Greetings, and welcome to the Everforth third quarter 2026 earnings call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Kimberly Esterkin, Vice President of Investor Relations. Thank you. You may begin.
Good afternoon. Thank you for joining us today for Everforth's third quarter 2026 conference call. With me are Ted Hanson, Chief Executive Officer, Shiv Iyer, President, and Marie Perry, Chief Financial Officer. Before we get started, I would like to remind everyone that our commentary contains forward-looking statements. Although we believe these statements are reasonable, they are subject to risks and uncertainties, and as such, our actual results could differ materially from those statements. Certain of these risks and uncertainties are described in today's press release and in our SEC filings. We do not assume any obligation to update statements made on this call. For your convenience, our prepared remarks and supplemental materials can be found in the investor relations section of our website at investors.everforth.com.
Please also note that on this call, we will be referencing certain non-GAAP measures such as adjusted EBITDA, adjusted net income, and free cash flow. These non-GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in today's press release. I will now turn the call over to Ted Hanson, Chief Executive Officer.
Thank you, Kim. Thank you for joining Everforth's third quarter 2026 earnings call. Our third quarter results demonstrated continued momentum. Revenues of $1.03 billion and adjusted EBITDA of $106.3 million surpassed the high end of our guidance, while adjusted EBITDA margin of 10.3% was at the top end of our guidance range. Commercial segment revenue growth reflected sustained customer investment in AI, IT modernization, and cloud transformation services. Strength in our data and AI, security and risk, and enterprise platform solutions helped drive a commercial consulting book-to-bill of 1.1x on a trailing 12-month basis. In our federal government segment, new contract awards totaled $584.4 million, representing a book-to-bill of 1.9x for the quarter and 0.9x on a trailing 12-month basis.
Strength in federal bookings for the quarter reflected planned awards and extensions, indicating continued demand for our services. Federal contract backlog was approximately $2.9 billion at quarter end or a coverage ratio of 2.5 times trailing 12-month revenues, with particular strength across AI and data, cybersecurity, cloud, and mission modernization. Shiv will discuss our performance and recent customer wins in more detail shortly. With that context, I want to focus on two themes shaping enterprise technology investment and strengthening Everforth's position in the market. First, AI investments remain significant, but its focus is evolving. Enterprises are moving beyond experimentation to scale deployment, but much of the investment to date has centered on the infrastructure, platforms, and software required to support that growth. We have consistently believed that enterprise software platforms would become a primary channel for deploying AI across the enterprise.
That is increasingly what we are seeing. AI is not replacing these platforms, it's expanding their role as AI becomes embedded into ERP, CRM, and workflow environments. This is important for Everforth. Our partnerships with Workday, Salesforce, ServiceNow, and other technology leaders provides us with platform expertise required to move these AI-enabled technologies into production. Our implementation track record has earned us the opportunity to serve as forward deployed partners with early access to new capabilities that we can bring into customer environments. We're an official member of the Salesforce Forward Deployed Engineering Partner Network, and among the first Workday partners to be certified to implement Paradox and HiredScore, Workday's unified AI-powered talent acquisition platform. As these platforms evolve, we are positioned to help customers turn these new AI-enabled capabilities into practical business outcomes. Second, scaling AI requires more than technology itself.
Infrastructure and software are only part of the investment. Successful deployment also requires data integration, security, governance, change management, and the right operating processes. In other words, AI is not only a technology investment, it's part of a broader business transformation. That is where IT services become increasingly important. Moving from pilots to scale deployment introduces challenges around cost, governance, and security that require both technology and execution expertise. According to ISG, more than 60% of enterprise customers surveyed measured AI success by cost savings generated, while nearly 80% identified centralized governance and cybersecurity as the best way to manage costs. We are seeing the same priorities amongst our customers.
Our security and risk bookings are up over 40% year to date compared to the first nine months of 2025, while our security and risk pipeline has increased in the mid-teens since the end of the third quarter. Agentic AI illustrates why these capabilities matter. As agents access data and execute tasks autonomously, they must be governed and monitored. Technology providers, including Microsoft and AWS, are developing capabilities to address these emerging cybersecurity needs, but the market is still developing. Everforth helps clients assess, select, and implement the best-suited technologies for their environments, which is particularly important in AI governance, where no single technology addresses every security requirement. We are also investing in governance as a service for highly regulated industries like healthcare and financial services, and bringing together capabilities across Everforth under a unified set of offerings supported by our proprietary assets and accelerators.
For example, our teams developed a repeatable platform called our Enclave Factory for rapidly deploying secure, compliant environments across classified and unclassified networks. Our Enterprise Security Operations Center, or SOC, developed an AI-driven security triage capability that helps reduce false alarms and prioritize high-risk concerns. Through our Everforth AI Studio, we built an AI-driven regulatory change management and compliance platform that enables financial institutions to continuously monitor evolving regulations and streamline their compliance workflows. Our view remains clear. Enterprise AI is advancing, but many of the hardest implementation challenges are still ahead. As customers move from experimentation to production and scale, they need partners that understand their tech environments, industries, governance, and security requirements. Everforth is well-positioned to bring those capabilities together and help customers successfully navigate the next phase of enterprise AI adoption.
With that, I'll turn the call over to Shiv to discuss our industry performance and how we're applying these capabilities across our customer base.
Thanks, Ted, and good afternoon, everyone. Let's begin with our commercial industry performance. Sequential growth for the segment was led by TMT and business services verticals, both up high single digits from the second quarter, while the consumer and industrial financial services and healthcare verticals remained relatively stable. TMT benefited from strong double-digit growth in the software and interactive sub-industry, driven by work with the frontier AI labs and hyperscalers. The business services vertical benefited from expanded work in the aerospace and defense and professional services sub-industries. Year over year, TMT and business services grew mid-teens and high single digits, respectively. Within the consumer and industrial verticals, we achieved high teens growth among utilities customers, including growth in our work with large regional and national energy providers.
In the financial services industry, insurance accounts grew high single digits, driven by contracts with global carriers, while diversified financials grew low double digits with growth amongst our investment management accounts. Turning to federal, national security drove the segment's growth with strong double-digit revenue improvement year over year and mid-single-digit growth sequentially. Strength in national security was primarily driven by our cybersecurity contracts with the Department of Homeland Security and the Cybersecurity and Infrastructure Security Agency, CISA. We also saw solid growth among civilian agencies with technology infrastructure work for the Department of Veterans Affairs and managed cybersecurity work for the Centers for Medicare and Medicaid Services. Building on that performance, I'd like to turn to our solutions portfolio. As Ted highlighted, the infrastructure required to scale AI securely and responsibly remains a significant driver of demand. But customers are looking for more than standalone technology support.
They are turning to Everforth to bring together our AI and data cybersecurity, cloud, and engineering expertise to solve their complex operational challenges. As I highlighted last quarter, we are engaged in data center services across the world's four largest hyperscalers, and the pace of that work continues to accelerate. Our hyperscaler customers consistently identify people, power, and equipment as the three factors limiting AI build-out. The people constraint plays directly to Everforth's strengths. We can quickly assemble specialized teams across data, AI, and digital engineering and deploy them at scale to bring critical infrastructure online on time. As an example, we recently secured a multi-year data center contract in a highly competitive labor market and assembled the engineering team in a matter of a few weeks.
Our professionals are playing a critical role in this hyperscaler's infrastructure build-out, helping bring new AI capacity online while demonstrating Everforth's differentiated combination of expertise and agility. Speaking of our agility, Everforth increasingly operates across the full AI technology stack, from the foundational infrastructure through applications. We are also growing our capabilities in physical AI, and our hyperscaler work now extends to robotics. As a strategic supplier across the full program life cycle, our engineers are helping a global hyperscaler install, commission, and bring its robotic systems into production across North America and Europe. We apply that same AI and engineering expertise in secure government environments. For the Department of War, we are building secure data platforms and applications to operationalize AI and autonomous capabilities. Under our recent SUNet expansion, we are supporting the Department of War's existing secure environment while advancing the SUNet 2.0 platform for AI and machine learning development.
Across other programs, we are validating AI-enabled workflows, transitioning applications across high-security environments, and expanding trusted data for autonomous models. We are also seeing growing demand for agentic workflow automation. For a leading global media and entertainment company, we are building an AI-powered assistant within their Microsoft environment to automate responses to employee cybersecurity requests. This solution allows our customer's security team to focus on high-priority needs and establishes a foundation for broader intelligent operations. Data governance and security are equally important to scale the AI adoption. For a major North American supplier of construction materials, we are strengthening the company's Databricks environment by improving data governance, securely connecting business systems, and establishing management standards. This work supports future analytics in AI while also improving our customers' access controls, network security, and data protection. We are bringing that same focus on security and governance to our federal customers.
Through the Department of Homeland Security's Continuous Diagnostics and Mitigation, CDM program, we onboarded 100% of the agency's CDM dashboards, expanding cybersecurity visibility across DHS. Our security information and event management as a service offering further provides DHS with a unified view of threats and vulnerabilities across the federal civilian executive branch. Beyond infrastructure, data, and security, we help customers modernize core enterprise platforms. For a leading domestic airline, we signed a three-year Workday Gold tier support contract covering needs from security rule updates and financial account mapping to complex integrations. We also secured our first major Salesforce professional services co-delivery engagement with a global food and snacking company, helping consolidate commerce platforms into a unified Salesforce solution across the U.S., Canada, and the U.K. Our digital engineering work is similarly focused on helping customers modernize complex technology environments and business processes.
For a leading U.S. food producer, we are consolidating four operating segments into a single ERP environment to improve end-client experience, transportation, and shipping costs. For the financial services arm of a leading global automaker, we are leveraging our offshore engineering capabilities in agentic development and testing practices to modernize front, middle, and back-office processes. Our investments in AI-led automation further differentiate Everforth by helping customers accelerate time to value and lower their transformation costs. The breadth and complexity of these engagements demonstrate the increasingly sophisticated work we are delivering to our customers. As noted, Everforth now operates across the full AI stack, from infrastructure and applications to physical AI. By combining our industry services and platform expertise with our ability to rapidly assemble and deploy specialized talent at scale, we are very well-positioned to address our customers' most critical technology needs.
With that, I will turn the call over to Marie to discuss our third quarter 2026 performance and fourth-quarter guidance.
Thanks, Shiv. For the third quarter, revenues totaled $1.03 billion, and were above the top end of our guidance range. Revenues for our commercial segment were $719.9 million, an increase of 1.2% year-over-year, reflecting a continued momentum in the business. Revenues of our federal government segment were $311.5 million, an increase of 3.8% year-over-year. Both segments contributed to our revenue outperformance in the quarter. Turning to margins. Gross margin for the third quarter of 2026 was 28.3%, including commercial segment gross margin of 31.9% and federal government segment gross margin of 19.8%. SG&A for the quarter was $217.7 million, compared to $212.2 million in the third quarter of 2025. SG&A expenses included $8.3 million in acquisition, integration, and strategic planning expenses, which was within our expectations for the quarter.
For the third quarter, net income was $23.1 million, adjusted EBITDA was $106.3 million, and adjusted EBITDA margin was 10.3%. As Ted noted, adjusted EBITDA dollars surpassed our expectations, and adjusted EBITDA margin was at the top of our guidance range. Cash and cash equivalent was $147.5 million at quarter end. As we noted in our second quarter call, our focus from a capital allocation perspective is debt repayment as we continue to delever following the acquisition of Quinnox in Q1. In the third quarter, we repaid $52.8 million in debt, including $43.8 million toward the term loans and revolver and an additional $9 million in open market repurchases of our senior unsecured notes. At quarter end, we had approximately $227 million available on our $600 million senior secured revolver, and our net leverage ratio was 3.1 times.
We remain committed to getting our leverage ratio to 2.5 times or below. Free cash flow for the third quarter was $46.5 million or approximately 44% of adjusted EBITDA. We continue to target 60%-65% conversion of our free cash flow to adjusted EBITDA on a full-year basis, excluding the forementioned one-time strategic cost associated with our transformative cost savings. Turning to guidance, our financial estimates for the fourth quarter of 2026 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and assume no further deterioration in the markets that we serve. The fourth quarter assumes 61 billable days, which is three days fewer than the third quarter and consistent with the prior year period. Our fourth quarter estimates also include $6 million-$7.5 million in strategic planning expenses.
As noted last quarter, we expect certain upfront investments to achieve the transformative cost savings outlined in the three-year strategic plan. Alongside these investments, which will continue to decline, we are implementing targeted initiatives that will generate meaningful structural cost savings. These efforts are progressing as planned. With that as background, our fourth quarter 2026, we are estimating revenues of $965 million-$995 million, net income of $19.7 million-$25.5 million, adjusted EBITDA of $93 million-$103 million, and adjusted EBITDA margin of 9.6%-10.4%. Thank you. I'll now turn the call back over to Ted.
Thanks, Marie. As we close today's call, I want to return to an important part of our strategy. When we launched the Everforth brand earlier this year, it was about more than bringing our businesses together under one brand. It was about creating a unified technology services leader that combines the capabilities, industry expertise, and talent across our commercial and government businesses to create greater value for our customers. During the third quarter, we continued to make meaningful progress against that strategy. Our expanded relationships with AWS and Microsoft demonstrate what one Everforth looks like in practice. Our expanded AWS relationship extended Premier Tier capabilities across the Everforth portfolio, while our strengthened Microsoft partnership aligned commercial and federal capabilities through a coordinated go-to-market model. These relationships also reinforce an important point I made at the start of today's call. Our technology alliances strengthened Everforth's role as a forward-deployed partner.
They keep us close to where technology is advancing and provide early access to new capabilities, while our ability to rapidly assemble specialized teams gives us the agility to put those technologies to work as our customers' needs evolve. As we continue bringing Everforth together, our objective is straightforward, to make the full breadth of our capabilities more accessible to our customers and technology partners. The benefits of that strategy extend across Everforth. For our employees, it creates new opportunities to collaborate, develop expertise, and gain experience in a broad range of technology and customer needs. For our stockholders, it strengthens our competitive position and creates a stronger foundation for long-term growth and value creation. These benefits, combined with our industry knowledge, implementation expertise, and ability to deliver services at scale onshore, nearshore, and offshore, strengthens the value Everforth provides our customers as their technology needs evolve.
That concludes our prepared remarks. Before we open the call to your questions, I want to thank our teams for their continued dedication to our customers and to bringing Everforth together. We have made meaningful progress since launching our new brand in April, and we remain focused on building on this strong foundation. With that, we will open the call to your questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Jeff Silber with BMO Capital Markets. You may proceed with your question.
Thank you so much. It was great to see the momentum continuing from last quarter. I am just curious in terms of just your own internal hiring, what does that look like? I know you are focusing on cost management, but are you adding folks internally, and if so, where?
I am going to let Shiv cover that one here, Jeff. If you think about it, generally, we have got capacity in this business. I think we have said that a few times over the prior quarters. We have a natural attrition rate where we are kind of replacing on that, but not like for like necessarily. We are putting people in places where we think there will be demand. Shiv, anything you would add to that?
Yeah, absolutely, Ted. Jeff, we're constantly optimizing our go-to-market resource allocation and adding where we see momentum, optimizing where we don't see it. The other place we are selectively adding capacities and augmenting some of our solutions and delivery capabilities.
Okay, that's great. In terms of the strategic planning that you're doing, you talk about seeing meaningful structural cost savings. Where do you think your margins can go to over time? Can we get back to where we were maybe at the beginning of this decade?
Well, for sure. We've got, as you know, three-year targets out there to get to 12.5% or slightly higher by the end of 2028. That's a combination of things. That's growth, it's gross margin expansion, and it's transformative cost savings, which Marie has talked about quite a bit. There's no glass ceiling here, Jeff. If you think about it, we've been in a business mix headwind. I think, the better momentum we see in commercial, the more you're going to see that term. Yes, we think we'll be back to that, and we expect to get into the ranges that we laid out in the three-year plan.
All right. That's great to hear. I'll jump back in the queue. Thanks.
Thank you. Our next question comes from the line of Surinder Thind with Jefferies. You may proceed with your question.
Thank you. Could you maybe please elaborate on the health of the civilian agencies? It sounds like things are getting better, demand is picking up. Any color there would be helpful as we think about where we are in the cycle, and now that we've kind of crossed the fiscal year. Just contracting process, any other changes that we should be thinking about?
Yeah. I would say that our growth in the Fed civilian agencies was pretty targeted in a couple accounts. That's not a big part of our portfolio. More than 70% of our business is in defense, intel, and national security areas. So we look, going forward and based on the wins that we booked during this quarter, to get better performance in those accounts. That's really what's going to drive our business. I think that the government had a fairly normal last quarter of its fiscal year. There was more activity in the latter part of the quarter than there was in the beginning, but there were certainly customers that were wanting to get things wrapped up, both before the fiscal year was ended and before the midterm elections.
So, all those things are kind of macro contributors, if you will, to what I think will be a pretty good bookings across the peer group, if you will, in the government space.
That's helpful. As a follow-up, maybe can we talk about the idea of, I think you called out more forward deployed engineers or FDEs, and the need for that amongst yourselves and the partners. Does that start to change or shift how you think about geographic or global delivery, your footprint, and maybe some of the skills and capabilities that you need to bring to market? Any color there would be helpful.
Yeah. I'll let Shiv talk about the global capability there, but obviously you're hearing both from us and from the technology companies, whether it's the enterprise platform companies or data and security, that what we do is really important, both to the customer and to them. We are the last mile. We're embedded in the accounts. We understand their technology frameworks and architecture, and we're the ones left to implement these solutions, if you will, once they're sold on the front end. I think in that way, there's a lot more, properly so, a lot more attention to the fact that there are certain players, we're one of them. We believe that our forward deployed partners here that are going to help customers realize the promise of AI through these technologies.
Yeah. Surinder, as Ted said, look, there's multiple prongs to the way we're thinking about this, right? As clearly in spaces like Workday, ServiceNow, Salesforce, we are clearly at the leading edge of being their forward deployed partner, and you heard some of that in Ted's remarks. We are building capacity in the other areas like we've got, think about Databricks, you think about Snowflake, you think about AWS and Microsoft. We've got deep technical expertise in that stack, and the way we think about it is, the forward deployed model isn't just restricted to onshore. We think about it as a combination of onshore and offshore with some solutioning capacity onshore, but a significant amount of the work done offshore, and clients are asking for both. We're approaching it along both those dimensions.
That, I'd say, underpins our strategic decision to add our platform of Quinnox in India earlier this year, because we recognize the importance of having those capabilities, not just here in the U.S. or near shore, but also offshore. We've had some good early success shifting certain work to that platform on all of our enterprise software capabilities.
Thank you.
Thank you. Our next question comes from the line of Maggie Nolan with William Blair. You may proceed with your question.
Hi, thank you. Can you give us more color on the composition of commercial bookings and whether you saw any kind of notable deal timing dynamics or large awards over the last couple of quarters that we should be considering?
Shiv, you want to take that one?
Yeah. Maggie Nolan, look, I think the bookings trend has been consistently strong across most of our capability areas. We've seen continued momentum in our Workday business. We've seen continued momentum in our core business. As we talked about, there's a fair bit of work that we're doing in the AI Data center build out, which is driving a significant amount of bookings in our TMT space. From a vertical perspective, our technology media vertical's growing really fast. We're also seeing continued momentum in some of our defense contractor type work, where we're doing work with those companies. We see continued momentum in AI and cybersecurity, and application modernization. Application engineering has been at the center of a lot of what we do, especially with the Quinnox acquisition. We're seeing strong bookings in that area as well.
Look, I think the bookings come in all shapes and sizes, and we've had several bookings that have been sizable. We don't really report along those lines, but our average deal size on bookings is consistently going up over the last three quarters.
I would say the other thing, maybe one more piece of color, is that they're definitely being influenced by our Tech Alliance partnerships.
Yeah
with the major tech firms and enterprise systems, data, cybersecurity, and the hyperscalers.
Yeah. That is a very good point. If you look at our top consulting partners, we are inching upwards into the high 40, 50% range with the bookings that are influenced with our partners.
Thank you. That is helpful. Maybe to dig in on security in particular, that seems likely to be an incremental growth engine for the business. How material do you think that can become, particularly as you think about the commercial business?
I think we are just scratching the surface of what we can do with security in the commercial business. I mean, if you look at it, we are probably the Premier Tier player in the federal business from a cyber, endpoint protection, quantum, all of those areas perspective. We are starting to see more and more of those in the commercial segment, particularly in some industries. We have got a strong presence in healthcare and in the payer-provider space. We are doing more work in the financial services space. As that now starts to bleed into AI governance, AI risk, Agentic AI security, harness all of those areas, there is continued momentum in that space. So we see that as a significant growth vector for us.
This is one of those areas where the federal government has had a foot in front of the commercial marketplace in cybersecurity, so our quals and halo there carry well into the commercial marketplace. We will continue to work that out. I agree with Shiv, we are just scratching the surface now in commercial, but have big hopes for cybersecurity growth in the commercial area.
Very good. Thank you.
Thank you. Our next question comes from the line of Kevin McVeigh with UBS. Please proceed with your question.
Great. Thanks so much. Hey, I guess just to follow up on that a little bit, do you have any sense, I guess, Ted or Shiv, how client budgets are trending, I guess, into year-end, and then for 2027, more broadly? I know oftentimes at fourth quarter, there can be some true-up. Are you seeing that? And then any initial discovery into 2027?
No, I think more of the same in Q4 from Q3. Q4 is always a lighter quarter to some degree because you have certain projects that come to an end in December, and you have certain clients that will furlough certain projects in the last couple of weeks if they are not going to wrap them up, and they come back to them in January. Based on that, I think Q3 to Q4 is playing out as it normally would. If you think about 2027, it is a little too early to tell. My assumption is it is kind of same as we are dealing with in 2026.
Steady.
I'd say steady. Maybe you get some relief in some areas where customers are spending more on tokens, they spend less on as they go forward based on what's going on with the various models, and that frees up some money for AI readiness, working on data platforms, security, tech debt around applications. That would be a positive if that were the case. Otherwise, I think in absolute dollars, our early inclination is expect kind of the same from 2026, and we'll really get a better view of that when we get into January or February.
Kevin, I'll just give a little, just to maybe add on to what Ted said, just to give a little color on Q4. As you know, from Q3 to Q4, we have about three fewer billable days. That has an impact. But when you look at the distinction between commercial and federal, with that billable day adjusted in our Q4 guide, it would probably indicate low single digit sequential growth. On the federal, it is sequentially down, but it's up year-over-year.
That's super helpful. Then, I guess just real quick, Marie Perry, looks like you were nimble in terms of the open market purchases, the bonds. I guess, what drove that? Then, strategic investments, I thought we'd worked our way through that, so maybe understand that a little bit, and then what's the recurring benefit past the initial $6.5 million-$7.5 million?
Absolutely. From a debt repayment, to your point, bought back about $53 million. A majority of that was on the revolver. We did buy back $9 million on our high yield bonds. It was opportunistic and at a discount. So we kind of had a target price that we would buy it back, and every time we saw it, we got it, and that was $9 million. So that was favorable to us as it relates to that. I think your second question was on the investments associated with our strategic cost savings. What we committed is those dollars coming down every quarter. So you see it, we booked 8.3 in Q3. Our guide for Q4 is $6 million-$7.5 million.
Really by the end of the year, we see that truly kind of mitigating then going back in 2027 to a more normalized pattern.
They are the unlock, if you will,
for the future
for the strategic cost savings, the transformation of cost savings that we mentioned in our three-year plan, which is $80 million.
Right.
in 2028.
Yeah. It will normalize in 2027, but it just continues to drop, and so by year-end, we get down to a reasonable level.
I should have said 2027 and not 2028.
Yeah.
Yeah.
To your point, that is the $80 million you outlined at the Investor Day, right?
Yes.
Correct.
Yeah.
Correct.
Terrific. Okay. Thank you.
Absolutely. Thank you.
Thank you. Our next question comes from the line of Jason Haas with Wells Fargo. Please proceed with your question.
Hey, good afternoon. Thanks for taking my question. It's great to see some success that you're having with your technology partnerships. I'm curious if there's any additional technology partnerships that you're pursuing, and if so, would that require some sort of acquisition?
Yeah, look, I think the technology partnerships come in multiple flavors. If you think about our top five, we still have room to grow in some of the hyperscaler platforms like Google, and we're pursuing those because we think there's significant growth opportunities with Google Cloud as well. We're strong players with AWS and Microsoft. You know our platform ecosystem as well with Workday, ServiceNow, Salesforce being the primary ones. We're expanding our partnerships, for example, in the cybersecurity space because there's a lot of emerging platforms there. We just announced a partnership with WisdomAI. These all don't come in the same size and shape, Jason. We're looking at the market, getting client feedback, and then dovetailing into areas where we believe there's market opportunities for us to differentiate and drive solutions that are fairly differentiated for very specific problems.
Got it. That's very helpful. I understand. I wanted to follow up on the security topic. I'm curious to what extent you're seeing AI driving that demand versus quantum, and if you could talk about just what inning we are in those and how much more there is to go there, that'd be great. Thank you.
Look, I think quantum is very early days. There's obviously threats that quantum creates. We've been at the front end of this because, as you know, the federal government is always thinking about these things a step or two ahead of the commercial market. I think most of the work we're seeing in security spans the spectrum, right. I think the threat actors, even in normal security protocols, are getting more sophisticated. There's just a lot of work to secure environments in that context. AI just adds another layer of complexity, and when you then talk about Agentic AI, it creates a next level of complexity around how do you put the right harnesses, the right security and governance around all of those.
I wouldn't say that AI is the predominant driver, although the speed at which adoption of AI takes place creates a further catalyst for acceleration in that work.
Got it. That makes sense. Thank you.
Thank you. Our next question comes from the line of Tobey Sommer with Truist Securities. You may proceed with your question.
Thank you. I wanted to get your perspective on how forward visibility is trending. Maybe if you could, in the context of your answer, incorporate some comments around projects and/or assignment lengths, weekly hours for the commercial business, and what the trends are at a rate level as well. Thanks.
Well, several pieces to that. I would say, visibility for our business is better as we evolve more to a consulting technology services, digital engineering business. Because bookings, we realize in advance, and then we can understand better how long those will go and at what rate. So, from our legacy business, I think to where we are today, our business has better visibility than I'd say it's ever had, and certainly in the government part of the business. Although you can have some lumpiness quarter to quarter, that's even better visibility because that work generally is five years plus or minus seven years, and so it gives us a view. Volumes are up going forward in both businesses. I think that's a positive sign underpinned by the bookings. Rates are pretty steady.
There's not a lot going on, if you will, from the midpoint of this year until now from a rate perspective. But again, the work that we're booking is coming at better gross margin rates. We look to continue to drive our gross margin up based on that. I think, again, the more work we do in the areas that we've emphasized are more valuable to the customer. In that work, they are much more willing to pay us a higher margin, and also work with us on a fixed fee and outcome basis, which again, just gives us another lever to pull in order to make the work that much more of an economic value to us.
There it is, Tobey.
Did that help, Tobey?
It does. Thank you. There was a software issue at a prominent vendor within the staffing industry this month. Was there any impact on your business at all here in October?
No, not aware of it. Nope.
Good news. Then, within the commercial consulting business, how would you describe the growth you're seeing in larger, long duration projects such as, I don't know, maybe an ERP comes to mind. If you could comment on that.
Yeah. Look, I think, as I mentioned earlier, we are seeing the average size of our consulting bookings increase. Now, it's a wide variety and a big spectrum. For example, we are doing more complex implementations of ERP in our Infor business, which is truly our end-to-end ERP stack. With Workday, as you heard, we won some contracts around maintenance and managed services. So we're seeing more of an uptick in all of those areas, Tobey, which leads to more longer term contracts. Obviously, our Quinnox business has been built around longer term sustainable contracts. As we dovetail more and more of our work from a delivery perspective into our Quinnox business that we just acquired, we will continue to see an expansion in those types of projects which are of longer duration.
To your point earlier of visibility, that gives us a better way to manage backlog and visibility of our revenues going forward. So, ERP, we're seeing continued momentum in some of the larger implementations, especially in the food and beverage sector with our Infor business. Workday continues to perform really well, and as we expand and go more broadly into managed services with the Quinnox platform and other capabilities, we will continue to see an expansion in larger, longer duration contracts.
Thank you. Last one from me. On the Quinnox and offshore operations, have you already begun expanding your capabilities organically after acquiring the footprint or
Absolutely
if not, when is reasonable for us to expect kind of a broader organic expansion?
Yeah. We were not waiting. We've already, as Ted said, we're starting to see momentum already. Some of the examples that I referenced, for example, of integrating multiple ERPs on a platform that we otherwise wouldn't be playing with, this is a function of us having that capability with Quinnox. Some of the FDE comments that I made earlier around data and AI are also because we have the ability to scale up those capabilities in India. We're building more capabilities around ServiceNow and some of our other platforms as well, both from a delivery and a managed services perspective offshore. So absolutely not waiting. We're up and running.
I would say, typically, when we do a piece of M&A, the first year is about do no harm, the required integration, get settled together. This was just a natural fit, and I think where the market is and where it's going, it immediately surfaced revenue synergy opportunities. With certain clients, we just wouldn't have had a seat at the table with, to Shiv's point.
Yeah.
To see us capitalize on those early because of our commercial IT portfolio and the strength of our relationships there, it has already gotten a little bit of some good news stories across our organization and for our clients around being able to serve those opportunities that we did not have a chance to before.
Thank you, Shiv. Thanks, Ted.
Thank you. Our next question comes from the line of Mark Marcon, Baird. Please proceed with your question.
Good afternoon, and thanks for taking my questions. Ted, Shiv, and Marie, it is nice to see the improvement in the third quarter here. I was wondering, Marie or Shiv or Ted, could you talk a little bit more about what went into the Q4 guidance? Obviously, we are all aware of number of billing days. But just wondering, it seems like at the midpoint at least, you are guiding to a slightly slower year-over-year growth rate than you just posted, and the margin differential is a little bit. You were making really good progress. At the midpoint, you are not showing the same level of improvement. So are there any elements that you are trying to be really conservative around, or what
What is the driving factor in terms of just not seeing a more linear, steady progression?
Well, look, Mark, I would say, Marie hit kind of the construct of the guidance, and it is in our prepared remarks. I would tell you generally, we are just looking at it as a steady quarter, Q3 to Q4, with all the proper seasonality type of adjustments. I just do not see Q4 as an accelerating quarter on a normal basis. We have given you that look. We are really excited about the bookings that we have seen in Fed, but we are not giving too much, if any, credit for that in the revenue numbers for Q4 because I think it will be a bigger impact as we get to the first quarter of 2027, but it will be ramping up into that work during the fourth quarter.
On the commercial side, if you adjust for seasonality, continued seasonal momentum, I would say, into the first half of the quarter, and then we will see the normal kind of things in the second half of the quarter. To me, all that adds up as a steady quarter, Q3 to Q4. We saw some really good acceleration from Q2 into Q3 and throughout the quarter in Q3. But Q4 is not really that kind of quarter typically. If it is there, we will get it for sure. But I think we just gave you kind of our best look based on what we see in terms of understanding always what the seasonal challenges are in the fourth quarter.
Okay. It sounds like there is also an element of conservatism in there.
Well, that is not my words. I kind of gave you all my words, and so I think you just need to take it for what it is. We have seen this business a lot of times, obviously for 30 some years here, perform from Q3 to Q4. We are just giving you our best look. You would not typically see them. Unless you were in 2021 and 2022, you would not see a large acceleration from Q3 into Q4. Look, we are very high. The bookings support growth, margin expansion elements are all there. I do not think that this is any kind of a bad report on any of those metrics. It is just, I think look for kind of a steady landscape here from Q3 going into Q4.
Okay, great. Can you talk a little bit more about what you are seeing with GlideFast in terms of ServiceNow? It sounds like you are getting really great traction with Workday. I was just wondering, are you seeing the similar thing with ServiceNow? If you could also talk a little bit about what you are seeing on the Intersys side, because it seems like that would continue to be a very compelling solution, just given certain organizations being price sensitive.
Yeah, nearshore. I will let Shiv talk about that. The one thing I will tell you on ServiceNow is that unit, our GlideFast unit, outperformed our expectations for the quarter.
Yep.
They are not growing quite as strong as our Workday practice or our Salesforce practice, but they are doing well, and the strength of our partnership is very good and strong. I think that ServiceNow looks at us as we hope they should, as a very strong partner in the marketplace. They have got new products coming out to serve an AI future around AI Control Tower. We are taking a client zero perspective of those things and beginning to implement a lot of the AI capabilities inside of our own business so that we can then turn around to our customers and be able to illustrate for them what the opportunity is. I think everything is good there. But I would say it is not growing quite as fast as Workday or Salesforce.
Yeah.
On our nearshore.
Yeah. So look, nearshore continues to be a very strong component of our solution mix, Mark, as you rightly pointed out. Now, obviously, with Quinnox in the mix, this allows us to constantly rebalance how we are delivering our work across geographies from a margin profile, from a complexity, from a time zone perspective. So our ability to architect solutions that are more fit for purpose is only improving and expanding. There are several clients for certain types of work, certain types of platforms prefer our Mexico capability, where proximity, time zone is of critical importance. It could be in the experience space, it could be in some of the Salesforce pieces. We are now building up more capabilities around near-term support, certain time zone support for certain platforms. So absolutely an integral part of the continued mix for us going forward.
That is great. Then one last one from me. Can you talk a little bit about what you are seeing in your most cyclically sensitive portions of your business? So if I think about the old CyberCoders or Creative Circle, how are those organizations doing?
Look, I think what I would say is those businesses are stable. I would say they are sequentially stable. Obviously, year-on-year, there have been continued declines in those businesses. From Q1 to Q2 to Q3, we have seen relative stability in those businesses. That is how I would characterize it. As you well know, we are not looking at those businesses as drivers of growth in the near term.
Sure.
We are continuing to manage those very carefully operationally to ensure that we can sustain that stability and continue to deliver on the margin profile that we need.
Okay. That is great. Super. Thanks, Shiv.
Thank you. We have reached the end of the question and answer session. I would like to turn the floor back over to CEO Ted Hanson for closing remarks.
Well, I want to thank everyone for their time and attention tonight to discuss our Q3 earnings, and we look forward to speaking with you in, I believe, early February next year to talk about Q4 and the full year. Have a great evening.
Thank you. This concludes today's conference. You may disconnect your line at this time. Thank you for your participation.