Concentrix Corporation Common Stock 2026 Q3 Earnings Call

Elise, please go ahead. 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 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 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 businesses that we generated in the last three 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 has 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 four times higher. We laid this out in more detail in the Q3 investor summary presentation you can find on our website under investor relation 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 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, 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 Globee for human AI teaming and conversational AI. 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. 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 are 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 is 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 are 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.

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 are 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 are 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. I would 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.