Concentrix Corp 10-Q

ITEM 1A. RISK FACTORS You should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations and financial condition set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended November 30, 2022. Except as set forth below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022. Risks Related to the Proposed Combination with Webhelp Concentrix’ stockholders will have reduced ownership and voting interest in and will exercise less influence over management of the combined company. Concentrix’ stockholders currently have the right to vote in the election of the Board and on other matters affecting Concentrix. Upon consummation of the Webhelp combination, each stockholder of Concentrix will become a stockholder of the combined company with a percentage ownership of the combined company that is smaller than such stockholder’s percentage ownership of Concentrix immediately prior to the Webhelp combination. Based on the number of shares of Concentrix common stock that were outstanding as of May 31, 2023, Concentrix estimates that Concentrix’ stockholders as of immediately prior to the completion of the Webhelp combination will hold, in the aggregate, approximately 78% of the issued and outstanding shares of common stock of the combined company immediately following the completion of the Webhelp combination, assuming no issuance of the additional 750,000 earnout shares of Concentrix common stock (the “Earnout Shares”), and approximately 77% of the issued and outstanding shares of common stock of the combined company immediately following the completion of the Webhelp combination assuming the issuance of all of the Earnout Shares. Sellers as of immediately prior to the completion of the Webhelp combination will hold, in the aggregate, approximately 22% of the issued and outstanding shares of common stock of the combined company immediately following the completion of the Webhelp combination, assuming no issuance of the Earnout Shares, and approximately 23% of the issued and outstanding shares of common stock of the combined company immediately following the completion of the Webhelp combination assuming the issuance of all of the Earnout Shares. Accordingly, Concentrix’ stockholders will have less influence on the management and policies of the combined company than they now have on the management and policies of Concentrix. Obtaining required approvals and satisfying closing conditions may prevent or delay completion of the Webhelp combination. The Webhelp combination is subject to a number of conditions to closing as specified in the Share Purchase and Contribution Agreement, including, (i) the completion of the required works councils consultations, which was completed in late April 2023, (ii) the approval by Concentrix’ stockholders of the issuance of Concentrix common stock in connection with the transaction, (iii) the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), which was completed on May 15, 2023, and the filing, consent, clearance, authorization or approval pursuant to other merger control and regulatory laws, (iv) no law, order, injunction or decree will be in effect that prevents, makes illegal or prohibits the Webhelp combination, and (v) the Concentrix common stock to be issued in the Webhelp combination will have been authorized for listing on the Nasdaq Stock Market. No assurance can be given that the required stockholder consents 47 and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the consents and approvals. Any delay in completing the Webhelp combination could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that Concentrix expects to achieve if the Webhelp combination is successfully completed within its expected time frame. Completion of the Webhelp combination requires certain governmental authorizations, and if such authorizations are not granted, the Webhelp combination cannot be completed. Completion of the Webhelp combination is conditioned upon the expiration or early termination of the waiting period relating to the Webhelp combination under the HSR Act, which was completed on May 15, 2023, and other similar antitrust laws in certain other countries as well as certain other applicable laws or regulations and the governmental authorizations required to complete the Webhelp combination having been obtained and being in full force and effect. Although Concentrix and Webhelp Parent have agreed in the Share Purchase and Contribution Agreement to use their reasonable best efforts, subject to certain limitations, to make certain governmental filings or obtain the required governmental authorizations, as the case may be, there can be no assurance that the relevant waiting periods will expire or authorizations will be obtained, and if such authorizations are not obtained, the Webhelp combination will not be completed. The Share Purchase and Contribution Agreement may be terminated in accordance with its terms. Either Concentrix or Webhelp Parent may terminate the Share Purchase and Contribution Agreement under certain circumstances, including, among other reasons, if the Webhelp combination is not completed by March 29, 2024 (which date may be extended to June 29, 2024 under circumstances if certain regulatory approvals have not been obtained by March 29, 2024, then again to September 29, 2024 under such circumstances if certain regulatory approvals have not been obtained by June 29, 2024, then again to December 29, 2024 if such regulatory approvals have not been obtained by September 29, 2024). In addition, if the Share Purchase and Contribution Agreement is terminated under certain circumstances specified in the Share Purchase and Contribution Agreement, Concentrix may be required to pay Webhelp Parent a termination fee of up to $110.0 million, including certain circumstances in which the board of directors of Concentrix (the “Board”) effects a change of recommendation or under certain circumstances where Concentrix enters into an agreement with respect to (or consummates) a superior proposal following the termination of the Share Purchase and Contribution Agreement. Concentrix and Webhelp’s business relationships may be subject to disruption due to uncertainty associated with the Transaction. Parties with which Concentrix or Webhelp do business may experience uncertainty associated with the Webhelp combination, including with respect to current or future business relationships with us, Webhelp or the combined business. Concentrix and Webhelp’s business relationships may be subject to disruption as clients, vendors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Concentrix, Webhelp or the combined business. These disruptions could have a material and adverse effect on the businesses, financial condition, results of operations or prospects of the combined business, including a material and adverse effect on our ability to realize the anticipated benefits of the Webhelp combination. The risk and adverse effect of such disruptions could be exacerbated by a delay in completion of the Webhelp combination or termination of the Share Purchase and Contribution Agreement. Failure to complete the Webhelp combination could negatively impact the stock price and the future business and financial results of Concentrix. If the Webhelp combination is not completed for any reason, including Concentrix’ stockholders’ failing to approve the issuance of the Concentrix common stock in connection with the Webhelp combination, the ongoing business of Concentrix may be adversely affected and, without realizing any of the benefits of having completed the Webhelp combination, Concentrix would be subject to a number of risks, including the following: 48 • We may experience negative reactions from the financial markets, including negative impacts on our stock price, and from our clients, staff and vendors; • We may be required to pay Webhelp Parent a fee of up to approximately $110.0 million if the Webhelp combination is not consummated; • We will be required to pay certain transaction expenses and other costs relating to the Webhelp combination, whether or not the Webhelp combination is completed; • The Share Purchase and Contribution Agreement places certain restrictions on the conduct of our business prior to completion of the Webhelp combination; and • Matters relating to the Webhelp combination (including integration planning) will require substantial commitments of time and resources by our management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company. There can be no assurance that the risks described above will not materialize. If any of those risks materialize, they may materially and adversely affect Concentrix’ businesses, financial condition, financial results and stock price. Concentrix and Webhelp may have difficulty attracting, motivating and retaining executives and other key staff in light of the Webhelp combination. Uncertainty about the effect of the Webhelp combination on Concentrix and Webhelp staff, may have an adverse effect on each of Concentrix and Webhelp separately and consequently the combined business. This uncertainty may impair Concentrix’ and Webhelp’s ability to attract, retain and motivate key personnel until the Webhelp combination is completed. Staff retention may be particularly challenging during the pendency of the Webhelp combination, as staff of Concentrix and Webhelp may experience uncertainty about their future roles with the combined business. Furthermore, if key staff of Concentrix or Webhelp depart or are at risk of departing, including because of issues relating to the uncertainty and difficulty of integration, financial security or a desire not to become staff members of the combined business, we may have to incur significant costs in retaining such individuals or in identifying, hiring and retaining replacements for departing staff, and our ability to realize the anticipated benefits of the Webhelp combination may be adversely affected. Stockholder lawsuits relating to the Webhelp combination may be filed against us, which could result in substantial costs and may delay or prevent the Webhelp combination from being completed. Stockholder lawsuits are often brought against companies that have entered into transactions of this nature. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Webhelp combination, then that injunction may delay or prevent the Webhelp combination from being completed. The proposed Webhelp combination and the incurrence of debt to fund the Webhelp combination may impact our financial position and subject us to additional financial and operating restrictions. As of May 31, 2023, we had approximately $2.1 billion of total debt. We expect to incur a substantial amount of additional debt in connection with the proposed Webhelp combination. We expect that upon completion of the Webhelp combination and the related financing transactions, our total debt will increase to approximately $5.2 billion. In addition, we expect to have capacity to incur significant additional debt in excess of $5.2 billion to fund our working capital needs and for other corporate purposes. If we are unable to raise financing on acceptable terms, we may need to rely on the Bridge Facility, which would result in higher borrowing costs and will have a shorter maturity than those anticipated from long-term debt financing alternatives. In addition, if we are unable to obtain 49 long-term debt financing on the terms we anticipate, then such alternative long-term debt financing may subject us to higher costs of borrowing, and additional financial and operating covenants, which may limit our flexibility in responding to our business needs. We expect to obtain long-term unsecured debt financing in lieu of all or a portion of the commitments provided under the Acquisition Tranche of the Bridge Facility. However, there can be no assurance we will be able to obtain such permanent debt financing or that it will be on acceptable terms. In addition, we anticipate that as a result of the debt we expect to incur to finance the Webhelp combination, our credit and the long-term debt financing will be rated by credit rating agencies. Any potential future negative change in our credit ratings may: make it more expensive for us to raise long-term permanent financing on terms that are acceptable to us or to raise additional capital on terms that are acceptable to us, if at all; negatively impact the price of our common stock; increase our overall cost of capital; and have other negative implications on our business, many of which are beyond our control. We will incur significant transaction and integration-related costs in connection with the Webhelp combination. We will incur significant transaction costs related to the Webhelp combination and significant integration-related fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and staff-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Webhelp combination and the integration of Webhelp into our business. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all. If our due diligence investigation of Webhelp was inadequate or if unexpected risks related to Webhelp’s business materialize, it could have a material adverse effect on our stockholders’ investment. Even though we conducted a due diligence investigation of Webhelp, we cannot be sure that our diligence surfaced all material issues that may be present inside Webhelp or its business, or that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Webhelp and its business and outside of its control will not arise later. If any such material issues arise, they may materially and adversely impact the ongoing business of the combined company and our stockholders’ investment. There is no guarantee that the value of the aggregate consideration being issued in the Webhelp combination will align with the value of the shares of Webhelp Parent being acquired at closing. The outstanding capital stock of Webhelp Parent is privately held and is not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of Webhelp Parent and the Shares that we will be acquiring in the Webhelp combination. Additionally, the aggregate consideration for the shares of Webhelp Parent is set forth in the Share Purchase and Contribution Agreement as a result of negotiations between the parties and includes, in addition to the cash consideration and the note to be issued to the Sellers, a fixed number of shares of Concentrix common stock (both the shares of Concentrix common stock to be issued at closing and the Earnout Shares). Because these share amounts are fixed, they will not adjust to factor in any change in the value of Concentrix common stock between signing and closing. As a result, there is no guarantee that the value of the aggregate consideration being issued in the Webhelp combination will align with the actual value of the shares of Webhelp Parent being acquired by us at closing. The amount of cash in U.S. dollars necessary to complete the Webhelp combination and repay or refinance certain existing indebtedness of Webhelp parent may be affected by fluctuations in the exchange rate between U.S. dollars and euros. Volatility in the euro to U.S. dollar exchange rate may increase the U.S. dollar equivalent of the cash necessary to complete the Webhelp combination and repay or refinance certain existing indebtedness of Webhelp parent that is denominated in euros. Although we have entered into a foreign currency hedge with respect to a significant portion of these costs, the hedge is not intended to offset the entire effect of movements in foreign currency exchange rates. 50 As a result, there is no guarantee that the amount of U.S. dollars necessary to complete the Webhelp combination will not differ materially from the anticipated amount. The opinion of J.P. Morgan Securities LLC rendered to the Board does not reflect changes in circumstances, developments or events that may have occurred or may occur after the date of such opinion. J.P. Morgan Securities LLC (“J.P. Morgan”), Concentrix’ financial advisor in connection with the Webhelp combination, delivered to the Board the opinion (the “Opinion”), to the effect that, as of such date and based upon and subject to the factors and assumptions set forth in the Opinion, the consideration to be paid by Concentrix and Purchaser in the Webhelp combination was fair, from a financial point of view, to Concentrix. The Board has not obtained an updated opinion from J.P. Morgan since the date of the Opinion and does not expect to receive an updated, revised or reaffirmed opinion prior to the completion of the Webhelp combination. The Opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of the Opinion. The Opinion noted that subsequent developments may affect the Opinion and that J.P. Morgan does not have any obligation to update, revise, or reaffirm the Opinion. Changes in the operations and prospects of Concentrix or Webhelp Parent, general market and economic conditions and other factors that may be beyond the control of Concentrix or Webhelp Parent, and on which the Opinion was based, may significantly alter the value of Concentrix or Webhelp Parent or the price of the shares of Concentrix common stock or of the shares of Webhelp Parent by the time the Webhelp combination is completed. The Opinion does not speak as of the time the Webhelp combination will be completed or as of any date other than the date of the Opinion. Because J.P. Morgan will not be updating the Opinion, such Opinion will not address the fairness of the consideration to be paid by Concentrix, from a financial point of view, at the time the Webhelp combination is completed. Risks Related to the Combined Company After completion of the Webhelp combination, we may fail to realize the anticipated benefits of the Webhelp combination, which could adversely affect the value of our common stock. The success of the Webhelp combination will depend, in part, on our ability to realize the anticipated benefits from combining the businesses of Concentrix and Webhelp. Our ability to realize these anticipated benefits and cost savings is subject to certain risks including: • our ability to successfully combine the businesses of Concentrix and Webhelp; • whether the combined businesses will perform as expected; • the incurrence of indebtedness to finance the acquisition and the need to dedicate a greater amount of cash flow from operations to make payments on our indebtedness; and • the assumption of known and unknown liabilities of Webhelp. If we are not able to successfully combine the businesses of Concentrix and Webhelp within the anticipated time frame, or at all, the anticipated cost savings and other benefits of the Webhelp combination may not be realized fully or at all or may take longer to realize than expected, the combined businesses may not perform as expected, and the value of our common stock may be adversely affected. Concentrix and Webhelp have operated and, until completion of the Webhelp combination, will continue to operate, independently, and there can be no assurances that our businesses can be integrated successfully. It is possible that the integration process could result in the loss of key Concentrix or Webhelp staff, the disruption of either or both company’s ongoing businesses, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, issues that must be addressed to realize 51 the anticipated benefits of the Webhelp combination so the combined business performs as expected include, among other things: • identifying and adopting the best practices of the two organizations to position the combined business for future growth; • integrating the companies’ technologies, systems and services; • harmonizing the companies’ operating practices, reporting structure, staff development and compensation programs, internal controls and other policies, procedures and processes, including compliance by the acquired operations with generally accepted accounting principles in the United States and the documentation and testing of internal control procedures under Section 404 of the Sarbanes-Oxley Act; • rebranding operations and addressing possible differences in business backgrounds, corporate cultures and management philosophies; • consolidating the companies’ corporate, administrative and information technology infrastructure; • maintaining existing agreements with clients and avoiding delays in entering into new agreements with prospective clients; and • identifying and eliminating redundant assets and expenses and consolidating locations of Concentrix and Webhelp that are currently in close proximity to each other. In addition, at times, the attention of certain members of either or both companies’ management and resources may be focused on completion of the Webhelp combination and the integration of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt each company’s ongoing business and the business of the combined company. The market price for shares of common stock of the combined company following the completion of the Webhelp combination may be affected by factors different from, or in addition to, those that historically have affected or currently affect the market prices of shares of Concentrix common stock. Upon consummation of the Webhelp combination, Concentrix’ stockholders and the Sellers will both hold shares of common stock in the combined company. The results of operations of the combined company will be affected by some factors that are different from those currently or historically affecting the results of operations of Concentrix and those currently or historically affecting the results of operations of Webhelp. The results of operations of the combined company may also be affected by factors different from those that currently affect or have historically affected either Concentrix or Webhelp. Certain Sellers will be able to exercise influence over the composition of the Board, matters subject to stockholder approval and/or Concentrix’ operations. Upon the completion of the Webhelp combination, the number of shares of Concentrix common stock issuable as a portion of the consideration will be 14,861,885 shares at closing, and of those shares, Groupe Bruxelles Lambert (“GBL”) and Olivier Duha will be issued 8,772,284 shares and 1,535,656 shares, respectively, which represent approximately 13% and 2% of the outstanding shares of Concentrix common stock, based on the number of outstanding shares of Concentrix common stock as of May 31, 2023. Assuming the issuance of all of the Earnout Shares, GBL and Olivier Duha would be issued an additional 442,691 shares and 77,479 shares, respectively, resulting in aggregate holdings by GBL and Olivier Duha of approximately 14% and 2% of the outstanding shares of Concentrix common stock, based on the number of outstanding shares as of May 31, 2023. In connection with the proposed Webhelp combination, on March 29, 2023, Concentrix entered into an Investor Rights Agreement with certain stockholders of Webhelp Parent. The Investor Rights Agreement, among other 52 things, provides that following the closing of the Webhelp combination, GBL shall have the right to nominate a certain number of directors, up to a maximum of two (2), depending on the percentage of the outstanding shares of Concentrix common stock held by GBL and/or certain of its affiliates and Olivier Duha, as applicable. The Investor Rights Agreement becomes effective on, and subject to, the closing of the Webhelp combination. As a result of the Concentrix common stock that will be held by affiliates of GBL and Olivier Duha and the Investor Rights Agreement described above, GBL and, to a lesser extent, Olivier Duha may be able to influence (subject to organizational documents and Delaware law) the composition of the Board and thus, potentially, the outcome of corporate actions requiring stockholder approval, such as mergers, business combinations and dispositions of assets, among other corporate transactions. This concentration of investment and voting power, in addition to our current concentration of investment and voting power among certain large stockholders, could discourage others from initiating a potential merger, takeover or other change of control transaction that may otherwise be beneficial to Concentrix and its stockholders, which could adversely affect the market price of Concentrix common stock.