What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-08 compared with 2021-07-09 · 112 added, 105 removed, 279 unchanged (44% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended November 30, 2020, as filed with the Securities and Exchange Commission on February 16, 2021.

The discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2020, as filed with the Securities and Exchange Commission on February 16, 2021.

References to “we,” “our,” “us,” “the Company” or “Concentrix” refer to Concentrix Corporation and its subsidiaries.

45 unchanged sentences

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 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.

During the nine months ended August 31, 2021, almost all of our workforce was productive.

We incurred net costs of approximately $6 million and $26 million associated with COVID-19 during the three and nine months ended August 31, 2021, respectively, in comparison to approximately $13 and $65 million in the three and nine months ended August 31, 2020.

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

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

In the third quarter of 2021 and 2020, approximately 85% and 83% of our revenue was generated from our non-U.S.

operations, and approximately 61% and 66%, respectively, of our revenue was priced in U.S.

7 unchanged sentences

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.

Our gross margins fluctuate and can be impacted by the mix of client contracts, services provided, shifts in the geography from which our customer experience services are delivered, client volume trends, and the amount of lead time that is required for programs to become fully scaled and transition and set-up costs.

Our operating margin fluctuates based on changes in gross margins as well as overall volume levels, as we are able to gain scale efficiencies in our selling, general and administrative costs in periods of higher volume.

Our gross margins fluctuate and can be impacted by the mix of client contracts, services provided, shifts in the geography from which our customer experience services are delivered, client volume trends, the amount of lead time that is required for programs to become fully scaled, and transition and set-up costs.

Economic and Industry Trends

8 unchanged sentences

Critical Accounting Policies and Estimates

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

During the three and nine months ended August 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 Nine Months Ended August 31, 2021 and 2020

Three Months Ended Nine Months Ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

($ in thousands)

9 unchanged sentences

Net income $ 109,754 $ 45,397 $ 281,469 $ 100,184

Three Months Ended % Change Six Months Ended % Change

May 31, 2021 May 31, 2020 2021 to 2020

Three Months Ended % Change Nine Months Ended % Change

August 31, 2021 August 31, 2020 2021 to 2020

($ in thousands)

10 unchanged sentences

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

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 increased volumes across the majority of health insurance clients.

Our revenue increased 20.1% i n the three months ended August 31, 2021, compared to the three months ended August 31, 2020, reflecting increased volumes across all verticals.

Revenue in our technology and consumer electronics vertical increased in the three months ended August 31, 2021 as a result of larger volumes from several social media and internet-related product clients and a broad-based group of hardware and software clients.

Revenue in our communications and media vertical increased due to larger volumes over the prior year period for several clients.

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

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

Revenue in our healthcare vertical increased due to larger volumes across the majority of our 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%.

Also contributing to the increase in total revenue in the three months ended August 31, 2021 was a favorable translation effect of foreign currencies of $22.5 million, or 2.0%.

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%.

Our revenue increased 20.5% in the nine months ended August 31, 2021, compared to the nine months ended August 31, 2020, reflecting increased volumes across all verticals and certain increases over the prior year 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 nine months ended August 31, 2020.

Revenue in our technology and consumer electronics vertical increased in the first nine months of fiscal 2021 as a result of larger volumes from several social media and internet-related service clients and a broad-based group of hardware and software clients.

Revenue in our communications and media vertical increased in the first nine months of fiscal 2021 due to larger volumes over the prior year 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 in our retail, travel and ecommerce vertical increased due to

larger volumes across the majority of our retail and ecommerce clients and a slight increase in several travel and tourism clients over the prior year period.

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

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

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

Also contributing to the increase in total revenue in the nine months ended August 31, 2021 was a favorable translation effect of foreign currencies of $93.0 million, or 2.7%.

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 % Change Six Months Ended % Change

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

Three Months Ended % Change Nine Months Ended % Change

August 31, 2021 August 31, 2020 2021 to 2020 August 31, 2021 August 31, 2020 2021 to 2020

($ in thousands)

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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 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.

Our cost of revenue increased by 21.9% in t he three months ended August 31, 2021 compared to the three months ended August 31, 2020, primarily due to the increase in revenue, wage increases, and foreign currency impacts of $20.0 million on the cost of revenue.

The increases were partially offset by a decrease in COVID-19 related costs of approximately $2 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.

Our gross profit increased 16.7% compared to the three months ended August 31, 2020, primarily due to the increase in revenue, a net favorable foreign currency impact of $2.5 million on gross profit and the decrease in COVID-19 related costs.

Our gross margin percentage decreased to 34.4% from 35.5% in the three months ended August 31, 2021 due to changes in the mix of geographies where our services were delivered and wage increases.

Our cost of revenue increased by 20.5% in t he nine months ended August 31, 2021 compared to the nine months ended August 31, 2020, primarily due to the increase in revenue, wage increases and foreign currency impacts of $78.1 million on the cost of revenue.

The increases were partially offset by a decrease in COVID-19 related costs of approximately $28 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.

Our gross profit increased 20.6% in the nine months ended August 31, 2021, primarily due to the increase in revenue, a net favorable foreign currency impact of $14.9 million on gross profit and the decrease in COVID-19 related costs.

Our gross margin percentage remained consistent at 35.2% in t he nine months ended August 31, 2021 compared to the prior year period and was impacted by the mix of geographies where our services were delivered.

Selling, General and Administrative Expenses

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

Three Months Ended % Change Nine Months Ended % Change

August 31, 2021 August 31, 2020 2021 to 2020 August 31, 2021 August 31, 2020 2021 to 2020

($ in thousands)

4 unchanged sentences

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 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.

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 August 31, 2021, compared to the three months ended August 31, 2020, primarily due to the gain on divestitures and related transactions costs of $13.2 million largely associated with the sale of Concentrix Insurance Solutions (“CIS”) and a decrease in COVID-19 related expenses of approximately $5 million.

These decreases were partially offset by increases in expenses to support our revenue growth, foreign currency impacts of $5.9 million, and an increase in share-based compensation expense of $5.6 million.

These items and scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of revenue from 28.9% in the third fiscal quarter of 2020 to 23.6% in the third fiscal quarter of 2021.

Our selling, general and administrative expenses increased in the nine months ended August 31, 2021 compared to the nine months ended August 31, 2020 primarily due to increases in expenses to support our revenue growth, foreign currency impacts of $23.0 million, and an increase in share-based compensation expense of $13.9 million.

These increases were partially offset by the gain on divestitures and related transactions costs of $13.2 million, a decrease in acquisition-related and integration expenses of $21.4 million, and a decrease in COVID-19 related expenses of approximately $10 million.

These items and scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of revenue from 29.7% in the nine months ended August 31, 2020 to 25.1% in the nine months ended August 31, 2021.

Operating Income

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

Three Months Ended % Change Nine Months Ended % Change

August 31, 2021 August 31, 2020 2021 to 2020 August 31, 2021 August 31, 2020 2021 to 2020

($ in thousands)

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Operating margin 10.8 % 6.6 % 10.1 % 5.5 %

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.

Our operating income and operating margin increased during the three and nine months ended August 31, 2021 in comparison to the 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 % Change Six Months Ended % Change

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

Three Months Ended % Change Nine Months Ended % Change

August 31, 2021 August 31, 2020 2021 to 2020 August 31, 2021 August 31, 2020 2021 to 2020

($ in thousands)

2 unchanged sentences

Percentage of revenue 0.3 % 0.8 % 0.5 % 1.2 %

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.

Amounts recorded in interest expense and finance charges, net, for the three and nine months ended August 31, 2021 consist primarily of interest on our Term Loan and Securitization Facility borrowings, while amounts recorded for the prior year periods related primarily to interest on borrowings from SYNNEX.

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

Other Expense (Income), Net

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

Three Months Ended % Change Nine Months Ended % Change

August 31, 2021 August 31, 2020 2021 to 2020 August 31, 2021 August 31, 2020 2021 to 2020

($ in thousands)

3 unchanged sentences

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 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.

Other expense (income), net in the three months ended August 31, 2021 was income of $5.9 million in comparison to expense of $0.6 million in the three months ended August 31, 2020.

The change in other expense (income), net was primarily due to favorable foreign currency transaction changes compared to the prior year period.

Other expense (income), net in the nine months ended August 31, 2021 was income of $5.6 million in comparison to income of $4.3 million in the nine months ended August 31, 2020.

The increase in income was primarily due to favorable foreign currency transaction changes of $2.3 million compared to the prior year period partially offset by a favorable resolution of a previously-recognized tax indemnity obligation in the nine months ended August 31, 2020 that did not recur in the nine months ended August 31, 2021.

Provision for Income Taxes

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

Three Months Ended % Change Nine Months Ended % Change

August 31, 2021 August 31, 2020 2021 to 2020 August 31, 2021 August 31, 2020 2021 to 2020

($ in thousands)

3 unchanged sentences

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

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.

For the three and nine months ended August 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 nine months ended August 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 $3.7 million and $13.0 million, respectively, during the three and nine months ended August 31, 2021 related to the divestiture of CIS.

The effective tax rate for the three and nine months ended August 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:

• 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.

• 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.

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.

• Non-GAAP operating income, which is operating income, adjusted to exclude acquisition-related and integration expenses, including related restructuring costs, spin-off related expenses, amortization of intangible assets and share-based compensation.

• Revenue in adjusted constant currency, which is constant currency revenue excluding revenue for businesses acquired or divested since the beginning of the prior year period so that revenue growth can be viewed without the impact of acquisitions or divestitures, thereby facilitating period-to-period comparisons of our business performance.

• Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue.

1 unchanged sentence

• 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, share-based compensation and the income tax effect of assets held for sale.

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

We believe that free cash flow is a meaningful measure of cash flows since capital expenditures are a necessary component of ongoing operations.

However, free cash flow has limitations because it does not represent the residual cash flow available for discretionary expenditures.

free cash flow has limitations because it does not represent the residual cash flow available for discretionary expenditures.

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, share-based compensation and the income tax effect of assets held for sale.

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 Six Months Ended

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

($ in thousands except per share amounts)

Three Months Ended Nine Months Ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

($ in thousands)

Revenue $ 1,397,251 $ 1,163,694 $ 4,120,407 $ 3,418,676

1 unchanged sentence

Revenue in constant currency $ 1,374,721 $ 1,163,694 $ 4,027,397 $ 3,418,676

Effect of excluding revenue of acquired and divested businesses (5,335) (15,274) (37,911) (51,649)

Revenue in adjusted constant currency $ 1,369,386 $ 1,148,420 $ 3,989,486 $ 3,367,027

Three Months Ended Nine Months Ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

($ in thousands except per share amounts)

Operating income $ 151,379 $ 76,763 $ 414,492 $ 188,554

3 unchanged sentences

Share-based compensation 9,457 3,929 25,858 12,031

Gain on divestitures and related transaction costs (13,197) — (13,197) —

Non-GAAP operating income $ 181,636 $ 121,688 $ 530,348 $ 333,994

5 unchanged sentences

Spin-off related expenses — 283 — 1,789

Gain on divestitures and related transaction costs (13,197) — (13,197) —

Amortization of intangibles 33,997 36,833 103,195 110,190

10 unchanged sentences

Share-based compensation 9,457 3,929 25,858 12,031

Gain on divestitures and related transaction costs (13,197) — (13,197) —

Income taxes related to the above (1)

(8,315) (11,379) (20,742) (35,973)

Income tax effect of assets held for sale (2)

9,247 — 9,247 —

Non-GAAP net income $ 131,696 $ 78,943 $ 376,583 $ 209,651

4 unchanged sentences

Share-based compensation 0.18 0.08 0.49 0.23

Gain on divestitures and related transaction costs (0.25) — (0.25) —

Income taxes related to the above (1)

(0.16) (0.23) (0.40) (0.70)

Income tax effect of assets held for sale (2)

0.18 — 0.18 —

Non-GAAP Diluted EPS $ 2.49 $ 1.53 $ 7.15 $ 4.06

(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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These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, available liquidity, including capacity on our debt arrangements, or the issuance of securities.

In September 2021, considering our strong free cash flow, low leverage and adequate liquidity to support capital return to shareholders while maintaining flexibility to pursue acquisitions, the Company’s Board of Directors (the “Board”) declared a quarterly dividend of $0.25 per share and authorized a share repurchase program.

The dividend will be payable in cash on November 2, 2021, to shareholders of record at the close of business on October 22, 2021.

Under the share repurchase program, the Board authorized the Company to purchase up to $500 million of our common stock from time to time as market and business conditions warrant, including through open market purchases or Rule 10b5-1 trading plans.

The repurchase program has no termination date and may be suspended or discontinued at any time.

Debt Arrangements

4 unchanged sentences

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 May 31, 2021 or November 30, 2020.

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

The Credit Facility matures on November 30, 2025.

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.

Beginning May 31, 2021, the outstanding principal amount of the Term Loan was 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 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.

During the nine months ended August 31, 2021, we paid $200 million of the principal balance on the Term Loan.

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 of up 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.

Obligations under the Credit Facility are secured by substantially all of the assets of Concentrix and certain of its U.S.

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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 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

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

Cash Flows – Nine Months Ended August 31, 2021 and 2020

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

Nine Months Ended

August 31, 2021 August 31, 2020

($ in thousands)

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Operating Activities

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.

Net cash provided by operating activities was $332.1 million for the nine months ended August 31, 2021 in comparison to $388.6 million for the nine months ended August 31, 2020.

The decrease in net cash provided by operating activities over the prior year period primarily related to changes in working capital and operating assets and liabilities over the prior year period, including an increase in accounts receivable and a decrease in accounts payable.

These decreases were partially offset by an increase in net income.

Investing Activities

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.

Net cash used in investing activities for the nine months ended August 31, 2021 was $42.4 million in comparison to $116.9 million for the nine months ended August 31, 2020.

The decrease in net cash used in investing activities over the prior year period primarily related to $73.7 million of proceeds from divestitures mainly attributable to the sale of CIS.

Financing Activities

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.

Net cash used by financing activities for the nine months ended August 31, 2021 was $288.1 million in comparison to $260.2 million for the nine months ended August 31, 2020.

The net cash used for the nine months ended August 31, 2021 consisted primarily of principal payments of $200.0 million under the Credit Facility and net payments of $81.0 million under the Securitization Facility in comparison to the prior year period which consisted 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)

Six Months Ended

May 31, 2021 May 31, 2020

Nine Months Ended

August 31, 2021 August 31, 2020

($ in thousands)

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Free cash flow (a non-GAAP measure) $ 219,256 $ 282,328

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.

Our free cash flow was $219.3 million for the nine months ended August 31, 2021 compared to $282.3 million for the nine months ended August 31, 2020.

The decrease in free cash flow for the nine months ended August 31, 2021 compared to the nine months ended August 31, 2020 was due to the decrease in cash provided by operating activities as explained above and an increase in purchases of property and equipment during the current year period.

Capital Resources

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.

As of August 31, 2021, we had total liquidity of approximately $935 million, which includes undrawn capacity of $600 million on the Credit Facility, undrawn capacity of $181 million on the Securitization Facility and cash and cash equivalents.

Our cash and cash equivalents totaled $154.2 million and $152.7 million as of August 31, 2021 and November 30, 2020, respectively.

Of our total cash and cash equivalents, 99% and 89% were held by our non-U.S.

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

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

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

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Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements.

We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations, and our sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve

We also believe that our longer-term working capital, planned capital expenditures and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.

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