Concentrix(CNXC) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2024 revenue was $2.4 billion, reflecting 2.6% pro forma constant currency growth [19] - Non-GAAP operating income was$ 331 million, up $100 million YoY, with a margin of 13.9%, down 20 bps YoY [21] - Adjusted EBITDA was$ 388 million, up $119 million YoY, with a margin of 16.3%, down 20 bps YoY [21] - Non-GAAP net income was$ 192 million, up $49 million YoY, and non-GAAP EPS was$ 2.87, up $0.11 YoY [22] - Adjusted free cash flow was$ 135 million, below expectations due to client collection delays and accelerated integration costs [23] - Net debt was $4.67 billion, with a net leverage ratio of 2.95x pro forma adjusted EBITDA [24] Business Line Data and Key Metrics - Retail, travel, and e-commerce revenue grew 8% YoY on a pro forma constant currency basis [19] - Banking, financial services, and insurance revenue grew 5% YoY [19] - Technology and consumer electronics revenue grew 1%, while communications and media revenue declined 3% [20] - Healthcare revenue decreased 4% due to offshore delivery shifts [20] Market Data and Key Metrics - The company won 80% of 22 client consolidation opportunities in Q3 [11] - The airline win in Q3 leverages Generative AI solutions across 15 lines of business and 10 languages [8] - A large infrastructure company saw 40% of transactions handled autonomously by an AI bot, resulting in a 12% near-term revenue reduction [9] - A$ 150 million five-year contract was secured with a large financial organization for a transformational program [10] Company Strategy and Industry Competition - The company is focusing on winning higher complexity deals and walking away from commoditized business, with less than 7% of revenue now from transactional price-led business [7] - Investments in Generative AI tools have increased to a $100 million annual run rate [14] - The launch of iX Hello, a Generative AI productivity tool, aims to automate internal tasks and boost productivity [15] - The company is reallocating capital towards technology and transformation work to secure long-term business [17] Management Commentary on Operating Environment and Future Outlook - Clients are accelerating technology adoption and pushing for faster transformations, leading to shorter transition timelines [5] - The company expects Q4 revenue of$ 2.42 billion to $2.47 billion, with pro forma constant currency growth ranging from -0.5% to 1.5% [30] - Full-year 2024 revenue is expected to be$ 9.591 billion to $9.641 billion, with pro forma constant currency growth of 2.2% to 2.7% [32] - The company aims to reduce net leverage to 2.8x adjusted EBITDA by year-end 2024 [34] Other Important Information - The company repurchased 600,000 shares for$ 39 million in Q3 and expects full-year repurchases to exceed $130 million [25] - A 10% increase in the quarterly dividend was announced [25] - Integration synergies are expected to reach$ 120 million by 2025, a year ahead of schedule [28] Q&A Session Summary Question: Revenue impact from walking away from commoditized business vs. new business wins [37] - The company expects a 1% headwind from client volume declines, a 0.5% headwind from offshoring, and a <0.5% headwind from lost consolidation opportunities [38] Question: Ramp timelines for new business wins [39] - The airline win will start generating revenue in late Q4/early Q1, with full ramp by Q2/Q3 2025 [40] - The large transformational project will see revenue by end of Q2 2025, with full ramp by end of Q4 2025 [40] Question: Accelerated merger-related costs in 2025 [41] - The company is accelerating integration spending to achieve $120 million in synergies by 2025, reinvesting savings into transformation activities [42] Question: Other expenses increase in Q3 [43] - The increase was due to$ 33 million in foreign currency losses and changes in contingent consideration [44] Question: Catalyst business trends [45] - The Catalyst business is performing well, enabling technology deployments and consulting on transformational deals [46] Question: Offshoring impact on revenue and margins [47] - Offshoring is causing dual costs and margin compression in the short term, but longer-term contracts will lead to margin expansion [49] Question: TCE segment performance [52] - The TCE segment saw muted volumes, particularly in consumer electronics, despite share gains [53] Question: Client consolidation opportunities [54] - The company is seeing faster-than-expected consolidation, driven by clients managing costs and seeking full solutions [55] Question: Automation targets [57] - Automation timelines are accelerating as clients seek in-year savings, but the scope of automation remains consistent [58] Question: iX Hello pricing and cannibalization [64] - iX Hello is priced per seat with volume discounts, and the company is comfortable with cannibalizing low-margin business [65] Question: Gen AI investment ROI [67] - The company expects ROI on its $100 million annual Gen AI investment by end of 2025, with accretive margins and growth rates [68] Question: Impact of new technology products on margins [71] - The company is managing investments within its$ 100 million run rate and expects to see margin improvements as transformational programs ramp [72] Question: Offshore program margin benefits and pricing environment [73] - Offshore programs typically take 2-3 quarters to show margin benefits, and the pricing environment remains competitive, with clients shifting upfront costs to providers [74] Question: Gen AI adoption and future disruption [75] - Close to 1,000 clients are using Gen AI at scale, with some proof-of-concepts converting to production, but clients remain cautious about customer-facing AI [76][77] - The company expects continued adoption of multiple Gen AI solutions tailored to specific client needs [80]