Q2 2020 SYNNEX Corp Earnings Call
Until some of your conference calls.
I would like to welcome everyone to finish second quarter fiscal 2020 earnings call. Today's call is being recorded a normalize again placed on me because I know you background noise.
After the speaker's remarks will be a question answer session.
Fine opening remark I would like to pass the call over to materialize as Investor Relations. Please.
I need to get.
Thank you, Sean Kelly and good afternoon, everyone.
Welcome to the Synnex second quarter fiscal 2020 earnings call.
Joining me today to review our financial results are Dennis Polk, President CEO, Marshall Witt, CFO, and Chris Caldwell President of Concentrix.
Before we continue we remind everyone that today's discussion contains forward looking statements within the meaning of the federal Securities laws, which statements include any predictions estimates projections or other statements about future events, including else to cope at 19 or related expenses sales capex cash flow profitability and the expire.
The separation transaction actual results may differ materially from those mentioned in these forward looking statements as a result of breast uncertainties discussed in todays earnings release in the form 8-K, we filed today and in the risk factor section of our form 10-K, and other reports and filings with the FCC, we do not intend to up the any forward looking.
Statements also during this call we will reference certain non-GAAP financial information reconciliation of non-GAAP and GAAP reporting is included in our earnings press release, and the really that form 8-K available under the IR section of our website.
This conference call is a property of Synnex Corporation, it might not be recorded or rebroadcast without our permission and now I will turn the call Virtu, our CFO Marshall.
Thanks, Mary the result, I will discuss today reflect the agility and strength of our execution.
Our disciplined capital management and strong balance sheet with ample liquidity.
At the beginning of our fiscal second quarter in March very little was known regarding the human and economic impact to cope with 19 around the world.
Our focus then what's the stand Barr associates and conserve capital.
With an anticipated returned to pre pandemic operating levels when circumstances allow.
Consequently, while our performance was directly impacted by Cobot 19, our results announced today have not been adjusted for Cobot 19 costs.
Where appropriate we will reference the financial impact Cobot 19 had on Q2 results.
On a consolidated basis total revenue was 5.5 billion down 3% compared to 5.7 billion and the same quarter last year.
On a constant currency basis revenue was down 2% compared to the prior year quarter.
Our consolidated gross profit dollars totaled 619 million down, 12% or 81 million versus a year ago and.
Gross margin was 11.2 per cent compared to 12.2% a year ago.
Total adjusted SGN expense was 457 million or 8% of revenue up 2 million compared to the year ago corridor.
Consolidated non-GAAP operating income was 162 million down 83 million or 34% year over year.
Non-GAAP operating margin of 2.9% was more by 134 basis points compared to the prior year period.
Now shifting gears to Q2 operating performance by business segment.
First on technology solutions revenue was 4.5 billion down, 2% or 96 million lower than the prior year quarter.
Yes, gross margin of 6.1% increased 23 basis points from the prior year quarter, primarily due to favorable product mix.
Operating operating income at 88 million was down 24 million from a year ago.
Non-GAAP operating income was 98 million down, 21% or 26 million compared to the prior year quarter.
Non-GAAP operating margin was 2.2% 53 basis points lower than a year ago.
Technology solutions Cobot 19 related incremental expense was approximately 37 million for the quarter, primarily made up of an increase in allowance for doubtful account and staffing costs.
Now to Concentrix their revenue was 1.1 billion, a decrease of 8% compared to the prior year quarter.
In fact adversely impacted concentrix revenue by approximately 2%.
Concentrix gross margin was 32.4% compared to 37.1% a year ago.
Non-GAAP operating income in the quarter was 63 million down 57 million in absolute dollars or 47% year over year.
Non-GAAP operating margin was 5.9% compared to 10.3% a year ago.
Net concentrix cobot 19 related incremental expense with approximately 52 million for the quarter.
Now, let's move back to the consolidated results second quarter net other income was $1 million compared to 22 million in the prior year period. This was primarily due to a 19 million dollar benefit recorded in the prior year upon the settlement of contingent consideration related to our Westcon comp store Americas acquisition.
Non-GAAP net income was 94 million down 53 million or 36% from the prior year period, and non-GAAP diluted EPS was one dollar and 83 cents down at one dollar and three cents or 36% from the same period a year ago.
The effective tax rate for the second quarter was 27.7% compared to 25.2% a year ago, driven by taxable income shifts to higher tax jurisdictions as a result of Kogut 19 impacts.
For the third quarter of fiscal 2020, we expect the effective tax rate to be approximately 27%.
Second quarter net total interest expense and finance charges were 34 million.
This was a 9 million lower than this was 9 million or lower than a year ago quarter and that was driven by a reduction in our average borrowings compared to the prior year quarter as well as a lower interest rate environment for the third quarter, we expect interest expense to be approximately $32 million.
Turning to the balance sheet, our accounts receivable totaled 3.2 billion and inventories totaled 3 billion on May 30, Onest of 2020, our cash conversion cycle for the second quarter was 46 days seven days lower from a from a year ago and improved 13 days from last quarter and led to a preliminary cash flow from operations of 1.2.
Billion.
Good collaboration with our partners helps support this improvement.
We have a strong customer profile base and the quality of our assets remain strong.
At the end of Q2, including our cash and credit facilities Synnex had about 2.5 billion and total liquidity available to fund operations.
Now moving onto a thoughts regarding our capital allocation as described in our press release, our board of directors approved a new three year 400 million dollar share repurchase program, which will be effective July onest of 2020.
We view this as a first step and the return to the capital allocation program, we had in place pre pandemic.
The focus of this new repurchase program will be anti dilutive similar to our historical approach, albeit a more measured pace to start given the current environment and opportunistic buying when available.
In terms of restarting our dividend we view this as a second step and we will revisit this program. After a few more quarters of consistent performance and market stability.
With respect to the overall capital allocation priorities, we will maintain our prudent and disciplined approach as we continue to navigate through this pandemic, we will continue to be strategic and how we deploy cash and steadily balance what's best for our business and our commitment to deliver long term shareholder return.
I'd like to <unk> provide a few high level comments on the Concentrix spin out as we've stated last quarter. We weren't we remain committed to finalize the spin we are encouraged by our ability to have navigated Q2. Despite all this challenges and at this point, we're targeting to complete this spent some time in the calendar fourth quarter of this year.
Continued effort on this project and its completion are all preface that overall economic activity continues to grow and there are no major additional shocks like what occurred in Q2.
Now moving to our third quarter outlook, we expect revenue to be in the range of 5.5 billion to 5.9 billion non-GAAP net income is expected to be in a range of 103.9 million 229.9 million non-GAAP diluted EPS is expected to be in the range of $2 to $2.50 per diluted share based on away.
Weighted average shares outstanding of approximately 51.3 million.
Non-GAAP net income and non-GAAP diluted EPS guidance excludes after tax costs of approximately 37 million or 71 cents per share related to the amortization of intangibles and acquisition related integration expenses.
One final note before I turn the call back to dentists are over to Dennis.
We had previously communicated that one of our hyve customers anticipated moving to a consignment model towards the end of Q3 or early Q4.
We now expect that this will take place late Q4 or possibly early in 2021 as a reminder, we anticipate that this will lower revenue by approximately 600 million per quarter.
Please note that these statements are third quarter fiscal 2020 expectations are forward looking at our actual results may differ materially now I'll turn the call over to Dennis.
Thank you Marshall and thank you to everyone for joining our call today.
Before discussing our results I would like to start out by noting our thoughts are with everyone and hope that you are taking care of yourself and loved ones. During this pandemic.
We have all been profoundly impacted by this health crisis in one way or another.
And I would like to take this moment to thank all of the essential workers on the front lines.
As well I want to thank all our associates partners and client across the globe for their commitment and dedication.
[music], keeping our business running as we provide seeded products and services.
I'm immensely proud of the adaptability and resiliency of our associates in the face of this health crisis.
From the onset of the pandemic, we moved quickly and executed well our associates, we're nimble and have shown the true entrepreneurial spirit of our company.
I can't express our appreciation on up.
I also want to acknowledge what is top of mind for everyone in the U.S. the ongoing effort for social change.
We were founded 40 years ago by an immigrant from Taiwan, BOP long and over his years that cynics. He built a business that valued diversity in the workplace supported by one of our main core company values respect for the individual.
When I met Bob approximately 20 years ago, we discussed that by creating value and opportunities for all our constituents associates customers vendors and shareholders.
We can create value an opportunity for our larger community.
Something I believed and then and it's still drives me to this day.
And while we benefit from our history.
Have a more diverse company than many.
They're not tolerate racism or discrimination in any way.
We do know we can do more for social change and we're committed to do so.
Unfortunately, it can't be done overnight, but we are in for the journey for as long as it takes.
Now moving onto our second quarter results.
Q2 was very solid considering the unprecedent and difficult circumstances.
The strength of our result was underpinned by the rapid enablement of work from home capabilities in Concentrix and ongoing demand for products in our technology solutions segment.
At the time of our Q1 earnings discussion in March most economies were being shutdown, hence we had little visibility and provided guidance, reflecting this aspect.
We updated our guidance early may as a result of actions taken in our business to react the challenges of the pandemic.
While these challenges still played out until the end of our quarter I'm glad to say, we still executed well and delivered the positive figures we are talking about today.
In Rts distribution business, we were able to respond swiftly to customer demands in Q2.
No books cloud and security products supporting work at home learn at home and related activities were strong throughout the quarter.
We also saw positive trend in our consumer business as we supported our retail customers, primarily with E commerce shipments.
The start of our quarter was certainly more robust than the again driven by the first of buying as ship to home occurred.
At the end of the period, we saw products supporting the office environment, such as networking infrastructure servers desktop Pcs printers and supplies slow down as a result of the lack of employees on site and customer offices.
This aspect contributed to Ts distribution being flat year over year.
Supply chain challenges related to the pandemic also contributed to the limited growth as well.
And our Ts Hyve business, we saw a sequential increase in revenue over Q1, as we continue to support our larger customers during the quarter.
As always this is a difficult to predict business given the buying patterns of this customer base.
And our Concentrix business, our teams performed at an extraordinary level in the midst of this health crisis.
I'm very pleased with how we executed most importantly, putting our associates first and all decision making.
I'll now turn over the call to Chris to discuss Concentrix in more detail.
Thanks Dennis.
First I just want to echo Dennis and offer my deep sympathy to those personally affected by that pandemic that has impacted so many lives around the world.
Our concentrix team and extended family has suffered losses that we are greatly saddened by we clearly are all hopeful that this end sooner than later.
Our business perspective as discussed on our March call, we anticipated a challenging quarter.
As you've seen our results, we executed extremely well under the circumstances and deliberate a much improved performance than we originally had visibility to.
The second quarter revenue for Concentrix totaled 1.07 billion, an 8% year over year decrease on a reported basis and 6% decrease on a constant currency basis.
The revenue decrease was all kobin related and broke into two parts firstly clients in our travel and transportation vertical Saab business, a road, where they no longer needed our services and second the impact of quarantine and locked down limiting our staff the ability to work although demand was still there from the client set.
Through the course of the quarter with very aggressive action, we were able to drive our performance by moving a significant portion of our staff to working from home and being productive.
Moved staff from accounts no longer needing capacity to clients you saw increases and take advantage of a few opportunistic short term deals where people needed capacity quickly.
Our protocols redeployed have only strengthened our capabilities in every region.
We have been able to extend work at home into countries for our clients that have never considered at our end to end platform allows virtual recruiting onboarding training coaching and management of our staff no matter, where they are located to date operating metric attainment has been encouraging returning more to a pre colgate level.
As it stands at the end of Q2 over 90% of our delivery stop is now productive and we're on course to gain full productivity by the end of third quarter.
We did continue to execute our portfolio rebalancing with the communications vertical represent revenue now at approximately 20% of revenue down from 25% a year ago.
The reductions in our travel and transportation vertical from pull bid the offsetting growth within our technology and E. Commerce clients. Within Q2, we also saw new wins in banking in healthcare that will start to generate revenue in Q3.
On balance we're seeing a relatively strong demand for more outsourcing services and transformation as our clients deal with a new economic realities and many accelerating their transformation to rebalance their digital client channel capabilities.
For example over a dozen new clients went live during the quarter with work at home services. We also have proactively worked with clients to advance our capabilities and alternative channels, including self service chat bots and our gig solutions salt.
Clients have provided positive feedback and appreciation for our team's strong execution been partnership through the quarter.
We do still have many challenges in front of us we're watching the cobot development daily and Recalibrating with our clients on their short and long term demand needs. The may fluctuate greatly as they see changes in their business on a day to day basis. As an example, a few travel clients have already seen upticks in their business two to three quarters earlier than they expire.
Acted while other clients have seen much larger impacts to their business than they originally assessed.
As a very fluid environment.
Moving to profitability operating income for the quarter was 63 million down from $120 million and non-GAAP year ago period profitably in the second quarter was impacted by 52 million of expenses related to staff that could not work and that were paid and other kobin related expenses net of client assistance toward.
Costs. Our gross margin was also temporarily impacted by decreased productivity as we move people to work at home and they got comfortable with our new environments.
Even the cobot, even with the covert dynamic we still continue to execute on our synergy plan for our GAAP results for the quarter reflected approximately 4 million of integration expenses, primarily related to site consolidation. Our synergies are now running at 45 million a corridor, which is above our second goal of 150 million annual.
We talked about when we originally announced the acquisition of converge us.
Cash flow from operations in the second quarter totaled approximately 242 million and capital expenditures totaled approximately 25 million.
Our cash flow generation in the quarter reflects strong client collections, plus delays and deferment of payment of expenses.
Capital expenditures were below recent quarters with the vast majority of that spend to support our work at home operations and reconfigure some of our sites to operate in the new environment.
Turning to the third quarter, we are focused on keeping our stop safe and employed over delivering for our clients. So that we remain their partner of choice and emerging from the situation stronger so that we can drive sequential improvements in revenue and profitability.
Our pipeline is very strong for new opportunities and we have taken share from some of our competitors who are not able to execute over the last quarter. We expect to continue to be impacted by some stranded labor through the early part of the quarter and a reduced but meaningful amount of cobot out of pocket expenses, which result in operating margin being down on a year on year.
Basis in the third quarter, our capital expenditures will increase quarter on quarter as we continue to retrofit some of our facilities and also support new programs that we have won during two Q and our cash flow will decrease in line with a reduced profitability level of our results of Q2.
While the effects of this devastating pandemic on our clients on our business volumes in the long term remains uncertain, a silver lining appears to be an acceleration to some of our high value offerings by our clients our ability to deliver exceptional services globally and to leverage our technology digital and analytics expertise allows us to be a full.
Service partner for our clients.
That concludes I would like to thank all of our amazing clients, who worked hand in hand with us on recovery efforts and the Concentrix team members for working to meet our clients' needs under these very difficult circumstances.
Effort resourcefulness and dedication our tribute to our people our culture and our diversity.
Thank you all very very much now back to you Dennis.
Thank you Chris.
Moving to our thoughts on Q3, our utmost priority remain the safety and health of our associates.
Overall, we are seeing some positive signs of recovery and pick up in certain markets as the shelter in place restrictions and as the economy that again to reopen.
We are still cautious about how smooth the rebound will be from Q2, given many geographies. We operate in are still a tougher phase that the virus outbreak or are not seeing case reductions to a point where business reopening our more predictable.
Chris covered the Concentrix outlook very well for TS distribution, we expect continued solid mobile cloud security product sales and what we currently see as the beginning of the recovery of office and enterprise product to transactions.
For Ts high we expect Q3 to be similar to Q2.
And down year over year from Q3 2019.
The year over year decline is primarily due to mix SP and timing of orders from customers.
Given the environment. The current assessment of Concentrix and Ts is subject to rapid change.
As Marshall and Chris both indicated we had significant cobot related expense during Q2.
We expect these amounts to continue in Q3, but be less than Q2, and then trail off further in subsequent quarters.
Some level of these necessary investments will become part of our fixed expense run rate.
As always we will look to find ways to offset these amounts and other areas.
During the most efficient business possible.
Before I close I want to emphasize marshals comment about the spin of Concentrix, we're still very much committed to finalizing the spin and believe we aren't a path to do so by the end of the year as long as the macro environment accommodates.
As I conclude my prepared remarks on behalf of the entire management team I want to again, thank all our associates and business partners. We appreciate everything that you have done for Synnex during this challenging period.
Our thoughts continued to be with those who have been affected by cover 19, Please stay safe and healthy.
With that I would like to open the call up for questions.
[music].
As a reminder, ask your question.
The press Star one telephone to draw your question without a question. Please limit yourself to one question and one follow up question. Please standby barbecue roster.
Third question comes from.
Hello.
Barrington Research your line is open.
Yes. So I was wondering if you could update us on sort of the supply chain impact from the pandemic, if thats easing and.
Maybe you want to highlight words.
Pain point is at its worst.
Hi, Ben Thanks for the question, Yes for sure at this point in time, the supply chain as overall better than it was at the beginning in the quarter and even in Q1, we had some supply chain challenges as well.
Let's say in that it's not fully back to call it normal regular supply chain conditions.
Example of that would be at the current time.
Something we don't talk about too much in our distribution business, which is our backlog, but at our current time, our backlog is as high as it's ever been.
Traditionally and distribution, if we take an order and ship at pretty quickly, but right now we have a significant amount of orders that can't ship due to supply chain challenges. So that'll give you an idea that the supply chain is not fully back to normal, but we do see that happened over the coming quarter and certainly by the end of our Q3 of sort of our Q4, we hope to have things back to.
Total.
And then Chris.
Just curious.
You know obviously.
We're hearing that more and more clients are comfortable with.
Concentrix type services being with labor being done from home.
Any sense on if part of it the ships can be a permanent part of your model, which obviously will be less costly drama.
Brick and mortar standpoint.
Hi, Vince yes, so we clearly we're doing work at home just not at this type of scale pre pre co that the expectation is that you know our percentage of business will be dramatically increased work at home on a permanent basis and while we do see that.
Some of that costs are left on an onshore model, we do see those costs.
Most similarly, because we have to provide more infrastructure to some of our staff working at home.
In in offshore model, so that will balance out, but overall, you will see an increase and our work at home business going forward.
Okay I'll go back to the Q nice job guys.
Thank you.
Our next question comes from Tim.
Lines open.
Hi, Thanks for taking my question and the congrats on the strong execution your largest competitor in the call Center space mentioned that they have roughly 60% of workers working remotely right. Now can you maybe just talk about how much percentage of fuel costs under 1% able to welcome. Okay. At this point.
And how should we think about share shift within this space given your peers are ramping this work or multi capabilities between the different pace.
A follow up.
Hey tenants, Chris So our percentages is probably a little higher than 60% at the peak we have had some countries that have.
Effectively dealt with coated.
Very successfully like New Zealand, Australia, Vietnam, and a few others that.
More of our staff is now back in their locations, including China, So were down a little bit from that but at peak we were certainly.
Over that in terms of share shift, we've really seen clients, who we're dealing with sort of some I'll call players that couldn't be as nimble or thoughts around moving people to work at home or didn't have the security in place to do work at home or infrastructure to support it.
And had delays move that volume to us and so we've been able to capture a lot of it that there was offered to US, albeit you noticed in my prepared comments that I said, we did have a lot of stop that were unable to work at home.
And unable to to work at Hall, and so certainly we had more demand and we could cater to for a big chunk of our staff that we're now working through as we go into Q3.
Got it thanks.
Yes, before coal before Colgate 19, I think you mentioned the normalized gross rate fortinet sector should be roughly 4% to 6% obviously with this range is hard to achieve this year given the virus.
Maybe just talk about a your view on the exclusion sector growth for this year and then be any structural change 2004% to 6% gross growth rate post Colby 19. Thanks.
Hi, Tim This is Dennis so a couple of things there overall, just as a reminder, cynics always strives to grow faster than the market that we're in by at least 2% to 4%. So that has not changed in the current environment. So whatever the growth rate is we plan to grow faster that's number one number two.
As far as what the growth rate is currently that's very hard to determine given the environment that were Ed, but we're going to do our best once again to grow faster than whatever that number is.
The last thing I would say is we believe in the business that we're in we know that technology.
Invested right could improve businesses and great ways improve their efficiency and many other things and we've seen to this pandemic. That's the case in so many ways so as companies.
Still what the pandemic and then come out of the pandemic I expect to see more investments in technology to improve businesses across the board and I think we'll benefit from that because our place in the supply chain is very critical that's been proven out.
In the last three months at our prospects and our ability to execute are also very high I think that will continue as well.
Great. Thank you.
Our next question comes from Matt Sheerin.
Your line is open.
Yes, thanks for taking my questions first question.
Chris on Concentrix, It sounds like you rebounded very well and it sounds like.
It sounds like you've got your more more workers.
Contributing this quarter, so should should that imply that sequentially, you're going to be able to grow the business and then in turn grow year over year this quarter.
So in Q3, I don't think we're growing year over year.
As we've talked about we still don't have our full production capabilities back.
And we'll get it until near the end of Q3, so there will be some muted.
Muted growth. There. We also are continuing to outgrow the travel and transportation vertical that was down but overall your comments about getting more people working absolutely. If you remember our comments in the beginning of Q2 sort of beginning of Q2, good about 70000 people working not working and Thats now a much.
Significantly lower number as as we go into Q3.
Okay. Thank you for that and then.
On T. as.
Dennis you did provide some color.
Sounded relatively optimistic in terms of some of the demand trends that you're still seeing but could you comment on some concerns from investors that this work from home surge in demand will peak at some point and setting up tougher comps in the second half in the other concern that we are hearing and we've heard from.
Several Oems.
That does enterprise.
Projects large complex IP projects are getting pushed out.
Could you comment on what Youre seeing there.
Sure Matt So both of those things you described our are the realities of what we're facing we saw a clear first in and buying further work at home environment and with offices being closed as people sheltered in place allow the major projects that the company's had going on.
Either were pushed out or delayed for an unknown period of time.
Thats a reality at our business and of course, we're dealing with that when you see the.
Year over year.
Growth rate or lack thereof that we're guiding to.
But I do think as economies opened up and as businesses get back to the office. If you will we'll see a lot of that come back because it's necessary investments to once again make businesses more efficient and better off overall.
I also think.
Now use our company as an example, I also think businesses are going to need to acquire more equipment to enable not only the work at home that exists, but also returned to office and have flexibility for the associate between the two locations.
Not as simple as just providing an associate with a notebook and said you can work easily from both your home and office you also need to outfit them with a whole host of products around that and again as an example from thanks perspective, we're finding that way to acquire additional.
Products to enable that capability. So I do think that albeit a bit of a tailwind going forward to offset the headwinds that you talked about.
Okay. Thanks, so much.
Thank you.
Our next question comes from Adam.
Raymond James Your line is open.
Thanks, and good afternoon I just wanted to start on the cobot cost aspect I think if I were to adjust for those operating profit dollars would have actually been up year over year. If I got the numbers correct, but that may not be appropriate because I think Dennis you mentioned, there's going to be a permanent part of the cost structure. That's impacted here so I guess.
The question would be at a very high level and I know, it's going be hard to do but is there anyway that you could maybe help us think through what could be temporary versus a permanent structural change for each business to for Ts. The allowance for doubtful accounts health of the remaining portfolio in a are for Concentrix, what's permanently chain.
There would be helpful. Thanks.
Hi, Adam This is Marshall I'll start and then Dennis will chime in.
You did point out that it it's very difficult to.
Define this current environment I call it almost cobot related revenue.
And then the mix and margins are different in this current time. So it is very much hard to compare and I look at it like an apple versus an orange.
And and then hand, it over to Dennis just to talk about some of the the ongoing thoughts on run rates and cobot costs.
Sure. Thank you Marshall.
Yes, Adam just emphasize what Marshall said.
It's not easy as adding back the code expenses and calling that are kind of normalized run rate because there wasn't anything normal about the quarter the mix of our business and everything around what we did in the Ts distribution business. So I really think you have to look at.
Q2 as cover a stand alone.
Outlying quarter, if you will.
As far as our expense run rate going forward.
We are going to have a base of of cobot related expenses, primarily around payroll that are going to remain for the foreseeable future.
Well, we're going to try to reduce costs are as you indicated in the bad debt area and other places, but how much of that occurs in Q3 in Q4.
We're not ready to disclose that number but trust that we'll try to keep that as low as possible.
Okay.
And maybe if Chris could touch on Concentrix coal because.
So Adam it's similar to Dennis I was like right now we are working through kind of offsetting some of the are called structural covert costs such as how we have to do the new cleaning of the facilities and that's part of what we're.
Changing and configuration of a lot of our facilities to support the new environment. So I'm not sure we're ready to comment, but our goal is certainly to offset those costs on a run rate basis.
With that with other savings in other areas.
Okay, and Chris maybe as a follow up you.
Obviously ramped a lot more work from home employees I think you mentioned that you're 90% productive now which is quite impressive given everything that you've gone through.
But I guess, maybe talk what you've learned about the business impact is there kind of a simple way to think about how.
The unit economics of the work from home employee versus a call center employee has changed.
Yes, Adam to be quite honest for we're going through that now with clients right at the moment, there's a preconception that.
That sometimes work at home is cheaper what we've found is that work at home.
In some countries that have historically never done work at home as very in line with what you would have within facilities you are paying for extra.
Helping people with their electricity bills for air conditioning, you are having to provide high speed internet infrastructure, because they might not necessarily have that in their own right.
And you're providing additional equipment that they might need to add to be productive. So I think we're working through that I will tell you and sort of.
Onshore markets.
Look at home is generally more cost effective and thats already built into the model and clients already received a benefit of that.
Those in those markets.
Okay. Thank you.
Thank you.
Our next question comes from.
Korea with Bank of America. Your line is open.
Hi, Thanks for taking my questions and congrats on the quarter and on the strong died.
First question for Chris.
Just to build on the last question.
If in steady state, we see that the productivity.
Staff member working from home is equal or better too to that of somebody working on site does that mean that in the longer term. When you look at your geographic footprint is there any chance that you could see some consolidation of sites and maybe reduce your geographic footprint and still be able to support your customers.
That's a great question.
The reality is the opposite is happening what cobot has taught a lot of a large enterprise clients. We service is actually that they would like a larger footprint with less critical mass and certain locations and so we're working through that with clients right at the moment.
Because there are concerned about having mass amount of concentration, which really was the trend up until sort of pre pre corporate level. So.
I think you'll see some more balancing out in geographies.
See sort of more redundancy built into some of the networks that people had gotten comfortable kind of getting down to two or three countries to support their work and again. These are large enterprise clients.
But I don't see the sort of complete.
[music].
Continued consolidation happening for a while until.
Things rebalance.
Okay.
Makes sense. Thanks, Chris then Dennis on on the Technology solutions side I was wondering if you can give us a little bit more detail on some of the supply chain challenges you talked about is it more in terms of logistics challenges that you're seeing or.
Are you seeing any product shortages Sweeney any kind of detail there would be helpful. Thank you.
Yes, sure, it's not no less logistics and more on product shortages.
And the product shortages are primarily related to sub component.
Shortages that.
Has occurred that did occur excuse me throughout the quarter.
And were primarily related to challenges that our manufacturers had with their supply chain.
Okay. Thank you for taking my question.
Our next question comes from Shannon Cross Research your line is open.
Thank you very much for taking my questions I guess first.
I understand it's a very fluid situation, but obviously the initial guidance you gave and then the revised guidance you gave and then websites to that.
Just trying to understand what level of confidence confidence you have and the quarterly guidance. You provided you know what maybe some of the.
You know positives and negatives could be to the guidance just so we think about it because obviously given the fluidity.
Numbers are moving around a lot and I know consensus sort of never really got updated so.
Hopefully, we can all kind of get on the same path with this quarter.
Hi, Shannon this Dennis very fair question.
So when we provided our guidance in March we basically had no visibility we talked about at the time of that call. We questioned if it was if it made sense to have the call.
And that was specifically for the reason that we didnt have any visibility yet as to what was going to happen the near term because literally economies and countries. We're shutting down as we were speaking.
Fortunately again, the Australia spirit of our company, we adapted to all these challenges and.
Got our business to a point, where we could understand and predict more what was going to occur as so in early may we felt it was important to come out and and give an update on what we're thinking.
At that time, though we still had good three to four weeks left in our quarter and there were still challenges in the marketplace.
Some things that we just wanted to be cautious about that and the fact that would frankly speaking we didn't want to come out and.
Provide an update and then miss that month and a half later as why we are fairly conservative when we gave that update we were pretty certain that the time that we would do better but there are enough uncertainties that we wanted to be conservative and that update in may.
The history as far as the question about our current guide on Q3.
We clearly have a better visibility to our business than we had at the same time in March we understand how this call. It cobot World works, how it plays out to our customer base.
In both sides of our business and how it has a little bit more predictability.
Than it had back in early March when we came out.
Regarding our Q1 results in our Q2 guide so from a confidence level, we have more confidence now clearly than we had back in March as far as the risks. There clearly are many still because we are at a cobot world.
The headlines through today show that there are many countries that are still extremely challenged by the virus cut it in phase one and then locally here in the U.S. you've seen the resurgence of many cases, so how that plays out could place more risk on our business and cause challenges to the the guy.
Is that we gave also if at all or any other supply chain challenges.
That are unforeseen today that play out in the coming quarter that could cause risk in our guidance as well.
Okay that was helpful. Chris can you talk a bit about the current selling environment, what you're hearing from your customers are they more open to outsourcing opportunities given some of what they've been through no Howard or any changes just sort of how they think about contract length or term.
And what the pipeline looks like thank you.
So so Shannon a couple of things.
In terms of the pipeline is very healthy we've actually were pleasantly surprise going into Q3 about how healthy the pipeline as and Thats not only from existing clients are looking to consolidate some capacity in volume.
But also with net new opportunities where clients are either looking at figuring how to reduce cost and so our nude outsourcing and or clients are figuring out.
New clients are new prospects are figuring out which partner to go forward with and so we're very happy with what we're seeing out in the marketplace in terms of sort of the new contracting and sort of new discussions the tone.
Certainly more around how do you manage BCP.
How you're going to look at cobot wave two how are you able to to kind of manage through the environment over the last 90 days and use as proof case of how to support the new business. So a lot more focus on just the redundancy of your capacity in your organization than probably what has been in in the past I would also say that overall.
All the market is.
Much more receptive to some of the higher value services that we are.
Selling so a lot more digital transformation. So some are tiger Spike services some of our boards for customer service as our analytic services are.
Technology services.
Where we had talked to clients for a long time about doing some transformation and now they see it as being imperative to drive that transformation, which allows them to be more automated needless headcount.
And frankly is better business for us. So we were very encouraged by by those trends as well.
Thank you.
Our next question comes from Amanda well your line.
Hi, Good afternoon, guys. Thanks for taking the questions, yes, two if I could and.
Let's just say near real quick.
Do you do you think theres an opportunity for.
Concentrix long term growth rate to be held by then.
Yes, Jason vectors that could lead to higher grades so the structural growth rate over time.
Yeah, and then what I'll tell you is a lot of the analysts are seeing you know overall decline.
For for the next couple of quarters in the space, where we see opportunities to growth are really consolidation, because we performed very well through it.
And clients are appreciative that we're winning share from from other competitors.
And then that new clients going into it in terms of longer term.
Aspects, what we always go back to as our goal was to grow faster than market.
At the time market was about four and a half 5%.
So our goal is to kind of get back to those rates, but I would hit to put a timeframe on that right at the moment.
Okay. Okay. So so there's nothing nothing like it jumped as obviously you guys that have that 4% to 5% go up to like 5% to 6% want something like that.
And then our goal is always to grow faster than the market. So.
Clearly if the market expands and generally in down cycles I was sourcing does expand.
We do have those opportunities for for larger growth, but again I wouldn't want to comment on the time horizon that we'd be looking at.
On this.
And then and then on T. as Dennis It sounds like.
I mean, there's puts and take.
Got it.
Like there it sounds like you feel comfortable.
You know structurally with demand and so how do you think the puts and takes.
Uh huh.
Layer at in terms of.
Given seasonality.
And then also in that regard.
It seems like it seems if we're going to be the work from.
So obviously I understand that some business starting opened up and also it also is beginning to look like.
You're going to work from home at least in this country.
For a longer as opposed to shorter.
That ends up happening, yes, let's say in 2021.
You have an opinion on if you could actually see sort of like another way.
Demand.
And so to the high level question is headed in the play could take.
Do you think they.
He's out in terms of seasonality.
Through the fall and then if there is extended work from home.
Which seems to it seems like you're setting up for that.
Into 21, do you think you could get sort of like an echo echo effect.
Hello. Thanks.
Okay. Thank you I think theres two questions, there and as far as.
The seasonality of our business currently.
First of all we are guiding to a lower year over year revenue number but within that yes, I do think there is somewhat normal seasonality playing out in our Q3.
As far as for the rest of year, Yeah, really guiding to Q3, it's very difficult.
Due to lack of visibility to tell you what Q4 would look like but we're hopeful that the seasonality will continue and we'll get the normal increase in Q4 in both parts of our business.
As far as the.
You know work from home being a benefit.
Potential benefit again in the future.
I don't know, how that's going to play out because I don't know what the environment is going to be.
And I think like you were all hopeful that.
We get a vaccine and we can get back to more normal working environment.
So thats what were really focused on from a planning perspective.
But there is more of what we see today continuing on.
Again, as I said theres going to be I think additional buying.
So not only further enable the environment at work at home, but also I believe there'll be some return to office at a hybrid of the two and there's going to be a need to support that as well.
There are no further questions at this time I'll now turn the call back today for closing remarks.
Thank you so in closing I want to thank the entire Synnex and Concentrix team for their ongoing efforts I have high confidence in our business at our go forward opportunities stay well, thank you and good afternoon.
This concludes today's conference call you may now disconnect.
[music].