This article first appeared on GuruFocus .
Release Date: August 13, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Adjusted gross margin expanded for the fourth consecutive quarter to 24.9%, the highest level to date, reflecting successful AI-first automation and favorable revenue mix.
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Normalized EBITDA increased 8.4% year-over-year and 40.6% sequentially to $21.9 million, with margins expanding to 11.5%.
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Bookings momentum was strong, with total contract value up 51.6% year-over-year to $121.3 million and new ACV bookings up 57% to $36 million.
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Revenue per employee grew to approximately $89,000, up from $82,000 last quarter, and is projected to approach $100,000 by year-end, significantly exceeding the peer group average of $60,000.
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The company raised its annualized operational efficiency target to $65-$75 million, up from $55-$60 million, driven by additional non-payroll savings initiatives.
Negative Points
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Total revenue declined 14% year-over-year to $191.3 million, reflecting expected legacy contract exits and volume reductions from restructuring.
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The applied workflow automation segment saw revenue fall 16.7% year-over-year due to lower volumes and completion of one-time projects.
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The company projects an approximate 20% workforce reduction by the end of 2026, which may impact morale and operational capacity.
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Public sector contract timing remains volatile due to geopolitical uncertainty, creating unpredictability in revenue streams.
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The strategic alternatives process, including the engagement of a financial advisor, introduces uncertainty regarding the company's future direction and ownership.
Q & A Highlights
Q: What drove the significant improvement in profitability during Q2 2026, and what are the updated efficiency targets? A: CEO Andrej Yonovich reported that Q2 2026 marked a clear step-up in profitability, with normalized EBITDA reaching $21.9 million and adjusted gross margin hitting a record 24.9%. The company raised its targeted annualized operational efficiency range to $65 million to $75 million, up from $55 million to $60 million, driven by additional opportunities including non-payroll initiatives and third-party vendor savings. The expected 2026 in-year benefit is approximately $35 million.
Q: How is the company's AI transformation impacting its operational model and labor productivity? A: CEO Andrej Yonovich explained that XBP is converting legacy workflow platforms into high-margin Agentic AI pipelines, combining deterministic rules engines with intelligent AI models. When the AI pipeline encounters exceptions, it routes transactions to subject matter experts who adjudicate and feed judgments back into the model for continuous retraining. This has driven revenue per employee to approximately $89,000, up from $82,000 last quarter, with a projection to approach $100,000 by year-end, significantly exceeding the peer group average of roughly $60,000.
Q: What were the key booking and pipeline metrics for Q2 2026? A: The company closed $121.3 million in total contract value, representing a 51.6% increase year-over-year and up 12.2% sequentially. New ACV bookings reached $36 million, up 57% year-over-year and 32.1% sequentially. The total pipeline stands at $2.5 billion as of June 30, roughly flat versus Q1 and up 17.2% year-over-year.
Q: Can you provide details on the revenue performance and segment breakdown for Q2 2026? A: CFO Dan Abramovich reported total revenue of $191.3 million, down 14% year-over-year on a pro forma basis, consistent with expected client exits and volume reductions from legacy contract restructuring. The applied workflow automation segment generated $166.8 million in revenue, down 16.7% year-over-year, with adjusted gross margin of 19.2%. The technology segment grew 9.8% year-over-year to $24.5 million, with adjusted gross margin expanding to 64.2%, up 690 basis points.
Q: What is the company's outlook for revenue and EBITDA in the second half of 2026? A: CFO Dan Abramovich stated that the company expects an inflection in revenue in the second half of the year. Combined with continued gross margin expansion and SG&A savings, this positions XBP to further grow normalized EBITDA into the second half of 2026 and into 2027.
Q: How is the company addressing the demand for AI solutions in healthcare and public sector markets? A: CEO Andrej Yonovich noted significant AI interest in healthcare and public sector practice groups, with clients actively seeking secure, on-premise hyper-automation with strict data sovereignty guardrails and human-in-the-loop oversight. However, the timing of overall public sector contracts remains volatile primarily due to geopolitical uncertainty.
Q: Can you provide an example of how AI interest translates into enterprise deals? A: CEO Andrej Yonovich highlighted a recent win deploying agentic AI infrastructure to manage the maintenance lifecycle for a global airline fleet. Every maintenance item is vectorized and stored in a private vector database inside the client's private cloud, allowing seamless reproduction of records when aircraft go off lease or are sold. This model can be replicated across the airline industry.
Q: What is the status of the strategic alternatives process announced last quarter? A: CEO Andrej Yonovich confirmed that the company has engaged a financial advisor for the strategic alternatives process and will provide updates as appropriate.
Q: How is the company managing client concentration and diversification? A: CEO Andrej Yonovich emphasized that the top 10 clients represent only 34% of revenues, and the company is diversified across client verticals, which serves as a natural hedge. The average client tenure among the top 25 clients is around 15 years.
Q: What is the expected workforce reduction and its impact on efficiency? A: CFO Dan Abramovich stated that the company continues to project an approximate 20% workforce reduction by the end of the year relative to year-end 2025. The updated efficiency target stands at $65 million to $75 million in annualized run rate efficiencies, with the increase versus last quarter primarily driven by non-payroll initiatives including third-party vendor savings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
