EXLS · 10-Q · 2026Q1 · Full report
Gross Margin Drivers
ExlService Holdings, Inc. · 2026-04-28 · Importance 40 · Surprise 22
Cost of revenues increased $40.6 million, or 13.2%, to $348.3 million in Q1 2026, driven mainly by higher employee-related costs of $35.5 million and higher technology, facilities and other operating costs of $8.8 million, partially offset by a foreign exchange gain of $3.7 million. Overall gross margin rose to 38.9% in Q1 2026 from 38.6% in Q1 2025, a 30 basis point improvement attributed to higher revenues and operational efficiencies. Segment-level margin moves were mixed: Insurance gross margin improved ~110 bps, Healthcare and Life Sciences improved ~140 bps, Banking and Diversified Industries declined ~40 bps, and International Growth Markets declined ~250 bps for the quarter. Employee headcount and wage inflation materially contributed to the increase in cost of revenues across segments.
Key facts
- Cost of revenues for the three months ended March 31, 2026: $348.3 million, up $40.6 million or 13.2% from $307.7 million for the three months ended March 31, 2025.
- Healthcare and Life Sciences gross margin for the three months ended March 31, 2026: 45.3%, up 140 basis points from 43.9% for the three months ended March 31, 2025.
- Healthcare and Life Sciences cost of revenues for the three months ended March 31, 2026: $83.1 million, up $12.6 million or 17.9% from $70.5 million for the three months ended March 31, 2025.
- Insurance gross margin for the three months ended March 31, 2026: 37.7%, up 110 basis points from 36.6% for the three months ended March 31, 2025.
- International Growth Markets gross margin for the three months ended March 31, 2026: 34.1%, down 250 basis points from 36.6% for the three months ended March 31, 2025.
- Increase in cost of revenues was due to increases in employee-related costs of $35.5 million and higher technology, facilities and other operating costs of $8.8 million, partially offset by a foreign exchange gain net of hedging of $3.7 million for the three months ended March 31, 2026 versus the three months ended March 31, 2025.
- Insurance cost of revenues for the three months ended March 31, 2026: $120.8 million, up $11.6 million or 10.7% from $109.2 million for the three months ended March 31, 2025.
- Gross margin for the three months ended March 31, 2026: 38.9%, an increase of 30 basis points from 38.6% for the three months ended March 31, 2025.
Impact estimates
| metric | direction | stage | expected | basis |
|---|---|---|---|---|
| margin | negative | realized | -2.5% | International Growth Markets gross margin for the three months ended March 31, 2026: 34.1%, down 250 basis points from 36.6% for the three… |
| margin | positive | realized | +1.4% | Healthcare and Life Sciences gross margin for the three months ended March 31, 2026: 45.3%, up 140 basis points from 43.9% for the three… |
| margin | positive | realized | +1.1% | Insurance gross margin for the three months ended March 31, 2026: 37.7%, up 110 basis points from 36.6% for the three months ended March… |
| margin | negative | realized | -0.4% | Banking, Capital Markets and Diversified Industries gross margin for the three months ended March 31, 2026: 36.9%, down 40 basis points… |
| margin | positive | realized | +0.3% | Gross margin for the three months ended March 31, 2026: 38.9%, an increase of 30 basis points from 38.6% for the three months ended March… |
| operating_income | negative | realized | — | Increase in Insurance cost of revenues included employee-related costs of $11.2 million and higher technology costs of $1.8 million,… |
| operating_income | negative | realized | — | Increase in Insurance cost of revenues included employee-related costs of $11.2 million and higher technology costs of $1.8 million,… |
| operating_income | positive | realized | — | Increase in Insurance cost of revenues included employee-related costs of $11.2 million and higher technology costs of $1.8 million,… |
| operating_income | positive | realized | — | Increase in Insurance cost of revenues included employee-related costs of $11.2 million and higher technology costs of $1.8 million,… |
| operating_income | negative | realized | — | Increase in Healthcare and Life Sciences cost of revenues included employee-related costs of $9.3 million, higher technology costs of $1.6… |
| operating_income | negative | realized | — | Increase in Healthcare and Life Sciences cost of revenues included employee-related costs of $9.3 million, higher technology costs of $1.6… |
| operating_income | negative | realized | — | Increase in Healthcare and Life Sciences cost of revenues included employee-related costs of $9.3 million, higher technology costs of $1.6… |