Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
CONCENTRIX CORPORATION
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except par value)
August 31, 2023 November 30, 2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,112,792 $ 145,382
Accounts receivable, net 1,379,437 1,390,474
Other current assets 209,736 218,476
Total current assets 3,701,965 1,754,332
Property and equipment, net 406,297 403,829
Goodwill 2,897,048 2,904,402
Intangible assets, net 873,091 985,572
Deferred tax assets 48,109 48,541
Other assets 523,032 573,092
Total assets $ 8,449,542 $ 6,669,768
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 137,524 $ 161,190
Current portion of long-term debt — —
Accrued compensation and benefits 470,351 506,966
Other accrued liabilities 398,314 395,304
Income taxes payable 39,383 68,663
Total current liabilities 1,045,572 1,132,123
Long-term debt, net 3,973,467 2,224,288
Other long-term liabilities 468,161 511,995
Deferred tax liabilities 58,820 105,458
Total liabilities 5,546,020 3,973,864
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, 2023 and November 30, 2022, respectively
— —
Common stock, $ 0.0001 par value, 250,000 shares authorized; 52,685 and 52,367 shares issued as of August 31, 2023 and November 30, 2022, respectively, and 50,915 and 51,096 shares outstanding as of August 31, 2023 and November 30, 2022, respectively
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Additional paid-in capital 2,471,939 2,428,313
Treasury stock, 1,770 and 1,271 shares as of August 31, 2023 and November 30, 2022, respectively
( 241,852 ) ( 190,779 )
Retained earnings 975,591 774,114
Accumulated other comprehensive loss ( 302,161 ) ( 315,749 )
Total stockholders’ equity 2,903,522 2,695,904
Total liabilities and stockholders’ equity $ 8,449,542 $ 6,669,768
The accompanying notes are an integral part of these consolidated financial statements.
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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, 2023 August 31, 2022 August 31, 2023 August 31, 2022
Revenue $ 1,632,834 $ 1,579,602 $ 4,883,944 $ 4,683,755
Cost of revenue 1,039,142 1,012,754 3,128,866 3,019,857
Gross profit 593,692 566,848 1,755,078 1,663,898
Selling, general and administrative expenses 431,425 409,303 1,274,198 1,201,696
Operating income 162,267 157,545 480,880 462,202
Interest expense and finance charges, net 49,293 20,272 130,496 42,015
Other expense (income), net 6,169 ( 12,086 ) 19,266 ( 22,247 )
Income before income taxes 106,805 149,359 331,118 442,434
Provision for income taxes 29,170 42,235 86,763 111,738
Net income before non-controlling interest 77,635 107,124 244,355 330,696
Less: Net income attributable to non-controlling interest — 434 — 591
Net income attributable to Concentrix Corporation $ 77,635 $ 106,690 $ 244,355 $ 330,105
Earnings per common share:
Basic $ 1.50 $ 2.05 $ 4.70 $ 6.32
Diluted $ 1.49 $ 2.04 $ 4.67 $ 6.28
Weighted-average common shares outstanding:
Basic 51,059 51,193 51,130 51,461
Diluted 51,209 51,549 51,384 51,834
The accompanying notes are an integral part of these consolidated financial statements.
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CONCENTRIX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(currency in thousands)
(unaudited)
Three Months Ended Nine Months Ended
August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022
Net income before non-controlling interest
$ 77,635 $ 107,124 $ 244,355 $ 330,696
Other comprehensive income (loss):
Unrealized gains (losses) of defined benefit plans, net of taxes of $( 539 ) and $( 719 ) for the three and nine months ended August 31, 2023, respectively, and $( 51 ) for the three and nine months ended August 31, 2022, respectively
( 1,739 ) 951 ( 1,240 ) 1,717
Unrealized gains (losses) on cash flow hedges during the period, net of taxes of $( 422 ) and $( 1,219 ) for the three and nine months ended August 31, 2023, respectively, and $ 10,392 and $ 15,779 for the three and nine months ended August 31, 2022, respectively
1,266 ( 30,299 ) 3,659 ( 46,003 )
Reclassification of net losses on cash flow hedges to net income, net of taxes of $( 821 ) and $( 3,769 ) for the three and nine months ended August 31, 2023, respectively, and $( 3,344 ) and $( 4,190 ) for the three and nine months ended August 31, 2022, respectively
2,458 9,752 11,309 12,217
Total change in unrealized gains (losses) on cash flow hedges, net of taxes
3,724 ( 20,547 ) 14,968 ( 33,786 )
Foreign currency translation, net of taxes of $ 0 for the three and nine months ended August 31, 2023 and 2022, respectively
( 1,137 ) ( 113,863 ) ( 140 ) ( 182,697 )
Other comprehensive income (loss)
848 ( 133,459 ) 13,588 ( 214,766 )
Comprehensive income (loss)
78,483 ( 26,335 ) 257,943 115,930
Less: Comprehensive income attributable to non-controlling interest
— 434 — 591
Comprehensive income (loss) attributable to Concentrix Corporation
$ 78,483 $ ( 26,769 ) $ 257,943 $ 115,339
The accompanying notes are an integral part of these consolidated financial statements.
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CONCENTRIX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(currency and share amounts in thousands)
(unaudited)
Three and Nine Months Ended August 31, 2023
Common stock Treasury stock
Shares Amount Additional paid-in capital Shares Amount Retained earnings Accumulated other comprehensive income (loss) Total stockholders’ equity
Balances, May 31, 2023 52,619 $ 5 $ 2,459,234 1,441 $ ( 214,172 ) $ 912,204 $ ( 303,009 ) $ 2,854,262
Other comprehensive income — — — — — — 848 848
Share-based compensation activity 66 — 12,705 — — — — 12,705
Repurchase of common stock for tax withholdings on equity awards — — — 9 ( 680 ) — — ( 680 )
Repurchase of common stock — — — 320 ( 27,000 ) — — ( 27,000 )
Dividends — — — — — ( 14,248 ) — ( 14,248 )
Net income — — — — — 77,635 — 77,635
Balances, August 31, 2023 52,685 $ 5 $ 2,471,939 1,770 $ ( 241,852 ) $ 975,591 $ ( 302,161 ) $ 2,903,522
Balances, November 30, 2022 52,367 $ 5 $ 2,428,313 1,271 $ ( 190,779 ) $ 774,114 $ ( 315,749 ) $ 2,695,904
Other comprehensive income — — — — — — 13,588 13,588
Share-based compensation activity 318 — 43,626 — — — — 43,626
Repurchase of common stock for tax withholdings on equity awards — — — 68 ( 9,132 ) — — ( 9,132 )
Repurchase of common stock — — — 431 ( 41,941 ) — — ( 41,941 )
Dividends — — — — — ( 42,878 ) — ( 42,878 )
Net income — — — — — 244,355 — 244,355
Balances, August 31, 2023 52,685 $ 5 $ 2,471,939 1,770 $ ( 241,852 ) $ 975,591 $ ( 302,161 ) $ 2,903,522
The accompanying notes are an integral part of these consolidated financial statements.
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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 ( 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 ( 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.
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CONCENTRIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
Nine Months Ended
August 31, 2023 August 31, 2022
Cash flows from operating activities:
Net income before non-controlling interest $ 244,355 $ 330,696
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 114,632 110,108
Amortization 118,196 121,025
Non-cash share-based compensation expense 38,383 37,404
Provision for doubtful accounts 7,687 3,389
Deferred income taxes ( 43,683 ) ( 4,374 )
Unrealized foreign exchange loss — 914
Unrealized loss on call options 14,493 —
Pension and other post-retirement benefit costs 8,060 7,978
Pension and other post-retirement plan contributions ( 5,615 ) ( 5,308 )
Other 667 325
Changes in operating assets and liabilities:
Accounts receivable, net ( 5,138 ) ( 23,546 )
Accounts payable ( 22,073 ) ( 23,463 )
Other operating assets and liabilities ( 21,220 ) ( 190,107 )
Net cash provided by operating activities 448,744 365,041
Cash flows from investing activities:
Purchases of property and equipment ( 115,717 ) ( 97,276 )
Acquisition of business, net of cash and restricted cash acquired — ( 1,705,447 )
Other investments — ( 1,000 )
Net cash used in investing activities ( 115,717 ) ( 1,803,723 )
Cash flows from financing activities:
Proceeds from the Prior Credit Facility - Term Loan — 2,100,000
Repayments of the Prior Credit Facility - Term Loan ( 25,000 ) ( 125,000 )
Repayments of the original credit facility - original term loan — ( 700,000 )
Proceeds from the Securitization Facility 1,092,500 1,451,000
Repayments of the Securitization Facility ( 1,449,000 ) ( 1,116,000 )
Proceeds from issuance of Senior Notes 2,136,987 —
Cash paid for debt issuance costs ( 30,519 ) ( 9,331 )
Purchase of non-controlling interest — ( 2,500 )
Proceeds from exercise of stock options 5,243 6,881
Repurchase of common stock for tax withholdings on equity awards ( 9,132 ) ( 3,098 )
Repurchase of common stock ( 41,941 ) ( 106,836 )
Dividends paid ( 42,878 ) ( 39,134 )
Net cash provided by financing activities 1,636,260 1,455,982
Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 2,715 ) ( 21,809 )
Net increase (decrease) in cash, cash equivalents and restricted cash 1,966,572 ( 4,509 )
Cash, cash equivalents and restricted cash at beginning of year 157,463 183,010
Cash, cash equivalents and restricted cash at end of period $ 2,124,035 $ 178,501
Supplemental disclosure of non-cash investing activities:
Accrued costs for property and equipment purchases $ 18,814 $ 6,348
The accompanying notes are an integral part of these consolidated financial statements.
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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, which operates under the trade name Concentrix + Webhelp (“Concentrix + Webhelp” 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, retail, travel and e-commerce, communications and media, banking, financial services and insurance, and healthcare.
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, 2022 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, 2022. 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, 2022. All intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain amounts in the consolidated financial statements related to the prior years have been reclassified to conform to the current year’s presentation.
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, 2022. Recently adopted accounting pronouncements are discussed below.
Concentration of credit risk
For the three and nine months ended August 31, 2023 and 2022, no client accounted for more than 10% of the Company’s consolidated revenue.
As of August 31, 2023, no client comprised more than 10% of the Company’s total accounts receivable balance. As of November 30, 2022, one client comprised 12.4 % of the Company’s total accounts receivable balance.
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Recently adopted accounting pronouncements
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued new guidance that simplified the accounting for income taxes. The guidance was 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.
No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the consolidated financial statements.
NOTE 3—ACQUISITIONS:
PK Acquisition
Background
On December 27, 2021, the Company completed its acquisition of PK, a leading CX design engineering company with more than 5,000 staff in four countries. PK creates pioneering experiences that accelerate digital outcomes for their clients’ customers, partners and staff. The acquisition of PK expanded the Company’s scale in the digital IT services market and supported the Company’s growth strategy of investing in digital transformation to 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 and restricted cash acquired, for the acquisition of PK was $ 1,573.3 million, which was funded by proceeds from the Company’s term loan under its prior senior secured credit facility (the “Prior Credit Facility”) and additional borrowings under its accounts receivable securitization facility (the “Securitization Facility”). See Note 8 — Borrowings for a further discussion of the Company’s term loan, senior credit facility and the Securitization Facility.
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The 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 and restricted cash acquired (6)
37,310
Total purchase price consideration $ 1,573,320
(1) Represents the cash consideration paid for the outstanding shares of PK 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 and restricted cash balance acquired at the acquisition.
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 assembled workforce, comprehensive service portfolio delivery capabilities and strategic benefits that are expected to be realized from the acquisition. None of the goodwill is deductible for income tax purposes.
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The following table summarizes the final 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 $ 30,798
Accounts receivable 85,367
Property and equipment 11,158
Operating lease right-of-use assets 12,288
Identifiable intangible assets 469,300
Goodwill 1,119,068
Other assets 26,449
Total assets acquired 1,754,428
Liabilities assumed and non-controlling interest:
Accounts payable and accrued liabilities 78,092
Operating lease liabilities 12,288
Deferred tax liabilities 51,418
Non-controlling interest 2,000
Total liabilities assumed and non-controlling interest 143,798
Total consideration transferred $ 1,610,630
The purchase price allocation includes $ 469,300 of acquired identifiable intangible assets, all of which have finite lives. The fair value of the identifiable intangible assets has been estimated by using the income approach through a discounted cash flow analysis of certain cash flow projections. The cash flow projections are based on forecasts used by the Company to price the PK acquisition, and the discount rates applied were benchmarked by referencing the implied rate of return of the Company’s pricing model and the weighted average cost of capital. The intangible assets are being amortized over their estimated useful lives on either a straight-line basis or an accelerated method that reflects the economic benefit of the asset. The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future forecasted cash flows of the Company following the acquisition of PK.
The amounts allocated to intangible assets are as follows:
Gross Carrying Amount Weighted-Average Useful Life Amortization Method
Customer relationships $ 398,600 15 years Accelerated
Technology 63,500 5 years Straight-line
Trade name 5,000 3 years Straight-line
Non-compete agreements 2,200 3 years Straight-line
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,
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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 December 1, 2020, 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 the Company believes 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 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 under the Prior 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 prior period nine months ended August 31, 2022 is as follows:
Nine Months Ended
August 31, 2022
Revenue $ 4,716,716
Net income 327,701
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 business-to-business (“B2B”) digital sales and customer success solutions that complemented Concentrix’ offerings in this area.
Purchase price consideration
The total purchase price consideration, net of cash acquired, for the acquisition of ServiceSource was $ 141.5 million, which was primarily funded by cash on the Company’s balance sheet, as well as borrowings under the Company’s Securitization Facility.
The 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 and restricted cash acquired (4)
25,652
Total purchase price consideration $ 141,507
(1) Represents the cash consideration paid for the outstanding shares of ServiceSource 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 and restricted cash balance acquired at the acquisition.
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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 deductible for income tax purposes.
The following table summarizes the final 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 8,112
Operating lease right-of-use assets 29,487
Identifiable intangible assets 40,200
Goodwill 34,910
Net deferred tax assets 32,701
Other assets 19,649
Total assets acquired 229,511
Liabilities assumed:
Accounts payable and accrued liabilities 32,865
Operating lease liabilities 29,487
Total liabilities assumed 62,352
Total consideration transferred $ 167,159
The purchase price allocation includes $ 40,200 of acquired identifiable intangible assets, all of which have finite lives. The 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. During the measurement period included in the three months ended August 31, 2023, measurement period adjustments were recorded to finalize net deferred tax assets at the acquired value as disclosed in the table above, resulting in a corresponding decrease to goodwill. The purchase price allocation is now final.
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The amounts allocated to intangible assets are as follows:
Gross Carrying Amount Weighted-Average Useful Life Amortization Method
Customer relationships $ 31,370 15 years Accelerated
Technology 5,640 5 years Straight-line
Trade name 3,190 3 years Straight-line
Total $ 40,200
Webhelp Combination
On September 25, 2023, the Company completed its acquisition (the “Webhelp Combination”) of all of the issued and outstanding capital stock (the “Shares”) of Marnix Lux SA, a public limited liability company (société anonyme) incorporated under the laws of the Grand Duchy of Luxembourg (“Webhelp Parent”) and the parent company of the Webhelp business (“Webhelp”), from the holders thereof (the “Sellers”). The Webhelp Combination was completed pursuant to the terms and conditions of the Share Purchase and Contribution Agreement, dated as of June 12, 2023, as amended by the First Amendment to the Share Purchase and Contribution Agreement, dated as of July 14, 2023 (the “SPA”) by and among Concentrix, OSYRIS S.à r.l., a private limited liability company (société à responsabilité limitée) incorporated under the laws of the Grand Duchy of Luxembourg and a direct wholly owned subsidiary of Concentrix Corporation (“Purchaser”), Webhelp Parent, the Sellers, and certain representatives of the Sellers.
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. Following the closing of the Webhelp Combination, the Company will operate under the trade name “Concentrix + Webhelp” while it finalizes its permanent name.
The aggregate consideration for the acquisition of the Shares was approximately $ 4 billion and consisted of the following:
• € 500,000 in cash, subject to adjustment as set forth in the SPA (the “Closing Cash Payment”);
• a promissory note issued by Concentrix Corporation in the aggregate principal amount of € 700,000 to certain Sellers, with a term of two years and bearing interest at a rate of 2 % per annum on the unpaid principal outstanding from time to time;
• 14,862 shares of common stock, par value $ 0.0001 per share, of Concentrix Corporation (the “Concentrix common stock”); and
• the repayment of approximately $ 1.6 billion of indebtedness, net of Webhelp cash on hand.
In addition, the Company granted Sellers the contingent right to earn an additional 750 shares of Concentrix common stock (the “Earnout Shares”) if certain conditions set forth in the SPA occur, including the share price of Concentrix common stock reaching $ 170.00 per share within seven years from the closing of the Webhelp Combination (the “Closing Date”) (based on daily volume weighted average prices measured over a specified period). Prior to the Closing Date, Concentrix and certain Sellers entered into stock restriction agreements (the “Stock Restriction Agreements”), pursuant to which such Sellers (the “Restricted Stock Participants”) agreed to contribute in kind to the Company, and the Company agreed to receive, certain of the Restricted Stock Participants’ Shares in exchange for the issuance of shares of Concentrix common stock with certain restrictions thereon (the “Restricted Shares”) in lieu of such Sellers’ right to a portion of the Earnout Shares. On the Closing Date, the Company issued approximately 80 Restricted Shares in exchange for certain of the Restricted Stock Participants’ Shares. The Restricted Shares are non-transferable and non-assignable and are not entitled to any dividends or distributions unless and until the restrictions lapse, as set forth in the Stock Restriction Agreements. The Restricted Shares will be automatically cancelled by the Company for no consideration in the event that the restrictions on the
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Restricted Shares do not lapse. The Restricted Stock Participants have waived any and all rights as a holder of Restricted Shares to vote on any matter submitted to the holders of Common Stock.
Immediately after the closing of the Webhelp Combination, there were approximately 66.6 million shares of Concentrix common stock outstanding, with Concentrix’ stockholders prior to the Wehbhelp Combination holding approximately 77.6 % of such outstanding shares, and the Sellers holding approximately 22.4 % of such shares.
Given the short period of time from the Closing Date to the filing of this Quarterly Report on Form 10-Q, the Company is in the process of compiling the initial accounting for the Webhelp Combination, including the determination of the fair values of tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income and non-income based taxes, residual goodwill and the amount of goodwill that will be deductible for tax purposes.
Acquisition-related and integration expenses
In connection with the acquisitions of PK and ServiceSource and the Webhelp Combination, the Company incurred $ 18,494 and $ 31,470 of acquisition-related and integration expenses for the three and nine months ended August 31, 2023, respectively, and $ 12,565 and $ 15,213 for the three and nine months ended August 31, 2022. These expenses primarily include legal and professional services, cash-settled awards, severance and retention payments and costs associated with lease terminations to integrate the businesses. These acquisition-related and integration expenses were recorded within selling, general and administrative expenses in the consolidated statement of operations.
NOTE 4— SHARE-BASED COMPENSATION:
The Company recognizes share-based compensation expense for all share-based awards made to employees and directors, including employee stock options, restricted stock awards, restricted stock units and performance-based restricted stock units based on estimated fair values.
In January 2023, the Company granted 53 restricted stock awards and restricted stock units and 52 performance-based restricted stock units under the Concentrix Stock Incentive Plan, which included annual awards to the Company’s senior executive team. The restricted stock awards and restricted stock units had a weighted average grant date fair value of $ 138.79 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, 2025. The performance-based restricted stock units had a grant date weighted average fair value of $ 136.19 per share.
The Company recorded share-based compensation expense in the consolidated statements of operations for the three and nine months ended August 31, 2023 and 2022 as follows:
Three Months Ended Nine Months Ended
August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022
Total share-based compensation $ 10,740 $ 9,862 $ 38,683 $ 37,678
Tax benefit recorded in the provision for income taxes ( 2,685 ) ( 2,505 ) ( 9,671 ) ( 9,569 )
Effect on net income $ 8,055 $ 7,357 $ 29,012 $ 28,109
Share-based compensation expense is included in selling, general and administrative expenses in the consolidated statements of operations.
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NOTE 5— BALANCE SHEET COMPONENTS:
Cash, cash equivalents and restricted cash:
The following table provides a reconciliation of cash, 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, 2023 November 30, 2022
Cash and cash equivalents $ 2,112,792 $ 145,382
Restricted cash included in other current assets 11,243 12,081
Cash, cash equivalents and restricted cash $ 2,124,035 $ 157,463
Restricted cash balances relate primarily to funds held for clients, restrictions placed on cash deposits by banks as collateral for the issuance of bank guarantees and the terms of a government grant, and letters of credit for leases.
As of August 31, 2023, the Company held approximately $ 1,889,000 of proceeds from the senior notes issued on August 2, 2023 (see Note 8 for further details) in money market funds that were classified as cash and cash equivalents on the balance sheet. As described in Note 3, the Company used the balance of these funds in connection with the completion of the Webhelp Combination.
Accounts receivable, net:
Accounts receivable, net is comprised of the following as of August 31, 2023 and November 30, 2022:
As of
August 31, 2023 November 30, 2022
Billed accounts receivable $ 795,096 $ 782,049
Unbilled accounts receivable 595,186 613,222
Less: Allowance for doubtful accounts ( 10,845 ) ( 4,797 )
Accounts receivable, net
$ 1,379,437 $ 1,390,474
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, 2023 August 31, 2022 August 31, 2023 August 31, 2022
Balance at beginning of period $ 8,774 $ 6,994 $ 4,797 $ 5,421
Net additions (reductions) 2,857 ( 1,033 ) 7,687 3,389
Write-offs and reclassifications ( 786 ) ( 825 ) ( 1,639 ) ( 3,674 )
Balance at end of period $ 10,845 $ 5,136 $ 10,845 $ 5,136
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Property and equipment, net:
The following table summarizes the carrying amounts and related accumulated depreciation for property and equipment as of August 31, 2023 and November 30, 2022:
As of
August 31, 2023 November 30, 2022
Land $ 27,193 $ 27,336
Equipment, computers and software 595,366 542,209
Furniture and fixtures 90,810 89,167
Buildings, building improvements and leasehold improvements
406,117 362,218
Construction-in-progress 2,785 14,975
Total property and equipment, gross $ 1,122,271 $ 1,035,905
Less: Accumulated depreciation ( 715,974 ) ( 632,076 )
Property and equipment, net
$ 406,297 $ 403,829
Shown below are the countries where 10% or more of the Company’s property and equipment, net are located as of August 31, 2023 and November 30, 2022:
As of
August 31, 2023 November 30, 2022
Property and equipment, net:
United States $ 121,392 $ 123,184
Philippines 72,887 76,361
India 44,442 42,698
Others 167,576 161,586
Total $ 406,297 $ 403,829
Goodwill:
The following table summarizes the changes in the Company’s goodwill for the nine months ended August 31, 2023 and 2022:
Nine Months Ended
August 31, 2023 August 31, 2022
Balance at beginning of period $ 2,904,402 $ 1,813,502
Acquisitions — 1,195,039
Acquisition measurement period adjustments
( 10,592 ) —
Foreign exchange translation 3,238 ( 36,721 )
Balance at end of period
$ 2,897,048 $ 2,971,820
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Intangible assets, net:
The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of August 31, 2023 and November 30, 2022:
As of August 31, 2023 As of November 30, 2022
Gross amounts Accumulated amortization Net amounts Gross amounts Accumulated amortization Net amounts
Customer relationships $ 1,745,849 $ ( 925,036 ) $ 820,813 $ 1,731,610 $ ( 811,727 ) $ 919,883
Technology 79,695 ( 32,601 ) 47,094 79,728 ( 21,820 ) 57,908
Trade names 14,461 ( 10,247 ) 4,214 14,552 ( 8,291 ) 6,261
Non-compete agreements 2,200 ( 1,230 ) 970 2,200 ( 680 ) 1,520
$ 1,842,205 $ ( 969,114 ) $ 873,091 $ 1,828,090 $ ( 842,518 ) $ 985,572
Estimated future amortization expense of the Company’s intangible assets is as follows:
Fiscal years ending November 30,
2023 (remaining three months) $ 39,426
2024 146,580
2025 134,443
2026 117,877
2027 87,559
Thereafter 347,206
Total $ 873,091
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, 2023 and 2022
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
Balances at 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 )
Balances at May 31, 2023 $ ( 7,972 ) $ ( 8,670 ) $ ( 286,367 ) $ ( 303,009 )
Other comprehensive income (loss) before reclassification
( 1,739 ) 1,266 ( 1,137 ) ( 1,610 )
Reclassification of gains from other comprehensive income (loss)
— 2,458 — 2,458
Balances at August 31, 2023
$ ( 9,711 ) $ ( 4,946 ) $ ( 287,504 ) $ ( 302,161 )
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Nine Months Ended August 31, 2023 and 2022
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
Balances at 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 )
Balances at November 30, 2022 $ ( 8,471 ) $ ( 19,914 ) $ ( 287,364 ) $ ( 315,749 )
Other comprehensive income (loss) before reclassification
( 1,240 ) 3,659 ( 140 ) 2,279
Reclassification of gains from other comprehensive income (loss)
— 11,309 — 11,309
Balances at August 31, 2023
$ ( 9,711 ) $ ( 4,946 ) $ ( 287,504 ) $ ( 302,161 )
Refer to Note 6—Derivative Instruments 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 protect gross margins from fluctuations in foreign currency exchange rates, 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 2025. 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
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hedged transaction will not occur in the initially identified time period or within a subsequent two-month time 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 currencies of the Company’s legal entities that own the assets or liabilities. 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.
During the second quarter of 2023, the Company entered into short-term foreign exchange forward call option contracts to offset the foreign exchange risk associated with the cash payment required in euros upon closing of the Webhelp Combination. These derivatives are not designated as hedging instruments and are adjusted to fair value through earnings and included in other expense (income), net in the consolidated statement of operations.
Fair Values of Derivative Instruments in the Consolidated Balance Sheets
The fair values of the Company’s derivative instruments are disclosed in Note 7—Fair Value Measurements and summarized in the table below:
Value as of
Balance Sheet Line Item August 31, 2023 November 30, 2022
Derivative instruments not designated as hedging instruments:
Foreign exchange forward contracts (notional value) $ 1,478,168 $ 1,465,853
Other current assets
4,461 22,839
Other accrued liabilities
16,035 14,934
Foreign exchange call options contracts (notional value) $ 2,012,475 $ —
Other current assets 136 —
Derivative instruments designated as cash flow hedges:
Foreign exchange forward contracts (notional value) $ 995,422 $ 963,844
Other current assets and other assets
6,774 6,389
Other accrued liabilities and other long-term liabilities
13,366 32,935
Volume of activity
The notional amounts of foreign exchange forward contracts represent the gross amounts of foreign currency, including, principally, the Philippine peso, the Indian rupee, the euro, the British pound, the Canadian dollar, 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.
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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, 2023 August 31, 2022 August 31, 2023 August 31, 2022
Derivative instruments designated as cash flow hedges
Gains (losses) recognized in OCI:
Foreign exchange forward contracts $ 1,688 $ ( 40,691 ) $ 4,878 $ ( 61,782 )
Losses reclassified from AOCI into income:
Foreign exchange forward contracts
Loss reclassified from AOCI into income Cost of revenue for services $ ( 2,457 ) $ ( 9,909 ) $ ( 11,179 ) $ ( 12,920 )
Loss reclassified from AOCI into income Selling, general and administrative expenses ( 822 ) ( 3,187 ) ( 3,899 ) ( 3,487 )
Total $ ( 3,279 ) $ ( 13,096 ) $ ( 15,078 ) $ ( 16,407 )
Derivative instruments not designated as hedging instruments:
Loss recognized from foreign exchange forward contracts, net (1)
Other expense (income), net $ ( 2,170 ) $ ( 39,367 ) $ ( 7,005 ) $ ( 56,527 )
Loss recognized from foreign exchange call options contracts, net Other expense (income), net ( 2,064 ) — ( 14,493 ) —
Total $ ( 4,234 ) $ ( 39,367 ) $ ( 21,498 ) $ ( 56,527 )
(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 $ 5,183 .
Offsetting of Derivatives
In the consolidated balance sheets, the Company does not offset derivative assets against liabilities in master netting arrangements.
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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 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 with high credit standing.
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 which 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, 2023 As of November 30, 2022
Fair value measurement category Fair value measurement category
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Assets measured at fair value:
Cash equivalents $ 2,028,565 $ 2,028,565 $ — $ — $ 89,932 $ 89,932 $ — $ —
Foreign government bond 1,811 1,811 — — 1,529 1,529 — —
Forward foreign currency exchange contracts 11,235 — 11,235 — 29,228 — 29,228 —
Foreign currency call options contracts
136 — 136 — — — — —
Liabilities measured at fair value:
Forward foreign currency exchange contracts 29,401 — 29,401 — 47,869 — 47,869 —
Liabilities measured at other than fair value:
Long term debt (senior notes)
Fair value
2,110,841 2,110,841 — — — — — —
Carrying amount
2,130,982 — — — — — — —
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
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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. 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 fair value of the foreign exchange forward call options contracts is measured using market standard option models and foreign currency spot rates. The effect of nonperformance risk on the fair value of derivative instruments was not material as of August 31, 2023 and November 30, 2022.
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 senior 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. The fair values of the 2026 Notes, 2028 Notes, and 2033 Notes (as defined in Note 8) were based on quoted prices in active markets and are classified within Level 1 of the fair value hierarchy. The Company does not adjust the quoted market prices for such financial instruments.
During the three and nine months ended August 31, 2023 and 2022, there were no transfers between the fair value measurement category levels.
NOTE 8—BORROWINGS:
Borrowings consist of the following:
As of
August 31, 2023 November 30, 2022
6.650% Senior Notes due 2026 $ 800,000 $ —
6.600% Senior Notes due 2028 800,000 —
6.850% Senior Notes due 2033 550,000 —
Credit Facility - Term Loan component 1,850,000 1,875,000
Securitization Facility — 356,500
Long-term debt, before unamortized debt discount and issuance costs 4,000,000 2,231,500
Less: unamortized debt discount and issuance costs ( 26,533 ) ( 7,212 )
Long-term debt, net $ 3,973,467 $ 2,224,288
Senior Notes
On August 2, 2023, the Company issued and sold (i) $ 800,000 aggregate principal amount of 6.650 % Senior Notes due 2026 (the “2026 Notes”), (ii) $ 800,000 aggregate principal amount of 6.600 % Senior Notes due 2028 (the “2028 Notes”) and (iii) $ 550,000 aggregate principal amount of 6.850 % Senior Notes due 2033 (the “2033 Notes” and, together with the 2026 Notes and 2028 Notes, the “Senior Notes”). The Senior Notes were sold in a registered public offering pursuant to the Company’s Registration Statement on Form S-3, which became effective upon filing, and a Prospectus Supplement dated July 19, 2023, to a Prospectus dated July 17, 2023.
The Senior Notes were issued pursuant to, and are governed by, an indenture, dated as of August 2, 2023 (the “Base Indenture”), between Concentrix and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), as supplemented by a first supplemental indenture dated as of August 2, 2023 between Concentrix and the Trustee relating to the 2026 Notes, a second supplemental indenture dated as of August 2, 2023 between Concentrix and the Trustee relating to the 2028 Notes, and a third supplemental indenture dated as of August 2, 2023 between Concentrix and the Trustee relating to the 2033 Notes (such supplemental indentures, together with the Base Indenture, the “Indenture”). The Indenture contains customary covenants and restrictions, including covenants that limit Concentrix Corporation’s and certain of its subsidiaries’ ability to create or incur liens on shares
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of stock of certain subsidiaries or on principal properties, engage in sale/leaseback transactions or, with respect to Concentrix Corporation, consolidate or merge with, or sell or lease substantially all its assets to, another person. The Indenture also provides for customary events of default.
The Company used the net proceeds of the offering and sale of the Senior Notes, together with approximately $ 294.7 million of delayed draw borrowings under its $ 2.1447 billion senior unsecured term loan facility and cash on hand, to pay the cash portion of the Webhelp Combination consideration, repay approximately € 1.80 billion of existing indebtedness of Webhelp Parent and its subsidiaries, and pay related fees and expenses in connection with the Webhelp Combination. The remaining proceeds will be used for general corporate purposes of the Company.
The Company incurred debt discount and issuance costs of approximately $ 19,300 associated with the Senior Notes during the nine months ended August 31, 2023, which are being amortized over the applicable maturity dates.
In connection with the closing of the Webhelp Combination, the Company entered into cross-currency swap arrangements for a total notional amount of $ 500,000 of the Senior Notes. In addition to aligning the currency of a portion of the interest payments to the Company’s euro-denominated cash flows, the arrangements effectively converted $ 250,000 of each of the 2026 Notes and 2028 Notes into synthetic fixed Euro-based debt at weighted average interest rates of 5.12 % and 5.18 %, respectively.
Bridge Facility and Restated Credit Facility
To provide the debt financing required by the Company to consummate the Webhelp Combination, the Company entered into a commitment letter dated March 29, 2023 (the “Bridge Commitment Letter,” and the commitments pursuant to the Bridge Commitment Letter, the “Bridge Facility”), under which certain financing institutions committed to provide a 364-day bridge loan facility in an aggregate principal amount of $ 5,290,000 consisting of (i) a $ 1,850,000 tranche of term bridge loans (the “Term Loan Amendment Tranche”), (ii) a $ 1,000,000 tranche of revolving commitments (the “Revolver Amendment Tranche”) and (iii) a $ 2,440,000 tranche of term bridge loans (the “Acquisition Tranche”), each subject to the satisfaction of certain customary closing conditions, including the consummation of the Webhelp Combination.
The incurrence of the acquisition-related indebtedness that would be funded by the Acquisition Tranche of the Bridge Facility (or permanent financing in lieu thereof) and by the Sellers’ Note was not permitted under the Prior Credit Facility. Therefore, on April 21, 2023, the Company entered into an Amendment and Restatement Agreement (the “Amendment Agreement”) with the lenders party thereto, JPMorgan Chase and Bank of America, N.A. to amend and restate the Prior Credit Facility (as amended and restated, the “Restated Credit Facility”). As a result of having entered into the Amendment Agreement, among other things, the Company obtained requisite lender consent to incur acquisition-related indebtedness, and pursuant to the terms of the Bridge Commitment Letter, the commitments with respect to the Term Loan Amendment Tranche and the Revolver Amendment Tranche of the Bridge Facility were each reduced to zero , and the Acquisition Tranche was reduced by approximately $ 294,702 . On August 2, 2023, the remaining outstanding commitment of approximately $ 2.15 billion under the Bridge Commitment Letter was reduced to zero in connection with the issuance of the Senior Notes previously described.
The Restated Credit Facility provides for the extension of a senior unsecured revolving credit facility not to exceed an aggregate principal amount of $ 1,042,500 . The Restated Credit Facility also provides for a senior unsecured term loan facility in an aggregate principal amount not to exceed approximately $ 2,144,700 , of which $ 1,850,000 was outstanding as of August 31, 2023 and approximately $ 294,702 was drawn on a delayed draw basis on the Closing Date (the “Delayed Draw Term Loans”). Aggregate borrowing capacity under the Restated Credit Facility may be increased by up to an additional $ 500,000 by increasing the amount of the revolving credit facility or by incurring additional term loans, in each case subject to the satisfaction of certain conditions set forth in the Restated Credit Facility, including the receipt of additional commitments for such increase. In September 2023, the Company prepaid $ 69,700 of the principal balance on the term loan facility, without penalty, resulting in an outstanding balance of approximately $ 2,075,000 .
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The maturity date of the Restated Credit Facility remains December 27, 2026, subject, in the case of the revolving credit facility, to two one-year extensions upon the Company’s prior notice to the lenders and the agreement of the lenders to extend such maturity date. The outstanding principal amount of the term loans is payable in quarterly installments in an amount equal to 1.25 % of the existing principal balance, plus the Delayed Draw Term Loans advanced on the closing date of the Webhelp Combination, commencing on December 31, 2024, with the outstanding principal amount of the term loans due in full on the maturity date.
Borrowings under the Restated Credit Facility bear interest, in the case of SOFR rate loans, at a per annum rate equal to the applicable SOFR rate (but not less than 0.0 %), plus an applicable margin, which ranges from 1.125 % to 2.000 %, based on the credit ratings of the Company’s senior unsecured non-credit enhanced long-term indebtedness for borrowed money plus a credit spread adjustment to the SOFR rate of 0.10 %. Borrowings under the Restated Credit Facility that are base rate loans bear interest at a per annum rate (but not less than 1.0 %) equal to (i) the greatest of (A) the Prime Rate (as defined in the Restated Credit Facility) in effect on such day, (B) the NYFRB Rate (as defined in the Restated Credit Facility) in effect on such day plus ½ of 1.0%, and (C) the adjusted one-month term SOFR rate plus 1.0 % per annum, plus (ii) an applicable margin, which ranges from 0.125 % to 1.000 %, based on the credit ratings of the Company’s senior unsecured non-credit enhanced long-term indebtedness for borrowed money.
The Restated Credit Facility contains certain loan covenants that are customary for credit facilities of this type and that restrict the ability of Concentrix Corporation and its subsidiaries to take certain actions, including the creation of liens, mergers or consolidations, changes to the nature of their business, and, solely with respect to subsidiaries of Concentrix Corporation, incurrence of indebtedness. In addition, the Restated Credit Facility contains financial covenants that require the Company to maintain at the end of each fiscal quarter, (i) a consolidated leverage ratio (as defined in the Restated Credit Facility) not to exceed 3.75 to 1.0 (or for certain periods following certain qualified acquisitions, including the Webhelp Combination, 4.25 to 1.0) and (ii) a consolidated interest coverage ratio (as defined in the Restated Credit Facility) equal to or greater than 3.00 to 1.0. The Restated Credit Facility also contains various customary events of default, including payment defaults, defaults under certain other indebtedness, and a change of control of Concentrix Corporation.
None of Concentrix’ subsidiaries guarantees the obligations under the Restated Credit Facility.
Prior to entering into the Amendment Agreement, obligations under the Company’s Prior Credit Facility were secured by substantially all of the assets of Concentrix Corporation and certain of its U.S. subsidiaries and were guaranteed by certain of its U.S. subsidiaries. Borrowings under the Prior Credit Facility bore 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 ranged from 1.25 % to 2.00 %, based on the Company’s consolidated leverage ratio. Borrowings under the Prior Credit Facility that were base rate loans bore 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 ranged from 0.25 % to 1.00 %, based on the Company’s consolidated leverage ratio. From August 31, 2022 through the date of the Amendment Agreement, the outstanding principal of the term loans under the Prior Credit Facility was payable in quarterly installments of $ 26,250 .
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At August 31, 2023 and November 30, 2022, no amounts were outstanding under the Company’s revolving credit facility.
During the nine months ended August 31, 2023, the Company paid $ 25,000 of voluntary principal prepayments, without penalty, on the term loans under the Prior Credit Facility.
The Company paid a total of $ 4,613 and $ 21,617 in Bridge Facility financing fees during the three and nine months ended August 31, 2023, respectively. The full amount of the Bridge Facility financing fees of $ 21,617 was expensed during the nine months ended August 31, 2023, which included $ 10,687 in the three months ended August 31, 2023. In the nine months ended August 31, 2023, the Company paid $ 3,369 in debt amendment fees related to the Restated Credit Facility. The debt amendment fees that were capitalized are being amortized over the remaining life of the Restated Credit Facility.
Securitization Facility
On July 6, 2022, the Company entered into an amendment to the 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 $ 350,000 to 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 Corporation and certain of its subsidiaries (the “Originators”) sell or otherwise transfer all of their accounts receivable to a special purpose bankruptcy-remote subsidiary of the Company (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 Restated Credit Facility and customary events of default, including payment defaults, defaults under certain other indebtedness, a change in control of Concentrix Corporation, and certain events negatively affecting the overall credit quality of the transferred accounts receivable.
The Borrower’s sole business consists of the purchase or acceptance through capital contributions of the receivables and related security from the Originators and the subsequent retransfer of or granting of a security interest in such receivables and related security to the administrative agent under the Securitization Facility for the benefit of the lenders. The Borrower is a separate legal entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of the Borrower’s assets prior to any assets or value in the Borrower becoming available to the Borrower’s equity holders, and the assets of the Borrower are not available to pay creditors of the Company and its subsidiaries.
Sellers’ Note
On September 25, 2023, as part of the consideration for the Webhelp Combination, Concentrix Corporation issued a promissory note in the aggregate principal amount of € 700,000 (the “Sellers’ Note”) to certain Sellers (the “Noteholders”). Pursuant to the Sellers’ Note, the unpaid principal amount outstanding will accrue interest from time to time at a rate of two percent ( 2 %) per annum, and all principal and accrued interest will be due and payable on September 25, 2025.
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Covenant compliance
As of August 31, 2023 and November 30, 2022, Concentrix was in compliance with all covenants for the above arrangements.
NOTE 9— EARNINGS PER SHARE:
Basic and diluted earnings per common share ( “ EPS ” ) are computed using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. The Company’s restricted stock awards are considered participating securities because they are legally issued at the grant date and holders have a non-forfeitable right to receive dividends.
Three Months Ended Nine Months Ended
August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022
Basic earnings per common share:
Net income $ 77,635 $ 106,690 $ 244,355 $ 330,105
Less: net income allocated to participating securities (1)
( 1,286 ) ( 1,582 ) ( 4,198 ) ( 4,850 )
Net income attributable to common stockholders $ 76,349 $ 105,108 $ 240,157 $ 325,255
Weighted-average number of common shares - basic 51,059 51,193 51,130 51,461
Basic earnings per common share $ 1.50 $ 2.05 $ 4.70 $ 6.32
Diluted earnings per common share:
Net income $ 77,635 $ 106,690 $ 244,355 $ 330,105
Less: net income allocated to participating securities (1)
( 1,282 ) ( 1,571 ) ( 4,178 ) ( 4,816 )
Net income attributable to common stockholders $ 76,353 $ 105,119 $ 240,177 $ 325,289
Weighted-average number of common shares - basic 51,059 51,193 51,130 51,461
Effect of dilutive securities:
Stock options and restricted stock units 150 356 254 373
Weighted-average number of common shares - diluted 51,209 51,549 51,384 51,834
Diluted earnings per common share $ 1.49 $ 2.04 $ 4.67 $ 6.28
(1) Restricted stock awards granted to employees by the Company are considered participating securities.
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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, 2023 August 31, 2022 August 31, 2023 August 31, 2022
Industry vertical:
Technology and consumer electronics
$ 528,281 $ 500,595 $ 1,549,093 $ 1,437,548
Retail, travel and ecommerce
322,394 299,595 935,850 879,537
Communications and media
252,497 274,424 767,278 808,884
Banking, financial services and insurance
246,771 234,844 768,388 733,673
Healthcare
167,428 143,085 509,960 441,473
Other
115,463 127,059 353,375 382,640
Total $ 1,632,834 $ 1,579,602 $ 4,883,944 $ 4,683,755
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, 2023, the Company contributed $ 22,945 and $ 67,470 , respectively, to 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.
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 United States, 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 $ 2,433 and $ 8,060 , during the three and nine months ended August 31, 2023, respectively. 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. On an aggregate basis, the plans were underfunded by $ 67,572 and $ 71,815 at August 31, 2023 and November 30, 2022, 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, 2023 and 2022 were impacted by the geographic mix of worldwide income and certain discrete items.
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The liability for unrecognized tax benefits was $ 87,276 and $ 78,501 at August 31, 2023 and November 30, 2022, respectively, and is included in other long-term liabilities in the consolidated balance sheets. As of August 31, 2023 and November 30, 2022, the total amount of unrecognized tax benefits that would affect income tax expense if recognized in the consolidated financial statements was $ 47,016 and $ 40,793 , respectively. This amount includes net interest and penalties of $ 8,961 and $ 7,538 for the respective periods. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits could decrease between approximately $ 34,538 and $ 37,465 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, 2023 August 31, 2022 August 31, 2023 August 31, 2022
Operating lease cost $ 51,966 $ 49,627 $ 155,401 $ 150,167
Short-term lease cost 4,521 4,743 14,412 14,266
Variable lease cost 12,446 11,929 36,826 35,147
Sublease income ( 1,503 ) ( 709 ) ( 4,371 ) ( 2,136 )
Total operating lease cost $ 67,430 $ 65,590 $ 202,268 $ 197,444
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, 2023:
Fiscal Years Ending November 30,
2023 (remaining three months)
$ 50,159
2024 179,323
2025 129,966
2026 72,893
2027 35,378
Thereafter 32,020
Total payments 499,739
Less: imputed interest* 44,296
Total present value of lease payments $ 455,443
*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, 2023 November 30, 2022
Operating lease ROU assets Other assets, net $ 425,746 $ 473,039
Current operating lease liabilities Other accrued liabilities 165,349 158,801
Non-current operating lease liabilities Other long-term liabilities 290,094 340,673
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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, 2023 August 31, 2022
Cash paid for amounts included in the measurement of lease liabilities $ 159,460 $ 147,579
Non-cash ROU assets obtained in exchange for lease liabilities 86,273 150,492
The weighted-average remaining lease term and discount rate as of August 31, 2023 and November 30, 2022 were as follows:
As of
August 31, 2023 November 30, 2022
Weighted-average remaining lease term (years) 3.44 3.72
Weighted-average discount rate 5.51 % 5.24 %
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 Corporation (“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 the Company under the separation and distribution agreement, which are generally those liabilities that relate to the Company’s CX business, 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.
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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, 2023, the Company repurchased 320 and 431 shares, respectively, of its common stock for an aggregate purchase price of $ 27,000 and $ 41,941 , respectively. 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, 2023, approximately $ 312,144 remained available for share repurchases under the existing authorization from the Company’s board of directors.
During September 2023, the Company repurchased 95 shares of its common stock for an aggregate purchase price of $ 7,062 .
Dividends
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
March 29, 2023 April 28, 2023 $ 0.275 May 9, 2023
June 28, 2023 July 28, 2023 $ 0.275 August 8, 2023
On September 27, 2023, the Company announced a cash dividend of $ 0.3025 per share to stockholders of record as of October 27, 2023, payable on November 7, 2023.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.