Concentrix Corporation

Q4 2021 Earnings Conference Call

1/19/2022

spk_0: they didn't gentlemen thank you for standing by and welcome to concentrate fiscal fourth quarter two thousand and twenty one financial results conference call at this time all participants gonna listen only mode after the speakers presentation there will be a question and answer session to ask the question during the session you will need to press thought and one on your telephone please be advised that today's conferences being recorded if you require any further system please press saddam them zero hour now like it's on the compensate with the you speak up with a day data sad you may begin
spk_1: thank you to on a good morning welcome to the concentric fourth quarter fiscal two thousand twenty one earnings call this call is the property of concentric or may not be recorded or rebroadcast without the permission of concentric this call contains forward looking statements that address are expected future performance and that by their nature address matters that are uncertain these uncertainties may cause our actual future results to be materially different than those expressed in are forward looking statements we do not undertake to update are forward looking statements as a result of new information or future events or developments please refer to yesterday's earnings release and are most recent filings with the fcc for additional information regarding uncertainties that could affect our future financial results this includes the risk factors provided in our annual report on form ten k also during the call will discuss non gap financial measures including free cash flow non gap operating income adjusted ebitda and adjusted ie ps as well as adjusted constant currency revenue growth a reconciliation of these non gaap measures is available in the news release and on the concentric investors relations website under financials with me on the call today or chris caldwell our president and chief executive officer and andre valentine or chief financial officer press will provide a summary of our operating performance and growth strategy and andrea will cover a financial results and does his outlook then will open a call for your questions now alter in the call over to chris
spk_2: thank you very much david good morning everyone and welcome to our fourth quarter twenty twenty one earnings call and your first year as a public company i'd be remiss not recapping some of our major accomplishments not only did we grow faster than the market at seventeen percent and adjusted caught currency but the birth came from all verticals and all geography is or non gaap operating margin came in at a record thirteen point one percent which was a two hundred and thirty basis point improvement it's important to note that our growth has come from sustainable business was shorter term coven work being only about one percent of a revenue were also made significant progress in evolving are offering and twenty twenty one some unique offerings include the release of our views the essential platform now we have fifteen thousand daily use ers in our the or see business we also became an amazon connect partner and an hour seen growth and seats under management their marketing solutions business we launched our d v consumer experience index to help automakers attract more electric vehicle customers we have also increased our technology penetration by seventy one percent over last year into our new economy accounts with them by technology and services together now all this has increased the number of clients that have given up at ten out of ten on innovation by sixty percent year on year with innovation always top of mine for us i couldn't think of a better way to end the year than announcing our pk opposition this acquisition allow that to deliver even more technology solutions for the cx marketplace at scale all this and more continued position as as a a digital solutions leader in the globe the market now specific to the fourth quarter or revenue of one point four seven billion represented an increase of thirteen percent compared with last year on a reported basis on an adjusted cost and currency basis rubbing create fourteen percent non gaap operating income of two hundred and three million was a sixteen percent compared with last year adjusted ebitda increase thirteen percent to two hundred and thirty eight million compared with two hundred and eleven million last year are strong growth in the quarter came across all verticals including double digit growth in our key strategic verticals technology retail ecommerce and travel banking and finance and healthcare the contribution from our new economy clients is continuing to make a positive impact with fourth quarter new economy client revenue of three hundred and twenty nine million our annual run rate is now over one point three billion from these clients you'll notice that we changed our description of these clients to new economy rather than disruptor clients if the terminology change and not a change in the underlying client said just it more aptly described them as expected we didn't see supply chain impacts for a few of our clients which impacted our transaction volumes with these clients and muted the quarter slightly a unique approach to intentionally infusing digital technology and analytics is driving high levels of sales success during the fourth quarter we signed two dozen new clients example of our wins include a broad range of new clients and syntax retail travel and media providing a full spectrum of services we are also starting to make traction supporting web three evolution and while early days the potential is promising with a supporting many of the market leaders going into the new year or pipeline remained strong and all verticals and geography is particularly intact thanking finance e commerce and travel from an operating perspective we maintains strong performance levels in the quarter with sixty five percent of our talent concerning to work from home we continue to maintain high levels of satisfaction with our clients and stuff our clients scorecards continues to outperform pre covered levels are excellent results leading position and strong balance sheet gave us the flexibility to continue to invest in the business to drive total shareholder returns consistent with our capital deployment strategy during the fourth quarter we paid thirteen million and dividends and we purchased twenty five million of our stock at an average price of about one hundred and eighty one dollars
spk_3: per share
spk_2: the solid close to the year and additional strongly didn't signing gives us confidence in our ability to grow faster than the market again in twenty twenty two while continuing to see margin expansion over the longer term now turning to our pk acquisition i would like to welcome all new five thousand key members to concentric the death of experience is impressive and we can clearly see the value of the combination we have started the process of integrating our pk tiger spike and marketing solutions business into one we're calling this combined team can see centric catalyst as the expertise and design consulting and execution around digital solution is truly a catalyst for a clients to think differently about what the art of the possible to me our clients view the combination of people to me expertise digital enable global delivery and the ability to invest in secure adaptable and scale the technology infrastructure as key differentiator us the reception of both existing and prospective clients encourage of us that our strategy is working we will continue to keep you up to date on our progress turning to the first quarter of luck and klein opportunity perspective demand for and and solutions remains an historic highs the market demand for general customer experience services and solutions has accelerated we believe we are emerging rematch ning what the customer excuse experience can be far clients and that resonates with what they want to take with their brands while we do see tighter labor markets and a few countries and continuing impact from the current current covert variants bikes this is helping demand for technology automation which we are focused on taking advantage of our overall pipeline remains very strong and healthy with the right mix and type of opportunity
spk_4: these were after to grow
spk_2: i'd also like to thank our philippines team who dealt with the impact of typhoon ray that was both impactful from a human to a humanitarian perspective as well as a business perspective in december the management team did an amazing job taking care of the team and their families more fully recovering from the store within a few for weeks in summary when a great first years a public company focused on transforming everything see x far clients and their customers we remain bullish on the x market fundamentals and are billy that execute create value for clients and our shareholders we will be going into more detail on our investigate next week on tuesday january twenty fifth while we had hoped for the in person gathering and appreciated all interested in attending and person to have any restrictions and limitations of large in person gatherings investor day will now be a fully virtual event were eager to share more about our progress and incredible opportunity we have in the customer experience industry now i will turn the call over the andre andre
spk_1: thank you dress and hello everyone i will begin with a look at our financial results for the fourth quarter and then discuss our business outlet for fiscal twenty twenty two we experience strong revenue and profit improvement in the fourth quarter revenue in the fourth quarter was one point four seven billion dollars an adjusted casting currency basis revenue increased fourteen percent compared with last year the strong growth in the quarter across all of our strategic verticals was led by increases with large technology and travel clients revenue from technology and consumer electronics clients grew approximately seventeen percent revenue girl fit grew fifteen percent in both the retail travel and ecommerce vertical and the banking and financial services and insurance vertical revenue from healthcare clients grew fourteen percent contributed a strong growth across our strategic verticals were over one hundred and twenty five new economy clients representing about twenty two percent of our fourth quarter revenue which grew forty eight percent year over year
spk_5: to profitability nine gap operating income was two hundred and three million dollars in the fourth quarter compared with one hundred and seventy five million dollars last year are not get operating margin was thirteen point nine percent up forty basis points from thirteen point five percent in the fourth quarter last year adjusted either dad was two hundred and thirty eight million dollars compared with two hundred and eleven million dollars in the fourth quarter last year
spk_1: are adjusted ebitda margin and was sixteen point two percent in line with last year profitability in the fourth quarter reflects flow through from revenue growth continued investment in season a new program ramps and continued covered related costs non gaap net income in the fourth quarter was one hundred and fifty eight million dollars compared with the hundred and seven million dollars last year adjusted dps was two dollars and ninety nine cents per share compare with two dollars and seven cents last year
spk_5: gap results for the fourth quarter of twenty twenty one included thirty four million dollars of amortization of intangibles eleven million of share based compensation expenses and one million dollars of expenses related the acquisition of pk turning to cash flow fourth quarter cash flow from operations silver one hundred and eighty two million dollars and capital expenditures till thirty six million dollars this resulted in free cash flow of one hundred and forty six million dollars in the quarter moving forward we expect capital expenditures to approximate three percent of revenue
spk_1: turning to the balance sheet at the end of the fourth quarter cash and cash equivalents were one hundred eighty two million dollars in net debt was six hundred and twenty million dollars during the fourth quarter we paid a quarterly dividend of twenty five cents per share we also refer the hundred and thirty thousand shares of our staff for approximately twenty five million dollars as of today we have four hundred and seventy five million dollars remaining our share repurchase authorization given the pk acquisition and are near term folk
spk_5: piss on debt reduction we expect our near torrent term priorities for free cash flow to be our dividends and debt reduction with some modest share repurchase activity
spk_1: as i said when we announced the pk acquisition in november with it's strong digital cable capabilities complimentary client base and cross so opportunities we expect the pk acquisition to be a creative to our growth rate and adjusted earnings per share
spk_5: we closed the pk transaction at the end of december as we indicated million else to transaction we finance the acquisition by entering into an amended credit facility
spk_1: under the amended facility we increase start term loan to two point one billion dollars with a five year maturity from the transaction clothes and we increased our revolving credit facility to one billion dollars the two point one billion dollar term loan includes rolling in our previously outstanding seven hundred million dollar term loan
spk_5: the bouncer the funding for the transaction came from approximately two hundred million dollars and borrowings under our a are securitization facility
spk_1: pro forma for the transaction close the net debt to adjust a diva da ratio of the combined company was two point four times and a trailing twelve month pro forma basis
spk_5: that is within our target range of up to three times adjusted ebitda we expect that are strong cash generation and earnings growth will allow us to bring net leverage the less than two times by the end of twenty twenty to assert assuming no further acquisitions
spk_1: ample acquitted you will help us preserve our financial flexibility posts close we expect our financial profile remain strong and our capital structure principles remain unchanged we remain committed to investing in growth and returning capital to investors via our dividends now i will discuss our business outlook for the first quarter and full year of twenty twenty two for the first quarter we expect revenue to be in a range of one point five one billion to one point five four billion dollars
spk_5: this includes k revenues for two months of approximately seventy eight million dollars and nearly two point negative impact of foreign exchange rates compared with kopra we're both period and twenty twenty one and a little over a one point headwind relayed to businesses that we divested in the third quarter of twenty twenty one
spk_1: on a pro forma adjusted casting currency basis or revenue guidance equates to nine to twelve percent revenue growth or profitability expectations for the first quarter include nine gap operating come and a range of one hundred ninety million to two hundred and five million dollars our expectations for the first quarter of twenty twenty two and could a negative impact of ten to fifteen mcmahon dollars in both revenue and profit from the surge of the cases globally which is impacting staff availability his impact as much shorter and duration and less acute them we experienced at the beginning of the pandemic we expect interest expense in the first quarter to be approximately nine million dollars we expect an effective tax rate of approximately twenty five twenty six percent and a weighted average share account of approximately fifty two million shares we expect to have a preliminary purchase price allocation for the pk acquisition later in the first quarter allow his to provide a for reconciliation of our nine gap operating income outlive to the comparable gap measure on our next call
spk_5: moving to our outlook for the entire year we expect twenty twenty two revenue debate be in a range of six point four five to six point six billion dollars this includes approximately four hundred eighty five million dollars in revenue from pk for eleven months following the acquisition
spk_1: this revenue expectation for pk for fiscal twenty twenty two was in line with our stated expectation at the time that we announced the transaction also included in our expectation is a little over a one point negative impact of foreign exchange rates compared with twenty twenty one and a little over half a point headwind relate to the businesses with a vested in the third quarter twenty twenty one on a pro forma adjusted constant currency bases are revenue guidance for twenty twenty two equates to and nine to twelve percent revenue growth
spk_5: our for your profitability expectations include nine gap operating income in a range of a hundred ninety to nine hundred and thirty million dollars we expect for your interest expense to be in a range from fifty to fifty for me and dollars with an effective tax rate of approximately twenty five twenty six percent
spk_1: and a weighted average share count of approximately fifty two main shares our business outlook does not include amortization of intangibles stock based compensation or any future acquisition related impacts for transaction or innovation costs also not including the games or impacts from future currency fluctuations in closing we are very pleased are excellent results for the fourth quarter and for the four year twenty twenty one and we're very confident our outlook for twenty twenty two we're a well positioned global leader and are fragmented in growing market were executing are planned to grow faster than the market or an organic basis and as a proven consolidator market with a strong balance sheet i believe we're in a great spot to deliver sustainable growth margin progression and strong free cash flow will it for to speaking with all of you next tuesday at our investor day with that now operator will you please open the line for questions thank you ladies and gentlemen as a reminder to ask the quest
spk_0: and you when it passed on a woman your telephone to withdraw your question at the pound key again that star one to ask the question please and bobby compile the county boston upper a question comes from a lot of who flew with bank of america milan is open hi thank you for taking my questions i have a couple for chris and one for andre
spk_6: i'm chris my first question relates to the revenue growth and fiscal twenty two if i take out a if i take a peek he looks like you're dating for about eight percent year on year organic growth the last thing we talked about market growth they believe the commentary was that in a given recovery out a coven the market itself was growing six to eight percent of it is faster than the long term three to five percent so can you please update us on what you expect the market itself to growing fiscal twenty two and would you say that the growth and fiscal twenty two for concentrators above the market growth and and if so can you just talk about your strategy this year for driving above market growth and who are you taking share from
spk_1: a report as is andrea and and other questions was request but i but i will start the if you go back to my prepared remarks a pro forma basis adjusted jag causing currency it and taking into account the at the divestitures were guiding to roughly nine to twelve percent growth in a in twenty twenty two a pk is part of that growth and is a is i said is an act treat of to our overall great growth rate by about a point in that number so that implies to me that the underlying is growing at an eight to eleven percent organic great added that would be my for
spk_2: they're chris where do you see the market growing yeah and and replica question as i've stated am in a while analysts are are still talking about are sort of of three to five her range with in that period of growth for the next year or two to two years to three years we've actually felt that the mark and twenty twenty one was growing smith sixty eight percent we still see as i mentioned in mice are prepared remarks of the market is a little more robust and but i also made mention that were driving a lot more technology and automation and saw that does have some impact to sort of topline growth numbers but at andres point we still believe we're going fast in the market and still believe and twenty twenty
spk_7: two will grow faster than the market
spk_2: in terms of your other question just in terms of share and and where it's coming from what we're seeing our winds come from sort of very two distinct camps one is of from you know consolidation where people are are using us as their path premier partner and we're seeing kind of consumption of other people share which is coming from sort of traditional tx players some new ah economy tx players that we're getting because of our scale and and operational discipline and the fact that they can buy technology and the services from us together we're also seeing frankly net new opportunities that are coming to us from clients which historically of not outsource but it's one piece of the puzzle that we don't have are in a process and we're doing everything else for them and so they are now seeing the the benefit of moving out across to us and so that's really where we're seeing the growth coming from as to areas
spk_6: okay great thanks for clarifying on the that close up me for my second question in our focus on margins i looked like historically fiscal one que seems to be a sequentially lower margin for from for que even the revenues can be higher so i was wondering if he can just double click on that hundred leases pulling them operating margin decline i think and forty reported thirteen point nine percent operating margin and have a look at the midpoint of guidance for fiscal until a thing it's like twelve point nine percent so distant it isn't just the disconnect the give us some details on was driving that and then how silly thing about margin improvement for the rest of the year in fiscal twenty two at to get back here fiscal twenty two midpoint of guidance of the thirteen point nine percent operating margin
spk_2: yes it's a reaper i'll take a question to parse the first question is really around your your comment about the first quarter of margin tend to be a little lighter than that the fourth quarter and that is historically correct and that tends to be because we get higher occupancy and and utilization within the fourth quarter just because of seasonality in a few other things have happened and then in the first quarter your tank to be right sizing some of your staff and you're getting less occupancy with an and so you tend to tend to see that historically i would say there are some anomalies this year with are there that despite uncovered and that tycoon that in the philippines than generally on nearly got a somewhat nullified back them out but ah that's probably where you're seeing some of the margin erosion and why we kind of are talking about the full ford your guidance is because as we've executed to the core twenty twenty one and as you've seen from sort of our track record we expect that we will make that up to the course the year and continued to see the be a margin expansion growth based on are offering than what we have in our pipeline
spk_6: okay got it and then that potential the details on that me for my last question if i can just ask or one for andre looks like the tax rate in for to was about twenty one percent which was the northern they i guess who guided twenty seven to twenty eight percent and also if into that the fiscal twenty two guided said twenty five to twenty six percent for which is like in a two planes more than than the previous guide to the neatest the in a disconnect give us some details and was fine
spk_5: adding that lord taxi thanks yes side faces a question repo and and glad to provide some details outselling few for you are right we saw lower
spk_1: tax rate both on a gap and nine gap basis get than we expected as largely reflecting arab kind of fine or jurisdictional mix of our income i yell for that for the full year as as we analyzed it and that creates some adjustments which has a can have kind of up outsized effect on on now on your to for rate yeah i would point you more towards that the full year nine gap tax rate of out what i believe his dad about twenty five and a half percent which is yeah right the midpoint of where were guiding for it for twenty twenty two so we do think that with kind of our our current jurisdictional matches we look forward and it was he a tax rate for the full year that is pretty much in line i am kind of midpoint yeah guy being l l in in line with with what we saw for the full year twenty one
spk_6: okay thanks while the details and comments on this from invocation and you very much you
spk_8: thank you
spk_0: and question comes from a lot of southern cross with cross research milan open
spk_9: oh thank you very much on a wandering can you talk a bit about what you're young from customers and seen on terms of signing on know i are you paying customers and then there are more willing to consign longer contract and and how are you putting into the contract any kind of it zeller raiders or or off to kill potential inflationary environment actually the potential to the place and time
spk_2: shannon don't be so high and my goodness that saw as that that that the first question is a really depends that the offering that we're delivering there is not generally a change if it's a primarily primary services unless it's very complex services of extending the contract longer our average contractors about three years and obviously we we keep the contracts much longer to the evergreen and they they continue to add to to to build on when we're selling our technology and services together we're actually taking over a whole process you tend to get that this sort of the three to five year arising from a car attract perspective but it's not materially different than what we've seen before
spk_10: from how cost
spk_2: is built in general with that the an ongoing conversation regardless of what contract says be do combination of you know as the demands chains and the type of services you're performing on as the automation technology come in which helps offset some of the the inflationary pressures and all that kind of play the max and and so this conversations with clients at is on that sort of a fairly regular basis and then we do have some contracts have a built in color or cost of living and and though indexing system that kind of come through based on the country and based on some data points that are are mutually agreeable between the client and ourselves but but that's a smaller portion of the overall contract next
spk_11: open thanks and then
spk_9: that about what you're seeing people in a how we judge excessive the integration or maybe put the i to watch for on you know the opportunity at how are you think think them of their technology into your existing customer base and vice versa
spk_2: that's let's agree question and that there's a couple things are and and by the way for what we're going to fair bit more detail in better day around how we see that that the complementary clients at and and to knowledge and skills come together but some of the prepared remarks and pointed out i mean in our new economy class which historically are not big tech buyers ah is up seventy one percent from clients in that segment that are buying technology and services together because people are signed to realize that there's real power of automating the journey math there's real power to kind of bringing in new processes vs trying to divide by our to sort of share our workforce and so we're seeing a a high demand for us in one of the reasons why we were very excited about being able to do the peak acquisition was the fact that we can now deliberate scale as we were able to do it but we were starting to outstrip our internal resources to be able to to do it and i'll tell you that the client our discussion so far and again early days but so far be incredibly positive because the day they see the power of the two things coming together where you got keep them expertise a majority map you can keep them in expertise around how to deliver services at scale and understanding the process of their specific to the client and they got this really robust town sad that able to automate that and dry better efficiencies at through that so both clients were using both companies already i have i've already started to think differently about how they can engage us and and but now you we can add to them and then we've had a very good job ma'am sort of feedback and conversations from our existing clients about wanting to get in front of those are the services and bringing the the to paris together in terms of metrics and and how we look at it we are looking at at true that and doing it i suspect it will start to talk about kind of combination deals that are coming through and percentage of have ah tech sales that we go through on a on a on a more regular basis going forward so the people can can see that and then ultimately as we talked about over time we see
spk_9: our our margin being able to continue to increase and i will be driven by the combination of both tech and services ah together
spk_0: right thing here and look like you are virtually meaningless to me i meet you thank you very much like you as a reminder ladies and gentlemen that star was the question and next question comes from atlanta
spk_12: colegio with the handsomely sense since milan open yeah criticized cursor would would particles as you grow fast as sin and swine to i soon as your core verticals and also part of the question is our world telecom media from sorry three cases of media look like ah had the services
spk_2: sighs will drop sequentially thank you
spk_13: events so it's a couple things the as mentioned a syntax are are doing very very well for us and our that primarily based on sort of just people buying habits and what consumer offerings are now available and in that space and so we can didn't see very very robust growth in that ah healthcare i ecommerce received
spk_2: very robust growth and that and as we've called out twice or travel is actually starting to really rebound and what's interesting is that the wins we're having and travel are almost all the mess that travel which if you remember historically we were never in that space we were almost all in the the the path international space and so knowledge we see additional growth in domestic space but and hopefully at some point the international travel comes back and hopefully at that point when beneficiary of that tech is also doing well for us
spk_7: our challenge with tech right now is just sort of supply chain constraints with some more clients that they're just seeing
spk_2: and they go through the demand going away they just aren't able to ship as much as they would like and so we expect to see so strong growth through that to the course of the year primarily catch up as well as sort of net new products that are coming to to market in terms of media and communications or media site is doing well and continue to grow quite quite well on and as primarily driven by lot of our content safety ah services that we do and clinton moderation services that we do and and and our our trust services that we do in that space on the telecommunications side as we've talked about we wanted kind of bring it down it's now the about bounces around but
spk_12: queen
spk_14: and seventeen percent give or take of our business were very comfortable that as space and as we as see new offerings from our technology side going into telecommunications with the my can bump up a little bit but it's a different offering than one historically we've always done in the telecom space and we don't see it kind of
spk_2: i'm jumping up substantially larger than where it is at this present time based on how he focused on on getting into where it is and as the been a yeah wow given the inflation either we've talked about has really yell flexibility on the clients i'd done in terms of them giving some relief on prices
spk_12: yes so
spk_2: certainly there son but i don't want to over blow at that the reality of the conversations were having both from her a tight labor market an inflationary perspective is really about changing how they're doing processes and putting more technology and place so that they they can do more with last and and that's really the conversations were focused on on having and really discussions around the total cost and delivery versus a unit of labor are so to speak on and in that's more appealing to us and frankly more killing to the clients vs just trying to chase that ah inflationary labor market your your response make sounds good i guess i was i should have asked like yeah you don't appear labor intensive contacts and work you're doing is a relief on that side i mean i know that's a very competitive business i resumed is not too much relief is that right at first i would say that
spk_12: the work we do as pay to the vault pretty dramatically into to sort of very higher value engaged conversations and they tend to have sort of certification level like going our healthcare business or a financial services business there's a lot of educating as instance of a different type of market and different pay scale than what you might think but you know when we're delivering those types of services there's always opportunist and talk to the client around ah
spk_2: pricing them appropriately for that the type of skills that the you need and and sold that that's really where we are we see ourselves and and those conversations are ongoing but really the focus more about driving better automation better efficiency than needing to increase headcount on a in a linear fashion and then that one last question i'm i'm sizes finance reform and and i recall the original pk really integrating the systems that they're on with your system is how that works yeah so so i'm clearly will be getting to one hr yes system and one ah accounting system that we've done that
spk_12: many many times as we've integrated acquisition we do that fairly quickly and then some unique tool said that are are very focused on there
spk_15: type of business and engagement around resource management we actually will be moving a lot of our concentric team members on to some of those tools are just to get better efficiencies and better benefits of that's pretty on
spk_16: standard an easy for us there's no systems that disrupt the client that are being touched as their as we do this integration
spk_0: ten thanks for our answer my questions perfect thank you i'm sure no further questions from you of analysis on the call the comes equipped for constantly month great thank you very much for all your interest and concentric today and as a reminder we look forward to talking with all of you and are invested a next week hopefully out you are all healthy and well and had a great day thanks er much everybody maybe i'm a second
spk_1: thanks cup coffee thank you for the whom he may not have come up the ladies and gentlemen thank you for standing by and welcome to concentrates fiscal fourth quarter two thousand and twenty one financial results conference call at this time all participants gonna listen only mode after the speakers presentation there will be a question and answer session to ask the question during the session you will need to press thought and one on your telephone please be advised that today's conferences being recorded if you require any further assistance please press saddam zero hour now like it's on the compensate with the you speak up for today davis bad you may begin thank you to on a good morning welcome to the concentric fourth quarter fiscal two thousand twenty one earnings call this call is the property of concentric or may not be recorded or rebroadcast without the permission of concentric this call contains forward looking statements that address are expected future performance and that by their nature
spk_2: address matters that are uncertain these uncertainties may cause our actual future results to be materially different than those expressed in are forward looking statements we do not undertake to update are forward looking statements as a result of new information or future events or developments please refer to yesterday's earnings release and our most recent filings with the fcc for additional information regarding uncertainties that could affect our future financial results this includes the risk factors provided in our annual report on form ten k also during the call will discuss non gap financial measures including free cash flow non gap operating income adjusted ebitda and adjusted ie ps as well as adjusted constant currency revenue growth a reconciliation of these non gaap measures is available in the news release and on the concentric investor relations website under financials with me on the call today or chris caldwell our president and chief executive officer and andre valentine or chief financial officer press will provide a summary of our operating performance and growth strategy and andrea will cover a financial results and business outlook then will open a call for your questions now alter in the call over to chris thank you very much david good morning everyone and welcome to our fourth quarter twenty twenty one earnings call any your first year as a public company i'd be remiss not recapping some of our major accomplishments not only did we grow faster than the market at seventeen percent and adjusted caught them currency but the birth came from over and all geography is or non gaap operating margin came in at a record thirteen point one percent which was a two hundred and thirty basis point improvement it's important to note that our growth has come from sustainable business was shorter term covered work being only about one percent of a revenue we also made significant progress in evolving are offering and twenty twenty one some unique offerings include the release of our views he sense platform now we have fifteen thousand daily users as in our the or see business we also became an amazon connect partner and an hour seen growth in seats under management and our marketing solutions business we launched our d v consumer experience index to help automakers attract more electric vehicle customers we have also increased our technology penetration by seventy one percent over last year into our new economy accounts with combine technology and services together now all this has increased the number of clients that has given us at ten out of ten on innovation by sixty percent year on year with innovation always top of mine for us i couldn't think of a better way to end the year than announcing our pk opposition this acquisition allow that to deliver even more technology solutions for the cx marketplace at scale all this and more continued to position it has a see a digital solutions leader in the globe the market now specific to the fourth quarter or revenue of one point four seven billion represented an increase of the thirteen percent compared with last year on a reported basis on an adjusted cost and currency basis rather create fourteen percent non gaap operating income of two hundred and three million was up sixteen percent compared with last year adjusted ebitda increase thirteen percent to two hundred and thirty eight million compared with two hundred and eleven million last year are strong growth in the quarter came across all verticals including double digit growth in our key strategic particles technology retail ecommerce and travel banking and finance and healthcare the contribution from our new economy client is continuing to make a positive impact with fourth quarter new economy client revenue of three hundred and twenty nine million our annual run rate is now over one point three billion from these clients you'll notice that we changed our description of these clients to new economy rather than disruptor clients it's a terminology change and not a change in the underlying client said just it more aptly described them as expected
spk_3: we did see supply chain impacts for a few of our clients which impacted our transaction volumes with these clients and muted the quarter slightly
spk_2: a unique approach to intentionally infusing digital technology and analytics is driving high levels of sales success during the fourth quarter we signed to dozen new clients example of our wins include a broad range of new clients and syntax retail travel and media providing a full spectrum of services we are also starting to make traction supporting web three evolution and while early days the potential is promising with a supporting many of the market leaders going into the new year or pipeline remained strong and all verticals and geography is particularly intact banking finance e commerce and travel from an operating purse fact if we maintain strong performance levels in the quarter with sixty five percent of our talent concerning to work from home we continue to maintain high levels of satisfaction with our clients and stuff our clients scorecards continues to outperform pre covered levels are excellent results leading position and strong balance sheet gave us the flexibility to continue to invest in the business to drive total shareholder returns consistent with our capital deployment strategy during the fourth quarter we paid thirteen million and dividends and we purchased twenty five million of our stock and an average price of about one hundred and eighty one dollar as per share
spk_4: the solid close to the year and additional strongly didn't signings gives us confidence in our ability to grow faster than the market again in twenty twenty two while continuing to see margin expansion over the longer term
spk_2: now turning to our pk acquisition i would like to welcome all new five thousand key members to concentric the death of experience is impressive and we can clearly see the value of the combination we have started the process of integrating our pk tiger spike and marketing solutions business into one we're calling this combined team can say tricks calloused as the expertise and design consulting and execution around digital solution is truly a catalyst for a clients to think differently about what the art of the possible can be our clients view the combination of deep to me expertise digital enable global delivery and the ability to invest insecure adaptable and scale technology infrastructure as key differentiator us the reception of both existing and prospective clients encourage of us that our strategy is working we will continue to keep you up to date on our progress turning to the first quarter of luck and klein opportunity perspective demand for and and solutions remains an historic highs the market demand for general customer experience services and solutions has accelerated we believe we are emerging rematch ning what the customer excuse experience can be far clients and that resonates
spk_1: with what they want to take with their brands while we do see tighter labor markets and a few countries and continuing impact from the current current coven variants spikes this is helping demand for technology automation which we are focused on taking advantage of our overall pipeline remained very strong and healthy with the right mix and type of opportunity these we're after to grow i'd also like to thank our philippines team who dealt with the impact of typhoon ray that was both impactful from a human to a humanitarian perspective as well as a business perspective in december the management team did an amazing job taking care of the team and their families more fully recovering from the storm within a few short weeks in summary when a great first year as a public company focused on transforming everything see x far clients and their customers we remain bullish on the see x market fundamentals and are billy that execute create value for clients and our shareholders will be going into more detail on our investor day next week on tuesday january twenty fifth while we had hoped for the in person gathering and appreciated all interested in attending and person to have any restrictions and limitations of large in person gatherings investor day will now be a fully virtual event were eager to share more about our progress and incredible opportunity we have in the customer experience industry now i will turn the call over to andre andre thank you dress and hello everyone
spk_5: i will begin with a look at our financial results for the fourth quarter and then discuss our business outlet for fiscal twenty twenty two we experience strong revenue and profit improvement in the fourth quarter revenue in the fourth quarter was one point four seven billion dollars an adjusted constant currency bases revenue increased fourteen percent compared with last year
spk_1: the strong growth in the corner across all of our strategic verbose was led by increases with large technology and travel clients revenue from technology and consumer electronics clients grew approximately seventeen percent revenue growth it grew fifteen percent in both the retail travel and ecommerce vertical and the banking financial services and insurance vertical revenue from healthcare clients grew fourteen percent contributed a strong growth across our strategic verticals were over one hundred and twenty five new economy clients
spk_5: representing about twenty two percent of our fourth quarter revenue which grew forty eight percent year over year
spk_1: trying to profitability nine gap operating income was two hundred and three million dollars in the fourth quarter compared with a hundred and seventy five million dollars last year are not get operating margin was thirteen point nine per set up forty basis points from thirteen point five percent in the fourth quarter last year adjusted either dallas two hundred and thirty eight million dollars compared with two hundred and eleven million dollars in the fourth quarter last year are just city with margin and was sixteen point two percent in line with last year profitability in the fourth quarter reflects flow through from revenue growth continued investment in season a new program ramps and continued the related costs
spk_5: non gaap net income in the fourth quarter was a hundred and fifty eight million dollars compared with a hundred and seventy dollars last year adjusted dps was two dollars and ninety nine cents per share compare with two dollars and seven cents last year
spk_1: gap results for the fourth quarter of twenty twenty one included thirty four main dollars of amortization of intangibles eleven may of based compensation expenses and one million dollars of expenses related the acquisition of pk
spk_5: turning to cash flow fourth quarter cash flow from operations with one hundred and eighty two million dollars and capital expenditures till with thirty six million dollars this resulted in free cash flow one hundred and forty six million dollars in the quarter moving forward we expect capital expenditures to approximate three percent of revenue
spk_1: turning into balance sheet at the end of the fourth quarter cash and cash equivalents were one hundred eighty two million dollars in net debt with six hundred and twenty nine dollars
spk_5: during the fourth quarter we paid a quarterly dividend of twenty five cents per share we also refer sister hundred and thirty thousand shares of our staff for approximately twenty five million dollars as of today we have four hundred and seventy five million dollars remaining i share repurchase authorization
spk_1: given the pk acquisition and are near term focus on debt reduction we expect our near torrent term priorities for free cash flow to be our dividends and debt reduction with some modest share repurchase activity as i said when we announced the pk acquisition in november with it's strong digital cable capabilities complimentary client base and cross so opportunities we expect the pk acquisition to be a creative to our growth rate and adjusted earnings per share we closed the pk transaction at the end of december as we indicated million else to transaction we finance the acquisition by entering into an amended credit facility under the amended facility we increase start term loan to two point one billion dollars with a five year maturity from the transaction close and we increased our revolving credit facility to one billion dollars the two point one billion dollar term loan includes rolling in our previously outstanding seven hundred million dollar term loan
spk_5: the bouncer the funding for the transaction came from approximately two hundred million dollars and borrowings under our a are securitization facility
spk_1: pro forma for the transaction close the net debt to adjust a diva da ratio of the combined company was two point four times are trailing twelve month pro forma basis that is within our target range of up to three times adjusted ebitda we expect that are strong cash for generation and earnings growth will allow us to be saying that leverage the less than two times by the end of twenty twenty to assert assuming no further acquisitions ample acquitted you will help us preserve our financial flexibility post close we expect our financial profile remain strong and our capital structure prince was remain unchanged we remain committed to investing in growth and returning capital to investors via our dividends now i will discuss our business outlook for the first quarter and full year of twenty twenty two for the first quarter we expect revenue to be in a range of one point five one billion to one point five four billion dollars this includes k revenues for two months of approximately seventy eight million dollars and nearly two point negative impact of foreign exchange rates compared with copper beer or period and twenty twenty one and a little over a one point headwind relayed to businesses that we divested in the third quarter of twenty twenty one
spk_5: on a pro forma adjusted passing currency basis or revenue guidance equates to nine to twelve percent revenue growth
spk_1: or profitability expectations for the first quarter include nine gap operating come and a range of one hundred ninety million to two hundred and five million dollars our expectations for the first quarter of twenty twenty two and could a negative impact of ten to fifteen mcmahon dollars in both revenue and profit from the surge of colby cases globally which is impacting staff availability his impact as much shorter and duration and less acute then we experienced at the beginning of the pandemic
spk_5: we expect interest expense in the first quarter to be approximately nine million dollars we expect an effective tax rate of approximately twenty five twenty six percent and a weighted average share account of approximately fifty two million shares
spk_1: we expect to have a preliminary purchase price allocation for the pk acquisition later in the first quarter allow his to provide a for reconciliation of our nine gap operating income outlet to the comparable gap measure on our next call moving to our outlook for the entire year we expect twenty twenty two revenue debate be in a range of six point four five to six point six billion dollars this includes approximately four hundred eighty five million dollars in revenue from pk for eleven months following the acquisition this revenue expectation for pk for fiscal twenty twenty two was in line with our stated expectation at the time that we announced the transaction also included in our expectation as a little over a one point negative impact of foreign exchange rates compared with twenty twenty one and a little over half a point headwind relate to the businesses with a vested in the third quarter twenty twenty one
spk_0: on a pro forma adjusted a currency basis are revenue guidance for twenty twenty two equates to and nine to twelve percent revenue growth our for your profitability expectations include nine gap operating income in a range of a hundred ninety to nine hundred and thirty million dollars we expect for your interest expense to be in a range from fifty to fifty for me and dollars with an effective tax rate of approximately twenty five twenty six percent
spk_6: and a weighted average share count of approximately fifty two main shares our business outlook does not include amortization of intangibles stock based compensation or any future acquisition related impacts for transaction or innovation costs also not including the games or impacts from future currency fluctuations in closing we are very pleased are excellent results for the fourth quarter and for the four year twenty twenty one and we're very confident our outlook for twenty twenty two we're a well positioned global leader and are fragmented in growing market were executing are planned to grow faster than the market or an organic basis and
spk_1: and as a proven consolidator market with a strong balance sheet i believe we're in a great spot to deliver sustainable growth margin progression and strong free cash flow will it for to speaking with all of you next tuesday at our investor day with that now operator will you please open the line for questions thank you ladies and gentlemen as a reminder to ask the question you when it passed on a woman your telephone to withdraw your question at the pound key again that star one to ask the question please and bobby compile the county boston upper as question comes from a lot of who flew with bank of america milan is open hi thank you for taking my questions i have a couple for chris and one for andre i'm chris my first question relates to the revenue growth and fiscal twenty two
spk_17: if i take out a if i take a peek he looks like you're dating for about eight percent year on year organic growth the last thing we talked about market growth they believe the commentary was that in a given recovery out a coven the market itself was growing six to eight percent of it is faster than the long term three to five percent so can you please
spk_2: update us on what you expect the market itself to growing fiscal twenty two and would you say that the growth and fiscal twenty two for concentrators above the market growth and and if so can you just talk about your strategy this year for driving above market growth and who are you taking share from the a report is andrea and and other questions was request but i but i will start the if you go back to my prepared remarks at a pro forma basis
spk_7: adjusted jag causing currency it and taking into account the of the divestitures
spk_2: we're guiding to roughly nine to twelve percent growth in a in twenty twenty two a pk is part of that growth and is a is i said is an act treat of to our overall great growth rate by about a point in that number so that implies to me that the underlying is growing at an eight to eleven percent organic great at added that would be my clarify asian their chris where do you see the market growing and and replica question as i've stated am in a while analysts are are still talking about are sort of of three to five her
spk_6: range with in that period of growth for the next year or two to two years three years we've actually felt that the mark and twenty twenty one was growing sort of sixty percent we still see as i mentioned in mice are prepared remarks of the marketers a little more robust but i also made mention that were driving a lot more technology and automation and so that does have some impact to sort of topline growth numbers but a tawdry point we still believe we're going fast in the market and still believe and twenty two any to we will grow faster than market in terms of your other question just in terms of share and and where it's coming from we're seeing or wins come from sort of very true distinct camps one is of from your consolidation where people are are using us as their premier partner and we're seeing kind of consumption of other people share which is coming from to
spk_2: or of traditional vx player some new ah economy see x players that we're getting because of our scale and an operational discipline and the fact that they can buy technology and the services from us together we're also seeing frankly net new opportunities that are coming to us from clients which historically about outsourced but it's one piece of the puzzle that we don't have are in a process and we're doing everything else for them and so they are now seeing be the benefit of moving out across to us and so it's really where we're seeing the growth coming from as to areas okay great thanks for clarifying the that dog has up
spk_18: me for my second question in our focus on margins
spk_6: for i looked like historically fiscal one que seems to be a sequentially lower margin quarter from for q or even the revenues can be higher so i was wanting his isn't just double click on that hundred leases pulling them operating margin decline i think in forgive you reported thirteen point nine percent operating margin and have a look at the permit point no guidance for fiscal on to a thing it's like twelve point nine percent so disturbed if isn't just the disconnect the give us some details on was driving that then how silly thing about margin improvement for the rest of the or and fiscal twenty two a to get back to your physical twenty two midpoint of guidance of the thirteen point nine percent operating margin
spk_1: yes it's a reaper i'll take the question to parse the first question is really around your your comment about the first quarter of margin tend to be a little lighter than that the fourth quarter and that is historically correct and that tends to be because we get higher occupancy and and utilization within the fourth quarter just because of seasonality in a few other things have happened and then in the first quarter your ten the right clothing some of your staff and you're getting less occupancy with a and so you tend to tend to see that historically i would say there are some anomalies this year with are there that despite uncovered and that typhoon that had in the philippines than generally and nearly got a somewhat nicely back them out but ah that's probably where you're seeing some of the margin erosion and why we kind of are talking about the full ford your guidance is because as we've and executed to the course of twenty twenty one and as you've seen from sort of our track record we expect that we will make that up to the course the year and continued to see the the are margin expansion growth based on are offering than mom we have in our pipeline
spk_6: okay got it and then that potential the details on that me for my last question if i can just ask ireland for andre looks like the tax rate and for to was like twenty one percent which has to northern they i guess who guided twenty seven to twenty eight percent and also if into that the fiscal twenty two the
spk_8: i did said twenty five to twenty six percent so which is like a two planes more than than the previous guide to the neatest the in a disconnect give us some details and was fighting that lord taxi thanks yeah side faces a question we approve and and glad to provide some details outselling few for you are right we saw a lower
spk_0: tax rate both on a gap and nine got basis that than we expected as largely reflecting yeah kind of final jurisdictional mix of our income i yell for that for the full year as as we analyzed it and that creates some adjustments which has a neocon can have kind of up outsized affect ah
spk_19: and i now on your cue for rate yeah i would point you more towards that the full year nine gap tax rate of what i believe his dad about twenty five and a half percent which is yeah right the midpoint of where were guiding for for twenty twenty two so we do think that with kind of our our current jurisdictional matches we look forward
spk_9: and it was he a tax rate for the full year that is pretty much in line ill kind of midpoint a guy being a l l in in line with with what we saw for the full year twenty one
spk_2: okay thanks for the details and comments on this phone is accusing thank you very much you thank you and next question comes from a lot of southern and cross with cross research milan open
spk_10: ah thank you very much on a wondering
spk_2: that about what you're hearing from customers and seen on terms of signing on know i are you seeing customers that then the are more willing to consign longer contracts and and how are you putting into the contract any kind of accelerators or or off that to potential inflationary entire actually the potential to the inflation time shannon don't be so on oh my goodness
spk_11: that so as that that that the first question is a really depends that the offering that we're delivering there is not generally a change if it's a primarily primary services unless it's very complex services of extending the contract longer our average contractors about three years
spk_9: and obviously we we keep the contracts much longer to the evergreen and they they continue to ah to to to build and when we're selling our technology and services together we're actually taking over a whole process you tend to get that this sort of the three to five year arising from a contract perspective but it's not materially different than what we've seen before
spk_2: from how cost is built in general with that the an ongoing conversation regardless of what contract says be a combination of you know as the demands change and the type of services you're performing on as the automation technology come in which helps offset some of the be inflationary pressures and all that kind of play the max and and so this conversations with clients at is on sort of a fairly regular basis or and then we do have some contract to have a built in color or cost of living indexing system that kind of come through based on the country and based on some data points that are are mutually agreeable between the client and ourselves but but that's a smaller portion of the overall contract next thanks and then a bit about what you're seeing with people in a pally judge of the integration or maybe put the i to watch for on you know the opportunity at how are you think you take them of their technology into your existing customer base and vice versa that's let's agree question and that there's a couple things and and by the way for we're we're going to fair bit more detail mean better day around how we see that the the complementary clients that and and to technology and skills come together but some the prepared remarks and pointed out i mean in our new economy class which historically are not big tech buyers his up seventy one percent from clients in that segment that are buying technology and services together because people are signed to realize of the real power of automating the journey math there's real power to kind of bringing in new processes vs trying to do by by to sort of share our workforce and so we're seeing a a high demand for us and one
spk_9: the reasons why we were very excited about being able to do the peak activision for the fact that we can now deliberate scale as we were able to do it but we were starting to outstrip our internal resources to be able to our to do it and i'll tell you that the client our discussion so far and again early days but so far be incredibly positive because the data
spk_0: a see the power of these two things coming together where you gotta keep them expertise a majority map you keep them and expertise around how to deliver services at scale and understanding the process of their specific the client and they got this really robust town such as able to automate that and dried better efficiencies out through that so both clients were using both companies already ah have i've already started to think differently about how they can engage us and and but now you we can add to them and then we've had a very good job ma'am
spk_12: sort of
spk_20: feedback in conversations from our existing clients about wanting to get in front of those are the services and bringing the the to powers together
spk_12: in terms of metrics and and how we look at it we are looking at at through that and doing it i suspect it will start to talk about kind of combination deal that are coming through and percentage of of ah tech sales that we go through on a on a on a more regular basis going forward to the people can can see that and then ultimately as we talked about over time we see ah
spk_2: our our margin being able to continue to increase and i will be driven by the combination of both tech and services together
spk_13: right thing here and look for a few and virtually meaningless to me i meet to thank you very much
spk_2: like you as a reminder ladies and gentlemen that star was the question i'm expressing comes from milan of whom colicchio with the handsomely sense milan open yeah criticized cursor would would particles as you grow faster sin and swine to i soon as your core of articles and also part of the question is our world telecom media from sites are in cases of media look like
spk_7: i had the service
spk_2: sighs will drop sequentially home
spk_21: thank you
spk_2: events such so couple things the as a commissioned a syntax are are doing very very well for us and our that primarily based on sort of just people buying habits and what consumer offerings are now available and in that space and so we can didn't see very very robust growth in that ah healthcare an ecommerce we see
spk_12: very robust growth in that and as we've called out twice or travel is actually starting to really rebound and what's interesting is the wins we're having and travel are almost all the mess that travel which if you remember historically we were never in that space we were almost all in the
spk_14: the the top
spk_2: international space and so knowledge we see additional growth and domestic space but and hopefully at some point the international travel comes back and hopefully at that point where the beneficiary of that tech is also doing well for us our challenge with tech right now is just sort of supply chain constraints with some more clients that they're just seeing ah
spk_12: and they don't see that demand going away they just aren't able to ship as much as they would like and so we expect to see so strong growth through that to the course of the year primarily catch up as well as sort of net new products that are coming to to market in terms of media and and communications or media site is doing well
spk_2: and kunduz grow quite quite well on and as primarily driven by lot of our content safety services that we do and clinton moderation services that we do and and and our our trust services that we do in that space on the telecommunications side as we've talked about we wanted kind of bring it down it's now the about his around between when sent a seventeen percent give or take of our business were very comfortable that space on as we see new offerings from our technology side going into telecommunications with the my kind of bump up a little bit but it's a different offering than one historically we've always done in the telecom space and we don't see it kind of jumping up substantially larger than where it is at this present time based on how he focused on on getting it to where it is
spk_12: and as the been a yeah well given the inflation either we've talked about has really yell flexibility on the clients i've done in terms of them giving some relief on prices yes so
spk_2: certainly there some but i don't want to over blow at that the reality of the conversations were having both from her a tight labor market an inflationary perspective is really about changing how they're doing processes and putting more technology and place so that they they can do more with last and and that's really the conversations were focused on on having a the discussions around the total cost and delivery versus a unit of labor are so to speak on and and that's more appealing to us and frankly more killing to the clients vs just trying to chase that ah inflationary labor market your a response make sense but i guess i was i should have asked like yeah you done a pure labor intensive contacts and a work you're doing is a relief on that side i mean i know that's a very competitive business i assume is not too much relief is that right verse i would say that
spk_12: the worked are we do not pay to the ball pretty dramatically into sort of very higher value engaged conversations and they tend to have sort of certification leveled like and our healthcare business or a financial services business there's a lot of educating of instance as a different type of market and different payscale than what you might think
spk_0: but you know when we're delivering those texas services there's always opportunist and talk to the client around ah
spk_2: pricing them appropriately for that the type of skills that the you need and and so that that's really where we are we see ourselves and and those conversations are ongoing but really the focuses more about driving better automation better efficiency than needing to increase head count on in a in a linear fashion
spk_16: and then that were last question i'm i'm sizes of an answer for been and i recall
spk_0: the original pk really integrating the systems that they're on with your system is how that works
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