Everforth (EFOR) Q3 2026 earnings review
Everforth beats its third-quarter plan, but commercial margins still fall
Everforth, an IT staffing and digital engineering firm, beat its third-quarter plan, but underlying commercial sales still shrank. Reported revenue rose 2% from a year ago as federal government revenue returned to growth and the March acquisition of Quinnox lifted the commercial division. Chief executive Ted Hanson pointed to high demand for artificial intelligence and cloud work, yet lower-margin cloud and government contracts pushed gross margin down 1.1 percentage points.
| Sales from businesses owned a year ago | -0.5% by our math; reported revenue +2.0% to $1,031.4M |
|---|---|
| Profit per share, excluding one-offs | $1.11 -15.3% from a year ago |
| Gross margin | 28.3% -1.1 percentage points from a year ago |
| Fourth-quarter revenue outlook | $965–995M middle of the range: 0% growth from a year ago |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because improvements in federal awards and debt paydown offset ongoing commercial and margin pressures. Federal twelve-month contract awards rose to $1.0 billion and the company paid down $53 million of debt after refinancing its credit line. The bad news: three of five commercial industries still shrank from a year ago, the twelve-month commercial consulting book-to-bill ratio slipped to 1.1, and the fourth-quarter outlook points to flat total revenue.
The question now is whether Everforth's shift to cloud, artificial intelligence, and offshore engineering can lift gross margins and drive growth without acquisitions. One view is that rising technology bookings and India delivery will soon boost margins; the other is that lower-margin cloud work and weak staffing demand are holding the business back. Commercial gross margin and consulting bookings in the first quarter of 2027, once the Quinnox purchase passes its one-year mark, will settle it.
🐂 Bull Case
Federal Revenue Grew and Contract Awards Rose
Everforth's federal government division provides technology and cybersecurity services to United States agencies. Revenue in this unit rose 3.8% from a year ago to $311.5 million, reversing four straight quarters of declines as spending by national security and civilian clients grew. Chief executive Ted Hanson said "strong Commercial and Federal bookings reflect continued customer demand for AI and data, cybersecurity, cloud, and IT modernization services".
New contract awards over the past twelve months rose to $1.0 billion from $900 million in the second quarter. That lifted the federal book-to-bill ratio—new contract awards divided by revenue recognized—from 0.8 to 0.9 over the past twelve months. Because the ratio remains below 1.0, the division is still working through its existing contract backlog faster than it wins new work, so one better quarter does not yet end the award drought.
What to watch: total federal contract backlog in the third-quarter filing. A smaller drop than the $136 million decline recorded in the second quarter would show that rising contract awards are stabilizing future federal revenue.
Debt Paydown and Refinancing Eased Balance Sheet Pressure
Everforth borrowed heavily on its credit line in March 2026 to buy Quinnox, an engineering firm with operations in India, pushing debt to $1,462.2 million. Management then shifted cash from share buybacks to debt reduction. In July, the company replaced its old credit line and Term Loan A with a new five-year, $600 million revolving credit facility due in 2031.
During the third quarter, the IT services group paid down $52.8 million of debt, including $9.0 million of senior unsecured notes bought back at a discount. Long-term debt ended September at $1,391.0 million, leaving $227.0 million available to borrow on the new credit line. Because the company spent nothing on share repurchases this quarter, all free cash flow went toward lowering its debt burden.
What to watch: fourth-quarter debt repayments and net interest expense, which is planned at $18.8 million, down from $20.2 million in the third quarter. Steady debt reduction lowers interest costs and keeps the company away from its credit limits.
🐻 Bear Case
Commercial Growth Still Relies on Acquired Revenue
"Everforth’s third quarter 2026 results demonstrated continued momentum in the business," Hanson said, after total revenue grew 2.0% from a year ago to $1,031.4 million. However, the commercial division—which sells IT consulting and staffing to corporate clients and brings in 70% of revenue—grew only 1.2% to $719.9 million. That figure includes Quinnox, which generated about $100 million a year when Everforth bought it in March.
- Commercial underlying sales: down about 2.3% from a year ago by our math, stripping out roughly $25 million of acquired Quinnox revenue
- Technology, Media and Telecom industry sales: up 14.6% from a year ago (+$20.0 million)
- Business Services industry sales: up 7.2% from a year ago (+$5.6 million), while Healthcare, Financial Services, and Consumer and Industrial shrank
- Commercial IT consulting book-to-bill ratio: 1.1 over the past twelve months, down from 1.2 in the second quarter
This matters because the commercial recovery is narrow and consulting bookings slowed. Furthermore, the fourth-quarter outlook calls for $965.0 million to $995.0 million in total revenue, which is unchanged at the middle of the range from $980.1 million a year ago on the same 61 billable days. By our math, that plan points to a 2.6% drop in sales from businesses owned a year ago.
What to watch: the commercial consulting book-to-bill ratio for the single quarter in the upcoming filing. A drop below the 1.4 ratio recorded in the second quarter would confirm that commercial demand cooled in the third quarter.
Cloud and Contract Mix Hurts Gross Margin
Hanson said strategic alliances "position Everforth as a forward deployed partner" for complex enterprise artificial intelligence projects, and management has promoted Quinnox's offshore engineering as a higher-margin business. Yet total gross margin fell 1.1 percentage points from a year ago to 28.3%, as the cost of services rose from 70.6% of revenue to 71.7%.
Commercial gross margin dropped 1.3 percentage points to 31.9%. Everforth blamed "a lower mix of high-margin permanent placement revenues", currency swings at its delivery center in Mexico, and "stronger growth in certain cloud and infrastructure services that carry lower gross margins than other offerings in our portfolio". Federal gross margin also fell 0.5 percentage points to 19.8% due to "an increase in revenues from cost reimbursable contracts which carry a lower margin than the other contract types".
What to watch: commercial gross margin in the fourth quarter, when total gross margin is planned at 28.4% to 28.7% against 28.9% a year ago. Continued margin drops would show that lower-margin cloud work outweighs higher-margin offshore engineering.
Weak Cash Conversion and Ongoing Restructuring Charges
Everforth aims to turn 60% to 65% of its Adjusted EBITDA—earnings before interest, taxes, depreciation, amortization, and one-off items—into free cash flow each year. In the third quarter, free cash flow fell 35.4% from a year ago to $46.5 million, or 43.7% of Adjusted EBITDA, as working capital tied up cash.
Across the first nine months of 2026, free cash flow totaled $101.9 million, which is 35.6% of Adjusted EBITDA by our math. Reaching the bottom of the 60% full-year target would require about $129 million of free cash flow in the fourth quarter, or 131% of planned Adjusted EBITDA. Meanwhile, the company excluded $8.3 million of expenses for "updates to our go-to market strategy, outsourcing of certain back-office functions, ERP implementation, and costs related to the integration of Quinnox" from Adjusted EBITDA, and plans $6.0 million to $7.5 million more in the fourth quarter.
What to watch: fourth-quarter operating cash flow and whether management keeps the 60% to 65% cash conversion target on the conference call. A shortfall would slow debt paydown.
Risks this quarter didn't answer
Three standing concerns cannot be checked from the earnings release alone and depend on the quarterly filing or conference call.
- Commercial consulting versus staffing split and Quinnox revenue: omitted again in the release; any breakdown in the filing would show true underlying sales.
- Federal contract backlog balance: not in the release; the filing's segment table will show if the $2.67 billion backlog shrank for afifth straight quarter.
- Artificial intelligence replacing billable hours: the release mentions AI demand in passing, leaving the call to address whether automated coding tools reduce staffing hours.
💲 Other KPIs
Diluted shares fell 6.0% from 43.7 million a year ago, but ticked up from 41.0 million in the second quarter. Everforth paused share buybacks in the third quarter to pay down debt from the Quinnox acquisition, leaving $923 million on its repurchase plan. The lower share count vs last year cushioned the drop in earnings per share.
The effective tax rate reached 36.5% by our math, up from 24.6% a year ago and well above the 29.0% rate assumed in the third-quarter plan. Net interest expense also rose 16.1% from a year ago to $20.2 million due to acquisition debt. Together, higher taxes and interest cut net income by 39.4% to $23.1 million.
Operating profit fell 16.6% from $67.9 million a year ago, equal to 5.5% of revenue against 6.7% last year, but rebounded from $41.1 million in the second quarter. Selling, general, and administrative costs rose 2.6% from a year ago to $217.7 million, including $8.3 million of integration and planning costs, but dropped from $226.2 million last quarter.
🔮 Guidance
Unchanged. The middle of the range is $980.0 million, matching the $980.1 million recorded in the fourth quarter of 2025 on the same 61 billable days, and down 5.0% from the third quarter due to holiday furloughs. Including Quinnox, the plan is consistent with reported commercial growth, though underlying sales shrink 2.6% by our math. If the four-quarter average beat of 1.3% holds, revenue would reach $993 million.
New. The plan puts gross margin at 28.55% at the middle of the range, up 0.25 percentage points from the third quarter's 28.3%, but down from 28.9% in the fourth quarter of 2025. The slight improvement from the third quarter occurs even though the fourth quarter has three fewer billable days.
New. Management forecasts $210.9 million in selling, general, and administrative costs, down from $217.7 million in the third quarter and flat against $210.5 million a year ago. The figure includes $21.9 million of non-cash stock compensation, depreciation, and cloud amortization, plus $6.0 million to $7.5 million of acquisition, integration, and strategic planning expenses.
New. At the middle of the range, the outlook calls for $21.7 million in net income and $0.525 per share, down 13.9% and 11.0% from $25.2 million and $0.59 a year ago by our math. After underestimating taxes for two quarters with a 29.0% assumption, the company raised its planned fourth-quarter effective tax rate to 34.0%.
New. The middle of the range is $98.0 million, or 10.0% of revenue, down 9.2% from $107.9 million (11.0% of revenue) in the fourth quarter of 2025 and down from $106.3 million (10.3% of revenue) in the third quarter. Lower gross margin and higher operating expenses compared with last year drive the year-over-year decline.
New. At the middle of the range, profit excluding one-offs and intangible amortization is planned at $42.45 million, or $1.03 per share, down 10.4% from $1.15 per share in the fourth quarter of 2025 by our math. The figures exclude $9.6 million ($0.23 per share) of quarterly cash tax savings from goodwill and trademark deductions.
❓ Key Questions
What was Quinnox's revenue in the third quarter?
Commercial revenue grew 1.2% from a year ago, which is less than the revenue Quinnox brought when acquired in March. Without Quinnox's exact quarterly sales or the old consulting-versus-staffing split, investors cannot verify whether underlying commercial sales stopped shrinking.
Why did the commercial consulting book-to-bill ratio slip?
The trailing twelve-month book-to-bill ratio for commercial IT consulting dipped from 1.2 to 1.1 in the third quarter, and the release omitted the single-quarter ratio after highlighting a 1.4 reading last quarter. We want to know the third-quarter bookings figure.
Is the 60% full-year cash conversion target still reachable?
Free cash flow across the first nine months of 2026 was $101.9 million, or 35.6% of Adjusted EBITDA. Hitting the 60% full-year target requires $129 million of fourth-quarter free cash flow, which is nearly triple the third-quarter level.
Why is cloud and infrastructure growth lowering commercial margins?
Management pitched its shift toward enterprise platforms and offshore engineering as a margin booster, yet commercial gross margin fell 1.3 percentage points partly on lower-margin cloud and infrastructure work. We want to know if competitive pricing is pressuring cloud deals.