CONCENTRIX CORPORATION This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our historical consolidated financial statements and the notes to those consolidated financial statements. It contains forward-looking statements, which are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see "Risk Factors" and "Note Regarding Forward-Looking Statements" in this Annual Report on Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements. The following discussion compares our results for the fiscal year endedNovember 30, 2021 to the fiscal year endedNovember 30, 2020 . The discussion comparing our results for the fiscal year endedNovember 30, 2020 to the fiscal year endedNovember 30, 2019 is included within Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K filed with theSEC onFebruary 16, 2021 , and is incorporated by reference herein. Unless otherwise indicated or except where the context otherwise requires, references to "we," "our," "us," "the Company" or "Concentrix" in this Management's Discussion and Analysis of Financial Condition and Results of Operations refer toConcentrix Corporation and its subsidiaries. Overview and Basis of PresentationConcentrix is a leading global provider of Customer Experience ("CX") solutions and technology that help iconic and disruptive brands drive deep understanding, full lifecycle engagement, and differentiated experiences for their end-customers. We provide end-to-end capabilities, including CX process optimization, technology innovation, front- and back-office automation, analytics and business transformation services to clients in five primary industry verticals. Our differentiated portfolio of solutions supports Fortune Global 500 as well as new economy clients across the globe in their efforts to deliver an optimized, consistent brand experience across all channels of communication, such as voice, chat, email, social media, asynchronous messaging, and custom applications. We strive to deliver exceptional services globally supported by our deep industry knowledge, technology and security practices, talented people, and digital and analytics expertise. We generate revenue from performing services that are generally tied to our clients' products and services. Any shift in business or the size of the market for our clients' products or services, or any failure of technology or failure of acceptance of our clients' products or services in the market may impact our business. The staff turnover rate in our business is high, as is the risk of losing experienced team members. High staff turnover rates may increase costs and decrease operating efficiencies and productivity. PK Acquisition OnDecember 27, 2021 , we completed our 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 expands our scale in the digital IT services market and supports our growth strategy of investing in digital transformation to deliver exceptional customer experiences. The addition of the PK staff and technology to our team further strengthens our capabilities in CX design and development, artificial intelligence ("AI"), intelligent automation, and customer loyalty. Spin-off OnDecember 1, 2020 , the previously announced separation (the "separation") ofConcentrix and our technology-infused CX solutions business from TD SYNNEX was completed through a tax-free distribution of all of the issued and outstanding shares of our common stock to TD SYNNEX stockholders (the distribution and, together with the separation, the "spin-off"). TD SYNNEX stockholders received one share of our common stock for each share of TD SYNNEX common stock held as of the close of business onNovember 17, 2020 . As a result of the 32 -------------------------------------------------------------------------------- Table of Contents spin-off, we became an independent public company and our common stock commenced trading on theNasdaq Stock Market ("Nasdaq") under the symbol "CNXC" onDecember 1, 2020 . In connection with the spin-off, onNovember 30, 2020 , we entered into a separation and distribution agreement, an employee matters agreement, a tax matters agreement and a commercial agreement with TD SYNNEX to set forth the principal actions to be taken in connection with the spin-off and define our ongoing relationship with TD SYNNEX after the spin-off. Risks and uncertainties related to the COVID-19 pandemic InDecember 2019 , there was an outbreak of a new strain of coronavirus ("COVID-19"), which was declared a pandemic by theWorld Health Organization inMarch 2020 . The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and labor force participation, and created significant volatility and disruption of financial markets. We successfully transitioned a significant portion of our workforce to a remote working environment throughout the second quarter of 2020 and implemented a number of safety and social distancing measures in our sites to protect the health and safety of our team. During fiscal year 2021, almost all of our workforce was productive, but we experienced the continued effects of the COVID-19 pandemic, as the Delta variant caused new waves of COVID-19 cases around the globe. We incurred net costs of approximately$33 million and$86 million associated with COVID-19 during the fiscal years endedNovember 30, 2021 and 2020, respectively. The COVID-19 related costs consist of certain out-of-pocket costs and non-productive workforce costs, including support and resources for our staff to care for themselves and their families. The extent of the continued impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration, spread and severity of the pandemic, the evolution of the virus and the effects of mutations in its genetic code, country and state restrictions regarding virus containment, the availability and effectiveness of vaccines and treatment options, accessibility to the Company's delivery and operations locations, our continued utilization of remote work environments in response to future health and safety restrictions, and the effect on our clients' businesses and the demand for their products and services, all of which are uncertain and cannot be predicted. We are unable to predict how long the pandemic conditions will persist in regions in which we operate, if or when countries or localities may experience an increase in COVID-19 cases, what additional measures may be introduced by governments or our clients in response to the pandemic generally or to an increase in COVID-19 cases in a particular country or locality, and the effect of any such additional measures on our business. As a result, many of the estimates and assumptions involved in preparation of the consolidated financial statements included in this Annual Report on Form 10-K required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic and global recovery from the pandemic, our estimates may materially change in future periods. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends. Revenue and Cost of Revenue We generate revenue through the provision of CX solutions and technology to our clients pursuant to client contracts. Our client contracts typically consist of a master services agreement, supported in most cases by multiple statements of work, which contains the terms and conditions of each contracted solution. Our client contracts can range from less than one year to over five years in term and are subject to early termination by our clients for any reason, typically with 30 to 90 days' notice. Our CX solutions and technology are generally characterized by flat unit prices. Approximately 96% of our revenue is recognized as services are performed, based on staffing hours or the number of client customer transactions handled using contractual rates. Remaining revenues from the sale of these solutions are typically recognized as the services are provided over the duration of the contract using contractual rates. Our cost of revenue consists primarily of personnel costs related to the delivery of our solutions. The costs of our revenue can be impacted by the mix of client contracts, where we deliver the CX solutions, additional lead time for programs to be fully scalable and transition and initial set-up costs. Our cost of revenue as a percentage of revenue has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the 33 -------------------------------------------------------------------------------- Table of Contents management of our operating expenses, and the timing and costs incurred related to our acquisitions and investments. In fiscal years 2021 and 2020, approximately 84% and 83%, respectively, of our consolidated revenue was generated from our non-U.S. operations, and approximately 62% and 63%, respectively, of our consolidated revenue was priced inU.S. dollars and we expect this to continue. As a result, we have certain client contracts that are priced in non-U.S. dollar currencies for which a substantial portion of the costs to deliver the services are in other currencies. Accordingly, our revenue may be earned in currencies that are different from the currencies in which we incur corresponding expenses. Fluctuations in the value of currencies, such as the Philippine peso, the Indian rupee, and the Canadian dollar, against theU.S. dollar or other currencies in which we bill our clients, and inflation in the local economies in which these delivery centers are located, can impact the operating and labor costs in these delivery centers, which can result in reduced profitability. As a result, our revenue growth, costs and profitability has been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates.
Margins
Our gross margins fluctuate and can be impacted by the mix of client contracts, services provided, shifts in the geography from which our CX services are delivered, client volume trends, and the amount of lead time that is required for programs to become fully scaled and transition and set-up costs. Our operating margin fluctuates based on changes in gross margins as well as overall volume levels, as we are able to gain scale efficiencies in our selling, general and administrative costs in periods of higher volume. Economic and Industry Trends The CX solutions industry in which we operate is competitive. Clients' performance measures are based on competitive pricing terms and quality of services. Accordingly, we could be subject to pricing pressure and may experience a decrease in revenue and operating income. Our business operates in over 40 countries across 6 continents. We have significant concentrations inthe Philippines ,India ,the United States , theUnited Kingdom , throughoutEurope ,China andJapan . Accordingly, we would be impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to theU.S. dollar. Seasonality Our revenue and margins fluctuate with the underlying trends in our clients' businesses and trends in the level of consumer activity. As a result, our revenues and margins are typically higher in the fourth quarter of the year than in any other quarter. Critical Accounting Policies and Estimates The discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles inthe United States ("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review and evaluate our estimates and assumptions. Our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies involve the more significant judgments, estimates and/or assumptions used in the preparation of our consolidated financial statements. 34 -------------------------------------------------------------------------------- Table of Contents Revenue Recognition We recognize revenue from our client contracts over time as the promised services are delivered to clients for an amount that reflects the consideration to which we are entitled in exchange for those services. We recognize revenue over time as the client simultaneously receives and consumes the benefits provided by us as we perform the services. We account for a contract with a client when it has written approval, the contract is committed, the rights of the parties, including payments terms, are identified, the contract has commercial substance and the consideration is probable of collection. Revenue is presented net of taxes collected from clients and remitted to government authorities. We generally invoice a client after the performance of services, or in accordance with the specific contractual provisions. Payments are due as per contract terms and do not contain a significant financing component. In most cases, our contracts consist of a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). Service contracts are most significantly based on a fixed unit-price per transaction or other objective measure of output. Revenue on unit-price transactions is recognized over time using an objective measure of output such as staffing hours or the number of transactions processed by service advisors. Certain contracts may be based on a fixed price. Revenue on fixed price contracts is recognized over time using an input measure or on a straight line basis over the term of the contract as the services are provided based on the nature of the contract. Certain client contracts include additional payments from the client based upon the achievement of certain agreed-upon service levels and performance metrics. Certain contracts also provide for a reduction in consideration paid to the Company in the event that certain agreed-upon service levels or performance metrics are not achieved. Revenue based on such arrangements is accounted for as variable consideration when the likely amount of revenue to be recognized can be estimated to the extent that it is unlikely that a significant reversal will occur. Goodwill As ofNovember 30, 2021 , we had goodwill of$1,813.5 million recorded on our consolidated balance sheet. The Company tests goodwill for impairment annually at the reporting unit level in the fiscal fourth quarter or more frequently if events or changes in circumstances indicate that it may be impaired. For purposes of the goodwill impairment test, the Company can elect to perform a quantitative or qualitative analysis. If the qualitative analysis is elected, goodwill is tested for impairment at the reporting unit level by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The factors that are considered in the qualitative analysis include macroeconomic conditions, industry and market considerations, cost factors such as increases in labor, or other costs that would have a negative effect on earnings and cash flows; and other relevant entity-specific events and information. If we elect to perform or are required to perform a quantitative analysis, then the reporting unit's carrying value is compared to its fair value.Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value and the excess is recognized as an impairment loss. As part of our fiscal year 2021 assessment and analysis of the fair value of our reporting unit, we reconciled to our market capitalization. The result of the analysis shows the reporting unit's fair value substantially exceeds its carrying value. Based on our 2021 impairment assessment, we concluded that no impairment charges were necessary. We have not recorded any impairment charges related to goodwill during the fiscal years endedNovember 30, 2021 and 2020. Other Intangible Assets As ofNovember 30, 2021 , we had other intangible assets, net of amortization, of$655.5 million . This amount consists primarily of$653.3 million in client relationship intangible assets. As amortizable intangible assets, we evaluate the intangible assets for recoverability whenever events or circumstances indicate a possible inability to recover their carrying value (an indicator of impairment). If an impairment indicator is present, we perform a test of recoverability by comparing estimates of undiscounted future cash flows to the carrying values of the related assets. 35 -------------------------------------------------------------------------------- Table of Contents We have not recorded any impairment charges related to other intangible assets during the fiscal years endedNovember 30, 2021 and 2020. Recently Issued Accounting Pronouncements For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements, see Note 2-Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Results of Operations - Fiscal Years EndedNovember 30, 2021 and 2020 Fiscal Years Ended November 30, 2021 2020 (in thousands) Revenue$ 5,587,015 $ 4,719,534 Cost of revenue 3,617,527 3,058,009 Gross profit 1,969,488 1,661,525 Selling, general and administrative expenses 1,397,091 1,352,764 Operating income 572,397 308,761 Interest expense and finance charges, net 23,046 48,313 Other expense (income), net (6,345) (7,447) Income before income taxes 555,696 267,895 Provision for income taxes 150,119 103,084 Net income $ 405,577$ 164,811 Revenue Fiscal Years Ended November 30, Percent Change 2021 2020 2021 to 2020 (in thousands) Industry vertical: Technology and consumer electronics$ 1,759,203 $ 1,422,817 23.6 % Communications and media 1,005,283 954,234 5.3 % Retail, travel and ecommerce 985,550 796,324 23.8 % Banking, financial services and insurance 862,033 712,469 21.0 % Healthcare 489,855 392,686 24.7 % Other 485,091 441,004 10.0 % Total$ 5,587,015 $ 4,719,534 18.4 % We generate revenue by delivering our CX solutions and technology to our clients categorized in the above primary industry verticals. These solutions focus on customer engagement, process optimization, and back-office automation. Our revenue increased 18.4% in fiscal year 2021, compared to fiscal year 2020, due to an increase in volumes across all verticals. Revenue in our technology and consumer electronics vertical increased as a result of larger volumes from several social media and internet-related service clients and a broad-based group of hardware and software clients. Revenue in our communications and media vertical increased due to larger volumes primarily as a result of prior year impacts from COVID-19 that did not recur in the current year, partially offset by our portfolio re- 36
-------------------------------------------------------------------------------- Table of Contents balancing efforts which were largely completed by the end of fiscal year 2020. Revenue in our retail, travel and ecommerce vertical increased due to larger volumes across the majority of our retail and ecommerce clients and an increase in volumes for several travel and tourism clients. Revenue in our banking, financial services and insurance vertical increased due to larger volumes from the majority of our banking and financial services clients. Revenue in our healthcare vertical increased due to larger volumes across the majority of our health insurance clients. Revenue in our other vertical increased reflecting growth with several government clients. Also contributing to the increase in total revenue in fiscal year 2021 were favorable foreign currency translation effects of$93.3 million , or 2.0%. The favorable foreign currency translation effects on revenue were primarily due to the strengthening of the euro, British pound and Australian dollar against theU.S. dollar. Cost of Revenue, Gross Profit and Gross Margin Percentage Fiscal Years Ended November 30, Percent Change 2021 2020 2021 to 2020 ($ in thousands) Cost of revenue$ 3,617,527 $ 3,058,009 18.3 % Gross profit$ 1,969,488 $ 1,661,525 18.5 % Gross margin % 35.3 % 35.2 % Cost of revenue consists primarily of personnel costs. Gross margins can be impacted by resource location, client mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs. Our cost of revenue increased by 18.3% in fiscal year 2021, compared to fiscal year 2020, primarily due to the increase in revenue, wage increases and foreign currency translation effects of$78.2 million on the cost of revenue. The increases were partially offset by a decrease in COVID-19 related costs of approximately$41 million . The foreign currency translation effects on the cost of revenue were caused primarily by the strengthening of the Canadian dollar, euro, British pound and Philippine peso against theU.S. dollar. Our gross profit increased 18.5% in fiscal year 2021, compared to fiscal year 2020, primarily due to the increase in revenue, a net favorable foreign currency impact of$15.1 million on gross profit and the decrease in COVID-19 related costs. Our gross margin percentage remained materially consistent at 35.3% in fiscal year 2021 compared to 35.2% in the prior year and was impacted by the mix of geographies where our services were delivered. Selling, General and Administrative Expenses Fiscal Years Ended November 30, Percent Change 2021 2020 2021 to 2020 ($ in thousands)
Selling, general and administrative expenses
$ 1,352,764 3.3 % Percentage of revenue 25.0 % 28.7 % Our selling, general and administrative expenses consist primarily of support personnel costs such as salaries, commissions, bonuses, employee benefits and share-based compensation costs. Selling, general and administrative expenses also include the cost of our global delivery facilities, utility expenses, hardware and software costs related to our technology infrastructure, legal and professional fees, depreciation on our technology and facility equipment, amortization of intangible assets resulting from acquisitions, marketing expenses, acquisition-related transaction and integration expenses, and spin-off related expenses. Our selling, general and administrative expenses increased by 3.3% in fiscal year 2021, compared to fiscal year 2020, primarily due to increases in expenses to support our revenue growth, foreign currency translation effects of$23.7 million , and an increase in share-based compensation expense of$20.9 million . These increases were partially 37 -------------------------------------------------------------------------------- Table of Contents offset by a gain on divestitures and related transaction costs of$13.2 million primarily associated with our sale ofConcentrix Insurance Solutions ("CIS"), a decrease in acquisition-related and integration expenses of$27.2 million , and a decrease in COVID-19 related expenses of approximately$12 million . These items and scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of revenue from 28.7% for fiscal year 2020 to 25.0% for fiscal year 2021. Operating Income Fiscal Years Ended November 30, Percent Change 2021 2020 2021 to 2020 ($ in thousands) Operating income$ 572,397 $ 308,761 85.4 % Operating margin 10.2 % 6.5 % Our operating income and operating margin increased during fiscal year 2021, compared to fiscal year 2020, primarily due to increases in gross profit and the reduction in selling, general and administrative expenses as a percentage of revenue. Interest Expense and Finance Charges, Net Fiscal Years Ended November 30, Percent Change 2021 2020 2021 to 2020 ($ in thousands) Interest expense and finance charges, net$ 23,046 $ 48,313 (52.3) % Percentage of revenue 0.4 % 1.0 % Amounts recorded in interest expense and finance charges, net, for fiscal year 2021 consist primarily of interest on our term loan and accounts receivable securitization facility borrowings, while amounts recorded for the prior year related primarily to interest on our borrowings from TD SYNNEX. Interest expense decreased during fiscal year 2021, in comparison to fiscal year 2020, as a result of the reduction of outstanding borrowings and more favorable interest rate terms on the borrowings in fiscal year 2021. Other Expense (Income), Net Fiscal Years Ended November 30, Percent Change 2021 2020 2021 to 2020 ($ in thousands) Other expense (income), net$ (6,345) $ (7,447) (14.8) % Percentage of revenue 0.1 % 0.2 % Amounts recorded as other expense (income), net include foreign currency transaction gains and losses, other than cash flow hedges, investment gains and losses, non-service component of pension costs, and other non-operating gains and losses. Other expense (income), net in fiscal year 2021 was$6.3 million of income compared to$7.4 million of income in fiscal year 2020. The decrease in other expense (income), net was due to a favorable resolution of a previously-recognized tax indemnity obligation in fiscal year 2020 that did not recur in fiscal year 2021. 38
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Provision for Income Taxes
Fiscal Years Ended November 30, Percent Change
2021 2020 2021 to 2020
($ in thousands)
Provision for income taxes $ 150,119 $ 103,084 45.6 %
Percentage of income before income taxes 27.0 % 38.5 %
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and international jurisdictions. For fiscal year 2020, although our financial results were included in the consolidated tax returns of TD SYNNEX in certain jurisdictions, our tax provision was recorded as if we had filed our taxes on a stand-alone basis. Our provision for income taxes increased for fiscal year 2021, compared to fiscal year 2020, due to the increase in our income before taxes and an additional expense of$13.0 million in fiscal year 2021 related to the divestiture of CIS. The effective tax rate for fiscal year 2021 decreased compared to the effective tax rate for the fiscal year 2020 due to hypothetical tax expense being only applicable to prior year, resulting in a decrease in the effective tax rate of 10%, partially offset by the change in mix of income earned in different tax jurisdictions between fiscal years. See Note 14-Income Taxes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Certain non-GAAP financial information In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including: •Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue of each fiscal year in the billing currency toU.S. dollars using the comparable prior year's currency conversion rate. Generally, when theU.S. dollar either strengthens or weakens against other currencies, our revenue growth at constant currency rates or adjusting for currency will be higher or lower than our revenue growth reported at actual exchange rates. •Revenue in adjusted constant currency, which is constant currency revenue excluding revenue for businesses acquired or divested since the beginning of the prior year period so that revenue growth can be viewed without the impact of acquisitions or divestitures, thereby facilitating period-to-period comparisons of our business performance. •Non-GAAP operating income, which is operating income, adjusted to exclude acquisition-related and integration expenses, including related restructuring costs, spin-off related expenses, amortization of intangible assets, share-based compensation and gain on divestitures and related transaction costs. •Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue. •Adjusted earnings before interest, taxes, depreciation, and amortization, or adjusted EBITDA, which is non-GAAP operating income, as defined above, plus depreciation. •Adjusted EBITDA margin, which is adjusted EBITDA, as defined above, divided by revenue. 39
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•Non-GAAP net income, which is net income excluding the tax effected impact of
acquisition-related and integration expenses, including related restructuring
costs, spin-off related expenses, amortization of intangible assets, share-based
compensation and gain on divestitures and related transaction costs.
•Free cash flow, which is cash flows from operating activities less capital
expenditures. We believe that free cash flow is a meaningful measure of cash
flows since capital expenditures are a necessary component of ongoing
operations. However, free cash flow has limitations because it does not
represent the residual cash flow available for discretionary expenditures. For
example, free cash flow does not incorporate payments for business acquisitions.
•Non-GAAP diluted earnings per common share ("EPS"), which is diluted EPS
excluding the per share, tax effected impact of acquisition-related and
integration expenses, including related restructuring costs, spin-off related
expenses, amortization of intangible assets, share-based compensation and gain
on divestitures and related transaction costs.
We believe that providing this additional information is useful to the reader to
better assess and understand our base operating performance, especially when
comparing results with previous periods and for planning and forecasting in
future periods, primarily because management typically monitors the business
adjusted for these items in addition to GAAP results. Management also uses these
non-GAAP measures to establish operational goals and, in some cases, for
measuring performance for compensation purposes. These non-GAAP financial
measures exclude amortization of intangible assets. Our acquisition activities
have resulted in the recognition of intangible assets, which consist primarily
of client relationships, technology and trade names. Finite-lived intangible
assets are amortized over their estimated useful lives and are tested for
impairment when events indicate that the carrying value may not be recoverable.
The amortization of intangible assets is reflected in our statements of
operations. Although intangible assets contribute to our revenue generation, the
amortization of intangible assets does not directly relate to the services
performed for our clients. Additionally, intangible asset amortization expense
typically fluctuates based on the size and timing of our acquisition activity.
Accordingly, we believe excluding the amortization of intangible assets, along
with the other non-GAAP adjustments, which neither relate to the ordinary course
of our business nor reflect our underlying business performance, enhances our
and our investors' ability to compare our past financial performance with its
current performance and to analyze underlying business performance and trends.
Intangible asset amortization excluded from the related non-GAAP financial
measure represents the entire amount recorded within our GAAP financial
statements, and the revenue generated by the associated intangible assets has
not been excluded from the related non-GAAP financial measure. Intangible asset
amortization is excluded from the related non-GAAP financial measure because the
amortization, unlike the related revenue, is not affected by operations of any
particular period unless an intangible asset becomes impaired or the estimated
useful life of an intangible asset is revised. These non-GAAP financial measures
also exclude share-based compensation expense. Given the subjective assumptions
and the variety of award types that companies can use when calculating
share-based compensation expense, management believes this additional
information allows investors to make additional comparisons between our
operating results and those of our peers. As these non-GAAP financial measures
are not calculated in accordance with GAAP, they may not necessarily be
comparable to similarly titled measures employed by other companies. These
non-GAAP financial measures should not be considered in isolation or as a
substitute for the comparable GAAP measures and should be used as a complement
to, and in conjunction with, data presented in accordance with GAAP.
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Fiscal Years Ended
2021 2020
($ in thousands except per share amounts)
Revenue $ 5,587,015 $ 4,719,534
Foreign currency translation (93,280) -
Revenue in constant currency $ 5,493,735 $ 4,719,534
Effect of excluding revenue of acquired and divested businesses (37,911) (66,701)
Revenue in adjusted constant currency $ 5,455,824 $ 4,652,833
Operating income $ 572,397 $ 308,761
Acquisition-related and integration expenses 825 27,982
Spin-off related expenses - 9,483
Amortization of intangibles 136,939 147,283
Share-based compensation 36,762 15,914
Gain on divestitures and related transaction costs (13,197) -
Non-GAAP operating income $ 733,726 $ 509,423
Net income $ 405,577 $ 164,811
Interest expense and finance charges, net 23,046 48,313
Provision for income taxes 150,119 103,084
Other income, net (6,345) (7,447)
Acquisition-related and integration expenses 825 27,982
Spin-off related expenses - 9,483
Gain on divestitures and related transaction costs (13,197) -
Amortization of intangibles 136,939 147,283
Share-based compensation 36,762 15,914
Depreciation (excluding accelerated depreciation included in acquisition-related and integration expenses above)
140,236 129,126
Adjusted EBITDA $ 873,962 $ 638,549
Operating margin 10.2 % 6.5 %
Non-GAAP operating margin 13.1 % 10.8 %
Adjusted EBITDA margin 15.6 % 13.5 %
Net income $ 405,577 $ 164,811
Acquisition-related and integration expenses 825 27,982
Spin-off related expenses - 9,483
Amortization of intangibles 136,939 147,283
Share-based compensation 36,762 15,914
Gain on divestitures and related transactions costs (13,197) -
Income taxes related to the above (1) (32,291) (49,010)
Non-GAAP net income $ 534,615 $ 316,463
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Fiscal Years Ended
2021 2020
Diluted earnings per common share ("EPS") $ 7.70 $ 3.19
Acquisition-related and integration expenses 0.02 0.54
Spin-off related expenses - 0.18
Amortization of intangibles 2.60 2.85
Share-based compensation 0.70 0.31
Gain on divestitures and related transaction costs (0.25) -
Income taxes related to the above (1) (0.62) (0.94)
Non-GAAP Diluted EPS $ 10.15 $ 6.13
(1) The tax effect of taxable and deductible non-GAAP adjustments was
calculated using the tax-deductible portion of the expenses and applying the
entity-specific, statutory tax rates applicable to each item during the
respective fiscal years.
Client Concentration
Our largest client accounted for 11.9% and 11.5% of our revenues in fiscal years
2021 and 2020, respectively. The revenues that we recognize from this client are
earned under multiple contracts and statements of work. No other client
accounted for more than 10% of our revenues in 2021 or 2020.
Liquidity and Capital Resources
Our primary uses of cash are working capital, capital expenditures to expand our
delivery footprint and enhance our technology solutions, debt repayment, and
acquisitions, including our recent acquisition of PK. Our financing needs for
these uses of cash have been a combination of operating cash flows, third-party
debt arrangements and, prior to the spin-off, related party borrowings from TD
SYNNEX. Our working capital needs are primarily to finance accounts receivable.
When our revenue is increasing, our net investment in working capital typically
increases. Conversely, when revenue is decreasing, our net investment in working
capital typically decreases. To increase our market share and better serve our
clients, we may further expand our operations through investments or
acquisitions. We expect that such expansion would require an initial investment
in working capital, personnel, facilities, and operations. These investments or
acquisitions would likely be funded primarily by our existing cash and cash
equivalents, available liquidity, including capacity on our debt arrangements,
or the issuance of securities.
In September 2021 , considering our strong free cash flow, low leverage and
adequate liquidity to support capital return to stockholders while maintaining
flexibility to pursue acquisitions, our board of directors authorized a share
repurchase program. Under the share repurchase program, the board of directors
authorized the Company to purchase up to $500 million of our common stock from
time to time as market and business conditions warrant, including through open
market purchases or Rule 10b5-1 trading plans. The repurchase program has no
termination date and may be suspended or discontinued at any time. During the
fiscal year ended November 30, 2021 , we repurchased 138,455 aggregate shares of
our common stock for an aggregate purchase price of $25.1 million . At November
30, 2021 , we had approximately $474.9 million remaining for share repurchases
under the existing program.
On September 27, 2021 , we announced the initiation of a quarterly cash dividend
of $0.25 per share. The first quarterly dividend was paid in cash on November 2,
2021 to stockholders of record on October 22, 2021 . On January 18, 2022 , we
announced a cash dividend of $0.25 per share to stockholders of record as of
January 28, 2022 , payable on February 8, 2022 . The board of directors expects
that future cash dividends will be paid on a quarterly basis. However, any
decision to pay future cash dividends will be subject to our board of directors'
approval, and will depend on many factors, such as our financial condition,
earnings, capital requirements, debt service obligations, restrictive covenants
in our debt agreements, industry practice, legal requirements, regulatory
constraints, and other factors that our board of directors deems relevant. Our
ability to pay dividends will depend on
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our ongoing ability to generate cash from operations and on our access to the
capital markets. We cannot guarantee that we will continue to pay a dividend in
the future.
Debt Arrangements
Credit Facility
On October 16, 2020 , we entered into a senior secured credit facility, which
provided for the extension of revolving loans of up to $600 million (the
"Revolver") and term loan borrowings of up to $900 million (the "Term Loan" and,
together with the Revolver, the "Credit Facility"). On November 30, 2020 , in
connection with the spin-off, we incurred $900 million of initial Term Loan
borrowings under the Credit Facility and $250 million of borrowings under the
Securitization Facility (as defined below). Substantially all of the proceeds
from such indebtedness, net of debt issuance costs, were transferred to TD
SYNNEX on November 30, 2020 to eliminate debt owed by the Company to TD SYNNEX
and in exchange for the contribution of certain Company trademarks from TD
SYNNEX to the Company. We had no outstanding borrowings on the Revolver as of
November 30, 2021 and 2020.
Beginning May 31, 2021 , the outstanding principal of the Term Loan was payable
in quarterly installments of $11.25 million , with the unpaid balance due in full
on the maturity date. We may prepay the loans under the Credit Facility at any
time without penalty, other than breakage fees. During the fiscal year ended
November 30, 2021 , we paid $200 million of the principal balance on the Term
Loan, including $166.25 million of voluntary prepayments.
We may request, subject to obtaining commitments from any participating lenders
and certain other conditions, incremental commitments to increase the amount of
the Revolver or Term Loan available under the Credit Facility in an aggregate
principal amount of up to $450 million , plus an additional amount, so long as
after giving effect to the incurrence of such additional amount, our pro forma
first lien leverage ratio (as defined in the Credit Facility) would not exceed
3.00 to 1.00.
Obligations under the Credit Facility are secured by substantially all of the
assets of Concentrix and certain of its U.S. subsidiaries and are guaranteed by
certain of its U.S. subsidiaries.
Borrowings under the Credit Facility that were LIBOR rate loans bore interest at
a per annum rate equal to the applicable LIBOR rate (but not less than 0.25%),
plus an applicable margin, which ranged from 1.25% to 2.25%, based on our
consolidated leverage ratio. Borrowings under the Credit Facility that were not
LIBOR 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 LIBOR rate plus 1.00%, plus (ii) an applicable margin, which ranged from
0.25% to 1.25%, based on our consolidated leverage ratio. Commitments under the
Revolver are subject to a commitment fee on the unused portion of the Revolver,
which fee ranged from 25 to 45 basis points, based on our consolidated leverage
ratio.
The Credit Facility and the Amended Credit Facility (as defined below) contain
various loan covenants that restrict the ability of Concentrix and its
subsidiaries to take certain actions, including incurrence of indebtedness,
creation of liens, mergers or consolidations, dispositions of assets, repurchase
or redemption of capital stock, making certain investments, entering into
certain transactions with affiliates or changing the nature of our business. In
addition, the Credit Facility and the Amended Credit Facility contain financial
covenants that require us to maintain at the end of each fiscal quarter (i) a
consolidated leverage ratio (as defined in the Credit Facility) not to exceed
3.75 to 1.0 and (ii) a consolidated interest coverage ratio (as defined in the
Credit Facility) equal to or greater than 3.00 to 1.0. The Credit Facility and
the Amended Credit Facility also contain various customary events of default,
including payment defaults, defaults under certain other indebtedness, and a
change of control of Concentrix .
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Table of Contents Securitization Facility OnOctober 30, 2020 , we entered into a$350 million accounts receivable securitization facility (the "Securitization Facility") pursuant to certain agreements, including a receivables financing agreement and a receivables purchase agreement. The Securitization Facility has a termination date ofOctober 28, 2022 . Under the Securitization Facility,Concentrix and certain of itsU.S. based subsidiaries sell or otherwise transfer all of their accounts receivable to a special purpose bankruptcy-remote subsidiary ofConcentrix that grants a security interest in the receivables to the lenders in exchange for available borrowings of up to$350 million . Borrowing availability under the Securitization Facility may be limited by our accounts receivable balances, changes in the credit ratings of our clients comprising the receivables, client concentration levels in the receivables, and certain characteristics of the accounts receivable being transferred (including factors tracking performance of the accounts receivable over time). Borrowings under the Securitization Facility bear interest with respect to loans that are funded through the issuance of commercial paper at the applicable commercial paper rate plus a spread of 1.05% and, otherwise, at a per annum rate equal to the applicable LIBOR rate plus a spread of 1.15%. We are also obligated to pay a monthly undrawn fee that ranges from 30 to 37.5 basis points based on the portion of the Securitization Facility that is undrawn. The Securitization Facility contains various affirmative and negative covenants, including a consolidated leverage ratio covenant that is consistent with the Credit Facility and customary events of default, including payment defaults, defaults under certain other indebtedness, a change in control ofConcentrix , and certain events negatively affecting the overall credit quality of the transferred accounts receivable.
As of
Amended Credit Facility OnDecember 27, 2021 , in connection with the closing of the acquisition of PK, we entered into an amendment of the Credit Facility (as amended, the "Amended Credit Facility") (i) to refinance the Term Loan with a new term loan, which was fully advanced, in the aggregate outstanding principal amount of$2,100 million (the "New Term Loan"), (ii) to increase the Revolver to$1,000 million , (iii) to extend the maturity of the Credit Facility fromNovember 30, 2025 toDecember 27, 2026 , (iv) to replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Credit Facility, and (v) to modify the commitment fee on the unused portion of the Revolver and the margins in excess of the reference rates at which the loans under the Credit Facility bear interest. The proceeds from the New Term Loan and additional borrowings on the Securitization Facility were used to repay the existing Term Loan and to finance the acquisition of PK, including the repayment of certain indebtedness of PK and the payment of fees and expenses in connection therewith. Borrowings under the Amended 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 adjustment of between 0.10% and 0.25% depending on the interest period of each SOFR loan, plus an applicable margin, which ranges from 1.25% to 2.00%, based on our consolidated leverage ratio. Borrowings under the Amended Credit Facility that are not SOFR rate loans bear interest at a per annum rate equal to (i) the greatest of (a) the Federal Funds Rate in effect on such day plus ½ of 1.00%, (b) the rate of interest last publicly announced byBank of America as its "prime rate" and (c) the term SOFR rate plus 1.00%, plus (ii) an applicable margin, which ranges from 0.25% to 1.00%, based on our consolidated leverage ratio. As amended, the commitment fee on the unused portion of the Revolver ranges from 22.5 to 30 basis points, based on our consolidated leverage ratio. 44 -------------------------------------------------------------------------------- Table of Contents BeginningAugust 31, 2022 , the outstanding principal of the New Term Loan is payable in quarterly installments of$26.25 million , with the unpaid balance due in full on the maturity date. Obligations under the Amended Credit Facility remain secured by substantially all of the assets ofConcentrix and certain of itsU.S. subsidiaries and are guaranteed by certain of itsU.S. subsidiaries. There were no changes to the Company's various loan covenants, including financials covenants, under the Amended Credit Facility. Cash Flows - Fiscal Years EndedNovember 30, 2021 and 2020 The following summarizes our cash flows for the fiscal years endedNovember 30, 2021 and 2020, as reported in our consolidated statement of cash flows in the accompanying consolidated financial statements. Fiscal Years Ended November 30, 2021 2020 ($ in thousands) Net cash provided by operating activities$ 514,178 $ 507,614 Net cash used in investing activities (78,650) (109,216) Net cash used in financing activities (401,871) (335,224)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(6,998) 9,663
Net increase in cash, cash equivalents and restricted cash $ 26,659
156,351 83,514
Cash, cash equivalents and restricted cash at end of year
Operating Activities Net cash provided by operating activities was$514.2 million for fiscal year 2021 in comparison to$507.6 million for fiscal year 2020. The increase in net cash provided by operating activities over the prior year was primarily related to the increase in net income, partially offset by changes in working capital and operating assets and liabilities over the prior year period, including an increase in accounts receivable and a decrease in payables. Investing Activities Net cash used in investing activities for fiscal year 2021 was$78.7 million in comparison to$109.2 million in fiscal year 2020. The decrease in net cash used in investing activities over the prior year primarily related to$73.7 million of proceeds in fiscal year 2021 from divestitures mainly attributable to the sale of CIS and a decrease in capital expenditures of$22.3 million from fiscal year 2020. These decreases were partially offset by proceeds of$67.7 million in fiscal year 2020 related to a loan to a non-Concentrix subsidiary of our former parent as part of its centralized treasury operations. Financing Activities Net cash used in financing activities in fiscal year 2021 was$401.9 million , consisting primarily of principal payments of$200.0 million under the Credit Facility, net payments of$145.0 million under the Securitization Facility, repurchases of common stock, including repurchases under our share repurchase program and tax withholdings of$57.5 million on vestings of share-based awards, and dividends of$13.1 million . Net cash used in financing activities in fiscal year 2020 was$335.2 million , consisting of third-party borrowings of$900 million under the Credit Facility and$250 million under the Securitization Facility, more than offset by$1,476.7 million in repayments on borrowings from TD SYNNEX and debt issuance costs related to these facilities. 45
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Table of Contents We believe our current cash balances and credit availability are enough to support our operating activities for at least the next twelve months. Free Cash Flow (a non-GAAP measure)
Fiscal Years Ended November 30,
2021 2020
($ in thousands)
Net cash provided by operating activities $ 514,178 $ 507,614
Purchases of property and equipment (149,079) (171,332)
Free cash flow (a non-GAAP measure) $
365,099
Our free cash flow was$365.1 million in fiscal year 2021, compared to$336.3 million in fiscal year 2020. The increase in free cash flow in fiscal year 2021 over fiscal year 2020 primarily reflects increased net cash provided by operating activities as a result of the increase in net income and a decrease in capital expenditures. Capital Resources As ofNovember 30, 2021 , we had total liquidity of$1,027 million , which includes undrawn capacity of$600 million on the Credit Facility, undrawn capacity of$245 million on the Securitization Facility and cash and cash equivalents. Our cash and cash equivalents totaled$182.0 million and$152.7 million as ofNovember 30, 2021 and 2020, respectively. Of our total cash and cash equivalents, 87% and 89% was held by our non-U.S. legal entities as ofNovember 30, 2021 and 2020, respectively. The cash and cash equivalents held by our non-U.S. legal entities are no longer subject toU.S. federal tax on repatriation intothe United States . Repatriation of some non-U.S. balances is restricted by local laws. Historically, we have fully utilized and reinvested all non-U.S. cash to fund our international operations and expansion; however, the Company has recorded deferred tax liabilities related to non-U.S. withholding taxes on the earnings of certain previously acquired non-U.S. entities that are likely to be repatriated in the future. If in the future our intentions change, and we repatriate the cash back tothe United States , we will report in our consolidated financial statements the impact of the state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity withinthe United States to fund current and expected future working capital, investment and other general corporate funding requirements. We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations, and our sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months. We also believe that our longer-term working capital, planned capital expenditures and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities. 46 -------------------------------------------------------------------------------- Table of Contents Material Cash Requirements, including Contractual Obligations to Third Parties The following table summarizes our material cash requirements from known contractual or other obligations as ofNovember 30, 2021 that are not disclosed elsewhere in this Annual Report on Form 10-K: Payments Due by Period Less than 1 Total Year 1 - 3 Years 3 - 5 Years >5 Years (in thousands) Certain Contractual Obligations: Interest on financing agreements (a)$ 43,070 $ 11,603
- 4,040 10,020 48,520
(a) Cash obligations for interest requirement related to our variable-rate debt
obligations at the current rates as of November 30, 2021 .
(b) Includes projected contributions to achieve minimum funding objectives for
our cash balance pension plan.
As of November 30, 2021 , we have established a reserve of $56.3 million for
unrecognized tax benefits. As we are unable to reasonably predict the timing of
settlement related to these unrecognized tax benefits, the table above excludes
such liabilities.
We currently expect our 2022 capital expenditures to be approximately $170
million to $180 million , which includes investments in our growth initiatives
and maintenance capital expenditures.
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