Q2 2024 Concentrix Corp Earnings Call

June 26, 2024

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Operator: Good day, everyone, and thank you for standing by. Welcome to the Concentrix Fiscal First Quarter 2024 Financial Results Conference call. At this time, all participants are in a listen-only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising that your hand is raised. To withdraw your question, simply press star 11 again.

Speaker Change: Good day, everyone, and thank you for standing by. Welcome to the Concentrix Fiscal First Quarter 2024 Financial Results Conference Call.

Speaker Change: 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 participate, you will need to press star-one-one on your telephone. You will then hear a message advising your hand is raised.

Speaker Change: To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand it over to the Vice President of Investor Relations, Sarah Buda. Please proceed.

Operator: Please be advised that today's conference is being recorded. I would now like to hand the microphone over to the Vice President of Investor Relations, Sarah Buda. Please proceed. Thank you, operator. And good evening, everyone.

Sarah Buda: Welcome to the Concentrix second quarter fiscal 2024 earnings call. This call is a 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 future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different from those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events, or developments.

Sarah Buda: This call contains forward-looking statements that address our future performance and that by their nature address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events, or developments.

Sarah Buda: 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 concludes the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC. Also, during the call, we will provide and discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS, and constant currency. A reconciliation of these non-GAAP measures is available in the news release and on the company's investor relations website under Financial.

Sarah Buda: 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.

Sarah Buda: This includes the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC.

Sarah Buda: A reconciliation of these non-GAAP measures is available in the news release and on the company's investor relations website under financials.

Sarah Buda: With me on the call today are Chris Caldwell, our President and CEO, 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 to your questions. Now, I'll turn the call over to our CEO, Chris Caldwell. Thank you very much, Sarah. Hello, everyone.

Speaker Change: With me on the call today are Chris Caldwell, our President and CEO , and Andre Valentine, our Chief Financial Officer.

Speaker Change: 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 to your questions. With now, I'll turn the call over to our CEO , Chris Caldwell.

Christopher A. Caldwell: And thank you for joining us today for our second quarter 2024 earnings call. First, let me start off by thanking our clients in Game Changers for their contributions to our being included on the Fortune 500 list for the first time this year. We started with an idea that companies wanted to deliver a better brand experience for their customers.

Christopher A. Caldwell: Thank you very much, Sarah. Hello, everyone, and thank you for joining us today for our second quarter 2024 earnings call.

Christopher A. Caldwell: First, let me start off by thanking our clients in Game Changers for their contributions for being included in the Fortune 500 list for the first time this year. We started with an idea that companies wanted to deliver a better branding experience for their customers.

Christopher A. Caldwell: We believe that by thinking about the customer experience holistically across both back office and front office work, while investing in technology for frictionless engagement, we could create a market opportunity for ourselves. Over 20 years, we have grown that idea into a global player in over 70 countries, delivering solutions that continue to push the industry forward. I couldn't be prouder of the team or more thankful for the trust of our clients. Now, turning to our second quarter performance.

Christopher A. Caldwell: We believe that by thinking about the customer experience holistically across both back-office and front-office work, while investing in technology for frictionless engagement, we could create a market opportunity for ourselves.

Christopher A. Caldwell: Over 20 years, we have grown that idea to a global player in over 70 countries delivering solutions that continue to push the industry forward. I couldn't be prouder of the team or more thankful for the trust of our clients.

Christopher A. Caldwell: We increased revenue 47% as reported and grew 4% on a pro forma constant currency basis by an order exceeding our prior guidance. We reported non-GAAP operating income of $321 million, an increase of 46% year on year and in line with our guidance. We delivered a Dr. Deepita revenue of $380 million, an increase of 47% year-on-year.

Christopher A. Caldwell: Now, turning to the second quarter performance.

Christopher A. Caldwell: We increased revenue 47% as reported, and grew 4% on a pro forma cost-to-currency basis in the quarter exceeding our prior guidance.

Christopher A. Caldwell: We reported non-GAAP operating income of $321 million, an increase of 46% year-on-year, and in line with our guidance.

Christopher A. Caldwell: We delivered adjusted EBITDA of $380 million and increased to 0.7% year-on-year. On a pro forma basis, we grew non-GAAP operating income 4% and adjusted EBITDA 2% year-on-year.

Christopher A. Caldwell: On a pro forma basis, we grew non-GAAP operating income 4% and adjusted EBITDA 2% year-on-year. We generated more than $200 million in adjusted pre-tax closes the quarter while returning more than $60 million of value to shareholders through dividends and share repurchases. We remain on track to generate $700 million of adjusted pre-cash flow for the full year after integration expenses and on track to complete $120 million of share repurchases for the fiscal year, of which we have done over $60 million through the end of Q2.

Christopher A. Caldwell: We generated more than $200 million in adjusted pre-cash flows this quarter, while returning more than $60 million of value to shareholders through dividends and share repurchases.

Christopher A. Caldwell: We remain on track to generate $700 million of adjusted pre-cash flow for the full year after integration expenses, and on track to complete $120 million of share repurchases for the fiscal year, of which we have done over $60 million to the end of Q2.

Christopher A. Caldwell: Our positive momentum continued in the second quarter, giving us confidence to raise our revenue growth guidance for the full year. Our revenue guidance does not anticipate any changes in the macroeconomic environment, but it does reflect ongoing client demand for our solutions and the stability of our client volume. We see the same momentum in Caldwell as its growth continues to be exceeded, which we expect to continue for all of 2024.

Christopher A. Caldwell: We see the same momentum in Caldwell as its growth continues to be exceeded, which we expect to continue for all of 2024.

Christopher A. Caldwell: From a vertical perspective, we're seeing particular strengths in retail, travel, e-commerce, and banking and financial services, which is expected to continue for the rest of 2024. As we mentioned in our first quarter call, we are increasing our investment in our technology while also investing to transition more business from competitors. In the second quarter, we accelerated these investments while still expecting to increase our non-GAAP operating income by 40 basis points for the entire year on a pro forma basis. Specifically, we have increased our development spend to approximately 1% of revenue through the second quarter, an increase of approximately 50 basis points from the start of Q1.

Christopher A. Caldwell: From a vertical perspective, we are seeing particular strengths in retail, travel, e-commerce, and banking and financial services that is expected to continue for the rest of 2024.

Christopher A. Caldwell: As we mentioned in our first quarter call, we are increasing our investment in our technology while also investing to transition more business from competitors.

Christopher A. Caldwell: In the second quarter, we accelerated these investments while still expecting to increase our non-GAAP operating income by 40 basis points for the entire year on a full formal basis.

Christopher A. Caldwell: Specifically, we have increased our development spend to approximately 1% of revenue through the second quarter, an increase of approximately 50 basis points from the start of Q1.

Christopher A. Caldwell: This increased investment relates to the development of technology platforms for both client and internal use, as well as an increasing number of pilots that we have underway with clients using generative AI. We see this investment remaining at this level for a few quarters prior to falling more in line with historically what we have spent, while revenue from these investments starts to become more meaningful. We also expect to incur approximately $20 million to $25 million of new firm incremental expense if we take up a large, multi-year program where we are taking share from competitors as clients consolidate capacity with us. These investments, again, are temporary, and revenue follows in subsequent quarters.

Christopher A. Caldwell: This increased investment relates to our development of technology platforms for both clients and internal users, as well as an increasing number of pilots that we have underway with clients using generative AI.

Christopher A. Caldwell: We see this investment remaining at this level for a few quarters prior to falling more in line with historically what we have spent, while revenue from these investments starts to become more meaningful.

Christopher A. Caldwell: We also expect to incur approximately $20 million to $25 million of new term incremental expense.

Christopher A. Caldwell: to take up a large, multi-year program where we are taking share from competitors as clients consolidate capacity with us. These investments, again, are temporary and revenue follows in subsequent quarters.

Christopher A. Caldwell: We see both of these as near-term and positive investments that will set us up for long-term growth and value creation. Now, let's talk about some of our recent wins and the trends we're seeing in the business. As a reminder, our growth strategy is to drive incremental value to clients through a broad set of technologies and services at global scale. Our strategy is working, and we're starting to see this reflected in our growth rate and our pipeline building across both existing and new clients.

Christopher A. Caldwell: We see both of these as near-term and positive investments that will set us up for long-term growth and value creation.

Christopher A. Caldwell: Some examples of wins in the quarter include a major global retail e-commerce client where we combine the power of our Venn AI context and translation tools with our CX expertise and global footprint to design and implement a new customer solution experience for them across their immediate operations. This allowed our clients to move volume from competitors to us, resulting in a 20% increase in our revenue and a mid-single-digit increase in our margins for this specific program. While reducing the cost to the client by double digits, our use of GNI expertise was a win-win for us and our clients.

Christopher A. Caldwell: Now, let's talk about some of our recent wins and the trends we're seeing in the business.

Christopher A. Caldwell: As a reminder, our growth strategy is to drive incremental value to clients through a broad set of technologies and services at global scale. Our strategy is working and we are starting to see this reflected in our growth rate and our pipeline building across both existing and new clients.

Christopher A. Caldwell: Some examples of wins in the quarter include a major global retail e-commerce client where we combine the power of NAI's context and translation tools with our CX expertise in global footprint to design and implement a new customer solution experience for them across their immediate operations.

Christopher A. Caldwell: This allowed our clients to move volume from competitors to us, resulting in a 20% increase in our revenue and a mid-single-digit increase in our margin for this specific program, while reducing the cost for the client by double digits.

Christopher A. Caldwell: Our use of GNI expertise was a win-win for us and our clients.

Christopher A. Caldwell: We also won a new large global media client this quarter; we will support the launch of one of the new high-profile channels, NMEA, and consolidate their customer experience operations in Japan and Korea. We will also design and build a generative AI knowledge management solution for their enterprise. They wanted a partner that can provide a complete solution delivered globally and securely, which we are able to do. Other wins in the quarter include a global travel client that has a web health relationship in Europe.

Christopher A. Caldwell: We also won a new large global media client this quarter. We will support the launch of one of their new high-profile channels, NMEA, and consolidate their customer experience operations in Japan and Korea. We will also design and build a generative AI knowledge management solution for their enterprise.

Christopher A. Caldwell: They are one of the partners that can provide a complete solution delivered globally and consistently, and securely, which we are able to do.

Christopher A. Caldwell: Other wins in the quarter include a global trial of clients that have a web health relationship in Europe .

Christopher A. Caldwell: This quarter, we started to expand our revenues as a combined organization by leveraging our AI footprint and our AI-based training tools to improve effectiveness and efficiency for our game changers. This resulted in work coming from competitors to us as well as a potential new revenue stream as they contemplated rolling out our AI solution across their enterprise. Finally, we sold Catalyst Services to a former web health client in Europe to provide specialized digital engineering resources to build, enhance, and maintain the client's digital infrastructure and CCAS platform to support their primary channel for new business. This strengthens our existing relationship with the client. These wins underscore the breadth and complexity of solutions that we are delivering for our clients.

Christopher A. Caldwell: This resulted in NERP coming from competitors to us, as well as a potential new revenue stream as they contemplate rolling out our AI solution across their enterprise.

Christopher Caldwell: Finally, we sold Caldwell services into a former web health client in Europe to provide specialized digital engineering resources to build and have to maintain the client's digital infrastructure and seek out a platform to support their primary channel for new business. The strength in our business relationships with the client; these wins underscore the breadth and complexity of solutions that we are in another important project. They've also replied to our business engineers to change.

Christopher A. Caldwell: Finally, we sold Catalyst Services into a former web health client in Europe to provide specialized digital engineering resources to build, enhance, and maintain the client's digital infrastructure and CCAS platform to support their primary channel for new business.

Christopher A. Caldwell: This strengthens our existing relationship with the client.

Christopher A. Caldwell: These wins underscore the breadth and complexity of solutions that we are delivering for our clients. They also reflect how our business continues to change.

Christopher Caldwell: At our investor age, few years ago, we talked about 13 percent of our business being commoditized, low-confectory transactions. Last year, we updated investors that we were down to 10 percent, and then we've reviewed that to 7 percent. We need 90-15 percent of our friends actually are leaders to high-confectory now in our business. These wins also demonstrate two important factors in our relationship with the game market and well-deserved.

Christopher A. Caldwell: At our Investor Day two years ago, we talked about 13% of our business being commoditized, low-complexity transactions.

Christopher A. Caldwell: Last year, we updated investors that we were down to 10%, and this year we have reduced that to 7%, meaning 96% of our transactions are leading to high complexity now in our business.

Christopher A. Caldwell: Meaning 96% of our transactions are leading to high complexity now in our business. These wins also demonstrate two important factors in our ability to gain market share. Clients are seeking a broader set of integrated solutions from fewer partners and are looking to us to do so on a global scale, technology and integrated consulting, implementation, and support offerings.

Christopher A. Caldwell: These wins also demonstrate two important factors in our ability to gain marks in WalletShare.

Christopher A. Caldwell: So I am speaking of products that have a great solution from zero partners, so I don't think that's useful at low-confectory, technology, and integrated consulting and implementation and support offering. And secondly, automation in generative AI is continuing to be an area of competitive advantage for us. As we have said, little core, we believe Joseph and AI presents a tremendous up-side opportunity for consensus in our client. We have been releasing number of products and solutions going to production since the client is now. While the level of generative adoption readiness varies greatly by vertical influence, there are a few common things with the pilot's introduction.

Christopher A. Caldwell: Clients are seeking a broader set of integrated solutions from fewer partners, and are looking to us to do so on a global scale, technology, and integrated consulting, implementation, and support offerings. And secondly, automation and generative AI is continuing to be an area of competitive advantage for us.

Christopher A. Caldwell: As we have said before, we believe generative AI presents a tremendous upside opportunity for Concentrix and our clients.

Christopher A. Caldwell: We have an increasing number of pilots and solutions going in production with clients now. While the level of genetic adoption readiness varies greatly by vertical and client, there are a few common themes with these pilots in production.

Christopher Caldwell: First, the vast majority of the pilot's approaches are looking at using AI to augment the unit's binder, switch it to the provider more effective and representing our client's brand and enhancing the brand experience for customers. Second, many of these pilots are using generative AI to operate for a place, existing knowledge platform, chat box, automation system, and an IVR system. The green queen, to the outside opportunity, we see as we combine our own AI tools with all of our partners to bring new values to our client. Many of our technology platforms continue to gain traction in the market.

Christopher A. Caldwell: First, the vast majority of pilots in the process are looking at using AI to augment a human advisor to make the advisor more effective in representing our client's brand and enhancing the brand experience for the customer. Second, many of these pilots are using generative AI to operate and replace existing knowledge platforms, chatbots, automation systems, and IVR.

Christopher A. Caldwell: First, the vast majority of the silencing process are looking at using AI to augment a human advisor, to make the advisor more effective at representing our client's brand and enhancing the brand experience for our customers.

Christopher A. Caldwell: Second, many of these pilots are using generative AI to upgrade or replace existing knowledge platforms, chatbots, automation systems, and IVR systems.

Christopher A. Caldwell: This brings me to the upside opportunity we see as we combine our own AI tools with those of our partners to bring new value to our clients. Many of our technology platforms continue to gain traction in the market. We're building on this momentum and will be introducing a variety of new products over the coming quarters. This quarter, we filed a patent for GILES, which stands for Generative Intelligence for Limitless Engineers, a platform we developed to automate coding and testing using Gen-AI that is helping us to build new platforms faster.

Christopher A. Caldwell: This brings me to the upside opportunity we see as we combine our own AI tools with those of our partners to bring new value to our clients.

Christopher Caldwell: We're building on this momentum, and we'll be introducing a variety of new products over the coming quarters. This quarter, we filed a patent for a child, for example, for generative intelligence from women's limitless engineer. A platform we develop to automate coding and testing using generative AI to develop a new platform. From our internal usage, we're seeing up to 40% productivity, good experience to coders on a transactional path. We believe our investments in most generative AI pilots and signals. Well, help us expand the share of the wall and share market, wall firm and superior marketing.

Christopher A. Caldwell: Many of our technology platforms continue to gain traction in the market. We are building on this momentum and will be introducing a variety of new products over the coming quarters.

Christopher A. Caldwell: This quarter, we filed a patent for GILD, which stands for Generative Intelligence for Limitless Engineers, a platform we developed to automate coding and testing using Gen AI that is helping us to build new platforms faster.

Christopher A. Caldwell: From our internal usage, we are seeing up to a 40% productivity boost to experienced coders on transactional paths.

Christopher A. Caldwell: From our internal usage, we're seeing up to a 40% productivity boost for experienced coders on the transactional path. We believe our investments in both generative AI pilots and technology products will help us expand the share of wallets and share of markets, long-term and superior markets. Finally, let me touch on the web health integration.

Christopher A. Caldwell: We believe our investments in both generative AI pilots and technology products will help us expand the share of wallet and share of market, long-term, at superior margins.

Christopher Caldwell: Finally, let me touch on the web health integration. And you can see from these wins we mentioned, we're starting to see revenue synergy sooner than we expected. This is the testament to the successful integration of our go-to-market and delivery organizations, which we initiated on day one, and our largely behind us. The integration is on track. As is a realization of plan, contenting, and summary, our growth value is working. We're differentiating consensus from the markets and delivering incremental values to clients for a broad set of technology and services to the global scale. So, with the wins of our evidence that AI is most likely opportunity for investors.

Christopher A. Caldwell: As you can see from these wins we've mentioned, we're starting to see revenue synergies sooner than we expected. This is a testament to the successful integration of our go-to-market and delivery organizations, which we initiated on day one and are largely behind. The integration is on track, as is the realization of planned continuity. In summary, our growth strategy is working, we are differentiating Concentrix from the market, and we are delivering incremental value to clients for a broad set of technologies and services at a global scale.

Christopher A. Caldwell: Finally, let me touch on the web health integration. As you can see from these wins we've mentioned, we're starting to see revenue synergies sooner than we expected. This is a testament to the successful integration of our go-to-market and delivery organizations, which we initiated on day one, and are largely behind us.

Christopher A. Caldwell: The integration is on track, as is a realization of planned cost synergies.

Christopher A. Caldwell: In summary, our growth strategy is working, we are differentiating Concentrix in the market, and delivering incremental value to clients through a broad set of technologies and services at global scale. And our recent wins offer evidence that AI is an upside opportunity for Concentrix.

Christopher A. Caldwell: And our recent wins offer evidence that AI is an upside opportunity for Concentrix. With that, I'd like to thank our game changers and our clients for the relationships over the last quarter and ask you to call over to Andre. Andre, over to you. Thank you, Chris. And hello, everyone.

Christopher Caldwell: With that, I'd like to thank our gamechanger and our clients and our relationships for the last work, and after all, it was in May.

Speaker Change: With that, I'd like to thank our game changers and our clients for the relationships over the last year and have to call over to Andre. Andre, over to you.

Unknown Executive: Under course you.

Unknown Executive: Thank you, Chris, and hello everyone. I'll begin with a look at our financial results and then discuss our outlook for the rest of the year. The second quarter marked another solid quarter for the company. We exceeded our targets for revenue, delivered profits within our guidance range, and drove strong free cash flow. We delivered second quarter revenue of $2.4 billion on a pro-forma constant currency basis. As if the web help combination was completed at the beginning of 2023, we grew revenue by 4%. For the first half of the year, our constant currency pro-forma growth was 3.4%.

Andre S. Valentine: I'll begin with a look at our financial results and then discuss our outlook for the rest of the year. The second quarter marked another solid quarter for the company. We exceeded our targets for revenue, delivered profits within our guidance range, and drove strong free cash flow. We delivered second quarter revenue of $2.4 billion on a pro forma constant currency basis.

Andre S. Valentine: Thank you, Chris, and hello, everyone. I'll begin with a look at our financial results and then discuss our outlook for the rest of the year. The second quarter marked another solid quarter for the company. We exceeded our targets for revenue, delivered profits within our guidance range, and drove strong free cash flow.

Andre S. Valentine: We delivered second quarter revenue of $2.4 billion on a pro-forma, constant currency basis.

Andre S. Valentine: As if the web help combination was completed at the beginning of 2023, we grew revenue by 4%. For the first half of the year, our constant currency pro forma growth was 3.4%, so our overall revenue trends remain positive. As you can see from our guidance, we expect this stability to continue in the second half of the year. Looking at our revenue growth by vertical, on a pro forma basis, revenue from retail, travel, and e-commerce clients grew 10% year over year. Revenue from banking, financial services, and insurance clients grew 6%, and our other verticals grew 3%.

Andre S. Valentine: As if the web help combination was completed at the beginning of 2023, we grew revenue by 4 percent.

Andre S. Valentine: For the first half of the year, our Constant Currency Proforma growth was 3.4%, so our overall revenue trends remain positive. As you can see from our guidance, we expect this stability to continue in the second half of the year.

Unknown Executive: So our overall revenue trends remain positive. As you can see from our guidance, we expect this stability to continue in the second half of the year. Looking at our revenue growth by a vertical, on a pro-forma basis, revenue from retail travel and e-commerce clients grew 10% year over year. We're revenue from banking, financial services, and insurance clients grew 6%. And our other vertical grew 3%. Our technology and consumer electronics clients grew over 3% on a pro-forma basis. While this vertical is still lagging, some other sectors, due to the macro environment. We were happy to see some positive momentum from consumer electronics clients as we gained share with key clients.

Andre S. Valentine: Looking at our revenue growth by vertical, on a pro-forma basis, revenue from retail, travel, and e-commerce clients grew 10% year over year. Revenue from banking, financial services, and insurance clients grew 6%.

Andre S. Valentine: Our technology and consumer electronics clients grew over 3% on a pro forma basis. While this vertical is still lagging some other sectors due to the macro environment, we were happy to see some positive momentum from our consumer electronics clients as we gained share with key clients. We continue to see strength in enterprise tech. However, revenue from our telco and media clients decreased 3% on a pro-forma basis, primarily due to lower volumes from a few North American communications clients, as discussed in prior quarters.

Andre S. Valentine: and our other vertical grew 3%.

Andre S. Valentine: Our technology and consumer electronics clients grew over 3% on a pro-forma basis.

Andre S. Valentine: While this vertical is still lagging some other sectors due to the macro environment, we were happy to see some positive momentum from consumer electronics clients as we gained share with key clients.

Unknown Executive: We continue to see strength and enterprise tech. Revenue from our telco and media clients decreased 3% on a pro-forma basis. Primarily due to lower volumes from a few North American communications clients, as discussed in prior quarters. Turning to profitability, our nine-gap operating income was $321 million in the quarter, an increase of $111 million compared with the second quarter of 2023. Our nine-gap operating margin was 13.5%. Down about 20 basis points from last year due to the inclusion of WebL, which historically operated slightly lower nine-gap OI margin. Adjusted EBITDA was $380 million, up $121 million year over year.

Andre S. Valentine: We continue to see strength in enterprise tech. Revenue from our telco and media clients decreased 3% on a pro forma basis, primarily due to lower volumes from a few North American communications clients, as discussed in prior quarters.

Andre S. Valentine: Turning to profitability, our non-GAAP operating income was $321 million in the quarter, an increase of $101 million compared with the second quarter of 2023. Our non-GAAP operating margin was 13.5%, down about 20 basis points from last year due to the inclusion of WebHelp, which historically operated a slightly lower non-GAAP OI margin. Adjusted EBITDA was $380 million, up $121 million year-over-year, and our adjusted EBITDA margin was 15.9%, roughly flat year-on-year. On a pro forma basis, our second quarter profitability metrics continued their solid improvement.

Andre S. Valentine: Turning to profitability, our non-GAAP operating income was $321 million in the quarter, an increase of $101 million compared with the second quarter of 2023.

Andre S. Valentine: Our non-GAAP operating margin was 13.5%, down about 20 basis points from last year, due to the inclusion of WebHelp, which historically operated a slightly lower non-GAAP OI margin.

Andre S. Valentine: Adjusted EBITDA was $380 million, up $121 million year-over-year, and our adjusted EBITDA margin was 15.9%, roughly flat year-on-year.

Unknown Executive: And our adjusted EBITDA margin was 15.9%, roughly flat year on year. On a pro-forma basis, our second quarter profitability metrics continued their solid improvement. Nine-gap operating income increased $12 million with a 30 basis point margin improvement compared with last year. Adjusted EBITDA was up $8 million, and our adjusted EBITDA margin was flat compared with last year. Nine-gap net income was $183 million in the quarter, an increase of approximately $46 million compared to the second quarter of last year. Nine-gap EPS was $2.69 per share, an increase of $6 per share year on year. Gap net income was $67 million for the quarter.

Andre S. Valentine: On a pro-forma basis, our second quarter profitability metrics continued their solid improvement. non-GAAP operating income increased $12 million with a 30 basis point margin improvement compared with last year.

Andre S. Valentine: Non-GAAP operating income increased $12 million with a 30 basis point margin improvement compared with last year. Adjusted EBITDA was up $8 million, and our adjusted EBITDA margin was flat compared with last year. Non-GAAP net income was $183 million in the quarter, an increase of approximately $46 million compared to the second quarter of last year. Non-GAAP EPS was $2.69 per share, an increase of $0.06 per share year on year. Gap's net income was $67 million for the quarter.

Andre S. Valentine: Adjusted EBITDA was up $8 million, and our adjusted EBITDA margin was flat when compared with the last year.

Andre S. Valentine: Nongap Net Income was 183 million dollars in the quarter, an increase of approximately 46 million dollars compared to the second quarter of last year. Nongap EPS was $2.69 per share, an increase of six cents per share year on year.

Andre S. Valentine: Gap results for the second quarter of 2024 included $116 million in the amortization of intangibles, $31 million in expenses related to the web help combination and integration, and $22,000,000 in share-based compensation expense. $2.5 million and step-up depreciation. A $7 million reduction in Acquisition Contingent Consideration. $14 million in net foreign currency gains and $4 million in imputed interest related to the seller's note issued in connection with the transaction.

Andre S. Valentine: Gap net income was $67 million for the quarter.

Unknown Executive: Gap results for the second quarter of 2024, including $116 million in amortization of intangibles, $31 million in expenses related to the WebHub combination and integration. $22 million in share-based compensation expense. 2.5 million dollars in step-up depreciation, a $7 million reduction in acquisition, contingent consideration, $14 million in net foreign currency gains, and $4 million in imputed interest related to the sellers' note, issued in connection with the combination. Our adjusted free cash flow for the quarter was strong at $202 million, and remain on track for a full-year adjusted free cash flow outlook of $700 million, net of integration expenses.

Andre S. Valentine: Gap results for the second quarter of 2024 included $116 million in amortization of intangibles, $31 million in expenses related to the web help combination and integration,

Andre S. Valentine: $22 million in share-based compensation expense.

Andre S. Valentine: $2.5 million and step up depreciation.

Andre S. Valentine: A $7 million reduction in Acquisition Contingent Consideration, $14 million in Net Foreign Currency Gains, and $4 million in Imputed Interest related to the Seller's Note issued in connection with the combination.

Andre S. Valentine: Our adjusted free cash flow for the quarter was strong at $202 million, and we remain on track for a full year adjusted free cash flow outlook of $700 million net of integration expenses. As we stated in our last call, the adjusted free cash flow metric is calculated as free cash flow excluding the impact of the factoring program we assumed and have continued to operate since the Webhelp combination. During the second quarter, the amount of factored accounts receivable decreased by $24 million, with the outstanding factored balance standing at about $162 million at the end of the quarter.

Andre S. Valentine: Our adjusted free cash flow for the quarter was strong at $202 million, and we remain on track for our full-year adjusted free cash flow outlook of $700 million net of integration expenses.

Unknown Executive: As we stayed there last call, the adjusted free cash flow metric is calculated as free cash flow excluding the impact of the factoring program we assumed, and if continue to operate since the web help combination. During the second quarter, the amount of factored accounts received will decrease by $24 million, with the outstanding factored balance standing at about $162 million at the end of the quarter. In the second quarter, we made payments related to earn outs of past web help acquisitions of approximately $28 million, over which approximately $5 million resulted in a reduction of adjusted free cash flow.

Andre S. Valentine: As we stated in our last call, the adjusted free cash flow metric is calculated as free cash flow excluding the impact of the factoring program we assumed and have continued to operate since the WebHelp combination.

Andre S. Valentine: During the second quarter, the amount of factored accounts receivable decreased by $24 million, with the outstanding factored balance standing at about $162 million at the end of the quarter.

Andre S. Valentine: In the second quarter, we made payments related to earnouts of past web help acquisitions of approximately $28 million, of which approximately $5 million resulted in a reduction of adjusted free cash flow. Turning to the balance sheet, at the end of the second quarter, cash and cash equivalents were $207 million, and total debt was $4.9 billion. Net debt was $4.7 billion at the end of the second quarter, and we repaid $150 million of the principal amount of our term loan during the quarter.

Andre S. Valentine: In the second quarter, we made payments related to earnouts of past Web Help acquisitions of approximately $28 million, of which approximately $5 million resulted in a reduction of adjusted free cash flow.

Unknown Executive: Turning to the balance sheet at the end of the second quarter, cash and cash equivalence for $27 million, and total debt was $4.9 billion. Net debt was $4.7 billion at the end of the second quarter, and we repaid $150 million of the principal amount of our term loan in the quarter. We reduced our net debt to $2.97 per form adjusted EBITDA at quarter end, a sequential decrease from $3.04 in the prior quarter. We expect it continued to reduce our net debt and net leverage to the end of 2024. We remained committed to our plan of reducing net leverage to close to two times adjusted EBITDA within two years of the close of the web help combination, while supporting our dividend and buying back stock.

Andre S. Valentine: Turning to the balance sheet, at the end of the second quarter, cash and cash equivalents were $207 million, and total debt was $4.9 billion.

Andre S. Valentine: Net debt was $4.7 billion at the end of the second quarter, and we repaid $150 million of the principal amount of our term loan in the quarter.

Andre S. Valentine: We reduced our net debt to 2.97 times pro forma adjusted EBITDA at quarter end, a sequential decrease from 3.04 times in the prior quarter.

Andre S. Valentine: We expect to continue to reduce our net debt and net leverage through the end of 2024. We remain committed to our plan of reducing net leverage to close to two times adjusted EBITDA within two years of the close of the Webhelp combination while supporting our dividend and buying back stock.

Unknown Executive: During the second quarter, we repurchased approximately $650,000 of our stock for approximately $40 million, at an average price of approximately $61 per share, and we paid $20 million through our quarterly dividend. As a reminder, on our first quarter earnings call in March, we committed to $100 million in share repurchases over the remaining three quarters of 2024, so we have about $50 million more to go on that commitment. At quarter end, the remaining authorization on our share repurchase plan was approximately $227 million. Our liquidity remained strong, and approximately $1.5 billion, including our over $1 billion line of credit, which is undrawn.

Andre S. Valentine: During the second quarter, we repurchased approximately 660,000 shares of our stock for approximately $40 million at an average price of approximately $61 per share, and we paid $20 million through our quarterly dividend. As a reminder, on our first quarter earnings call in March, we committed to $100 million in share repurchases over the remaining three quarters of 2024, so we have about $60 million more to go on that commitment. At quarter end, the remaining authorization on our share repurchase plan was approximately $227 million.

Andre S. Valentine: At quarter end, the remaining authorization on our share repurchase plan was approximately $227 million. Our liquidity remained strong at approximately $1.5 billion, including our over $1 billion line of credit, which is undrawn.

Andre S. Valentine: Our liquidity remains strong at approximately $1.5 billion, including our over $1 billion line of credit, which is undrawn. We remain committed to investment grade principles, and we are steadfast in our capital allocation priorities. We expect to continue to drive organic growth, realize integration synergies related to the web help combination, and repay debt, while continuing a disciplined program of returning capital to our shareholders through our dividend and disciplined share repurchase program. Now, I'll turn my attention to the Business Outlook for the third quarter and full year 2021.

Unknown Executive: We remain committed to investment grade principles, and we are steadfast in our capital allocation priorities. We expect to continue to drive organic growth, realize integration synergies related to the web help combination, and repay debt, while continuing a discipline program of returning capital to our shareholders through our dividend and discipline share repurchases.

Andre S. Valentine: We remain committed to investment grade principles and we are steadfast in our capital allocation priorities.

Andre S. Valentine: We expect to continue to drive organic growth, realize integration synergies related to web help combination and repay debt, while continuing a disciplined program of returning capital to our shareholders through our dividend and disciplined share repurchases.

Andre S. Valentine: For the third quarter, we expect revenue of $2.35 billion to $2.4 billion based on current exchange rates. This reflects approximately 1.5% to 3.5% pro-forma constant currency growth net of an approximately 205 basis point exchange rate headwind. Pro forma revenue for the third quarter of 2023 would have been $2.367 billion, assuming the web help combination occurred at the beginning of fiscal 2023. We expect non-GAAP operating income to be in the range of $330 million to $350 million in the third quarter.

Unknown Executive: Now, I'll turn my attention to the business outlook for the third quarter and four years. For the third quarter, we expect revenue of $2.35 billion to $2.4 billion, based on current exchange rate. This reflects approximately 1.5% to 3.5% pro-forma constant currency growth, net of an approximately 205 basis point exchange rate headwind. Pro-forma revenue for the third quarter of 2023 would have been $2.367 billion, assuming the web help combination occurred at the beginning of fiscal 2023. We've spent 9 gap operating income to be in the range of 330 million to 350 million dollars in the third quarter.

Andre S. Valentine: Now, I'll turn my attention to the Business Outlook for the third quarter and full year 2024.

Andre S. Valentine: For the third quarter, we expect revenue of $2.35 billion to $2.4 billion based on current exchange rates.

Andre S. Valentine: This reflects approximately 1.5% to 3.5% pro forma constant currency growth, net of an approximately 205 basis point exchange rate headwind.

Andre S. Valentine: Pro forma revenue for the third quarter of 2023 would have been $2.367 billion, assuming the web help combination occurred at the beginning of fiscal 2023.

Andre S. Valentine: We expect non-GAAP operating income to be in the range of $330 million to $350 million in the third quarter.

Andre S. Valentine: At the midpoint of our guidance, this equates to a non-GAAP operating income margin of approximately 14.3%. Importantly, this is an increase of 20 basis points over the prior year quarter on both a reported and pro forma basis. On a pro-forma basis, non-GAAP operating income was $334 million in the third quarter of 2023. We expect non-GAAP EPS of $2.76 per share to $3.04 per share for the third quarter. This assumes interest expense of $75 to $76 million, excluding $4 million of imputed interest on the seller's note.

Unknown Executive: At the mid point of our guidance, this equates to a 9 gap operating income margin of approximately 14.3%. Importantly, this is an increase of 20 basis points over the prior year quarter on both a reported and pro forma basis. On a pro-forma basis, 9 gap operating income was $334 million in the third quarter of 2023. We expect 9 gap EPS of $2.76 per share to $3.40 per share for the third quarter. This is since interest expense of $75 to $76 million, excluding $4 million of imputed interest on the seller's note. It assumes a 9 gap effective tax rate in a range of 25 to 26%.

Andre S. Valentine: On a pro forma basis, non-GAAP operating income was $334 million in the third quarter of 2023.

Andre S. Valentine: We expect non-GAAP EPS of $2.76 per share to $3.04 per share for the third quarter.

Andre S. Valentine: This assumes interest expense of $75 million to $76 million, excluding $4 million of imputed interest on the seller's note. It assumes a nine-gap effective tax rate in a range of 25 to 26 percent.

Andre S. Valentine: It assumes a non-GAAP effective tax rate in a range of 25 to 26 percent. We anticipate a weighted average diluted earnings per share of $0.57 for the third 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 for the third quarter. Turning now to the full year 2024 guidance, based on our strong start and continued confidence in our strategy and execution, we are increasing our full year 2024 revenue guidance while reiterating our free cash flow guidance.

Unknown Executive: We anticipate a weighted average deluge for the third quarter. We estimate that about 4% of net income will be attributable to participating securities, at about 96% of total net income will be attributable to common shares for the third quarter.

Andre S. Valentine: We anticipate a weighted average diluted...

Andre S. Valentine: for the third 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 for the third quarter.

Unknown Executive: Turning now to the full year 2024 guidance, based on our strong start and continued confidence in our strategy and execution, we are increasing our full year 2024 revenue guidance while reiterating our free cash flow guidance. Specifically, our guidance for the full year is as follows. We expect 2024 revenue to be in a range of $9.58 billion to $9.67 billion. Reflecting approximately 2.5% to 3.5% pro-forma constant currency growth. This is net of an approximately 150 basis point exchange rate headwind. This is an increase to our prior guidance of 1 to 3% year-on-year growth on a pro-forma constant currency basis.

Andre S. Valentine: Turning now to the full year 2024 guidance, based on our strong start and continued confidence in our strategy and execution, we are increasing our full year 2024 revenue guidance while reiterating our free cash flow guidance.

Andre S. Valentine: Specifically, our guidance for the full year is as follows. We expect 2024 revenue to be in a range of $9.58 billion to $9.675 billion, reflecting approximately 2.5% to 3.5% pro forma constant currency growth. This is net of an approximately 150 basis point exchange rate headwind.

Andre S. Valentine: Specifically, our guidance for the full year is as follows.

Andre S. Valentine: We expect 2024 revenue to be in a range of $9.58 billion to $9.675 billion, reflecting approximately 2.5% to 3.5% pro forma constant currency growth.

Andre S. Valentine: This is net of an approximately 150 basis point exchange rate headwind. This is an increase to our prior guidance of 1 to 3 percent year-on-year growth on a pro forma constant currency basis.

Unknown Executive: We continue to expect first-year net synergies of $75 million. The current run rate is approximately $80 million on an annualized basis. We do anticipate that some of these synergies, say this will be offset by continued ramp-up cost and accelerated investment in technology. As a result of the investment risk referred to earlier, we are reducing our 9-gap operating income expectation for the year. We now anticipate 9-gap operating income in the range of $1.35 to $1.40 billion for the year, which represents a 14.3% margin at the midpoint. Importantly, this is an increase of 10 basis points over the prior year and 40 basis points over the prior year on a pro-forma basis.

Andre S. Valentine: We continue to expect first-year net synergies of $75 million. The current run rate is approximately $80 million on an annualized basis.

Andre S. Valentine: We do anticipate that some of these synergies savings will be offset by continued ramp-up costs and accelerated investment in technology. As a result of the investments Chris referred to earlier, we are reducing our non-GAAP operating income expectation for the year. We now anticipate non-GAAP operating income in the range of $1.35 to $1.40 billion for the year, which represents a 14.3% margin at the midpoint. Additionally, this is an increase of 10 basis points over the prior year and 40 basis points over the prior year on a pro forma basis. We expect non-GAAP EPS of $11.40 per share to $12.07 per share. This assumes full year interest expense of $300 to $304 million, excluding $16 million of imputed interest on the seller's note.

Andre S. Valentine: We do anticipate that some of these synergy savings will be offset by continued ramp-up costs and accelerated investment in technology.

Speaker Change: As a result of the investments Chris referred to earlier, we are reducing our non-GAAP operating income expectation for the year.

Speaker Change: We now anticipate non-GAAP operating income in the range of $1.35 to $1.40 billion for the year, which represents a 14.3% margin at the midpoint.

Speaker Change: Importantly, this is an increase of 10 basis points over the prior year and 40 basis points over the prior year on a pro forma basis.

Unknown Executive: We expect nine-gatt EPS of $11.40 per share to $12.70 per share. This assumes four-year interest expense of $300 to $34 million, excluding $16 million of included interest on the seller's note. We expect an effective tax rate of approximately 25% to 25.5% and a weighted average due to the share count for approximately 65.1 million shares for the full year. In terms of cash flow, we are reiterating our outlet for $700 million in free cash flow of in 2024, even after funding integration costs. This assumes no change in the amount of factory accounts receivable from the beginning of the year.

Speaker Change: We expect non-GAAP EPS of $11.40 per share to $12.07 per share. This assumes full-year interest expense of $300 to $304 million, excluding $16 million of imputed interest on the seller's note.

Andre S. Valentine: We expect an effective tax rate of approximately 25% to 25.5% and a weighted average diluted share count of approximately 65.1 million shares for the full year. In terms of cash flow, we are reiterating our outlook for $700 million in free cash flow in 2024, even after funding integration costs. This assumes no change in the amount of factored accounts receivable from the beginning of the year.

Speaker Change: We expect an effective tax rate of approximately 25% to 25.5% and a weighted average diluted share count of approximately 65.1 million shares for the full year.

Speaker Change: In terms of cash flow, we are reiterating our outlook for $700 million in free cash flow in 2024, even after funding integration costs.

Speaker Change: This assumes no change in the amount of factored accounts receivable from the beginning of the year.

Andre S. Valentine: Our strong free cash flow will position us to further reduce our net leverage to approximately 2.6 times adjusted EBITDA by year-end, while repurchasing approximately $120 million of shares as we have committed. Our business outlook and cash flow expectations do not include any future acquisitions or impacts from future foreign currency fluctuations. In conclusion, we are pleased with our performance in the second quarter and our outlook for the year. We are exceeding our revenue growth expectations with solid execution across key verticals.

Unknown Executive: Our strong free cash flow will position us to further reduce our net leverage for approximately 2.6 times adjusted EBITDA by year-end, while repurchasing approximately $120 million of shares, as we have committed. Our business outlook and cash flow expectations do not include any future acquisitions or impacts from future foreign currency fluctuations.

Speaker Change: Our strong free cash flow will position us to further reduce our net leverage to approximately 2.6 times adjusted EBITDA by year-end, while repurchasing approximately $120 million of shares as we have committed.

Speaker Change: Our business outlook and cash flow expectations do not include any future acquisitions or impacts from future foreign currency fluctuations.

Unknown Executive: In conclusion, we are pleased with our performance of the second quarter and our outlook for the year. We are exceeding our revenue growth expectations with solid execution across key verticals, where optimistic about our second half, resting solid demand for our unique technology and services offerings. We are increasing our competitive position with a broader set of technology and service offerings. With this backdrop, we are increasing our revenue guidance for the year, and we are reiterating our expectations for free cash flow. We will continue to return value to shareholders with our ongoing share purchase program and dividend while reducing leverage.

Speaker Change: In conclusion, we are pleased with our performance in the second quarter and our outlook for the year.

Speaker Change: We are exceeding our revenue growth expectations with solid execution across key verticals. We're optimistic about our second half and are seeing solid demand for our unique technology and services offerings. We're increasing our competitive position with a broader set of technology and service offerings.

Speaker Change: With this backdrop, we are increasing our revenue guidance for the year and we are reiterating our expectations for free cash flow. We will continue to return value to shareholders with our ongoing share repurchase program and dividend while reducing leverage.

Andre S. Valentine: We are optimistic about our second half and are seeing solid demand for our unique technology and services offerings. We're increasing our competitive position with a broader set of technology and service options. With this in mind, we are increasing our revenue guidance for the year, and we are reiterating our expectations for free cash flow. We will continue to return value to shareholders with our ongoing share repurchase program and dividend while reducing leverage. With that said, Carmen, please open the line for questions.

Unknown Executive: With that, Carmen, please open the line questions. Thank you so much, and before opening the lines, as I remind her, please press start, then one-one to get in the queue and wait for your name to be announced to remove yourself. Press start one-one again. One moment for our first question, please.

Speaker Change: With that, Carmen, please open the line for questions.

Andre S. Valentine: Thank you so much. And before opening the lines, as a reminder, please press star then one one to get in the queue and wait for your name to be announced to remove yourself. Press star one one again.

Speaker Change: Please press star then 1-1 to get in the queue and wait for your name to be announced.

Operator: One moment for our first question, please, and it comes from the line of Joseph Vafi with Canaccord Genuity. Please proceed. Hey guys, good afternoon. Great to see the fine tuning on the guide and welcome Sarah to the team. I thought maybe we would just start with kind of parsing out, It looks like you're taking the bull by the horns a little bit on the macro or on the AI front, that is, and it's turning a little bit more into an opportunity than maybe people have thought previously, if we could compare and contrast that to what you're seeing on the macro and how both of those kind of have kind of funneled into the new guidance for Yo, it's Chris.

Speaker Change: to remove yourself.

Unknown Executive: And he comes from the line of Joseph Vaffee with kind of core genuicy please proceed.

Speaker Change: And he comes from the line of Joseph Vafi with Canaccord Genuity. Please proceed.

Joseph Vafi: Hey guys, good afternoon. Grace to see the fine soon enough on the guide and welcome Sarah to the team. I thought maybe we would just start with kind of parsing out. It looks like you're taking the bull by the horns a little bit on the macro or on the AI front, that is, and it's turning a little bit more into an opportunity than, you know, maybe people have thought previously. And then, you know, we could compare and contrast that to what you're seeing on the macro and how both of those kind of funneled into the new guidance for the year and then all the quick follow-up.

Joseph Anthony Vafi: Hey guys, good afternoon. Great to see the fine tune up on the guide and welcome Sarah to the team. I thought maybe we would just start with kind of parsing out

Speaker Change: It looks like you're taking the bull by the horns a little bit on the macro.

Joseph Anthony Vafi: or on the AI front, that is. And, you know, it's turning a little bit more into an opportunity than, you know, maybe people have thought previously. And then, you know.

Joseph Anthony Vafi: We could compare and contrast that to what you're seeing on the macro and how both of those kind of have kind of funneled into the new guidance for the year and then I'll have a quick follow-up.

Christopher A. Caldwell: So first of all, you're absolutely right. We are using your term, taking a bull by the horns from a generative AI perspective. We're seeing very good traction in pilots and getting some things into production within our client base. And we're also seeing the ability where we think that there are gaps in the market from a technology solutions perspective on platforms, that we have a lot of this base built out for ourselves already.

Christopher A. Caldwell: Good morning, Chris. So, first of all, you're absolutely right. We are busy.

Christopher Caldwell: You are born to a turn of the AI perspective. We're seeing very good traction in silence and getting some things into production into our client base. And we're also seeing the ability where we think that there's misses in the market from a technology solution perspective on platforms. That we have a lot of this base still hope for ourselves already. But now we need to work on getting into commercial standards and from a multi-headed perspective and key to the use perspective in large-scale roll-outs. And so we don't want to miss that opportunity and are taking advantage and leaving into it.

Christopher A. Caldwell: So, it's Chris. So, first of all, you're absolutely right. We are using your term, taking a bull by the horns from a generative AI perspective.

Speaker Change: We're seeing very good traction in silence and getting some things into production into our client base.

Speaker Change: And we're also seeing the ability where we think that there's misses in the market from a technology solutions perspective on platforms.

Christopher A. Caldwell: But now we need to work on getting it to commercial standards and from a multi-tenant perspective and ease of use perspective in large-scale rollouts. And so we don't want to miss that opportunity and are taking advantage of it.

Speaker Change: that we have a lot of this base built out for ourselves already, but now we need to work on getting it to commercial standards and from a multi-tenant perspective and ease of use perspective in large-scale rollouts. And so we don't want to miss that opportunity and are taking advantage and leaning into it.

Christopher A. Caldwell: I think, secondly, we also are seeing good traction in taking share as well as winning net new clients, with even the AI products that we have right now, as we talked about in a couple of our wins. So we see that as being very, very positive. And we built that into sort of our guide for seeing our revenue increase, but we'll also see some costs associated with doing these pilots and building out the infrastructure that we want, that we think will put us in a very, very nice position for further growth. In terms of the macro, we're not really seeing any change. We're not seeing it improve.

Christopher Caldwell: I think the second of the way, for a second way, we also are seeing good traction and taking share as well as winning net new points with even the AI products that we have right now, and we talked about it a couple of our wins. So we see that as being very, very positive, and we built that into sort of our guide of seeing our revenue increase. We'll also see some costs associated with many pilots and building up the infrastructure that we want that we think will put us in a very, very nice position for the growth.

Speaker Change: I think, secondly, we also are seeing good traction in taking share as well as winning net new clients.

Speaker Change: with even the AI products that we have right now as we talked about in a couple of our WIBs.

Speaker Change: So, we see that as being very, very positive, and we built that into sort of our guide of seeing our revenue increase, while also seeing some costs associated with new pilots and building out the infrastructure that we want, that we think will put us in a very, very nice position for further growth.

Christopher Caldwell: In terms of the macro, we're not seeing really any change. We're not seeing and improving. We're not seeing it declining. We're seeing, and that's sort of a global comment. We're seeing things fairly stable and steady. And it's certainly any kind of positive changes coming from that. We expect the benefit from it based on the share that we have within our climate.

Speaker Change: In terms of the macro, we're not seeing really any change. We're not seeing it improving, we're not seeing it declining. We're seeing, and that's sort of a global comment, we're seeing things fairly stable and steady.

Christopher A. Caldwell: We're not seeing it declining. We're seeing, and that's sort of a global comment, things fairly stable and steady. And clearly, any kind of positive changes coming from that, we expect to benefit from them based on the share that we have within our client base. Great, that's a great color.

Speaker Change: And clearly any kind of positive changes coming from that, we expect to benefit from it based on the share that we have within our client base.

Unknown Executive: Great, that's great color. And then, thanks for that, Chris.

Joseph Anthony Vafi: And then, thanks for that, Chris. And then, maybe on, you know, one for Andre, I know that, as we exit this year, some of the web health, merger-related costs are going to abate, and then more cost synergies are going to kick in, combined with continued debt paydown, maybe offset a little bit more now at this point by investment in the business. And I know you're not providing guidance for next year, but, you know, it would be great to get an updated framework on, you know. I think you've reiterated your 700 million in free cash flow guidance this year, but to kind of provide a little bit of a framework for next year would also be helpful. Thanks a lot.

Andre Valentine: And then maybe on, you know, one for Andre, I know that, you know, as we exit this year, some of the web help, you know, merger-related costs are going to abate, and then more cost synergies are going to kick in, combined with continued debt pay down, maybe offset a little bit more now at this point by investment in the business.

Speaker Change: Great, that's great color. And then, thanks for that, Chris. And then.

Speaker Change: Maybe on, you know, one for Andre, I know that, you know, as we exit this year, some of the

Speaker Change: Web health, you know, merger-related costs are going to abate, and then more cost synergies are going to kick in.

Speaker Change: combined with continued debt pay down, maybe offset a little bit more now at this point by investment in the business. And I know you're not providing guidance for next year, but it would be great to get an updated framework on.

Joseph Vafi: And I know you're not providing guidance for next year, but, you know, it would be great to get an updated framework on, you know, I think you've re-rated your 700 million in free cash flow guidance this year, but to kind of provide a little bit of framework for next year, it would also be helpful. Thanks a lot.

Speaker Change: You know, I think you've reiterated your 700 million in free cash flow guidance this year, but to kind of provide a little bit of framework for next year would also be helpful. Thanks a lot.

Andre Valentine: Now, I'm happy to do that, Joe, and good to talk to you. Yeah, so there are certain reasons for us to be optimistic that the 700 million dollars in free cash flow that we generate this year can go up in 2025. I want to stop close, stop short of guiding for 2025, but, you know, the two major drivers there will be synergies. You know, we expect to, in year one, post-close of the combination, recognize $75 million in net synergies. We're already above that run rate, as we look at the synergies that we've, are realizing right now in the business.

Andre S. Valentine: Happy to do that, Joe. And good to talk to you. Yeah, so there certainly are reasons for us to be optimistic that the $700 million in pre-cash flow that we generate this year can go up in 2025. I want to stop close to stop short of guiding for 2025. But, you know, the two major drivers there will be synergies. We expect to recognize $75 million in net synergies in year one post-close of the combination. We're already above that run rate.

Speaker Change: Happy to do that, Joe, and good to talk to you. Yeah, so there are certainly reasons for us to be optimistic that the $700 million in free cash flow that we generate this year can go up.

Speaker Change: in 2025. I want to stop close to stop short of guiding

Speaker Change: for 2025. But, you know, the two major drivers there will be synergies. You know, we expect to, in year one, post-close of the combination,

Speaker Change: recognized $75 million in net synergies. We're already above that run rate.

Speaker Change: as we look at the synergies that we are realizing right now in the business. We expect that will go up to at least $105 million in net synergies.

Andre Valentine: We expect that will go up to at least $105 million in net synergies in the second year post-close of the combination. And then you're right, the integration expenses will drop pretty, pretty meaningfully from 2024 to 2025. I would see a drop, you know, in the range; it could approach $50 million or more, frankly, of cash integration expenses dropping off. So both of those things would give us some confidence that we could see cash flow go up. Obviously, we're also going to be paying down debt. So some opportunity with that and perhaps, if we get there, some interest rate reductions to see interest costs also come down from a cash basis and be a bit of a help to us in 2025.

Speaker Change: in the second year post-close of the combination. And then you're right. The integration expenses will drop pretty meaningfully from 2024 to 2025. I would see a drop in the range that could approach $50 million or more, frankly, of cash integration expenses dropping off. So both of those things would give us some confidence.

Joseph Anthony Vafi: From 2024 to 2025, I would see a drop, you know, in the range could approach $50 million or more, with cash integration expenses dropping off. So both of those things would give us some confidence that we could see cash flow go up. Obviously, we're also going to be paying down debt, so there is some opportunity with that, and perhaps, if we get there, some interest rate reductions to see interest costs also come down from a cash basis and be a bit of a help to us in 2025. Great. Thanks a lot, guys. Nice to see the guide up. Thanks, Joe.

Speaker Change: that we could see cash flow go up. Obviously, we're also going to be paying down debt. So, some opportunity with that, and perhaps if we get there, some interest rate reductions to see interest costs also come down from a cash basis and be a bit of a help to us in 2025.

Unknown Executive: Right. Thanks a lot, guys. Nice to see the guy down. Thanks, Earl. Thank you. One moment for our next question. Operator, do we have a next question?

Speaker Change: Great. Thanks a lot, guys. Nice to see the guide up.

Operator: Thank you. One moment for our next question. Operator, do we have a next question? Okay, I think the question was going to be from Ruplu.

Speaker Change: Thanks, Joe. Thanks, Joe. Thank you. One moment for our next question.

Speaker Change: Operator, do we have a next question?

Unknown Executive: Okay, I think the question was going to be from inclusion in the Fortune 500 list.

Speaker Change: Okay, I think the question was going to be from Ruplu.

Operator: Hi, thanks for taking my questions and congrats on inclusion in the Fortune 500 list. Andre, can you help me understand all of the moving pieces to the guidance? Looks like fiscal 2Q revenues beat the midpoint of guidance by $32 million and EPS beat by 7 cents, but you're guiding fiscal 3Q down sequentially and lower than street estimates. And if I look at fiscal year revenue guidance increase, that looks like it's about 23 million at the midpoint, and then operating margin is down 50 bits to 14.3 percent, and EPS is 36 cents lower.

Ruplu: Hi, thanks for taking my questions and congrats on inclusion in the Fortune 500 list. Andre, can you help me understand all of the moving pieces to the guidance? Looks like fiscal 2Q revenues beat the midpoint of guidance by $32 million and EPS beat by $0.07.

Ruplu Bhattacharya: Andre, can you help me understand all of the moving pieces to the guidance? Looks like fiscal 2Q revenues beat the midpoint of guidance by $32 million and EPSB by $0.7. But you're guiding fiscal 3Q down sequentially and lower than street estimates. And if I look at fiscal year revenue guidance increase, that looks like it's about 23 million at the midpoint, and then operating margin is down 50 bits to 14.3%, and EPS is 36 cents lower.

Ruplu: But you're guiding fiscal 3Q down sequentially and lower than street estimates. And if I look at fiscal year revenue guidance increase, that looks like it's about 23 million at the midpoint, and then operating margin is down 50 bits to 14.3%, and EPS is 36 cents lower. So given all of these different, you know, data points, I mean, my questions to you would be on the revenue side, was there any pull in of revenue from 2Q to 3Q? Why would there be a sequential decline in 3Q? And does that imply a somewhat steeper ramp between 3Q and 4Q to get to the full year?

Operator: So given all of these different, you know, data points, my questions to you would be on the revenue side, was there any pull-in of revenue from 2Q to 3Q? Why would there be a sequential decline in 3Q?

Ruplu Bhattacharya: So given all of these different data points, my questions to you would be on the revenue side, was there any pull-in of revenue from 2Q to 3Q? Why would there be a sequential decline in 3Q? And does that imply a somewhat steeper ramp between 3Q and 4Q to get to the full year?

Ruplu Bhattacharya: And does that imply a somewhat steeper ramp between 3Q and 4Q to get to the full year? No, so Ruplu, as we've kind of commented about our revenue guidance throughout this year, we want to be prudent in how we guide revenue. And so we think that we have done that with what we've provided here. So, having grown at 4% here in Q2. You're right, we are guiding to growth of 1.5% to 3.5% over the balance of the year, roughly. Certainly, that's what we're guiding to in Q3. Again, we're just here; we're being prudent. We are not seeing anything in our clients' volumes.

Andre Valentine: No, so Ruplu, as we've kind of commented about our revenue guide throughout this year, we want to be prudent in how we guide revenue. And so we think that we have done that with what we've provided here. So, having grown at 4% here in Q2, you're right, we are guiding to growth of 1.5% to 3.5% over the balance of the year roughly. Certainly, yes, we're guiding to in Q3. Again, we're just there; we're being prudent. We are not seeing anything in our clients' volumes; we are not seeing anything in our pipeline that suggests that revenue should decline.

Speaker Change: No, so Ruplu, as we've kind of commented about our revenue guide throughout this year, we want to be prudent in how we guide revenue. And so we think that we have done that with what we've provided here. So having grown at four percent.

Speaker Change: here in Q2. You're right, we are guiding to growth of...

Speaker Change: one and a half to three and a half percent over the balance of the year, roughly. Certainly that's what we're guiding to in Q3. Again, we're just there, we're being prudent. We are not seeing anything in our clients' volumes. We are not seeing anything in our pipeline that suggests that revenue should decline.

Andre Valentine: And so, from a revenue perspective, just being prudent with the guide and frankly quite confident and focused on coming in, as we did this most recent quarter, you know, at least in the upper half of what we've guided you, which would put you very, very close to a continuation of the growth rate that we saw here in the first half.

Andre S. Valentine: We are not seeing anything in our pipeline that suggests that revenue should decline. And so, from a revenue perspective, just being prudent with the guidance and, frankly, quite confident and focused on coming in, as we did this most recent quarter, at least in the upper half of what we've guided to, which would put you very, very close to a continuation of the growth rate that we saw here in the first half. And then on operating margins, the 50 basis points lower 14.3 versus 14.8 for the full year.

Speaker Change: And so, you know, from a revenue perspective, just being prudent with the guide, and frankly quite confident and focused on coming in as we did this most recent quarter, you know, in the, at least in the upper half of what we've guided to, which would put you very, very close to a continuation of the growth rate that we saw here in the first half.

Andre Valentine: And then on operating margins, the 50 basis points lower, 14.3 versus 14.8 for the full year. I think you talked about some investments you're making. Can you elaborate more on what are the investments that you're making, and when do you expect to see revenue benefit from those investments? Yeah, so Chris did script the two major areas we're investing. So we're investing heavily in technology and our platforms embedding GenAI into them both for internal use, for client pilots, and for the development of some commercial products. We don't think that was, and that is certainly weighing on our margins, but we think that's a good investment for the long term.

Speaker Change: And then on operating margins, the 50 basis points lower 14.3 versus 14.8 for the full year. I think you talked about some investments you're making. Can you elaborate more on what are the investments that you're making and when do you expect to see revenue benefit from those investments?

Ruplu Bhattacharya: I think you talked about some investments you're making. Can you elaborate more on what the investments are that you're making? And when do you expect to see revenue benefits from those investments? Yeah, so Chris and his script alluded to two major areas where we're investing. So we're investing heavily in technology and our platforms, embedding Gen AI into them, both for internal use for client pilots and for the development of some commercial products.

Ruplu Bhattacharya: We don't think that and that is certainly weighing on our margins. But we think that's a good investment for the long term. As you see, in many of the wins that Chris talked about, technology is at the forefront of what's driving our competitive advantage and driving those wins across the finish line for us. So, and we also don't think that level of heightened investment is a forever thing. We think it is temporary through the balance of the year and could even begin to taper as we exit the year. The other major area that we're investing in is transitioning new business to us. That can come in many, many different flavors.

Speaker Change: Yeah, so Chris and his script alluded to two major areas where we're investing. So we're investing heavily in technology and our platforms, embedding Gen AI into them both for internal use, for client pilots, and for the development of some commercial products.

Speaker Change: We don't think that was, and that is.

Speaker Change: That is certainly weighing on our margins, but we think that's a good investment for the long-term. As you see in many of the wins that Chris talked about, technology is at the forefront of what's driving our competitive advantage and driving those wins across the finish line for us.

Andre Valentine: And as you see in many of the wins that Chris talked about, the technology is at the forefront of what's driving our competitive advantage and driving those wins across the finish line for us. So, and we also don't think that level of heightened investment is a forever thing. We think it is temporary here through the balance of the year and could even begin to taper as we exit the year.

Speaker Change: So, and we also don't think that level of heightened investment.

Speaker Change: is

Speaker Change: is a forever thing. We think it is temporary here through the balance of the year and could even begin to taper as we exit the year. The other major area that we're investing in is transitioning new business to us. That can come in many, many different flavors. It can become transitioning work from a competitor where we incur upfront technology costs. It could be upfront training costs. It could be all of those types of things. We're happy to do that because, again,

Andre Valentine: The other major area that we're investing in is transitioning new business to us. That can come in many, many different flavors. It can become transitioning work from a competitor where we incur upfront technology costs. It could be upfront training costs. It could be all of those types of things. And so, but we're happy to do that because, again, we do that in advance. The revenue shows up a few quarters out, and the margins on those deals are quite attractive to us. So, that's how you think about it. You're right. At the midpoint of our guide, we've come down a bit.

Andre S. Valentine: It can become transitioning work from a competitor where we incur upfront technology costs. It could be front training costs. It could be all of those types of things, but we're happy to do that because, again, we do that in advance, the revenue shows up a few quarters out, and the margins on those deals are quite attractive to us. That's how you think about it. You're right.

Speaker Change: We do that in advance.

Speaker Change: the revenue shows up a few quarters out and the margins on those deals are quite attractive to us.

Ruplu Bhattacharya: At the midpoint of our guide, we've come down a bit. It's because of these investments. We think it's the right thing to do to grow the business and drive value for the long term. Can I maybe try and sneak one more in? Sorry if I missed this.

Speaker Change: So that's how you think about it. You're right. At the midpoint of our guide, we've come down a bit. It's because of these investments. We think it's the right thing to do to grow the business.

Andre S. Valentine: It's because of these investments. We think it's the right thing to do to grow the business and drive value for the long term.

Unknown Executive: Okay, and maybe I'll try and sneak one more in. Sorry if I missed this. Did you talk about the growth rate for the new economy clients and for the capitalist business and fiscal tool queue? And how are sales cycles trending for different types of deals? Thank you.

Speaker Change: and drive value for the long term.

Speaker Change: Sorry if I missed this, did you talk about the growth rate for the new economy clients and for the catalyst business and fiscal 2Q and how are sales cycles trending for different size of deals? Thank you.

Ruplu Bhattacharya: Did you talk about the growth rate for the new economy clients and for the capitalist business and fiscal 2Q? And how are sales cycles trending for different sizes of deals? Thank you.

Unknown Executive: Yeah, so, so, Catalyst continues to, we're very, very proud about how it's doing. It's growing quite nicely, grew sequentially from Q1 to Q2 and is meaningfully accrued up to the overall growth rate for the business in Q2. And we see that continuing over the back half of the year. New economy clients continue to represent about 25% of revenue, Rrupal. And, you know, as I commented at your technology conference earlier this month, they are growing faster than the rest of the business, faster than the enterprise clients. Although not nearly as fast as they were called it two years ago, they've become very focused on ROI, on right-shoring the work, and on embedding technology to become more efficient.

Andre S. Valentine: Yeah, so Catalyst continues to, we're very proud of how Catalyst is doing. It's growing quite nicely, grew sequentially from Q1 to Q2 and is meaningfully accretive to the overall growth rate for the business in Q2, and we see that continuing over the back half of the year. New economy clients continue to represent about 25% of revenue, Ruplu, and you know, as I commented at your technology conference earlier this month, they are growing faster than the rest of the business, faster than the enterprise clients, although not nearly as fast as they were, call it, two years ago. They've become very focused on ROI, on right-shoring the work, on embedding technology to become more efficient, and all the things, frankly, that the enterprise clients Okay, thank you for all the help. Sure.

Speaker Change: Yes, so Catalyst continues to, we're very proud of how Catalyst is doing. It's growing quite nicely, grew sequentially from Q1 to Q2 and is meaningfully accretive to the overall growth rate.

Speaker Change: for the business in Q2, and we see that continuing over the back half.

Speaker Change: of the year. New economy clients continue to represent about 25% of revenue, Ruplu, and as I commented at your technology conference earlier this month, they are growing faster.

Speaker Change: than the rest of the business, faster than the enterprise clients.

Speaker Change: although not nearly as fast as they were, call it, two years ago. They've become very focused on ROI, on right-shoring the work, on embedding technology to become more efficient, and all the things, frankly, that the enterprise clients are interested in too.

Unknown Executive: And all the things, frankly, that the enterprise clients are interested in too.

Unknown Executive: Okay, thank you for all the details. Sure, thanks, River.

Speaker Change: Okay, thank you for all the details.

Rupa: Sure. Thanks, Ruplu.

Divya Goyal: Our next question comes from Divya Goyal with Scotia Bank.

Operator: Thanks, Ruplu. The next question comes from Divya Goyal with Scotiabank. Good evening, everyone.

Speaker Change: Next question comes from Divya Goyal with Scotiabank.

Andre Valentine: Good evening, everyone. So I had a question on web help. Andre, I think you mentioned that there are certain burnout payments that you have to make related to the web help acquisitions that were made prior to you guys acquiring Web Help. If you could provide some more color on that, and is that going to be an additional impact on your guidance as well for the year on the bottom line? No, so the so yes, the payments that we made, and they were about $28 million in Q2, relate to past acquisitions by Webhelp. So these were things that were committed to prior to us becoming involved with Web Help and then closing you on the transaction in 2023.

Divya S. Goyal: So I had a question on web health. Andre, I think you mentioned that there are certain earn-out payments that you have to make related to the web health acquisitions that were made prior to you guys acquiring web health. Could you provide some more color on that? And is that going to be an additional impact on your guidance as well for the ear on the bottom?

Divya S. Goyal: Good evening, everyone. So I had a question on web health.

Divya S. Goyal: Andre, I think you mentioned that there are certain earn-out payments that you have to make related to the web help acquisitions that were made prior to you guys acquiring web help. If you could provide some more color on that, and is that going to be an additional...

Speaker Change: Is that an additional impact on your guidance as well for the ear on the bottom line?

Andre S. Valentine: So yes, the payments that we made, and they were about $28 million in Q2, relate to past acquisitions by WebHelp. These were things that were committed to prior to us becoming involved with WebHelp and then closing on the transaction in 2023. They do not impact our bottom line, as they have effectively been accrued for some period of time, so there is no impact there. They do obviously use cash, although most of that payment does not impact free cash flow.

Speaker Change: So, yes, the payments that we made, and they were about $28 million in Q2.

Speaker Change: relate to past acquisitions by Webhelp. So these were things that were committed to prior to us becoming involved with Webhelp and then closing on the transaction in 2023.

Andre Valentine: There are no; they do not impact our bottom line as they were effectively have been accrued for some period of time. So no impact there; they do obviously use cash, although most of that payment does not impact our free cash flow. They alluded to maybe $5 million impacted free cash flow. We don't expect any further earnouts in 2024 related to those acquisitions. I don't believe there are any in 2025, and then a fairly similar amount of earnouts would be expected in 2026. These were all kind of part and parcel with the financial model that we put together as we looked at the transaction and closed the transaction.

Speaker Change: There are no, they do not impact our bottom line.

Speaker Change: as they effectively have been accrued for some period of time, so no impact there. They do obviously use cash, although most of that payment does not impact free cash flows. They alluded to maybe $5 million.

Andre S. Valentine: They alluded to maybe $5 million impacted free cash flow. We don't expect any further earnouts in 2024 related to those acquisitions. I don't believe there are any in 2025, and then a fairly similar amount of earnouts would be expected in 2026. These were all kind of part and parcel with the financial model that we put together as we looked at the transaction and closed the transaction. They're playing out exactly as we expected them. That's perfect.

Speaker Change: Impact, and Free Cash Flow.

Speaker Change: We don't expect any further earnouts in 2020.

Speaker Change: 20...

Speaker Change: for related to those acquisitions. I don't believe there are any in 2025, and then a fairly similar amount of earnouts would be expected in 2026. These were all kind of part and parcel with the financial model that we put together as we looked at the transaction and closed the transaction. They're playing out exactly as we expect them to.

Andre S. Valentine: They're playing out exactly as we expected them to.

Unknown Executive: That's perfect.

Christopher A. Caldwell: And just another question related to web health. So you did talk about some of the, I think Chris mentioned some of the cross-cell synergies of Catalyst into web health. If either you or Chris could provide a little bit more color into how exactly is that trending, and what is the broad attraction that you are seeing? or Catalyst into some of these new web help clients that you've recently acquired. Yeah, for sure it is, Chris.

Christopher Caldwell: And just another question related to web help. So you did talk about some of the things Chris mentioned, some of the cross-else energies of catalyst into web help if thought either you or Chris could provide a little bit more color into how exactly is that trending and what is the broad attraction that you are seeing or catalyst into some of these new web help clients that you've recently acquired. Yeah, for sure it is Chris. So, first off, we expected, obviously, revenue synergies, but we didn't necessarily count for them in the first year. They tend to take a while to gain traction and go, and we're kind of well ahead of where we expected to be at this point in time.

Speaker Change: That's perfect. And just another question related to web health. So you did talk about some of the, I think Chris mentioned, some of the cross-health synergies of Catalyst into web health. If either you or Chris could provide a little bit more color into how exactly is that trending and what is the broad attraction that you are seeing?

Speaker Change: or Catalyst into some of these new web help clients that you've recently acquired.

Christopher A. Caldwell: So first off, we expected obviously revenue synergies, but we didn't necessarily count for them in the first year. They tend to take a while to gain traction and get going, and we're kind of well ahead of where we expected to be at this point in time. Both, by the way, taking Concentrix clients across to sort of the web health footprint and vice versa, as we talked about in the prepared remarks. From a technology perspective, where we're gaining share really across our whole client base, forget about whether it's a web health client originally or a consumption client originally, is integrating our technical services.

Christopher A. Caldwell: Yeah, for sure it is, Chris. So, first off, we expected, obviously, revenue synergies, but we didn't necessarily count for them in the first year. They tend to take

Christopher A. Caldwell: a while to gain traction and go, and we're kind of well ahead of where we expected to be at this point in time. Both, by the way, taking Concentrix clients across to sort of the web health footprint and vice versa, as we talked about on the prepared remarks.

Christopher A. Caldwell: Both by the way, taking concentric clients across to sort of the web help footprint and vice versa, as we talked about on the prepared remarks. From a technology perspective, where we're gaining share really across our whole client base, forget about whether it's web help client originally or Concentric client originally in integrating our technical services. And the vast majority come from our catalyst groups. Some of that come from our existing Client Success organization already. But ultimately, if that value proposition is putting everything together that clients are most interested in, that has really helped us accelerate our growth rate and start to build a stronger pipeline that we're seeing right now.

Christopher A. Caldwell: From a technology perspective, where we're gaining share really across our whole client base, forget about whether it's a webhop client originally or a consumption client originally, is integrating our technical services. And the vast majority come from our catalyst group, some of that come from our existing client success organization already.

Christopher A. Caldwell: And the vast majority come from our catalyst group, some that come from our existing client success organization already. But ultimately, it's that value proposition of putting everything together that clients are most interested in that has really helped us accelerate our growth rate and start to build a stronger pipeline that we're seeing right now. That's helpful.

Christopher A. Caldwell: But ultimately, it's that value proposition of putting everything together that clients are most interested in that has really helped us accelerate our growth rate and start to build a stronger pipeline that we're seeing right now.

Christopher Caldwell: The South Pole, is it fair to assume that your catalyst business would be, to your point, consulting related, so would it be a higher margin business or what is the, what is the big difference between what you're doing with catalyst versus just standard business. Yeah, good question. So in our catalyst business, we have our consulting business, we have our analytics business, we have our visual engineering business, our ccast business, our cloud migration business, and so there's a lot within our catalyst business. And the profile some is, as you can imagine, higher than our core business; some is actually lower than our core business because we're doing a lot of these pilots and we're doing a lot of the build-out of these tools within our catalyst business, which is not necessarily treated to our overall margin.

Divya S. Goyal: And is it fair to assume that your catalyst business would be, to your point, consulting related? So would it be a higher-margin business? Or what is the big difference between what you're doing with catalyst versus your standard business? Yeah, good question.

Speaker Change: That's helpful. And is it fair to assume that your catalyst business would be, to your point, consulting related? So would it be a higher margin business? Or what is the big difference between what you're doing with catalyst versus your standard business?

Christopher A. Caldwell: So in our Catalyst business, we have our consulting business, we have our analytics business, we have our digital engineering business, our CCAS business, our cloud migration business, and so there's a lot within our Catalyst business. And the monthly profile, some of it is, as you can imagine, higher than our core business. Some is actually lower than our core business because we're doing a lot of these pilots and we're doing a lot of the build out of these tools within our Catalyst business, which is not necessarily accretive to our overall margin.

Speaker Change: [inaudible]

Speaker Change: Yeah, good question. So in our Catalyst business, we have our consulting business, we have our analytics business, we have our digital engineering business, our CCAS business, our cloud migration business. And so there's a lot within our Catalyst business. And the monthly profile, some is, as you can imagine, higher than our core business.

Speaker Change: Some is actually lower than our core business because we're doing a lot of these pilots and we're doing a lot of the build-out of these tools within our catalyst business, which is not necessarily treated to our overall margin.

Christopher A. Caldwell: But what we see long term, as we talked about when we started investing in that business, is the ability to increase our margins, much like we do in our core business, to be more accretive than our core business as we go forward. But that's a longer-term comment. That's all for me. Thank you so much.

Christopher Caldwell: But what we see long term is we talked about when we started investing in that business is the ability to increase our margin, much like we do in our core business, to be more creative than our core business as we go forward, but that's a longer term comment.

Speaker Change: But what we see long-term, as we talked about when we started investing in that business, is the ability to increase our margins, much like we do in our core business, to be more creative than our core business as we go forward, but that's a longer-term comment.

Unknown Executive: That's all for me. Thank you so much. Thank you.

Speaker Change: That's all for me. Thank you so much.

Operator: Thank you. Thank you. One moment for our next question. All right, and he comes from the line of Vincent Colicchio.

Unknown Executive: One moment for our next question, please.

Speaker Change: Thank you. Thank you. One moment for our next question, please.

Vincent Colicchio: All right. Any comments from the line of bins and collegiate with Barrington research? Please proceed. Yeah, Chris, I like the sort of, I think a little bit more about your market share gains. Are they coming at the expense of medium size and smaller players, as well as some of your larger competitors? Actually, they're coming from both. We've won a business from smaller players who were able to deliver on a program and didn't have to invest in the security that they needed. And we've won some good size business. One of the deals that we talked about from a larger competitor, primarily because we can bring everything together and have the technology pollution versus just sort of the operation part of it.

Vincent Alexander Colicchio: With Barrington Research, please proceed. Yeah, Chris, I'd like to sort of think a little bit more about your market share gains. Are they coming at the expense of... medium-sized and smaller players as well as some of your larger competitors? Actually, they're coming from both.

Speaker Change: All right, and he comes from the line of Vincent Colicchio. With Barrington Research, please proceed.

Vincent Alexander Colicchio: Yeah, Chris, I'd like to sort of think a little bit more about your market share gains. Are they coming at the expense of...

Speaker Change: medium-sized and smaller players as well as some of your larger competitors.

Christopher A. Caldwell: We've won business from smaller players who weren't able to deliver on their current contracts and didn't necessarily have the investment security that they needed, and we've won some good-sized business. One of the deals that we talked about was from a larger competitor, primarily because we could bring everything together and have the technology solution versus just sort of the operations part of it. And so we see that continuing based on how clients are thinking about their businesses and retirement. So if we isolate your larger competitors, do you think you have a more complete portfolio today of what folks are looking for, or am I overgeneralizing? No, absolutely not.

Christopher A. Caldwell: Actually, they're coming from both. We've won the business from smaller players who were able to deliver on it.

Christopher A. Caldwell: and didn't necessarily have the investment and security that they needed. And we've won some good-sized business. One of the deals that we talked about was from a larger competitor, primarily because we could bring everything together and have the technology solution versus just sort of the operations part of it.

Christopher A. Caldwell: And so we see that continuing based on how clients are thinking about their businesses on purpose.

Christopher A. Caldwell: And so we see that continuing based on how clients are thinking about their businesses and retirements.

Christopher Caldwell: So if we isolate your larger competitors, do you think you have a more complete portfolio today of what folks are looking for? Or is it my over generalizing? Absolutely. We think we have a very, very complete portfolio across both the consulting and both the design, the bills, and the run aspects of delivering services to clients. Lies are looking for someone who can bring the expertise. And by the way, do it surely to their enterprise and kind of reimagine what they're delivering from a customer experience perspective. And that's really where we're getting to share because the conversations are very different than probably what we had two or three years ago.

Speaker Change: So, if we isolate your larger competitors, do you think you have a more complete portfolio today of what folks are looking for, or am I overgeneralizing?

Vincent Alexander Colicchio: We think we have a very, very complete portfolio across both the consulting and both the design, the build, and the run aspects of delivering services and solutions to clients. Clients are looking for someone who can bring this expertise, and, by the way, do it maturely, to their enterprise and kind of reimagine what they're delivering from a customer experience perspective. And that's really where we're gaining share because the conversations are very different than probably what we had two or three years ago.

Speaker Change: Absolutely. We think we have a very, very complete portfolio across both the consulting and both the design, the build, and the run aspects of delivering services and solutions to clients.

Speaker Change: We're looking for someone who can bring this expertise, and by the way, do it maturely, to their enterprise and kind of reimagine what they're delivering from a customer experience perspective. And that's really where we're gaining new share because the conversations are very different than probably what we had two or three years ago.

Vincent Alexander Colicchio: And with seeing the Wellpub revenue synergies a bit earlier than expected, how are you feeling about seeing a meaningful contribution from revenue synergies in 2025? I don't want to give you a guide for 2025, but I think, directionally, from my comments and from Andre's comments, you can see that we're pretty bullish and confident.

Christopher Caldwell: And as was an early scene that the World Cup, the revenue synergy is a bit earlier than expected. How are you feeling about seeing a meaningful contribution from revenue synergies in 25? I don't want to guide for 25, but I think directly from my comments and from other comments, you see that they're pretty bullish and positive. And you know, as we expect to do this right action that we want, and then we're competing a lot now.

Speaker Change: With seeing the Wellpub revenue synergies a bit earlier than expected, how are you feeling about seeing a meaningful contribution from revenue synergies in 2025?

Speaker Change: I don't want to guide for 25, but I think, directionally from my comments and from Andre's comments, you can see that we're pretty bullish and confident, and, you know, as we expected doing the transaction, this is what we want, and we're executing along that plan.

Christopher A. Caldwell: And, you know, as we expected doing this, the transaction, this is what we want. And we're executing on that. Okay, and then as AI automation evolves here, I know we're still in the very early days.

Christopher A. Caldwell: Okay, and as the AI automation evolves here, and it works, still very early days. Are you seeing any change in the competitive landscape in your technology business? I think it's a big stretch for nationals, yields that we're working on, and seeing it, and we call that machine one and keeps doing. We have a different set of competitors. There are a lot of larger, much bigger global integration, development, and development, and technology companies. And we think we can be great or involved with that, because we have the domain expertise to work with our clients. A lot of people, because we wonder if this is other than right now.

Speaker Change: Okay, and then as the AI automation evolves here, I know we're still very early days, are you seeing any change in the competitive landscape in your technology business?

Vincent Alexander Colicchio: Are you seeing any change in the competitive landscape in your technology business? I think in the big transformational deals that we're working on, and seeing what we call that in Q1 and Q2, we have a different set of competitors. They're much larger, much bigger global integration, development capabilities, and technology companies. And we think we compete very, very well with that because we have the domain expertise to run what our clients are looking for, because we run their businesses as it stands right now.

Speaker Change: I think in the big transformational deals that we're working on, and seeing what we call that in Q1 and Q2,

Speaker Change: We have a different set of competitors. They're much larger, much bigger global integration, development capabilities.

Speaker Change: technology companies. And we think we compete very, very well with that because we have the domain expertise to run what our clients are looking for, because we run their businesses as it stands right now. So that's definitely changed from a competitive standpoint. We've also seen from smaller VC-backed companies talking about AI, who

Christopher Caldwell: So that's different than change; we're going to understand more. We've also seen more of a BC doc company talking about AI, who are talking about new nodes and new households. But again, they don't really necessarily understand what the clients are after, and what the intimate knowledge of the domain expertise is. And so therefore, you know, we have a very good kind of advantage against them. As we've been building up the technology, it's very suited for a client. If we know it, we know the domain expertise. So we are grading different competitors. We think we're very, very well positioned for sort of looking kind of the one day.

Vincent Alexander Colicchio: So that's definitely changed from a competitive standpoint. We've also seen smaller VC-backed companies talking about AI, talking about new bells and whistles. But again, they don't really necessarily understand what the clients are after and what their intimate knowledge of the domain expertise is.

Speaker Change: are talking about new bells and whistles. But again, they don't really necessarily understand what the clients are after and what the...

Christopher A. Caldwell: And so, therefore, we have a very good competitive advantage against them as we're building out the technology that's very suited to the client base because we know it, we know the domain expertise. So we are migrating to different competitors, but we think we're very, very well positioned for sort of the new competitive landscape. Thank you, Chris.

Speaker Change: intimate knowledge of the domain expertises and so therefore you know we have a very good competitive advantage against them as we as we're building out the technology that's very suited for the client base because we know it we know the domain expertise.

Speaker Change: So we are migrating to different competitors, but we think we're very, very well positioned for sort of the new competitive landscape.

Unknown Executive: Thank you, Chris. Thank you, folks. Thank you, and with that, ladies and gentlemen, I will conclude the Q&A session and conference for today. Thank you all for participating, and you may now disconnect. Thank you. Thank you for watching!

Vincent Alexander Colicchio: Thank you, Vince. Thank you. And with that, ladies and gentlemen, I will conclude the Q&A session and conference for today. Thank you all for participating, and you may now disconnect. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good day, everyone, and thank you for standing by. Welcome to the Concentrix Fiscal First Quarter 2024 Financial Results Conference call. At this time, all participants are in a listen-only mode.

Speaker Change: Thank you, Chris.

Operator: After the speaker's presentation, there will be a question-and-answer session. To participate, you will need to press star-11 on your telephone. You will then hear a message advising that your hand is raised. To withdraw your question, simply press star-11 again.

Bill: Thank you, Bill.

Speaker Change: Thank you, and with that, ladies and gentlemen, I will conclude the Q&A session and conference for today. Thank you all for participating, and you may now disconnect.

Operator: Please be advised that today's conference is being recorded. I would now like to hand it over to the Vice President of Investor Relations, Sara Bouda. Please proceed.

Sarah Buda: Thank you, operator, and good evening, everyone. Welcome to the Concentrix second quarter fiscal 2024 earnings call. This call is a 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 future performance and, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different from those expressed in our forward-looking statements.

Sarah Buda: We do not undertake to update our forward-looking statements as a result of new information or future expectations, events, or developments. 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, including the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC.

Sarah Buda: Also, during the call, we will provide and discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS, and constant currency. A reconciliation of these non-GAAP measures is available in the news release and on the company's investor relations website under Financial. With me on the call today are Chris Caldwell, our President and CEO, and Andre Valentine, our Chief Financial Officer.

Sarah Buda: 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 to your questions. With that, I'll turn the call over to our CEO, Chris Caldwell. Thank you very much, Sarah.

Christopher A. Caldwell: Hello, everyone, and thank you for joining us today for our second quarter 2024 earnings call. First, let me start off by thanking our clients from Game Changers for their contributions, which were included in the Fortune 500 list for the first time this year. We started with an idea that companies wanted to deliver a better brand experience for their customers.

Christopher A. Caldwell: We increased revenue 47% as reported and grew 4% on a pro forma constant currency basis by an order exceeding our prior guidance. We reported non-GAAP operating income of $321 million, an increase of 46% year on year and in line with our guidance. We delivered a Dr. Ibida of $380 million, an increase of 47% year-on-year.

Christopher A. Caldwell: On a pro forma basis, we grew non-GAAP operating income 4% and adjusted EBITDA 2% year on year. We generated more than $200 million in adjusted pre-cash flow this quarter while returning more than $60 million of value to shareholders through dividends and share repurchases. We remain on track to generate $700 million of adjusted free cash flow for the full year after integration expenses and on track to complete $120 million of share repurchases for the fiscal year, of which we have done over $60 million through the end of Q2.

Christopher A. Caldwell: Our positive momentum continued in the second quarter, giving us confidence to raise our revenue growth guidance for the full year. Our revenue guidance does not anticipate any changes in the macroeconomic environment, but it does reflect ongoing client demand for our solutions and the stability of our client volumes. We see the same momentum in Caldwell as its growth continues to be exceeded, which we expect to continue for all of 2024.

Christopher A. Caldwell: From a vertical perspective, we're seeing particular strengths in retail, software, e-commerce, and banking and financial services that are expected to continue for the rest of 2024. As we mentioned in our first quarter call, we are increasing our investment in our technology, while also investing to transition more business funds from competitors. In the second quarter, we accelerated these investments while still expecting to increase our non-GAAP operating income by 40 basis points for the entire year on a pro forma basis. Specifically, we have increased our development spend to approximately 1% of revenue through the second quarter, an increase of approximately 50 basis points from the start of Q1.

Christopher A. Caldwell: This increased investment relates to the development of technology platforms for both client and internal use, as well as an increasing number of pilots that we have underway with clients using generative AI. We see this investment remaining at this level for a few quarters prior to falling more in line with historically what we have spent, while revenue from these investments starts to become more meaningful. We also expect to incur approximately $20 million to $25 million of new term incremental expense if we take up a large, multi-year program where we are taking share from competitors as clients consolidate capacity with us. These investments, again, are temporary, and revenue follows in subsequent quarters.

Christopher A. Caldwell: Some examples of wins in the quarter include a major global retail e-commerce client where we combine the power of NAI's context and translation tools with our CS expertise in our global footprint to design and implement a new customer solution experience for them across their immediate operations.

Christopher A. Caldwell: This allowed our clients to move volume from competitors to us, resulting in a 20% increase in our revenue and a mid-single digit increase in our margins for this specific program. While reducing the cost to the client by double digits, our use of GNI expertise was a win-win for us and our clients. We also won a new large global media client this quarter; we will support the launch of one of their new high-profile channels, NMEA, and consolidate their customer experience operations in Japan and Korea.

Christopher A. Caldwell: We will also design and build a generative AI knowledge management solution for their enterprise. They wanted a partner that could provide a complete solution delivered globally and securely, which we are able to do. Other wins in the quarter include a global trial of clients that have a web health relationship in Europe.

Christopher A. Caldwell: This quarter, we started to expand our revenues as a combined organization by leveraging our AI footprint and our AI-based training tools to improve effectiveness and efficiency for our game changers. This resulted in work coming from competitors to us, as well as a potential new revenue stream as they contemplated rolling out our AI solution across their enterprise. Finally, we sold Catalyst Services to a former web health client in Europe to provide specialized digital engineering resources to build, enhance, and maintain the client's digital infrastructure and CCAS platform to support their primary channel for new business. This strengthens our existing relationship with the client. These wins underscore the breadth and complexity of solutions that we are delivering for our clients.

Christopher A. Caldwell: They also reflect how our business continues to change. At our Investor Day two years ago, we talked about 13% of our business being commoditized, low-complexity transactions. Last year, we told investors that we were down to 10%, and now we have reduced that to 7%, meaning 98% of our transactions are leading to high complexity in our business. These wins also demonstrate two important factors in our ability to gain markets through WalletShare. Clients are seeking a broader set of integrated solutions from fewer partners and are looking to us to do so on a global scale through technology and integrated consulting, implementation, and support offerings.

Christopher A. Caldwell: And secondly, automation and generative AI is continuing to be an area of competitive advantage for us. As we have said before, we believe generative AI presents a tremendous upside opportunity for Concentrix and our clients. We have an increasing number of pilots and solutions going into production for clients now. While the level of generative adoption readiness varies greatly by vertical and client, there are a few common themes among these pilots in production. First, the vast majority of the silencing processes are looking at using AI to augment a human advisor to make the advisor more effective at representing our client's brand and enhancing the brand experience for the customer.

Christopher A. Caldwell: Second, many of these pilots are using generative AI to operate or replace existing knowledge platforms, chatbots, automation systems, and IVR. This brings me to the upside opportunity we see as we combine our own AI tools with those of our partners to bring new value to our clients. Many of our technology platforms continue to gain traction in the market. We're building on this momentum, and we'll be introducing a variety of new products over the coming quarter. This quarter, we filed a patent for GILES, which stands for Generative Intelligence for Limitless Engineers, a platform we developed to automate coding and testing using Gen-AI that is helping us to build new platforms faster.

Christopher A. Caldwell: From our internal usage, we're seeing up to a 40% productivity boost for experienced coders on transactional paths. We believe our investments in both generative AI pilots and technology products will help us expand the share of wallet and share of market in the long term and superior markets. Finally, let me touch on the web health integration.

Christopher A. Caldwell: As you can see from these wins we've mentioned, we're starting to see revenue synergies sooner than we expected. This is a testament to the successful integration of our go-to-market and delivery organizations, which we initiated on day one and are largely behind schedule. The integration is on track, as is the realization of planned cost synergies. In summary, our growth strategy is working, we are differentiating Concentrix from the market, and we are delivering incremental value to clients for a broad set of technologies and services at a global scale.

Christopher A. Caldwell: And our recent wins offer evidence that AI is an upside opportunity for Concentrix. With that, I'd like to thank our game changers and our clients for the relationships over the last year and ask you to call over to Andre. Andre, over to you. Thank you, Chris. And hello, everyone.

Andre S. Valentine: For the first half of the year, our constant currency pro forma growth was 3.4%, so our overall revenue trends remain positive. As you can see from our guidance, we expect this stability to continue in the second half of the year. Looking at our revenue growth by vertical, on a pro forma basis, revenue from retail, travel, and e-commerce clients grew 10% year over year. Revenue from banking, financial services, and insurance clients grew 6%, and our other verticals grew 3%.

Andre S. Valentine: Turning to profitability, our non-GAAP operating income was $321 million in the quarter, an increase of $101 million compared with the second quarter of 2023. Our non-GAAP operating margin was 13.5%, down about 20 basis points from last year due to the inclusion of WebHelp, which historically operated a slightly lower non-GAAP OI margin. Adjusted EBITDA was $380 million, up $121 million year over year, and our adjusted EBITDA margin was 15.9%, roughly flat year on year.

Andre S. Valentine: On a pro forma basis, our second quarter profitability metrics continue their solid improvement. Non-GAAP operating income increased $12 million with a 30 basis point margin improvement compared with last year. Adjusted EBITDA was up $8 million, and our adjusted EBITDA margin was flat when compared to the previous year. Non-GAAP net income was $183 million in the quarter, an increase of approximately $46 million compared to the second quarter of last year. Non-GAAP EPS was $2.69 per share, an increase of $0.06 per share year on year.

Andre S. Valentine: Gap net income was $67 million for the quarter. Gap results for the second quarter of 2024 included $116 million in amortization of intangibles, and $31 million in expenses related to the web help combination and integration. $22,000,000 in share-based compensation expense and $2.5 million and step-up depreciation. A $7 million reduction in the Acquisition Contingent Consideration, $14 million in net foreign currency gains, and $4 million in imputed interest related to the seller's note issued in connection with the combination.

Andre S. Valentine: Our adjusted free cash flow for the quarter was strong at $202 million, and we remain on track for our full year adjusted free cash flow outlook of $700 million net of integration expenses. As we stated in our last call, the adjusted free cash flow metric is calculated as free cash flow excluding the impact of the factoring program we assumed and have continued to operate since the WebHelp combination. During the second quarter, the amount of factored accounts receivable decreased by $24 million, with the outstanding factored balance standing at about $162 million at the end of the quarter.

Andre S. Valentine: We reduced our net debt to 2.97 times pro forma adjusted EBITDA at quarter end, a sequential decrease from 3.04 times in the prior quarter. We expect to continue to reduce our net debt and net leverage through the end of 2024. We remain committed to our plan of reducing net leverage to close to two times adjusted EBITDA within two years of the close of the WebHelp combination while supporting our dividend and buying back stock. During the second quarter, we repurchased approximately 660,000 shares of our stock for approximately $40 million at an average price of approximately $61 per share, and we paid $20 million through our quarterly dividend.

Andre S. Valentine: As a reminder, on our first quarter earnings call in March, we committed to $100 million in share repurchases over the remaining three quarters of 2024. So we have about $60 million more to go on that commitment. At quarter end, the remaining authorization on our share repurchase plan was approximately $227 million.

Andre S. Valentine: Our liquidity remains strong at approximately $1.5 billion, including our over $1 billion line of credit, which is undrawn. We remain committed to investment grade principles, and we are steadfast in our capital allocation priorities. We expect to continue to drive organic growth, realize integration synergies related to the web help combination, and repay debt, while continuing a disciplined program of returning capital to our shareholders through our dividend and disciplined share repurchase. Now, I'll turn my attention to the Business Outlook for the third quarter and full year 2014.

Andre S. Valentine: For the third quarter, we expect revenue of $2.35 billion to $2.4 billion based on current exchange rates. This reflects approximately 1.5% to 3.5% pro forma constant currency growth, net of an approximately 205 basis point exchange rate headwind. Pro forma revenue for the third quarter of 2023 would have been $2.367 billion, assuming the web help combination occurred at the beginning of fiscal 2023. We expect non-GAAP operating income to be in the range of $330 million to $350 million in the third quarter.

Andre S. Valentine: This is an increase to our prior guidance of 1-3% year-on-year growth on a pro forma constant currency basis. We continue to expect first-year net synergies of $75 million. The current run rate is approximately $80 million on an annualized basis. We do anticipate that some of these energy savings will be offset by continued ramp-up costs and accelerated investment in technology.

Andre S. Valentine: As a result of the investments Chris referred to earlier, we are reducing our non-GAAP operating income expectation for the year. We now anticipate non-GAAP operating income in the range of $1.35 to $1.40 billion for the year, which represents a 14.3% margin at the midpoint. Importantly, this is an increase of 10 basis points over the prior year and 40 basis points over the prior year on a pro forma basis. We expect non-GAAP EPS of $11.40 per share to $12.07 per share. This assumes full-year interest expense of $300 to $304 million, excluding $16 million of imputed interest on the seller's note.

Andre S. Valentine: We are optimistic about our second half and are seeing solid demand for our unique technology and services offerings. We're increasing our competitive position with a broader set of technology and service offerings. With this in mind, we are increasing our revenue guidance for the year, and we are reiterating our expectations for free cash flow. We will continue to return value to shareholders with our ongoing share repurchase program and dividend while reducing leverage. With that said, Carmen, please open the line for questions.

Operator: One moment for our first question, please, and it comes from the line of Joseph Vafi with Canon Corp. Genuity. Please proceed. Hey guys, good afternoon. Great to see the fine tuning on the guide and welcome Sarah to the team. I thought maybe we would just start with kind of parsing out. It looks like you're taking the bull by the horns a little bit on the macro or on the AI front, that is, and it's turning a little bit more into an opportunity than maybe people have thought previously.

Operator: If we could compare and contrast that to what you're seeing on the macro and how both of those kind of have kind of funneled into the new guidance for the year, then I'll have a quick follow-up. Yo, it's Chris.

Christopher A. Caldwell: I think, secondly, we also are seeing good traction in taking share as well as winning net new clients with even the AI products that we have right now, as we talked about in a couple of our wins. So we see that as being very, very positive. And we built that into sort of our guide for seeing our revenue increase while also seeing some costs associated with doing these pilots and building out the infrastructure that we want, that we think will put us in a very, very nice position for further growth. In terms of the macro, we're not really seeing any change. We're not seeing it improve. We're not seeing it decline. And that's sort of a global comment.

Operator: One moment for our next question. Operator, do we have a next question? Okay, I think the question was going to be from Ruplu.

Christopher A. Caldwell: We're seeing things fairly stable and steady, and clearly, any kind of positive changes coming from that, we expect to benefit from them based on the share that we have within our client base. Great, that's a great color. And then, thanks for that, Chris. And then, maybe on, you know, one for Andre, I know that, as we exit this year, some of the web health, merger-related costs are going to abate, and then more cost synergies are going to kick in, combined with continued debt paydown, maybe offset a little bit more now at this point by investment in the business.

Ruplu Bhattacharya: Hi, thanks for taking my questions and congrats on inclusion in the Fortune 500 list. Andre, can you help me understand all of the moving pieces to the guidance? Looks like fiscal 2Q revenues beat the midpoint of guidance by $32 million, and EPS beat by 7 cents. But you're guiding fiscal 3Q down sequentially and lower than street estimates. And if I look at fiscal year revenue guidance increase, that looks like it's about 23 million at the midpoint, and then operating margin is down 50 bits to 14.3 percent, and EPS is 36 cents lower.

Christopher A. Caldwell: And I know you're not providing guidance for next year, but, you know, it'd be great to get an updated framework on, you know, I think you've reiterated your 700 million in free cash flow guidance this year, but to kind of provide a little bit of a framework for next year would also be helpful. Thanks a lot. Happy to do that, Joe. And good to talk to you.

Ruplu Bhattacharya: So given all of these different, you know, data points, I mean, my questions to you would be on the revenue side. Was there any pull-in of revenue from 2Q to 3Q? Why would there be a sequential decline in 3Q? And does that imply a somewhat steeper ramp between 3Q and 4Q to get to the full year? No, so Ruplu, as we've kind of commented about our revenue guide throughout this year, we want to be prudent in how we guide revenue, and so we think that we have done that with what we've provided here. So having grown at 4% here in Q2, you're right; we are guiding to growth.

Andre S. Valentine: Yeah, so there certainly are reasons for us to be optimistic that the $700 million in free cash flow that we generate this year can go up in 2025. I want to stop close to stop short of guiding for 2025. But, you know, the two major drivers there will be synergies. We expect to recognize $75 million in net synergies in year one post-close of the combination. We're already above that run rate.

Andre S. Valentine: As we look at the synergies that we are realizing right now in the business, we expect that to go up to at least $105 million in net synergies in the second year post-close of the combination. And then you're right; the integration expenses will drop pretty, pretty meaningfully. From 2024 to 2025, I would see a drop, you know, in the range could approach $50 million or more, frankly, cash integration expenses dropping off.

Andre S. Valentine: So both of those things would give us some confidence that we could see cash flow go up. Obviously, we're also going to be paying down debt. So some opportunity with that, and perhaps, if we get there, some interest rate reductions to see interest costs also come down from a cash basis and be a bit of a help to us in 2025. Thanks a lot, guys. It's nice to see the guide up. Thanks, Joe. Thank you.

Speaker Change: [inaudible]

Speaker Change: Music Music Music Music Music Music Music Music Music

Speaker Change: Good day, everyone, and thank you for standing by. Welcome to the Concentrix Fiscal First Quarter 2024 Financial Results Conference Call.

Speaker Change: This call contains forward-looking statements that address our 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.

Speaker Change: We do not undertake to update or forward-looking statements as a result of new information or future expectations, events, or development.

Speaker Change: 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.

Speaker Change: This includes the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC.

Speaker Change: Also, during the call, we will provide and discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS, and constant currency revenue growth.

Speaker Change: A reconciliation of these non-GAAP measures is available in the news release and on the company's investor relations website under financials.

Speaker Change: With me on the call today are Chris Caldwell, our President and CEO , 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 to your questions. With now, I'll turn the call over to our CEO , Chris Caldwell.

Christopher A. Caldwell: Thank you very much, Sarah. Hello, everyone, and thank you for joining us today for our second quarter 2024 earnings call.

Christopher A. Caldwell: First, let me start off by thanking our clients in Game Changers for their contributions who are being included in the Fortune 500 list for the first time this year.

Christopher A. Caldwell: We started with an idea that companies wanted to deliver a better brand experience for their customers. We believe that by thinking about the customer experience holistically across both back-office and front-office work, while investing in technology for frictionless engagement, we could create a market opportunity for ourselves.

Christopher A. Caldwell: Now, turning to the second quarter performance.

Christopher A. Caldwell: We increased revenue 47% as reported, and grew 4% on a pro forma, constant currency basis in the quarter exceeding our prior guidance. We reported non-GAAP operating income of $321 million, an increase of 46% year-on-year and in line with our guidance.

Christopher A. Caldwell: We delivered adjusted EBITDA of $380 million, an increase of 0.7% year-on-year. On a pro forma basis, we grew non-GAAP operating income 4% and adjusted EBITDA 2% year-on-year.

Christopher A. Caldwell: We remain on track to generate $700 million of adjusted free cash flow for the full year after integration expenses, and on track to complete $120 million of share repurchases for the fiscal year, of which we have done over $60 million through the end of Q2.

Christopher A. Caldwell: We see the same momentum in Caldwell as its growth continues to be expedient, which we expect to continue for all of 2024.

Unknown Executive: From a vertical perspective, we're seeing particular traits, and we shall solve an e-commerce and thanking a financial service that is expected to continue for the rest of 2024. As we mentioned in our first quarter call, we are receiving our investment in our technologies while also investing in transition more different ones from competitors. In the second quarter, we have celebrated these investments, while still expecting to increase our non-GAAP operating income by 40 basis points for the entire year on a 12-hour basis. Specifically, we have increased our development system to approximately 1% of revenues to the second quarter and an increase of approximately 50 basis points from the start of Q1.

Christopher A. Caldwell: From a vertical perspective, we are seeing particular strength in retail, travel, e-commerce, and banking and financial services that is expected to continue for the rest of 2024. As we mentioned in our first quarter call, we are increasing our investment in our technology while also investing to transition more business from competitors.

Unknown Executive: This increase investment relates to an development that signals platforms for both clients and intermediate, as well as an increasing number of pilots that we have underway with clients using gender to the AI. We see just investment remaining at this level for a few quarters prior to falling more in line with historically what we have spent while renting from even less than start to become more meaningful. We all expect from her approximately 20 millions to 25 million of weeks from successfully spent to take off the large multi-year program where we are taking share from competitors as clients consolidate capacity with us.

Christopher A. Caldwell: This increased investment relates to our development of technology platforms for both clients and interviewees, as well as an increasing number of pilots that we have underway with clients using generative AI.

Christopher A. Caldwell: We see this investment remaining at this level for a few quarters. Prior to falling more in line with historically what we have spent, all revenue from these investments starts to become more meaningful.

Christopher A. Caldwell: We also expect to incur approximately $20 million to $25 million of interest from incremental expense.

Unknown Executive: Even that's when we get our temporary income revenue, followed in subsequent quarters. We see both of these as near-term and top investment that will set us up for one-term growth and value creation.

Christopher A. Caldwell: We see both of these as near-term and positive investments that will set us up for long-term growth and value creation.

Unknown Executive: Now, let's talk about some of our recent wins and the trends we're seeing in the business. As a reminder, our growth strategy is to drive incremental values to clients to a broader technology and services that will hold sales. Our strategy is working, and your currency is reflected in our growth rate and our clients building across both these distinct and new clients. Some examples with wins in the quarter include a major global retail e-commerce client where we combine the power of the NAA context and translation tools with our GX expertise and global footprint to design and implement a new customer solution at series for them across ceremony and operation.

Christopher A. Caldwell: Now, let's talk about some of our recent wins and the trends we're seeing in the business.

Christopher A. Caldwell: As a reminder, our growth strategy is to drive incremental value to clients through a broad set of technologies and services at global scale. Our strategy is working, and we are starting to see this reflected in our growth rate and our pipeline building across both existing and new clients.

Christopher A. Caldwell: Some examples of wins in the quarter include a major global retail e-commerce line, where we combine the power of our NAI context and translation tools with our CX expertise and global footprint to design and implement a new customer solution experience for them across their immediate operations.

Unknown Executive: This allowed our clients to use buying from competitors who have been welcoming the 20-meting weeks in our revenues. And this single vision is interesting for our clients for this specific program, while reducing the cost of clients by double digits. Are you the GenI expertise with a win-win for us and our point? We also want a new large global media crisis order. We will support a large component of our new five-profile channel, NMEF, and consolidate the corporate exchange operations in Japan and Korea. We will also design and build a gender to the AI knowledge management solution for their enterprise.

Christopher A. Caldwell: Our use of GNI expertise was a win-win for us and our clients.

Christopher A. Caldwell: We also won a new large global media client this quarter. We will support the launch of one of the new high-profile channels, NMEA, and consolidate their customer experience operations in Japan and Korea.

Christopher A. Caldwell: We will also design and build a generative AI knowledge management solution for their enterprise. They wanted a partner that could provide a complete solution delivered globally and consistently and securely, which we are able to do.

Christopher Caldwell: They wanted a partner that can provide a complete solution delivery globally and can play and securely wish we are able to do. Other wins in the quarter include a global client that has a good health relationship in Europe. This quarter we started to expand our revenue to the combined organization by leveraging our AI phase change will improve effectiveness and efficiency for our gay changes. This resulted in coming from Japan to a, as well as the PICS. PICS will new revenue dream as they contemplate rolling out our PICS solution across their enterprise. Finally, we sold countless services into a former web health client in Europe to provide specialized digital engineering resources to build and have to maintain the client's digital infrastructure and seek out platform to support their primary channel for new business.

Christopher A. Caldwell: Other wins in the quarter include a global trial of clients that have a web health relationship in Europe .

Christopher A. Caldwell: This resulted in NERP coming from competitors to us, as well as a potential new revenue stream as they contemplate rolling out our AI solution across their enterprise.

Christopher Caldwell: The strengthens are in this relationship with the client. These wins underscore the breadth and complexity of solutions that we are in another important client. They also provide our business to continue to change.

Christopher A. Caldwell: This strengthens our existing relationship with the client.

Christopher A. Caldwell: These wins underscore the breadth and complexity of solutions that we are delivering for our clients. They also reflect how our business continues to change.

Christopher Caldwell: At our investor day to a year ago, we talked about 13% of our business being commoditized, low-confectory transactions. Last year, we updated investors that we were down to 10%, and then we reviewed that to 7%. We need 90% of our transactions are needed to high-confectory now in our business. These wins also demonstrate two important factors in our release: the game market and wallet share. So I am speaking of products that have a great solution from zero partners that are doing what's new for our local deal, technology, and integrated consulting and implementation and support offerings. And secondly, automation and generative AI are continuing to be an area of competitive advantage for us.

Christopher A. Caldwell: At our Investor Day two years ago, we talked about 13% of our business being commoditized, low-complexity transactions.

Christopher A. Caldwell: These wins also demonstrate two important factors in our ability to gain marks in WalletShare.

Christopher A. Caldwell: Clients are seeking a broader set of integrated solutions from fewer partners, and are looking to us to produce more local-scale technology and integrated consulting implementation and support offerings.

Christopher A. Caldwell: And secondly, automation and generative AI is continuing to be an area of competitive advantage for us.

Christopher Caldwell: As we have said before, we believe Joe and AI presents a tremendous amount of opportunity for consensus in our client. We have an increasing number of products and solutions going in production supply now. While the level of generate, adoption readiness varies greatly by vertical and client. There are a few common things with the pilot's introduction. First, the vast majority of pilots who coach us are Muslim at using AI to augment the unit's binder, to make it be divided or more effective in representing our client's brand and in sensing the brand experience for customers. Second, many of these pilots are using their AI to operate for a place existing knowledge platform, chatbot, automation systems, and IBR systems. The green means to the outside opportunities; we see as we combine our own AI tools, we go to the part where we can bring new values more clients.

Christopher A. Caldwell: As we have said before, we believe generative AI presents a tremendous upside opportunity for Concentrix and our clients.

Christopher A. Caldwell: We have an increasing number of pilots and solutions going into production for clients now. While the level of Gen-I adoption readiness varies greatly by vertical and client, there are a few common themes with these pilots in production.

Christopher A. Caldwell: Second, many of these pilots are using generative AI to operate or replace existing knowledge platforms, chatbots, automation systems, and IVR systems.

Christopher A. Caldwell: This brings me to the upside opportunity we see as we combine our own AI tools with those of our partners to bring new value to our clients.

Christopher Caldwell: Many of our technology platforms continue to gain traction in the market. We're building a system, and we'll be introducing a variety of new products over the coming quarters. This quarter repiled a patent for child, which has poured zedatives and thousands of limited limitless engineers. A platform we develop for automated coding and testing using Jet AI to develop a new platform. From our internal usage, we're seeing up 40% of productivity booths, quick experience coders on a transactional path. We believe our investments in most journey to the AI pilots and technology products will help us expand the share of the wallets and share of markets while firm and superior marketing.

Christopher A. Caldwell: From our internal usage, we are seeing up to a 40% productivity boost to experienced coders on transactional paths.

Christopher A. Caldwell: We believe our investments in both generative AI pilots and technology products will help us expand the shared wallet and shared market long-term at superior margins.

Christopher Caldwell: Finally, let me touch on the web health integration. As you can see from these wins we mentioned, we're starting to see a revenue synergy sooner than we expected. This is a testament to the successful integration of our go-to-market and delivery organizations, which we initiated on day one, kind of largely behind us. The integration is on track, as is a realization of planned contentings.

Christopher A. Caldwell: Finally, let me touch on the web health integration. As you can see from these wins we've mentioned, we're starting to see revenue synergies sooner than we expected. This is a testament to the successful integration of our go-to market and delivery organizations, which we initiated on day one and are largely behind us.

Christopher A. Caldwell: The integration is on track, as is a realization of planned cost synergies.

Christopher Caldwell: In summary, our growth strategy is working; we're differentiating Concentric from the markets and delivering incremental values to clients for a broad set of technology and services at global scale. So we've been winning the offer evidence that AI is most likely opportunity for revenge. With that, I'd like to thank our game-changer and our clients and organizations for the last work, and after all, it was on May.

Speaker Change: With that, I'd like to thank our game changers and our clients for the relationship over the last year and pass the call over to Andre. Andre, over to you.

Unknown Executive: Under course you.

Unknown Executive: Thank you, Chris, and I'll owe everyone. I'll begin with a look at our financial results and then discuss our outlook for the rest of the year. The second quarter, March, another solid quarter for the company. We exceeded our targets for revenue, delivered profits within our guidance range, and drove strong free cash flow. We delivered second quarter revenue of $2.4 billion on a pro-forma constant currency basis. As if the web help combination was completed at the beginning of 2023, we grew revenue by 4%. For the first half of the year, our constant currency pro-forma growth was 3.4%.

Andre S. Valentine: Thank you Chris and hello everyone. I'll begin with a look at our financial results and then discuss our outlook for the rest of the year. The second quarter marked another solid quarter for the company. We exceeded our targets for revenue, delivered profits within our guidance range, and drove strong free cash flow.

Andre S. Valentine: We delivered second quarter revenue of $2.4 billion on a pro-forma, constant currency basis.

Andre S. Valentine: As if the web help combination was completed at the beginning of 2023, we grew revenue by 4 percent.

Unknown Executive: So our overall revenue trends remain positive. As you can see from our guidance, we expect this stability to continue in the second half of the year. Looking at our revenue growth by vertical, on a pro-forma basis, revenue from retail, travel, and e-commerce clients grew 10% year over year. We're revenue from banking, financial services and insurance clients grew 6%. And our other vertical grew 3%. Our technology and consumer electronics clients grew over 3% on a pro-forma basis. While this vertical is still lagging some other sectors due to the macro environment, we were happy to see some positive momentum from consumer electronics clients as we gain share with key clients.

Andre S. Valentine: and our other vertical grew 3%.

Andre S. Valentine: Our technology and consumer electronics clients grew over 3% on a pro-forma basis.

Unknown Executive: We continue to see strength and enterprise tech. Revenue from our telco and media clients decreased 3% on a pro-forma basis. Primarily due to lower volumes from a few North American communications clients, as discussed in prior quarters. Turning to profitability, our nine-gap operating income was 321 million dollars in the quarter. An increase of 101 million dollars compared with the second quarter of 2023. Our nine-gap operating margin was 13.5%.

Andre S. Valentine: Turning to profitability, our non-GAAP operating income was $321 million in the quarter, an increase of $101 million compared with the second quarter of 2023.

Unknown Executive: Down about 20 basis points from last year due to the inclusion of WebL, which historically operated a slightly lower nine-gap OI margin. Adjusted EBITDA was 380 million dollars, up $121 million dollars year over year. And our adjusted EBITDA margin was 15.9%, roughly flat year on year. On a pro-forma basis, our second quarter profitability metrics continued their solid improvement. Nine-gap operating income increased $12 million with a 30 basis point margin improvement compared to last year. Adjusted EBITDA was up $8 million dollars, and our adjusted EBITDA margin was flat compared with last year. Nine-gap net income was $183 million in the quarter, an increase of approximately 46 million dollars compared to the second quarter of last year.

Andre S. Valentine: Adjusted EBITDA was $380 million, up $121 million year-over-year, and our adjusted EBITDA margin was 15.9%, roughly flat year-on-year.

Andre S. Valentine: On a pro-forma basis, our second quarter profitability metrics continued their solid improvement. non-GAAP operating income increased $12 million, with a 30 basis point margin improvement compared with last year.

Andre S. Valentine: Adjusted EBITDA was up $8 million, and our adjusted EBITDA margin was flat when compared with the last year.

Andre S. Valentine: Nongap Net Income was $183 million in the quarter, an increase of approximately $46 million compared to the second quarter of last year. Nongap EPS was $2.69 per share, an increase of $0.06 per share year-on-year.

Unknown Executive: Nine-gap EPS was $2.69 per share, an increase of 6 cents per share year on year. Gap net income was $67 million for the quarter. Gap results for the second quarter of 2024 included $116 million in amortization of intangibles, $31 million in expenses related to the WebHub combination and integration. $22 million in share-based compensation expense. 2.5 million dollars in step-up depreciation, a $7 million reduction in acquisition, contingent consideration, $14 million in net foreign currency gains, and $4 million in imputed interest related to the sellers' note, issued in connection with the combination. Our adjusted free cash flow for the quarter was strong at $22 million, and remain on track for a full-year adjusted free cash flow outlook of $700 million, net of integration expenses.

Andre S. Valentine: Gap net income was $67 million for the quarter.

Andre S. Valentine: Gap results for the second quarter of 2024 included $116 million in amortization of intangibles, $31 million in expenses related to the web help combination and integration,

Andre S. Valentine: $22 million in share-based compensation expense.

Andre S. Valentine: $2.5 million and step up depreciation.

Andre S. Valentine: a $7 million reduction in acquisition contingent consideration, $14 million in net foreign currency gains, and $4 million in imputed interest related to the seller's note issued in connection with the combination.

Unknown Executive: As we stayed there last call, the adjusted free cash flow metric is calculated as free cash flow, excluding the impact of the factoring program we assumed, and have continued to operate since the Web Health combination. During the second quarter, the amount of factored accounts received will decreased by $24 million, with the outstanding factored balance standing at about $162 million at the end of the quarter. In the second quarter, we made payments related to earn-outs of past web health acquisitions of approximately $28 million, over which approximately $5 million resulted in a reduction of adjusted free cash flow.

Unknown Executive: Turning to the balance sheet at the end of the second quarter, cash and cash equivalents for $27 million, and total debt was $4.9 billion. Net debt was $4.7 billion at the end of the second quarter, and we repaid $150 million of the principal amount of our term loan in the quarter. We reduced our net debt to $2.97, pro-format adjusted EBITDA at quarter-end, a sequential decrease from 3.04 times in the prior quarter. We expect to continue to reduce our net debt and net leverage to the end of 2024. We remain committed to our plan of reducing net leverage to close to two times adjusted EBITDA within two years of the close of the web health combination, while supporting our dividend and buying back stock.

Andre S. Valentine: Turning to the balance sheet, at the end of the second quarter, cash and cash equivalents were $207 million, and total debt was $4.9 billion. Net debt was $4.7 billion at the end of the second quarter, and we repaid $150 million of the principal amount of our term loan in the quarter.

Andre S. Valentine: We reduced our net debt to 2.97 times pro forma adjusted EBITDA at quarter end, a sequential decrease from 3.04 times in the prior quarter.

Andre S. Valentine: We expect to continue to reduce our net debt and net leverage through the end of 2024. We remain committed to our plan of reducing net leverage to close to two times adjusted EBITDA within two years of the close of the WebHelp combination, while supporting our dividend and buying back stock.

Unknown Executive: During the second quarter, we repurchased approximately $650,000 in shares of our stock for approximately $40 million, and an average price for approximately $61 per share. And we are quarterly dividend. As a reminder, on our first quarter earnings call in March, we committed to $100 million in share repurchases over the remaining three quarters of 2024. So we have about $50 million more to go on that commitment. At quarter-end, the remaining authorization on our share repurchase plan was approximately $227 million. Our liquidity remained strong, and approximately $1.5 billion, including our over $1 billion line of credit, which is undrawn.

Unknown Executive: We remain committed to investment-grade principles, and we are steadfast in our capital allocation priorities.

Andre S. Valentine: We remain committed to investment grade principles and we are steadfast in our capital allocation priorities.

Unknown Executive: We expect to continue to drive organic growth, realize integration synergies related to the web health combination, and repay debt, while continuing a discipline program of returning capital to our return. My attention to the business outlook for the third quarter, and four-year-old. Time to buy your deal for the third quarter. We expect revenue of $2.35 billion to $2.4 billion, based on current exchange rate. This reflects approximately 1.5% to 3.5% pro-forma constant currency growth, net of an approximately 205 basis point exchange rate headwind. Pro-forma revenue for the third quarter of 2023 would have been 2.367 billion dollars, assuming the web help combination occurred at the beginning of fiscal 2023.

Andre S. Valentine: We expect to continue to drive organic growth, realize integration synergies related to the web health combination and repay debt, while continuing a disciplined program of returning capital to our shareholders through our dividend and disciplined share repurchases.

Speaker Change: Now, I'll turn my attention to the Business Outlook for the third quarter and full year 2024.

Speaker Change: For the third quarter, we expect revenue of $2.35 billion to $2.4 billion based on current exchange rates.

Speaker Change: This reflects approximately 1.5% to 3.5% pro forma constant currency growth, net of an approximately 205 basis point exchange rate headwind.

Speaker Change: Pro forma revenue for the third quarter of 2023 would have been $2.367 billion, assuming the web help combination occurred at the beginning of fiscal 2023.

Unknown Executive: We expect 9 gap operating income to be in the range of 330 million to 350 million dollars in the third quarter. At the mid-point of our guidance, this equates to a 9 gap operating income margin of approximately 14.3%. Importantly, this is an increase of 20 basis points over the prior year quarter on both a reported and pro forma basis. On a pro-forma basis, 9 gap operating income was $334 million in the third quarter of 2023. We expect 9 gap EPS of 2 dollars and 76 cents per share to 3 dollars and 4 cents per share for the third quarter.

Speaker Change: We expect non-GAAP operating income to be in the range of $330 million to $350 million in the third quarter.

Speaker Change: At the midpoint of our guidance, this equates to a non-GAAP operating income margin of approximately 14.3%.

Speaker Change: Importantly, this is an increase of 20 basis points over the prior year quarter on both a reported and pro forma basis.

Speaker Change: On a pro forma basis, non-GAAP operating income was $334 million in the third quarter of 2023.

Speaker Change: We expect non-GAAP EPS of $2.76 per share to $3.04 per share for the third quarter.

Unknown Executive: This seems interest expense of $75 to $76 million, excluding 4 million dollars of imputed interest on the sellers' note. It assumes a 9 gap effective tax rate in a range of 25 to 26%. We anticipate a weighted average diluted share for the third quarter. We estimate that about 4% of net income will be attributable to participating securities, at about 96% of total net income will be attributable to common shares for the third quarter.

Speaker Change: This assumes interest expense of $75 to $76 million, excluding $4 million of imputed interest on the seller's note. It assumes a nine-gap effective tax rate in a range of 25 to 26 percent.

Speaker Change: We anticipate a weighted average diluted...

Speaker Change: for the third 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 for the third quarter.

Speaker Change: Turning now to the full year 2024 guidance, based on our strong start and continued confidence in our strategy and execution, we are increasing our full year 2024 revenue guidance while reiterating our free cash flow guidance.

Speaker Change: Specifically, our guidance for the full year is as follows.

Speaker Change: We expect 2024 revenue to be in a range of $9.58 billion to $9.675 billion, reflecting approximately 2.5% to 3.5% pro forma constant currency growth.

Speaker Change: This is net of an approximately 150 basis point exchange rate headwind. This is an increase to our prior guidance of 1-3% year-on-year growth on a pro forma constant currency basis.

Speaker Change: We continue to expect first-year net synergies of $75 million. The current run rate is approximately $80 million on an annualized basis. We do anticipate that some of these synergy savings will be offset by continued ramp-up costs and accelerated investment in technology.

Unknown Executive: As a result of the investment risk referred to earlier, we are reducing our 9-gap operating income expectation for the year. We now anticipate 9-gap operating income in the range of $1.35 to $1.40 billion for the year, which represents a 14.3% margin at the midpoint. Importantly, this is an increase of 10 basis points over the prior year and 40 basis points over the prior year on a pro-forma basis.

Speaker Change: As a result of the investments Chris referred to earlier, we are reducing our non-GAAP operating income expectation for the year.

Speaker Change: We now anticipate non-GAAP operating income in the range of $1.35 to $1.40 billion for the year, which represents a 14.3% margin at the midpoint.

Speaker Change: Importantly, this is an increase of 10 basis points over the prior year and 40 basis points over the prior year on a pro forma basis.

Speaker Change: We expect non-GAAP EPS of $11.40 per share to $12.07 per share.

Speaker Change: This assumes full year interest expense of $300 to $304 million excluding $16 million of imputed interest on the seller's note.

Speaker Change: We expect an effective tax rate of approximately 25% to 25.5% and a weighted average diluted share count of approximately 65.1 million shares for the full year.

Speaker Change: In terms of cash flow, we are reiterating our outlook for $700 million in free cash flow in 2024, even after funding integration costs.

Speaker Change: This assumes no change in the amount of factored accounts receivable from the beginning of the year.

Speaker Change: Our business outlook and cash flow expectations do not include any future acquisitions or impacts from future foreign currency fluctuations.

Speaker Change: In conclusion, we are pleased with our performance in the second quarter and our outlook for the year. We are exceeding our revenue growth expectations with solid execution across key verticals. We're optimistic about our second half and are seeing solid demand for our unique technology and services offerings.

Speaker Change: We're increasing our competitive position with a broader set of technology and service offerings.

Speaker Change: With that, Carmen, please open the line for questions.

Speaker Change: Please press star then 1-1 to get in the queue and wait for your name to be announced.

Speaker Change: to remove yourself.

Speaker Change: And he comes from the line of Joseph Vafi with Canaccord Genuity. Please proceed.

Joseph Anthony Vafi: Hey guys, good afternoon. Great to see the fine tune up on the guide and welcome Sarah to the team. I thought maybe we would just start with kind of parsing out

Speaker Change: It looks like you're taking the bull by the horns a little bit on the macro.

Speaker Change: or on the AI front, that is. And, you know, it's turning a little bit more into an opportunity than, you know, maybe people have thought previously. And then, you know.

Speaker Change: We could compare and contrast that to what you're seeing on the macro and how both of those kind of have kind of funneled into the new guidance for the year and then I'll have a quick follow-up.

Christopher A. Caldwell: So it's Chris. So first of all, you're absolutely right. We are using your term, taking a bull by the horns from a generative AI perspective.

Christopher A. Caldwell: We're seeing very good traction in pilots and getting some things into production into our client base.

Christopher A. Caldwell: And we're also seeing the ability where we think that there's misses in the market from a technology solutions perspective on platforms, that we have a lot of this base built out for ourselves already, but now we need to work on getting it to commercial standards and from a multi-tenant perspective and ease of use perspective in large-scale rollouts. And so we don't want to miss that opportunity and are taking advantage and leaning into it.

Christopher A. Caldwell: I think, secondly, we also are seeing good traction in taking share as well as winning net new clients.

Christopher A. Caldwell: with even the AI products that we have right now, as we talked about in a couple of our WIBs.

Christopher A. Caldwell: So we see that as being very, very positive, and we built that into sort of our guide of seeing our revenue increase, while also seeing some costs associated with doing these pilots and building out the infrastructure that we want, that we think will put us in a very, very nice position for further growth.

Christopher A. Caldwell: In terms of the macro, we're not seeing really any change. We're not seeing it improving, we're not seeing it declining. We're seeing, and that's sort of a global comment, we're seeing things fairly stable and steady.

Christopher A. Caldwell: And clearly any kind of positive changes coming from that, we expect to benefit from it based on the share that we have within our client base.

Joseph Vafi: Great, that's great color, and then thanks for that, Chris, and then maybe on, you know, once for Andre. I know that, you know, as we exit this year, some of the web health, you know, merger related costs are going to be, and then more cost synergies are going to kick in, combined with continued debt pay down, maybe offset a little bit more now at this point by investment in the business. And I know you're not providing guidance for next year, but, you know, it'd be great to get an updated framework on, you know, I think you've reiterated your 700 million in free cash flow guidance this year, but to kind of provide a little bit of framework for next year, what all could be helpful, thanks a lot.

Speaker Change: Great. That's great color. And then, thanks for that, Chris. And then...

Speaker Change: Maybe on, you know, one for Andre, I know that, you know, as we exit this year, some of the web health, you know, merger related costs are going to abate and then more cost synergies are going to kick in.

Speaker Change: combined with continued debt pay down, maybe offset a little bit more now at this point by investment in the business.

Speaker Change: And I know you're not providing guidance for next year, but, you know, it would be great to get an updated framework on...

Andre Valentine: Now, having to do that, Joe, and good to talk to you. Yeah, so there's certainly a reason for us to be optimistic that the 700 million dollars are pretty cash flow that we generate this year can go up in 2025. I want to stop close to the snapshot of guiding for 2025, but, you know, the two major drivers there will be synergies. You know, we expect to in year one post, close to the combination, recognize 75 million dollars in net synergies; we’re already above that run rate. As we look at the synergies that we've recognized right now in the business, we expect that will go up to at least $105 million in net synergies in the second year post close to the combination.

Speaker Change: in 2025. I want to stop close to stop short of guiding

Speaker Change: for 2025. But, you know, the two major drivers there will be synergies. You know, we expect to, in year one, post-close of the combination,

Speaker Change: recognized $75 million in net synergies. We're already above that run rate.

Speaker Change: as we look at the synergies that we are realizing right now in the business. We expect that will go up to at least $105 million in net synergies.

Unknown Executive: And then you're right, the integration expenses will drop pretty, pretty meaningfully from 2024 to 2025. But I would see a drop, you know, in the range could approach $50 million or more, frankly, cash integration expenses dropping off. So, both of those things would give us some confidence that we could see cash flow go up. Obviously, we're also going to be paying down debt. So, some opportunity with that, and perhaps if we get there, some interest rate and cash basis, and be a bit of a help to us in 2025. Right, thanks a lot, guys. Nice to see the guy up.

Speaker Change: in the second year post-close of the combination. And then you're right. The integration expenses will drop pretty meaningfully from 2024 to 2025. I would see a drop in the range, could approach $50 million or more, frankly, of cash integration expenses dropping off. So both of those things would give us some confidence.

Speaker Change: that we could see cash flow go up. Obviously, we're also going to be paying down debt, so some opportunity with that, and perhaps if we get there, some interest rate reductions to see interest costs also come down from a cash basis and be a bit of a help to us in 2025.

Speaker Change: Great. Thanks a lot, guys. Nice to see the guide up.

Unknown Executive: Thanks for watching. Thank you. One moment for our next question.

Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the

Speaker Change: Operator, do we have a next question?

Ruplu Bhattacharya: Okay, I think the question was going to be from Rupert.

Speaker Change: Okay, I think the question was going to be from Ruplu.

Ruplu Bhattacharya: Hi, thanks for taking my questions, and congrats on inclusion in the Fortune 500 list. Andre, can you help me understand all of the moving pieces to the guidance? Looks like Cisco 2Q revenues beat the midpoint of guidance by 32 million and EPSB by 7 cents. But your guiding fiscal treat you down sequentially and lower than street estimate. And if I look at fiscal year revenue guidance increase, that looks like it's about 23 million at the midpoint. And then operating margin is down 50 bits to 14.3%, and EPSB is 36 cents lower. So, given all of these different data points, I mean, my questions to you would be on the revenue side.

Rupalu: Hi, thanks for taking my questions and congrats on inclusion in the Fortune 500 list. Andre, can you help me understand all of the moving pieces to the guidance? Looks like fiscal 2Q revenues beat the midpoint of guidance by $32 million and EPS beat by $0.07.

Rupalu: But you're guiding fiscal 3Q down sequentially and lower than street estimates. And if I look at fiscal year revenue guidance increase, that looks like it's about $23 million at the midpoint, and then operating margin is down 50 bits to 14.3%, and EPS is $0.36 lower. So given all of these different, you know, data points, I mean...

Andre Valentine: Was there any pull-in of revenue from 2Q to 3Q? Why would there be a sequential decline in 3Q? And is there, does that imply somewhat steeper ramp between 3Q and 4Q to get to the full year? No, so Ruplu is just kind of commented about our revenue guide throughout this year. We want to be prudent in how we guide revenue. And so we think that we have done that with what we've provided here. So, having grown at 4% here in Q2, you're right. We're guiding to growth of 1.5% to 3.5% over the balance of the year roughly.

Rupalu: My questions to you would be on the revenue side, was there any pull-in of revenue from 2Q to 3Q? Why would there be a sequential decline in 3Q? And does that imply a somewhat steeper ramp between 3Q and 4Q to get to the full year?

Andre Valentine: So this we're guiding to in Q3. Again, we're just there; we're being prudent. We are not seeing anything in our clients' volumes. We are not seeing anything in our pipeline that suggests that revenue should decline. And so, you know, from a revenue perspective, just being prudent with the guide. And frankly, quite confident and focused on coming in as we did this most recent quarter. You know, in the, at least in the upper half of what we've guided you, which would put you very, very close to a continuation of the growth rate that we saw here in the first half.

Andre Valentine: And then on operating margins, the 50 basis points lower: 14.2 versus 14.8 for the full year. I think you talked about some investments you're making. Can you elaborate more on what are the investments that you're making, and when do you expect to see revenue benefit from those investments? Yeah, so, so Chris did a script that alluded to two major areas where we're investing. So we're investing heavily in technology and our platforms embedding GNI into them both for internal use for client pilots and for the development of some commercial products. We don't think that was, and that is, that is certainly weighing on our margins, but we think that's a good investment for the long term.

Andre S. Valentine: And as you see in many of the winds that Chris talked about, the technology is at the forefront of what's driving our competitive advantage and driving those winds across the finish line for us. So, and we also don't think that level of heightened investment is a forever thing. We think it is temporary here through the bounce of the year and could even begin to taper as we exit the year. The other major area that we're investing in is transitioning new business to us. That can come in many, many different flavors. It can become transitioning work from a competitor where we incur up front technology cost.

Unknown Executive: It could be up front training cost. It could be all of those types of things. And so, but we're happy to do that because again, we do that in advance. The revenue shows up a few quarters out, and the margins on those deals are quite attractive to us. So, that's how you think about it. You're right at the midpoint of our guide. We've come down a bit. It's because of these investments. We think it's the right thing to do to grow the business and drive value for the long term. Okay, and maybe I'll try and sneak one more in.

Unknown Executive: Sorry if I missed this. Did you talk about the growth rate for the new economy clients and for the capitalist business and fiscal QQ, and how are sales cycles trending for different size of deals. Thank you. Yes, so, catalyst continues to a very, very, very high back out is doing. It's growing quite nicely, grew sequentially from Q1 to Q2 and is meaningfully, you're creative to the overall growth rate for the business in Q2 and we see that continuing over the back calf of the year. New economy clients continue to represent about 25% of revenue loop, and, you know, as I commented at your technology conference earlier this month.

Unknown Executive: They are growing faster than the rest of the business, faster than the enterprise clients, although not nearly as fast as they were called it two years ago. They become very focused on ROI, on right-shoring, the work, on embedding technology to become more efficient. And all the things, frankly, that the enterprise clients are interested in too.

Unknown Executive: Okay, thank you for all the details. Sure, thank you very much.

Divya Goyal: Next question comes from Divya Goyal: Will Scotia Banks. Good evening, everyone. So I had a question on web help. Andre, I think you mentioned that there are certain turnout payments that you have to make related to the web help acquisitions that were made prior to you guys acquiring, whether if you could provide some more color on that, and is that going to be an additional impact on your guidance as well for the year on the bottom line? No, so yes, the payments that we made, they were about $28 million in Q2 relate to past acquisitions by Webhelp.

Andre Valentine: So these were things that were committed to prior to us becoming involved with Web Help and then closing on the transaction in 2023. There are no; they do not impact our bottom line as they were effectively have been accrued for some period of time. So no impact there; they do obviously use cash, although most of that payment does not impact our free cash flows. They alluded to maybe $5 million impact their free cash flow. We don't expect any further earnings in 2024 related to those acquisitions. I don't believe there are any in 2025, and then a fairly similar amount of earnings would be expected in in 2026.

Andre S. Valentine: These were all kind of part and parcel with the financial model that we put together as we looked at the transaction and closed the transaction. They're planning out exactly as we expect them to.

Christopher Caldwell: That's perfect, and just another question related to web help. So you did talk about the, I think Chris mentioned, some of the cross health energies of catalyst into web help, if thought either you or Chris gets away a little bit more color into how exactly is that trending and what is the broad attraction that you are seeing or catalyst into some of these new web clients that you've recently acquired? Yeah, for sure, it is Chris. So first on, we expected obviously revenue synergies, but we didn't necessarily count for them in the first year. They tend to take a while to gain traction and go, and we're kind of well ahead of where we expected to be at this point in time, both by the way taking concentric clients across to sort of the web help footprint and vice versa, as we talked about on the prepared remarks.

Christopher Caldwell: From a technology perspective, where we're gaining share, really costs our whole client base. I get a bit of whether it's web help client, originally, or a concentric client, originally, integrating our technical services in the back; the majority come from our catalyst period. Some of it comes from our listing client sector organization already, but ultimately, if that value proposition is putting everything together, that clients will all think to them, that has really helped us accelerate our growth rate and start to build a stronger pipeline that we're seeing right now.

Christopher Caldwell: The South Pole, is it fair to assume that your catalyst business would be clear point consulting related, so would it be a higher margin business, or what is the, what is the big difference between what you're doing with catalyst versus your standard business? So, hello. Hello. Hi. Good question. So, we're going to call this business. We have our consulting business. All right. Let's discuss. We have our business. We have our engineering business. Our sea cast business. Our cloud migration business. And so, there's a lot within our, our catalyst business. And the most important profile of some is, as you can imagine, higher than our core business.

Christopher Caldwell: Some is actually lower than our core business. Because we're doing a lot of these pilots. And we're doing a lot of that. And those are the tools, within our catalyst business, which is not necessarily treated tomorrow or tomorrow margin. But what we see long-term is we talked about when we started investing in that business. It's in delay to increase our margins, much like we do in our core business, to be more treated than our core business as we go forward. But that's a longer-term comment. That's welcome.

Unknown Executive: Thank you so much. Thank you.

Unknown Executive: One moment for our next question, please.

Unknown Executive: All right. Any comments from the line of Binsen College here with Barrington Research, please proceed? Yeah, Chris. I like the sort of, um, think a little bit more about your market share gains. Are they coming at the expense of, um, medium size and smaller players as well as some of your larger competitors? Actually, they're coming from, from both. They, we, one of them is from from smaller players. They're going to be delivering our friends. Uh, and then that's like, I think that's something serious that they needed. Uh, and we went, uh, some of them, um, one of the deals that we talked about from a larger competitor, primarily because we could bring everything together and have the technology solution versus the just sort of the operation part of it.

Christopher A. Caldwell: And so we see that continue. We can based on how to play it.

Christopher Caldwell: So if we isolate your larger competitors, do you think you have a more complete portfolio today of what, uh, folks are looking for to eat over, you know, or is it, or may over generalizing? No, absolutely. We think we have a very, very complete portfolio across both the consulting and both the design of the deals and the run-outs, types of delivery and services solutions to clients. Lies are looking for someone who can bring this expertise in one way to do it with your list, uh, to their enterprise and kind of reimagine what they're delivering in the customer's shared perspective.

Christopher A. Caldwell: And that is really rare when they're dating to share because the conversation is very different. Then probably what we had for three years ago.

Christopher A. Caldwell: And, um, as, uh, with an early, uh, see, was seeing the, the well-pub, uh, revenue synergies bitterly unexpected. Um, how are you feeling about seeing, um, uh, a meaningful contribution from revenue synergies in 25? I don't want to guide for 25, but I think direction from my comments and from other comments, you can see that you're, you're a, uh, bullish component. And, you know, as we expected, doing it is the transaction that we want. And then we're repeating along now.

Christopher Caldwell: Okay, and then as the AI automation evolves here, I know we're still very early days. Are you seeing any change in the competitive landscape in your technology business? I think in the big transformation of yield that we're working on and seeing what we call Development capabilities, technology companies. And we think we can be very, very involved with that because we have the domain expertise around where clients are looking for, because we run their businesses out of the stands right now. So that's definitely changed for us at the standpoint. We've also seen for a smaller BTC company talking about AI who are talking about new development with all.

Unknown Executive: But again, they don't really necessarily understand what the clients are after and what the intimate knowledge of the domain expertise is. And so therefore, you know, we have a very good kind of advantage against them as we, as we're building out the technology that's very suited for the client base because we know it, and those are the main expertise. So we are migrating to different competitors. But we think we're very, very well positioned for sort of a new kind of blind date. Thank you, Chris. Thank you. And with that, ladies and gentlemen, I will conclude the Q&A session and conference for today.

Unknown Executive: Thank you all for participating. And you may now disconnect.

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