context |
|---|---|
| Middle East macro weakness | GTT shrank ~18% YoY in Q2, described as "materially worse than we thought it will be"; existing airline clients cutting budgets; travel expected to lag materially for the year and was a key driver of the guidance cut |
| Deal ramp delays | Three to four deals won earlier in the year were expected to ramp in Q2 but are now starting mid-to-late Q3, partly due to Middle East conditions; insufficient CY 2026 runway to recover, triggering guidance reduction |
| AI-driven client consolidation | 13 of top 20 clients underwent consolidation in the last five quarters (4-5x the normal rate), with AI as a key driver; one large client remains in wait-and-watch mode; management characterizes the phase as stability-first, with growth returning later |
| Hedge and translation losses | ~$8 million EPS impact in Q2 from forwards taken per hedge policy; ~$5 million expected in Q3 and ~$3 million in Q4, based on the current hedge book and June-end exchange rates |
| ERP transition execution | Invoicing blackout during data migration elevated DSO and contributed to a $45M cash balance reduction; management expects DSO normalization to 70-75 days by year end |
| Client-side AI adoption velocity mismatch | While some clients accelerate timelines (an eight-week program delivered in under four weeks), others are not ready for the velocity, delaying next-phase requirements and slowing enterprise-wide AI adoption and revenue ramp |
Q&A Highlights
AI Harness & Model Optimization - Deal Potential
- Question: Are harness/token-optimization conversations culminating in deals, and is there similarity to the 2018 cloud adoption cycle? (Vibhor Singhal, Nirvana Equities)
- Answer: Harness (the scaffolding sitting on top of models) is the term for selecting the right models - within or across providers; Hexaware built a Claude harness with nine ways to optimize token consumption using different Anthropic models. However, the harness itself is unlikely to lead to large deals - deals will come from different patterns. (R. Srikrishna)
Strategic AI Partner RFPs - Selection Criteria & Differentiation
- Question: What parameters do clients use to select strategic AI partners, and how does competitive differentiation work? (Vibhor Singhal)
- Answer: Hexaware's preferred sales model is no presentations or proposals for transformation programs; instead, it builds a POV or small working version of what the customer wants and demonstrates it with synthetic data. If given real data and system integration access, production deployment follows quickly. (R. Srikrishna)
Guidance Reduction - Ramp Delays vs. Macro
- Question: Is the guidance cut driven mainly by deal ramp delays, or also by macro/deals not coming through? (Vibhor Singhal)
- Answer: Both; macro impact is largely restricted to Travel & Transportation, where existing airline clients have cut budgets (GTT -18% YoY). Three to four deals expected to ramp in Q2 are now ramping mid-to-late Q3, leaving insufficient runway in the year - hence the narrowed guidance. (R. Srikrishna)
AI-Led Deflation & Consolidation Cycle
- Question: How much of the business has gone through AI-led deflation at renewals, and could there be multiple compression cycles? (Aditi Patil)
- Answer: 13 of the top 20 clients have undergone consolidation in the last five quarters, roughly 4-5x the normal rate, with AI as a key driver. Neither the substantial-growth nor the substantial-loss scenario materialized - the business is in a stability-first phase. One large client remains in wait-and-watch after major consolidation; stability is favorable after significant business losses over the past two years. (R. Srikrishna)
Q4 Growth Profile & Exit Rate
- Question: With ramps pushed to Q3-Q4, will Q4 growth differ from the typical seasonal profile? (Aditi Patil)
- Answer: The guidance midpoint implies 2.7% CQGR from this point; growth will not all land in Q3 - Q4 will also see growth. Management expects to exit the year at double-digit or more YoY growth, with more specific Q4 expectations provided next year. (R. Srikrishna)
Note: Transcript appears abbreviated for the Aditi Patil exchange; responses to her intermediate questions (ramp-delay verticals; deal sizes in new AI-led areas) were not captured. Related context appears in management's prepared remarks.
Key Takeaway
Hexaware reported a solid quarter in a difficult environment: revenue of $405 million grew 4.4% QoQ (volume-led, with ~$5M calendar benefit), EBIT margin expanded 60 bps to 13.6%, and net headcount rose 708 with the 12th consecutive quarter of IT additions. EPS growth was masked by ~$8 million hedge/translation losses, expected to recede to ~$3 million by Q4. The AI pivot advanced - monthly service launches, 65 Zero License parsers, the Agentverse launch, and two wins under a new strategic AI-partner RFP archetype - alongside growing >$10 million modernization deal momentum. CY 2026 revenue growth guidance was trimmed to 6%-7% from ~7.6% on delayed deal ramps and Middle East-driven GTT weakness (-18% YoY); management is confident in the implied 2.7% CQGR and a double-digit YoY exit, with EBIT margin reiterated at 13%-14%. Watch items include ramp timing, GTT stabilization, consolidation-driven client stability, and DSO normalization post-ERP cutover.