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Request: Revenue grew this quarter, but margins fell. Find what changed and where we should investigate.
Revenue increased 20%, but gross margin fell from 40% to 32.5%. The biggest identifiable driver is a $60,000 migration charge assigned to services. Excluding that one-time item, current gross profit is $450,000 and margin is 37.5%—still below the prior quarter.
The remaining gap is explained by the finance bridge: a shift toward services, contractor overruns, and cloud usage offset part of the profit expected from growth. Software gross margin stayed at 55%; services needs the closer review. I have separated the reported figures from the adjusted view so the one-time charge does not conceal the operating issue.
Start with the services delivery owner and validate project-level staffing costs, then reconcile the cloud allocation. The bridge is management’s attribution of the variance, not proof of causation. Finance should confirm the migration classification before using the adjusted numbers in an external report.
Source excerpts
[A1] Quarterly finance close
Q2–Q3 2026 · segment ledger
Q2 revenue $1,000,000; gross profit $400,000. Software: revenue $600,000, GP $330,000. Services: revenue $400,000, GP $70,000. Q3 revenue $1,200,000; GP $390,000. Software: revenue $660,000, GP $363,000. Services: revenue $540,000, GP $27,000. All amounts USD. Tax and operating expenses are outside this gross-profit analysis.
[A2] Finance variance bridge
Management analysis · 14 Sep
Bridge in USD thousands: prior GP 400; growth at prior blended margin +80; sales mix -15; contractors -10; cloud -5; migration -60; current GP 390. The $60,000 migration charge is entirely allocated to services and classified as non-recurring by management. Excluding it gives services GP $87,000 and total GP $450,000. Attribution requires Finance validation.
[A3] Delivery and cloud review
Operations notes · 12 Sep
Services used additional contractors on two late projects. Cloud costs rose with usage and allocation changes. Nina, Services Delivery Lead, owns the staffing review; Leo, Platform Lead, owns the cloud reconciliation. The current notes do not establish which project generated each variance.