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2026.10.06 | TB | Healthcare | Sagility: Growth & AI Deflation Risk

原标题：Sagility – Growth Outlook, AI Deflation Risks & Portfolio Evolution

#healthcare #software

Third Bridge · 2026-10-06

Analyst-led • 23 Sep 2026

Companies: SAGILITY IN

Srinivasan Sarvabhouman (SS) CFO at ANSR Global Corp Pvt Ltd

Ollie Coughlin (OC) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

OC [00:00:01]: Welcome to Third Bridge's Interview entitled Sagility – Growth Outlook, AI Deflation Risks & Portfolio Evolution. I'm Ollie Coughlin, and I'm joined today by Mr Srinivasan Sarvabhouman, former Group CFO at Sagility.

Srinivasan, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

SS [00:00:28]: Yes, I agree. I will not disclose any confidential or unpublished price-sensitive information.

OC [00:00:33]: Could you begin with a brief introduction to your background?

SS [00:00:37]: Yes, I have been a finance professional for over 35-plus years. I cleared my chartered accounting and cost accounting, and I have worked with relevant healthcare industry and been with Sagility's business for over 15-plus years when it was part of the Hinduja Group. When the division got carved out as Sagility, I moved in as the Group CFO at Sagility, worked with the private equity investors at that point of time, took the company public, thought through the company's post public listing for four quarters and then moved on to pursue other opportunities in the services sector. Now I work for a company called ANSR Global, which is not a competition to Sagility. It is in the services space to help set up GCCs. GCCs are global capability centres for end clients.

Questions

00:01:36] Sagility's revenue has been growing by low-double digits, reaching 29% YoY growth in FY26. How would you see the company's revenue growth rate trending YoY over the next three to five years?

SS [00:01:57]: Organically, the 29% growth is slightly a misnomer or misleading stuff. I would say the organic growth has been in low teens to mid-teens, whereas if you combine the inorganic growth, which is the acquisition of BroadPath, etc, and say, other payment integrity stuff we did. That is when they have actually grown in the 20s. Plus Sagility is an Indian listed entity when they show growth numbers, they show growth both in constant currency terms as well as in rupee terms. You've got to go through the Sagility's investor deck and conferences for actual numbers and see what's the constant currency growth. I think they are comfortable growing at low teens to mid-teens.

OC [00:02:46]: Given favourable market fundamentals and macros within the US payer landscape, could constant currency revenue growth accelerate over the next three to five years, and if so, through what drivers?

SS [00:03:10]: Yes. Broadly, they have been penetrating into multiple sectors or segments within the existing clients as well as new clients when they add capabilities. That's one of the reasons that they strongly do an acquisition to acquire more capabilities to provide end-to-end services. You should know that Sagility is predominantly a US payer-focused or a payer-based organisation. They have entered into the clinical space. All this time, the outsourcing work that they have been doing was… I would say, all this time since prior to, say, 2-3 years back, they were only focused on the administrative piece of it, say, for every dollar as a premium an insurance company collects, almost USD 0.75-0.80 goes towards the medical cost, which is a clinical spend. The rest was the administrative spend and the profit. They have been working only on the administrative spend. In the last 2-3 years, they have got into the clinical space as well. I see a great growth potential available, but they also need to, I would say, they are facing the challenge of AI as a challenge because AI has significantly helped in cannibalising their own revenues. I'll answer this question slightly differently because the growth rate that you are seeing as low teens to mid-teens is the net growth. Which means they have to grow northwards of 22%, 25%, 23% and then they got to pass on the productivity gains, AI gains, etc, back to the client and hence, their net growth dips to mid-teens.

00:04:53] Sagility is entering the clinical space, and acquiring CareSeed in June 2026 in part bolstered its capabilities within that domain. How do you see the company continuing to enhance its offering, move deeper into clinical services and capture greater wallet share, especially across its existing US payer footprint?

SS [00:05:24]: That is exactly what their strategy too is. I would largely feel that they are improving their capabilities in the clinical space, trying to address how the clinical spend is, trying to avoid fraud, waste, abuse at the prior authorisation stage itself. Just to give an example, they do some nurse assist work out of the Philippines where they hired Filipino nurses and then they get trained and certified to be an USRN, US Registered Nurse and then they are on the nurse assist program where all clinical spend comes to them. They use an extensive AI engine to go through the details of the medical record, which could be a 70- to 80-page record using AI. It parses the medical record into multiple groups, subgroups. Then every specific diagnosis code and the procedure code is reviewed by the AI engine, and it looks for evidences for those medical treatment given to them. Hence, it gives a complete view whether the treatment is sufficient, was it not required, was something extra done. The AI helps the nurses to show, yes, I could see validations of the procedure through the medical record. I have the attached proof, plus these are covered in the insurance policy as well.

Though the AI engine just throws up, "Hey, this can be allowed or this needs to be denied, etc," then using a thumbs-up or a thumbs-down for each of the criteria before a prior auth can be approved. They use an extensive AI program. They have a lot of opportunities to make clinical as the next game changer with their deep presence available. They are on the right tracks. Again, it has to get translated into client contract, client giving them more work. Those are still to be seen and tested. While they do have capabilities in understanding the clinical work per se, at the end of the day, it should get translated to client contracts. I may have the capability, but you should trust me and give me the work, so I would see it there.

00:07:51] Looking specifically at CareSeed and the Harvest platform, how compelling is this proposition to Sagility's existing clients? How long might it take to realise cross-sell opportunities? What are the conversations like? What are the typical lead times?

SS [00:08:15]: Normally, they have the capability, but you should understand that they work with the large payers in the US market who already have their own platform. It is very difficult for a client to switch the platform, their IT platform and the way how it is being configured. They just take the medical record, which is an output into their nurse assist platform. They try to take the contract. They actually redo pretty much they write the coding and try to redo everything. Recently, probably a couple of years back, they acquired a company in the payment integrity space. That they had developed those capabilities in terms of clinical through them. Then you combine that with their native knowledge on how do they process claims. They have built their own home-grown platform, where based on the terms and conditions that they would have in the client contract, they check for the medical eligibility and then they check based on the patient's condition, say, for example, I go for a pain in my right forearm. Obviously, there is no need for a brain scan there. They just look for what is the procedure code, whether the relevant steps are being taken. Using that AI engine at every stage, there is a thumbs-up, thumbs-down in their tool. The nurse who is supposed to give a clearance gives a thumbs-up or a thumbs-down and the machine language learns by itself and then gives a better outcome.

Otherwise, manually, if a nurse has to go through a particular claim and do a prior auth, it takes about 40-50 minutes to go through one process, one claim, whereas using this AI, the processing times come down drastically to about, say, 10 minutes or so. They significantly saved the time cost on processing one particular claim with far more accuracy. They are equipped to take the market. They are equipped to grow big, but we just got to wait and see as to how it pans out over time.

00:10:33] Considering the time savings delivered by Sagility's proprietary platform, how does this compare with the proprietary platforms of major US payers such as UnitedHealth Group, alongside third-party vendors? What is the primary impetus for payers to choose Sagility for their clinical needs? It seems as if you're suggesting it's a no-brainer.

SS [00:11:08]: No. The US claims systems are so complex. It means because there are multiple layers even to process a standard claim by a company like United. Every time the document looks for over 400 out of 500 data points to validate because the data gets stored in multiple systems, and it's not as straightforward as we think. I'm trying to explain it in simple terms, but it is not so. The way how a particular provider networking rates are configured in the system, how their discount structure is paid in the system, how the bundling rules, unbundling rules have to be handled in the system. Say, for example, you have taken an X-ray just two days prior to getting admitted and that X-ray is valid for, say, 10 days or so. There was no need and you have just paid an X-ray claim two days back, and that claim has got approved. After three days, you have again got admitted into the hospital. Again, an X-ray is taken on you. There is always a possibility you could have relied on the earlier X-ray, and this is not to be paid, whereas this is bundled and paid as part of the hospital claim. The earlier X-ray was paid as a separate claim. Ideally, the company should not have paid that second X-ray claim. These are some complexities in bundling rules and there are also state-dependent rates.

Every state has got a different way of processing or giving benefits to the citizens. These are some complex cases where Sagility has developed deep domain knowledge, but I'm not saying that others like the United are behind. Everybody is trying to improve their processing time. Everybody has got their own domain knowledge, a deep domain knowledge. I wouldn't say Sagility is standing out or is the only company. As we speak, every day, everybody is trying to solve a particular problem for somebody in the world or the technology is moving fast, but it's not about writing codes or writing AI or writing technology. Technology is just a tool to solve a problem. The Sagility, probably they know what is the problem or what will work very well in the current claim system because even for one of their clients, there could be multiple claims, they are working on multiple claims platforms. Even for a company A, which is a large payer, they could be working on about 15 different claims platforms because those companies would have grown through the years by way of acquisition.

They themselves are not aligned. Every county behaves differently, every small plan or a small payer would have behaved differently when the acquisition happened. It is not easy to integrate all and to migrate everything to one platform because the employee or the insurers or the citizens' preferences are very different. They do exist multiple claims platforms and multiple solutions even for the same client.

00:14:32] How is the cross-sell opportunity typically realised in practice given the complexity of the US payer landscape? For a hypothetical client where piecemeal outsourcing begins with a single plan or state, how might Sagility accelerate capturing more wallet share through getting a book of testimonials? How would you expect the company to capture wallet share over the next one to three years?

SS [00:15:25]: Great question. The proof of the pudding is there in the growth of their existing clients. What they do today to their existing clients, it's not the same volume or the same quality of work that they have been doing. They have been right from the time because when they are processing claims using Automation Anywhere, using their own home-grown tools, which improve productivity, they have actually cannibalised a lot of their revenues by automating most of it. They do a gain share. This is typically how they grow from their existing clients. Even their existing clients grow in double digits YoY despite being large, more than USD 100m clients per annum. What happens is they showcase a particular product to a particular client in a particular state, they show their proof of success. Then there is a next time, there is an opportunity with the next client during their monthly business review or quarterly business review, they showcase it. They should get the audience time with their CTO and the procurement, then they should actually showcase that case and see how it doesn't affect the upstream or other processes and they are not impacting other work, but still ensuring there is benefit. When outsourcing or lower cost in a country like India, Philippines is a no-brainer.

Why is still a lot of work happening out of the US? It is because it's not as easy as we think because there are large county employment county based. As these cost pressure mounts, most of the companies are forced to outsource more work to companies like Sagility, and that has been happening. The proof of pudding is their top five clients keep growing more than 10% YoY, each one of them growing. Please understand when I said when they grow in low teens or double digits, this is after cannibalising a lot of their own revenues. Sometimes they might start off some work in, say, a location like a Jamaica or Colombia and then further, which is a nearshore to the US, there is a significant cost advantage straight off the gate. Then when they move this business back to an India or Philippines, there is a further reduction. What they were doing work for USD 1m would mean that they are only getting USD 300,000 or USD 350,000 the next year for the same volume of work out of a low-cost geography. That is also a significant cannibalisation of revenue. Despite that cannibalisation, they are growing in double digits means their gross growth is northwards of 20%.

OC [00:18:13]: Is it fair to assume that mid-to-high-single-digit revenue acceleration is achievable, given Sagility's foray into the clinical segment?

SS [00:18:31]: Yes, the clinical growth will be much higher than the administrative growth. When I was there as part of Sagility, I have witnessed those growth rates, and they are most likely to continue that way because administrative is optimised fairly, I would say, because veterans, they have been veterans in outsourcing business and handling these claims for the last 25 years in that business when we started as HGS, Hinduja Global Solutions, part of Hinduja Group. One of their top clients have been with them for 25 years, another client has been with them for over 24 years and another at 20-plus years. It is a proof that how strong they have been in terms of delivery quality, delivery capability plus YoY giving savings to them. That itself shows how strong they are in that domain.

OC [00:19:28]: Could you help me visualise the potential account growth through Sagility's expansion into clinical services via capturing a greater share of wallet, taking a hypothetical top-five client account as an example?

SS [00:19:53]: I would expect that percentage to further get worsen. The guys who have worked with them for so long are the ones who are most likely to give clinical business to them. Suddenly, you cannot go to a new client and ask for a business. That too, they may not give a clinical work to them. They might at best give an administrative work to them. Even an administrative end-to-end, they might have started off with some client as their first process could be a claims processing and for another client, it can be a member engagement and for another client, it could be a payment integrity. Over time, they try to cross-sell all their service delivery capabilities to all of them all the time. There is always a constant pressure on cost. There is competition in the market. There has to be something unique about everybody, which is rightly so. Everybody is trying to do something uniquely so that there is a significant stickiness from the clients so that they don't lose wallet share.

OC [00:20:58]: Can a mild acceleration in Sagility's revenue growth be realistically expected over the next 3-5 years, taking the cross-sell opportunity in clinical services and potential deflationary headwinds into account?

SS [00:21:21]: Yes, if the client feels, "Yes, this is working. Yes, I can give significant clinical work to them. They have proven capability," then suddenly, their growth rates could significantly go up, but that needs to be seen or tested.

00:21:38] You noted that tried-and-tested testimonials will lead to growth rate acceleration. Beyond client aversion, what are the primary barriers or sticking points to realising the cross-sell opportunity?

SS [00:21:56]: Sticking point normally would be the internal teams in the US. Normally, what we have noticed is there is always some resistance to outsource an activity, trying to hold on employment in the US. There is always that stickiness there. It takes a lot to really break that barrier and move those businesses. That has been true for the last 25 years or so because when they started off, they started off with less than USD 200,000 per annum of healthcare practice 27 years back. Today, they have grown to an USD 800m of just their cost of processing or their outsourcing cost being there. It has taken a lot to move to where they are today from where they started. There is always that constant tussle of whenever there is an outsourcing as a conversation, there is a conversation between their clients' operations teams, clients' technology team and clients' procurement team. You have to cross multiple barriers.

Luckily, the way how Sagility has positioned or working with their clients are they have multiple touch points with their client. Their operations counterpart talk to each other on a regular daily basis. Similarly, there are multiple touch points by their clients, relationship managers, multiple touch points at the sales end, there are multiple touch points at every stage. I would say they are fairly insulated to a large extent because they have a very strong relationship connected with the client at various stages.

00:23:52] Would you see a ceiling to wallet share expansion for a hypothetical Sagility client, given you mentioned that average US payers spend 75-80% of premiums on medical costs?

SS [00:24:12]: Yes. Even on the administrative piece, if you look at it, nobody has outsourced 100%. As per Everest report, probably only about 16% of the work has got outsourced from the US is what Everest report a couple of years back said. Everest expects that to grow to about 22% by 2030. There is still a lot of opportunity for the company, and I do not see why they should not grow even faster. That is an opportunity, but everything needs to get translated to client contracts and revenue ultimately. I believe they have all the ingredients in terms of deep domain expertise, right org structure. They are building their org structures and their technology capabilities on a day in, day out basis.

00:25:06] For a typical large client, how long would the sales cycle be to realise the cross-sell? How long would it take to get pen to paper for a contract such as this?

SS [00:25:24]: Normally, on the administrative side, the sales cycle are fairly long. They are about six months to nine months. To say even for the clinical side, it could be even 12 months or 15 months. We do not know because they are very difficult to break the barriers. It's more on the internal client systems and client teams. It's a no-brainer that whenever a work is outsourced, it is done faster, cheaper, quicker and most cost efficient and most accurate. All of those ingredients are there and that have been proven over years.

00:26:15] Sagility obviously has the opportunity to continue selling and driving larger accounts, but given its revenue and customer diversification efforts through acquiring BroadPath's book of small-to-mid-sized accounts, where do you see future growth primarily originating? Would it be from major clients or scaling small-to-mid-sized accounts? How can the company maximise the revenue growth opportunity moving forwards while also reducing concentration risk?

SS [00:27:37]: You see, I wouldn't really be worried about client concentration at all because that's the nature of the market. The top 20 players in the payer market holds about 70% of the market share. The balance 30% are held by the Blues and the local regional and smaller plans. They have at least six or seven, I don't know the exact number as of today, but about some years back, I saw in the latest earnings call, which Ramesh mentioned about seven or seven of the top 10 players are their clients. It's very, very fair to expect that even the top guys grows faster, even if I grew at a 10% growth in USD 100m base is about a USD 10m growth as against a small client who could grow from USD 200,000 to USD 400,000 would have grown even by 100%. Percentages here doesn't matter because their base itself is very different. I would say existing clients normally grow anywhere in double digits. Top five clients will grow in double digits, lower double digits or higher single digits, whereas the mid-market clients will grow at least 25-30% and the smaller clients grow almost 100% YoY. If you take the weighted average of all of this, their growth could anywhere range between mid-teens or say, low teens and mid-teens. Comfortably, 14%, 15%, 16% is what they would grow from the clients.

Their acquisition strategy is whatever I had known, I can safely say that it is not just to acquire revenues or do more of the sales. It is to do things differently, acquire newer capabilities and newer geographies. On the way, if there are opportunities with large client revenues, they don't mind acquiring because they are not starved for cash. They are a cash-rich company. They are generating good cash, their EBITDA from their latest earnings call, I could see that their EBITDA to free cash is very healthy at about 68% or so. They have sufficient cash, and they are generating good cash. They are hungry to grow.

00:30:12] How do you view the value of the mid-sized client accounts as Sagility continues acquiring both new capabilities and client books of business? Given that this type of account typically generates lower revenue and margins relative to the cost and effort to serve, does servicing these smaller clients risk diluting the company's broader growth opportunity?

SS [00:30:53]: If you're having a supermarket, you should have multiple products. Maybe they sell more eggs and milk in the supermarket, but which may not be profitable or giving you a high margin business, but that gives an entry. Other way, it gives a footfall into that. Somebody comes into supermarket shop for eggs and milk or bread may still pick up something else which could be more profitable. This is always a strategy where you should grow, you should try and see opportunities to grow. If you don't have eggs and milk in the supermarket, then you may not even have any footfall. These are multiple strategies to attract customers is what I would think. These are purely my logic of selling everything, growing everything. As long as you are maintaining that healthy mix of overall growth and profitability, then you should be good.

00:31:51] Regarding cross-sell realisation, taking BroadPath as an example, where and through what product lines has cross-sell conversion been strongest between Sagility's existing products and BroadPath's customer base, and vice versa?

SS [00:32:12]: I would say the conversion has been strongest in selling Sagility's back-office capabilities to some of BroadPath clients. I would say it that way because BroadPath is largely a seasonal business where during the open enrolment season, they do outreach largely. That becomes a significant revenue source for a company like BroadPath. They have a strong relationship for over 20-plus years with their clients. They have been able to sell a couple of Sagility's other capabilities into BroadPath clients. Just one of the classic examples that I can tell you for one of the largest client is they started off with process in year one. By year three, they moved on to servicing them with 30 different subprocess there. Year four, they have sold about 80 processes to the same client. Today, after 25 years, they do work for close to about 140 subprocess to the same client, which is now USD 100m client, which started off with just about USD 2.5m in year one. That's how you grow with the client by showcasing additional capabilities and you have the additional capability. It takes the decision to buy a service has multiple factors. It's always a constant knocking at the door, constant moving of capability. Unless you do your current work extremely well, it is very difficult for you to really go and ask for more business. You've got to be absolutely top notch on what you're doing, plus keep always trying to penetrate the client.

00:34:02] What are the growth prospects for the larger base of Sagility's newly onboarded clients spending under USD 1m-5m?

SS [00:34:20]: I would suggest you go to Sagility's website and under investor column, you can actually look for the quarterly presentation. You will actually see QoQ how these number of clients by their size. You can actually see less than USD 1m clients would have actually moved to the left by moving into USD 1-5m and USD 1-5m have moved to up to USD 20m, and that's how you will actually see their growth. That's a good representation. You have accurate data in the investor deck that they have shown. In this Sagility website, you can actually see the actual data for yourself. That's one of the key metrics that they keep showing every QoQ.

OC [00:35:03]: I've got that quarterly presentation in front of me. Given the nature of newly onboarded clients, should growth and outsourcing trends for this cohort be viewed differently compared with historical benchmarks from a decade prior, or would you expect similar levels of outsourcing adoption?

SS [00:35:18]: I would expect similar levels of growth because unless something drastically changes in the system where people realise that, "Hey, I will have to pay more of clinical," which could only be a bonus. I would expect one to be a positive pleasant surprise in future, if at all it happens. Otherwise, I don't think they will go negative at any stage in the sense like the growth rate or how the clients work with them. They have a very solid client relations team. They have a solid sales team, a mining team who actually work with the client, and very strong on operations, extremely strong on client operations. Their net promoter score is a proof of that. I believe the NPS was as high as 57% or 54-55%. That's a very good score compared to a service industry. They are probably one of the leaders in an NPS scores among their clients. This company is one of the best kept secrets, I would put it that way.

00:36:26] Where does Sagility currently stand in its transition towards outcome-based and managed service contracts, which is aligned with broader industry trends across RCM [revenue cycle management] and outsourced services?

SS [00:36:46]: Sagility, if you split their billing type or their revenue type, I would say broadly about 60% or even 70% of their revenue come from based on effort in some form or the other. It could be an FTE hour, it could be per contact or a per call or a per claim, which are somewhere by way of productivity is a human effort. Then about at least 20% of their revenues come from completely outcome-based work, which could be, for example, a payment integrity business that the company that they had acquired. Prior to Birch, there was one more company they acquired, DCI, almost 100% of the revenues from DCI is outcome-based. In the payment integrity space after a payment is made to the hospital, you can still go back and recoup these monies if it was proved that it was wrongly processed. That way, you can still go and claw back some of the wrongly processed claims. The DCI has been the way how DCI operates or Sagility operates through DCI is they are the third-pass vendors. That is even after a claim is processed, you give back all the claims processed data point to this company, to a payment integrity company. Cotiviti is one of the largest payment integrity companies in the world. They do similar work. Even some of the complex algorithms that they write for an overpayment recovery, Sagility has got a good research team there.

They write codes and all the same claim is ran through this engine. It is like another parallel engine of processing a claim based on the policy and the rates, "Hey, you should have paid USD 10 or USD 4 for this particular procedure or a syringe or a blood test or something, whereas you have paid USD 5," USD 1 is extra. I run through your old data for the last 12 months, USD 1 for one million syringes that you have charged, you have undercharged or you have overcharged or whatever it is, you can record those.

OC [00:39:37]: That's 20% of revenue roughly. Will there be a contingency?

SS [00:39:47]: Yes, that is a contingency billing. That is where their margins are slightly higher than the services margin because there is a lot more technology and automation with less of human efforts. There is another thing on the RCM space, which is the reverse of what they do with DCI. This is like they run through their engine on what the claims are paid by the payers when they represent the hospitals or a diagnostic industry or a lab, then they say that, "Hey, you have underpaid my claim, please pay me this," and there you attach proof for it. There is an automated route. That is also a contingency collection, based on the collection the clients make, Sagility gets paid.

OC [00:40:36]: You mentioned that 60-70% of Sagility's revenue is effort-based and 20% is outcome-based. What about the final 10%?

SS [00:40:47]: Will be like subscription-based, which could be a PMPM-type. I could be wrong on these percentages, but broadly, 70-75%, you can say, or 15-18% and then broadly 2-5% could be a PMPM, which is per member per month, which has nothing to do with the outcome or nothing to do with the effort. It's more a guaranteed fee based on the number of members that the customer has. That is like a PMPM business.

00:41:21] As the shift towards outcome-based and managed service contracts accelerates to insulate against AI deflation by retaining efficiency gains in-house, how do you see the high-teens-to 20% outcome-based contribution within Sagility over the next five years? Is there a client aversion to transitioning to outcome-based pricing models?

SS [00:41:51]: No. Clients are more aligned to moving to an outcome-based because at the end of the day, they want to pay for a problem solved. The way how Sagility positions themselves is not about why, first of all, why is there a problem in the first place. Say, for example, the Sagility does both a call centre and member engagement support post the claim as well as they do the claim business. If the system could be better configured, you can actually avoid certain type of errors in the claims, which could avoid a subsequent call flow at all to their call centre business. Since Sagility has a 360-degree view on most of the processes, they can actually better advise. Instead of saying, "Hey, I will charge you USD 1 a call from USD 1 to USD 0.20 by automating it." I would go back and say, "How do I make sure that I can avoid this call completely?" If you fix this problem upfront in your system, you can avoid the entire queue or the problem, call coming, originating itself. It's the way you position is the total cost of ownership and not just a per piece delivery.

OC [00:43:11]: How might the contract composition have looked prior to Sagility's shift?

SS [00:43:16]: I would say this doesn't matter. This composition doesn't mean anything to me. It is just the way how things are getting leaner, but probably some investors see this as a risk, but I don't think it should be seen as a risk. It is seen as an opportunity because the more you have moved towards an outcome-based or an opportunity based, the profitability actually improves because it puts a lot more pressure. You are actually having a flexibility that you don't need to staff so many people. You are not obliged to staff in a particular fashion. It is far more, I would say, far more beneficial for somebody who is a very good performer. Maybe it can affect somebody who's a poor performer because if you're a good performer, you try to make more profits from that.

OC [00:44:05]: From what I gather, the majority of contracts are FTE [full-time equivalent]-based. As you get AI efficiencies, your FTE need reduces and so does your ability to bill clients. Therefore, with a shift towards outcome-based, you're able to capture those efficiencies internally and decouple Sagility's revenue from labour cost. So it would be more advantageous for the company to move to outcome-based.

SS [00:44:44]: Correct. Yes, you are right. Not all efficiencies could be passed on to the client. Even in an FTE base, let's take, for example, I'm supporting a particular process with 100 FTEs and tomorrow, I introduce an AI and a process with the permission of the client to run it into the system, I can reduce this 100 to an 80 FTE. I'll say, "Hey, you pay me for 80 people and not for 100 people. The 20 people I saved you, you take 15, I'll take 5." The gains have to be shared all the time to the client because the client is always under cost pressure, wanting to save their spend or their cost all the time. That cost pressure will always be there. The more you significantly improve on your efficiencies, the more is your opportunity to actually bill the client. It all depends on how much are you willing to share. Sometimes if you don't share, your competition will actually come up with that solution. Instead of somebody else automating and cannibalising my revenue, I would actually prefer to do it first.

00:45:59] Given that Sagility cannot switch major client contracts to outcome-based models overnight, is the company typically able to retain around 25% of technology-driven efficiency gains across its accounts?

SS [00:46:16]: Yes, mostly, yes. I would say because they are trying to solve complex problems. All the low-hanging fruit, simpler problems are not there today. People think that outsourcing is simple work. It is not. It has evolved and the complexity of the work people do has significantly changed over time. All simple work has already got automated. It's only the complex claims that fall out of the automatic claims adjudication system come to companies like Sagility. Even the simpler voice work is all gone today and only complex calls are actually the ones that come in.

OC [00:46:59]: If Sagility transitions its 70-75% FTE-linked contracts towards outcome-based models, wouldn't that offer a clear financial advantage by decoupling revenue from headcount and hiding AI efficiency gains internally? Given that FTE models force the company to pass upwards of 75% of cost savings to clients, does moving to outcome-based pricing effectively insulate Sagility against AI deflation by allowing it to retain those operational efficiencies?

SS [00:47:39]: Yes, probably then you move to an outcome-based, you might go back to the client and say, "I will pass on this benefit." If you're able to process it more efficient than what you had committed, then those upsides straight away come to you.

00:47:55] How rapidly can Sagility realistically transition clients from FTE [full-time equivalent]-based to outcome-based contract structures, given the impact of AI? What might be the sticking points?

SS [00:48:16]: It's very difficult. I would say healthcare has always been a very slow mover even after trying, testing, showcasing a particular pilot, it is not very easy to disrupt or change over to any system. These processes are also a long-drawn process, at least they take, say, the similar amount of a sales cycle because nobody wants to risk anything that is working well at any stage, and they don't want to end up making a mistake. They are very slow movers when it comes. Even in the banking industry, the way how outsourcing had happened or banking insurance or a mortgage, healthcare has been a laggard completely, and they have always been way behind what is being offered. The percentage of outsourcing is very slow. Healthcare as, I would say, as a sector itself is a laggard, I would say they are very fairly slow to react, slow to shift, slow to take decisions. It is likely to be that way.

00:49:28] How rapidly could Sagility's outcome-based contract mix expand from its current high teens to 20% over a five-year horizon, given the historical conservatism of the healthcare sector?

SS [00:49:48]: Probably, yes. That mix can change. You should also understand how and where the market is. If you look at the large players, I would think that they would have outsourced. They are most matured in outsourcing. They still haven't matured almost 30% of their administrative costs, which are still lying in the US. I'll put it this way. When you come to the mid-market players like the Blues, they haven't really outsourced beyond 15%. The smaller market, the regional plans, the UPMC types, they haven't actually even outsourced much. They are a small county-based plan in a particular county and where the health plan itself is run by the local county hospital. I would say it has always been very slow and conservative on outsourcing.

00:50:45] Would you expect roughly 70-75% of Sagility's existing effort-linked contracts to become subject to gain-share structures of 75% or higher?

SS [00:51:00]: I would think so that they are still likely to have about 70%, which are stable, risk-free businesses, even though they do some gain share, they try and gain more wallet from other streams of revenues, which their clients have not done. Even today, let's assume Sagility does 1-100 different types of services, they haven't introduced all the 100 services to even to one of their clients. They would do some 1-10 with some then 11-14 with somebody. That could be a combination. At any point of time, they are only doing about 50-60% of their overall capability to one customer. They are always trying to introduce more services to the client and trying to disrupt the market. That is a constant endeavour, so I don't see any risk in the next 3-5 year horizon that too for a company like Sagility in the healthcare space.

OC [00:51:57]: Not necessarily a risk. The opportunity is still there for growth.

SS [00:52:03]: Opportunities for growth largely will come from the clinical is what my guess would be because that's a market that is completely not tapped. Probably, I would say the clinical space may grow at 20-25%, whereas the others can grow at 12-13%, I'm just saying.

OC [00:52:21]: Within five years' time, would you say that 70-75% will be effort-based billing and 20% will still be outcome-based, given the effort on shift?

SS [00:52:38]: I would think so.

00:52:39] It's advantageous for Sagility to shift towards outcome-based, but client conservatism could prevent that from happening. Even if the company successfully transitions a significant volume of contracts to outcome-based models, is it fair to assume that these contracts are insulated from AI deflation? Given clients are fully aware of AI productivity gains, would Sagility still face pressure in these contract structures?

SS [00:53:12]: No, I don't see it as a pressure. Firstly, we should understand what an AI can do. AI works very well when the data is unstructured. Significantly, which is like a simple English, reading a complex document, interpreting it, summarising it, etc. I would think when you come to the healthcare segment, broadly, everything is codified. If you look at a claim form, every field in the claim form is already a codified form in the US. There is a claim form which is completely codified. ICD-11 coding is there. It's always a codified industry, which is highly, I would say, organised from a data standpoint. What furthermore can you automate and where will AI help is something that we've got to look into it. Wherever there is interpretation of an English, wherever there is an interpretation of an image or an X-ray or a report, that is where AI can help a little bit. Wherever it is possible, it is already being tried and tested, but I don't see a huge impact on Sagility's revenues beyond, say, 1-2% in the near term and about 3-5% in the medium term, say, five years. I don't think it's going to really disrupt this market segment because this market segment of the healthcare is already codified, already optimised.

OC [00:54:56]: Could you potentially see an increase in annual AI deflation of 3-5% after five years?

SS [00:55:05]: Possibly, yes.

OC [00:55:07]: To address this, Sagility would want to shift to outcome-based and capture the AI efficiencies. Even if the company does so, clients are still aware and able to put pricing pressure on it anyway. Therefore, Sagility is not necessarily insulated through outcome-based billing.

SS [00:55:27]: Yes. The pricing pressures are constant YoY. Mostly Sagility's contracts are 3-5 years contracts. At the time whenever a contract is coming up for renewal, what's the price for year one, what's the discount or efficiency that you will pass on for year two and year three is already decided upfront. These are fairly, I would say, pre-agreed whenever a contract comes up for negotiation. Fairly, constant pricing pressure is there. The best way to beat pricing pressure is your productivity gains, either through process efficiencies or through people efficiencies or through introduction of new technology tools, etc.

00:56:18] How is pre-agreed pricing pressure typically structured at the start of a contract?

SS [00:56:26]: Normally, clients do not squeeze beyond what is agreed. Most of the clients want stability. They want Sagility to make money. They don't want the Sagility to be in any financial pressure or stress because they are interested in the larger outcome. Any industry should always be a win-win. Otherwise, the partners don't work very well. I would say, yes, there may not be pricing pressures YoY, but during client renewal contracts, "Hey, what more can you give me?" We may not give you a price discount, but I can give you a complete AI engine for you to work. I might still give them a solution. I might give them a few additional pieces of work for free of cost, but I don't want to significantly lower what it is. I would presume that YoY, most clients would expect a 2% or 2.5% of productivity gains to be passed on to them, plus there is cost inflationary pressures. Sagility has to maintain profitability despite inflation through two ways. (1) Productivity gains and (2) foreign exchange fluctuation that depreciates because their costs are in local currencies.

00:58:14] Given that Sagility's EBITDA margin guidance of 24-25% for Q1 FY27 appears conservative, and considering the 120bps of wage inflation within its Indian FTE base, what additional risk factors could impact this margin performance over the next 3-5 years?

SS [00:58:46]: Yes. EBITDA margins are, I would say, in the next 2-3 years, they are most likely to stay northwards of 25%. While I say there is more automation opportunities, more AI opportunities, more efficiencies, then Sagility gets to retain some portion of it. Even the Sagility leadership is not guiding the market beyond 25%. They feel that 25% is a good number and any surplus profitability, they would want to retain it and do it for their growth.

OC [00:59:22]: Are there no risk factors on the horizon?

SS [00:59:26]: I don't think so at this point of time because they are fairly sitting pretty. I don't see a risk at this point of time.

OC [00:59:34]: What about the potential AI deflation?

SS [00:59:38]: No, even after all of that, see, whatever numbers they say for growth or EBITDA is after the impact of passing on the benefits back to the client or the AI impact, etc. These are the net growth numbers that they give. Slightly as a company, I wouldn't say they commit to slightly a lower number and they end up doing slightly better. It's more a culture that they have. If they say we will do 25%, definitely, they will give 26%. That's the way how you can probably expect.

OC [01:00:12]: I appreciate the comments there. Thank you very much for the time and contributions. Thoroughly enjoyed it. Bye-bye.

SS [01:00:23]: Likewise. Thank you so much. Bye-bye. Take care.

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