Thank you for standing by and welcome to Concentrix Fiscal Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Vice President, Investor Relations, David Stein. Please go ahead.

Thank you, Latif, and good evening. Welcome to the Concentrix Corporation Third Quarter Fiscal 2023 Earnings Call. As a result of the combination earlier this week, we now operate as one Concentrix Webhelp. This call is the property of Concentrix Webhelp and may not be recorded or rebroadcast without written permission. This call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future events or developments. Please refer to today's earnings release in our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and subsequent SEC filings. Also during the call, we will discuss non-GAAP financial measures, including free cash flow, non-GAAP operating income, adjusted EBITDA, non-GAAP EPS and adjusted constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company Investor Relations website under Financials. With me on the call are Chris Caldwell, our President and Chief Executive Officer; and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. Then we'll open the call for your questions. Now I'll turn the call over to Chris.

Thank you, David. Hello, everyone, and thank you for joining us today for our third quarter earnings call. We are thrilled to have you with us as we discuss our performance in the third quarter and the exciting news that we have closed our transformative combination with Webhelp. We're pleased that we executed to deliver revenue and profit growth with strong cash flow in the third quarter. We experienced continued stable demand for high-value and technology-infused services, achieved solid new business signings, and our continued focus on business mix drove margin expansion. We entered the fourth quarter with a strong pipeline of opportunities that we believe will continue to drive our growth into 2024. We reported revenue in the third quarter was $1.63 billion. On an organic constant currency basis, revenue grew 1.7%. Our third quarter non-GAAP operating income increased to $231 million and adjusted EBITDA increased to $269 million, both growing by over 4% compared with last year. Solid execution yielded 10 basis point improvements in both our non-GAAP OI and adjusted EBITDA margins over last year. Our non-GAAP EPS was $2.71 per share compared with $2.95 per share last year, largely reflecting the impact of expected higher interest rates. Given our continued organic growth, strong free cash flow generation and the accretive Webhelp combination, we are pleased to raise the quarterly dividend by 10%. This increased quarterly dividend translates to $1.21 per share on an annualized basis. We continue to grow in each of our strategic verticals, which more than offset continued volume softness with a few select large clients as we discussed last quarter. From a Catalyst perspective, we gained experience -- we again experienced sequential quarterly revenue growth with our digital CX solutions. Our unique digital IT service capabilities with thousands of staff able to design,…

Well, thank you, Chris, and hello, everyone. We're excited to have closed our combination with Webhelp earlier this week. Adding Webhelp's talented global staff strengthens our value proposition and solidifies our position as a leading global CX solutions company. Before I provide additional details on the completion of the transaction, I'll first review our third quarter results then I'll conclude with guidance for the fourth quarter, including anticipated contributions from Webhelp. In the third quarter, revenue increased and non-GAAP profit improved, reflecting continued strong execution. Both our organic constant currency revenue growth rate and our non-GAAP operating income came in within our guidance ranges, with non-GAAP operating income exceeding the midpoint of our guidance. Additionally, our strong cash flow generation reinforces our confidence in achieving our full year expectation of generating over $500 million in free cash flow, not including contributions from Webhelp. The 3.4% increase in reported revenue in the quarter included a 1.7 point positive year-over-year impact from the acquisition of ServiceSource in July 2022. There was no meaningful impact from currency fluctuations on reported revenue growth in the quarter. On an organic constant currency revenue basis, revenue grew 1.7%, reflecting a continuation of themes from the prior quarter. Strong growth in health care, banking, financial services and insurance, e-commerce and travel, offset by continued volume softness with a few large clients in the communications and consumer electronics industries. Revenue increased in each of our four strategic verticals in the quarter, with growth from health care clients leading the way, up approximately 17% on both an as reported and organic constant currency basis. Revenue from retail, travel and e-commerce clients posted 8% growth as reported and 7% on a constant currency organic basis, including double-digit growth with travel clients. Revenue from banking, financial services and insurance clients grew…

[Operator Instructions] Our first question comes from the line of Ruplu Bhattacharya of Bank of America.

Hi. Thanks for taking my questions. Andre, if you can -- I was wondering if you can kind of simplify what the contribution is from Webhelp for fourth quarter revenues, operating margin and EBITDA? You gave a lot of details, but I'm not sure I got all of that. So can you please specify how much is the revenue contribution, operating income contribution? And what is the core business doing in the fourth quarter?

Yes. So happy to do that, Ruplu. So I'll start with revenue. So from a revenue perspective, the legacy Concentrix operations pre-Webhelp are very much in line with the prior guidance. So the prior guidance for the full year, Ruplu, was to grow 2% to 3% for the full year. And so that will be the contribution from the Concentrix operations will be in line with that guidance. So that kind of covers that. Webhelp certainly accretive to the overall growth rate as we expected, and it will be here in the fourth quarter. So that's that. From a margin perspective, really, if you go back to when we announced the transaction, the margin profiles of the two businesses were very, very close, both from an EBITDA perspective and a non-GAAP OI perspective. And so included in the guidance, you can pretty much, at the midpoint, that 15.2% non-GAAP OI margin, you can pretty much apply that to both sides. Depreciation is a little bit -- we've talked about this in the past for Webhelp a little bit higher as a percentage of revenue. So you might see 10, 20 basis points or so higher adjusted EBITDA margin coming from the Webhelp side, but again very complementary from a margin perspective in Q4. And then I expect significant margin improvement as synergies start to roll in, in earnest as we move into 2024.

And again, just to clarify, I mean, based on what you just said, would that imply like about $500 million on the revenue contribution from Webhelp in fiscal 4Q? And then can you talk about the below-the-line items like below operating income? Can you remind us what the interest expense is going to be in the fourth quarter as well as are there any other expenses? I think you said there was also integration costs. What is the estimate for that for the fourth quarter?

Yes. So integration costs in a quarter are a little hard to give an exact estimate on. So overall, the integration costs what we said about those is they will be one for one matching the synergy number. So $120 million total in integration costs, somewhat front loaded with roughly $80 million or so in the first year, I believe, and $40 million in the second. So think of that, that $80 million, think of -- will that equate to in two months, and you're probably in line there. The other part of your question, I missed it, oh, the revenue contribution. I think you're a little low at $500 million. The contribution from Webhelp is higher than that.

Okay. And maybe for my last one, maybe I'll ask one to Chris. So you talked about working on some AI -- generative AI projects. So Chris, when we think about this, I mean, based on the experience you have now, clients want to understand the impact of generative AI. Do you think -- I mean, in the past, you said like 10% to 15% of volumes can get impacted. I mean how has your thought changed if at all now that you're doing more of these projects? And do you think that impact varies by end market use case? And how should we think about that? I mean, any way to quantify this at this point in the cycle? Thank you.

Hi, Ruplu. So a couple of different points there. I think when we talk about 10% to 15% of transactions can be automated, that's what we're doing on a yearly basis, regardless of generative AI or RPA or anything else that's coming along with it. And what we've talked about is that generative AI can probably increase that by a little bit, but not dramatically more than that from what we're seeing as we deploy these practices. What's offsetting that is the new revenue streams that we're seeing by deploying these new technologies, both from design, implementation and running the new technologies and curating the content that goes along with it. And as we kind of talked in some of the prepared remarks, even net new areas that we're deploying our own platforms where we're getting net new revenue flows that are coming in for that. So that clearly is what we're focused on offsetting any revenue headwinds as well as taking more share within the clients. I think what we're seeing right at the moment is that we are able to deploy generative AI faster than some of our clients can actually deploy it. And so we're seeing the benefits in our operating cost structure and scalability that we called out a number that are starting to get to scale. And hopefully, we'll see additional benefits from those as we get them to -- across the entire enterprise, including the new Webhelp combination, which I think offsets any kind of cost mitigation that we might have from any impact from a revenue perspective that's coming in from automation, if that makes sense.

Thanks for all the details. Appreciate it.

No problem. Thank you.

[Operator Instructions] Our next question comes from the line of Oliver Davies of Redburn Atlantic.

Yes. I guess a couple of questions. Just firstly, in terms of you kind of held the revenue growth guidance for the Concentrix legacy business. So can you just talk about what you're seeing in terms of underlying volumes? And new client decision, I guess, it looks like health care kind of accelerated in the quarter as most of the other sectors were look pretty similar to the last quarter. And I guess following on from that you know a client is still looking to offshore where possible or has anything changed on that front?

Hi, Oliver. So to answer your first question, what we're seeing is kind of continued consumer, I'll call it, budgeting for new consumer electronic devices, subscription spending, other things that are somewhat discretionary. So we continue to see those volumes depressed across some of our larger clients. But the volume is now becoming more steadily depressed if that makes sense. It's more stable versus what we saw at the beginning of the year where it tends to fluctuate. We are seeing growth in the strategic verticals that we've called out, primarily because of net new wins and net new services we're putting into those verticals, such as the health care vertical, banking, financial services. And even travel, we're doing quite well at. And we still see travel, despite sort of my comments about consumers cutting back in some areas, being quite robust into the future from a volume expectation perspective. From just an overall offshoring, near-shoring comment, as we've talked about before, clients, for the most part, are very focused on managing their cost structure. And so pretty much the majority of all new transactions and deals and ramps of existing clients are tending to be done at the most cost-effective shore environment, whether that be near-shore or offshore. Very few starts -- in fact, very, very, very few starts are starting out onshore at a higher cost structure. It's just not in clients' budgets right at the moment.

Okay. Great. Thanks. And then maybe one for Andre just on the free cash flow, just it looks to be driven by working capital. So could you just comment on the reasons for that in terms of free cash flow?

Andre, you're not coming through.

Sorry about that. We muted ourselves for a second. So Oli, you're right. The improvement in free cash flow is largely coming from working capital improvements. And that's really just a focus on the blocking and tackling of getting bills out on time and collected on time, which drove roughly a two-day improvement from the prior quarter in our days sales outstanding. So it's really just an increased focus on that. It's always been a focus, but just really good execution by the team in getting the bills out and getting them collected. And we think it's sustainable as we move forward. Feel very, very confident about the free cash flow guide for the fourth quarter and feel really good about hitting the guide that we set out at the very beginning of the year to generate without Webhelp $0.5 billion or more of free cash flow this year. We're definitely on track to do that if you look at how we've done through three quarters.

Great. Thanks very much for answering the question.

Thanks.

Thank you. [Operator Instructions] Please stand by for our next question which comes from the line of Divya Goyal of Scotiabank.

Good afternoon, everyone. So Andre, you briefly addressed part of my question, which was on the guide that you provided. So Chris addressed that there is some continued, how should I say, slowdown in the macro that's been noted across the business. What level of confidence can we see in terms of the overall guidance that you provided for Q4? And how should we expect the business to perform going forward, considering, obviously, what's going on with the AI transformation alongside the macro impact?

Actually, Divya, why don't -- sorry -- why don't I take that because it ties into some of the AI conversation that we're talking about. So a couple of different points to it. When we look at our guidance for Q4, what we've kind of stated before is that we've stripped out the seasonality of the business that historically has been in Q4, primarily based on what we saw last year. And so when we're talking to our clients and we're looking at their volumes, we're seeing that sort of flatness from a seasonality perspective come through. As I also mentioned, what we're seeing is sort of a steady rate of business from the clients that have seen decreased volumes based on consumer demand. And those are kind of continuing through and they've been kind of trailing as we have expected for the last number of weeks in last quarter. So we're kind of looking at that as pulling through to Q4 as well. And then on the third element from a generative AI perspective, right now, we're seeing generative AI as an additive revenue to our business, where we're doing the consulting, we're doing the implementations, we're doing the proof-of-concepts, we are getting services for building out the models and managing those models as they start to come into production. And so that has really no impact in our fourth quarter outside of the revenue that we expected that's already been booked or sorry that's been sold and now we're going into the implementation and billing phase.

That's helpful. Just following on this thought process here, I wanted to understand, have you been seeing any pricing pressure or conversely any margin benefits, given the automation that you are trying to bring across the customers?

Yes. So we do see pricing pressure in the highly transactional business. And as we've talked about it, that's about 10% of our business, although it continues to decline. If you think about it back in February, it was about 13%. Now it's down to 10%. And our goal is obviously to continue to drive that down. In that part of the segment -- part of the business, it's very easy to ramp. It's quite commodity-based business. And there are certainly people who are chasing it for revenue. Our preferences to more focus on the higher-value services and win that business by quality of service, but not worry about it if it goes away from just a pure pricing perspective. In the higher-value services, we're seeing it much more stable from a pricing environment. Clients are more focused on the security, the work that you're doing, they're focused on compliance of the work that you're doing. They're focused on consistency of the work. They're focused on how you're going to actually deliver the outcomes. And so therefore, where we're putting in technology, where we're putting in sort of this automation for driving better efficiencies internally that is what is supporting our margin stability within those clients. And we expect that, that will continue on as we continue to execute on our strategy.

That's very helpful. Thanks, Chris.

No problem.

Thank you. [Operator Instructions] As there appear to be no further questions in queue, this does conclude today's conference call. Thank you for your participation. You may now disconnect.