CNXC - NASDAQ

Good day, everyone, and welcome to Concentrix Third Quarter 2025 Financial Results Conference Call. At this time, participants are in a listen-only mode. After the presentation, there will be a question and answer session. You will then hear a message advising your hand is raised. To withdraw your questions, simply press 11 again. Please note that this conference is being recorded. Now it's my pleasure to turn the call over to the Vice President of Investor Relations, Sara Buda. Please go ahead.

Great. Thank you, operator, and good evening. Welcome to the Concentrix Third Quarter 2025 Earnings Call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events, or developments. Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC. Also during the call, we will discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS, and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company's Investor Relations website under Financials. With me on the call today are Chris Caldwell, our President, and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth, and Andre will cover our financial results and business outlook. Then we'll open the call up for your questions. And so now I'll turn the call over to Chris.

Thank you very much, Sara. Hello, everyone, and thank you for joining us today for our third quarter 2025 earnings call. In Q3, we exceeded our revenue guidance once again with solid year-on-year growth across the board. We are gaining share and securing new wins by combining AI, CX, and IT services into a powerful, tightly integrated solution. Our adjacent offerings continue to scale and complement our traditional business. And we believe our IX suite is giving us clear competitive differentiation in front of clients. Overall, I am pleased with our strong market position and our revenue momentum. Turning to profit, margins were below plan in the quarter, which Andre will provide more details in his comments. It is important to understand that we have line of sight to modest sequential quarterly margin improvement over the next few quarters even as we continue to lean into growth and believe we can drive further margin expansion from there. Now let's dive into the details of our demand environment and how we see our business evolving. The positive revenue momentum we've seen this year is a direct reflection of our commitment to establish Concentrix at the forefront of change happening in our industry. We believe we are becoming a leader in solutions that combine practical AI and human intelligence where applicable, at global scale. As a result, we are well-positioned to be a trusted strategic partner clients rely on to support their business in these times of change. In fact, almost 40% of our new wins this year include our AI technology platforms as part of the solution. This percentage only increases as we include our partner's technology. As a reminder, our IX AI technology suite addresses clients' needs for both fully automation of tasks that can be handled completely autonomously and for partial automation using AI and AgenTx to supercharge human advisers to make them more effective and efficient. Within a year of commercial availability, our IX suite of AI solutions is ramping and on track to be accretive as we exit this year. This achievement in its own right sets us apart from many of our pure AI players and from traditional CX players in the space. Clients recognize that they need partners to help them convert AI promises into reality. A recent study from MIT shows that only 33% of AI projects built internally are succeeding on plan. Conversely, the same study showed that externally sourced AI projects with strategic partners succeeded about 67% of the time, more than double the success rate. Our rate of success with our deployments is even higher. With early data showing that the vast majority of our use cases result in a documented positive outcome for the client through improved revenue, better CSAT, or process efficiency. This is reflective of our ability to deliver pragmatic AI solutions that are aligned with what clients need and what they value most. The strategic role of partners that can combine AI with CX and IT services has support of our own blind study of 450 global enterprises that stated by an overwhelming majority, clients plan to increase their outsourcing spend as they deploy AI. We absolutely are focused on capturing as much of this growth as we can, and I'm confident that we are in a strong position to make that happen. In summary, our strategy is paying off despite all the market speculation about the negative impacts of AI on our business, we have shown that AI is indeed a positive tailwind. We are growing our major accounts and securing new wins with our integrated offer. With a strong competitive position, we are leaning into growth delivering solutions that align with our clients' business needs, gaining share, and scaling our business. This gives us the foundation to support our progression towards a higher growth rate in coming years while generating strong cash flow. Lastly, I would like to thank our game changers across more than 70 countries for their commitment to client success and welcome our new team members from SA SAi Digital who joined us in September. I'm optimistic about our strategy as we capitalize on the opportunities we have in front of us today. Now let me turn it over to Andre for details of the quarter and our outlook.

Thank you, Chris, and hello, everyone. I'll review the details of the third quarter and then discuss our outlook for the fourth quarter. We are in a positive position for revenue growth as we enter the final months of 2025. As we focus on improving margins, we are capturing the growth opportunities in the current environment, and our cash flow continues to increase. Importantly, we are winning the right kind of revenue that reflects the value of our differentiated offerings. Now let me get into some details on the quarter. We delivered revenue of approximately $2.48 billion, an increase of 2.6% year-on-year on a constant currency basis and 4% year-on-year as reported. We delivered revenue above our guidance range as we have done for the past several quarters. Looking at growth by vertical, our growth in the quarter was led by growth in banking, financial services, and insurance. Other verticals were solid as well, driven by continued demand for our integrated offerings and ongoing growth in our adjacent solutions. Specific constant currency revenue growth by vertical was as follows. Revenue from banking and financial services and insurance clients grew 8% year-on-year. Media and communications clients grew 7% year-on-year, largely driven by clients outside of the US and global entertainment/media companies. Revenue from retail, travel, and e-commerce clients grew 3%, largely driven by travel, which continues to be a strong vertical for us. And our technology and consumer electronics vertical and our healthcare vertical were both essentially flat. Turning to profitability, our non-GAAP operating income was $105 million, which was below the guidance range we provided on our last call. This was largely due to two factors. First, excess capacity. For context, when we set our guide for the quarter, we expected a faster return to stability with a handful of clients impacted by tariffs in the second quarter. And expected consolidation of additional client volume to occur more quickly to optimize the resources we were holding. We are doing the right thing for our clients long term, in quarter volumes didn't materialize, how the clients or we envisioned? This excess capacity accounted for the majority of the shortfall. A distant second factor for the margin variance was some decisions to accelerate transformation opportunities to help clients realize technology benefits more quickly. We are confident that we can deliver modest sequential quarter profitability improvement in the next few quarters as we resolve the capacity issue as committed volume migrates to us, or we remove the excess capacity proactively. On a year-on-year basis, our non-GAAP operating income was impacted by the factors I just mentioned as well as $8 million in additional investments in cybersecurity for generative AI, and a $4 million negative currency impact. Adjusted EBITDA in the quarter was $359 million, a margin of 14.5%. Non-GAAP diluted earnings per share was $2.78 per share, $0.02 below our guidance range as a lower effective tax rate partially offset the non-GAAP operating income variance. GAAP net income was $88 million for the quarter, and GAAP diluted earnings per share was $1.34 per share. Reconciliations of non-GAAP measures to the comparable GAAP measures are provided in today's earnings release. Adjusted free cash flow was $179 million in the quarter, an increase of about $44 million year-on-year. Year to date, our adjusted free cash flow increased $83 million. We returned approximately $64 million to shareholders in the quarter, which included repurchasing $42 million of common shares or approximately 800,000 shares at an average price of approximately $53 per share. The remaining $22 million in shareholder return was in the form of our quarterly dividend. I'm pleased to share that our Board has authorized an increase to our quarterly dividend to $0.36 per share. At the end of the third quarter, cash and cash equivalents were $350 million and total debt was $4.8 billion, bringing our net debt to $4.5 billion. We also reduced the amount of our off-balance sheet factored accounts receivable to approximately $127 million at the end of the quarter. To summarize, in Q3, we delivered strong revenue above. We are lessening our exposure to low complexity transactions and growing our higher complexity integrated solutions. We continue to be on our front foot with generative AI, using it to our advantage to secure highly strategic tech-enabled CX programs while scaling our adjacent services. Now I'll turn to our outlook. For Q4 and the full year 2025, we expect the following: Q4 revenue of $2.525 to $2.55 billion. Based on current exchange rates, these expectations assume a 160 basis point positive impact of foreign exchange rates in Q4 compared with the prior year period. This guidance implies constant currency revenue growth for the quarter ranging from 1.5% to 2.5%. As we've said, our goal is to be conservative in our revenue guidance. This leads to fiscal year 2025 revenue, of $9.798 to $9.823 billion based on current exchange rates, which assume an approximate 10 basis point positive impact of foreign exchange rates compared with the prior year. As such, we're increasing our guidance for the full year to 1.75% to 2% constant currency revenue growth. For Q4, we expect non-GAAP operating income of $320 to $330 million. This drives full year non-GAAP operating income to $1.25 to $1.26 billion. This translates into expected non-GAAP earnings per share of $2.85 to $2.96 for Q4, assuming approximately $67 million in non-GAAP interest expense, $62.4 million diluted common shares outstanding, and approximately 5.5% of net income attributable to participating securities. For fiscal year 2025, we expect full year non-GAAP EPS of $11.11 per share to $11.23 per share. Assuming non-GAAP interest expense, of $273 million, approximately 3.1 million diluted common shares outstanding, and approximately 5% of net income attributable to participating securities. The non-GAAP effective tax rate is expected to be approximately 25% for Q4, and 24% for the full year. And finally, we've modified our expectations for full year adjusted free cash flow to be between $585 million to $610 million, an increase of between $110 and $135 million year-on-year. This implies a continuation of our year-over-year improvement in adjusted free cash flow in the fourth quarter. Regarding capital allocation priorities, we are on track to meet our commitment to return over $240 million to shareholders this year, a combination of over $150 million in spending to repurchase our shares and approximately $90 million in dividends. And today, we repaid the €700 million seller's note related to the WebHelp combination through our previously committed new term loan borrowings that we discussed in our last earnings call. Looking to next year, we will prioritize debt repayment while supporting our dividend and our share repurchase program. In summary, our overall demand environment remains positive as we enter the last part of 2025. We had some margin headwinds in the quarter but see a path to modest sequential quarter improvement moving forward. We continue to drive strong cash flow growth year-on-year. And as Chris mentioned, we are in a strong competitive position to drive long-term outperformance. With all of this, we are feeling positive about 2026 and look forward to providing detailed guidance for 2026 on our next call. Now operator, please open the line for questions.

Thank you so much. And as a reminder, to ask a question, simply press 11 on your telephone and wait for your name to be announced. To remove yourself, press 11 again. One moment for our first question. And it comes from the line of Luke Moore Morrison with Canaccord Genuity. Please proceed.

Hey, guys. Thanks for taking the question here. So maybe we can start with the margin guide down. So you obviously highlighted excess capacity from tariffs, impacted clients as the main driver there. Along with some drag from those accelerating transformation programs. Can you just unpack that in a little more detail? Were there any additional tariff-related headwinds from the new round that went into effect in August? Or was this impact all carryover from last quarter's client pauses? And then on the excess capacity, how quickly do you expect that to normalize? Is this more of a one or two quarter issue or something that can linger? And then finally, on the transformation programs, can you just give us more color on what those were and whether they should be thought of as near-term margin headwinds or flip to revenue over time?

Yeah. For sure, Luke. It's Chris. So if you remember what we talked about in Q3, we talked that we were under from a year-over-year profitability perspective when the tariffs were first announced with sort of excess capacity that we had. And our expectations were and what our clients were messaging us was that they thought that they would be no more normalized in Q3 and we talked about sort of being a little under in the first month of the quarter, kind of on par in the second month and over on the third month. And what happened was with some of the additional noise with tariffs within the third quarter, by the second month, we still seeing that uptick coming through from the clients. The clients weren't seeing that uptick either. We were also seeing that they were taking a little longer to move volume that they commit to consolidating to us just from ability to move it from other providers to us. That's already started. But it delayed us from getting that kickstart. And we had multiple conversations sort of with them on a daily basis saying, do you want us to remove capacity? Do you want us to keep capacity? And really, the overall belief was to keep capacity because these are highly trained individuals. And they're sort of in global roles and they're tightly integrated into the supply chain. And that they needed to balance this out. So from our perspective, we are seeing sort of the momentum we want. We do think it'll be a multi-quarter normalization. And as Andre pointed out, if we don't see and we're measuring this on a daily basis, we don't see sort of the expectations coming in. Our clients don't see the expectations, and then we'll start to rationalize the excess capacity through the quarter and into next quarter. There was a bit of additional noise before August on tariffs, frankly. The additional noise in August only slightly uptick, but really clients are looking at this more holistically about some of the new reality of where they're operating in. And so it didn't get worse by any stretch of imagination. It was it didn't get as better as either the clients that we expected. And, again, just to be very clear on this, there's a small group, a handful of clients, very defined clients that we're working through with this. On your second question sorry. That to your second question to get whether there would be a lingering impact. We don't we don't believe so. From a transformation perspective, we have some clients who were in the process of looking at different AI technology partners. We were able to present and put in our technology into the solution right away. The clients were excited about it and so they wanted kind of get it in in the quarter and we were able to achieve that. Similarly, what happens when we put that in and we're able to remove head counts, normally that would be a couple of quarter process and planning our guidance. What happened was we were able to put the technology in successfully. We had some overcapacity, which we're already in the process of dealing with. So to your point, we don't see it as impacting our margins going forward. You wouldn't normally notice it if we had made the decision pre-quarter. And they would have been sort of in line or accretive to our existing underlying business margins. Hopefully, a lot of color, but hopefully that explains where we're at.

Yeah. Super, super helpful. Thank you. And then maybe just a follow-up. I'd love to get a little more color on how your IX suite is ramping here. You know, what does pipeline and win rates look like here? What's the relative demand between Hello and Hero? And to what extent are those deployments being priced at discreetly versus being bundled into broader deals?

Yeah. For sure, Luke. So a couple things. As we talk about, when we look across the course of the year, and you have to remember, we probably started at a smaller percentage when we first announced to where we are now. But literally 40% of our new wins have our technology our platforms integrated into the new wins. And it's a combination of both where discrete billing as well as where it's bundled in. The majority still of this point are where we're bundling it in and using it as a differentiated service. We see that inflection point coming relatively quickly where there'll be more discreet billing than from a bundled offering even though, you know, frankly, the client sees the value in it because they're giving us the business to do it. In terms of the two products, we're seeing far more traction with Hero than Hello. And I just wanna kind of explain this a little bit. Hello is the fully autonomous product where we're putting in a product which removes human interaction. So think of a multimodal bot that can be, you know, call out, can take calls coming in or chats or whatever the case may be. The commercial model for that product is evolving where it's much more gain share, where we're putting it in. And similarly, I think competitors are pure AI competitors are doing the same thing. It's more of a, you know, we'll take this out. We'll take a percentage of the transactions that we're saving you. Being fully autonomous, and we think that'll continue on with that revenue model. On the Hero product, we're seeing much stronger traction because clients see this product as being able to work immediately in their environment, drive significant benefits from a quality and automation perspective and proficiency perspective, meaning that they're able to sell more, be more efficient, take up more cost, drive CSAT, we have so many demonstratable cases of that. It's very, very, very, very compelling. And what we're happy about is that clients are now starting to see, hey, I can deploy this across my entire infrastructure, including my internal capabilities as well as other partner capabilities. And that is as a SaaS model, a SaaS model where we're charging per seat, and we'll continue that model based on what we're seeing with it. And our pipeline just continues to build and get stronger. And as I mentioned at the beginning, while 40% of new wins are that, you have to imagine that in the last quarter, it was a lot higher. And we're gonna continue to drive that forward. And as we talked about in the prepared remarks, expect to be, you know, mildly, modestly, we modifier you want, accretive. At the end of Q4.

Excellent. Thank you.

Thank you so much. Our next question comes from the line of Dave Cunning with WBIRD. Please go ahead.

Yeah. Hey, guys. Thank you. And I guess my first question, just kind of the bridge to margins and, you know, how we how we get back. You know, we I think we were at 13.4% or around there was your previous guidance. Now we're maybe at 12.8% margin guidance. Something in that ballpark. So we've come down 60 bps. Is it fair to say these sound pretty, like, one-off type things. Is it fair to say that 13.4% or somewhere around there, what your old guidance would be the baseline from which to grow next year, then as you weave some of the Gen AI projects on that should carry a higher margin, we could have a pretty outsized margin improvement next year as things normalize, or is some of the one-offs stuff really gonna kinda recur for a little bit?

Yeah, Dave. So let me talk about the market environment. I'll let Andre do the bridge. These are one-off items. And as we as we talk about their pretty defined about where we're seeing them. And when we look at our business, clients outside of these impacted clients are providing and driving the margins that historically we see, and then also new wins that are coming in as they ramp and get to scale are providing the margins that we want to see and are driving. We do expect that the AI platforms will continue to help us as they become more accretive. Don't know how accretive they will be in the 2020 time frame. I just wanna temper that a little bit. What we're focused on doing is driving back to where historically we were as we talked about. And then we do see additional opportunity to grow our margins. That's a combination, though, of not only our tech solution, also the areas where we're winning new deals, and the solutions and transformation deals that we're winning, and some of the new auxiliary services that we've talked about. Are higher margin around AI enablement. Andre, I'll pass to you for the bridge.

Yeah. You pretty much covered it. So yes, David. You know, I think it'll take a couple of quarters, as we've said. To kind of take care of these one-off items, which are at with just a handful of clients. So I don't know that I would say that they go away completely, and we're completely at run rate, as we enter 2026. There'll be a bit of a build there. From there, I think, though, I think the margin levers and the things that give us the confidence we can get margins moving back in the right direction are most of the things that Chris has just alluded to. We should see, we should see some contribution as software revenue ramps. We'll see, more contribution as we deploy more technology into our solutions. We're reducing the kind of low complex commoditized work, and replacing it with, faster growth. Higher margin work, including the work in some of the adjacent areas that we've talked about. Shore movement continues to be a driver for us with margin improvement. And then, you know, as we continue to move our growth rate up from where we'll exit this year, should be able to start seeing some leverage on our G and A. So all of those things have us confident that while we will work for a quarter or two here to get margins kinda back related to these onetime kind of one-off items on these handful of clients, once we get there, we can keep margins moving in the right direction.

Got you. And then maybe my follow-up you had really good sequential movement in your retail travel, ecom business, and then your communications and media. Those two segments had big sequential step ups. Anything to that? Any anything one-off, or is that sustainable? And, you know, are are those maybe some lower margin businesses and maybe created a little bit of a mix pressure?

You're right. So we have seen, nice sequential step ups in those. Those are not one-off things. It's pretty broad-based across the vertical you've mentioned. And I talked a little bit commented a little bit on the drivers of the growth in BD and comms. Again, mostly clients outside of the US, as well as some, you know, media/entertainment, global media entertainment companies. And retail, travel, e-commerce, that has been a pretty broad base as well, spread between travel and e-commerce clients. So, and then from a margin profile perspective, you know, something we really wanna emphasize. The work that we're winning, we're winning at the right long-term margin. And so, while we maybe see some some constructs where there's a bit more upfront investment on our part to get to that run rate. The deals as they are are are as they are priced kind of when they get to full scale, are are at the right margins and should be accretive as we go forward.

And then the only other comment I'll make is that, you know, when we look at adoption of some of our IX technology platforms, we're doing well in travel with them. We're doing well in e-commerce with them. We're doing well in consumer electronics with them because they tend to be faster at adopting sort of this new technology or making good inroads in BFSI with it, and that's actually driving some some wind. Those deployments are a little behind just because of the regulatory and compliance that you have to go through with with any winds within that space.

Gotcha. Well, thanks, guys.

Sure.

One moment for our next question. It comes from Vincent Colicchio with Barrington Research. Please proceed.

Yeah, Chris. Curious if the consolidation situation remains robust. And if, we're still in the early innings there.

Yeah, Vince. We do think that consolidation will continue to impact our industry and we see it as sort of a positive to be quite honest. And we continue to see it being primarily driven by clients who are looking for fewer partners and deeper relationships with those partners. And sort of a more robust offering from those for those partners. And so I think we're we're still in early innings, especially with sort of now as clients are procuring services across multiple different disciplines together. And do expect that to continue for the next, you know, frankly, 24, 36 months in probably a heightened fashion.

And then, the overall sales pipeline, is that I assume it's at a healthy level. That broad-based, or, is it, the three segments that were strong this quarter? Will continue to be strong and some of the others will lag?

No. We're really happy with our pipeline then. Like, there's a couple of things that we've been doing through the course of the year that are starting to pay off. We've really brought in a lot of deep domain expertise within a number of our verticals. Of talent both from a technical sales and sort consultation background that's really driving some nice pipeline both from a transformation perspective and an integrated offering perspective. And so that we're seeing the benefits of. And that's pretty broad-based across our strategic vertical. We're also seeing good momentum in all of our geos or sorry, all of our major regions like EMEA and The Americas and then Asia Pacific, seeing some very, very nice momentum from that perspective. And as Andre pointed out, not only the margin profile of these new deals, as well as our pipeline is where we want to see it, but the length of the contracts, the stickiness of the deals, and, frankly, the complexity of these deals are really where we are driving as a business.

Good to hear. Thanks.

Thank you so much. Our last question comes from Ruplu Bhattacharya with Bank of America. Please proceed.

Hi, thanks for taking my questions. I want to ask a question on risk management. So obviously, were lower from some clients this quarter. But the company decided to invest in some transformational items for other customers. So I'm just trying to understand. Can you talk about the decision criteria for doing such investments? Like what ROI are you expecting from those customers? And just when you like, in terms of making such investments, obviously, it hurts margins in the near term, but can you talk about what long-term benefit you expect to get? And I have a couple of follow-ups. Thank you.

Yeah. For sure, Ruplu. That's a great question. A couple of things. When we look at our business as a whole, one thing that we're very focused on is driving more share gains within a client. And long, long-term relationships. If you look at our top 25, that's over a 17-year tenure. It kind of goes to we believe in these long-term relationships through thick and thin because they benefit us. And we've also talked about when we look at our top sort of 25 accounts, they're growing very well, frankly, a little higher than the rest of the client base. And these are very sort of sophisticated buyers. They're very complex buyers. They're very large buyers. And so when we look at making those investments, you can think that the clients that we do that with are clients who we've been with a long time, multiple different offerings in, really their key go-to-market partner, and we see a lot more opportunity to grow within that business. And as painful as it is to kind of deal with some of these things in period, we're really looking at longer term. And those clients want to reciprocate our investments are around either more volume, more opportunities, and consolidating out smaller partners, etcetera, etcetera, etcetera. So that's how we look at it. We don't do it on clients who wanna RP their business every quarter or are not sort of like-minded from a long-term partnership perspective. From the transformation clients, you know, the way we look at it is that if we do the right thing with the client, that they will reward us with more business over the longer term. And the clients that we kind of set up some transformation in quarter honestly, were focused on saying, we need to do this. Can we do this right away? And if we can, it would be a big benefit. And we could have, you know, said, well, we can start it next quarter or whatever the case may be. That also allows the competitor to come in and say, hey. We can do it sooner. And so from our perspective, wanna keep these clients focused on us. We want them on our technology and our platforms. And so we're willing to take the pain to get them across to our platforms from a relationship perspective. And time has shown us over 20 years in this industry, time has shown us when we do the right thing with our clients, we get rewarded over the longer term, and we're seeing that. Even with sort of the conversations about how to deal with this excess capacity right now, they are collaborative. They are engaged. And they're all focused about trying to make sure that we're both doing the right things for each other.

Okay. Thanks for the details there. Can I ask a similar on the IX suite of software that you're investing in? So you're investing $50 million incremental on the software versus the $50 million base level of CapEx that you typically have or investments that you typically have, do you still expect to get to breakeven in fiscal 4Q? And what level of investment should we expect going forward? And what's the criteria for you to either increase or decrease that spend? And I have a follow-up final for Andre.

Yeah. So a couple things. We absolutely expect to be on track as we talked about in our prepared remarks to be breakeven, modest accretive at the end of Q4 as we exit on our IX suite of products. You are correct. You know, roughly it's about $50 million incremental spend that has popped up a little bit. It's gone down a little bit, but the reality is that it's in that ballpark. And so when you think of from an accretive nature, perspective, that's where we're at. Do expect that we're gonna need to continue to increase investments, but I wanna be very clear about this. It's in line with our revenue growth on the products that we're doing. As we install our Hello product, we absorb the cost for that as we put it in, and so more and more projects, there will be a cost to it, and then we get the revenue from the run rate perspective of the software. On the Hello product, we get sort of the license revenue kind of right out of the gate as we sign those deals. So it's a bit of different between the products, but the criteria is it becomes a scalable business. We're going to invest as we continue to drive scale in that business. But as you've seen us in the past, we wanna make an economic return on those investments, and so we'll do so as we go.

Okay. Thank you. And maybe the last question I have for Andre. Andre, it looks like, you know, you're taking down free cash flow guidance a little bit. How should we think about free cash flow going forward? And it looks like you also raised the dividend. So what was the rationale for doing that now? And how should we think about capital returns going forward? Thank you for all the details.

Sure. Happy to do that. So as we think about free cash flow beyond 2025, we're still very optimistic that we can drive some increase to free cash flow in '26. Drivers there, you know, we're coming to the very end of integration activities. A lot of those spending is cash. So that should be a help to us as we go out to next year. Secondly, our cash interest should drop next year as we continue to pay down debt, maybe get some help from interest rates as well. So those things have us positive. We also think we'll continue to grow the top line and make progress with the margin. And that will help. The drop in our guidance for Q4 is being driven by the margin pressures that we've seen and drop in our profitability expectations for the full year. Capital allocation priorities as we go forward will remain balanced. So again, we're going to generate more free cash flow next year. And with that, we are going to prioritize repayment of debt while supporting our dividend and continuing our share repurchase program. I don't know that we'll see share repurchase dollars go up dramatically next year. I think we'll probably prioritize more taking some of the increase in cash flow and putting it towards our debt. But and then lastly, the dividend. Look. We have investors who are very appreciative of the dividend. They are appreciative of our cadence of annual increases. We're confident in our ability to generate strong free cash flow not only this year where we've driven a pretty sizable increase, but drive an increase in the next year as well. All of that is part of the decision to increase the dividend.

Thanks for all the details. Appreciate it.

Sure. Thank you.