Good day, everyone, and thank you for standing by. Welcome to the Concentrix Fiscal First (sic) [Second] Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand it over to the Vice President of Investor Relations, Sara Buda. Please proceed.

Thank you, operator, and good evening, everyone. Welcome to the Concentrix second quarter fiscal 2024 earnings call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. 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 expectations, events or developments. Please refer to today's earnings release and 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 in our other public filings with the SEC. Also during the call we will provide and discuss non-GAAP financial measures including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company's Investor Relations website under Financials. With me on the call today are Chris Caldwell, our President and CEO; 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 to your questions. With now I'll turn the call over to our CEO, Chris Caldwell.

Thank you very much, Sara. Hello, everyone, and thank you for joining us today for our second quarter 2024 earnings call. First, let me start off by thanking our clients and game changers for their contributions who are being included in the Fortune 500 list for the first time this year. We started with an idea that companies wanted to deliver a better brand experience for their customers. We believe that by thinking about the customer experience holistically across both back office and front office work, while investing in technology for frictionless engagement, we could create a market opportunity for ourselves. Over 20 years, we have grown that idea to a global player in over 70 countries, delivering solutions that continue to push the industry forward. I couldn't be prouder of the team or more thankful for the trust of our clients. Now, turning to the second quarter performance. We increased revenue 47% as reported and grew 4% on a pro forma constant currency basis in the quarter exceeding our prior guidance. We reported non-GAAP operating income of $321 million, an increase of 46% year-on-year and in line with our guidance. We delivered adjusted EBITDA of $380 million, an increase of 47% year-on-year. On a pro forma basis, we grew non-GAAP operating income 4% and adjusted EBITDA 2% year-on-year. We generated more than $200 million in adjusted free cash flow this quarter, while returning more than $60 million of value to shareholders through dividends and share repurchases. We remain on track to generate $700 million of adjusted free cash flow for the full year after integration expenses and on track to complete $120 million of share repurchases for the fiscal year, of which we have done over $60 million through the end of Q2. Our positive momentum continued in the…

Thank you, Chris, and hello everyone. I'll begin with a look at our financial results and then discuss our outlook for the rest of the year. The second quarter marked another solid quarter for the company. We exceeded our targets for revenue, delivered profits within our guidance range and drove strong free cash flow. We delivered second quarter revenue of $2.4 billion, on a pro forma constant currency basis, as if the Webhelp combination was completed at the beginning of 2023, we grew revenue by 4%. For the first half of the year, our constant currency pro forma growth was 3.4%, so our overall revenue trends remain positive. As you can see from our guidance, we expect this stability to continue in the second half of the year. Looking at our revenue growth by vertical, on a pro forma basis, revenue from retail, travel and e-commerce clients grew 10% year-over-year. Revenue from banking, financial services and insurance clients grew 6% and our other vertical grew 3%. Our technology and consumer electronics clients grew over 3% on a pro forma basis. While this vertical is still lagging some other sectors due to the macro environment, we were happy to see some positive momentum from consumer electronics clients, as we gained share with key clients. We continue to see strength in enterprise tech. Revenue from our telco and media clients decreased 3% on a pro forma basis, primarily due to lower volumes from a few North American communications clients as discussed in prior quarters. Turning to profitability, our non-GAAP operating income was $321 million in the quarter, an increase of $101 million compared with the second quarter of 2023. Our non-GAAP operating margin was 13.5%, down about 20 basis points from last year due to the inclusion of Webhelp, which historically operated…

Thank you so much. [Operator Instructions] And it comes from the line of Joseph Vafi with Canaccord Genuity. Please proceed.

Hey, guys, good afternoon. Great to see the fine tune up on the guide, and welcome Sara to the team. I thought maybe we would just start with kind of parsing out kind of -- it looks like you're taking the bull by the horns a little bit on the macro or on the AI front that is. And it's turning a little bit more into an opportunity than maybe people have thought previously. And then if we could compare and contrast that to what you're seeing on the macro and how both of those kind of have kind of funneled into the new guidance for the year? And then I have a quick follow-up.

Joe, it's Chris. So first of all, you're absolutely right. We are using your term, taking bull by the horns from a Generative AI perspective. We're seeing very good traction in pilots and getting some things into production into our client base. And we're also seeing the ability where we think that there is misses in the market from a technology solutions perspective on the platforms, that we have a lot of this base built out for ourselves already. But now we need to work on getting it to commercial standards and from a multi-tenant perspective and ease of use perspective in large scale rollouts. And so we don't want to miss that opportunity and are taking advantage and leading into it. I think as per secondly, we also are seeing good traction in taking share, as well as winning net new clients with even the AI products that we have right now, as we talked about in a couple of our wins. So we see that as being very, very positive and we built that into sort of our guide of seeing our revenue increase, while also seeing some cost associated with doing these pilots and building out the infrastructure that we want and we think will put us in a very, very nice position for further growth. In terms of a macro, we're not seeing really any change. We're not seeing it improving, we're not seeing it declining. We're seeing and that's sort of a global comment. We're seeing things fairly stable and steady and clearly any kind of positive changes coming for that. We expect to benefit from it based on the share that we have within our client base.

Great. That's great color. And then thanks for that, Chris. And then maybe on one for Andre. I know that as we exit this year, some of the Webhelp, merger related costs are going to abate and then more cost synergies are going to kick in, combined with continued debt pay down, maybe offset a little bit more now at this point by investment in the business. And I know you're not providing guidance for next year, but, you know, it would be great to get an updated framework on. You know I think you've reiterated your $700 million in free cash flow guidance this year, but to kind of provide a little bit of framework for next year would also be helpful. Thanks a lot.

Happy to do that, Joe and good to talk to you. Yeah, so there certainly are reasons for us to be optimistic that the $700 million in free cash flow that we generate this year can go up in 2025. And I want to stop close to -- stop short of guiding for 2025, but the two major drivers there will be synergies we expect in year one post close of the combination, recognize $75 million in net synergies. We're already above that run rate. As we look at the synergies that we are realizing right now in the business, we expect that will go up to at least $105 million in net synergies in the second year post close of the combination. And then you're right, the integration expenses will drop pretty meaningfully from 2024 to 2025. I would see a drop in the range could approach $50 million or more frankly of cash integration expenses dropping off. So both of those things would give us some confidence that we could see cash flow go up. Obviously, we're also going to be paying down debt, so some opportunity with that and perhaps if we get there, some interest rate reductions to see interest cost also come down from a cash basis and be a bit of a help to us in 2025.

Right. Thanks a lot, guys. Nice to see the guide up.

Thanks, Joe.

Thanks, Joe.

Thank you. One moment for our next question.

Operator, do we have the next question?

Okay. I think the question was going to be from Ruplu.

Hi. Thanks for taking my questions and congrats on inclusion in the Fortune 500 list. Andre, can you help me understand all of the moving pieces to the guidance? Looks like fiscal 2Q revenues beat the midpoint of guidance by $32 million and EPS beat by $0.07. But you're guiding fiscal 3Q down sequentially and lower than Street estimate. And if I look at fiscal year revenue guidance increase, that looks like it's about $23 million at the midpoint and then operating margin is down 50 bps to 14.3% and EPS is $0.36 lower. So, given all of these different data points, I mean, my questions to you would be on the revenue side was there any pull in of revenue from 2Q to 3Q, why would there be a sequential decline in 3Q and is there -- does that imply a somewhat steeper ramp between 3Q and 4Q to get to the full year?

No. So, Ruplu, as we've kind of commented about our revenue guide throughout this year, we want to be prudent in how we guide revenue. And so we think that we have done that with what we've provided here. So having grown at 4% here in Q2, you're right, we are guiding to growth of 1.5% to 3.5% over the balance of the year roughly. Certainly that's what we're guiding to in Q3. Again, that we're just -- there we're being prudent. We are not seeing anything in our clients volumes. We are not seeing anything in our pipeline that suggest that revenue should decline. And so from a revenue perspective, just being prudent with the guide and frankly quite confident and focused on coming in as we did this most recent quarter in the, at least in the upper half of what we've guided to, which would put you very, very close to a continuation of the growth rate that we saw here in the first half.

And then on operating margins, the 50 basis points lower, $14.3 million versus $14.8 million for the full year. I think you talked about some investments you're making. Can you elaborate more on what are the investments that you're making and when do you expect to see revenue benefit from those investments?

Yeah. So Chris in his script alluded to two major areas where we're investing. So we are investing heavily in technology and our platforms, embedding Gen AI into them, both for internal use for client pilots and for the development of some commercial products. We don't think that and that is certainly weighing on our margins, but we think that's a good investment for the long-term. As you see in many of the wins that Chris talked about, technology is at the forefront of what's driving our competitive advantage and driving those wins across the finish line for us. So and we also don't think that level of heightened investment is a forever thing. We think it is temporary here through the balance of the year and could even begin to taper as we exit the year. The other major area that we're investing in is transitioning new business to us, that can come in many, many different flavors. It can become transitioning work from a competitor where we incur upfront technology costs, it could be upfront training costs, it could be all of those types of things. And so -- but we're happy to do that because, again, we do that in advance. The revenue shows up a few quarters out and the margins on those deals are quite attractive to us. So that's how you think about it. You're right. At the midpoint of our guide, we've come down a bit. It's because of these investments we think it's the right thing to do to grow the business and drive value for the long-term.

Okay. And maybe I'll try and sneak one more in. Sorry if I missed this. Did you talk about the growth rate for the new economy clients and for the Catalyst business in fiscal 2Q? And how are sales cycles trending for different size of deals? Thank you.

Yeah. So Catalyst continues to -- we're very, very proud about of how Catalyst is doing. It's growing quite nicely, grew sequentially from Q1 to Q2 and is meaningfully accretive to the overall growth rate for the business in Q2 and we see that continuing over the back half of the year. New economy clients continue to represent about 25% of revenue, Ruplu. And as I commented at your technology conference earlier this month, they are growing faster than the rest of the business, faster than the enterprise clients, although not nearly as fast as they were, call it, two years ago. They have become very focused on ROI, on right shoring the work, on embedding technology to become more efficient and all the things frankly that the enterprise clients are interested in too.

Okay. Thank you for all the details.

Sure. Thanks, Ruplu.

Next question comes from Divya Goyal with Scotiabank.

Good evening, everyone. So I had a question on Webhelp. Andre, I think you mentioned that there are certain earn-out payments that you have to make related to the Webhelp acquisitions that were made prior to you guys acquiring Webhelp. If you could provide some more color on that? And is that going to be an additional -- is that an additional impact on your guidance as well for the year on the bottom line?

No. So the -- so, yes, the payments that we made, and they were about $28 million in Q2 relate to past acquisitions by Webhelp. So these were things that were committed to prior to us becoming involved with Webhelp and then closing on the transaction in 2023. There are no -- they do not impact our bottom line. As they were effectively have been accrued for some period of time. So no impact there. They do obviously use cash, although most of that payment does not impact our free cash flow. As I alluded to maybe $5 million impact on free cash flow. We don't expect any further earnouts in 2024 related to those acquisitions. I don't believe there are any in 2025 and then a fairly similar amount of earnouts would be expected in 2026. These were all kind of part and parcel with the financial model that we put together as we looked at the transaction and closed the transaction. They're playing out exactly as we expect them to.

That's perfect. And just another question related to Webhelp. So you did talk about some of the -- I think Chris mentioned some of the cross-sell synergies of Catalyst into Webhelp if either you or Chris can provide a little bit more color into how exactly is that trending? And what is the broad attraction that you are seeing or Catalyst into some of these new Webhelp clients that you've recently acquired?

Yes, for sure, Divya. It's Chris. So first on, we expected, obviously, revenue synergies, but we didn't necessarily account for them in the first year. They tend to take a while to gain traction and go and we're kind of well ahead of where we expected to be at this point in time, both by the way, taking Concentrix clients across to sort of the Webhelp footprint and vice versa, as we talked about on the prepared remarks. From a technology perspective, where we're gaining share basically across our whole client base, forget about whether it's Webhelp client originally is integrating our technical services. And the vast majority come from our Catalyst group. Some of that comes from our existing client success organization already. But ultimately, if that value proposition of putting everything together that clients are most interested in that has really helped us accelerate our growth rate and start to build a stronger pipeline that we're seeing right now.

That's helpful. And is it fair to assume that your Catalyst business would be, to your point, consulting related? So would it be a higher margin business? Or what is the big difference between what you're doing with Catalyst versus your standard business from a margin standpoint.

Yeah, Divya, good question. So in our Catalyst business, we have our consulting business. We have our analytics business. We have our digital engineering business, our CCaaS business, our cloud migration business. And so there's a lot within our Catalyst business. And the margin profile, some is, as you can imagine, higher than our core business. Some is actually lower than our core business because we're doing a lot of these pilots and we're doing a lot of the build-out of these tools within our Catalyst business, which is not necessarily accretive to our overall margin. But what we see long-term, as we talked about when we started investing in that business is the ability to increase our margins much like we do in our core business to being more accretive than our core business as we go forward. But that's a longer-term comment.

That's all for me. Thank you so much.

Thank you.

Thank you. One moment for our next question please. All right. And it comes from the line of Vincent Colicchio with Barrington Research. Please proceed.

Yes, Chris, I like the sort of think a little bit more about your market share gains. Are they coming at the expense of medium-sized and smaller players as well as some of your larger competitors?

Actually, they're coming from both. We won business from sort of smaller players who were able to deliver on a footprint and didn't necessarily have the investment security that they needed. And we've won some good sized business. One of the deals that we talked about is from a larger competitor primarily because we could bring everything together and have the technology solution versus just sort of the operations part of it. So we see that continuing based on how clients are thinking about their businesses and recurring their services right now.

So if we isolate your larger competitors, do you think you have a more complete portfolio today of what folks are looking for? Or am I over generalizing?

Well, absolutely. We think we have a very, very complete portfolio across both the consulting and both the design, the build and the run aspects of delivery services and solutions to clients. Lives are looking for someone who can bring this expertise and by the way do it materially to their enterprise and kind of reimagine what they're delivering from the customer experience perspective. And that's really where we're gaining the share because the conversations are very different than probably what we had two or three years ago.

And as -- with an early -- we're seeing the Webhelp revenue synergies a bit earlier than expected. How are you feeling about seeing a meaningful contribution from revenue synergies in '25?

I don't want to guide for '25, but I think directionally from my comments and from Andre's comments, you can see that we're pretty bullish and confident. And as we expected doing the transaction that we want and we're executing along that plan.

Okay. And then as the AI automation evolves here. I know we're still very early days. Are you seeing any change in the competitive landscape in your technology business?

I think the big transformational deals that we're working on and seeing what we called out in Q1 and Q2. We have a different set of competitors. They're much larger, much bigger global integration, development capabilities, technology companies. And we think we compete very, very well with us because we have the domain expertise around what our clients are looking for because we run their businesses as it stands right now. So that's definitely changed from a competitive standpoint. We've also seen sort of smaller VC-backed companies talking about AI who kind of are talking about new bells and whistles. But again, they don't really necessarily understand what the clients are after and what the intimate knowledge of the domain expertise is. And so therefore, we have a very good competitive advantage against them as we're building out the technology that's very suited for the client base because we know it. We know the demand expertise. So we are migrating to different competitors, but we think we're very, very well positioned for sort of the new competitive landscape.

Thank you, Chris.

Thank you, Vincent.

Thank you. And with that, ladies and gentlemen, I will conclude the Q&A session and conference for today. Thank you all for participating and you may now disconnect.