Concentrix(CNXC) - 2021 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the quarter ended February 28, 2021, detailing financial position and performance Consolidated Balance Sheets As of February 28, 2021, total assets slightly decreased to $5.12 billion, while liabilities decreased, increasing stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | Feb 28, 2021 (unaudited) | Nov 30, 2020 | | :--- | :--- | :--- | | Total Assets | $5,120,849 | $5,177,556 | | Total current assets | $1,407,304 | $1,423,376 | | Goodwill | $1,837,921 | $1,836,050 | | Total Liabilities | $2,731,571 | $2,875,471 | | Total current liabilities | $877,576 | $1,008,662 | | Long-term debt, net | $1,113,218 | $1,111,362 | | Total Stockholders' Equity | $2,389,278 | $2,302,085 | Consolidated Statements of Operations For the three months ended February 28, 2021, revenue grew 13.9% to $1.35 billion, with net income significantly increasing to $88.8 million Statement of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | | :--- | :--- | :--- | | Revenue | $1,353,278 | $1,188,619 | | Gross Profit | $486,050 | $445,190 | | Operating Income | $134,889 | $88,211 | | Net Income | $88,811 | $52,317 | | Diluted EPS | $1.69 | $1.01 | Consolidated Statements of Cash Flows For Q1 2021, net cash from operating activities was $35.9 million, leading to a net cash decrease of $37.2 million Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $35,884 | $54,886 | | Net cash used in investing activities | ($41,950) | ($34,669) | | Net cash used in financing activities | ($30,618) | ($17,238) | | Net (decrease) increase in cash | ($37,155) | $3,325 | Notes to the Consolidated Financial Statements This section details accounting policies and financial statement components, including the SYNNEX spin-off, revenue disaggregation, and COVID-19 related costs - The spin-off from SYNNEX Corporation was completed on December 1, 2020, making Concentrix an independent public company trading under the symbol "CNXC"[26] - The company incurred incremental costs of approximately $10 million associated with the COVID-19 pandemic during the first quarter of 2021[36] - For the three months ended February 28, 2021, one client accounted for 11.9% of consolidated revenue and 13.9% of total accounts receivable[40] Revenue by Industry Vertical (in thousands) | Industry Vertical | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | | :--- | :--- | :--- | | Technology and consumer electronics | $412,818 | $323,913 | | Communications and media | $248,790 | $263,564 | | Retail, travel and ecommerce | $239,001 | $198,914 | | Banking, financial services and insurance | $209,084 | $192,703 | | Healthcare | $125,224 | $97,325 | | Other | $118,361 | $112,201 | | Total | $1,353,278 | $1,188,619 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 financial results, highlighting 13.9% revenue growth to $1.35 billion, improved operating income, and liquidity Results of Operations Revenue for Q1 2021 increased 13.9% YoY to $1.35 billion, with operating margin improving to 10.0% despite a gross margin decrease Revenue Growth by Industry Vertical (YoY % Change) | Industry Vertical | % Change 2021 to 2020 | | :--- | :--- | | Technology and consumer electronics | 27.4% | | Communications and media | (5.6)% | | Retail, travel and ecommerce | 20.2% | | Banking, financial services and insurance | 8.5% | | Healthcare | 28.7% | | Other | 5.5% | | Total | 13.9% | - The 13.9% total revenue increase included a favorable foreign currency translation effect of $25.7 million, or 2.2%[150] - Gross margin decreased to 35.9% from 37.5% in the prior year, attributed to COVID-19 related impacts and changes in service delivery geographies[154] - Operating income increased 52.9% YoY, with operating margin expanding to 10.0% from 7.4%, driven by higher gross profit and lower SG&A as a percentage of revenue[157][159] GAAP to Non-GAAP Reconciliation Highlights (in thousands) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Operating Income (GAAP) | $134,889 | $88,211 | | Non-GAAP Operating Income | $176,608 | $144,803 | | Net Income (GAAP) | $88,811 | $52,317 | | Non-GAAP Net Income | $119,963 | $95,440 | | Diluted EPS (GAAP) | $1.69 | $1.01 | | Non-GAAP Diluted EPS | $2.29 | $1.85 | Liquidity and Capital Resources The company maintained strong liquidity of approximately $800 million as of February 28, 2021, making early debt repayments despite negative free cash flow - As of February 28, 2021, total liquidity was approximately $800 million, including $600 million undrawn on the Credit Facility and $82.5 million on the Securitization Facility[200] - The company made $50 million of early principal payments on its Term Loan during the three months ended February 28, 2021[180] Free Cash Flow (Non-GAAP, in thousands) | Component | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $35,884 | $54,886 | | Purchases of property and equipment | ($41,950) | ($43,888) | | Free cash flow | ($6,066) | $10,998 | - As of February 28, 2021, 98% of the company's $117.6 million in cash and cash equivalents was held by non-U.S. legal entities[201] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates, with a 1% rate increase potentially raising annual interest expense by $11.2 million - A hypothetical 10% adverse change in foreign currency exchange rates would result in a potential fair value loss of approximately $79.1 million on hedging contracts, substantially mitigated by corresponding gains on underlying exposures[207] - A one hundred basis point (1%) increase in interest rates on the company's variable-rate debt would cause an estimated increase in annual interest expense of approximately $11.2 million[209] Item 4. Controls and Procedures As of February 28, 2021, disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of the period, the company's disclosure controls and procedures were effective at a reasonable assurance level[211] - There were no changes in internal control over financial reporting during the first fiscal quarter of 2021 that have materially affected, or are reasonably likely to materially affect, internal controls[212] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, with no new material developments during the quarter - During the three months ended February 28, 2021, there were no new material legal proceedings and no material developments in any previously reported legal proceedings[216] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in the company's 2020 Annual Report on Form 10-K[217] Item 6. Exhibits This section lists the exhibits filed with the 10-Q report, including CEO and CFO certifications and XBRL data files - The exhibits filed with this report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and Inline XBRL documents (Exhibits 101 and 104)[218][220] Signatures - The report was signed on April 9, 2021, by Christopher Caldwell, President and Chief Executive Officer, and Andre Valentine, Chief Financial Officer[224]