Concentrix First Quarter 2026 Earnings Call - AI bookings surge while margins remain pressured

Operator: Hello, everyone. Thank you for joining us, and welcome to the Concentrix First Quarter 2026 Financial Results Conference Call. After today’s prepared remarks, we will host a question and answer session. If you’d like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. I will now hand the call over to Elise Purcell, Corporate Communications. Please go ahead.

Elise Purcell, Corporate Communications, Concentrix: 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.

Chris Caldwell, President and Chief Executive Officer, Concentrix: 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 a 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 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 two 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.

Andre Valentine, Chief Financial Officer, Concentrix: Thanks, Chris, and good morning. I’ll review the details of the first quarter and then discuss our outlook for the second quarter and 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 healthcare vertical both decreased about 6%, driven by lighter volumes than clients expected and onshore 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 two small non-strategic 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 two 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 are 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. It 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-$2.485 billion. Based on current exchange rates, we expect an approximate 75 basis point positive impact of foreign exchange rates compared with the prior period. The guidance implies constant currency revenue growth for the quarter ranging from 1%-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-$300 million. This implies a non-GAAP operating margin of 11.8%-12.1%. Second quarter non-GAAP earnings per share will be expected to be 2.57-2.69 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 two 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 2.6 times 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. We are in a strong competitive position to drive long-term outperformance. Now, operator, please open the line for questions.

Operator: Thank you. We will now begin the question-and-answer session. If you’d like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. Please pick up your handset when asking a question. 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 Ruplu Bhattacharya with Bank of America. Your line is open. Please go ahead.

Ruplu Bhattacharya, Analyst, Bank of America: Hi. Thank you for taking my questions. Chris, can you specify approximately how much revenue in 1Q was related to AI and the iX suite? How are you pricing these solutions? Can you give us an idea of how you’re looking at investments related to AI in 2026?

Chris Caldwell, President and Chief Executive Officer, Concentrix: Let me answer the questions in a bit of a backwards way. 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. 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. 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 iX 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. 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.

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.

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? The reality is that 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. We’re seeing very, very high success rates, very, very high success rates on our AI implementations driving real tangible value for clients. That’s what we’re very excited about as we’re going into the second quarter.

Ruplu Bhattacharya, Analyst, Bank of America: Okay. Thanks for the 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% 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 he also said that margins improve over time in contracts. Can you help us get comfortable with how we should think about this margin progression? Looks like the EPS guide for next quarter is slightly below the Street estimates.

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?

Andre Valentine, Chief Financial Officer, Concentrix: Sure. Happy to do that, Ruplu. The guidance is very much consistent with what we said entering the year, which was, you know, 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-$150 million of additional revenue coming online in the second half of the year over the first half.

That’s gonna flow through at, you know, absorb the capacity that we’ve added into the business, and will certainly drive revenue at fairly high flow-through as we go forward. You have some of the transformational deals, as Chris Caldwell 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.

We have a great deal of confidence in our ability to drive the expansion in margin that begins, you know, 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 we go from Q3 to Q4.

Ruplu Bhattacharya, Analyst, Bank of America: 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, were looking to move operations offshore, and that was impacting revenues in the near term and you know 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 two or three 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? Thanks for all the details.

Andre Valentine, Chief Financial Officer, Concentrix: 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’ve provided in our revenue guide entering the year, for roughly a 2-point headwind from onshore movement. We think we’re still in line with that. 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.

That is how we would think about the impact of offshore movement. Obviously, when those programs get offshore, margins are improved, you know, when the programs get the full run rate. Back to the commentary about volumes not materializing, as you recall, last year, the second half of the year, or actually starting in the second quarter, we saw impacts from tariffs, you know, delaying some programs. We said that would eventually, we would work that through the system through either having the volumes materialize or shedding the excess capacity that we’d 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.

Joseph Vafi, Analyst, Canaccord Genuity: Okay. Thanks for the details. Appreciate it.

Operator: Your next question comes from the line of Joseph Vafi with Canaccord Genuity. Your line is open. Please go ahead.

Joseph Vafi, Analyst, Canaccord Genuity: Great. Thank you. Hey, guys. How are you?

Andre Valentine, Chief Financial Officer, Concentrix: Hey, Luke. How are you?

Joseph Vafi, Analyst, Canaccord Genuity: Maybe we’ll start with Andre. You sold those two small non-strategic 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? You know, is this potentially the beginning of a more active portfolio pruning effort? Were those more opportunistic? You know, are there other parts of the portfolio that you’d consider non-core? Just any help there.

Andre Valentine, Chief Financial Officer, Concentrix: Happy to do that. Yeah, not really looking to shed, you know, anything else at this point in time. You know, we’re always kind of looking at the portfolio of what we have in the business. These two 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. I wouldn’t expect certainly nothing imminent there and nothing really that we’re working on.

Joseph Vafi, Analyst, Canaccord Genuity: Got it. Helpful. Andre, you know, the two 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, you know, double-clicking there, you attributed that to lighter volumes than clients expected in onshore mix. Can you just help us disaggregate those two factors, and then whether or not you have line of sight to those verticals, you know, stabilizing in the back half of this year?

Andre Valentine, Chief Financial Officer, Concentrix: Yeah. I’ll bifurcate the two ’cause they’re not exactly the same. Healthcare, 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. That impacted our revenues in the healthcare vertical. We don’t see that really returning to growth here for a couple of quarters. That is kind of where that vertical stands. With respect to tech and consumer electronics, 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 offshore mix being the other half of that kind of 6% constant currency reduction. That vertical, you know, 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.

Joseph Vafi, Analyst, Canaccord Genuity: Excellent. Thank you.

Operator: Your next question comes from the line of David Koning with Baird. Your line is open. Please go ahead.

David Koning, Analyst, Baird: Yeah. Hey, guys. Thank you. I guess my first question, just longer-term margins. I know you’ve had some puts and takes, but you know, if we think back to, I think, 2022 to 2024, you had 14% or so margins. We’re lower than that now, and I know, you know, there’s some, yeah, some factors. But you know, 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?

Chris Caldwell, President and Chief Executive Officer, Concentrix: David, it’s Chris. You’re right. I mean, when we look at the business sans kind of some of those AI implementations and transformational implementation and look at sort of programs that are running at scale, running the way we’d expect, and everything else that kinda goes along with it, we’re in that range, and our expectation is we continue to build on that as we get some of the 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.

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 task rates increasing, all of those are going to kind of give us some momentum and leverage. I don’t wanna 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.

David Koning, Analyst, Baird: Yeah. Okay. That’s helpful on that. Then I guess banking was very strong in the quarter, as was the retail segment. Maybe just to refresh a little bit on those. Is growth in those two sustainable and is it some market factors happening right now or any one-off impacts that are happening? Maybe just kinda walk through those again.

Chris Caldwell, President and Chief Executive Officer, Concentrix: Yeah. 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 base. What we like about it is that it’s very widespread. We’re doing very well in banking BFSI across both fintechs, you know, top kinda 200 global banks, sort of the traditional enterprise banks, and some new entrants who are trying to disrupt the market. 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. 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. 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. We see that kind of sustained growth. In the travel, transportation, 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’re winning net new clients as well as consolidating share in that. 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.

On the travel side, we’ve got a strong travel portfolio, both in, you know, short-term stays, longer stay portfolio, airlines, to consolidators, to e-commerce platforms that deal with travel. Again, we’re seeing broad-based support. What we like is what’s going into those accounts is, again, these kinda 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. We see that as sustainable as well. Don’t ask me if jet fuel goes up to, you know, $200 a barrel, but at this point, we’re very confident in what we can see with the pipeline in that, in those, verticals.

David Koning, Analyst, Baird: Yeah. Sounds great. Thanks, guys.

Operator: Your next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open. Please go ahead.

Vincent Colicchio, Analyst, Barrington Research: Chris, did you see any change or any signs of, you know, sentiment change in our client behavior once the geopolitical issues started recently here?

Chris Caldwell, President and Chief Executive Officer, Concentrix: Yeah. So Vincent, we’ve talked to a significant amount of our clients. Some are being impacted, but very de minimis 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. So far we haven’t seen sort of an impact at this point in time. I think people are just being very cautious right now, but so far it’s fairly steady.

Vincent Colicchio, Analyst, Barrington Research: Andre, to what extent did excess capacity negatively impact margin this quarter?

Andre Valentine, Chief Financial Officer, Concentrix: Yeah. You know, it’s in the 20-40 basis point range. That, as we think about opportunities to improve profitability as we get into the second half of the year, we think that. Here I’m just really talking about the physical capacity mostly. As we grow into the physical capacity, we think we see a 20-40 basis point improvement second half.

Vincent Colicchio, Analyst, Barrington Research: Thanks, guys.

Andre Valentine, Chief Financial Officer, Concentrix: Sure.

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