Vertical's third quarter 2025 earnings call. On the call today are Sandeep Mendiratta, Chief Executive Officer; Christine Nelson, Chief Financial Officer; Glen Akselrod from our investor relations firm Bristol Capital; and myself, Andre Garber, our Chief Development Officer. This morning, we issued our Q3 2025 results, press release, MD&A, and financial statements, which are now posted on our website and on SEDAR +. This call is being webcast live at 11:00 A.M. Eastern on the 12th of November, and a replay will be available on our website after the call. We will open up the webinar for Q&A after the presentation. During today's call, we will make statements related to our business that may be considered forward-looking. These statements reflect our views only as of today and should not be regarded as representative of our views at any subsequent date.
These statements are subject to various risks and uncertainties that could cause actual results to differ materially. I'll just remind everybody, as per usual and always, all figures discussed on our calls and today's call are in U.S. dollars and will be on an IFRS basis unless otherwise noted. We will refer to specific non-IFRS items such as adjusted EBITDA, and please refer to our cautionary note in the presentation and non-IFRS and other financial measures sections in our MD&A for more detail. With all that, lovely to turn it over to Sandeep Mendiratta. Sandeep.
Thanks very much, Andre, and welcome everyone to this quarterly earnings call. I would just like to take you through just a refresher of what we do, who we are, and just paint some picture about how our strategic program is working that we started off in January 2024. I will then hand it over to Christine. She will take us through the quarterly performance results and share some really nice insights about how our strategic program is developing. I will also talk about the strategic accounts update and how we are evolving that program and what it means to us. With that, just as a refresher, what we do is we help our clients transform their customer and finance data into tangible business value, and we do this by leveraging data and AI technologies. Who we are?
We are a global data and AI solutions and services business, and we are making enterprise AI possible for these large enterprise clients that we have on our portfolio. We leverage some specific hyperscaler technologies like Google Cloud, Microsoft Azure, AWS, Snowflake, Anaplan, which are some niche data platforms, and Qlik as well. These are some of the specific technologies that we leverage. We have got a portfolio of these FTSE 500 type blue chip clients on our portfolio and a very nice diversification of the industry as well as presence in different geographies. We have got 100 plus enterprise clients on our portfolio, which is a massive asset for us, and we support these 100 plus clients, enterprise clients, with 600 plus strong data and AI technologies that are spread out across the globe.
We are a global business structured within two markets, which are North America, EMEA, and Latin America. What I would like to just unfold for everyone and talk about is some of the key pillars within our strategy of NowVertical that we brought to limelight in January 2024. The very first pillar that we have been talking about is the strategic accounts. Now, what's a strategic account, first of all, for us? The strategic accounts are these blue chip clients, FTSE 500, multinational, global companies, household names that we have heard many times. It is not just the size of the business or the logo. It is about the type of the business they bring to us.
We focus a lot more on the accounts or the clients that are going through the transformational journey using data and AI technologies rather than just focusing on the transactional engagement that may only last for a few months. What we expect out of our strategic accounts is they deliver, say, upwards of $1 million revenue a year. Of course, it takes a little while to develop it to that $1 million revenue, but that's the expectation we have. Many of these strategic accounts also have been with us for over five years, which is a really nice tenure to have in our industry. Many of these accounts have delivered upwards of $5 million as lifetime value for us. What it means is once we have won these strategic accounts and we are able to keep them for a long time, they are very meaningful.
They have a meaningful impact on our revenue and profitability, which is what we like. As you know, we are focusing at the moment on top 30 strategic accounts. That is one of the key pillars and what it means to us. At this point, we are delivering about 70% of our revenue with these strategic accounts, and Christine is going to cover some of those numbers for you. The second pillar is our partnerships, and I am specifically talking about our technology partnerships. Today, I would like to drill further into our partnership with Google Cloud. What does this Google Cloud partnership mean to us? We leverage their technology in data and AI space to build high-value and innovative solutions that we bring to our strategic accounts. That is why we work with Google to leverage their technology in data and AI space, first of all.
What Google also does is they refer to us many of these enterprise clients because they believe in the value we deliver for our clients, and they have seen and witnessed how we are enhancing and expanding in these enterprise clients. When these opportunities are referred to us, we then work with these clients and develop them into strategic accounts for ourselves. What this translates into for us is a very reliable revenue stream, which is mutually beneficial for both NowVertical as well as Google. This is what this Google partnership within the technology partnerships means to us. At this point in time, we have got year-to-date about 14% of our revenues coming from Google Cloud, which is quite significant as compared to where we were last few years. The third pillar we have is integration.
Integration was our focal point of the One Business, One Brand strategy that we brought in for NowVertical in January 2024. This was primarily to bring all the synergies from the 12 acquisitions that we had done as a business. What we have been able to do very effectively is cross-sell and upsell the solutions and services from one part of the business to another part of the business. This has been quite a phenomenal journey for us, and we are very pleased to see that this is working quite effectively. What we have also been able to do is build our delivery powerhouse and bring in the delivery efficiencies to our strategic accounts and the other clients.
What that means is we have been able to even win some of the projects, which otherwise we would not have been able to if we were operating as independent single business units that were acquired. This translates for us into improved gross margins and net margins, and that's what the integration has brought to us. One of the key elements that I would want to mention, which we said earlier in the year, beginning of the year, we will complete all of our integration by bringing in all the LATAM brands and converging them into NowVertical as one brand. I'm very pleased to announce that this initiative is going really well, and we are on track to onboard and converge all of our three brands within LATAM onto NowVertical, and we will then be truly one business and one brand, one machine to operate.
This integration revenue is our target was to have 10% revenue, and we are right now standing at 12% already year-to-date, which is quite phenomenal. Let me just give you a real-world example of how these three pillars are helping us expand within our strategic accounts. I will take an example of one of the media giant as our client, which is, of course, within our top 30 strategic accounts. We have the lifetime value of upwards of $7 million from this account already. We recently sold a Google Cloud-enabled data modernization project, which we would not have done otherwise if we were not an integrated business and we did not bring in this focus on our partnership with Google. Not only that, we are now working on this project as a globally distributed team by leveraging all the best capabilities that are available across our business.
That is just one of the examples that I am giving you. There are many accounts where we are leveraging two or more of these key pillars already as an integrated business. These three key pillars are maturing really nicely and are already steering us forward towards a high-margin recurring revenue base, and I am really delighted about how they are coming together. I will come back shortly, and I will discuss how these pillars are working in concert to accelerate our growth. First, I am pleased to hand the call over to Christine to walk us through our quarterly performance. Christine, over to you.
Thanks, Sandeep, and hi, everyone. I would just like to remind everyone that this is still a transition year as we continue to execute on the One Brand, One Business integration strategy and increase our focus on growing our strategic accounts. While we dealt with some unexpected macros this year, we are still delivering $27.7 million of revenue year-to-date. We have grown our EBITDA by 17% to $5.4 million, and we have grown our operating income by 55% to $2.5 million. We have also delivered on our key strategic KPIs relating to strategic revenue, gross margin, and EBITDA margin targets. Sandeep will go into more detail on how we are reaching those targets later on, but I just want to highlight that we have grown our top strategic accounts by 23% to $19 million year-over-year.
Our gross margin for Q3 was 51%, exceeding our 50% target, and we have reached best-in-class 20% EBITDA margin. Now, digging into the quarter, in Q3, we had revenue of $9.1 million, which was a return to sequential growth over Q2 2025. While we're seeing growth over the prior quarter, there was a significant devaluation of the Argentine peso this quarter, which resulted in a $1 million deflation of our revenue as we have to restate the Argentine year-to-date results for the current FX rate. If the FX rate had remained the same as last quarter, revenue would have been $10.1 million in Q3. I really want to highlight the fact that the underlying performance in the Argentine market is incredibly strong. We actually had quarter-over-quarter revenue growth in local currency of 18% in that market, which we also highlight in our MD&A.
Also, last quarter, we had discussed the increase in multi-year reseller contracts in 2024, which resulted in higher reseller revenue in the prior year as we have to recognize 100% of the contract on the data delivery. Even if it is like a three-year contract, we have to recognize all three years' net of costs at the data delivery. While this is actually fantastic for the business as it is committed future cash inflows, it does impact the comparables. We are continuing to close more of these multi-year contracts so that revenue gap from Q2 is narrowing, but we wanted to highlight that it is still a factor. Another reason for the 2024 year-over-year variance is the restructured Chile and Mexico businesses. While the overall impact of the multi-year deal and the restructuring is narrowing, it still had about a $700,000 impact year-over-year per revenue.
Next, I'll dig into some of our key revenue KPI performance updates, showing that our underlying core business is strong, driven by the growth in our top strategic enterprise accounts. How are we growing these accounts? We're winning more. How are we winning? Three ways: cross-selling and upselling, capitalizing on our technology partnerships, and third, our efficient delivery model. These three things have allowed us to grow our top strategic accounts 23% year-over-year to $19 million, reaching 69% of our total revenue. Growing these strategic enterprise accounts is one of our key focus areas going forward. Another focus area is our technology partnerships, which are incredibly important to the growth of the business. Specifically here, we want to highlight our Google partnership and the revenue generated from this relationship. We have grown our GCP partnership revenue by 42% year-over-year.
In 2024, our Google partnership was primarily concentrated within Argentina. Now it has grown across LATAM into North America and EMEA, giving us new leads, new clients, and the ability to upsell and bring innovative solutions to our clients. We also now have three specializations with Google: data analytics, machine learning, and GenAI. We're incredibly proud at how fast we've achieved these and that we're only one of 15 partners that have these credentials worldwide. On top of that, we are a Google Premier partner, and of course, we won 2025 Partner of the Year in LATAM. The integration of our global business and the One Brand, One Business integration strategy has been another key driver for growth, specifically within our strategic accounts. We have seen an 82% increase in integration revenue year-over-year, and we're incredibly proud this is now 12% of our revenue.
How are we measuring our integration? We are through cross-selling and upselling, our net new Google partnership revenue, and of course, the utilization of our efficient delivery cost centers globally. Now that we are a globally integrated business, we are able to offer our clients more solution services from one part of the business to another, enabling us to organically grow our existing clients through cross-selling and upselling. The other key foundation is being able to service our global clients with our efficient delivery powerhouses in Argentina and India. These delivery centers are increasingly servicing our North American and EMEA market. Not only does that allow us to maintain high gross margins of around 50% quarter after quarter, they have also allowed us to win certain accounts and projects that otherwise just would not be possible. Next, I will walk through EBITDA and income from ops. EBITDA for Q3 was $1.8 million.
While this was slightly lower than Q3 of 2024, our EBITDA margin was higher at best-in-class 20%. Year-to-date, EBITDA was $5.4 million, a 17% increase over 2024. Also, our EBITDA margin has also increased from 16% to that best-in-class 20%. This goes to show that there's so much resilience and consistency in the business that despite the lower EBITDA results in Q2, we're still seeing growth in both EBITDA and our EBITDA margin this year. Income from ops was about $0.4 million this quarter. It was a decrease over last year, but mainly due to about a $600,000 increase in non-cash share-based compensation related to performance sharing units granted in the quarter. Now, these PSUs granted is a really positive reflection of our business as our employees have chosen to invest in the long-term prospects of the company by committing part of their compensation into stock.
Despite that increase in share-based comp this quarter, we are still looking and showing a 55% increase to $2.5 million year-over-year for income from operations. One big focus for management for the past two years has been cleaning up our balance sheet. We have made incredible progress this year of reducing our cash obligations. As of Q3, we have reduced our short-term liabilities by $4.7 million since December 2024. A big part of that was clearing $2.7 million of old HDP. Furthermore, in October, we completely paid off our convertible debentures, removing a potential dilutive issuance of shares if that convertible note had converted. Both the reduction in short-term liabilities and the repayment of the convertible notes were made possible from our cash flow from operations and also funding from HSBC, who has been an incredible partner for the business.
Overall, in 2025, and this includes up until the end of December, we will have cleared up over $8.9 million of acquisitions and long-term debt obligations this year. When you look into 2026, we only have $2.8 million of acquisition and debt obligations, not to mention that they are predictable from a timing perspective. This is a 69% decrease. What is this doing for the business, and why do we want to highlight this? Clearing these liabilities is setting us up for cash flow success in 2026 and setting the foundation to have our cash inflows from operations fund our future growth by investing in our sales teams and looking at potential accretive acquisitions. Thanks, everyone. Back to Sandeep.
Sandeep, you're muted.
Thank you very much, Christine. I couldn't be more proud of how our entire management team came together to transform this balance sheet. We now have the flexibility to invest in our business, both organically and through any accretive acquisitions we are going to come across. What I also want to mention is all of this was made quite simple with the support we received from HSBC in refinancing our debts, and it speaks volumes about their confidence in NowVertical's long-term prospect. Let me just take you through how our strategic account program is evolving and why we are so excited about what's coming next. We are built for enterprise. Every solution and service we have on our catalog that we offer to our clients is positioned to deliver the tangible value to our enterprise clients on the strategic accounts.
On one side, we have got the enablement of the AI, which is driven by the foundational data services, and this is absolutely the core for any of our enterprise clients to deliver the ROI from their AI programs. Once the overall data services structure is done properly, what we then do is apply AI, which delivers the tangible business outcomes. We are bringing that narrow focus and deeper expertise on the agentic AI infusion in every solution and service that we have. This is really exciting times where how we are transforming our solutions and services catalog and bringing that value to our clients. The other thing is we have proven with our strategic accounts program that we can very successfully expand and grow in the enterprise accounts. We are also winning against the Big Four and some of the other large consulting and outsourcing businesses.
We are winning because we know we specialize in customer and finance data. That is one of the niches that we carry on a very vast data space. We also have our niche solutions that are enabled by key technologies. We talked about Google Cloud. That is one of the technologies that we are enabling our solutions and services with. At the same time, we have our focus on the delivery of the business outcomes. We do not just bring the technology to our clients. We deliver the business outcomes. These are the specialization areas that then differentiate us from our competition. What this is then helping us deliver is the revenue. The average revenue per strategic account has grown to $846,000 in the last 12 months.
This is a phenomenal growth that we are seeing by the expansion that we are able to deliver and focus that we are able to bring on the enterprise clients and the strategic accounts that we have. We are also enhancing our focus on the strategic accounts, and we are adding a new category, which is called emerging accounts. These are the accounts which are now showing potential for growth, and they may be then brought into these strategic accounts over a period of time when they have achieved some of the thresholds of our revenue. What this is allowing us, this kind of renewed focus and evolving our strategic program, is allowing us to replace slower-growing accounts with faster-expanding ones. That is what we want to see while we are growing our business.
While we are doing this, there is a very interesting phenomena that's developing in the business, and we call this as the flywheel of growth. What this flywheel of growth is doing for us is, on one side, we are rapidly growing our strategic accounts. You can see now there are already 10 strategic accounts where we have delivered over $1 million of revenue in the last 12 months. This is up from only three accounts that were delivering close to $1 million revenue in 2023. This is a massive shift, and this has been brought in because of all the focus that the management team has been putting into developing and growing the strategic account.
We also had very recently a record growth in one of our strategic accounts, which was part of our emerging account, and we grew the revenue to $1 million in less than six months. That account is now part of our top 30 strategic accounts, and it is growing further. On the other side, what we have is we are deepening our relationship with Google. What this is delivering to us, as you have seen on Christine's slide, is $3.9 million of Google Cloud services revenue already year-to-date. This is phenomenal growth for us. Google also brought in 19 opportunities already year-to-date to us, and we have converted the majority of them into project work and paid engagements for us.
At the same time, our positioning of the specialization that we have now gathered, the three specializations within the data and AI space, which is the data and analytics, machine learning, and the generative AI specialization, we are now positioned as one of those very few companies and partners of Google across the globe. That positioning helps us leverage with the clients, as well as Google sees us as that advantage and differentiated partner and brings more and more opportunities to us. The interesting point here is that we are leveraging Google Cloud to expand within our strategic accounts. At the same time, Google appreciates our enterprise account base and how we are able to expand within those enterprise accounts. They bring in more opportunities to us as their referrals. These are the opportunities that we translate into strategic accounts.
At this point, within this flywheel of growth, we have got seven strategic accounts with Google Cloud footprint already. We have got 20 enterprise accounts where we are delivering Google Cloud-enabled solutions and services. This is the flywheel impact I was talking about and the phenomena I was talking about, which can then snowball into a much larger revenue base for us. Not only that, what we have also got is this flywheel is supported by very strong gross margins and the net margins that we are delivering in the business. These are very resilient gross margins and net margins that we have got. You have just seen how the balance sheet has been transformed completely as well. Also, the opportunities we are winning with the agentic AI and the tailwinds we are experiencing in the market, that's quite exciting as well.
The other foundation is, like we said, we are now an integrated business, and we are now in a position to leverage all the capabilities wide and deep across the business and bring it to our strategic accounts and to the technology partnerships as well. We will be spending more time on integration topic and agentic AI proposition during the webinar that is being organized and will be hosted by Bristol, our partner, on the 10th of December. If you want to know more, please join that. This flywheel-driven growth and the resilient foundation that we have got, it's allowing us to envision our future much better. We know that the enterprises are going to be spending upwards of, say, $125 million to embrace this whole data and AI technology, the agentic AI wave that we are seeing, which is quite real.
We are already delivering some tangible results for our clients in there. What this is going to, this flywheel is going to go into is, we are excited about, is the snowball effect that it is going to have within our business. Now we can see the light of the $100 million high-quality revenue that we are looking to generate within our business. These are really exciting times, and the future that we can look at based on this flywheel of the growth and the foundation that we have built is quite real for us. This is the exciting times for us in the business where we are preparing ourselves for not only 2026, but the longer-term growth in the business as well. With that, I will stop and open it up for the Q&A. Over to you, Glen.
Thanks, Sandeep. Just a reminder for our covering analysts, please raise your hand to ask a question. The first question will come from the line of Rob Goth and Emma Fang. One second. Let me just let them in.
Okay. Can you hear me now?
Yes.
Perfect. Thank you, Glen. Thank you, Sandeep. Congratulations on the quarter. My question would be, looking forward into 2026, as you are looking at renewing contracts, etc., can you give a general sense of the pipeline of the demand when you're in those discussions at this point?
Very good topic you brought up, Rob. This is exactly what we are going through as a management team right now for 2026, and we are doing a deep dive into our planning for 2026. There is a strong pipeline that we have for 2026, both from renewals perspective and the transformation programs that we have the visibility of. The majority of our clients have the budget cycles of January to December. A lot of these renewals and discussions about the budget happen in Q4 and primarily between November and December. What we are now looking forward to is having those conversations. Those conversations have already been initiated with our clients on the renewals and some of the budgets that are going to be allocated to the transformations that we are delivering for them.
Overall, very strong outlook and strong pipeline, both on the renewal side, the transformations as well.
My other question there as a follow-up, can you talk about what your priorities and capabilities are for scaling in terms of the sales marketing capabilities and in terms of, I do not want to say back office, but in terms of outsourcing and internal engineering software capabilities?
One of the things Rob, I have been saying all along is that this business has got all the right assets, right solutions and services, beautiful capabilities, and every ingredient that we have created here within our strategy. What we want to do is invest in creating the commercial engine and go-to-market around that and scale our business, amplify that business multifold. This is where all of the investment needs to happen. The challenge with us was with a very heavy balance sheet. We were just not able to invest in the right areas of the business so far. As you have just seen what Christine showed on the balance sheet slide, that changes. That balance sheet has been transformed completely by the end of this year. That gives us a new dimension for the investments into building the commercial engine, first of all.
That is where the majority of our investments are going to go. We have got solutions that are repeatable. They are aligned to certain industries. They are very niche. We have got tech-enabled services that are very high value, and we just want to bring it to the whole world properly. North America and EMEA are one of our key markets where we will initiate those investments first. Of course, LATAM can take all of that investment as well in the commercial engine creation.
Thank you.
Thank you. The next question will come from the line of Emma Fang and Suthan Sukumar from Stifel. Emma, you're live. Your line is live.
Hey, guys. Congrats on the quarter. Can you hear me?
Yes.
Okay. Perfect. Perfect. I guess first question, maybe towards the macro and your client spending priorities. How are clients responding to the macro now, and what changes have you been seeing in client spending priorities?
Yeah. One of the things we are seeing is this agentic AI and the AI wave is very real. We are able to deliver tangible results to our clients with this technology. The challenge is these are all complex changes. These transformations with data and AI, the latest AI technology, are not simple for the enterprises to embrace. They need that help. They need that help more than ever. We know for sure, you talk about any industry, any client, they are going to go through massive transformation with the agentic AI technology that we have and the generative AI technology that we already are working with. This is now giving us a lot more conversations.
Many of our clients are at very early stages, so we are doing a lot of the consulting and the advisory kind of services with them, painting the right picture and the vision for them to utilize these technologies, and then helping them take the next step on experimenting with those technologies and seeing some tangible results in a smaller scale, which then gives us access to much bigger transformation where we can bring multiple use cases to our clients. The good news about these technologies is that it's not just working in one specific area of the business. You can apply agentic AI and other AI technologies across the whole business. There are so many of these conversations that we are having in the market, and we are really pleased to see this macro trend that is evolving.
Okay.
This is one of the things that I also mentioned about how much the enterprises are now budgeting to spend on their transformation of the agentic AI technologies and our research. Many of our conversations as well are telling us they are upwards of $100 million a year.
Got it. Got it. Maybe just one more question from me on Google. It looks like Google Partnership is tracking very well with the press release and the projects, 12 projects in the first half. I guess maybe looking at what the organic expansion opportunity with joint Google clients beyond just Google-related services work, and then what other partnerships are you excited about, and where do you expect to see more traction this year?
Very good question. I think just because we talked about the Google Partnership here, all the other partnerships that we have, they kind of got suppressed. We have partnerships with Microsoft Azure. We have partnership with AWS, Snowflake. We are partners with Qlik. There is significant revenue that we get from Qlik as well. All of these partnerships are going to be enhanced and nurtured and fostered properly within our business. The only thing that the reason we are just narrating all of our success story here with Google is because we have seen a lot of tailwinds there lately. With our positioning that we have with them, Partner of the Year award, being the premier partner, having those three specializations already, all of this is quite meaningful for us. We are seeing a lot of acceleration and aggressive growth in this partnership.
All the other partnerships are also being worked on. It's just that Google is a little bit ahead of some of our other partnerships in terms of our relationships and the depth of relationship with them.
Thank you. That's all for me today.
Thank you. Andre, we're ready to take questions from the Q&A text box.
Thanks, Glen. Just to carry on the thread on a corollary note, can you give an example of a service you've provided through the Google Partnership, some kind of example?
Oh, yes. Yes. We are leveraging all of their data and AI stack. It is end-to-end stack and architecture that we are leveraging. And we have got deep capabilities and expertise around that. In fact, we got our global practice together just a few days ago. They all came down to London, folks from LATAM, India, in London as well. There was so much of the deep-down conversations that we had and so many nice work products that came out from there. The type of services that we offer with Google is on a larger, wider scheme of things. We do the data modernization that is enabled completely by Google Cloud.
What that means for our clients is that if they are invested in Google Cloud as their go-to platform for data and AI use cases, then they have to do a lot of work to bring in all the data together, stitch all the technologies together nicely, and then enable that platform to deliver the right use cases. That is our end-to-end journey of the data modernization that we bring to our clients. Once we have done that with one by bringing in one use case to life, you can deliver 100 more use cases. The incremental cost to deliver that is much lower. That is the beauty of when you go through that end-to-end process of the data modernization.
We also then work with our clients on just some agentic AI-driven use cases where they may have some experimental data or they may have access to some subset of the data, and they want to try some use cases just on agentic AI to see whether it's really going to work for them in production. Can they really leverage those technologies to automate some parts of their processes and their business and go faster? There are a lot of those agentic AI-style engagements that we have. They could be in the customer services. Customer services is a fantastic area where you can automate so many of these things where the agents are communicating with their customers, and the bandwidth is a major challenge for many of these enterprises. The consistency and the quality is another problem.
How do they train their agents is another challenge that they are facing. We are working across many of these agentic AI-driven use cases just within the customer services. Marketing is another phenomenally big area. There are so many use cases on how do you automate the personalization and targeting. How do you really understand the customer behavior in real time in very efficient ways and have the next best action or the next offer or just a treatment of those engagements for the customers? There are two aspects, basically. One is just the use case driven initially, and it could be a much larger data modernization engagement with our clients on Google Cloud.
Thanks. Just a question on the convertible debentures being extinguished in October. I think one of the audience members asked if they have been extinguished. Just to be clear, they have been extinguished and paid in full. Just in the interest of time, I'll move on. A few questions on some of the currency matters with LATAM currencies, FX volatility. Maybe we could round this up into one larger question. We've had a question about experiencing some FX volatility. How does the business typically go about addressing this? Does the business explore hedging or anything to that effect? I have a follow-on question related to that.
Christine is our best subject matter expert and expert, I would say, on this topic. Christine, would you like to take this question, please?
Yeah, sure. Thank you, Sandeep. Yeah. All of the regions themselves are naturally hedged. When you're looking specifically, we see most of the fluctuation in the Argentine market. Within the market itself, all the revenue, all the expenses, they're all in Argentine pesos. Within the market, there is actually no FX impact. The only time we're seeing that FX impact is on the consolidated financials. Also, when we're trying to repatriate funds up into the parent. To hedge against that, we have some investment accounts, so we lock in USD at the rate it's been earned. We also repatriate funds on almost a monthly basis. When we're sending funds up to parent from the profits of, for example, Argentina, we are sending them up at approximately the same rate at which they're being earned. They're naturally hedged.
For example, what's causing the devaluation in the current quarter is actually a revaluation of January to June. Those profits have already been earned. We've already repatriated funds back in Q1 and Q2. Really, we're looking at devaluation to us as almost kind of non-cash, and you're just seeing it on the P&L.
Thanks. I'll just want to follow up there. We had a question saying, "I took the reported revenue figures in Argentina and pesos and adjusted them for inflation according to IPC and came to the conclusion that the Argentine business actually had its best quarter this year, growing 10%." I think we can maybe confirm that.
That's correct.
A quarter of a quarter, and that the decline in revenue was entirely driven by devaluation and has nothing to do with the performance. Can you confirm this?
Yes, I can confirm that. Yes, it was an incredibly strong performance in Argentina. It was best quarter this year. They've seen sequential growth quarter after quarter. It is purely the devaluation of the currency that you're seeing on the P&L on a consolidated basis that's having an impact. That's correct.
With the, I guess, one last question on this devaluation or Argentina, is it reasonable to assume that this kind of headwind that we had this quarter could turn into a tailwind?
Potentially. Right now, what we're seeing is that the FX rate has remained relatively stable since the end of September 2023. If we're seeing inflation rise at a higher rate than the currency devaluation, yes, that could be the case.
Just switching to the cash flows, a question came in. When do we think we can generate positive and sustained free cash flow? 2026, is there a risk of dilution?
No, we are not looking at any kind of risk of dilution at all. One of the things that I just want to remind all of our investors is that the management team has got 27% equity in the business. We are completely aligned to the investors' motives. There is no initiative or discussions that we are having about any kind of dilution. This is what we have been saying earlier as well, and that is what we have been following. In terms of what was the next question? Other question, Andre?
No, that was it in terms of free cash flow in 2026.
Yeah. I mean, if you look at the balance sheet now, now that all of our liabilities are going to be behind us by the end of the year, convertible debt has been paid off. This is a feather-light balance sheet as compared to what it was in the past few years. Next year, our ability to not only generate free cash flow, but also invest into the business is going to be very aggressive. Anything else, Christine, you want to add to the point?
No, I think, yeah, as I said, clearing up this balance sheet is setting us up for success with the expectation to have cash flow from operations, free cash flow in 2026 that we can utilize to invest back into the business.
Great. Question on the high-margin strategic accounts. As you plan to concentrate on high-margin strategic accounts, there's less of a focus on smaller accounts. When do you expect that development to be completed?
If I understand the question right, it's the development of the strategic accounts completed. See, I think we are now almost at 70% revenue of ours is coming from the strategic accounts. That's up from it was 45% in 2025. How robust that is for us. This is high value, high margin, longevity is there. All of the right things that we want to see in the revenue is there, reoccurring revenue, all of that is there in the strategic accounts. So all the rest of the revenue, there are parts where we are developing these emerging accounts, like you said. They may not be delivering very high revenue today, but we know we are working on them because they have growth potential.
What we will be fading away from over a period of time is very, very small accounts or, as they call it, as the SMB sector in many ways, very small accounts that are doing a revenue of, say, just $50 million or so. We will be moving away over a period of time from those. The growth rate that we already have in the strategic accounts will easily compensate for any of those accounts going away.
Are margins at strategic accounts accretive overall, or do strategic account margins expand across the life of the contracts?
Over a period of time, I mean, these strategic accounts, when we onboard them, initially, the margins are not as high because we also have to prove our value to these strategic accounts. These are large enterprise clients. Even the likes of, say, these Big Four, they have to go and prove their worth to these strategic accounts or the enterprise accounts. Initially, these margins are not so high. As we develop those accounts, and when you look at our tenure of three years, four years, five years, and more for these strategic accounts, the margins are really, really high. There is a lot of recurring revenue, reoccurring revenue, different types of revenue streams that we get from these strategic accounts. That is why we focus more and more on them. These are the high-quality, high-margin revenue accounts that we want to have on the business.
Great. Just a couple more here. Question about confirming whether there are any warrants or debentures that are outstanding. There are no debentures outstanding. We do have some warrants outstanding. It is all disclosed in our financial statements related to prior placements. Okay. Any other questions, or should I just pass it back to Glen?
If you have no other questions, Andre, then we can end the call.
Oh, there's just a couple more that came in. Just in terms of the managed services and transformation and project delivery revenue, can you discuss the mix of that?
Christine, would you like to take that question just to discuss the mix? I mean, I completely have the understanding of where exactly it's coming from. Just a macro level stuff, and then Christine can cover some of the numbers or just the high-level ratios there. But advisory and consulting is the smallest area of our revenue stream, if you like, within the solutions and services area. This is a step in the door with the enterprise clients. This could be, say, anywhere between $50,000-$150,000 to begin with. There are many examples where initial revenue stream is just about $100,000-$120,000 with them.
This is when we go in and discover and envision what is their problem statement, what are they trying to achieve, what are their objectives, where do they stand, and what is the gap between where they are and where they want to be. This is the kind of work that we do all the time. This particular work then gives us the right to talk to them about how they should be defining their program roadmap, what kind of technology and architecture they should be thinking about, is their current technology stack fit for purpose, or we need to augment that with the other technologies or completely revamp their technology stack to achieve the objectives they have got on board. We put in the right prioritization for them to deliver those objectives.
This advisory and consulting part, it's the initial engagement that we have when we are winning these new enterprise clients. When we are in a strategic account as well, when we are expanding into a new geography, for example, which we have done multiple times, when we are going into another business unit of that strategic account, we still utilize these advisory and consulting services to win that trust and confidence of our clients and then develop that relationship further. That's why it's the smallest of our revenue stream. We tend to keep it under 10% for sure, and that would be the future aspect as well. We have got the transformation and the projects revenue and the managed services part. These are those transformation programs that could be running for anywhere between 12 months to 5 years or more.
They bring in that robust recurring revenue into the business. That is a pretty significant revenue stream for us. There could be some project-based revenue as well, which may be lasting from anywhere between six months, for example, to 24 months of the projects. We may be delivering just a couple of use cases for our enterprise clients. These transformation programs and the projects then help us offer the managed services contracts to our clients as well, where once we have delivered the product to them, it is how do you run that product very efficiently. Our enterprise clients, they find it again very challenging to build that capability and the teams and nurture those teams and maintain those SLAs in-house. That is when they look up to us and bring those opportunities of the managed services style contracts as well. That is also a significant revenue.
Over to Christine, if you just want to give some high-level ratios, Christine, and those three areas of revenue within solutions and services, please.
Yeah, I think you pretty much covered the story there. Yeah, generally, our consulting and advisory can really kind of fluctuate from quarter to quarter. Generally, around 10% managed services is around 30%, give or take. The bigger section there is the transformation and project delivery, which is usually around 60%. It will fluctuate every quarter. Generally, that is kind of the proportions there for that. That is only relating to our core solutions and services. Yeah.
Can you speak to the pipeline? The pipeline, someone brought up that on the last call, we mentioned that the pipeline was very strong. That is why I'm very confident about our outlook for H2. Do we still believe this? Thanks.
We believe it. Yes. This is what we have shown you in all the key pillars of our business, the kind of growth we are delivering to these strategic accounts, 23% growth there. We are continuously developing that strategic accounts base. If you look at our Google account base now, in 2023, the revenue was insignificant. Now it has become 14% of our revenue year to date. That is, again, significant growth for us. It is not only just the growth, it is also building up those relationships and the resilience in the business. Now when you look at our integration-driven revenue, that is about 12%. Our target was 10% for this year. We have already achieved 12% year to date. These are all those trends of growth that we are seeing.
We are able to deliver this growth because we have the pipeline to close with our strategic accounts and others.
Okay. Thanks, Sandeep. Thanks, Christine. Thanks, Andre. I believe this completes the Q&A session of this presentation. We're going to now end the call.
Thank you very much, everyone.
Thank you, everyone.
Thank you.