Concentrix Corporation

Thank you for standing by, and welcome to Concentric's third quarter fiscal year 2024 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Sarah Buda, Investor Relations. Please go ahead.

Great. Thank you, operator, and good evening. Welcome to the Concentrix Third Quarter Fiscal 2024 Earnings Call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward-looking statements that address our future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events, or developments. Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and in our other public filings with the SEC. Also during the call, we will 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 up the call for your questions. Now I'll turn the call over to Chris.

Thank you, Sarah. Hello, everyone, and thank you for joining us today for our third quarter 2024 earnings call. Today, I'm going to walk you through our current demand environment, the opportunities we are seeing in our business, and most importantly, the positive changes we are making to harness these opportunities to drive long-term value creation. Let's start with what we see in front of us today and how our market has changed over this last quarter. Our business, like all businesses, is going through a significant transformation. We see this across our clients and across sectors. Clients are under pressure to show both innovation and cost control. Every client we speak with has brought forward AI on their agenda as a way to optimize processes, show their boards relevance, and reduce costs. In some cases, the environment is used as a reason clients are pushing their partners and vendors on different economic outcomes. What we've seen in the past few months is an acceleration in the pace of change driving more technology adoption, movement in delivery location, and asks for investment by clients for their transformations that are now taking priority. Transitions that might have taken several quarters are now taking place in a significant shorter timeframe. So, what does this mean for us? First, it validates that we have the right strategy and the right model to capitalize on this moment. Because of the investments we've made in our own technology and that of our technology partners, our global scale and domain expertise, clients are looking to us to lead them through their AI journey to drive innovation, reduce costs, and embrace new economic models. Second, it means we need to focus on winning the right business, and in some case, walking away from transactional price-led commodity business where there is no desire or ability from the client to automate. As we've said, this now represents less than 7% of our business, a marked decline from the 13% only two years ago. With the pace of generative AI, we expect this portion of the business to decline even further and faster. Essentially, we are proactively disrupting our own business with confidence. In doing so, we see many small bumpiness in the short term, but we believe that we are building the right business for the long term. Let me give you some examples of how this is playing out currently. We are winning new logos from competitors. An example in Q3 is a win with an airline who has been with their existing partner for decades before awarding us the entire business. Our technology leadership is allowing us to drive automation to improve performance and reduce costs for the client while enhancing the customer experience. This win leverages the power of concentrics with our catalyst capabilities, our generative AI solutions to support the client across 15 lines of business and 10 languages. We are driving change in our existing business. One of the many examples in Q3 is from a large infrastructure company that we have serviced for five years. This quarter, we deployed an AI bot that in the first month handled 40% of all transactions completely autonomously with a high customer satisfaction rate. For us, this resulted in an immediate 12% reduction in revenue in the near term and some margin pressure as we made upfront investments in technology for a longer-term contract with the client. By automating the simple transactions and delighting the client with the innovation, the client is already having us focus on more complex work which will lead to increased revenue and margins when fully ramped middle of next year. More importantly, it is leading to new opportunities for us to deploy technology into their enterprise. We are also expanding relationship with larger transformational opportunities. In the third quarter, with an existing client, we want a large transformational program that we have been working on for close to a year that is all incremental business to us. This is with a large financial organization where we will take over the complete servicing of a specific segment of customers. This includes the back office, technology, and servicing of all the customers. This win encompasses third-party technology partners, our own GenAI tools, Catalyst services, and our client success organization. The initial five-year contract is valued at over $150 million in revenues. This is a remarkable win and marks one of our first large-scale transformational wins with our new model. Strategically, it was significant as well as no traditional competitors were engaged in this pursuit as they didn't have a complete solution. We're also winning the majority of client consolidation opportunities. Of the 22 client consolidation opportunities we saw in Q3, we were winners in 80% of them. With global scale, differentiated technology, and domain expertise, we are well positioned to win. In fact, in Q3, we saw our highest quarterly contract revenue bookings since our combination one year ago today. We are also partnering with leading complementary technology partners. We are continuing to increase our capabilities across multiple key technology partner solutions. For example, last week at Salesforce Dreamforce event, We participated with a large presence and gained significant interest in our technology solutions that complement Salesforce, as well as our ability to customize and configure Salesforce. Although these examples span many different sectors and have varying deliverables, they are good examples of the current operating environment. Clients' requests for transformation investments are increasing in exchange for longer contracts. There are periods of revenue decline on a client by client basis when we deploy some of our new technology, but we have demonstrated our ability to win more business over time from these clients as we help them automate transactions. We are winning higher complexity deals and walking away from commodity business if there is no desire to automate. Clients are using this moment to consolidate providers. and technology from our partners and our own IP is helping us embed ourselves within our clients' environments. This deep integration creates higher value, stickier revenue long-term. We see this in our cross-sell and up-sell ratios that show an increase when we have our solutions embedded. As we have seen increased demand for generative AI automation, we quickly mobilized to both increase our capabilities and make our tools commercially available. As we discussed during our last investor call, our investment in the development of our tools increased to a run rate of approximately $100 million on an annual basis. This is proving to be the right strategy and brings me to today's announcement of our launch of IX Hello. This is our first product in our new intelligent experience technology suite aimed at helping organizations harness the power of generative AI across their operations. With our launch of IX Hello, we are giving customers an LLM agnostic generative AI productivity tool that automates and accelerates common internal tasks. IX Hello integrates across internal applications to boost productivity, visibility, and quality of work with an on-brand, compliant, and secure environment. The genesis of our product strategy is very straightforward. Clients saw what we were doing internally, and they realized it was what they wanted. a proven, trusted GenAI productivity tool that integrates knowledge across their front office and back office platforms, is flexible and LOM agnostic that operates in a highly secure, trusted environment. Our increase in investment has not only allowed us to make necessary changes to commercialize IP, but also enhance our practices around our technology partners' products. As always, our clients are at the center of the decision on what to deploy in their environments. We now have close to 1,000 clients who are using generative AI solutions we have implemented at scale every day. In short, as we saw in our Q3 results and our Q4 outlook, the operating environment is very dynamic right now. Q3 came in largely as we expected. Revenue was above the midpoint of our guidance at 2.6 pro forma constant currency growth in the quarter. NGOI was within our guidance range, but at the low end as we incurred more costs than we anticipated to shift a large number of programs offshore sooner than expected and to absorb some upfront technology investment in order to secure longer-term deals as discussed. Looking at Q4, we have lowered our expectations, which Andre will give more details on. In order to continue investment levels, we are actively reallocating capital towards our technology and transformation work to ensure that we are winning the right long-term business. We are acutely focused on ensuring we are moving with velocity and proactively transforming our business to gain share and position us for long-term value creation. Our teams are aligned and we are excited about the future ahead. I'd like to thank our dedicated game changers for their hard work and commitment to excellence and our clients for their trust and their business. Now, I'll turn the call over to Andre.