Concentrix (CNXC) Earnings Call zum 3. Quartal des Geschäftsjahres 2026: KI-Umsatz übersteigt 50 %

Concentrix (NASDAQ: CNXC) meldete für das 3. Quartal des Geschäftsjahres 2026 einen Umsatz von rund 2,45 Milliarden US-Dollar, was währungsbereinigt einem Rückgang von 0,5 % entspricht. Die Profitabilität verbesserte sich trotz schnellerer Bereitstellung von KI-Automatisierungen, Kündigungen von Kundenbetreuungen und einem Umsatzgegenwind von rund 3 % durch die Verlagerung von Arbeiten an kostengünstigere Standorte.

Wichtigste Erkenntnisse

• Der Umsatz im 3. Quartal des Geschäftsjahres lag bei rund 2,45 Milliarden US-Dollar, was währungsbereinigt einem Rückgang von 0,5 % entspricht und leicht unter dem unteren Ende der Unternehmensprognose vom Juni lag.
• Das operative Ergebnis (Non-GAAP) erreichte 309 Millionen US-Dollar, während die operative Marge (Non-GAAP) im Jahresvergleich um 30 Basispunkte auf 12,6 % stieg. Die bereinigte EBITDA-Marge erhöhte sich ebenfalls um 30 Basispunkte auf 14,8 %.
• Das Management erklärte, dass mittlerweile mehr als 50 % des Umsatzes aus Geschäftsbereichen stammen, die in den letzten drei Jahren geschaffen wurden, darunter KI-gestützte Transformationen, iX-Suite-basierte Dienstleistungen und neuere hochwertige Angebote.
• Der bereinigte freie Cashflow lag bei 218 Millionen US-Dollar, dem höchsten Wert in einem 3. Quartal eines Geschäftsjahres seit der Abspaltung von Concentrix im Jahr 2020. Das Unternehmen reduzierte seine Gesamtschulden im Laufe des Quartals um 211 Millionen US-Dollar.
• Für das 4. Quartal des Geschäftsjahres erwartet das Management einen Umsatz von 2,41 bis 2,46 Milliarden US-Dollar, was währungsbereinigt einem Rückgang von 3 % bis 5 % entspricht. Der Ausblick spiegelt eine beschleunigte Automatisierung und reduzierte Support-Aktivitäten für bestimmte Kunden zweier Hyperscaler-Kunden wider.
• Concentrix erwartet für das Geschäftsjahr 2026 einen bereinigten freien Cashflow von 630 bis 650 Millionen US-Dollar und einen Nettoverschuldungsgrad von etwa dem 2,6-Fachen des bereinigten EBITDA zum Jahresende.

Wichtigste Finanzergebnisse

Die GAAP-Ergebnisse enthielten eine nicht zahlungswirksame Firmenwertabschreibung in Höhe von 1,05 Milliarden US-Dollar, die durch die Handelsspanne der Aktie des Unternehmens während des Quartals ausgelöst wurde.

Geschäfts- und operative Entwicklung

Das Management gab bekannt, dass Concentrix den Punkt erreicht hat, an dem mehr als 50 % des Umsatzes aus Geschäften stammen, die in den letzten drei Jahren entstanden sind. Das Unternehmen kategorisierte diese neueren Umsatzquellen wie folgt: 3 Milliarden US-Dollar in Verbindung mit transformierten oder KI-beeinflussten Kundenarbeiten, 1,3 Milliarden US-Dollar Nettoumsatz im Zusammenhang mit traditionellen Dienstleistungen, die durch die KI-Plattform iX Suite komprimiert wurden, sowie 700 Millionen US-Dollar aus neueren hochwertigen Dienstleistungen wie Risk and Compliance.

Dem Management zufolge sollen diese Umsatzquellen im Geschäftsjahr 2026 im Jahresvergleich um etwa 30 % wachsen. Zudem weisen sie eine höhere Profitabilität und eine im Vergleich zum traditionellen Geschäft vierfach höhere Bindungsrate auf. Concentrix erwartet, dass der Umsatz aus dem Neugeschäft im Geschäftsjahr 2027 die Marke von 6 Milliarden US-Dollar überschreiten wird.

Die Netto-Neukundengewinne unter Einsatz von KI stiegen im Vergleich zum Vorquartal um 63 %. Drei der vier größten iX-Suite-Zuschläge stammten von Bestandskunden, die ihre Anwendungsfälle erweiterten. Im 3. Quartal schaltete Concentrix 61 Projekte und mehr als 30.000 Berater auf der Plattform live.

Das Unternehmen liegt weiterhin auf Kurs, das Geschäftsjahr 2026 mit jährlich wiederkehrenden Umsätzen aus Softwarelizenzen (ARR) von rund 120 Millionen US-Dollar für die iX Suite zu beenden. Laut Management laufen derzeit etwa 1,3 Milliarden US-Dollar des Umsatzes über die Plattform, verbunden mit schnellerem Wachstum und höheren Margen als bei traditionellen Umsätzen.

Die Kundenbindungsrate lag über die gesamte Kundenbasis hinweg weiterhin bei 98 %. Alle fünf größten Kunden und mehr als 90 % der 100 größten Kunden haben seit Beginn des Geschäftsjahres 2023 neue Dienstleistungen in Anspruch genommen.

Prognose des Managements

Der Mittelwert der Profitabilitätsprognose für das 4. Quartal impliziert eine operative Marge (Non-GAAP) von etwa 12,9 %, was einem Anstieg von 20 Basispunkten im Jahresvergleich entspricht.

Concentrix rechnet damit, im Geschäftsjahr 2026 Bruttoschulden von mehr als 550 Millionen US-Dollar zurückzuzahlen und die Nettoverschuldung auf rund 3,8 Milliarden US-Dollar zu reduzieren. Dieser Ausblick umfasst die Finanzierung der Übernahme von CastleHill, die das Angebot des Unternehmens im Bereich Risk and Compliance stärken soll. Zudem hob das Management die Quartalsdividende auf 0,37 US-Dollar je Aktie an, zahlbar im November.

Das Management gab keine formelle Prognose für das Geschäftsjahr 2027 ab. Es geht derzeit davon aus, dass das Wachstum im Neugeschäft den Großteil, wenn nicht sogar die gesamten Umsatzauswirkungen durch die Automatisierung ausgleichen wird, bei stabilen bis sich verbessernden Margen und einer stetigeren Wachstumsdynamik in der zweiten Jahreshälfte. Der bereinigte freie Cashflow soll das Niveau des Geschäftsjahres 2026 übertreffen und bis zum Ende des Geschäftsjahres 2027 einen weiteren Abbau der Bruttoschulden um mehr als 550 Millionen US-Dollar sowie eine Nettoverschuldung von unter 3,3 Milliarden US-Dollar – beziehungsweise etwa das 2,2-Fache des bereinigten EBITDA – unterstützen.

Risiken und zu beobachtende Bereiche

Zwei Hyperscaler-Kunden beenden die Betreuung bestimmter Kundengruppen früher als zuvor erwartet. Das Management geht nun davon aus, dass dieser Prozess bis zum Ende des 4. Quartals im Wesentlichen abgeschlossen sein wird, was zu stärkere Umsatzauswirkungen im 4. Quartal und anhaltendem Druck in den ersten beiden Quartalen des Geschäftsjahres 2027 führt. Dieselben Kunden weiten jedoch ihre Zusammenarbeit mit Concentrix in anderen Dienstleistungsbereichen aus.

Verlagerungen von Erbringungsstandorten führten im 3. Quartal zu einem Umsatzgegenwind von rund 3 %. Das Management deutete an, dass die Auswirkungen im Geschäftsjahr 2027 in einem ähnlichen Bereich liegen könnten, wenn auch möglicherweise etwas geringer. Bis zum Ende des Geschäftsjahres 2026 dürften voraussichtlich nur noch etwa 10 % bis 11 % des Umsatzerlöses auf Arbeiten entfallen, die ins Ausland verlagert werden könnten, was darauf hindeutet, dass dieser Druck mit der Zeit nachlassen sollte.

Eine beschleunigte KI-Einführung führt zudem zu Einbußen bei Teilen der traditionellen Umsatzerlöse. Das Management betrachtet dies als vorübergehenden Gegenwind, der im Laufe der Zeit zu nachhaltigeren, schneller wachsenden und margenstärkeren Kundenbeziehungen beiträgt.

Wichtigste Punkte aus der Fragerunde der Analysten

Das Management führte die erwartete Konzentration des Wachstums auf die zweite Hälfte des Geschäftsjahres 2027 auf drei Faktoren zurück: den Abschluss der Übergänge bei den beiden Hyperscaler-Kunden, das Auffangen der Effekte durch die beschleunigte KI-Automatisierung sowie potenzielle Konsolidierungschancen in der Branche im späteren Jahresverlauf.

Zu agentischer KI erklärte das Management, dass Angebote wie Muse von Meta und Dots von OpenAI eine weitere Stufe in der Entwicklung der Branche darstellen. Concentrix unterstützt Kunden dabei zu verstehen, wie sie diese Kanäle nutzen und betreuen können, und sieht Chancen im Bereich der agentischen Commerce-Infrastruktur.

Laut Management ist ein nachhaltiges Wachstum im mittleren einstelligen Prozentbereich eher ein Thema für das Geschäftsjahr 2028 als ein kurzfristiges Ergebnis für das Geschäftsjahr 2027. Allerdings verläuft der Übergang zu neueren Umsatzströmen etwa ein bis zwei Quartale schneller als vom Unternehmen zuvor erwartet.

Bezüglich der Margen betonte das Management, dass neuere Umsatzquellen stabil sind und aufgrund differenzierter Angebote eine höhere Profitabilität aufweisen. Concentrix beabsichtigt nicht, austauschbares traditionelles Geschäft unterhalb seiner Preisuntergrenzen zu verfolgen, und erwartet, dass ein steigender Beitrag aus neuen Umsätzen und Automatisierung die Margenstabilität im Geschäftsjahr 2027 unterstützen wird.

Vollständiges Transkript der Videokonferenz zu den Quartalszahlen

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Hello, everyone. Thank you for joining us, and welcome to the Concentrix Third Quarter 2026 Financial Results Conference Call. [Operator Instructions]

I will now hand the conference over to Elise Brassell, Corporate Communications and Investor Relations. Elise, please go ahead.

Elise Brassell

Thank you, operator, and welcome, everyone, to Concentrix' Third 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 our 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.

Christopher Caldwell

Thank you, Elise. Hello, everyone, and thank you for joining us for our third quarter 2026 earnings call. I'm proud to start this call by recognizing a milestone that speaks to how far Concentrix has come over the last few years since generative AI was released and concerns for the viability of the services industry started. Over the last 3 years, we've steadily expanded the services we offer and invested in deployments of AI technology to evolve our business.

This quarter, we crossed the mark that 50% of our revenue now comes from businesses that we generated in the last 3 years that is very different than our traditional business. These new revenue sources are comprised of: $3 billion of revenue that is coming from new and existing clients that have either gone through heavy transformation or has AI influencing the revenue; $1.3 billion of net revenue resulting from the compression of our traditional services using our iX Suite AI platform; and finally, $700 million of revenue from new high-value services we brought to the market across growing segments like risk and compliance.

Compared to our traditional business, this revenue is growing faster at an expected 30% year-over-year growth rate in fiscal 2026, is more profitable and is stickier with a revenue retention rate 4x higher. We laid this out in more detail in the Q3 investor summary presentation you can find on our website under Investor Relations Events and Presentations.

We're planning more investor outreach in the early part of 2027 to break down how we are looking at our business in more detail. But as an introduction, let me share a few other stats that make me confident and excited about the future. We expect our new business revenues to exceed $6 billion in 2027. As we have talked about, we are seeing the margin progression we've expected in our overall business with a 30 basis point improvement year-on-year in Q3.

We are winning new clients and also evolving our existing clients to new services. As an example, all of our top 5 clients and more than 90% of our top 100 clients have expanded into new services and offerings with us since the start of fiscal 2023. Our average tenure with our clients remains strong at more than 16 years with our top 25 clients and 15 years for our top 50 clients, with a 98% retention rate across our entire client base. Together, these stats show we are building on a solid foundation, and we are pushing the evolution of our business as quickly as possible.

Turning to our third quarter, we can see these same themes reflected. We're continuing to prove that as clients scale AI, we create more opportunities to grow our business, expand profitably and deepen client relationships. We are actively focused on disrupting our own traditional business to take advantage of our momentum.

Our sales pipeline continues to be stable, with net new logo sales involving AI growing 63% quarter-over-quarter. Three of our four largest iX Suite wins this quarter came from clients who are already using the product and are now expanding their use cases because of the results we've helped them achieve. We also brought 61 opportunities, including more than 30,000 advisers live on our iX Suite this quarter, contributing to our margin expansion we delivered in Q3 and the impact to our revenue growth in our traditional business.

Our strategy, vision and execution is getting recognized by the market. We're building an identity for Concentrix as a partner that bridges the gap between AI ambition and operational reality through our New Realities marketing campaign that is resonating with clients, partners and the industry. We were recognized by research firms as a leading partner with multi disciplines and in strategy and vision.

As an example, this month, Everest Group recognized us as a leader in customer experience management with growth in vision and capability across every geography. We earned Best of Category honors from Globee for human-AI teaming and conversational AI. And together with our strategic partner, NiCE, we received an International CX Excellence Award for our work with U.K. technology retailer, Currys.

Our technology-powered consumer experience solution delivered double-digit improvements in customer satisfaction. And just as importantly, we exceeded our profitability guidance for the quarter and expect that momentum to continue into Q4. As a reminder, this marks our second consecutive quarter of record adjusted free cash flow while continuing to reduce leverage.

While AI is expanding our growth opportunities, we're also navigating industry shifts like hyperscaler spend priorities, which will have a larger impact than previously expected on our revenue in the fourth quarter. In addition, shore mix created about a 3% headwind this quarter, as we talked about in our second quarter earnings call.

As clients shift budgets and shores, we continue to use a combination of technology, rightshoring and services to create a balance for growth and long-term profitability in our traditional business. It's important to note that while the business is evolving, we are doing what we can to accelerate our rollout of AI. This causes temporary headwinds that result in [ growing ], stickier and higher-margin revenue and relationships.

While this evolution progresses, we're staying disciplined in how we allocate capital. This quarter, we strengthened our balance sheet by reducing net debt by approximately $211 million. And by the end of our fiscal 2026 year, we expect to have completed $900 million of debt paydown in the last 3 years. This puts us on track to reduce our net leverage to approximately 2.6x at year-end, with further significant debt and leverage reduction planned in 2027 to approximately 2.2x. At the same time, we're continuing to invest in our future by upskilling our people and expanding specialized AI talent to grow new capabilities.

Looking ahead to Q4, we are pushing accelerated deployments of AI, but we remain confident in the growth opportunity of our new business revenues and the overall market opportunities. We are focused on being the partner of choice to help transform operating models with the right mix of automation, technology, global talent and deep domain expertise. We're seeing a healthy, stable pipeline of complex, high-value opportunities where clients are looking for practical solutions that deliver measurable business outcomes.

While not providing guidance for 2027, we currently expect the growth of our new business revenue to offset much, if not all of our automation efforts in 2027 while driving stable to improved margins across our entire business. We expect the overall business to benefit from consolidation in the industry, with growth momentum to be more in the back half of the year. We expect our free cash generation to be above our 2026 levels.

Before I hand it over to Andre, I want to thank our Gamechangers around the world for their commitment to our clients and to each other. Their expertise and innovation make our success possible. And I'd also like to thank our clients for their trust they place in us as they navigate an increasingly complex business environment.

With that, Andre will take you through more details on our quarterly performance and outlook for the rest of the year. Andre?

Andre Valentine

Well, thank you, Chris, and hello, everyone. I'll begin with a review of our financial results for the third quarter and then discuss our outlook for the fourth quarter and full year 2026. In the third quarter, we delivered revenue of approximately $2.45 billion. On a constant currency basis, this represented a decrease of 0.5%, which is slightly below the lower end of the guidance we provided in June. Our revenue for the quarter reflects an acceleration of our deployment of AI for clients, as well as client decisions to reduce support for certain customer sets that we have supported.

Turning to profitability. Our non-GAAP operating income was $309 million, above the high end of the guidance range we provided in June. Adjusted EBITDA in the quarter was $363 million. Our non-GAAP operating income margin was 12.6%, and our adjusted EBITDA margin was 14.8%, with both measures up 30 basis points from the third quarter last year. This increase in margins demonstrates our focus on winning the right business, as well as our discipline and execution in aligning our business investments to areas that we have identified for profit-enhancing growth while reducing costs in other areas. This is consistent with our commentary throughout 2026 that we would see year-over-year margin expansion in the second half of the year.

Non-GAAP diluted EPS was $2.92 per share, above the guidance range we provided in March and June and up $0.14 from the third quarter of 2025. Our GAAP results for the third quarter reflect a $1.05 billion noncash goodwill impairment charge triggered by the trading range of our stock during the quarter. Complete reconciliations of non-GAAP measures to comparable GAAP measures are provided in today's earnings release.

Adjusted free cash flow was $218 million in the third quarter, the highest level we've achieved in the third quarter of any year since our spin-off in 2020. We returned approximately $23 million to shareholders in the quarter through our quarterly dividend. Consistent with our commitment to reducing net leverage at the end of the year, we did not repurchase any shares in the quarter.

In the quarter, we reduced total debt by $211 million. Our debt reduction in the quarter included the repayment of $200 million in senior notes that matured in August. At the end of the third quarter, cash and cash equivalents were approximately $256 million. Total debt was approximately $4.375 billion, and net debt was approximately $4.119 billion.

At the end of the quarter, our liquidity was nearly $1.5 billion, including our $1.1 billion undrawn revolving credit facility. Included in our outstanding debt at the end of the quarter is $375 million in term loan borrowings that mature in December 2026. We expect to repay these borrowings using free cash flow generated over the balance of the year and existing sources of liquidity. In total, we expect to repay over $550 million in gross debt this year and reduce net debt to approximately $3.8 billion by the end of the year.

Now I'll turn to our outlook. For the fourth quarter and full year 2026, we expect the following: fourth quarter revenue of $2.41 billion to $2.46 billion. Based on current exchange rates, these expectations assume an approximate 65 basis point negative impact of foreign exchange rates in Q4 compared with the prior year period. The guidance implies a constant currency revenue decrease in the fourth quarter ranging from 3% to 5%. This leads to fiscal year 2026 revenue of $9.827 billion to $9.877 billion based on based on current exchange rates, which we assume an approximate 80 basis point positive impact of foreign exchange rates compared with the prior year. As such, we expect revenue for the full year to decrease by 0.8% to 0.3% on a constant currency basis.

For the fourth quarter, we expect non-GAAP operating income of $310 million to $320 million. This drives full year non-GAAP operating income of $1,206 million to $1,216 million. The midpoint of our profitability expectations for the fourth quarter implies a non-GAAP operating income margin of approximately 12.9%, up 20 basis points from the fourth quarter last year. This is consistent with our expectation all year that we would generate year-over-year margin expansion in the second half of the fiscal year.

This guidance translates into an expected non-GAAP earnings per share of $2.86 to $2.98 for Q4, assuming approximately $63.5 million in interest expense, 61.2 million diluted common shares outstanding and approximately 4.9% of net income attributable to participating securities. For fiscal year 2026, we expect non-GAAP EPS of $10.97 to $11.09, assuming non-GAAP interest expense for the year of $265 million, approximately 61.1 million 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 24% for both Q4 and for the full year.

We continue to expect to generate between $630 million and $650 million in adjusted free cash flow this year. With this cash generation, we expect to reduce our outstanding debt balance by over $550 million in the year. This expectation includes the funding of our acquisition of CastleHill to further strengthen our risk and compliance offering in the fourth quarter. We are committed to reducing our net leverage to approximately 2.6x adjusted EBITDA by the end of fiscal 2026.

Looking at cash flow beyond 2026, we expect adjusted free cash flow in fiscal 2027 to exceed the amount we generate in 2026. Our confidence in our cash generation in 2027 reflects an expectation of reduced restructuring costs, lower cash interest expense and that our newer growing sources of revenue require less capital expenditures than our traditional business. Our 2027 cash flow expectation would allow us to reduce our gross outstanding debt by over $550 million once again in fiscal 2027 and bring our net debt to below $3.3 billion, or roughly 2.2x adjusted EBITDA, by the end of fiscal 2027. Our confidence in the continued strong cash flow generation of the business is reflected in our increased dividend to $0.37 per share, payable in November.

In summary, our overall demand environment remains stable. We're confident in our ability to drive margin expansion in the business. We're confident in the continued strong free cash flow generation of the business and our plan to pay down debt and reduce net leverage in 2026 and beyond. And we're in a strong competitive position to drive long-term outperformance.

Now operator, please open the line for questions.

Operator

[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya with Bank of America.

Fragen und Antworten

Ruplu Bhattacharya

Christopher, on your comment that growth in 2027 is going to be more back half-weighted, what is driving that? What specifically are you seeing in the sales cycle? You had talked about some hyperscale customers who might be reducing some support to their end customers, and you've also talked about offshore moves that could be impacting revenues. So help us kind of understand what is driving that back-end loaded nature of revenues in the next year? And I have a follow-up.

Christopher Caldwell

No problem. Ruplu, it's Chris. So thank you for the question. So two things. Just in terms of what we're seeing right now, just to put some perspective and size what we're looking at, the hyperscale customers we're talking about are 2 specific clients who, as we talked about in our Q2 call, are looking at stopping support for certain client sets. Originally, that was going to impact us in Q3 and flow through until sort of Q2 of next year.

Right now, the decision is really to have that completely finished by the end of Q4. And so you're seeing an oversized impact in Q4 and then clearly some impact in Q1 and Q2 from that. That, again, is only 2 clients. It's very defined. And those clients are actually growing with us in other areas of the business and other services. And so it's, again, a very, very confined part.

The second thing that we've talked about is our increase in AI automation sales that we've been doing. Not only did we have a very strong AI pipeline -- sales pipeline in Q2 which we called out, we also had another one in Q3. And what we talked about in Q2 was the ability to deliver on these AI automations at pace. We've been really happy with how the team has reacted in Q3. And we've been able to deploy those automations much faster than what we originally expected, which I think is a really good thing. And so we're seeing that impact in kind of Q4 and which will also impact into Q1.

And so really, when we talk about back-end growth opportunity in 2027, we're getting through these 2 clients who are looking at removing support for their base. We're catching up on the automation deployments that we're doing, and we're also looking at what we're going to be consolidating within the marketplace as we look at sort of Q3 and Q4, really, Q2, Q3, Q4 in 2027. So that just gives you some of the color around what we're seeing from a growth profile perspective.

Ruplu Bhattacharya

Okay. As a follow-up, can I ask you for your thoughts on Meta's new Muse offering, as well as agentic AI in general? And how are you thinking about your own spend on the iX Suite? And what revenue and margin targets do you have for that?

Christopher Caldwell

For sure. So clearly, Meta announced a Muse product. OpenAI announced a product they call Dots. We're seeing more and more companies looking at this type of technology. And in fact, we built our own technology internally just for ourselves that's very, very similar to this that we're finding productivity gains.

We're helping clients right now understand how to engage with it. We're helping clients understand how to support these channels. And we do see agentic shopping becoming more and more prevalent in the marketplace and see opportunities for us to grow with that, supporting our clients, supporting this infrastructure. And so we just see it as part of the evolution of the business.

In terms of how we're thinking about spending money on our iX Suite, as we've talked about, we are benefiting from some of the ability to lower our cost base with AI internally on our development. And so we brought down our expenditures on our iX Suite. We're seeing the growth that we've talked about. We've talked about exiting 2026 with an ARR of just kind of software licensing around $120 million. We're on pace to do that.

And then what we've also talked about is how it influences revenue that runs through this platform. And that was the number that I called out of the $1.3 billion that's running through our platform, which, as we've talked about before, is growing faster than our traditional revenue because we're getting optimized work out of it, and it's at a higher profit margin out of it. And so we expect that margin profile to continue to build up. And at some point, at critical mass, we expect iX Hero to have effectively SaaS-type margins, but that's a fair bit away.

Operator

Your next question comes from the line of Vincent Colicchio with Barrington Research.

Vincent Colicchio

Yes, Chris, congrats on the milestone that you reached. Is there a way to think about what level you need to reach before you can consistently achieve solid growth, say, in the mid-single digits?

Christopher Caldwell

Yes, that's a great question. So Vince, we expected to reach this 50% milestone really at the end of Q4, maybe middle of Q1. And so we've moved it forward 1.5 quarters, which is fantastic from a momentum perspective.

Our belief is that we need a couple more quarters to continue to kind of drive automation in our traditional business. We believe that there's some consolidation that happens. But if you -- and again, not guiding for 2027. If you kind of read between the lines on 2027, we expect that, that momentum is not really going to happen until the back half of the year. So that's probably more a 2028 comment. But again, we're moving a couple of quarters faster than we expected right now. So hopefully, we can maintain that momentum.

Vincent Colicchio

And as a follow-up, are you able to articulate how large a headwind you'll see from offshoring in fiscal '27?

Andre Valentine

Yes. We're not really guiding yet to fiscal '27, Vince, but we'll provide some color on it. So we have talked about this year, seeing that accelerate to being about a 3-point headwind on growth for us. We see it in that same sort of range. We don't see it being higher, but possibly a touch lower. But so included in what we're seeing right now is our revenue expectations for next year, I probably think it's right in that same range.

Operator

Your next question comes from the line of Jacob Haggarty with Robert W. Baird & Co Inc.

Jacob Haggarty

So just thinking about the revenue headwind from offshoring, does that start to abate as you get more and more AI revenues? Do people bring some of that work back onshore because it's AI-assisted and they're getting cost benefits there? Or how do you kind of see that evolving over time?

Andre Valentine

Jacob, I'm really glad you asked that question because it was actually kind of the second part of the answer to Vince's question that I didn't give. We do see it abating over time, but maybe not for the reason that you indicated so much as -- we're really getting to the point where we only, as we exit this year, have 10%, 11% of revenue that we see is as kind of in the pool of stuff that is likely over time to be movable offshore. So we do see it abating over time more because there's just not that much of it left to move as opposed to anything else. Chris, any impact from the AI playing any role there or not?

Christopher Caldwell

Yes, Jacob, we're not really seeing that. We're seeing clients who are moving the work. And the belief is that as we put an AI to it, they'll continue to leave it where it resides versus pulling it back into a higher-cost region.

Jacob Haggarty

No, that totally makes sense. And then can you just talk maybe about your confidence in margin stability, especially as we go into F 2027 and maybe even beyond?

Christopher Caldwell

So on the newer revenue that we talked about that we're just kind of crossing the 50% mark on, the margins are actually very stable. And it's competitive, but because we're bringing unique offerings to it, it's at an elevated level. Where we kind of look at margin pressure, for lack of a better term, is more of the traditional business that might be commoditized.

And we will only go to a certain price point. We're not going to chase price in that type of the business. And so our belief is that as we continue to add more and more of the new revenues, as we continue to automate more and more of our traditional revenues that we've got that margin stability, as we talked about in the prepared remarks, certainly in 2027.

Operator

[Operator Instructions] There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.