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Concentrix (CNXC +1%) is trading modestly higher despite a disappointing Q2 (May) earnings report last night. Following $0.20+ EPS beats the last two quarters, this CX (Customer Experience) company missed on EPS. Revenue rose only modestly, by 1.5% yr/yr to $2.42 bln, but that was slightly better than expected. The Q3 (Aug) guidance was mixed with upside revs but the mid-point of EPS guidance was a bit soft. CNXC raised FY25 guidance by a good amount.

• Revenue growth was well-balanced across verticals. Revenue from retail, travel, and e-commerce clients grew 3%, led by growth with travel clients. Media and communications also grew 3%, after this vertical has been flat to down in the past few years. Revenue from banking, financial services and insurance clients grew 2%, while its tech vertical and healthcare vertical were both relatively flat, reflecting offshore movement.
• The main problem in Q2 is that margins took a hit due to tariff concerns/confusion. Some clients paused programs as they sorted through the impact of tariffs on their business. During this time, CNXC kept their programs stable with the expectation that these programs would start to resume in May and they have.
• Concentrix could have laid people off in April during this pause. However, it maintained labor so that the company would be well-positioned to benefit from what should be a stronger second half to the fiscal year. And that was prudent because, by the end of May, CNXC exited the month with margin trending more favorably. Also, CNXC expects meaningful sequential margin improvement in Q3 and Q4.
• Despite the pause by some clients in Q2, Concentrix launched iX Hero, its agentic AI-powered application. This complements its autonomous AI assistant product, iX Hello, giving clients an array of AI options to meet their needs for both full automation and human augmentation. CNXC is delighted with the early market traction and its pipeline of integrated product deals is strong.
• A benefit for CNXC is that it's a large player in the CX space and can offer a wide breadth of services. On this point, Concentrix noted that clients are centralizing spend with partners that have scale, breadth, and expertise to deliver large-scale programs that combine consulting, IT integration, CX expertise, and AI.

What stands out to us is that this stock was down 9% after the close yesterday, but we think the call last night calmed some nerves. The EPS miss was due to a temporary pause by clients, but it sounds like they are moving again on projects. And it was wise for CNXC to not scale back its workforce. The stock has been recovering nicely in early trading today as investors more fully understand this dynamic. We also think CNXC's decision to increase FY25 guidance despite the Q2 miss really soothed some investor nerves.