Concentrix’s Contradictory Signals: Tariff Recovery Timeline and AI Margin Forecasts Shift

Date of Call: Mar 24, 2026

Financials Results

• Revenue: $2.5B, an increase of 1.9% on a constant currency basis and over 5% on a reported basis
• EPS: $2.61 per diluted share (non-GAAP), in line with guidance
• Operating Margin: 13.9% (adjusted EBITDA margin)

Guidance:

• Q2 revenue expected to be $2.46B-$2.485B, implying 1%-2% constant currency growth.
• Q2 non-GAAP operating income expected to be $290M-$300M, implying margin of 11.8%-12.1%.
• Q2 non-GAAP EPS expected to be $2.57-$2.69.
• Full-year non-GAAP metrics expectations unchanged from January call.
• Expect adjusted free cash flow of $630M-$650M for the year.
• Goal to reduce net leverage to below 2.6x adjusted EBITDA by end of fiscal 2026.

Business Commentary:

Revenue and Profitability Performance:

• Concentrix reported revenue of $2.5 billion for Q1 2026, representing a 1.9% increase on a constant currency basis and over 5% on a reported basis.
• Non-GAAP operating income was $295 million, and adjusted EBITDA was $348 million, with a margin of 13.9%.
• The revenue growth was driven by an increase in banking and financial services, as well as retail, travel, and e-commerce verticals. Profitability was supported by cost actions and increased revenue from high-value services.

AI and iX Suite Growth:

• The company's AI-related solutions, particularly the iX suite, saw significant traction, with wins more than 61% year-over-year, and signed annual contract value for solutions including AI more than doubled.
• This growth is attributed to the increasing adoption of AI solutions by clients, a shift in go-to-market offerings, and the acceptance of Concentrix's proprietary AI technologies.

Vertical Performance and Challenges:

• Banking and financial services grew 13% year-over-year, while retail, travel, and e-commerce grew 6%. In contrast, technology and consumer electronics, as well as healthcare, decreased by about 6%.
• Banking growth was driven by broad-based success across various institutions and increased demand for complex work and transformational deals. The decline in technology and consumer electronics was due to lighter volumes and onshore mix, while healthcare was affected by changes in Medicare membership and participation in the Affordable Care Act program.

Geopolitical and Onshore Trends:

• Approximately 15% of Concentrix's revenue is delivered from North America and Western Europe, facing a potential 2-point headwind from onshore movement.
• The trend of moving work offshore continues, impacting near-term revenues but is expected to improve margins as programs reach full scale and capacity is utilized more efficiently.

Sentiment Analysis:

Overall Tone: Positive

• "We delivered revenue and profitability in line with our guidance range." "Our overall demand environment remains solid." "We are confident in our ability to drive year-over-year profitability growth in the second half of 2026." "We are winning the right business and successfully executing while making the right investments."

Q&A:

• Question from Ruplu Bhattacharya (Bank of America): 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?
  Response: AI revenue percentage not disclosed; iX Hello priced by consumption (low initial margin scaling over time), iX Hero subscription-based (ARR expected at or above $100M by fiscal year-end).

• Question from Ruplu Bhattacharya (Bank of America): 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.
  Response: Margin expected to be compressed in first half, then sequentially expand in second half due to cost actions, new revenue from transformational deals, and improved mix, targeting 12.5% for full year.

• Question from Ruplu Bhattacharya (Bank of America): Can you update us on how that [offshore movement] is impacting results currently? Also... where [customer volumes] stand and are customer volumes coming back as you had expected?
  Response: Offshore movement continues, ~15% of revenue at risk, providing ~2-point margin headwind. Volume issues linked to tariffs are playing out as expected, with improvement in Q1 and fully resolved by end of Q2.

• Question from Joseph Vafi (Canaccord Genuity): Can you just talk about the philosophy behind those divestitures? Is this potentially the beginning of a more active portfolio pruning effort?
  Response: Divestitures were for small, non-strategic, non-growing businesses; no imminent plans for further portfolio pruning.

• Question from Joseph Vafi (Canaccord Genuity): Can you help us disaggregate those two factors [lighter volumes and onshore mix] and then whether or not you have line of sight to those verticals stabilizing?
  Response: Healthcare decline due to lighter volumes (Medicare/ACA changes), no growth expected for a couple quarters. Tech/consumer electronics decline split between lower underlying volumes (automation impact) and offshore mix; vertical remains volatile.

• Question from David Koning (Baird): Can those tailwinds [Webhelp synergies, scale, AI, offshore] drive margins back to at least where margins have been or hopefully higher? And how fast could they get there?
  Response: Expect to return to historical margins and progress past them; timeline indicated by sequential margin expansion expected through 2026.

• Question from David Koning (Baird): Is growth in banking and retail segments sustainable?
  Response: Yes, growth in banking (BFSI) and travel/e-commerce is broad-based and sustainable, driven by complex solutions, new deals, and share consolidation.

• Question from Vincent Colicchio (Barrington Research): Did you see any change or any signs of sentiment change in our client behavior once the geopolitical issues started recently?
  Response: Minimal impact so far; exposure is ~1% of revenue (Middle Eastern operations). Clients are being cautious but business remains robust.

• Question from Vincent Colicchio (Barrington Research): To what extent did excess capacity negatively impact margin this quarter?
  Response: Excess capacity negatively impacted margin by 20-40 basis points; expects improvement in second half as capacity is utilized.

Contradiction Point 1

Revenue Growth Expectations

Guidance appears inconsistent with strong underlying momentum.

Ruplu Bhattacharya (Bank of America) - Ruplu Bhattacharya (Bank of America)

2026Q1: The trend of moving work offshore continues. ... Regarding volumes, the impact from delayed programs due to tariffs is playing out as expected. There was improvement in Q1, and the situation is considered fully resolved as of the exit of Q2. - Andre Valentine(CFO)

Can you provide an update on the impact of clients moving operations offshore and customers with lighter-than-expected volumes, including the actions taken? - David Koning (Baird)

20260113-2025 Q4: The guidance is conservative and reflects the company's principles. There is no underlying slowdown; in fact, the company is confident in continuing the trajectory of sequential quarterly revenue acceleration in fiscal 2026. - Andre Valentine(CFO)

Contradiction Point 2

Investment in AI and Capabilities

Specificity on AI revenue and investment scale shifts from detailed to vague.

Ruplu Bhattacharya (Bank of America) - Ruplu Bhattacharya (Bank of America)

2026Q1: The company does not disclose the specific revenue percentage from AI/iX in a given quarter. - Chris Caldwell(CEO)

Can you specify the revenue from AI and iX in 1Q, their pricing strategy, and your outlook on AI investments for 2026? - Ruplu Bhattacharya (BofA)

20260113-2025 Q4: The company's own AI platform reached $60M in annualized revenue in 2025, with a total spend of around $50M ($25M incremental in FY2025). - Christopher Caldwell(CEO)

Contradiction Point 3

Tariff-Related Client Volume Normalization Timeline

Timeline for normalization of client volumes impacted by tariffs changed from multi-quarter to fully resolved by Q2 exit.

What are the company's latest financial results? - Andre Valentine (CFO)

2026Q1: The impact from delayed programs due to tariffs is playing out as expected. ... the situation is considered fully resolved as of the exit of Q2. - Andre Valentine(CFO)

What is the impact of clients moving operations offshore, and what updates do you have on customers with lighter-than-expected volumes and the actions taken? - Lucas Morison (Canaccord Genuity Corp.)

2025Q3: Tariff-related client volume did not normalize as expected in Q3, with some additional noise in August... The handful of affected clients are in ongoing discussions to rationalize excess capacity, expected to take multiple quarters to normalize. - Christopher Caldwell(CEO)

Contradiction Point 4

iX AI Suite Margin Contribution Timeline

Forecast for iX suite to become accretive shifted from Q4 2025 to reaching ~$100M ARR by end of FY26 (implying later).

Ruplu Bhattacharya (Bank of America) - Ruplu Bhattacharya (Bank of America)

2026Q1: The company expects to reach or exceed $100M in Annual Recurring Revenue (ARR) from iX Hero by the end of the fiscal year (FY26), and is slightly ahead of plan in Q1... - Chris Caldwell(CEO)

Can you specify the revenue generated from AI and the iX suite in 1Q, the pricing strategy for these solutions, and your outlook on AI-related investments for 2026? - Ruplu Bhattacharya (BofA Securities)

2025Q3: The iX suite is on track to be modestly accretive by the end of Q4 [of 2025]. - Christopher Caldwell(CEO)

Contradiction Point 5

AI Implementation Margins

Contradiction on whether AI product margins are negative or becoming positive at scale.

Ruplu Bhattacharya (Bank of America) - Ruplu Bhattacharya (Bank of America)

2026Q1: iX Hello is priced by consumption (AI-driven automation of contacts) with initially negative margins that turn positive as scale is achieved. - Chris Caldwell(CEO)

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? - Joseph Vafi (Canaccord Genuity Corp.)

2025Q2: These AI-related solutions are growing faster than the core business and are expected to be accretive by the end of Q4 without requiring increased spend. - Christopher A. Caldwell(CEO)