Concentrix Corp 10-Q

ITEM 1. FINANCIAL STATEMENTS CONCENTRIX CORPORATION CONSOLIDATED BALANCE SHEETS (currency and share amounts in thousands, except par value) August 31, 2022 November 30, 2021 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 176,082 $ 182,038 Accounts receivable, net 1,355,065 1,207,953 Other current assets 186,256 153,074 Total current assets 1,717,403 1,543,065 Property and equipment, net 390,343 407,144 Goodwill 2,971,820 1,813,502 Intangible assets, net 1,025,776 655,528 Deferred tax assets 59,685 48,413 Other assets 584,847 578,715 Total assets $ 6,749,874 $ 5,046,367 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 114,128 $ 129,359 Current portion of long-term debt 6,250 — Accrued compensation and benefits 465,137 453,434 Other accrued liabilities 397,226 351,642 Income taxes payable 45,472 33,779 Total current liabilities 1,028,213 968,214 Long-term debt, net 2,401,099 802,017 Other long-term liabilities 515,237 546,410 Deferred tax liabilities 158,698 109,471 Total liabilities 4,103,247 2,426,112 Commitments and contingencies (Note 14) Stockholders’ equity: Preferred stock, $ 0.0001 par value, 10,000 shares authorized and no shares issued and outstanding as of August 31, 2022 and November 30, 2021, respectively — — Common stock, $ 0.0001 par value, 250,000 shares authorized; 52,093 and 51,927 shares issued as of August 31, 2022 and November 30, 2021, respectively, and 51,016 and 51,594 shares outstanding as of August 31, 2022 and November 30, 2021, respectively 5 5 Additional paid-in capital 2,415,868 2,355,767 Treasury stock, 1,077 and 333 shares as of August 31, 2022 and November 30, 2021, respectively ( 167,420 ) ( 57,486 ) Retained earnings 683,466 392,495 Accumulated other comprehensive loss ( 285,292 ) ( 70,526 ) Total stockholders’ equity 2,646,627 2,620,255 Total liabilities and stockholders’ equity $ 6,749,874 $ 5,046,367 The accompanying notes are an integral part of these consolidated financial statements. 2 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (currency and share amounts in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 Revenue $ 1,579,602 $ 1,397,251 $ 4,683,755 $ 4,120,407 Cost of revenue 1,012,754 915,910 3,019,857 2,670,287 Gross profit 566,848 481,341 1,663,898 1,450,120 Selling, general and administrative expenses 409,303 329,962 1,201,696 1,035,628 Operating income 157,545 151,379 462,202 414,492 Interest expense and finance charges, net 20,272 4,868 42,015 19,316 Other expense (income), net ( 12,086 ) ( 5,858 ) ( 22,247 ) ( 5,601 ) Income before income taxes 149,359 152,369 442,434 400,777 Provision for income taxes 42,235 42,615 111,738 119,308 Net income before non-controlling interest 107,124 109,754 330,696 281,469 Less: Net income attributable to non-controlling interest 434 — 591 — Net income attributable to Concentrix Corporation $ 106,690 $ 109,754 $ 330,105 $ 281,469 Earnings per common share: Basic $ 2.05 $ 2.10 $ 6.32 $ 5.41 Diluted $ 2.04 $ 2.08 $ 6.28 $ 5.35 Weighted-average common shares outstanding Basic 51,193 51,432 51,461 51,288 Diluted 51,549 52,061 51,834 51,914 The accompanying notes are an integral part of these consolidated financial statements. 3 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (currency in thousands) (unaudited) Three Months Ended Nine Months Ended August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 Net income before non-controlling interest $ 107,124 $ 109,754 $ 330,696 $ 281,469 Other comprehensive income (loss): Unrealized gains (losses) of defined benefit plans, net of taxes of $( 51 ) for the three and nine months ended August 31, 2022, respectively, and $ 0 and $ 98 for the three and nine months ended August 31, 2021, respectively 951 2 1,717 ( 446 ) Unrealized gains (losses) on cash flow hedges during the period, net of taxes of $ 10,392 and $ 15,779 for the three and nine months ended August 31, 2022, respectively, and $ 3,840 and $ 47 for the three and nine months ended August 31, 2021, respectively ( 30,299 ) ( 11,219 ) ( 46,003 ) ( 620 ) Reclassification of net (gains) losses on cash flow hedges to net income, net of taxes of $( 3,344 ) and $( 4,190 ) for the three and nine months ended August 31, 2022, respectively, and $ 1,400 and $ 6,940 for the three and nine months ended August 31, 2021, respectively 9,752 ( 4,091 ) 12,217 ( 20,617 ) Total change in unrealized gains (losses) on cash flow hedges, net of taxes ( 20,547 ) ( 15,310 ) ( 33,786 ) ( 21,237 ) Foreign currency translation, net of taxes of $ 0 for the three and nine months ended August 31, 2022 and 2021, respectively ( 113,863 ) ( 56,105 ) ( 182,697 ) ( 14,366 ) Other comprehensive income (loss) ( 133,459 ) ( 71,413 ) ( 214,766 ) ( 36,049 ) Comprehensive income (loss) ( 26,335 ) 38,341 115,930 245,420 Less: Comprehensive income (loss) attributable to non-controlling interest 434 — 591 — Comprehensive income (loss) attributable to Concentrix Corporation $ ( 26,769 ) $ 38,341 $ 115,339 $ 245,420 The accompanying notes are an integral part of these consolidated financial statements. 4 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (currency and share amounts in thousands) (unaudited) Three and Nine Months Ended August 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, May 31, 2022 $ 2,157 51,342 $ 5 $ 2,404,281 716 $ ( 118,248 ) $ 589,740 $ ( 151,833 ) $ 2,723,945 Other comprehensive loss — — — — — — — ( 133,459 ) ( 133,459 ) Net income attributable to non-controlling interest 434 — — — — — — — — Purchase of non-controlling interest in subsidiary ( 2,591 ) — — 91 — — — — 91 Share-based compensation activity — ( 326 ) — 11,496 — — — — 11,496 Repurchase of common stock for tax withholdings on equity awards — — — — 2 ( 186 ) — — ( 186 ) Repurchase of common stock — — — — 359 ( 48,986 ) — — ( 48,986 ) Dividends — — — — — — ( 12,964 ) — ( 12,964 ) Net income — — — — — — 106,690 — 106,690 Balances, August 31, 2022 $ — 51,016 $ 5 $ 2,415,868 1,077 $ ( 167,420 ) $ 683,466 $ ( 285,292 ) $ 2,646,627 Balances, November 30, 2021 $ — 51,594 $ 5 $ 2,355,767 333 $ ( 57,486 ) $ 392,495 $ ( 70,526 ) $ 2,620,255 Other comprehensive loss — — — — — — — ( 214,766 ) ( 214,766 ) 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 591 — — — — — — — — Purchase of non-controlling interest in subsidiary ( 2,591 ) — — 91 — — — — 91 Share-based compensation activity — ( 578 ) — 44,285 — — — — 44,285 Repurchase of common stock for tax withholdings on equity awards — — — — 18 ( 3,098 ) — — ( 3,098 ) Repurchase of common stock — — — — 726 ( 106,836 ) — — ( 106,836 ) Dividends — — — — — — ( 39,134 ) — ( 39,134 ) Net income — — — — — — 330,105 — 330,105 Balances, August 31, 2022 $ — 51,016 $ 5 $ 2,415,868 1,077 $ ( 167,420 ) $ 683,466 $ ( 285,292 ) $ 2,646,627 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 Nine Months Ended August 31, 2021 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, May 31, 2021 51,296 $ 5 $ 2,327,025 4 $ ( 527 ) $ 171,715 $ — $ 31,550 $ 2,529,768 Other comprehensive loss — — — — — — — ( 71,413 ) ( 71,413 ) Share-based compensation activity 152 — 11,083 — — — — — 11,083 Repurchase of common stock for tax withholdings on equity awards — — — 89 ( 13,437 ) — — — ( 13,437 ) Net income — — — — — 109,754 — — 109,754 Balances, August 31, 2021 51,448 $ 5 $ 2,338,108 93 $ ( 13,964 ) $ 281,469 $ — $ ( 39,863 ) $ 2,565,755 Balances, November 30, 2020 — $ — $ — — $ — $ — $ 2,305,899 $ ( 3,814 ) $ 2,302,085 Other comprehensive loss — — — — — — — ( 36,049 ) ( 36,049 ) 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 313 — 32,214 — — — — — 32,214 Repurchase of common stock for tax withholdings on equity awards — — — 93 ( 13,964 ) — — — ( 13,964 ) Net income — — — — — 281,469 — — 281,469 Balances, August 31, 2021 51,448 $ 5 $ 2,338,108 93 $ ( 13,964 ) $ 281,469 $ — $ ( 39,863 ) $ 2,565,755 The accompanying notes are an integral part of these consolidated financial statements. 6 CONCENTRIX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (currency in thousands) (unaudited) Nine Months Ended August 31, 2022 August 31, 2021 Cash flows from operating activities: Net income before non-controlling interest $ 330,696 $ 281,469 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 110,108 105,371 Amortization 121,025 103,194 Non-cash share-based compensation expense 37,404 25,344 Provision for doubtful accounts 3,389 ( 763 ) Deferred income taxes ( 4,374 ) ( 21,270 ) Unrealized foreign exchange loss 914 ( 446 ) Gain on divestitures and related transaction costs — ( 13,197 ) Other 325 66 Changes in operating assets and liabilities: Accounts receivable, net ( 23,546 ) ( 58,584 ) Payable to former parent — ( 22,825 ) Accounts payable ( 23,463 ) ( 42,290 ) Other operating assets and liabilities ( 187,437 ) ( 23,944 ) Net cash provided by operating activities 365,041 332,125 Cash flows from investing activities: Purchases of property and equipment ( 97,276 ) ( 112,869 ) Acquisitions of business, net of cash acquired ( 1,705,447 ) ( 3,279 ) Proceeds from divestitures, net of cash sold — 73,708 Other investments ( 1,000 ) — Net cash used in investing activities ( 1,803,723 ) ( 42,440 ) Cash flows from financing activities: Proceeds from the Credit Facility - Term Loan 2,100,000 — Repayments of the Credit Facility - Term Loan ( 125,000 ) — Repayments of the Credit Facility - Prior Term Loan ( 700,000 ) ( 200,000 ) Proceeds from the Securitization Facility 1,451,000 1,042,000 Repayments of the Securitization Facility ( 1,116,000 ) ( 1,123,000 ) Cash paid for debt issuance costs ( 9,331 ) — Purchase of noncontrolling interest in subsidiary ( 2,500 ) — Proceeds from exercise of stock options 6,881 6,870 Repurchase of common stock for tax withholdings on equity awards ( 3,098 ) ( 13,964 ) Repurchase of common stock ( 106,836 ) — Dividends paid ( 39,134 ) — Net cash provided by (used in) financing activities 1,455,982 ( 288,094 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 21,809 ) ( 2,348 ) Net decrease in cash, cash equivalents and restricted cash ( 4,509 ) ( 757 ) Cash, cash equivalents and restricted cash at beginning of year 183,010 156,351 Cash, cash equivalents and restricted cash at end of period $ 178,501 $ 155,594 Supplemental disclosure of non-cash investing activities: Accrued costs for property and equipment purchases $ 6,348 $ 1,846 The accompanying notes are an integral part of these consolidated financial statements. 7 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 nine months ended August 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 8 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 nine months ended August 31, 2022 are discussed below. Concentration of credit risk For the three and nine months ended August 31, 2022, no client accounted for more than 10% of the Company’s consolidated revenue. For the three and nine months ended August 31, 2021, one client accounted for 11.9 % and 11.7 %, respectively, of the Company’s consolidated revenue. As of August 31, 2022 and November 30, 2021, one client comprised 10.8 % 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. NOTE 3— ACQUISITIONS AND DIVESTITURES: 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 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 9 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 certain 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 10 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 1,125,267 Other assets 11,954 Total assets acquired $ 1,746,615 Liabilities assumed and non-controlling interest: Accounts payable and accrued liabilities 67,594 Operating lease liabilities 12,288 Deferred tax liabilities 54,103 Non-controlling interest 2,000 Total liabilities assumed and non-controlling interest 135,985 Total consideration transferred $ 1,610,630 As of August 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 three months ended August 31, 2022. The preliminary purchase price allocation includes $ 469,300 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. 11 The preliminary amounts allocated to intangible assets are as follows: 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 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. The supplemental pro forma financial information for the periods presented is as follows: Three Months Ended Nine Months Ended August 31, August 31, 2022 2021 2022 2021 Revenue $ 1,579,602 $ 1,510,681 $ 4,716,716 $ 4,439,073 Net income 107,912 115,236 327,701 281,089 ServiceSource Acquisition Background On July 20, 2022, the Company completed its acquisition of ServiceSource International, Inc. (“ServiceSource”), a global outsourced go-to-market services provider, delivering B2B digital sales and customer success solutions. The acquisition of ServiceSource is expected to complement Concentrix’ offerings in this area. Purchase price consideration The total purchase price consideration, net of cash acquired, was $ 142.8 million, which was primarily funded by cash on the Company’s balance sheet, as well as borrowings under the Company’s Securitization Facility. 12 The preliminary purchase price consideration to acquire ServiceSource consisted of the following: Cash consideration for ServiceSource stock (1) $ 150,392 Cash consideration for ServiceSource vested and unvested equity awards (2) 6,704 Cash consideration for repayment of ServiceSource debt, including accrued interest (3) 10,063 Total consideration transferred 167,159 Less: Cash acquired (4) 24,355 Total purchase price consideration $ 142,804 (1) Represents the cash consideration paid for the outstanding shares of ServiceSource’s common stock. (2) Represents the cash consideration paid or to be paid for vested and unvested ServiceSource stock option awards, restricted stock units and performance stock units. (3) Represents the cash consideration paid to retire ServiceSource’s outstanding third-party debt, including accrued interest. (4) Represents the ServiceSource cash balance acquired at acquisition. Preliminary purchase price allocation The purchase price was allocated to the assets acquired and liabilities assumed 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 assembled workforce, high-value service 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. 13 The following table summarizes the preliminary estimates of fair values of the assets acquired and liabilities assumed as of the acquisition date: As of July 20, 2022 Assets acquired: Cash and cash equivalents $ 24,355 Accounts receivable 40,097 Property and equipment 6,951 Operating lease right-of-use assets 29,487 Identifiable intangible assets 40,200 Goodwill 69,387 Other assets 20,120 Total assets acquired $ 230,597 Liabilities assumed: Accounts payable and accrued liabilities 33,951 Operating lease liabilities 29,487 Total liabilities assumed 63,438 Total consideration transferred $ 167,159 As of August 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 preliminary purchase price allocation includes $ 40,200 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 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 ServiceSource. The preliminary amounts allocated to intangible assets are as follows: Gross Carrying Amount Weighted-Average Useful Life Customer relationships $ 31,370 15 years Technology 5,640 5 years Trade name 3,190 3 years Total $ 40,200 14 Acquisitions impact on results of operations The results of the acquired operations have been included in the consolidated financial statements since the acquisition dates. The following table provides the results of acquired operations included in the consolidated statement of operations from the acquisition dates through August 31, 2022: Three Months Ended Nine Months Ended August 31, 2022 August 31, 2022 Revenue $ 142,525 $ 349,684 Income before income taxes ( 1,413 ) 1,567 In connection with the acquisitions, the Company incurred $ 12,565 and $ 15,213 of acquisition-related and integration expenses for the three and nine months ended August 31, 2022, respectively. These expenses primarily include legal and professional services, cash-settled awards, severance and retention payments to integrate the businesses. These acquisition-related and integration expenses were recorded within selling, general and administrative expenses in the consolidated statement of operations. Divestitures In July 2021, the Company completed the sales of its insurance third-party administration operations and software platform, Concentrix Insurance Solutions (“CIS”), and another non-CX solutions business in separate transactions for total cash consideration of approximately $ 73,708 . The divestitures generated a pre-tax gain of approximately $ 13,197 , net of related transaction costs. The gain on divestitures and related transaction costs were included in selling, general and administrative expenses in the consolidated statements of operations. 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 nine months ended August 31, 2022 and 2021 as follows: 15 Three Months Ended Nine Months Ended August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 Total share-based compensation $ 9,862 $ 9,457 $ 37,678 $ 25,858 Tax benefit recorded in the provision for income taxes ( 2,505 ) ( 2,364 ) ( 9,569 ) ( 6,464 ) Effect on net income $ 7,357 $ 7,093 $ 28,109 $ 19,394 Share-based compensation expense is included in selling, general and administrative expenses in the consolidated statements of operations. 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 August 31, 2022 November 30, 2021 Cash and cash equivalents $ 176,082 $ 182,038 Restricted cash included in other current assets 2,419 972 Cash, cash equivalents and restricted cash $ 178,501 $ 183,010 Restricted cash balances relate primarily to restrictions placed on cash deposits by banks as collateral for the issuance of bank guarantees and letters of credit for leases and the terms of government grants. Accounts receivable, net: Accounts receivable, net is comprised of the following as of August 31, 2022 and November 30, 2021: As of August 31, 2022 November 30, 2021 Billed accounts receivable $ 784,473 $ 714,032 Unbilled accounts receivable 575,728 499,342 Less: Allowance for doubtful accounts ( 5,136 ) ( 5,421 ) Accounts receivable, net $ 1,355,065 $ 1,207,953 Allowance for doubtful trade receivables: Presented below is a progression of the allowance for doubtful trade receivables: Three Months Ended Nine Months Ended August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 Balance at beginning of period $ 6,994 $ 5,513 $ 5,421 $ 8,963 Net additions (reductions) ( 1,033 ) 1,369 3,389 ( 763 ) Write-offs and reclassifications ( 825 ) ( 931 ) ( 3,674 ) ( 2,249 ) Balance at end of period $ 5,136 $ 5,951 $ 5,136 $ 5,951 16 Property and equipment, net: The following tables summarize the carrying amounts and related accumulated depreciation for property and equipment as of August 31, 2022 and November 30, 2021: As of August 31, 2022 November 30, 2021 Land $ 27,297 $ 27,677 Equipment, computers and software 513,683 488,270 Furniture and fixtures 88,993 90,442 Buildings, building improvements and leasehold improvements 355,897 364,166 Construction-in-progress 15,810 10,741 Total property and equipment, gross $ 1,001,680 $ 981,296 Less: Accumulated depreciation ( 611,337 ) ( 574,152 ) Property and equipment, net $ 390,343 $ 407,144 Shown below are the countries where 10% or more of the Company’s property and equipment, net are located as of August 31, 2022 and November 30, 2021: As of August 31, 2022 November 30, 2021 Property and equipment, net: United States $ 118,455 $ 101,333 Philippines 72,152 87,548 India 41,689 46,167 Others 158,047 172,096 Total $ 390,343 $ 407,144 Goodwill: The following table summarizes the changes in the Company’s goodwill for the nine months ended August 31, 2022: Balance as of November 30, 2021 $ 1,813,502 Acquisitions 1,195,039 Foreign exchange translation ( 36,721 ) Balance as of August 31, 2022 $ 2,971,820 17 Intangible assets, net: The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of August 31, 2022 and November 30, 2021: As of August 31, 2022 As of November 30, 2021 Gross amounts Accumulated amortization Net amounts Gross amounts Accumulated amortization Net amounts Customer relationships $ 1,728,680 $ ( 773,084 ) $ 955,596 $ 1,347,961 $ ( 694,701 ) $ 653,260 Technology 79,746 ( 18,213 ) 61,533 10,835 ( 8,900 ) 1,935 Trade names 14,653 ( 7,709 ) 6,944 6,724 ( 6,391 ) 333 Non-compete agreements 2,200 ( 497 ) 1,703 — — — $ 1,825,279 $ ( 799,503 ) $ 1,025,776 $ 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 three months) $ 41,826 2023 156,440 2024 145,594 2025 133,563 2026 117,080 Thereafter 431,273 Total $ 1,025,776 Accumulated other comprehensive income (loss): The components of accumulated other comprehensive income (loss) (“AOCI”), net of taxes, were as follows: Three Months Ended August 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, May 31, 2021 $ ( 39,032 ) $ 23,312 $ 47,270 $ 31,550 Other comprehensive income (loss) before reclassification 2 ( 11,219 ) ( 56,105 ) ( 67,322 ) Reclassification of gains from other comprehensive income (loss) — ( 4,091 ) — ( 4,091 ) Balances at August 31, 2021 $ ( 39,030 ) $ 8,002 $ ( 8,835 ) $ ( 39,863 ) Balance, May 31, 2022 $ ( 21,979 ) $ ( 14,642 ) $ ( 115,212 ) $ ( 151,833 ) Other comprehensive income (loss) before reclassification 951 ( 30,299 ) ( 113,863 ) ( 143,211 ) Reclassification of gains from other comprehensive income (loss) — 9,752 — 9,752 Balances at August 31, 2022 $ ( 21,028 ) $ ( 35,189 ) $ ( 229,075 ) $ ( 285,292 ) 18 Nine Months Ended August 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 ( 446 ) ( 620 ) ( 14,366 ) ( 15,432 ) Reclassification of gains from other comprehensive income (loss) — ( 20,617 ) — ( 20,617 ) Balances at August 31, 2021 $ ( 39,030 ) $ 8,002 $ ( 8,835 ) $ ( 39,863 ) Balance, November 30, 2021 $ ( 22,745 ) $ ( 1,403 ) $ ( 46,378 ) $ ( 70,526 ) Other comprehensive income (loss) before reclassification 1,717 $ ( 46,003 ) ( 182,697 ) ( 226,983 ) Reclassification of gains from other comprehensive income (loss) — 12,217 — 12,217 Balances at August 31, 2022 $ ( 21,028 ) $ ( 35,189 ) $ ( 229,075 ) $ ( 285,292 ) 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 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 August 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 19 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 August 31, 2022 November 30, 2021 Derivative instruments not designated as hedging instruments: Foreign exchange forward contracts (notional value) $ 1,375,458 $ 1,415,447 Other current assets 11,744 10,058 Other accrued liabilities 31,313 12,542 Derivative instruments designated as cash flow hedges: Foreign exchange forward contracts (notional value) $ 946,939 $ 918,097 Other current assets and other assets 509 7,851 Other accrued liabilities and other long-term liabilities 47,768 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 Canadian dollar, the Japanese yen and the Australian dollar, 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. 20 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 Nine Months Ended Locations of gain (loss) in statement of operations August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 Derivative instruments designated as cash flow hedges (Loss) / Gain recognized in OCI: Foreign exchange forward contracts $ ( 40,691 ) $ ( 15,059 ) $ ( 61,782 ) $ ( 666 ) (Losses) / Gains reclassified from AOCI into income: Foreign exchange forward contracts (Loss) / Gain reclassified from AOCI into income Cost of revenue for services $ ( 9,909 ) $ 3,839 $ ( 12,920 ) $ 19,801 (Loss) / Gain reclassified from AOCI into income Selling, general and administrative expenses ( 3,187 ) 1,652 ( 3,487 ) 7,756 Total $ ( 13,096 ) $ 5,491 $ ( 16,407 ) $ 27,557 Derivative instruments not designated as hedging instruments: (Loss) / Gain recognized from foreign exchange forward contracts, net (1) Other expense (income), net $ ( 39,367 ) $ ( 13,388 ) $ ( 56,527 ) $ 4,653 (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 $ 39,657 . 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 21 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 August 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 $ 93,485 $ 93,485 $ — $ — $ 77,332 $ 77,332 $ — $ — Foreign government bond 1,539 1,539 — — 1,446 1,446 — — Forward foreign currency exchange contracts 12,253 — 12,253 — 17,909 — 17,909 — Liabilities: Forward foreign currency exchange contracts $ 79,081 $ — $ 79,081 $ — $ 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 August 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 nine months ended August 31, 2022 and 2021, there were no transfers between the fair value measurement category levels. 22 NOTE 8—BORROWINGS: Borrowings consist of the following: As of August 31, 2022 November 30, 2021 Credit Facility - current portion of Term Loan component $ 6,250 $ — Current portion of long term debt $ 6,250 $ — Credit Facility - Term Loan component $ 1,968,750 $ — Credit Facility - Prior Term Loan component — 700,000 Securitization Facility 440,000 105,000 Long-term debt, before unamortized debt discount and issuance costs 2,408,750 805,000 Less: unamortized debt discount and issuance costs ( 7,651 ) ( 2,983 ) Long-term debt, net $ 2,401,099 $ 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 term or daily SOFR 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 base 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 is payable in quarterly installments of $ 26,250 , with the unpaid balance due in full on the maturity date. During the three months ended August 31, 2022, the Company paid $ 125,000 of the principal balance on the Term Loan, including $ 98,750 of voluntary prepayments, without penalty. 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. 23 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. 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 it being amended in December 2021, Concentrix initially entered into its senior secured credit facility on October 16, 2020, to provide 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 August 31, 2022 and November 30, 2021, no amounts were outstanding under the Revolver. Securitization Facility On July 6, 2022, the Company entered into an amendment to its accounts receivable securitization facility (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 %. 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 $ 500,000 . 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 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. 24 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. Prior to it being amended in July 2022, Concentrix initially entered into its accounts receivable securitization facility on October 30, 2020, to provide available borrowings of up to $ 350,000 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. Covenant compliance As of August 31, 2022, Concentrix was in compliance with all covenants for the above arrangements. 25 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. Three Months Ended Nine Months Ended August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 Basic earnings per common share: Net income $ 106,690 $ 109,754 $ 330,105 $ 281,469 Less: net income allocated to participating securities (1) ( 1,582 ) ( 1,669 ) ( 4,850 ) ( 3,992 ) Net income attributable to common stockholders $ 105,108 $ 108,085 $ 325,255 $ 277,477 Weighted-average number of common shares - basic 51,193 51,432 51,461 51,288 Basic earnings per common share $ 2.05 $ 2.10 $ 6.32 $ 5.41 Diluted earnings per common share: Net income $ 106,690 $ 109,754 $ 330,105 $ 281,469 Less: net income allocated to participating securities (1) ( 1,571 ) ( 1,649 ) ( 4,816 ) ( 3,945 ) Net income attributable to common stockholders $ 105,119 $ 108,105 $ 325,289 $ 277,524 Weighted-average number of common shares - basic 51,193 51,432 51,461 51,288 Effect of dilutive securities: Stock options and restricted stock units 356 629 373 626 Weighted-average number of common shares - diluted 51,549 52,061 51,834 51,914 Diluted earnings per common share $ 2.04 $ 2.08 $ 6.28 $ 5.35 (1) Restricted stock awards granted to employees by the Company are considered participating securities. 26 NOTE 10— REVENUE: Disaggregated revenue In the following table, the Company’s revenue is disaggregated by primary industry verticals: Three Months Ended Nine Months Ended August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 Industry vertical: Technology and consumer electronics $ 500,595 $ 448,104 $ 1,437,548 $ 1,278,199 Retail, travel and ecommerce 299,595 241,662 879,537 712,629 Communications and media 274,424 256,461 808,884 760,111 Banking, financial services and insurance 234,844 210,730 733,673 648,630 Healthcare 143,085 113,749 441,473 354,391 Other 127,059 126,545 382,640 366,447 Total $ 1,579,602 $ 1,397,251 $ 4,683,755 $ 4,120,407 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 nine months ended August 31, 2022, the Company contributed $ 20,211 and $ 62,726 , respectively, to defined contribution plans. During the three and nine months ended August 31, 2021, the Company contributed $ 27,503 and $ 66,644 , 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 $ 2,350 and $ 7,978 , during the three and nine months ended August 31, 2022, respectively. Net benefit costs related to defined benefit plans were $ 6,288 and $ 12,971 , during the three and nine months ended August 31, 2021, respectively. On an aggregate basis, the plans were underfunded by $ 90,858 and $ 104,689 at August 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 nine months ended August 31, 2022 and 2021 were impacted by the geographic mix of worldwide income and certain discrete items, which included an expense related to the sale of CIS of $ 3,745 and $ 12,991 for the three and nine months ended August 31, 2021. 27 The liability for unrecognized tax benefits was $ 51,194 and $ 56,308 at August 31, 2022 and November 30, 2021, respectively, and is included in other long-term liabilities in the consolidated balance sheets. As of August 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 $ 46,150 and $ 48,438 , respectively. This amount includes net interest and penalties of $ 9,668 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 $ 5,340 and $ 12,771 in the next twelve months; however, actual developments in this area could differ from those currently expected. 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 Nine Months Ended August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 Operating lease cost $ 49,627 $ 50,340 $ 150,167 $ 152,903 Short-term lease cost 4,743 4,205 14,266 11,732 Variable lease cost 11,929 9,774 35,147 29,908 Sublease income ( 709 ) ( 368 ) ( 2,136 ) ( 1,259 ) Total operating lease cost $ 65,590 $ 63,951 $ 197,444 $ 193,284 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 August 31, 2022: Fiscal Years Ending November 30, 2022 (remaining three months) $ 47,970 2023 177,650 2024 141,787 2025 93,751 2026 48,465 Thereafter 46,620 Total payments 556,243 Less: imputed interest* 53,419 Total present value of lease payments $ 502,824 *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 August 31, 2022 November 30, 2021 Operating lease ROU assets Other assets, net $ 483,905 $ 489,171 Current operating lease liabilities Other accrued liabilities 156,182 153,329 Non-current operating lease liabilities Other long-term liabilities 346,642 354,471 28 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: Nine Months Ended August 31, 2022 August 31, 2021 Cash paid for amounts included in the measurement of lease liabilities $ 147,579 $ 157,920 Non-cash ROU assets obtained in exchange for lease liabilities 150,492 116,085 The weighted-average remaining lease term and discount rate as of August 31, 2022 and November 30, 2021 were as follows: As of August 31, 2022 November 30, 2021 Weighted-average remaining lease term (years) 3.80 3.81 Weighted-average discount rate 5.16 % 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. 29 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 nine months ended August 31, 2022, the Company repurchased 359 and 726 shares, respectively, of its common stock for an aggregate purchase price of $ 48,986 and $ 106,836 , respectively. 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 August 31, 2022, approximately $ 368,068 remained available for share repurchases under the existing authorization from the Company’s board of directors. During September 2022, the Company repurchased 106 shares of its common stock for an aggregate purchase price of $ 12,860 . 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 June 27, 2022 July 29, 2022 $ 0.25 August 9, 2022 On September 28, 2022, the Company announced a cash dividend of $ 0.275 per share to stockholders of record as of October 28, 2022, payable on November 8, 2022. 30