Concentrix Corp Q3 FY2024 earnings call

Clients are under pressure for innovation and cost control, with accelerated AI adoption. Concentrix's strategy and model are validated, with less than 7% of business being transactional price-led commodity. The company is winning new logos like an airline, driving change in existing business with AI bots, expanding large transformational opportunities. It won 80% of 22 client consolidation opportunities in Q3, achieving highest quarterly contract revenue bookings since the Webhelp combination. It is partnering with leading technology partners and launched iX Hello, an LLM agnostic generative AI productivity tool.

Third quarter revenue was $2.4 billion, reflecting 2.6% pro forma constant currency growth. By vertical: Retail, travel, and e-commerce clients grew 8% pro forma constant currency; banking, financial services, and insurance grew 5%; other vertical (driven by automotive) grew 6%; technology consumer electronics grew 1%; communications and media decreased 3%; healthcare decreased 4%. Non-GAAP operating income was $331 million, non-GAAP operating margin 13.9%, adjusted EBITDA was $388 million, and adjusted EBITDA margin was 16.3%.

Q4 revenue is expected $2.42 billion to $2.47 billion, pro forma constant currency change ranging from -0.5% to +1.5%. Lower volume forecast, larger shift to lower cost geographies, and loss of commoditized projects led to reduced revenue outlook. Q4 non-GAAP operating income is in the range of $335 million to $355 million, and non-GAAP EPS is $2.90 to $3.16. Full-year 2024 revenue is $9.591 billion to $9.641 billion, pro forma constant currency growth 2.2% to 2.7%. Adjusted free cash flow is $625 million to $650 million, and net leverage is expected to reduce to ~2.8 times adjusted EBITDA by year end.

Foreign currency losses related to intercompany translation of non-USD denominated liabilities/assets, contingent consideration changes, and client collection delays in August, Europe, which impacted adjusted free cash flow.

Q: Joseph Vafi asked about Q4 revenue headwinds and ramp of new wins.

A: Chris Caldwell explained volume declines, offshoring shifts, and loss of commoditized projects as headwinds; ramps of new wins vary, with some starting late Q4/early Q1 and fully ramped later.

Q: Divya Goyal asked about other expenses and Catalyst business.

A: Andre Valentine said other expenses related to foreign currency losses and contingent consideration; Chris Caldwell noted Catalyst business is an enablement partner but not seeing step-up from interest rate drops.

Q: Vincent Colicchio asked about automation and consolidation.

A: Chris Caldwell said automation timing is accelerating, consolidation has legs as clients reduce partners.

Q: Ollie Davies asked about iX Hello pricing and automation.

A: Chris Caldwell said iX Hello is per seat with volume discounts, and automation of complex transactions is outside the 7% transactional business.

Q: Ruplu Bhattacharya asked about Gen AI investments and margins.

A: Chris Caldwell discussed $100M run rate for Gen AI, with success measured by ROI and margin accretion; Andre Valentine talked about offshore movement margin benefit taking 2-3 quarters and pricing moving to upfront investment for longer contracts.