Q2 2022 Concentrix Corp Earnings Call

June 28, 2022

That.

Good day and welcome to consendor's fiscal second quarter 2022 financial results conference call. At this time, all participants are listenonly. moteafter the speakest presentation, there will be a questionand-answer session. Ask your question during the session. You will need to questress Star than one under your touch on telephoneif any one to require assistance during the conference, please press star and zero. Treat operator as a reminder. This call is being recorded. I will now to turn the call over to davidstein BP Investor Relations. You may begin.

Thank you Michelle, and good morning. Welcome to the Concentrix' second quarter fiscal 2022 earnings call. This call is the property of Concentrix and may not be recorded or rebroadcast without the permission of Concentrix.

Speaker 1: 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 expressed in 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.

Speaker 1: 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.

A reconciliation of these non-GAAP measures is available in the news release and on the Concentrix Investor Relations website under financials.

With me on the call today: our Chris Caldwell, our President and Chief Executive Officer, and Andre Valentine, our Chief Financial Officer.

Speaker 1: 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, David. Good morning everyone and welcome to our second quarter earnings call for fiscal 2000 and twenty-.twoand as you can see from our results we announced our second quarter had strong revenue growth and even stronger margin expansion this last quarter. We have fielded many questions from investors around how our business model fares during uncertain times and we believe our results show the services we offer to our clients are in demand. Our growth strategy is succeeding despite the ever-changing macroeconomic environment, which gives us the confidence that we can rapidly adjust to changes that are and that our underlying business is strong and growing.

Speaker 2: We are not seeing signs of a slowdown in our pipeline or new business signings, although the placement of work to lower cost locations and more drive to digital solutions continues to increase, which we see as a positive to the business.

Reported revenue in the second quarter was one point five six nine nine nine nine nine nine nine nine nine nine nine nine nine eight billion up 14%. Including a higher than anticipated foreign exchange headwindon, a constant currency basis revenue increased 17%.

Our second quarter. non-GAAP operating income improved to 213 million, growing 24% adjusted. Ebitda increased 20% to 25 million compared with last year.

non-GAAP earnings per share increased 24% to $2 and 93 cents per share, compared with $2 and 37 cents per share last year.

Once again we saw growth across all our verticals. The market continues to have stable pricing, with price increases being accepted by clients for the most part to offset any labor increases.

Some clients did decide to move volume offshore to better manage their cost structure, while the vast majority of our client base is happy delivering from the current geography.

Speaker 2: As part of driving better business outcomes for our clients. We won digital transformation and CX solution businesses across over two dozen new logos. Many now engagege across both our operations and catalyst offerings.

Demand remains strong and our solid pipeline gives us the confidence to expect a strong signings for the rest of the year.

Speaker 2: As we've spoken with investors over the last couple of months, we've also seen a lot of interest in understanding more about our new economy clients.

Speaker 2: There have been questions about size and strength of these clients to weather changes in the economy. We believe our new economy client base is strong, vibrant and will generally succeed in down cycles. They continue to make substantial contributions this quarter to grow, increasing 42% year-over-year to 363 million in the quarter.

Speaker 2: As a reminder, we have over 125 new economy clients spread across our set of verticals and end markets that we service.

Speaker 2: As we stated the time of our Analyst Day back in January , the majority of these are not small companies and have large potential. In the second quarter, we grew revenue on a year-over-year basis with over 80% of these clients, which represents 90% of our new economy client revenue.

Speaker 2: These clients look to us to be able to help them as they scale globally, as their businesses become more complex and as they deal with many of the challenges that we help our enterprise clients navigate.

Turning to Concentrix catyst, we're making strong progress and seeing good sales motion to cross-sell our full range of CX capabilitiesour teams have met with a select set of our clients to explain the opportunities to more fully address keycx needs and have gained significant interest to explore these additional solutions. At the end of Q2 we had a pipeline of close to $1 million of opportunities with combined capabilities beyond what we would have been able to participate in previouslythese opportunities are in addition to our growing traditional Concentrix catalyst pipeline.

For example, a software company needed to help, needed help in many areas of their crx organization, So they partnered with us to leverage a variety of our capabilities. We are helping them build out a scalable support function, transition to a new CRM system, designing and building user bots, growing their revenue and understanding their customer journey, all while lowering their total delivery costs.

Having developed a customer journey-driven approach to optimize a holistic customer experience, our combined Concentrix and catalyst teams have been instrumental in deepening the relationships and adding significant value in ways that we would not have been able to support beforeour challenge and catalyst at the moment is hiring. We simply cannot hire enough technical staff to meet the strong demand and are expanding our development location, taking advantage of our global footprint to keep up.

Speaker 2: The demand for our operations and catalyst business continueed to confirm. Our clients want to deal with fewer partners who have deeper domain expertise and broader service capabilities on a global scale.

Increasingly. As a single-source integrator operator, we selectively pursue strategic clients to deliver end-to-end-cx solutions.

This quarter. We are also pleased to announce the acquisition of service source in May.

serviceource add deamomain expertise in sales generation and expands our business-to-business sales capabilities.

We have an active pipeline with significant demand from our clients for this capability. We also gain an attractive client portfolio of technology and new economy brands whom we can help scale and cross-sell other CX services.

We expect the transaction to close in the second half of fiscal year and be accretive to both growth and profitability after synergies in the first 12 months.

In terms of capital deployment, in the second quarter we paid $13 million in dividends and repurchased 58 million of our stock at an average price of about $158 per share.

We also continue to focus on completing complementary and financially compelling acquisitions, as that we have mentioned with our service source acquisition.

From an operating perspective, we continue to achieve strong customer satisfaction, innovation and client value attainment scores.

In our second quarter, demand for our CX solutions was particularly strong in travel technology banking, financial services and insurance, automotive and health care. Reflecting the current macro environment, some of our clients are experiencing volume volatility, particularly in e-commerce and crypto industries, while supply chain is primarily impacting clients that manufacture out of China.

We are also happy to have released our updated environmental, social and governance report with our earnings this quarter. The report provides more details on our efforts in corporate social responsibility, the investments we are making and our progress in having a measurable and meaningful impact to our staff and our communities. I CAn't thank the Concentrix team enough for the commitment to making the world a better place. With our few of our 2025 goals close to completion, well ahead of schedule, we have now started to update other goals.

Speaker 2: I encourage you to visit the Investor Relations section of our website and download a coffee.

Speaker 2: Turning to the balance of the year, despite foreign currency impact and a shift of some programs to lower-cost delivery. Our broad-based strength across the business, strong win with clients and robust pipeline across our strategic verticals- keeps us confident that we will continue to grow faster than the market while expanding our margins.

In summary, we're focused on transforming everything CX for our clients and their customers. We are deeping our client relationships and relentlessly innovating with new solutions and expanding into emerging markets, while we selectively pursue strategic acquisitions to drive superior returns for our shareholdersfinally, I would like to thank our exceptional staff for their commitment execution, our clients for their trust and our talented Board of Directors for their support and membership and with that, mentorship and with that, i'will turn it over to andrewell. Thank you Chris, and hello everyone. I'll begin with a look at our financial results for the second quarter and then discuss our business outlook for the third quarter in full year 2020 -two.

We delivered strong revenue growth, margin improvement and cash generation in the second quarter.

Revenue in the second quarter was $1.5699999999999998 billion, up 14% on as reported basis.

The improvement in reported revenue includes a nearly three point negative impact from foreign currency fluctuations.

This FX impact is almost a full point more than we expected entering the quarter, reflecting the weakening of the euro, the British pound, Japanese yen and austalia Australian dollar during the quarter.

As a reminder, approximately one-third of our revenue was the navate in currencies other than the? U's dollar and, as these currencies have weakened against the U's dollar since early in our second quarter, it has had a meaningful impact on our reported revenue and revenue outlook for the rest of the year.

Revenue increased 10% compared to last year on an adjusted constant currency basis pro forma for the impact of businesses acquired and divested since the start of the prior year. Second quarter.

Revenue increased across all of our verticals. In the second quarter, on a percentage growth basis, revenue from health care clients led the way, growing by approximately 28 percentand.

Revenue grew 27% in the retail, travel and e-commerce vertical.

Our technology and consumer, electronics and banking, financial services and insurance verticals. Both grew by 12% and.

Revenue from communications and media clients: few 7% in the quarter, with almost all of that growth driven by the inclusion of revenue from our acquisition of PK in December of 2021.

Clients in the other vertical industries grew 6% in the second quarter.

Each of our four strategic verticals grew by double digits organically, on a constant-currency basis in the quarter.

Our new acconomly clients generated strong growth of 42% year-over-year and represented 23% of second quarter revenue.

Speaker 3: Virtually all the growth in revenue from our new economy clients was organic, led by clients in technology and consumer electronics retail travel, e-commerce and banking, financial services and insurance verticals.

Speaker 3: As Chris mentioned, we were able to deliver the strong growth despite headwinds in foreign exchange and shifts in service delivery to lower cost geographies.

Turning to profitability, non-GAAP operating income was $213 million in the second quarter, compared with $172 million of last year. Our non-GAAP operating margin was 14% of 100 basis points from 13% in the second quarter of last year. Adjusted EBITDA was $25 million compared with $208 million in the second quarter of last year.

Our adjusted EBITDA margin was 16%, up 70 basis points from 15% the second quarter of last year.

Speaker 3: Profitably in the second quarter reflects flow through from revenue growth with existing in new clients, contributions from PK, productivity improvements and increased pricing, partially offset by investment in new program ramps and wage inflation.

non-GAAP net income in the second quarter was $155 million, compared with $125 million last year. Earnings per share were $2 and 93 cents a non-GAAP basis, compared with $2 and 37 cents last year.

Speaker 3: Gaap results for the second quarter of 2022 included $41 million of amortization of intangibles, $13 million of share-based compensation expense and $2 million of expense related to the acquisition and integration of PK.

Our GAAP tax rate was 23%. The second quarter and our non-GAAP tax rate was 24% and.

Speaker 3: Our tax rates in the second quarter were below expectations, primarily due to the geographic mix of our income.

Turning to cash flow, second quarter cash flow from operations totaled $165 million and capital expenditures were $26 million.

This resulted in free cash flow of $142 million in the quarter.

We expect capital expendures for the full year to be a bit below our initial expectation of approximately 3% of revenue and we expect free cash flow for the full year to approximately 85% of non-GAAP net income.

Moving to the balance sheet, at the end of the second quarter, cash and cash equivalents were $163 million and net debt outstanding was two point three billion.

Net debt was two point one billion at the end of the second quarter.

During the quarter, we paid a quarterly dividend of 25 cents per share, and our Board has declared another quarterly dividend of 25 cents per share to be paid during the third quarter.

Speaker 3: We also repurchased 367 thousand shares of our stock for approximately $58 million.

As of at the end of the second quarter, we had but $417 million remaining on our authorization.

In addition to our dividend and debt reduction plan. We believe that our shares are undervalueed and that continued modest share repurchase at this valuation is warranted and will be modestly accretive to EPS.

At the end of the second quarter, gross leverage was approximately two point three X adjusted EBITDA and net leverage was approximately two point X on a trailing four quarter's pro forma basis.

We continue to believe that we can reduce our net leverage to under two X pro forma adjusted EBITDA by the end of the year, buying to any additional EA beyond service source.

Our liquidity remains strong at approximately one point three billion, including one billion of undrawn lines of credit, cash on hand and the additional capacity.

On our AR securitization, which provides significant financial flexibility for the future.

Now I'll discuss our business outlook for the third quarter and full year 2020 -two.

For the third quarter, we expect revenue to be in a range of one point five seven five billion to one point six five billion.

This includes a three -point negative impact of foreign exchange rates compared with 2021 and roughly a one point headwind on a sequential quarter basis.

This equates to 7% to 9% revenue growth on an adjusted constant currency basis pro forma for the impact of businesses acquired in divestes since the start of the prior year. Third quarter.

Our profitability expectations for the third quarter include non-GAAP operating income in the range of 22 million to $235 million.

At the midpoint. This equates to a 130 basis point increase in non-GAAP I margin year-over-year.

Speaker 3: We expect interest expense in the third quarter to be approxately 19 ill to $2 million, with an effective tax rate of approximately 24% to 24% and a weighted average share count ofapproximately 52 million shares.

Turning now to our outlook for the entire year.

Based upon our strong performance year-to-date, while also adjusting for an additional negative foreign exchange impact on reported revenueof about 1%, we now expect 2022 revenue to be in a tiitan range of six point three six five billion to six point four. 1- five billion dollars.

Included in our expectations is a three -point negative impact of foreign exchange rates compared to 2021.

This equates to 9% to 10% revenue growth on an adjusted constant currency basis pro forma for the businesses we have acquired and divested, as if those transactions had occurred at the start of fiscal year 2021.

Our full year profitability expectations include non-GAAP operating income in a range of 890 to $915 million.

At the midpoint. This equates to a 100 basis point increase in non-GAAP OI margin year-over-year.

Speaker 3: We expect full year interest expense to be approimately sixto ty-five illcent $66 million, with an effective tax rate of proximatelytwenty 4% to 25% and a weighted average share count of approximately 6, 62 million shares.

Speaker 3: Our business outlook does not include the anticipated acquisition of service source or any other future acquisition-lead impacts or transaction and integration costs.

As a reminder: once the service source transaction closes, we expect contributions of $23 million in revenue and $38 million in EBITDA.

With synergies in the first 12 months.

Also not included the guidance or impacts from future urn foreign currency fluctuations.

In closing we had another strong quarter of performance.

Our vision for the future of our business, presented during our Investor Day back in January , remains unchanged. We're executing against our growth strategy to achieve the long-term targets we laid out earlier in the year, including near double-digit, faster than market growth through 2025, with meaningful margin expansion, strong free cash flow generation and the ability to use our strong balance sheet to be a leading consolidator in space.

With that Michelle, please open the line for questions.

Fiscal 22 revenue guide by 1% on a constant currency basis, So it looks like it's more than F? X that's impacting your top line. I think you said some customers are moving to lower cost geographies. Just wanted to clarify: are this still year customers and what is the impact of that on revenue? And besides that, are you seeing any weakness anywhere in demand and also on revenues? If I look at your fiscal three Q and the full year guide, that implies a 7% sequential revenue growth between three Q and four Q, to get to the midpoint of your revenue guide. So just.

Speaker 4: Wanted to get your confidence on that because if I look last year it was about 5% sequential growth and if we go back to precovided in 2019, I think Concentrix did 4% sequential growth. So just the confidence that you can have 6% to-seven percent sequential growth in the fourth quarter.

Yes ruple I lot to unpack there let me try and tackleall all the questions in part the first one in regards to the 1% guide change for the fiscal year. You are correct is primarily driven by some clients who we had expected and work with the clients to kind of moved them back offshore. Because a lot of them had come on shore during COVID-19 or we had won thems and had originally put them on shore to offshore over the course of sort of the next 12 months and based on them wanting to kind of get some cost savings. Sooner faster. We moved that on we moved on that in the second quarter and moved that that's about a $5 million impact for the rest of the year give or take. But for now.

Our pipeline and I think that's reflective of our guidance and confidence that from Q3 to Q4 we can see the increase at that 7% range to get to our midpoint of our guide.

Yes rpple, I would also just remind that that 5% last year- and this is kind of a detailed thing, ahad a ahad, a about one point- impact from a combination of businesses that we divested midway through the third quarter and fxso on an adjusted basis for that was closer to 6% And so I think, with contributions from catalyst, as well as the strong signings we saw in Q2, strong pipeline, that's what gives us the confidence in the guide.

Okay thanks for the details there. Maybe Andre, I'm going to ask you a similar question on operating margins. Looks like the guide for fiscal 22 up margin is 14% at the midpoint and the guide for three Q is Fourteen point 3%. So this means that mathematically the fiscal four Q up margin has to be around fifteen point 4%, which is a significant sequential increase. So the same question: what's giving you confidence that you can see that kind of margin, sequential margin improvement from three Q to four Q?

Yes So you're right. We see at the midpoint roughly 100 basis point improvement in non-GAAP I margin from Q3 to Q4. That's not.

Such a pronounced difference from the 90 basis point improvement we saw last year, So not so dissimilar. This is where some of the impact of the shore mix.

That Chris is alluded to regarding revenues actually is a positive for us. So obviously moving to offshore and near short geographies where margins are higher allows us to drive that higher margin also. Just again, we think we'll see continued contributions from PK and improvements in that margin and some benefits from the current FX environment as well. So all of those things have a fairly confident that we can drive that level of margin increase. It's not so different than what we saw last year. It is a little bit more and we think we've got a juice in the business to deliver it.

Speaker 4: Okay thanks for the details there. I've got a couple more questions, if I can sneak them, and Chris cyl recently announced its intention to acquire major L. how does this impact the competitive landscape for you in Europe and in voice-based customer services?

So it doesn't really impact us. We don't really run into them too much in our European footprint. We've been happy with sort of the differentiated offering that we've been delivering and so whenever there is some consolidation like that, clearly we see that as what we've been talking about- just more consolidation industry and will believe, provide us more opportunities to grow.

Okay maybe for the last one Chris, can I ask you on pricing trends and atuttrition rates in pricing you had talked about the move to more outcomes-based pricing. Is that taking hold? Are you able to pass on labor cost increases to customers? And maybe on attrition, have you seen an uptick in atuttrition rates? How are that those trrening?

So So a couple of things. If back in our prepared remarks, I talk about the fact that for the most part, pricing increasing is going through and clients are accepting that pricing increase, primarily because they look at the value we deliver for them as a business, and where they're not able to afford to, we then look at offering them alternative to go offshore, which obviously some clients took in the last quarter and we were able to move them relatively quickly to offshore. So we think we're well covered and executing well from that perspective. From an atutrition perspective, I think we continue to be best in class and we haven't necessarily seen any material uptick or downtick and we're still performing generally preCOVID, better than preCOVID levels.

Speaker 2: So I'm pretty comfortable with where we're seeing our supply of labor and that's a global comment from an catalyst perspective. I did color the fact that we are focused on hiring. We have a lot more work and that is muting our growth on our catalyst segment and we believe that we will be able to be a better position as we open up more development centers globally to support the pipeline of work that we have in the catalyst business.

Okay Thank you for all the details. Appreciate it, Thank you.

Again if you'd like to ask a question Please. Price are and one.

Our next question comes from this: in colalicio with Barrington research, your line is open.

Yes Chris, your your commentary on the catalyst pipeline sounds fairly healthy. Curious that was in line with experbut with your plan. Also curious if you're on track to grow catalyst. The 20% has previously communicated for the hiring challenge you just cited. It are comparing that.

Yes So our catalst execution is a little ahead of plan. As we mentioned, we close some deals- alv very very, very small in Q1, which we didn't expect to close honestly, anything- and our pipeline is much healthier on the combined opportunities than we expected. This point we expect actually to be a couple of quarters out with that type of level of pipeline in this business. You got to remember when we bought aly it was slightly over four million. So if you think about building a ipeline of 25% of revenue within sort of a very short time, I think that speaks to sort of the value proposition we're delivering for the clients and where they see dealing with us as being very, very valuable from a growth perspective. That is our goal. I will say that the hiring is mut.

And.

High-volume nature and so that has impacted volume with the number of our clients. But it's consistent with what we saw within sort of the Q1 period of time. It hasn't necessarily opened up any better.

And.

abig pict, big picture question. Chris, last quarter you talked about expansion in terms of what clients are willing to outsource post.

You knowpandemic, if I could use that word. Hopefully it's not too optimistic, you know, does that mentality continue in the market?

I think it does, and I'll tell you in that one hundredmillion, approximately hundred mionof opportunities within the combined catalyst operations pipeline, the vast majority of those are opportunities that histor would not have been outsourced, they would have been done in-house, and so we're now able to talk about things that historically wouldwe haven't been able to. We've got a very, very deep technical bench strength within catalyst that we can build very beesto applications and then with our operations and domain expertise, kind of operational, operationalize it and and run it. And this is sort of new market that we're eating into to, which is pretty exciting to us.

And generally hearing in your industry and across other industries that private market multiples are still fairly rich relative to the dowdrh we've seen in.

The public markets. Is that you're seeing?

Historically, private multiples do take a number of months to kind of fall in line with their public peers. We are starting to see those private multiples starting to come down, not a meaningful way, but they are starting to come down. But I will tell you less. Things are are transacting on the private market, So it would be indicative of that. People are waiting for multiples to come in line. What would be accretive to sort of public company multiplesok.

Thanks for answer my questions, perx. Thank you.

There are no further questions. I'd like to turn the call back over to Chris calwill for closing remarks.

Speaker 2: Great Thank you very much everybody for joining us today. We always very much appreciate your interest in Concentrix. We're extremely pleased with our strong execution in the quarter and are confident in our ability to continue to lead in the dynamic digitaltix marketplacei'd also encourage you to all download our ESD report and look forward to talking to you next quarter. Thank you very much everybody.

This concludes the program. You may now disconnect everyone. Have a great day.

Best Relations you may begin.

Thank you Michelle, and good morning. Welcome to the Concentrix second quarter fiscal 2022 earnings call. This call is the property of Concentrix and may not be recorded or rebroadcast without the permission of Concentrix.

We do not undertake to update our forward-looking statements as a result of new information or future events or developments.

Speaker 1: 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 in our annual report on Form 10-K . 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 adjusted constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the Concentrix Investor Relations website under financials.

With me on the call today: our Chris Caldwell, our President and Chief Executive Officer, and Andre Valentine, our Chief Financial Officer.

Now I'll turn the call over to Chris.

Thank you, David. Good morning everyone and welcome to our second quarter earnings call for fiscal 2000 and twenty-twoas you can see from our results we announced, our second quarter has strong revenue growth and even stronger margin expansion this last quarter. We have fielded many questions from investors around how our business model fares during uncertain times and we believe our results show the services we offer to our clients are in demand. Our growth strategy is succeeding despite the ever-changing macroeconomic environment, which gives us the confidence that we can rapidly adjust to changes that are and that our underlying business is strong and growing.

We are not seeing signs of a slowdown in our pipeline or new business signings, although the placement of work to lower cost locations and more drive to digital solutions continues to increase, which we see as a positive to the business.

Our second quarter. non-GAAP operating income improved to 213 million, growing 24% adjusted. Ebitda increased 20% to 25 million compared with last year.

non-GAAP earnings per share increased 24% to $2 and 93 cents per share, compared with $2 and 37 cents per share last year.

Once again we saw growth across all our verticals. The market continues to have stable pricing, with price increases being accepted by clients for the most part to offset any labor increases.

Some clients did decide to move volume offshore to better manage their cost structure, while the vast majority of our client base is happy delivering from the current geography.

As part of driving better business outcomes for our clients. We won digital transformation and CX solution businesses across over two dozen new logos, many now engaged across both our operations and catalyst offerings.

Demand remains strong and our solid pipeline gives us the confidence to expect a strong signings for the rest of the year.

Speaker 2: As we've spoken with investors over the last couple of months, we've also seen a lot of interest in understanding more about our new economy clients.

Speaker 2: There have been quested about size and strength of these clients to weather changes in the economy. We believe our new economy client base is strong, vibrant and will generally succeed in down cycles. They continue to make substantial contributions this quarter to grow increasing 42% year-over-year to 363 million in the quarter.

Speaker 2: As a reminder, we have over 125 new economy clients spread across our set of verticals and end markets that we service.

As we stated the time of our Analyst Day back in January , the majority of these are not small companies and have large potentialin the second quarter, we grew revenue on a year-over-year basis with over 80% of these clients, which represents 90% of our new economy client revenue. These clients look to us to be able to help them as they scale globally, as their businesses become more complex and as they deal with many of the challenges that we help our enterprise clients navigate.

Turning to Concentrix catyst, we're making strong progress and seeing good sales motion to cross-sell our full range of CX capabilitiesour teams have met with a select set of our clients to explain the opportunities to more fully address keycx needs and have gained significant interest to explore these additional solutionsat the end of Q2 we had a pipeline of close to $1 million of opportunities with combined capabilities beyond what we would have been able to participate in previouslythese opportunities are in addition to our growing traditional Concentrix catalyst pipeline.

For example, a software company needed to help, needed help in many areas of their crx organization, So they partnered with us to leverage a variety of our capabilitieswe are helping them build out a scalable support function, transition to a new CRM system, designing and building user bots, growing their revenue and understanding their customer journey, all while lowering their total delivery costs.

The demand for our operations and catalyst business continue to confirm. Our clients want to deal with fewer partners who have deeper domain expertise and broader service capabilities on a global scale. Increasingly, as a single-source integrator operator, we selectively pursue strategic clients to Liver end-to-end-cx solutions.

This quarter. We are also pleased to announce the acquisition of service ource in May. Service ource add deep domain expertise in sales generation and expands our business-to-business sales capabilities.

We are an active pipeline with significant demand from our clients for this capability. We also gain an attractive client portfolio of technology and new economy brands whom we can help scale and cross-sell other CX services. We expect the transaction to close in the second half of fiscal year and be accretive to both growboth and profitability after synergies in the first 12 months.

In terms of capital deployment, in the second quarter we paid $13 million in dividends and repurchased 58 million of our stock at an average price of about $158 per share.

We also continue to focus on completing complementary and financially compelling acquisitions, as that we have mentioned with our service, ource acquisition.

From an operating perspective, we continue to achieve strong customer satisfaction, innovation and client value attainment scores.

In our second quarter, demand for our C solutions was particularly strong in travel technology banking, financial services and insurance, automotive and health care. Reflecting the current macro environment, some of our clients are experiencing volume volatility, particularly in e-commerce and crypto industries, while supply chain is primarily impacting clients that manufacture out of China.

We are also happy to have released are updated environmental, social and governance report with our earnings this quarter. The report provides more details on our efforts in corporate social responsibility, the investments we are making and our progress in having a measurable and meaningful impact to our staff and our communities. I CAn't thank the Concentrix team enough for the commitment to making the world a better place. With our few of our 2025 goals close to completion, well ahead of schedule, we have now started to update other goals.

Speaker 2: I encourage you to visit the Investor relation section of our website and download a coffeeturning to the balance of the year. Despite foreign currency impact and a shift of some programs to lower cost delivery, our broad-based strength across the business, strong win with clients and a robust pipeline across our strategic verticals keeps us confident that we will continue to grow faster than the market while expanding our margins.

In summary, we're focused on transforming everything CX for our clients and their customers. We are deepening our client relationships and relentlessly innovating with new solutions and expanding into emerging markets, while we selectively pursue strategic acquisitions to drive superior returns for our shareholdersfinally, I would like to thank our exceptional staff for their commitment execution, our clients for their trust and our talented Board of Directors for their support and membership. And with that, mentorship and with that, I will turn it over to Andre.

Well Thank you Chris, and hello everyone. I'll begin with a look at our financial results for the second quarter and then discuss our business outlook for the third quarter and full year 2020 -two.

We delivered strong revenue growth, margin improvement and cash generation in the second quarter.

Revenue in the second quarter was $1.5699999999999998 billion, up 14% on as reported basis.

The improvement in reported revenue includes a nearly three point negative impact from foreign currency fluctuations.

This FX impact is almost a full point more than we expected entering the quarter, reflecting the weakening of the euro, the British pound, Japanese yen and Australia Australian dollar during the quarter.

As a reminder, approximately one-third of our revenue with the Nate in currencies other than the U's dollar and, as these currencies have weakened against the U's dollar since early in our second quarter, it is had a meaningful impact on our reported revenue and revenue outlook for the rest of the year.

Revenue increased 10% compared to last year on an adjusted constant currency basis pro forma for the impact of businesses acquired and divested since the start of the prior year. Second quarterrevenue increased across all of our verticals in the second quarter on a percentage growth basis. Revenue from health care clients led the way, growing by approximately 28%.

Revenue grew 27% in the retail, travel and e-commerce vertical.

Our technology and consumer, electronics and banking, financial services and insurance verticals. Both grew by 12% and.

Revenue from communications and media clients: few 7% in the quarter, with almost all of that growth driven by the inclusion of revenue from our acquisition of PK in December of 2021.

Clients in the other vertical industries grew 6% in the second quarter.

Each of our four strategic verticals grew by double digits organically, on a constant currency basis in the quarter.

Our new acconly clients generated strong growth of 42% year-over-year and represented 23% of second quarter revenue.

As Chris mentioned, we were able to deliver the strong growth despite headwinds in foreign exchange and shifts in service delivery to lower cost. geographiesturning to profitability. non-GAAP operating income was $213 million in the second quarter, compared with $172 million of last year. Our non-GAAP operating margin was 14% of 100 basis points, from 13% in the second quarter of last year.

Adjusted EBITDA with $25 million, compared with $208 million in the second quarter of last year.

Our adjusted EBITDA margin was 16%, up 70 basis points from 15% in the second quarter of last year.

Speaker 3: Profitably in the second quarter reflects flow through from revenue growth was existing in new clients, contributions from PK, productivity improvements and increased pricing, partially offset by investment in new program ramps and wage inflation.

non-GAAP net income, the second quarter was $155 million, compared with $125 million last year. Earnings per share were $2 in 93 cents on a non-GAAP basis, compared with $2 inand 37 cents last year.

Speaker 3: Gaap results for the second quarter of 2022 inclued $41 million of amortization of intangibles, $13 million of share-based compensation expense and $2 million of expense related to the acquisition and integration of P K.

Our GAAP tax rate was 23% the second quarter and our non-GAAP tax rate was 24%. Our tax rate in the second quarter were below expectations, primarily due to the geographic mix of our income.

Turning the cash flow. Second quarter cash flow from operations totaled $165 million and capital expenditures were $26 million.

This resulted in free cash flow of $142 million in the quarter.

weving near the balance sheet at the end of the second quarter. Cash and cash equivalents were $163 million and net debt outstanding was two point three billion.

Net debt was two point one billion at the end of the second quarter.

During the quarter, we paid a quarterly dividend of 25 cents per share and our Board declared another quarterly dividend of 25 cents per share to be paid during the third quarter.

We also repurchased 367 thousand shares of our stock for approximately $58 million.

As of at the end of the second quarter, we had $417 million remaining on our authorization.

In addition to our dividend and debt reduction plan. We believe that our shares are undervalue and the continued modest share repurchase at this valuation is warranted and will be modestly accretive to EPS.