Concentrix Corporation (CNXC) Earnings

Management highlights

Chris mentioned that in the first quarter, the company continued to win the right business, drive the right revenue mix and execute on its strategy, bringing revenue and profit within the guide. Solutions create value by automating work or combining human and machine. Wins with technology were up over 61% year over year. Signed annual contract value for solutions including AI more than doubled quarter on quarter, and expanding AI license consumption was seen in the client base. The proprietary IX suite of AI products, third-party technology partners and deep domain expertise are differentiators. For example, nearly 60 Enterprise IX Suite deals were closed in the quarter. Chris also mentioned the focus on securing complex work and high value services, optimizing revenue mix, using own IP and third-party platforms for differentiation, and driving internal efficiencies for new growth. Andre noted that revenue and profitability in the first quarter were in line with the guidance range. Non-GAAP operating income was $295 million, the midpoint of the last call's guidance range. Adjusted EBITDA was $348 million with a margin of 13.9%. Non-GAAP diluted EPS was $2.61, in line with the January guidance range. GAAP results reflected a $6 million loss on the sale of two small non-strategic businesses. Restructuring charges related to cost actions were reflected in GAAP results. Expected annualized savings from actions taken in the first and second quarters of 2026 were approximately $40 billion. Adjusted free cash flow was negative $145 million in the first quarter. Expected adjusted free cash flow for the year was between $630 and $650 million. Second quarter revenue was expected to be $2.46 to $2.485 billion, with an approximate 75 basis point positive impact from foreign exchange rates. Second quarter non-GAAP operating income was expected to be $290 to $300 million, with a non-GAAP operating margin of 11.8% to 12.1%. Full year non-GAAP metrics remained unchanged from the January earnings call. Expected aggregate proceeds from asset sales were approximately $40 million, and the goal was to reduce net leverage to below 2.6 times adjusted EBITDA by the end of fiscal 2026.

Guidance

Second quarter revenue is expected to be $2.46 to $2.485 billion. Based on current exchange rates, there is an approximate 75 basis point positive impact from foreign exchange rates. Constant currency revenue growth for the quarter is expected to range from 1 to 2%. Second quarter non-GAAP operating income is expected to be $290 to $300 million, with a non-GAAP operating margin of 11.8% to 12.1%. Second quarter non-GAAP earnings per share is expected to be $2.57 to $2.69 per share. Expected adjusted free cash flow for the year remains between $630 and $650 million. Aggregate proceeds from asset sales are expected to be approximately $40 million. Committed to reducing net leverage to below 2.6 times adjusted EBITDA by the end of fiscal 2026.

Segment performance

In the first quarter, revenue was approximately $2.5 billion, an increase of 1.9% on a constant currency basis and over 5% on a reported basis. 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 shore mix. Non-GAAP operating income was $295 million, the midpoint of the guidance range provided on the last call. Adjusted EBITDA in the quarter was $348 million, a margin of 13.9%. Non-GAAP diluted EPS was $2.61.

Risks & headwinds

Geopolitical situation may impact guidance. Trend towards moving work offshore continues, which has an impact on revenue and margin in the near term. Healthcare vertical was impacted by lighter volumes due to changes in Medicare membership and participation in the Affordable Care Act program. Tech and consumer electronics vertical was affected by underlying volumes, automation and shore mix.

Analyst Q&A

• Q: 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?

  A: IXLO solution is priced by consumption with very small or de minimis fees initially and then based on automated contacts. HERO product is subscription based on per-seat subscription. AI revenue percentage in the business is hard to specify as clients adopt multiple AI solutions. Success rates of AI implementations are very high.

• Q: 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. 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?

  A: Guidance is consistent with the start of the year. Margins are somewhat compressed in the first half and will expand sequentially in the second half. Revenue guide has additional revenue coming online in the second half, which will absorb capacity and drive revenue flow through. Transformational deals reaching full scale and production will help reach intended margins.

• Q: Your next question comes from the line of Luke Morrison with Canaccord Genuity. Your line is open. Please go ahead. Great. Thank you. Hey, guys. How are you? Starting with Andre. So you sold those two small non-strategic businesses in the quarter for, as 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 non-forged? Any help there?

  A: Yeah, so we're 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, but I wouldn't expect certainly nothing imminent there and nothing really that we're working on.

• Q: And then, 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 Shore 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?

  A: Yeah, so I'll bifurcate the two because they're not exactly the same. So 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. And so that impacted our revenues in the healthcare 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 know, you've seen some volatility in the past, you know, eight quarters, some quarters we grow a little bit, some we shrink. We think that, you know, could go up or down as we go through the second half of based on what we see in the pipeline and opportunities to continue to gain share within the client base.

• Q: Your next question comes from the line of David Koning with Baird. Your line is open. Please go ahead. 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, 22 to 24, you had 14% or so margins. We're lower than that now. And I know, you know, there's some factors. But, you know, things that should make it go up, the web help synergy, 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?

  A: David, it's Chris. You're right. I mean, when we look at the business and kind of some of those AI implementations and transformational implementations 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 expectations, 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 web help 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 talked about sort of our tax rates increasing, all of those are going to kind of give us the momentum and leverage. I don't want to guide past 2026. but it's very clear to Audrey and I that our expectations is we get this back to historical margins and then we can progress past their 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.

• Q: 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 two 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.

  A: Yeah, 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. And what we like about it is that it's very widespread. We're doing very well in banking, BFSI, across both fintechs, top banks, 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 a very large transformational deal we won last year that we talked about is in the BFSI. That's starting to come 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, 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 um we've got a strong travel portfolio both in um you know 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 those verticals.

• Q: Your next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open. Please go ahead. Chris, did you see any change or any signs of, you know, sentiment change or client behavior once the geopolitical issues started recently here?

  A: Yeah, so Vince, we've talked to a significant amount of our clients. Some are being impacted, but very diminimously 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.

• Q: Andre, to what extent did excess capacity negatively impact margin this quarter?

  A: Yeah, you know, it's in the 20 to 40 basis point range. And so 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, I think we see a 20 to 40 basis point improvement second half.