Concentrix Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022, as filed with the Securities and Exchange Commission on January 27, 2023. References to “we,” “our,” “us,” “the Company” or “Concentrix” refer to Concentrix Corporation and its subsidiaries. This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements regarding the combination with Webhelp and the timing thereof, our expected future financial condition, results of operations, effective tax rate, cash flows, leverage, liquidity, business strategy, competitive position, demand for our services and seasonality of our business, international operations, acquisition opportunities and the anticipated impact of acquisitions, capital allocation and dividends, growth opportunities, spending, capital expenditures and investments, competition and market forecasts, industry trends, our human capital resources and sustainability initiatives, and statements that include words such as believe, expect, may, will, provide, could and should and other similar expressions. These forward-looking statements are inherently uncertain and involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Risks and uncertainties include, among other things: risks related to the proposed transaction with Webhelp, including that the proposed transaction will not be consummated; the ability to complete works council consultations and receive shareholder approval and regulatory approvals for the proposed transaction in a timely manner, on acceptable terms or at all, or to satisfy the other closing conditions to the proposed transaction; conditions in the credit markets and the ability to obtain financing for the proposed transaction on a favorable basis, if at all; fluctuations in currency exchange rates and their impact on the U.S. dollar cost for Euro-denominated obligations; risks related to general economic conditions, including consumer demand, interest rates, inflation, supply chains and the effects of the conflict in Ukraine; cyberattacks on our or our clients’ networks and information technology systems; the failure of our staff and contractors to adhere to our and our clients’ controls and processes; the inability to protect personal and proprietary information; the inability to execute on our digital customer experience strategy; the loss of key personnel or the inability to attract and retain staff with the skills and expertise needed for our business; increases in the cost of labor; the effects of the COVID-19 pandemic and other communicable diseases, natural disasters, adverse weather conditions or public health crises; geopolitical, economic and climate- or weather-related risks in regions with a significant concentration of our operations; the inability to successfully identify, complete and integrate strategic acquisitions or investments, including our integration of ServiceSource International, Inc.; competitive conditions in our industry and consolidation of our competitors; higher than expected tax liabilities; the demand for customer experience solutions and technology; variability in demand by our clients or the early termination of our client contracts; the level of business activity of our clients and the market acceptance and performance of their products and services; currency exchange rate fluctuations; the operability of our communication services and information technology systems and networks; changes in law, regulations or regulatory guidance; damage to our reputation through the actions or inactions of third parties; investigative or legal actions; and other risks that are described under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended November 30, 2022. We do not intend to update forward-looking statements, which speak only as of the date hereof, unless otherwise required by law. Concentrix, the Concentrix Logo, and all other Concentrix company, product and services names and slogans are trademarks or registered trademarks of Concentrix Corporation and its subsidiaries. Concentrix and the Concentrix Logo Reg. U.S. Pat. & Tm. Off. and applicable non-U.S. jurisdictions. Other names and marks are the property of their respective owners. Overview and Basis of Presentation Concentrix 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. We provide 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. Our differentiated portfolio of solutions supports Fortune Global 500 as well as new economy clients across the globe in their efforts to deliver an optimized, consistent brand experience across all channels of communication, such as voice, chat, email, social media, asynchronous messaging, and custom applications. We strive to deliver exceptional services globally supported by our deep industry knowledge, technology and security practices, talented people, and digital and analytics expertise. 29 We generate revenue from performing services that are generally tied to our clients’ products and services. Any shift in business or the size of the market for our clients’ products or services, or any failure of technology or failure of acceptance of our clients’ products or services in the market may impact our business. The staff turnover rate in our business is high, as is the risk of losing experienced team members. High staff turnover rates may increase costs and decrease operating efficiencies and productivity. Pending Combination with Webhelp On March 29, 2023, we announced that we have entered into a binding put option agreement that is expected to result in the combination of the Concentrix and Webhelp businesses. Webhelp is a leading provider of CX solutions, including sales, marketing, and payment services, with significant operations and client relationships in Europe, Latin America, and Africa. The transaction is valued at approximately $4.8 billion, including the assumption of net debt, and is expected to close by the end of the year, subject to completion of the required works council consultations and the satisfaction of customary closing conditions, including approval by Concentrix shareholders and regulatory approvals. PK Acquisition On December 27, 2021, we completed our acquisition of PK, a leading CX design engineering company with more than 5,000 staff in four countries, for total consideration of $1,573.3 million, net of cash and restricted cash acquired. PK creates pioneering experiences that accelerate digital outcomes for their clients’ customers, partners and staff. The acquisition of PK expanded our scale in the digital IT services market and supported our growth strategy of investing in digital transformation to deliver exceptional customer experiences. The addition of the PK staff and technology to our team further strengthened our capabilities in CX design and development, artificial intelligence (“AI”), intelligent automation, and customer loyalty. ServiceSource Acquisition On July 20, 2022, we completed our acquisition of ServiceSource International, Inc. (“ServiceSource”) for total consideration of $141.5 million, net of cash and restricted cash acquired. ServiceSource is a global outsourced go-to-market services provider, delivering business-to-business (“B2B”) digital sales and customer success solutions that complemented our existing offerings in this area. Revenue and Cost of Revenue We generate revenue through the provision of CX solutions and technology to our clients pursuant to client contracts. Our client contracts typically consist of a master services agreement, supported in most cases by multiple statements of work, which contain the terms and conditions of each contracted solution. Our client contracts can range from less than one year to over five years in term and are subject to early termination by our clients for any reason, typically with 30 to 90 days’ notice. Our CX solutions and technology are generally characterized by flat unit prices. Approximately 96% of our revenue is recognized as services are performed, based on staffing hours or the number of client customer transactions handled using contractual rates. Remaining revenue from the sale of these solutions are typically recognized as the services are provided over the duration of the contract using contractual rates. Our cost of revenue consists primarily of personnel costs related to the delivery of our solutions and technology. The costs of our revenue can be impacted by the mix of client contracts, where we deliver the CX solutions and technology, additional lead time for programs to be fully scalable, and transition and initial set-up costs. Our cost of revenue as a percentage of revenue has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the management of our operating expenses, and the timing and costs incurred related to our acquisitions and investments. In the first fiscal quarter of 2023 and 2022, approximately 79% and 78%, respectively, of our consolidated revenue was generated from our non-U.S. operations, and approximately 69% and 66%, respectively, of our consolidated revenue was priced in U.S. dollars and we expect this to continue. As a result, we have certain client contracts that are priced in non-U.S. dollar currencies for which a substantial portion of the costs to deliver the services are in other currencies. Accordingly, our revenue may be earned in currencies that are different from the currencies in which we incur corresponding expenses. Fluctuations in the value of currencies, such as the Philippine peso, the Indian rupee, and the Canadian dollar, against the U.S. dollar or other currencies in which we bill our clients, and 30 inflation in the local economies in which these delivery centers are located, can impact the operating and labor costs in these delivery centers, which can result in reduced profitability. As a result, our revenue growth, costs and profitability have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates and inflation. Margins Our gross margins fluctuate and can be impacted by the mix of client contracts, services provided, shifts in the geography from which our CX services are delivered, client volume trends, the amount of lead time that is required for programs to become fully scaled, and transition and set-up costs. Our operating margin fluctuates based on changes in gross margins as well as overall volume levels, as we are generally able to gain scale efficiencies in our selling, general and administrative costs as our volumes increase. Economic and Industry Trends The CX solutions industry in which we operate is competitive, including on the basis of pricing terms, delivery capabilities and quality of services. Further, there can be competitive pressure for labor in various markets, which could result in increased labor costs. Accordingly, we could be subject to pricing and labor cost pressures and may experience a decrease in revenue and operating income. Our business operates in over 40 countries across 6 continents. We have significant concentrations in the Philippines, India, the United States, the United Kingdom, Canada, throughout Europe, China and Japan. Accordingly, we would be impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to the U.S. dollar. Seasonality Our revenue and margins fluctuate with the underlying trends in our clients’ businesses and trends in the level of consumer activity. As a result, our revenue and margins are typically higher in the fourth fiscal quarter of the year than in any other quarter. Critical Accounting Policies and Estimates During the three months ended February 28, 2023, there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022. 31 Results of Operations – Three Months Ended February 28, 2023 and 2022 Three Months Ended February 28, 2023 February 28, 2022 ($ in thousands) Revenue $ 1,636,404 $ 1,536,052 Cost of revenue 1,055,243 997,918 Gross profit 581,161 538,134 Selling, general and administrative expenses 425,114 390,389 Operating income 156,047 147,745 Interest expense and finance charges, net 33,990 8,770 Other expense (income), net 3,714 (7,616) Income before income taxes 118,343 146,591 Provision for income taxes 30,473 36,052 Net income before non-controlling interest 87,870 110,539 Less: Net income attributable to non-controlling interest — 266 Net income attributable to Concentrix Corporation $ 87,870 $ 110,273 Revenue Three Months Ended % Change February 28, 2023 February 28, 2022 2023 to 2022 ($ in thousands) Industry vertical: Technology and consumer electronics $ 516,608 $ 470,199 9.9% Retail, travel and ecommerce 305,504 284,917 7.2% Communications and media 256,987 260,643 (1.4)% Banking, financial services and insurance 259,653 243,246 6.7% Healthcare 177,824 150,136 18.4% Other 119,828 126,911 (5.6)% Total $ 1,636,404 $ 1,536,052 6.5% We generate revenue by delivering our CX solutions and technology to our clients categorized in the above primary industry verticals. Our solutions focus on customer engagement, process optimization, and back-office automation. Our revenue increased 6.5% in the three months ended February 28, 2023, compared to the three months ended February 28, 2022, which included incremental revenue from acquired operations of $81.7 million, or an increase of 5.3%, compared to the prior year period, and increased volumes across the majority of our verticals over the prior year period. These increases were partially offset by an unfavorable translation effect of foreign currencies of $39.9 million, or 2.6%. The unfavorable foreign currency translation effect on revenue was primarily due to the weakening of the euro, British pound, and Japanese yen against the U.S. dollar. For the three months ended February 28, 2023, revenue in our technology and consumer electronics vertical increased as a result of contributions from acquired operations, increases in volumes from several social media and internet-related service clients, and increases in volumes from a broad-based group of hardware and software clients over the prior year period. For the three months ended February 28, 2023, revenue in our retail, travel and ecommerce vertical increased primarily due to contributions from acquired operations and increased volumes across the majority of our clients in this vertical over the prior year period. For the three months ended February 28, 2023, revenue in our communications and media vertical decreased slightly due to decreased volumes with several clients which more than offset contributions from acquired operations. For the three months ended February 28, 2023, revenue from clients in the banking, financial services and insurance vertical increased due to increased volumes across the majority of our clients in this vertical over the prior year period. For the three months ended February 28, 2023, revenue in our healthcare vertical increased due to contributions from acquired operations and increased volumes across the majority of our healthcare clients over the prior year 32 period. For the three months ended February 28, 2023, revenue in our other vertical decreased primarily due to decreases in revenue from several clients, including government clients. Cost of Revenue, Gross Profit and Gross Margin Percentage Three Months Ended % Change February 28, 2023 February 28, 2022 2023 to 2022 ($ in thousands) Cost of revenue $ 1,055,243 $ 997,918 5.7% Gross profit $ 581,161 $ 538,134 8.0% Gross margin % 35.5 % 35.0 % Cost of revenue consists primarily of personnel costs. Gross margin can be impacted by resource location, client mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs. Our cost of revenue increased by 5.7% in the three months ended February 28, 2023, compared to the three months ended February 28, 2022, primarily due to the increase in our revenue and personnel costs related to staff supporting acquired operations. The increases were partially offset by a $60.2 million, or 6.0%, reduction in our cost of revenue due to foreign currency translation. The foreign currency translation impact on our cost of revenue was caused primarily by the weakening of the Philippine peso, Indian rupee, and euro against the U.S. dollar. Our gross profit increased 8.0% in the three months ended February 28, 2023, compared to the three months ended February 28, 2022, primarily due to the increase in revenue and the contributions from acquired operations and a net favorable foreign currency impact of $20.3 million on gross profit. Our gross margin percentage for the three months ended February 28, 2023 increased to 35.5% from 35.0% in the prior year period due to changes in the mix of geographies where our services were delivered. Selling, General and Administrative Expenses Three Months Ended % Change February 28, 2023 February 28, 2022 2023 to 2022 ($ in thousands) Selling, general and administrative expenses $ 425,114 $ 390,389 8.9% Percentage of revenue 26.0 % 25.4 % Our selling, general and administrative expenses consist primarily of support personnel costs such as salaries, commissions, bonuses, employee benefits and share-based compensation costs. Selling, general and administrative expenses also include the cost of our global delivery facilities, utility expenses, hardware and software costs related to our technology infrastructure, legal and professional fees, depreciation on our technology and facility equipment, amortization of intangible assets resulting from acquisitions, marketing expenses and acquisition-related and integration expenses. Our selling, general and administrative expenses increased 8.9% in the three months ended February 28, 2023, compared to the three months ended February 28, 2022, primarily due to incremental selling, general and administrative expenses associated with the acquired operations and an increase in acquisition-related and integration expenses of $4.6 million. These increases were partially offset by a $15.7 million reduction in selling, general and administrative expenses due to foreign currency translation. As a percentage of revenue, selling, general and administrative expenses increased from 25.4% in the first fiscal quarter of 2022 to 26.0% in the first fiscal quarter of 2023 due to the net effect of the changes described. Operating Income Three Months Ended % Change February 28, 2023 February 28, 2022 2023 to 2022 ($ in thousands) Operating income $ 156,047 $ 147,745 5.6% Operating margin 9.5 % 9.6 % 33 Our operating income increased during the three months ended February 28, 2023, compared to the three months ended February 28, 2022, due to the increase in gross profit partially offset by the increase in selling, general and administrative expenses. Our operating margin slightly decreased during the three months ended February 28, 2023, compared to the three months ended February 28, 2022, due to the increase in gross margin percentage, more than offset by the increase in selling, general and administrative expenses as a percentage of revenue. Interest Expense and Finance Charges, Net Three Months Ended % Change February 28, 2023 February 28, 2022 2023 to 2022 ($ in thousands) Interest expense and finance charges, net $ 33,990 $ 8,770 287.6% Percentage of revenue 2.1 % 0.6 % Amounts recorded in interest expense and finance charges, net consist primarily of interest on borrowings on the term loan (the “Term Loan”) under our amended senior secured credit facility (the “Credit Facility”) and interest on borrowings under our accounts receivable securitization facility (the “Securitization Facility”). The increase in interest expense for the three months ended February 28, 2023, compared to the three months ended February 28, 2022, was due to the increase in our outstanding borrowings on the Term Loan under our Credit Facility and under our Securitization Facility and higher interest rates on these borrowings. The increased borrowings are primarily due to borrowings incurred for our acquisitions of PK and ServiceSource in fiscal year 2022. Other Expense (Income), Net Three Months Ended % Change February 28, 2023 February 28, 2022 2023 to 2022 ($ in thousands) Other expense (income), net $ 3,714 $ (7,616) (148.8)% Percentage of revenue 0.2 % (0.5) % Amounts recorded as other expense (income), net include foreign currency transaction gains and losses other than cash flow hedges, investment gains and losses, the non-service component of pension costs, and other non-operating gains and losses. Other expense (income), net in the three months ended February 28, 2023 was an expense of $3.7 million, compared to income of $7.6 million in the three months ended February 28, 2022. The change in other expense (income), net was primarily due to unfavorable foreign currency transaction changes, partially offset by net gains on foreign currency forward contracts compared to the prior year period. Provision for Income Taxes Three Months Ended % Change February 28, 2023 February 28, 2022 2023 to 2022 ($ in thousands) Provision for income taxes $ 30,473 $ 36,052 (15.5)% Percentage of income before income taxes 25.7 % 24.6 % Our provision for income taxes consists of our current and deferred tax expense resulting from our income earned in domestic and international jurisdictions. Our provision for income taxes decreased in the three months ended February 28, 2023, compared to the three months ended February 28, 2022, primarily due to a decrease in income before taxes. The effective tax rate for the three months ended February 28, 2023 increased compared to the three months ended February 28, 2022 primarily due to the change in mix of income earned in different tax jurisdictions between periods. 34 Certain Non-GAAP Financial Information In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including: • Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue of each fiscal year in the billing currency to U.S. dollars using the comparable prior year’s currency conversion rate. Generally, when the U.S. dollar either strengthens or weakens against other currencies, our revenue growth at constant currency rates or adjusting for currency will be higher or lower than our revenue growth reported at actual exchange rates. • Revenue in adjusted constant currency, which is constant currency revenue excluding revenue from acquired operations in the current period for the twelve months following an acquisition and excluding revenue from divested operations in the comparative period for the twelve months preceding a divestiture. Revenue in adjusted constant currency presents organic constant currency revenue growth for the business, without the impact of acquisitions and divestitures, thereby facilitating period-to-period comparisons of our business performance. • Non-GAAP operating income, which is operating income, adjusted to exclude acquisition-related and integration expenses, including related restructuring costs, amortization of intangible assets and share-based compensation. • Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue. • Adjusted earnings before interest, taxes, depreciation, and amortization, or adjusted EBITDA, which is non-GAAP operating income, as defined above, plus depreciation. • Adjusted EBITDA margin, which is adjusted EBITDA, as defined above, divided by revenue. • Non-GAAP net income, which is net income excluding the tax effected impact of acquisition-related and integration expenses, including related restructuring costs, amortization of intangible assets and share-based compensation. • Free cash flow, which is cash flows from operating activities less capital expenditures. We believe that free cash flow is a meaningful measure of cash flows since capital expenditures are a necessary component of ongoing operations. However, free cash flow has limitations because it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate payments for business acquisitions. • Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share, tax effected impact of acquisition-related and integration expenses, including related restructuring costs, amortization of intangible assets and share-based compensation. We believe that providing this additional information is useful to the reader to better assess and understand our base operating performance, especially when comparing results with previous periods and for planning and forecasting in future periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes. These non-GAAP financial measures exclude amortization of intangible assets. Our acquisition activities have resulted in the recognition of intangible assets, which consist primarily of client relationships, technology and trade names. Finite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in our statements of operations. Although intangible assets contribute to our revenue generation, the amortization of intangible assets does not directly relate to the services performed for our clients. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of our acquisition activity. Accordingly, we believe excluding the amortization of intangible assets, along with the other non-GAAP adjustments, which neither relate to the ordinary course of our business nor reflect our underlying business performance, enhances our and our investors’ ability to compare our past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within our GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes 35 impaired or the estimated useful life of an intangible asset is revised. These non-GAAP financial measures also exclude share-based compensation expense. Given the subjective assumptions and the variety of award types that companies can use when calculating share-based compensation expense, management believes this additional information allows investors to make additional comparisons between our operating results and those of our peers. As these non-GAAP financial measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be used as a complement to, and in conjunction with, data presented in accordance with GAAP. 36 Three Months Ended February 28, 2023 February 28, 2022 ($ in thousands, except per share amounts) Revenue $ 1,636,404 $ 1,536,052 Foreign currency translation 39,934 — Revenue in constant currency $ 1,676,338 $ 1,536,052 Effect of excluding revenue of acquired and divested businesses (81,704) (83,196) Revenue in adjusted constant currency $ 1,594,634 $ 1,452,856 Operating income $ 156,047 $ 147,745 Acquisition-related and integration expenses 5,543 922 Amortization of intangibles 39,260 38,056 Share-based compensation 16,754 15,169 Non-GAAP operating income $ 217,604 $ 201,892 Net income $ 87,870 $ 110,273 Net income attributable to non-controlling interest — 266 Interest expense and finance charges, net 33,990 8,770 Provision for income taxes 30,473 36,052 Other expense (income), net 3,714 (7,616) Acquisition-related and integration expenses 5,543 922 Amortization of intangibles 39,260 38,056 Share-based compensation 16,754 15,169 Depreciation 38,175 36,037 Adjusted EBITDA $ 255,779 $ 237,929 Operating margin 9.5 % 9.6 % Non-GAAP operating margin 13.3 % 13.1 % Adjusted EBITDA margin 15.6 % 15.5 % Net income $ 87,870 $ 110,273 Acquisition-related and integration expenses 5,543 922 Amortization of intangibles 39,260 38,056 Share-based compensation 16,754 15,169 Income taxes related to the above (1) (15,389) (13,753) Non-GAAP net income $ 134,038 $ 150,667 Diluted earnings per common share (“EPS”) $ 1.68 $ 2.09 Acquisition-related and integration expenses 0.11 0.02 Amortization of intangibles 0.75 0.72 Share-based compensation 0.32 0.29 Income taxes related to the above (1) (0.30) (0.27) Non-GAAP Diluted EPS $ 2.56 $ 2.85 (1) The tax effect of taxable and deductible non-GAAP adjustments was calculated using the tax deductible portion of the expenses and applying the entity specific, statutory tax rates applicable to each item during the respective periods. 37 Liquidity and Capital Resources Our primary uses of cash are working capital, capital expenditures to expand our delivery footprint and enhance our technology solutions, debt repayments and acquisitions, including our fiscal year 2022 acquisitions of PK and ServiceSource. Our financing needs for these uses of cash have been a combination of operating cash flows and third-party debt arrangements. Our working capital needs are primarily to finance accounts receivable. When our revenue is increasing, our net investment in working capital typically increases. Conversely, when revenue is decreasing, our net investment in working capital typically decreases. To increase our market share and better serve our clients, we may further expand our operations through investments or acquisitions. We expect that such expansion would require an initial investment in working capital, personnel, facilities, and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, available liquidity, including capacity on our debt arrangements, or the issuance of securities. In September 2021, considering our strong free cash flow, low leverage and adequate liquidity to support capital return to stockholders while maintaining flexibility to pursue acquisitions, the Company’s board of directors authorized a share repurchase program. Under the share repurchase program, the board of directors authorized the Company to purchase up to $500 million of our common stock from time to time as market and business conditions warrant, including through open market purchases or Rule 10b5-1 trading plans. The share repurchase program has no termination date and may be suspended or discontinued at any time. During the three months ended February 28, 2023, we purchased 71,340 shares of our common stock under the share repurchase program for approximately $10.0 million in the aggregate. During the three months ended February 28, 2022, we did not purchase any shares of our common stock under the share repurchase program. At February 28, 2023, approximately $344.1 million remained available for share repurchases under the existing authorization from the Company’s board of directors. During March 2023, we repurchased 39,084 shares of our common stock for an aggregate purchase price of $4.9 million. During fiscal years 2023 and 2022, 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 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 September 28, 2022 October 28, 2022 $0.275 November 8, 2022 January 19, 2023 January 30, 2023 $0.275 February 10, 2023 On March 29, 2023, we announced a cash dividend of $0.275 per share to stockholders of record as of April 28, 2023, payable on May 9, 2023. We expect that future cash dividends will be paid on a quarterly basis. However, any decision to pay future cash dividends will be subject to our board of directors’ approval, and will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt agreements, industry practice, legal requirements, regulatory constraints, and other factors that our board of directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will continue to pay a dividend in the future. Debt Arrangements Credit Facility On December 27, 2021, in connection with the closing of the acquisition of PK, we entered into an amended 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 million (the “Term Loan”), (ii) increase the commitments under our revolving credit facility (the “Revolver”) to $1,000 million, (iii) extend the maturity of the Credit Facility from November 30, 2025 to December 27, 2026, (iv) 38 replace LIBOR with SOFR 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. 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 our 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 our 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 our consolidated leverage ratio. Beginning August 31, 2022, the outstanding principal of the Term Loan became payable in quarterly installments of $26.25 million, with the unpaid balance due in full on the maturity date. During the three months ended February 28, 2022, we paid $25.0 million of voluntary principal repayments, without penalty, on the Term Loan. Based on our required and voluntary principal prepayments made to date, the next quarterly installment of $26.25 million is due in November of 2024. We may request, subject to obtaining commitments from any participating lenders and certain other conditions, incremental commitments to increase the amount of the Revolver or the Term Loan available under the Credit Facility in an aggregate principal amount of up to $450 million, plus an additional amount, so long as after giving effect to the incurrence of such additional amount, our pro forma first lien leverage ratio (as defined in the Credit Facility) would not exceed 3.00 to 1.00. Obligations under the Credit Facility are secured by substantially all of the assets of Concentrix Corporation 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 Corporation and its subsidiaries to take certain actions, including incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or redemption of capital stock, making certain investments, entering into certain transactions with affiliates or changing the nature of our business. In addition, the Credit Facility contains financial covenants that require us to maintain at the end of each fiscal quarter, (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. We had no outstanding borrowings on the Revolver as of February 28, 2023 or November 30, 2022. Securitization Facility On July 6, 2022, we entered into an amendment to our Securitization Facility, which was initially entered into on October 30, 2020, to (i) increase the commitment of the lenders to provide available borrowings from up to $350 million to up to $500 million, (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 U.S. based subsidiaries (the “Originators”) sell or otherwise transfer all of their accounts receivable to a special purpose bankruptcy-remote subsidiary of Concentrix that grants a security interest in the receivables to the lenders in exchange for available borrowings of up to $500 million. Borrowing availability under the Securitization Facility may be limited by our accounts receivable balances, changes in the credit ratings of our clients comprising the receivables, client concentration levels in the receivables, and certain characteristics of the accounts receivable being transferred (including factors tracking performance of the accounts receivable over time). 39 The Securitization Facility contains various affirmative and negative covenants, including a consolidated leverage ratio covenant that is consistent with the Credit Facility and customary events of default, including payment defaults, defaults under certain other indebtedness, a change in control of Concentrix, and certain events negatively affecting the overall credit quality of the transferred accounts receivable. As of February 28, 2023 and November 30, 2022, we were in compliance with the debt covenants related to our debt arrangements. Debt Commitment Letter In connection with the pending combination with Webhelp, we entered into a commitment letter that includes a commitment for a 364-day bridge loan facility in an aggregate principal amount of $5.29 billion, consisting of three tranches: (i) a $2.44 billion tranche of term bridge loans, (ii) a $1.85 billion tranche of term bridge loans and (iii) a $1.0 billion tranche of revolving commitments, each subject to the satisfaction of certain customary closing conditions including the consummation of the combination with Webhelp. The bridge facility is available to (i) pay for a portion of the cash purchase price, (ii) directly or indirectly repay certain indebtedness of Webhelp Parent and its subsidiaries and certain indebtedness of the Company and its subsidiaries, and (iii) to pay fees, costs and expenses related to the transaction, the bridge facility and transactions being entered into or otherwise contemplated in connection therewith. Additionally, the $1.0 billion tranche of revolving commitments will be available after the consummation of the combination for working capital and other general corporate purposes. If we utilize the bridge facility, amounts drawn thereunder will bear interest at an annual rate equal to adjusted term SOFR plus a margin which may initially range from 1.125% to 2.000%, depending on our debt rating or leverage ratio, as applicable, as determined in accordance with the commitment letter, which margin will be increased by 0.25% on each of the 90th, 180th and 270th day after the closing of the bridge facility. We will pay commitment fees on the undrawn amount of this commitment ranging from 0.125% to 0.275% if based upon our debt rating or 0.225% to 0.300% if based upon our leverage ratio, as applicable, determined in accordance with the commitment letter. Cash Flows – Three Months Ended February 28, 2023 and 2022 The following summarizes our cash flows for the three months ended February 28, 2023 and 2022, as reported in our consolidated statement of cash flows in the accompanying consolidated financial statements. Three Months Ended February 28, 2023 February 28, 2022 ($ in thousands) Net cash provided by operating activities $ 103,893 $ 45,015 Net cash used in investing activities (39,597) (1,610,823) Net cash provided by (used in) financing activities (34,526) 1,527,353 Effect of exchange rate changes on cash, cash equivalents and restricted cash 2,797 (1,395) Net increase (decrease) in cash, cash equivalents and restricted cash $ 32,567 $ (39,850) Cash, cash equivalents and restricted cash at beginning of year 157,463 183,010 Cash, cash equivalents and restricted cash at the end of the period $ 190,030 $ 143,160 Operating Activities Net cash provided by operating activities was $103.9 million for the three months ended February 28, 2023, compared to $45.0 million for the three months ended February 28, 2022. The increase in net cash provided by operating activities over the prior year period was primarily due to favorable changes in working capital partially offset by a decrease in net income over the prior year period. 40 Investing Activities Net cash used in investing activities for the three months ended February 28, 2023 was $39.6 million, compared to $1,610.8 million for the three months ended February 28, 2022. The decrease in net cash used in investing activities over the prior year period primarily related to the aggregate cash of $1,564.4 million paid in connection with our acquisition of PK in the prior year period. Financing Activities Net cash used in financing activities for the three months ended February 28, 2023 was $34.5 million, consisting primarily of principal payments of $25.0 million made on the Term Loan, share repurchases of $10.0 million and dividends of $14.3 million, partially offset by net proceeds of $20.5 million from borrowings under the Securitization Facility. Net cash provided by financing activities for the three months ended February 28, 2022 was $1,527.4 million, consisting primarily of net proceeds from the refinancing of the Term Loan of $1,400.0 million and net proceeds from the Securitization Facility of $149.0 million, partially offset by cash paid for debt issuance costs of $8.9 million and dividends of $13.1 million. We believe our current cash balances and credit availability are enough to support our operating activities for at least the next twelve months. Free Cash Flow (a non-GAAP measure) Three Months Ended February 28, 2023 February 28, 2022 ($ in thousands) Net cash provided by operating activities $ 103,893 $ 45,015 Purchases of property and equipment (39,597) (45,393) Free cash flow (a non-GAAP measure) $ 64,296 $ (378) Our free cash flow was $64.3 million for the three months ended February 28, 2023 compared to a use of cash of $0.4 million for the three months ended February 28, 2022. The increase in free cash flow for the three months ended February 28, 2023 compared to the prior year period was due to the increase in cash provided by operating activities and a decrease in capital expenditures. Capital Resources As of February 28, 2023, we had total liquidity of $1,301.4 million, which includes undrawn Revolver capacity of $1,000.0 million under our Credit Facility, undrawn capacity of $123.0 million under our Securitization Facility and cash and cash equivalents. Our cash and cash equivalents totaled $178.4 million and $145.4 million as of February 28, 2023 and November 30, 2022, respectively. Of our total cash and cash equivalents, 97% were held by our non-U.S. legal entities as of both February 28, 2023 and November 30, 2022. The cash and cash equivalents held by our non-U.S. legal entities are no longer subject to U.S. federal tax on repatriation into the United States; repatriation of some non-U.S. balances is restricted by local laws. Historically, we have fully utilized and reinvested all non-U.S. cash to fund our international operations and expansions; however, the Company has recorded deferred tax liabilities related to non-U.S. withholding taxes on the earnings of certain previously acquired non-U.S. entities that are likely to be repatriated in the future. If in the future our intentions change, and we repatriate the cash back to the United States, we will report in our consolidated financial statements the impact of the state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements. We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations, and our sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months. We also believe that our longer-term working capital, planned capital expenditures and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financing activities. 41