What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-09 compared with 2021-04-09 · 122 added, 86 removed, 262 unchanged (44% of the section changed)

45 unchanged sentences

In connection with the spin-off, on November 30, 2020, we entered into a separation and distribution agreement, an employee matters agreement, a tax matters agreement and a commercial agreement with SYNNEX to set forth the principal actions to be taken in connection with the spin-off and define our ongoing relationship with SYNNEX after the spin-off.

In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”).

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization in March 2020.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and labor force participation, and created significant volatility and disruption of financial markets.

We successfully transitioned a significant portion of our workforce to a remote working environment throughout the second quarter of 2020 and implemented a number of safety and social distancing measures in our sites to protect the health and safety of employees.

During the first quarter of 2021, almost all of our workforce was productive.

We incurred incremental costs of approximately $10 million associated with COVID-19 during the first quarter of 2021.

During the six months ended May 31, 2021, almost all of our workforce was productive.

We incurred net costs of approximately $10 million and $20 million associated with COVID-19 during the three and six months ended May 31, 2021, respectively, in comparison to approximately $53 million in the three and six months ended May 31, 2020.

The COVID-19 related costs consist of certain out-of- pocket costs and non-productive workforce costs.

The extent of the continued impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration, spread and severity of the pandemic, country and state restrictions regarding virus containment, the availability and effectiveness of vaccines and treatment options, accessibility to the Company’s delivery and operations locations, our continued utilization of remote work environments in response to future health and safety restrictions, and the impact to the Company’s clients’ businesses and the demand for their products and services, all of which are uncertain and cannot be predicted.

We are unable to predict how long the pandemic conditions will persist in the regions in which we operate, what additional measures may be introduced by governments or our clients and the effect of any such additional measures on our business.

We are unable to predict how long the pandemic conditions will persist in regions in which we operate, if or when countries or localities may experience an increase in COVID-19 cases, what additional measures may be introduced by governments or our clients in response to the pandemic generally or to an increase in COVID-19 cases in a particular country or locality, and the effect of any such additional measures on our business.

As a result, many of the estimates and assumptions involved in preparation of the consolidated financial statements included in this Quarterly Report on Form 10-Q required increased judgment and carry a higher degree of variability and volatility.

As events continue to evolve with respect to the pandemic, our estimates may materially change in future periods.

As events continue to evolve with respect to the pandemic and the global recovery from the pandemic, our estimates may materially change in future periods.

Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends.

9 unchanged sentences

Our cost of revenue as a percentage of revenue has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the management of our operating expenses, and the timing and costs incurred related to our acquisitions and investments.

In the first quarter of 2021 and 2020, approximately 83% and 77% of our revenue was generated from our non-U.S.

In the second quarter of 2021 and 2020, approximately 84% and 79% of our revenue was generated from our non-U.S.

operations, and approximately 62% and 65%, respectively, of our revenue was priced in U.S.

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As a result, we have certain client contracts that are priced in non-U.S.

dollar currencies for which a substantial portion of the costs to deliver the services are in other currencies.

dollar currencies for which a substantial portion of the costs to deliver the

services are in other currencies.

Accordingly, our revenue may be earned in currencies that are different from the currencies in which we incur corresponding expenses.

Fluctuations in the value of currencies, such as the Philippine Peso, the Indian Rupee, and the Canadian Dollar, against the U.S.

Dollar or other currencies in which we bill our clients, and inflation in the local economies in which these delivery centers are located, can impact the operating and labor costs in these delivery centers, which can result in reduced

profitability.

dollar or other currencies in which we bill our clients, and inflation in the local economies in which these delivery centers are located, can impact the operating and labor costs in these delivery centers, which can result in reduced profitability.

As a result, our revenue growth, costs and profitability have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates.

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Critical Accounting Policies and Estimates

During the three months ended February 28, 2021, there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2020.

Results of Operations – Three months ended February 28, 2021 and February 29, 2020

Three Months Ended

February 28, 2021 February 29, 2020

During the three and six months ended May 31, 2021, there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2020.

Results of Operations – Three and Six Months Ended May 31, 2021 and 2020

Three Months Ended Six Months Ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

($ in thousands)

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Net income $ 82,904 $ 2,470 $ 171,715 $ 54,787

Three Months Ended Percent Change

February 28, 2021 February 29, 2020 2021 to 2020

Three Months Ended % Change Six Months Ended % Change

May 31, 2021 May 31, 2020 2021 to 2020

($ in thousands)

Industry vertical:

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These solutions focus on customer engagement, process optimization, and back-office automation.

Our revenue increased 13.9% i n the three months ended February 28, 2021, compared to the three months ended February 29, 2020, reflecting increased volumes across all verticals except communications and media.

Revenue from clients in our technology and consumer electronics vertical increased as a result of increased volumes from a broad-based group of hardware and software manufacturing clients.

Revenue from clients in our communications and media vertical decreased as we near the end of our portfolio rebalancing efforts.

Revenue from clients in our retail, travel and ecommerce vertical increased due to an increase in volumes across the majority of our retail and ecommerce clients, which more than offset expected lower volumes from travel and tourism clients in this vertical.

Our revenue increased 28.5% i n the three months ended May 31, 2021, compared to the three months ended May 31, 2020, reflecting increased volumes across all verticals.

The increase for the three months ended May 31, 2021 also reflects certain increases over the prior period due to “shelter-in-place restrictions” in response to COVID-19 and COVID-19 impacts on our employees’ ability to work productively despite client demand during the three months ended May 31, 2020.

Revenue from clients in our technology and consumer electronics vertical increased in the three months ended May 31, 2021 as a result of increased volumes from a broad-based group of hardware and software manufacturing clients.

Revenue from clients in our communications and media vertical increased due to higher volumes over the prior period, primarily as a result of prior year impacts from COVID-19 that did not recur in the current period.

Revenue from clients in our retail, travel and ecommerce vertical increased due to an increase in volumes across the majority of our retail and ecommerce clients and increased volumes in several travel and tourism clients.

Revenue from clients in the banking, financial services and insurance vertical increased due to increased volumes from several banking clients.

Revenue from clients in our healthcare vertical increased due to strong seasonal volumes, particularly across our health insurance clients.

Revenue from clients in our other vertical increased reflecting growth with several government clients partially offset by a decrease in revenue from a few automotive clients.

The increase in total revenue was also attributable to a favorable translation effect of foreign currencies of $25.7 million, or 2.2%.

The positive foreign currency translation effect on revenue was primarily due to the strengthening of the euro and Australian dollar against the U.S.

Revenue from clients in our healthcare vertical increased due to increased volumes across the majority of health insurance clients.

Revenue from clients in our other vertical increased reflecting growth with several government clients.

Also contributing to the increase in total revenue in the three months ended May 31, 2021 was a favorable translation effect of foreign currencies of $44.8 million, or 4.2%.

The positive foreign currency translation effect on revenue was primarily due to the strengthening of the euro, British pound and Australian dollar against the U.S.

Our revenue increased 20.8% in the six months ended May 31, 2021, compared to the six months ended May 31, 2020, reflecting increased volumes across all verticals and the impact of the aforementioned shelter-in-place restrictions in the prior period.

Revenue from clients in our technology and consumer electronics vertical increased in the first half of 2021 as a result of increased volumes from a broad-based group of hardware and software manufacturing clients.

Revenue from clients in our communications and media vertical increased in the first half of the fiscal year due to higher volumes over the prior period, primarily as a result of prior year

impacts from COVID-19 that did not recur in the current period, partially offset by our portfolio balancing efforts.

Revenue from clients in our retail, travel and ecommerce vertical increased due to an increase in volumes across the majority of our retail and ecommerce clients, partially offset by a decrease in volumes in several travel and tourism clients during the first half of the year.

Revenue from clients in the banking, financial services and insurance vertical increased due to increased volumes from several banking clients.

Revenue from clients in our healthcare vertical increased due to increased volumes across the majority of health insurance clients.

Revenue from clients in our other vertical increased reflecting growth with several government clients, partially offset by a slight decrease in revenue from a few automotive clients.

Also contributing to the increase in total revenue in the six months ended May 31, 2021 was a favorable translation effect of foreign currencies of $70.5 million, or 3.1%.

The positive foreign currency translation effect on revenue was primarily due to the strengthening of the euro, British pound and Australian dollar against the U.S.

Cost of Revenue, Gross Profit and Gross Margin Percentage

Three Months Ended Percent Change

February 28, 2021 February 29, 2020 2021 to 2020

Three Months Ended % Change Six Months Ended % Change

May 31, 2021 May 31, 2020 2021 to 2020 May 31, 2021 May 31, 2020 2021 to 2020

($ in thousands)

Cost of revenue $ 887,149 $ 721,193 23.0 % $ 1,754,377 $ 1,464,622 19.8 %

3 unchanged sentences

Gross margins can be impacted by resource location, client mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs.

Our cost of revenue increased by 16.7% in t he three months ended February 28, 2021 compared to the three months ended February 29, 2020, primarily due to the increase in revenue, impact of approximately $10 million in COVID-19 related costs and foreign currency impacts of $19.2 million on the cost of revenue.

The foreign currency impact on the cost of revenue was caused primarily by the strengthening of the euro and Philippine Peso against the U.S.

Our gross profit increased 9.2% in the first quarter of 2021, compared with the first quarter of 2020, primarily due to the increase in revenue and a net favorable foreign currency impact of $6.5 million on gross profit.

Our gross margin percentage for the three months ended February 28, 2021 decreased to 35.9% from 37.5% in the prior year period due to the COVID-19 related impacts and changes in the mix of geographies where our services are delivered.

Our cost of revenue increased by 23.0% in t he three months ended May 31, 2021 compared to the three months ended May 31, 2020, primarily due to the increase in revenue combined with foreign currency impacts of $38.9 million on the cost of revenue.

The increases were partially offset by a decrease in COVID-19 related costs of approximately $36 million.

The foreign currency impact on the cost of revenue was caused primarily by the strengthening of the Canadian dollar, euro, British pound and Philippine Peso against the U.S.

Our gross profit increased 39.9% and our gross margin percentage increased to 35.2% from 32.4% in the three months ended May 31, 2021, compared to the three months ended May 31, 2020, primarily due to the increase in revenue, a net favorable foreign currency impact of $5.9 million on gross profit and the decrease in COVID-19 related costs.

Our cost of revenue increased by 19.8% in t he six months ended May 31, 2021 compared to the six months ended May 31, 2020, primarily due to the increase in revenue combined with foreign currency impacts of $58.1 million on the cost of revenue.

The increases were partially offset by a decrease in COVID-19 related costs of approximately $26 million.

The foreign currency impact on the cost of revenue was caused primarily by the strengthening of the Canadian dollar, euro, British pound and Philippine Peso against the U.S.

Our gross profit increased 22.6% and our gross margin percentage increased to 35.6% from 35.0% in t he six months ended May 31, 2021 compared to the six months ended May 31, 2020, primarily due to the increase in revenue, a net favorable foreign currency impact of $12.4 million on gross profit and the decrease in COVID-19 related costs.

Our gross margin was also impacted by the mix of geographies where our services were delivered.

Selling, General and Administrative Expenses

Three Months Ended Percent Change

February 28, 2021 February 29, 2020 2021 to 2020

Three Months Ended % Change Six Months Ended % Change

May 31, 2021 May 31, 2020 2021 to 2020 May 31, 2021 May 31, 2020 2021 to 2020

($ in thousands)

Selling, general and administrative expenses

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Our selling, general and administrative expenses consist primarily of support personnel costs such as salaries, commissions, bonuses, employee benefits and share-based compensation costs.

Selling, general and administrative expenses also include the cost of our global delivery facilities, utility expenses, hardware and software costs related to our technology infrastructure, legal and professional fees, depreciation on our technology and facility equipment, amortization of intangible assets resulting from acquisitions, marketing expenses, acquisition-related transaction and integration expenses and spin-off related expenses.

Our selling, general and administrative expenses decreased in the three months ended February 28, 2021 compared to the three months ended February 29, 2020 primarily due to a decrease in acquisition-related and integration expenses of $14.3 million, a decrease in amortization of intangible assets included in selling, general and administrative expenses of $2.4 million, and a decrease in spin-off related expenses of $1.0 million.

These decreases were partially offset by foreign currency impacts of $4.9 million, an increase in depreciation expense included in selling, general, and administrative expenses of $3.5 million, and an increase in share-based compensation expense of $2.9 million.

These items and scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of revenue from 30.0% in the first fiscal quarter of 2020 to 25.9% in the first fiscal quarter of 2021.

Selling, general and administrative expenses also include the cost of our global delivery facilities, utility expenses, hardware and software costs related to our technology infrastructure, legal and

professional fees, depreciation on our technology and facility equipment, amortization of intangible assets resulting from acquisitions, marketing expenses, acquisition-related transaction and integration expenses and spin-off related expenses.

Our selling, general and administrative expenses increased in the three months ended May 31, 2021, compared to the three months ended May 31, 2020, primarily due to increases in expenses to support our revenue growth, foreign currency impacts of $12.1 million, an increase in depreciation expense included in selling, general, and administrative expenses of $5.7 million and an increase in share-based compensation expense of $5.4 million.

These increases were partially offset by a decrease in acquisition-related and integration expenses of $3.2 million, a decrease in amortization of intangible assets included in selling, general and administrative expenses of $1.8 million and a decrease in COVID-19 related expenses of approximately $7 million.

These items and scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of revenue from 30.2% in the second fiscal quarter of 2020 to 25.9% in the second fiscal quarter of 2021.

Our selling, general and administrative expenses increased in the six months ended May 31, 2021 compared to the six months ended May 31, 2020 primarily due to increases in expenses to support our revenue growth, foreign currency impacts of $17.0 million, an increase in depreciation expense included in selling, general, and administrative expenses of $9.1 million, and an increase in share-based compensation expense of $8.3 million.

These increases were partially offset by a decrease in acquisition-related and integration expenses of $17.6 million, a decrease in amortization of intangible assets included in selling, general and administrative expenses of $4.2 million and a decrease in COVID-19 related expenses of approximately $7 million.

These items and scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of revenue from 30.1% in the in the six months ended May 31, 2020 to 25.9% in the six months ended May 31, 2021.

Operating Income

Three Months Ended Percent Change

February 28, 2021 February 29, 2020 2021 to 2020

Three Months Ended % Change Six Months Ended % Change

May 31, 2021 May 31, 2020 2021 to 2020 May 31, 2021 May 31, 2020 2021 to 2020

($ in thousands)

Operating income $ 128,224 $ 23,580 443.8 % $ 263,113 $ 111,791 135.4 %

Operating margin 9.4 % 2.2 % 9.7 % 5.0 %

Our operating income and operating margin increased during the three months ended February 28, 2021, compared to the three months ended February 29, 2020, due to increases in gross profit and the reduction in selling, general and administrative expenses as a percentage of revenue, as discussed above.

Our operating income and operating margin increased during the three and six months ended May 31, 2021 in comparison to comparable prior year periods due to increases in gross profit and the reduction in selling, general and administrative expenses as a percentage of revenue.

Interest Expense and Finance Charges, Net

Three Months Ended Percent Change

February 28, 2021 February 29, 2020 2021 to 2020

Three Months Ended % Change Six Months Ended % Change

May 31, 2021 May 31, 2020 2021 to 2020 May 31, 2021 May 31, 2020 2021 to 2020

($ in thousands)

Interest expense and finance charges, net $ 6,745 $ 12,928 (47.8) % $ 14,448 $ 30,513 (52.6) %

Percentage of revenue 0.5 % 1.2 % 0.5 % 1.4 %

Amounts recorded in interest expense and finance charges, net, for the first quarter of 2021 consist primarily of interest on third-party borrowings as a result of our debt incurred in connection with the spin-off, while amounts recorded for the prior period first quarter related primarily to interest on borrowings from SYNNEX.

The reduction in interest expense reflects the reduction of outstanding borrowings and more favorable interest rate terms on the borrowings for the first quarter of 2021 as compared to the prior period first quarter.

Amounts recorded in interest expense and finance charges, net, for the three and six months ended May 31, 2021 consist primarily of interest on third-party borrowings as a result of our debt incurred in connection with the spin-off, while amounts recorded for the prior periods related primarily to interest on borrowings from SYNNEX.

The reduction in interest expense for the three and six months ended May 31, 2021 in comparison to comparable prior year periods reflects the reduction of outstanding borrowings and more favorable interest rate terms on the borrowings in the current periods in comparison to prior year periods.

Other Expense (Income), Net

Three Months Ended Percent Change

February 28, 2021 February 29, 2020 2021 to 2020

Three Months Ended % Change Six Months Ended % Change

May 31, 2021 May 31, 2020 2021 to 2020 May 31, 2021 May 31, 2020 2021 to 2020

($ in thousands)

Other expense (income), net $ (3,546) $ (1,641) 116.1 % $ 257 $ (4,876) (105.3) %

1 unchanged sentence

Amounts recorded as other expense (income), net include foreign currency transaction gains and losses, other than cash flow hedges, investment gains and losses, non-service component of pension costs, and other non-operating gains and losses.

Other (expense) income, net in the three months ended February 28, 2021 was an expense of $3.8 million, a change from income of $3.2 million in the three months ended February 29, 2020.

The change in other (expense) income, net was primarily due to a favorable resolution of a previously-recognized tax indemnity obligation in the first quarter of 2020 that did not recur in the first quarter of 2021 and unfavorable foreign currency transaction changes of $3.9 million compared to the prior year period.

Other expense (income), net in the three months ended May 31, 2021 resulted in an increase in income over the prior period primarily due to favorable foreign currency transaction changes.

Other expense (income), net in the six months ended May 31, 2021 was income of $0.3 million, in comparison to income of $4.9 million in the six months ended May 31, 2020.

The change in other expense (income), net was primarily due to a favorable resolution of a previously-recognized tax indemnity obligation in the six months ended May 31, 2020 that did not recur in the six months ended May 31, 2021 and unfavorable foreign currency transaction changes of $3.0 million compared to the prior year period.

Provision for Income Taxes

Three Months Ended Percent Change

February 28, 2021 February 29, 2020 2021 to 2020

Three Months Ended % Change Six Months Ended % Change

May 31, 2021 May 31, 2020 2021 to 2020 May 31, 2021 May 31, 2020 2021 to 2020

($ in thousands)

Provision for income taxes $ 42,121 $ 9,823 328.8 % $ 76,693 $ 31,367 144.5 %

1 unchanged sentence

Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and international jurisdictions.

For the first quarter of 2020, although we were included in the consolidated tax returns of SYNNEX in certain jurisdictions, our tax provision was recorded as if we had filed our taxes on a stand-alone basis.

Our provision for income taxes increased during the three months ended February 28, 2021 compared to the three months ended February 29, 2020 primarily due to the increase in income before taxes for the first quarter of 2021.

The effective tax rate for the three months ended February 28, 2021 decreased slightly compared to the prior year period due to the change in mix of income earned in different tax jurisdictions between periods.

For the three and six months ended May 31, 2020, although we were included in the consolidated tax returns of SYNNEX in certain jurisdictions, our tax provision was recorded as if we had filed our taxes on a stand-alone basis.

Our provision for income taxes increased in the three and six months ended May 31, 2021 compared to the prior year periods, primarily due to the increase in income before taxes for both periods and an additional expense of $9.2 million related to the change in our indefinite reinvestment assertion during the second quarter of 2021 for Concentrix Insurance Solutions (“CIS”).

The effective tax rate for the three months and six months ended May 31, 2021 decreased compared to the prior year periods due to the change in mix of income earned in different tax jurisdictions between periods.

Certain Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including:

• Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance.

Revenue in constant currency is calculated by translating the revenue of each fiscal year in the billing currency using their comparable prior year’s currency conversion rate.

• Constant currency revenue growth, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance.

Constant currency revenue growth is calculated by translating the revenue of each fiscal year in the billing currency using their comparable prior year’s currency conversion rate in comparison to prior year’s revenue.

Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.

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• Adjusted EBITDA margin, which is adjusted EBITDA, as defined above, divided by revenue.

• Non-GAAP net income, which is net income excluding the tax effected impact of acquisition-related and integration expenses, including related restructuring costs, spin-off related expenses, amortization of intangible assets and share-based compensation.

• Free cash flow, which is cash flows from operating activities less capital expenditures.

2 unchanged sentences

For example, free cash flow does not incorporate payments for business acquisitions.

• Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share, tax effected impact of acquisition-related and integration expenses, including related restructuring costs, spin-off related expenses, amortization of intangible assets and share-based compensation.

We believe that providing this additional information is useful to the reader to better assess and understand our base operating performance, especially when comparing results with previous periods and for planning and forecasting in future periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results.

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These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

Three Months Ended

February 28, 2021 February 29, 2020

($ in thousands)

Three Months Ended Six Months Ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

($ in thousands except per share amounts)

Revenue $ 1,369,878 $ 1,066,363 $ 2,723,156 $ 2,254,982

27 unchanged sentences

(11,107) (11,125) (21,674) (24,594)

Income tax effect of assets held for sale (2)

9,247 — 9,247 —

Non-GAAP net income $ 124,924 $ 35,268 $ 244,887 $ 130,708

6 unchanged sentences

(0.22) (0.21) (0.41) (0.48)

Income tax effect of assets held for sale (2)

0.18 — 0.18 —

Non-GAAP Diluted EPS $ 2.37 $ 0.68 $ 4.65 $ 2.53

(1) The tax effect of taxable and deductible non-GAAP adjustments was calculated using the tax deductible portion of the expenses and applying the entity specific, statutory tax rates applicable to each item during the respective fiscal years.

(2) In the second quarter of fiscal year 2021, we announced a definitive agreement to sell our CIS business and, therefore, we are no longer indefinitely reinvested with respect to our investment in this subsidiary.

This amount represents the income tax impact of the change in this reinvestment assertion.

Liquidity and Capital Resources

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Substantially all of the proceeds from such indebtedness, net of debt issuance costs, were transferred to SYNNEX on November 30, 2020 to eliminate debt owed by the Company to SYNNEX and in exchange for the contribution of certain Company trademarks from SYNNEX to the Company.

We had no outstanding borrowings on the Revolver as of February 28, 2021 or November 30, 2020.

We had no outstanding borrowings on the Revolver as of May 31, 2021 or November 30, 2020.

The Credit Facility matures on November 30, 2025.

The outstanding principal amount of the Term Loan is payable in quarterly installments of $11.25 million commencing on May 31, 2021, with the unpaid balance due in full on the maturity date.

Beginning May 31, 2021, the outstanding principal amount of the Term Loan is payable in quarterly installments of $11.25 million with the unpaid balance due in full on the maturity date.

We may prepay the loans under the Credit Facility at any time without penalty, other than breakage fees.

During the three months ended February 28, 2021, we made $50 million of early principal payments on the Term Loan.

We made additional early principal payments of $50 million on March 31, 2021.

During the three and six months ended May 31, 2021, we paid $150 million and $200 million of the principal balance on the Term Loan, respectively.

We may request, subject to obtaining commitments from any participating lenders and certain other conditions, incremental commitments to increase the amount of the Revolver or Term Loan available under the Credit Facility in an aggregate principal amount equal to $450 million, plus an additional amount, so long as after giving effect to the incurrence of such additional amount, our pro forma first lien leverage ratio (as defined in the Credit Facility) would not exceed 3.00 to 1.00.

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The Credit Facility contains various loan covenants that restrict the ability of Concentrix and its subsidiaries to take certain actions, including incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or redemption of capital stock, making certain investments, entering into certain transactions with affiliates or changing the nature of our business.

In addition, the Credit Facility contains financial covenants that require us to maintain at the end of each fiscal quarter commencing with the quarter ended February 28, 2021, (i) a consolidated leverage ratio (as defined in the Credit Facility) not to exceed 3.75 to 1.0 and (ii) a consolidated interest coverage ratio (as defined in the Credit Facility) equal to or greater than 3.00 to 1.0.

In addition, the Credit Facility contains financial covenants that require us to maintain at the end of each fiscal quarter, (i) a consolidated leverage ratio (as defined in the Credit Facility) not to exceed 3.75 to 1.0 and (ii) a consolidated interest coverage ratio (as defined in the Credit Facility) equal to or greater than 3.00 to 1.0.

The Credit Facility also contains various customary events of default, including payment defaults, defaults under certain other indebtedness, and a change of control of Concentrix.

The Securitization Facility has an initial termination date of October 28, 2022.

The Securitization Facility has a termination date of October 28, 2022.

Under the Securitization Facility, Concentrix and certain of its U.S.

based subsidiaries sell or otherwise transfer all of their accounts receivable to a special purpose bankruptcy-remote subsidiary of Concentrix that grants a security interest in the receivables to the lenders in exchange for available borrowings of up to $350 million.

based subsidiaries (the "Originators") sell or otherwise transfer all of their accounts receivable to a special purpose bankruptcy-remote subsidiary of Concentrix that grants a security interest in the receivables to the lenders in exchange for available borrowings of up to $350 million.

Borrowing availability under the Securitization Facility may be limited by our accounts receivables balances, changes in the credit ratings of our clients comprising the receivables, client concentration levels in the receivables, and certain characteristics of the accounts receivable being transferred (including factors tracking performance of the accounts receivable over time).

In May 2021, we amended the Securitization Facility to remove CIS as an Originator.

Borrowings under the Securitization Facility bear interest with respect to loans that are funded through the issuance of commercial paper at the applicable commercial paper rate plus a spread of 1.05% and, otherwise, at a per annum rate equal to the applicable LIBOR rate plus a spread of 1.15%.

1 unchanged sentence

The Securitization Facility contains various affirmative and negative covenants, including a consolidated leverage ratio covenant that is consistent with the Credit Facility and customary events of default, including payment defaults, defaults under certain other indebtedness, a change in control of Concentrix, and certain events negatively affecting the overall credit quality of the transferred accounts receivable.

As of February 28, 2021, we were in compliance with the debt covenants related to our debt arrangements.

Cash Flows – Three months ended February 28, 2021 and February 29, 2020

The following summarizes our cash flows for the three months ended February 28, 2021 and February 29, 2020, as reported in our consolidated statement of cash flows in the accompanying consolidated financial statements.

Three Months Ended

February 28, 2021 February 29, 2020

As of May 31, 2021, we were in compliance with the debt covenants related to our debt arrangements.

Cash Flows – Six Months Ended May 31, 2021 and 2020

The following summarizes our cash flows for the six months ended May 31, 2021 and 2020, as reported in our consolidated statement of cash flows in the accompanying consolidated financial statements.

Six Months Ended

May 31, 2021 May 31, 2020

($ in thousands)

3 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(6,626) (3,178)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (23,870) $ 14,703

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Operating Activities

Net cash provided by operating activities was $35.9 million in the first fiscal quarter of 2021, primarily generated from our net income of $88.8 million and adjustments for non-cash items of $73.0 million, partially offset by an increase in accounts receivable of $48.1 million and a total net change in accounts payable, payable to former parent, and other operating assets and liabilities of $77.8 million.

The adjustments for non-cash items primarily consist of depreciation, amortization and share-based compensation expenses, partially offset by deferred tax impacts.

Net cash provided by operating activities was $54.9 million in the first fiscal quarter of 2020, primarily generated from our net income of $52.3 million and adjustments for non-cash items of $66.8 million, partially offset by an increase in accounts receivable of $44.7 million and a total net change in accounts payable, payable to former parent, and other operating assets and liabilities of $19.5 million.

The adjustments for non-cash items primarily consist of depreciation, amortization, hypothetical current tax expense recorded for separate tax return basis presentation and share-based compensation expenses, partially offset by deferred tax impacts.

Net cash provided by operating activities was $239.1 million for the six months ended May 31, 2021, primarily generated from our net income of $171.7 million and adjustments for non-cash items of $153.6 million, partially offset by an increase in accounts receivable of $10.9 million and a total net change in accounts payable, payable to former parent, and other operating assets and liabilities of $75.3 million.

The adjustments for non-cash items primarily consist of depreciation, amortization and share-based compensation expenses, partially offset by the provision for doubtful accounts and deferred tax impacts.

Net cash provided by operating activities was $297.2 million for the six months ended May 31, 2020, primarily generated from our net income of $54.8 million, adjustments for non-cash items of $142.1 million, a decrease in accounts receivable of $41.4 million and a total net change in accounts payable, payable to former parent, and other operating assets and liabilities of $58.9 million.

The adjustments for non-cash items primarily consist of depreciation, amortization, hypothetical current tax expense recorded for separate tax return basis presentation, share-based compensation expenses and the provision for doubtful accounts, partially offset by deferred tax impacts.

Investing Activities

Net cash used in investing activities in the first fiscal quarter of 2021 was $42.0 million, resulting from capital expenditures to support our growth.

Net cash used in investing activities in the first fiscal quarter of 2020 was $34.7 million, primarily resulting from $43.9 million of capital expenditures to support our growth, less repayment of a loan of $9.2 million related to a loan from a non-Concentrix subsidiary of the former parent as part of its centralized treasury operation.

Net cash used in investing activities for the six months ended May 31, 2021 was $73.8 million, resulting primarily from $70.8 million of capital expenditures to support our growth and $3.0 million in payments related to an acquisition.

Net cash used in investing activities for the six months ended May 31, 2020 was $66.4 million, primarily resulting from $69.2 million of capital expenditures to support our growth, less a $5.5 million repayment received related to a loan from a non-Concentrix subsidiary of the former parent as part of its centralized treasury operation.

Financing Activities

Net cash used by financing activities in the first fiscal quarter of 2021 was $30.6 million, consisting primarily of principal payments of $50.0 million under the Credit Facility partially offset by net third-party borrowings of $17.5 million under the Securitization Facility.

Net cash used by financing activities in the first fiscal quarter of 2020 was $17.2 million, consisting entirely of repayments on borrowings from SYNNEX.

Net cash used by financing activities for the six months ended May 31, 2021 was $182.6 million, consisting primarily of principal payments of $200.0 million under the Credit Facility partially offset by net third-party borrowings of $12.5 million under the Securitization Facility and proceeds from the exercise of stock options and employee stock purchase plan of $5.4 million.

Net cash used by financing activities for the six months ended May 31, 2020 was $212.9 million, consisting entirely of repayments on borrowings from SYNNEX.

We believe our current cash balances and credit availability are enough to support our operating activities for at least the next twelve months.

Free Cash Flow (a non-GAAP measure)

Three Months Ended

February 28, 2021 February 29, 2020

Six Months Ended

May 31, 2021 May 31, 2020

($ in thousands)

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Free cash flow (a non-GAAP measure) $ 168,357 $ 227,960

Our free cash flow was a use of $6.1 million in the first fiscal quarter of 2021 compared to proceeds of $11.0 million in the first fiscal quarter of 2020.

The decrease in free cash flow in the first fiscal quarter of 2021 primarily reflects the increase in accounts receivables as a result of our strong first quarter growth, along with higher first quarter payments related to payables, year-end payroll and incentive payments for the first quarter of 2021 as compared to the first quarter of 2020.

Our free cash flow was $168.4 million for the six months ended May 31, 2021 compared to $228.0 million for the six months ended May 31, 2020.

The decrease in free cash flow for the six months ended May 31, 2021 as compared to the six months ended May 31, 2020 primarily reflects the increase in accounts receivable as a result of our strong growth in the first half of 2021, along with higher payroll and incentive payments for the six months ended May 31, 2021 as compared to the six months ended May 31, 2020.

Capital Resources

As of February 28, 2021, we had total liquidity of approximately $800 million, which includes undrawn capacity of $600 million on the Credit Facility, undrawn capacity of $82.5 million on the Securitization Facility and cash and cash equivalents.

Our cash and cash equivalents totaled $117.6 million and $152.7 million as of February 28, 2021 and November 30, 2020, respectively.

As of May 31, 2021, we had total liquidity of approximately $819 million, which includes undrawn capacity of $600 million on the Credit Facility, undrawn capacity of $87.5 million on the Securitization Facility and cash and cash equivalents.

Our cash and cash equivalents totaled $131.2 million and $152.7 million as of May 31, 2021 and November 30, 2020, respectively.

Of our total cash and cash equivalents, 98% and 89% were held by our non-U.S.

legal entities as of February 28, 2021 and November 30, 2020, respectively.

legal entities as of May 31, 2021 and November 30, 2020, respectively.

Our cash and cash equivalents held by our non-U.S.

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis