Concentrix Corporation

Good day, everyone, and thank you for standing by. Welcome to the Concentrix Fiscal First Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand it over to the Vice President of Investor Relations, Sarah Buda. Please proceed.

Thank you, Operator, and good evening, everyone. Welcome to the Concentrix second quarter fiscal 2024 earnings call. This call is a property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward-looking statements that address our future performance and that by their nature address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events, or developments. Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC. Also, during the call, we will provide and discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS, and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company's investor relations website under financials. With me on the call today are Chris Caldwell, our president and CEO, and Andre Valentine, our chief financial officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. Then we'll open the call to your questions. With now, I'll turn the call over to our CEO, Chris Caldwell.

Thank you very much, Sarah. Hello, everyone, and thank you for joining us today for our second quarter 2024 earnings call. First, let me start off by thanking our clients and game changers for their contributions for being included in the Fortune 500 list for the first time this year. We started with an idea that companies wanted to deliver a better brand experience for their customers. We believe that by thinking about the customer experience holistically across both back office and front office work, while investing in technology for frictionless engagement, we could create a market opportunity for ourselves. Over 20 years, we have grown that idea to a global player in over 70 countries delivering solutions that continue to push the industry forward. I couldn't be prouder of the team or more thankful for the trust of our clients. Now, turning to the second quarter performance. We increased revenue 47% as reported and grew 4% on a pro forma cost-incurrency basis in the quarter, exceeding our prior guidance. We reported non-GAAP operating income of $321 million, an increase of 46% year-on-year and in line with our guidance. We delivered adjusted EBITDA of $380 million, an increase of 47% year-on-year. On a pro forma basis, we grew non-GAAP operating income 4% and adjusted EBITDA 2% year on year. We generated more than $200 million in adjusted pre-cash flow this quarter, while returning more than $60 million of value to shareholders through dividends and share repurchases. We remain on track to generate $700 million of adjusted pre-cash flow for the full year after integration expenses and on track to complete 120 million of share repurchases for the fiscal year, of which we have done over 60 million through the end of Q2. Our positive momentum continued in the second quarter, giving us confidence to raise our revenue growth guidance for the full year. Our revenue guidance does not anticipate any changes in the macroeconomic environment, but it does reflect ongoing client demand for our solutions and the stability of our clients' volumes. We see the same momentum in Catalyst as its growth continues to be appreciated, which we expect to continue for all of 2024. From a vertical perspective, we're seeing particular strength in retail, travel and e-commerce and banking and financial services that is expected to continue for the rest of 2024. As we mentioned in our first quarter call, we are increasing our investment in our technology while also investing to transition more business from competitors. In the second quarter, we accelerated these investments while still expecting to increase our non-GAAP operating income by 40 basis points for the entire year on a pro-forma basis. Specifically, we have increased our development spend to approximately 1% of revenue through the second quarter, an increase of approximately 50 basis points from the start of Q1. This increased investment relates to our development of technology platforms for both client and internal use, as well as an increasing number of pilots that we have underway with clients using generative AI. We see this investment remaining at this level for a few quarters prior to falling more in line with historically what we have spent, while revenue from these investments starts to become more meaningful. We also expect to incur approximately $20 million to $25 million of new term incremental expense as we take on some large, multi-year programs where we are taking share from competitors as clients consolidate capacity with us. These investments, again, are temporary, and revenue follows in subsequent quarters. We see both of these as near-term and positive investments that will set us up for long-term growth and value creation. Now, let's talk about some of our recent wins and the trends we're seeing in the business. As a reminder, our growth strategy is to drive incremental value to clients through a broad set of technologies and services at global scale. Our strategy is working and we're starting to see this reflected in our growth rate and our pipeline building across both existing and new clients. Some examples of wins in the quarter include a major global retail e-commerce line where we combine the power of NAI's contact and translation tools with our CX expertise and global footprint to design and implement a new customer solution experience for them across their media operations. This allowed our clients to move volume from competitors to us, resulting in a 20% increase in our revenue and a mid-single digit increase in our margin for this specific program, while reducing the cost for the client by double digits. Our use of GenAI expertise was a win-win for us and our clients. We also won a new large global media client this quarter. We will support the launch of one of their new high-profile channels in EMEA and consolidate their customer experience operations in Japan and Korea. We will also design and build a generative AI knowledge management solution for their enterprise. They wanted a partner that could provide a complete solution delivered globally and consistently, and securely, which we are able to do. Other wins in the quarter include a global travel client that has a web health relationship in Europe. This quarter, we started to expand our revenues as a combined organization by leveraging our AI footprint and our AI-based training tools to improve effectiveness and efficiency for our game changers. This resulted in work coming from competitors to us, as well as the print potential new revenue streams as they contemplate rolling out our AI solution across their enterprise. Finally, we sold Catalyst services into a former web health client in Europe to provide specialized digital engineering resources to build, enhance, and maintain the client's digital infrastructure and CCaaS platform to support their primary channel for new business. This strengthens our existing relationship with the clients. These wins underscore the breadth and complexity of solutions that we are delivering for our clients. They also reflect how our business continues to change. At our investor day two years ago, we talked about 13% of our business being commoditized, low complexity transactions. Last year, we updated investors that we were down to 10%, and now we have reduced that to 7%, meaning 98% of our transactions are meeting to high complexity now in our business. These wins also demonstrate two important factors in our ability to gain market and wallet share. Clients are seeking a broader set of integrated solutions from fewer partners and are looking to us to boost our local scale, technology, and integrated consulting implementation and support offerings. And secondly, automation and generative AI is continuing to be an area of competitive advantage for us. As we have said before, we believe generative AI presents a tremendous upside opportunity for concentric and our clients. We have an increasing number of pilots and solutions going into production with clients now. While the level of generative adoption readiness varies greatly by protocol and client, there are a few common themes with these pilots in production. First, the vast majority of pilots in the process are looking at using AI to augment a human advisor to make the advisor more effective at representing our client's brand and enhancing the brand experience for the customers. Second, many of these pilots are using generative AI to upgrade or replace existing knowledge platforms, chatbots, automation systems, and IDR systems. This brings me to the upside opportunities we see as we combine our own AI tools with those of our partners to bring new value to our clients. Many of our technology platforms continue to gain traction in the market. We're building on this momentum and will be introducing a variety of new products over the coming quarters. This quarter, we filed a patent for Giles, which stands for Generative Intelligence for Limitless Engineers. a platform we developed to automate coding and testing using GenAI that is helping us to build new platforms faster. From our internal usage, we are seeing up to a 40% productivity boost to experienced coders on transactional tasks. We believe our investments in both generative AI pilots and technology products will help us expand the share of wallet and share of market long-term at superior margins. Finally, let me touch on the web health integration. As you can see from these wins we've mentioned, we're starting to see revenue synergies sooner than we expected. This is a testament to the successful integration of our go-to-market and delivery organizations, which we initiated on day one and are largely behind us. The integration is on track, as is a realization of planned cost synergies. In summary, our growth strategy is working. We are differentiating concentrics from the market and delivering incremental value to clients for a broad set of technologies and services at global scale. And our recent wins offer evidence that AI is an upside opportunity for concentrics. With that, I'd like to thank our game changers and our clients for the relationships over the last quarter and pass the call over to Andre. Andre, over to you.