Q4 2023 Concentrix Corporation Earnings Call
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Good day and thank you for standing by welcome to the concert your fiscal fourth quarter 2023 financial results conference call at.
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I'd now like to hand, the conference over to your speaker for today, David Stein. Please go ahead.
David John Koning: Thank you Lisa and good evening and welcome to the Concentrix fourth quarter fiscal 2023 earnings call. This call is the property of Concentrix and may not be recorded or rebroadcast without our written permission of concentrix.
David John Koning: 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.
With new information or future expectations of events or developments.
David John Koning: Please refer to today'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 and in our other public filings with the SEC.
David John Koning: Also during the call, we will discuss non-GAAP financial measures, including free cash flow non-GAAP operating income non-GAAP operating margin adjusted EBITA adjusted EBITA margin non-GAAP net income non-GAAP EPS and constant currency.
David John Koning: The revenue growth are.
David John Koning: A reconciliation of these non-GAAP measures is available in the news release and on the company Investor Relations website under financials.
Speaker Change: With me on the call today are Chris Caldwell, our President and Chief Executive Officer, and Andre Valentine, Our Chief Financial Officer, Chris will provide a summary of our operating performance and growth strategy and Andre will cover our financial results and business outlook. Then we will open the call for your questions.
Now I'll turn the call over to Chris.
Christopher A. Caldwell: Thank you very much David Hello, everyone and thank you for joining us today for our fourth quarter and fiscal year 2023 earnings call. It.
Christopher A. Caldwell: It wasn't incredibly exciting years in which we believe we made the right investment and focus on strengthening our fundamentals. We are excited about the opportunities that are in front of us now with a larger footprint expanded marquee client base and more diversified business with the ability to deliver advanced technical solutions at scale are.
Andre Valentine: 2023 revenue increased 12, 5% on an as reported basis, including approximately 9% from web. We are excited about the cross selling products that already started in the fourth quarter.
Christopher A. Caldwell: Small clients from either side of the combination generating revenue that neither company would have been able to participate in prior to coming together.
Andre Valentine: On a non-GAAP basis, our operating income increased 14, 2% and our adjusted EBITDA margin was up 30 basis points to 16, 6%. We were very pleased with our free cash flow increasing 8% for the year.
Andre Valentine: Throughout 2023, we also made great progress in evolving our solution offerings by developing multiple new intellectual property initiatives for both internal and external consumption that will allow us to be more integrated into client environments, while also reducing our operating costs.
Andre Valentine: A few examples of these initiatives include our internally developed next Dx product, allowing our game changers to be more productive by automating tasks with built in AI and is now deployed on more than 220000 desktops hitting our goal we mentioned in Q3 of deploying to approximately 80% of our legacy operations.
Andre Valentine: We continue to expand the deployment of connected across our new footprint and intend to upgrade the platform to Gen. AI in the next two quarters.
Andre Valentine: Our training CX suite has gone through a massive upgrades this year being rebuilt on Gen AI and trading over 100000 game changers in 2023 is creating more intuitive and interactive engagement and accelerating their speeds proficiency a tool that has gained interest from clients to use in house based on our results.
Andre Valentine: Our smart suite, which we just started to rollout is almost up to 35000 desktops through real time assistant self coaching and faster access to personalized knowledge management.
Andre Valentine: <unk> has delivered double digit improvements in key metrics like HP and NPS all built on G&A items.
Andre Valentine: These internal tools are in addition to the external cloud and software partners, we have used to deliver services to our clients.
All of these examples continue to demonstrate our focus on being a complete solutions company for our clients with a tech first mindset, which we believe differentiates us greatly from our peers CX competitors and allows us to deliver higher value services in 2023, our innovation and complete automation of transactions or partial processes.
Andre Valentine: <unk> hit an all time high which drive higher value to our clients and more efficiencies for us.
Andre Valentine: Turning to the fourth quarter, our team continued to deliver excellent service for our clients, while making considerable progress with the initial integration of the web health business, which I'll talk about in a minute.
Andre Valentine: We met several financial operating milestones in the fourth quarter, which Andre will review in more detail, but at a high level revenue increased 36% as reported and grew over 3% on a pro forma constant currency basis in the quarter.
Andre Valentine: We also delivered record fourth quarter, non-GAAP operating income and adjusted EBITDA up 37% and 40% respectively.
Andre Valentine: These improvements are as a result of solid growth in Europe, Asia, and Latin America with increased movement to offshore and near shore operation as well as continued delivery efficiencies. Some delivered from the tools that I highlighted earlier I'm also pleased.
Andre Valentine: Pleased that we continued to grow in each of our key verticals as well as in our catalyst <unk> and specialized health care areas.
We have invested in a new strategic and console key to the success of seller capabilities that will allow us to deliver our sellers one initiative, which focuses on selling complete end to end transformational solutions and larger enterprise deals with a sales pipeline currently stands at over a quarter of $1 billion of annual contract.
Andre Valentine: <unk> created all within Q4.
Andre Valentine: Clients continue to appreciate both our advanced services and technology and our extensive global reach our wins. This quarter included a broad range of clients across verticals and delivery regions, providing a full spectrum of services.
Andre Valentine: A few examples of those wins.
Andre Valentine: And international money transfer company experiencing exponential growth partner for high risk compliance operations.
Andre Valentine: We are now providing anti money laundering and fraud prevention services for those clients. The solution includes the European Center of excellence with skilled experts and Fintech leadership. The second phase of this project will launch later this quarter leveraging capabilities of the combined business, including advanced technology from a catalyst and our know your customer platform.
Andre Valentine: That came from warehouse.
Andre Valentine: Our Premier Health mental health clinic faced the challenge of establishing consistent practices or customer access we are providing a comprehensive solution involving a modern curriculum. Our contact center services are any past solution CRM integration and generative AI driven functionality our solution that stream.
Andre Valentine: Aligning processes, increasing efficiency and scheduling and referrals and empowering the teams to significantly enhance the overall customer experience and mental health.
Another healthcare management company and best in class capabilities, and transformative solutions to navigate the complex system for assisting members with provider selection and insurance inquiries within 30 days, we started to integrate the technology stock performed the CX assessment and quality Assurance review this is hoping for revolution.
Andre Valentine: And evaluate overall member experiences for the client.
Andre Valentine: Finally in automotive manufacturer based challenges managing multiple vendors, our catalyst team leveraged our intelligence operational capabilities for compliance and best practices and develop strategic it services the implemented dashboards reporting and robotic analysis solutions. The solution marked a significant step forward towards there.
Andre Valentine: Achieving higher efficiency and innovative automation within their business.
Andre Valentine: Based on the reception from clients and our pipeline of opportunities to combine the capabilities of Concentrix catalysts and our core CX operations. It is evidenced that our strategy is working our clients due to combination of deep domain expertise digitally enabled global delivery and our ability to invest in secure adoptable scalable technology as key differentiators.
Andre Valentine: <unk>.
Our unique approach to intensely infuse digital technologies and analytics continued to drive sales wins.
Andre Valentine: Our.
Andre Valentine: Turning to our web help transaction. This marks a significant milestone in the evolution of our company is the beginning of a new chapter of creating a global market leader with a world class platform for value creation. We now offer one of the most robust well balanced global footprints in the industry.
Andre Valentine: Combination of the two companies broadened our technology and AI solutions and multiple high value verticals strengthening our end to end value proposition and adding significant new consulting technology and operating capabilities in Europe, Latin America and Africa.
Andre Valentine: The integration of the two companies is progressing smoothly and is contributing as anticipated.
Andre Valentine: This quarter, we achieved significant integration milestones. Examples include the startup successful migration of over 30000, new staff to our HR system, and starting with sales management practice and establishing the global leadership structure. We are thrilled with the talented staff and the strength of our combined execution.
Andre Valentine: As I mentioned, we are already converting a growing pipeline for wind that neither company could have one without the other and we are on track to deliver the cost synergies we discussed when we announced the combination.
Andre Valentine: Turning to fiscal 2024, and the first quarter, we expect to make progress towards achieving our synergy targets for the combination and integration activities move forward, we expect to continue to convert and ramp synergy pipeline winds as well for the full year, we expect revenue growth profit improvement strong cash generation and debt.
Andre Valentine: We also see 2024 being the year that <unk> will start to positively influence our revenue and margins in the later part of the year and into early 2025.
Andre Valentine: While the specific timing of these advancements with AI and client adoption are still not entirely sure. We're now confident our ability to offer competitive solutions and see benefits from the technology, while our clients are taking time on their AI adoption, we're seeing tangible benefits with our own use cases, and we will continue to invest in these.
Andre Valentine: The investment to make us more efficient and offer a higher level of service to our clients ahead of returns for the next few quarters, we see immense potential in the emerging technologies that can intelligently act on customer intended to improve the customer experience and are building out new capabilities and services to take advantage of the market as it develops.
Andre Valentine: Based on our conversations with clients and the proof of concept through we're currently working on we continue to believe that Gen. AI will enhance the customer experience with human involvement versus completely automating work.
Andre Valentine: Our current generic pipeline includes over 145 engagements while the majority of these projects revolve around proof of concepts a few projects that have transitioned to the run our managed services space.
Andre Valentine: The use cases that are gaining traction Roe relate mostly to our technology, allowing our game changers to be more productive and more personalized engagement specific to the end customers a few relate to completely automated services, replacing low value work, while we generate more managed services type of revenue for supporting the technology and the environment.
Andre Valentine: In summary, we've made great strides executing our strategy in 2023, making investments and acquired and organic growth and a differentiated growth model that I believe will allow us to outperform in the market.
Andre Valentine: We believe that 2024 will require continued investments to ensure we are ahead of the market for further gen AI deployments at scale.
Andre Valentine: Finally, I want to acknowledge the collective strength of the team we've built and thank them all for their adaptability and commitment to execution and the evolving industry their dedication and hard work has positioned us as a formidable force in the market I also want to thank our clients for their trust our talented board of directors for their support and Mentorship and our investors for the confidence.
And Concentrix, we look forward to an exciting year ahead and the continued success of our company now I will turn the call over to Andre Andre.
Andre Valentine: Thank you, Chris and Hello, everyone I'll begin with a look at our financial results for the fourth quarter.
Andre Valentine: And then discuss our business outlook for fiscal year 2024.
I am pleased to report that our revenue and profitability metrics, not only met but exceeded our Q4 guidance.
Andre Valentine: Free cash flow also remained strong allowing for substantial debt reduction in the fourth quarter.
Andre Valentine: Fourth quarter revenue was $2 $2 billion to $3 billion, which included $574 million added by the web help business for the last two months of the quarter.
We will not be separately reporting web outperformance going forward as we are now managing the business on an integrated basis.
Andre Valentine: On a pro forma basis as if the wet help combination was completed at the beginning of the fourth quarter.
Andre Valentine: Revenue for the quarter was $2 four $2 billion.
Andre Valentine: Resulting in pro forma constant currency growth of approximately three 5%.
Andre Valentine: As anticipated the contribution for the legacy business came in at the low end of our prior full year guide and the web business contributed faster growth.
Andre Valentine: Revenue increases with clients that our four strategic verticals more than offset some volume softness with a few clients.
Andre Valentine: On a pro forma basis revenue from retail travel and E Commerce clients grew 12% in the quarter.
Andre Valentine: Pro forma revenue from banking financial services and insurance clients grew 6%.
Andre Valentine: Health care client revenue grew 5% on a pro forma basis.
Andre Valentine: Revenue from technology, and consumer electronics clients grew by 1% on a pro forma basis as growth with several clients was offset by continued softer volumes with a large consumer electronics clients.
Andre Valentine: Continuing trends from earlier in the year pro forma revenue from communications and media clients decreased by 3% and revenue from clients in our other vertical decreased 6%.
Andre Valentine: While we grew on a pro forma basis with 14 of our 20 largest clients softer volumes with a handful of consumer electronics retail E Commerce and communications clients remained a headwind.
Andre Valentine: Turning to profitability non-GAAP operating income was $341 million in the fourth quarter at $93 million compared with last year. Our non-GAAP operating margin was 15, 3% up 20 basis points from the fourth quarter last year adjusted.
Andre Valentine: Adjusted EBITDA was $398 million up $113 million compared with last year.
Andre Valentine: EBITDA margin was 17, 8% up 40 basis points from last year.
Andre Valentine: This margin progress reflects profit flow through on revenue growth efficiency gains across our operations and early attainment of synergies from the web help combination.
On a pro forma basis.
Andre Valentine: The web help transaction that closed at the beginning of the prior year's fourth quarter property <unk>.
Andre Valentine: <unk> ability metrics would have been as follows.
Andre Valentine: non-GAAP operating income of $365 million up $22 million compared with last year non-GAAP operating margin of 15, 1% up 50 basis points from the prior year adjusted EBITDA of $429 million up $28 million.
Andre Valentine: And adjusted EBITDA margin of 17, 8% up 70 basis points from last year.
Andre Valentine: The large swing in our reported other expense line in the quarter was mostly due to items associated with the wet help combination.
Andre Valentine: This included a $16 million increase in the fair value of contingent share consideration related to get combination and $13 million and net foreign currency losses.
Andre Valentine: We believe that these items and that reflects the underlying health of our operations and future changes in the fair value of contingent share consideration and foreign currency movements are not predictable.
Andre Valentine: Accordingly, we have adjusted our non-GAAP net income and non-GAAP EPS metrics to exclude these items.
Andre Valentine: Going forward, our reporting of non-GAAP net income and non-GAAP EPS exclude the change in fair value of contingent share consideration related to web help combination.
Andre Valentine: Net foreign currency gains and losses.
Andre Valentine: We believe that this change removes confusion in the reported non-GAAP net income and EPS results and more closely aligns our reporting with investors' expectations.
This measure is also on a consistent basis with how we provided non-GAAP EPS guidance for the fourth quarter the.
Andre Valentine: The presentation for all prior periods has been updated to reflect this change.
Andre Valentine: non-GAAP net income was $213 million in the quarter compared with $146 million last year non-GAAP EPS was $3 36 per share compared with $2 <unk> per share last year.
GAAP results for the fourth quarter of 2023 included $40 million of expenses related to the combination and integration now.
Andre Valentine: $97 million in amortization of intangibles.
Andre Valentine: $94 million and share based compensation expense of.
Andre Valentine: $16 million change in the fair value of contingent <unk> consideration.
Andre Valentine: $18 million and net foreign currency losses.
And $3 million in imputed interest related to the seller's note issued in connection with the combination.
Andre Valentine: Turning to cash flow.
Andre Valentine: Cash generation from operations in the fourth quarter totaled $229 million.
Andre Valentine: Capital expenditures for $65 million.
Andre Valentine: This resulted in free cash flow of $164 million, including $40 million of transaction and integration costs related to the combination.
Andre Valentine: This is within our guidance range for the quarter, which excluded the transaction and integration costs.
Andre Valentine: For the full year 'twenty three 2023 we achieved our expectation of where the $500 million in free cash flow, excluding transaction integration costs associated with web help move.
Moving forward, we expect capital expenditures to be approximately two 5%.
Andre Valentine: Revenue.
Andre Valentine: Yes.
Andre Valentine: Our GAAP and non-GAAP tax rates were 10% and 21% respectively.
In the fourth quarter. This was lower than expected due to one time items that changed the geographic mix of our income.
Andre Valentine: Reducing our exposure to certain minimum taxes.
Allowing us to use more net operating loss carryforwards that we anticipated.
Andre Valentine: Our non-GAAP tax rate for the full year was 24%.
Andre Valentine: Turning to the balance sheet at the end of the fourth quarter cash and cash equivalents were $295 million.
And total debt was.
Andre Valentine: $4 $94 billion.
Andre Valentine: Net debt was $4 $65 billion at the end of the fourth quarter.
Andre Valentine: The gross debt balance included $2 5 billion of senior unsecured notes.
Andre Valentine: One 9 billion.
Andre Valentine: 1 billion outstanding on our term loan.
Andre Valentine: The $762 million seller's note and 129 million of borrowings under our AR securitization facility.
Andre Valentine: It is reported net of debt issuance costs and discounts.
Andre Valentine: Our gross debt of $4 94 billion at the end of the year represents a reduction of nearly 300 million since the close of the combination as.
Andre Valentine: As we used free cash flow and a reduction of cash on the balance sheet to pay down debt.
Andre Valentine: By year end, we had reduced net debt by approximately $150 million after the combination closed.
Andre Valentine: We reduced net leverage which stood at three two times pro forma adjusted EBITDA combination close to 3.0 times by year end.
Andre Valentine: We did this in addition to continue an active program for capital return.
Andre Valentine: Our strong free cash flow generation and adjusted EBITDA growth gives us a clear path.
Andre Valentine: To reduce leverage further and we're committed to our plan to reduce net leverage to close to two times adjusted EBITDA within two years of the close of the combination.
Andre Valentine: Regarding our capital allocation priorities, our focus remains on organic growth. The continued integration of web help realizing planned synergies and repaying debt.
Andre Valentine: Consistent with our commitment to an investment grade principles, we will prioritize paying down debt and reducing our net leverage while continuing our dividend and disciplined share repurchases.
Andre Valentine: During the fourth quarter, we paid $21 million through our <unk>.
Andre Valentine: Clearly dividend I should say of 30 and a quarter cents per share.
Andre Valentine: <unk> repurchased 286000 shares of our stock for approximately $23 million, an average price of approximately $79 per share.
For the full year, we paid $64 million in dividends and made $81 million in share repurchases.
Andre Valentine: At year end, the remaining authorization on our share repurchase plan was approximately $290 million.
Andre Valentine: We've continued to repurchase shares in the first quarter of 2024 with repurchases totaling approximately $11 million quarter to date.
Andre Valentine: At year end, our liquidity remains strong at $171 billion, including a one point share a $4 billion line of credit, which is undrawn cash on hand, and the additional capacity of $371 million on our AR securitization.
Andre Valentine: Our strong balance sheet and cash flow generation provides significant flexibility for the future.
Andre Valentine: Now I'll turn my attention to the business outlook for the first quarter and full year 2024.
Andre Valentine: To help with year over year comparisons on a go forward basis.
Andre Valentine: We have published quarterly pro forma revenue figures to help model future year over year performance. These figures demonstrate how the combined business would have performed at the transaction that closed at the beginning of 2023.
Andre Valentine: The pro forma data is available in our historical metrics file which can be accessed on our investor Relations website.
Andre Valentine: For the first quarter, we expect revenue to be in a range of $2 $3 6 billion to $2 $406 billion based on current exchange rates.
Andre Valentine: This reflects approximately 1% to 3% pro forma constant currency growth and approximately one 1% exchange rate headwind.
Andre Valentine: Pro forma revenue was $2 $36 billion in the first quarter of 2023.
Andre Valentine: In terms of profitability in the first quarter, we expect non-GAAP operating income in a range of $315 million to $325 million.
Andre Valentine: At the midpoint of our guidance this equates to a non-GAAP operating income margin of approximately 13, 4% at.
Andre Valentine: An increase of 10 basis points over the prior year and 40 basis points at a pro forma basis.
Andre Valentine: On a pro forma basis non-GAAP operating income was $307 million in the first quarter of 2023.
Andre Valentine: Yeah.
Andre Valentine: Our non-GAAP EPS expectations for the first quarter on a range of $2 51 per share to $2 65 per share.
Andre Valentine: The calculation of this metric is consistent with the approach that I described earlier.
Andre Valentine: As is typical of our business, we expect first quarter free cash flow to be approximately breakeven.
Andre Valentine: For free cash flow to ramp up meaningfully in the second quarter.
Andre Valentine: We expect interest expense in the first quarter to be approximately $79 million, excluding $4 million of imputed interest on the seller's note.
Andre Valentine: We expect an effective tax rate of approximately 26% to 27%.
Andre Valentine: We expect a weighted average diluted share count of approximately $65 8 million shares consistent.
Andre Valentine: Consistent with prior periods, our non-GAAP diluted EPS calculation follows the two class method.
Andre Valentine: <unk> earnings between common stock and participating securities.
Andre Valentine: The first quarter, we estimate that about 4% of net income will be attributable to participating securities.
Andre Valentine: 96% of total net income will be attributable to common shares.
Andre Valentine: Moving to our outlook for the entire year, we expect 2020 for revenue to be in the range of 951 billion to $9 701 billion for the full year.
Andre Valentine: This reflects approximately 1% to 3% pro forma constant currency growth in our revenue expectations net of a 70 basis point exchange rate headwind.
Andre Valentine: Pro forma revenue was $9 four 9 billion for the full year 2023.
Andre Valentine: Our full year profitability expectations include non-GAAP operating income in a range of $1 39 billion to $145 billion at the midpoint of the range. This equates to a non-GAAP operating margin of 14, 8% an increase of 60 basis points.
Andre Valentine: Over the prior year, and 90 basis points on a pro forma basis.
Andre Valentine: Our guidance for the full year reflects our confidence in achieving our year, one synergy target of $75 million for context. Our current achieved net synergy run rate is approximately $55 million on an annualized basis.
Andre Valentine: Pro forma non-GAAP operating income was $132 billion for the full year 2023.
Andre Valentine: Our non-GAAP EPS expectations for the full year are in the range of $11 69 per share to $12 50 per share.
Andre Valentine: We expect full year interest expense to be approximately $295 million, excluding $60 million in imputed interest on the seller's note.
Andre Valentine: The effective tax rate of approximately 26% to 27%.
Andre Valentine: Weighted average diluted share count of approximately $65 6 million shares.
In calculating non-GAAP diluted EPS attributable to common shares for the full year, we expect approximately 96% of total net income will be attributable to common shares.
Andre Valentine: In terms of cash flow, we expect another strong year with free cash flow growing by approximately 40% to over $700 million in 2024 inclusive.
Andre Valentine: Inclusive of acquisition and integration costs.
This has positioned us to further reduce our net leverage to approximately two five times adjusted EBITDA by year end, assuming no further acquisitions, we remain committed to reducing our net leverage to close to two times adjusted EBITDA within two years after the close of the combination.
Andre Valentine: Our business outlook does not include any future acquisitions or impacts from future foreign currency fluctuations.
Andre Valentine: In closing we had a very successful year with strong revenue growth largely expansion and free cash flow generation. We're excited about the combination with web which has joined two leading CX providers into a global platform for growth and value creation.
Andre Valentine: We believe our range and global reach of high value services and digital capabilities creates a unique customer engagement offering that will keep our business resilient through business cycles, we look forward to another year of growth and value creation.
Andre Valentine: With that operator, please open the line for questions.
Andre Valentine: Thank you.
Andre Valentine: As a reminder, if you would like to ask a question. Please press star online you can tell us.
Andre Valentine: And wait for your name to be announced.
Andre Valentine: It's drawing a question. Please press star one again, please standby, while we compile the Q&A roster.
Andre Valentine: The first question that we have for today is from Joseph <unk> of Canaccord. Your line is open.
Andre Valentine: Hey, guys good afternoon.
Joseph <unk>: The strong results here for the end of the year, just wanted to maybe drill down a little bit on your.
Joseph <unk>: Your guidance philosophy here for the coming fiscal year and many of them.
Andre Valentine: Functions you have on changes in the macro relative to where you are on that revenue guide and then I'll have a quick follow up.
Andrea: She joins Kristina I'll pass to Andrea <unk>.
Our comments the way we looked at 2024 evolving is similar to 2023, we don't expect there to be a sort of seasonal peak in Q4, we expect retail and e-commerce.
Andrea: Seems to be somewhat muted, primarily driven by the macroeconomic condition similar with consumer electronics, we're seeing that as relatively muted and so we see it as being.
Andrea: That consistency through the course of the year, we do see us being able to deploy more of our generative AI solutions internally through the course of the year that will add to some some better productivity gains, but as we've called out kind of investing that into.
Andrea: Frankly, winning new business to be more transformation and building out more tools, because we do think that this year, we will start to see a bit more of an inflection point near the end of the year for client solutions that will mute a bit of growth, but thats more of a back half of the year is the way we're looking at it.
Andrea: Got it and then.
Andre Valentine: And maybe you could compare and contrast, maybe the cadence momentum between kind of core Concentrix and then web help I know there are kind of integrating so it may be harder to do at this point, but how is there a way to kind of give us a little more color into those.
Andre Valentine: Two sides of the business.
Andre Valentine: Sure.
Drew: Yes drew it's pretty it's pretty integrated even now as we speak as we talked about we've already won the deal.
Andre Valentine: Is that the web how businesses brought us more kind of nearshore and offshore capabilities for our Europe business and so clearly our goal over the next year is to drive more business and higher profit nearshore and offshore region.
Andre Valentine: In Continental Europe for some of the business that we're doing.
Andre Valentine: The web business also brings us more e-commerce clients that are in travel clients within.
Andre Valentine: The market.
Andre Valentine: Common clients in Latin America and Europe.
Andre Valentine: And frankly that has been fairly successful high growth area for us and so thats nice to see and then lastly in some of the newer capabilities that we bring onboard might be AML.
Andre Valentine: <unk> see.
Andre Valentine: Activities that we called out as some of the wins that we've got.
Andre Valentine: We expect to see some some good wins from that but in general.
Andre Valentine: <unk> business is very very very similar as it really brings us in.
Andre Valentine: Additional footprint and there is no additional marquee clients.
Andre Valentine: We're after.
Andre Valentine: Yes.
Andre Valentine: So to say that.
Andre Valentine: When we acquired web help it was growing faster than Concentrix I think in our guidance that that continues.
Andre Valentine: And certainly helped by the fact that.
Andre Valentine: Like the Concentrix business.
Andre Valentine: <unk> did not have much of a presence in North America, where we do see some pressure given given higher costs and clients' desire to to drive costs down through <unk>.
Through automating transactions or looking for near shore or offshore alternatives to onshore North American services.
Andre Valentine: Got it great. Thanks, guys for the color.
Andre Valentine: Thank you.
Andre Valentine: Thank you.
Andre Valentine: One moment for our next question.
Okay.
Okay.
Andre Valentine: And our next question will be coming from Dixon.
Andre Valentine: Colonial.
Dixon: Two research your line is open.
Dixon: Yes, Chris.
Chris: That's on a good quarter.
Chris: Hum.
Chris: I'm curious.
Chris: How significant are the revenue synergies that are baked into your guidance.
Chris: Yes, just to be quite honest Vince are quite conservative.
Chris: As we talked about when we announced the deal we did not count on revenue synergies that was sort of additional extra.
We're more focused on hitting from.
Chris: A cost synergy perspective, as we look through the numbers.
Chris: I'll tell you is that normally six eight months before we start to see real kind of material.
Chris: Opportunities that come from bringing two businesses together, we were very happy and surprised that we got a few small deals done within the fourth quarter, but I wouldnt over read into that I don't think its sort of that six month window before it becomes more material and we haven't really talked about within within our guidance for the year.
Chris: And then have you baked in.
Andre Valentine: Do you have any concerns about.
Andre Valentine: Client losses due to.
Andre Valentine: Increased revenue concentration I know there was a not a lot of overlap between the two firms.
Yes, there wasn't a lot of overlap between the two firms which is what really.
Andre Valentine: Interested to US we haven't had any feedback from clients that we are over indexed with any of them. In fact, a few that we thought we were going to be touching that threshold.
Andre Valentine: Actually we've done well with.
Andre Valentine: In terms of finding new opportunities so that hasn't hasn't been a concern.
That's also far we don't see anything in the horizon.
Andre Valentine: And last one for me.
Andre Valentine: You had referred to.
Andre Valentine: Leveraging AI for productivity purposes is the main.
Andre Valentine: As a main driver for you and not.
Andre Valentine: Not seeing it as a labour substitute.
Andre Valentine: Could you give us your latest thoughts on the weather.
Andre Valentine: Yes for sure. So we've got a lot of Poc's in place with clients well over 140 units sort of growing on a weekly monthly basis and what we're finding is our clients are very hesitant not to say that this won't change, but very hesitant to have fully automated gen AI solution.
Andre Valentine: Call it in the while dealing with customers with no human intervention.
Andre Valentine: And checks and there's a lot of reasons, but we can go through but that's still the overwhelming sentiment and so where people are looking at it to drive the best benefit, whereas hoping whether they're soft or stop the enterprises.
Andre Valentine: Be more productive and being able to deliver a differentiated personal service to the customers, but they are engaging with it that's where we see some of the big four.
Andre Valentine: And every time, we talk about some things that are fully automated we tend to get the clients are saying no that that's not where we're at right at the moment.
Andre Valentine: Well down the pipe.
Andre Valentine: And so we are not only building the tools internally for ourselves and we're seeing the benefit but that's where we're also seeing clients.
Focus their efforts as kind of making ourselves better and more productive than sort of a complete automation work.
Andre Valentine: Okay. Thank you.
Ed: Thanks, Ed.
Ed: Thank you one moment for the next question.
Andre Valentine: And our next question will be coming from <unk>.
Andre Valentine: Of course your bank your line is open.
Andre Valentine: Good afternoon, everyone. It's a great quarter I just wanted to build on to this AI question. So you talked about the proof of concepts that you're deploying the clients and trying to assess the productivity gains have you been.
Andre Valentine: Have you been in what sort of internal AI deployments are you looking at or considering and do you think that can broadly, bringing the productivity gains within the organization and help deal with an improved operating margin.
Andre Valentine: Yes, we do I mean, we.
Andre Valentine: We see a lot more tools that we can build internally to drive better productivity.
Andre Valentine: Cros are enterprise and what we're seeing is that where we can either get information large quantities mentioned, the healthcare banking and wealth management, even very complicated tech support even complex case management with problem transportation, where we can take huge quantities of information and boil it down and.
Andre Valentine: Personalized format and deliberate to a customer.
Andre Valentine: There is a big big productivity gains that we're seeing within that base that if you looked at how we can actually take the interactions and then analyze interactions and provide feedback back to our game changers.
Andre Valentine: The next call or stop is that the productivity.
Andre Valentine: <unk> and uniqueness that we can deliver to each individual is something that frankly, we couldnt do in the past without scaling up significant number more of QA and labor and coaches and everything else that goes along with it. So we see some really really really big benefits from that perspective.
Andre Valentine: And in terms of complete automation, we've talked about we have a few that we've put in place that are complete automated.
Andre Valentine: On experiences.
Andre Valentine: There are very very small MLM theyre very controlled <unk> and what we're seeing is our revenue model is.
Andre Valentine: We are providing managed services and providing the data ingestion, we're providing the management of those on the allowance and the clients are very cautious about putting them on small transactional queues.
Andre Valentine: And.
Andre Valentine: Really really really twofold in lockdown, so theres no hallucinations nothing goes wrong.
Andre Valentine: As a small cubes theres not as much productivity that you get but it's definitely something that we are.
Andre Valentine: We continue to partner.
Andre Valentine: That's helpful. Chris maybe I'll ask another question and I know you've spoken about it at the time, we announced that the pulp acquisition, but now that.
Chris: The company has been acquired for almost a quarter end.
Obviously integrated yet what are some of the key growth geographies that you see and then I wanted to further kind of understand how the broader Latam integration going and do you do you see.
Chris: Significant upside coming from the Latam integration into showed that shorter term given the growth.
Andre Valentine: The Latam region in general.
Andre Valentine: Yes for sure. So just kind of set the stage a little bit the <unk>.
Andre Valentine: <unk> business was growing faster in Asia, and Europe, and it was in North America, and we felt that we were underperforming in Latin America and one of the things that we were really excited about that.
Andre Valentine: Give us faster growth market in Europe with this combination.
Andre Valentine: Our combined with a very very very strong team within Latin America, and then are any of the team continues to perform very very well as Henri called out so from a faster growth geography perspective think near shore Europe Africa.
Henri: As kind of a higher growth higher growth avenues for us and more profitable growth than than what we were able to achieve since we just didn't have that footprint from a Latin American combination perspective, very very very strong execution team in Latin America now with the combination of the two businesses coming together and we see the growth not only in new opportunities.
<unk> is taking from North America, and Latin American markets, but also in some domestic Latin American markets that we've historically done very well and together.
Henri: We think they will do even better.
Thanks, Brazil and Colombia.
Andre Valentine: Peru, a few other markets Mexico that we now have the ability to do both at local engagement business as well as the global business from the near term market within within North America. So I'm quite excited from that perspective.
That's great.
Andre Valentine: No.
Andre Valentine: I would just go ahead.
Andre Valentine: Yes, I was going to add Chris some really strong technology capabilities, frankly, a digital capabilities and that Latam team. They are very very key to helping us grow that.
Andre Valentine: Domestic market practice throughout Latin America. So just another great thing that we found in Latin America as you brought the two businesses together.
That's helpful and just one last question here on the pricing environment over the last few quarters. There has been this increased consolidation obviously.
Andre Valentine: Concentrix consolidated do you see any significant scale benefits.
Andre Valentine: Has that have you.
Andre Valentine: <unk> seen a significant change in the pricing environment, given the broader macro and how things have trended.
Andre Valentine: Yes, that's a good question I would answer by saying that right now the market is quite competitive.
Andre Valentine: And what we're seeing is on top of every client's mind is.
Andre Valentine: Reducing costs and some that and total cost of ownership.
Andre Valentine: So it's simply a pricing exercise and we are seeing competitors in some commodity work and some some kind of higher volume easier to move work being very very Murray.
Andre Valentine: Aggressive from a pricing perspective, what we're not seeing that as in some of the higher work that we're doing where there's more technology more integrated services to be done, but overall, it's a very very competitive market right now is what we're seeing.
Andre Valentine: That's helpful I'll pass the line. Thank you.
Andre Valentine: Thank you.
Andre Valentine: Thank you.
Andre Valentine: Yeah.
Andre Valentine: Our next question will be coming from.
Andre Valentine: Hoopla.
But check carrier of Bank of America. Your line is open.
For the first one Chris can I ask you about the general operating environment can you talk about deal sizes, the sales cycle and you.
Chris: You haven't I didn't think you mentioned the new economy client growth I mean, if you can talk about that and what really has changed in the last 90 days from an operational standpoint.
Chris: So a couple of things just in terms of timing of deals. The standard deals that were doing theres really been no change in timing. They tend to follow the same pattern that we've seen for the last number of quarters.
Chris: Obviously, we're focusing on some of the big transformational deals that we've talked about we formed a new team around.
We expect those to take a lot longer historically.
Andre Valentine: Okay fair bit longer, but they are stickier longer term contracts.
Andre Valentine: And frankly more profitable and so certainly we're putting more effort into that what we are seeing in the marketplace is that wins as we've talked about for probably a couple of quarters tend to.
At the volume that we were expecting and stay closer to that volume versus growing it tends to be more driven by the macroeconomic conditions right. If people are moving to us because we are giving us a chamber differentiated level of service and their business is not as growing as fast as it was.
Andre Valentine: And a very robust economy, and so we're seeing those deals come in and probably growing a little slower than what you would have seen.
Andre Valentine: A year and a half two years ago from that perspective, the only other comment I'll make just in terms of new economy and were seeing new economy.
Andre Valentine: <unk>.
Andre Valentine: Business kind of all in line with everything else right, it's a little higher here and there some of the E. Commerce that we've talked about what would fall into that category the travel would actually.
In the new economy category, and so we're seeing that.
Andre Valentine: Is that continuing to grow a little faster, but it's been tax and health care new economy companies with two other companies like that tend to be following a lot of the general macroeconomic <unk>.
Andre Valentine: In addition to there.
Andre Valentine: Enterprise peers.
Andre Valentine: Last quarter, that's probably a little different than what we saw a couple of quarters ago.
Andre Valentine: Okay.
Andre Valentine: Thanks for that let me ask a question to Andre.
Andre Valentine: For fiscal 'twenty for Andre Youre guiding low single digit so 1% to 3% year on year growth on a pro forma base.
Andre Valentine: Basis.
If wed held was growing much faster than the base Concentrix business. I mean is it reasonable for us to think that most of that growth is coming from web help or do you expect the core concentrix business to also grow year on year and if you can also even commentary on the catalyst business how is that doing year on year.
And when do you expect to get to corporate average growth.
Andre Valentine: The catalyst business.
Andre Valentine: Sure. So the Concentrix business is growing on a year over year basis.
Andre Valentine: At each each point of our guide.
Andre Valentine: However.
Andre Valentine: Our guidance I would say web help is growing faster.
Andre Valentine: And each of those each of those points both at the low end the midpoint and high end of the range.
Andre Valentine: As for catalyst catalyst has reached a.
Andre Valentine: A level of stability, where it is growing.
Andre Valentine: It is growing really in line with the rest of the business and actually poised to grow and maybe a little bit faster than the rest of the business.
Andre Valentine: In 2024.
Andre Valentine: Feel good about that again, we're not seeing the large transformational deals that we've talked about we've talked about this for a few quarters, we're not seeing large transformational deals there, but a number of opportunities.
Andre Valentine: To do smaller projects.
Andre Valentine: And drive.
Andre Valentine: Drive good results for our clients and growth for the business.
Andre Valentine: Okay. Thanks, Thanks for the clarification there.
Andre Valentine: Chris if I can come back to you I mean, I think in the prepared remarks, you said 2024 will be the year that Gen. II will positively influence revenues and maybe in the latter part of the year and into 2025 I mean, so I guess my question to you would be.
Chris: Correct and if it is then what's giving you confidence that the revenue impact will actually be positive from generator of AI, because you kind of have to balance some volume going away because of AI, but then you could get higher level work. So can you just give us your thought process on how youre thinking about this revenue impact in 2024 and 2025.
Chris: Yes for sure fluids, Great question I think there's two things that we look at first when we've now been at this sort of a year and a quarter.
Andre Valentine: Give or take with our clients looking at POC and actually getting them in and frankly, we've been spending a lot of this in our own dime and kind of co developing with with clients et cetera, et cetera. It hasn't meaningfully put anything into from a from a revenue perspective and so it's been.
Chris: Not a drag but it's just been an investment that we've been making and we start to see the end of 2024, where there is enough momentum that we think these things will start to go into more production that.
Andre Valentine: Whereas chargeable that we'll start to see more turns of all that we will start to see some benefits of that and in the POC. We are seeing where we're driving revenue and we're starting to develop all of these new levels of service.
Andre Valentine: More generally on.
Andre Valentine: Whether it be from different types of content tagging and management, whether it be from how we implement the <unk> whether it be from how we manage the all of them whether it be from kind of the allocation of the data whether it be from the analytics and supporting the application layer that integrates into it and then running it because you have to continue to tune these all of them.
Andre Valentine: Starting to see all of this new opportunities for revenue that's coming out that will offset some of the decline that you will get from people be more productive with with.
Andre Valentine: The technology being put in place and so we now have enough kind of test cases, and data that we can start to extrapolate and start to see okay.
Andre Valentine: We see how this works now why are we talking about the fact that the visibility is a little little light is that we still have clients, who generally I'm looking at this and POC are okay, but theres still a lot of hesitation for adoption full scale, where where.
Andre Valentine: Youre going to see probably.
Andre Valentine: Probably a bigger inflection point, we do think that will come I think it's a matter of time.
Andre Valentine: But we will start to see I think early signs have been sort of back half of 2024 to early 2025.
Andre Valentine: Okay. Thanks for the details there I am going to try and squeeze one more in if I can so youre doing the web help integration and you said that the focus is going to be on debt reduction for the next two years.
Andre Valentine: How should we think about your propensity for future M&A in these two years or at least in 2024.
Andre Valentine: You do I mean, do you think that Thats, something youre going to consider and if so what what are the metrics what size what what are you looking for.
And if you can just give any thoughts on inorganic growth in the near term.
Andre Valentine: Andre is going to come down.
Sorry, yes.
Yes, so obviously.
Andre Valentine: The real focus is on paying down debt and so I don't think we would say never as it relate to smaller or tuck in.
Andre Valentine: Type M&A obviously.
Andre Valentine: Why do I keep investing in the business, but anything that we do will be consistent with the investment grade principles that we've outlined.
Andre Valentine: And our desire to get that.
Net leverage close to two times within the two year period post transaction close.
Andre Valentine: What would we look at what would we look to acquire I think it would be again tuck in nature could be domain expertise technological expertise in a certain area, but again would be relatively small.
Andre Valentine: And thats something of scale, such as what we've dealt with withheld.
Andre Valentine: Chris anything you'd want to add there.
Chris: No I agree with you as we've talked about it's really about domain expertise, it's about technology, it's about furthering our differentiated value proposition and so.
Chris: <unk>.
Andre Valentine: Focused on kind of making sure that we keep our investment grade principles and enhancing the business that we have the opportunities from an M&A perspective in those areas.
Andre Valentine: Okay. Thank you for all the detail I appreciate it.
Andre Valentine: Sure. Thank you.
Andre Valentine: Thank you.
Andre Valentine: And there are no more questions in the queue. So this does conclude today's conference call. Thank you all for joining you may now disconnect.
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Good day and thank you for standing by welcome to the Concentrix fiscal fourth quarter 2023 financial results Conference call.
Andre Valentine: At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advisory your hand is right to withdraw your question. Please press star one again please.
Andre Valentine: Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker for today, David Stein. Please go ahead.
David John Koning: Thank you Lisa and good evening welcome to the Concentrix fourth quarter fiscal 2023 earnings call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward looking statements that address our expected future performance.
David John Koning: 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.
David John Koning: We do not undertake to update our forward looking statements as a result of new information or future expectations events or developments.
David John Koning: Please refer to today'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 and in our other public filings with the SEC.
David John Koning: Also during the call, we will discuss non-GAAP financial measures, including free cash flow non-GAAP operating income non-GAAP operating margin adjusted EBITDA.
David John Koning: Adjusted EBITDA margin non-GAAP net income non-GAAP, EPS and constant currency revenue growth.
Andre Valentine: A reconciliation of these non-GAAP measures is available in the news release and on the company Investor Relations website under financials.
Andre Valentine: With me on the call today are Chris Caldwell, our President and Chief Executive Officer, and Andre Valentine, Our Chief Financial Officer, Chris will provide a summary of our operating performance and growth strategy and Andre will cover our financial results and business outlook. Then we'll open the call for your questions.
Christopher A. Caldwell: Now I'll turn the call over to Chris.
Christopher A. Caldwell: Thank you very much David Hello, everyone and thank you for joining us today for our fourth quarter and fiscal year 2023 earnings call.
Christopher A. Caldwell: Incredibly exciting years in which we believe we made the right investments and focused on strengthening our fundamentals. We are excited about the opportunities that are in front of us now with a larger footprint expanded marquee client base and more diversified business with the ability to deliver advanced technical solutions at scale.
Andre Valentine: Our 2023 revenue increased 12, 5% on an as reported basis, including approximately 9% from web health. We are excited about the cross selling products that already started in the fourth quarter that while small have clients from either side of the combination generating revenue that neither company would have been able to <unk>.
Chris: Dissipate in prior to coming together.
Andre Valentine: On a non-GAAP basis, our operating income increased 14, 2% and our adjusted EBITDA margin was up 30 basis points to 16, 6%. We were very pleased with our free cash flow increasing 8% for the year.
Andre Valentine: Throughout 2023, we also made great progress in evolving our solution offerings by developing multiple new intellectual property initiatives for both internal and external consumption that will allow us to be more integrated into client environments. While also reducing our operating costs. A few examples of these initiatives include.
Andre Valentine: Our internally developed <unk> product, allowing our game changers to be more productive by automating tasks with built in AI and is now deployed on more than 220000 desktops hitting our goal we mentioned in Q3 of deploying to approximately 80% of our legacy operations.
Andre Valentine: We continue to expand the deployment of connected.
Across our new footprint and intend to upgrade the platform to Gen AI in the next two quarters.
Andre Valentine: Our training CX suite has gone through a massive upgrade this year being rebuilt on Gen. AI training over 100000 game changers in 2023 is creating more intuitive and interactive engagement and accelerating their speeds proficiency a tool that has gained interest from our clients to use in house based on our results.
Andre Valentine: Our smart suite, which we just started to rollout is almost up to 35000 desktops through real time, a system soft coaching and faster access to personalized knowledge management.
Andre Valentine: <unk> has delivered double digit improvements in key metrics like HP and NPS all built on <unk> Island.
Andre Valentine: These internal tools are in addition to the external cloud and software partners, we have used to deliver services to our clients.
Andre Valentine: All of these examples continue to demonstrate our focus on being a complete solutions company for our clients with a tech first mindset, which we believe differentiates us greatly from our peers CX competitors and allows us to deliver higher value services in 2023, our innovation and complete automation of transactions are part of our processes.
Hit an all time high which drive higher value to our clients and more efficiencies for us.
Andre Valentine: Turning to the fourth quarter, our team continued to deliver excellent service for our clients, while making considerable progress with the initial integration of the warehouse business, which I'll talk about in a minute.
Andre Valentine: We met several financial operating milestones in the fourth quarter, which Andre will review in more detail, but at a high level revenue increased 36% as reported and grew over 3% on a pro forma constant currency basis in the quarter.
Andre Valentine: We also delivered record fourth quarter, non-GAAP operating income and adjusted EBITDA up 37% and 40% respectively.
Andre Valentine: These improvements are as a result of solid growth in Europe, Asia, and Latin America with increased movement to offer our near shore operation as well as continued delivery efficiencies some delivered from the tools that I highlighted earlier.
Andre Valentine: I'm also pleased that we continue to grow in each of our key verticals as well as in our catalyst <unk> and specialized health care areas.
Andre Valentine: We have invested in a new strategic and complicated set of solar capabilities that will allow us to deliver our solid one initiative, which focuses on selling complete end to end transformational solutions and larger enterprise deals with a sales pipeline currently stands at over a quarter billion dollars of annual contract value.
Andre Valentine: <unk> created all within Q4.
Andre Valentine: Clients continue to appreciate both our advanced services and technologies and our extensive global reach our wins. This quarter included a broad range of clients across verticals and delivery regions, providing a full spectrum of services.
Andre Valentine: A few examples of those wins and.
Andre Valentine: And international money transfer company experiencing exponential growth partner for high risk compliance operations.
Andre Valentine: We're now providing anti money laundering and fraud prevention services for those clients. The solution includes the European Central Bank sports with skilled experts and Fintech leadership. The second phase of this project will launch later this quarter leveraging capabilities of the combined business, including advanced technology from our catalyst and our know your customer platform.
Andre Valentine: That came from warehouse.
Andre Valentine: Our Premier Health mental health clinic face the challenge of establishing consistent practices or customer access we are providing a comprehensive solution involving a modern curriculum. Our contact center services are any Pos solution CRM integration and generative AI driven functionality our solution.
Streamlining processes, increasing efficiency and scheduling and referral and empowering the teams to significantly enhance the overall customer experience and mental health.
Andre Valentine: Another health care management company best in class capabilities, and transformative solutions to navigate the complex system for assisting members with provider selection and insurance inquiries within 30 days, we started to integrate the technology stock performed the CX assessment and quality Assurance review this is helping to revolutionize.
Andre Valentine: And evaluate overall member experiences for the client.
Andre Valentine: Finally in automotive manufacturer based challenges managing multiple vendors are countless team leveraged our intelligence operational capabilities for compliance and best practices and develop strategic it services the implemented dashboards reporting and robotic analysis solutions. The solution marked a significant step forward towards our <unk>.
Andre Valentine: Keeping higher efficiency and innovative automation within their business.
Based on the reception from clients and our pipeline of opportunities that combine the capabilities of Concentrix catalysts and our core CX operations. It is evidenced that our strategy is working our clients due to combination of deep domain expertise digitally enabled global delivery and our ability to invest in secure adoptable scalable technology as key differentiator.
Andre Valentine: Our unique approach to intensely infuse digital technologies and analytics continued to drive sales revenues.
Andre Valentine: Turning to our.
Turning to our web help transaction. This marks a significant milestone in the evolution of our company is the beginning of a new chapter, creating a global market leader with a world class platform for value creation. We now offer one of the most robust well balanced global footprints in the industry. The combination of the two companies broadened our technology.
Andre Valentine: Hi solutions in multiple high value verticals, strengthening our enzyme value proposition and adding significant new consulting technology and operating capabilities in Europe, Latin America and Africa.
Andre Valentine: The integration of the two companies is progressing smoothly and is contributing as anticipated throughout the quarter. We achieved significant integration milestones. Examples include the startup successful migration of over 30000, new staff to our HR system, and starting with sales management process and establishing the global <unk>.
Andre Valentine: Leadership structure, we are thrilled with the talented staff and the strength of our combined execution as I mentioned, we are already converting a growing pipeline for wind that neither company could have one without the other and we are on track to deliver the cost synergies we discussed when we announced the combination.
Andre Valentine: For fiscal 2024, and the first quarter, we expect to make progress towards achieving our synergy targets for the combination and integration activities move forward, we expect to continue to convert and ramp synergy pipeline wins as well for the full year, we expect revenue growth profit improvement strong cash generation and debt reduction.
Andre Valentine: Sure.
We also see 2024 being the year that <unk> will start to positively influence our revenue and margin in the later part of the year and into early 2025.
Andre Valentine: While the specific timing of these advancements with AI and client adoption are still not entirely sure.
Andre Valentine: We are now confident our ability to offer competitive solutions and see benefits from the technology.
Andre Valentine: While our clients are taking time on their AI adoption, we're seeing tangible benefits with our own use cases, and we will continue to invest in these investments to make us more efficient and offer a higher level of service to our clients ahead of return for the next few quarters, we see immense potential in the emerging technologies that can intelligently Act.
Andre Valentine: On customer intended to improve the customer experience and are building out new capabilities and services to take advantage of the market as it develops.
Andre Valentine: Based on our conversations with clients and the proof of concept through we're currently working on we continue to believe that Gen. II will enhance the customer experience with human involvement versus completely automating work.
Andre Valentine: Our current generic pipeline includes over 145 engagements while the majority of these projects revolve around proof of concepts a few projects that have transitioned to the run or managed services space.
Andre Valentine: Use cases that are gaining traction Roe relate mostly to our technology, allowing our game changers to be more productive and more personalized engagement specific to the end customers.
Andre Valentine: <unk> relates to completely automated services, replacing low value work, while we generate more managed services type of revenue for supporting the technology and the environment.
Andre Valentine: In summary, we have made great strides executing our strategies in 2023, making investments and acquired and organic growth and a differentiated growth model that I believe will allow us to outperform in the market. We believe that 2024 will require continued investment to ensure we are ahead of the market for further gen AI deployments at scale.
Finally, I want to acknowledge the collective strength of the team we've built and thank them all for their adaptability and commitment to execution and the evolving industry their dedication and hard work is positioning us as a formidable force in the market and I also want to thank our clients for their trust our talented board of directors for their support and Mentorship and our investors for the.
Andre Valentine: Confidence in Concentrix, we look forward to an exciting year ahead and the continued success of our company now I will turn the call over to Andre Andre.
Andre Valentine: Thank you, Chris and Hello, everyone I'll begin with a look at our financial results for the fourth quarter.
Andre Valentine: And then discuss our business outlook for fiscal year 2024.
Andre Valentine: I'm pleased to report that our revenue and profitability metrics, not only met but exceeded our Q4 guidance.
Andre Valentine: Free cash flow also remained strong allowing for substantial debt reduction in the fourth quarter.
Andre Valentine: Fourth quarter revenue was $2 $2 billion to $3 billion, which included $574 million added by the web help business for the last two months of the quarter.
Andre Valentine: We will not be separately reporting web outperformance going forward as we are now managing the business on an integrated basis.
Andre Valentine: On a pro forma basis as if the wet help combination was completed at the beginning of the fourth quarter.
Andre Valentine: Revenue for the quarter was $2 four $2 billion.
Andre Valentine: Resulting in pro forma constant currency growth of approximately three 5%.
Andre Valentine: As anticipated the contribution for the legacy business came in at the low end of our prior full year guide and the web health business contributed faster growth.
Andre Valentine: Revenue increases with clients in our four strategic verticals more than offset some volume softness with a few clients.
Andre Valentine: On a pro forma basis revenue from retail travel and E Commerce clients grew 12% in the quarter.
Andre Valentine: Pro forma revenue from banking financial services and insurance clients grew 6%.
Andre Valentine: Health care client revenue grew 5% on a pro forma basis.
Andre Valentine: Revenue from technology, and consumer electronics clients grew by 1% on a pro forma basis as growth with several clients was offset by continued softer volumes with a large consumer electronics clients.
Andre Valentine: Continuing trends from earlier in the year pro forma revenue from communications and media clients decreased by 3% and revenue from clients in our other vertical decreased 6%.
Andre Valentine: While we grew on a pro forma basis with 14 of our 20 largest clients softer volumes with a handful of consumer electronics retail E Commerce and communications clients remained a headwind.
Andre Valentine: Turning to profitability non-GAAP operating income was $341 million in the fourth quarter up $93 million compared with last year. Our non-GAAP operating margin was 15, 3% up 20 basis points from the fourth quarter last year adjusted.
Andre Valentine: Adjusted EBITDA was $398 million up $113 million compared with last year.
Andre Valentine: <unk> EBITDA margin was 17, 8% up 40 basis points from last year.
Andre Valentine: This large and progress reflects profit flow through on revenue growth efficiency gains across our operations and early attainment of synergies from the web help combination.
Andre Valentine: On a pro forma basis.
Andre Valentine: The web help transaction that closed at the beginning of the prior year's fourth quarter property <unk>.
Andre Valentine: <unk> ability metrics would have been as follows non-GAAP operating income of $365 million up $22 million compared with last year non-GAAP operating margin of 15, 1% up 50 basis points from the prior year adjusted EBITDA of $429 million up $28 million.
And adjusted EBITDA margin of 17, 8% up 70 basis points from last year.
Andre Valentine: The large swing in our reported other expense line in the quarter was mostly due to items associated with the web help combination.
Andre Valentine: These included a $16 million increase in the fair value of contingent share consideration related to get combination and $13 million and net foreign currency losses.
Andre Valentine: We believe that these items and that reflects the underlying health of our operations and future changes in the fair value of contingent share consideration and foreign currency movements are not predictable.
Andre Valentine: Accordingly, we have adjusted our non-GAAP net income and non-GAAP EPS metrics to exclude these items.
Andre Valentine: Going forward, our reporting of non-GAAP net income and non-GAAP EPS exclude the change in fair value of contingent share consideration related web help combination.
Andre Valentine: Net foreign currency gains and losses.
Andre Valentine: We believe that this change removes confusion in the reported non-GAAP net income and EPS results and more closely aligns our reporting with investors' expectations.
Andre Valentine: This measure is also on a consistent basis with how we provided non-GAAP EPS guidance for the fourth quarter.
Andre Valentine: Presentation for all prior periods has been updated to reflect this change.
Andre Valentine: non-GAAP net income was $213 million in the quarter compared with $146 million last year non-GAAP EPS was $3 36 per share compared with $2 80 per share last year.
Andre Valentine: GAAP results for the fourth quarter of 2023 included $40 million of expenses related to the combination and integration.
Andre Valentine: $97 million in amortization of intangibles.
Andre Valentine: $24 million and share based compensation expense of.
Andre Valentine: $16 million change in the fair value of contingent share consideration <unk>.
Andre Valentine: $18 million and net foreign currency losses.
Andre Valentine: And $3 million in imputed interest related to the seller's note issued in connection with the combination.
Andre Valentine: Turning to cash flow.
Andre Valentine: Cash generation from operations in the fourth quarter totaled $229 million.
Andre Valentine: Capital expenditures for $65 million.
Andre Valentine: This resulted in free cash flow of $164 million, including $40 million of transaction and integration costs related to the combination.
Andre Valentine: This is within our guidance range for the quarter, which excluded the transaction and integration costs.
Andre Valentine: For the full year 'twenty three 2023 we achieved our expectation of where the $500 million in free cash flow excluding transaction integration costs associated with web help moving forward, we expect capital expenditures to be approximately two 5% of revenue.
Andre Valentine: Yes.
Andre Valentine: Our GAAP and non-GAAP tax rates were 10% and 21% respectively.
In the fourth quarter. This was lower than expected due to one time items that changed the geographic mix of our income.
Andre Valentine: Reducing our exposure to certain minimum taxes.
Andre Valentine: Allowing us to use more net operating loss carryforwards that we anticipated.
Andre Valentine: Our non-GAAP tax rate for the full year was 24%.
Andre Valentine: Turning to the balance sheet at the end of the fourth quarter cash and cash equivalents were $295 million.
Andre Valentine: And total debt was.
Andre Valentine: $4 $94 billion.
Andre Valentine: Net debt was $4 $65 billion at the end of the fourth quarter.
Andre Valentine: The gross debt balance included 215 billion of senior unsecured notes.
Andre Valentine: 195.
Andre Valentine: 1 billion outstanding on our term loan.
Andre Valentine: The $762 million seller's note and 129 million of borrowings under our AR securitization facility.
Andre Valentine: And is reported net of debt issuance costs and discounts.
Andre Valentine: Our gross debt of $4 94 billion at the end of the year represents a reduction of nearly 300 million since the close of the combination.
Andre Valentine: As we used free cash flow and a reduction of cash on the balance sheet to pay down debt.
By year end, we had reduced net debt by approximately $150 million after the combination closed.
Andre Valentine: We reduced net leverage which stood at three two times pro forma adjusted EBITDA combination close to 3.0 times by year end.
Andre Valentine: We did this in addition to continue an active program for capital return.
Andre Valentine: Our strong free cash flow generation and adjusted EBITDA growth gives us a clear path.
Andre Valentine: To reduce leverage further and we're committed to our plan to reduce net leverage to close to two times adjusted EBITDA within two years of the close of the combination.
Regarding our capital allocation priorities, our focus remains on organic growth. The continued integration of web help realizing planned synergies and repaying debt.
Andre Valentine: Consistent with our commitment to an investment grade principles, we will prioritize paying down debt and reducing our net leverage while continuing our dividend and disciplined share repurchases.
Andre Valentine: During the fourth quarter, we paid $21 million through our <unk>.
Andre Valentine: Orderly dividend I should say of 30 and a quarter cents per share.
Andre Valentine: <unk> repurchased 286000 shares of our stock for approximately $23 million, an average price of approximately $79 per share.
Andre Valentine: For the full year, we paid $64 million in dividends and made $81 million in share repurchases.
Andre Valentine: At year end, the remaining authorization on our share repurchase plan was approximately $290 million.
We've continued to repurchase shares in the first quarter of 2024 with repurchases totaling approximately $11 million quarter to date.
At year end, our liquidity remains strong at $171 billion, including a one point share a $4 billion line of credit, which is undrawn cash on hand, and the additional capacity of $371 million on our AR securitization.
Andre Valentine: Our strong balance sheet and cash flow generation provides significant flexibility for the future.
Andre Valentine: Now I'll turn my attention to the business outlook for the first quarter and full year 2024.
To help with year over year comparisons on a go forward basis.
Andre Valentine: We have published quarterly pro forma revenue figures to help model future year over year performance. These figures demonstrate how the combined business would have performed at the transaction that closed at the beginning of 2023.
Andre Valentine: The pro forma data is available in our historical metrics buyout, which can be accessed on our investor Relations website.
Andre Valentine: For the first quarter, we expect revenue to be in a range of $2 $3 6 billion to $2 $406 billion based on current exchange rates.
Andre Valentine: This reflects approximately 1% to 3% pro forma constant currency growth and approximately one 1% exchange rate headwind.
Andre Valentine: Pro forma revenue was $2 $36 billion in the first quarter of 2023.
Andre Valentine: In terms of profitability in the first quarter, we expect non-GAAP operating income in a range of $315 million to $325 million.
Andre Valentine: At the midpoint of our guidance this equates to a non-GAAP operating income margin of approximately 13, 4% at.
Andre Valentine: An increase of 10 basis points over the prior year at 40 basis points at a pro forma basis.
Andre Valentine: On a pro forma basis non-GAAP operating income was $307 million in the first quarter of 2023.
Andre Valentine: Yeah.
Andre Valentine: Our non-GAAP EPS expectations for the first quarter on a range of $2 51 per share to $2 65 per share.
Andre Valentine: The calculation of this metric is consistent with the approach that I described earlier.
Andre Valentine: As is typical of our business, we expect first quarter free cash flow to be approximately breakeven.
Andre Valentine: Free cash flow to ramp up meaningfully in the second quarter.
Andre Valentine: We expect interest expense in the first quarter to be approximately $79 million, excluding $4 million of imputed interest on the seller's note.
Andre Valentine: We expect an effective tax rate of approximately 26% to 27%.
Andre Valentine: We expect a weighted average diluted share count of approximately $65 8 million shares.
Andre Valentine: Consistent with prior periods, our non-GAAP diluted EPS calculation follows the two class method.
Andre Valentine: Allocating earnings between common stock and participating securities.
Andre Valentine: For the first quarter, we estimate that about 4% of net income will be attributable to participating securities and about 96% of total net income will be attributable to common shares.
Andre Valentine: Moving to our outlook for the entire year, we expect 2020 for revenue to be in the range of 951 billion to $9 701 billion for the full year.
Andre Valentine: This reflects approximately 1% to 3% pro forma constant currency growth and our revenue expectations net of a 70 basis point exchange rate headwind pro.
Andre Valentine: Pro forma revenue was $9 $49 billion for the full year 2023.
Andre Valentine: Our full year profitability expectations include non-GAAP operating income in a range of $1 $3 9 billion to $145 billion at the midpoint of the range. This equates to a non-GAAP operating margin of 14, 8% an increase of 65.
<unk> points over the prior year, and 90 basis points on a pro forma basis.
Andre Valentine: Our guidance for the full year reflects our confidence in achieving our year, one synergy target of $75 million for context. Our current achieved net synergy run rate is approximately $55 million on an annualized basis.
Andre Valentine: Pro forma non-GAAP operating income was $132 billion for the full year 2023.
Andre Valentine: Our non-GAAP EPS expectations for the full year are in the range of $11 69 per share to $12 50 per share.
Andre Valentine: We expect full year interest expense to be approximately $295 million, excluding $60 million in imputed interest on the seller's note.
Andre Valentine: Effective tax rate of approximately 26% to 27% and a weighted average diluted share count of approximately $65 6 million shares.
Andre Valentine: In calculating non-GAAP diluted EPS attributable to common shares for the full year, we expect approximately 96% of total net income will be attributable to common shares.
In terms of cash flow, we expect another strong year with free cash flow growing by approximately 40% to over $700 million in 2024 inclusive.
Andre Valentine: Inclusive of acquisition and integration costs.
Andre Valentine: This has positioned us to further reduce our net leverage to approximately two five times adjusted EBITDA by year end.
Andre Valentine: Having no further acquisitions, we remain committed to reducing our net leverage to close to two times adjusted EBITDA within two years after the close of the combination.
Andre Valentine: Our business outlook does not include any future acquisitions or impacts from future foreign currency fluctuations.
Andre Valentine: In closing we had a very successful year with strong revenue growth largely expansion of free cash flow generation. We're excited about the combination with web which has joined two leading CX providers into a global platform for growth and value creation.
Andre Valentine: We believe our range and global reach of high value services and digital capabilities creates a unique customer engagement offering that will keep our business resilient through business cycles, and we look forward to another year of growth and value creation.
Andre Valentine: With that operator, please open the line for questions.
Andre Valentine: Thank you as a reminder, if you would like to ask a question. Please press star online your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Andre Valentine: The first question that we have for today is from Joseph <unk> of Canaccord. Your line is open.
Andre Valentine: Hey, guys good afternoon nice.
Joseph <unk>: The strong results here for the end of the year, just wanted to maybe drill down a little bit on your.
Joseph <unk>: Our guidance philosophy here for the coming fiscal year.
Joseph <unk>: Any assumptions you have on changes in the macro relative to where you are on that revenue guide and then I'll have a quick follow up.
Andre Valentine: She joins Kristina I'll pass Andre if he's got a comment the way we looked at 2024 evolving is similar to 2023, we don't expect there to be a sort of seasonal peak in Q4, we expect our retail and E. Commerce continued to be somewhat muted primarily driven by the macroeconomic.
Andre Valentine: Conditions, similar with consumer electronics, we're seeing that as relatively muted and so we see it as being.
Andre Valentine: That consistency through the course of the year, we do see us being able to deploy more of our generative AI solutions internally through the course of the year that will add to some better productivity gains, but as we've called out kind of investing that into.
Andre Valentine: Frankly, winning new business to be more transformation and building out more tools, because we do think that this year, we will start to see a bit more of an inflection point near the end of the year for client solutions.
Andre Valentine: That will mute a bit of growth, but thats more of a back half of the year is the way we're looking at it.
Andre Valentine: Got it and then.
Andre Valentine: And maybe you could compare and contrast, maybe the cadence of momentum between kind of core Concentrix and then web help I know there are kind of integrating so it may be harder to do at this point, but how is there a way to kind of give us a little more color into those two <unk>.
Andre Valentine: To the business.
Andre Valentine: Yes drew it's pretty it's pretty integrated even now as we speak as we talked about we've already won deals.
Andre Valentine: The web how businesses brought us more kind of nearshore and offshore capabilities for our Europe business and so clearly our goal over the next year is to drive more business and higher profit nearshore and offshore regions then.
Andre Valentine: Continental Europe for some of the business that we're doing.
<unk> business also brings us more e-commerce clients that are in travel clients within.
Andre Valentine: As the market and that's a global comment is that clients in Latin America and Europe.
Andre Valentine: And frankly that has been fairly successful high growth area for us and so thats nice to see and then lastly in some of the newer capabilities that we bring onboard might be AML.
Andre Valentine: <unk> see.
Andre Valentine: Activities that we called out as some of the wins that we've got.
Andre Valentine: We expect to see some some good wins from that but the general.
Andre Valentine: <unk> business is very very very similar as it really brings us additional footprint. This dismal additional marquee clients.
Andre Valentine: We were after.
Speaker Change: Yes, Joe to say that.
When we acquired web help it was growing faster than Concentrix I think in our guidance that that continues.
Andre Valentine: Certainly helped by the fact that.
Andre Valentine: Unlike the Concentrix business web help it not have much of a presence in North America, where we do see some pressure given given higher costs and clients' desire to to drive costs down through.
Andre Valentine: Through automating transactions or looking for near shore or offshore alternatives to onshore North American services.
Andre Valentine: Got it great. Thanks, guys for the color.
Andre Valentine: Thank you.
Andre Valentine: Thank you.
Andre Valentine: One moment for our next question.
Andre Valentine: Okay.
Andre Valentine: Okay.
Andre Valentine: And our next question will be coming from Dixon.
Andre Valentine: <unk>.
Andre Valentine: Outbound to research your line is open.
Dixon: Yes, Chris.
Chris: Congrats on a good quarter.
Chris: Im curious.
Chris: Curious.
Chris: How significant are the revenue synergies that are baked into your guidance.
Chris: Yes, just to be quite honest Vince are quite conservative.
Chris: As we talked about when we announced the deal we did not count on revenue synergies that was sort of additional extra we were more focused on hitting from.
Chris: <unk>.
Andre Valentine: Our cost synergy perspective, as we look through the numbers.
Andre Valentine: I'll tell you is that normally it takes six to eight months before we start to see real kind of material.
Andre Valentine: Opportunities that come from bringing two businesses together, we were very happy and surprised that we got a few small deals done within the fourth quarter, but I wouldnt over read into that I don't think its sort of that six month window before it becomes more material and we haven't really talked about within that within our guidance for the year.
And then have you baked in do you have any concerns about.
Andre Valentine: Client losses due to.
Andre Valentine: <unk>.
Andre Valentine: Increased revenue concentration I know there was a not a lot of overlap between the two firms.
Andre Valentine: Yes, there were a lot of overlap between the two firms, which is what really interested.
Andre Valentine: Interesting to us we haven't had any feedback from clients that were over.
Index with any of them in fact, a few that we thought we were going to be touching that threshold.
Andre Valentine: Actually we've done well with.
Andre Valentine: In terms of finding new opportunities so that hasn't hasn't been a concern.
Andre Valentine: That's all so far we don't see anything in the horizon.
Andre Valentine: And then last one for me.
Andre Valentine: You had referred to.
Andre Valentine: Leveraging AI for productivity purposes as the man.
Andre Valentine: As a main driver for you.
Not seeing it as a labour substitute.
Andre Valentine: Could you give us your latest thoughts on the weather.
Andre Valentine: Yes for sure. So we've got a lot of Poc's in place with clients well over 140 in a sort of growing on a weekly monthly basis and what we're finding is our clients are very hesitant not to say that this won't change, but very hesitant to have fully automated gen AI solution I'll call.
Andre Valentine: In the while dealing with customers with no human intervention.
Andre Valentine: No human checks and there's a lot of reasons, but we can go through but that's still the overwhelming sentiment and so where people are looking at it to drive the best benefit, whereas hoping whether they're soft or stop the enterprises.
Andre Valentine: Be more productive and being able to deliver a differentiated personal service to the customers, but they are engaging with it that's where we see some of the big client and every time, we talk about some things that are fully automated we tend to get the clients are saying no that does.
Andre Valentine: Where we're at right at the moment.
Andre Valentine: Well down the pipe.
Andre Valentine: And so we're not only building the tools internally for ourselves is we're seeing the benefit but that's where we're also seeing clients.
Andre Valentine: Focus their efforts as kind of making ourselves better and more productive than sort of a complete automation work.
Andre Valentine: Okay. Thank you.
Ed: Thanks, Ed.
Ed: Thank you one moment for the next question.
Andre Valentine: And our next question will be coming from DVR Guido.
Andre Valentine: Scotiabank Your line is open.
Andre Valentine: Good afternoon, everyone. It's a great quarter I just wanted to go down to the AI question. So you talked about the proof of concepts that you're deploying the clients and trying to assess the productivity gains have you been.
DVR Guido: Have you been in what sort of internal AI deployments are you looking at or considering and do you think that can broadly, bringing the productivity gains within the organization and help deal with an improved operating margin.
Andre Valentine: Yes, we do I mean.
We see a lot more tools that we can build internally to drive better productivity across our enterprise and what we're seeing is that where we can either get information large quantities mentioned, the healthcare banking and wealth management, even very complicated, Texas or even complex case management.
Andre Valentine: Men with problem of transportation, where we can take huge quantities of information and boil it down and put it into personalized format and deliberate to a customer.
There is a big big productivity gains that we're seeing within that base that if you looked at how we can actually take the interactions and then analyze interactions and provide feedback back to our game changers.
Andre Valentine: The next call or stop is that.
Andre Valentine: <unk> productivity and uniqueness that we can deliver to each individual is something that frankly, we couldnt do in the past without scaling up significant number more of QA and labor of coaches and everything else that goes along with it. So we see some really really really big benefits from that perspective and in terms of complete.
Andre Valentine: Automation, we've talked about we have a few that we've put in place that are complete automated.
Andre Valentine: On experiences.
Andre Valentine: There are very very small MLM theyre very controlled <unk> and what we're seeing is our revenue model is.
Andre Valentine: We're providing a managed services and providing the data ingestion, we're providing these that the management of those on the allowance and the clients are very cautious about putting them on small transactional Hughes.
Andre Valentine: And.
Andre Valentine: Really really really twofold, and Lockdowns and Theres no hallucinations nothing goes.
Andre Valentine: As a small cubes theres not as much productivity that you get but it's definitely something that we are.
Andre Valentine: We're continuing to partner.
Andre Valentine: That's helpful. Chris maybe I'll ask another question and I know you've spoken about it at the time, you announced that the pulp acquisition, but now that Oh.
Andre Valentine: The company has been acquired for almost a quarter end.
Chris: Obviously integrated yet what are some of the key growth geographies that you see and then I wanted to further kind of understand how the broader Latam integration going and do you do you see.
Chris: Significant upside coming from the Latam integration in the shorter charter term given the growth.
Chris: The Latam region in general.
Yeah for sure. So just kind of set the stage a little bit the concentrix business was growing faster in Asia, and Europe and it wasn't in North America, and we felt that we were underperforming in Latin America and one of the things that we were really excited about that.
Andre Valentine: Give us faster growth market in Europe with this combination.
Andre Valentine: Our combined with a very very very strong team within Latin America, and then our Asia team continues to perform very very well as Henri called out so from a faster growth geography perspective think near shore Europe Africa.
Henri: As kind of a higher growth however of abuse brought in more profitable growth than than what we were able to achieve since we just didn't have that footprint from a Latin American combination perspective, very very very strong execution team in Latin America now with the combination of the two businesses coming together and we see the growth not only in new opportunities.
Henri: <unk> is taking from North America, and Latin American markets, but also in some domestic Latin American markets that we've historically done very well and together.
Henri: We think they will do even better in Brazil.
Henri: Brazil and Colombia.
Andre Valentine: You grew a few other markets Mexico that.
Andre Valentine: Now have the ability to do both at local engagement business as well as the global business from the near term market within within North America. So I'm quite excited from that perspective.
Andre Valentine: That's great.
No.
Andre Valentine: I would just go ahead Greg.
Greg Smith: Yes, I was going to add Chris some really strong.
Chris: <unk> capabilities, frankly, a digital capabilities and that Latam team that had very very key to helping us grow that.
Chris: Domestic market practice throughout Latin America, So just another.
Andre Valentine: Great thing that we found in Latin America as you brought the two businesses together.
Andre Valentine: That's helpful and just one last question here on the pricing environment over the last few quarters. There has been this increased consolidation obviously.
Andre Valentine: Concentrix consolidated do you see any significant scale benefits.
Andre Valentine: Has that have you.
Seen a significant change in the pricing environment, given the broader macro and how things have trended.
Andre Valentine: Yes, that's a good question I would answer by saying that right now the market is quite competitive and what we're seeing is on top of every client's mind is.
Andre Valentine: Reducing costs and some that and total cost of ownership.
Andre Valentine: They simply a pricing exercise and we are seeing competitors in some commodity work and some some kind of higher volume easier to move work being very very Murray.
Andre Valentine: Aggressive from a pricing perspective, what we're not seeing that as in some of the higher work that we're doing where there's more technology more integrated services to be done, but overall, it's a very very competitive market right now is what we're seeing.
That's helpful. I'll pass the line. Thank you Paul.
Paul: Thank you.
Paul: Thank you.
Paul: Yeah.
Paul: Our next question will be coming from <unk>.
Paul: Hoopla.
Paul: Gotcha carrier of Bank of America. Your line is open.
Paul: For the first one Chris can I ask you about the general operating environment can you talk about deal sizes the sales cycle.
Chris: And you.
Chris: You Havent I don't think you mentioned the new economy client growth I mean, if you can talk about that and what really has changed in the last 90 days from an operational standpoint.
Chris: So a couple of things just in terms of timing of deals. The standard deals that were doing theres really been no change in timing. They tend to follow the same pattern that we've seen for the last number of quarters.
Chris: Obviously, we're focusing on some of the big transformational deals that we talked about the new team around us with big deal, we expect those to take a lot longer than historically.
Chris: Okay fair bit longer, but they're stickier longer term contracts.
Chris: And frankly more profitable and so certainly we're putting more effort into that what we are seeing in the marketplace is that wins as we've talked about for probably last couple of quarters tend to come in.
Chris: In at the volume that we were expecting and stay closer to that volume versus growing and that tends to be more driven by the macroeconomic conditions right. If people are moving to us because we're giving us a change a differentiated level of service and their business is not as growing as fast as it was.
And a very robust economy, and so we're seeing those deals come in and probably growing a little slower than what you would have seen.
Chris: Youre in a half to two years ago from that perspective, the only other comment I'll make just in terms of new economy and were seeing new economy.
<unk>.
Andre Valentine: Business kind of all in line with everything else right, it's a little higher here and there. So some of the E. Commerce that we've talked about what would fall into that category and with travel will actually.
Andre Valentine: In the new economy category, and so we're seeing that.
Andre Valentine: Is that continuing to grow a little faster, but it's been tax and health care, new economy companies and a few other companies like that tend to be following a lot of the general macroeconomic <unk>.
Andre Valentine: Conditions are there.
Andre Valentine: Their enterprise peers.
Andre Valentine: Last quarter, that's probably a little different than what we saw a couple of quarters ago.
Andre Valentine: Okay.
Andre Valentine: Thanks for that let me ask a question to Andre.
For fiscal 'twenty for Andre Youre guiding low single digit so 1% to 3% year on year growth on a pro forma base.
Andre Valentine: Basis.
Andre Valentine: If wed held was growing much faster than the base Concentrix business. I mean is it reasonable for us to think that most of that growth is coming from web help or do you expect the core concentrix business to also grow year on year and if you can also even commentary on the catalyst business how is that doing year on year.
Andre Valentine: And when do you expect to get to corporate average growth.
Andre Valentine: The catalyst business.
Andre Valentine: Sure. So the Concentrix business is growing on a year over year basis.
Andre Valentine: At each each point of our guide.
However.
Andre Valentine: Our guidance I would say web help is growing faster.
And each of those each of those points both at the low end the midpoint and high end of the range.
Andre Valentine: As for catalyst catalyst has reached a.
A level of stability, where it is growing.
Andre Valentine: It is growing really in line with the rest of the business and actually poised to grow and maybe a little bit faster than the rest of the business.
Andre Valentine: In 2024, so we feel good about that again, we're not seeing the large transformational deals that we've talked about we've talked about this for a few quarters, we're not seeing large transformational deals there, but a number of opportunities.
Andre Valentine: To do smaller projects.
Andre Valentine: And drive.
Andre Valentine: To drive good results for our clients and growth for the business.
Andre Valentine: Okay. Thanks, Thanks for the clarification, there Andre Chris if I can come back to you I mean, I think in the prepared remarks, you said 2024 will be the year that Gen. II will positively influence revenues and maybe in the latter part of the year and into 2025 I mean, so I guess my question to you would be.
Andre Valentine: Is that correct and if it is then what's giving you confidence that the revenue impact will actually be positive from generator of AI, because you kind of have to balance some volume going away because of AI, but then you could get higher level work. So can you just give us your thought process on how youre thinking about this revenue impact in 2024 and 2020.
Andre Valentine: Yes.
Andre Valentine: Yes for sure fluids, Great question I think there's two things that we look at first when we've now been at this sort of a year and a quarter.
Give or take with our clients looking at <unk> and actually getting them in and frankly, we've been spending a lot of this in our own dime and kind of co developing with with clients et cetera, et cetera. It hasn't meaningfully put anything into from a from a revenue perspective I'm sorry, it's Ben.
Greg Smith: Not a drag but it's just been an investment that we've been making and we start to see the end of 2024, where there is enough momentum that we think these things will start to go into more production that.
Greg Smith: Whereas chargeable that we'll start to see more turns of all that we will start to see some benefits of that and in the POC. We are seeing where we're driving revenue and we're starting to develop all these new levels of service.
Andre Valentine: More generally on.
Andre Valentine: Whether it be from.
Andre Valentine: Different types of content tagging and management, whether it be from how we implement the <unk> whether it be from how we manage the all of them whether it be from kind of the allocation of the data whether it be from the analytics and supporting application layer that integrates into it and then running it because you have to continue to tune. These all of them were starting to see all of this new opportunity.
Andre Valentine: As for revenue, that's coming out that will offset some of the decline that you will get from people be more productive with with.
Andre Valentine: The technology being put in place and so.
Andre Valentine: Now have enough kind of test cases, and data that we can start to extrapolate and start to see okay.
We see how this works now why are we talking about the fact that the visibility is a little little light is that we still have clients, who generally I'm looking at this and POC are okay, but theres still a lot of hesitation for adoption.
Andre Valentine: Scale, where where.
Andre Valentine: Youre going to see some.
Andre Valentine: Probably a bigger inflection point, we do think that will come I think it's a matter of time.
But we will start to see I think early signs have been sort of back half of 2024 to early 2025.
Okay. Thanks for the details there I am going to try and squeeze one more in if I can.
Andre Valentine: Youre doing the web help integration and you said that the focus is going to be on debt reduction for the next two years.
How should we think about your propensity for future M&A in these two years or at least in 2024.
Andre Valentine: You do I mean, do you think that that's something you're going to consider and if so what.
Andre Valentine: What are the metrics what size what what are you looking for.
Andre Valentine: And if you can just give any thoughts on inorganic growth in the near term.
Andre Valentine: Andre is going to come down sorry.
Andre Valentine: Sorry, yes.
Andre Valentine: Yes, so obviously.
Andre Valentine: Real blue the real focus is on paying down debt and so I don't think we would say never as it relate to smaller or tuck in.
Andre Valentine: M&A obviously.
Andre Valentine: I keep investing in the business, but anything that we do will be consistent with the investment grade principles that we've outlined.
Andre Valentine: And our desire to get that.
Andre Valentine: Net leverage close to two times within the two year period post transaction close.
Andre Valentine: So what would we look at.
Andre Valentine: What would we look to acquire I think it would be again tuck in nature could be a domain expertise technological expertise in a certain area, but again would be relatively small.
And thats something of scale, such as what we've dealt with withheld Chris anything you'd want to add there.
Chris: No I agree with you as we've talked about it's really about domain expertise. It's about technology, that's about furthering our differentiated value proposition and so we're.
Greg Smith: Focused on kind of making sure that we keep our investment grade principles and enhancing business that we have the opportunities from an M&A perspective in those areas.
Chris: Okay. Thank you for all the detail I appreciate it.
Chris: Sure. Thank you.
Andre Valentine: Thank you.
Andre Valentine: And there are no more questions in the queue. This does conclude today's conference call. Thank you all for joining you may now disconnect.