Concentrix Corp Q3 FY2026 earnings call

• AI Transformation Milestone: Crossed the threshold where 50% of revenue comes from businesses generated in the last three years, driven by AI integration and transformation.
• Revenue Composition: New revenue streams include $3 billion from transformed clients, $1.3 billion from IX Suite AI platform efficiency, and $700 million from high-value segments like risk and compliance.
• Growth Metrics: New business revenue is projected to exceed $6 billion in 2027, growing at ~30% YoY with a retention rate four times higher than traditional business.
• Client Retention & Expansion: Top five clients and >90% of top 100 clients have expanded into new services since FY2023. Average tenure for top 25 clients is >16 years; overall client retention is 98%.
• Operational Efficiency: Delivered a 30 basis point YoY margin improvement in Q3. Net new logo sales involving AI grew 63% QoQ. Successfully onboarded 61 opportunities (>30,000 advisors) onto the IX Suite.
• Financial Discipline: Reduced net debt by ~$211 million in Q3. Targeting ~$900 million in cumulative debt paydown over the last three years, aiming for net leverage of ~2.6x by end of FY2026.
• Industry Recognition: Recognized as a leader in customer experience management by Everscruise and received CX Excellence Awards for work with Curries.

The transcript does not provide a breakdown of financial performance by specific product segment (e.g., Customer Experience, Risk & Compliance) with distinct absolute revenue figures and contribution percentages. Instead, the company categorizes revenue into 'Traditional Business' and 'New Business'. New business revenue, generated in the last three years, totaled approximately $5 billion ($3 billion from new/existing clients with AI influence, $1.3 billion from IX Suite compression, and $700 million from high-value services like risk and compliance). This new business represents over 50% of total revenue and is growing at an expected 30% year-over-year rate with higher retention. The total third-quarter revenue was approximately $2.45 billion.

• Q4 2026 Revenue: Expected between $2.41 billion and $2.46 billion, implying a constant currency decrease of 3-5% due to FX headwinds (~65 bps negative impact).
• FY2026 Revenue: Expected between $9.827 billion and $9.877 billion, assuming ~80 bps positive FX impact, representing a constant currency decrease of 0.3% to 0.8%.
• Q4 2026 Profitability: Non-GAAP operating income expected between $310 million and $320 million (margin ~12.9%, up 20 bps YoY). Non-GAAP EPS expected between $2.86 and $2.98.
• FY2026 Profitability: Full-year non-GAAP operating income expected between $1,206 million and $1,216 million. Full-year non-GAAP EPS expected between $10.97 and $11.09.
• Cash Flow & Debt: Expected adjusted free cash flow of $630-$650 million for FY2026. Commitment to reduce net leverage to ~2.6x by year-end. Expect FCF in FY2027 to exceed FY2026 levels.
• FY2027 Outlook: No formal guidance provided, but expect new business growth to offset automation impacts. Margins expected to remain stable to improved. Growth momentum anticipated to be back-half weighted.

• Hyperscaler Spend Priorities: Two specific hyperscale clients are reducing support for certain customer sets, creating an oversized revenue headwind in Q4 2026 with residual impacts into Q1/Q2 2027.
• Offshoring Headwinds: Continued pressure from clients shifting budgets offshore, estimated at a ~3% headwind on growth for the current year, likely persisting in a similar range in FY2027.
• Automation Impact: Transitioning to AI-driven models creates temporary headwinds as traditional services are compressed, though this is expected to lead to stickier, higher-margin revenue long-term.
• Goodwill Impairment: GAAP results included a $1.05 billion non-cash goodwill impairment charge triggered by stock trading ranges during the quarter.

Q: Ruplu Bhattacharya asked about the drivers behind the expected back-half-weighted growth in 2027, specifically regarding hyperscale customers and offshoring impacts. / A: Chris Caldwell explained that two specific hyperscale clients are accelerating their decision to remove support for certain base client sets, causing a concentrated revenue impact in Q4 2026 rather than spreading it through mid-2027. Additionally, faster-than-expected deployment of AI automations is creating near-term volume dips that will normalize into early 2027. He noted that while these factors create front-loaded headwinds, the underlying demand environment remains stable, with consolidation opportunities expected to drive stronger growth in the latter half of 2027.

Q: Vincent Colicchio asked when the company expects to achieve consistent mid-single-digit growth and how large the offshoring headwind will be in fiscal 2027. / A: Chris Caldwell indicated that the 50% new revenue milestone was achieved earlier than expected, but he anticipates needing more quarters to fully automate the traditional business before seeing consistent mid-single-digit top-line growth, likely materializing in 2028. Andre Valentine added that while they are not providing formal FY2027 guidance, they expect the offshoring headwind to remain in the same ~3% range, possibly slightly lower, as it is already factored into their forward expectations.

Q: Jacob Haggerty asked if AI-assisted work would bring offshore jobs back onshore and requested commentary on margin stability entering fiscal 2027. / A: Andre Valentine clarified that the offshoring headwind is abating primarily because only ~10-11% of remaining revenue is considered movable offshore, leaving little volume left to shift, rather than due to reshoring. Chris Caldwell confirmed that clients generally prefer to keep work offshore even when AI-enhanced, avoiding higher-cost regions. Regarding margins, he stated that new business margins are stable and elevated due to unique offerings, while traditional margins face commoditization pressure; however, the strategic shift toward new, automated revenue sources ensures overall margin stability through 2027.