Q1 2021 Concentrix Corp Earnings Call
Across our strategic verticals, where our over 100 global disruptor clients, which represented about 18% of our first quarter total revenue and grew by 28% year over year.
Turning to profitability.
<unk> improved significantly and the first quarter on a year over year basis, non-GAAP operating income was $177 million compared with $145 million last year on.
Our non-GAAP operating margin was 13, 1% up 90 basis points compared with the first quarter last year.
First quarter, adjusted EBITDA was $213 million.
Compared with $177 million last year.
And our adjusted EBITDA margin was 15, 7% up 90 basis points compared with last year.
Our profitability reflects flow through from strong revenue growth, which more than offset the impact of COVID-19 expenses.
On a net basis, COVID-19 expenses approximated $10 million and the first quarter.
In terms of net income and the first quarter non-GAAP net income was 120 $120 million compared with $95 million last year.
Adjusted EPS was $2 29.
Compared with $1 85 last year.
GAAP results for the first quarter included $35 million of amortization of intangibles and $7 million of share based compensation expense GAAP.
GAAP diluted EPS was $1 69 compared to $1 one last year.
Our effective GAAP tax rate of 28% and the first quarter was slightly lower than expected our higher taxable income resulted in less exposure to certain U S base erosion taxes.
Moving to cash flow cash flow from operations and the first quarter totaled approximately $36 million.
Higher than planned revenue in the quarter resulted in higher accounts receivable balances at quarter end, Additionally, and our business year and payroll and incentive payouts can cause first quarter cash flows to be lower than other quarters.
While this negatively impacted cash flow and the quarter, we continue to expect free cash flow for the year to approximate non-GAAP net income.
Capital expenditures and the quarter totaled $42 million, we continue to expect capital expenditures for the full year to be and a range of three 5% to 4% of revenue.
Turning to the balance sheet at the end of the quarter cash and cash equivalents was $118 million.
And total interest bearing debt was $1 billion $113 million.
During the quarter, we paid down $50 million on our term loan reducing the outstanding principal balance to $850 million net debt was $996 million at quarter end.
At the end of the first quarter gross leverage was approximately 165 times adjusted EBITDA and liquidity remains strong with approximately $800 million of cash undrawn lines of credit and capacity on our AR securitization.
Our current liquidity gives us significant financial flexibility our priorities for capital deployment remain growing the existing business through funding organic and strategic growth opportunities.
Now ill discuss our expectations for the second quarter.
Given the accelerated momentum we are seeing the business, we expect second quarter revenue to be and a range of 133 billion to $1 three 8 billion.
Including at approximately 4% positive impact of foreign exchange rates compared with the second quarter of 2020.
We expect second quarter, non-GAAP operating income of $160 million to $174 million we.
We expect interest expense to be approximately $8 million and the second quarter and effective tax rate of 27% and 28% and a weighted average diluted share count of approximately 52 million shares.
Our non-GAAP operating income guidance for the second quarter excludes approximately $35 million related to amortization of intangibles and $11 million of share based compensation expense.
Because of our strong Q1, and our momentum going into Q2, we now expect full year revenue to be at or above $5 $3 billion, including at approximately 2% positive impact of foreign exchange rates compared with 2020.
This equates to an expectation of constant currency revenue growth above 10%.
Our full year constant currency revenue growth above 10% is a significant increase from the range that we discussed during our spin where we suggested that it would be and a 3% to 5% growth range. We do not plan on updating our yearly guidance and subsequent quarters.
Our expectations for the business did not include any future acquisition related our disposition impacts or transaction or integration costs.
And also not included in our expectations or future foreign currency fluctuation impacts.
In closing we are very encouraged by our first quarter results, we are confident and our expectations for the second quarter.
And beyond.
We are a well positioned global leader and a large fragmented and growing market executing our plan to grow organically faster than the market.
As a proven and successful consolidator and our market with a strong balance sheet, we are well positioned to deliver sustained growth margin progression and strong free cash flow.
At this time to Wanda Please open the line for questions.
Thank you, ladies and gentlemen, as a reminder to ask a question you would need to press Star then one when your telephone.
Withdraw your question press the pound key.
And again Thats star one to ask the question.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Shannon Cross with Cross Research. Your line is open.
Thank you very much and good morning, I'm I'm wondering about the revenue and maybe some of the components.
What are you seeing within travel and I was in and airport. The other day and it's actually they're coming back to life and then I'm also curious about your thoughts on on longevity of the strength and health care and then I have a couple of follow ups. Thank you.
And as shown on this Chris low from a travel industry.
Industry perspective, but we've kind of communicated before and still see is that the domestic travel market is picking up.
And we're seeing that and each of the individual.
Individual regions that we operate and but the international travel market and specifically the business travel market.
Bill touched on.
And non existent. Unfortunately, we had a lot of revenue and our business that was on.
On the business side and on the international side with what's on the domestic sales we are starting to see that pick up on the domestic side and.
And focusing more sales efforts on that but.
We expect that there'll still be a headwind for foreseeable future and the overall travel clientele that we deal with.
On the healthcare side.
Clearly what we've seen is a strong growing robust market.
We have been.
On a revenue growth by net new wins, not only by services and that market by net on.
And net new clients coming in.
Debt that we've won and so.
So we see that Theres, a good longevity, albeit.
Seasonality with the open enrollment debt that we're going through debt.
We have had one new business.
Okay, and then and I'm curious, maybe a bigger picture question.
With regard to how customers are viewing.
Oh and outsourcing.
Coming out of Covid.
Or hopefully we're coming out of Covid. So.
Just in terms of maybe more of a willingness to rely on others thoughts on onshore and offshore and just wondering how the pandemic may have changed some of their customers.
Mindset around this and then if that poses and opportunities maybe I'll start to see.
Incremental rfps come up.
So Shannon and what we've seen is basically customers that were outsourcing already pre pandemic and through the pandemic are starting to make choices with partners that were there during the harvest time and the pandemic.
And giving more business, which we have been.
No.
Very successful and because we did a good job supporting our clients through the pandemic.
And get more because the trusted relationship and talking through some pretty adverse times. What we're also seeing is that new customers are coming to the market who are trying to do everything that a resource and provides which is makes our cost model more variable align sort of youre on.
Or your outcomes based pricing to what you need to accomplish from a business perspective, and also where they have had internal challenges either staffing or supporting their own business to be able to rely on someone who can provide the scale to help them out and I don't think thats necessarily going to change what I think.
We are seeing is that there is a net new amount of business that is now being outsourced and that will continue to remain as far as past the pandemic.
Okay, Great and then my last question is just on gross margin how should we think about gross margin opportunity.
If you could think about how revenue may mix shift over the coming year, and then I would assume some of the incremental COVID-19 costs me.
Ameliorate and then that completes my questions. Thank you.
Yes, sure and this is Andre could speak to you.
Certainly our gross margin is down versus prior year and that is largely because that is where the bulk of the net COVID-19 costs show up. So I think we think those costs frankly.
Our with us for a while.
We continue to see.
Cross the globe.
Localized and somewhat regionalized flare ups.
That will cause those cost to stay with us for for a bit longer certainly over time, although we think there is room to move gross margins back towards the direction. They were in prior to the pandemic that.
And that'll be a function of the COVID-19 costs going away.
And that'll be a function of growing more in our strategic verticals, adding more technology to our solutions and moving on margins in that fashion.
Great. Thank you so much.
Thank you.
Thank you for.
Our next question comes from the line of will clue up for Cobre with Bank of America. Your line is open.
Hi, Thanks for taking my questions and congrats on the quarter.
For the first one Chris I wanted to ask you two other strategic growth drivers you've talked in the past, our investing and emerging markets and developing new digital solutions. So maybe can you talk a little bit about the progress you've made so far in those two areas.
And specifically with respect to emerging market customers there tend to typically be more cost conscious and maybe more demanding in terms of services required. So maybe can you talk about some of the competitive advantages that concentrix has that can enable you to serve those customers and emerging markets more profitable more profitable.
And then maybe some of your other competitors can.
Sure.
You hit the nail on the head.
<unk> markets tend to you can't rely on labor arbitrage. So it has to be some technology element there has to be.
A higher level of efficiency that you can deliver for those clients, but I think that helps us and our overall global enterprise, but specifically in those emerging markets, we've been able to drive more technology, we're able to pilot things faster because there is a desire to be more efficient and they are more share.
And really cost conscious with within those markets and so I think that's led us to be very successful not only against our competition on those markets, but also take some of the solutions and bringing them to more established markets and as we.
And continuing.
Continued to grow because we've got proof points and where it's worked and highly highly competitive markets I think to your second question around digital offerings.
We've done more announcements last little while obviously, our secure CX non stop every day that we've now got tens of thousands on.
And points in place doing secure remote work and are continuing to grow that we talked about our DRC and central's product that we launched which adds to a successful and BSC process and it's a more entry level product that we can sell not only as a standalone product, but also integrated into our CX solutions.
We've talked about deploying.
Deploying more.
Telephony solutions.
Natural natural voice RBR as well on its client base.
Telephony platforms. So there's a whole host of things going on on top of our just regular digital products that were.
We're driving and clearly our goal is not all into debt clients to use of technology, whether it's with us from <unk> solutions perspective, but maybe direct but also as part of our <unk> solutions.
And then we go to market with and we're seeing good traction.
And in both of those areas.
Okay. Thanks for those details.
For the second question I'd like to ask just for clarification around the full year revenue guidance.
I think if I heard correctly Andre said, the $5 3 billion for.
And for the full year.
Last quarter, Chris I think you talked about fiscal <unk> fiscal <unk> being sequentially.
And improving in terms of revenues from from the second quarter is that still the case, because if I take the midpoint of your fiscal <unk> guidance was $3 6 billion.
And then even with this modest growth and <unk>.
Good.
It seems that you're going to be higher than five 3 billion and so I'm just maybe I Miss read that so if you can just clarify what youre seeing.
Your thoughts for the second half and and what the full year guidance. Thank you.
Yeah, a little clarity for Matt for me at <unk>. So what we've guided to is we felt a knee having spoken at the time of the spin off and talking about the growth for this year being in that market range of 3% to 5% we felt a need given the strong performance here in Q.
One and the momentum into Q2 to address the fact that that was no longer our expectation and in fact, we now expect to grow much faster than that and so what we've said is that we will grow above.
Above 10%.
Yeah.
Whether how exactly that plays through the back half of the year, whether the strong strong demand environment that we see right now continues.
Is.
And as something that will we will address as we go forward, but were really just dealing with that data point that we had put out there and indicating that that is no longer relevant and we think that instead, we'll grow above.
Above.
And above 10% and so.
And all I did with the $5 3 billion is kind of do the math for you take that 10% and apply it for last year's revenues and add the currency impact on top of that.
Chris I wanted to ask you I mean, not this not recently, but maybe you know last quarter. We were hearing things about just some discussion about the bite and administration planning a surtax on nearshore and offshore call Center operations. So call centers operating outside the U S. We're servicing U S clients.
Faces for tax and your thoughts on that have you heard anything and your thoughts if such as for <unk>.
Taxes imposed.
And would that impact the business and and just your overall thoughts on that going forward. Thank you.
Yes.
Think and every administration for the last four or five that has been sort of a common discussion and the first few days or first few months and so far and nothing has yet to pass but to say that it Walter Kent I think clearly from our perspective, what we do is we work with our clients to make sure that we have the delivery solution for them regardless of whether it's on.
For nearshore offshore and on.
Thank you know whatever surcharge would possibly come through just suddenly change the economics of that and we will adjust accordingly, I don't see it as being a massive impact for the business because it works for those to be done and.
It still needs to be done at the most cost effective manner possible and if that changes the dynamic of it then and we were seeing.
On the adjusted support it.
Got it no that makes sense and and any tax would impact other competitors as well. So so congrats again on the on the strong results and the quarter as well as the strong guide.
And so congrats on the on the strong execution. Thank you.
Thank you very much.
Thank you.
Our next question comes from the line of Dave Koning with Baird. Your line is open.
Yeah, Hey, guys. Thanks, great job.
Thank you.
Yes.
I guess I was wondering if the pace of growth kind of going through the year. It looks like Q1 was the 12% constant currency give or take and I believe Q2, it looks like mid point, maybe 23% constant currency or somewhere around there and then the rest of the year low single digits.
And I guess am I right about that pacing and maybe is there one or two things specifically driving maybe a client or a vertical or something driving kind of early year that maybe falls off line.
Kind of one time revenue or is there something that's kind of creating that pacing.
And David It's Andre.
No.
Isn't in fact, one of the things we feel very good about is kind of the sustainable nature of the work that we are signing up to do with our clients. So there is not much revenue.
A little bit less and 1% debt would be kind of what I would call COVID-19 related revenue that might go away because it involved and track and trace and vaccine and et cetera. I think my answer here is kind of more to the point of.
What I just said to route blue.
Really not provided we're just providing an update to our expectations.
And the 3% to 5% range that we talked about at the spinoff is probably no longer.
Relevant obviously, we have a very easy comparison in Q2, so it's going to be.
Yes.
In the range of revenue growth that you've indicated.
And then it's just a factor of where the demand environment.
If this very very strong demand environment stays in place.
And then youll see that in our second half performance.
Gotcha.
I guess my follow up is just.
It was pretty broad based like I think how that consumer retail travel and all of those we're growing over 20% and 20% to 30% band.
Is that the expectation that verticals theyre going to continued to be broad based and as you look to the guidance for rest of the year is there going to be some switching like it you're kind of assuming where health care will decelerate, but maybe.
And maybe other parts are all accelerators or is it pretty much kind of the ones that are driving and that will keep driving it.
Well I think we feel really good about the broad based across the verticals across the Geos and also frankly within the verticals I mean as you look through as I look through.
For instance that the drivers of our strength and retail and E. Commerce. So that it is just.
It's a number of names all growing at nice levels I think you could see some seasonal.
Flavor to growth as we go forward, perhaps health care at 29% with the strong open enrollment and that might not be where that operates add on on a go forward basis.
And then youll see and normal seasonal patterns as you look out again towards Q4 and in retail and e-commerce and in and.
Perhaps and a return to higher growth within health care.
Yep Gotcha, well, great. Thanks, great job.
Thank you.
Thank you.
I am showing no further questions and the queue I would now like to turn the call back over to Mr. Stein for closing remarks.
Thank you all very much for joining the call today and that will end the call have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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