XBP

Today, welcome to the XBP Global first quarter 2026 financial results. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question and answer session. To ask a question you will need to press star one one on your touchstone telephone. Please note this call is being recorded. I'd like to turn the call over to David Shamis, Head of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Welcome to XBP Global's First Quarter 2026 Earnings Call. Joining me are CEO, Andrej Jonovic, CFO, Dejan Avramovic, and our Chief Revenue Officer, Mike Shufeldt. Before we begin, please note that today's remarks may contain forward-looking statements, including statements regarding our future performance, outlook, and strategy. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those described. For a detailed discussion of these risks and uncertainties, please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our proxy statement and other filings with the SEC, copies of which are available on our investor relations website at investors.xbpglobal.com. We will also reference certain pro forma and non-GAAP financial measures.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and the appendix to our investor presentation, which are available on our investor relations website. With that, I'll turn the call over to Andrej.

Good afternoon, everyone, and thank you for joining us. Please allow me to sum up the journey that we're on. At the prior call in late March, covering Q4 and full year 2025, I talked about the integration of the two platforms which came together in mid-2025, the voluntary disruption of ourselves to become an AI-led company, and the investments we're making in growth, primarily focusing on the expanded sales team. It's only been about six weeks since that earnings call, we're further along on our journey. I would like to spend a little bit of time updating you with a greater focus on the how we intend to become an AI-led company. We're converting the workflows that defined our business process as a solution business into AI pipelines, and we're doing it on our own timeline rather than the market's.

This is a deliberate shift in how mission-critical workflows are delivered. Let me give you some context before we walk through the investor deck. Historically, the business process as a solution or a BPaaS model existed to manage the exceptions and complexities that legacy platforms could not address. This is where our domain expertise resides, in the rules, workarounds, and institutional knowledge required to deliver outcomes, especially for heavily regulated industries like healthcare, banking, financial services, and the public sector. Our differentiation is regulatory-grade precision delivered through a unified execution layer, a combination which we believe resonates well with the ongoing needs of our clients. Our regulatory depth means we're able to navigate the rigorous security and oversight requirements of highly complex and regulated clients where pure-play AI lacks the necessary accountability to operate. We're operationalizing our agentic AI at scale.

This means that we are providing the last mile of oversight using human-in-the-loop processes and bridging data gaps within unstructured and physical datasets. We then seamlessly integrate everything into our modular cloud-native execution layer. Together, these capabilities create a formidable competitive moat that is difficult for competitors to replicate. I'd like us to turn to the investor deck and slide five. We're now transitioning these proven workflows into AI pipelines. A cornerstone of this shift is our patented Komodo Rule Engine, which has long used binary Boolean logic to automate workflows. We have begun migrating these rules into inference-based models powered by LLMs. Our process is unique. Our subject matter experts or SMEs create logic diagrams and standard operating procedures, SOPs, for edge cases. To remain cost-effective and highly precise, we distill these into smaller domain-specific models tuned for each area of expertise.

This allows us to deploy secure private models powered by a proprietary SME knowledge, unified software platform, and intelligent engines. This approach ensures we uphold the highest ethical AI standards and complete data privacy for our clients. A key element of our strategy is value over volume. Our goal is broad adoption of these AI pipelines to capture a larger wallet share of our trusted clients. Today, at the inception of a deployment, we're achieving approximately 40%-60% first pass auto resolution rate. This continuously improves to about 85% or more over time. The remaining 15% becomes our new version of BPaaS, a highly focused human-in-the-loop function where our SMEs resolve the final exceptions and continuously train the AI to reduce that 15% even further. Let me help you contextualize this better.

Traditional industry automation tools typically have auto resolution rates which are somewhere between 20%-35%. This rises to a higher percentage once workflows are matured over multi-year horizons. The workflows we're migrating start at a higher auto-resolution percentage and build our way higher up than the industry. In some cases, the remaining 15% can be reduced to a fraction. We're already seeing this model work at scale in our healthcare business, which is effectively a $200 million+ business for us. This is our most advanced sector for AI deployment, and we're also making significant progress forward in the public sector using the same approach. Slide six walks through an example of how our healthcare AI pipeline operates.

What was once a legacy process burdened by management overhead, training time, quality control, rework, and various other hidden operational costs and burdens can be transitioned to an agentic workflow, taking paper, unresolved claims, and converting them into a high-quality digital payload that can be processed into paid claims, thereby improving efficiencies in the healthcare industry. By automating the routine work, this new workflow significantly reduces processing time, lowers manual effort, cuts down handoffs, improves consistency, and helps providers get paid faster. While there is still human-in-the-loop element, this is reserved for cases that truly require judgment, expertise or simply put, human accountability. It is also important to note that we are just getting started with this journey.

While we've seen margin expansion in the last few quarters, we expect this expansion to accelerate, and for this to drive a positive inflection in our EBITDA trajectory in the second half of the year. Finally, as we announced earlier today, our board of directors has authorized a formal process to explore strategic alternatives. Given the deep discount at which our stock trades relative to our intrinsic value and the desire to be more focused on core growth engines, we believe this is the right step to unlock value for all stakeholders. The company will consider a variety of potential options, which could also include divestitures. We've been investing in talent that we believe will help us along on this journey.

We recently announced the hiring of a CHRO, Acquelia Colaco, and we've decided to invite our other recent joiner, Mike Shufeldt, who is our Chief Revenue Officer, to this call. I will hand over to Mike, who will walk you through our sales strategy and pipeline. Mike.

Thanks, Andrej. Let's turn to slide seven, where we'll walk through our revenue and pipeline momentum. With respect to our sales performance, we are currently seeing a tale of two timelines. While our top-line revenue for the quarter reflects the tail end of our legacy restructuring, our forward-looking indicators have never been stronger. Short-term revenue remains measured as we transition away from manual volume-based processing toward our agentic AI-powered platforms. We are intentionally building a pipeline that is more durable and higher margin, even if the revenue recognition cycles are longer than the legacy business we've replaced. Turning to our pipeline. In the past two months, we have seen a substantial acceleration in our pipeline with 17% growth from a year ago, 10% growth from last quarter.

Specifically, our total contract value, or TCV, in the mid to late-stage funnel has expanded by nearly 45% compared to a year ago. What's even more encouraging is the velocity. These aren't just leads, these are enterprise-wide transformation programs where XBP is being integrated as the focal point for workflow. We are seeing customers move from AI curiosity to AI production, and our acceleration of specific agentic AI technology ensures that we can scale as these contracts come online. If there's one area that truly defines our current strength, it is the public sector. In February, Everest Group, a leading global research and advisory firm, released a report that recognized our AI-driven document processing capabilities as foundational to public sector automation, underscoring the importance of governance, auditability, and regulatory alignment. Following the validation from Everest, we have seen an influx of high demand for highly secure on-premise automation.

Government entities are no longer looking for simple scanning. They need agentic AI that can handle sensitive healthcare and citizen data with human-in-the-loop oversight. We see tremendous momentum in the U.S. public sector, and our recent win in a major French health insurance institution is another prime example. It started as a EUR 1 million pilot and is already showing signs of expanding into a multi-year, multi-departmental program. Across Europe and the Americas, the public sector is becoming the backbone of our midterm growth. To sum up, our short-term numbers were a snapshot of what we were, but our pipeline is a roadmap to where we are going. We are choosing to build a high-quality, repeatable growth engine. The demand for hyperautomation is at a generational peak, and XBP is now positioned to capture the largest, most complex deals in our history.

I look forward to updating you as these pipeline wins convert into recognized revenue throughout the second half of the year. With that, I will now turn the call over to Dejan Avramovic, our CFO.

Thank you, Mike, and good afternoon, everyone. I will now walk you through our financial and operating results for the quarter. Similar to prior quarters, my comments will primarily focus on pro forma results to reflect the combined operations of BPA and XBP Europe on an apples-to-apples basis as it relates to any comparisons versus prior periods. Starting on slide nine, for the first quarter of 2026, we had total revenue of $197.1 million, a decline of 14.2% year-over-year, and our gross margin increased by 70 basis points year-over-year to 22.9%, driven by margin expansion in our Applied Workflow Automation segment.

Our normalized EBITDA was $15.6 million, a decline of 39.9% year-over-year. As I have discussed previously, these revenue and EBITDA declines can largely be attributed to the expected restructuring related exits. As a reminder, pipeline creation in the Americas business, formerly BPA, was significantly impacted over the course of the company's bankruptcy process, which lasted several quarters. Since onboarding Mike and investing in an expanded sales force over the last two quarters, we're seeing positive momentum on the sales funnel. Like Mike alluded to in his prepared remarks, we have seen a substantial increase in our pipeline in the last few months alone, and this helped drive 68.8% increase in our total TCV bookings in the quarter versus a year ago. Our total TCV bookings in this quarter were also 45% above the previous four-quarter average.

Our new ACV bookings were down 3.7% from a year ago, but up 4.4% over the last four-quarter average. Moving to slide 10, which reviews our segment breakdown. In the first quarter, the Applied Workflow Automation segment had a revenue decline of 12.6% year-over-year on a pro forma basis. Sequentially, revenue in this segment was down 3.7%. Gross margins, however, increased by 260 basis points year-over-year and 190 basis points sequentially to 19.9%. This represents our highest gross margin for this segment to date. Our Technology revenue declined by 26.4% year-over-year and 14% sequentially.

As a reminder, the Technology segment includes the sale of software licenses along with hardware solutions and maintenance, and results in this segment tend to be lumpier. The reason for the decrease in Technology revenue and margin this quarter was due to lower one-time projects, delays in a handful of larger deals, and expected customer exits. Going forward, we would expect a gross margin of approximately 55%-60% for this segment in line with previous periods. Turning to slide 10. While our revenue declined this quarter, which again was primarily driven by revenue attrition as a result of BPA's restructuring, we continue to see an uptick in gross margin with three straight quarters of margin expansion in a row. As we look forward throughout the year, there are a few things I'd like to point out.

First, given the growth in our pipeline and recent TCV wins, we have increased confidence that our quarterly revenue will be stable in the near term, and that we will experience revenue growth in the second half of 2026. Secondly, we expect gross margin increases to accelerate as our sales pipeline converts in the second half of the year with a greater focus on agentic workflows and higher use of automation. With respect to the normalized EBITDA decline in the quarter, this was primarily driven by lower volumes, a handful of expected customer exits, and further investments in people which drove higher SG&A in the quarter. In addition, as we highlight on slide 12, we expect an approximate 20% reduction in our global workforce by the end of the year compared to the end of 2025 as a result of AI-driven productivity and efficiency.

Combined with over 80 non-payroll initiatives, we're expecting approximately $55 million-$60 million in annual operational efficiencies, with nearly half of these underlying actions implemented to date but not yet reflected in our financials. Combined with stabilizing revenue and increasing gross margin, we believe that we've reached an inflection point and expect to see a meaningful step-up in our performance throughout the year as a result of these actions, starting with an increase in normalized EBITDA next quarter. With that, I'll turn it back to Andrej.

Thanks, Dejan. We've seen a steady decrease in our headcount over the last several quarters, as you can see on slide 13. Given the workforce rationalization that automation is generating, we expect further significant change to the way we operate, creating a leaner, more nimble and more effective enterprise. With respect to the revenue per employee metric, which I've talked about in the past, we currently stack near the top of our publicly traded peer group at approximately $82,000. Based on our projected year-end headcount, we expect our revenue per employee on a pro forma basis to lead these peers by a wide margin, putting us somewhere around $100,000 per employee versus the peer average of approximately $60,000.

We expect to continue to separate ourselves from the legacy business process automation pack with a focus on lean, efficient, high margin growth with ever-increasing use of automation. Skipping ahead to slide 16. As Mike mentioned earlier, we've seen positive momentum in our TCV signings and the overall pipeline growth. We're still in the early stages, it would not be prudent of me to state when exactly we expect the revenue growth inflection point. On the right side, we show our new ACV signings by industry, the key takeaway here is that our bookings are diversified and not overly focused in any one industry. In the first quarter, we closed $27.3 million of new ACV from over 460 separate transactions. The public sector was an area of success for us this quarter.

Like Mike mentioned in his comments, we think the public sector is a growing area of opportunity for us as governments around the world embrace AI in order to create higher efficiencies. I'd now like to thank our dedicated team for their continued efforts. Turn it over to the operator to open up for questions and answers. Operator?

Thank you. As a reminder, to ask a question, please press star one one. Our first question comes from Anand Balaji with Cantor Fitzgerald. Your line is open.

Hey, guys. Congrats on the quarter and all the progress, thanks for taking our questions. I just wanted to start by touching on the TCV momentum. You know, you closed with over $100 million in TCV in the quarter, up by a lot. I was wondering if you would talk to us about what drove the step up this quarter, whether it's momentum coming from more renewals, win backs, or new enterprise mandates, maybe how do you expect that TCV momentum to trend over the next few quarters as your sales pipeline, especially in North America, is back on? Thank you.

Hi, this is Mike. Thanks for the question. I do think it's a great mix of new bookings and renewal. We expect to see more of that momentum that we talked about, not just in the public sector, but in other aspects as well. We expect a healthy mix of those two things.

Gotcha. Appreciate the color. I wanted to touch on AI as well as a follow-up. You guys highlighted a transition from, you know, legacy rules-based workflows into agentic AI pipelines, 40%-60% initial auto resolution today. I was wondering maybe can you discuss where you're seeing the most tangible progress from AI automation so far, and can you talk about what gives your AI applications an edge versus your clients doing it themselves in-house or potentially what competitors are doing? Thank you.

Sure. This is Andrej. Thanks for the question, Anand. I mean, there's sort of a multi-pronged answer to this. We have, as we said many times, you know, decades of experience, a lot of deep domain knowledge. We also have built rules along the way that have expanded over time to give us a certain baseline automation level. We're supplementing that with a, you know, an entirely new stack that's able to achieve higher automation rates up front and then work its way higher up thereafter. I don't know, you know, it's not always possible to say we're definitely better than so and so. What I can tell you is that when we interact with clients, we can see that the client's reactions are suggesting that this is highly valuable to them.

I think these discussions that we're having are giving us a lot of encouragement. I think to some extent, you know, competitors will do what they do, and even clients will attempt to do some of these things themselves. I can also tell you that we've won clients who have attempted to do this themselves and haven't been successful. When they reached out to us and when we've socialized with them our approach, those have yielded, you know, beneficial outcomes for us and the clients.

Gotcha. Appreciate all the color. Maybe if I could sneak one last one in. You guys announced a formal review of strategic alternatives. Can you help frame for us what the board considers core versus non-core within XBP's current portfolio, and how does this process help simplify the business while preserving that AI-first workflow automation strategy? Thank you.

Thanks, Anand. Again, it's a great question, very pertinent. You know, we're reasonably large substantial enterprise with a lot of different businesses within it. These carry a lot of intrinsic value on their own, and we don't think that our company as a whole is getting the right kind of valuation from the public markets. We are interacting with advisors. We expect to select one advisor in the near term, and the board will take cue and advice from the advisors in deciding, you know, how to proceed. I think this remains very much an open-ended and open-minded process, and we haven't made any conclusions yet pending the advice from advisors.

Gotcha. Thanks again for all the color, and congrats again on the quarter and all the progress. I'll pass it on.

Thank you. Appreciate it.

Thank you. This concludes the question and answer session. Thank you for your participation, and you may now disconnect. Everyone, enjoy the rest of your day.

Hello, and welcome to the XBP Global fourth quarter 2025 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Head of Investor Relations, David Shamis.

Thank you and good afternoon, everyone. Welcome to XBP Global's fourth quarter and full year 2025 earnings call. Joining me are CEO Andrej Jonovic and CFO Dejan Avramovic. Before we begin, please note that today's remarks may contain forward-looking statements, including statements regarding our future performance, outlook, and strategy. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those described. For a detailed discussion on these risks and uncertainties, please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our proxy statement and other filings with the SEC, copies of which are available on our investor relations website at investors.xbpglobal.com. In addition, during this call, we will reference certain pro forma and non-GAAP financial measures.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release in the appendix to our investor presentation, which are available on our investor relations website. With that, I'll turn the call over to Andrej.

Good afternoon, everyone. 2025 was a defining year for us at XBP Global. Following our transformative acquisition of Exela Technologies BPA at the end of July, we focused on three key areas. One, integrating two platforms into one XBP Global and benefiting from resulting synergies. Two, voluntarily disrupting ourselves to become an AI-led company and benefiting from expanding margins. Three, making investments in growth, starting with the hiring of Mike Shufeldt, our new Chief Revenue Officer, and an expanded sales team. Let's talk about these in a bit more detail. As I mentioned, in late July 2025, we completed the acquisition of Exela Technologies BPA, thereby combining a European business on one hand and an Americas and Asia business on the other into one platform, renamed XBP Global. Our initial focus has been to streamline and simplify the organization.

We've also hired new talent and promoted from within to ensure our culture is future-proofed. We feel good about the amount of progress we've made to date to operate as one unified organization. We've officially moved beyond the initial repositioning towards a focus on growth and building a sustainable long-term enterprise that is deeply embedded with our clients' evolving needs. We're focusing on mission-critical outcomes and incorporating AI responsibly. There are two key points I would like to make with respect to AI as we see it. One is human accountability, and the other is governance, and I will address this in more detail over the course of the call. We're spending a considerable amount of time disrupting our legacy workflows. A lot of the disruption is impacting our technology teams and their way of operating as we move from traditional SDLC to AI-driven SDLC.

At the same time, I would like to say that disruption is ultimately function agnostic. Everyone in our company is expected to augment AI to deliver more of themselves. The simplest way to look at outcomes here is that we're expecting to see meaningful margin uplift over the coming period. We've been laying the groundwork for a return to growth. We've onboarded a Chief Revenue Officer and invested in an expanded sales team. We've been reaching out to our trusted clients to reintroduce ourselves and to listen to their needs. The bottom line here is that we believe we have a suite of agentic AI-driven solutions which will enable more clients to transition from labor-intensive reactive workflows to fully orchestrated exception-driven workflows without compromising on their standards or our value of human accountability.

Another thing to note as it relates to our interaction with AI is that legacy metrics are changing rapidly. While they might tell the story of today, they might not tell the story of tomorrow. Take new sales, for example. Winning the trust of clients through large contract wins is exciting and tends to be viewed as indicative of momentum. I do think we need to take a more balanced approach and focus on ROI and the sustainability of contracts. We're looking to offer our clients disruptive outcomes and deeper integration than before. Let me give you an example. With agentic AI, privacy is not afforded by using public models. We recently deployed a state-of-the-art large language model to a private cloud belonging to a major French insurance company in order to facilitate a plethora of high-value agentic AI use cases.

This approach ensures that agentic AI can scale securely on a private cloud while simultaneously protecting privacy to the maximum possible extent and avoiding escalating token costs or token maxing. We think this is an industry benchmark where our document processing custom neural networks can work in tandem with agentic AI to deliver best-in-class value to our clients. We think that longer term, this will result in structurally higher margins. Let's start with the deck and slide three in particular, which essentially highlights our strategic positioning as a company. First, our presence in mission-critical mandates and in highly regulated environments creates significant natural barriers to entry. In sectors like healthcare, BFSI, and the public sector, there are complex and rigorous regulatory compliance governance and security standards that general AI simply cannot replace at the moment. These are more than just tasks.

They're mission-critical mandates where the cost of error for our clients is significant. Our entrenchment means that we aren't just a service provider, but a part of the client's overall compliance infrastructure. This is one of the key reasons why our top 25 clients have been with us for over 15 years on average. Furthermore, our competitive mode is defined by human accountability and domain expertise. While AI is great at automating tasks, it cannot independently manage the last mile of complex decision-making. Our clients depend on the institutional knowledge we possess to provide oversight and protection. With decades of experience, and by anchoring our hyper-automation solutions with human-in-the-loop or human-on-top processes, we ensure that human accountability and judgment is paramount to everything we do. Domain expertise is what makes our business model resilient in today's shifting landscape.

Lastly, it's worth noting that we often sit at the crossroads of analog data and digital outcomes. For many of our clients, digital transformation is more than just software. It requires a partner capable of processing large, unstructured, and often physical datasets into fully digital, actionable workflows. This physical element of our business makes us an essential partner in enabling the very digital transformations that AI models rely upon. I'd like to skip to slide five. As I mentioned earlier, XBP Global is deeply embedded in the operations that underpin our economy and government, especially in the United States. Our data management and automation solutions are vital for sectors like healthcare, banking, and finance. We handle vast amounts of sensitive data and decisioning here. One example is the Department of Veterans Affairs, which has for years been one of our largest clients.

We've delivered essential AI-enabled services for many years to the VA, and it ultimately helps our veterans obtain better and more timely care. I'm gonna skip ahead to slide nine, which talks about our diversified base of 2,500+ clients, with no single client accounting for more than 7.5% of our revenue. If we break this down a little further, over 140 of these clients have ACV of $1 million or more. We're in a position now to increase our penetration with these clients and win back some of the business that BPA has lost over the last couple of years. From a new sales perspective, we think we're starting to see good momentum in the few months since becoming XBP Global.

We created approximately $1.4 billion of new pipeline in 2025, up 8% over 2024, and in the full year, we closed nearly $300 million of TCV, with approximately $100 million of that coming in just the fourth quarter. That said, the sales cycles do remain long. Headwinds from the broader macroeconomic environment are not making things easier for anyone. To summarize, 2026 will be a pivotal year for us. We expect to see further improvement in our margin and substantial progression towards being an AI-led provider of mission-critical workflows, and we'll do our best to ensure we remain relevant for our clients and prospects. With that, I will now turn the call over to Dejan Avramovic, our CFO.

Thank you, Andrej, and good afternoon, everyone. I will now walk you through our financial and operating results for the fourth quarter and full year 2025. My comments will primarily focus on pro forma results to reflect the combined operations of BPA and XBP Europe on an apples-to-apples basis, given continued complexity in the GAAP results, especially for full year numbers and any comparisons versus prior periods. Starting on slide 11. For the full year 2025, we had pro forma revenue of $879.6 million, which was down 13.6% year-over-year. The decline was primarily due to project completions and client exits, partially offset by new client additions.

Like I talked about on our last quarterly call, the restructuring of BPA resulted in expected restructuring related exits as customers were effectively forced to diversify some of their business away from us. Additionally, it means that for a large portion of the year, the company did not have a functioning sales funnel, which further impacted our ability to retain and win new clients. Post-acquisition, however, we have turned our sales engines back on and have been very focused on ROI in everything we do, which ultimately we think will be beneficial for us. Our pro forma gross margin was 21.9% for the year, which was an increase of 30 basis points year-over-year. This was primarily driven by a favorable sales mix with our higher margin technology segment driving the overall gross margin lift.

Our pro forma normalized EBITDA was $90.2 million, a decrease of 13.7% year-over-year, and our normalized EBITDA margin was flat versus last year at 10.3%. With regards to the operating cash flows, the post-transaction period was negatively impacted by the expected cash outflows related to the transaction and pre-petition liabilities, which were in excess of $21 million. Turning to slide 12. In the fourth quarter of 2025, we had total revenue of $207 million, a decline of 15.1% year-over-year, and our gross margin increased by 110 basis points year-over-year to 22.7%, driven by margin expansion in our Applied Workflow Automation segment. Our normalized EBITDA was $19.2 million, a decline of 35% year-over-year.

Again, the fourth quarter revenue and EBITDA declines can largely be attributed to the expected restructuring-related exits I just talked about and were especially challenging on tougher comps from a year ago. Like Andrej talked about in his opening remarks, we're starting to see some green shoots from a sales perspective, and this was evident in our bookings numbers in the fourth quarter. Let's start with our new TCV bookings. In the fourth quarter, this metric was up 53.2% year-over-year, more than double our new TCV bookings in the third quarter and 68% above our new TCV bookings from the previous four-quarter average. With respect to our new ACV bookings, these were up 37.7% year-over-year, up 89% from the third quarter, and 47% above the previous four-quarter average.

Now as to why this sales velocity is not being reflected in our revenue performance, the direct answer is that we're currently in an air pocket. We're burning off legacy projects while new higher value signings are still in the implementation lag, which can last anywhere from a few weeks to several months until that revenue and margin are recognized. That being said, we've seen a small uptick in our gross margins, which is a direct result of AI-enabled outcomes, but there is more work to do. Moving to slide 13, which reviews our segment breakdown. As a reminder, Applied Workflow Automation is our largest segment and contributes approximately 90% of our revenues.

This segment includes the company's bills and payments, healthcare industry solutions, on-site enterprise solutions, integrated communications, and enterprise legal management business units, which serve leading banks, payers and providers, utilities as well as federal, regional, and local government entities. The technology segment focuses on the sale of recurring and perpetual software licenses, software maintenance and professional services, as well as hardware solutions and maintenance. While this segment only makes up about 10% of our revenues, it contributes approximately 30% of our gross profits since the gross margin of this segment tends to be in the range of 55%-65%. In the fourth quarter, the Applied Workflow Automation segment had a year-over-year revenue decline of 15.1% on a pro forma basis.

Gross margins, however, increased by 140 basis points year-over-year, and 110 basis points sequentially to 18.4%. Our technology revenue declined by 14.6% year-over-year, but increased 1% sequentially to $21.7 million. This decrease was primarily driven by the expected completion of several one-time projects and, to a lesser extent, the exit of certain clients. For the full year, our European region saw revenue growth of 4.7% year-over-year, driven by many of the initiatives and sales wins we experienced earlier in the year, offset somewhat by the completion of some projects and client exits. Our gross margins in Europe increased 130 basis points year-over-year to 28.1%, which is well above our consolidated gross margins of 21.9%.

This gross margin expansion was driven by execution of large-scale deals with high levels of automation, something we're working on executing across the combined company. This should serve as a blueprint for the direction we plan to take gross margins for XBP Global. With respect to margins on slide 14, I'd like to point out the expansion of our gross margin despite the decline in revenue over the last few quarters. Our gross margins are up 200 basis points in the last two quarters as a result of a deliberate application of automation and focus on cost efficiency. Now I'll turn it back to Andrej, who will give you some additional color on some of our automation and sales efforts.

Thanks, Dejan. I'd like to cover a few more slides, and I would like to ask that we turn to slide 15, where we're seeing a natural evolution of our workforce composition driven by the dual impact of the AI disruption that we are embracing. On one hand, it changes the way we operate internally, and on the other, how we operate in serving our clients. Among our tech teams, the shift towards AI-based SDLC creates an uplift primarily in product development, change requests, and increasingly in tech support. We see approximately 70% uplift in speed in output, meaning new features, and we think this has further room for improvement. I want to draw your attention to a metric that separates us from the legacy BPA model, which is revenue per FTE.

When contextualized, as shown on the right-hand side of the slide, our revenue per FTE is approximately $80,000 and exceeds the peer group average of approximately $60,000. We still see this as a relevant indicator for how we're decoupling growth from headcount, something that distinguishes us from legacy BPA models, including many companies that are significantly larger than us. Next, I'd like to talk about some of our client metrics on slide 16. As you can see, we have a broadly diversified industry vertical and client size, which provides a natural hedge. Our top three clients contribute approximately 17% of our annual revenue, with the top ten making up just 32%, which goes to show we aren't overly concentrated. Moving to slide 17, with respect to sales.

Overall, we've seen an expansion of our pipeline and a healthy rebound in bookings in Q4. We're investing in sales efforts, and we're watching this space closely. The chart on the left shows our quarterly TCV signings, and while it's true that we're still far off from the pre-merger levels, we have seen in Q4 the highest results in all of 2025. On the right-hand side, we show our new ACV signings by industry, and the key takeaway here is that our bookings are diversified and not overly focused in any one industry. In total, the fourth quarter, we closed around $34.8 million of new ACV from over 560 separate deals.

We've had some success this quarter, particularly from BFSI manufacturing, which included a win-back with a large property and casualty insurance company, which is the result of our win-back campaign, and a large contract with a well-known aerospace and defense contractor and several banking-related deals. Additionally, we closed several federal and local government-related contracts across the Americas and Europe. I'd like to close by thanking our dedicated team for their continued efforts in growing our sales and moving us in the right direction. With that, I'll turn it over to the operator to open up for Q&A. Operator, please.

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment, please. Ladies and gentlemen, this does conclude today's conference. Thank you for participating, and you may now disconnect.