Q4 2020 Concentrix Corp Earnings Call
[music], ladies and gentlemen, thank you for standing by and welcome to the Concentrix fourth quarter and full year 2020 financial results conference call at.
Time, all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask the question. During the session you will need to press star one on your telephone. Please be advised the todays conference is being recorded if you require any further assistance. Please press star then zero.
I'd now like to hand, the conference over to one of your speakers today Mr., Dave Its day, Vice President of Investor Relations. Sir. Please go ahead.
Thank you Michelle and good morning, welcome to the Concentrix fourth quarter and full year fiscal 2020 earnings call. This call contains forward looking statements that address our expected future performance and that by their nature address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those of.
Xpress and our forward looking statements, we do not undertake to update our forward looking statements as a result of new information or future events or developments. Please.
Please refer to yesterday's earnings release, and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results.
This includes the risk factors provided and our form 10 information statement.
Also during the call, we will discuss non-GAAP financial measures, including free cash flow non-GAAP operating income adjusted EBITDA and adjusted EPS as well as constant currency revenue growth.
A reconciliation of these non-GAAP measures is available in the news release and on the Concentrix Investor Relations Web site under financials.
With me on the call today are Chris Caldwell, our President and Chief Executive Officer, and Andre Valentine, Our Chief Financial Officer, Chris will provide a summary of our operating performance and growth strategy and Andre will cover our financial results and business outlook. Then we'll open the call for your questions now I'll turn the call over.
Chris.
Thank you very much David good morning, everyone and welcome to the first Concentrix Corporation earnings call. Let me first start by thanking all our cynics colleagues and specifically Dennis Polk, given the rock and Marshall Witt for all of the support over the years to get us to this point and last but not least Bob long the founder of Synnex, who decided the start investing in the BPL business those 16 years.
Ago from.
Im extremely proud with what we've accomplished over the last 16 years, we have built and award winning global delivery platform augmented by technology for our clients the delivers upscale incredibly well through very dynamic business environments.
This has positioned us for successful spinoff from Sionyx on December Onest, 2020, and car on publicly traded company.
Even though we are 16 years into our history I'm incredibly excited about the opportunities that lay in front of us.
While the results we are announcing today for our last quarter as part of Synnex I believe the demonstrate our strong positioning in the marketplace and our ability to execute as our own independent company.
Our revenue growth and profitability exceeded our guidance and expectations driven by strong execution and our ability to ramp wins from our third quarter faster than originally forecasted.
We also benefited from higher than expected volumes with a broad set of clients during the quarter.
Fourth quarter revenue of 1.3 billion represents an increase of 7.3% compared with last year.
On a constant currency basis revenue increased by 6.3% non-GAAP operating income of 175 million was up 6% compared with last year on an adjusted basis, and adjusted EBITDA increased 7% to $211 million compared with $198 million last year.
These results also include and additional net expense of $21 million for our coal good related costs.
Our accelerated growth in the quarter came across several key verticals, including technology retail E Commerce healthcare and banking the Andre will provide more color on this.
This more than offset the impact of our portfolio rebalancing efforts and the cold and related muted volumes and the travel vertical that we have been messaging about over the prior quarters.
From a client demand perspective, our momentum continued with another very good quarter of strong new business signings, we're signing a larger contract value deals and believe we are taking share with existing clients during.
During the fourth quarter, we signed more than two does and new clients, including more than a half dozen new disruptive digital only brands.
Our pipeline remains strong and prospects for new businesses are nicely balanced across our verticals and geographies that we serve us.
Recent examples of our wins with iconic and disrupt the brands include end to end solutions for social media content moderation and Fintech digital wallet support we believe these new clients chose concentrix because of our culture global footprint domain expertise and technology solutions to help support the rapid growth in the marketplace.
From a market standpoint, our wins also spans many countries in Asia, and Latin America, such as Australia, Japan, Korea, Singapore, India, and Brazil, as well as North America, and Europe, furthering our strategy of of the geographically diverse client base.
While COVID-19, and 2020 has been a challenge for all companies. We're prepared for its continued impacts throughout the remainder of 2021.
Clients acceptance accolades and awards, we have received gross during this pandemic reflect the quality of our response of the challenge Swift reactor Swift reaction to change and customer needs quick deployment of work at home solutions at scale and focus on the health and safety of our stock.
90% of our impacted clients indicated a willingness to give us more business based on our response when we surveyed them.
In this environment, we remain focused on keeping our staff safe over delivering for our clients and in the emerging from the pandemic stronger today, approximately 60% of our staff globally are supporting our clients from home.
In summary, I am very pleased with the execution this quarter and for the full year, we deepened our partnerships with disruptive of iconic brands deployed digital transformation and virtual engagement solutions that drove the meaningful results for our clients and delivered strong financial performance now as our own independent company, we remain focused on for.
For strategic drivers for sustainable and profitable growth.
First expanding wallet share through deepening relationships with our clients second relentlessly innovating and developing our new digital solutions third.
The third investing further in emerging markets around the globe and finally selectively pursuing strategic acquisitions building on our track record is a proven successful industry consolidator.
Finally, I would like to thank our exceptional staff for their dedicated service our clients for their trust and our new very talented diverse board of directors for their support and with that I would like to turn the call over tundra Andre.
Well, thank you, Chris and good morning.
I'll begin with the look at our financial results for the fourth quarter, and then discuss our business outlook for the first quarter fiscal 2020 line.
We experienced the strong improvement in revenue and profitability in the fourth quarter.
Revenue for the fourth quarter was $1.3 billion.
On a constant currency basis revenue increased 6.3% compared with last year.
Reported revenue of reflected of positive foreign currency impact of $12 million.
Our strong growth was generated by a number of our strategic verticals right.
Revenue from the technology and consumer electronics vertical grew approximately 19% for reflecting strong growth across a broad based group of clients.
Revenue from clients in the retail travel and ecommerce vertical grew by of hot approximately 20% as growth with several retail and E commerce clients more than offset the expected lower volumes from travel and tourism clients.
Revenue from travel and tourism clients was just under 5% of total revenue in the fourth quarter of 2020 day.
Down from approximately 6% last year, reflecting an approximate one per cent impact on the overall company growth rate for the quarter.
Revenue from healthcare clients grew 17% largely as a result of strong seasonal volume.
Our strong growth across these vertical growth was partially offset by a 12% reduction in revenue from communications clients.
Revenue from communications clients was approximately 18% of total revenue in the fourth quarter down from 22% last year, reflecting and nearly 3% impact on the overall growth rate for the quarter.
The rebalancing of our vertical of mix has made us less reliant on the communications vertical input.
Importantly, we believe this rebalancing of our portfolio mix is nearly complete and.
And we expect it will have a significantly less pronounced impact on our 2021 revenue growth.
Contributing to the growth across our strategic verticals were our nearly 100 global disruptor clients, representing about 17% of our fourth quarter total revenue, which grew by roughly 20% 25% year over year.
Turning to profitability as expected profit improved meaningfully on a sequential basis compared with the third quarter.
On a year over year basis, non-GAAP operating income was $175 million and the fourth quarter compared with $165 million last year.
Our non-GAAP operating margin was 13.5% down slightly from 13.6% and the fourth quarter last year.
Fourth quarter, adjusted EBITDA was $211 million compared with $198 million last year, and our adjusted EBITDA margin was 16.2%.
Compared with 16.3% last year our.
Our profitability reflects flow through from revenue growth and synergy attainment.
On a net basis Cove, and 19 expenses of approximately $21 million and the fourth quarter.
Fourth quarter results also reflect increased investment in support of strong new program ramps that will turn into revenue through the next few quarters.
In terms of net income in the fourth quarter non-GAAP net income was $107 million compared with $80 million last year.
The adjusted EPS was $2.07 compared with the dollar 55 last year.
GAAP results for the fourth quarter of 2020 included $37 million of amortization of intangibles for.
$14 million of acquisition integration and spinoff related expenses and $4 million of share based compensation expense.
I will point out that our treatment of share based compensation expense in our non-GAAP measures is different and how it has historically been presented in the Synnex results. We made the change to be more comparable to our industry peers.
GAAP EPS was $1.25 compared to 62 cents last year.
Our tax provision presented in the earnings release reflects taxes as if we were on a standalone basis, even though we will be part of the Synnex fiscal 2020 us tax return.
Our standalone effective GAAP tax rate of 44% and the fourth quarter was higher than our expected future tax rate.
COVID-19 impacts resulted in lower overall taxable income for full year, 2020, which increased our exposure to certain us base erosion and anti abuse taxes move.
Moving forward under current tax regulations and was expected improvements in profitability, we expect our effective tax rate.
To approximate 29% on both the GAAP and non-GAAP basis.
Now I'll move to a few other financial details from the quarter.
In terms of cash flow fourth quarter cash flow from operations totaled $119 million and capital expenditures totaled $65 million generating $54 million of free cash flow in the quarter.
Capital expenditures were elevated in the fourth quarter, primarily as we made investments to support work from home services.
On an ongoing basis, we expect capital expenditures to fall in a range of 3.5% to 4% of revenue.
We expect about half of our capital expenditures to be for maintenance and about half related to new capabilities investing in technology digital and security to support work at home and to drive organic growth.
Turning to the balance sheet at the end of the fourth quarter cash and cash equivalents were $153 million and net debt was $992 million.
About 89% of our cash was held outside the U.S.
On November Thirtyth, we incurred our initial borrowings under our 1.5 billion five year credit facility and our two year $350 million accounts receivable securitization program.
Total debt outstanding at the end of the year was 1.145 billion and this includes $900 million and borrowings on our five year term loan under the credit facility and $250 million and borrowings under the AR securitization net of issuance costs.
At the end of the year gross leverage was approximately 1.8 times adjusted EBITDA and liquidity remains strong with over $850 million of cash undrawn lines of credit and capacity on our securitization.
Our current liquidity gives us significant financial flexibility our priorities for capital deployment include growing existing business through funding organic and strategic growth opportunities.
Now I will discuss our business outlook for the first quarter of fiscal 2020 line.
Balancing the continued uncertainty related to COVID-19 with our current business momentum, we expect revenue to be in a range of $1.26 billion to 1.31 billion the.
This includes and approximately 2% positive impact of foreign exchange rates compared with the comparable period in 2020.
Our profitability expansion expectations include non-GAAP operating income in the range of 148 million to $162 million.
We expect interest expense and the first quarter, the approximately $8 million we.
We expect an effective tax rate of approximately 29% and the weighted average share count of approximately 52 million shares.
Our non-GAAP operating income guidance excludes approximately $34 million related to the amortization of intangibles and $7 million of share based compensation expense.
While we do not guide further than one quarter out, we feel confident and our ability to grow concentrix at or above industry growth rates, while increasing and non-GAAP operating margin over time.
And our expectations for fiscal 21 include a typical seasonal pattern for the business for sequential volumes rolling off impacting revenue and profitability for.
The first half of the year and sequential increases beginning in the third quarter.
The business outlook does not include any future acquisition related impacts or transaction and integration costs.
Also not included in the guidance are impacts from future currency fluctuations.
In closing we are pleased with our results and we are confident in our outlook, we are well positioned global leader and a large fragmented.
Mentored and growing market, we're executing the plan to grow organically faster than the market.
And we expect the impact of portfolio rebalancing to have a much smaller negative impact on our growth rates as we move forward.
As of proven successful consolidator and our market with the strong balance sheet. We believe we're in a great spot to deliver sustainable gross margin progression and strong free cash flow at.
At this time Michelle please open the line for questions.
Thank you again, ladies and gentlemen, if you ask the question at this time. Please press Star then one on your telephone. If your question has been answered or you wish the remote yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.
Our first question comes from the line of groups. So that of Charles with Bank of America. Your line is open. Please go ahead, hi, and thanks for taking my questions and congrats and the strong result, and in the first quarter as a public company.
Chris maybe can you talk about your thoughts on inorganic growth you had strong organic growth of this quarter, but in the past you've talked about potential you know your propensity for M&A.
Just what what.
Any any thoughts on the potential size.
You know and and which end markets I mean, what what would make sense for concentrix from an inorganic standpoint.
Thanks for the flu so from my perspective, I mean really what we're looking at is whats the external accretive to our client base either from adding the unique clients into our clients at the Ria service offerings to take advantage of and or sort of the capabilities as I've talked about in the past and to go into the.
The verticals of we're already dealing with a good example would be.
Commercial banking were very interested and.
Because were very strong and the retail business from the size perspective really were quite open it's really about what we believe has the highest return for our shareholders and what is the process. We can have additive to our revenue and profitability. When we when you look and doing acquisition.
Got it and can you comment on the mix of voice versus non voice.
Services that you have currently and what would be the long term target and can you just talk about some of the non voice services the to provide today and and how should we think of what that mix going forward.
So non voice continues to kind of creep up as we go ahead and automate of one of the voice and put in more IDR and and more digital solutions for our clients that being said boy still continues to be strong I think we've talked about of trying to get to a 50 50 split and thats still as and sort of our goal of our period of time.
And we continue to make progress towards that that being said we have found clients who are looking for sort of true high end customer experience wanting a balance between voice and non voice solutions to kind of handle their customer demand.
But but overall thats directionally, where we're headed.
Got it and maybe just I'll ask one more question.
In terms of working from home I think you said that 60% of the of the we're of course is currently working from home in the past you've talked about needing from time to judge the productivity of of people working from home I mean, do you think that you know people working from home or equally effective versus working in the offices and how should we think about.
Thank you for the long term target was around 30, 35%. The how should we think about people getting back into the offices and what what timeframe are we thinking about and just related to that you've also talked about like international expansion.
And do you need to hire more staff to do that or and the go to market for on that on and trying to expand internationally could you just comment on on the move back into the into the call centers as well as the the your plan for international expansion, how how the go to market their kind of work. Thanks.
Yes for sure for first off I wouldn't call and call centers. The the reality is is that our sites and deliver a lot of services voice non voiced technical solutions development and and up just a host of different types.
Types of services are our of our physical.
Delivery sites.
In terms of the work and home productivity for the whole is better in most regions I will tell you. There are some regions just because of the the.
You know how people.
Live and they might have the higher density of living and capacity with debt within the region. The productivity is on par to do.
The free sites or may be just a tiny bit loss. So it is a bit of a flux and not one answer fits all around it but overall were very happy with the productivity that we're seeing from our from our team members around the world.
In terms of when we look at getting back to a 30% that's really something that we've kind of ballpark the out based on the type of work. We do based on some staff were looking forward to getting back and being with the with the team our group within the physical building, but our expectation for the is probably a 2022 discussion not of 20 to 21 based on.
Boxing Rollouts and based on where our stock car at a whole host of other things were no rush the bringing people back.
It's really about when's, the right time for our of our team members to come in and then the last question in regards to sort of hiring and for international expansion.
We are of a very distributed sales and account management team and obviously clearly the operations team around the globe with local team members and all the markets that we serve for the most part and so really we will continue to add and invest in those areas and the verticals of water grow in those markets, but there is no real need to go out and hire significantly more.
For in order to grow that business and the in the regional nature.
Got it thanks for all the detailed and congrats again on the strong results as well as the strong day. Thank you.
Great. Thanks, very much thanks.
Thank you and our next question comes from the line of Shannon Cross with Cross Research. Your line is open. Please go ahead.
Okay.
Yes. Good morning, I guess my first question is.
And it obviously work from home.
And it plays very strongly into the but I'm curious what else Youve kind of learned about your business given total that.
With that day.
People intensive nature of for the business line I'm, just curious what things you put in place where you might think that theres more opportunity for.
Automation.
For.
If there was anything else that you learned and that and also from the standpoint of cobot related cost.
Quickly you expect from the begins to wind down.
And when we might see that none of the follow up thank you.
The Shannon good the talks again I think first off what we've learned from just the overall business model is how robust the services business model and as we provide and support businesses day in and day out and the.
In the factor very tight of the head of two to our clients to make sure that they are successful and the marketplace and and through co head and through all of the ups and downs.
Really showed the strong working relationships that we have with our clients from a stock perspective. The reality is as the things that and we've talked for this in the past things that we could automate that historically, we've been talked the clients that might of taking a few months to get the side and try and Cove and those decision time frames of been turned around very very very quickly.
And because you know.
These assets manage its faster, sometimes it's more cost effective.
In the quicker period of time, and so we've seen a lot more consumption of our digital services.
The faster period of time than historically, how we rolled them out from a care and taking care of our stock perspective, we've put the big emphasis on the mental health, we put a big emphasis on making sure that there's comfort within the home environment and tips on how to be productive in the home environment.
As well as different digital training delivery to make sure the our stock for up to up to speed and what they need to do.
As well as frankly recruit and digitally and so if you look at all of the processes that historically might of been done in the site very.
Very quickly we've been able to expand that in a purely automated and digital caution for for our team members around the world, which has allowed us to kind of scale very very quickly from a from a working on perspective.
And then as you and your question on the the COVID-19 costs the.
Those costs that we're incurring are very much around being fanatical about delivering for our clients and keeping and being for nacco their staff and keeping them safe and so.
Certainly as we think about our guidance for the first quarter you should assume the those a similar level of spending is likely in there.
And we think that will be with us for for certainly a few quarters as we look out into 2021.
Okay, and then I guess my my my final question and just with regard to the sales process and the customers you're talking to.
Hey, if you can give us any idea of if you've been able to expand and the maybe incremental not vertical of the tangential areas of.
With the conversations that you've had with your customers again.
Of the as probably open up some opportunities I would assume rather than a close down some given the nature of the business.
Thank you.
Okay and so.
We havent expanded our vertical for.
Articles that were focused on delivering for we're very focused on came from buildup deeper domain knowledge within the the verticals that we've called out as being strategic to US I think in terms of offerings, what has happened with our clients as the looking at giving us more of their work.
And asking us to kind of transform that work and whether be.
As I talked for a more digital solution and more automation sort of one more stop shop, and not only with and one region and multiple regions. So when we talk about gaining share that's really what we're talking about is gaining share across their share of wallet by offering and more cost of comprehensive one stop solution that has gotten us into some work within.
Those verticals that perhaps we might not have always folks.
Focused on but it's been the right thing to do for this clients to build the and build the stronger relationship and certainly the more volume partner to them.
Great. Thank you very much.
[music].
Thank you and our next question comes from the line of Dave Koning with Baird. Your line is open. Please go ahead.
Yeah, Hey, guys great job.
Thank you David.
Yes, yes.
Yes, I guess you know first of all.
I'm interested just the shift of business over time, and then you've done a great job diversifying away from.
The the telecom clients and now it sounds like an increasing portion is within the the global Disrupters.
Does that change the margin dynamics over time like are those global Disruptors, a little higher yielding or different services you provide whatever it is the kind of generates.
Potentially higher margins I get the is this just a really good mix shift both from a revenue and margin standpoint.
So David it's a bit of the combination of at first of all within the the verticals that we service that are not mobile disruptors clearly, we've seen margin progression as we move up the stack and value as we put in more technology more automation and Thats. Obviously continued our goal and we continue to message that we.
We believe that there is more room to continue to progress our operating income over the coming quarters and years as we go forward as we brought it up over the last three to five years for.
From a disruptor perspective, they are consuming.
Similar services to a lot of our enterprise clients, albeit differently and when I say differently. They tend to look at different geo deliveries. They tend to look at a more rapid scale they tend to look at less.
Yes, onshore mix and more offshore mix, which tends to have a higher margin out of the gate.
Which does help us overall at our and our margin mix as we go forward. So as you see that progress and as part of our margin story, as we see margin improvements and and increases over the coming quarters and and years.
Okay got you thanks on that in.
And I get the secondly, just on long term margins I mean, you've done a really nice job just overall with the margins but.
Is is the at home mix sustainable and and will that help over time.
And then I guess that that's really the question like is are you and is there are parts of the business now that are just going to be long term at better margin just simply because you have more people people at home.
Yes, David the way of looking at it is first of all we have a very variable cost model from a number of facilities perspective. So if for whatever reason, we want to continue to have a larger percentage of work at home and we can look at removing facilities from our infrastructure that has not seemed to be the case and that hasn't seemed to be the messaging from clients at this point.
And and time, but should we go down that path. We can certainly do it when we talk about sort of that 30% of our business kind of remaining of work at home, where it makes sense for the client where it makes sense for our staff members, we would certainly support that and that margin profile is slightly better, but it's not significantly better because there's a lot of and.
Test and costs that we do and and some of the regions for our work of home stuff that our cost that you might not necessarily appreciate whether it be more mental health services, whether it be more.
Bandwidth services, whether it be different security costs and the whole host of other things that go into our work at home solution. So while it does help again, it's not a vast call out of that would say if we stay the 60% of our stock of look at home that you'd see a large margin improvement.
Okay, Okay and David.
We will probably see more of the long term drivers of margin progression being growth and the strategic verticals growth in emerging markets, where where margins can be higher.
Again, infusing more technology into our offerings and the kind of moving up the stack as Chris has mentioned.
Becoming more efficient and our delivery through the the introduction of technology and then with the gross some leverage on G and H. So those are the kind of the long term drivers to margin progression and those have been the things that have allowed us to kind of get to where we are that plus acquisition synergies and those of the things. The thing we will drive margins and give us.
Confidence that we can drive margins higher as we go forward.
Gotcha well, okay. Thanks on the and then if I can just sneak one more and I saw some of the interesting from high service of Bank of software company that we cover and they talked about with the in their banks, 33% lift in calls for the call centers of banks and I thought that was interesting and just wondering you of that that maybe is.
A little bit of unsustainable call volume through a pandemic, but at the same time, you've also at E. Com probably sustainably. Good now currently and for Forever and May be right like so it seems like there is a little prospect there might be a little kind of onetime revenue, but then some that's just permanently maybe better too and maybe if you could kind of isolate like is there is some extra growth right now or maybe.
We are we just in a sustainably better and the situation.
And the recent both I mean the.
Sorry, we're getting for the back of the receipt, we see both we see one time volume that's coming through the it's primarily driven by the pandemic. We've talked about this of people wanting to refinance their their mortgages because of lower interest rates or people were looking for telemedicine or tele health console for or whatever the case may be.
Being that that is clearly driven by the environment that were and Weve also seen and what we are.
Supporting a lot of our growth on the sustainable long term switch to and outsourcing model and long term sustainable type of volume of business, whether it be digital.
Voice non voice doesn't really matter.
The of the new models and some of that is the example is coming from retail traffic, which is now driving more E commerce and through traditional retailers, which we benefited from and or.
The Fintex, who are doing more things virtually versus walking into a branch that's sustainable that's here to stay and we will continue to grow.
Gotcha, the well thanks, guys nice job.
Thank you.
Hi.
So at the.
Go ahead operator.
I was just going and Sam showing no further question Sir.
I will at this time. Thank you all very much for your participation on the call today.
And.
We will end the call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great day.
[music].
HM.
[music].
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Concentrix fourth quarter and for your 2020 financial results Conference call at the time all participants are in the listen only mode. After the speakers presentation. There will be a question and answer session to ask the question. During the session you will need to press star one on your telephone please.
The todays conference is being recorded if you require any further assistance. Please press Star then zero I would now like that and the conference over to one of your speakers today Mr., David Stein, Vice President of Investor Relations. Sir. Please go ahead.
Thank you Michelle and good morning, welcome to the Concentrix fourth quarter and full year fiscal 2020 earnings call. This call contains forward looking statements and address our expected future performance and the by their nature address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those.
Breast and our forward looking statements, we do not undertake to update our forward looking statements as the result of new information or future events or developments. Please refer to yesterday's earnings release and our most recent filings with the FCC for additional information regarding uncertainties that could affect our future financial results.
This includes the risk factors provided in our form 10 information statement.
Also during the call, we will discuss non-GAAP financial measures, including free cash flow non-GAAP operating income adjusted EBITDA and adjusted EPS as well as constant currency revenue gross.
A reconciliation of these non-GAAP measures is available in the news release and on the Concentrix Investor Relations Web site under financials.
With me on the call today are Chris Caldwell, our President and Chief Executive Officer, and Andre Valentine, Our Chief Financial Officer, Chris will provide a summary of our operating performance and growth strategy and Andre will cover our financial results and business outlook. Then we'll open the call for your questions now I'll turn the call over to.
Chris.
Thank you very much David good morning, everyone and welcome to the first Concentrix Corporation earnings call. Let me first start by thanking all our cynics colleagues and specifically Dennis Polk get little rock and Marshall Witt for all of the support over the years to get us to this point and last but not least Bob long the founder of Synnex, who decided the start investing and the BPL business. The 16 years of.
No.
I am extremely proud with what we've accomplished over the last 16 years, we've built and award winning global delivery platform augmented by technology for our clients the delivers upscale incredibly well through very dynamic business environments.
This has positioned us for a successful spinoff from Synnex on December Onest, 2020, and current publicly traded company even.
Even though we're 16 years into our history I'm incredibly excited about the opportunities that lay and products of us.
While the results we are announcing today for our last quarter as part of Synnex I believe the demonstrate our strong positioning in the marketplace and our ability to execute as our own independent company.
Our revenue growth and profitability exceeded our guidance and expectations driven by strong execution and our ability to ramp wins from our third quarter faster than originally forecasted.
We also benefited from higher than expected volumes with a broad set of clients during the quarter.
Fourth quarter revenue of 1.3 billion represents an increase of 7.3 per cent compared with last year.
On a constant currency basis revenue increased by 6.3% non-GAAP operating income of 175 million was up 6% compared with last year on an adjusted basis and the adjusted EBITDA increased 7% to $211 million compared with $198 million last year.
These results also include and additional net expense of $21 million for our coal good related costs.
Our accelerated growth from the quarter came across several key verticals, including technology retail E Commerce healthcare and banking the Andre will provide more color on this.
This more than offset the impact of our portfolio rebalancing efforts and the cold and related muted volumes and the travel verticals that we have been messaging about over the prior quarters.
From a client demand perspective, our momentum continued with another very good quarter of strong new business signings, we're signing a larger contract value deals and believe we are taking share with existing clients during.
During the fourth quarter, we signed more than two dozen new clients, including more than a half dozen new disruptive digital only brands.
Our pipeline remains strong and prospects for new businesses are nicely balanced across our verticals and geographies that we service.
Recent examples of our wins with iconic and disrupt the brands include end to end solutions for social media content moderation and Fintech digital wallet support we believe these new clients chose concentrix because of our culture global footprint domain expertise and technology solutions to help support the rapid growth from the marketplace.
From a market standpoint, our wins also spans many countries and Asia and Latin America, such as Australia, Japan, Korea, Singapore, India, and Brazil, as well as North America, and Europe, furthering our strategy of the geographically diverse client base.
While COVID-19, and 2020 has been a challenge for all companies. We're prepared for its continued impacts throughout the remainder of 2021.
Client acceptance accolades and awards, we have received during the pandemic reflect the quality of our response to the challenge Swift reactor Swift reaction to changing customer needs quick deployment of work at home solutions at scale and focus on the health and safety of our stock.
90% of our impacted clients indicated a willingness to give us more business based on our response when we surveyed them.
And this environment, we remain focused on keeping our staff safe over delivering for our clients and the emerging from the pandemic stronger.
A day approximately 60% of our staff globally are supporting our clients from home.
In summary, I'm very pleased with the execution of this quarter and for the full year, we deepened our partnerships with disruptive of iconic brands deployed digital transformation and virtual engagement solutions that drove the meaningful results for our clients and delivered strong financial performance now as our own independent company, we remain focused on for Steve.
Dziedzic drivers for sustainable and profitable growth.
First of expanding wallet share through deepening relationships with our clients second relentlessly innovating and developing our new digital solutions third investing further in emerging markets around the globe and finally selectively pursuing strategic acquisitions building and our track record is a proven successful industry consolidator.
Finally, I would like to thank our exceptional staff for their dedicated service our clients for their trust and our new very talented diverse board of directors for their support and with that I would like to turn the call over time and rate Andre.
Well, thank you, Chris and good morning Al.
I'll begin with the look at our financial results for the fourth quarter, and then discuss our business outlook for the first quarter fiscal 2021.
We experienced the strong improvement in revenue and profitability in the fourth quarter.
Revenue for the fourth quarter was $1.3 billion.
The constant currency basis revenue increased 6.3 per cent compared with last year.
Reported revenue of reflected of positive foreign currency impact of $12 million.
Our strong growth was generated by a number of our strategic verticals.
Revenue from the technology and consumer electronics vertical grew approximately 19% for reflecting strong growth across a broad based group of clients Red.
Revenue from clients in the retail travel and ecommerce vertical grew by of hot approximately 20% as growth with several retail and E commerce clients more than offset the expected lower volumes from travel and tourism clients.
Revenue from travel and tourism clients was just under 5% of total revenue and the fourth quarter of 2020 day.
And from approximately 6% last year, reflecting and approximately 1% impact on the overall company growth rate for the quarter.
Revenue from healthcare clients grew 17% largely as a result of strong seasonal volume.
Our strong growth across these vertical growth was partially offset by a 12% reduction in revenue from communications clients.
Revenue from communications clients was approximately 18% of total revenue in the fourth quarter down from 22% last year, reflecting and nearly 3% impact on the overall growth rate for the quarter.
The rebalancing of our vertical of mix has made us less reliant on the communications vertical.
Importantly, we believe this rebalancing of our portfolio mix is nearly complete.
And we expect it will have a significantly less pronounced impact on our 2021 revenue growth.
Contributing to the growth across our strategic verticals for our nearly 100 global disruptor clients, representing about 17% of our fourth quarter total revenue, which grew by roughly 20% 25% year over year.
Turning to profitability as expected price.
Profit improved meaningfully on a sequential basis compared with the third quarter.
On a year over year basis, non-GAAP operating income was $175 million and the fourth quarter compared with the 165 million last year.
Our non-GAAP operating margin was 13.5% down slightly from 13.6% and the fourth quarter last year for.
The fourth quarter, adjusted EBITDA was $211 million compared with the $198 million last year and our adjusted EBITDA margin was 16.2%.
Compared with 16.3% last year.
Our profitability reflects flow through from revenue growth and synergy and payment.
On a net basis Cove, and 19 expenses and approximate $21 million and the fourth quarter.
Fourth quarter results also reflect increased investments in support of strong new program ramps that will turn into revenue through the next few quarters.
In terms of net income in the fourth quarter non-GAAP net income was $107 million compared with $80 million last year.
Adjusted EPS was $2.07 compared with the dollar 55 last year.
GAAP results for the fourth quarter of 2020 included $37 million of amortization of intangibles.
$14 million of acquisition integration and spinoff related expenses and $4 million of share based compensation expense.
Ill point out that our treatment of share based compensation expense in our non-GAAP measures is different than how it has historically been presented in the Synnex results. We made the change to be more comparable to our industry peers GAAP.
GAAP EPS was $1.25 compared to 62 cents last year.
Our tax provision presented in the earnings release reflects taxes is if we were on a standalone basis, even though we will be part of this and next fiscal 2020 us tax return.
Our standalone effect of GAAP tax rate of 44% and the fourth quarter was higher than expected future tax rate.
COVID-19 impacts resulted in lower overall taxable income for full year, 2020, which increased our exposure to certain us base erosion and anti abuse taxes moving.
Moving forward under current tax regulations and was expected improvements in profitability, we expect our effective tax rate.
And to approximate 29% of both the GAAP and non-GAAP basis.
Now I'll move to a few other financial details from the quarter.
In terms of cash flow for.
Fourth quarter cash flow from operations totaled $119 million and capital expenditures totaled $65 million generating $54 million of free cash flow and the quarter.
Capital expenditures were elevated in the fourth quarter, primarily as we made investments to support work from home services.
On an ongoing basis, we expect capital expenditures to fall in a range of 3.5% to 4% of revenue.
We expect about half of our capital expenditures to be for maintenance and about half related to new capabilities investing in technology digital and security to support work and home and to drive organic growth.
Turning to the balance sheet at the end of the fourth quarter cash and cash equivalents were $153 million and net debt was $992 million.
About 89% of our cash was held outside the U.S.
On November Thirtyth, we incurred our initial borrowings under our 1.5 billion five year credit facility and.
And our two year $350 million accounts receivable securitization program.
Total debt outstanding at the end of the year was $1.145 billion and this includes $900 million in borrowings on our five year term loan under the credit facility and $250 million and borrowings under the AR securitization net of issuance costs.
At the end of the year gross leverage was approximately 1.8 times adjusted EBITDA and liquidity remains strong with over $850 million of cash undrawn lines of credit and capacity on our securitization are.
Current liquidity gives us significant financial flexibility our priorities for capital deployment include growing existing business through funding organic and strategic growth opportunities.
Now I will discuss our business outlook for the first quarter of fiscal 2021.
Balancing the continued uncertainty related to COVID-19 with our current business momentum, we expect revenue to be in a range of $1.26 billion to 1.31 billion.
This includes and approximately 2% positive impact of foreign exchange rates compared with the comparable period in 2020.
Our profitability expansion the expectations include non-GAAP operating income and a range of 148 million to $162 million.
We expect interest expense and the first quarter to be approximately $8 million.
We expect an effective tax rate of approximately 29% and the weighted average share count of approximately 52 million shares.
Our non-GAAP operating income guidance excludes approximately $34 million related to the amortization of intangibles and $7 million of share based compensation expense.
While we do not guide for other than one quarter out, we feel confident and our ability to grow concentrix at or above industry growth rates, while increasing and non-GAAP operating margin over time.
Our expectations for fiscal 21 include a typical seasonal pattern for the business for the sequential volumes rolling off impacting revenue and profitability for the first half of the year and sequential increases beginning in the third quarter.
Our business outlook does not include any future acquisition related impacts our transaction and integration costs.
Also not included in the guidance are impacts from future currency fluctuations.
In closing we are pleased with our results and we are confident and our outlet we are well positioned global leader and a large fragmented meant.
Rented and growing market.
We're executing the plan to grow organically faster than the market.
And we expect the impact of portfolio rebalancing of a much smaller negative impact and our growth rates as we move forward.
As of proven successful consolidator and our market for the strong balance sheet, we believe we and a great spot to deliver sustainable growth.
Margin progression and strong free cash flow.
At this time Michelle please open the line for questions.
Thank you again, ladies and gentlemen, if you ask the question at this time. Please press Star then one on your telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.
Our first question comes from the line of group of that.
The chart of with Bank of America. Your line is open. Please go ahead, hi, and thanks for taking my questions and congrats and the strong result, and the first quarter as a public company.
Chris maybe can you talk about your thoughts on inorganic growth you had strong organic growth this quarter, but in the past you've talked about potential you know your propensity for M&A.
Just what what.
Any any thoughts on the potential size.
And and which end markets of in what what would make sense for concentrix from an inorganic standpoint.
Thanks for the Blue So from my perspective, I mean really what we're looking at is whats additional accretive to our client base either from adding the unique clients and to our clients that the service offerings to take advantage of and or sort of the capabilities as I talked about and the past and to go into the mix the.
The verticals of we're already dealing with a good example, and b.
Commercial banking, we are very interested and.
Because were very strong and the retail business from the size perspective.
Really we're quite open it's really about what we believe has the highest return for our shareholders and what is the the process, we can kind of additive to our revenue and profitability. When we when we look at doing the acquisition.
Got it and can you comment on.
The mix of voice versus non voice.
The services that you have currently and what would be the long term target and can you just talk about some of the non voice services that you provide today and and how should we think about that mix going forward.
So non voice continues to kind of creep up as as we go ahead and automate a lot of the voice and putting more IB are and more digital solutions for our clients that being said, we're still continues to be strong.
I think we've talked about trying to get to a 50 50 split and thats still as and sort of our goal over a period of time and.
And we continue to make progress towards that that being said, we have clients who are looking for sort of true high end customer experience wanting a balance between voice and non voice solutions to kind of handle their customer demand.
But but overall thats directionally, where we're headed.
Got it and maybe just I'll ask one more question.
In terms of working from home I think you said that 60% of the of the workforce is currently working from home in the past you've talked about needing some time to judge the productivity of the.
People working from home I mean, do you think that.
Total working from home or equally effective versus working in the office and how should we think about it and you said the long term target was around 30, 35%. The how should we think about people getting back into the offices I mean, what what timeframe are we thinking about and just related to that you've also talked about like international expansion.
I mean, do you need to hire more staff to do that or and the go to market to flow on that.
And im trying to expand internationally can you just comment on on the move back into the into the call centers as well as the.
Your your plan for international expansion, how how the go to market their kind of work. Thanks.
Yes for sure from first off I Wouldnt call and call centers. The the reality is that our sites and deliver a lot of services voice non voice technical solutions development and not just a host of different.
Types of services.
Our other parts of the call.
Delivery sites and.
In terms of the work and home productivity for the whole and better in most regions I will tell you. There are some regions just because of the.
You know how people.
Lives and they might have a higher density of living capacity with that within the region. The productivity is on par to.
The delivery sites for maybe just a tiny bit loss, so and then a bit of a flux. There's not one answer fits all around it but overall were very happy with the productivity of that we're seeing from our from our team members around the world.
In terms of when we look at getting back to a 30% that's really something that we've kind of ballpark the out based on the type of work. We do based on some staff were looking forward to getting back and being with the with the team group within the physical building, but our expectations of those probably a 2022.
Cash and non of 20 to 21 based on boxing Rollouts and based on where our stock car and a whole host of other things where no rush the bringing people back.
It's really about when's, the right time for our apart team members to come in and then the last question regards to sort of hiring and for international expansion.
We are of a very distributed sales and account management team and obviously the clearly the operations team around the globe.
With the local team members and all the markets that we serve for the most part and so really we will continue to add and invest in those areas and the verticals of lot of growing those markets, but there is no real need to go out and hire significantly more in order to grow that business and that in the regional nature.
Got it thanks for all the detailed and congrats again on the strong results as well as the strong day. Thank you.
Great. Thanks, very much thanks.
Thank you and our next question comes from the line of Shannon Cross with Cross Research. Your line is open. Please go ahead.
Okay.
Yes. Good morning, I guess my first question is.
And and obviously work from from.
And it plays very strongly and to the but I'm curious what else Youve kind of learned about your business given total that and.
With such a.
And now people intensive nature of the business I'm just curious what things you put in place where you might think that theres more opportunity for.
Automation or.
Now if there was anything else the Lord and that the also from the standpoint of Covance related costs. How quickly you expect from the does to wind down and.
And when we might see that none of the follow up thank you.
The Shannon good day, good to talk to again I think first off what we've learned from just the overall business model is how robust the services business model as we provide and support businesses, Dan and day out and.
In the fact of very tight of the head of two to our clients. The mixture that they are successful in the marketplace and through co head and through all of the ups and downs.
Really showed the strong working relationships that we have with our clients from of staff perspective. The reality is is that things that and we've talked about this in the past things that we could automate that historically, we've been talk the clients that might of taking a few months to get the side and try and Cove and those decision timeframe and been turned around very very very quickly.
And because it's easier to manage its faster and sometimes it's more cost effective.
And a quicker period of time and so we've seen a lot more consumption of our digital services.
And a faster period of time than historically, how weve rolled them out from a care and taking care of our staff perspective, we've put the big emphasis on the mental health, we put the big emphasis on making sure that there's comfort within the home environment and tips on how to be productive in the home environment.
Well as you know different digital training delivery to make sure that our staff for up to up to speed and what they need to do.
As well as frankly recruiting digitally and so if you look at all of the processes that historically might of been done and the site I'm.
Very quickly we've been able to expand that in a purely automated and digital caution for par team members around the world, which has allowed us to kind of scale very very quickly and from a from a working on perspective.
And then shines your question on the the COVID-19 costs.
Those costs that we're incurring are very much around being fanatical about delivering for our clients and keeping and being fanatical of our staff and keeping them safe and so.
Certainly as we think about our guidance for the first quarter and you should assume the those a similar level of spending is likely in there.
And we think that will be with us for for certainly a few quarters as we look out into 2021.
Okay, and then I guess my my next my final question and just with regard to the sales process and the customers you're talking to.
If you can give us any idea of if you've been able to expand and the maybe incremental not vertical of the tangential areas.
With the conversations that you've had with your customers again.
The as probably open up some opportunities I would assume rather than.
Close down.
Given the nature of the business. Thank you.
Hi side and so we.
We havent expanded our vertical verdict.
Verticals that we're focused on delivering for we're very focused on cost and build up deeper domain knowledge within the the verticals that we called out as being strategic to US I think in terms of offerings. What has happened with our clients are looking and giving us more of their work.
And asking us to kind of transform that work and whether be.
As I talked about more digital solution more automation sort of one more stop shop and not only with the one region and multiple regions. So when we talk about gaining share that's really what we're talking about is gaining share across their share of wallet by offering a more cost of.
Comprehensive one stop solution that has gotten us into some work within those verticals that perhaps we might not have always.
Focused on but it's been the right thing to do for those clients and build the and build the stronger relationship and certainly the more body parts of the.
Great. Thank you very much.
Thank you and our next question comes from the line of Dave Koning with Baird. Your line is open. Please go ahead.
Hey, guys great job.
Thank you David Thank you yeah, yeah yeah.
Yes, I guess first of all.
I'm interested just the shift of business over time, and then you've done a great job diversifying away from God, the telecom clients and now it sounds like an increasing portion is within the the global Disrupters.
Does that change the margin dynamics over time like are those global Disruptors, a little higher yielding or different services you provide whatever it is the kind of generates.
The potentially higher margins I get the is this just a really good mix shift both from a revenue and margin standpoint.
So David it's a bit of a combination of at first of all within the verticals that we service that our non mobile disruptors clearly we've seen margin progression as we move up the stack and value as we put in more technology more automation and that's obviously continuing our goal and we continue to message that.
We believe that there's more room to continue to progress our operating income over the coming quarters and years as we go forward as we brought it up over the last three to five years for.
From a disruptor perspective, they are consuming.
Similar services to a lot of our enterprise clients, albeit differently and when I say differently. They tend to look at different geo deliveries. They tend to look at more ROP and scale they tend to look at less.
The last onshore mix and more offshore mix, which tends to have a higher margin out of the gate.
Which does help us overall at our and our margin mix as we go forward. So as you see that progress and as part of our margin story, as we see margin improvements and and increases over the coming quarters and years.
Okay Gotcha, thanks on that and.
And I guess secondly, just on long term margins I mean, you've done a really nice job just overall with the margins but.
Is is the at home mix sustainable and and will that help over time.
I am and I get that that's really the question like is are you and is there are parts of the business now that are just going to be long term at better margin just simply because you have more people people at home.
And David the way and look at it is first of all we have a very variable cost model from some of facilities perspective. So if for whatever reason, we want to continue to have a larger percentage of work at home and we can look at removing facilities from our infrastructure that has lot of seem to be the case and that hasn't seemed to be the messaging from clients at this point.
And time, but should we go down that path. We can certainly do it when we talk about sort of that 30% of our business kind of remaining at work at home, where it makes sense for the client where it makes sense for our staff members, we would certainly support that and that margin profile.
Slightly better, but it's not significantly better because there's a lot of investment costs that we do and and some of the reasons for our work of home staff that are costs that.
And that's why I appreciate whether it be more at the whole services, whether it be more.
Bandwidth services, whether it be different security costs and a whole host of other things that go into our work at home solution. So while it does help again, it's not a vast call out of that would say if we stayed at 60% of our stock of look at home that you'd see a large margin improvement.
Okay, Okay and David.
We will probably see more of the long term drivers of margin progression being growth and the strategic verticals growth in emerging markets, where where margins can be higher.
Again, if using more technology into our offerings and the kind of moving up the stack as Chris has mentioned.
Becoming more efficient and our delivery through the the introduction of technology and then with the gross yeah. Some leverage on Gnh. So those are the kind of a long term drivers to margin progression and those have been the things that have allowed us to kind of get to where we are that plus acquisition synergies and those are the things that I think we will drive margins and give us cash.
Confidence that we can drive margins higher as we go forward.
Gotcha well, okay. Thanks on the and then maybe I can just sneak one more and I saw that the interesting from.
Hi serve as the bank software company that we cover and they talked about with the in their banks, 33% lift and calls for the call centers of banks and I thought that was interesting and just wondering you of that that maybe is a little bit of unsustainable call volume through of pandemic, but at the same time, you've also at E com price.
Probably sustainably good now for us for.
Forever and maybe right like so it seems like Theres, a little cross currents there might be a little of kind of onetime revenue, but then some that's just permanently maybe better too and maybe if you could kind of isolate like is there some extra growth right now or maybe are we just in a sustainably better kind of situation.
And and we see both I mean.
Sorry, we're getting for the back of the receipt, we see both we see one time volume Thats coming true that's primarily driven by the pandemic. We've talked about this of people wanting to refinance their their mortgages because of lower interest rates or people, who are looking for telemedicine and ER telehealth consults are one of the case may be.
Being that that is clearly driven by the environment that were and Weve also seen and what your support.
So putting a lot of our growth on sustainable long term switched to and outsourcing model and long term sustainable type of volume of business, whether it be digital voice.
Voice non voice doesn't really matter.
Of the new models and some of that is an example is coming from retail traffic, which is now driving more ecommerce through traditional retailers, which we benefited from and or.
The syntax, who are doing more of things virtually versus walking into a branch that's sustainable thats here to stay and we will continue to grow.
Gotcha, and well thanks, guys nice job.
Thank you.
And.
So the.
Go ahead operator.
And I was just going and Sam showing no further question Sir.
Well at this time, thank you all the.
Very much for your participation on the call today.
And.
We will end the call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great day.