Concentrix Corporation — Q1 FY2024 Form 10-Q Summary
Reporting period: Three months ended February 29, 2024, compared with the three months ended February 28, 2023. Concentrix provides global customer experience solutions and technology across technology and consumer electronics, retail/travel/e-commerce, communications and media, banking/financial services/insurance, healthcare, and other markets.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $2.403 billion | $1.636 billion | +46.8% |
| Gross profit | $856.5 million | $581.2 million | +47.4% |
| Gross margin | 35.6% | 35.5% | +0.1 percentage points |
| SG&A expense | $708.1 million | $425.1 million | +66.6% |
| Operating income | $148.4 million | $156.0 million | -4.9% |
| Operating margin | 6.2% | 9.5% | -3.3 percentage points |
| Interest expense and finance charges | $82.4 million | $34.0 million | +142.5% |
| Net income | $52.1 million | $87.9 million | -40.7% |
| Diluted EPS | $0.76 | $1.68 | Decrease |
| Adjusted EBITDA | $384.3 million | $255.8 million | +50.3% |
| Adjusted EBITDA margin | 16.0% | 15.6% | +0.4 percentage points |
Revenue growth was primarily attributable to the September 2023 Webhelp acquisition. On a supplemental basis assuming Webhelp had been acquired at the beginning of fiscal 2023, Q1 FY2024 revenue increased 1.7%. Revenue increased in every reported vertical, led by retail, travel and e-commerce at 91.1%, other at 81.3%, and communications and media at 47.9%.
Cash flow, liquidity, and debt
- Operating cash flow was a use of $46.9 million, compared with $103.9 million of cash provided in the prior-year quarter.
- Capital expenditures were $56.1 million, producing negative free cash flow of $102.9 million. Adjusted free cash flow, excluding the effect of changes in factoring balances, was negative $81.3 million.
- Cash and cash equivalents were $234.8 million at February 29, 2024, down from $295.3 million at November 30, 2023. Cash, cash equivalents, and restricted cash totaled $418.0 million.
- Management reported total liquidity of approximately $1.451 billion, including $1.043 billion of undrawn revolving credit capacity, $174.0 million of undrawn securitization capacity, and cash and cash equivalents.
- Net long-term debt was $5.034 billion, including $2.150 billion of senior notes, $1.850 billion under the term loan, $326.0 million under the receivables securitization facility, and $756.2 million under the Sellers’ Note.
- The Company prepaid $100.0 million of term-loan principal during the quarter. The $700 million euro-denominated Sellers’ Note bears stated interest of 2% and is due September 25, 2025.
- No amounts were outstanding under the revolving credit facility. The Company was in compliance with its debt covenants at February 29, 2024.
Material changes versus the prior comparable period
- The Webhelp acquisition substantially increased reported revenue, assets, debt, amortization, and integration costs.
- SG&A increased faster than revenue, including a $77.0 million increase in amortization expense and a $24.6 million increase in acquisition-related and integration expenses.
- Interest expense increased primarily because the senior notes and Sellers’ Note were not outstanding in the prior-year quarter.
- GAAP profitability declined despite higher revenue and gross profit. Non-GAAP operating margin remained 13.3%, while adjusted EBITDA margin increased to 16.0% from 15.6%.
- Working-capital movements drove the shift from positive operating cash flow to negative operating cash flow. Accounts receivable increased to $1.928 billion.
- Foreign currency translation produced a $69.4 million other comprehensive loss, contributing to a $20.5 million comprehensive loss for the quarter.
Outlook, commentary, and risks
Management stated that available cash, expected operating cash flow, and borrowing capacity should be sufficient for current and planned working-capital and investment needs over the next twelve months. No specific financial guidance was provided in the filing text.
- Key execution risks relate to integrating Webhelp, retaining employees and clients, and achieving anticipated cost savings and synergies.
- The business has substantial international exposure: approximately 79% of revenue was generated from non-U.S. operations, while approximately 50% was priced in U.S. dollars in Q1 FY2024.
- Foreign exchange movements, inflation, labor costs, client demand, contract terminations, competition, and seasonality may affect revenue and margins.
- Cybersecurity, data privacy, technology disruptions, generative artificial intelligence, geopolitical events, public health events, and natural disasters are identified risks.
- A 100-basis-point increase in interest rates on variable-rate debt would increase estimated annual interest expense by approximately $21.8 million.
- The securitization facility provides up to $500 million of capacity and has a stated termination date of July 5, 2024; availability may vary with receivable characteristics and client credit quality.
- Legal proceedings and ordinary-course claims were not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Other notable items
- The Company repurchased 237,105 shares for approximately $21.7 million during the quarter; approximately $268.5 million remained available under the $500 million authorization.
- The quarterly dividend was $0.3025 per share. A dividend of $0.3025 per share was announced on March 26, 2024, payable May 7, 2024.
- The Webhelp purchase-price allocation remained preliminary. Goodwill was $5.031 billion and acquired finite-lived intangible assets were $1.984 billion.
- Management reported that disclosure controls and procedures were effective. Internal-control integration work related to the Webhelp acquisition remained in progress.
Investor verification checklist
- Verify the pace and economics of Webhelp integration, including sustainable organic growth, synergies, and integration costs.
- Assess leverage, upcoming maturities, refinancing needs, covenant headroom, and the July 2024 securitization-facility termination date.
- Monitor operating cash conversion, working-capital requirements, capital expenditures, and the sustainability of dividends and share repurchases.
- Reconcile GAAP results with management’s non-GAAP measures, particularly the substantial amortization, acquisition-related, share-based compensation, and foreign-currency adjustments.
- Evaluate exposure to foreign exchange, variable interest rates, labor inflation, client concentration and demand, cybersecurity, and data privacy risks.
- Review the final Webhelp purchase-price allocation and any resulting changes to goodwill, intangible assets, amortization, taxes, or debt.