Concentrix Corporation Fiscal 2021 Form 10-K Summary
Business context and reporting period
Concentrix is a global provider of customer experience solutions and technology, including customer lifecycle management, digital transformation, analytics, automation, and back-office services. The company operates in more than 40 countries, across six continents and approximately 270 locations, with about 290,000 staff and services offered in more than 70 languages.
This Form 10-K covers the fiscal year ended November 30, 2021. The filing compares fiscal 2021 with fiscal 2020. Concentrix became an independent public company through its December 1, 2020 spin-off from TD SYNNEX, so prior-period financial information reflects the former business combination and, before the spin-off, certain allocations and related-party arrangements.
Financial performance and key metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Revenue | $5.587 billion | $4.720 billion | 18.4% |
| Gross profit | $1.969 billion | $1.662 billion | 18.5% |
| Gross margin | 35.3% | 35.2% | Up 0.1 percentage point |
| Operating income | $572.4 million | $308.8 million | 85.4% |
| Operating margin | 10.2% | 6.5% | Up 3.7 percentage points |
| Net income | $405.6 million | $164.8 million | 145.9% |
| Diluted EPS | $7.70 | $3.19 | 141.4% |
| Adjusted EBITDA | $874.0 million | $638.5 million | 36.8% |
| Adjusted EBITDA margin | 15.6% | 13.5% | Up 2.1 percentage points |
Revenue increased across all reported industry verticals. Technology and consumer electronics revenue was $1.759 billion, retail, travel and ecommerce revenue was $986 million, banking, financial services and insurance revenue was $862 million, communications and media revenue was $1.005 billion, healthcare revenue was $490 million, and other revenue was $485 million. Favorable foreign-currency translation contributed $93.3 million, or 2.0%, to reported revenue growth.
Selling, general and administrative expense increased 3.3% to $1.397 billion, but declined to 25.0% of revenue from 28.7%. The improvement reflected scale efficiencies, lower acquisition-related and COVID-19 costs, and a $13.2 million gain on divestitures, partially offset by higher support costs, foreign-currency effects, and share-based compensation.
The effective tax rate declined to 27.0% from 38.5%. Interest expense declined 52.3% to $23.0 million, primarily because fiscal 2021 debt had more favorable terms and lower balances than prior-year borrowings from TD SYNNEX.
Cash flow, balance sheet, debt, and liquidity
- Cash provided by operating activities was $514.2 million, compared with $507.6 million in fiscal 2020.
- Capital expenditures were $149.1 million, producing reported free cash flow of $365.1 million versus $336.3 million.
- Cash and cash equivalents were $182.0 million at November 30, 2021, compared with $152.7 million at November 30, 2020.
- Total debt was $805.0 million before debt discounts and issuance costs, consisting of a $700.0 million term loan and $105.0 million drawn under the receivables securitization facility.
- Total liquidity was approximately $1.027 billion, including cash, $600 million of undrawn revolving credit capacity, and $245 million of undrawn securitization capacity.
- The company repaid $200 million of term-loan principal during fiscal 2021 and remained in compliance with its debt covenants at year-end.
- The board initiated a quarterly dividend of $0.25 per share and authorized a $500 million share-repurchase program. Fiscal 2021 repurchases totaled $25.1 million, and $474.9 million remained authorized at year-end.
- Management stated that available cash, operating cash flow, and credit facilities were sufficient to fund operating and planned investment needs for at least the next twelve months.
Material changes versus the prior comparable period
- Revenue growth was broad-based, with particularly strong increases in technology and consumer electronics, retail, travel and ecommerce, banking, financial services and insurance, and healthcare.
- Operating margin expanded materially because revenue growth outpaced SG&A growth and COVID-19 and acquisition-related costs declined.
- COVID-19-related costs declined to approximately $33 million from $86 million, although the Delta variant continued to affect operations.
- Concentrix completed the sale of Concentrix Insurance Solutions and another non-CX business in July 2021 for approximately $73.7 million, generating a $13.2 million pre-tax gain.
- International operations generated approximately 84% of revenue, up from 83% in fiscal 2020, increasing exposure to foreign exchange, labor, geopolitical, and country-specific operating risks.
- Accounts receivable increased to $1.208 billion from $1.081 billion, primarily reflecting business growth and working-capital needs.
- Goodwill was $1.814 billion and other intangible assets were $655.5 million at year-end. No goodwill or intangible-asset impairment was recorded.
Guidance, outlook, commentary, risks, and unusual items
The filing does not provide a formal fiscal 2022 revenue or earnings guidance range. Management expects fiscal 2022 capital expenditures of approximately $170 million to $180 million and expects future quarterly dividends to continue, subject to board approval and financial conditions.
On December 27, 2021, after fiscal year-end, Concentrix acquired PK, a CX design engineering company with more than 5,000 staff, for approximately $1.6 billion in cash. The transaction was financed through an amended credit facility, including a new $2.1 billion term loan and an increase in the revolving commitment to $1.0 billion. The amendment extended debt maturity to December 27, 2026 and replaced LIBOR with SOFR. The filing states that purchase-accounting work for PK was not complete when the Form 10-K was filed.
Key risks include COVID-19 and other public-health disruptions, cybersecurity and data-privacy failures, dependence on information technology and communications networks, intense competition, labor-cost inflation and employee attrition, foreign-currency volatility, client concentration, client contract termination rights, international operating and geopolitical risks, tax audits and uncertain tax liabilities, acquisition integration, goodwill impairment, variable-rate debt, and litigation or indemnification obligations.
- The largest client represented 11.9% of fiscal 2021 revenue; the five largest clients represented approximately 25%.
- Approximately 27% of accounts receivable was attributable to five clients at November 30, 2021.
- Approximately $56.3 million was reserved for unrecognized tax benefits, and the filing identifies ongoing significant audits in the United States and India.
- A 100-basis-point increase in interest rates was estimated to increase annual interest expense by approximately $8.1 million based on year-end variable-rate debt.
- A hypothetical 10% adverse change in relevant foreign-exchange rates would have reduced the fair value of hedging contracts by approximately $91.8 million, before considering offsetting gains on underlying exposures.
- The company had $507.8 million of present-value operating lease obligations and $104.7 million of unfunded defined-benefit obligations at year-end.
- Legal proceedings arise in the ordinary course, but management did not believe they would have a material adverse effect on operations, financial position, or cash flows.
Most important facts for investors to verify
- Reconcile fiscal 2021 GAAP results with adjusted EBITDA, non-GAAP operating income, and non-GAAP diluted EPS, particularly the effects of amortization, share-based compensation, and divestiture gains.
- Assess the post-year-end PK acquisition, including purchase-price allocation, goodwill and intangible assets recorded, integration progress, expected synergies, and the effect of materially higher leverage.
- Review debt maturities, SOFR-based borrowing costs, covenant headroom, and available liquidity after financing the PK acquisition.
- Monitor client concentration, contract termination provisions, accounts-receivable collection, and exposure to large technology, communications, retail, financial-services, and healthcare clients.
- Evaluate the sustainability of margin expansion amid wage inflation, staff attrition, remote-work requirements, and foreign-currency movements.
- Review tax audits, unrecognized tax benefits, spin-off indemnification obligations, and restrictions that could affect cash repatriation or capital allocation.
- Confirm the continuation and affordability of the $0.25 quarterly dividend and the pace of the authorized share-repurchase program.