Firstsource Solutions (NSE:FSL) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Firstsource Solutions Limited q two FY twenty seven earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then 0 Please note that some of the matters that we'll discuss on this call, including the company's business outlook, are forward looking statements such as subject to known and unknown risk. These uncertainties and risks are included, but not limited to what company has mentioned in its prospective filed with SEBI and subsequent annual report that are available on its website.

1:00 On this call, we have with us mister Ritesh Idnani, MD and CEO and mister Dinesh Jain, CFO, to provide an overview on company's performance followed by q and a. I now hand the conference over to Mr. Dinesh Idnani. Thank you, and over to you, sir. Thank you, and hello, everybody. Thank you for joining us today to discuss our financial results for q two FY twenty seven. The second quarter reinforces a simple belief that sustainable transformation is built on execution. Our clients are navigating change faster than any plan can anticipate.

1:47 And what they want is not another firm telling them what is possible, but a partner who will execute alongside them, adapt as conditions change and stand behind the result. Last quarter, I called this accountability. This quarter, our focus moved to what makes it repeatable. When we solve a problem well once, we should be able to solve it well again for a different client in a different market with a different team. That takes systems, not just effort. And those systems are built on what are 39,937 Firstsource's around the world already know. I would like to thank each one of them for their relentless commitment to delivering value to our clients. Let me start with a discussion on our Q2 performance.

2:37 Q2 marks the tenth straight quarter of double digit year on year revenue growth and the twelfth straight quarter of sequential revenue growth. Our revenue grew by 22.2% year on year and 3.7% quarter on quarter and came in at Rs. 28,300,000,000. In U. S. Dollar terms, the growth was 11.7% year on year and 2.6% quarter on quarter to US296 million dollars In constant currency terms, our revenue grew 12.3% year on year and 2% quarter on quarter. EBIT margin for the quarter was 12.5%, up 100 basis points year on year and 10 basis points on a quarter on quarter basis, respectively. This is our eighth straight quarter of sequential margin expansion.

3:25 Our net profit was INR 2,300,000,000 and the diluted EPS for the quarter was INR 3.31. In H1 of FY 'twenty seven, our revenue grew 12.3% in constant currency terms, EBIT grew 33.4%, and our PAT grew 14.3% over last year in rupee terms. Coming to the business highlights. I will start with our deal wins and other client related metrics. In Q2, we signed four large deals, two of which came from new logos. As you're aware, we consider a deal with an ACV of over $5,000,000 as a large deal. During the quarter, we added 17 new logos, one of our highest quarterly additions.

4:11 It includes six strategic logos. We define a strategic logo as one, where we see the potential of at least $5,000,000 of annual revenue, and we run a structured program to handhold and monitor such relationships to grow them at an accelerated pace. I continue to remain encouraged by the scale and quality of our wins, reflecting our deep domain expertise, strong technology partnerships and AI first approach. Several of these are transformative programs that ramp up in phases, provide long term growth visibility with revenue conversion occurring over a longer period as key milestones are achieved. Let me now highlight a few of our notable wins during Q2.

4:57 We expanded our relationship with a leading U. K.-based MVNO for customer experience services across multiple markets, including the transition of their in house operations to our offshore delivery centers. One of the top 10 healthcare payer clients in North America and existing clients selected us for their claims processing. We expanded our relationship with a leading nonprofit managed care organization in The U. S. Across multiple health plan operations. We were also selected by a leading U. K. And European bank for managed operations support services. This incidentally is a new logo for us as well. We also won a deal from a leading U. S.-based student loan provider for legal and third party collections. This is also a new logo for us. And finally, we won a large deal from a leading digital bank in The U. S.

5:45 For CX services. We continue to expand our relationship with one of the largest communications and media companies in The U. K. Across customer retention, collections, help desk and digital support services. Let me now turn to our vertical performance, starting with banking and financial services. In Q2 FY 'twenty seven, our BFS vertical grew 19% year on year and 9% sequentially in constant currency terms. We added nine new logos during the quarter. Almost every conversation in this vertical now starts in the same place, whether AI can be trusted inside a regulated process. It comes up in intelligent operations, in customer servicing, and most of all, in financial crime and compliance.

6:32 Our answer rests on the intelligent context framework, part of the Kairos operating system, which gives AI the context it needs to work in a live operation, the right data, the right permissions, the domain knowledge and the guardrails. AI does the heavy lifting, but a person signs off on anything that affects the customer or a regulator. That is what gives clients the confidence to let AI into these processes. Within the vertical, growth was broad based. Consumer debt levels and servicing complexity kept demand high. Cost pressure kept clients focused on efficiency. We also executed well on a large BFS engagement won a few quarters ago, and much of the headcount we added went into its delivery commitments. We continue to expand our footprint with midsized banks as well as fintechs, modernizing, onboarding, servicing as well as their collections operations.

7:24 We exited the quarter with a healthy pipeline in the BFS vertical. In Healthcare, our revenues grew 5% year on year, but declined 2% sequentially in constant currency terms. We added four new logos during the quarter and continue to see strong client engagement across both payer and provider markets. Healthcare remains a strategic growth pillar for Firstsource, underpinned by our differentiated presence across the entire healthcare value chain and our ability to combine deep domain expertise with AI led operations. On the provider side, rising denials and slower reimbursement are pushing clients towards AI enabled outcome based revenue cycle management. A dated catalyst is also building. From January 2027, under HR1, Medicaid renewals for expansion adults move from annual to six monthly phasing and through the year.

8:16 Our capabilities here are well past the pilot stage. Voice AI is live across our eligibility, patient access and collections offerings and Denial's AI continues to gain traction. We already run Medicaid eligibility at scale, so this is extending an operation rather than building one. On the health care payer side, we delivered several meaningful scope expansions within existing clients. Plans are working through elevated medical loss ratios and a more volatile enrollment cycle, and demand continues to remain healthy across member services, claims, eligibility and payment integrity. Our Kairos platform, in particular, is gaining traction in the payment integrity side, where clients are increasingly looking to combine AI with operational expertise to drive measurable outcomes.

9:04 Overall, health care is shifting from labor led outsourcing to AI enabled outcome driven models, and we are one of the few operating at scale on both the payer and the provider side of that shift. Coming to the CMT vertical. Revenues grew 6% year on year and were flat sequentially in constant currency terms with two new logos added during the quarter. The vertical continues to grow steadily. As we have highlighted previously, reported revenues can exhibit some quarter to quarter volatility driven by the timing of work packets and program transitions within our consumer tech portfolio. During the quarter, we continued to broaden our engagement across existing clients through scope expansion and greater utilization of our nearshore and offshore delivery footprint.

9:49 Clients remain focused on improving customer experience while driving productivity and optimizing service costs. And we are increasingly engaged in AI led transformation initiatives spanning customer service, agent assist, automation and service assurance. Overall, we exited the quarter with a healthy pipeline across our telecom, cable, media, technology and digital native clients, giving us confidence in the medium term growth trajectory of the business. And finally, our diverse portfolio comprising of our utilities and our retail business grew 25% year on year and was flat sequentially in constant currency terms with two new logos added during the quarter. In utilities, clients remain focused on cost optimization and near shore delivery, while underlying demand and pipeline activity remain healthy.

10:38 We also continue to see cross sell opportunities across consumer operations, collections and AI led transformation initiatives within our existing client base. In retail, demand remains steady, with clients focused on enhancing customer experience while improving operational efficiency. Overall, we exited the quarter with a healthy pipeline across both utilities and retail, supporting our growth outlook for the segment. From a geographic standpoint, North America grew 6% year on year and 1% sequentially in constant currency terms. Growth was led by BFS, while health care reflected the timing of certain program ramps and transitions that we have discussed earlier. More importantly, client conversations across the region continue to be centered on AI led transformation, productivity improvement and operating model modernization.

11:31 We are seeing growing demand for solutions that combine technology, AI and operations expertise and our differentiated capabilities across key verticals position us well to participate in these opportunities. We continue to maintain a healthy pipeline and remain confident in the medium term growth outlook for the region. Europe delivered another strong quarter with revenues growing 27% year on year and 7% sequentially in constant currency terms. Growth was led by BFS with good momentum also emerging in CMT. Our largest client relationships remain healthy, and we are increasingly engaging with them on different transformation initiatives, reflecting both the strength of our execution and the relevance of our capabilities.

12:18 We continue to see strong demand for near shore delivery, particularly from South Africa, supported by our transformation led value proposition. We secured two large wins during the quarter. And with a healthy and growing pipeline, we remain optimistic about the region's growth trajectory. Australia delivered a strong quarter with revenue growing 50% year on year, supported by continued momentum across existing relationships and a steadily improving pipeline. On the people front, we continued advancing our intelligence that operates strategy, building a future ready workforce through disciplined hiring, stronger workforce intelligence and AI enabled people operations. We closed Q2 of FY 'twenty seven with 39,937 Firstsource, a net increase of 3,062 during the quarter.

13:08 This growth was driven by the transition of associates from a major banking client alongside program ramp ups predominantly in our offshore and nearshore delivery geographies with India and Philippines accounting for more than 85% of the increase. Together, these reflect growth on both fronts, clients entrusting us with a broader share of their operations and our ability to transform how that work gets done using technology. Voluntary attrition for associates with more than 180 of tenure remains steady at 28.4% on a trailing twelve month basis. We remain focused on a range of retention and engagement interventions designed to enhance employee experience. We are also expanding the use of AI and predictive insights across our people operations from talent acquisition and employee engagement to internal mobility and retention.

13:59 Talent assessments, deeper insights into employee exits via interactive bots and forward looking visibility into attrition risk are enabling earlier, more targeted interventions. In parallel, Unbound, our AI enabled internal talent marketplace is strengthening skills based mobility and creating clearer career pathways for our people. Together, these initiatives bring our bold tech to life within our own organization, combining AI led analytics with timely human intervention to strengthen workforce stability. During the quarter, our work continued to earn external recognition. HFS featured Firstsource in its nonlinearity index as one of the leaders in the shift to services as software and named us as first runner-up for best services eating software at its inaugural services as software awards.

14:54 AWS also recognized Firstsource as the horizon three market leader for customer experience services in 2026. Firstsource was also recognized as a leader across generative AI and agentic AI services in the ISG provider lens evaluations, underscoring the strength of our AI led transformation offerings. ISG also placed us in the Breakthrough 15 in The U. S. 1,000,000,000 to $3,000,000,000 tier based on the deal wins that we secured. Our people strategy also continued to earn strong external recognition. Firstsource was named among Great Place to Work, Top 50 India's Best Workplaces for Women 2026 for the second consecutive year, reinforcing our commitments and progress we are making in attracting and retaining female talent.

15:44 Our investments in people manager capability and employee experience were recognized through the Brandon Hall Gold Award for the Best Development Program for Frontline Managers and the Brandon Hall Silver Award for Best Employee Engagement. Collectively, these recognitions demonstrate the strength of our employee value proposition and our ability to attract, engage and develop the diverse, digitally skilled talent needed to deliver our Bold Tech agenda. I will now turn over the call to Dinesh to give a detailed color on the quarterly financials. I will come back to talk about our progress on the strategic priorities and the outlook for the remainder of FY 2027. Dinesh? Thank you, Ritesh, and hello, everyone.

16:29 Before I take you through the numbers, a quick personal note. This quarter marks Firstsource one hundredth quarter and I have the privilege of being part of every one of them since inception. Over that journey, we have grown from a startup company with over US1 billion dollars in revenue, compounding revenue at a CAGR of 23%. None of that would have been possible without the trust of our clients, the commitment of our people and the support of our investors. With that, let me take you through our quarterly financial performance. Revenue for Q2 FY twenty twenty seven came in at Rs. 28,300,000,000, up 22.2% on year on year basis. In U. S. Dollar terms, it's US296 dollars In constant currency revenue growth 12.3% year on year and 2% on quarter on quarter.

17:22 This is our twelfth straight quarter of sequential growth. We delivered EBIT of INR 3,500,000,000, a 32.2% increase over last year with EBIT margin of 12.5%. This is our eighth straight quarter of margin improvement with margin of 100 basis points year on year and 10 basis points quarter on quarter. Profit after tax was INR 2,300,000,000 or 8.2% of the revenue, up 29.7% year on year and 4.8 sequentially on normalized basis. For the first half of FY twenty twenty seven, revenue was INR 55,500,000,000 or US584 million dollars growing 12.3% year on year in constant currency.

18:10 H1 EBIT was INR 6,900,000,000, up 33.4 year on year with a margin of 12.4% and adjusted profit after tax was INR 4,500,000,000, up 30.4% year on year. Let me also give you a quick update on the exceptional charge item we recognized last quarter relating to our two clients. Our relationship with both the clients remain strong. We are actively engaged with them on recovery and we remain optimistic about the outcome. Our tax rate for the first half was 23.2% for FY 2027. We expect our effective tax rate will be between 2224%. Turning to the balance sheet, our cash and bank balance stood at Rs. 4,100,000,000 and net debt was Rs. 15,300,000,000 versus Rs. 17,100,000,000 at the end of the June twenty twenty six.

19:06 Normal IDSO continue to be in the range of sixty seven to sixty nine days. Our FCF to pad for the quarter was 150% and for the half year it was 126%. As on 09/30/2026, our hedge book we have coverage of GBP 69,200,000 for the next twelve months with an average rate of $116.6 per pound and coverage of US68.5 dollars with average rate of INR95.10 per dollar. With that, I will hand back to Ritesh for discuss strategic priorities. Ritesh? Thank you, Dinesh. Let me spend a few minutes on a strategic priority that sits at the heart of how we are building the next phase of the Firstsource journey.

19:54 Over the last twenty five years, we've built deep expertise by solving complex problems across industries, clients and workflows. The opportunity before us now is how to make that expertise travel further. How do we take what thousands of people have learned and turn it into capabilities that can be shared, scaled, continuously improved and applied wherever they create value. That is the thinking behind our shift from services to productized services. To be clear, this is not about moving away from services, nor is it simply about automating what we do today. It's about changing how we package, deliver and scale the expertise we have built. Today, the best way to solve a problem often resides with a specific team or within a specific engagement. Productization gives that expertise a way to travel through repeatable workflows, embedded AI and human judgment applied where it matters most.

20:45 Kairos, our AI native operating system, serves as the engine for delivering, measuring and scaling productized services. Our domain harness captures the skills, playbooks and compliance guardrails of our best operators once and makes them available to our people and AI agents alike, portable across the models and platforms that our clients choose. Our intelligent context framework gives AI the memory behind every decision, and Kairos learns from how work is done so it gets stronger the longer we operate. Government autonomy is what makes this work in regulated industries where every decision is fully explainable and stays within compliance boundaries that no agent can override. Autonomy is earned one task at a time based on evidence, and our people progress from doing the work to supervising it to reviewing only the exceptions.

21:39 As we progress on this journey, there are three indicators that we will be watching closely. Firstly, the repeatability of these solutions across clients. The true test of productization is not the success of the first deployment, but whether the second, third or twentieth deployment becomes easier, faster and more efficient. Second, the evolution of our revenue mix. Today, more than 50% of our revenues are already non linear in nature, which we understand is an industry leading metric. As we continue to productize our capabilities, our objective is to further increase the share of non linear outcome based platform led and value linked revenues over time. Ultimately, success for us is not just about growing revenue, but about changing the shape and quality of that revenue.

22:28 And third, disciplined measurement. While AI is generating significant excitement across the industry, sustainable value requires clear baselines, rigorous metrics and tangible outcomes. We remain committed to measuring the progress thoughtfully and transparently. Ultimately, the objective is simple. We're taking the expertise, operational knowledge and industry experience that Firstsource has built over twenty five years and making it more scalable through AI platforms and productized delivery. We believe this will strengthen our differentiation, deepen client relationships and expand our long term growth opportunity. The next version of Firstsource will not be built by leaving behind what made us successful.

23:14 It will be built by making everything we have learned work harder. Let me close with the numbers behind the story. We ended the quarter with 51 clients generating over $5,000,000 in revenue run rate, six more than last quarter, the largest sequential addition in this cohort on an organic basis or over the past five quarters. We added three clients to our $10,000,000 plus cohort, taking the total to 23. The two year trend is actually where the signal is the clearest. Over that period, our $5,000,000 plus clients have almost doubled and our $10,000,000 plus clients are up nearly 80%. That is the strongest evidence of deepening of the wallet as our clients are giving us more of their business and more of the work that matters most to them.

24:03 Underneath that, our $1,000,000 plus clients are up 32% during the same time period, a broad base that keeps feeding the large relationships of tomorrow. Think of it as each cohort feeding the next, and this is by design. Over the last eight quarters, the revenue share of our top five and top 10 clients has come down by six percent and ten percentage points, respectively. Importantly, that is not because our largest clients are shrinking. Our top five relationships go back over twenty two years on average, and they continue to grow at industry rate, even with the significant onshore to near shore and offshore shift in at least a couple of them. We are also winning more large deals and winning them more consistently. In Q2, we signed four large deals, our seventh straight quarter of four or more, and two of those came from new logos.

24:53 We also added 17 new logos in the quarter, one of our highest quarterly additions, including six strategic logos. Together, this reflects the strength of our differentiated solutions, the appeal of our commercial construct and growing client acceptance of Firstsource as a disruptor. This is the chapter that we are now writing, where accountability is our standard and repeatability is how we scale it. Intelligence that operates is what puts Firstsource in a category of one. That brings me to our outlook for FY 'twenty seven. Based on our H1 performance and the visibility we have for the second half, we are raising the lower end of our FY 'twenty seven revenue guidance. We now expect constant currency revenue growth of 10.5% to 13% compared with 10% to 13% earlier.

25:41 On margins, we are reaffirming our EBIT margin guidance of 12.25% to 12.75%. This revision reflects the underlying strength and breadth of our portfolio. Large deals signed over the last few quarters are ramping as planned, Our pipeline remains healthy and new logo momentum continues to build, all of which gives us greater confidence in our growth for the second half. We believe this places us comfortably in the top decile of growth in our industry. This concludes our opening remarks, and we can now open the floor for questions. Operator, over to you. Thank you. We will now begin the question and answer session. May press star and one on the attached tone telephone.

26:30 If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of from eighty Square Capital. Please proceed. Hi, everyone. Thank you for this opportunity. First of all, many congratulations to the management for a good set of numbers. My question pertains to quarter three, particularly with respect to expected furloughs or holidays thereof. And any commentary in terms of how that can impact our top line and bottom line due to that?

27:23 I think the simple response to that question, Aditya, is our business is one where we have to process transactions on a continuous basis for our customers across the globe. We run mission critical operations for them. Pretty much all of that has to run on a continuous basis. And therefore, we don't end up anticipating seeing the kind of furloughs that you typically end up seeing on the IT services side. Understood. Understood. That's that's that's helpful. If you... The other thing I want to really focus on was that, you know, our attrition generally has been, like, significantly higher as compared to what we typically see for IT services. Just wanted to know, like, how do you think about it, like, more strategically. I can understand, you know, that they they they could be they could be temporary reasons for it. But on a more longer term basis, how do you think about this? Is this by design or, how, like, how does this compare to what the industry standard is like? What what are your thoughts about it?

28:32 So we don't run a traditional IT services business. So the attrition numbers for what is the operations business versus an IT business are very different. We feel that our numbers on the on the traditional operations of the BPO business are in line with where the industry averages are. We could continue to obviously improve and do more, and that is our endeavor as an organization by increasing employee engagement, seeing what more we can do in terms of removing early stage attrition. But these businesses are dramatically different. Understood. So basically, you're saying that the attrition rate is kind of comparable to what you would expect in a BPO like business, and that would be the right comparable over here instead of, you know, just general IT services?

29:25 That's correct, Aditi. Fine. And just one last question, if I might squeeze in. There's a slight dip in the BFSI margin profile. Any commentary on that? Last one from my side. No. I wouldn't read anything into any aberrations on a quarter by quarter basis. Mean, you have to look at some of these on a more secular annualized basis, and I think we are okay on that. We don't see anything which is a cause of concern there. Thank you. The next question is from the line of Bibhor Singhal from Nuvama Equities. Please proceed. Yeah. Hi. Thanks for taking my question. I hope I'm audible.

30:11 Yes. Yes. Great. Thank you so much. Thanks for taking my question and congrats, Ritesh, team for a wonderful performance. Ramesh, I guess congrats on 100 questions. I think this is a number volumes about of that you've had. I'm just trying to imagine that kind of a number. Just two questions from my side. We have growth rate in the bottom end of the guidance. And given the first half was led by the contract termination that we saw in the first quarter, is it fair to say that we are looking at a stronger second half than the first half? Yes. If you recall, even in our commentary at the end of the first quarter as well, we had stated right then as well that we expect H2 to be stronger than H1.

31:01 And if you think about how Q2 has played out and what we have seen across the board, if nothing else, it has only reaffirmed our confidence on how the second half of the year is going to play out. And that's the reason why we've raised the lower end of our guidance to 10.5% to 13% in constant currency from the 10% to 13% earlier. I think the way to think about it is the reason why we feel good about the second half to be stronger than the first rests on really four key variables. Number one, we've had a bunch of large deals that we have consistently signed over the last several quarters, including four in Q2. And this is now our seventh straight quarter of four or more deals, which continue to ramp as planned. Number two is the transition of a major banking client, where most of the people were onboarded in Q2 ahead of the revenue. So that's what you see in some of the revenue headcount in terms of some of the headcount ramp that's also happened.

31:57 We've also had 17 new logos in Q2, but you also heard me in my opening commentary around the fact that we now have 51 clients who are above a $5,000,000 run rate, which is almost double of what it was two years ago. At the same time, the pipeline is at its best ever. So we have a healthy pipeline as well. So I think with all of those put in place, we feel comfortable about how H2 will shape up. Got it. Got it. Great to hear that. Just a quick question on the Healthcare segment. The first quarter, of course, was marked by the project termination. This quarter also, we saw Q on Q decline. Is it safe to say that the Healthcare vertical has bottomed out and next quarter onwards we could see this going back into a sequential growth trajectory?

32:45 Look, I think the first thing that I would say is that healthcare remains our most differentiated vertical in terms of what we are doing today. We run a bunch of domain AI platforms with 10 of the top 15 U. S. Health plans. We also and while it grew 5% year on year in Q2 and 11% in Q1, One of the things that you have seen is also the fact that we talked about the fact that there was a timing challenge with some of the payer program as Medicare Advantage plans recalibrated scope after some of the CMS rate adjustments. And as you're aware, based on what we discussed also last quarter about the wind down of the transmitter payer, BPAS engagement itself, our view is that, look, some of this is pretty much behind us.

33:31 And that in turn should create the opportunity for the healthcare business to grow going forward. We also added, as I mentioned in my opening commentary, four new logos on the healthcare side in the quarter. On the provider side, flat reimbursement, rising labor costs and the HR1 uncertainty are accelerating as a structural shift to AI and automation led revenue cycle management. And that actually is creating a tailwind in terms of some of the opportunities that we are seeing as well. And one of the things that we're seeing out there is our outbound voice AI agent stack as well as our denials platform are now in production at scale, and that's giving us a fair amount of leverage with our provider clients as well. So we see opportunities on both the payer and the provider side. Right.

34:16 But timing wise, you could just hold it at the bottom, maybe a quarter or two payment before we are playing on a sequential basis. Is that the right way to understand that? We're about breaking in and out. So you weren't very clear, but could you repeat the question? Yes, sorry. What it was that timing wise, we're not sure that we are at the bottom yet, and it might be maybe one or two quarters of pain before we start growing this vertical sequentially. Is that the right way to look at it? I think we both got disconnected. We can take another question. The next question is from the line of from Ambit Capital. Please proceed.

35:07 Hello. Yeah. Hi. Thanks for taking my question. My first question is in line with the large deals that you're signing. So they have remained in that range of four to five large deals for the past five, six quarters now. So what needs to change for this number to actually increase, or are we comfortable with this? And the second follow-up to this is, are we seeing an increase in terms of the ACV? So 5,000,000 plus is what we usually sign, but are we seeing an increase in terms of the ACV in terms of the... These deals? Thank you. Thank you, Moks. You should have been in our board meeting earlier today. I mean, but jokes apart, I mean, this is a conversation that that we had in the board meeting to say what else do we need to do to continue to increase the number of large deal wins itself.

35:56 What I will say is that, look, this has been a steady trajectory that we've been on till about six quarters back. We used to be at about three large deals a quarter. We did that for about three or four quarters. Prior to that, it used to be two large deals or thereabouts in a quarter. So it's been two to three to four. I think the key for us is how do we get to the five or six and some of which is really the next leap. Some of it is really a function of continuing to build on more pipeline. Some of it is a function of proactively shaping more deals in the market. And I think the market has the appetite to listen and providers who are willing to go out there and front and come up to them with creative solutions and creative commercial constructs certainly have a seat at the table. I think that's essentially what I'm pushing the sales organization on to try and see what more can we do to, a, increase the pipeline and then increase the number of large deals and then in the process, hopefully, take the floor to a larger number itself.

36:57 Okay. And my second question is in terms of margins. So while we've reiterated our margin band for this year, how are you thinking from a medium to long term perspective? And what would be the levers for the same? Are we looking at more near shoring that will help in terms of margins or more SG and A leverage as the investments are largely behind us? So how are we looking at the margins? So, Moosh, I think the way to think about this is, look, our Q2 EBIT margin was 12.5%. It was up 10 basis points quarter on quarter, 100 basis points year on year. I think we've said this consistently now. In fact, when I just joined, I think the first guidance that we had provided at that point in time, the message was FY 'twenty five would be a year of maintaining margins flat while we invest in the business. And after that, it will be 50 to 75 basis points every year thereafter for the next three years. And we felt 14% to 15% would be a steady range that we should be operating at.

38:04 What I think we've been able to do consistently, if you look at it FY 'twenty five, we hit exactly what we said we would. So our say to quotient there was high. FY 'twenty six, we ended up hitting about 74 basis points, so we got to that. But more importantly, when we guided for FY 'twenty seven, our guidance was much higher where we started with the lower end of the guidance being at 12.25% going up to 12.75 as the range, which was based on our exit Q4 run rate and our 12.25% was higher than that Q4 number itself. One of the things to also bear in mind is this quarter, we've expanded margins despite absorbing the first phase of annual wage increments as well and the cost of onboarding 3,000 people largely ahead of revenue coming in as well. So despite that, we've been able to actually get the margin expansion.

38:54 So the improvement that we are seeing is actually structural. It's broad based. It's not driven by one single lever. You're seeing you alluded to right shoring. So clearly, 80% of the gross hiring that we are doing today is offshore or nearshore. India and Philippines accounted for about 85% of the Q2 hirings. We are seeing productivity from AI and automation in existing accounts alongside nonlinear pricing. Started mentioning the metric that we are tracking around more than 50% of our business is nonlinear in nature. And also the portfolio quality that we are seeing as well, right? So what's the path forward? I think we are reaffirming that our FY 'twenty seven EBIT margin guidance will be 12.25% to 12.75 We do expect that 50 to 75 basis point improvement to continue to play out over the next couple of years as well, while we remain focused on the 14% to 15% band. Where is that going to come from?

39:48 I think ride shoring will play a role, automation will play a role, process excellence will play a role, operating parameters, account levels, margin improvements, reducing dependence on low margin and loss making accounts where they exist, talent cost rationalization, pricing and change requests and facility optimization. I mean, I've tried to list it's not just one single lever, but it's probably a combination of all of these things that will eventually get us to that 14% to 15% number. Perfect. And just one small request. Could we, from going forward in FY 'twenty eight, start reporting EBIT margins ex of other income because it then becomes more comparable to others? It's already other than other income. Other income is below the line. Other income which will be... Because other operating income.

40:36 Other operating income. Operating will be there. No. No. It will be there. It will not go because this is purely the accounting which we have to Okay. Sure. Thank you. Thanks for taking my questions. Thank you,. Thank you. A request to all participants, please restrict your questions to two question per participant. For more questions, please rejoin the queue. The next question is from the line of Ankur from IIFL. Please proceed. Hello. Thanks for taking my question. So my first question is I wanted to understand the guidance better. So the guidance implies a 2% to a 5% kind of a CQGR for two h. Now in in one h, we have already delivered 2% kind of a growth for the last two quarters.

41:27 And if we are expecting an acceleration in two h, then why keep the lower range at 2% itself? And at the top end, the 5%, how... It's a it's a fairly wide range for just two quarters. So just trying to understand the the mathematics behind the guidance. I think I talked a little bit about the lower end of the guidance, right? And I think one of the things to bear in mind, Anurag I'm sorry, Ankur, is for us as an organization, when we provide the lower end of the guidance, I think the intent behind that is that we have clear line of sight to what that stands for, Spell. And that's why when we came out coming out of the first quarter and coming out of the second quarter, our messaging was very clear that we could we saw the 10,000,000 going to 10,500,000 and that reflected the better visibility that we had after H1 itself.

42:22 We have said, in fact, after our Q1 commentary as well that we expect H2 to be stronger. But you've seen based on the Q2 results why we feel strongly about it. And there are a bunch of parameters that we talked about there, whether it's the large deals, whether it's the transition of a major banking client where most of the people were onboarded in Q2, whether it's the new logos that we've added, 17 of them, or the pipeline, which continues to remain healthy. On the upper end, the only comment I would like to make is that it remains very much at play, which is why we continue to keep that at 13 as well. But getting that depends on how quickly some of the phased transformation programs meets the milestones as well as some of the pipeline conversion that we have over the next two, three months itself. Clearly, we set the guidance with the clear line of sight at the lower end and the pipeline take that path to the upper end of the guidance. I think the way to think about this is that when we raise the floor, it reflects how much our visibility has improved.

43:19 Sure. And in terms of the verticals, now although the overall number is is fairly good in this quarter, it's largely driven by one vertical, which is the BSS. The other verticals haven't really contributed to that growth. So where are we expecting this 2H growth? Like which verticals will now contribute? Because probably, BFS may not be able to sustain this kind of momentum every quarter. So which verticals will kind of inflect in 2H to accelerate growth from here? So, Ankur, I think we do expect it to actually be broad based. It's... I don't know whether you're going to get the same kind of growth from VFS itself, but I think VFS continues to be very, very strong and resilient for us. At the same time, I do anticipate in this quarter, you will get the benefits of the retail seasonal ramps that end up happening. So retail should end up doing well for us in Q3 as well as some part of Q4 as well. And you should get the benefits of some of the ramps also in our telco media and tech business as well. So along with what I talked about, I think, when there was a question asked on the healthcare side, I think with the four new logos that we've added as well as the existing account expansions there and the HR1 opportunity that's playing out on the provider side, we think that those should contribute

44:50 to growth on the healthcare portfolio as well. Thank you. And finally, bookkeeping question. I heard that this was the first phase of rate hike. So if you could quantify the impact and if there are will be further rate hikes in 3Q as well, that would be very helpful. Thank you. We can come back to you on this, but what I will say is that we've broken this down into two parts. Number one is the majority of the organization, all our frontline mid level associates are the recipients of the wage hike in Q2. The senior folks get their wage hikes in Q3. But everything that we are forecasting from an EBIT standpoint reflects and adjusts for or accounts for the fact that there will be the wage increments and we should still be within the guidance that we have provided.

45:43 Sure. Thank you so much. All the best, Satish. Thank you. Thank you. Thank you. The next question is from the line of from. Please proceed. Yeah. Yeah. Hi. Congrats on good set of numbers. So just one question on health care segment side. In terms of provider, the market is... Has has been consolidating in terms of number of players in The US. So are we getting business at cost of, let's say, some of the vendors become now a part of large system? Or it's like a market share gain, which we are getting across our competitors? I will say is on the health care provider side, the provider side is very fragmented market.

46:32 There's a lot of mom and pop shops that are still there on the revenue cycle management side. And several of them are very labor intensive. These are small companies. I mean, could be between 5,000,000 to 5,000,050 million dollars in revenue. And a lot of them actually are opportunities for us to potentially take out with a tech led offering itself. So I think as the market consolidates, we see the opportunity for us to gain share, particularly from some of the mom and pop shops who are fragmented players, number one. Number two, we see the opportunity to continue to deepen our footprint in our existing customers, and that's where the work that we're doing with our voice agent stack across our eligibility offerings or for that matter, the work that we're doing on the device management side, some of those things are resonating and creating opportunity for us.

47:23 Okay. So from M and A point of view, are you very aggressive to, you know, acquire assets in this space? So without specifically on any particular vertical, Chirag, I think our philosophy on M and A has been consistent. If you look at it from a capital allocation standpoint that I've talked about even in previous quarters from a commentary perspective, there are two things that we are really looking at. Number one, it has to be something which plugs the capability gap. Now that could be, for instance, it could be in health care. It could be something that could be in... We did something on the retail side two years back when we acquired Asensort as an example. Right? Or it could be something on the distribution access side. So I think those are really the two vectors that we are consistent in that when we are doing M and A itself.

48:16 That's really been the method of how we've gone ahead and done that. But what you've also seen since you talked about health care is we acquired QBSS about three years ago, which gave us a capability the mid office of the revenue cycle management side. We acquired Telemedic earlier part of this year, and that gave us a pure Turrico footprint, which was very relevant in the context of having a U. S. Territory, which gave a labor arbitrage play compared to The U. S. Mainland, particularly for Medicaid operations as well, but it also gave us capabilities on the clinical operations side, which we've been able to leverage and bolster. So I think some of these you're seeing in terms of how what we've executed on in the past as well. The next question is from the line of Shweta from Asian Market Securities.

49:24 Yes. Yes. Hi. First is your one of your peers indicated that because of AI, the deal values are getting smaller and also the deal tenors are getting. So do we have any comments around this? And, also, related question is, because of environment, the decision making cycles are getting elongated, but AI also has to play a part in terms of decision making cycles they will update it much more than what Pactro environment has done to it. So your comments on these two questions would be helpful. Yes. I think the way to think about this is that there isn't I think different players are seeing different ways in which this the opportunities are playing out itself, Shatta, in the market today.

50:21 I think the one thing to bear in mind is in as we have consistently said in a lot of our clients, our opportunity set is often to take share and enhance our share of wallet. And as we do that, even if we go out there and position something, it can potentially translate into deals which are offers of a larger ACV than otherwise. So I think that's one thing that we end up saying as we take expand our share of wallet, whether it's in the same operations that we run or in adjacent operations to what we run. The second thing that we are actually seeing in terms of decision cycles, that is a question that you asked. One of the things that I think is resonating really well for us in the marketplace is part of Kairos is what we're taking on the intelligent context framework side. Today, we've been able to attach that to almost 50% of our top 50 clients, where we are able to provide them insights, and that is very helpful to them in the way they run their operations. And as a consequence of that, they are willing to open the doors. So I think to some extent, it's a function of what you're taking to marketplace. Now why is intelligent context framework relevant to enterprises today? Because most of them don't have the foundational blocks in place to unlock the true value of AI. So when when we are going out there and saying, can help you glean insights from your context and show you what's the gap between how work should be done versus how work is actually getting done and bridge that bridge that gap

51:52 for you. I think that's opening the door for us to get a get a foot in, start the conversation, demonstrate to them something which is very quick. And then on the back of that, be able to open up opportunities that might otherwise not have existed itself. I'll give you one example of that. We did this for one of our existing customers where from the time we showed them the demo to actually going live, it was a period of eight weeks. And that's that's something that that that was quite heartening for them in terms of the kind of insights that they were able to get, which they had not seen before. So this is on the increased scope of work that you're getting from the same client. But on the existing book of business, whenever renewal happens, so do you see that value getting deflated because of AI infusion at the client end?

52:43 So yes and no. So it's a little bit more of a nuanced answer. These things are never binary in nature, Shraddha. And let me tell you why. Right? Supposing it's an existing book of business and we are going in for a renewal, chances are that if there is more more work that is possible for us to take on either in the same process that we run today for the client or in other business adjacent processes, our objective will be to try and see, can we showcase how we could run those operations for them, maybe provide a nonlinear construct and in the process of doing that, make it revenue accretive or even revenue neutral rather than having a deflation because the customer might be expecting something more from a productivity standpoint or otherwise. But I think we've also been very, very clear with customers that we will do what is the right thing for them. And I think that approach has helped us. So in a couple of our existing customers where we've had renewals, I think we've been able to come out of that exercise despite having some deflation in the existing scope of work, still be able to maintain the revenue base at neutral because we've taken on other pieces of work with them.

54:04 You. The next question is from the line of Girish Pal from BOB Capital. Please proceed. Yeah. Thanks for the opportunity. Ritesh, you mentioned productized services and also you mentioned about your aspirational margin of mid teens. I thought that was a bit unambitious. I would have expected the margins to move up much more substantially because of the focus on productized services. One of your peers is probably working with EBIT margins of positive like high teens. So you think that you can look at something like that at some point in time? Second question is around KAIROS. Are you capitalizing any costs connected with development in this platform?

54:51 And third is regarding competition. Are you coming across any AI first services related startups in the market who are kind of trying to disrupt you? Oh, thank you for those questions, Kuresh. All very good ones. Let me start by... With the first one. Our view out here is that, look, this is almost like a little bit of a fly view that we are that we are executing on. Right? It's important to to eliminate some of the inefficiencies that might be there in our business, and that's what we are focused on to try and expand margins and see where those opportunities are. But a lot of those margin opportunities are not what you're seeing translate straight into the bottom line itself because some of it gets reinvested in capabilities.

55:39 And I'm a firm believer that if we don't reinvest in capabilities and get in talent, which might be different than how our firms would have looked like five, ten years ago, we would not have a business for the future. So in some sense, we are trying to balance the present with the future and create a firm not for one quarter, two quarters, five four, eight quarters out, but create something that has durability itself, right? So with that in mind, our objective in some sense is to say, how do we first hit the mark of the 14% to 15% that we've guided to and then go from there. What you're saying is right, inherently productized services creates an opportunity where the second implementation and I've talked about this publicly in an interview that I've done with Phil First. If you get a chance, you should see that, where I said the traditional fallacy of the services business has been that the second implementation costs nearly as much as the first one. And so you don't get any operating leverage.

56:38 Productized services allows you to recoup some of that because the second implementation should be cheaper than the first one, the third should be cheaper than the second one as you get more learnings itself. Some of it just because of the pace of change that is there. I am also consciously reinvesting back in capabilities as we are trying to build a firm for the future itself. So I think that's the lens with which to weigh this as we are making the pivot as an organization and trying to see how we can codify workflows and then take that to market itself. You had a second question, which was related to... Tyros. Yeah. We have to we have to capitalize the sum, which are very, very directly attached to that one. That's still in work in progress. We actually not yet fully capitalized as a Kairos as a platform, but there are some costs which we need to capitalize.

57:28 What is the existing capitalized cost number on your balance sheet? I will... We can do the offline. I don't want to it on that. Okay. And this competition from startups in the AI first services side? Yeah. So I think, Girish, this is a little bit of a... There is an opportunity out here where we can coexist with these folks. The way to think about a lot of the AI native startups is oftentimes they they may have a technology that has got relevance but may not have the domain depth. What we lead with is the depth in vertical domain. And therefore, there is an opportunity for us to combine forces with them in a few instances, particularly if there's speed to market that's available to be had itself. So that's essentially what we have done. What we've actually seen last quarter as an example is some of the partnerships that we've done, they've been fantastic to us in terms of referring us to certain clients because they were already the incumbent out there. And actually in a competitive process, they went out there and stuck their neck out and said, Firstsource is the preferred partner for us. One of the large deals that we won this quarter, which is also a new logo, was on the back of this partner, which was an AI native startup referencing Firstsource as the preferred partner itself. So I think there is a playbook out here. They need what we have.

59:00 We have the opportunity to partner with them and create something which can be a win win and much more symbiotic. And I think that's the way we are approaching it, particularly with several of these kinds. But the simple answer to your question is, yes, you are starting to see the emergence of all kinds of players in the marketplace, not just AI native startups. So it's the lines are truly blurring, which is actually one of the things, if you recall, when we launched ON VP of in February 2025, one of the things that I called out at that point in time is the traditional lines between technology and operations will blur. And I think we are seeing that playing out. The second tenet that we had also called out at that point in time is the partner ecosystem will be critical for success. Where we see an opportunity for a player like Firstsource is to be able to orchestrate those partners and deliver an outcome.

59:50 Oftentimes, the partners are not able to do that because they may not have the domain that our ability to combine our domain that with the tech and underwrite the business outcome becomes very compelling to customers. Okay. Thank you. Thank you, Krish. Thank you. The next question is from the line of Dipesh Mehta from MK Global. Please proceed. Yeah. Thanks for the opportunity. I just want to get some clarity about the headcount addition. We indicated some banking client likely took transition certain entry. Can you help us understand whether that ramp up largely happened in quarter two or it will happen in quarter three? And the number of employees that's a part of the transition?

1:00:38 Second question is about the similar ramp up which you expect in retail. Can you just give us some sense what's usually the seasonality in terms of the headcount planning perspective? And last is about the employee cost. It increased 3% only quarter on quarter where you added, let's say, percent, 9% headcount during the quarter, and you also have a. If you can give some sense how to interpret this? Dupesh, thanks for your questions. We don't divert specific details of a particular client in terms of what the ramp is or even in terms of what the total headcount ramp is for the retail clients itself. But what you can assume is that some of the headcount ramp that we have done is anticipation of, a, the banking opportunity that we talked about, plus program ramp ups that have happened in our offshore and nearshore operations.

1:01:37 As I said, India and Philippines accounted for a substantial part of it, but so did South Africa. And then some of it is also for some of our retail clients in anticipation of the seasonality that comes in the current quarter that we are I didn't get the last question that you had, Dipesh. Yes. So I'm not looking for client specific in person. My question was simple. The transition was already happening quarter two or it will happen in quarter three? So it's it's already happened in quarter two. Okay. And the last question what I was asking is about employee cost. If I look at this three percentage up in absolute rupee terms. Now you added, let's say, roughly 3,000 more employees during quarter two as well as your wage hike for junior to mid level employees.

1:02:28 So wage bill increase seems to be lower than some of these things. So if you can give some sense how to understand. I don't have a specific response to you, but I think, you know, what you... The way you can think of is, on one hand, we are... You know, there is obviously headcount increase and there's wage costs associated with that. But on the other hand, there's also some optimization that's happened from a headcount standpoint. So there are some of these things which are optimizing. So you should not look at this in a linear fashion and say, there's a certain number of headcount and therefore the wage cost should correspond to that. I mean, obviously, what you're seeing out here is a classic play that we are executing off on one hand, investing for what we think is future growth and talent that we need, which may not exist in the company. And number two is, at the same time, we are optimizing for inefficiencies that might exist in the business as well. So both of those are playing out.

1:03:30 And therefore, looking at it on a single quarter basis may not necessarily give you an inference or you may end up drawing perhaps not necessarily the right inference on the back of that. Understand. And last question, let's say that this quarter balance sheet, intangible asset under managed development, there is some number, $232,000,000. Is it pertains to the capitalization part which you referred or it is something different? That include one of them, I can. Understand. Thanks. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Ritesh Idnani for closing comments. Over to you, sir.

1:04:21 Thank you. Thank you for joining the call and for your insightful questions. I just want to close with a few final points. Our sales engine is working well. We signed four large deals in Q2, which is now our seventh straight quarter of four or more, two of them with new logos. And as I said earlier, we added 70 new logos, one of our highest quarterly additions. Our execution remains on track. This is our eighth straight quarter of margin expansion, with EBIT margins now up 100 basis points over the last four quarters. Our long term aspirations continue to remain intact. Based on the confidence that we've had, we've raised the lower end of our FY 'twenty seven revenue guidance and now expect constant currency growth of 10.5% to 13%. We remain laser focused on taking our EBIT margin to the 14% to 15% band over the next two to three years. That's all from our side, and we look forward to interacting with you again in the next quarter call. Thank you.

1:05:16 Thank you. On behalf of Firstsource Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.