Concentrix Corporation Stock

Hello, everyone. Thank you for joining us, and welcome to the Concentrix Third Quarter 2026 Financial Results Conference Call. [Operator Instructions]

I will now hand the conference over to Elise Brassell, Corporate Communications and Investor Relations. Elise, please go ahead.

Thank you, operator, and welcome, everyone, to Concentrix' Third Quarter 2026 Earnings Call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix.

This call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events or developments. Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on our Form 10-K and in our other public filings with the SEC.

Also, during the call, we will discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company Investor Relations website under Financials.

With me on the call today are Chris Caldwell, our President and Chief Executive Officer; and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. Then we'll open the call for your questions.

Now I'll turn the call over to Chris.

Thank you, Elise. Hello, everyone, and thank you for joining us for our third quarter 2026 earnings call. I'm proud to start this call by recognizing a milestone that speaks to how far Concentrix has come over the last few years since generative AI was released and concerns for the viability of the services industry started. Over the last 3 years, we've steadily expanded the services we offer and invested in deployments of AI technology to evolve our business.

This quarter, we crossed the mark that 50% of our revenue now comes from businesses that we generated in the last 3 years that is very different than our traditional business. These new revenue sources are comprised of: $3 billion of revenue that is coming from new and existing clients that have either gone through heavy transformation or has AI influencing the revenue; $1.3 billion of net revenue resulting from the compression of our traditional services using our iX Suite AI platform; and finally, $700 million of revenue from new high-value services we brought to the market across growing segments like risk and compliance.

Compared to our traditional business, this revenue is growing faster at an expected 30% year-over-year growth rate in fiscal 2026, is more profitable and is stickier with a revenue retention rate 4x higher. We laid this out in more detail in the Q3 investor summary presentation you can find on our website under Investor Relations Events and Presentations.

We're planning more investor outreach in the early part of 2027 to break down how we are looking at our business in more detail. But as an introduction, let me share a few other stats that make me confident and excited about the future. We expect our new business revenues to exceed $6 billion in 2027. As we have talked about, we are seeing the margin progression we've expected in our overall business with a 30 basis point improvement year-on-year in Q3.

We are winning new clients and also evolving our existing clients to new services. As an example, all of our top 5 clients and more than 90% of our top 100 clients have expanded into new services and offerings with us since the start of fiscal 2023. Our average tenure with our clients remains strong at more than 16 years with our top 25 clients and 15 years for our top 50 clients, with a 98% retention rate across our entire client base. Together, these stats show we are building on a solid foundation, and we are pushing the evolution of our business as quickly as possible.

Turning to our third quarter, we can see these same themes reflected. We're continuing to prove that as clients scale AI, we create more opportunities to grow our business, expand profitably and deepen client relationships. We are actively focused on disrupting our own traditional business to take advantage of our momentum.

Our sales pipeline continues to be stable, with net new logo sales involving AI growing 63% quarter-over-quarter. Three of our four largest iX Suite wins this quarter came from clients who are already using the product and are now expanding their use cases because of the results we've helped them achieve. We also brought 61 opportunities, including more than 30,000 advisers live on our iX Suite this quarter, contributing to our margin expansion we delivered in Q3 and the impact to our revenue growth in our traditional business.

Our strategy, vision and execution is getting recognized by the market. We're building an identity for Concentrix as a partner that bridges the gap between AI ambition and operational reality through our New Realities marketing campaign that is resonating with clients, partners and the industry. We were recognized by research firms as a leading partner with multi disciplines and in strategy and vision.

As an example, this month, Everest Group recognized us as a leader in customer experience management with growth in vision and capability across every geography. We earned Best of Category honors from Globee for human-AI teaming and conversational AI. And together with our strategic partner, NiCE, we received an International CX Excellence Award for our work with U.K. technology retailer, Currys.

Our technology-powered consumer experience solution delivered double-digit improvements in customer satisfaction. And just as importantly, we exceeded our profitability guidance for the quarter and expect that momentum to continue into Q4. As a reminder, this marks our second consecutive quarter of record adjusted free cash flow while continuing to reduce leverage.

While AI is expanding our growth opportunities, we're also navigating industry shifts like hyperscaler spend priorities, which will have a larger impact than previously expected on our revenue in the fourth quarter. In addition, shore mix created about a 3% headwind this quarter, as we talked about in our second quarter earnings call.

As clients shift budgets and shores, we continue to use a combination of technology, rightshoring and services to create a balance for growth and long-term profitability in our traditional business. It's important to note that while the business is evolving, we are doing what we can to accelerate our rollout of AI. This causes temporary headwinds that result in [ growing ], stickier and higher-margin revenue and relationships.

While this evolution progresses, we're staying disciplined in how we allocate capital. This quarter, we strengthened our balance sheet by reducing net debt by approximately $211 million. And by the end of our fiscal 2026 year, we expect to have completed $900 million of debt paydown in the last 3 years. This puts us on track to reduce our net leverage to approximately 2.6x at year-end, with further significant debt and leverage reduction planned in 2027 to approximately 2.2x. At the same time, we're continuing to invest in our future by upskilling our people and expanding specialized AI talent to grow new capabilities.

Looking ahead to Q4, we are pushing accelerated deployments of AI, but we remain confident in the growth opportunity of our new business revenues and the overall market opportunities. We are focused on being the partner of choice to help transform operating models with the right mix of automation, technology, global talent and deep domain expertise. We're seeing a healthy, stable pipeline of complex, high-value opportunities where clients are looking for practical solutions that deliver measurable business outcomes.

While not providing guidance for 2027, we currently expect the growth of our new business revenue to offset much, if not all of our automation efforts in 2027 while driving stable to improved margins across our entire business. We expect the overall business to benefit from consolidation in the industry, with growth momentum to be more in the back half of the year. We expect our free cash generation to be above our 2026 levels.

Before I hand it over to Andre, I want to thank our Gamechangers around the world for their commitment to our clients and to each other. Their expertise and innovation make our success possible. And I'd also like to thank our clients for their trust they place in us as they navigate an increasingly complex business environment.

With that, Andre will take you through more details on our quarterly performance and outlook for the rest of the year. Andre?

Well, thank you, Chris, and hello, everyone. I'll begin with a review of our financial results for the third quarter and then discuss our outlook for the fourth quarter and full year 2026. In the third quarter, we delivered revenue of approximately $2.45 billion. On a constant currency basis, this represented a decrease of 0.5%, which is slightly below the lower end of the guidance we provided in June. Our revenue for the quarter reflects an acceleration of our deployment of AI for clients, as well as client decisions to reduce support for certain customer sets that we have supported.

Turning to profitability. Our non-GAAP operating income was $309 million, above the high end of the guidance range we provided in June. Adjusted EBITDA in the quarter was $363 million. Our non-GAAP operating income margin was 12.6%, and our adjusted EBITDA margin was 14.8%, with both measures up 30 basis points from the third quarter last year. This increase in margins demonstrates our focus on winning the right business, as well as our discipline and execution in aligning our business investments to areas that we have identified for profit-enhancing growth while reducing costs in other areas. This is consistent with our commentary throughout 2026 that we would see year-over-year margin expansion in the second half of the year.

Non-GAAP diluted EPS was $2.92 per share, above the guidance range we provided in March and June and up $0.14 from the third quarter of 2025. Our GAAP results for the third quarter reflect a $1.05 billion noncash goodwill impairment charge triggered by the trading range of our stock during the quarter. Complete reconciliations of non-GAAP measures to comparable GAAP measures are provided in today's earnings release.

Adjusted free cash flow was $218 million in the third quarter, the highest level we've achieved in the third quarter of any year since our spin-off in 2020. We returned approximately $23 million to shareholders in the quarter through our quarterly dividend. Consistent with our commitment to reducing net leverage at the end of the year, we did not repurchase any shares in the quarter.

In the quarter, we reduced total debt by $211 million. Our debt reduction in the quarter included the repayment of $200 million in senior notes that matured in August. At the end of the third quarter, cash and cash equivalents were approximately $256 million. Total debt was approximately $4.375 billion, and net debt was approximately $4.119 billion.

At the end of the quarter, our liquidity was nearly $1.5 billion, including our $1.1 billion undrawn revolving credit facility. Included in our outstanding debt at the end of the quarter is $375 million in term loan borrowings that mature in December 2026. We expect to repay these borrowings using free cash flow generated over the balance of the year and existing sources of liquidity. In total, we expect to repay over $550 million in gross debt this year and reduce net debt to approximately $3.8 billion by the end of the year.

Now I'll turn to our outlook. For the fourth quarter and full year 2026, we expect the following: fourth quarter revenue of $2.41 billion to $2.46 billion. Based on current exchange rates, these expectations assume an approximate 65 basis point negative impact of foreign exchange rates in Q4 compared with the prior year period. The guidance implies a constant currency revenue decrease in the fourth quarter ranging from 3% to 5%. This leads to fiscal year 2026 revenue of $9.827 billion to $9.877 billion based on based on current exchange rates, which we assume an approximate 80 basis point positive impact of foreign exchange rates compared with the prior year. As such, we expect revenue for the full year to decrease by 0.8% to 0.3% on a constant currency basis.

For the fourth quarter, we expect non-GAAP operating income of $310 million to $320 million. This drives full year non-GAAP operating income of $1,206 million to $1,216 million. The midpoint of our profitability expectations for the fourth quarter implies a non-GAAP operating income margin of approximately 12.9%, up 20 basis points from the fourth quarter last year. This is consistent with our expectation all year that we would generate year-over-year margin expansion in the second half of the fiscal year.

This guidance translates into an expected non-GAAP earnings per share of $2.86 to $2.98 for Q4, assuming approximately $63.5 million in interest expense, 61.2 million diluted common shares outstanding and approximately 4.9% of net income attributable to participating securities. For fiscal year 2026, we expect non-GAAP EPS of $10.97 to $11.09, assuming non-GAAP interest expense for the year of $265 million, approximately 61.1 million diluted common shares outstanding and approximately 4.9% of net income attributable to participating securities. The non-GAAP effective tax rate is expected to be approximately 24% for both Q4 and for the full year.

We continue to expect to generate between $630 million and $650 million in adjusted free cash flow this year. With this cash generation, we expect to reduce our outstanding debt balance by over $550 million in the year. This expectation includes the funding of our acquisition of CastleHill to further strengthen our risk and compliance offering in the fourth quarter. We are committed to reducing our net leverage to approximately 2.6x adjusted EBITDA by the end of fiscal 2026.

Looking at cash flow beyond 2026, we expect adjusted free cash flow in fiscal 2027 to exceed the amount we generate in 2026. Our confidence in our cash generation in 2027 reflects an expectation of reduced restructuring costs, lower cash interest expense and that our newer growing sources of revenue require less capital expenditures than our traditional business. Our 2027 cash flow expectation would allow us to reduce our gross outstanding debt by over $550 million once again in fiscal 2027 and bring our net debt to below $3.3 billion, or roughly 2.2x adjusted EBITDA, by the end of fiscal 2027. Our confidence in the continued strong cash flow generation of the business is reflected in our increased dividend to $0.37 per share, payable in November.

In summary, our overall demand environment remains stable. We're confident in our ability to drive margin expansion in the business. We're confident in the continued strong free cash flow generation of the business and our plan to pay down debt and reduce net leverage in 2026 and beyond. And we're in a strong competitive position to drive long-term outperformance.

Now operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya with Bank of America.

Christopher, on your comment that growth in 2027 is going to be more back half-weighted, what is driving that? What specifically are you seeing in the sales cycle? You had talked about some hyperscale customers who might be reducing some support to their end customers, and you've also talked about offshore moves that could be impacting revenues. So help us kind of understand what is driving that back-end loaded nature of revenues in the next year? And I have a follow-up.

No problem. Ruplu, it's Chris. So thank you for the question. So two things. Just in terms of what we're seeing right now, just to put some perspective and size what we're looking at, the hyperscale customers we're talking about are 2 specific clients who, as we talked about in our Q2 call, are looking at stopping support for certain client sets. Originally, that was going to impact us in Q3 and flow through until sort of Q2 of next year.

Right now, the decision is really to have that completely finished by the end of Q4. And so you're seeing an oversized impact in Q4 and then clearly some impact in Q1 and Q2 from that. That, again, is only 2 clients. It's very defined. And those clients are actually growing with us in other areas of the business and other services. And so it's, again, a very, very confined part.

The second thing that we've talked about is our increase in AI automation sales that we've been doing. Not only did we have a very strong AI pipeline -- sales pipeline in Q2 which we called out, we also had another one in Q3. And what we talked about in Q2 was the ability to deliver on these AI automations at pace. We've been really happy with how the team has reacted in Q3. And we've been able to deploy those automations much faster than what we originally expected, which I think is a really good thing. And so we're seeing that impact in kind of Q4 and which will also impact into Q1.

And so really, when we talk about back-end growth opportunity in 2027, we're getting through these 2 clients who are looking at removing support for their base. We're catching up on the automation deployments that we're doing, and we're also looking at what we're going to be consolidating within the marketplace as we look at sort of Q3 and Q4, really, Q2, Q3, Q4 in 2027. So that just gives you some of the color around what we're seeing from a growth profile perspective.

Okay. As a follow-up, can I ask you for your thoughts on Meta's new Muse offering, as well as agentic AI in general? And how are you thinking about your own spend on the iX Suite? And what revenue and margin targets do you have for that?

For sure. So clearly, Meta announced a Muse product. OpenAI announced a product they call Dots. We're seeing more and more companies looking at this type of technology. And in fact, we built our own technology internally just for ourselves that's very, very similar to this that we're finding productivity gains.

We're helping clients right now understand how to engage with it. We're helping clients understand how to support these channels. And we do see agentic shopping becoming more and more prevalent in the marketplace and see opportunities for us to grow with that, supporting our clients, supporting this infrastructure. And so we just see it as part of the evolution of the business.

In terms of how we're thinking about spending money on our iX Suite, as we've talked about, we are benefiting from some of the ability to lower our cost base with AI internally on our development. And so we brought down our expenditures on our iX Suite. We're seeing the growth that we've talked about. We've talked about exiting 2026 with an ARR of just kind of software licensing around $120 million. We're on pace to do that.

And then what we've also talked about is how it influences revenue that runs through this platform. And that was the number that I called out of the $1.3 billion that's running through our platform, which, as we've talked about before, is growing faster than our traditional revenue because we're getting optimized work out of it, and it's at a higher profit margin out of it. And so we expect that margin profile to continue to build up. And at some point, at critical mass, we expect iX Hero to have effectively SaaS-type margins, but that's a fair bit away.

Your next question comes from the line of Vincent Colicchio with Barrington Research.

Yes, Chris, congrats on the milestone that you reached. Is there a way to think about what level you need to reach before you can consistently achieve solid growth, say, in the mid-single digits?

Yes, that's a great question. So Vince, we expected to reach this 50% milestone really at the end of Q4, maybe middle of Q1. And so we've moved it forward 1.5 quarters, which is fantastic from a momentum perspective.

Our belief is that we need a couple more quarters to continue to kind of drive automation in our traditional business. We believe that there's some consolidation that happens. But if you -- and again, not guiding for 2027. If you kind of read between the lines on 2027, we expect that, that momentum is not really going to happen until the back half of the year. So that's probably more a 2028 comment. But again, we're moving a couple of quarters faster than we expected right now. So hopefully, we can maintain that momentum.

And as a follow-up, are you able to articulate how large a headwind you'll see from offshoring in fiscal '27?

Yes. We're not really guiding yet to fiscal '27, Vince, but we'll provide some color on it. So we have talked about this year, seeing that accelerate to being about a 3-point headwind on growth for us. We see it in that same sort of range. We don't see it being higher, but possibly a touch lower. But so included in what we're seeing right now is our revenue expectations for next year, I probably think it's right in that same range.

Your next question comes from the line of Jacob Haggarty with Robert W. Baird & Co Inc.

So just thinking about the revenue headwind from offshoring, does that start to abate as you get more and more AI revenues? Do people bring some of that work back onshore because it's AI-assisted and they're getting cost benefits there? Or how do you kind of see that evolving over time?

Jacob, I'm really glad you asked that question because it was actually kind of the second part of the answer to Vince's question that I didn't give. We do see it abating over time, but maybe not for the reason that you indicated so much as -- we're really getting to the point where we only, as we exit this year, have 10%, 11% of revenue that we see is as kind of in the pool of stuff that is likely over time to be movable offshore. So we do see it abating over time more because there's just not that much of it left to move as opposed to anything else. Chris, any impact from the AI playing any role there or not?

Yes, Jacob, we're not really seeing that. We're seeing clients who are moving the work. And the belief is that as we put an AI to it, they'll continue to leave it where it resides versus pulling it back into a higher-cost region.

No, that totally makes sense. And then can you just talk maybe about your confidence in margin stability, especially as we go into F 2027 and maybe even beyond?

So on the newer revenue that we talked about that we're just kind of crossing the 50% mark on, the margins are actually very stable. And it's competitive, but because we're bringing unique offerings to it, it's at an elevated level. Where we kind of look at margin pressure, for lack of a better term, is more of the traditional business that might be commoditized.

And we will only go to a certain price point. We're not going to chase price in that type of the business. And so our belief is that as we continue to add more and more of the new revenues, as we continue to automate more and more of our traditional revenues that we've got that margin stability, as we talked about in the prepared remarks, certainly in 2027.

[Operator Instructions] There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Concentrix Second Quarter 2026 Financial Results Conference Call. [Operator Instructions]

I will now hand the conference over to Elise Brassell, Corporate Communications and Investor Relations. Elise, please go ahead.

Thank you, operator, and welcome, everyone, to Concentrix Second Quarter 2026 Earnings Call. This call is the property of Concentrix and may not be recorded or rebroadcast without written permission of Concentrix. This call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or expectations, events or developments.

Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and in other public filings with the SEC. Also, during the call, we will discuss non-GAAP financial measures including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company Investor Relations website under Financials.

With me on the call today are Chris Caldwell, our President and Chief Executive Officer; and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and its outlook. Then we'll open the call for your questions.

Now I'll turn the call over to Chris.

Thank you, Elise. Hello, everyone, and thank you for joining us on our second quarter 2026 earnings call. Second quarter marked an acceleration in many areas in the evolution of our business. A few key statistics we are very excited about. First, we saw a record level of contract signings for our IX suite of technology, up 400% year-over-year for the number of deals. We saw increases of 25% year-on-year in the number of deals where we sold technology with our services. We saw an increase of 80% year-on-year in the number of deals where we sold AI and technology with our services.

We saw a record second quarter cash flow we improved our efficiency by increasing our revenue per non-billable headcount by 14% year-on-year. We saw margin expansion sequentially of 10 basis points with a clear path to continued expansion. While early days, the momentum we see in the parts of the business we have been investing in are paying off, while we are being prudent about managing our cost structure to drive better returns.

Our key message today is we are continuing to effectively execute our strategy, and we're making the right investments in the business for long-term shareholder value. Now let's break down some of these areas further. First, on our IX suite of technology, we closed almost 100 deals in the second quarter and are now focused on keeping up with demand for deployments. While we have improved our implementation speed by 12% through the quarter, we need to be faster to take advantage of the demand.

We are on track to double our IX Suite revenue by the end of this fiscal year, hoping to surpass $120 million in annual recurring revenue. While growing our IX suite is still a small percentage of our total revenue. What really excites us about this is now we have clients using our solution for the year and the economics are becoming clearer. We now have 11% of our revenues influenced by IX Suite deployments. While we can see some revenue decreases when we first deployed the platform from driving automation and productivity gains, these tend to be short-lived.

We are seeing clients with IX Suite growing significantly faster than our consolidated average and delivering almost 350 basis points better margin and starting to buy additional licenses for clients' internal operations by the end of the first year of installation. Our subscription with clients already deployed grew 24% year-on-year for new license revenue. This is because our technology works in enterprise settings and drives real value. One other important point for investors to appreciate of the top 75% of our clients, 97 have AI in production, 97% have AI in production. The vast majority have multiple AI solutions deployed for multiple use cases for CX versus homogenous technology stack. The solutions we are putting in with our partners and our own technology are delivering real value because we have deep domain knowledge of processes. The environment of clients are getting more complex with AI, not less, and that provides additional opportunities for us to manage these environments and sell additional services. It also shows AI has not significantly cannibalized our revenue or opportunities when our client base has adopted it.

Second, while Andre will talk through the strong cash flow results in more detail, it's important to appreciate that as we stated at the beginning of the year, we are focused on reducing our debt. We believe it is the best way to deliver value to our shareholders when the stock price is more volatile than we would all like.

Third, we saw a path this quarter to accelerate the use of AI internally within our own organization and align our cost structure to the profit potential of the various areas of our business. This drove a higher restructuring charge than we anticipated at the beginning of the quarter. But on a cash basis, even after some reinvestment, we expect to cover the charge in 6 to 9 months. We are not completely done yet and expect that we will spend an additional $75 million in restructuring this year, while still hitting our free cash flow guide reducing our net leverage below 2.6x and continuing to reduce our debt in 2027.

Lastly, as we have called out, we have some very fast-moving parts of our business that are benefiting from the current environment of enterprises needing AI expertise that are practical, real and well thought out. We are focused on keeping up with the demand as quickly as possible by ensuring we continue to have the right resources available in the right markets with the right vertical expertise. -- we are doing this successfully by rebalancing our priorities of spend in real time.

Now turning to the marketplace. We are definitely seeing increased financial pressure on our clients as they try and cope with their own investment needs and their current operating environments. This has created demand for more of our automation solutions, but also increased the urgency of moving work offshore and caused certain clients to prioritize spend across their client base, resulting in reduced spend overall. Combined, this has resulted in approximately 2% additional headwinds going into our third quarter that we see for the rest of the year. While the market is competitive, we are being very prudent to ensure we have the right economic returns on our business.

We have a strong competitive offering to help clients reduce their total cost of delivery with right shoring and automation. This environment and the faster deployments of our technology do meet revenue, but we see the path to a greater return as we demonstrated with higher margins this quarter and faster growth further out as more of our business mix changes. In fact, this is exactly where Concentrix excels, were solving the AI ROI challenges with putting the right tools and services together for clients.

As AI gets more complex, clients increasingly are looking for partners who can deliver across the full ecosystem, which plays directly to our strengths. While others may excel in 1 or 2 areas, few can match our integrated model and is helping us win more complex deals and demonstrating greater value to our clients. As an example, 2 of our largest cross-sell wins in the quarter added AI services existing Fortune 500 clients. This dynamic is fundamental to our growth strategy and reinforces our confidence in the trajectory ahead. In the back half of the year, we're staying focused on winning complex, high-value work with practically practical technology-led solutions that solve real business problems and running more efficiently so we can invest in new areas of growth while improving our profit margins.

I would like to thank our game changers for their passion this quarter and our clients for their partnership and with that, Andre, I'll turn it over to you.

Well, thank you, Chris, and hello, everyone. We're very happy with how our investments are progressing. Our growth in the second quarter came in slightly below our guidance of 0.6% in constant currency terms and within our guidance at nearly 2% as reported. We believe this reflects an acceleration of offshoring and some clients' reallocation of spending away from certain customer segments rather than anything that would meet our enthusiasm for the business areas that we've been investing in over the last 2 years, that are helping to drive our business forward. We saw strong growth in areas that tend to be less impacted by shore movement, banking financial services and our AI solutions, while consumer electronics, media and telecom saw the acceleration of offshoring have a more pronounced effect.

As we mentioned on our last earnings call, the decrease in health care client revenue was driven by reduced participation in open enrollment at the start of the year. Turning to profitability. Our non-GAAP operating income was $292 million, within the guidance range we provided on our last call. Our non-GAAP operating income margin was 11.9%. The adjusted EBITDA in the quarter was $347 million, a margin of 14.1% and our non-GAAP operating income and adjusted EBITDA margins were up 10 basis points and 20 basis points, respectively, from the first quarter of 2026. This improvement demonstrates our focus, discipline and execution on aligning our business investments to areas in which we have identified growth and margin potential above the consolidated business while reducing costs in other areas.

Later, I will discuss our expectations for the second half of 2026, and you will see that we expect improvement in margins to accelerate sequentially through the second half of the year. Non-GAAP diluted earnings per share was $2.63 in the quarter, in line with the guidance range we provided in March and up $0.02 from the first quarter of 2026. The -- our GAAP results for the second quarter and our expectations for the third quarter reflect restructuring charges related to accelerating movement of work offshore and aligning our cost structure for investment in higher growth and higher profit areas, while accelerating the automation of other parts of our business.

Complete reconciliations of non-GAAP measures to the comparable GAAP measures are provided in today's earnings release. Adjusted free cash flow was $242 million in the second quarter, the highest level we've achieved in the second quarter of any year since our spin-off in 2020. We returned approximately $23 million to shareholders in the quarter through our quarterly dividend. Consistent with our commitment to being below 2.6x net leverage at the end of the year, we did not repurchase any shares in the quarter. In the quarter, we reduced total net debt by $228 million for approximately $4.32 billion.

At the end of the second quarter, cash and cash equivalents were $263 million and total debt was approximately $4.585 billion. At the end of the quarter, our liquidity was nearly $1.5 billion, including our $1.1 billion undrawn revolving credit facility. Included in our outstanding debt at the end of the quarter was $200 million of senior secured -- unsecured notes due in August of 2026. We intend to repay the notes using our third quarter free cash flow and existing sources of liquidity.

Also included in our outstanding debt at the end of the quarter is $375 million in term loan borrowings that mature in December of 2026. We expect to repay these borrowings using free cash flow generated over the balance of the year and existing sources of liquidity. In total, we expect to repay over $550 million in debt this year and reduced net debt to approximately $3.8 billion by the end of the year.

Now I will turn to our outlook. For the third quarter, we expect the following: revenue of $2.465 billion to $1.490 billion. Based on current exchange rates, we expect an approximate 75 basis point negative impact of foreign exchange rates compared with the prior year period. The guidance implies constant currency revenue growth for the quarter, ranging from 0% to 1%. Third quarter non-GAAP operating income of $25 million to $35 million. This implies a non-GAAP operating income margin of 12.0% to 12.2%.

Third quarter non-GAAP EPS and of $2.65 to $2.77 per share, assuming approximately $65 million in interest expense, 60.9 million diluted common shares outstanding and approximately 4.8% of net income attributable to participating securities. The non-GAAP effective tax rate is expected to be approximately 25% for the third quarter. For the full year 2026, we expect the following: revenue of $9.925 billion to $10.025 billion. Based on current exchange rates, we expect an approximate 75 basis point positive impact of foreign exchange rates compared with the prior year. The guidance implies constant currency revenue growth for the year ranging from 0.25% to 1.25%. This represents a decrease from our previous revenue growth expectation for the year.

Primary driver of the reduction is the continued acceleration of mix shift to offshore locations, which now represents a nearly 300 basis point headwind. And -- our previous expectations for the year assumed a 200 basis point headwind from Shore Women.

We also see some clients' reallocation of spending away from certain customer segments as they manage their enterprise spend. non-GAAP operating income of $1,200 million to $1,230 million. This implies a non-GAAP operating margin of 12.1% to 12.3%. The -- at the midpoint of our guidance for the second half of 2026, we expect our non-GAAP operating margin to be 12.5%, a slight increase over the second half of fiscal 2025. This is consistent with our expectation that we expressed early in the year that margins in the second half of fiscal 2026 would improve sequentially to the point where they were up year-over-year versus the second half of fiscal 2025. We expect non-GAAP earnings per share of $10.83 to $11.18 per share, assuming non-GAAP interest expense of approximately $265 million, 1.1 million diluted common shares outstanding and approximately 4.8% of net income attributable to participating securities.

The non-GAAP effective tax rate is expected to be approximately 24.5% for the full year. We continue to expect to generate between $630 million and $650 million in adjusted free cash flow this year with the fourth quarter being our highest cash flow quarter as in previous years. With this cash generation, we expect to reduce our outstanding debt balance by over $550 million this year. We're committed to reducing our net leverage to below 2.6x adjusted EBITDA by the end of fiscal 2026. -- looking at cash flow beyond 2026.

With our continued evolution of our cost structure and growth in our AI-enabled businesses, we expect adjusted free cash flow at fiscal 2027 to exceed the amount we generated in 2026. This will allow us to reduce our outstanding debt by over $550 million once again in fiscal 2027 and bring our net debt to below $3.3 billion, roughly 2.2x adjusted EBITDA by the end of fiscal 2027.

In summary, our demand environment is stable. We're confident in our ability to drive margin expansion in the second half of 2026. We're confident in the continued strong free cash flow generation of the business and in our plan to repay debt and reduce leverage in 2026 and beyond and we're in a strong competitive position to drive long-term outperformance.

Now operator, please open the line for questions.

[Operator Instructions]

Your first question comes from the line of Luke Morrison with Canaccord Genuity. Please go ahead.

So the 2% headwind for the year, you framed as a mix of accelerated offshoring in client reallocation or reduce spend. Maybe just to start, can you help us split those, like how much is offshoring. When we think about that offshoring shift, like is that still -- do you still characterize that as largely gross profit neutral over the medium term? And then like how much is just genuine reduction in client volumes and budgets here?

Luke, it's Chris. Thanks for the question. So to answer the first part, we originally planned for about 2% headwind offshoring at the beginning of the year. We're now seeing that closer to 3% going into the third quarter, and that pickup started happening sort of mid-Q2, frankly, where we had some clients who are needing to move faster to see some cost savings. We expect that there is work to eventually head offshore.

But normally, we were expecting that probably in the early part of the new year, but just with the pressures there pushing faster, which we are accommodating. On the client -- our clients who are thinking about reprioritizing their spend and have started to reprioritize their spend, that is about 1%. And what we're seeing is where clients are looking at high-cost markets and certain segmentation of customer bases and deciding that they're no longer going to support these customer bases at all. thought that the volume is being automated. It's not going away. They're simply just not going to support. And that is about a 1% headwind.

And again, those decisions were made within the second quarter we're working with clients as they look to kind of rationalize and figure out their spend over the next little while. In terms of the offshoring comment in regards to profit and revenue, it does help profit.

Once we get past the duplicate costs that normally takes about 2 quarters or so to 3 quarters. and revenue, depending on which country it ends up in, does decline. But from a profit percentage perspective, it is more helpful to us.

Got it. That's helpful. And maybe just real quick on that. Like as we look out into next year and think about those 2 different vectors of drag, how should we be thinking about that playing out? Do you see this being a durable headwind or is this more near term and maybe we'll see that. We were originally guiding to an inflection later in the year this year. Is that just getting pushed out? Or how should we think about that playing out next year?

Yes. Luke, the way we look at it this way, over the past probably 20 years, when clients have looked at unsupporting segments of customers, they think this is a great idea from a cost savings perspective until they start to see ARPU fall or they start to see client churn increase and then they start to come back and figure out how do they need to invest to kind of continue to support those customers and grow the revenue.

So I don't want to say it's temporary as in a quarter or 2. I mean these are big changes that are making their strategy. But I don't think that is a de facto way they're going to operate their business. We've already seen clients kind of start to wonder if that was the best thing to do, even in these early days. In terms of the offshoring mix, look, we had expected, and we've talked about this before, that We, at the beginning of the year, have about 15% of our business that we believe can go offshore. We expected it to go down to around 13%, give or take, with all the pluses and minuses by the end of the year. We now expect it to be probably around 11%-ish when we exit the year, that is a finite amount funnel, and we don't even think all of that will go. It's just that is what is possible to go based on what we're seeing in the business right now. And so our expectation is that this acceleration is primarily driven by budgets, and we'll probably be more moderate in 2027. But from what we're seeing right now and what we know is moving we see it accelerating by that 1%.

Your next question comes from the line of Ruplu Bhattacharya with Bank of America.

My first question is on margins. So Andre, the full year guide at the midpoint implies about 12.2% operating margin versus the prior guide was about $12.5 million. So that 30 bps of reduction, can you help us quantify where that is -- what is impacting that? And then you're still expecting in the second half for margins to be up year-on-year, what is giving confidence in that? And then I have a follow-up.

Sure. Happy to do it. And thank you, Ruplu, for your question. Yes, so the driver of the reduction in the margin guide is driven largely by the pull down in the revenue. and some of the duplicate costs that come with some of the movement offshore. Our confidence in driving the improvement in margin into Q3 where the midpoint of our guide is 12.1% and applied margin close to 13% in the fourth quarter, all comes from the restructuring actions that we're taking as well as getting some of the -- through some of the duplicate costs related to the shore movement, getting some of the revenue to the higher-margin offshore delivery.

And again, then also some of our technology solutions getting to more scale, working through the deployment on the IX suite solutions that we sold in Q2, getting those where they're generating revenue in Q3 and even more so in Q4.

Okay. Let me ask a question on revenues. How much is revenue over billable headcount versus nonbillable head count? I think you said that revenue per nonbillable headcount grew 14%. Can you help us quantify that a little bit better, Chris.

Yes, for sure, blue. So what we have been doing is driving more automation and using AI internally. And in Q2, we were able to deploy some of our own AI tools internally. That allowed us to reduce our non-billable headcount even with net new adds in some of the technology areas that are revenue per nonbillable headcount grew 14%. And Clearly, our headcount with billable people tends to be more linear just because of what we're doing and how we're driving it. That clearly will start to differentiate more as we put more fully autonomous solutions into -- and more tech solutions into our client base. That's grown a little bit. But just because of our footprint of where people are and what the bill rates are as labor rates, probably not as applicable as our own internal efficiencies on the nonbillable headcount.

Got it. Let me sneak in 1 more question, if I can. In terms of your full year guide, I think you said that there could be another 11% of the business that could want to move offshore what have you factored in, in terms of conservatism into the guidance? I mean, do you think some of that can accelerate and again, move into this year to -- in terms of trying to move offshore.

And in terms of being conservative when it comes to lower volumes, which end markets have you been more conservative in factoring into the guide? And has this impacted your decision to spend on AI-related tools? And how should we think about that spend going forward?

That was a longer question for sneak in, but we'll try and get it through it all. First, a couple of things. When we look at our guide and our conservatism, we have been believing that the outsourcing -- sorry, offshoring will accelerate a tiny bit more than what the 3% is, but we've kind of factored that in. We don't expect there to be other clients who sort of look at moving away from supporting customer bases. These are clients who are kind of very specific to certain markets that we saw them take action. We have no other clients who are indicating that. So we're being as conservative as we believe.

In terms of the other revenue that could be sourced -- sorry, offshore. At the next level, our expectation is that will continue to go down by 1.5% to 2.5%, probably the next year or so. I don't want to guide past that. But really, we're getting to lower and lower places that clients have either made a public pledge that work will be done in market and/or it is work that is regulated to be done in market that can't move unless there's some legal change that needs to go along with that. And so as frustrating as that has seen that speed up, ultimately, it was going to happen over probably a longer period of time. In terms of investing in tools.

Look, we are starting to see some really strong headwind -- sorry, headways with our IX suite that is offsetting some of the headwinds of just sort of the general marketplace. And so we are investing in 4 deployed engineers. We're investing in subject matter expertise. We're investing in expertise around some of our partner technology as well to make sure that we can keep up with that demand. And we see those as being the right investments.

As we called out in sort of the prepared remarks, now that we've had our own proprietary tech out there for a year, we see what's happened. We see that, yes, some revenue decreases to begin with. But at the end of the year, it's growing significantly faster than with the technology. we're seeing almost 350 basis points of margin improvement on those clients, and we're seeing them buy the technology for their internal deployments as well. And so all of that absolutely encourages us to make sure that we're investing. Just to be very clear, though, what we said last year was that we will be profitable by the end of on our AI investments. And that is the case. And now as we get more leverage on those investments, we continue to drive them to be more accretive to our overall business.

Your next question comes from the line of Dave Koning with Baird.

Okay. Great. And I guess, first of all, when we look at margins in the back half, I know they're up slightly, but that's off a pretty easy comp with all the tariffs in the second half, the tariff impacts in the back half of last year. So clearly, there's some headwinds still in some of the investments you're making. But does this now leave a really easy comp for next year? Like if you're selling more I the offshore shift hurts this -- these next couple of quarters but helps next year. Is this going to be a big outsized margin impact into next year?

Dave, I don't want to guide next year. What I will tell you is that what we're going through, we are seeing really strong momentum, not only in our partner technology, but our own technology. we're seeing that drive a higher margin profile business. Also as we get through our duplicate costs of moving stuff onshore to offshore, there's margin appreciation there.

And we do believe that we start to get more operational leverage when -- as we build up all sort of this tech installation and deployment Talen, we do think we get more and more leverage of that as we put on more revenue to that area. So all that would lead to believe that there's still margin expansion capabilities. The magnitude of that, I think we'll talk about at the end of this fiscal year.

Probably, David, the thing we're probably the most confident in is our ability to increase our free cash flow again next year. That's why you heard me be specific in my commentary about that and our plans to use that to continue to pay down debt.

Yes, I got you. And then just as a follow-up, I mean, it sounds like a little over 1% revenue headwind relative -- or I guess, 1% impact relative to the old guidance and about 1% impact from more offshore shift, give or take. I mean, is that -- does that imply that volumes actually are unchanged from what you were expecting before?

Yes, Dave, the volumes have been pretty consistent. I mean, what we plan to automate is being automated at sort of the levels that we expect to be automated. Clients automations are kind of going the way they expected. -- some not as successfully as they are hoping for and providing more opportunities for services for us. in getting that working. But that's pretty much on plan. Like it's very clean when we look at the movement of work about what's going offshore.

And it's also very clean when we see clients saying, look, we're not going to support this set of customers in this market anymore because our costs are too much for our revenue model in that market. That is just very, very cleaning discrete.

Your next question comes from the line of Vincent Colicchio with Barrington Research.

Yes, Chris, congrats on the strong traction in the IX suite. I'm curious what percentage of the IX suite bookings or replacing with legacy revenue versus generating incremental spend?

That's interesting. So Vince, the way I would look at it is if you think of the IX Suite revenue, this is all incremental revenue to us because we've never had a product like this or technology product like this. And the size of it, at the end of this fiscal, we were just talked about it kind of passing $120 million of annualized recurring revenue.

The reality is that what we're seeing is the influence in the rest of the businesses is more interesting to us because it's driving higher growth across that set of customers. And so 11% of our revenue now is influenced by IX Suite consider that growing much faster than the rest of the revenue that we have as we deploy every new deal we expect to see that kind of increase over sort of 6, 8, 9 months as we get to full year maturity. And I think it will influence more and more and more. where that is winning us new revenue is, one, driving more consolidation from other competitors.

We're also seeing where clients are giving us more work to do. from their own captives or from their own facilities as well because we've got the technology. So all of that kind of encourages us that as we sell more, we'll see more of the benefits come through faster.

As a follow-up, are you seeing a slowing in consolidation, which has been a benefit in recent quarters?

We didn't see much consolidation in Q2 or frankly, we don't expect to see much consolidation in Q3. We expect to see more near the end of the year and primarily in some consumer electronics, we expect to see some, we expect to see some. And probably social media and telecom, which are traditional markets that tend to consolidate near the end of the year after they get through some of the holiday seasons. And so that's where we expect to pick up some additional share. SP1 And then just a small clarification for Andre. What's the size of the total restructuring program now? And over what time does it play out on.

Yes. The total spend this year is as in the tables will be a total of $175 million. So we expect $45 million in spending in Q3 and then an additional 30 in Q4 that we should be done all up and all in. And again, when we talk about the $630 million to $650 million of free cash flow. I just want to reiterate that is after those restructuring expenses. So that's an all-in number. And that is really as we expect those expenses to come down significantly next year. That is one of the reasons why we expect to see our free cash flow go up as we look out to fiscal year 2027 to the point where we were confident enough about it to bring it up on this call.

We have now reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Concentrix First Quarter 2026 Financial Results Conference Call. [Operator Instructions]

I will now hand the call over to Elise Brasell, Corporate Communications. Please go ahead.

Thank you, operator, and good morning, everybody. Welcome to the Concentrix First Quarter 2026 Earnings Call.

This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events or developments.

Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and in our other public filings with the SEC.

Also during the call, we will discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company Investor Relations website under Financials.

With me on the call today are Chris Caldwell, our President and Chief Executive Officer; and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. Then we'll open the call for your questions.

Now I'll turn the call over to Chris.

Thank you, Elise. Hello, everyone, and thank you for joining us for our first quarter 2026 earnings call. Today, I'd like to start by giving you an overview of how we're thinking about the quarter, and then I'll turn it over to Andre to talk more about the specifics of our results.

Overall, in the first quarter, we continue to win the right business, drive the right revenue mix and execute on our strategy, allowing us to come within our guide for both revenue and profit. Our solutions are driving value both from automating work or when combined with the human to drive performance. Our overall wins with technology are up more than 61% year-over-year in the first quarter, highlighting the shift in our go-to-market offerings and client acceptance.

When we look at our bookings quarter-on-quarter, our signed annual contract value for solutions, including AI, more than doubled, and we're seeing sequential increases in expanding AI license consumption across our client base. Our pipeline of opportunities to continue to be solid and represent a continued progression and shift to a higher solution mix. Our proprietary iX suite of AI products our third-party technology partners and our deep domain expertise continue to be differentiators that open the door for us to win larger, more transformative deals with our clients.

While this might initially compress some existing revenue and margin, when these programs reach scale and full production, the margin is accretive, and we generally see revenue growth across our portfolio of services into these clients. As an example, we closed, close to 60 enterprise iX suite deals in the quarter including our largest iX Hero contracts to date with 2 Fortune 50 companies. Both clients will use our proprietary AI technologies to modernize their ability to create more efficient personalized and effective interactions with their customers while allowing us to sell additional solutions into these accounts.

Looking forward, we are continuing with our focus of securing complex work and high-value services in our client base, growing our share of wallet, using our extended offerings, allowing clients to consolidate work with us, leveraging our own IP and third-party platforms to differentiate ourselves in the market and driving internal efficiencies to fuel continued investment in areas of new growth. In summary, we delivered another quarter with revenue growth, and we are on track to meet our expectations for the year. We are winning the right business and successfully executing while making the right investments in the business for long-term revenue and margin growth.

I would like to thank our game changers for their tireless pursuit of excellence with our clients and their trust and partnership that we have with our clients.

With that, Andre, I'll turn it over to you.

Well, thanks, Chris, and good morning. I'll review the details of the first quarter and then discuss our outlook for the second quarter, remainder of 2026.

We delivered revenue of approximately $2.5 billion, an increase of 1.9% on a constant currency basis and over 5% on a reported basis. Looking at constant currency growth by vertical. Revenue from banking and financial services clients grew 13% year-over-year. Revenue from retail, travel and e-commerce clients grew 6% largely driven by growth with travel and e-commerce clients. Media and Communications revenues grew 3%, largely with clients outside the U.S. and global entertainment and media companies. Our technology and consumer electronics vertical and our health care vertical both decreased about 6% driven by lighter volumes than clients expected and shore mix.

Turning to profitability. Our non-GAAP operating income was $295 million. The midpoint of the guidance range we provided on our last call. Adjusted EBITDA in the quarter was $348 million, a margin of 13.9%. Non-GAAP diluted EPS was $2.61 in line with the guidance range we provided in January. GAAP results for the first quarter reflect a $6 million loss on the sale of 2 small nonstrategic businesses. One of these sales closed in the quarter with the second expected to close later this year. The assets and liabilities of the pending sale are reflected in the balance sheet as assets held for sale.

Total net proceeds from the 2 sales will be approximately $20 million. Our GAAP results for the first quarter and our expectations for GAAP results for the second quarter also reflect restructuring charges related to cost actions that we're taking to align our cost structure and invest in higher growth and higher profit areas. We expect the combination of the actions taken in the first and second quarters of 2026 to drive approximately $40 million in annualized savings over and above investments in growth.

This will contribute to sequential profitability growth in the second half of 2026. Complete reconciliations of non-GAAP measures to the comparable GAAP measures are provided in today's earnings release. Adjusted free cash flow was negative $145 million [ in the ] quarter, reflects an increase in accounts receivable at the end of the quarter, resulting from the timing of cash receipts. The related receivables were all collected in the first week of March.

As a reminder, free cash flow in our business is seasonal with negative free cash flow in the first quarter and robust free cash flow generation in each subsequent quarter. This pattern is expected to recur in fiscal year 2026. We're confident in repeating our previous guidance for between $630 million and $650 million in adjusted free cash flow this year. We returned approximately $65 million to shareholders in the quarter, which included repurchasing $42 million of our common shares or approximately 1.05 million shares at an average price of approximately $40 per share. The remaining $23 million in shareholder return was in the form of our quarterly dividend.

In February, we issued $600 million of 3-year senior notes maturing March 1, 2029. The new notes carry an interest rate coupon of 6.50%. The proceeds from the new notes were used to retire $600 million of 6.65% senior notes that mature in August 2026. $200 million of the 6.65% senior notes maturing in August 2026 remain outstanding, and we expect to repay them with strong free cash flow in the second and third quarters. At the end of the first quarter, cash and cash equivalents were $234 million and total debt was approximately $4.75 billion, bringing our net debt to $4.51 billion.

Our off-balance sheet factored accounts receivable borrowings were approximately $129 million at the end of the quarter. At the end of the quarter, our liquidity was nearly $1.4 billion including our $1.1 billion revolving credit facility, which was undrawn. To summarize, in the first quarter, we delivered revenue and profitability in line with our guidance range. We also took proactive steps to manage upcoming debt maturities while continuing to invest in growth.

Now I'll turn to our outlook. For the second quarter, we expect the following: second quarter revenue of $2.46 billion to $2.485 billion. Based on current exchange rates, we expect an approximate 75 basis points positive impact of foreign exchange rates compared with the prior period. The guidance implies constant currency revenue growth for the quarter, ranging from 1% to 2%.

As we've said, our goal is to be conservative in our revenue guidance, and we are being prudent with the current geopolitical situation. We expect second quarter non-GAAP operating income of $290 million to $300 million, this implies a non-GAAP operating margin of 11.8% to 12.1%. Second quarter non-GAAP earnings per share will be expected to be $2.57 to $2.69 per share, assuming approximately $67 million in interest expense, 60.9 million in diluted common shares outstanding and approximately 4.9% of net income attributable to participating securities.

The non-GAAP effective tax rate is expected to be approximately 25% for the second quarter. Our expectations for the full year non-GAAP metrics remain unchanged from our earnings call in January and can be found in today's release. As I mentioned earlier, we continue to expect to generate between $630 million and $650 million in adjusted free cash flow this year. In addition to our strong free cash flow, we expect aggregate proceeds for approximately $40 million from asset sales, including the sale of the 2 businesses I mentioned earlier.

The remaining proceeds will come from the sale of owned properties that are no longer being utilized. We are committed to reducing our net leverage to below 2.6x adjusted EBITDA by the end of fiscal 2026. In summary, our overall demand environment remains solid. The margin headwinds we have seen in recent quarters are being managed, and we are confident in our ability to drive year-over-year profitability growth in the second half of 2026.

We're confident in the continued strong free cash flow generation of the business and our plan to reduce net leverage over the balance of the year and we are in a strong competitive position to drive long-term outperformance.

Now operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya with Bank of America.

Chris, can you specify approximately how much revenue in 1Q was related to AI and the iX suite? And how are you pricing these solutions? And can you give us an idea of how you're looking at investments related to AI in 2026?

So let me answer the questions in a bit of a backwards way. So just in terms of how we're pricing these solutions, our iX Hello solution, which is the fully autonomous solution that we have basically is priced by consumption. So we put it in for very small or de minimis fees. And then based on how many contacts that are fully automated, we get paid for.

And so as you can imagine, when we put it in, we see a negative margin for the first little while. And then as it scales and grows, we see a positive margin similar to what you'd expect from a SaaS or software type of business. On our Hero product, it is a subscription basis, where we sell on a per-seat subscription of how many humans are actually using the product to drive the business. And as we talked about, at the end of last year, we ended Q4 at $60 million of ARR. We continue to add to that. We're not releasing numbers on a quarterly basis, but our expectation is to be at or above $100 million by the end of this fiscal year. If we reach that sooner, we will update you on that.

But so far, we're actually a little ahead of plan from where we expected based on what we've sold within the first quarter. And we have a very, very strong pipeline going into the second quarter that we've already started to see some good uptake with -- on our proprietary AI products.

In terms of the percentage of our business with AI within our business in Q1. Ruplu, the challenge that we have is that what we're seeing in the marketplace is that as you think about AI solutions, we're seeing clients adopt more than one AI solution, and sometimes they're adopting more than one AI solution from us. Sometimes, they're doing some things internally. So the way we look at it is of the revenue we service -- of the clients we service, how much of that has AI involved in it? And the reality is it's the vast majority of our clients are using our AI, their own AI, some other bits and pieces of AI. What we also look at is our success rate of AI implementations because in the marketplace, there's a lot of people who are talking about AI, but they're not getting the success rate. And we're seeing very, very high success rates. Very, very high success rates on our AI implementations driving real tangible value for clients. And so that's what we're very excited about as we're going into the second quarter.

Okay. details there, Chris. For my follow-up, Andre, can I ask you a question related to the cadence of margin improvement. If we look at the guidance, the implied operating margins go from 11.8% this quarter to about 12.5% in the -- for the full fiscal year. You mentioned a couple of things like there's cost reduction actions you're taking. I think Chris mentioned like the pipeline indicates a better mix. And I think you also said that margins improve over time in contracts.

Can you help us get comfortable with how we should think about this margin progression? It looks like the EPS guide for next quarter is slightly below the Street estimates. So can you help us just think about how you're thinking about the ramp and what's giving you confidence that you can get to 12.5%, which would mean above 13% operating margin for the fourth quarter?

Sure. Happy to do that, Ruplu. And the guidance is very much consistent with what we said entering the year, which was we thought that margins would be somewhat compressed in the first half, and then we would see sequential margin expansion in the second half of the year that would get us to year-over-year margin increases in the second half of the year. Driving that is certainly the result of the cost actions that we're taking in the first half.

Other drivers are -- if you look at the revenue guide, there's roughly, depending on where you are in the guide, $100 million to $150 million of additional revenue coming online in the second half of the year over the first half. That's going to flow through at absorb the capacity that we've added into the business and will certainly drive revenue at a fairly high flow through as we go forward. Then you have some of the transformational deals, as Chris alluded to, getting to kind of full scale and full production and reaching the intended margins on those projects.

And then that's really it. And so we have a great deal of confidence in our ability to drive the expansion in margin that begins. First, you see kind of stable to slightly expanding margin here in Q2, a bigger uptick in Q3 as we go sequentially, thanks to revenue coming online and the cost actions and then a further step up in the fourth quarter, which is kind of a traditional pattern of a step-up in margin as you go from Q3 to Q4.

If I can just ask a clarification on that. Andre, you had also mentioned in prior quarters that some customers, both in Europe as well as North America. We're looking to move operations offshore, and that was impacting revenues in the near term and the margins would have improved over time. Can you update us on how that is impacting results currently?

Also, you had talked about supporting some customers whose volumes were not materializing and you had laid out 2 or 3 options that you had. Can you give us an update on where that stands? And are customer volumes coming back as you had expected? Or are you taking some remedial actions?

Sure. Happy to do that. Well, yes, absolutely, the trend towards moving work offshore continues. As we talked about, I believe, on the last call, we have as we see it roughly 15% of our revenue is delivered out of North America and Western Europe that we think over time, as the capacity to perhaps move offshore, we provided in our revenue guide entering the year. for roughly a 2-point headwind from shore movement. We think we're still in line with that.

And as we think about what that means from a margin perspective, particularly the commentary that I made about utilizing capacity that we've built ahead of revenue. A big piece of that is that shift offshore filling up capacity that we've added over the last couple of quarters in advance of that revenue. So that is how we would think about the impact of shore movement. Obviously, when those programs get offshore, margins are improved. When they get -- when the programs get the full run rate.

Back to the commentary about volumes not materializing. As you recall last year, second half of the year, actually starting in the second quarter, we saw impacts from tariffs, delaying some programs. We said that, that would eventually -- we've worked that through the system through either having the volumes materialize or shedding the excess capacity that we've added in advance of those programs.

That is pretty much playing out in line with our expectation. We saw improvement in that situation as we expected in Q1, and we think that's fully out of our system kind of as we exit Q2.

Your next question comes from the line of Luke Morison with Canaccord Genuity.

Starting with Andre. So you sold those 2 small nonstrategic businesses in the quarter for, I think you said, $20 million combined, obviously, pretty small, but can you just talk about the philosophy behind those divestitures? Is this potentially the beginning of a more active portfolio pruning effort? Were those more opportunistic? Are there other parts of the portfolio that you consider noncore? Just any help there.

Yes, happy to do that. Yes, so we're not really looking to shed anything else at this point in time. We're always kind of looking at the portfolio of what we have in the business. These 2 businesses were quite small, not strategic, not growing, not accretive to overall margins. And so it just made sense to exit those.

We'll continue to look at the portfolio over time and see if there are other things that make sense, but I wouldn't expect certainly nothing imminent there and nothing really that we're working on.

Got it. Helpful. And then, Andre, the 2 verticals you mentioned that were down 6% in the quarter. I wonder if that was related to the customers that you were referencing in your last question. And then maybe double-clicking there. You attributed that to lighter volumes than clients expected and shore mix.

Can you just help us disaggregate those 2 factors and then whether or not you have line of sight to those verticals stabilizing in the back half of this year?

Yes. So I'll bifurcate the 2 because they're not exactly the same. So health care, we actually saw lighter volumes than expected, largely related to changes in Medicare membership for some of our clients as well as participation in the Affordable Care Act program.

And so that impacted our revenues in the health care vertical. We don't see that really returning to growth here for a couple of quarters. And so that is kind of where that vertical stands. With respect to tech and consumer electronics, there -- the impact is a little bit around underlying volumes. Even as we consolidate a share within some of those clients, underlying volumes are down, a little bit of impact of automation there. That's about half of the revenue change there and then shore mix being the other half of that kind of 6% constant currency reduction.

That vertical, you've seen some volatility in the past 8 quarters. Some quarters we grow a little bit, some we shrink. We think that could go up or down as we go through the second half of 2026 based on what we see in the pipeline and opportunities to continue to gain share within the client base.

Your next question comes from the line of David Koning with Baird.

I guess my first question, just longer-term margins. I know you've had some puts and takes, but if we think back to, I think, '22 to '24, you had 14% or so margins. We're lower than that now. And I know there's some factors. But things that should make it go up, the Webhelp synergies, scale, shift to AI, offshore, like all those should be positive tailwinds can those tailwinds drive margins back to at least where margins have been or hopefully higher? And how fast could they get there?

David, it's Chris. You're right. I mean when we look at the business and kind of some of those AI; implementation, the transformational implementation and look at sort of programs that are running at scale, running the way we'd expect and everything else that kind of goes along with it. We're in that range. And our expectation is we continue to build on that as we get some of these other programs up to scale as we put in the new AI.

A lot of the Webhelp synergies we've invested in developing our AI and changing our go-to-market platform, which we talked about last year and this year. And as we talked about in the prepared remarks in terms of the annual contract values effectively doubling as we went into Q1 as we talk about sort of our attach rates increasing, all of those are going to kind of give us some momentum and leverage. I don't want to guide past 2026, but it's very clear to Andre and I, that our expectations is we get this back to historical margins and then we can progress past there.

Timeline, I think, as earlier question around where we see our margins at the end of Q4 this year, you can start to see kind of how we're incrementing up to get back to those historic margins.

Yes. Okay. That's helpful on that. And then, I guess, banking was very strong in the quarter as was the retail segment. Maybe just refresh a little bit on those, is growth in those 2 sustainable? And is it some market factors happening right now or any one-off impacts that are happening? Maybe just kind of walk through those again.

Yes. So banking, you saw last quarter was quite strong, and we expect there to be fairly strong strength through the course of the year, sort of high single-digit, low double-digit growth based. And what we like about it is that it's very widespread. We're doing very well in banking, BFSI across both fintechs, top kind of 200 global banks, sort of the traditional enterprise banks and some new entrants who are trying to disrupt the market. And so really, we're seeing broad-based success in that.

What's really driving a lot of the growth is actually this combination of the solutions of the banks now coming to us for more complex work. So very large transformational deal we won last year that we talked about is in the BFSI. That's starting to come through to fruition this year and driving the performance and profitability as we expected. And we're seeing more of that coming through where traditionally, we haven't been able to sell some of our tech solutions into the banking and BFSI sector, and now we are. So we see that kind of sustained growth.

In the travel, transportation and e-commerce sector, it's really both e-commerce and travel that are doing well. In the e-commerce side, we see that quite sustainable. We are winning net new clients as well as consolidating share in that. And again, it's a mix of the new solutions we're bringing to the table as well as people looking at our footprint and seeing benefit in how we can deliver consistently around the world. And then on the travel side, we've got a strong travel portfolio, both in short-term stays portfolio to longer stay portfolio to airlines, to consolidators to e-commerce platforms that deal with travel.

And again, we're seeing broad-based support. And what we like is what's going into those accounts is, again, these kind of complete solution sets that's allowing us to get spend that historically hasn't been outsourced. Technology spend, which historically hasn't come to us and then consolidation as well. So we see that as sustainable as well. Don't ask me if jet fuel goes up to $200 a barrel. But at this point, we're very confident in what we can see with the pipeline in that -- in those verticals.

Your next question comes from the line of Vincent Colicchio with Barrington Research.

Chris, did you see any change or any signs of sentiment change or client behavior once the geopolitical issues started recently here?

Yes. So Vince, we've talked to a significant amount of our clients. Some are being impacted, but very de minimisly so far, things have been fairly robust. Our exposure to this is about 1% of revenue, give or take, which is sort of our Middle Eastern operations. And so far, we haven't seen sort of an impact at this point in time. I think people are just being very, very cautious right now. But so far, it's fairly steady.

And Andre, to what extent did excess capacity negatively impact margin this quarter?

Yes. It's in the 20 to 40 basis point range. And so that as we think about opportunities to improve profitability as we get into the second half of the year, we think that -- and here I'm just really talking about the physical capacity mostly. As we grow into the physical capacity, we think we see a 20 to 40 basis point improvement in second half.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Concentrix Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Sara Buda, Vice President of Investor Relations. Please go ahead.

Great. Thank you, operator, and good morning, everyone. Welcome to the Concentrix Fourth Quarter and Fiscal 2025 Earnings Call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward-looking statements that address our future expected performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events or developments.

Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC. Also during the call, we will discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS and constant currency revenue growth.

A reconciliation of these non-GAAP measures is available in the news release and on the company's Investor Relations website under Financials. With me on the call today are Chris Caldwell, our President and CEO; and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. And then we will open up the call for your questions.

Now I'll turn the call over to Chris. Thank you.

Thank you, Sara. Hello, everyone, and thank you for joining us today for our fourth quarter and fiscal year 2025 earnings call. I'm going to start off with an overview of 2025 and provide some thoughts on the year ahead before I hand it over to Andre, who will discuss details of our financial results and outlook for 2026. For the past few years, we have been clear about evolving our business to deliver more solutions that involve technology. We have made investments in building out capabilities while strengthening our deep domain expertise in line with this.

This early start embracing technology solutions has helped us capitalize on the introduction of AI by helping clients navigate the path to success with these new advances. We see a vast opportunity in front of us today to redefine our industry and add incremental value to clients.

At the start of 2025, we started executing on an internal plan to capture more of this opportunity and accelerate our evolution to a high-value intelligent transformation partner. To execute, we aligned our team around 4 key sets of actions. First, focus on complex work and high-value services to become our clients' preferred #1 partner while deepening our relationship with them.

Second, grow share of wallet by utilizing our expanded offerings as clients consolidate the use of CX, BPO and IPS vendors into fewer partners. Third, leverage our own IP investments and platforms that differentiate ourselves from competitors. Fourth and finally, drive incremental efficiencies so we can save to invest in these new areas of growth and opportunity.

Reflecting on 2025, I'm pleased with the progress we have made along these 4 areas. First, high complexity work. This year, we were successful in reducing our non-complex work from 7% to 5% of our revenue. What we are most happy about is we did the majority of this by putting in our own technology to automate work. We also worked with clients to optimize their cost structure by resolutioning existing work to take advantage of technology and our global footprint.

In fact, in 2025, we invested $95 million in new capabilities, capacity, facilities, security and footprint. This helped move 4% of our onshore business to offshore centers. This migration does result in some margin compression as we incur additional and duplicate costs for a period of time. However, by doing so, we captured share, drove new solution sales, attracted new talent and strengthened our position with our client base while providing a foundation for further growth into 2026.

Second, wallet share. Striving to be #1 in execution with our clients has allowed us to grow our share of wallet by selling them additional solutions. To capitalize on these opportunities, we invested in retooling our go-to-market capabilities significantly through the year.

We have retained -- we have retrained our entire sales and account management team, upgraded 25% of this team with enterprise sellers, invested in SME supporting technology solutions and developed a clear vertical offerings while building out our partner organization for a little over $25 million of incremental spend.

These results are now showing strong promise. A few data points: a 6% increase in the annual contract value of deals in the pipeline as we exited this year, a 9% increase in new wins year-on-year, a 14% increase in transformational deal values this year, a 23% increase in cross-sell, upsell deals this year and a 37% increase in values for our new service areas this year.

These data points help illustrate the business mix evolving more to technology-enabled specialist and adjacent services. We are now being recognized in Enterprise circles as being a trusted end-to-end solutions partner. This has also helped drive our consolidation wins to record highs this year.

Within our existing base, 98% of our top 50 clients now rely on Concentrix for more than one solution. Going into 2026, we believe we have the foundation to gain market and wallet share with the right clients doing the right business.

Third, leveraging our own IP. 2025 was also a pivotal year as we launched iX Suite, our AI platform. This was an incremental investment of over $25 million in the fiscal year to develop, productize and commercialize our product. While the AI market is crowded and competitive, we have been very happy with our progress in differentiating and gaining adoption of our tech, particularly with our iX hero solution that augments and supercharges human advisers.

We exited 2025 with over $60 million in annualized AI revenue of just our AI platform, reaching breakeven as we committed to at the start of the year. This is in addition to us selling third-party AI solutions and helping clients deploy their own AI investments.

Now more than 40% of our new business includes some form of our own technology as part of the solution. This attach rate is well ahead of our expectations. Most importantly, our clients are realizing tangible results and impressive feat amidst a market backdrop of AI noise and failed promises. Fourth and finally, to drive efficiencies in our business. As I have laid out, we have been busy accelerating our evolution that has brought forward some costs.

To offset as much of these costs as possible, we have been very disciplined in driving efficiencies in our own business so we can invest in the areas we have just talked about. We deployed significant technology internally and retooled many areas of our business to focus on our future state.

This has allowed us to reduce our expenditures on non-billable resources and infrastructure by close to $100 million by run rate as we exit Q1 2026 and invest those savings in the areas that drive further future growth.

Looking back at the successful operations of 2025, I am pleased with our results. Through the year, we supported clients through significant tariff uncertainties, natural disasters and geopolitical headwinds staying a valuable part of their ecosystem.

Doing what is right for clients has allowed us to continually accelerate our revenue growth, increase our CSAT and develop a defensible model that blends technology and services. This year, we exceeded revenue expectations with steadily improving year-on-year growth every quarter throughout the year. For the fiscal year, we delivered 2% total growth in constant currency and exited Q4 with constant currency revenue growth above 3%.

This growth was achieved even as we reduced the amount of low complexity work in our business by 2% year-on-year, moved 4% of our onshore business to offshore and acted selectively in the business we took on.

Our newer adjacent offerings have a growth rate reaching high single digits in aggregate and now represent a meaningful part of our business. The quality of revenue has never been stronger. Before I hand over to Andre, I would like to highlight a few key wins in 2025 to bring life for investors how we have seen our offerings evolve.

We were chosen by one of the largest banks in the world to design, build and operate -- build, operate transfer model for the bank's highly complex investment banking, asset security trading back-office processes. We now have opportunities in multiple geographies with multiple lines of business to grow that relationship.

We were selected by one of the largest electric car companies to manage their digital footprint, providing insights, content and warnings back to their head office, all being supported by our technology solutions. We have been recognized for helping scale their global presence and driving operational efficiencies. We took over a captive of one of our clients with the introduction of our own system and processes and have been able to achieve significant cost savings within the first year for the client while improving their customers' experience.

This is resulting in further opportunities with the client to take over other shared service centers around the world. For one of our largest European banks, we proactively automated the intake of claims, which resulted in a larger award of business to us that grows our revenue and our margins.

We have launched a revenue generation program with one of the largest AI model makers, helping them find sources of revenue and developing a community of integrators to use our technology, demonstrating even the leaders in AI rely on Concentrix for services.

These are just a few of the magnitude of wins we have had in our business in 2025 that demonstrate the value we bring to our clients. No matter if a client has their own operations or uses ours, uses our AI solutions or as a true AI company, an emerging contender or a mature enterprise, we are able to win, service and grow these clients.

Turning our thoughts to 2026. The demand environment continues to evolve and Concentrix wants to lead the way. For our clients, we believe scale matters in many ways. Cost to optimize global footprint, breadth of offering, domain expertise across vertical, horizontal regions and technologies. We believe we are competing and winning in this market because we bring both the agility of an entrepreneurial organization with the maturity and scale of an established market leader to deliver the innovation and excellence clients expect.

Regardless of the fluctuation of our stock price in 2025, we are committed to evolving our business. Despite 3 years of speculation, we are proving that AI is a tailwind for our business. We are growing our revenue consistently quarter-over-quarter. We are entering new areas of TAM growth. We are generating strong cash flow. We are returning value to shareholders, and we are paying down debt.

In short, our valuation today is a stark disconnect from the underlying strength of our business and the upside opportunity of our long-term strategy. In summary, this is the right market and the right moment for Concentrix. We see a tremendous opportunity in front of us to refine our industry and deliver the solutions our clients need at the speed, scale and caliber they expect.

We're making the right investments in the business to capitalize on these opportunities that continue to increase our quality of revenue, revenue that is longer term, margin accretive after implementation, higher complexity with multiservice consumption that drives tangible value for our clients. I am positive about our vision, our model and our prospects for long-term profitable growth, and I'm excited about the road ahead.

And now I will turn the call over to Andre.

Thank you, Chris, and hello, everyone. 2025 was a year of significant achievement for Concentrix. We accelerated revenue growth in each sequential quarter. We achieved breakeven profitability with our iX suite. We generated record adjusted free cash flow, growing our adjusted free cash flow by over $150 million from the prior year.

We returned a record $258 million to shareholders through a combination of our dividend and share repurchases. We reduced our net debt. We helped clients manage through a dynamic geopolitical environment. We weathered natural disasters, and we continue to diversify and broaden our value to clients through a diversified set of service offerings.

With a successful 2025 behind us, I'm confident that we are positioned to continue to grow revenue and cash flow in 2026.

As Chris mentioned, we're on an exciting journey as a company. We're successfully evolving to become one of the world's most trusted partners for intelligent transformation solutions. Now let me review our financial results for the fourth quarter and fiscal 2025 and then discuss our outlook for 2026. In the fourth quarter, we delivered revenue of approximately $2.55 billion.

On a constant currency basis, this represented growth of 3.1%, which is above the high end of the guidance we provided in September. On a constant currency basis, our revenue growth by vertical in the fourth quarter was as follows: Revenue from banking, financial services and insurance clients grew 11%. Revenue from communications and media clients increased 7%. Revenue from travel clients grew 7% and revenue from other clients also grew 7%, primarily reflecting growth with automotive clients.

Revenue from technology and consumer electronics and health care clients both decreased by approximately 2%, reflecting share movement and underlying volume. Turning to profitability. Our non-GAAP operating income was $323 million, within the guidance range we provided on our last call. Non-GAAP operating income margin was 12.7%, a sequential quarter increase of 40 basis points compared with the third quarter as we work through the overcapacity-related issues we discussed earlier in the year.

On a year-over-year basis, non-GAAP operating income margins decreased from the fourth quarter of 2024. Adjusted EBITDA in the quarter was $379 million, a margin of 14.8%. Non-GAAP net income was $192 million in the quarter, and non-GAAP diluted earnings per share was $2.95 per share.

In the quarter, we generated over $287 million of adjusted free cash flow, a quarterly record for Concentrix. In the quarter, we returned nearly $80 million to shareholders through a combination of our quarterly dividend and $56 million in share repurchases.

Our GAAP net loss reflected a $1.52 billion noncash goodwill impairment charge recorded in the quarter. This impairment charge reflects the trading range of our stock during the quarter. A full reconciliation of our GAAP and non-GAAP measures is provided in today's earnings release.

Looking at our results for the full year fiscal 2025, we delivered 2.1% growth on a constant currency basis, 60 basis points above the high end of the guidance range we provided a year ago and above many peers. Non-GAAP operating income of $1.254 billion, non-GAAP operating margin of 12.8%, adjusted free cash flow of $626 million, an increase of 32% and more than $150 million over the prior year.

We returned $258 million to shareholders. Specifically, we repurchased $169 million of our common shares, representing nearly 3.6 million common shares at an average price of approximately $47 per share. And we paid approximately $89 million in dividends during the year.

We reduced our net debt by approximately $184 million during the year, and we further reduced our off-balance sheet obligation related to accounts receivable factoring by $43 million during the year to approximately $119 million at year-end.

At the end of the fourth quarter, Cash and cash equivalents were $327 million, and total debt was $4.639 billion, bringing our net debt to $4.311 billion at year-end. Our liquidity remains strong at nearly $1.6 billion, including our $1.1 billion line of credit, which is undrawn.

With this, let me now turn my attention to discuss our outlook for 2026 and the first quarter. We are confident in the growth of the business and believe we are making -- taking a conservative position on guidance for 2026.

As Chris mentioned, we continue to strategically invest in the business for long-term growth while continuing to drive strong cash flow. For 2026, our expectations include full year reported revenue of $10.035 billion to $10.180 billion. Our guidance implies constant currency revenue growth for the full year in a range of 1.5% to 3%.

Based on current exchange rates, our expectation assumes a 60 basis point positive impact of foreign exchange rates compared with 2025. Our revenue expectation is based on the following: progress in evolving our business with a successful track record of growing market share and wallet share in our high-growth verticals, growth in new service offerings and a strong pipeline of the business entering 2026.

At the same time, we also expect the proactive reduction of our non-complex work, which will impact our revenue by approximately 1% in fiscal 2026 and resolutioning of our work to optimize our clients' cost structure, which we think will impact our revenue by 2% in fiscal 2026.

Moving to profitability. We expect full year non-GAAP operating income to be in a range of $1.24 billion to $1.29 billion, and full year non-GAAP EPS is expected to be $11.48 to $12.07 per share. This assumes interest expense of approximately $257 million, approximately 60.6 million diluted common shares outstanding, approximately 4.9% of net income attributable to participating securities.

The effective tax rate is expected to be approximately 25%. Our view of profitability is based on our expectation that we will drive ongoing efficiencies in our cost structure through automation and simplification of our business, balanced by our investments in the business to support long-term growth, including optimizing our footprint to meet client demand, incurring duplicate costs for a period of time as we resolution client programs and making intentional investments in our go-to-market spending, including investment in technology, SMEs and vertical offerings to take advantage of the current market opportunity and support the growth of our own AI platform.

Our expectation is that we will drive sequential quarterly increases in non-GAAP operating income in the second half of 2026 by removing duplicate costs while simplifying the business continuing the acceleration of our growth rate and progressing the delivery of the transformational deals we have won in fiscal 2025.

Turning to cash flow. For full year 2026, we expect adjusted free cash flow to increase to a range of $630 million to $650 million through a combination of higher income and lower interest expense. Our capital allocation priorities remain balanced.

We expect spending on fiscal year 2026 share repurchases to be similar to that of fiscal year 2025, taking advantage of what we believe is a significant disconnect between the fundamentals of our business and our current valuation.

We are committed to maintaining investment-grade principles, repaying our debt to move closer to our target leverage ratio and supporting our dividend. Turning to the first quarter. We expect first quarter reported revenue of $2.475 billion to $2.50 billion, implying constant currency revenue growth of 1.5% to 2.5%.

Based on current exchange rates, our expectations assumes a 290 basis point positive impact of foreign exchange rates compared with the first quarter of 2025. Non-GAAP operating income is expected to be in a range of $290 million to $300 million. We expect non-GAAP EPS of $2.57 per share to $2.69 per share, assuming interest expense of $66 million, approximately 61.5 million diluted common shares outstanding and approximately 5% of net income attributable to participating securities.

The effective tax rate in the first quarter is expected to be approximately 25%. As in prior years, we expect adjusted free cash flow in the first quarter to be slightly negative, although improved as compared to last year's first quarter, followed by consistent strong cash flow generation over the remaining quarters of the year. Our business outlook and cash flow expectations do not include any potential future acquisitions or impacts from future foreign currency fluctuations.

We're pleased with our market position. We have intentionally and strategically expanded our value by broadening our portfolio of offerings across the spectrum of business and technology solutions. Our success in doing this supports our confidence that our business is on the path to mid-single-digit growth. As Chris said, we're excited about the road ahead.

With that, operator, please now open the line for questions.

[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya with BofA.

Chris, can you remind us on the metrics you focus on in terms of judging how much to invest in AI-related software and chatbots? And can you give us more details of your areas of spend in 2026, both in terms of OpEx and CapEx and how you will judge their success?

Ruplu, thanks for the question. So first of all, when we look at our metrics on our AI, our pure own AI platform, we were very committed to making sure that we could be accretive this year and hit a certain revenue goal. And obviously, we achieved that kind of exiting the year with $60 million of run rate on sort of a total spend of around a little over $50 million, give or take, with $25 million incremental within the fiscal year 2025.

Right now, we see the ability to continue to invest, but we want to continue to make sure that it's accretive to our business. And we're doing the right things to not only control the market share, but also make sure that clients in the right circumstances are using our technology.

It's a very crowded and competitive space right now, Ruplu. So we're being very entrepreneurial in running that business very much like a start-up in that space to drive the returns that we expect. When we look at our capital allocation in terms of OpEx and CapEx for fiscal '26, our CapEx really historically has been anywhere from 2.5% to 3% of our revenue. And we don't see that very different in 2026.

In fact, probably, Andre, 2%, 2.5% is where we're going to come in. From an OpEx perspective, what we're very focused and committed to, Ruplu, right at the moment is driving OpEx spend that is variable and driving net new opportunities for our business.

And so our go-to-market spend, we spent an incremental $25 million in '25. We're spending probably another incremental number reasonably in that level for '26. And we're seeing the benefits of it. You saw the stats where our cross-sell, upsell, our deeper domain expertise, our technology solutions are all growing much more rapidly than we entered the year in '25, and our expectation is that we'll continue to drive that into '26.

And we're looking at on a quarterly-by-quarterly basis to making sure that we're making the right investments and being very nimble in that space. In terms of the other large investments that we're making, we look at it aligned to our clients and the type of revenue we're driving.

And so I go back to the quality of revenue comment. We invested sort of $95 million in '25 that went into capabilities and facilities and footprint and security. All of those are really kind of tied to sort of the new revenue that we're driving, the new transformational contracts that we're driving.

And we can see by our models that as we finish the implementation, we start to finish some of those implementations, we're seeing accretive margins to our business. We're seeing longer-term relationships. We're seeing more opportunities within that client base, and that's the return that we're looking for.

And as we think of 2026, spending sort of similar amounts, we're expecting similar, if not better returns as we get more leverage off of our cost base.

Okay. Can I ask, how do you determine whether it's worth supporting a customer as they may themselves face a slowdown and have lower call volumes. So in terms of the deals that may require more upfront investment, whether it's facilities or training, how is that determination made? And what levers do you have if you feel that the volumes are not materializing? How do you plan to deal with that situation?

Yes. Ruplu, good question. I'd first make a sort of a clarification comment that call volumes have nothing to do with any of our thesis around investment. It's around the type of services that a client needs. And if you look at the examples I gave, actually, none of those relate to call volumes. They all relate to other areas of work that we're servicing them.

And when we look at the client of making the investments, we look at how historically they buy. Are they a price shopper or are they long-term value-focused client. We look at do they want to be best-in-class within their market, and so we can help them enable that.

We look at are they a client who consumes multiple levels of business and services or do we have that opportunity. And we're very focused on sort of this long-term client relationship. So if you look at our top 25 clients, we're now close to almost 18 years of service. We look for those types of clients with that type of longevity who equally, we help support as they go through challenges and they help and support us as we kind of evolve our business by consuming more goods and services.

So it's a bit of both a qualitative and quantitative discussion around that. But so far, we've been extremely happy with what we've seen. And moving into some of these higher-end areas, we're seeing the same benefits that we've seen before.

Okay. If I can sneak just one more in. At what rate do you think the market is growing at? It looks like you're guiding for low single-digit revenue growth in fiscal '26 on a constant currency basis. Did Webhelp meet your expectations for synergies and growth? And now going forward, how are you thinking about acquisitions?

Yes. So Webhelp absolutely met our expectations, if not a little better. I mean a lot of the consolidation work that we're winning is because of our global footprint. and where we're able to service people from the technology that we were able to bring to the solution to Webhelp clients and some of the technology that Webhelp had that brought to the existing client base.

We met our synergy goals, in fact, just slightly exceeded them from a cost takeout perspective. And we're seeing that ability to drive that new growth in the business. And in fact, a fairly reasonable size of that 4% movement from onshore/offshore came out of Europe into other markets, which was traditionally the Webhelp business.

And so we've been very, very happy with that because it's driving the right type of business that we want. From a market perspective, look, traditional CX market is flat overall. When you look at some of the other services that we're talking about, it's mid-single digits. And as we talked about in the prepared remarks or in my prepared remarks, we have a lot of these services that are now a meaningful part of our business growing at high single digits.

And so we're winning in the right markets, doing faster than what people would, I think, expect. And then the sort of the business that -- from a CX perspective, I think we're taking share and doing well in that market as well.

And acquisitions?

Sorry, from an acquisition perspective, look, we are going to be opportunistic. We're going to do things that support our client base. We're going to do things that have the right financial profile for us and drive the right long-term business.

And so as Andre talked about, we're very focused on kind of reducing our debt to target leverage ratio. And so we don't have anything kind of on the works, but definitely, we will participate in the consolidation in the marketplace.

Your next question comes from the line of Dave Koning with Baird.

My biggest question is really on margins. When we look back a couple of years, 14%. This year, you're guiding to about 12.5%. It seems like there was a lot of discrete kind of investment and some one-off capacity -- excess capacity around the tariff in the mid kind of mid-last year time frame. Are we just dealing with kind of a 4-quarter margin drag that kind of ends around Q1, Q2 of this year, meaning it's down -- margin is down year-over-year, but by the back half, is there a reason to believe they will be up year-over-year and sustainably up after that?

Yes. So in answering that question, you're right. In my prepared remarks, I mentioned that we expect to see sequential improvement in the back half of this year in margins as we complete working through some of the overcapacity issues of the tariffs, we made good progress on that in the fourth quarter.

As we move through some of the process of implementing some of the transformational deals that we've won in 2025 and get closer to kind of the run rate profitability of those deals.

And as we move forward with automation efforts and the simplification of our business to take out some of the duplicate costs that we currently have that are created by some of the resolution that we've talked about and some of the costs that come with some of these transformational deals as well.

So all of those things give us confidence that we can see the margin improve in the back half of the year, which mathematically will get you to a situation where we're looking at year-over-year margin increases as we close out the year.

Yes. Okay. And then just momentum, revenue growth accelerated each quarter of the year. So momentum actually seems very, very good. You're guiding a little less than the 3% constant currency growth -- in Q4, you did 3%, but you're guiding a little less than that in '26. Is there really anything behind that other than just, hey, it's a full year, you don't want to get ahead of yourself?

That's really it, Dave. We talked about all throughout fiscal 2025 about the fact that we're being conservative with the revenue guide, very focused in each quarter and for the full year and coming in, in 2025 at or above the high end of the guidance range. Our principles as we think about our guidance for 2026 with regard to that haven't changed.

And so there is nothing that's going on underneath the covers that would imply any sort of slowdown in things. In fact, we're quite confident that we can continue the trajectory of sequential quarterly revenue increases as sequential acceleration as we go through fiscal 2026.

Your next question comes from the line of Luke Morison with Canaccord Genuity.

So last year's results, you mentioned laid out several deliberate growth drags, runoff of low complexity work, those onshore to offshore transitions. It looks like you expect some of those to persist in '26, I think resulting in aggregate 3% headwind to growth.

Can you just help us think about sort of the lingering or continuing effects of those headwinds over the long term, this year, next year?

Yes, for sure, Luke. So from a low-complexity work perspective, we did 2% in '25. We expect 1% in '26. We always expect there will be some portion of low complexity work as part of our portfolio. So that kind of wanes to weed off to less headwinds in '27, frankly. We just don't see a big push past that.

From an offshore work perspective, we have about 15%, give or take, of our revenue that could possibly go offshore. But the reality is that some clients have brand promises to do things onshore. Some things from a compliance perspective can't go offshore.

Some markets and some things that we service are highly sensitive from a sovereignty perspective. And so when you think about that 4% move this year and what we're kind of leading to next year, you're reading through that pretty quickly.

And as we've talked about for the last gosh, Andre, probably 1.5 years, really, the vast majority of work that we are winning right now, vast, vast, vast majority of work is being put where it should stay and not move from. And so you're not really re-kind of building this top of the funnel, you're really kind of optimizing what we've already got in place.

Excellent. And maybe just a follow-up. I think you mentioned high single-digit growth in some of your adjacent services. Could you just double-click there and unpack that? Like what are you seeing? Where are you seeing the most momentum, et cetera?

Yes. So if you look at a lot of the specialized services, whether it be data annotation, analytics, FCC, so financial crimes and compliance, anti-money laundering, some of our IT services within that space, some of our revenue generation capabilities and digital assets in that space. In fact, you're probably getting close to 20% of our revenue that is growing at high single digits.

Your next question comes from the line of Vincent Colicchio with Barrington Research.

Yes, Chris, I didn't hear too much about consolidation. I know that's a theme that's been strong for you. So how did that look in the quarter? And are there still legs to that.

Yes. We expect there's going to be a lot of consolidation. There wasn't this quarter. There's a lot more going into 2026. And I think this is what we kind of commented about driving the share of wallet in our clients. Clients are consolidating with us because not only can we do their CX and BPO, but we can also do their IT services and vice versa, by the way. In the quarter, we actually picked up some IT clients -- or sorry, we had some IT clients that we picked up some of their CX and BPO services from, which most people might not realize that we're actually doing.

Clients are looking for stronger partners, more mature operations, global scale, security, a lot of things that we've been investing in to consolidate with, and we're doing very, very well in that space.

And what is the -- how does the pricing look in the traditional CX business? Is the pressure increasing?

So in commodity work, it's very, very, very competitive, Vince, very competitive. I think people are chasing a lot of volume for volume versus quality. And so we're seeing that as being very competitive. I think in the rest of the business, look, it's always competitive, but it's reasonably competitive if that makes sense, and people do the right business.

And we've been very selective on the types of work we get. What we're most focused on, as we talked about, is driving the quality of revenue, which is margin accretive when we get past implementation, complex work that is sticky and hard to do that's really driving a lot of value for the clients so that they see us as being a valued partner to their business.

And are you finding it -- are you experiencing any challenges accessing talent as you move into higher-end solutions?

Yes. So look, we spent more this year than I think some people were expecting to get that talent. We haven't necessarily found problems, but we also have a global footprint that we can pull from, and that's been very, very helpful to us because we are in so many markets, we are able to access a very, very robust talent pool for it. And we are making sure that we harness that and utilize that strategically.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Good day, everyone, and welcome to Concentrix Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. Now it's my pleasure to turn the call over to the Vice President of Investor Relations, Sara Buda. Please go ahead.

Great. Thank you, operator, and good evening. Welcome to the Concentrix Third Quarter 2025 Earnings Call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward-looking statements that address our expected future performance and that by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events or developments. Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC.

Also during the call, we will discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company's Investor Relations website under Financials.

With me on the call today are Chris Caldwell, our President and CEO; and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. Then we'll open up the call up for your questions. And so now I'll turn the call over to Chris.

Thank you very much, Sara. Hello, everyone, and thank you for joining us today for our third quarter 2025 earnings call. In Q3, we exceeded our revenue guidance once again with solid year-on-year growth across the board. We are gaining share and securing new wins by combining AI, CX and IT services into a powerful, tightly integrated solution. Our adjacent offerings continue to scale and complement our traditional business, and we believe our iX suite is giving us clear competitive differentiation in front of clients. Overall, I am pleased with our strong market position and our revenue momentum.

Turning to profit. Margins were below plan in the quarter, which Andre will provide more details in his comments. What is important to understand is that we have line of sight to modest sequential quarterly margin improvement over the next few quarters even as we continue to lean into growth and believe we can drive further margin expansion from there. Now let's dive into the details of our demand environment and how we see our business evolving. The positive revenue momentum we've seen this year is a direct reflection of our commitment to establish Concentrix at the forefront of the change happening in our industry. We believe we are becoming a leader in solutions that combine practical AI, human intelligence where applicable at global scale.

As a result, we are well positioned to be a trusted strategic partner clients rely on to support their business in these times of change. In fact, almost 40% of our new wins this year include our AI technology platforms as part of the solution. This percentage only increases as we include our partners' technology. As a reminder, our iX AI technology suite addresses clients' needs for both fully automation of tasks that can be handled completely autonomously and for partial automation using AI and agentic to supercharge human advisers to make them more effective and efficient.

Within a year of commercially availability, our iX suite of AI solutions are ramping and on track to be accretive as we exit this year. This achievement in its own right sets us apart from many of our pure AI players and from traditional CX players in this space. Clients recognize that they need partners to help them convert AI promises into reality. A recent study from MIT showed that only 33% of AI projects built internally are succeeding on plan. Conversely, the same study showed that externally sourced AI projects with strategic partners succeeded about 67% of the time, more than double the success rate. Our rate of success with our deployments is even higher with early data showing that the vast majority of our use cases result in a documented positive outcome for the client through improved revenue, better CSAT or process efficiency.

This is reflective of our ability to deliver pragmatic AI solutions that are aligned with what clients need and what they value most. The strategic role of partners that can combine AI with CX and IT services has support of our own blind study of 450 global enterprises that stated by an overwhelming majority, clients plan to increase their outsourcing spend as they deploy AI. We absolutely are focused on capturing as much of this growth as we can, and I'm confident that we are in a strong position to make that happen. In summary, our strategy is paying off. Despite all the market speculation about the negative impacts of AI on our business, we have shown that AI is indeed a positive tailwind.

We are growing our major accounts and securing new wins with our integrated offerings. With a strong competitive position, we are leaning into growth, delivering solutions that align with our clients' business needs, gaining share and scaling our business. This gives us the foundation to support our progression towards a higher growth rate in coming years while generating strong cash flow. Lastly, I would like to thank our game changers across more than 70 countries for their commitment to client success and welcome our new team members from SAI Digital, who joined us in September. I'm optimistic about our strategy as we capitalize on the opportunities we have in front of us today.

Now let me turn over to Andre for details of the quarter and our outlook.

Thank you, Chris, and hello, everyone. I'll review the details of the third quarter and then discuss our outlook for the fourth quarter. We're in a positive position for revenue growth as we enter the final months of 2025. As we focus on improving margins, we're capturing the growth opportunities in the current environment and our cash flow continues to increase. Importantly, we are winning the right kind of revenue that reflects the value of our differentiated offerings. Now let me get into some details on the quarter. We delivered revenue of approximately $2.48 billion, an increase of 2.6% year-on-year on a constant currency basis and 4% year-on-year as reported. We delivered revenue above our guidance range as we have done for the past several quarters. Looking at growth by vertical, our growth in the quarter was led by growth in banking, financial services and insurance.

Other verticals were solid as well, driven by continued demand for our integrated offerings and ongoing growth in our adjacent solutions. Specific constant currency revenue growth by vertical was as follows: revenue from banking and financial services and insurance clients grew 8% year-on-year. Media and communications clients grew 7% year-on-year largely driven by clients outside of the U.S. and global entertainment/media companies. Revenue from retail, travel and e-commerce clients grew 3%, largely driven by travel, which continues to be a strong vertical for us. And our technology and consumer electronics vertical and our health care vertical were both essentially flat.

Turning to profitability. Our non-GAAP operating income was $305 million, which was below the guidance range we provided on our last call. This was largely due to 2 factors: first, excess capacity. For context, when we set our guide for the quarter, we expected a faster return to stability with a handful of clients impacted by tariffs in the second quarter and expected consolidation of additional client volume to occur more quickly to optimize the resources we were holding. We are doing the right thing for our clients long term, but in-quarter volumes didn't materialize how the clients or we envisioned. This excess capacity accounted for the majority of the shortfall. A distant second factor for the margin variance was some in-quarter decisions to accelerate transformation opportunities to help clients realize technology benefits more quickly. We are confident that we can deliver modest sequential quarter profitability improvement in the next few quarters as we resolve the capacity issue as committed volume migrates to us or we remove the excess capacity proactively.

On a year-on-year basis, our non-GAAP operating income was impacted by the factors I just mentioned as well as $8 million in additional investments in cybersecurity for generative AI and a $4 million negative currency impact. Adjusted EBITDA in the quarter was $359 million, a margin of 14.5%. Non-GAAP diluted earnings per share was $2.78 per share, $0.02 below our guidance range as a lower effective tax rate partially offset the non-GAAP operating income variance. GAAP net income was $88 million for the quarter and GAAP diluted earnings per share was $1.34 per share. Reconciliations of non-GAAP measures to the comparable GAAP measures are provided in today's earnings release. Adjusted free cash flow was $179 million in the quarter, an increase of about $44 million year-on-year.

Year-to-date, our adjusted free cash flow increased $83 million. We returned approximately $64 million to shareholders in the quarter, which included repurchasing $42 million of common shares or approximately 800,000 shares at an average price of approximately $53 per share. The remaining $22 million in shareholder return was in the form of our quarterly dividend. I'm pleased to share that our Board has authorized an increase to our quarterly dividend to $0.36 per share. At the end of the third quarter, cash and cash equivalents were $350 million and total debt was $4.8 billion, bringing our net debt to $4.5 billion. We also reduced the amount of our off-balance sheet factored accounts receivable to approximately $127 million at the end of the quarter.

To summarize, in Q3, we delivered strong revenue above expectations. We are lessening our exposure to low complexity transactions and growing our higher complexity integrated solutions. We continue to be on our front foot with generative AI, using it to our advantage to secure highly strategic tech-enabled CX programs while scaling our adjacent services. Now I'll turn to our outlook. For Q4 and the full year 2025, we expect the following: Q4 revenue of $2.525 billion to $2.550 billion. Based on current exchange rates, these expectations assume an approximate 160 basis point positive impact of foreign exchange rates in Q4 compared with the prior year period. This guidance implies constant currency revenue growth for the quarter, ranging from 1.5% to 2.5%.

As we've said, our goal is to be conservative in our revenue guidance. This leads to fiscal year 2025 revenue of $9.798 billion to $9.823 billion based on current exchange rates, which assume an approximate 10 basis point positive impact of foreign exchange rates compared with the prior year. As such, we're increasing our guidance for the full year to 1.75% to 2% constant currency revenue growth. For Q4, we expect non-GAAP operating income of $320 million to $330 million. This drives full year non-GAAP operating income to $1.25 billion to $1.26 billion. This translates into expected non-GAAP earnings per share of $2.85 to $2.96 for Q4, assuming approximately $67 million in non-GAAP interest expense, 62.4 million diluted common shares outstanding and approximately 5.5% of net income attributable to participating securities.

For fiscal year 2025, we expect full year non-GAAP EPS of $11.11 per share to $11.23 per share, assuming non-GAAP interest expense of $273 million, approximately 63.1 million diluted common shares outstanding and approximately 5% of net income attributable to participating securities. The non-GAAP effective tax rate is expected to be approximately 25% for Q4 and 24% for the full year. And finally, we've modified our expectations for full year adjusted free cash flow to be between $585 million to $610 million, an increase of between $110 million to $135 million year-on-year. This implies a continuation of our year-over-year improvement in adjusted free cash flow in the fourth quarter. Regarding capital allocation priorities, we are on track to meet our commitment to return over $240 million to shareholders this year, a combination of over $150 million in spending to repurchase our shares and approximately $90 million in dividends.

And today, we repaid the EUR 700 million sellers' note related to the Webhelp combination through our previously committed new term loan borrowings that we discussed in our last earnings call. Looking to next year, we will prioritize debt repayment while supporting our dividend and our share repurchase program. In summary, our overall demand environment remains positive as we enter the last part of 2025. We had some margin headwinds in the quarter but see a path to modest sequential quarter improvement moving forward. We continue to drive strong cash flow growth year-on-year. And as Chris mentioned, we are in a strong competitive position to drive long-term outperformance. With all of this, we are feeling positive about 2026 and look forward to providing detailed guidance for 2026 on our next call.

Now operator, please open the line for questions.

[Operator Instructions] One moment for our first question, and it comes from the line of Luke Morison with Canaccord Genuity.

So maybe we can start with the margin guide down. So you obviously highlighted excess capacity from tariffs impacted clients as the main driver there, along with some drag from those accelerating transformation programs. Can you just unpack that in a little more detail? Were there any additional tariff-related headwinds from new round -- from the new round that went into effect in August? Or was this impact all carryover from last quarter's client pauses? And then on the excess capacity, how quickly do you expect that to normalize? Is this more of a 1- or 2-quarter issue or something that can linger? And then finally, on the transformation programs, can you just give us more color on what those were and whether they should be thought of as near-term margin headwinds or flip to revenue over time?

Yes, for sure, Luke, it's Chris. So if you remember what we talked about in Q3, we talked that we were under from a year-over-year profitability perspective when the tariffs were first announced with sort of excess capacity that we had. And our expectations were and what our clients were messaging us was that they thought that they would be more normalized in Q3. And we talked about sort of being a little under in the first month of the quarter, sort of on par in the second month and over on the third month. And what happened was with some of the additional noise with tariffs within the third quarter, by the second month, we still weren't seeing that uptick coming through from the clients. The clients weren't seeing that uptick either. We were also seeing that they were taking a little longer to move volume that they committed to consolidating to us just from ability to move it from other providers to us. That's already started, but it delayed us from getting that kick start.

And we had multiple conversations sort of with them on a daily basis saying, okay, do you want us to remove capacity? Do you wanted to keep capacity? And really, the overall belief was to keep capacity because these are highly trained individuals, and they're sort of in global roles and they're tightly integrated into the supply chain and that they needed to balance this out. So from our perspective, we are seeing sort of the momentum we want. We do think it will be a multi-quarter normalization. And as Andre pointed out, if we don't sort of see and we're measuring this on sort of a daily basis, we don't see sort of the expectations come in and our clients don't see the expectations, then we'll start to rationalize the excess capacity through the quarter and into next quarter.

There was a bit of additional noise before August on tariffs, frankly. The additional noise in August was only a slightly uptick, but really clients are looking at this more holistically about some of the new reality of where they're operating in. And so it didn't get worse by any stretch of imagination. It was -- it didn't get as better as the clients or we expected. And again, just to be very clear on this, there's a small group, a handful of clients, very defined clients that we're working through with this. On your second question -- sorry, that talks to your second question whether there would be a lingering impact, we don't believe so. From a transformation perspective, we had some clients who were in the process of looking at different AI technology partners. We were able to present and put in our technology into the solution right away.

The clients were excited about it, and so they wanted to kind of get it in the quarter, and we were able to achieve that. Similarly, what happens when we put that in and we're able to remove headcount, normally, that would be a couple of quarter process and plan in our guidance. What happened was we were able to put the technology in successfully, and we had some overcapacity, which we're already in the process of dealing with. So to your point, we don't see it as impacting our margins going forward. You wouldn't normally notice it if we had made the decision pre-quarter, and they would have been sort of in line or accretive to our existing underlying business margins. Hopefully, a lot of color, but hopefully, that explains where we're at.

Yes. Super, super helpful. And then maybe just a follow-up, I'd love to get a little more color on how your iX suite is ramping here. What does pipeline and win rates look like here? What's the relative demand between Hello and Hero. And to what extent are those deployments being priced discretely versus being bundled into broader deals?

Yes, for sure, Luke. So a couple of things. As we talk about -- when we look across the course of the year, and you have to remember, we probably started at a smaller percentage when we first announced to where we are now. But literally, 40% of our new wins have our technology, our platforms integrated into the new wins. And it's a combination of both where it's discrete billing as well as where it's bundled in. The majority still at this point are where we're bundling it in and using it as a differentiated service, but we see that inflection point coming relatively quickly where there will be more discrete billing than from a bundled offering, even though, frankly, the clients see the value in it because they're giving us the business to do it. In terms of the 2 products, we're seeing far more traction with Hello -- sorry, with Hero, then Hello. And I just want to kind of explain this a little bit. Hello is the fully autonomous product where we're putting in a product which basically removes human interaction, so think of a multimodal bot that can be call out, can take calls coming in or chats or whatever the case may be.

The commercial model for that product is evolving where it's much more gain share where we're putting it in. And similarly, I think competitors are pure AI competitors are doing the same thing, where it's more of a, we'll take this out, we'll take a percentage of the transactions that we're saving you being fully autonomous. And we think that will continue on with that revenue model. On the Hero product, we're seeing much stronger traction because clients see this product as being able to work immediately in their environment, drive significant benefits from a quality and automation perspective and proficiency perspective, meaning that they are able to sell more, be more efficient, take out more cost, drive CSAT, and we have so many demonstratable cases of that, is very, very, very, very compelling.

And what we're happy about is that clients are now starting to see, hey, I can deploy this across my entire infrastructure, including my internal capabilities as well as other partner capabilities. And that is as a SaaS model, a typical SaaS model where we're charging per seat, and we'll continue that model based on what we're seeing with it. And our pipeline just continues to build and get stronger. And as I mentioned at the beginning, while 40% of the new wins are that, you have to imagine that in the last quarter, it was a lot higher, and we're going to continue to drive that forward. And as we talked about in the prepared remarks, expect to be mildly, modestly, whichever modifier you want accretive at the end of Q4.

Our next question comes from the line of Dave Koning with W. Baird.

And I guess my first question, just kind of the bridge to margins and how we get back. We -- I think we were at 13.4% or around there was your previous guidance. Now we're maybe at 12.8% margin guidance, something in that ballpark. So we've come down 60 bps. Is it fair to say -- these sound pretty like one-off type things. Is it fair to say that 13.4% or somewhere around there, what your old guidance would be the baseline from which to grow next year? And then as you weave some of the Gen AI projects on that should carry a higher margin, we could have a pretty outsized margin improvement next year as things normalize? Or is some of the one-off stuff really going to kind of recur for a little bit?

Dave. So let me talk about the market environment, and I'll let Andre do the bridge. These are one-off items. And as we talk about, they're pretty defined about where we're seeing them. And when we look at our business, clients outside of these impacted clients are providing and driving the margins that historically we see and then also new wins that are coming in as they ramp and get to scale are providing the margins that we want to see and are driving. We do expect that the AI platforms will continue to help us as they become more accretive. I don't know how accretive they will be in the 2026 time frame. I just want to temper that a little bit. What we're focused on doing is driving back to where historically we were as we talked about. And then we do see additional opportunity to grow our margins. That's a combination, though, of not only our tech solutions, also the areas where we're winning new deals and the solutions and transformation deals that we're winning and some of the new auxiliary services that we've talked about that are higher margin around AI enablement. Andre, I'll pass it to you for the bridge.

Yes, you pretty much covered it. So yes, David, I think it will take a couple of quarters, as we've said, to kind of take care of kind of these one-off items, which are -- with just a handful of clients. So I don't know that I would say that they go away completely, and we're completely at run rate as we enter 2026. So there'll be a bit of a build there. From there, I think -- though, I think the margin levers and the things that give us the confidence that we can get margins moving back in the right direction are most of the things that Chris has just alluded to. We should see some contribution as software revenue ramps.

We'll see more contribution as we deploy more technology into our solutions. We're reducing the kind of low complexity, commoditized work and replacing it with faster growth, higher margin work, including the work in some of the adjacent areas that we've talked about. Shore movement continues to be a driver for us with margin improvement. And then as we continue to move our growth rate up from where we'll exit this year, should be able to start seeing some leverage on our G&A. So all of those things have us confident that while we will work for a quarter or 2 here to get margins kind of back related to these onetime kind of one-off items on these handful of clients, once we get there, we can keep margins moving in the right direction.

Got you. And then maybe my follow-up, you had really good sequential movement in your retail, travel, e-com business and then your communications and media. Those 2 segments had big sequential step-ups. Anything to that? Anything one-off? Or is that sustainable? And are those maybe some lower-margin businesses and maybe created a little bit of a mix pressure?

You're right. So we have seen nice sequential step-ups in those. Those are not one-off things. It's pretty broad-based across the verticals you've mentioned. I talked a little bit -- commented a little bit on the drivers of the growth in media and comms, again, mostly clients outside of the U.S. as well as some media/entertainment -- global media/entertainment companies. In retail, travel, e-commerce, that has been pretty broad based as well, spread between travel and e-commerce clients. So -- and then from a margin profile perspective, it's something we really want to emphasize. The work that we're winning, we're winning at the right long-term margins. And so while we maybe see some constructs where there's a bit more upfront investment, on our part to get to that run rate, the deals as they are priced kind of when they get to full scale are at the right margins and should be accretive as we go forward.

Yes. And then the only other comment I'll make is that when we look at the adoption of some of our iX technology platforms, we're doing well in travel with them. We're doing well in e-commerce with them. We're doing well in consumer electronics with them because they tend to be faster at adopting sort of this new technology. While we're making good inroads in BFSI with it, and that's actually driving some wins. Those deployments are a little behind just because of the regulatory and compliance that you have to go through with any wins within that space.

It comes from Vincent Colicchio with Barrington Research.

Yes. Chris, curious if the consolidation situation remains robust and if we're still in the early innings there.

Yes, Vince, we do think that the consolidation will continue to impact our industry, and we see it as sort of a positive, to be quite honest. And we continue to see it being primarily driven by clients who are looking for fewer partners and deeper relationships with those partners and sort of a more robust offering from those -- for those partners. And so I think we're still in early innings, especially with sort of now as clients are procuring services across multiple different disciplines together and do expect that to continue for the next, frankly, 24, 36 months in probably a heightened fashion.

And then the overall sales pipeline, is that -- I assume it's at a healthy level. Is that broad-based? Or is it the 3 segments that were strong this quarter, will continue to be strong and some of the others will lag?

No, we're really happy with our pipeline, Vince, like there's a couple of things that we've been doing through the course of the year that are starting to pay off. We've really brought in a lot of sort of deep domain expertise within a number of our verticals of talent, both from a technical sales and sort of consultation background that's really driving some nice pipeline both from a transformation perspective and an integrated offering perspective. And so that we're seeing the benefits of. And that's pretty broad-based across our strategic verticals. We're also seeing good momentum in all of our geos -- or sorry, all of our major regions like EMEA and the Americas and then Asia Pacific, we're seeing some very, very nice momentum from that perspective. And as Andre pointed out, not only the margin profile of these new deals as well as our pipeline is where we want to see it. But the length of the contracts, the stickiness of the deals and frankly, the complexity of these deals are really where we are driving as a business.

Our last question comes from Ruplu Bhattacharya with Bank of America.

Chris, I want to ask a question on risk management. So obviously, volumes were lower from some clients this quarter, but the company decided to invest in some transformational items for other customers. So I'm just trying to understand, can you talk about the decision criteria for doing such investments? Like what ROI are you expecting from those customers? And just when you -- like in terms of making such investments, obviously, it hurts margins in the near term, but can you talk about what long-term benefit you expect to get? And I have a couple of follow-ups.

Yes, for sure, Ruplu, that's a great question. A couple of things. When we look at our business as a whole, one thing that we're very focused on is driving more share gains within a client and long, long-term relationships. If you look at our top 25 that is over a 17-year tenure, it kind of goes to -- we believe in these long-term relationships through thick and thin because they benefit us. As we've also talked about, when we look at our top sort of 25 accounts, they're growing very well, frankly, a little higher than the rest of the client base. And these are very sort of sophisticated buyers. They're very complex buyers, they're very large buyers. And so when we look at making those investments, you can think that the clients that we do that with are clients who we've been with a long time, have multiple different offerings in really their key go-to-market partner, and we see a lot more opportunity to grow within that business.

And as painful as it is to kind of deal with some of these things in period, we're really looking at longer term. And where those clients want to reciprocate our investments are around either more volume, more opportunities and consolidating out smaller partners, et cetera, et cetera, et cetera. And so that's how we look at it. We don't do it on clients who want to RP their business every quarter or are not sort of like-minded from a long-term partnership perspective. From the transformation clients, frankly, the way we look at it is that if we do the right thing with the client, that they will reward us with more business over the longer term.

And the clients that we kind of sped up some transformation in quarter, honestly, they were focused on saying, "Hey, we need to do this, can we do this right away? And if we can, it would be a big benefit." And we could have said, well, we can start it next quarter or whatever the case might be, that also allows the competitor to come in and say, hey, we can do it sooner. And so from our perspective, we want to keep these clients focused on us. We want them on our technology and our platforms. And so we're willing to take the pain to get them across to our platforms from a relationship perspective. And time has shown us -- over 20 years in this industry, time has shown us when we do the right thing with our clients, we get rewarded over the longer term. And we're seeing that even with sort of the conversations about how to deal with this excess capacity right now. They are collaborative. They are engaged, and they're all focused about trying to make sure that we're both doing the right things for each other.

Okay. Can I ask a similar question on the iX suite of software that you're investing in. So you're investing $50 million incremental on the software versus the $50 million base level of CapEx that you typically have or investments that you typically have. Do you still expect to get to breakeven in fiscal 4Q? And what level of investment should we expect going forward? And what's the criteria for you to either increase or decrease that spend? And I have a follow-up final for Andre.

Yes. So a couple of things. We absolutely expect to be on track, as we talked about in our prepared remarks, to be breakeven, modestly accretive at the end of Q4 as we exit on our iX suite of products. You are correct. Roughly, it's about $50 million incremental spend. It has popped up a little bit. It's gone down a little bit. But the reality is that it's in that ballpark. And so when you think of from an accretive nature perspective, that's where we're at. We do expect that we're going to need to continue to increase investments, but I want to be very clear about this.

It's in line with our revenue growth on the products that we're doing. As we install our iX Hello product, we absorb the cost for that as we put it in. And so more and more projects, there will be a cost to it, and then we get the revenue from the run rate perspective of the software. On the Hello product, we get sort of the license revenue kind of right out of the gate as we sign those deals. So it's a bit of difference between the products. But the criteria is it becomes a scalable business. We're going to invest as we continue to drive scale in that business. But as you've seen us in the past, we want to make an economic return on that -- on those investments, and so we'll do so as we go.

Okay. And maybe the last question I have for Andre. Andre, it looks like you're taking down free cash flow guidance a little bit. How should we think about free cash flow going forward? And it looks like you also raised the dividend. So what was the rationale for doing that now? And how should we think about capital returns going forward?

Sure. Happy to do that. So as we think about free cash flow beyond 2025, we're still very optimistic that we can drive some increase to free cash flow in 2026. Drivers there, we're coming to the very end of integration activities, a lot of those spending is cash. So that should be a help to us as we go out to next year. Secondly, our cash interest should drop next year as we continue to pay down debt and maybe get some help from interest rates as well. So those things have us positively. We also think we'll continue to grow the top line and make progress with the margin, and that will help. The drop in our guidance for Q4 is being driven by the margin pressures that we've seen and the drop in our profitability expectations for the full year.

Capital allocation priorities as we go forward will remain balanced. So again, we're going to generate more free cash flow next year. And with that, we are going to prioritize repayment of debt while supporting our dividend and continuing our share repurchase program. I don't know that we'll see share repurchase dollars go up dramatically next year. I think we'll probably prioritize more taking some of the increase in cash flow and putting it towards our debt. But -- and then lastly, the dividend. Look, we have investors who are very appreciative of the dividend. They are appreciative of our cadence of annual increases. We're confident in our ability to generate strong free cash flow, not only this year, where we've driven a pretty sizable increase, but drive an increase in the next year as well. All of that is part of the decision to increase the dividend.

Thank you. And this concludes our Q&A session and conference for today. Thank you for participating. You may now disconnect.