CONCENTRIX CORPORATION This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our historical consolidated financial statements and the notes to those consolidated financial statements. It contains forward-looking statements, which are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see "Risk Factors" and "Note Regarding Forward-Looking Statements" in this Annual Report on Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements. The following discussion compares our results for the fiscal year endedNovember 30, 2022 to the fiscal year endedNovember 30, 2021 . The discussion comparing our results for the fiscal year endedNovember 30, 2021 to the fiscal year endedNovember 30, 2020 is included within Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K filed with theSEC onJanuary 28, 2022 , and is incorporated by reference herein.
Unless otherwise indicated or except where the context otherwise requires,
references to "we," "our," "us," "the Company" or "Concentrix" in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations refer to
Overview and Basis of Presentation
Concentrix is a leading global provider of Customer Experience ("CX") solutions and technology that help iconic and disruptive brands drive deep understanding, full lifecycle engagement, and differentiated experiences for their end-customers. We provide end-to-end capabilities, including CX process optimization, technology innovation and design engineering, front- and back-office automation, analytics and business transformation services to clients in five primary industry verticals. Our differentiated portfolio of solutions supports Fortune Global 500 as well as new economy clients across the globe in their efforts to deliver an optimized, consistent brand experience across all channels of communication, such as voice, chat, email, social media, asynchronous messaging, and custom applications. We strive to deliver exceptional services globally supported by our deep industry knowledge, technology and security practices, talented people, and digital and analytics expertise. We generate revenue from performing services that are generally tied to our clients' products and services. Any shift in business or the size of the market for our clients' products or services, or any failure of technology or failure of acceptance of our clients' products or services in the market may impact our business. The staff turnover rate in our business is high, as is the risk of losing experienced team members. High staff turnover rates may increase costs and decrease operating efficiencies and productivity.
PK Acquisition
OnDecember 27, 2021 , we completed our acquisition of PK, a leading CX design engineering company with more than 5,000 staff in four countries, for total consideration of$1,573.3 million , net of cash and restricted cash acquired. PK creates pioneering experiences that accelerate digital outcomes for their clients' customers, partners and staff. The acquisition of PK expanded our scale in the digital IT services market and supported our growth strategy of investing in digital transformation to deliver exceptional customer experiences. The addition of the PK staff and technology to our team further strengthened our capabilities in CX design and development, artificial intelligence ("AI"), intelligent automation, and customer loyalty.
ServiceSource Acquisition
OnJuly 20, 2022 , we completed our acquisition ofServiceSource International, Inc. ("ServiceSource") for total consideration of$141.5 million , net of cash and restricted cash acquired. ServiceSource is a global outsourced go-to- 30
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market services provider, delivering business-to-business ("B2B") digital sales
and customer success solutions that complemented our existing offerings in this
area.
Spin-off
On December 1, 2020 , Concentrix and our technology-infused CX solutions business
were separated from SYNNEX Corporation, now known as TD SYNNEX Corporation ("TD
SYNNEX"), through a tax-free distribution of all of the issued and outstanding
shares of our common stock to TD SYNNEX stockholders (such separation and
distribution, the "spin-off"). TD SYNNEX stockholders received one share of our
common stock for each share of TD SYNNEX common stock held as of the close of
business on November 17, 2020 . As a result of the spin-off, we became an
independent public company and our common stock commenced trading on the Nasdaq
Stock Market ("Nasdaq") under the symbol "CNXC" on December 1, 2020 . In
connection with the spin-off, on November 30, 2020 , we entered into a separation
and distribution agreement, an employee matters agreement, a tax matters
agreement and a commercial agreement with TD SYNNEX to set forth the principal
actions to be taken in connection with the spin-off and define our ongoing
relationship with TD SYNNEX after the spin-off.
Risks and uncertainties related to the COVID-19 pandemic
At its height, the COVID-19 pandemic had a significant negative effect on the global economy, supply chains and labor force participation, and created significant volatility in financial markets. We successfully transitioned a significant portion of our workforce to a remote working environment throughout the second quarter of 2020 and implemented a number of safety and social distancing measures in our sites to protect the health and safety of our staff. During fiscal year 2022, almost all of our workforce was productive, but we experienced the continued effects of the COVID-19 pandemic, as variants caused new waves of COVID-19 cases around the globe. The extent of the future impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration, spread and severity of the pandemic, the evolution of the virus and the effects of mutations in its genetic code, country and state restrictions regarding virus containment, the availability and effectiveness of vaccines and treatment options, accessibility to our delivery and operations locations, our continued utilization of remote work environments in response to future health and safety restrictions, our clients' acceptance of remote work environments, and the effect on our clients' businesses and the demand for their products and services, all of which are uncertain and cannot be predicted. We are unable to predict how long the pandemic conditions will persist in regions in which we operate, if or when countries or localities may experience an increase in COVID-19 cases, what additional measures may be introduced by governments or our clients in response to the pandemic generally or to an increase in COVID-19 cases in a particular country or locality, and the effect of any such additional measures on our business. As a result, many of the estimates and assumptions involved in preparation of the consolidated financial statements included in this Annual Report on Form 10-K required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic and the global recovery from the pandemic, our estimates may materially change in future periods. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends.
Revenue and Cost of Revenue
We generate revenue through the provision of CX solutions and technology to our
clients pursuant to client contracts. Our client contracts typically consist of
a master services agreement, supported in most cases by multiple statements of
work, which contain the terms and conditions of each contracted solution. Our
client contracts can range from less than one year to over five years in term
and are subject to early termination by our clients for any reason, typically
with 30 to 90 days' notice.
Our CX solutions and technology are generally characterized by flat unit prices.
Approximately 95% of our revenue is recognized as services are performed, based
on staffing hours or the number of client customer
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transactions handled using contractual rates. Remaining revenue from the sale of these solutions are typically recognized as the services are provided over the duration of the contract using contractual rates. Our cost of revenue consists primarily of personnel costs related to the delivery of our solutions and technology. The costs of our revenue can be impacted by the mix of client contracts, where we deliver the CX solutions and technology, additional lead time for programs to be fully scalable and transition and initial set-up costs. Our cost of revenue as a percentage of revenue has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the management of our operating expenses, and the timing and costs incurred related to our acquisitions and investments. In fiscal years 2022 and 2021, approximately 78% and 84%, respectively, of our consolidated revenue was generated from our non-U.S. operations, and approximately 68% and 62%, respectively, of our consolidated revenue was priced inU.S. dollars and we expect this to continue. As a result, we have certain client contracts that are priced in non-U.S. dollar currencies for which a substantial portion of the costs to deliver the services are in other currencies. Accordingly, our revenue may be earned in currencies that are different from the currencies in which we incur corresponding expenses. Fluctuations in the value of currencies, such as the Philippine peso, the Indian rupee, and the Canadian dollar, against theU.S. dollar or other currencies in which we bill our clients, and inflation in the local economies in which these delivery centers are located, can impact the operating and labor costs in these delivery centers, which can result in reduced profitability. As a result, our revenue growth, costs and profitability have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates and inflation. Margins Our gross margins fluctuate and can be impacted by the mix of client contracts, services provided, shifts in the geography from which our CX services are delivered, client volume trends, and the amount of lead time that is required for programs to become fully scaled and transition and set-up costs. Our operating margin fluctuates based on changes in gross margins as well as overall volume levels, as we are able to gain scale efficiencies in our selling, general and administrative costs in periods of larger volume.
Economic and Industry Trends
The CX solutions industry in which we operate is competitive, including on the basis of pricing terms, delivery capabilities and quality of services. Further, there can be competitive pressure for labor in various markets, which could result in increased labor costs. Accordingly, we could be subject to pricing and labor cost pressures and may experience a decrease in revenue and operating income. Our business operates in over 40 countries across 6 continents. We have significant concentrations inthe Philippines ,India ,the United States , theUnited Kingdom ,Canada , throughoutEurope ,China andJapan . Accordingly, we would be impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to theU.S. dollar.
Seasonality
Our revenue and margins fluctuate with the underlying trends in our clients' businesses and trends in the level of consumer activity. As a result, our revenue and margins are typically higher in the fourth fiscal quarter of the year than in any other quarter.
Critical Accounting Policies and Estimates
The discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles inthe United States ("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review and evaluate our estimates and assumptions. Our estimates are 32
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based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies involve the more significant judgments, estimates and/or assumptions used in the preparation of our consolidated financial statements.
Revenue Recognition
We recognize revenue from our client contracts over time as the promised
services are delivered to clients for an amount that reflects the consideration
to which we are entitled in exchange for those services. We recognize revenue
over time as the client simultaneously receives and consumes the benefits
provided by us as we perform the services. We account for a contract with a
client when it has written approval, the contract is committed, the rights of
the parties, including payments terms, are identified, the contract has
commercial substance and the consideration is probable of collection. Revenue is
presented net of taxes collected from clients and remitted to government
authorities. We generally invoice a client after the performance of services, or
in accordance with the specific contractual provisions. Payments are due as per
contract terms and do not contain a significant financing component. In most
cases, our contracts consist of a single performance obligation comprised of a
series of distinct services that are substantially the same and that have the
same pattern of transfer (i.e., distinct days of service).
Service contracts are most significantly based on a fixed unit-price per
transaction or other objective measure of output. Revenue on unit-price
transactions is recognized over time using an objective measure of output such
as staffing hours or the number of transactions processed by service advisors.
Certain contracts may be based on a fixed price. Revenue on fixed price
contracts is recognized over time using an input measure or on a straight line
basis over the term of the contract as the services are provided based on the
nature of the contract.
Certain client contracts include additional payments from the client based upon
the achievement of certain agreed-upon service levels and performance metrics.
Certain contracts also provide for a reduction in consideration paid to the
Company in the event that certain agreed-upon service levels or performance
metrics are not achieved. Revenue based on such arrangements is accounted for as
variable consideration when the likely amount of revenue to be recognized can be
estimated to the extent that it is unlikely that a significant reversal will
occur.
Business Combinations
We continually seek to augment organic growth with strategic acquisitions of
businesses and assets that complement and expand our existing capabilities.
Recent acquisitions have sought to enhance our capabilities and domain expertise
in our key verticals, expand our geographic footprint, and further expand into
higher value service offerings. We are also strategically focused on further
increasing our scale to support our clients.
We allocate the fair value of purchase consideration to the assets acquired and
liabilities assumed generally based on their fair values at the acquisition
date. The excess of the fair value of purchase consideration over the fair value
of the assets acquired and liabilities assumed is recorded as goodwill. The
determination of the fair value of assets and liabilities may involve engaging
independent third parties to perform an appraisal. When determining the fair
values of assets acquired and liabilities assumed, we make significant estimates
and assumptions, especially with respect to intangible assets. Critical
estimates in valuing intangible assets include, but are not limited to, expected
future cash flows, which includes consideration of future growth rates and
margins, attrition rates, and discount rates. Fair value estimates are based on
the assumptions we believe a market participant would use in pricing the asset
or liability. Amounts recorded in a business combination may change during the
measurement period, which is a period not to exceed one year from the date of
acquisition, as additional information about conditions existing at the
acquisition date becomes available.
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As ofNovember 30, 2022 , we had goodwill of$2,904.4 million recorded on our consolidated balance sheet. The Company tests goodwill for impairment annually at the reporting unit level in the fiscal fourth quarter or more frequently if events or changes in circumstances indicate that it may be impaired. For purposes of the goodwill impairment test, the Company can elect to perform a quantitative or qualitative analysis. If the qualitative analysis is elected, goodwill is tested for impairment at the reporting unit level by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The factors that are considered in the qualitative analysis include: macroeconomic conditions; industry and market considerations; cost factors such as increases in labor, or other costs that would have a negative effect on earnings and cash flows; and other relevant entity-specific events and information. If we elect to perform or are required to perform a quantitative analysis, then the reporting unit's carrying value is compared to its fair value.Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value and the excess is recognized as an impairment loss. As part of our fiscal year 2022 assessment, we reconciled the fair value of our reporting unit to our market capitalization. The result of the analysis demonstrated that our reporting unit's fair value substantially exceeded its carrying value. Based on our 2022 impairment assessment, we concluded that no impairment charges were necessary. We recorded no impairment charges related to goodwill during the fiscal years endedNovember 30, 2022 and 2021.
Other Intangible Assets
As ofNovember 30, 2022 , we had other intangible assets, net of amortization, of$985.6 million . This amount consists primarily of$919.9 million in client relationship intangible assets. As amortizable intangible assets, we evaluate the intangible assets for recoverability whenever events or circumstances indicate a possible inability to recover their carrying value (an indicator of impairment). If an impairment indicator is present, we perform a test of recoverability by comparing estimates of undiscounted future cash flows to the carrying values of the related assets. We recorded no impairment charges related to other intangible assets during the fiscal years endedNovember 30, 2022 and 2021.
Recently Issued Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on
our consolidated financial statements, see Note 2-Summary of Significant
Accounting Policies to the consolidated financial statements included elsewhere
in this Annual Report on Form 10-K.
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Results of Operations - Fiscal Years Ended
Fiscal Years Ended November 30,
2022 2021
(in thousands)
Revenue $ 6,324,473 $ 5,587,015
Cost of revenue 4,067,210 3,617,527
Gross profit 2,257,263 1,969,488
Selling, general and administrative expenses 1,617,071 1,397,091
Operating income 640,192 572,397
Interest expense and finance charges, net 70,076 23,046
Other expense (income), net (34,887) (6,345)
Income before income taxes 605,003 555,696
Provision for income taxes 169,363 150,119
Net income before non-controlling interest 435,640 405,577
Less: Net income attributable to non-controlling interest 591 -
Net income attributable to Concentrix Corporation $ 435,049 $ 405,577
Revenue
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
(in thousands)
Industry vertical:
Technology and consumer electronics $ 1,980,666 $ 1,759,203 12.6 %
Retail, travel and ecommerce 1,184,086 985,550 20.1 %
Communications and media 1,076,289 1,005,283 7.1 %
Banking, financial services and insurance 967,810 862,033 12.3 %
Healthcare 608,169 489,855 24.2 %
Other 507,453 485,091 4.6 %
Total $ 6,324,473 $ 5,587,015 13.2 %
We generate revenue by delivering our CX solutions and technology to our clients categorized in the above primary industry verticals. Our solutions focus on customer engagement, process optimization, and back-office automation.
Our revenue increased 13.2% in fiscal year 2022, including revenue from acquired operations of$512.9 million , or an increase of 9.2%, compared to fiscal year 2021. The increase in revenue from acquired operations combined with higher volumes across most verticals caused the majority of the increase in our revenue compared to the prior year. These increases were partially offset by a decrease in revenue related to divested businesses of$37.9 million , or 0.7%, and an unfavorable translation effect of foreign currencies of$195.2 million , or 3.5%. The unfavorable foreign currency translation effect on revenue was primarily due to the weakening of the euro, Japanese yen, British pound, and Australian dollar against theU.S. dollar. Revenue in our technology and consumer electronics vertical increased over the prior year as a result of increases in volumes from several social media and internet-related service clients, increases in volumes from a broad-based group of hardware and software clients and increases due to contributions from acquired operations. Revenue in our retail, travel and ecommerce vertical increased over the prior year primarily due to contributions 35
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from acquired operations and increased volumes from a majority of our retail and ecommerce and travel and tourism clients. Revenue in our communications and media vertical increased over the prior year primarily due to contributions from acquired operations. Revenue from clients in the banking, financial services and insurance vertical increased over the prior year due to increased volumes from several banking and financial services clients partially offset by a decrease in volumes related to several of our insurance clients, which primarily resulted from the divestiture of our insurance third-party administration operations and software platform,Concentrix Insurance Solutions ("CIS"). Revenue in our healthcare vertical increased over the prior year due to contributions from acquired operations and increased volumes from a majority of our health insurance clients. Revenue in our other vertical increased over the prior year primarily due to contributions from acquired operations partially offset by a decrease in revenue from government clients.
Cost of Revenue, Gross Profit and Gross Margin Percentage
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
($ in thousands)
Cost of revenue $ 4,067,210 $ 3,617,527 12.4 %
Gross profit $ 2,257,263 $ 1,969,488 14.6 %
Gross margin % 35.7 % 35.3 %
Cost of revenue consists primarily of personnel costs. Gross margins can be impacted by resource location, client mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs.
Our cost of revenue increased by 12.4% in fiscal year 2022, compared to fiscal year 2021, primarily due to the increase in our revenue and personnel costs related to staff supporting our acquired operations. These increases were partially offset by a$193.5 million , or 5.3%, reduction in the cost of revenue due to foreign currency translation. The foreign currency impacts on our cost of revenue were caused primarily by the weakening of the euro, Philippine peso, Japanese yen and Indian rupee against theU.S. dollar. Our gross profit increased by 14.6% in fiscal year 2022, compared to fiscal year 2021, primarily due to the increase in revenue and contributions from acquired operations, partially offset by a$1.7 million reduction in gross profit due to net unfavorable foreign currency translation. Our gross margin percentage increased from 35.3% in fiscal year 2021 to 35.7% in fiscal year 2022 and was affected by the mix of geographies where our services were delivered.
Selling, General and Administrative Expenses
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
($ in thousands)
Selling, general and administrative expenses
$ 1,397,091 15.7 % Percentage of revenue 25.6 % 25.0 % Our selling, general and administrative expenses consist primarily of support personnel costs such as salaries, commissions, bonuses, employee benefits and share-based compensation costs. Selling, general and administrative expenses also include the cost of our global delivery facilities, utility expenses, hardware and software costs related to our technology infrastructure, legal and professional fees, depreciation on our technology and facility equipment, amortization of intangible assets resulting from acquisitions, marketing expenses and acquisition-related and integration expenses. 36
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Our selling, general and administrative expenses increased by 15.7% in fiscal year 2022, compared to fiscal year 2021, primarily due to incremental expenses associated with acquired operations, increases in expenses to support our revenue growth, an increase in amortization expense of$25.8 million primarily associated with the intangible assets recognized in the acquisitions of PK and ServiceSource, an increase in acquisition-related and integration expenses of$33.0 million related to the previously described acquisitions and an increase in share-based compensation expense of$10.7 million . These increases were partially offset by a$53.4 million reduction in selling, general and administrative expenses due to foreign currency translation. As a percentage of revenue, selling, general and administrative expenses increased from 25.0% for fiscal year 2021 to 25.6% for fiscal year 2022 due to the net effect of the changes described. Operating Income Fiscal Years Ended November 30, Percent Change 2022 2021 2022 to 2021 ($ in thousands) Operating income$ 640,192 $ 572,397 11.8 % Operating margin 10.1 % 10.2 %
Our operating income increased during fiscal year 2022, compared to fiscal year 2021, primarily due to the increase in gross profit partially offset by the increase in selling, general and administrative expenses.
Our operating margin decreased during fiscal year 2022, compared to fiscal year 2021, due to the increase in gross margin percentage more than offset by the increase in selling, general and administrative expenses as a percentage of revenue.
Interest Expense and Finance Charges, Net
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
($ in thousands)
Interest expense and finance charges, net $ 70,076 $ 23,046 204.1 %
Percentage of revenue 1.1 % 0.4 %
Amounts recorded in interest expense and finance charges, net consist primarily
of interest on our term loan borrowings under our senior secured credit facility
(the "Credit Facility") and interest on borrowings under our accounts receivable
securitization facility (the "Securitization Facility").
The increase in interest expense during fiscal year 2022, compared to fiscal
year 2021, was due to the increase in borrowings and an increased interest rate
on our term loan borrowings under our Credit Facility and increased borrowings
and an increased interest rate on borrowings under our Securitization Facility.
The increase in borrowings primarily resulted from borrowings incurred for the
acquisitions of PK and ServiceSource in fiscal year 2022.
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Other Expense (Income), Net
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
($ in thousands)
Other expense (income), net $ (34,887) $ (6,345) 449.8 %
Percentage of revenue (0.6) % (0.1) %
Amounts recorded as other expense (income), net include foreign currency transaction gains and losses other than cash flow hedges, investment gains and losses, the non-service component of pension costs, and other non-operating gains and losses.
Other expense (income), net in fiscal year 2022 was
Provision for Income Taxes
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
($ in thousands)
Provision for income taxes $ 169,363 $ 150,119 12.8 %
Percentage of income before income taxes 28.0 % 27.0 %
Our provision for income taxes consists of our current and deferred tax expense resulting from our income earned in domestic and international jurisdictions.
Our provision for income taxes increased for fiscal year 2022, compared to fiscal year 2021, due to the change in mix of income earned in different tax jurisdictions between fiscal years. This change in mix of income led to an increase in theU.S. minimum tax related to foreign earnings in fiscal year 2022 in comparison to fiscal year 2021. The increase was partially offset by an additional income tax expense of$13.0 million in fiscal year 2021 related to the divestiture of CIS. The effective tax rate for fiscal year 2022 increased compared to the effective tax rate for the fiscal year 2021 due to the change in mix of income earned in different tax jurisdictions between fiscal years. A decrease inU.S. taxable income led to an increase in theU.S. minimum tax related to foreign earnings as a percentage of income before taxes.
See Note 14-Income Taxes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
Certain Non-GAAP Financial Information
In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including:
•Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue of each fiscal year in the billing currency toU.S. dollars using the comparable prior year's currency conversion rate. Generally, when theU.S. dollar either 38
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strengthens or weakens against other currencies, our revenue growth at constant currency rates or adjusting for currency will be higher or lower than our revenue growth reported at actual exchange rates.
•Revenue in adjusted constant currency, which is constant currency revenue excluding revenue from acquired operations in the current period for the twelve months following an acquisition and excluding revenue from divested operations in the comparative period for the twelve months preceding a divestiture. Revenue in adjusted constant currency presents organic constant currency revenue growth for the business, without the impact of acquisitions and divestitures, thereby facilitating period-to-period comparisons of our business performance. •Non-GAAP operating income, which is operating income, adjusted to exclude acquisition-related and integration expenses, including related restructuring costs, amortization of intangible assets, share-based compensation and gain on divestitures and related transaction costs.
•Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue.
•Adjusted earnings before interest, taxes, depreciation, and amortization, or adjusted EBITDA, which is non-GAAP operating income, as defined above, plus depreciation.
•Adjusted EBITDA margin, which is adjusted EBITDA, as defined above, divided by revenue.
•Non-GAAP net income, which is net income excluding the tax effected impact of
acquisition-related and integration expenses, including related restructuring
costs, amortization of intangible assets, share-based compensation and gain on
divestitures and related transaction costs.
•Free cash flow, which is cash flows from operating activities less capital
expenditures. We believe that free cash flow is a meaningful measure of cash
flows since capital expenditures are a necessary component of ongoing
operations. However, free cash flow has limitations because it does not
represent the residual cash flow available for discretionary expenditures. For
example, free cash flow does not incorporate payments for business acquisitions.
•Non-GAAP diluted earnings per common share ("EPS"), which is diluted EPS
excluding the per share, tax effected impact of acquisition-related and
integration expenses, including related restructuring costs, amortization of
intangible assets, share-based compensation and gain on divestitures and related
transaction costs.
We believe that providing this additional information is useful to the reader to
better assess and understand our base operating performance, especially when
comparing results with previous periods and for planning and forecasting in
future periods, primarily because management typically monitors the business
adjusted for these items in addition to GAAP results. Management also uses these
non-GAAP measures to establish operational goals and, in some cases, for
measuring performance for compensation purposes. These non-GAAP financial
measures exclude amortization of intangible assets. Our acquisition activities
have resulted in the recognition of intangible assets, which consist primarily
of client relationships, technology and trade names. Finite-lived intangible
assets are amortized over their estimated useful lives and are tested for
impairment when events indicate that the carrying value may not be recoverable.
The amortization of intangible assets is reflected in our statements of
operations. Although intangible assets contribute to our revenue generation, the
amortization of intangible assets does not directly relate to the services
performed for our clients. Additionally, intangible asset amortization expense
typically fluctuates based on the size and timing of our acquisition activity.
Accordingly, we believe excluding the amortization of intangible assets, along
with the other non-GAAP adjustments, which neither relate to the ordinary course
of our business nor reflect our underlying business performance, enhances our
and our investors' ability to compare our past financial performance with its
current performance and to analyze underlying business performance and trends.
Intangible asset amortization excluded from the related non-GAAP financial
measure represents the entire amount recorded within our GAAP financial
statements, and the revenue generated by the associated intangible assets has
not been excluded from the related non-GAAP financial measure. Intangible asset
amortization is excluded from the related non-GAAP financial measure because the
amortization, unlike the related revenue, is not affected by operations of any
particular period unless an intangible asset becomes impaired or the estimated
useful life of an intangible asset is revised. These non-GAAP financial measures
also exclude share-based
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compensation expense. Given the subjective assumptions and the variety of award
types that companies can use when calculating share-based compensation expense,
management believes this additional information allows investors to make
additional comparisons between our operating results and those of our peers. As
these non-GAAP financial measures are not calculated in accordance with GAAP,
they may not necessarily be comparable to similarly titled measures employed by
other companies. These non-GAAP financial measures should not be considered in
isolation or as a substitute for the comparable GAAP measures and should be used
as a complement to, and in conjunction with, data presented in accordance with
GAAP.
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Fiscal Years Ended
2022 2021
($ in thousands except per share amounts)
Revenue $ 6,324,473 $ 5,587,015
Foreign currency translation 195,200 -
Revenue in constant currency $ 6,519,673 $ 5,587,015
Effect of excluding revenue of acquired and divested businesses (512,942) (37,911)
Revenue in adjusted constant currency $ 6,006,731 $ 5,549,104
Operating income $ 640,192 $ 572,397
Acquisition-related and integration expenses 33,763 825
Amortization of intangibles 162,673 136,939
Share-based compensation 47,516 36,762
Gain on divestitures and related transaction costs - (13,197)
Non-GAAP operating income $ 884,144 $ 733,726
Net income $ 435,049 $ 405,577
Net income attributable to non-controlling interest 591 -
Interest expense and finance charges, net 70,076 23,046
Provision for income taxes 169,363 150,119
Other expense (income), net (34,887) (6,345)
Acquisition-related and integration expenses 33,763 825
Gain on divestitures and related transaction costs - (13,197)
Amortization of intangibles 162,673 136,939
Share-based compensation 47,516 36,762
Depreciation 146,864 140,236
Adjusted EBITDA $ 1,031,008 $ 873,962
Operating margin 10.1 % 10.2 %
Non-GAAP operating margin 14.0 % 13.1 %
Adjusted EBITDA margin 16.3 % 15.6 %
Net income $ 435,049 $ 405,577
Acquisition-related and integration expenses 33,763 825
Amortization of intangibles 162,673 136,939
Share-based compensation 47,516 36,762
Gain on divestitures and related transactions costs - (13,197)
Income taxes related to the above (1) (61,959) (32,291)
Non-GAAP net income $ 617,042 $ 534,615
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Fiscal Years Ended
2022 2021
Diluted earnings per common share ("EPS") $ 8.28 $ 7.70
Acquisition-related and integration expenses 0.64 0.02
Amortization of intangibles 3.10 2.60
Share-based compensation 0.90 0.70
Gain on divestitures and related transaction costs - (0.25)
Income taxes related to the above (1) (1.17) (0.62)
Non-GAAP Diluted EPS $
11.75
(1) The tax effect of taxable and deductible non-GAAP adjustments was calculated using the tax deductible portion of the expenses and applying the entity specific, statutory tax rates applicable to each item during the respective fiscal years.
Client Concentration
In fiscal year 2022, no client accounted for more than 10% of our consolidated revenue. Our largest client accounted for 11.9% of our revenue in fiscal year 2021. The revenue that we recognized from this client was earned under multiple contracts and statements of work. No other client accounted for more than 10% of our revenue in 2021.
Liquidity and Capital Resources
Our primary uses of cash are working capital, capital expenditures to expand our delivery footprint and enhance our technology solutions, debt repayments and acquisitions, including our fiscal year 2022 acquisitions of PK and ServiceSource. Our financing needs for these uses of cash have been a combination of operating cash flows and third-party debt arrangements. Our working capital needs are primarily to finance accounts receivable. When our revenue is increasing, our net investment in working capital typically increases. Conversely, when revenue is decreasing, our net investment in working capital typically decreases. To increase our market share and better serve our clients, we may further expand our operations through investments or acquisitions. We expect that such expansion would require an initial investment in working capital, personnel, facilities, and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, available liquidity, including capacity on our debt arrangements, or the issuance of securities. InSeptember 2021 , considering our strong free cash flow, low leverage and adequate liquidity to support capital return to stockholders while maintaining flexibility to pursue acquisitions, the Company's board of directors authorized a share repurchase program. Under the share repurchase program, the board of directors authorized the Company to purchase up to$500 million of our common stock from time to time as market and business conditions warrant, including through open market purchases or Rule 10b5-1 trading plans. The repurchase program has no termination date and may be suspended or discontinued at any time. During the fiscal years endedNovember 30, 2022 and 2021, we purchased 841,979 and 138,455 shares, respectively, of our common stock under the program at an aggregate cost of approximately$120.8 million and$25.1 million , respectively. AtNovember 30, 2022 , 42
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approximately
During fiscal years 2022 and 2021, the Company has paid the following dividends per share approved by the Company's board of directors:
Announcement Date Record Date Per Share Dividend Amount Payment Date
September 27, 2021 October 22, 2021$0.25
January 18, 2022 January 28, 2022$0.25
March 29, 2022 April 29, 2022$0.25
June 27, 2022 July 29, 2022$0.25
September 8, 2022 October 28, 2022$0.275
On
The board of directors expects that future cash dividends will be paid on a quarterly basis. However, any decision to pay future cash dividends will be subject to our board of directors' approval, and will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt agreements, industry practice, legal requirements, regulatory constraints, and other factors that our board of directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will continue to pay a dividend in the future. Debt Arrangements Credit Facility OnDecember 27, 2021 , in connection with the closing of the acquisition of PK, we entered into an amended Credit Facility to (i) refinance the then-outstanding term loan (the "Prior Term Loan") with a new term loan, which was fully advanced, in the aggregate outstanding principal amount of$2,100 million (the "Term Loan"), (ii) increase the commitments under our revolving credit facility (the "Revolver") to$1,000 million , (iii) extend the maturity of the Credit Facility fromNovember 30, 2025 toDecember 27, 2026 , (iv) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Credit Facility, and (v) modify the commitment fee on the unused portion of the Revolver and the margins in excess of the reference rates at which the loans under the Credit Facility bear interest. The proceeds from the Term Loan and additional borrowings under the Securitization Facility were used to repay the outstanding principal amount of the Prior Term Loan and to finance the acquisition of PK, including the repayment of certain indebtedness of PK and the payment of fees and expenses in connection with the acquisition. Borrowings under the Credit Facility bear interest, in the case of term or daily SOFR loans, at a per annum rate equal to the applicable SOFR rate (but not less than 0.0%), plus an adjustment of between 0.10% and 0.25% depending on the interest period of each SOFR loan, plus an applicable margin, which ranges from 1.25% to 2.00%, based on our consolidated leverage ratio. Borrowings under the Credit Facility that are base rate loans bear interest at a per annum rate equal to (i) the greatest of (a) the Federal Funds Rate in effect on such day plus ½ of 1.00%, (b) the rate of interest last publicly announced by Bank of America as its "prime rate" and (c) the term SOFR rate plus 1.00%, plus (ii) an applicable margin, which ranges from 0.25% to 1.00%, based on our consolidated leverage ratio. A commitment fee is payable on the unused portion of the Revolver that ranges from 22.5 to 30 basis points, based on our consolidated leverage ratio. BeginningAugust 31, 2022 , the outstanding principal of the Term Loan became payable in quarterly installments of$26.25 million , with the unpaid balance due in full on the maturity date. During the fiscal year ended 43
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We may request, subject to obtaining commitments from any participating lenders and certain other conditions, incremental commitments to increase the amount of the Revolver or the Term Loan available under the Credit Facility in an aggregate principal amount of up to$450 million , plus an additional amount, so long as after giving effect to the incurrence of such additional amount, our pro forma first lien leverage ratio (as defined in the Credit Facility) would not exceed 3.00 to 1.00. Obligations under the Credit Facility are secured by substantially all of the assets ofConcentrix Corporation and certain of itsU.S. subsidiaries and are guaranteed by certain of itsU.S. subsidiaries. The Credit Facility contains various loan covenants that restrict the ability ofConcentrix and its subsidiaries to take certain actions, including incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or redemption of capital stock, making certain investments, entering into certain transactions with affiliates or changing the nature of our business. In addition, the Credit Facility contains financial covenants that require us to maintain at the end of each fiscal quarter, (i) a consolidated leverage ratio (as defined in the Credit Facility) not to exceed 3.75 to 1.0 and (ii) a consolidated interest coverage ratio (as defined in the Credit Facility) equal to or greater than 3.00 to 1.0. The Credit Facility also contains various customary events of default, including payment defaults, defaults under certain other indebtedness, and a change of control ofConcentrix . Prior to it being amended inDecember 2021 , we initially entered into our senior secured credit facility onOctober 16, 2020 , to provide for the extension of revolving loans of up to$600 million and term loan borrowings of up to$900 million . OnNovember 30, 2020 , in connection with the spin-off, we incurred the full$900 million of term loan borrowings under the Credit Facility and$250 million of borrowings under the Securitization Facility. Substantially all of the proceeds from such borrowings, net of debt issuance costs, were transferred to TD SYNNEX onNovember 30, 2020 to eliminate debt owed by the Company to TD SYNNEX and in exchange for the contribution of certainConcentrix trademarks from TD SYNNEX to the Company. BeginningMay 31, 2021 , the outstanding principal of the Prior Term Loan was payable in quarterly installments of$11.25 million , with the unpaid balance due in full on the maturity date. During the fiscal year endedNovember 30, 2021 , we paid$200.0 million of the principal balance on the Prior Term Loan, including$166.25 million of voluntary prepayments, without penalty.
We had no outstanding borrowings on the Revolver as of
Securitization Facility OnJuly 6, 2022 , we entered into an amendment to our Securitization Facility, which was initially entered into onOctober 30, 2020 , to (i) increase the commitment of the lenders to provide available borrowings from up to$350 million to up to$500 million , (ii) extend the termination date of the Securitization Facility fromOctober 28, 2022 toJuly 5, 2024 , and (iii) replace LIBOR with SOFR as one of the reference rates used to calculate interest on borrowings under the Securitization Facility. In addition, the interest rate margins were amended, such that borrowings under the Securitization Facility that are funded through the issuance of commercial paper bear interest at the applicable commercial paper rate plus a spread of 0.70% and, otherwise, at a per annum rate equal to the applicable SOFR rate (which includes a SOFR related adjustment of 0.10%), plus a spread of 0.80%. Under the Securitization Facility,Concentrix and certain of itsU.S. based subsidiaries (the "Originators") sell or otherwise transfer all of their accounts receivable to a special purpose bankruptcy-remote subsidiary ofConcentrix that grants a security interest in the receivables to the lenders in exchange for available borrowings of up to$500 million . Borrowing availability under the Securitization Facility may be limited by our accounts receivable balances, changes in the credit ratings of our clients comprising the receivables, client concentration levels in the receivables, and certain characteristics of the accounts receivable being transferred (including factors tracking performance of the accounts receivable over time). 44
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The Securitization Facility contains various affirmative and negative covenants, including a consolidated leverage ratio covenant that is consistent with the Credit Facility and customary events of default, including payment defaults, defaults under certain other indebtedness, a change in control ofConcentrix , and certain events negatively affecting the overall credit quality of the transferred accounts receivable. OnNovember 30, 2020 , in connection with the spin-off, we incurred$250 million of borrowings under the Securitization Facility. Substantially all of the proceeds from such borrowings were transferred to TD SYNNEX onNovember 30, 2020 to eliminate debt owed byConcentrix to TD SYNNEX and in exchange for the contribution of certainConcentrix trademarks from TD SYNNEX toConcentrix .
As of
Cash Flows - Fiscal Years Ended
The following summarizes our cash flows for the fiscal years endedNovember 30, 2022 and 2021, as reported in our consolidated statement of cash flows in the accompanying consolidated financial statements. Fiscal Years Ended November 30, 2022 2021 ($ in thousands) Net cash provided by operating activities$ 600,720 $ 514,178 Net cash used in investing activities (1,839,279) (78,650) Net cash provided by (used in) financing activities 1,237,534 (401,871)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(24,522) (6,998)
Net increase (decrease) in cash, cash equivalents and restricted cash
$
(25,547)
183,010 156,351
Cash, cash equivalents and restricted cash at end of year
Operating Activities
Net cash provided by operating activities was$600.7 million for fiscal year 2022 in comparison to$514.2 million for fiscal year 2021. The increase in net cash provided by operating activities over the prior year was primarily related to the increase in net income and changes in working capital and operating assets and liabilities.
Investing Activities
Net cash used in investing activities for fiscal year 2022 was$1,839.3 million in comparison to$78.7 million in fiscal year 2021. The increase in net cash used in investing activities over the prior year primarily related to aggregate cash paid in connection with our acquisitions of PK and ServiceSource of approximately$1.7 billion .
Financing Activities
Net cash provided by financing activities in fiscal year 2022 was$1,237.5 million , consisting primarily of net proceeds of$1,400.0 million from the refinancing of the Prior Term Loan with the Term Loan under our Credit Facility and net proceeds of$251.5 million from borrowings under our Securitization Facility. The increases were offset primarily by payments of$225.0 million made on the Term Loan, repurchases of our common stock of$133.3 million , including repurchases under our share repurchase program and shares withheld upon the vesting of share-based awards to satisfy tax withholding obligations, and dividends paid of$53.4 million . 45
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Net cash used in financing activities in fiscal year 2021 was$401.9 million , consisting primarily of principal payments of$200.0 million on borrowings under our Credit Facility, net payments of$145.0 million on borrowings under our Securitization Facility, repurchases of our common stock of$57.5 million , including repurchases under our share repurchase program and shares withheld upon the vesting of share-based awards to satisfy tax withholding obligations, and dividends paid of$13.1 million .
We believe our current cash balances and credit availability are enough to support our operating activities for at least the next twelve months.
Free Cash Flow (a non-GAAP measure)
Fiscal Years Ended November 30,
2022 2021
($ in thousands)
Net cash provided by operating activities $ 600,720 $ 514,178
Purchases of property and equipment (140,018) (149,079)
Free cash flow (a non-GAAP measure) $
460,702
Our free cash flow was$460.7 million in fiscal year 2022, compared to$365.1 million in fiscal year 2021. The increase in free cash flow in fiscal year 2022 over the prior year primarily reflects increased net cash provided by operating activities as a result of the increase in net income and a decrease in capital expenditures. Capital Resources As ofNovember 30, 2022 , we had total liquidity of$1,288.9 million , which includes undrawn Revolver capacity of$1,000 million under our Credit Facility, undrawn capacity of$143.5 million under our Securitization Facility, and cash and cash equivalents. Our cash and cash equivalents totaled$145.4 million and$182.0 million as ofNovember 30, 2022 and 2021, respectively. Of our total cash and cash equivalents, 97% and 87% were held by our non-U.S. legal entities as ofNovember 30, 2022 and 2021, respectively. The cash and cash equivalents held by our non-U.S. legal entities are no longer subject toU.S. federal tax on repatriation intothe United States ; repatriation of some non-U.S. balances is restricted by local laws. Historically, we have fully utilized and reinvested all non-U.S. cash to fund our international operations and expansion; however, the Company has recorded deferred tax liabilities related to non-U.S. withholding taxes on the earnings of certain previously acquired non-U.S. entities that are likely to be repatriated in the future. If in the future our intentions change, and we repatriate the cash back tothe United States , we will report in our consolidated financial statements the impact of the state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity withinthe United States to fund current and expected future working capital, investment and other general corporate funding requirements. We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations, and our sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months. We also believe that our longer-term working capital, planned capital expenditures and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities. 46
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Material Cash Requirements, including Contractual Obligations to Third Parties
The following table summarizes our material cash requirements from known
contractual or other obligations as of
Payments Due by Period
Less than 1
Total Year 1 - 3 Years 3 - 5 Years >5 Years
(in thousands)
Certain Contractual Obligations:
Interest on financing agreements (a) $ 446,417 $ 123,733
77,198 - 9,811 13,237 54,150
(a) Cash obligations for required interest payments on our variable-rate debt
obligations at the current rates as of
(b) Includes projected contributions to achieve minimum funding objectives for our cash balance pension plan.
As ofNovember 30, 2022 , we have established a reserve of$78.5 million for unrecognized tax benefits. As we are unable to reasonably predict the timing of settlement related to these unrecognized tax benefits, the table above excludes such liabilities.
We currently expect our 2023 capital expenditures to be approximately
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