EXL (EXLS) 2026年第3四半期決算説明会：AIの成長が業績予想の上方修正を牽引

要点

• EXLの2026年第3四半期売上高は報告ベースで前年同期比19.7%増、恒常為替レートのオーガニックベースで17%増の6億3400万ドルとなりました。
• 調整後希薄化後EPSは前年同期比28.5%増の0.62ドルとなりました。調整後営業利益率は、将来の顧客立ち上げに向けた投資を行ったことで、前年同期から10ベーシスポイント低下し19.3%となりました。
• データおよびAI主導事業の売上高は報告ベースで36%増、オーガニックベースで31%増となり、総売上高のほぼ3分の2を占めました。オペレーション事業全体の売上高は12%増加しました。
• 全4つの営業セグメントが15%を超える成長を記録しました。銀行・資本市場・多角化産業セグメントが、iMeritの新規寄与を含め、報告ベースで27%増となり成長を牽引しました。
• 経営陣は2026年通期の売上高見通しを24億3000万〜24億4000万ドルに、調整後希薄化後EPS見通しを2.34〜2.36ドルに上方修正しました。
• EXLは、パイプラインの創出が2桁のペースで拡大し、顧客の意思決定サイクルが短縮されたこと、またオペレーション、データ、AIサービスを組み合わせた大型統合案件が増加していることを明らかにしました。

主要財務実績

事業および経営実績

データおよびAI事業が引き続き主要な成長ドライバーとなりました。第3四半期のデータおよびAI主導の売上高は報告ベースで36%増、オーガニックベースで31%増となりました。最初の9ヶ月間において、同部門は恒常為替レートベースで31.7%成長し、売上高の62%を占めました。

デジタルオペレーションの売上高は前年同期比で1.7%減少しましたが、経営陣はこれを、オペレーションへのAI組み込みが進む中での案件分類の意図的な再編によるものと説明しています。デジタルオペレーションおよびデータ・AIオペレーションを含むオペレーション全体では12%成長しました。

国際成長市場セグメントの成長率は、上半期の約13%から第3四半期には21%へと加速しました。経営陣は同事業を「未開拓の大きな機会」と表現し、買収により人材、機能、顧客、地理的カバー範囲を拡充できる可能性があると述べました。

7月の買収完了後の2ヶ月間で、iMeritは1530万ドルの売上高をもたらしました。EXLは、この統合によりデータ基盤、モデルのトレーニングおよびファインチューニング、エージェント型システム、ワークフロー、品質保証など、AIスタック全体における自社の能力が拡張されると述べました。経営陣は、iMeritの月次売上高にはムラが生じる可能性があると注意を促しました。

また、EXLは「iMerit Scholars」プラットフォームを開設し、118カ国の厳選された3万人以上の専門家を結集して、AIモデルのファインチューニング、評価、検証を行っています。

支払正当性検証（Payment Integrity）事業は、引き続きヘルスケア・ライフサイエンスセグメントの成長を後押ししました。経営陣は、事前支払い分析への移行、不正対策関連需要の増加、およびヘルスケアから保険領域へのサービス拡張により、さらなる成長の可能性があるとみています。

業績見通し（ガイダンス）

EXLは第3四半期決算を受け、2026年通期の業績見通しを上方修正しました。

この業績見通しは、約500万ドルの為替差益および1300万〜1500万ドルの純利息費用を前提としています。市場参入機能、テクノロジー、インフラ、データおよびAIへの継続的な投資によって営業レバレッジが相殺されるため、経営陣は利益率がおおむね安定して推移すると見込んでいます。

リスクと注目点

• 経営陣は引き続き変化するマクロ経済環境を注視しています。
• 2027年に向けた見通しの視認性は前年同期と同等に堅調であるとEXLは説明しているものの、短サイクルのデータ・AI案件には変動が生じる可能性があります。
• AIを活用したオペレーションへの移行は、顧客との商用契約構造に同等に迅速な変化をもたらしておらず、最終的な利益率への好影響には不確実性が残っています。
• AIモデルやトークンコストの低下は、ガードレール、エージェント型インフラ、AIの品質保証に対する支出増加によって相殺される可能性があります。
• iMeritの統合は依然として初期段階であり、経営陣はこの買収を成功と評価するのは時期尚早であると述べています。
• 銀行・資本市場・多角化産業セグメントの利益率は、新規案件の拡大に向けた採用や投資により短期的圧力を受けています。

アナリスト質疑応答の要点

経営陣は近年の成長加速の主な要因として、データ・AI主導サービスを挙げました。EXLは、顧客の意思決定サイクルが短縮し、案件の進行速度が向上しており、AI案件における成功率は90%以上を維持していると述べています。

売上高の視認性について、経営陣は事業の約75%が継続的（リカーリング）または定額型（アニュイティ）のベースであると述べました。案件パイプラインの創出は売上高成長とおおむね一致する2桁のペースで拡大しており、商談では大規模な統合型オペレーション、データ、AI案件が増加しています。

利益率について、EXLは売上高が従業員数の増加ペースを上回って成長しており、売上高に対する人件費比率が低下していることを指摘しました。ただし、同社は成長モードにある間、そのレバレッジをテクノロジー、AI、インフラへ再投資する計画です。

経営陣は、iMeritの戦略的価値はEXLにフルスタックのAI機能をもたらす点にあると述べました。初期の統合は順調に進んでいますが、大企業向けのクロスセルや共同での機能開発はまだ初期段階にあります。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Hello, and welcome to the ExlService Holdings, Inc. Third Quarter 2026 Earnings Conference Call.

[Operator Instructions] Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Andrew Thut, Head of Investor Relations and Capital Markets.

Andrew Thut

Thanks, [Ronnie]. Hello, and thank you for joining EXL's Third Quarter 2026 Financial Results Conference Call. On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the third quarter earnings press release we issued yesterday afternoon. We have also posted a slide deck and investor fact sheet on our Investor Relations website.

As a reminder, -- some of the matters we'll discuss this morning are forward looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those factors set forth in yesterday's press release and in EXL's filings with the Securities and Exchange Commission from time to time. EXL assumes no obligation to update the information presented on this conference call today. During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of these measures to GAAP can be found in our press release, slide deck and investor fact sheet. With that, I'll turn the call over to Rohit. Rohit?

Rohit Kapoor

Thank you, Andrew, and good morning, everyone. EXL delivered another strong quarter with revenue of $634 million, up 20% year-over-year and adjusted earnings per share of $0.62 in an increase of 29%. Organic growth accelerated to 17%, with every segment growing more than 15% and reflecting broad-based momentum in our business that has strengthened throughout the year.

As enterprises navigate the complexities of AI implementation the investment areas naturally lend themselves to EXL's expertise, solutions and services. Our deep understanding of client workflows and domain context, Combined with our competencies in data and AI engineering is creating a tailwind as we help clients solve the acute challenge of making AI work effectively in the enterprise. This dynamic is translating directly into our financial performance. Data and AI-led revenue grew 36% on a reported basis and 31% organically in the third quarter, now representing almost 2/3 of EXL's total revenue. We saw strength across data management, AI services and solutions, payment integrity, data and AI and operations and with our recent acquisition of Merit our model training solutions are also gaining traction.

Importantly, the strength in data and AI led revenue is being accompanied by healthy growth in our underlying operations business. Digital operations revenue declined 1.7% year-over-year. We addressed this last quarter, but it bears emphasizing -- this decline is by design, and it reflects the evolution of our business mix as we continue to embed AI into operations work, which migrates it into our data and AI category.

Total operations, which includes both digital operations and data and AI operations grew 12% year-over-year. We believe that total operations remains the best way to evaluate the underlying health of our operations business. As we embed more AI into the workloads we manage -- those engagements become more intelligent, more IP-led and higher value.

Our operations relationships give us the domain context, data access, and workflow knowledge to identify new AI use cases and deploy them even faster. TAC deepens client relationships and drives recurring growth for EXL. We saw strong performance across each of our 4 operating segments. Insurance grew 16% year-over-year, accelerating for the third straight quarter led by our continued strong performance in data management and analytics. Our win rates have improved meaningfully this year as we go to market with an AI forward value proposition.

As insurers move forward on AI adoption, they first need a strong data foundation and then a partner to implement AI at scale. We've been successful in capturing that demand on both fronts, and that's what's been driving our reserves. Healthcare and Life Sciences grew 19% year-over-year led by continued strength in payment integrity. Additionally, our mid-market and regional health plan strategy is emerging as a meaningful growth engine. We are gaining traction across multiple service offerings, including both Payment Integrity and domain solutions focused on cost containment and AI integration into workflows. We believe this growing demand for our solutions and services in the mid-market reflects a secular trend.

International growth markets grew 21% year-over-year accelerating from approximately 13% growth in the first half of the year. Momentum was driven by clients deepening their engagement with the EXLS. We saw particular strength in banking as well as in energy and utilities, where we launched a large deployment, embedding our AI workflows across back office and collections. We are pleased with the progress we are making in this important growth segment for our company.

Banking, capital markets and diversified industries grew 27% year-over-year which includes the initial contribution from our recent acquisition of iMerit. Banking growth was led by particularly strong momentum across mid-tier banks and fintechs. We have also added 30 new logos this year as our AI-first data-led value proposition continues to gain traction. Taken together -- these results demonstrate that our growth is not dependent on a single vertical offering or client cohort. Demand for our capabilities is broad-based as enterprises increasingly seek partners that can combine data, AI and deep operational expertise to transform complex workflows. In the third quarter, pipeline creation grew double digits as clients expanded their relationships with us and committed to larger integrated deals.

Over the past several quarters -- we have spoken about the evolution of AI in the enterprise as projects have moved from experimentation and proof of concept to scale implementation. Now we are seeing the next chapter of that evolution rollout with agentic AI starting to go mainstream. Let me share some proof points from the quarter. Working closely with Google, we won an engagement with a leading U.K. bank to rebuild its analytics environment on Google Cloud, migrating it from SaaS to a cloud-native architecture. We are using our AgenticEXLdata.aI solution to deliver the work.

Our differentiation from established engineering-led providers was the strength of our domain depth, our agentic approach to accelerating the migration and our partnership with Google. This win was also aided directly by the investments we have been making in our partnership channel. Also, during the quarter, EXL strengthened its agentic AI leadership with enhanced solutions across finance, life and annuities and payment integrity -- in areas where we control the full AI stack.

Our growing portfolio of Agentic AI offerings helps clients accelerate decision-making improve operational efficiency and unlock greater business value. Notable launches included our Agentic suite for Finance along with enhancements to LifePro agenetic suite for life and annuities and payment integrity with AI or health care payers. These offerings extend the capabilities of our industry platforms, giving our clients a path to agentic AI adoption with increased business value. We closed on the iMerit acquisition at the end of July and have since been actively integrating the business.

In the 2 months since closing, iMerit contributed $15.3 million of revenue to the quarter with notable growth across high-tech and health care combined with continued momentum with Frontier AI labs. The launch of the iMerit Scholars platform, which we announced earlier this week is also a significant development. Scholars bring together more than 30,000 betted domain experts across 118 countries to fine-tune, evaluate and validate AI models.

The platform integrates recruiting, matching, management and global payments into 1 system. For EXL enterprise clients, together with iMerit we extend our reach across the AI life cycle. We have begun bringing iMerit's capabilities to our enterprise clients, and we are encouraged by the initial commercial activity. Let me briefly touch on some recent leadership changes at the company.

As announced in September, Vivek Jetley, President and Head of Insurance, Healthcare and Life Sciences, accepted an opportunity to become a CEO elsewhere. And his last date EXL was earlier this week. Vivek has been a close partner and friend for nearly 20 years -- and on behalf of everyone at EXL, I want to thank him for his many contributions and wish him every success in his new endeavor.

Bhupender Singh, President and Head of International Growth Markets has expanded his responsibilities to include leadership of our insurance segment. Raghav Jaggi, and Executive Vice President, who has spent more than 23 years helping to grow EXL's insurance practice will lead U.S. insurance and report to Bhupender. Nikhil Dhingra, also an Executive Vice President has been with EXL for more than 18 years and will now lead health care and life sciences reporting directly to me.

EXL has a deep and experienced leadership bench, and these executives have played integral roles in building the businesses they will now lead -- that depth provides continuity for our clients, employees and shareholders. The strength of our third quarter performance gives us the confidence to raise our full year outlook.

We now expect 2026 revenue to be in the range of $2.43 billion to $2.44 billion representing 16% to 17% growth on a reported basis and 15% on an organic constant currency basis, up from our prior guidance of $2.39 billion to $2.415 billion. We are also raising our adjusted diluted EPS guidance to a range of $2.34 to $2.36, representing approximately 20% to 21% year-over-year growth, up from our prior guidance of $2.25 and to $2.29.

We believe we are well positioned as agentic AI becomes mainstream in the enterprise. With iMerit EXL now operates across the full AI stack, building the data foundation, training and fine-tuning models and embedding AI into the workflows that we run for our clients. Our data and AI-led business is expanding. Total operations continues to grow, and our performance is broad-based across segments. As always, I want to thank our clients and partners for their continued trust and collaboration, our employees for their commitment and innovation and our stakeholders for their continued support. With that, I will turn the call over to Maurizio to provide additional details on our financial results and outlook.

Maurizio Nicolelli

Thank you, Rohit, and thanks, everyone, for joining us this morning. I will provide an overview of our financial performance for the third quarter and 9 months ended September 30, followed by our revised outlook for 2026. We -- we delivered a strong third quarter with revenue of $634 million, up 19.7% year-over-year on a reported basis and 17% on an organic constant currency basis. .

Sequentially, revenue grew 6.6% on a reported basis and 4.1% on an organic constant currency basis. Adjusted EPS was $0.62 and a year-over-year increase of 28.5%. All revenue growth percentages mentioned hereafter are on a constant currency basis unless otherwise stated. Now -- turning to revenue by segments. Insurance segment grew 15.5% year-over-year with revenue of $208.5 million and 5.4% sequentially and -- this growth was driven by continued expansion in existing clients, which includes higher volumes.

The insurance vertical, including revenue from international growth markets grew 16.5% year-over-year with revenue of $246.4 million. The Healthcare and Life Sciences segment reported revenue of $160.4 million, representing a growth of 18.6% year-over-year and 17.2% on an organic basis.

This year-over-year growth was driven by higher volumes in our Payment Services business and expansion of existing client relationships across other lines of business. The Healthcare and Life Sciences vertical, including revenue from international growth markets grew 18.8% year-over-year with revenue of $160.9 million.

In the banking capital markets and Diversified Industries segment, we reported revenue of $153.5 million representing a reported growth of 27% year-over-year and 16.8% on an organic basis. Sequentially, Banking, Capital Markets and Diversified Industries segment grew 5.5% on an organic basis. This growth was driven by new client wins, expansion of existing client relationships and incremental revenue from iMerit acquisition.

The banking capital markets and diversified industry vertical, including revenue from international growth markets grew 24.7% year-over-year with revenue of $226.6 million. In the International Growth Markets segment, we generated revenue of $111.6 million, up 21.1% year-over-year. On a reported basis and 20% on an organic basis.

Sequentially, international growth markets revenue grew 6.3%. This growth was primarily driven by higher volumes from existing clients across insurance, banking, capital markets and diversified industries as well as new client wins. SG&A expenses were 21% of revenue, down 30 basis points year-over-year, driven by operating leverage. Adjusted operating margin for the quarter was 19.3%, down 10 basis points year-over-year due to investments supporting future ramp-ups.

Our effective tax rate for the quarter was 20.4%, down 170 basis points year-over-year primarily driven by higher profitability in lower tax jurisdictions. Our adjusted EPS for the quarter was $0.62, up 28.5% year-over-year on a reported basis. Turning to year-to-date results. Revenue for the first 9 months was $1.8 billion, up 16.5% year-over-year on a reported basis and 15.5% on an organic constant currency basis. All segments delivered double-digit growth. Data and AI led services grew 31.7% year-over-year, on a constant currency basis and accounted for 62% of revenue.

Adjusted operating margin for the period was 19.8%, up 10 basis points year-over-year. Adjusted EPS for the first 9 months was $1.79, up 23.7% year-over-year. Our balance sheet remains strong -- in the quarter, we expanded our borrowing capacity to $1 billion in the form of $400 million term loan and a $600 million revolving credit facility due August 2031. We -- this expanded debt capacity gives us the flexibility to extend our competitive advantage through targeted mergers and acquisitions while continuing to return capital to our shareholders under our $500 million share repurchase authorization.

As of September 30, we had $333 million in cash and short-term investments and $513 million in term loan and revolver debt, resulting in a net debt position of $180 million. During the first 9 months, we generated $209 million in operating cash flow, invested $44 million in capital expenditures and returned $205 million to shareholders through our share repurchases of approximately 6.6 million shares. Turning to our outlook for 2026.

We continue to monitor the evolving macroeconomic environment. However, our strong third quarter performance, high visibility and sustained growth momentum provide us with the confidence to raise our outlook for the remainder of the year. We now expect 2026 revenue to be in the range of $2.43 billion to $2.44 billion -- this represents a year-over-year growth of 16% to 17% on a reported basis and 15% on an organic constant currency basis.

At the midpoint -- the revised range is $32 million higher than our previous guidance. To capitalize on the strong market opportunity and stay ahead in AI, we will continue to invest in go-to-market and data and AI capabilities through the remainder of the year. Our outlook assumes foreign exchange gains of approximately $5 million net interest expense of approximately $13 million to $15 million and our full year effective tax rate to be in the range of 21% to 21.5%.

And -- we expect capital expenditures to be in the range of $58 million to $62 million. We now expect adjusted EPS of $2.34 to $2.36 and up from our previous guidance of $2.25 to $2.29, representing 20% to 21% year-over-year growth. In summary, our strong performance through the first 9 months underscores our differentiated competitive position.

Our durable and adaptable business model positions us well to sustain this momentum through the remainder of the year and sets us up well for 2027. With that, Rohit and I would be happy to take your questions.

Operator

[Operator Instructions] Your first question comes from Bryan Bergin with Cowen.

質疑応答

Bryan Bergin

So my first question is on -- related to strong growth sustainability. So can you compare and contrast where you stand this year versus perhaps last year at this time as it relates things like bookings performance and pipeline. I think you mentioned double-digit pipe growth. But I'm curious about growth inflection this year.

It's obviously not solid. I'm trying to think about the sustainability of strength versus any give back as you move ahead. Aside from obvious harder comps -- are there any important fundamental differences that are worth noting? And then -- my second question is going to be on international markets. So this has been an area of investment that's shown already some good fruit and growth accelerating over the last couple of quarters. Do you expect that this will become or can become a growth leader as you continue to go through 4Q and into next year?

Rohit Kapoor

So in terms of our business momentum I think that continues to be quite strong. I think for us, if you were to compare it versus last year -- last year, we had strong growth. We had strong buildup of pipeline. But really, what's added the day for us in2026 is the acceleration of growth in our data and AI part of the business. So today, what we see is that we are adding new pipeline, which is growing at a faster pace.

The decision-making cycle time for clients, that seems to be kind of coming down. So that's actually improving the velocity of deals -- and so we feel very good in terms of where we stand today and in terms of the sustainability pathway for us going forward into the future. On international growth markets, that is a huge untapped opportunity for us. As you rightly pointed out, we deliberately started to make investments in our international growth markets, and we want to be able to build and grow our presence out there. I think many of our client relationships out there and prospective clients can benefit from the same kind of value and services that we provide to our U.S.-based customers.

So there is a huge opportunity set out there. And for us, that business is still very, very small. And it will continue to grow and continue to be a big growth driver for our overall company growth. The 1 thing which we do need to think about it and we're trying to work on that on a conscious and deliberate way is to think about whether we can do any acquisitions in the international growth markets because that is something which will give us additional talent, additional capabilities additional access to customers and additional geographic locations, and that can be a further impetus to our growth rate.

Operator

Your next question comes from Puneet Jain with JPMorgan. Please unmute your audio.

Puneet Jain

Great quarter. Let me take a step back. Like you've been reporting very solid upside for the last 2 quarters.

Is that a function of enterprises, your clients beginning to embrace AI and associated services like data analytics, which is driving nice acceleration in your growth rates? Or are there any company-specific drivers like the international growth that you just mentioned under [Bhupendar's] leadership there that are driving this acceleration.

Rohit Kapoor

Sure, Puneet. So look, I think the 1 thing which we are very proud of is that we are being able to demonstrate pretty broad-based growth in terms of the company performance. And each 1 of our 4 segments have been growing. And at some point, on the other, 1 of them takes up a leadership position and powers the growth of the company.

But if you take a look at our portfolio, it's a very balanced growth rate that we're seeing, and that's something which also points to the sustainability of that growth rate. I think for the last 2 quarters, if you think about Q2 of '26 and Q3 of '26, the outperformance has been very significant.

And the big reason for that has been the outperformance in our data and AI-led part of the portfolio where we've seen an acceleration of growth, and we've seen a lot of business momentum. And that just tells us that the kind of services that we have and the kind of capabilities that we've got and the kind of investments that we've made -- that seems to be resonating very nicely with our customer base, and that's what they're looking for.

Our ability to deliver highly successful AI engagements which stands our success rate, as we've disclosed previously, stands well above 90%. That is a big driver to the growth rate of our data and AI-led part of our business. And that part is also short cycle. So frankly decision-making is fairly quick out there, and that's why we've seen the outperformance takes.

Puneet Jain

Got it. Got it. And now like it's been almost a quarter since you acquired iMerit, seems like it's off to a great start. You mentioned, I think, $15 million revenue over 2 months. Looking ahead, how does that acquisition help you with enterprise clients and building pathways with printer labs, specifically with everyone's focus on model alignment.

Rohit Kapoor

Yes. So look, for us, iMerit is an extremely strategic acquisition -- but it is likely to play out over a longer period of time. And so far, we've only seen 2 months of integration. The integration has gone off really well. But it's still too early to call this a success.

The big reason why we did the iMerit acquisition is because it allows us to play with our enterprise clients in the full AI stack. So we now have capabilities on data. We have capabilities on building the agentic harness -- we have a strong understanding of the workflow and the operations. We have now the ability to work on the model there.

And particularly when it comes to deploying agenetic AI at scale to embed deep contextual knowledge into the agentic systems. It allows us to be able to train and test these agentic systems and be able to have a genetic assurance. So frankly, our ability to have the full AI stack, that's a very powerful reason for us to have combined with iMerit -- we are in the very, very early days of taking this out to market.

Obviously, we are doing a lot of this work with the Frontier AI labs, and there's a lot of value that we add there, and there's a lot of learning that's happening out there. And there's a lot of capability development that's happening jointly between the teams at EXL and iMerit that we are putting together.

So we'll see how this plays out. But the strategic rationale seems to be resonating in the marketplace, and it seems to be fitting in with some of the trends that we are seeing. And hopefully, this will be something that will allow us to differentiate ourselves even more.

Operator

Our next question will come from Maggie Nolan with William Blair.

Margaret Nolan

Your intentional move of clients from traditional operations into data and AI-led offerings, that's obviously been very successful in terms of adding volume and driving overall growth. Can you give us a little commentary on how it impacts the margin profile of those engagements at various stages of the transition.

Rohit Kapoor

Sure, Maggie. So yes, you're right. This is a very deliberate and a proactive move and a little bit counterintuitive because our belief is the more AI and data we can embed into the operations and the higher productivity and efficiency gains we can provide to our clients, the more valuable that relationship becomes and our clients will trust us with even more business to be able to help them modernize and to be able to embed AI in.

That thesis seems to be playing out really nice. The margin story on this is a little bit unclear at the current moment because the change in the commercial construct with our clients, that's really not shifting as rapidly as the embedding of AI and data into the operations.

Our clients still prefer us to kind of stay with existing commercial constructs. And we are working with them to try and take more ownership and more responsibility for providing them with the business value and the business outcome. I think over the next couple of years, this will transition out gradually and slowly. And our hope is that this will be net positive for our clients. and it will be net positive for us.

Our clients will be able to get a lower cost of service delivery. They will be able to get an ability to have a glide path that continues to provide them with efficiency and productivity benefits. And at the same time, for EXL, we'll be able to optimize our input resources, and we'll be able to earn a higher margin on this. But at this point of time, that position is a bit unclear and unsettled because we are not seeing the change in the commercial construct with our clients take place at rapidly.

Margaret Nolan

And on the Payment Integrity space, how sustainable is growth at these levels for how long -- and when you think about health care and life sciences opportunities outside of that offering, what do you view might be the growth driver in future years or the opportunity areas in future years?

Rohit Kapoor

So payment integrity for us has been a great business, and we are really proud of having a leadership position in payment integrity -- and the reason why we are able to provide differentiated value to our clients in this space is because our ability to combine AI, data, operational and contextual knowledge of health care and bring all of this together, and that's been the driver of the growth. And the business value in this service line.

As we go forward, there is a greater use of AI in payment integrity -- and in payment integrity, we get compensated on an outcome basis entirely. And therefore, our ability to control the entire stack, which is the data, the AI the model, workflow, the recovery, that allows us to be able to add incremental value to our clients, and it allows us to continue to differentiate ourselves.

Going forward -- our guess is that as AI becomes more and more prevalent in payment integrity, this is an area that can continue to build and grow because we're seeing the work actually shift from a post payment to a prepayment side. And what that means is instead of us looking at a certain percentage of the claims that a health care payer might be making.

We're taking a look at 100% of the claims that go through the system. And therefore, the surface area that we are kind of touching becomes much bigger. The second thing is -- as you know, with AI fraud is rising very, very rapidly because there are new ways in which the front stars are looking at pushing through claims and making fraudulent claims. So that becomes another big area for us to be able to work on. And then finally, we are also seeing that we are able to extend payment integrity from health care to insurance -- and really in insurance, if you think about all the claims that are paid and the kind of fraud that might happen or the waste and the abuse that happens, that's becoming a bigger and bigger proportion.

So Really, the opportunity set for us in payment integrity is tremendous. We are continuing to make more and more investments in this space. And I think this is going to be a very AI heavy and a data-heavy service line. And we are fortunate that we are in this position where we own the complete stack -- and we've got great customer relationships and a great foundation to continue to build off that.

Operator

Thank you .

Your next question will come from David Koning with Robert W. Baird & Co., Inc.

David Koning

And great job. I just wanted to ask on margins because I know you're thinking roughly flat margins for the year. This quarter was really interesting. We looked at the Q and employee costs got significant leverage. I think just if we just look at those, it's like 150 bps or more of year-over-year leverage, but then offset by a pretty big increase in the pass-through costs and just infrastructure investments, all good stuff.

But as we look forward, you start to leverage the pass-through costs, the infrastructure, the iMerit, -- it just seems like there's a lot of room going forward based on at least the employee cost leverage we saw.

Maurizio Nicolelli

Sure, Dave. Thanks for the question. Look, we have guided margins to be fairly flat on a year-over-year basis. And you're correct, we are making investments in many different areas-- including employee costs. Now employee costs, as you've stated, have come down a little bit when you compare that to overall revenue growth. .

But just when you look at it just overall, we're going to continue to invest in employee costs, but also we're going to have to spend money in other areas, including infrastructure and also technology costs as we do more and more in data and AI. So the overall expense mix is going to change a little bit over time, and you're starting to reflect that. But we're in growth mode right now. So you're going to see fairly stable margins overall going forward. And you're going to see a little bit of that mix change.

Rohit Kapoor

Dave, I'd just add that you're absolutely right. In terms of the nonlinearity of our business model, clearly, our revenue is growing faster than our employee head count growth. And also in terms of employee cost as a percentage of revenue that's coming down.

But the investments that we are making in technology, in AI, in infrastructure that is likely to continue to go up. and it will provide us with a greater amount of leverage. And again, finally, it all depends in terms of the commercial contracts that we end up signing with our clients particularly on our total operations part of the business because that's something which will be a key driver of the margins.

David Koning

Yes. No, that's great. All that's great to hear. On iMerit specifically, the $15 million, that's over 2 months. So $7.5 million a month good going forward. And then how much of the 8% sequential employee growth was from iMerit and how much was just organic?

Maurizio Nicolelli

So our overall organic head count growth was 11% and overall on a year-over-year basis. So obviously, we still have about a 600 basis point difference between revenue growth and just our overall organic. And then the rest of the head count growth was from the iMerit acquisition during the quarter.

David Koning

Yes. And is $7.5 million per month, the $15 million of like 2 months revenue, is that pretty consistent going forward.

Maurizio Nicolelli

That's the start for the first 2 months. Merit revenue is going to fluctuate a little bit based on demand on a month-to-month basis. But that -- they've had a very solid first couple of months. And it's in good shape for going forward, but it's going to be a little bit lumpy here and there on a monthly basis.

David Koning

Thanks, guys. Great job.

Operator

Thank you. [Operator Instructions]Your next question comes from Vincent Colicchio with Barrington Research.

Vincent Colicchio

Yes -- as the cost of running AI models declines, how much of those efficiency gains can you capture through improved margins versus passing them on to clients?

Rohit Kapoor

Right. So Vincent, I think we're going to see the cost of AI continue to decline and the token cost is also declining. But we are also going to see other costs at increase because some of the costs associated with the guardrails that are there, the agentic harness that needs to be maintained genic AI assurance that needs to be done to make sure that these agents are acting as they're supposed to be acting. Some of those costs are going to be increased costs.

So frankly, we'll probably see a period of volatility in terms of the cost base. And look, our entire effort is to be able to drive incremental business value to our clients. and to be able to make a fair return on that value that we deliver to our clients. At this point of time, we are focused on trying to maintain our margins make investments, deliver the value and have as high a growth rate as we possibly can. And that's the business model that we are trying to strive towards, and we'll see how that plays out.

Operator

Vincent, if you have a follow-up, unmute and ask now.

Vincent Colicchio

Yes. As a follow-up, what explains the year-over-year gross margin decline in the banking capital markets and diversified industries? And should we expect that pressure to persist?

Maurizio Nicolelli

So when you look at the banking and diversified industry, we have been -- especially in Q3, we have been making a lot of investment in terms of future hiring for a business that's coming on board. So you did see that decline by about 80 basis points from Q2 to Q3 overall. But you're seeing a bit of investment that we're making, particularly in our analytics AI services area to really ramp up a number of engagements in the banking and diversified industry area.

Operator

Your next question will come from David Grossman with Stifel.

David Grossman

Great. Thank you. I think this question came up perhaps on a slightly different context earlier, but it's really getting that visibility next year. Anything you can share about the cadence of bookings over the course of 26 and obviously, the visibility on 27 at this point of the year versus where you would be at this point in the year and prior years. And particularly that question, I ask it, given that some of the recent momentum in the business and outperformance is coming from shorter cycle type revenue. .

Rohit Kapoor

Sure, David. So look, I think for us, certainly, the number of client conversations that we are seeing -- and those are actually very healthy. We are also seeing larger deals in terms of those conversations because the conversation with the client is that about an integrated deal that involves total operations, but it also involves us leveraging data and AI.

The pipeline is healthy. And like we said, the pipeline creation is growing double digits, pretty much consistent with the revenue growth rate that we have. the visibility into next year is as strong as it was last year. And for us, as you know, 75% of our business is pretty much on a recurring on an annuity basis.

So actually, it's a very strong foundational revenue base that we have. So if you take a look at some of the new accounts that we've signed up, we are actually very pleased with the quality of those new accounts that we are signing up. and our ability to have a tremendous amount of success with AI engagements, which we monitor and track that leads us to believe that this is something that can continue as we go forward. But I think there are also a lot of uncertainties as we go forward. Certainly, the short-cycle business will have some of its ebbs and flows. And -- and I think for us, it's really about how do we manage the aggregate portfolio in a manner that allows us to be able to create the right kind of capabilities that our clients will value.

David Grossman

Right. So excuse me, I was just looking at some of the verticals as well. And -- the health care vertical on a organic basis decelerated a little bit. And I know there could be lumpiness in that business just based on the revenue model. Anything you want to call out in the health care vertical, I think it -- you said it grew 17% organically. I think it had been growing in the low 20s. .

Rohit Kapoor

Sure. No, I don't think there's anything significant to read out there. There will be time periods, like I said, where on a quarter basis, some of the growth rates of the verticals might come down. You would have seen that the insurance business has suddenly accelerated and frankly, is growing now at a pace which we haven't seen for the past 3 years. .

The health care business, you're right, it did come off a little bit in the third quarter. But when we take a look at it from a client activity perspective, there's nothing unusual that we are sensing out there. It all seems to be pretty much the same. There's a big uptick obviously in our ITM business and even in our BCM and diversified industries business. So -- it's -- there's nothing to read that we feel that would be a trend out here. It's just as and when we are signing up these client deals and the revenue is being recognized.

Operator

We have no further questions at this time. This concludes our call. Thank you, and have a good day.