Concentrix Q3 2026 Earnings Call Transcript

Concentrix (NASDAQ: CNXC ) held its third-quarter earnings conference call on Tuesday. Below is the complete transcript from the call. This content is powered APIs. 8%.

The company achieved a milestone with 50% of its revenue coming from new business models influenced by AI, expecting this new revenue to grow at 30% year-over-year in fiscal 2026. 2 times by the end of 2027. 877 billion for full-year 2026, with a continued focus on AI deployment and margin expansion. Management highlighted strong client retention and expansion into new services, and noted the impact of hyperscaler spending priorities and offshore shifts on revenue.

Full Transcript OPERATOR Third quarter 2026 financial results conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again.

I will now hand the conference over to Elise Brassell, Corporate Communications and Investor Relations. Elise, please go ahead. Elise Brassell, Corporate Communications and Investor Relations Thank you, Operator, and welcome everyone to Concentrix's 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 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. Chris Caldwell, President and CEO 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 three 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 business that we generated in the last three years that is very different than our traditional business.

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 four times 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 five 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 advisors, live on our IX Suite this quarter, contributing to the margin expansion we delivered in Q3 and the impact to our revenue growth in our traditional business. Our strategy, vision, and execution are 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, and it's 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 for Globi 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 UK technology retailer Curries. 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, right-shoring, 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're 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 three years. 2 times.

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 game changers 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 the 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 Valentine, CFO Well, thank you, Chris, and hello everyone.

I'll begin with a review of our financial results for the third quarter, then discuss our outlook for the fourth quarter and full year 2026. 45 billion on a constant currency basis. 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. 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. 14 from the third quarter of 2025. 05 billion non-cash 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 spinoff 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. 119 billion. 1 billion undrawn revolving credit facility.

Our outstanding debt at the end of the quarter includes $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. 8 billion by the end of the year. Now I'll turn to our outlook for the fourth quarter and full year 2026.

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%. 877 billion, based on current exchange rates, which assume an approximate 80 basis point positive impact of foreign exchange rates compared with the prior year.

3% on a constant currency basis. For the fourth quarter, we expect non-GAAP operating income of $310 to $320 million. This drives full-year non-GAAP operating income of $1,206 to $1,216 million. 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. 9% of net income attributable to participating securities. 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 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 Castle Hill to further strengthen our risk and compliance offering in the fourth quarter. 6 times 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. 2 times adjusted EBITDA by the end of fiscal 2027. 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 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 We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one.

Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ruploo Bhattacharya with Bank of America.

Your line is open. Please go ahead.