XBP Global Holdings, Inc. Q1 FY2026 earnings call

Strategic Shift to AI-Led Operations

• XBP Global is deliberately transitioning its legacy business process as a solution (BPaaS) workflows into agentic AI pipelines, on the company's own timeline rather than market pressure. The company's core differentiation is regulatory-grade precision for heavily regulated industries (healthcare, banking/financial services, public sector) where pure-play AI lacks required accountability.
• The transition leverages the company's patented Komodo rule engine, migrating legacy Boolean logic rules to LLM-powered inference-based models. Subject matter experts (SMEs) develop edge case logic that is distilled into small, domain-specific private models, maintaining full data privacy and high ethical AI standards for clients.
• Initial first-pass autoresolution rates for new AI pipeline deployments reach 40-60%, improving to 85% or higher over time; the remaining 15% of cases are handled by a focused human-in-the-loop SME function that continuously trains the AI model. This starting autoresolution rate is already higher than the 20-35% industry average for traditional automation tools.

Sales and Pipeline Performance

• The company reports a split between short-term results (reflecting legacy restructuring) and strong forward-looking pipeline momentum. Total pipeline grew 17% year-over-year and 10% quarter-over-quarter in the past two months, with mid-to-late stage total contract value (TCV) expanding nearly 45% year-over-year.
• Public sector is the fastest growing segment, driven by demand for secure, auditable, on-premise AI automation for sensitive citizen and healthcare data. A 1 million euro pilot with a major French health insurance institution is already on track to expand into a multi-year, multi-departmental program, and public sector is positioned as the backbone of midterm growth across Europe and the Americas.
• Quarterly TCV bookings increased 68.8% year-over-year and are 45% above the prior four-quarter average. New annual contract value (ACV) bookings were down 3.7% year-over-year but up 4.4% over the four-quarter average, with 27.3 million USD in new ACV closed across 460 diversified transactions.

Financial and Operational Progress

• Gross margin expanded 70 basis points year-over-year to 22.9% overall, marking three consecutive quarters of gross margin expansion. Normalized EBITDA was 15.6 million USD, down 39.9% year-over-year due to lower legacy volumes, planned customer exits, and increased SG&A from growth-focused talent investments.
• The board of directors has authorized a formal process to explore strategic alternatives (including potential divestitures) to unlock shareholder value, as the company's stock trades at a deep discount to its intrinsic value and management seeks to focus on core AI-led growth engines.
• A new Chief Human Resources Officer and Chief Revenue Officer have recently been hired to support the company's strategic shift.

Total company revenue for Q1 2026 was 197.1 million USD, down 14.2% year-over-year. There are two operating segments:

1. Applied Workflow Automation: Pro forma revenue declined 12.6% year-over-year and 3.7% sequentially. Gross margin improved 260 basis points year-over-year (190 basis points sequentially) to 19.9%, marking the highest gross margin for this segment on record. Revenue contribution for this segment makes up the majority of total company revenue, at approximately 88% of total Q1 2026 revenue.
2. Technology: Revenue declined 26.4% year-over-year and 14% sequentially. The decline is attributed to lower one-time projects, delays in large deals, and planned customer exits. This segment typically achieves a 55% to 60% gross margin, consistent with historical periods. Revenue contribution for this segment is approximately 12% of total Q1 2026 revenue.

• Revenue is expected to stabilize in the near term, with revenue growth returning in the second half of 2026, driven by conversion of the expanded sales pipeline.
• Gross margin expansion is expected to accelerate in the second half of 2026 as higher-margin agentic AI workflow deals convert to revenue.
• EBITDA margin inflection is expected in the second half of 2026, with normalized EBITDA projected to increase starting in Q2 2026.
• The company expects a 20% reduction in global headcount by the end of 2026 relative to the end of 2025, driven by AI-enabled productivity improvements. Combined with over 80 non-payroll efficiency initiatives, this is projected to deliver 55 to 60 million USD in annual operational efficiencies, with nearly half of these initiatives already implemented (not yet reflected in Q1 financials).
• Pro forma revenue per employee is projected to reach approximately 100,000 USD by year-end, leading the company's peer group (which has an average of ~60,000 USD revenue per employee) by a wide margin.

• Forward-looking statements regarding future AI deployment, revenue growth, and profitability are subject to risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in the company's SEC filings.
• The timing of revenue conversion from the expanded sales pipeline remains uncertain, and the company noted it is too early in the transition to pinpoint an exact inflection point for revenue growth.
• The strategic alternatives process is open-ended, with no final conclusions reached on which assets will be classified as core or non-core, creating uncertainty around the future business structure.

Q: TCV grew substantially this quarter. What drove this step-up, and how do you expect TCV momentum to trend for the rest of the year, especially as North American sales rebuild? / A: Management notes that the TCV growth comes from a healthy mix of new bookings and renewals. They expect this strong momentum to continue, with gains not limited to the public sector but spread across other segments as well. This aligns with the broader trend of clients moving from AI exploration to full AI production deployment.

Q: Where are you seeing the most tangible AI progress, and what gives your AI an edge over in-house client efforts or competitor offerings? / A: XBP's edge comes from decades of deep domain and regulatory expertise, plus existing baseline automation rules that are being converted to AI models. The company has already won multiple clients that attempted to build this capability in-house and failed, as client feedback confirms XBP's approach delivers unique high value for regulated use cases. The most advanced progress to date is in the company's $200 million+ healthcare business, with growing momentum in public sector.

Q: How does the board define core vs non-core assets in the strategic alternatives review, and how will the process simplify the business while preserving the AI-first strategy? / A: The company is still in the early stages of the process, has not yet selected formal advisors, and has not reached any conclusions on core vs non-core classification. The process is open-ended and will proceed based on advisor guidance, with the core goal of unlocking shareholder value by simplifying the business to focus on the AI-led workflow automation growth strategy.