The discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year endedNovember 30, 2021 , as filed with theSecurities and Exchange Commission onJanuary 28, 2022 . References to "we," "our," "us," "the Company" or "Concentrix" refer toConcentrix Corporation and its subsidiaries. This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include, but are not limited to, statements regarding our expected future financial condition, results of operations, effective tax rate, cash flows, leverage, liquidity, business strategy, competitive position, demand for our services and seasonality of our business, international operations, acquisition opportunities and the anticipated impact of acquisitions, capital allocation and dividends, growth opportunities, spending, capital expenditures and investments, competition and market forecasts, industry trends, and statements that include words such as believe, expect, may, will, provide, could and should and other similar expressions. These forward-looking statements are inherently uncertain and involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Risks and uncertainties include, among other things: risks related to general economic conditions, including uncertainty related to the COVID-19 pandemic and its impact on the global economy, supply chains, inflation, our business and the business of our clients, and uncertainty related to the effect of the conflict inUkraine on the global economy; other communicable diseases, natural disasters, adverse weather conditions or public health crises; cyberattacks on our or our clients' networks and information technology systems; the inability to protect personal and proprietary information; the failure of our staff and contractors to adhere to our and our clients' controls and processes; the inability to execute on our digital customer experience strategy; the inability to successfully identify, complete or integrate strategic acquisitions or investments, including our integration of PK; competitive conditions in our industry and consolidation of our competitors; geopolitical, economic and climate or weather related risks in regions with a significant concentration of our operations; higher than expected tax liabilities; the loss of key personnel; the demand for customer experience solutions and technology; variability in demand by our clients or the early termination of our client contracts; the level of business activity of our clients and the market acceptance and performance of their products and services; the operability of our communication services and information technology systems and networks; changes in law, regulations or regulatory guidance; currency exchange rate fluctuations; damage to our reputation through the actions or inactions of third parties; increases in the cost of labor; investigative or legal actions; and other risks that are described under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedNovember 30, 2021 . We do not intend to update forward-looking statements, which speak only as of the date hereof, unless otherwise required by law.Concentrix , the Concentrix Logo, and all otherConcentrix company, product and services names and slogans are trademarks or registered trademarks ofConcentrix Corporation and its subsidiaries.Concentrix and the Concentrix Logo Reg.U.S. Pat. & Tm. Off. and applicable non-U.S. jurisdictions. Other names and marks are the property of their respective owners.
Overview and Basis of Presentation
Concentrix 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 and design engineering, 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' 26
-------------------------------------------------------------------------------- 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 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 staff. During the three months endedFebruary 28, 2022 , almost all of our workforce was productive, but we experienced the continued effects of the COVID-19 pandemic, as variants caused new waves of COVID-19 cases around the globe. 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 Quarterly Report on Form 10-Q required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic and the 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. 27
-------------------------------------------------------------------------------- Our CX solutions and technology are generally characterized by flat unit prices. Approximately 95% 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 revenue 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 management of our operating expenses, and the timing and costs incurred related to our acquisitions and investments. In the first quarter of 2022 and 2021, approximately 78% and 83% of our consolidated revenue was generated from our non-U.S. operations, and approximately 66% and 62%, 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 have 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, the amount of lead time that is required for programs to become fully scalable, 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 larger 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. Further, there can be competitive pressure in various labor markets, which could result in increased labor costs. Accordingly, we could be subject to pricing and labor cost pressures 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 ,Canada , 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 revenue and margins are typically higher in the fourth quarter of the year than in any other quarter.
Critical Accounting Policies and Estimates
During the three months endedFebruary 28, 2022 , there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year endedNovember 30, 2021 . 28 --------------------------------------------------------------------------------
Results of Operations - Three Months Ended
Three Months Ended February 28, February 28, 2022 2021 ($ in thousands) Revenue$ 1,536,052 $ 1,353,278 Cost of revenue 997,918 867,228 Gross profit 538,134 486,050 Selling, general and administrative expenses 390,389 351,161 Operating income 147,745 134,889 Interest expense and finance charges, net 8,770 7,703 Other expense (income), net (7,616) 3,803 Income before income taxes 146,591 123,383 Provision for income taxes 36,052 34,572 Net income before non-controlling interest 110,539 88,811 Less: Net income attributable to non-controlling interest 266 - Net income attributable to Concentrix Corporation$ 110,273 $ 88,811 Revenue Three Months Ended % Change February 28, February 28, 2022 2021 2022 to 2021 ($ in thousands) Industry vertical: Technology and consumer electronics$ 470,199 $ 412,818 13.9 % Communications and media 260,643 248,790 4.8 % Retail, travel and ecommerce 284,917 239,001 19.2 % Banking, financial services and insurance 243,246 209,084 16.3 % Healthcare 150,136 125,224 19.9 % Other 126,911 118,361 7.2 % Total$ 1,536,052 $ 1,353,278 13.5 %
We generate revenue by delivering our CX solutions and technology to our clients categorized in the above primary industry verticals. Our solutions focus on customer engagement, process optimization, and back-office automation.
Our revenue increased 13.5% in the three months endedFebruary 28, 2022 , compared to the three months endedFebruary 28, 2021 , which included approximately two months of revenue related to the acquired PK operations of$83.2 million , or an increase of 6.1%, and larger volumes across all verticals over the prior year period. These increases were partially offset by a decrease in revenue related to divested businesses of$15.9 million , or 1.2%, and an unfavorable translation effect of foreign currencies of$25.6 million , or 1.9%. The unfavorable foreign currency translation effect on revenue was primarily due to the weakening of the euro, Japanese yen and Australian dollar against theU.S. dollar. Revenue in our technology and consumer electronics vertical increased as a result of significant increases in volumes from several social media and internet-related service clients and increases in volumes from a broad-based group of hardware and software clients over the prior year period. Revenue in our communications and media vertical increased primarily due to contributions from the PK operations resulting in increased volumes over the prior year period. Revenue in our retail, travel and ecommerce vertical increased primarily due to contributions from the PK operations and increased volumes across the majority of our retail and ecommerce and travel and tourism clients over the prior year period. Revenue from clients in the banking, financial services and insurance vertical increased due to increased volumes from several banking and financial services clients offset by a decrease in volumes related to our insurance clients. Revenue in our healthcare vertical increased due to contributions from the PK operations and increased volumes across the majority of our health insurance clients. Revenue in our other vertical increased primarily reflecting contributions from the PK operations. 29 --------------------------------------------------------------------------------
Cost of Revenue, Gross Profit and Gross Margin Percentage
Three Months Ended % Change February 28, 2022 February 28, 2021 2022 to 2021 ($ in thousands) Cost of revenue$ 997,918 $ 867,228 15.1 % Gross profit 538,134 486,050 10.7 % Gross margin % 35.0 % 35.9 %
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 15.1% in the three months endedFebruary 28, 2022 compared to the three months endedFebruary 28, 2021 , primarily due to the increase in our revenue and the cost of revenue associated with approximately two months of the PK operations of$56.9 million during the first quarter of 2022. The increases were partially offset by foreign currency impacts of$22.7 million . The foreign currency impact on our cost of revenue was caused primarily by the weakening of the euro, Japanese yen and Philippine peso against theU.S. dollar. Our gross profit increased 10.7% in the three months endedFebruary 28, 2022 compared to the three months endedFebruary 28, 2021 , primarily due to the increase in revenue and the contributions from approximately two months of the PK operations, partially offset by a net unfavorable foreign currency impact of$2.9 million on gross profit. Our gross margin percentage for the three months endedFebruary 28, 2022 decreased to 35.0% from 35.9% in the prior year period due to the impact of approximately two months of the PK operations and changes in the mix of geographies where our services were delivered.
Selling, General and Administrative Expenses
Three Months Ended % Change February 28, 2022 February 28, 2021 2022 to 2021 ($ in thousands)
Selling, general and administrative expenses
$ 351,161 11.2 % Percentage of revenue 25.4 % 25.9 % 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 and acquisition-related and integration expenses. Our selling, general and administrative expenses increased in the three months endedFebruary 28, 2022 compared to the three months endedFebruary 28, 2021 , primarily due to$26.0 million of selling, general and administrative expenses associated with approximately two months of the PK operations during the first quarter of 2022, an increase in share-based compensation expense of$8.1 million , an increase in amortization expense of$3.5 million and an increase in acquisition-related and integration expenses of$0.9 million . These increases were partially offset by favorable currency impacts of$6.3 million . These items and scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of revenue from 25.9% in the first fiscal quarter of 2021 to 25.4% in the first fiscal quarter of 2022. Operating Income Three Months Ended % Change February 28, 2022 February 28, 2021 2022 to 2021 ($ in thousands) Operating income$ 147,745 $ 134,889 9.5 % Operating margin 9.6 % 10.0 %
Our operating income increased during the three months ended
30 --------------------------------------------------------------------------------
Our operating margin decreased slightly during the three months ended
Interest Expense and Finance Charges, Net
Three Months Ended % Change February 28, 2022 February 28, 2021 2022 to 2021 ($ in thousands) Interest expense and finance charges, net $ 8,770 $ 7,703 13.9 % Percentage of revenue 0.6 % 0.6 % Amounts recorded in interest expense and finance charges, net consist primarily of interest on our Prior Term Loan and our Term Loan under our Credit Facility and interest on our Securitization Facility borrowings. The increase in interest expense for the three months endedFebruary 28, 2022 compared to the three months endedFebruary 28, 2021 , reflects the increase in borrowings incurred on the Term Loan as part of our Amended Credit Facility entered into in connection with the PK acquisition and the related interest expense on the increased borrowings. Other Expense (Income), Net Three Months Ended % Change February 28, 2022 February 28, 2021 2022 to 2021 ($ in thousands) Other expense (income), net $ (7,616) $ 3,803 (300.3) % Percentage of revenue (0.5) % 0.3 % 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 the three months endedFebruary 28, 2022 was income of$7.6 million in comparison to expense of$3.8 million in the three months endedFebruary 28, 2021 . The change in other expense (income), net was primarily due to favorable foreign currency transaction changes compared to the prior year period. Provision for Income Taxes Three Months Ended % Change February 28, 2022 February 28, 2021 2022 to 2021 ($ in thousands) Provision for income taxes $ 36,052 $ 34,572 4.3 % Percentage of income before income taxes 24.6 % 28.0 %
Provision for income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and international jurisdictions.
Our provision for income taxes increased in the three months endedFebruary 28, 2022 compared to the three months endedFebruary 28, 2021 , primarily due to the increase in income before taxes during the current year period. The effective tax rate for the three months endedFebruary 28, 2022 decreased compared to the prior year period primarily due to the change in mix of income earned in different tax jurisdictions between periods. 31 --------------------------------------------------------------------------------
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, amortization of intangible assets and share-based compensation.
•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.
•Non-GAAP net income, which is net income excluding the tax effected impact of acquisition-related and integration expenses, including related restructuring costs, amortization of intangible assets and share-based compensation. •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, amortization of intangible assets and share-based compensation.
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 32 -------------------------------------------------------------------------------- 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. Three Months Ended February 28, February 28, 2022 2021 ($ in thousands) Revenue$ 1,536,052 $ 1,353,278 Foreign currency translation 25,610 - Revenue in constant currency$ 1,561,662
(83,196) (15,947) Revenue in adjusted constant currency$ 1,478,466 $ 1,337,331 33
-------------------------------------------------------------------------------- Three Months EndedFebruary 28, 2022 February 28, 2021 ($ in
thousands except per share amounts)
Operating income$ 147,745 $ 134,889 Acquisition-related and integration expenses 922 - Amortization of intangibles 38,056 34,601 Share-based compensation 15,169 7,118 Non-GAAP operating income$ 201,892 $ 176,608 Net income$ 110,273 $ 88,811 Net income attributable to non-controlling interest 266 - Interest expense and finance charges, net 8,770 7,703 Provision for income taxes 36,052 34,572 Other expense (income), net (7,616) 3,803 Acquisition-related and integration expenses 922 - Amortization of intangibles 38,056 34,601 Share-based compensation 15,169 7,118 Depreciation 36,037 35,999 Adjusted EBITDA$ 237,929 $ 212,607 Operating margin 9.6 % 10.0 % Non-GAAP operating margin 13.1 % 13.1 % Adjusted EBITDA margin 15.5 % 15.7 % Net income$ 110,273 $ 88,811 Acquisition-related and integration expenses 922 - Amortization of intangibles 38,056 34,601 Share-based compensation 15,169 7,118 Income taxes related to the above(1) (13,753) (10,567) Non-GAAP net income$ 150,667 $ 119,963 Diluted earnings per common share ("EPS")$ 2.09 $ 1.69 Acquisition-related and integration expenses 0.02 - Amortization of intangibles 0.72 0.66 Share-based compensation 0.29 0.14 Income taxes related to the above(1) (0.27) (0.20) Non-GAAP Diluted EPS$ 2.85 $ 2.29
(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 periods.
34 --------------------------------------------------------------------------------
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 repayments and acquisitions, including our recent acquisition of PK. Our financing needs for these uses of cash have been a combination of operating cash flows and third-party debt arrangements. 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. InSeptember 2021 , considering our strong free cash flow, low leverage and adequate liquidity to support capital return to stockholders while maintaining flexibility to pursue acquisitions, the Company's 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 three months endedFebruary 28, 2022 , we did not purchase shares of our common stock under the program. AtFebruary 28, 2022 , approximately$474.9 million remained available for share repurchases under the existing authorization from the Company's board of directors.
During fiscal years 2022 and 2021, the Company has paid the following dividends per share approved by the Company's board of directors:
Announcement Date Record Date Per Share Dividend Amount Payment Date September 27, 2021 October 22, 2021$0.25 November 2, 2021 January 18, 2022 January 28, 2022$0.25 February 8, 2022
On
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 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 OnDecember 27, 2021 , in connection with the closing of the acquisition of PK, we entered into an amendment of our senior secured credit facility (the "Credit Facility") (i) to refinance the previously existing term loan (the "Prior Term Loan") with a new term loan, which was fully advanced, in the aggregate outstanding principal amount of$2,100 million (the "Term Loan"), (ii) to increase the revolving credit facility (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 Term Loan and additional borrowings on the Securitization Facility were used to repay the principal amount outstanding on the Prior 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 with the acquisition. 35 -------------------------------------------------------------------------------- As amended, borrowings under the 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 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 by Bank 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. BeginningAugust 31, 2022 , the outstanding principal of the Term Loan is payable in quarterly installments of$26.25 million , with the unpaid balance due in full on the maturity date. 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 the 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 ofConcentrix and certain of itsU.S. subsidiaries and are guaranteed by certain of itsU.S. subsidiaries. The Credit Facility contains various loan covenants that restrict the ability ofConcentrix 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 contains 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 also contains various customary events of default, including payment defaults, defaults under certain other indebtedness, and a change of control ofConcentrix . We initially entered into the Credit Facility onOctober 16, 2020 , and the Credit Facility initially provided for the extension of revolving loans of up to$600 million and term loan borrowings of up to$900 million . OnNovember 30, 2020 , in connection with the spin-off, we incurred$900 million of 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 onNovember 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. BeginningMay 31, 2021 , the outstanding principal of the Prior Term Loan was payable in quarterly installments of$11.25 million , with the unpaid balance due in full on the maturity date. During the fiscal year endedNovember 30, 2021 , we paid$200.0 million of the principal balance on the Prior Term Loan, including$166.25 million of voluntary prepayments without penalty.
We had no outstanding borrowings on the Revolver as of
Securitization Facility
On
The Securitization Facility has a termination date ofOctober 28, 2022 . Under the Securitization Facility,Concentrix and certain of itsU.S. based subsidiaries (the "Originators") 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$350 million . Borrowing availability under the Securitization Facility may be limited by our accounts receivable balances, changes in the credit ratings of our clients comprising the receivables, client concentration levels in the receivables, and certain characteristics of the accounts receivable being transferred (including factors tracking performance of the accounts receivable over time). InMay 2021 , we amended the Securitization Facility to remove CIS as an Originator. 36 -------------------------------------------------------------------------------- Borrowings under the Securitization Facility bear interest with respect to loans that are funded through the issuance of commercial paper at the applicable commercial paper rate plus a spread of 1.05% and, otherwise, at a per annum rate equal to the applicable LIBOR rate plus a spread of 1.15%. We are also obligated to pay a monthly undrawn fee that ranges from 30 to 37.5 basis points based on the portion of the Securitization Facility that is undrawn. The Securitization Facility contains various affirmative and negative covenants, including a consolidated leverage ratio covenant that is consistent with the Credit Facility and customary events of default, including payment defaults, defaults under certain other indebtedness, a change in control ofConcentrix , and certain events negatively affecting the overall credit quality of the transferred accounts receivable.
As of
Cash Flows - Three Months Ended
The following summarizes our cash flows for the three months endedFebruary 28, 2022 and 2021, as reported in our consolidated statement of cash flows in the accompanying consolidated financial statements. Three Months Ended February 28, February 28, 2022 2021 ($ in thousands) Net cash provided by operating activities$ 45,015 $ 35,884 Net cash used in investing activities (1,610,823) (41,950) Net cash provided by (used in) financing activities 1,527,353 (30,618)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1,395) (471)
Net decrease in cash, cash equivalents and restricted cash
156,351 Cash, cash equivalents and restricted cash at the end of the period$ 143,160 $ 119,196 Operating Activities Net cash provided by operating activities was$45.0 million for the three months endedFebruary 28, 2022 in comparison to$35.9 million for the three months endedFebruary 28, 2021 . The increase in net cash provided by operating activities over the prior year period was primarily related to the increase in net income, partially offset by changes in working capital over the prior year period. Investing Activities Net cash used in investing activities for the three months endedFebruary 28, 2022 was$1,610.8 million in comparison to$42.0 million for the three months endedFebruary 28, 2021 . The increase in net cash used in investing activities over the prior year period primarily related to the cash paid in connection with our acquisition of PK. Financing Activities Net cash provided by financing activities for the three months endedFebruary 28, 2022 was$1,527.4 billion , consisting primarily of net proceeds from the refinancing of the term loan under the amended Credit Facility of$1,400.0 million and net proceeds from the Securitization Facility of$149.0 million , offset by cash paid for debt issuance costs of$8.9 million and dividends of$13.1 million . Net cash used in financing activities for the three months endedFebruary 28, 2021 was$30.6 million , consisting primarily of the payment of$50.0 million of the principal balance of the term loan under the Credit Facility, partially offset by net third-party borrowings of$17.5 million under the Securitization Facility.
We believe our current cash balances and credit availability are enough to support our operating activities for at least the next twelve months.
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Free Cash Flow (a non-GAAP measure)
Three Months Ended February 28, 2022 February 28, 2021 ($ in thousands) Net cash provided by operating activities $ 45,015 $
35,884
Purchases of property and equipment (45,393)
(41,950)
Free cash flow (a non-GAAP measure) $ (378) $
(6,066)
Our free cash flow was a use of$0.4 million for the three months endedFebruary 28, 2022 compared to a use of$6.1 million for the three months endedFebruary 28, 2021 . The increase in free cash flow for the three months endedFebruary 28, 2022 was due to the increase in cash provided by operating activities partially offset by an increase in capital expenditures.
Capital Resources
As of
Our cash and cash equivalents totaled$142.2 million and$182.0 million as ofFebruary 28, 2022 andNovember 30, 2021 , respectively. Of our total cash and cash equivalents, 96% and 87% were held by our non-U.S. legal entities as ofFebruary 28, 2022 andNovember 30, 2021 , 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.
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