Concentrix Corp 10-Q

ITEM 1. FINANCIAL STATEMENTS CONCENTRIX CORPORATION CONSOLIDATED BALANCE SHEETS (currency and share amounts in thousands, except par value) May 31, 2022 November 30, 2021 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 163,364 $ 182,038 Accounts receivable, net 1,311,715 1,207,953 Other current assets 153,904 153,074 Total current assets 1,628,983 1,543,065 Property and equipment, net 401,716 407,144 Goodwill 2,925,679 1,813,502 Intangible assets, net 1,037,987 655,528 Deferred tax assets 53,104 48,413 Other assets 565,183 578,715 Total assets $ 6,612,652 $ 5,046,367 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 110,931 $ 129,359 Current portion of long-term debt 105,000 — Accrued compensation and benefits 437,516 453,434 Other accrued liabilities 346,204 351,642 Income taxes payable 23,371 33,779 Total current liabilities 1,023,022 968,214 Long-term debt, net 2,197,876 802,017 Other long-term liabilities 501,579 546,410 Deferred tax liabilities 164,073 109,471 Total liabilities 3,886,550 2,426,112 Commitments and contingencies (Note 14) Redeemable non-controlling interest 2,157 — Stockholders’ equity: Preferred stock, $ 0.0001 par value, 10,000 shares authorized and no shares issued and outstanding as of May 31, 2022 and November 30, 2021, respectively — — Common stock, $ 0.0001 par value, 250,000 shares authorized; 52,058 and 51,927 shares issued as of May 31, 2022 and November 30, 2021, respectively, and 51,342 and 51,594 shares outstanding as of May 31, 2022 and November 30, 2021, respectively 5 5 Additional paid-in capital 2,404,281 2,355,767 Treasury stock, 716 and 333 shares as of May 31, 2022 and November 30, 2021, respectively ( 118,248 ) ( 57,486 ) Retained earnings 589,740 392,495 Accumulated other comprehensive loss ( 151,833 ) ( 70,526 ) Total stockholders’ equity 2,723,945 2,620,255 Total liabilities, redeemable non-controlling interest, and stockholders’ equity $ 6,612,652 $ 5,046,367 The accompanying notes are an integral part of these consolidated financial statements. 3 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (currency and share amounts in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 Revenue $ 1,568,101 $ 1,369,878 $ 3,104,153 $ 2,723,156 Cost of revenue 1,009,185 887,149 2,007,103 1,754,377 Gross profit 558,916 482,729 1,097,050 968,779 Selling, general and administrative expenses 402,004 354,505 792,393 705,666 Operating income 156,912 128,224 304,657 263,113 Interest expense and finance charges, net 12,973 6,745 21,743 14,448 Other expense (income), net ( 2,545 ) ( 3,546 ) ( 10,161 ) 257 Income before income taxes 146,484 125,025 293,075 248,408 Provision for income taxes 33,451 42,121 69,503 76,693 Net income before non-controlling interest 113,033 82,904 223,572 171,715 Less: Net income (loss) attributable to non-controlling interest ( 109 ) — 157 — Net income attributable to Concentrix Corporation $ 113,142 $ 82,904 $ 223,415 $ 171,715 Earnings per common share: Basic $ 2.16 $ 1.59 $ 4.27 $ 3.31 Diluted $ 2.14 $ 1.57 $ 4.23 $ 3.26 Weighted-average common shares outstanding Basic 51,564 51,275 51,596 51,215 Diluted 51,990 52,005 51,995 51,928 The accompanying notes are an integral part of these consolidated financial statements. 4 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (currency in thousands) (unaudited) Three Months Ended Six Months Ended May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 Net income before non-controlling interest $ 113,033 $ 82,904 $ 223,572 $ 171,715 Other comprehensive income (loss): Unrealized gains (losses) of defined benefit plans, net of taxes of $ 0 and $ 0 for the three and six months ended May 31, 2022, respectively, and $ 0 and $ 98 for the three and six months ended May 31, 2021, respectively ( 7 ) ( 72 ) 766 ( 448 ) Unrealized gains (losses) on cash flow hedges during the period, net of taxes of $ 4,440 and $ 5,387 for the three and six months ended May 31, 2022, respectively, and $( 6,048 ) and $( 3,793 ) for the three and six months ended May 31, 2021, respectively ( 12,944 ) 17,669 ( 15,704 ) 10,599 Reclassification of net (gains) losses on cash flow hedges to net income, net of taxes of $( 1,078 ) and $( 846 ) for the three and six months ended May 31, 2022, respectively, and $ 2,518 and $ 5,540 for the three and six months ended May 31, 2021, respectively 3,138 ( 7,355 ) 2,465 ( 16,526 ) Total change in unrealized gains (losses) on cash flow hedges, net of taxes ( 9,806 ) 10,314 ( 13,239 ) ( 5,927 ) Foreign currency translation, net of taxes of $ 0 for the three and six months ended May 31, 2022 and 2021, respectively ( 54,995 ) 35,433 ( 68,834 ) 41,739 Other comprehensive income (loss) ( 64,808 ) 45,675 ( 81,307 ) 35,364 Comprehensive income 48,225 128,579 142,265 207,079 Less: Comprehensive income (loss) attributable to non-controlling interest ( 109 ) — 157 — Comprehensive income attributable to Concentrix Corporation $ 48,334 $ 128,579 $ 142,108 $ 207,079 The accompanying notes are an integral part of these consolidated financial statements. 5 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (currency and share amounts in thousands) (unaudited) Three and Six Months Ended May 31, 2022 Concentrix Corporation Stockholders’ Equity Common stock Treasury stock Redeemable non-controlling interest Shares Amount Additional paid-in capital Shares Amount Retained earnings Accumulated other comprehensive loss Total stockholders’ equity Balances, February 28, 2022 $ 2,266 51,664 $ 5 $ 2,389,403 348 $ ( 60,040 ) $ 489,656 $ ( 87,025 ) $ 2,731,999 Other comprehensive loss — — — — — — — ( 64,808 ) ( 64,808 ) Net income attributable to non-controlling interest ( 109 ) — — — — — — — — Share-based compensation activity — ( 322 ) — 14,878 — — — — 14,878 Repurchase of common stock for tax withholdings on equity awards — — — — 1 ( 358 ) — — ( 358 ) Repurchase of common stock — — — — 367 ( 57,850 ) — — ( 57,850 ) Dividends — — — — — — ( 13,058 ) — ( 13,058 ) Net income — — — — — — 113,142 — 113,142 Balances, May 31, 2022 $ 2,157 51,342 $ 5 $ 2,404,281 716 $ ( 118,248 ) $ 589,740 $ ( 151,833 ) $ 2,723,945 Balances, November 30, 2021 $ — 51,594 $ 5 $ 2,355,767 333 $ ( 57,486 ) $ 392,495 $ ( 70,526 ) $ 2,620,255 Other comprehensive loss — — — — — — — ( 81,307 ) ( 81,307 ) Equity awards issued as acquisition purchase consideration — — — 15,725 — — — — 15,725 Acquisition of non-controlling interest in subsidiary 2,000 — — — — — — — — Net income attributable to non-controlling interest 157 — — — — — — — — Share-based compensation activity — ( 252 ) — 32,789 — — — — 32,789 Repurchase of common stock for tax withholdings on equity awards — — — — 16 ( 2,912 ) — — ( 2,912 ) Repurchase of common stock — — — — 367 ( 57,850 ) — — ( 57,850 ) Dividends — — — — — — ( 26,170 ) — ( 26,170 ) Net income — — — — — — 223,415 — 223,415 Balances, May 31, 2022 $ 2,157 51,342 $ 5 $ 2,404,281 716 $ ( 118,248 ) $ 589,740 $ ( 151,833 ) $ 2,723,945 The accompanying notes are an integral part of these consolidated financial statements. 6 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (currency and share amounts in thousands) (unaudited) Concentrix Corporation Stockholders’ Equity Common stock Treasury stock Shares Amount Additional paid-in capital Shares Amount Retained earnings Former parent company investment Accumulated other comprehensive loss Total stockholders’ equity Balances, February 28, 2021 51,214 $ 5 $ 2,314,996 4 $ ( 409 ) $ 88,811 $ — $ ( 14,125 ) $ 2,389,278 Other comprehensive loss — — — — — — — 45,675 45,675 Share-based compensation activity 82 — 12,029 — — — — — 12,029 Repurchase of common stock for tax withholdings on equity awards — — — — ( 118 ) — — — ( 118 ) Net income — — — — — 82,904 — — 82,904 Balances, May 31, 2021 51,296 $ 5 $ 2,327,025 4 $ ( 527 ) $ 171,715 $ — $ 31,550 $ 2,529,768 Balances, November 30, 2020 — $ — $ — — $ — $ — $ 2,305,899 $ ( 3,814 ) $ 2,302,085 Other comprehensive loss — — — — — — — 35,364 35,364 Reclassification of net former parent investment in Concentrix — — 2,305,899 — — — ( 2,305,899 ) — — Issuance of common stock at separation and spin-off 51,135 5 ( 5 ) — — — — — — Share-based compensation activity 161 — 21,131 — — — — — 21,131 Repurchase of common stock for tax withholdings on equity awards — — — 4 ( 527 ) — — — ( 527 ) Net income — — — — — 171,715 — — 171,715 Balances, May 31, 2021 51,296 $ 5 $ 2,327,025 4 $ ( 527 ) $ 171,715 $ — $ 31,550 $ 2,529,768 The accompanying notes are an integral part of these consolidated financial statements. 7 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (currency in thousands) (unaudited) Six Months Ended May 31, 2022 May 31, 2021 Cash flows from operating activities: Net income before non-controlling interest $ 223,572 $ 171,715 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 73,174 72,225 Amortization 79,525 69,199 Non-cash share-based compensation expense 27,590 15,690 Provision for doubtful accounts 4,422 ( 2,132 ) Deferred income taxes 963 ( 4,764 ) Unrealized foreign exchange loss 470 3,240 Other ( 107 ) 142 Changes in operating assets and liabilities: Accounts receivable, net ( 17,039 ) ( 10,896 ) Payable to former parent — ( 22,825 ) Accounts payable ( 17,777 ) ( 15,033 ) Other operating assets and liabilities ( 162,309 ) ( 37,446 ) Net cash provided by operating activities 212,484 239,115 Cash flows from investing activities: Purchases of property and equipment ( 71,166 ) ( 70,758 ) Acquisitions of business, net of cash acquired ( 1,565,252 ) ( 3,015 ) Other investments ( 1,000 ) — Net cash used in investing activities ( 1,637,418 ) ( 73,773 ) Cash flows from financing activities: Proceeds from the Credit Facility - Term Loan 2,100,000 ( 200,000 ) Repayments of the Credit Facility - Prior Term Loan ( 700,000 ) — Proceeds from the Securitization Facility 848,500 768,500 Repayments of the Securitization Facility ( 742,500 ) ( 756,000 ) Cash paid for debt issuance costs ( 8,863 ) — Proceeds from exercise of stock options 5,200 5,441 Repurchase of common stock for tax withholdings on equity awards ( 2,912 ) ( 527 ) Repurchase of common stock ( 57,850 ) — Dividends paid ( 26,170 ) — Net cash provided by (used in) financing activities 1,415,405 ( 182,586 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 9,382 ) ( 6,626 ) Net decrease in cash, cash equivalents and restricted cash ( 18,911 ) ( 23,870 ) Cash, cash equivalents and restricted cash at beginning of year 183,010 156,351 Cash, cash equivalents and restricted cash at end of period $ 164,099 $ 132,481 Supplemental disclosure of non-cash investing activities: Accrued costs for property and equipment purchases $ 4,907 $ 6,037 The accompanying notes are an integral part of these consolidated financial statements. 8 CONCENTRIX CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (currency and share amounts in thousands, except per share amounts) NOTE 1— BACKGROUND AND BASIS OF PRESENTATION: Background Concentrix Corporation (“Concentrix,” the “CX business” or the “Company”) is a leading global provider of Customer Experience (“CX”) solutions and technology that help iconic and disruptive brands drive deep understanding, full lifecycle engagement, and differentiated experiences for their end-customers around the world. The Company provides end-to-end capabilities, including CX process optimization, technology innovation and design engineering, front- and back-office automation, analytics and business transformation services to clients in five primary industry verticals. The Company’s primary verticals are technology and consumer electronics, communications and media, retail, travel and e-commerce, banking, financial services and insurance, and healthcare. On December 1, 2020, the separation of the CX business (the “separation”) from SYNNEX Corporation, now known as TD SYNNEX Corporation (“TD SYNNEX” or the “former parent”) was completed through a tax-free distribution of all of the issued and outstanding shares of the Company’s common stock to TD SYNNEX stockholders (the “distribution” and, together with the separation, the “spin-off”). TD SYNNEX stockholders received one share of the Company’s common stock for each share of TD SYNNEX common stock held as of the close of business on November 17, 2020. As a result of the spin-off, the Company became an independent public company and the Company’s common stock commenced trading on the Nasdaq Stock Market (“Nasdaq”) under the symbol “CNXC” on December 1, 2020. Basis of presentation The accompanying interim unaudited consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The amounts as of November 30, 2021 have been derived from the Company’s annual audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2021. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These interim consolidated financial statements should be read in conjunction with the annual audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2021. All intercompany balances and transactions have been eliminated in consolidation. Risks and uncertainties related to the COVID-19 pandemic 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. The Company successfully transitioned a significant portion of its workforce to a remote working environment throughout the second quarter of 2020 and implemented a number of safety and social distancing measures in the Company’s sites to protect the health and safety of the team. During the three and six months ended May 31, 2022, almost all of the Company’s workforce was productive, but the Company experienced the continued effects of the COVID-19 pandemic, as variants caused new waves of COVID-19 cases around the globe. The extent of the continued impact of the COVID-19 pandemic on the Company’s operational and financial performance, including its ability to execute business strategies and initiatives in the expected time frame, will depend on future developments, including the duration, spread and severity of the pandemic, the evolution of the 9 virus and the effects of mutations in its genetic code, 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, its continued utilization of remote work environments in response to future health and safety restrictions, and the effect on the Company’s clients’ businesses and the demand for their products and services, all of which are uncertain and cannot be predicted. The Company is unable to predict how long the pandemic conditions will persist in regions in which the Company operates, if or when countries or localities may experience an increase in COVID-19 cases, what additional measures may be introduced by governments or the Company’s 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 the Company’s business. As a result, many of the estimates and assumptions used in preparation of these consolidated financial statements required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic and the global recovery from the pandemic, the Company’s estimates may materially change in future periods. NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: For a discussion of the Company’s significant accounting policies, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2021. Accounting pronouncements adopted during the six months ended May 31, 2022 are discussed below. Concentration of credit risk For the three and six months ended May 31, 2022, no client accounted for more than 10% of the Company’s consolidated revenue. For the three and six months ended May 31, 2021, one client accounted for 11.2 % and 11.5 %, respectively, of the Company’s consolidated revenue. As of May 31, 2022 and November 30, 2021, one client comprised 10.4 % and 15.3 %, respectively, of the Company’s total accounts receivable balance. Recently adopted accounting pronouncements In December 2019, the Financial Accounting Standards Board (the “FASB”) issued new guidance that simplifies the accounting for income taxes. The guidance is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. This standard became effective for the Company in fiscal year 2022 and did not have a material impact on the consolidated financial statements. Recently issued accounting pronouncements In March 2020, the FASB issued optional guidance to ease the potential burden for a limited time in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The Company is currently evaluating the impact of this guidance. NOTE 3— ACQUISITIONS: PK Acquisition Background On December 27, 2021, the Company completed its acquisition of PK, a leading CX design engineering company with more than 5,000 staff in four countries. PK creates pioneering experiences that accelerate digital outcomes for their clients’ customers, partners and staff. The acquisition of PK expanded the Company’s scale in the digital IT services market and supported the Company’s growth strategy of investing in digital transformation to 10 deliver exceptional customer experiences. The addition of the PK staff and technology to the Company’s team further strengthened its capabilities in CX design and development, artificial intelligence (“AI”), intelligent automation, and customer loyalty. Purchase price consideration The total purchase price consideration, net of cash acquired, was $ 1,581.0 million, which was funded by proceeds from the Company’s new term loan (the “Term Loan”) under its amended senior secured credit facility (the “Credit Facility”) and additional borrowings under its accounts receivable securitization facility (the “Securitization Facility”). See Note 8 — Borrowings for a further discussion of the Term Loan, the Credit Facility and the Securitization Facility. The preliminary purchase price consideration to acquire PK consisted of the following: Cash consideration for PK stock (1) $ 1,177,342 Cash consideration for PK vested equity awards (2) 246,229 Cash consideration for repayment of PK debt, including accrued interest (3) 148,492 Cash consideration for transaction expenses of PK (4) 22,842 Total cash consideration 1,594,905 Non-cash equity consideration for conversion of PK equity awards (5) 15,725 Total consideration transferred 1,610,630 Less: Cash acquired (6) 29,653 Total purchase price consideration $ 1,580,977 (1) Represents the cash consideration paid for the outstanding shares of PK’s common stock, which includes the final settlement of the merger consideration adjustment paid pursuant to the merger agreement. (2) Represents the cash consideration paid for vested PK stock option awards and restricted stock awards. (3) Represents the cash consideration paid to retire PK’s outstanding third-party debt, including accrued interest. (4) Represents the cash consideration paid for expenses incurred by PK in connection with the merger and paid by Concentrix pursuant to the merger agreement. These expenses primarily related to third-party consulting services. (5) Represents the issuance of vested Concentrix stock options that were issued in conversion of certain vested PK stock options that were assumed by Concentrix pursuant to the merger agreement. (6) Represents the PK cash balance acquired at acquisition. Preliminary purchase price allocation The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification Topic 805, Business Combinations . The purchase price was allocated to the assets acquired, liabilities assumed and non-controlling interest based on management’s estimate of the respective fair values at the date of acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were the 11 assembled workforce, comprehensive service portfolio delivery capabilities and strategic benefits that are expected to be realized from the acquisition. None of the goodwill is expected to be deductible for income tax purposes. The following table summarizes the preliminary estimates of fair values of the assets acquired, liabilities assumed and non-controlling interest as of the acquisition date: As of December 27, 2021 Assets acquired: Cash and cash equivalents $ 29,653 Accounts receivable 86,955 Property and equipment 11,198 Operating lease right-of-use assets 12,288 Identifiable intangible assets 469,300 Goodwill 1,126,111 Other assets 11,954 Total assets acquired $ 1,747,459 Liabilities assumed and non-controlling interest: Accounts payable and accrued liabilities 68,438 Operating lease liabilities 12,288 Deferred tax liabilities 54,103 Non-controlling interest 2,000 Total liabilities assumed and non-controlling interest $ 136,829 Total consideration transferred $ 1,610,630 As of May 31, 2022, the purchase price allocation is preliminary. The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (not to exceed twelve months following the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of identifiable intangible assets acquired, the fair value of certain tangible assets acquired and liabilities assumed, and deferred income taxes. The Company expects to continue to obtain information for the purpose of determining the fair value of the assets acquired and liabilities assumed on the acquisition date throughout the remainder of the measurement period. The Company made immaterial measurement period adjustments during the second quarter of fiscal year 2022. The preliminary purchase price allocation includes $ 469.3 million of acquired identifiable intangible assets, all of which have finite lives. The preliminary fair value of the identifiable intangible assets has been estimated using the income approach through a discounted cash flow analysis of certain cash flow projections. The cash flow projections are based on forecasts used by the Company to price the PK acquisition, and the discount rates applied were benchmarked by referencing the implied rate of return of the Company’s pricing model and the weighted average cost of capital. The intangible assets are being amortized over their estimated useful lives on either a straight-line basis or an accelerated method that reflects the economic benefit of the asset. The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future forecasted cash flows of the Company following the acquisition of PK. The preliminary amounts allocated to intangible assets are as follows: 12 Gross Carrying Amount Weighted-Average Useful Life Customer relationships $ 398,600 15 years Technology 63,500 5 years Trade name 5,000 3 years Non-compete agreements 2,200 3 years Total $ 469,300 Impact on results of operations The results of the PK operations have been included in the consolidated financial statements since December 27, 2021. The following table provides the results of operations for PK included in the consolidated statement of operations from the acquisition date through May 31, 2022: Three Months Ended Six Months Ended May 31, 2022 May 31, 2022 Revenue $ 123,963 $ 207,159 Income before income taxes 2,773 2,980 In connection with the acquisition of PK, the Company incurred a total of $ 1.7 million and $ 2.6 million of acquisition-related and integration expenses for the three and six months ended May 31, 2022, respectively. These expenses primarily include legal and professional services, and severance and retention payments to integrate the business. These acquisition-related and integration expenses were recorded within selling, general and administrative expenses in the consolidated statement of operations. Supplemental Pro Forma Information The supplemental pro forma financial information presented below is for illustrative purposes only, does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information, is not necessarily indicative of the financial position or results of operations that would have been realized if the PK acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances. The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the PK acquisition had occurred on December 1, 2020 to give effect to certain events that the Company believes to be directly attributable to the PK acquisition. These pro forma adjustments primarily include: • An increase in amortization expense that would have been recognized due to acquired identifiable intangible assets. • An adjustment to interest expense to reflect the additional borrowings of Concentrix on the amended credit facility and the repayment of PK’s historical debt in conjunction with the acquisition. • The related income tax effects of the adjustments noted above. 13 The supplemental pro forma financial information for the periods presented is as follows: Three Months Ended Six Months Ended May 31, May 31, 2022 2021 2022 2021 Revenue $ 1,568,101 $ 1,479,640 $ 3,137,114 $ 2,928,392 Net income 113,438 81,618 219,789 165,853 ServiceSource Pending Acquisition In May 2022, the Company announced a definitive agreement to acquire ServiceSource International, Inc. (“ServiceSource”), a global market leader in B2B digital sales, for $ 1.50 per share in an all-cash transaction valued at approximately $ 131 million, inclusive of ServiceSource’s net cash. ServiceSource is a global outsourced go-to-market services provider, delivering B2B digital sales and customer success solutions that are expected to complement the Company’s existing offerings in this area. The transaction is expected to close in the second half of fiscal year 2022, subject to customary closing conditions, including approval by ServiceSource’s stockholders and regulatory requirements. ServiceSource has established a special meeting date of July 20, 2022 for its stockholders to consider approval of the transaction. NOTE 4— SHARE-BASED COMPENSATION: In November 2020, in connection with the spin-off, TD SYNNEX, as sole stockholder of Concentrix, approved the Concentrix Corporation 2020 Stock Incentive Plan (the “Concentrix Stock Incentive Plan”) and the Concentrix Corporation 2020 Employee Stock Purchase Plan (the “Concentrix ESPP”), each to be effective upon completion of the spin-off. 4,000 shares of Concentrix common stock were reserved for issuance under the Concentrix Stock Incentive Plan, and 1,000 shares of Concentrix common stock were authorized for issuance under the Concentrix ESPP. In December 2021, 523 additional shares of Concentrix common stock were reserved for issuance under the Concentrix Stock Incentive Plan resulting from an automatic annual increase pursuant to the terms of the plan. In January 2022, the Company granted 137 restricted stock awards and restricted stock units and 129 performance-based restricted stock units under the Concentrix Stock Incentive Plan, which included annual awards to the Company’s senior executive team and retention and new hire awards to staff who joined the Company as part of the PK acquisition. The restricted stock awards and restricted stock units awards had a weighted average grant date fair value of $ 181.09 per share and vest over a service period of four years . The performance-based restricted stock units will vest, if at all, upon the achievement of certain annual financial targets during the three-year period ending November 30, 2024. The performance-based restricted stock units had a grant date weighted average fair value of $ 178.58 per share. The Company recorded share-based compensation expense in the consolidated statements of operations for the three and six months ended May 31, 2022 and 2021 as follows: Three Months Ended Six Months Ended May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 Total share-based compensation $ 12,647 $ 9,283 $ 27,816 $ 16,401 Tax benefit recorded in the provision for income taxes ( 3,212 ) ( 2,320 ) ( 7,064 ) ( 4,100 ) Effect on net income $ 9,435 $ 6,963 $ 20,752 $ 12,301 Share-based compensation expense is included in selling, general and administrative expenses in the consolidated statements of operations. 14 NOTE 5— BALANCE SHEET COMPONENTS: Cash, cash equivalents and restricted cash: The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows: As of May 31, 2022 November 30, 2021 Cash and cash equivalents $ 163,364 $ 182,038 Restricted cash included in other current assets 735 972 Cash, cash equivalents and restricted cash $ 164,099 $ 183,010 Restricted cash balances relate primarily to restrictions placed on cash deposits by banks as collateral for the issuance of bank guarantees and the terms of government grants. Accounts receivable, net: Accounts receivable, net is comprised of the following as of May 31, 2022 and November 30, 2021: As of May 31, 2022 November 30, 2021 Billed accounts receivable $ 772,084 $ 714,032 Unbilled accounts receivable 546,625 499,342 Less: Allowance for doubtful accounts ( 6,994 ) ( 5,421 ) Accounts receivable, net $ 1,311,715 $ 1,207,953 Allowance for doubtful trade receivables: Presented below is a progression of the allowance for doubtful trade receivables: Three Months Ended Six Months Ended May 31, May 31, 2022 2021 2022 2021 Balance at beginning of period $ 6,904 $ 6,239 $ 5,421 $ 8,963 Net additions (reductions) 2,474 422 4,422 ( 2,132 ) Write-offs and reclassifications ( 2,384 ) ( 1,148 ) ( 2,849 ) ( 1,318 ) Balance at end of period $ 6,994 $ 5,513 $ 6,994 $ 5,513 15 Property and equipment, net: The following tables summarize the carrying amounts and related accumulated depreciation for property and equipment as of May 31, 2022 and November 30, 2021: As of May 31, 2022 November 30, 2021 Land $ 27,529 $ 27,677 Equipment, computers and software 516,033 488,270 Furniture and fixtures 90,122 90,442 Buildings, building improvements and leasehold improvements 369,519 364,166 Construction-in-progress 12,751 10,741 Total property and equipment, gross $ 1,015,954 $ 981,296 Less: Accumulated depreciation ( 614,238 ) ( 574,152 ) Property and equipment, net $ 401,716 $ 407,144 Shown below are the countries where 10% or more of the Company’s property and equipment, net are located as of May 31, 2022 and November 30, 2021: As of May 31, 2022 November 30, 2021 Property and equipment, net: United States $ 111,923 $ 101,333 Philippines 79,406 87,548 India 44,454 46,167 Others 165,933 172,096 Total $ 401,716 $ 407,144 Goodwill: The following table summarizes the changes in the Company’s goodwill for the six months ended May 31, 2022: Balance as of November 30, 2021 $ 1,813,502 Acquisition 1,126,111 Foreign exchange translation ( 13,934 ) Balance as of May 31, 2022 $ 2,925,679 Intangible assets, net: The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of May 31, 2022 and November 30, 2021: 16 As of May 31, 2022 As of November 30, 2021 Gross amounts Accumulated amortization Net amounts Gross amounts Accumulated amortization Net amounts Customer relationships $ 1,727,681 $ ( 755,432 ) $ 972,249 $ 1,347,961 $ ( 694,701 ) $ 653,260 Technology 74,282 ( 14,802 ) 59,480 10,835 ( 8,900 ) 1,935 Trade names 11,667 ( 7,295 ) 4,372 6,724 ( 6,391 ) 333 Non-compete agreements 2,200 ( 314 ) 1,886 — — — $ 1,815,830 $ ( 777,843 ) $ 1,037,987 $ 1,365,520 $ ( 709,992 ) $ 655,528 Estimated future amortization expense of the Company’s intangible assets is as follows: Fiscal years ending November 30, 2022 (remaining six months) $ 82,532 2023 153,699 2024 139,964 2025 128,441 2026 112,922 Thereafter 420,429 Total $ 1,037,987 Accumulated other comprehensive income (loss): The components of accumulated other comprehensive income (loss) (“AOCI”), net of taxes, were as follows: Three Months Ended May 31, 2022 and 2021 Unrecognized gains (losses) on defined benefit plan, net of taxes Unrealized gains (losses) on cash flow hedges, net of taxes Foreign currency translation adjustments, net of taxes Total Balance, February 28, 2021 $ ( 38,960 ) $ 12,998 $ 11,837 $ ( 14,125 ) Other comprehensive income (loss) before reclassification ( 72 ) 17,669 35,433 53,030 Reclassification of gains from other comprehensive income (loss) — ( 7,355 ) — ( 7,355 ) Balances at May 31, 2021 $ ( 39,032 ) $ 23,312 $ 47,270 $ 31,550 Balance, February 28, 2022 $ ( 21,972 ) $ ( 4,836 ) $ ( 60,217 ) $ ( 87,025 ) Other comprehensive income (loss) before reclassification ( 7 ) ( 12,944 ) ( 54,995 ) ( 67,946 ) Reclassification of gains from other comprehensive income (loss) — 3,138 — 3,138 Balances at May 31, 2022 $ ( 21,979 ) $ ( 14,642 ) $ ( 115,212 ) $ ( 151,833 ) 17 Six Months Ended May 31, 2022 and 2021 Unrecognized gains (losses) on defined benefit plan, net of taxes Unrealized gains (losses) on cash flow hedges, net of taxes Foreign currency translation adjustments, net of taxes Total Balance, November 30, 2020 $ ( 38,584 ) $ 29,239 $ 5,531 $ ( 3,814 ) Other comprehensive income (loss) before reclassification ( 448 ) 10,599 41,739 51,890 Reclassification of gains from other comprehensive income (loss) — ( 16,526 ) — ( 16,526 ) Balances at May 31, 2021 $ ( 39,032 ) $ 23,312 $ 47,270 $ 31,550 Balance, November 30, 2021 $ ( 22,745 ) $ ( 1,403 ) $ ( 46,378 ) $ ( 70,526 ) Other comprehensive income (loss) before reclassification 766 ( 15,704 ) ( 68,834 ) ( 83,772 ) Reclassification of gains from other comprehensive income (loss) — 2,465 — 2,465 Balances at May 31, 2022 $ ( 21,979 ) $ ( 14,642 ) $ ( 115,212 ) $ ( 151,833 ) Refer to Note 6 for the location of gains and losses on cash flow hedges reclassified from other comprehensive income (loss) to the consolidated statements of operations. Reclassifications of amortization of actuarial (gains) losses of defined benefit plans is recorded in “Other expense (income), net” in the consolidated statement of operations. NOTE 6— DERIVATIVE INSTRUMENTS: In the ordinary course of business, the Company is exposed to foreign currency risk and credit risk. The Company enters into transactions, and owns monetary assets and liabilities, that are denominated in currencies other than the legal entity’s functional currency. The Company may enter into forward contracts, option contracts, or other derivative instruments to offset a portion of the risk on expected future cash flows, earnings, net investments in certain non-U.S. legal entities and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates. Generally, the Company does not use derivative instruments to cover equity risk and credit risk. The Company’s hedging program is not used for trading or speculative purposes. All derivatives are recognized on the consolidated balance sheets at their fair values. Changes in the fair value of derivatives are recorded in the consolidated statements of operations, or as a component of AOCI in the consolidated balance sheets, as discussed below. Cash Flow Hedges To mitigate the risk of fluctuations in foreign currency exchange rates on gross margins, certain of the Company’s legal entities with functional currencies that are not U.S. dollars may hedge a portion of forecasted revenue or costs not denominated in the entities’ functional currencies. These instruments mature at various dates through May 2024. Gains and losses on cash flow hedges are recorded in AOCI until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of “Revenue” in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of foreign currency costs are recognized as a component of “Cost of revenue” or “Selling, general and administrative expenses” in the same period as the related costs are recognized. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time 18 period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into earnings in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are recorded in earnings unless they are re-designated as hedges of other transactions. Non-Designated Derivatives The Company uses short-term forward contracts to offset the foreign exchange risk of assets and liabilities denominated in currencies other than the functional currency of the Company’s legal entities that own the asset or liability. These contracts, which are not designated as hedging instruments, mature or settle within twelve months. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. Fair Values of Derivative Instruments in the Consolidated Balance Sheets The fair values of the Company’s derivative instruments are disclosed in Note 7 and summarized in the table below: Value as of Balance Sheet Line Item May 31, 2022 November 30, 2021 Derivative instruments not designated as hedging instruments: Foreign exchange forward contracts (notional value) $ 1,405,674 $ 1,415,447 Other current assets 11,376 10,058 Other accrued liabilities 11,930 12,542 Derivative instruments designated as cash flow hedges: Foreign exchange forward contracts (notional value) $ 907,910 $ 918,097 Other current assets and other assets 1,252 7,851 Other accrued liabilities and other long-term liabilities 20,916 9,736 Volume of activity The notional amounts of foreign exchange forward contracts represent the gross amounts of foreign currency, including, principally, the Philippine peso, the Indian rupee, the euro, the British pound, the Canadian dollar and the Japanese yen, that will be bought or sold at maturity. The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The Company’s exposure to credit loss and market risk will vary over time as currency exchange rates change. 19 The Effect of Derivative Instruments on AOCI and the Consolidated Statements of Operations The following table shows the gains and losses, before taxes, of the Company’s derivative instruments designated as cash flow hedges and not designated as hedging instruments in other comprehensive income (“OCI”), and the consolidated statements of operations for the periods presented: Three Months Ended Six Months Ended Locations of gain (loss) in statement of operations May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 Derivative instruments designated as cash flow hedges (Loss) / Gain recognized in OCI: Foreign exchange forward contracts $ ( 17,384 ) $ 23,718 $ ( 21,091 ) $ 14,393 Gains reclassified from AOCI into income: Foreign exchange forward contracts (Loss) / Gain reclassified from AOCI into income Cost of revenue for services $ ( 3,426 ) $ 7,127 $ ( 3,011 ) $ 15,962 (Loss) / Gain reclassified from AOCI into income Selling, general and administrative expenses ( 790 ) 2,746 ( 300 ) 6,104 Total $ ( 4,216 ) $ 9,873 $ ( 3,311 ) $ 22,066 Derivative instruments not designated as hedging instruments: (Loss) / Gain recognized from foreign exchange forward contracts, net (1) Other expense (income), net $ ( 16,148 ) $ 20,808 $ ( 17,160 ) $ 18,041 (1) The gains and losses largely offset the currency gains and losses that resulted from changes in the assets and liabilities denominated in nonfunctional currencies. There were no material gain or loss amounts excluded from the assessment of effectiveness. Existing net losses in AOCI that are expected to be reclassified into earnings in the normal course of business within the next twelve months are $ 16,697 . Offsetting of Derivatives In the consolidated balance sheets, the Company does not offset derivative assets against liabilities in master netting arrangements. Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the Company’s obligations to the counterparties. The 20 Company manages the potential risk of credit losses through careful evaluation of counterparty credit standing and selection of counterparties from a limited group of financial institutions. NOTE 7— FAIR VALUE MEASUREMENTS: The Company’s fair value measurements are classified and disclosed in one of the following three categories: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The following table summarizes the valuation of the Company’s investments and financial instruments that are measured at fair value on a recurring basis: As of May 31, 2022 As of November 30, 2021 Fair value measurement category Fair value measurement category Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Assets: Cash equivalents $ 90,511 $ 90,511 $ — $ — $ 77,332 $ 77,332 $ — $ — Foreign government bond 1,667 1,667 — — 1,446 1,446 — — Forward foreign currency exchange contracts 12,628 — 12,628 — 17,909 — 17,909 — Liabilities: Forward foreign currency exchange contracts $ 32,846 $ — $ 32,846 $ — $ 22,278 $ — $ 22,278 $ — The Company’s cash equivalents consist primarily of highly liquid investments in money market funds and term deposits with maturity periods of three months or less. The carrying values of cash equivalents approximate fair value since they are near their maturity. Investment in foreign government bond classified as an available-for-sale debt security is recorded at fair value based on quoted market prices. The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by banks or foreign currency dealers. Fair values of long-term foreign currency exchange contracts are measured using valuations based upon quoted prices for similar assets and liabilities in active markets and are valued by reference to similar financial instruments, adjusted for terms specific to the contracts. The effect of nonperformance risk on the fair value of derivative instruments was not material as of May 31, 2022 and November 30, 2021. The carrying values of term deposits with maturities less than one year, accounts receivable and accounts payable approximate fair value due to their short maturities and interest rates that are variable in nature. The carrying values of the outstanding balance on the Term Loan under the Company’s Credit Facility and the outstanding balance on the Securitization Facility approximate their fair values since they bear interest rates that are similar to existing market rates. During the three and six months ended May 31, 2022 and 2021, there were no transfers between the fair value measurement category levels. 21 NOTE 8—BORROWINGS: Borrowings consist of the following: As of May 31, 2022 November 30, 2021 Credit Facility - current portion of Term Loan component $ 105,000 $ — Current portion of long term debt $ 105,000 $ — Credit Facility - Term Loan component $ 1,995,000 $ — Credit Facility - Prior Term Loan component — 700,000 Securitization Facility 211,000 105,000 Long-term debt, before unamortized debt discount and issuance costs 2,206,000 805,000 Less: unamortized debt discount and issuance costs ( 8,124 ) ( 2,983 ) Long-term debt, net $ 2,197,876 $ 802,017 Credit Facility On December 27, 2021, in connection with the closing of the acquisition of PK, Concentrix entered into an amendment of its senior secured credit facility (the “Credit Facility”) to (i) refinance the then-outstanding term loan (the “Prior Term Loan”) with a new term loan, which was fully advanced, in the aggregate outstanding principal amount of $ 2,100,000 (the “Term Loan”), (ii) increase the commitments under its revolving credit facility to $ 1,000,000 (the “Revolver”), (iii) extend the maturity of the Credit Facility from November 30, 2025 to December 27, 2026, (iv) replace LIBOR with SOFR (the Secured Overnight Financing Rate) as the primary reference rate used to calculate interest on the loans under the Credit Facility, and (v) modify the commitment fee on the unused portion of the Revolver and the margins in excess of the reference rates at which the loans under the Credit Facility bear interest. The proceeds from the Term Loan and additional borrowings under the Securitization Facility were used to repay the outstanding principal amount of the Prior Term Loan and to finance the acquisition of PK, including the repayment of certain indebtedness of PK and the payment of fees and expenses in connection with the acquisition of PK. Borrowings under the Credit Facility bear interest, in the case of SOFR rate loans, at a per annum rate equal to the applicable SOFR rate (but not less than 0.0 %), plus an adjustment of between 0.10 % and 0.25 % depending on the interest period of each SOFR loan, plus an applicable margin, which ranges from 1.25 % to 2.00 %, based on Concentrix’ consolidated leverage ratio. Borrowings under the Credit Facility that are not SOFR rate loans bear interest at a per annum rate equal to (i) the greatest of (a) the Federal Funds Rate in effect on such day plus ½ of 1.00%, (b) the rate of interest last publicly announced by Bank of America as its “prime rate” and (c) the term SOFR rate plus 1.00 %, plus (ii) an applicable margin, which ranges from 0.25 % to 1.00 %, based on Concentrix’ consolidated leverage ratio. A commitment fee is payable on the unused portion of the Revolver that ranges from 22.5 to 30 basis points, based on Concentrix’ consolidated leverage ratio. Beginning August 31, 2022, the outstanding principal of the Term Loan will be payable in quarterly installments of $ 26.25 million, with the unpaid balance due in full on the maturity date. Concentrix may request, subject to obtaining commitments from any participating lenders and certain other conditions, incremental commitments to increase the amount of the Revolver or the Term Loan available under the Credit Facility in an aggregate principal amount of up to $ 450,000 , plus an additional amount, so long as after giving effect to the incurrence of such additional amount, the Company’s 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. subsidiaries and are guaranteed by certain of its U.S. subsidiaries. 22 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 their business. In addition, the Credit Facility contains financial covenants that require Concentrix 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. Prior to being amended in December 2021, Concentrix initially entered into its senior secured credit facility on October 16, 2020, and it initially provided for the extension of revolving loans of up to $ 600,000 and term loan borrowings of up to $ 900,000 . On November 30, 2020, in connection with the spin-off, the Company incurred the full $ 900,000 of term loan borrowings under the Credit Facility. Substantially all of the proceeds from such borrowings, net of debt issuance costs, were transferred to TD SYNNEX on November 30, 2020 to eliminate debt owed by Concentrix to TD SYNNEX and in exchange for the contribution of certain Concentrix trademarks from TD SYNNEX to Concentrix. Beginning May 31, 2021, the outstanding principal of the Prior Term Loan was payable in quarterly installments of $ 11,250 , with the unpaid balance due in full on the maturity date. During the fiscal year ended November 30, 2021, the Company paid $ 200,000 of the principal balance on the Prior Term Loan, including $ 166,250 of voluntary prepayments, without penalty. At May 31, 2022 and November 30, 2021, no amounts were outstanding under the Revolver. Securitization Facility On October 30, 2020, Concentrix entered into a $ 350,000 accounts receivable securitization facility (the “Securitization Facility”) pursuant to certain agreements, including a Receivables Financing Agreement and a Receivables Purchase Agreement. On November 30, 2020, in connection with the spin-off, the Company incurred $ 250,000 of borrowings under the Securitization Facility. Substantially all of the proceeds from such borrowings were transferred to TD SYNNEX on November 30, 2020 to eliminate debt owed by Concentrix to TD SYNNEX and in exchange for the contribution of certain Concentrix trademarks from TD SYNNEX to Concentrix. Under the Securitization Facility, Concentrix and certain of its subsidiaries (the “Originators”) sell or otherwise transfer all of their accounts receivable to a special purpose bankruptcy-remote subsidiary of Concentrix (the “Borrower”) that grants a security interest in the receivables to the lenders in exchange for available borrowings of up to $ 350,000 . The amount received under the Securitization Facility is recorded as debt on the Company’s consolidated balance sheets. Borrowing availability under the Securitization Facility may be limited by the Company’s accounts receivable balances, changes in the credit ratings of the 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). The Securitization Facility has a termination date of October 28, 2022. Amounts drawn under the Securitization Facility are classified as long-term debt within the consolidated balance sheet based on the Company’s ability and intent to refinance on a long-term basis as of May 31, 2022 as evidenced through the amendment to the Securitization Facility described below. 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 %. Concentrix is also obligated to pay a monthly undrawn fee that ranges from 30 to 37.5 basis points based on the portion of the Securitization Facility that is undrawn. 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 23 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. The Borrower’s sole business consists of the purchase or acceptance through capital contributions of the receivables and related security from the Originators and the subsequent retransfer of or granting of a security interest in such receivables and related security to the administrative agent under the Securitization Facility for the benefit of the lenders. The Borrower is a separate legal entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of the Borrower’s assets prior to any assets or value in the Borrower becoming available to the Borrower’s equity holders, and the assets of the Borrower are not available to pay creditors of Concentrix and its subsidiaries. On July 6, 2022, the Company entered into an amendment to the Securitization Facility to (i) increase the commitment of the lenders to provide available borrowings of up to $ 500,000 , (ii) extend the termination date of the Securitization Facility from October 28, 2022 to July 5, 2024, and (iii) replace LIBOR with SOFR as one of the reference rates used to calculate interest on borrowings under the Securitization Facility. In addition, the interest rate margins were amended, such that borrowings under the Securitization Facility that are funded through the issuance of commercial paper bear interest at the applicable commercial paper rate plus a spread of 0.70 % and, otherwise, at a per annum rate equal to the applicable SOFR rate (which includes a SOFR related adjustment of 0.10 %), plus a spread of 0.80 %. Covenant compliance As of May 31, 2022, Concentrix was in compliance with all covenants for the above arrangements. NOTE 9— EARNINGS PER SHARE: Basic and diluted earnings per common share ( “ EPS ” ) are computed using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. The Company’s restricted stock awards are considered participating securities because they are legally issued at the grant date and holders have a non-forfeitable right to receive dividends. 24 Three Months Ended Six Months Ended May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 Basic earnings per common share: Net income $ 113,142 $ 82,904 $ 223,415 $ 171,715 Less: net income allocated to participating securities (1) ( 1,714 ) ( 1,272 ) ( 3,267 ) ( 2,346 ) Net income attributable to common stockholders $ 111,428 $ 81,632 $ 220,148 $ 169,369 Weighted-average number of common shares - basic 51,564 51,275 51,596 51,215 Basic earnings per common share $ 2.16 $ 1.59 $ 4.27 $ 3.31 Diluted earnings per common share: Net income $ 113,142 $ 82,904 $ 223,415 $ 171,715 Less: net income allocated to participating securities (1) ( 1,700 ) ( 1,254 ) ( 3,243 ) ( 2,314 ) Net income attributable to common stockholders $ 111,442 $ 81,650 $ 220,172 $ 169,401 Weighted-average number of common shares - basic 51,564 51,275 51,596 51,215 Effect of dilutive securities: Stock options and restricted stock units 426 730 399 713 Weighted-average number of common shares - diluted 51,990 52,005 51,995 51,928 Diluted earnings per common share $ 2.14 $ 1.57 $ 4.23 $ 3.26 (1) Restricted stock awards granted to employees by the Company are considered participating securities. NOTE 10— REVENUE: Disaggregated revenue In the following table, the Company’s revenue is disaggregated by primary industry verticals: Three Months Ended Six Months Ended May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 Industry vertical: Technology and consumer electronics $ 466,754 $ 417,277 $ 936,953 $ 830,095 Retail, travel and ecommerce 295,025 231,966 579,942 470,967 Communications and media 273,817 254,860 534,460 503,650 Banking, financial services and insurance 255,583 228,816 498,829 437,900 Healthcare 148,252 115,418 298,388 240,642 Other 128,670 121,541 255,581 239,902 Total $ 1,568,101 $ 1,369,878 $ 3,104,153 $ 2,723,156 25 NOTE 11— PENSION AND EMPLOYEE BENEFITS PLANS: The Company has a 401(k) plan in the United States under which eligible employees may contribute up to the maximum amount as provided by law. Employees become eligible to participate in the 401(k) plan on the first day of the month after their employment date. The Company may make discretionary contributions under the plan. Employees in most of the Company’s non-U.S. legal entities are covered by government mandated defined contribution plans. During the three and six months ended May 31, 2022, the Company contributed $ 26,855 and $ 48,667 , respectively, to defined contribution plans. During the three and six months ended May 31, 2021, the Company contributed $ 18,967 and $ 39,141 , respectively, to defined contribution plans. Defined Benefit Plans The Company has defined benefit pension and retirement plans for eligible employees of certain non-U.S. legal entities. For eligible employees in the U.S., the Company maintains a frozen defined benefit pension plan (“the cash balance plan”), which includes both a qualified and non-qualified portion. The pension benefit formula for the cash balance plan is determined by a combination of compensation, age-based credits and annual guaranteed interest credits. The qualified portion of the cash balance plan has been funded through contributions made to a trust fund. The Company maintains funded or unfunded defined benefit pension or retirement plans for certain eligible employees in the Philippines, Malaysia, India, and France. Benefits under these plans are primarily based on years of service and compensation during the years immediately preceding retirement or termination of participation in the plans. Net benefit costs related to defined benefit plans were $ 2,353 and $ 5,628 , during the three and six months ended May 31, 2022, respectively. Net benefit costs related to defined benefit plans were $ 3,372 and $ 6,683 , during the three and six months ended May 31, 2021, respectively. On an aggregate basis, the plans were underfunded by $ 96,016 and $ 104,689 at May 31, 2022 and November 30, 2021, respectively. NOTE 12— INCOME TAXES: Income taxes consist of current and deferred tax expense resulting from income earned in domestic and international jurisdictions. The effective tax rates for the three and six months ended May 31, 2022 and 2021 were impacted by the geographic mix of worldwide income and certain discrete items, which included an additional expense of $ 9,247 in the second quarter of 2021 related to the change in the Company’s indefinite reinvestment assertion for Concentrix Insurance Solutions due to the then-pending sale, which closed in the third quarter of 2021. The liability for unrecognized tax benefits was $ 54,302 and $ 56,308 at May 31, 2022 and November 30, 2021, respectively, and is included in other long-term liabilities in the consolidated balance sheets. As of May 31, 2022 and November 30, 2021, the total amount of unrecognized tax benefits that would affect income tax expense if recognized in the consolidated financial statements was $ 46,449 and $ 48,438 , respectively. This amount includes net interest and penalties of $ 8,604 and $ 8,861 for the respective periods. The net interest and penalties balance for November 30, 2021 includes an immaterial prior period disclosure adjustment to properly present the amount. This disclosure adjustment resulted in no impact to the Company’s consolidated balance sheets or consolidated statement of operations for any period presented. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits could decrease between approximately $ 5,348 and $ 12,108 in the next twelve months; however, actual developments in this area could differ from those currently expected. 26 NOTE 13— LEASES: The Company leases certain of its facilities and equipment under operating lease agreements, which expire in various periods through 2035. The Company’s finance leases are not material. The following table presents the various components of operating lease costs: Three Months Ended Six Months Ended May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 Operating lease cost $ 49,738 $ 51,122 $ 100,540 $ 102,563 Short-term lease cost 5,186 3,819 9,523 7,527 Variable lease cost 11,234 10,014 23,218 20,134 Sublease income ( 692 ) ( 419 ) ( 1,427 ) ( 891 ) Total operating lease cost $ 65,466 $ 64,536 $ 131,854 $ 129,333 The following table presents a maturity analysis of expected undiscounted cash flows for operating leases on an annual basis for the next five fiscal years and thereafter as of May 31, 2022: Fiscal Years Ending November 30, 2022 (remaining six months) $ 95,246 2023 165,178 2024 127,513 2025 81,987 2026 36,444 Thereafter 25,434 Total payments 531,802 Less: imputed interest* 53,261 Total present value of lease payments $ 478,541 *Imputed interest represents the difference between undiscounted cash flows and discounted cash flows. The following amounts were recorded in the consolidated balance sheets related to the Company’s operating leases: As of May 31, 2022 November 30, 2021 Operating lease ROU assets Other assets, net $ 461,760 $ 489,171 Current operating lease liabilities Other accrued liabilities 152,418 153,329 Non-current operating lease liabilities Other long-term liabilities 326,123 354,471 The following table presents supplemental cash flow information related to the Company’s operating leases. Cash payments related to variable lease costs and short-term leases are not included in the measurement of operating lease liabilities, and, as such, are excluded from the amounts below: Six Months Ended May 31, 2022 May 31, 2021 Cash paid for amounts included in the measurement of lease liabilities $ 100,857 $ 107,926 Non-cash ROU assets obtained in exchange for lease liabilities 68,238 76,374 27 The weighted-average remaining lease term and discount rate as of May 31, 2022 and November 30, 2021 were as follows: As of May 31, 2022 November 30, 2021 Weighted-average remaining lease term (years) 3.63 3.81 Weighted-average discount rate 5.38 % 5.82 % NOTE 14— COMMITMENTS AND CONTINGENCIES: From time to time, the Company receives notices from third parties, including customers and suppliers, seeking indemnification, payment of money or other actions in connection with claims made against them. Also, from time to time, the Company has been involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. In addition, the Company is subject to various other claims, both asserted and unasserted, that arise in the ordinary course of business. The Company evaluates these claims and records the related liabilities. It is possible that the liabilities ultimately incurred by the Company could differ from the amounts recorded. Under the separation and distribution agreement with TD SYNNEX, the Company agreed to indemnify TD SYNNEX, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities allocated to Concentrix under the separation and distribution agreement, which are generally those liabilities that relate to the CX business and the Company’s business activities, whether incurred prior to or after the spin-off. Under the tax matters agreement with TD SYNNEX, if the spin-off fails to qualify for tax-free treatment, the Company is generally required to indemnify TD SYNNEX for any taxes resulting from the spin-off (and related costs and other damages) to the extent such amounts result from (1) an acquisition of all or a portion of the Company’s equity securities or assets by any means, (2) any action or failure to act by the Company after the distribution affecting the voting rights of the Company’s stock, (3) other actions or failures to act by the Company, or (4) certain breaches of the Company’s agreements and representations in the tax matters agreement. The Company’s indemnification obligations to TD SYNNEX and its subsidiaries, officers, directors and employees are not limited by any maximum amount. The Company does not believe that the above commitments and contingencies will have a material adverse effect on the Company’s results of operations, financial position or cash flows. NOTE 15— STOCKHOLDERS’ EQUITY: Share repurchase program In September 2021, the Company’s board of directors authorized the Company to purchase up to $ 500,000 of the Company’s outstanding shares of 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. During the three and six months ended May 31, 2022, the Company repurchased 367 aggregate shares of its common stock for an aggregate purchase price of $ 57,850 . The share repurchases were made on the open market and the shares repurchased by the Company are held in treasury for general corporate purposes. At May 31, 2022, approximately $ 417,055 remained available for share repurchases under the existing authorization from the Company’s board of directors. During June 2022, the Company repurchased 92 aggregate shares of its common stock for an aggregate purchase price of $ 13,764 . 28 Dividends During fiscal years 2022 and 2021, the Company has paid the following dividends per share approved by the Company’s board of directors: Announcement Date Record Date Per Share Dividend Amount Payment Date September 27, 2021 October 22, 2021 $ 0.25 November 2, 2021 January 18, 2022 January 28, 2022 $ 0.25 February 8, 2022 March 29, 2022 April 29, 2022 $ 0.25 May 10, 2022 On June 27, 2022, the Company announced a cash dividend of $ 0.25 per share to stockholders of record as of July 29, 2022, payable on August 9, 2022. 29