Concentrix(CNXC) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2022, revenue increased over 13% on an as-reported basis [4] - Fourth quarter revenue was $1.64 billion, representing a 12% increase compared to the previous year [6] - Non-GAAP operating income for the fourth quarter was$ 248 million, up from $203 million last year, with a non-GAAP operating margin of 15.1%, an increase of 120 basis points [13] - Adjusted EBITDA for the fourth quarter was$ 285 million, compared to $238 million last year, with an adjusted EBITDA margin of 17.4%, up 120 basis points [13] - Free cash flow for the fourth quarter was$ 193 million, including approximately $19 million of integration costs [14] Business Line Data and Key Metrics Changes - Revenue from healthcare clients grew approximately 23% in the fourth quarter [12] - Technology and consumer electronics verticals saw a revenue increase of 13%, driven by technology clients [12] - Retail, travel, and e-commerce clients grew by 12%, with travel clients leading the growth [12] - Revenue from banking, financial services, and insurance clients grew by 10% in the quarter [87] Market Data and Key Metrics Changes - New economy clients generated growth of 13% year-over-year and represented 22% of fourth quarter revenue [69] - The company expects organic constant currency revenue growth in the first half of 2023 to be in the low to mid-single digits, with stronger growth anticipated in the second half [73] Company Strategy and Development Direction - The company is focusing on investments in new technologies and innovative services to align with client needs for cost reduction and operational efficiency [5] - There is an emphasis on expanding the pipeline of integrated solutions and consolidating volumes from smaller providers [90] - The long-term target remains to reach$ 10 billion in revenues by fiscal 2025, with a focus on M&A to achieve this goal [49] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate the challenging macroeconomic environment, citing strong demand from enterprise and new economy clients [66] - The company anticipates choppiness in the first two quarters of 2023 but expects year-over-year growth to accelerate in the second half due to large deals and consolidation of volumes [66] - Management noted that the labor market has stabilized, contributing to a more predictable operational environment [85] Other Important Information - The company maintained strong liquidity at nearly $1.3 billion, including a$ 1 billion line of credit [15] - Full year interest expense is expected to be approximately $140 million, with an effective tax rate of around 26% [74] - The company paid a quarterly dividend of$ 0.275 per share and repurchased 106,000 shares for approximately $13 million in the fourth quarter [116] Q&A Session Summary Question: How is the demand for labor-intensive work changing? - The company noted a shift towards outsourcing offshore due to cost considerations, with stable pricing for higher value work [20] Question: What is the confidence level regarding signing new business? - Management indicated a high level of confidence in signing business with existing clients, particularly those who have consolidated volumes in the past [39] Question: What is the expected contribution from large deals versus consolidated volumes? - Management highlighted that growth drivers include existing clients recalibrating volume expectations and new opportunities arising from consolidation [27] Question: What are the capital allocation priorities? - The company prioritizes dividends and debt reduction, with modest share buybacks planned [108] Question: How is the sales cycle evolving? - Discussions with clients are taking longer as they evaluate outsourcing and consolidation strategies, but once decisions are made, the process accelerates [109]