Everforth Q3 2026 Earnings Call Transcript

Everforth (NYSE:EFOR) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Everforth reported third-quarter 2026 revenues of $1.03 billion and adjusted EBITDA of $106.3 million, both surpassing the high end of their guidance.

The company saw strong growth in AI, IT modernization, and cloud transformation services, with commercial segment revenue at $719.9 million and federal government segment revenue at $311.5 million.

Everforth continues to focus on AI deployment, cybersecurity, and enterprise platform solutions, with strategic partnerships with companies like Workday, Salesforce, and ServiceNow.

Federal contract awards totaled $584.4 million, highlighting strong demand in national security and cybersecurity sectors.

Everforth’s strategic initiatives include scaling AI and enhancing cybersecurity services, with a focus on governance-as-a-service for highly regulated industries.

The company repaid $52.8 million in debt during the quarter and aims to reduce its leverage ratio to 2.5 times or below.

Guidance for Q4 2026 includes revenue estimates between $965 million and $995 million, with adjusted EBITDA expected between $93 million and $103 million.

Everforth is leveraging its Quinox acquisition to expand global delivery capabilities and is actively pursuing growth opportunities in AI, cybersecurity, and digital engineering.

Management expressed confidence in future growth driven by strategic initiatives and strong technology partnerships, despite acknowledging typical Q4 seasonality.

Full Transcript

OPERATOR

Greetings and welcome to the Everforth third quarter 2026 earnings call. At this time, all participants are in 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 Estrakin, Vice President of Investor Relations. Thank you. You may begin.

Kimberly Estrakin (Vice President of Investor Relations)

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.

Ted Hanson (Chief Executive Officer)

Thank you, Kim, and 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 1.1 times on a trailing 12 months basis. In our federal government segment, new contract awards totaled $584.4 million, representing a book-to-bill of 1.9 times for the quarter and 0.9 times on a trailing twelve-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 twelve-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 scaled 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 provide us with the 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 Engineer Partner Network and among the first Workday partners to be certified to implement Paradox and HireScore, 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 scaled 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. And 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 are applying these capabilities across our customer base.

Shiv Iyer (President)

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 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’re 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’re 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 buildout. 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 buildout, 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 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 lifecycle, 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 Defense, we’re building secure data platforms and applications to operationalize AI and autonomous capabilities. Under our recent Sunnet expansion, we’re supporting the Department of Defense’s existing secure environment while advancing the Sunnet 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’re 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 scaled AI adoption. For a major North American supplier of construction materials, we’re strengthening the company’s Databricks environment by improving data governance and securely connecting business systems and establishing management standards. This work supports future analytics and AI while also improving our customer’s 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 and are 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 integration. 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 US, Canada, and the UK.

Our digital engineering work is similarly focused on helping customers modernize complex technology environments and business processes. For a leading US food producer, we’re 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 and 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’ll turn the call over to Marie to discuss our third quarter 2026 performance and fourth quarter guidance.

Marie Perry (Chief Financial Officer)

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 Quinox in Q1. In the third quarter we repaid 52.8 million in debt, including 43.8 million for 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% to 65% conversion of our free cash flow to adjusted EBITDA on a full year basis excluding the aforementioned one-time strategic costs 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 to 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, for our fourth quarter 2026, we are estimating revenues of 965 million to 995 million, net income of 19.7 million to 25.5 million, adjusted EBITDA of 93 million to 103 million, and adjusted EBITDA margin of 9.6% to 10.4%. Thank you. I’ll now turn the call back over to Ted.

Ted Hanson (Chief Executive Officer)

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 to 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 have 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, strengthen 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.

OPERATOR

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. And our first question comes from the line of Jeff Silber with BMO Capital Markets.

You may proceed with your question.

Jeff Silber (Analyst)

Thank you so much. It was great to see the momentum continuing from last quarter. I’m just curious, in terms of your own internal hiring, what does that look like? I know you’re focusing on cost management, but are you adding folks internally, and if so, where?

Ted Hanson (Chief Executive Officer)

I’m gonna let Shiv cover that one here, Jeff. But if you, I mean if you think about it, generally we’ve got capacity in this business. I mean, I think we’ve said that, you know, a few times over the prior quarters. You know, we have a natural attrition rate where we’re kind of replacing on that, but not like for like necessarily. We’re putting people in places where we think there’ll be demand. Shiv, anything you’d add to that?

Shiv Iyer (President)

Yeah, absolutely, Ted. So 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 capacity is in augmenting some of our solutions and delivery capabilities.

Jeff Silber (Analyst)

Okay, that’s great. And 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?

Ted Hanson (Chief Executive Officer)

Well, for sure. I mean 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’s talked about quite a bit. But there’s no glass ceiling here, Jeff. I mean if you think about it, we’ve been in a business-mix headwind. I think, you know, the better momentum we see in commercial, the more you’re going to see that turn.

And 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.

Jeff Silber (Analyst)

All right, that’s great to hear. I’ll jump back in the queue, thanks.

OPERATOR

Thank you. Our next question comes from the line of Surinder Thind with Jefferies. You may proceed with your question.

Surinder Thind (Analyst)

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?

Ted Hanson (Chief Executive Officer)

Yeah, so 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. You know, more than 70% of our business is in defense, intel, and national security areas. And so we look, you know, going forward and based on the wins that we booked during this quarter, to get better performance in those accounts, and that’s really what’s going to drive our business. You know, 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. And so, you know, all those things are kind of macro contributors, if you will, to what I think will be pretty good bookings across the peer group, if you will, in the government space.

Surinder Thind (Analyst)

That’s helpful. And then as a follow-up, maybe can we talk about the idea of, I think you called out, you know, more forward-deployed engineers or FTEs and the need for that amongst yourselves and the partners. Does that start to change or shift how you think about, you know, 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.

Ted Hanson (Chief Executive Officer)

Yeah, so I’ll let Shiv talk about kind of 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.

So I think in that way there’s a lot more, you know, properly so, a lot more attention to the fact that there are certain players — we’re one of them — we believe that are forward-deployed partners here that are going to help customers realize the promise of AI through these technologies.

Shiv Iyer (President)

Yeah, Surinder, as Ted said, look, there’s multiple prongs to the way we’re thinking about this, right. Clearly in spaces like Workday, ServiceNow, Salesforce, we are 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 other areas. Like, you know, 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, you know, 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. So we’re approaching it along both those dimensions.

Ted Hanson (Chief Executive Officer)

And that, I’d say, underpins our strategic decision to add our platform of Quinox in India earlier this year because we recognized the importance of having those capabilities not just here in the U.S. or nearshore, but also offshore. And we’ve had some good early success shifting certain work to that platform on all of our enterprise software capabilities.

Surinder Thind (Analyst)

Thank you.

OPERATOR

Thank you. Our next question comes from the line of Maggie Nolan with William Blair. You may proceed with your question.

Maggie Nolan (Analyst)

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?

Ted Hanson (Chief Executive Officer)

Chip, you want to take that?

Shiv Iyer (President)

Yeah. Maggie, look, I think the bookings trend has been consistently strong across most of our capability areas. Both, you know, so 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 buildout, which is driving a significant amount of bookings in our TMT space. So 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 Quinox acquisition — seeing strong bookings in that area as well. Look, I think the bookings come in all shapes and sizes and, you know, we’ve had several bookings that have been, you know, sizable. Nothing to, you know, we don’t really report along those lines. But our average deal size on bookings is consistently going up over the last three quarters.

Ted Hanson (Chief Executive Officer)

And I would say the other thing, maybe one more piece of color, is that they’re definitely being influenced by our tech alliance partnerships with the major tech firms in enterprise systems, data, cybersecurity, and hyperscalers.

Shiv Iyer (President)

Yeah, yeah, that’s a very good point. And so we are — if you look at our top five or six, 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.

Maggie Nolan (Analyst)

Thank you. That’s 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?

Shiv Iyer (President)

I think we’re 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 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, you know, particularly in some industries. We’ve got a strong presence in healthcare, in the payer-provider space.

We are doing more work in the financial services space. And as that now starts to bleed into AI governance, AI risk, you know, agentic AI security, you know, harness — all of those areas — there’s continued momentum in that space. So we see that as a significant growth vector for us.

Ted Hanson (Chief Executive Officer)

This is one of those areas where the federal government has had a foot in front of the commercial marketplace in cybersecurity. And so our quals and halo there carry well into the commercial marketplace. So we’ll continue to work that out. But I agree with Shiv, we’re just scratching the surface now in commercial, but have big hopes for cybersecurity growth in the commercial area.

OPERATOR

Thank you. Our next question comes from the line of Kevin McVeigh with UBS. Please proceed with your question.

Kevin McVeigh (Analyst)

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 27 more broadly? I know, you know, oftentimes that fourth quarter there can be some, you know, true up. Are you seeing that? And then any initial kind of discovery into 27?

Ted Hanson (Chief Executive Officer)

No, I think more of the same in Q4 from Q3. You know, Q4 is always a lighter quarter to some degree because you have, you know, certain projects that come to an end in December and you have, you know, certain clients that will furlough certain projects in the last couple weeks if they’re not going to wrap them up and they come back to them in January. I think, you know, based on that, I think Q3, Q4 is playing out as it normally would. If you think about 2027, it’s a little too early to tell.

My assumption is it’s kind of same as we’re dealing with in 26. I’d say steady. Maybe you get some relief in some areas where customers are spending more on tokens they’d 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, you know, tech data around applications. And so, you know, that would, that would be a positive if that were the case.

But you know, otherwise, I think in absolute dollars, you know, our early inclination is expect kind of the same from 26. And we really get a better view of that when we get into January or February.

Marie Perry (Chief Financial Officer)

And Kevin, just to maybe add on to give a little color on Q4. So as you know, Q3 to Q4, we have about three fewer billable days. And so that has that impact. But when you look at the distinction between commercial and federal, kind of 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.

Kevin McVeigh (Analyst)

That’s super helpful. And then I guess just real quick, Marie, looks like you were nimble in terms of the open market purchases, the bonds, I guess what drove that? And 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 to 7.5 million?

Marie Perry (Chief Financial Officer)

Absolutely. So 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. Right. 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 our strategic investments associated with our strategic cost savings. And so what we committed is those dollars coming down every quarter. And so you see it, we booked 8.3 in Q3. Our guide for Q4 is 6 to 7.5 million. And so really by the end of the year we see that kind of truly kind of mitigating. And then going back in 27 to a more normalized pattern and they are the unlock, if you will, for the strategic cost savings and transformation of cost savings that we mentioned in our three-year plan, which is $80 million in 2028.

So it’ll normalize in 27, but you’ll just, I mean it just continues to drop. And so by year end we get down to a reasonable dollar. I should have said 27.

Kevin McVeigh (Analyst)

Yeah. To your point, that’s the 80 million, yeah, lined at the Investor Day, right?

Marie Perry (Chief Financial Officer)

Correct. Correct.

Kevin McVeigh (Analyst)

Terrific. Okay, thank you.

Marie Perry (Chief Financial Officer)

Absolutely. Thank you.

OPERATOR

Thank you. Our next question comes from the line of Jason Haas with Wells Fargo. Please proceed with your question.

Jason Haas (Analyst)

Hey, good afternoon. Thanks to take my questions. 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?

Ted Hanson (Chief Executive Officer)

Yeah, look, I think we’re constantly. I think that the technology partnerships come in multiple flavors. So if you think about our top five, you know, 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, 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’ve got.

You know, 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 Wisdom AI. So 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.

Jason Haas (Analyst)

Got it. That’s very helpful. 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 talk about just like, what inning we are in those and how much more there is to go there, that’d be great. Thank you.

Ted Hanson (Chief Executive Officer)

Look, I think quantum is very early days. You know, there’s obviously threats that quantum creates. So we’ve been at the front end of this because, you know, as you know, the federal government is always thinking about these things a step or two ahead of the commercial markets. 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. So 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. So 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.

Jason Haas (Analyst)

Got it. That makes sense. Thank you.

OPERATOR

Thank you. Our next question comes from the line of Toby Sommer with Truist Securities. You may proceed with your question.

Toby Sommer (Analyst)

Thank you. I’m moving. Wanted to get your perspective on how visibility 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.

Ted Hanson (Chief Executive Officer)

So. Well, several pieces to that. I would say, you know, 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, you know, 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, you know, certainly in the government part of the business, although you can have some lumpiness, quarter to quarter, you know, that’s even better visibility because that work generally is, you know, five years plus or minus seven years. And so it gives us a view. Volumes are up, you know, going forward in both businesses. And so, you know, 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. And so, you know, we look to continue to drive our gross margin up based on that. And I think the more, again, the more work we do in the areas that we’ve emphasized are more valuable to the customer. And so in that work they’re 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, you know, of an economic value to us.

Did that help?

Toby Sommer (Analyst)

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?

Ted Hanson (Chief Executive Officer)

No, not aware of it.

Toby Sommer (Analyst)

No. Good news, good news. And 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.

Shiv Iyer (President)

Yeah, look, I think we are, 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. So, you know, for example, we are doing more complex implementations of ERP in our N4 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. Toby, which leads to more longer-term contracts.

Obviously our Quinox business has been built around longer-term sustainable contracts. So as we dovetail more and more of our work from a delivery perspective into our Quinox 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 N4 business, Workday continues to perform really, really well. And as we expand and go more broadly into managed services with the Quinox platform and other capabilities, we will continue to see an expansion in larger longer-duration contracts.

Toby Sommer (Analyst)

Thank you. Last one for me on the Quinox and offshore operations. Have you already begun expanding your capabilities organically after acquiring the footprint or.

Shiv Iyer (President)

Absolutely.

Toby Sommer (Analyst)

When’s reasonable for us to expect kind of a broader organic expansion?

Shiv Iyer (President)

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 Quinox. Some of the FD 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.

Ted Hanson (Chief Executive Officer)

I would say, you know, typically when we do a piece of M&A, the first year is about do no harm, the required integration, you know, get settled together. But this was just a natural fit and I think where the market is and where it’s going, it immediately surfaced synergy, revenue synergy opportunities with certain clients. We just wouldn’t have had a seat at the table with, to Shiv’s point. And so, you know, to see us capitalize on those early because of our commercial IT portfolio and the strength of our relationships there, it’s, it’s already gotten a little bit of, you know, some good news stories across our organization and for our clients around being able to serve those opportunities that we didn’t have a chance to before.

OPERATOR

Thank you. Our next question comes from the line of Mark Marcon with Robert W. Baird. Please proceed with your question.

Mark Marcon (Analyst)

Good afternoon and thanks for taking my questions. And Ted, Shiv and Marie, it’s 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’re all aware of, you know, number of billing days, but just wondering, you know, it seems like at the midpoint at least, you’re guiding to a slightly slower year over year growth rate than you just posted.

And the margin differential is a little bit, you know, you were making really good progress at the, at the midpoint, you’re not showing the same level of improvement. Some. Are there any elements that you’re trying to be really conservative around or what’s the driving factor in terms of just not seeing a more linear, steady progression?

Ted Hanson (Chief Executive Officer)

Well, look, Mark, I would say, I mean, Marie hit kind of the construct of the guidance and it’s in our prepared remarks. I would tell you generally we’re just looking at it as a steady quarter Q3 to Q4 with all the proper seasonality type of adjustments. I just don’t see Q4 as an accelerating quarter on a normal basis. And so we’ve given you that look, we’re really excited about the bookings that we’ve seen in Fed, but we’re not giving too much, if any, credit for that in the revenue numbers for Q4, because I think it’ll, it’ll be a bigger impact as we get to 1Q27, but they’ll be ramping up into that work during the fourth quarter.

And then on the commercial side, you know, continued, if you adjust for seasonality, continued seasonal momentum, I would say into the first half of the quarter, and then we’ll see the normal kind of things in the second half of the quarter. So, you know, to me, all that adds up is 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. And you know, if it’s there, we’ll 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, you know, what always what the seasonal challenges are in the fourth quarter.

Mark Marcon (Analyst)

Okay. It sounds like there’s also an element of conservatism in there?

Ted Hanson (Chief Executive Officer)

Well, I. I didn’t. That’s not my word. I mean, I kind of gave you all my words and, you know, so I think you just need to take it for what it is. I mean, we’ve seen this business a lot of times, obviously for 30 some years here, performed from Q3 to Q4. And so we’re just giving you our best look. And you wouldn’t typically see them, I mean, unless you were in 21 and 22, you wouldn’t see a large acceleration from Q3 into Q4. So, look, we’re very high.

The bookings, support, growth, margin expansion elements are all there. So I don’t think that this is any kind of bad report on any of those metrics. It’s just, you know, I think look for kind of a steady, steady landscape here from Q3 going into Q4.

Mark Marcon (Analyst)

Okay, great. Can you talk a little bit more about what you’re seeing with GlideFast in terms of ServiceNow? It sounds like you’re getting really great traction with Workday, and I was just wondering, is it. Are you seeing the similar thing with ServiceNow and if you could also talk a little bit about what you’re seeing on the Intersys side? Because it seems like that would be pretty compelling. Continue to be a very compelling solution, just given, you know, certain.

Certain organizations being price sensitive.

Ted Hanson (Chief Executive Officer)

Yeah, sure. I’ll let Shiv talk about that. The one thing I’ll tell you on ServiceNow is they have, you know, that unit, our GlideFast unit, outperformed our expectations for the quarter. Yep. They’re not growing quite as strong as our Workday practice or our Salesforce practice, but they’re doing well. And the strength of our partnership is very good and strong. And, you know, I think that ServiceNow looks at us as we hope they should, as a very strong partner in the marketplace. They’ve got new products coming out, you know, to serve an AI future around AI Control Tower. We’re 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, you know, then turn around to our customers and be able to.

To illustrate for them what the opportunity is. And so I think everything is good there. I would. But I would say it’s not growing quite as fast as. As Workday or Salesforce and then on our near shore.

Shiv Iyer (President)

Yeah. So look, nearshore continues to be a very strong component of our solution mix. Mark, as you rightly pointed out, now obviously with. With Quinox in the mix. This allows us to constantly rebalance how we’re 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. And you know, there are several clients for certain types of work, certain types of platforms prefer our Mexico capability where, you know, proximity, time zone is of critical importance.

You know, could be in the experience space, could be in some of the Salesforce pieces. We are now building up more capabilities around, you know, near term support certain time zone support for certain platforms. So absolutely an integral part of the continued mix for us going forward.

Mark Marcon (Analyst)

That’s great. And then one last one for me. Can you talk a little bit about what you’re 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?

Ted Hanson (Chief Executive Officer)

Look, I think what I would say is those businesses are stable. You know, we’re not. I would say they’re sequentially stable. Like obviously year on year, there have been continued declines in those businesses. But from Q1 to Q2 to Q3, we’ve seen relative stability in those businesses. That’s how I would characterize it. We are not, as you well know, we’re not looking at those businesses as drivers of growth in the near term. We’re continuing to manage those very, very carefully operationally to ensure that we can sustain that stability and continue to deliver on the margin profile that we need.

Mark Marcon (Analyst)

Okay, that’s great. Thanks.

OPERATOR

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.

Ted Hanson (Chief Executive Officer)

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.

OPERATOR

Thank you. And this concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.

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