Q1 2023 Concentrix Corp Earnings Call
Speaker 1: You.
Speaker 1: ?
Speaker 1: Is.
Speaker 2: Good day, and thank you for standing by. Welcome to the Web Help Transaction and Consentrics First Quarter Financial Results Conference Call.
Speaker 2: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker 2: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference call is being recorded. I would like to turn the conference over.
Speaker 2: To your speaker for today David Stein, please. Go ahead
Speaker 3: Thank you, Lisa, and good evening. Welcome to the concentric conference call to discuss our announcement today that we have agreed to combine with Web help and to discuss our first quarter fiscal 2023 earnings.
Speaker 3: Please note that the transactions, news release, and associated presentation, as well as our earnings release, are available on the Concentrics Investor Relations website under events and presentations.
Speaker 3: Today's discussion contains statements about the expected timing, completion, and effects of the proposed transaction and statements addressing future financial results.
Speaker 3: All such statements and other statements on this call, other than historical facts, constitute forward-looking statements as defined under U.S. federal securities laws.
Speaker 3: Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements because of new information or future events or developments.
Speaker 3: Please refer to today's materials and our most recent filings with the FCC for additional information regarding uncertainties that could affect our future financial results.
Speaker 3: This includes the risk factors provided on our annual report on Form 10-K .
Speaker 3: Also during the call we will discuss non-GAAP financial measures including adjusted EBITDA, non-GAAP operating income, free cash flow, and adjusted EPS, as well as constant currency revenue growth.
Speaker 3: Please see the information contained in today's announcement for more information on these non-GAAP measures. This call is the property of concentrics and may not be recorded or rebroadcast without the permission of concentrics.
Speaker 3: Joining me today on the call are Chris Caldwell, our President and Chief Executive Officer, and Andre Valentine, our Chief Financial Officer. They'll provide an overview of today's Web help announcement along with concentric first quarter results, followed by a question and answer session.
Speaker 4: Now, I'll turn the call over to Chris. Thank you very much, David, and thank you all for joining our call today. Today is a transformative day for concentrics and the customer experience industry. We're taking a major step by combining concentrics and web help to create the diversified global CX leader that we believe provides a tremendous platform for growth, growth, and success.
Speaker 4: value creation for our shareholders, clients, and staff. We are very excited about this combination that we believe will create the leading provider of customer experience solutions globally with broad capabilities across CX digital services and technology delivered at scale. I think it's important to step back and talk through the background of our thinking of these two great companies.
Speaker 4: by helping them grow across our footprint and capabilities. An opportunity to transact with a company that has a strategic client base with little overlap and the ability for them to consume services we offer would be enticing.
Speaker 4: Diversifying our revenue by geography, vertical, and services would be an additional benefit.
Speaker 4: Top of mind in any combination is also the financial returns and maintaining a strong balance sheet.
Speaker 4: While we are comfortable flexing up to a larger amount of debt for the right opportunity, it is important for us to get back close to two times within a short period of time. We have a strong track record of success doing this with prior acquisitions.
Speaker 4: As always, we are focused on the culture of any company we transact with.
Speaker 4: Culture is critical to achieve a rapid integration and gain momentum in leveraging the new company's capabilities for growth. When you look at Webhelp's history, it has many familiar themes to concentric in how to grow.... focus has been to grow Europe ...
Speaker 4: Latin America and Africa becoming a leader in all three markets.
Speaker 4: When we look at our criteria for a partner to move forward with in the next period of our growth, there was not one company that we could find that had as many complementary attributes as Web Health that align to our long-term vision.
Speaker 4: Web help complements our culture, revenue diversification, client base, vertical focus, digital expertise, capabilities and footprint.
Speaker 4: Now is the right time to bring these two organizations together to help both client bases access new markets and broader sets of digital capabilities, while also seeking to lower the number of partners they deal with to manage their costs more effectively.
Speaker 4: For concentrics, we believe this combination will allow us to accelerate our growth to the leadership position in the industry. Now, a little more detail on the value of this combination.
Speaker 4: Web Help will meaningfully enhance our position in the European and Latin American markets, while adding capabilities to meet our clients' demand for services delivered from Africa.
Speaker 4: Concentrix has been investing in all three markets but has not been able to achieve the scale that we believe is needed. The combination of these two companies allows us to take even more access to the $550 billion expanded marketplace we compete in.
Speaker 4: Webhelp has done very well in these geographic markets and has a consistent track record of profitable growth.
Speaker 4: In 2023, they are expected to deliver $3 billion in revenue and $500 million of adjusted EBITDA.
Speaker 4: They have seen strong above market organic revenue growth over each year for the past five years.
Speaker 4: This growth has been driven by servicing their more than 1,000 clients. Like Concentrix, they service a marquee list of both enterprise and new economy companies. In the case of Webhelp, these companies are primarily based outside of North America. We believe this provides large growth potential to expand these clients with a concentric footprint and a more efficient and efficient way of managing their growth.
Speaker 4: AML, KYC, payment processing services and banking, sales management offerings that complement our B2B business, and their Nest business, which helps emerging companies achieve scale as examples.
Speaker 4: This focus on deep client relationships and value offerings has allowed Web Help to achieve long tenure with their client base.
Speaker 4: I am also most impressed about, with web help, has been the similarities with concentrics around their focus on people. Each organization has been recognized with hundreds of awards for diversity, well-being, and engagement in the last few years demonstrating that our cultures are aligned.
Speaker 4: The pro forma combination company is expected to have $9.8 billion in revenue for fiscal year 2023, operate in 70 plus countries, of which over 25 are new to concentrics, and serve more than 320 new economy clients and 155 Fortune Global 500 clients.
Speaker 4: with approximately 2,000 total clients very nicely distributed globally. This exceptional and even more diverse client base will serve as a strong foundation for accelerated growth.
Speaker 4: The combined client base has little overlap and a strong mix of new economy and enterprise clients. Together, the top five clients are expected to count for only 20% of the combined company's revenue and the revenue split between our enterprise and new economy companies will stay roughly in similar proportion to what it looks like now at Concentrix.
Speaker 4: The combination will establish a well-balanced and differentiated geographic global presence with the Americas, EMEA and Asia each representing roughly one third of the combined business.
Speaker 4: Together, we will have one of the most robust global footprints in the industry across the Americas, Europe , Asia, and Africa all operating at scale. We will be able to continue to grow our Catalyst business by increasing our digital footprint in Europe and Latin America with capabilities we are picking up from Web Help and by selling Catalyst services to Web Help clients.
Speaker 4: Lastly, from a financial perspective which André will go into more, we expect the transaction to be accretive to revenue growth, profit margins, and adjusted earnings per share.
Speaker 4: Consistent with our best practices, while we will temporarily increase the leverage on our balance sheet, we will reduce it close to two times within two years after transaction while still investing in the business for growth.
Speaker 4: We are fortunate with this transaction to significantly accelerate the realization of our vision to build the world's greatest customer engagement services company, rich in diversity and talent.
Speaker 4: As President and CEO of the newly combined business, I look forward to welcoming two new board members to the team.
Speaker 4: Olivier Duhat, Web Help co-founder and CEO , will become vice chair of our board of directors and will also be a key force in helping to integrate the businesses, which will make the integration more seamless.
Speaker 4: Olivier brings a wealth of experience in the industry and strong entrepreneurial insights that will add value to concentrics.
Speaker 4: Nicolas Gasson, a GBL partner and director currently on the Supervisory Board of Web Help will also join our board.
Speaker 4: Nikola brings a strong financial business background, a shareholder's point of view, and extensive board experience.
Speaker 4: I will now turn the call over to Andre to walk through the terms of the transaction and speak to our Q1 earnings results and guidance for the remainder of the year. Following Andre, I'll provide my quarterly update and then we'll take your questions. Over to you Andre. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Speaker 4: over to Andre to walk through the terms of the transaction and speak to our Q1 earnings results and guidance for the remainder of the year. Following Andre, I'll provide my quarterly update and then we'll take your questions. Over to you Andre. Thank you Chris.
Speaker 3: This transaction is valued at $4.8 billion. This includes cash and stock as follows. Approximately 14.9 million shares of concentric stock at closing.
Speaker 3: 500 million euro in cash at closing, 700 million euro in deferred consideration in the form of a note payable to Web Help shareholders in two years, which will bear interest at 2%.
Speaker 3: The $4.8 billion in consideration excludes 750,000 additional concentric shares that will vest if the concentric share price appreciates to over $170 per share with a specified period.
Speaker 3: We also expect to refinance approximately 1.55 billion euros of Web Health Net debt at close.
Speaker 5: From a valuation standpoint, we are paying about 9.5 times WebHELP's anticipated 2023 suggested EBITDA.
Speaker 5: Reflecting the 120 million in run rate synergies we expect to realize...
Speaker 5: The transaction value represents a multiple of 7.6 times. At closing, concentric shareholders will own approximately 78% pro forma of the company, with WebHELP shareholders owning approximately 22%. Consistent with the combined company's expected investment grade profile, we plan to finance the transaction with the issuance date, 2019-20, and each year's Don gro eighteen units. bloody-re inconsistent- communications E Phillips Shawn Pirates seconds plus
Speaker 5: liquidity of approximately $1.4 billion at close with our undrawn $1 billion revolver, unused capacity on our accounts receivable, securitization, and cash on hand. From a revenue perspective, the combined company is expected to have $9.8 billion in 2023 revenue on a pro forma basis. We expect the combined company to grow faster than the market.
Speaker 5: with that growth enhanced by increased footprint in and exposure to Europe , Latin America, and Africa.
Speaker 5: From a profit perspective, the pro forma combined company is expected to have $1.6 billion of adjusted 2023 EBITDA before synergies.
Speaker 5: Excluding one-time charges, intangible amortization, and integration costs, we expect earnings per share accretion of over 7% in the first full year after close and double-digit accretion in the second full year after close.
Speaker 5: In terms of synergies, as Chris mentioned, there are clear and identifiable cost reduction opportunities in IT, procurement, real estate, and corporate functions.
Speaker 5: For IT, we expect savings from harmonization of information systems, value-based savings, and contract optimization.
Speaker 5: For procurement, we expect opportunities to drive efficiencies through increased volumes and standardization of contracts.
Speaker 5: For real estate, we expect there to be some rationalization of real estate footprint where both companies are located in close proximity.
Speaker 5: For real estate, we expect there to be some rationalization of real estate footprint where the both companies are located in close proximity. For corporate, we expect to remove duplicate costs.
Speaker 5: While not included in our model, identifiable revenue synergy upsides exist related to opportunities that the companies couldn't pursue separately prior to the transaction.
Speaker 5: We expect to realize cost energy is totaling $75 million in the first year post close.
Speaker 5: $100 million in the second year and $120 million by the third year. We expect to incur $120 million in projected costs to receive these synergies, with $80 million incurred in the first year and $40 million in the second year post closing.
Speaker 5: We expect the combined business to continue our robust free cash flow generation given the capital management business model and modest capital expenditure needs and efficient working capital management.
Speaker 5: At closing, we estimate that our net debt to adjusted EBITDA ratio will be three times on a pro forma basis.
Speaker 5: We intend to maintain a commitment to investment grade principles, and our focus will be on paying down debt and reducing our net leverage to close to two times within two years.
Speaker 5: We expect our financial profile to remain strong. We will prioritize rapid deleveraging while continuing our dividend and disciplined share repurchases to offset the dilution of equity grants.
Speaker 5: Our focus will be on organic growth, the successful integration of web help, realizing planned synergies, and repaying debt.
Speaker 5: As for regulatory approval and other customary closing conditions, we expect to complete those in due course and to close the transaction by the end of the year. The transaction will require the approval of our shareholders.
Speaker 5: Certain shareholders of the company that hold approximately 15% of the company's outstanding shares, including Mitac International Corporation, have agreed to vote their shares in favor of the transaction.
Speaker 5: Now, I'll transition to a review of our financial results for the first quarter and then discuss our business outlook for fiscal year 2023.
We performed well in the first quarter, achieving the top end of our expectations with increases in revenue.
profit, and cash flow. Relevant in the first quarter was $1.64 billion, as reported, up 6.5%.
The improvement in the reported revenue includes a 2.6% negative impact from foreign currency fluctuations.
5.3% impact from acquisitions.
Organic constant currency growth came in towards the higher end of our expectations at 3.8%.
In terms of client verticals, we saw continued strong volumes in healthcare, travel, and banking, financial services, and insurance. We experienced softer volumes from consumer electronics, retail, and e-commerce and communications affiliates.
New economy clients generated growth of 7% year over year in the quarter and represented 23% of first quarter revenue.
Turning to profitability, non-GAAP operating income was $218 million in the first quarter, compared with $202 million last year. Our non-GAAP operating margin was 13.3% of 20 basis points from 13.1% last year.
Adjusted EBITDA was $256 million compared with $238 million in the first quarter last year.
Our adjusted EBITDA margin was 15.6%, up 10 basis points from 15.5% last year.
non-GAAP net income in the first quarter was $134 million, compared with $151 million last year.
This comparison includes the expected increase in interest expense and an $11 million swing in other expense due to foreign currency transactions.
9-GAAP EPS was $2.56 per share in the first quarter compared with $2.85 per share last year.
GAAP results for the quarter included $39 million of amortization of intangibles, $17 million of share-based compensation expense, and $6 million of expense related to acquisition integration.
Both are gap and non-gap tax rates for 26% in the first quarter.
Our first quarter cash generation from operations totaled $104 million. Capital expenditures were $40 million and free cash flow was $64 million in the quarter.
Turning to the balance sheet at the end of the first quarter, cash and cash equivalents were $178 million.
Debt Outstanding was $2.22 billion, and Net Debt was $2.042 billion. At the end of the quarter, our net leverage was 1.9 times pro forma adjusted EBITDA. In the quarter, we paid our quarterly dividend of 27.5 cents per share.
We also have repurchased 71,000 shares of our stock for approximately $10 million.
Repurchases in the first quarter were made at an average price of approximately $140 per share. As of the end of the quarter, we had $344 million remaining in our share repurchase authorization.
At quarter-end, our liquidity remains strong at over $1.3 billion, including our $1 billion undrawn revolver, cash on hand, and additional capacity on our AR securitization.
Now, I'll turn to our business outlook for the second quarter and for the full year of fiscal 2023.
For the second quarter, while we have seen some softness in volumes versus client expectations, we expect organic constant currency revenue growth to be in a range of 3% to 5%.
Based on current exchange rates, we also expect a 1.5-point year-over-year headwind in the second quarter.
We expect the timing of our 2022 acquisitions to contribute approximately $49 million of incremental year-over-year revenue growth in the second quarter.
Based on these assumptions, we expect reported second quarter revenue to be in a range of 1.64 to 1.67 billion dollars.
Our profitability expectations for the second quarter include non-GAAP operating income in a range of $225 to $235 million. This equates to a non-GAAP operating margin of 13.9% at the midpoint of the range, an increase of 30 basis points over the second quarter last year.
We expect interest expense in the second quarter to be approximately $38 million with an effective tax rate of 26% and a weighted average diluted share count for approximately 52 million shares.
Moving to our outlook for the entire year, we continue to expect 2023 constant currency organic revenue growth to be in a range of 4 to 6%.
Based on current exchange rates, we expect a half point negative impact on reported revenues for the full year.
We expect the timing of our 2022 acquisitions to contribute approximately $160 million of incremental year-over-year revenue growth for the full year. This equates to reported full-year revenue in a range of $6.705 billion to $6.83 billion. These expectations include a continuation of the general economic softness, the economic growth and the economic growth of the economy, and the economic growth of the economy.
We've seen in recent quarters throughout the year, including muted seasonal volumes in the fourth quarter of 2023 consistent with 2022.
line, discussions with clients to consolidate more volumes from smaller providers, and passing the anniversaries of the offshore movement and downturn in volumes last year from our cryptocurrency clients, which occurred in the second quarter of 2022.
Our full year profitability expectations continue to include non-GAAP operating income in a range of $950 to $990 million. This equates to a non-GAAP operating margin of 14.3% at the midpoint of the range.
We expect full year interest expense to be approximately $140 million, an effective tax rate of approximately 26%, and a weighted average diluted share count of approximately 52 million shares.
We continue to expect strong free cash flow, with free cash flow growing more than 10% to over $500 million in 2023.
Our business outlook does not include acquisition-related impacts or transaction and integration costs associated with our acquisition of web help or any future acquisitions.
Also not including the guidance or impacts from future foreign currency fluctuations or future share repurchases. Now I'll turn the call back over to you Chris. Thank you very much Andre. I'm very proud of our team and the solid first quarter results that we delivered. During the quarter most of our client portfolio performed well with gains in several.
with more than two dozen new logos in the quarter split across verticals and geographies.
In this economic climate, prospective clients continue to be focused on reducing their cost structure rather than supporting growth, but they remain in the market for solutions. We're seeing modest pricing pressure from existing clients that need help with lower value transactions and some competitors being more aggressive in that space.
On the other hand, we are seeing positive sentiment with clients across several more resilient industries with higher value work where our services really shine because of the differentiation. These engagements, which have significant return on investments for the clients, generally tend to have a slightly longer sales cycle, but bring together the power of both our CX operations and catalyst business.
We are finding that our sell is one approach resonates well in the market and differentiates with us from competitors. One month into the second quarter our new business signings are increasing in magnitude and potential upside, but we do expect some choppiness around how and when they ramp.
Within our catalyst business, our largest program continues to progress as the client addresses changes in its ecosystem before the full project ramp.
From an operational perspective, performance was strong in the first quarter. Again, we delivered the highest customer satisfaction and innovation scores since we started our surveys over a decade ago. Currently, our work-at-home staffing is at 40%. Our Best in the Business Global Operating staff is performing well to meet the growing demand for offshore and nearshore services.
For the remainder of 2023, we expect our growth to increase in the second half as large deals we have signed begin to ramp, our new winds and underlying base business expand, and we begin to consolidate volumes from smaller suppliers.
This view factors in consistent Q4 volume compared to last year without any large seasonal volume. As I wrap up and touch again on the Web Help combination announcement, recall that we serve a large, growing and fragmented market where few competitors can offer a complete solution. Part of our history of transformation and growth was driven by our record of successful M&A.
We and Webhelp both have long histories of growth across cycles and margin expansion with scale. Over our respective histories we have built up a wealth of knowledge and experience on how to achieve successful outcomes delivering revenue growth and creating value for our shareholders. We are developing a robust integration plan and we will share more with you as we get closer to the transaction.
to concentrics is a clear statement that all parties are very focused on a successful transaction, believe in the long-term prospects of concentrics, and continue to value upside for our shareholders. In ending, I want to thank the talented concentrics team who each and every day focus on making us a better business and serving our clients with passion.
We always focus on strong partnerships with our clients and the communities we operate in. And now, we look forward to the start of a successful partnership with our new shareholders and team members after the closing of the Web Health transaction. With that, operator, please open the call for questions. Thank you. As a reminder, if you would like to ask a question.
please press star 1 1 on your telephone. One moment while we compile the Q&A roster.
What is the vertical mix look like with the combined companies? Are you more or less levered to some of the areas where you're seeing weakness right now? Actually, Vince, thank you for the question. It's actually very, very complimentary. When we look at the verticals on a combined basis, it's pretty similar to where we're seeing positive momentum such as BFSI. We see the growth areas in social media and some of the other things that we're seeing in the global markets.
and if so how confident are you that they're well integrated into the whole? Yeah absolutely so web help started off with two co-founders Olivier Duhat and Frederick Jose who really incredible entrepreneurs and have driven the business by not only strong organic growth but certainly from acquisitions. They have a number of acquisitions over their 20-year history.
diligence process, we saw that very, you know, connected tissue of how the M&A activity has happened and how it has bonded and forged a much stronger base of business. So we're very, very confident around how they've done their past acquisitions. It's been very accretive for them, but it also shouldn't over...
over, you know, a lot of the fact that they've had extremely strong organic growth, much stronger than in the base for many, many, many years. And on their new economy companies that they're adding to the portfolio, are any of them any meaningful portion venture backed type companies or are they
majority of those new economy companies are net new additions to us because they're primarily coming out of Europe and Latin America and that's really exciting for us because it provides more diversity in our new economy client base.
And one more for me if I may. Will this transaction help you in your consolidation discussions, given that you'll have a bigger footprint post-transaction? Yeah, absolutely, Vince. I mean, that is a big driving force of it.
And frankly, when we look at the entire competitive landscape, Web Help fits the bill perfectly. It's got an incredibly strong team, they've got incredibly strong capabilities, they've got very high NPS with their client set, strong discipline around what they deliver.
And when you look at that, where they have that footprint, and if you look at our investor decks, it's a really perfect match with very, very little overlap with our capabilities. So when we talk to a client about consolidation, where historically they have, someone said, hey, you can't really service all of Europe , you don't have an African presence.
you've got some holes in your Latin American strategy, this fits all of those conversations. And so we couldn't be happier with how these two companies complement each other.
you've got some holes in your Latin American strategy. This fits all of those conversations. And so we couldn't be happier with how these two companies complement each other. Okay, I'll go back to the queue. Thank you.
Thank you. Thank you. One moment while we prepare for the next question. Our next question will be coming from Ru Plu, of Bank of America. Your line is open.
Hi, thanks for taking my questions. Chris, I wanted to build a little bit more on the revenue synergies that you expect to see. You said that there are identifiable opportunities that both companies could not pursue separately. Can you talk a little bit about some of the capabilities that Web Help is bringing that you didn't have? Is it just on a geographic basis that they're adding locations in Europe ?
and Latin America or are there capabilities or you know verticals that you were not servicing that they're adding and likewise can you talk about any do you expect any revenue disenergies as part of this combination.
So thank you, Rupalu, for the question. So let's first talk about the revenue synergies. Part of the process of looking at this combination was seeing opportunities that we were either not selected for or opportunities we could not respond to because of our capabilities and footprint in region. And it's important to appreciate that those go hand in hand.
Footprint is one part of it, but it's really the capabilities and deep domain expertise that is probably more important than just the footprint. And the reality is that in Europe and Latin America, the capabilities that the web help team have are incredibly strong. And so not only do they bring sort of the vertical expertise that aligns to our verticals, which is really important.
but in some verticals, even deeper expertise. A good example is in financial services, or sorry, BFSI. Some of their services around anti-money laundering, fraud management, payment services, know your customer, KYC, very, very, very strong within Europe . We did not have those capabilities at scale by any measure in Europe . And similarly to some of their services that they do.
in Latin America from kind of collection services, in financial services, very, very, very, very strong. And so that really compliments what we're after is both the capabilities and then the footprint. In terms of how we modeled it, we effectively looked at their opportunities that they couldn't compete with because of the lock.
in all of it, but just at a reasonable run rate and win rate, we expect that it will benefit to us that is upside to our model. From a Disenergy perspective, the reality is, Ruplu, we have very little, similar to other acquisitions, when we did the diligence, like for like services in the same country with the same client. In fact, it's a very like de minimus, de minimus, de minimus number.
And so while there's clearly always possibilities of revenue disintegies, we were most, you know, reassured by the fact that when we did the study that it's just de minimis in the scheme of things.
there's clearly always possibilities of revenue disintegies. We were most reassured by the fact that when we did the study, that it's just de minimis in the scheme of things. Okay, thanks for that.
The catalyst business, Chris, I believe in fiscal 22 was about 450 million of revenues. I thought I saw in the presentation that you have the opportunity now to take some of that catalyst business into the footprint of web help into some of their customers. So off the 9.8 billion in revenues that you're targeting for fiscal 23 on a pro forma basis, how much would you say would be
services.
Yeah, Rupal, great question. So the mix of pure digital IT services within the web health business is slightly smaller than what it is with concentrics and so when we come together it will go from about nine ten percent of revenue to eight to nine percent of revenue, although obviously a much bigger base. That's one part of the story. The other part of the story is that web help has some very very strong engineering and technical talent both in Europe
in Eastern Europe and in Latin America. Both places that Concentrix has been focused at trying to build out development centers as we've talked about to drive a higher margin profile within our catalyst business. And so we get the benefit of that once the transaction closes right away. So you have to look at it about those two factors. We believe we can grow faster by doing this because we have...
$120 million of cost synergies by year three. Can you talk a little bit more on the integration effort that's required? Do you expect any integration charges? For example, you talked about rationalization of the real estate footprint. I mean, do you expect to close some?
call centers or reallocate some of the employees. So are there any charges that you're factoring in? And what would be the mix of onshore versus nearshore versus offshore for the combined company on a pro forma basis?
Yeah, so I'll let André talk about the split of the business across onshore, nearshore, and offshore. To answer your first question, Rupaulu, we generally model about for every dollar of cost energy, one dollar of charge. So if you think about $120 million, $120 million of charge over the three years, the charges tend to come in a little heavier at the beginning as you close things out.
versus on the back half when contracts expire, et cetera, et cetera, within the charges. We have historically done better than that, but that's historically what we've modeled. When you think about the real estate footprint and you think about some of the savings, it's pretty simple. The reality is that Web Help uses third party data centers in some cases.
We have some of our own data centers, we overlap some data centers, some areas. That's a very simple process to kind of consolidate while it takes a while to get that savings in the business. It's not a it's very easily identifiable. In terms of our delivery sites and delivery centers, there are a few markets very very small.
them together, we get the economies of scale of putting those two buildings together while still keeping our capacity that we need in order to grow within the market. And so we really see that as what you do. And to your point, you'll have some charges as you exit leases and bring the two organizations together for the most part.
Our history of kind of hitting our synergy numbers, you know, Look, argument me Perjust know.
I think every transaction we've done, we've hit our synergy number and we've hit it on time. So we're quite confident about what we can achieve and do within it. And clearly, we think we've modeled appropriately for the charge perspective. And Andre, I'll pass it to you on the offshore nearshore onshore. On the shore mix perspective, Rupalu, both companies operate about 43% onshore.
Where the difference comes in is a bit of a heavier mix for Web Health with nearshore capabilities. And so the combined company will have 43% onshore, 30% offshore.
27% near shore. So that near shore percentage is a bit higher than we would look at concentrics on a standalone basis. And what that is is those really strong capabilities and scale that they have in Latin America as a near shore offering, in Eastern Europe as a near shore offering for languages, and also in Africa.
And so that's something that's attractive to us. We end up with a very, very balanced mix between onshore, offshore, and nearshore. Got it. Maybe I'll ask you one question on the quarter. You talked about new economy revenue growth of 7%. You know, it was 13% last quarter.
Do you think that we're now at a level that can be sustained in terms of new economy revenue growth? And then looking at the new economy clients that Web Help has, are they growing at a similar rate and how do you expect that to trend in fiscal 23?
Yeah, so Rupalu, you know the new economy companies as we talked about some of the softness in e-commerce are impacted by that and so as I think some of those areas come back from our perspective of the economy I expect that we'll see probably a little better growth in that area but I think it's sustainable with what we're seeing right at the moment at the current run rate.
The Webhelp new economy companies are actually growing a little faster than that. And part of it is sort of the diversity of their client base. You'll notice that they have more new economy clients than we do. And part of it is that in the European market, how the model that Webhelp has and their Nest business that we talked about, is really a big differentiator around how they think about going to market in these local markets, supporting these businesses.
as they go. And so that's driven a faster growth rate. And we expect even in more challenged economic times that they can continue that type of growth rate within that customer base. Okay. Maybe if I can just squeeze one more in. Looks like you're keeping the full year guide to 46% organic constant currency.
I guess the reported number is maybe 30 million lower or 20 million lower. I think that would you attribute that just to the higher FX impact? And just from a sales cycle standpoint, I mean, any lending or has there been any change in the close rates or the sales cycle? Thanks for taking my questions.
Yeah, happy to respond, Ruth. So yes, we've seen a little bit of an increase in the FX impact as a headwind for the full year. So to go back to our last call, we said it was effectively break even. Now we're saying it is about a half a point headwind as we look at the currency mix and where they've moved to from the time that we – right before we announced earnings.
back in January to where they are here in late March. Sales cycles, Chris? Yeah, from a sales cycle perspective, we talked about, like some of the more complex deals, one has a slightly longer sales cycle, but I don't want people to over-rotate on that. The reality is it's still relatively quick. It's just a little longer than more transactional deals that we've talked about in the past. The cadence of...
how it flows through the pipeline is actually pretty similar. Outside of at the end, there tends to be more checks and balances with companies, just making sure that they are going to get the ROI that they're expecting, that they're able to deal with their internal movement of things that they need to do to be able to support those deals. It's pretty similar to what we've seen before, and so no major call outs. Thank you for all the details.
It's actually pretty similar. Outside of at the end, there tends to be more checks and balances with companies, just making sure that they are going to get the ROI that they're expecting, that they're able to deal with their internal movement of things that they need to do to be able to support those deals. It's pretty similar to what we've seen before. And so no major call outs. Thank you for all the details. Thank you.
Thank you. Again, if you would like to ask a question, please press star 11 on your telephone. We'll come on while we prepare for the next question.
And our next question is coming from Pallav.
Signing of Conicordia Line is open. Thanks. Good evening and thanks for taking our questions. Congratulations on the Web help announcement. It seems like it complements your business really well. Today I'll ask a question on international strategy.
this year in context of this announcement. Any changes in how you are planning this year as it relates to your growth plans internationally.
Yeah, so it's a good question. The reality is that we've been investing in sort of our international footprint for many years and as we talked about in the prepared remarks, we continue to invest in Europe , we continue to invest in Africa, we continue to invest in Latin America and a few countries within Asia PAC as we build out our footprint. What this does is really accelerate that but until the deal is closed, we need to continue to do.
coming along and to the extent that you can perhaps speak to the pricing for this incremental volume that you were expecting in the second half.
Yeah, for sure. So I think generally quite positive. I mean, the reality is that we're the predominant provider within an account. And as we talked about in the prepared remarks, we're driving higher innovation scores in the last decade. We're being successful. And the pricing is for those consolidations.
they're able to get some benefits of needing less capacity within their network. And so that costs them less. And so that's really where they're seeing the vast amount of savings by driving the partner consolidation. Thanks. That's all from me and congratulations.
again on the announcement. Thank you very much. Thank you. That's all the time that we have for today. That concludes the Q&A and the conference for today. Thank you all for participating. Everyone may disconnect and have a great evening.
I.
The.
The ST P.