I'll now hand the conference over to Mr. Niraj Khemka, Head of Investor Relations. Thank you. Over to you, Mr. Neeraj.
Thank you, Sean. Hello, everyone. Welcome to Hexaware Technologies' CY 2026 Q1 earnings call. In the call today, we have with us Mr. R. Srikrishna, CEO, and Mr. Vikash Jain, CFO. In the course of this call, we will make certain statements which are forward-looking and may involve a number of risks and uncertainties. All forward-looking statements made herein are based on information presently available to the management, and the company does not undertake to update any forward-looking statements that may be made in the course of this call. In this regard, there's a full disclosure which has been included in the investor presentation and the press release, be considered as read. With this, I'll hand over the call to Keech. Over to you, Keech.
Thank you, Neeraj. Good morning or good evening, everyone. Thank you for joining. I want to start by continuing our conversation on AI. If you could actually move to slide 4, and then we were going to come back to slide 3. First let me say that at the end of Q2 results, shortly after our Q2 results, we will hold an AI day. We will do it in Chennai, so I'm hoping all of you will find time to get there. In that we will walk you through our strategy in detail, but more importantly, the reason for Chennai is that for each element of what we talk about, we will present multiple proof points and platforms. That's shortly after we announce Q2 results. We will announce a day soon for all of you.
Our objective is to become a trusted partner for our customers' AI journey in everything they do. For that, the first thing is that we have a comprehensive range of services, anything and everything that a customer will want to do. We think of that in three buckets: AI for IT, AI for business, and both of these are often enabled by a common foundational layer. We are undergoing rapid pivot, and the pivot is in the services we deliver, the talent, our business model, and how we charge for our services. We've identified across this page about a dozen areas of new revenue opportunities for us, and this is something we will detail out when we talk about this in the AI day in detail. Let me give some examples now. If you go to the next slide, please.
On AI for IT, we have a very comprehensive set of services that both address our current core and protecting and growing our co-core, also addresses several new opportunity areas. Let me give a couple of client examples. We renewed in a competitive bid a large IT customer. What our platform enabled us to do is to renew the contract at that became larger, we were able to address 50% more volume and about 10% more revenue. Let me give you an example on software engineering. This is an airline client for which they have their core systems on legacy. In this case, legacy is like 10 years old, 14 years old legacy written on Java. What we're doing is to strangulate the core out by keeping just the core, everything else we are moving to agent tech.
This improves the velocity of the product. It, you know, reduces the cost and improves the maintainability substantially. The two most exciting services we launched in this space in this quarter, one, and we spoke briefly about it last time, was what we call a Zero License offering, which we announced in January. SaaS is a $400 billion market. I think the last decade people have gone from, you know, building custom software to building the same functionality on SaaS. I think you're gonna see a significant reversal of that. We are the first and probably still the only IT service provider to have a focused offering around getting customers to Zero License and independence from SaaS.
This is not just a concept, it is based on a module we built in RapidX that allows us to do what most customers or most of our competition cannot. The second most interesting service we launched is a new generation of our IT operations platform, Tensai. What we built is Reasoning Ops capability in this. This platform actually has three differences. First, historic automation in the IT space has focused on task-level automation. You keep automating tasks, and there is a ceiling. What it did not do is edge cases, complex edge cases, because that requires reasoning. We've changed the fundamental approach, gone away from task-level automation to complex reasoning that looks at the whole of our customer's IT.
The second difference is that we've done this with an SLM for enterprise IT, and we built a custom ontology model that enables us to onboard any clients onto a standard ontology model. Finally, because it is an SLM, it captures a lot of the inferencing in the SLM rather than going to SLMs, and it saves on token costs for customers, but it's also a new revenue and profit opportunity for us to capture a part of the savings in token costs that customers would have otherwise spent. Go to the next slide, please. While AI for IT is interesting, it is still smaller in aggregate. Everything in AI for IT is still smaller in aggregate than AI for business. You know, in the last few weeks, there are two of our clients in different industries that announced agentic AI platforms.
In both these cases, one more and one less, we have been involved in helping the customer launch this platform. In both these cases, these platforms are meant to change fundamentally how our customers do business. Let me give a few examples from different industries. For a client in pharma, we are going to redo their entire clinical data management systems with agentic AI. Apart from reducing cost of how they do this, one of the outcomes will also be a Zero License because eventually the platform they use for clinical data, which is a cost third-party platform, will become irrelevant. To give you an example in airlines. For a client, we brought the power of multimodal AI and VR together to help engineers that are repairing complex aircraft parts.
Each airline spends about $5 million per aircraft per year, this not only reduces the cost and time, but also substantially improves compliance while doing that. Now do is to show multiple examples for each of our strategies. If you go back to slide 3, please. In terms of a quarter, we had a better quarter than what we expected. I think the last time we spoke, we said we will have a soft quarter. You know, in general, we said it'll be a quarter with contraction. There wasn't much. We had a decent quarter on revenue, we had a good quarter on profitability. If you recall, we guided for quite a bit lower. We said there'll be improvement in the outer quarters. That part is still true, we started off better than what we expected we will be.
As always, our cash management is very strong, and we closed with a strong cash balance of $220 million. Our IT headcount continued to increase. We continued to hire. Well, we had a net headcount reduction that was on account of BPS. In IT, we had a net headcount addition, which is actually 11th straight quarter of IT headcount addition. Our attrition remains amongst the lowest in the industry, and our utilization is range bound. Now, we added 2 clients at a $10 million pyramid. This is good growth because these are the clients that help us now get into higher layers of the pyramid. We are now at 34 clients that give us over $10 million. Can you go to slide 7, please? I want to talk about some of the wins. I think we had numerous wins.
At the highest level, you know, I spoke a bit about last quarter that one of the more fundamental changes we've made is to substantially improve our hunting. We won an enormous number of deals in the quarter. I've put out 8 here. First, this is a and as always, the deals are a mix of outsourcing, consolidation, and transformation deals. This is a large Pika manufacturer. We have a full-scale ITO, plus some BPO, and eventually more of both. This will be delivered globally. This is a nice large deal that will start giving us growth from late Q2 and certainly to H2. The biggest positive surprise for us in Q1 was a large global bank that went through a consolidation deal last year.
They had spoken about a phase two, but we were not sure if that'll happen or not. Not only did they proceed on phase two, we wound up on the winning side. This is a very large bank with a very large spend, and they are aggressively consolidating. We expect to see material increases in volume from that in the second half of the year. The third one, again, a European bank consolidation deal. This is an existing client, but there's a pool of work outside of what we currently do, which is one large program, which they're consolidating down to two vendors, and we are one of the two. This is a global professional services firm, not the one that we won in last year.
There's another one that initiated a consolidation of a book of work within the quarter, and we closed it within the quarter. We are now sole provider for a service for this client. We will become the sole provider after we complete transition. One of the really interesting deals is on AI for business. This is a fab-based manufacturer which is going through a significant boom due to AI. Instead of the client expanding and investing in more fabs, one of the efforts is how can you improve productivity in each fab, and how can you produce more SKUs per fab? They've instrumented their plants with any number of sensors. What we're doing is to help build custom models that will improve fab performance. Now, that's how it started. Now we're also doing other normal IT work for them.
The key basis of why we won is our capabilities in being able to build custom models. The large brand name workspace company, for which there's an AMS deal that we won. Quick two examples from recent acquisitions. The next one here, a data center company, and that in of itself is good because they're growing quite a bit, as are all data center companies. This came from our CyberSolve acquisition. We won a deal here on identity-led cybersecurity. The last one is a large asset manager for whom we will set up a GCC. With that, over to you, Vikash Jain.
Thanks, AJ. Let's move to the next slide. Revenue for the quarter came in at $389 million. In absolute dollar terms, revenue was largely flat, driven by volume growth of close to $3 million, and we had an impact associated with calendar and furloughs, which we had called out, which was a headwind of close to $3 million. Calendar and furlough impacts are seasonal, and we expect this to reverse materially in Q2. That's what we had called out in the last earnings call too. The volume growth of $3 million is also reflected in the net headcount additions that we did during the quarter and also has a full quarter impact of the hires that we made in last quarter.
License revenue for the quarter was at $11 million, flat sequentially, and was tagged below our historical quarterly average, which is close to $13 million. On margins, we have aligned our margin reporting to EBIT. EBIT excludes other income and Forex impacts related to hedging and translation, which is consistent with the market practice. Reported EBIT for the quarter was 13%, up 570 basis points sequentially. Normalized for one-timers that we had last quarter, EBIT was flat sequentially. Even though the EBIT was flat sequentially, there were a few puts and takes. We did get a bit of a tailwind from Forex of close to 90 basis points. There were operational improvements associated with what we're driving in the business that added close to another 50 basis points.
The 140 basis points that we had from Forex and operational improvements were offset by lower calendar of 90 basis points. Large deal ramp-ups, which we had spoken about the new deals that we are signing in the initial phase are going to have a bit of a margin headwind, and in the later part of the year will start improving, and the impact of labor code of 20 basis points. The labor code impact is the continuing impact of the new wage code, and it will be a recurring item every quarter. There are no one-offs in EBIT in the current quarter. I'd also like to make a specific call-out. During the quarter, there was an earn-out reversal associated with SMC acquisition. The earn-out payable towards the CY 2025 achievement was close to $23 million.
Of the same, the performance achievement actually is leading to payable of close to $20 million. A large part of what we thought that the asset that we are acquiring is expected to deliver is happening, and close to $3 million was reversed out. Consistent with the accounting practice, the reversal is recorded in other income and does not impact the reported EBIT numbers. Let's move to the next page. Some color on the unit level performance. Starting this quarter, HTPS has been split into Professional Services and TPP, Technology Products and Platforms. This split was done to sharpen the strategic focus. TPP, the business unit led by Ravi, while currently the smallest vertical, will represent some meaningful growth opportunity for us. In the quarter, 4 of the 7 verticals delivered year-on-year growth, led by Banking, H&I and MNC.
Sequential growth was primarily driven by H&I and PS. Sequential softness in select units is primarily a result of the seasonality and a little bit of GSC client headwind. Keech is going to touch on that later during the presentation. We did call out a bit of a headwind in the last quarter, so it's an impact associated with it. A few units to be called out. H&I, very strong sequential and year-on-year growth. It's driven by large deal ramp-ups and the broad-based growth across Europe, and that is reflected even in terms of the strong year-on-year growth you've seen from a Europe perspective. In our last earnings, we had called out H&I to grow at a pace faster than the company, and we see that play out from this quarter itself.
MNC was a drag in the because of the tariff and other macros in H1 of last year. We see that coming back to the growth. There's been a healthy year-on-year growth supported by traction both in existing accounts and new logos. It has delivered strong year-on-year growth starting H2 of last year. We expect MNC to be a full year growth contributor. The sequential decline, what you see in MNC, is driven by seasonality. Q4 demand is a bit higher on account of festive reasons for some of the client retail clients and also calendar. Banking, the sequential decline is due to seasonality. A very strong year-on-year growth in line with the last few quarters trend. We expect the vertical to have a strong CY 2026. On geos. All geos delivered year-on-year growth.
North America performance is after including the headwind from the GSC client, which we had called out in Q1 and Q4 of last year. It's an impact of that which is getting reflected in the year-on-year growth. Europe returns to strong growth and is expected to lead the full year growth driven by account ramp-ups and new logos. APAC sequential softness reflects the Q1 seasonality. More commentary on CY 2026 outlook by unit will be covered later during the call by Keech. After the next page. We continue to add meaningful clients to our client base. One of the ways we measure broad-based growth is to track the number of clients delivering greater than $10 million revenue. As you heard Keech say, that in terms of the greater than $10 million revenues, we have had two clients what we have added on a sequential basis.
That number is 4 on a year-on-year basis. Next chart. A bit of a highlight on the operational parameters. Offshore mix continues to improve. On the headcount, as Keech called out, even though the overall headcount is a decline of 46, we continue to add in IT, and BPS was declined. This marks the eleventh consecutive quarter of IT headcount addition. Utilization closed at 82.6, 180 basis points up sequentially, and this reflects the reversal of the seasonal Q4 impacts, both with respect to the furloughs and the leaves that we had called out. Next page. Closing cash balance of $220 million. The company continues to remain debt-free. DSO for the quarter came in at 75 days, which is within the level we would expect.
Last quarter, we had called out that the DSO of 67 days was a high water mark at the year-end. On the cash flow, we have changed our cash flow metric reporting in line with the margin metrics. The OCF to PAT on LTM basis was 125% and continues to be high in the coming quarters too. It is one of the industry-leading. ETR for the quarter came in at 25.5%, and we continue to reiterate our full year ETR for CY 2026 to be between 25% and 26%. With that, I'll pass it over back to you, Keech. You're on mute.
Thank you, Vikash. If you go to the next slide, please. We're going to talk a little bit about our outlook for rest of the year. You know, at the highest level, we feel very good about where our business is. We are hitting a phase of sustained growth. You know, last quarter we said, you know, we've been running faster for a while, but it's going to take time to show up on numbers. We're running faster, but we had to outrun some of the headwinds. Booking takes time to translate to revenues and there's calendar issues. We said the results would start showing from Q2. We are in Q2, and the next quarter you will see the outcome of it. When you see the outcome, it will not just be a one-off.
We think it'll be a sustained momentum of growth from this point from us, for us. At a minimum, we are reaffirming what we said last time as, you know, the floor of growth of 7.6%. I've spoken about deals already. I spoke about some of them. I wanna tell you that actually there are quite a number more. Real estate, we decided we will do eight deals. There's quite a bit more that we won. I would say right now, AI in SDLC is the biggest source of differentiation and the biggest source of deal activity. There's a sudden and extreme urgency with clients to demonstrate serious value in SDLC using AI. That's driving a lot of conversations, and that is driving a lot of deals.
Even prior to a decision, they, there are more headwinds in the year. At this point, we feel like, you know, they get decided. We're down to 3 vendors. They're consolidating a large number of vendors down to 3. Right now we expect stability. We've had around 40, 45% down over the last 4 quarters. That's not gonna happen. We expect stability, not necessarily growth immediately, but we could see growth coming back over a period of time. We spoke about other deals. Essentially, what all these deals and a continued strong pipeline means that we are reiterating our growth. We, you know, the current growth is underpinned by deals already won. Much like we said the last time, there are pathways and opportunities for us to improve this.
We want to first show Q2 results before talking about what more we could do in the year. There are some changes in verticals. You know, H&I will lead growth. Banking will do well. We've been speaking about M&C turning the corner. I think M&C is going to wind up in a pack that will be among growth leaders. It will, you know, lead company growth for the year. I think it's a bit of macros and some of portfolio-specific issues that we've solved for, and it is back to decent growth. On the other hand, T&T will lag due to macros, primarily due to fuel price issues that impact the airline industry. We've started better on margins than we planned for.
Again, like in revenue, right now we are sticking to our guidance of the range of 13%-14% for EBIT. We also wanna reiterate what we said last time, that margins will improve through the year, especially in H2, and our exit rate will be higher than what it is for the full year. With that, we will stop for questions.
Thank you very much. We will now begin the question and answer segment. To ask a question, please click on the Raise Hand button at the bottom of your Zoom interface to enter the queue. Once announced, kindly unmute yourself, state your name and organization, and proceed with your question. If your query is addressed before your turn, you may press the lower hand button to exit the queue. We'll pause briefly to allow the team to assemble the list of participants. Our first question is from Pratik Maheshwari. Please unmute and ask your question.
Thank you for the opportunity, Keech and Hemant. Congrats on the good set of results. I think this quarter went by much better than what you guys expected at the end of the December quarter. I had two questions. First, I would like you to expand on the comment that you made on the agentic AI being implemented in the SDLC life cycle, you're seeing strong momentum on that. Also, you commented that you guys are now seeing a phase of very strong sustained growth now, right? If we look at your larger peers, they have commented for higher AI deflation in 2026 versus 2025, right? You guys are talking about better on this front.
Also, I've seen your mid-tier peers also saying very similar comments. They have a better growth expectation than larger peers. Just wanted to understand, first of all, on the industry level, how do you guys see the AI deflation? Do you guys also see that mid-tiers are better placed in this front? That's my first question.
Sure. You know, on AI deflation, we called it out last quarter that there was mixed commentary last quarter from our peers. The people are saying the, you know, opportunities will kind of outrun the deflation right now. We called out even last quarter that there will be deflation. Okay? We simply budgeted for the deflation in our numbers. I do think the opportunities are significant. And, you know, there are new opportunities. You know, I gave an example on Zero License, a $400 million SaaS that will get opportunities we've identified on-
Sorry, I think we lost for a few seconds. You just might have to repeat the last two lines. We lost you for a few seconds there.
Okay. Thank you, Deepak. Is it better now?
Yes. Yes.
Yeah.
It's better.
Okay. Sorry, I don't know when you lost me, so I'm gonna repeat a bit. I was saying we called out the AI deflation last quarter. While there was big scrutiny from our peers, we did say there will be deflation and we budgeted for it in our numbers. Second, I do think the opportunities are real, and we've identified 12 opportunities. One example I gave on Zero License. In our ARA, we will talk through what those 12 opportunities are and show you what we're doing and proof points for platforms and customers in each of those. AI SDLC, you know, agentic AI. Right now, what is happening is, I would say over 90% of clients, maybe 95% of clients have bought some tool, but they don't know what to do with it.
Their teams are experimenting with it, but there's a pretty hard ceiling of, I don't know, 10%, 15% that they're getting from that. What we are showing is, "Hey, you don't, you know, don't go chasing the next best tool. Don't go chasing, you know, whatever is announced last week." Based on what you already have, we are able to demonstrate to clients how they can materially up the productivity by better use of tools, changing the SDLC process, and reconfiguring what squads should look like. We are not doing this in isolation. We're doing this at scale. Let me give you an example. In our FS vertical, we have 75 delivery AI champions that work across all of our clients to continuously deliver new projects using AI.
The impact this has on us is that we're certainly reducing the, you know, volume of work in our existing lanes. Because we're doing this proactively, because we're able to demonstrate better outcomes than our peers, it places us in a great spot to gain market share in SDLC.
Thanks, Keech. Keech, I had another question on your GSC client consolidation program. Congratulations on getting selected in the top three. I know you said for some stabilization there. I just want to understand what is your confidence level that probably this client could also start growing in this year itself? If you could expand on that, please.
I don't think they'll grow this year. I think it'll be next year. Okay? They could be moderate, you know, plus or minus, but that's normal course of business. We don't expect anything significant this year.
Okay. Last question is for Vikash. Vikash, I know you guys expect a bit of improvement in the margins for the full year. There's also, I think earlier on, there were some transformation costs that would have gone away, but you guys need to invest on that. Just want to understand. Right now, as Keech said, right, you guys have squads. You've got 75 champions, right? We are seeing similar kind of setups happening with other ITs as well, right? Do you think the margin expansion that you're getting from the automation or AI implementation, right, is that going into investments in such as these things where you're probably getting much higher caliber team to probably go and disrupt some of your existing business to win new ones?
Vikash, do you mind if I address that?
Sure.
At least one dimension of it, and then you can add to that. Okay. Pratik, first I want to say that 75 we spoke about is for one vertical. That's for our FS vertical. There are similar in each vertical, right? I will say two different things as it pertains to structural profitability, and then Vikas can add more specifics here and now. Right? One, I think we are seeing from clients a willingness of about 10%-15% gap, but in productivity gains and economic gains. Now, that 10%-15% is from Hexaware, and token cost is outside, and AI costs are outside. In that 10%-15%, I think some of it will be higher cost for us. Better talent, higher cost of talent that'll be deployed. Some of it could result in improved profit pools. This is early views.
I'm seeing clients are okay conceptually saying, "Hey, you give me 40% productivity. I'm only expecting 25%." You know, I spoke about three differentiations in our new Tensai Reasoning Ops platform. One of them is that it's a enterprise custom LLM that we've built. What that does is to trap the inferencing at the SLM. Not 100% of inferencing, but it'll trap maybe 80% of inferencing at SLM, and 20% or so will still go to LLMs. That's a savings for clients. The model we're doing is to, you know, charge for a percentage of what customers will save on inferencing with LLMs. That's a second structural source of potentially improved profitability in future.
Thank you. Thank you, R. Srikrishna. Thank you, Vikash Jain.
Nothing.
Yeah, Vikash.
Yeah. I was just rounding up the whole conversation with the fact that, okay, from full year perspective, we reiterate our margin guidance of 13%-14%. Even though there are aspects which are leading to improved profitability, we continue to invest in the business because that's what is important from a growth perspective.
Thanks.
Our next question is from Anmol Garg. Please unmute and ask your question.
It won't choose it.
Yeah. Hi. Thanks for the opportunity. I have couple of questions. One, more of a broader question for Keech. You know, currently, I just wanted to understand what kind of AI models are we using in our delivery. Currently, what is the understanding between us and the clients on who bears the token cost, particularly when it comes down to the outcome-based contracts?
First off, I think it depends on what service we're delivering. You know, I will talk about AI for IT and AI for business differently. Let's start with AI for IT. Even within AI for IT, I think there is a difference in fundamental approach between SDLC and in IT operations. I will say SDLC and data are somewhat similar. If you think of SDLC and data engineering in one pool and IT operations in the second pool. In IT operations, I think there is more willingness, this is consistent with what has happened in the past, of giving out holes for pieces of operations through firm outsourcing contracts. That includes, you know, baked-in future productivity benefits from AI.
Like I explained, in our new platform, we are actually providing the inferencing, not 100% of it, but a good chunk of it, which will be lower than inferencing from LLMs. The inferencing that does go out to LLMs, the customers still pay for it. On SDLC, you know, most large customers for most programs, if not for all, you know, It's mixed teams. It is client and us, and they, you know, are a significant part of the large program, so they kind of design a tool chains. We help them do it, they own the licenses and they own the token costs.
Understood. Understood. Secondly, more a question for this quarter. Sequentially, you know, we have seen our licensed revenue at $11 million, up from $7 million, and there was some incremental revenue which came in from CyberSolve as well. Organically, when it comes down to services, how much decline was there in this particular quarter? How much of that was impact from a particular GSC client?
So-
Yeah. License Sorry, go ahead, Keech.
Yeah. The license sales for the current quarter was flat. What we had from a sequential basis was the same license sales in the current quarter as in the last quarter. As I highlighted, that the volume growth in the current quarter was 3 million, with close to 2/3 of that coming from the acquisition work we did. The balance of it was organic. In fact, on a gross basis, the organic volume growth was significantly higher, but that was after absorbing the headwind from 1 of the GSC client, where in the last quarter we had pointed out that there was a bit of a ramp down in the month of March, so it had a full quarter impact from the current quarter.
Right. Vikash, just continuing on the same. For as per our guidance of 7.6%, which is our floor right now for us, the requirement or the CQGR requirement is nearly about 4.5%, for the next three quarters. Given that, fourth quarter is usually a seasonally weak quarter, the bump up have to happen in second quarter and the third quarter. What kind of deals do we have which will be ramping up, which could give us that kind of growth over the next couple of quarters?
Keech already spoke about the deal wins, right? We spoke about few deal wins in the last quarter, which has started ramping up. Part of those ramp-ups actually got reflected from a Q1 results perspective in the volume growth that I spoke about, net of the GSC decline. The other deals that we have signed in the current quarter, both of these added with the seasonality benefit, which we'll get from a Q2 and Q3 perspective, are the ones which are going to help us deliver those numbers. As Keech called out, like in any case, is ramp-up of the existing deals which are already won, plus the new deals which are in the pipeline. Our pipeline continues to be very strong.
The conversion of those pipelines and additional revenues from those deals are the ones which will help us in terms of contributing to the current year growth.
Sure, Vikash. Thanks. That's it from my end.
Our last question in the queue right now is from Dipesh Mehta.