# 1. Financial Performance ## A. Key Figures * Revenue Growth: 8.6% YoY (1.1% seq) * **IT Services Revenue Growth:** **~9%** YoY * BPS Growth: 4.7% YoY * EBITDA Growth: 19.4% YoY * EBITDA Margin: 17.1%–17.4% reported (guidance upheld) * **DSO:** **73 days** (improved from 75) * **LTM OCF/EBITDA:** **76%** (>70% target) * **Effective Tax Rate (ETR):** **19%** QTD · **24%** full-year estimate * **EPS Growth:** Outpaced EBITDA growth ## B. Revenue Growth * **Broad-Based Expansion:** Five of six verticals posted positive YoY growth, with Financial Services showing strong momentum despite client spending headwinds. * **Strategic Shift Confirmed:** IT services significantly outpaced BPS, reflecting successful pivot toward higher-value, scalable offerings. ## C. EBITDA Margin * **Margin Resilience:** Reported margins held within guidance range despite ERP cost overhang, supported by **100 bps of operational gains** from utilization, offshore mix, and calendar tailwinds. * **One-Time Impacts:** Non-recurring charges created a **15 bps margin headwind**, but underlying profitability strengthened; management emphasized clean reporting with no adjustments. * **Forward Commitment:** Margin target raised to **7–8%** on reported basis, signaling confidence in structural improvements and cost discipline. ## D. Cash Flow * **Superior Cash Conversion:** DSO improvement to 73 days underpins robust working capital management, with OCF/EBITDA sustainably above **70% target**. ## E. Tax Rate * **Lower Tax Burden:** Effective tax rate of 19% boosted EPS growth, aided by tax-exempt M&A structuring; full-year rate now expected at 24%. --- # 2. Vertical & Segment Performance ## A. Key Figures * **Banking QoQ Growth:** **Double-digit** (despite negative Q1) * M&C Growth: **-11.5%** (macro-driven) * **FS Growth:** **~16%** (despite 3%-4% headwind) * EBITDA Margin: 17.2% reported, full-year guidance 17.1%-17.4% * **One-time PnL Headwind:** **$500K** (~15 bps) ## B. Banking Growth * **Strong Recovery & Forward Momentum:** Banking vertical rebounded **sequentially by 5%** with accelerating YoY trends, now positioned to lead growth despite early-year volatility in TNT. * **Resilient Client Base:** Top five clients maintained stable revenue contribution year-over-year, highlighting **broad-based demand** even amid individual client headwinds. ## C. FS & M&C Trends * **FS Outperformance Amid Headwinds:** Financial Services growing at **~16%** despite facing a disproportionately high 3%-4% macro headwind, now expected to **lead company-wide growth**. * **M&C Under Pressure:** Manufacturing & Consumer segment faces **material weakness** due to tariffs, trade barriers, and macro uncertainty, with revenue down 5%—entirely macro-driven, not structural. * **Margin Resilience:** Reported EBITDA margin held at **2%** despite one-time $500K PnL impact; full-year outlook remains intact. ## D. Geographic Growth * **Global Expansion Accelerating:** New **Chicago customer experience center** launched with strong client uptake; all regions posted sequential growth, led by Asia Pacific on SMC acquisition and regional investments. * **Middle East & India Pipeline Strength:** Robust order pipeline in Middle East, with **revenue expected from Q4** and significant expansion planned for next year. --- # 3. Deal Wins & Pipeline ## A. Key Figures * **> $50M Clients:** **4** clients (LTM basis) ## B. Mega Deal Status * **Mixed Consolidation Progress:** Four mega consolidation deals ongoing with **no final decisions**, as overall decision-making pace slows despite two advancing as planned. * **Selective Acceleration:** One GSE account progressing rapidly, while the other executes planned ramp-ups; confidence remains supported by strong pipeline. * **Execution Concerns:** Questions raised on delayed ramp-ups impacting H2 performance, even amid solid deal wins. ## C. New Client Wins * **Market Leadership Recognized:** Ranked **#1 in UK & Ireland** in 2025 Whitelane Research report—first time topping the list—bolstered by client presence at flagship event. * **Diversified Demand:** New engagements with a **large US FinTech firm**, **top Belgian insurer**, and **multi-billion-dollar US property manager** reflect cross-sector momentum. * **Growth Dynamics:** Smaller and mid-sized deals sustaining traction, though Q3/Q4 acceleration hinges on closure of major pending deals. --- # 4. Product & Platform Progress ## A. Key Figures * **RapidX Adoption:** **2** paid customers moved beyond POC to production scale * **Amaze Orders:** **First paid orders** secured from a top five global bank * **ERP Rollout:** Key modules live in Q1 and **July 1st**, most expected by year-end ## B. RapidX Adoption * **Early Commercial Traction:** RapidX achieves first production-scale deployments with a large airline and financial institution, validating legacy modernization approach using **X-ray analysis of legacy code**. * **Pipeline Momentum:** Transition of two pilots to full production signals growing market confidence and potential for accelerated adoption. ## C. Amaze Demand * **Expanding Use Cases:** Surging demand driven by post-migration underperformance, with new engagement from a major global healthcare company for application monetization. * **Strategic Endorsement:** Top five global bank designates Amaze as **sole approved platform** for application refactoring, de-risking scalability and driving future wallet share. ## D. AI Offering Launch * **New Growth Vector:** Launched AI-based software engineering offering to accelerate client innovation, part of broader strategy to rapidly scale new business models. * **Early Implementation Success:** Salesforce’s Agentforce deployed successfully in a global web business under a private equity firm, focused on improving sales execution. --- # 5. Operational Metrics ## A. Key Figures * **Utilization Rate:** **83%** (up 160 bps QoQ) · expected range of **83–84%** forward * **Offshore Mix:** **+110 bps** QoQ (+300 bps YTD) * **Headcount Growth:** **+850 net additions** (581 IT, 265 BPS) · **+1,800+ gross IT hires** in Q2 * Restructuring Charge: $3.8M one-time cost, focused on European workforce reduction ## B. Utilization & Efficiency Trends * **Operational Leverage Building:** Industry-leading efficiency gains driven by **strong sequential utilization improvement** and **record-low attrition**, enhancing underlying profitability. * **Stable Outlook:** Utilization expected to stabilize in the **mid-83% range**, supported by disciplined resourcing and demand visibility. ## C. Offshore & Margin Drivers * **Offshore Shift Accelerating:** Significant sequential and year-to-date improvement in offshore mix is a key margin tailwind, more than offsetting **35 bps currency headwinds** and **15 bps in one-time charges**. * **Structural Margin Benefits:** Higher offshore content and utilization are structural enablers of margin expansion, with continued runway from geographic realignment. ## D. Workforce & Cost Strategy * **Targeted Cost Optimization:** One-time $8M restructuring focused on underperforming European operations to yield **rapid ROI** and **meaningful salary cost savings from Q3 onward**. * **Sustained Hiring Momentum:** Strong net and gross hiring—especially in IT—reflects **robust demand pipeline** and capacity build-out ahead of expected growth. * **Moderated Wage Inflation:** Merit increases effective July 1st will be **below prior-year levels**, signaling cost discipline amid ongoing talent investment. --- # 6. M&A & Strategic Capability ## A. Key Figures * SMC Revenue: $22 Mn last year (significant growth expected) * Softcrylic Earnout: $6.5 Mn paid, $18.5 Mn reversed (15 bps PnL headwind) * Diligence Expenses: **$1.5 Mn** incurred in Q2 (SMC acquisition) * **GCC Market Growth:** Expected rise from **1,700 to 2,700 centers** in 4–5 years ## B. SMC Acquisition * **Strategic Capability Play:** Acquisition fills a structural gap, enabling entry into the high-growth GCC setup market, which traditional outsourcing firms are excluded from. * **EPS Accretive Day One:** Deal meets financial threshold with immediate accretion, supported by strong synergy potential and a **sub-one-year payback period**. * **Niche Market Access:** SMC’s established presence—**30+ GCCs set up in a decade**—positions Hexaware to capture spend from a specialized, high-trust advisory segment. * **Model Differentiation:** SMC operates a non-outsourcing-aligned model that mirrors client demand for fully integrated GCCs, distinct from BOT or traditional outsourcing. ## C. GCC Market Entry * **Global Expansion of GCC Demand:** Growth is extending beyond India into **Eastern Europe, Southern Europe, and LATAM**, creating cross-regional opportunities for scaled specialist services. * **Unmet Client Demand:** Clients prefer dedicated GCC specialists—evidenced by consistent inclusion of **ANSR and SMC, not outsourcing firms**—validating the strategic rationale for the acquisition. * **Future-Ready Positioning:** With **~1,000 new GCCs expected in 4–5 years**, the SMC platform allows Hexaware to monetize a previously inaccessible revenue pool. ## D. Integration Benefits * **Rapid Value Realization:** Investment payback in **under 12 months**, with tangible benefits expected by early next fiscal year. --- # 7. Macro & Client Risks ## A. Key Figures * Impairment Charge: $4.6 Mn (customer relationship intangibles, Softcrylic) * **Client Provision:** **$9 Mn** (European client, financial distress & legal dispute) * **Additional Provision:** **$9 Mn** recorded in current quarter for same client ## B. Decision-Making Delays * **Macro-Driven Slowdown:** Growth deceleration is **cyclical**, not structural or AI-related, with broad-based deal delays across large and mid-size clients due to macroeconomic uncertainty. * **Deal Pipeline Pressure:** **Mega deal closures and initiations delayed**, contributing to weaker-than-expected quarterly outlook, as clients defer long-term commitments amid volatile conditions. * **Capex Deferral Signal:** **QoQ decline in license purchases** reflects client caution and postponed investments, reinforcing macro-linked decision-making inertia. ## C. Client Provision Risk * **Prudent Risk Management:** Provisions reflect **BAU credit evaluations**, not write-offs, with active legal and recovery efforts ongoing for **bad-faith clients**. * **Stabilizing Segments:** **Financial Services segment pressures**, including GSE accounts, have stabilized with no further deterioration expected. * **Forward Risk Looms:** While no additional provisions are currently anticipated, **risk of further charges remains over the next two quarters**. ## D. Consolidation Deal Risks * **Structural Client Skepticism:** Clients view traditional outsourcers as **misaligned with GCC objectives**, citing poor ownership and friction during transition and operations. * **Margin & Investment Concerns:** Consolidation deals pose **near-term margin headwinds** due to upfront costs and initial pricing concessions despite long-term strategic value. --- # 8. Guidance & Outlook ## A. Key Figures * Full-Year Margin Guidance: 17.1%–17.4% maintained despite ERP cost overhang ## B. FY Revenue View * **Downgraded Near-Term Outlook:** Revenue expectations lowered for CY25 due to delayed customer decisions, with Q2 underperformance setting a softer tone for the year. * **Cautious Sequential Improvement:** Q3 expected to show reasonable, though modest, QoQ CC growth — better than Q2 but below prior expectations — with no near-term contribution from large deals. * **Pipeline-Dependent Recovery:** Q4 growth potential hinges on execution, aided by one major client signaling faster decision-making; broader recovery tied to macro clarity. * **Macro-Sensitive Rebound:** Double-digit growth recovery timing remains contingent on external developments, including potential trade deals, but competitive outperformance is expected if conditions improve. ## C. Margin Outlook * **Guidance Intact Despite Costs:** Full-year margin outlook upheld due to improving operational efficiency, even as ERP-related expenses persist into H2. * **Restructuring Benefits Lagging:** Cost savings from restructuring are progressing but cannot be quantified in the near term due to implementation delays post-worker council agreements. * **Deal-Driven Flexibility:** Company willing to accept **short-term margin pressure** to win strategic deals, though no such trade-offs have been made to date. ## D. Long-Term Target * **Unchanged Long-Term Ambition:** Confidence remains in the **$3 billion revenue target by CY2029**, supported by a resilient business model and strong strategic momentum. * **Operational Inflection Expected:** Management anticipates improving performance from next quarter onward, with no recurrence of current headwinds. * **Path to Strong CY26 Exit:** Execution focus is on building momentum toward a robust performance trajectory aligning with long-term goals.