Ladies and gentlemen, good day, and welcome to Firstsource Solutions Limited Q3 FY 2026 earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. On this call, we have Mr. Ritesh Idnani, MD and CEO, and Mr. Dinesh Jain, CFO, to provide an overview on the company's performance, followed by Q&A. Please note that some of the matters that we'll discuss on this call, including the company's business outlook, are forward-looking, and as such, are subject to known and unknown risks.
These uncertainties and risks are included, but not limited to what the company has mentioned in its prospectus filed with SEBI and subsequent annual reports that are available on its website. I hand the conference over to Mr. Ritesh Idnani. Thank you, and over to you, sir.
Hello, everybody. Thank you for joining us today to discuss our financial results for the third quarter of FY 2026. My name is Ritesh Idnani, and I'm the CEO at Firstsource. Before I start with the discussion on our Q3 performance, I would like to welcome our colleagues Past Due Credit and TeleMedik, who have joined the Firstsource team over the last two months. I would also like to thank them and each one of our 36,689 Firstsourcers around the world for their relentless commitment to delivering value to our clients. Q3 marks the seventh straight quarter of double-digit year-on-year revenue growth. Our revenue grew by 16.2% year-on-year and came in at INR 24.4 billion. In US dollar terms, the growth was 10.2% year-on-year and 3.6% quarter-on-quarter to $274 million.
In constant currency terms, our revenue grew 10.6% year-on-year and 4.6% quarter-on-quarter. These numbers are inclusive of Past Due Credit acquisition, which we integrated during the quarter and contributed to about 2% to our year-on-year growth in constant currency terms. EBIT margin for the quarter was 11.9%, up 80 basis points and 40 basis points on a year-on-year and quarter-on-quarter basis, respectively. It's also the fifth straight quarter of margin expansion, and the increase over the trailing 12 months has been ahead of our guided band of 50-75 basis points expansion every year. Our net profit, adjusted for exceptional items, was INR 2 billion, and the diluted EPS for the quarter was INR 2.87. Coming to the business highlights. I will start with our deal wins and other client-related metrics.
In Q3, we signed five large deals. As you're aware, we consider a deal with an ACV over $5 million as a large deal. Some of the deal wins include a leading on-demand manufacturing marketplace in the U.S., selected us to provide account servicing and customer experience services. We gained additional business from one of the largest communications and media companies for customer onboarding and account service processes that are currently managed by in-house teams.
We were also selected as a global operations outsourcing partner by a leading U.K.-based MVNO to support account servicing, billing, and customer inquiry management across multiple markets. This, incidentally, is also a new logo for us. One of the leading global online fashion retailers also selected us to drive customer operations. This, again, is a new logo for us.
In Australia, we won a large onshore customer experience engagement with a leading health insurer focused on member services. During the quarter, we added nine new logos, which included five strategic logos. As you're aware, we define a strategic logo as one where we see the potential of at least a $5 million revenue run rate annually, and we run a structured program to handhold and monitor such relationships to grow them at an accelerated pace. As I mentioned, two of the five large deals in Q3 were from new logos. In fact, we have been able to hit our aspirational target of a $5 million relationship size in 10 of the 20 strategic logos that we added over the past four quarters, including Q3. This conversion is about 60% if we consider the 33 strategic logos we added over the past eight quarters.
Let me now provide you a flavor from a vertical standpoint. Let's start with banking and financial services. In Q3 of FY 2026, our financial services vertical grew 9% year-on-year and was flat sequentially in constant currency terms. We added five new logos during the quarter. From a demand perspective, clients are increasingly prioritizing regulatory adherence, customer experience, and cost efficiency, which play directly to our strengths. We see a strong client interest in our tech-enabled capability portfolio, anchored around AI, automation, and data-driven transformation.
For example, our consulting-led mortgage transformation offerings are resonating very strongly with clients seeking low origination and refinance volumes, given a prolonged high interest rate environment. They're looking for structural cost reduction, productivity uplift, and end-to-end process simplification. Our consulting-led model, deploying AI-enabled optimization and workflow redesign, particularly for monoline or mortgage customers who are operating under sustained margin pressure, is finding good acceptance.
This approach has enabled us to move beyond pure execution and play a more strategic role in reimagining mortgage operations across several accounts. We are also partnering more closely with mid-sized banks and fintechs as they accelerate platform modernization, embed AI across customer journeys, and enhance their digital experience, especially across onboarding, servicing, and collections workflows.
Our Q3 exit deal pipeline was among the strongest in recent quarters, with at least one large deal in advanced stages of closure, giving us confidence in sustaining growth momentum in this vertical. In healthcare, the revenue grew 6% year-on-year, but were flat sequentially in constant currency terms. We added one new logo during the quarter. Healthcare continues to be a core growth pillar and a key area of strategic differentiation for Firstsource.
We are amongst the few companies with a strong and well-diversified presence across both the payer and provider segments, giving us a unique end-to-end view of the healthcare value chain. While clients across both segments are navigating similar macro pressures of rising costs, increasing regulatory complexity, and the need to deliver better experiences and outcomes, we believe payers and providers are at very different stages of their transformation journeys, and therefore require differentiated approaches.
To sharpen our focus on these distinct needs, dynamics, and growth opportunities, we have created dedicated leadership roles for both the payer and the provider segments. Matthew Barlow and Scott Schrader each bring over two decades of industry experience, deep client relationships, and they will drive Non- BPO approach to build domain-led, technology-enabled solutions that help health plans and health systems respectively, operate smarter, scale responsibly, and adapt faster to change.
Ramp-ups in our previously won large deals are progressing well, and we see a healthy deal pipeline. This actually gives us the confidence to bring forward the planned rationalization of low margin, low growth accounts, particularly in the provider segment, aligned with the recent leadership changes. While this may weigh on the optical growth in this vertical in the short term, it gives us a strong push-up on our medium-term margin aspirations. Coming to the CMT vertical, revenues grew 14% year-on-year and 2% on a quarter-on-quarter basis. We added two new logos during the quarter, and three of our large deal wins in Q3 came from this segment. Q3 tends to be seasonally soft due to the holiday period, which affects the timing and flow of work packets, particularly across our consumer technology clients. That aside, CMT remains one of our fastest-growing verticals.
Growth continues to be driven by deepening engagements with leading consumer tech companies, spanning both our core service offerings as well as a growing set of non-traditional technology-led solutions that support the integration of AI into client product ecosystems. We exited the quarter with a well-balanced and healthy pipeline, covering opportunities across both traditional media and telecom clients, as well as the new age technology companies, giving us confidence in the sustained growth momentum of this vertical. Lastly, coming to the diverse portfolio that grew 21% year-on-year and 37% quarter-on-quarter in constant currency terms. As you're aware, this portfolio includes our businesses with utilities and retail clients, mainly in the U.K. We have a healthy deal pipeline across both retail and utilities verticals.
With the past few credit capabilities, we plan to double down, especially in the utility segment, where the acquisition adds several large and new logos to our portfolio. We are also optimistic about growth in our retail portfolio, where we've been able to expand our footprint, as well as win additional business with several clients during recent renewals. Moving to the geographies. From a geographic standpoint, North America delivered 1% sequential growth and 13% year-on-year growth in constant currency terms. We continue to see broad-based momentum across our three core verticals in the region and expect to sustain this over the coming quarters. In parallel, we are also incubating new growth opportunities in North America by setting up our sales presence in Canada and by replicating capabilities where we have demonstrated strength in other markets, such as utilities and retail, from the U.K.
Europe grew 14% quarter-over-quarter and 2% year-over-year in constant currency terms. As we have highlighted in the past, we have seen an accelerated move towards offshore and nearshore delivery over the past few quarters with several of our clients. While this may continue in the near term, we believe our proactive steps to make the business more resilient by broadening both our geographic and vertical presence are yielding results.
Our pitch for transformational programs and nearshore delivery from South Africa has been resonating strongly with clients. During Q3, we also renewed our contract with a U.K. banking-based client, one of our largest and oldest clients, and we've now been recognized as the primary partner for both onshore and offshore work. We believe this places us well to further deepen and expand our relationship with this client.
With another large communications and media clients, we continue to gain additional seats, mostly from their in-house teams. We also won three large deals in Q3, and our pipeline continues to build up well. In fact, it's up about 40% over the last four quarters. We see an improving growth trajectory in this market, though the pace could be gradual. In Australia, we continue to win additional business with existing clients while building a pipeline in new logos. One of the largest deal wins in Q3 was in this market. On the people front, we closed the quarter with a headcount of 36,689 Firstsource associates, which is a net increase of about 690 employees over the last quarter. Offshore and nearshore hires accounted for close to 80% of gross additions.
Our trailing 12-month attrition continued to trend down to 27.4%, marking an improvement of almost 10 percentage points over the last eight quarters. During the quarter, we laid the foundation for a fundamental shift from a role-based to a skills-first organization with the launch of Unbound, our skills and talent platform, enabling every Firstsource employee to build a unique skill profile to support internal mobility, targeted development, and future workforce planning.
This transformation was reinforced through nearly 44,000 learning hours delivered globally, focused on building capability in AI and data fluency, leadership, and cognitive skills. We also further strengthened our people operations backbone by improving onboarding speed and accuracy, scaling HR platforms across geographies, and reinforcing payroll and statutory governance to support seamless business continuity.
Our people-first culture was further reflected in recognitions earned this quarter, including being named among the top 25 Best Workplaces for IT and IT BPM in 2025, honors at the Great Manager Awards 2025, and a repeat Great Place to Work certification across our key, key markets. From an awards recognition and sustainability standpoint, Firstsource continues to earn strong recognition from leading industry analysts for delivering strong client value and driving innovation through technology-led solutions in our focus markets.
During Q3, NelsonHall named Firstsource as a leader in banking for both operations services and process automation services, and a leader in CX services transformation. Everest Group recognized us as a leader and star performer in its banking operations services PEAK Matrix Assessment of 2025. Additionally, ISG positioned Firstsource as a leader in both generative AI services and contact center CX services.
ISG also featured Firstsource in its Booming 15 list, based on the annual value of commercial contracts awarded over the past twelve months for the fifth consecutive quarter. I'm also proud to share that Firstsource achieved an ESG and CSA score of 87 by S&P Global Sustainable1 Assessment, our third year of significant improvement, rising from 61 in FY 2023 and 81 in FY 2024 to 87 in FY 2025. This performance positions Firstsource as the number one ranked company globally in the professional services sector. These recognitions reflect not just external validation, but the collective commitment of our teams to driving sustainable and responsible growth. Let me talk a little bit about the TeleMedik acquisition. We announced this acquisition last month.
As you're aware, TeleMedik is a Puerto Rico-based pioneer with close to three decades of operations, well-aligned with the fast-growing Medicaid, Medicare Advantage, and dual-eligible segments, including Spanish-speaking and underserved communities. Its service portfolio spans clinical operations, utilization management, telehealth-enabled care, and contact center solutions. This acquisition meaningfully strengthens our end-to-end clinical and utilization management capabilities and expands our on-ground presence in the payer market in Puerto Rico. With that, let me turn over the call to Dinesh to give a detailed color on the quarterly financials. I will come back to talk about our progress on the strategic priorities, as well as the outlook for FY 2026. Over to you, Dinesh.
Thank you, Ritesh, and hello, everyone. Let me start by taking you through our quarterly financial numbers. Revenue for the Q3 FY 2026 came in at INR 24.4 billion or $274 million. This implies a year-on-year growth of 16.2% in rupee terms and 10.2% in dollar terms. In constant currency, this translates to a year-on-year growth of 10.6%. Our operating profit stood at INR 2.9 billion, up 24.9% over Q3 of last year and translates to an EBIT margin of 11.9%, up 40 basis points, up 40 basis points quarter-on-quarter. As Ritesh earlier mentioned, this is the fifth straight quarter of sequential margin expansion and translates to an 80 basis points improvement in the last four quarters.
This is a little above our stated objective of a 50-75 basis points margin expansion every year. Effective tax rate in Q3 was 21%, and for the nine months, it was 20%, which is within the guided 19%-21% range for FY 2026. As I mentioned, there is a one-time charge of INR 914 million on account of increased provisioning for gratuity on leave encashment, in accordance with the new labor code announced by the Government of India. As well as there is exceptional item related to provision of INR 88 million for the diminution in the value of one of the legacy investment. Profit after tax, adjusted for these exceptional item, came in at INR 2 billion, a year-on-year growth of 26%. DSO was 67 days for the quarter versus 69 days in the Q2.
Tighter working capital days help on improved cash conversion. Our OCF to EBITDA was 93%, and FCF to adjusted PAT was 164% for the quarter. For nine months, our revenue grew at 14.3% in constant currency terms and 15.1% in US dollar terms. Our EBIT has grown by 26.5% year-on-year, and adjusted PAT has grown 27% over last year. Cash conversion continued to be strong. Our OCF to EBITDA for nine months was 86%, and FCF to adjusted PAT was 159%. Our cash balance, including investment, stood at INR 4 billion at the end of the quarter three.
Our net debt stands at INR 11.7 billion as of 31st December 2025, versus 10.8 billion as of 31st September 2025, and INR 13.2 billion as of 31st March 2025. Our hedge book as of 31st December was as follows: We had coverage of GBP 95.3 million for the next 12 months, with an average rate of 114 per pound, and coverage of $178 million, with an average rate of 88.6 for per dollar. During the quarter, we have paid INR 2.2 billion towards the acquisition Past Due Credit, for which we have received the regulatory approval during the quarter.
As we have reported earlier, we have acquired a 100% stake in the company at a purchase consideration of GBP 22 million, which include GBP 4.4 million as an earn-out linked to achieving predefined milestone. I'm also pleased to share that the board has declared an interim dividend of INR 5.5 per share. This is all from my side. I will hand over the call back to Ritesh to talk about our strategic priorities and the outlook for the coming quarter.
Thank you, Dinesh. I'm pleased with the progress we are making on our agenda to leverage the current fault lines created by technology and macroeconomic shifts to broad base our client footprint and curate new growth engines. Let me give you a few data points. We closed Q3 with 141 clients with over $1 million of revenue from a run rate standpoint, an addition of 34 clients over the same period in Q3 of FY 2025. During the same period, our $10 million, as well as our $5+ million clients, increased by four and 13, respectively. Over the last eight quarters, the revenue share of top five and top 10 clients has come down by 8% and 11%, respectively.
Importantly, this has happened even as our top five clients continue to grow at industry growth rates, despite a significant onshore to nearshore delivery in at least a couple of them. As you have noticed, we had back-to-back large deal wins in the form of additional business in one of our largest clients over the past two quarters. So the broad basing of growth that you see is a result of focused account management strategy, which is driving a faster growth in our non-top five, top 10 accounts, in many cases through large deals. We are also now winning a higher number of large deals and also doing so more consistently. We have a dedicated team to bring more focus to our efforts and ensure we are covering all the aspects that go into a large deal pursuit.
This has helped us report at least four large deal wins in each of the past four quarters, with with deals in the current quarter. Importantly, despite the strong closure, our deal pipeline has stayed above $1 billion. Let me give you some additional insights. We have won 13 large deals in the first nine months of FY 2026 versus 14 wins in entire FY 2025, and close to the double the number of wins in FY 2024. Not just that, while previously our large deals almost always came from existing clients, six of the large deals this year so far came from new logos versus five in FY 2025. This underlies the strength of our differentiated solutions, attractiveness of our commercial construct, and the growing client acceptance of us as a disruptor.
This gives me confidence that we are on the right trajectory to deliver sustainable, profitable and industry-leading growth. As you can see, we have delivered continued improvement in our sequential growth rate throughout the course of FY 2026, in line with our initial commentary. This has given us the confidence to bring forward the account rationalization program, especially in the healthcare provider segment, to coincide with the recent leadership changes in that vertical that I mentioned earlier.
As such, we now expect our constant currency revenue growth for FY 2026 to be in the 13%-14% range. This does not include the recent Past Due Credit Solutions and TeleMedik acquisitions. Including these two acquisitions, we expect our FY 2026 constant currency growth, revenue growth to be in the 14.5%-15.5% range. We are also raising our EBIT margin guidance for FY 2026 to 11.5%-12% range. This concludes our opening remarks, and we can now open the floor for questions. Operator, over to you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vibhor Singhal from Nuvama Wealth Management. Please go ahead.
Yeah, hi. Thanks for taking my question, and congrats on a good quarter. Ritesh, a couple of questions from my side on the business side. Basically, in the healthcare segment, we have very recently heard of a lot of concerns about the government spending that was supposed to be, is much lower, just increased by 0.5% on a YoY basis as compared to ex-general expectations around 5%. So how does that play out in terms of our overall demand, demand environment? What kind of basically businesses do we have because of which we do get impacted or do not get impacted because of this lower increase in spend that was that has come out to be?
Similarly, in the BFSI segment, what are we seeing on the mortgage business side at this point of time? As you mentioned that, we have some very niche capabilities, which is helping us, our clients, especially in higher interest rate regimes. Are we seeing any revival in that business from industry point of view? And how are we kind of placed to take care of that? That will be my first couple of questions, if you can.
Thanks. Thank you, Vibhor, for those two questions. Let me respond to the first one on the healthcare side. You know, clearly, you know, all of us have seen the recent CMS proposal to keep the Medicare Advantage rates largely unchanged. What I would say is that it's a little early to give a specific view because the final rates will only come out in a few months from now. But what I can say, based on conversations that we've been having, is this is obviously adding to the pressure on margins for the payers, which are already under stress from rising medical and utilization costs.
You guys saw the stock market reaction last week with most of the payers probably reporting a decline of anywhere from 10%-20% in stock price in response to some of the proposals itself. Our view is that, look, this should lead to not just more outsourcing, but also more offshoring and clients looking for more transformational programs that give them a structural uplift in their cost structure. So we think it's a net positive in terms of a tailwind. But let me also give you one more data point, which I think strengthens our own position. So our recent acquisition of TeleMedik in Puerto Rico is a potential advantage in this environment.
Recognizing fully well that the Medicaid work cannot move outside the four shores of the U.S. itself, Puerto Rico, being a U.S. territory, has a structural cost advantage compared to the rest of the U.S. mainland itself. For organizations, the healthcare payers that are looking to potentially get the benefit of that, they now have a viable alternative available in terms of scaling up on the island itself. So we think that these two, you know, one is what it does do to their cost structure and how we can benefit from that in terms of supporting their transformation journeys. But the other is the location benefit that we might be able to bring. We are already having conversations around how that can act as a competitive advantage for healthcare clients itself.
On the market side, look, the business itself, from our perspective, has been stable. But, you know, you guys have been probably reading the same commentary that I have. You have the president of the U.S. asking for, you know, the Fed chairman to drop rates down. You know, I saw last week, as low as a percentage point or whatever else, right? But, if you look at the 30-year mortgage rate, it's still been hovering around the 6.1%-6.225% for the past few weeks.
While on a secular basis, this has been trending down, to have a more meaningful impact on the refinance market, I think you start seeing some tailwinds or some early green shoots emerge once you start hitting the 5% mark or thereabout, right? Given the fact that you still have close to 88% of all existing mortgages below 5%, right?
So I think what we've been doing, at least in terms of response and which has been yielding results, is broad-basing our portfolio, both, both in terms of the profile of clients that we are going after and also the offerings that we are taking to the clients as well, right? And there we have seen opportunities emerge on both the origination and the servicing side. And that's the reason why what you're seeing is that we are able to get a stable growth in this part of our portfolio without any macro support.
Right. Right. Indeed, in fact, despite no macro support, I think our BFSI has held very well. So, full points on that. Just a bit on the BFSI segment again, Ritesh. We had heard a few weeks back the announcement by, again, the U.S. president about basically capping the interest rate on credit card late payment fees. Now, given that we had acquired this company, ARSI, which was probably in the recovery business, is the... I mean, I know it's still a statement. I don't know what is the stage of that being implemented, but how are you seeing that as a development? It is adverse-- Is it adverse for our business? How does this impact our business going forward, if eventually it comes to, comes, is enforced?
So look, it's a little too early to react to it because, you know, as I understand, as I'm sure you're also seeing this, this is still a proposal at this point in time. Details on the implementation and compliance requirements associated with this are still awaited. So at least from a near-term impact standpoint, I don't see any challenges to the business itself. But from a medium-term perspective, you know, as far as I know, you know, with our interactions with banks as well as fintechs, you know, banks are putting their point of view across since, you know, the APR has a wider linkage to the overall unit economics of the card business itself.
You know, there are talks that obviously a cap will lead to lower credit limits, tightening of underwriting, and so on and so forth. Some banks may also pull back from riskier segments. At this stage, look, there's a lot of chatter and, there's a fair amount of ambiguity at this point in time. And, what I can only tell you is as of now, it's not come up specifically in our client conversations, so we don't see any business impact yet.
If anything else, what I will say, in the collections business, we've been doing some very interesting, stuff around the agentic AI side in terms of, creating virtual collectors and how that can change the profile of how this business itself has rendered itself. That's receiving broad-based acceptance, both among banks as well as fintechs itself. So, if anything else, that's creating differentiation for us in the marketplace and allowing us to win more.
Got it. Got it. Just one last bookkeeping question on my side. Our offshoring has increased very smartly to around 43.4% in this quarter, up by almost 13-14 percentage points over the last nine to 10 quarters. Do you think we still have room to go from current levels, or do you think we've kind of will plateau out or maybe find an equilibrium close to these levels?
So again, Vibhor, I think. If I'll give you one data point, right? The first data point is that if you look at our gross hiring, 80% of our gross hiring is still happening offshore and nearshore. We don't see that changing. So if we have to go out there and continue to hire, that will continue to be the nature of how this business evolves. And if that plays out, my sense is that this ratio should continue to improve towards more offshore and nearshore versus onshore.
Got it. Got it. Great. Thank you so much for taking my questions, Ritesh, and wish you all the best.
Thank you, Vibhor.
Thank you. The next question is from the line of Abhishek Bhandari from Nomura. Please go ahead.
Yeah, thank you for the opportunity. Team, congrats on a good execution this quarter, especially on margins. I had two questions. You know, first is, you know, if I look at your guidance now, you know, on the organic side, ex of Pastdue, at the midpoint, we are talking about 13.5, you know, compared to 14, which was the Q2 exit number. So in the context of the large deals, what we had announced in Q1, which was anchored or associated with an IT company, if you can just, you know, tie the two, is there any delay in that ramp-up? Or, is this, you know, we are probably going to be slightly towards the midpoint at the new assumption.
I'm not going to comment on the specific numbers itself, but, you know, one of the things that we stated even in the last earnings call, if you recall, is to say that, directionally, the guidance has built on a improved growth in the second half of FY 2026. You've seen that with Q3, where, you know, the growth rate was, you know, sequentially better than what it was in Q2. And obviously, the guidance builds directionally on the fact that there will be an improved growth in Q4 as well, right? It's consistent with the commentary that we have provided right from the start of the year, that we expect an upward trend in our quarter-on-quarter growth through the course of the year itself. I'm gonna reiterate one comment from what we've said, all along, right?
Our guidance band is based on a clear line of sight to the business at a, of over FY 2026 at the lower end of the guidance, and the upper end is based on how things pan out, you know, particularly with pipeline and so on and so forth. And at the same time, the guidance does not assume anything from a macro perspective itself, right? So that's broadly the philosophy that we have still continued to follow, as it pertains to, you know, what, what you see in the numbers itself. With specific reference to the large deal wins, et cetera, we don't see anything which has changed, et cetera, from that standpoint.
Got it. Thanks, Ritesh. My last question is, you know, on the margin side, now that, you know, we are exceeding what we had initially thought in terms of annual expansion of margin, how should one think about the path from here on? Would you be reinvesting some of the incremental gains, or you would let the margins, you know, expand in the natural way?
So, let me go back to what we had said in the beginning of FY 2025, right? We had said at that point in time, in FY 2025, that our margins for that fiscal year would be flat, as we were looking to make investments in the business from both a go-to-market as well as a capability standpoint, to ensure that we were competitive. And then we said that we would look to do 50-75 basis points margin expansion in FY 2026, 2027 and 2028 respectively, such that we would be in a 14%-15% band, which we felt would be relevant, in terms of where we think this business should be at. We have not deviated from any of that.
We still stand true to that, and as you can see from an execution perspective, you've seen the first three quarters, we ended up at 11.6% YTD, which is roughly about 60 basis points. And clearly, you know, ahead of the low end and that's the reason why we, you know, upped the lower end of the guidance from 11.25 to 11.5. At the same time, what I will say is that while we are, you know, we feel good about the 50-75 basis points going forward as well, the environment around us continues to evolve. This is probably the most relevant platform and technology shifts that we're all going to experience in our lifetimes.
And therefore, in that context, where it's appropriate, we are continuing to make the necessary investments, accepting that we are able to manage those investments while we are continuing to drive out efficiency in the business itself. So, the investments will continue to be to happen as appropriate, but I don't think it's going to come in the way of the margin guidance that we have outlined.
Got it. Thanks, Ritesh, and all the best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all the participants in the conference, kindly limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Thanks for the opportunity. Couple of questions. First, about the data perspective, can you share how many headcount addition happened because of the PDC acquisition? I believe TeleMedik is not yet integrated at the end of December, so there might not be any addition from it, but you can clarify that part also. Second question is about just to get sense about this account rationalization on provider side, which you highlighted. Can you help us understand what would be the end outcome which you are expecting from it? And what would be the impact on revenue margin, which you can envisage based on the action which we are taking currently? If I can squeeze one more question. On the PDC business, I think, can you help us understand profitability, profitability of that business and any seasonality in that business?
Because Firstsource collection business does have some seasonality in quarter four, so whether PDC also has some seasonality there. PDC-related amortization impact seems to be missing this quarter, so if you can maybe help us understand how to understand that part. Thank you.
Thank you, Dipesh. That seemed almost like four questions instead of two, but, let me try and take a stab at addressing the first three, and then, I'll turn it over to Dinesh on the PDC amortization bit. The first point that you had was related to headcount. On the total headcount that we added, roughly about 300+ people came from the PDC acquisition itself. So that's, data point one. The second comment, question that you had was related to the tail account rationalization itself in Q3. Look, the impact in Q3 was, about $2 million. We think it'll be a little higher in Q4. So roughly about 50 basis points on our FY 2026 revenue growth itself.
What I can say is that, look, the invisible impact of trimming of any of these tail accounts will typically be visible in the first couple of quarters, two to three quarters or so, and thereafter it's critical. But what was important for us is, with the leadership changes, we brought forward some of the account rationalization, particularly for low margin, low growth accounts itself, which we felt was critical from a business standpoint itself. What was the third question, Dipesh?
Yeah. So, another question was about PDC business. Seasonality-
Oh, yeah.
Seasonality and profitability.
No, actually, you know, there isn't a typical seasonality to that business itself. So, you know, we do end up, you know, seeing a more secular trend play out across the four quarters itself. That's a simple response to that business itself. Dinesh, you want to take on the fourth point on the amortization side?
What is the profitability there?
Yeah.
Sorry.
Profitability is in line with company numbers itself.
So Dipesh, you're looking about the amortization value on the PDC acquisition? What are you looking for?
I'm referring to depreciation and amortization, absolute number. QOQ, not much change.
Yeah, it cannot be, na, because it's a small acquisition. Like GBP 22 million acquisition, probably the amortization cost will be GBP 2 million or GBP 2.5 million. It not gonna be large number. You're not able to see the change because the charge which is coming in the balance sheet will be larger than the increase, which is adding. So I don't think it will matter, but the number is around GBP 2.5 million for a four-year amortization.
Okay, thank you.
Thank you. The next question is from the line of Shraddha Agarwal from AM Securities. Please go ahead.
Yeah, hi. Two questions from my side. Congratulations, first of all, Ritesh, on a good execution on margins. But on growth, how would you rate this quarter versus your expectations at the beginning when you got into the quarter?
Well, thank you, Shraddha, for the question. Look, Q3 was broadly in line with our expectations at the start of the quarter, you know, except for the trimming of the tail accounts in the provider segment, which we decided to bring forward in the quarter itself.
Okay. And if you look at the guidance, I know there's a seasonality in the collections business that we see every year in Q4. But even if we exclude that, there's a huge ask rate implication for 4Q to get to the full year guided numbers. So what gives us confidence of a 4%+ organic number in 4Q, despite incremental impact of carving out the healthcare business, some portion of healthcare business?
Yeah, so look, I think one of the things that we have, we've stated right at the outset, right, when we provided the guidance at the beginning of FY 2026 was, you know, we expected an upward trajectory in our Q o Q growth through the course of the year itself. And if you look at how this has played out from Q1 to Q2 to Q3, that we've pretty much delivered against the same itself. So we expect the same trend line to continue. We had line of sight to how this was going to play out itself. So, you're right. Directionally, this is building on an improved growth, growth in Q4 itself.
But also what you, what you also have seen now consistently in terms of how we have performed over the last several quarters, not just in this fiscal, but before, our guidance is based on a clear line of sight to the lower end or lower end itself, and the upper end is based on a bunch of other variables which can create upside, whether it's related to pipeline conversion, and so on and so forth. Again, the guidance is conservative to the extent that it does not factor in any impact of macro. So those are the variables that we have considered, and therefore, you know, with that context, I know the ask translates to a 4% QoQ growth at the lower end. You know, we feel comfortable with what we see at this point.
Right. Just one last question, if I can. I mean, the new deals that you've been announcing in the last one or two quarters, do they also follow a staggered ramp-up schedule, like the deals that we had announced in Q1 and Q2?
Q1 and Q2.
In Q1 and Q1 of 2025, yeah.
So it's a mixed, mixed bag, right? So not every deal has a similar execution pattern, right? There are, there's one deal where we have got to finish the implementation first, and then there is a ramp that happens on the part of that. It's an implementation of a contact center transformation platform, as an, as a case in point. There are a couple of other deals which follow a standard, more linear ramp, that is there. And, and, you know, that's part of the wins that, that, that's reflected.
Great. Thanks, Ritesh, and all the best.
Thank you, Shraddha.
Thank you. The next question is from the line of Ankur Pant from IIFL Capital Services Limited. Please go ahead.
Hi, am I audible?
Yes, Ankur.
Yeah. Hi, Ritesh. Thank you for taking my question, and congrats on good execution this quarter. So when I'm looking at your growth, the overall number is good, but it's primarily driven by the diverse industry-
Sorry to interrupt, Ankur. Could you please speak a little louder?
Yeah, sorry. So I'm saying that... Is it better?
Yes.
I'm saying that, the growth was primarily driven by the diverse vertical and BFSI, healthcare, CMT, all other verticals were not really that strong. Understand that some of the impact would be because of, the account rationalization you have done, but we also had the BPAS deal ramping up. So just wanted your thoughts on how you saw the quarter. Was this the expected outcome?
So I think Shraddha asked the same question, right? Was the quarter in line with what we saw? Look, I'll repeat the same comment first and then talk a little bit about the diverse business itself. Broadly, the quarter was in line with our expectations. You know, at the start of the quarter, barring the trimming of the tail accounts that we talked about in the provider segment, which we decided to move forward during the quarter itself. But I think one comment that I would state right at the outset there is, you know, don't think of just the diverse portfolio itself. That's probably not the right way to look at the overall numbers.
One of our main differentiators is that we run a, you know, a range of segments, a portfolio of different businesses in which different segments have push and pulls at various points in time in the year, right? So example, if you take retail, there is a seasonal trend that is there, but at the same time, typically Q3, which is the October to December quarter, tends to be a weak quarter for our technology business because most of them are looking to take decisions in Q1 itself, right? So you'll see a little bit of that those puts and takes playing out itself.
So that's why what I would recommend is look at this from an overall portfolio standpoint, because when you think about these on a year-on-year basis, over a four-quarter time horizon, you'll see a much more. You'll see a more representative view of the portfolio itself rather than just a quarter-over-quarter view. Yeah.
Understood. And the other question is, I'm sorry to get back to this question, but so hypothetically, if the 10% cap does go through, then what is, what is the likely impact on, on our business, in that case? How much of it would be linked to credit card volumes or, in that sense?
You know, I think at this point in time, there is no foreseeable impact that we end up seeing as I stated earlier, also, at this point in time, this is a tweet. There is a, you know, the president tweets a bunch of things and details of implementation, compliance requirements, et cetera, are still awaited, right? And from a business perspective, therefore, I'm not seeing any impact.
There's no conversation that we are having with clients today on this topic, at this stage at all. And as I said also earlier, from a medium-term perspective, banks at this point in time, and fintechs are putting across their point of view to the government since the APR has a wider linkage to the unit economics of the cards business itself, right?
So given the fact that this can result in lower credit limits, tightening of underwriting, when on one hand, you know, the president also wants a lower interest rate environment to drive greater growth, there may be a little bit of a paradox out there, right? So, that's creating the ambiguity in terms of how this is the case. So that's why, you know, you know, from at this point in time, given the fact that it's not featuring in any of our client conversations, we're not seeing any business impact at all.
Thank you so much for clarifying. Just one last bookkeeping question. This PDC integration was for the entire quarter or a part of the quarter?
W as for the entire quarter.
Sure. Thank you. All the best, Ritesh.
Thank you. Thank you, Ankur.
Thank you. The next question is from the line of Sushovan from Anand Rathi. Please go ahead.
Hi, I hope my voice is audible.
Yes.
Thank you for the opportunity and, congrats on the good execution. Just a bookkeeping question. Regarding the tax rate, right? What we think will be the steady state tax rate, and when do you think these tax breaks will basically see the sunset? That's basically the question as such. Thanks.
Oh, I think we looked into the budget, which have been just now announced, and I think there will be no choice for Firstsource not to move to new regime, because there is a MAT credit available in the company. When I looked into the, what the going forward rate will be, I think we see 1% ± can be when we're really going to go back in detailing, but it seems to be that we should be within the range of 1% higher or lower to the current guided rate, which is 21%.
Sure. Thank you so much.
Thank you. The next question is from the line of Girish Pai, from BOB Capital Markets Limited. Please go ahead.
Yeah, thanks for the opportunity. Ritesh, if you look out over the various verticals, over the next 12 months, how does the overall demand look to you compared to, say, how it was, say, 12 months back at the beginning of calendar year 2025? That's my first question.
So Girish, I think from our vantage point, it's fairly broad-based, right? We are still seeing demand across all our verticals. When I look at our pipeline and the composition of the pipeline, I think we see almost, you know, even distribution ± 3-5 percentage points in terms of the distribution across different vertical segments itself. I will only caveat it by putting one data point to you, which is... See, as we are opening more and more growth engines, right? What it does do is sometimes just by virtue of being in a starting up a new growth engine. Example, we got, when we acquired Ascensos, we got the retail industry in the U.K.
But now, as we are trying to build up our footprint in retail in the U.S., just by virtue of having hands and feet on the ground, you start seeing pipeline out there that you weren't necessarily the beneficiary of in the past, right? Because the focus was not there. Similarly, if you take utilities in the U.K., we are translating that capability into the U.S. market, and therefore we are seeing additional pipeline that we otherwise would not have seen just because, you know, the focus was restricted to a few other verticals. So that's the only, only additional data point that I would throw out there. But if anything else, Un-BPO is creating a significant amount of traction in the marketplace. I think people are looking for an alternative. They want to move away from the traditional linear contracts.
They want to have a tech-first play. They want somebody who can guide them in that journey, and I think all of those elements we play well to, so that's creating demand for us, both reactive as well as places where we can proactively put proposals on the table.
Okay, now that you're discussing Un-BPO, your play that you have as a, what percentage of revenue currently comes from, non-T&M or non-fixed price related, which are seats oriented towards the outcome-based or any other new commercial structure?
So, look, while we will start providing some more details in terms of the, some of these metrics going forward, you know, as we get into the next fiscal year itself and, and beyond. What I will state is, you know, upwards of, 50% of our business today is non-linear in construct.
Okay. One last question, bookkeeping. Did I hear right when you said Past Due Credit Solutions were there for all the three months of the quarter, and TeleMedik got consolidated when?
So TeleMedik is integrated this quarter. It's the current quarter that we are in Q4, but Pastdue was last quarter.
Full of last quarter?
Full of last quarter. That's right.
Okay, thank you.
Thank you, Girish.
Thank you. The next question is from the line of Manik Taneja from JM Financial Capital Private Limited. Please go ahead.
Hi, thank you for the opportunity. I basically, you mentioned about the fact that through the course of FY 2023, you've had a significant shift both related to offshoring and nearshoring with some of your larger customers. Would be great to get some perspective, how much of that would have been a headwind to growth and similarly, a tailwind to margin? And a related question to that one, even through the course of FY 2023, you've spoken about an accelerating growth through, through the course of the year. How should we be thinking about that rhythm from an FY 2027 standpoint, given the visibility that we enjoy right now?
And the final question was basically a clarification question. While in the past, you, you've spoken about the number of employees that came through the Retail BPO acquisition. From an on-site-offshore dynamic standpoint, would it be included with offshore and nearshore, or there'll be some element of contribution even from onshore? There will be contribution for further business?
Yeah, so, I'll give you one data point to your first question, right? Which is, our U.K. onshore headcount has come down by about 40% over the last 4 quarters, while the corresponding headcount in South Africa during the same period is up by about 50%. So that'll give you a little bit of the trade-off that's playing out, you know, as you're optically shifting work from, from a high-cost, high-revenue geography towards a low-cost, low-revenue, lower-revenue geography, right? But that's one data point that will hopefully amplify what, what we have seen while we continue to grow the business.
Sorry to interrupt you. Any sense on absolute sizes? Because until, unless we know what your US onshore or U.K. onshore headcount was, we are all—we can all keep on guessing. So because this would have had some revenue impact as well, so it'll be good to, it'll be good to understand how much of that onshore to nearshore shift may have impacted your revenue performance.
I don't have those data points, but, you know, in some sense, I think the way to think about it is from our vantage point, at least the way we are tracking this is, we know that some of these things will continue to be opportunities that our clients will potentially look to take advantage of, especially when you look at the economic condition of markets like the U.K., right, and given the macro out there. So, the fact that you have a muted economic growth, the fact that there's higher labor costs, I think it's forcing customers to continue to do that. So, you know, I know where you're going with that question in terms of trying to model it for what this might play out.
I think it's very hard to say, because sometimes the regulatory things, the regulatory situation actually might counterintuitively force you to continue to keep the work in the market, whether it's in the U.K. or in the U.S. For instance, in Australia, we have got a couple of customers where the work has to be done onshore in Australia itself, right? As a case in point for regulatory reasons. So, look, that's been our strength as a business, right? Where we can deliver this work end-to-end. We understand what it takes to work in regulated markets and do that. But at the same time, the way to think about it is 80% of our gross hiring is offshore and nearshore locations. That we don't expect to change.
Which means, to your second question that you asked, you will continue to see, just as you saw, you know, a 57%-43% mix, you will continue to see that continue to trend, you know, directionally, in the same way that it has been over the last six to eight quarters itself. Your third question was related to PDC. We already have active interest from several of the PDC logos towards doing work in South Africa. You know, so for them, what is the big benefit is the fact that, with the Firstsource portfolio and the footprint, they now have access to many more locations than just being in Scotland itself, which is where they were headquartered, right?
So I think that's, that's an opportunity that, that I think we, we see as a competitive advantage, for the PDC portfolio.
Sure. And the last one was just a clarification question with regards to some of the rationalization that you've spoken about on the provider side. If I understand correctly, when this business was used to have a higher provider mix, the segment margins for healthcare used to be higher. And then over the course of time, when you finish up the payer business, the margins have got impacted. So just trying to understand in that regard, when you're talking about rationalization of provider accounts, how does that essentially play in terms of impacting margin contribution?
Yeah, but you know, the other way to think about it is the accounts that we are rationalizing are essentially low growth, low margin accounts, right? So yeah, it will have a bearing on, you know, improving the margins for the provider portfolio itself. But given the fact that we're talking of a smaller base, I mean, I think that's one way to think about it in terms of, you know, is it going to have a material impact? Probably not. But you know, you'll start-you'll see some of this playing out in the next, you know, next two to three quarters also, as we continue to, you know, execute on this itself.
The last clarification question with regards to onshoring to onshore to nearshore shift was that limited to probably two of your large U.K. customers, or... And how should we be thinking about segmental margins in that regard?
I don't want to comment on specific clients, but what you will see is that, a bunch of our U.K. as well as U.S. customers are very interested in South Africa as a location, and particularly Cape Town. And so we continue to, you know, benefit from that being one of the largest, local employers out there, right? So I think you're seeing this more broad-based than just restricted to, you know, one or two clients.
Great. Thank you once again.
Thank you.
Thank you very much. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Ritesh Idnani for closing comments. Over to you, sir.
Thank you all for joining the call and for your questions. I want to close with a few final comments. Our sales engine is working well. We had five large deal wins in Q3, which now is the 4th straight quarter of four or more large deals. At the same time, our deal pipeline continues to remain robust, over $1 billion. Our execution is on track, as you can see, with the fact that we've executed well on improving our margins. Our EBIT margins have increased by 80 basis points over the last four quarters. Our cash conversion has been strong. Our OCF to EBITDA for the nine months of the year is 86%, and our free cash flow to adjusted PAT is 159%. Our long-term aspirations continue to remain intact.
As I stated in my opening remarks, we see our constant currency growth, revenue growth for FY 2026 in a 14.5%-15.5% range, including the recent acquisitions, that place us in the top decile for the industry. We also remain laser focused on taking our EBIT margin to the 14%-15% planned over the next three to four years. That's all from our side, and we look to interacting with you again in the next quarter call. Thank you, all.
Thank you. On behalf of Firstsource Solutions Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.