10-12B

As filed with the Securities and Exchange Commission on September 8, 2020

File No. 001-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

 

 

Concentrix Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-1605762

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

44111 Nobel Drive, Fremont, California   94538
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (800) 747-0583

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class
to be so registered

 

Name of each exchange on which
each class is to be registered

Common Stock, par value $0.0001 per share   []

Securities to be registered pursuant to Section 12(g) of the Act:

None

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


CONCENTRIX CORPORATION

INFORMATION REQUIRED IN REGISTRATION STATEMENT

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10

Certain information required to be included herein is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.

 

Item 1.

Business.

The information required by this item is contained under the sections “Summary,” “Risk Factors,” “Forward-Looking Statements,” “The Spin-off,” “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Management,” “Board of Directors,” “Board Compensation,” “Executive Compensation,” “Certain Relationships and Related Party Transactions,” “Where You Can Find More Information” and “Index to Combined Financial Statements” (and the statements referenced therein) of the information statement. Those sections are incorporated herein by reference.

 

Item 1A.

Risk Factors.

The information required by this item is contained under the section “Risk Factors” and “Forward-Looking Statements” of the information statement. Those sections are incorporated herein by reference.

 

Item 2.

Financial Information.

The information required by this item is contained under sections “Summary Historical and Unaudited Pro Forma Combined Financial Information,” “Capitalization,” “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Index to Combined Financial Statements” (and the statements referenced therein) of the information statement. Those sections are incorporated herein by reference.

 

Item 3.

Properties.

The information required by this item is contained under the section “Business—Properties” of the information statement. That section is incorporated herein by reference.

 

Item 4.

Security Ownership of Certain Beneficial Owners and Management.

The information required by this item is contained under the section “Principal Stockholders” of the information statement. That section is incorporated herein by reference.

 

Item 5.

Directors and Executive Officers.

The information required by this item is contained under the sections “Management,” and “Board of Directors” of the information statement. Those sections are incorporated herein by reference.

 

Item 6.

Executive Compensation.

The information required by this item is contained under the sections “Board of Directors,” “Board Compensation” and “Executive Compensation” of the information statement. These sections are incorporated herein by reference.


Item 7.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is contained under the sections “Board of Directors” and “Certain Relationships and Related Party Transactions” of the information statement. Those sections are incorporated herein by reference.

 

Item 8.

Legal Proceedings.

The information required by this item is contained under the section “Business—Legal Proceedings” of the information statement. That section is incorporated herein by reference.

 

Item 9.

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

The information required by this item is contained under the sections “Risk Factors,” “The Spin-off,” “Dividend Policy,” “Capitalization,” and “Description of Capital Stock” of the information statement. Those sections are incorporated herein by reference.

 

Item 10.

Recent Sales of Unregistered Securities.

Not applicable.

 

Item 11.

Description of Registrant’s Securities to be Registered.

The information required by this item is contained under the section “Description of Capital Stock” of the information statement. That section is incorporated herein by reference.

 

Item 12.

Indemnification of Directors and Officers.

The information required by this item is contained under the section “Description of Capital Stock—Indemnification Arrangements” of the information statement. That section is incorporated herein by reference.

 

Item 13.

Financial Statements and Supplementary Data.

The information required by this item is contained under the sections “Summary Historical and Unaudited Pro Forma Combined Financial Information,” “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Index to Financial Statements” (and the statements referenced therein) of the information statement. Those sections are incorporated herein by reference.

 

Item 14.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

 

Item 15.

Financial Statements and Exhibits.

(a) Financial Statements

The information required by this item is contained under the section “Index to Financial Statements” (and the statements referenced therein) beginning on page F-1 of the information statement. That section is incorporated herein by reference.

(b) Exhibits.

 

3


The following documents are filed as exhibits hereto:

 

Number

 

Description

  2.1*   Form of Separation and Distribution Agreement between SYNNEX Corporation and Concentrix Corporation.
  3.1*   Form of Restated Certificate of Incorporation of Concentrix Corporation.
  3.2*   Form of Amended and Restated Bylaws of Concentrix Corporation.
10.1*   Form of Employee Matters Agreement between SYNNEX Corporation and Concentrix Corporation.
10.2*   Form of Tax Matters Agreement between SYNNEX Corporation and Concentrix Corporation.
10.3*   Form of Master Commercial Agreement between SYNNEX Corporation and Concentrix Corporation.
10.4*+   Form of Indemnification Agreement between Concentrix Corporation and individual directors and officers.
21.1*   List of Subsidiaries of Concentrix Corporation.
99.1   Preliminary Information Statement of Concentrix Corporation, subject to completion, dated September 8, 2020.

 

*

To be filed by amendment.

+

Management contract or compensatory plan or arrangement.

 

4


SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      CONCENTRIX CORPORATION
Date:  

September 8, 2020

  By:  

/s/ Christopher A. Caldwell

     

Name: Christopher A. Caldwell

Title: Chief Executive Officer

 

5

EX-99.1
Table of Contents

Exhibit 99.1

 

Information contained herein is preliminary and subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.

 

PRELIMINARY AND SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 2020

INFORMATION STATEMENT

 

LOGO

Concentrix Corporation

 

 

This information statement is being furnished to the stockholders of SYNNEX Corporation (“SYNNEX”) in connection with the distribution by SYNNEX to its stockholders of all the outstanding shares of common stock of Concentrix Corporation (“Concentrix”), a wholly owned subsidiary of SYNNEX that is a leading global provider of technology-infused Customer Experience solutions. To implement the distribution, SYNNEX will distribute all of the shares of Concentrix common stock on a pro rata basis to SYNNEX stockholders in a transaction that is intended to qualify as tax-free for U.S. federal income tax purposes. We refer to this as the “spin-off.”

You will receive one share of Concentrix common stock for each share of SYNNEX common stock held of record by you as of the close of business on [●], the record date for the distribution. We expect that the distribution will be made to you at 11:59 p.m., Eastern Time, on [●]. A book-entry account statement reflecting your ownership of shares of our common stock will be mailed to you, or your brokerage account will be credited for the shares, on or about [●].

No stockholder approval of the distribution of the Concentrix common stock is required or sought. Therefore, you are not being asked for, and you are requested not to send SYNNEX a proxy in connection with the distribution.

You will not be required to make any payment for the shares of Concentrix common stock that you will receive, nor will you be required to surrender or exchange your shares of SYNNEX common stock or take any other action in order to receive your shares of Concentrix common stock.

There is currently no trading market for Concentrix common stock, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution. We expect “regular-way” trading of Concentrix common stock to begin on the first trading day following the distribution. Concentrix intends to apply to have its common stock authorized for listing on the [●] under the symbol “[●].” Following the distribution, SYNNEX will continue to trade on the New York Stock Exchange under the symbol “SNX.”

 

 

In reviewing this information statement, you should carefully consider the information under the caption entitled “Risk Factors” beginning on page 17 of this information statement.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is [], and this information statement was first made available to SYNNEX stockholders on or about [], 2020.


Table of Contents

TABLE OF CONTENTS

 

     Page  

Table of Contents

     i  

Presentation of Information

     ii  

Summary

     1  

Summary Historical and Unaudited Pro Forma Combined Financial Information

     11  

Questions and Answers About the Spin-Off

     12  

Risk Factors

     17  

Forward-Looking Statements

     33  

The Spin-Off

     35  

Material U.S. Federal Income Tax Consequences of the Distribution

     40  

Dividend Policy

     44  

Capitalization

     45  

Selected Historical Combined Financial Data

     46  

Unaudited Pro Forma Condensed Combined Financial Statements

     48  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     53  

Quantitative and Qualitative Disclosures about Market Risk

     74  

Business

     76  

Management

     85  

Board of Directors

     86  

Board Compensation

     89  

Executive Compensation

     90  

Certain Relationships and Related Party Transactions

     105  

Principal Stockholders

     112  

Description of Material Indebtedness

     114  

Description of Capital Stock

     115  

Where You Can Find More Information

     119  

Index to Combined Financial Statements

     F-1  

 

i


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PRESENTATION OF INFORMATION

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Concentrix assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Concentrix,” “we,” “us,” “our,” “our company” and “the company” refer to Concentrix Corporation, a Delaware corporation, and its consolidated subsidiaries after giving effect to the separation and distribution. Unless the context otherwise requires, references in this information statement to “SYNNEX” refer to SYNNEX Corporation, a Delaware corporation, and its consolidated subsidiaries other than, for all periods following the separation and distribution, Concentrix. References in this information statement to Concentrix’ historical assets, liabilities, products, businesses or activities are generally intended to refer to the historical assets, liabilities, products, businesses or activities of the Concentrix business as it was conducted as part of SYNNEX and its subsidiaries prior to the spin-off. Unless the context otherwise requires, references in this information statement to the “separation” or the “spin-off” refer to the separation of Concentrix from SYNNEX’ other businesses and the creation, as a result of the distribution, of an independent, publicly traded company, Concentrix. Unless the context otherwise requires, references in this information statement to the “distribution” refer to the distribution by SYNNEX to SYNNEX stockholders as of the record date of 100% of the outstanding shares of Concentrix, as further described herein.

 

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SUMMARY

The following is a summary of material information discussed in this information statement. This summary may not contain all the details concerning the spin-off, the business of Concentrix, the Concentrix common stock or other information that may be important to you. You should carefully review this entire information statement, including the risk factors, to better understand the spin-off and Concentrix’ business and financial position.

Our Company

Overview

We are a leading global provider of technology-infused Customer Experience (“CX”) solutions, centered on helping our clients enhance the brand experience for their end-customers. We provide end-to-end capabilities that help drive deep customer understanding and engagement. Our solutions facilitate communication between our clients and their customers, provide analytics and process optimization, and support client-centric operations and back-office processing across the enterprise. Our differentiated portfolio of solutions support Global Fortune 2000 as well as high-growth companies across the globe in their efforts to deliver an optimized, consistent brand experience across all channels of communication, such as voice, chat, email, social media, asynchronous messaging, and custom applications. We strive to deliver exceptional services globally supported by our deep industry knowledge, technology and security practices, talented people, and digital and analytics expertise.

We offer our clients integrated solutions supporting the entirety of the customer lifecycle; CX and user experience (“UX”) strategy and design; analytics and actionable insights; and innovative new approaches to enhancing the customer experience through the latest technological advancements in our industry. We believe that we are at the forefront of the shift from traditional Customer Relationship Management (“CRM”), which is focused on a portion of the customer lifecycle, to CX, which supports the entirety of it. Through our end-to-end capabilities, we deliver better economic outcomes for our clients with solutions designed to meet their unique needs as they navigate a landscape characterized by discerning consumers and new market entrants.

We have strong relationships with companies across the globe and are a provider of choice for industry leaders. We believe in supporting our clients over the long term to build enduring relationships. Our average client tenure is 15 years. As of today, we serve over 125 Global Fortune 2000 clients as well as more than 50 high-growth companies across various verticals and geographies that are attempting to disrupt their respective industries. We primarily support clients in verticals with certain characteristics, such as high growth, high transaction volume, high levels of compliance and security, and steep barriers to entry. Our strategic verticals include technology and consumer electronics, communications and media, retail, travel and ecommerce, banking, financial services and insurance, healthcare, and other. Our clients include:

 

   

7 of the top 10 global digital companies

 

   

8 of the top 10 global internet companies

 

   

6 of the top 10 U.S. health insurance companies

 

   

4 of the top 5 U.S. banks

 

   

7 of the top 10 global automotive companies

Through our technology-infused offerings, our clients benefit from having a single resource that enables them to address the entirety of the customer journey from acquisition to support to renewal. Our end-to-end capabilities and broad service offerings help our clients acquire, retain, and improve the lifetime value of their customer relationships while optimizing their back-office processes.



 

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We combine global consistency with local expertise, enhancing the end user experience for our clients’ customers through services rendered by 235,000 employees across more than 275 locations in more than 40 countries and 6 continents, where we conduct business in over 70 languages.

Our revenues for the fiscal year ended November 30, 2019 increased 91.1% from the prior fiscal year to $4.7 billion, primarily due to the acquisition of Convergys Corporation (“Convergys”) in October 2018. We recorded operating income of $294 million over the same period with our operating income margin expanding 40 basis points to 6.3%.

Our History

We trace our roots back to 2004 when SYNNEX acquired BSA Sales, Inc., a company with 20 employees focused on helping clients through outsourced sales and marketing services. In 2006, SYNNEX combined New York-based Concentrix with BSA Sales under the Concentrix name, with the goal of bringing technology and innovation into businesses to help clients reimagine and design the next generation of experiences. As our business evolved, our scope and scale widened but our commitment to our philosophy of technology and innovation remained unchanged. Throughout our history, we have made strategic acquisitions that bolstered our offerings, geographic reach, and scale. Our acquisition of Convergys in 2018 represented the largest acquisition in our industry to date, creating a global customer engagement services company that is a leader in CX solutions capabilities and reach.

We are one of the fastest growing CX companies globally. From fiscal year 2004 to fiscal year 2012, powered by organic growth, acquisitions, and product expansion, our organization expanded to 7,500 employees and our revenue grew at a compound annual growth rate (CAGR) of approximately 56%. With our acquisition of the IBM CRM business in 2014, we significantly expanded the reach of our Concentrix business to approximately 170 customers in 24 countries. The graph below illustrates our revenue growth and strategic milestones from fiscal year 2012 to date, culminating in our acquisition of Convergys, which nearly doubled our scale:

 

LOGO

Our Market Opportunity

According to International Data Corporation1, the global outsourced Customer Experience Management (“CXM”) industry is currently sized at $79 billion and is estimated to expand at a 4% CAGR over the next three

 

1 

IDC Worldwide and U.S. Business Process Outsourcing Services Forecast, April 2019, #US43778119.



 

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years driven by an increased complexity to customer interactions and new digital channel growth. We believe there is considerable room for growth in our sector as only a small portion of the CRM market is outsourced today.

In order to maintain relevancy, our clients must transform their systems in response to increased competition and consumer demands. To meet the evolving needs of their customers, our clients are looking to large CX solutions providers, such as Concentrix, to automate their systems and provide professional support to address complexities beyond the scope of automation. We are a leader in next-generation CX technology driven by a focus on innovation, which we believe will increase our total addressable market as we enter and grow across new and existing markets. Our suite of integrated solutions include: digital services that enable efficient customer self-service; Voice of the Customer (“VOC”) solutions to gather and analyze customer feedback to foster loyalty to, and growth with, clients; analytics and consulting solutions that synthesize data and provide professional insight to improve clients’ customer experience strategies; Robotic Process Automation (“RPA”) solutions that automate customer engagement processes to reduce client costs; Artificial Intelligence (“AI”) technology that can intelligently act on customer intent to improve customer experience with non-human engagement; support for clients’ engagement with customers across the Internet of Things (“IoT”) and through multiple interconnected channels; Vertical BPO services that provide specialized support to specific industry verticals; and Back Office BPO services that support clients in non-customer facing areas.

Industry Trends

 

   

Growing Importance of Customer Experience. We believe customer experience has become a strategic imperative for all enterprises today. Data, analytics, and digital solutions have reshaped the ways firms interact with their customers. As a result, enterprises are modernizing how they manage the customer experience across all channels of communication. The market is evolving from customer relationship management solutions that act as a cost cutting measure, toward end-to-end CX management solutions that create value throughout the entire customer lifecycle at an appropriate cost.

 

   

Empowered Consumers and Users. The modern consumer is discerning and has come to expect a high level of care and responsiveness from their service providers. Old paradigms have shifted as increasingly competitive markets and easily accessible crowd-sourced information have empowered consumers to unprecedented levels. As consumers demand more and have an increased amount of alternatives, companies must differentiate on how they manage their customer relationships. This shift is driving the market toward consumer-centric solutions that limit customer churn and promote brand loyalty.

 

   

Technological Innovation. Emerging technology is driving change within our industry and shaping the demands of our clients. Advancements in areas such as Digital Services, RPA, AI and Machine Learning (“ML”) are further disrupting our markets and our clients’ markets while opening new avenues for growth and opportunities for us to better serve our clients. These technologies provide clients the opportunity to interact more effectively with their customers and improve the customer experience by automating processes, optimizing customer journeys to reach faster solutions, enabling personalized engagement across multiple platforms, and focusing human engagement on the most complex interactions.

 

   

Evolving Role of People. The skillset required of employees in the CRM and BPO industry is shifting as enterprises place increased importance on CX. Increasing complexity in the voice channel is driving a trend of longer customer engagements requiring CRM and BPO support professionals to have a more robust skill set. The increasing importance of skilled labor in our industry is offset by the transition of low complexity support to online support (self-service), driven by heavy automation and digitization. Despite growth in digital channels, phone conversations currently remain the preferred option for customer services interactions. We believe the human element will continue to be important in our



 

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industry, as focus shifts from routine service to “last-mile” support requiring human-touch to deliver a stronger customer experience.

 

   

Mission Critical Nature of Cybersecurity. Technological innovation coupled with the proliferation of smart devices and mobile connectivity is generating sensitive data at scale, while at the same time, the avenues for access have become numerous. Data security is paramount in an environment where improper access or carelessness can compromise customers and businesses. Businesses require scalable, industry-leading data protection and security to avoid reputational and operational risks in an environment characterized by the threats and benefits of free-flowing information.

 

   

Enterprise Preferences Driving Vendor Consolidation. Enterprises have become increasingly multinational. As their scope of business increases, enterprises require a partner that can serve their needs by rapidly deploying solutions and new technology consistently across multiple geographies and channels. Enterprises therefore prefer vendors with scale and end-to-end capabilities that can be a one-stop shop and are consolidating existing relationships to vendors with scale to achieve their business objectives and pursue cost savings.

 

   

Market Fragmentation Driving Industry Consolidation. We operate in a fragmented marketplace characterized by numerous vendors offering services across various levels of the value chain. Currently the top 10 players in CX only hold an approximate 30% market share with the remaining market share held by thousands of other vendors. As client preferences continue to evolve in line with enterprise preferences, we anticipate that our market will undergo further consolidation.

 

   

Existing Solutions Have Many Limitations. As executives look to successfully navigate digital transformation and manage their customers’ experience across a wider variety of channels, unsophisticated providers and solutions often fail to meet customers’ needs. Currently there is a limited set of providers with end-to-end, global offerings of scale in the marketplace. The fragmentation of the market and, for many industries, high regulatory hurdles create additional complexity as most providers are small, niche, or local players. These issues are compounded by a lack of sufficient investment in cybersecurity, creating exposure to regulatory, reputational, and operational risks. These pain points, coupled with the prevalence of providers offering legacy solutions that fail to address the demands of the modern consumer, create an opportunity for large-scale, global CX solutions providers.

Our CX Solutions

We offer technology, people and process solutions that help clients enhance the experience for their customers and improve business performance. Our CX solutions encompass four complementary areas: Customer Lifecycle Management; CX/UX Strategy and Design; Digital Transformation; and VOC and Analytics. Through our integrated CX solutions offering, our clients engage us to acquire, support and renew customers, leverage customer feedback and insights to constantly improve business performance, and identify and implement customer-facing and back-office process improvements. We help our clients by creating tools that their customers and employees love to use, enable better customer interactions through real-time sentiment analysis, and integrate multiple customer interactions and touchpoints into one-stop smart mobile applications. We provide these solutions and other complementary services in 70 languages, across 6 continents, from over 275 locations in the Americas, Asia-Pacific and EMEA.

Customer Lifecycle Management. We seek to deliver next-generation customer engagement solutions and services that address the entirety of the customer lifecycle. We offer our clients the means to acquire, support and renew customers across all channels while minimizing attrition and increasing customer lifetime value. Our Customer Lifecycle Management solutions include services such as customer care, sales support, digital marketing, technical support, digital self-service, content moderation, creative design and content production, and back office services. Customer Lifecycle Management represents our core service offering and a significant majority of the services we provide.



 

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In addition to our Customer Lifecycle Management services, we also provide the complementary services described below, which are provided to clients as integrated solutions with our core service offering:

 

   

CX/UX Strategy and Design. We strive to help our clients reimagine what great is, designing next generation CX solutions to exceed customer expectations. Our CX/UX Strategy and Design solutions, including CX strategy, data-driven user design, journey mapping, and multi-platform engineering, enable our clients to create effortless, personalized customer engagements and align business priorities around measurable goals. Through these services, we promote a more rapid integration of digital and enabling technologies, providing transformational business services to our clients.

 

   

Digital Transformation. We seek to offer cutting edge solutions to reshape how brands better engage with their customers. Our innovative solutions and services are focused on creating disruption to help our clients stay relevant and achieve better business outcomes. Our Digital Transformation solutions include services such as RPA and cognitive automation that automate processes to improve efficiency and accuracy, mobile app development to create new channels of engagement, work at home and gig platforms that capitalize on a changing and flexible workforce, Interactive Voice Response (“IVR”) and natural language understanding solutions that improve outcomes and customer experience with automated responses to verbal interactions, messaging and social platforms that allow clients to engage with customers across myriad platforms, and system integration services.

 

   

Voice of the Customer and Analytics. Our VOC solutions turn customer feedback into actionable insights. Our Analytics solutions provide businesses with insight into rapidly changing markets through data, which provides our clients with a competitive edge. Our VOC and Analytics solutions include offerings such as VOC SaaS platform, speech and text insights, sentiment analysis, advanced analytics and real-time reporting.

Our Competitive Strengths

We believe the following strengths differentiate us from our competitors and provide us with a competitive advantage:

 

   

Extensive Global Presence: We operate globally in over 40 countries across 6 continents with the ability to conduct business in 70 different languages. We believe we are well-positioned to serve the largest multinational brands in nearly every market in which they operate. Our global footprint includes a strong presence in emerging markets such as India, China, Brazil, Vietnam, Thailand and Indonesia, which provides an opportunity to grow with our clients in these regions. Our ability to create value for our clients across a global delivery platform has enabled us to be a partner of choice.

 

   

Market Leader with a Differentiated Brand and Value Proposition: We believe we have a compelling brand and reputation as a leading provider of technology-infused solutions that shape the customer experience. We have a differentiated combination of global scale, local reach, technological expertise, end-to-end solution capabilities and full lifecycle services. We are widely recognized as a leading provider of CX solutions; garnering industry attention via 84 industry awards in fiscal year 2019. Third party researchers have also taken note of our leading global practice with Everest Group Research distinguishing us as a leader for the 5th year, as well as naming us a star performer and leader in market impact, with high buyer satisfaction scores.

 

   

Strong Relationships with a Growing and Diversified Client Base: We provide customer experience solutions for over 125 Global Fortune 2000 brands worldwide. Leading companies worldwide, including more than 50 clients that believe they are disruptors in their industries and over 80 of the Fortune 500, rely upon our solutions and services. We serve a wide variety of clients, extending across numerous verticals, including one of the world’s largest ride-sharing companies, a large retail disruptor, a top global airline, a global beverage brand, a leading cloud company, and a major



 

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healthcare provider. Our end-to-end capabilities and global scale has enabled us to build long-lasting relationships with our clients spanning over 15 years on average. Our commitment to our clients is our primary focus and has generated numerous accolades to date, including 105 client awards in fiscal year 2019.

 

   

Continued Investment in Research and Development: We believe that our investment in technology differentiates us from our competitors. We have provided technology-infused solutions for longer than a decade. We have been at the forefront of developing technology-infused CX solutions that improve the customer experience and will continue to strive for this in the future. We have been a leader in our industry in advancements such as conversational virtual assistants, multichannel and augmented CRM, predictive analytics, emotion analytics, cognitive learning and AI and enjoy a first mover advantage. We are also an industry leader in cybersecurity best practices. We believe our strong focus on innovation has enabled us to maximize value for our clients and made it harder for our competitors to compete with us. Due to our size and scale, and the regular implementation of technology as part of our CX solutions, our costs of developing, maintaining and integrating new technologies are not material on a stand-alone basis.

 

   

Track Record of Sustainable Organic Growth: We have a long track record of long-term organic revenue growth, and we believe we will continue to enjoy sustainable growth as a result of:

 

   

Nature of our offerings

 

   

Substantial switching costs for our clients

 

   

High net revenue retention rates

 

   

Strong barriers to entry in the CX solutions market

 

   

Large and expanding addressable market

 

   

Demonstrated History of Strategic Acquisitions. We have acquired and integrated more than 15 companies since our inception. We have a demonstrated ability to turn around underutilized assets and maximize their value, which we believe allows us to explore a broader scope of opportunities than our peers. In 2018, we acquired Convergys, which enhanced our ability to deliver additional transformation services to our clients with a broader global footprint.

 

   

Corporate Culture Committed to Our Clients’ Success: Our unified team allows us to deliver consistent and exceptional results. As of November 30, 2019, our team consisted of more than 235,000 employees globally. We enjoy high staff engagement because of a strong company culture that is fanatical about serving our clients through integrity and bold and disruptive thought.

 

   

Experienced Management Team: Our passionate and committed management team is led by industry experts with a deep understanding of our clients’ needs. We have a highly talented management team with significant experience in the CX industry, with our top 10 executives having over 140 years of combined service at our company. Through our acquisitions we have benefited from the addition of management talent, who have contributed valuable new perspectives and insights. Under our tenured management team, we have grown our revenue from $1.1 billion in fiscal year 2014 to $4.7 billion in fiscal year 2019, while delivering strong profitability.

Our Growth Strategy

The key elements to our growth strategy are:

 

   

Expand and Deepen Relationships with Existing Clients: We have a well-established track record of cross-selling and offering additional solutions and premium services to sustain and grow our relationships with our existing clients. We have historically focused on clients with high transaction



 

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volume on a recurring basis, fast growing verticals, and large enterprises, and will continue to do so. We believe our scale, efficiency, and technology generates incremental value for our clients with each process we manage, naturally driving our customers to spend more with us. We believe our focus on technology innovation and responding to our clients’ needs positions us for continued growth.

 

   

Relentlessly Innovate and Develop New Digital Services and Solutions: We believe we have developed innovative solutions for our clients, and we are focused on investing in technology. Investment in CX solutions technologies can enable more effective engagement with customers and improve the customer experience through increased automation, optimize customer journeys to reach faster solutions, enable personalized engagement across multiple platforms, and focus human engagement on the most complex interactions. For these reasons, we believe investments in disruptive technologies, applications, and services will continue to be instrumental in driving better value for our clients and result in increased profitability.

 

   

Further Expand into Adjacent Markets: Our marketplace continues to expand beyond CRM BPO. We see significant opportunity for growth across adjacent markets. We intend to continue to provide our clients with an integrated offering of solutions that include digital services, VOC solutions, analytics and consulting, RPA solutions, AI technology, IoT solutions, Vertical BPO services and Back Office BPO services. To further capitalize on new market adjacencies, we have made significant investments across emerging technologies such as RPA, AI, ML, VOC, IVR, and IoT, which we believe will enhance our clients’ ability to offer personalized, effective engagement in all customer interactions to increase customer satisfaction and promote brand loyalty. As our industry evolves, we will continue to invest in these new and fast growing markets to further sustain long-term growth.

 

   

Selectively Pursue Strategic Acquisitions: We have made targeted acquisitions to increase our technology expertise, enter new verticals and geographies, and increase our scale, including the IBM Customer Care Business and Convergys. Our market remains highly fragmented and we believe that our acquisition strategy enhances and augments our growth avenues. We intend to continue to evaluate and pursue complementary, value enhancing acquisitions.

 

   

Invest in Emerging Markets: We have invested in delivery operations in emerging, high-growth markets such as India, China, Brazil, Vietnam, Thailand and Indonesia. We expect to continue to invest in similar markets to be well-positioned to serve multinational brands and enable us to grow with our clients in the regions and countries where they are growing.

Summary Risk Factors

An investment in our common stock involves risks associated with our business, the spin-off and ownership of Concentrix common stock. The following list of risk factors is not exhaustive. Please read carefully the risks relating to these and other matters described under the section entitled “Risk Factors” beginning on page 17.

Risks Related to Our Business

 

   

We are subject to uncertainties and rapid variability in demand by our clients, which could decrease revenue and adversely affect our operating results.

 

   

Our client contracts include provisions, including termination for convenience, that could cause fluctuations in our revenue and have an adverse effect on our operations and financial results.

 

   

Our industry is subject to intense competition and dynamic changes in business model, which in turn could cause our operations to suffer.

 

   

Our delivery center activities are located around the world, with a significant concentration in the Philippines, India, China, and Brazil, which may expose us to business risks and disrupt our operations.



 

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The ongoing COVID-19 pandemic or the widespread outbreak of another illness or communicable disease, or any other public health crisis, could adversely affect our business, results of operations and financial condition.

 

   

Cyberattacks or the improper disclosure or control of personal information could result in liability and harm our reputation, which could adversely affect our business.

 

   

Increases in the cost of labor across the jurisdictions in which we operate could adversely affect our results of operations.

 

   

If we are unable to successfully manage and communicate with our delivery centers, our results of operations could be adversely affected.

 

   

We depend on a limited number of clients for a significant portion of our revenue, and the loss of business from one or more of these clients could adversely affect our results of operations.

 

   

We depend on a variety of communications services and information technology systems and networks, and any failure or increases in the cost of these systems could adversely impact our business and operating results.

 

   

If we are unable to hire and retain employees with domain expertise, our operations will be disrupted, and such disruption may impact our ability to manage our costs, which in turn could impact our profitability.

Risks Relating to the Spin-Off

 

   

Our plan to separate into two independent publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

 

   

The combined post-separation value of SYNNEX and Concentrix common stock may not equal or exceed the pre-separation value of SYNNEX common stock.

 

   

We have not previously operated as an independent public company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company.

 

   

We expect to have approximately $[●] of indebtedness outstanding upon completion of the separation and distribution, and our indebtedness could adversely affect our financial condition.

 

   

The spin-off may not achieve some or all of the anticipated benefits.

 

   

If the spin-off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), SYNNEX, Concentrix and SYNNEX stockholders could be subject to significant tax liabilities, and, in certain circumstances, Concentrix could be required to indemnify SYNNEX for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.

 

   

We may not be able to engage in desirable acquisitions and other strategic or capital-raising transactions following the spin-off.

Risks Related to Ownership of Concentrix Common Stock

 

   

There has been no prior market for our common stock, and we cannot guarantee that our stock price will not decline after the spin-off.



 

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A trading market may not develop for shares of our common stock, which could adversely affect the market price of those shares.

 

   

Substantial sales of our common stock may occur in connection with the distribution, which could cause our stock price to decline.

 

   

We cannot guarantee the payment of dividends on our common stock, or the timing or amount of any such dividends.

 

   

Certain provisions of our certificate of incorporation and bylaws and of Delaware law will make it difficult for stockholders to change the composition of our board of directors and may discourage hostile takeover attempts that some of our stockholders may consider to be beneficial.

The Spin-Off

Background

On January 9, 2020, SYNNEX announced its intent to separate its Concentrix business into an independent, publicly-traded company. To accomplish this separation, SYNNEX intends to distribute the common stock of Concentrix Corporation to its stockholders on a pro rata basis. References to “we,” “our,” “us,” “the Company” or “Concentrix” refer to Concentrix Corporation, a Delaware corporation, and its consolidated subsidiaries after giving effect to the separation and distribution.

On [●], the distribution date, each SYNNEX stockholder will receive one share of Concentrix common stock for each share of SYNNEX common stock held at the close of business on the record date for the distribution, as described below. You will not be required to make any payment, surrender or exchange your shares of SYNNEX common stock or take any other action to receive your shares of Concentrix common stock in the distribution. The distribution of our common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “The Spin-off—Spin-off Conditions.”

Reasons for the Spin-off

The SYNNEX board of directors believes that separating the Concentrix business from the remainder of SYNNEX is in the best interests of SYNNEX and its stockholders for a number of reasons, including the following:

 

   

Dedicated Management Teams with Enhanced Strategic Focus. The spin-off will allow each company to focus on and more effectively pursue its own distinct operating priorities and strategies and will enable the management of each company to focus on the unique needs and distinct markets of its business. As a distributor of information technology systems and products and provider of systems design and integration solutions, SYNNEX can focus on margin expansion and working capital efficiencies in its core business, pursuing organic growth with product offering expansion, and identifying and pursuing strategic opportunities. As a provider of technology-infused CX solutions, Concentrix can focus on expanding and deepening relationships with its existing clients, investing in technology and innovating solutions for its clients, and further expanding into adjacent markets beyond CRM BPO.

 

   

More Efficient Organizational Structure. The spin-off will create two companies, each with a simplified and more efficient organizational structure that will facilitate decision making fully aligned with the unique needs of its business.

 

   

Focused Capital Allocation. The spin-off will allow each company to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business in the manner most appropriate for its distinct strategy and business needs.



 

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Direct Access to Capital Markets and Ability to Pursue Strategic Opportunities. The spin-off will create an independent equity structure that will provide SYNNEX and Concentrix direct access to capital markets and facilitate the ability of each company to utilize its common stock for future acquisitions.

 

   

Improved Management Incentive Tools. The spin-off will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s business, improving the alignment of management and employee incentives with performance and growth objectives.

 

   

Unique Investment Profile. The spin-off will allow investors to separately value SYNNEX and Concentrix based on their unique investment profiles and will provide investors with two distinct and targeted investment opportunities.

For more information on the background and reasons for the spin-off, see “The Spin-off—Background and Reasons for the Spin-off.”

Results of the Spin-off

After the spin-off, Concentrix will be an independent public company owning and operating our CX solutions business. Immediately after the spin-off, we expect to have approximately 5,000 holders of shares of our common stock and approximately 51.5 million shares of our common stock issued and outstanding based on the spin-off ratio described above and the anticipated number of beneficial stockholders and outstanding SYNNEX shares on [●], the record date. The actual number of shares to be distributed will be determined based on the number of SYNNEX shares outstanding on the record date.

The spin-off will not affect the number of outstanding SYNNEX shares or any rights of SYNNEX stockholders, although it will affect the market value of the outstanding SYNNEX common shares.

Corporate Information

Concentrix was incorporated in Delaware in December 2009 for the purpose of engaging in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law. Our principal executive offices are located at 44111 Nobel Drive, Fremont, California 94538. Our telephone number is (800) 747-0583. Our website address is www.concentrix.com. The reference to our website is a textual reference only. Information on our website, any website directly or indirectly linked to our website, or any other website mentioned in this information statement does not constitute in any way part of this information statement and is not incorporated by reference into this information statement, and you should not rely on any such information in making an investment decision.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to stockholders of SYNNEX who will receive shares of Concentrix common stock in the distribution. It is not to be construed as an inducement or encouragement to buy or sell any of Concentrix’ securities. The information contained in this information statement is believed by Concentrix to be accurate as of the date set forth on the cover of this information statement. Changes may occur after that date and neither SYNNEX nor Concentrix will update this information except in the normal course of their respective disclosure obligations and practices, or as required by applicable law.



 

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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following table presents the summary historical and unaudited pro forma combined financial data for Concentrix. The combined statements of operations data for the six months ended May 31, 2020 and 2019 and the combined balance sheet data as of May 31, 2020 have been derived from our unaudited combined financial statements included elsewhere in this information statement. The combined statements of operations data for fiscal years 2019, 2018 and 2017 and the combined balance sheet data as of November 30, 2019 and 2018 have been derived from our audited combined financial statements included elsewhere in this information statement. The combined balance sheet data as of November 30, 2017 have been derived from our unaudited combined financial statements that are not included in this information statement.

The summary unaudited pro forma combined financial data reflect adjustments to our historical financial results in connection with the separation and distribution. The unaudited pro forma income statement data give effect to these events as if they occurred on December 1, 2018, the beginning of our most recently completed fiscal year. The unaudited pro forma balance sheet data gives effect to these events as if they occurred as of May 31, 2020, our latest balance sheet date.

The unaudited pro forma combined financial data are not necessarily indicative of our results of operations or financial condition had the separation and distribution been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition that would have resulted had we been operating as a stand-alone publicly traded company during such periods. In addition, they are not necessarily indicative of our future results of operation or financial condition.

The summary financial data should be read in conjunction with the sections entitled “Capitalization,” “Unaudited Pro Forma Combined Financial Statements,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined financial statements and accompanying notes included in this information statement. See “Index to Combined Financial Statements.”

 

    As of and For the Six Months Ended     As of and For the Fiscal Years Ended November 30,  
    Pro
Forma
    Historical     Pro Forma     Historical  
    May 31,
2020
    May 31,
2020
    May 31,
2019
    2019     2019     2018     2017  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)                    

Statements of Operations Data: (in thousands)

             

Revenue

  $                   $ 2,254,982     $ 2,334,148     $                   $ 4,707,912     $ 2,463,151     $ 1,990,180  

Gross profit

      790,360       863,836         1,748,448       937,552       749,154  

Operating income

      111,791       122,853         294,332       144,761       114,623  

Net income

      54,787       54,963         117,164       48,271       72,250  

Balance Sheet Data: (in thousands)

             

Cash and cash equivalents

  $                   $ 94,749       $                   $ 79,656     $ 123,389     $ 123,499  

Total assets

      4,955,479           4,653,755       4,766,993       1,668,407  

Total Parent equity

      1,492,540           1,469,841       1,319,802       261,543  


 

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QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF

 

Q:

Why am I receiving this document?

 

A:

SYNNEX is delivering this document to you because you were a holder of SYNNEX common stock at the close of business on the record date for the distribution of shares of our common stock. Accordingly, you are entitled to receive one share of our common stock for each share of SYNNEX common stock that you held at 5:00 p.m., Eastern Time on the record date. No action is required for you to participate in the distribution. The distribution will take place on or about [●].

 

Q:

Why is SYNNEX separating our business and distributing our stock?

 

A.

The SYNNEX board of directors believes that separating the Concentrix business from the remainder of SYNNEX is in the best interests of SYNNEX and its stockholders for a number of reasons, including the following:

 

   

Dedicated Management Teams with Enhanced Strategic Focus. The spin-off will allow each company to focus on and more effectively pursue its own distinct operating priorities and strategies and will enable the management of each company to focus on the unique needs and distinct markets of its business. As a distributor of information technology systems and products and provider of systems design and integration solutions, SYNNEX can focus on margin expansion and working capital efficiencies in its core business, pursuing organic growth with product offering expansion, and identifying and pursuing strategic opportunities. As a provider of technology-infused CX solutions, Concentrix can focus on expanding and deepening relationships with its existing clients, investing in technology and innovating solutions for its clients, and further expanding into adjacent markets beyond CRM BPO.

 

   

More Efficient Organizational Structure. The spin-off will create two companies, each with a simplified and more efficient organizational structure that will facilitate decision making fully aligned with the unique needs of its business.

 

   

Focused Capital Allocation. The spin-off will allow each company to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business in the manner most appropriate for its distinct strategy and business needs.

 

   

Direct Access to Capital Markets and Ability to Pursue Strategic Opportunities. The spin-off will create an independent equity structure that will provide SYNNEX and Concentrix direct access to capital markets and facilitate the ability of each company to utilize its common stock for future acquisitions.

 

   

Improved Management Incentive Tools. The spin-off will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s business, improving the alignment of management and employee incentives with performance and growth objectives.

 

   

Unique Investment Profile. The spin-off will allow investors to separately value SYNNEX and Concentrix based on their unique investment profiles and will provide investors with two distinct and targeted investment opportunities.

For more information on the background and reasons for the spin-off, see “The Spin-off—Background and Reasons for the Spin-off.”

 

Q:

How will the spin-off work?

 

A:

All of the shares of our common stock will be distributed to the stockholders of SYNNEX on a pro rata basis. For more information, see the section entitled “The Spin-off—Transactions Prior to the Spin-off” and “—Manner of Effecting the Spin-off.”

 

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Q:

What businesses will we operate after the spin-off?

 

A:

Concentrix will operate the CX solutions business after the spin-off, and Concentrix will retain the assets related to the CX solutions business in the separation. For more information on our business, see the section entitled “Business.” SYNNEX will continue to operate its technology solutions business after the spin-off, and SYNNEX will retain the assets related to the technology solutions business in the separation.

 

Q:

What will our relationship be with SYNNEX after the spin-off?

 

A:

SYNNEX and our company will be separate, publicly owned companies. We will, however, enter into certain agreements with SYNNEX to define our ongoing relationship after the spin-off. The agreements will define our responsibility for obligations arising before and after the spin-off date, including obligations relating to our employees and taxes. We also expect to enter into a commercial agreement with SYNNEX under which we will continue to provide certain CX solutions services to SYNNEX following the separation. For additional information on our relationship with SYNNEX after the spin-off, see “Certain Relationships and Related Party Transactions.”

 

Q:

When will the spin-off occur?

 

A:

We expect that SYNNEX will distribute our shares of common stock on [●] to holders of record of SYNNEX common stock at the close of business on the record date.

 

Q:

What is the record date for the spin-off?

 

A:

The record date for the spin-off is [●].

 

Q:

What do I have to do to participate in the spin-off?

 

A:

Nothing. You are not required to take any action to receive our common stock in the spin-off. No vote will be taken for the spin-off. If you own shares of SYNNEX common stock as of the close of business on the record date, a book-entry account statement reflecting your ownership of our shares of common stock will be mailed to you, or your brokerage account will be credited for the shares, on or about [●]. Please do not send in any SYNNEX stock certificates. If you hold physical share certificates that represent your SYNNEX common shares and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of Concentrix common stock that have been registered in book-entry form in your name.

 

Q:

How many shares of Concentrix common stock will I receive?

 

A:

SYNNEX will distribute one share of our common stock for each share of SYNNEX common stock you own as of the close of business on the record date. For example, if you own ten shares of SYNNEX common stock as of the close of business on the record date, you will receive ten shares of our common stock in the spin-off. Based on approximately 51.5 million shares of SYNNEX common stock that we expect to be outstanding on the record date, and the spin-off distribution ratio, SYNNEX will distribute a total of approximately 51.5 million shares of our common stock.

 

Q:

Will SYNNEX distribute fractional shares?

 

A:

No. SYNNEX will distribute one share of our common stock for each share of SYNNEX common stock you own as of the close of business on the record date. As a result, no fractional shares will be distributed.

 

Q:

What is book-entry?

 

A:

The book-entry system allows registered owners to hold their shares without the need for physical stock certificates. Holding shares in book-entry form eliminates the problems associated with paper certificates,

 

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  such as storage and safety of certificates, and the requirement for physical movement of stock certificates at the time of sale or transfer of ownership. You will not receive a stock certificate representing your shares distributed pursuant to the spin-off. All distributed shares will be held in book-entry form.

 

Q:

Is the spin-off taxable for U.S. federal income tax purposes?

 

A:

SYNNEX expects that the spin-off will be tax-free to SYNNEX and to its U.S. common stockholders. See “Material U.S. Federal Income Tax Consequences of the Distribution” for a more complete discussion of the U.S. federal income tax consequences of the spin-off to SYNNEX stockholders.

 

Q:

How will the spin-off affect my tax basis in SYNNEX common stock?

 

A:

Your tax basis in the SYNNEX common stock will be allocated between the SYNNEX common stock and our common stock received in the spin-off in proportion to their relative fair market values on the date of the spin-off. Within a reasonable time after the spin-off is completed, SYNNEX will provide to U.S. taxpayers information to enable them to compute their tax bases in both SYNNEX and our common stock and other information they will need to report their receipt of our common stock on their 2020 U.S. federal income tax return as a tax-free transaction. See “Material U.S. Federal Income Tax Consequences of the Distribution” for a more complete description of the effects on your tax basis.

 

Q:

Where will I be able to trade shares of Concentrix common stock?

 

A:

Currently there is no public market for our common stock. Our common stock is expected to be authorized for listing on the [●] under the symbol “[●]”. We anticipate that trading in shares of our common stock will begin on a “when-issued” basis on or around the record date and before the spin-off date, and that “regular-way” trading will begin on the first trading day after the distribution date. If trading does begin on a “when-issued” basis, you may purchase or sell our common stock after that time, but your transaction will not settle until after the spin-off date. Shares of our common stock will generally be freely tradable after the spin-off date.

 

Q:

Will the number of SYNNEX shares I own change as a result of the spin-off?

 

A:

No. The number of shares of SYNNEX common stock you own will not change as a result of the spin-off.

 

Q:

What will happen to the listing of SYNNEX common stock?

 

A:

Nothing. SYNNEX common stock will continue to be traded on the New York Stock Exchange under the symbol “SNX.”

 

Q:

Will the distribution affect the market price of my SYNNEX shares?

 

A:

Yes. As a result of the distribution, it is expected that the trading price of SYNNEX common shares immediately following the distribution will be lower than the trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the Concentrix CX solutions business. The combined trading prices of the shares of SYNNEX common stock and the shares of Concentrix common stock that you own immediately after the distribution may be equal to, greater than or less than the trading price of the shares of SYNNEX common stock that you own immediately before the distribution.

 

Q:

Will Concentrix have any debt after the spin-off?

 

A:

Yes. We expect to have approximately $[●] of indebtedness upon completion of the spin-off. For more information, see the section entitled “Description of Material Indebtedness.”

 

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Q:

Will I be paid any dividends on Concentrix common stock?

 

A:

The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of our board of directors. Our board of directors’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt, industry practice, legal requirements, regulatory constraints, and other factors that our board of directors deems relevant.

 

Q:

What are the conditions to the distribution?

 

A:

The distribution is subject to final approval by the board of directors of SYNNEX, as well as to a number of conditions, including, among others:

 

   

the U.S. Securities and Exchange Commission (the “SEC”) has declared effective our registration statement on Form 10, of which this information statement is a part, no stop order suspending the effectiveness of our registration statement is in effect, no proceedings for such purpose have been instituted or threatened by the SEC, and this information statement has been made available to SYNNEX stockholders;

 

   

SYNNEX has received an opinion from Ernst & Young LLP regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code;

 

   

the transfer of assets and liabilities between SYNNEX and Concentrix shall be completed in accordance with the separation and distribution agreement;

 

   

an independent appraisal firm shall have delivered one (1) or more opinions to the SYNNEX board of directors confirming the solvency and financial viability of SYNNEX before the consummation of the distribution and each of SYNNEX and Concentrix after the consummation of the distribution, and such opinions shall be acceptable to SYNNEX in form and substance in SYNNEX’ sole discretion, and such opinions shall not have been withdrawn, rescinded, or modified in any respect;

 

   

the actions and filings necessary under applicable U.S. federal, U.S. state or other securities or blue sky laws have been taken or made and, where applicable, have become effective or been accepted;

 

   

any approvals or notifications of any governmental authorities required to complete the separation and distribution have been obtained;

 

   

SYNNEX and Concentrix have entered into the separation and distribution agreement, the employee matters agreement, and the tax matters agreement;

 

   

no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution, or any of the related transactions is in effect;

 

   

the shares of Concentrix common stock to be distributed to SYNNEX stockholders in the distribution have been accepted for listing on the [●], subject to official notice of distribution; and

 

   

no other events or developments exist or have occurred that, in the judgment of SYNNEX’ board of directors, in its sole discretion, make it inadvisable to effect the separation, the distribution or the other related transactions.

 

Q:

Can SYNNEX decide to cancel the distribution of Concentrix common stock even if all the conditions have been met?

 

A:

Yes. Until the distribution has occurred, SYNNEX has the right to terminate the distribution, even if all of the conditions are satisfied. See “The Spin-off—Spin-off Conditions.”

 

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Q:

Who will manage Concentrix after the spin-off?

 

A:

Concentrix benefits from having in place a management team with an extensive background in the CX solutions business. Led by Christopher Caldwell, Concentrix’ management team possesses deep knowledge of, and extensive experience in, its industry. For more information regarding Concentrix’ management, see “Management.”

 

Q:

Are there risks associated with owning Concentrix common stock?

 

A:

Yes. Ownership of Concentrix common stock will be subject to both general and specific risks, including those relating to Concentrix’ business, the industry in which it operates, its separation from SYNNEX and ongoing contractual relationships with SYNNEX and its status as a separate, publicly traded company. These risks are described in the “Risk Factors” section of this information statement. You are encouraged to read that section carefully.

 

Q:

Whom do I contact for information regarding you and the spin-off?

 

A:

Before the spin-off, you should direct inquiries relating to the spin-off to:

SYNNEX Corporation

Investor Relations

44201 Nobel Drive

Fremont, CA 94538

Phone:        (510) 668-8436

Email:         marylai@synnex.com

After the spin-off, you should direct inquiries relating to an investment in our common stock to:

Concentrix Corporation

44111 Nobel Drive

Fremont, CA 94538

Phone:        (800) 747-0583

Email:        [●]

After the spin-off, the transfer agent and registrar for our common stock will be:

[●]

 

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RISK FACTORS

You should carefully consider each of the following risks and all of the other information contained in this information statement. Some of the risks described below relate principally to our business and the industry in which we operate, while others relate principally to the spin-off. The remaining risks relate principally to the securities markets generally and ownership of Concentrix common stock.

Our business, financial condition, results of operations, or liquidity could be materially adversely affected by any of these risks, and, as a result, the trading price of our common stock could decline. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Business

We anticipate that our revenue and operating results will fluctuate, which could adversely affect the enterprise value of our Company and our securities.

Our operating results have fluctuated and will fluctuate in the future as a result of many factors, including:

 

   

the impact of the business acquisitions and dispositions we make;

 

   

general economic conditions, including uncertainty related to the COVID-19 pandemic and its impact on the global economy, United States and China trade negotiations, the United Kingdom’s exit from the European Union, U.S. federal government budget disruptions, and market volatility as a result of political leadership in certain countries;

 

   

the level of outsourced business services, including insourcing by our clients;

 

   

the level of business activity of our clients, which in turn is affected by the level of economic activity in the industries and markets that they serve;

 

   

our clients’ success and the market acceptance and performance of their products and services;

 

   

consolidation of our competitors;

 

   

competitive conditions in our industry; and

 

   

fluctuations in rates in the currencies in which we transact.

Although we attempt to control our expense levels, these levels are based, in part, on anticipated revenue. Therefore, we may not be able to control spending in a timely manner to compensate for any unexpected revenue decrease.

Revenue is typically higher in our fourth quarter due to seasonal patterns in our clients’ businesses. These patterns may not be repeated in subsequent periods. You should not rely on period-to-period comparisons of our operating results as an indication of future performance. In future years, our operating results may be below our expectations or those of our public market analysts or investors, which would likely cause our share price to decline.

We are subject to uncertainties and rapid variability in demand by our clients, which could decrease revenue and adversely affect our operating results.

Our revenues depend, in large part, on the volume, geographic location, and type of outsourcing services demanded. Customer experience outsourcing involves companies contracting with a third party, such as Concentrix, to provide customer experience solutions rather than performing such services in-house. Customer experience solutions can be provided in different geographies and through different service channels. While we have the capacity to provide multi-channel services in countries across the globe, changes in the type of services

 

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utilized and the geographic location where the services are provided can impact our revenues and profitability. There can be no assurance that the current demand for customer experience outsourcing will continue or grow, that organizations will not elect to perform such services in-house, or that clients will not elect to move outsourcing services to lower-cost or lower-margin geographies or customer contact channels.

Our client contracts include provisions, including termination for convenience, that could cause fluctuations in our revenue and have an adverse effect on our operations and financial results.

Our client contracts typically include provisions that, if triggered, could impact our profitability. For example, many of our contracts may be terminated with a short amount of notice for any reason and, to the extent our clients terminate these contracts, we could experience unexpected fluctuations in our revenue and operating results from period to period. Additionally, some contracts have performance-related bonus or penalty provisions, whereby we could receive a bonus if we satisfy certain performance levels or have to pay a penalty for failing to do so. Such performance-related conditions are based on metrics that measure customer satisfaction and the quality, quantity and efficiency of our handling of the client’s customer interactions across multiple channels. Generally, performance-related compensation represents less than 1% of our annual revenue in the aggregate. However, whether we receive a bonus or are required to pay a penalty changes with performance and may cause fluctuations in our financial results. In addition, our clients may not guarantee a minimum volume; however, we hire employees based on anticipated volumes. If we fail to anticipate volumes correctly, our operations and financial results may suffer. The reduction of volume, loss of clients, payment of penalties or inability to terminate any unprofitable contracts could have an adverse impact on our operations and financial results.

Our industry is subject to intense competition and dynamic changes in business model, which in turn could cause our operations to suffer.

The CX solutions industry is highly competitive, highly fragmented and subject to rapid change. We believe that the principal competitive factors in this market are breadth and depth of process and domain expertise, service quality, ability to tailor specific solutions to customer needs, the ability to attract, train and retain qualified people, compliance rigor, global delivery capabilities, price, and marketing and sales capabilities. We compete for business with a variety of companies, including in-house operations of existing and potential clients. If our clients place more focus in this area and internalize these operations, this could cause a significant reduction in the size of the available market for third party service providers like us. Similarly, if competitors offer their services at lower prices to gain market share or provide services that gain greater market acceptance than the services we offer or develop, the demand for our services may decrease. Niche providers or new entrants can enter markets by developing new systems or services that could impact our business. The opportunity for new entrants in our industry may expand as some CX solutions shift from voice engagement to digital engagement. New competitors, new strategies by existing competitors or clients, and consolidation among clients or competitors could result in significant market share gain by our competitors, which could have an adverse effect on our revenues.

In addition, our success may depend on our ability to continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in technology and offerings to serve the evolving needs of our clients. Some of these emerging technologies, such as RPA, AI, ML, VOC, IVR, and IoT, may cause an adverse shift in the way our existing business operations are conducted, including by replacing human contacts with automated or self-service options, or decrease the size of the available market. We may be unsuccessful at anticipating or responding to new developments on a timely and cost-effective basis, and our use of technology may differ from accepted practices in the marketplace. Certain of our solutions may require lengthy and complex implementations that can be subject to changing client preferences and continuing changes in technology, which can increase costs or adversely affect our business. We may incur significant expenses in an effort to keep pace with customer preferences for technology or to gain a competitive advantage through technological expertise or new technologies. If we cannot offer new technologies as quickly or efficiently as our

 

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competitors, or if our competitors develop more cost-effective or client-preferred technologies, it could have a material adverse effect on our ability to obtain and complete client engagements, which could adversely affect our business.

Our delivery center activities are located around the world, with a significant concentration in the Philippines, India, China, and Brazil, which may expose us to business risks and disrupt our operations.

Our operations are based on a global delivery model with client services provided from delivery centers located throughout the Americas, Asia-Pacific, and EMEA, with a significant percentage of our workforce located in the Philippines, India, China, and Brazil. Operating globally subjects us to risks in the countries in which we do business, which may include political and economic instability, the time and expense required to comply with different laws and regulations, challenges with hiring and retaining adequate staff, inflation, longer payment cycles or difficulties in collecting accounts, and seasonal reductions in business activity. Socio-economic situations that are specific to the Philippines, India, China and Brazil can severely disrupt our operations and impact our ability to fulfill our contractual obligations to our clients. If these regions experience severe natural calamities or political unrest, our personnel resources may be affected, our IT and communication infrastructure may be at risk and the client processes that we manage may be adversely affected. We may also continue to expand internationally to respond to competitive pressure and client and market requirements, which could increase these risks. If we are unable to manage the risks associated with our international operations and expanding such operations, our business could be adversely affected and our revenues and earnings could decrease.

The ongoing COVID-19 pandemic or the widespread outbreak of another illness or communicable disease, or any other public health crisis, could adversely affect our business, results of operations and financial condition.

We could be negatively impacted by the COVID-19 pandemic or the widespread outbreak of another illness or other communicable disease, or any other public health crisis, that results in a disruption to the global economy. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and labor force participation and created significant volatility and disruption of financial markets. “Shelter-in-place” restrictions by various governments around the world negatively impacted our results of operations for the six months ended May 31, 2020 as a significant portion of our workforce was unable to work productively for the full period despite client demand. The extent of the continued impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration, spread and severity of the pandemic, country and state restrictions regarding virus containment, accessibility to the Company’s delivery and operations locations, our continued utilization of remote work environments in response to future health and safety restrictions, the pace at which the Company is able to ramp back to seasonal business levels, and the effect on our clients’ businesses and the demand for their products and services, all of which are uncertain and cannot be predicted. An extended period of disruption to the global economy and business operations caused by the COVID-19 pandemic or any other public health crisis could materially affect our business, our plans to separate from SYNNEX and become an independent public company, our results of operations, our access to sources of liquidity, the carrying value of our goodwill and intangible assets, and our financial condition.

Cyberattacks or the improper disclosure or control of personal information could result in liability and harm our reputation, which could adversely affect our business.

Our business is heavily dependent upon information technology networks and systems. Internal or external attacks on those networks and systems could disrupt our normal operations centers and impede our ability to provide critical products and services to our clients and their customers, subjecting us to liability under our contracts and damaging our reputation.

 

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Our business also involves the use, storage, and transmission of information about our employees, our clients, and customers of our clients. If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to monetary damages, fines, or criminal prosecution. Unauthorized disclosure of sensitive or confidential client or customer data, whether through system failure, employee negligence, fraud, or misappropriation, along with unauthorized access to or through our information systems or those we develop for clients, whether by our employees or third parties, could result in negative publicity, loss of clients, legal liability, and damage to our reputation, business, results of operations, and financial condition.

While we take measures to protect the security of, and prevent unauthorized access to, our systems and personal and proprietary information, the security controls for our systems, as well as other security practices we follow, may not prevent improper access to, or disclosure of, personally identifiable or proprietary information. Furthermore, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services. The General Data Protection Regulation (“GDPR”) in Europe, the Data Privacy Act in Philippines, the California Consumer Privacy Act and other similar laws have resulted, and will continue to result, in increased compliance costs. Moreover, the failure to comply with these laws can result in significant monetary penalties. For example, fines of up to 4% of an entity’s annual global revenues can be imposed for violations of the GDPR. Our failure to adhere to or successfully implement processes in response to these and other changing regulatory requirements in this area could result in legal liability, monetary penalties, or impairment to our reputation in the marketplace, which could have a material adverse effect on our business, financial condition, and results of operations.

Increases in the cost of labor across the jurisdictions in which we operate could adversely affect our results of operations.

We generally sign multi-year client contracts with pricing models that are based on prevailing labor costs in the jurisdictions where we will deliver services. However, quickly rising wages or changes in laws or governmental regulations related to wages, employee benefits or other working conditions with little notice or transition period can increase our costs and limit our ability to adjust in a timely manner. Potential labor organizing and works council negotiations in certain of the countries in which we do business could also contribute to rising costs or otherwise disrupt our business. Such rising costs or our inability to manage rising costs could have a material adverse effect on our business and results of operations.

If we are unable to successfully manage and communicate with our delivery centers, our results of operations could be adversely affected.

Our global business may be adversely impacted if we are unable to manage and communicate with our resources located around the world. Service quality may be placed at risk and our ability to optimize our resources may be compromised if we are unable to manage our resources remotely. Our business uses a wide variety of technologies to allow us to manage a large volume of work. These technologies are designed to keep our employees productive. Any failure in technology may have a negative impact on our operations. The success of our services primarily depends on the performance of our employees and resulting customer satisfaction. Any increase in average waiting time or handling time or lack of promptness or technical expertise of our employees will directly impact customer satisfaction. Any adverse customer satisfaction may impact the overall business. If we are unable to successfully manage and communicate with our delivery centers, our results of operations could be adversely affected.

We depend on a limited number of clients for a significant portion of our revenue, and the loss of business from one or more of these clients could adversely affect our results of operations.

Our five largest clients collectively represented approximately 27% of our revenue in 2019. This client concentration increases the risk of quarterly fluctuations in our operating results, depending on the seasonal

 

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pattern of our top clients’ business. In addition, our top clients could make greater demands on us with regard to pricing and contractual terms in general.

At any given time, we typically have multiple work orders or contracts with our largest clients. Clients may have the right to terminate work orders or contracts for convenience or may have risk tolerances that limit how much business they retain with a single service provider. While we would not expect all work orders or contracts to terminate at the same time, the loss of one or more of the larger work orders or contracts with one of our largest clients could adversely affect our business, results of operations and financial condition if the lost revenues are not replaced with profitable revenues from that client or other clients.

We depend on a variety of communications services and information technology systems and networks, and any failure or increase in the cost of these systems could adversely impact our business and operating results.

The services we provide to our clients depend on the persistent availability and uncompromised security of our communications, technology and information technology systems. We utilize and deploy internally-developed and third-party software solutions across various hardware environments. We operate an extensive internal voice and data network that links our global sites together in a multi-hub model that enables the rerouting of voice and data across the network, and we rely on multiple public communication channels and telephone, internet, and data services provided by various third parties for connectivity to our clients. Maintenance of, and investment in, this technology is critical to the success of our service delivery model. Failures or significant downtime of our IT or telecommunications systems could prevent us from handling call volume, and frequent or prolonged interruption in our ability to provide service could result in contractual performance penalties, damage to our reputation, and the loss of business from existing and potential clients. Telephone, internet, and data service providers may elect not to renew their contracts with us or increase the cost of such services. Any interruption of our communications or information technology systems or a significant increase in the cost of maintaining and operating those systems could have an adverse effect on our operations and financial results.

If we fail to maintain effective internal controls over operations we perform for our clients or if our information systems are breached or client data are compromised, client relations may suffer, which in turn may adversely affect our revenue and results of operations.

We represent our clients in certain critical operations of their business processes such as sales, marketing and customer support and manage large volumes of customer information and confidential data. If we fail to maintain effective controls, our clients experience disruptions in their operations or the confidentiality of customer data is compromised, our client relationships may suffer, and we may face possible legal action. We may be liable if we do not maintain adequate internal controls over the processes we manage for our clients or if we fail to comply with the laws and regulations applicable to the operations in which we represent our clients.

Our clients may request us to obtain audit reports over our internal controls. If we are unable to complete these audit reports in a timely manner, or if internal control deficiencies are identified in the audit process, our client relationships may suffer.

If we are unable to hire and retain employees with domain expertise, our operations will be disrupted, and such disruption may impact our ability to manage our costs, which in turn could impact our profitability.

The success of our operations and the quality of our services are highly dependent on our ability to attract and retain skilled personnel in all of our global delivery centers. The industry is characterized by high employee attrition rates and we face competition in hiring, retaining and motivating talented and skilled leaders and employees with domain experience. Any increase in our employee turnover rate could increase recruiting and training costs and could decrease operating effectiveness and productivity.

 

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In addition, our profitability is directly affected by the utilization rate of our personnel resources. If we are unable to achieve optimum utilization of our personnel resources, we may experience erosions in our profit margin. However, if our utilization is too high, it may result in a deterioration in the quality of services provided to our clients and may also result in higher attrition rates. If we are unable to manage our employee attrition rates, adequately motivate our employees or utilize our personnel resources efficiently, our operations will be disrupted, and such disruption may impact our ability to manage our costs, which in turn could impact our profitability.

Because of the experience of our key personnel and their technological and industry expertise, if we were to lose any of our key personnel, it could inhibit our ability to operate and grow our business successfully.

We are dependent in large part on our ability to retain the services of our key senior executives and other technological and industry experts and personnel. We generally do not have employment agreements with our executives or employees. We also do not carry “key person” insurance coverage for any of our key executives. We compete for qualified senior management and technical personnel. The loss of, or inability to hire, key executives or qualified employees could inhibit our ability to operate and grow our business successfully.

We have substantial operations located in regions of the world that have experienced severe natural events, and any disruption in the operations of our facilities could harm our business and operating results.

Natural disasters, adverse weather conditions, terrorist attacks, work stoppages in the transportation industry, and other business disruptions could seriously harm our revenue and financial condition and increase our costs and expenses by disrupting our operations or leading to economic weakness in the countries in which they occur. We have substantial operations in countries, most notably the Philippines and India, that have experienced severe natural events, such as typhoons, mudslides and floods, in the recent past. Weather patterns may become more volatile, and severe weather events may become more frequent or more widespread, as a result of the potential effects of climate change. Labor disputes that disrupt transportation services could limit the ability of our employees to reach our facilities or increase the cost of transportation services that we procure for our employees in certain countries. Any prolonged disruption in the operations of our facilities, whether due to technical difficulties, power failures, break-ins, destruction or damage to the facilities as a result of a natural disaster, fire, or any other reason, could cause service interruptions or reduce the quality level of services that we provide and harm our operating results. Our disaster recovery plan and business interruption insurance may not be sufficient to compensate for losses that may occur.

Changes in foreign currency exchange rates could adversely affect our business and operating results.

While most of our contracts are priced in U.S. dollars, we recognize a substantial amount of revenue under contracts that are denominated in euros, British pounds and other foreign currencies. A significant increase in the value of the U.S. dollar relative to these currencies may have a material adverse impact on the value of those revenues when translated to U.S. dollars.

Our services are delivered from several delivery centers located around the world, with significant operations in the Philippines and India. Although our contracts with U.S.-based clients are typically priced in U.S. dollars, a substantial portion of our costs to deliver services under these contracts are denominated in the local currency of the country where services are provided. We also have certain client contracts that are priced in non-U.S. dollar currencies for which a substantial portion of the costs to deliver the services are in other currencies. As a result, our revenue may be earned in currencies that are different from the currencies in which we incur corresponding expenses. Fluctuations in the value of currencies, such as the Philippine Peso, the Indian Rupee, and the Canadian Dollar, against the U.S. Dollar or other currencies in which we bill our clients, and inflation in the local economies in which these delivery centers are located, could increase the operating and labor costs in these delivery centers which can result in reduced profitability. A significant decrease in the value

 

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of the contractual currency, relative to the currencies where services are provided, could have a material adverse impact on our operating results that are not fully offset by gains realized under the hedging contracts we have in place in certain currencies to limit our potential foreign currency exposure.

We may have higher than anticipated tax liabilities, which could result in a material adverse effect on our business.

Due to the global nature of our operations, we are subject to the complex and varying tax laws and rules of several jurisdictions and have material tax-related contingent liabilities that are difficult to predict or quantify. In preparing our financial statements, we calculate our effective income tax rate based on current tax laws and regulations and our estimated taxable income within each of these jurisdictions. Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:

 

   

changes in income before taxes in various jurisdictions in which we operate that have differing statutory tax rates;

 

   

changes in tax laws, regulations, rates, and/or the implementation or interpretation of such tax laws and regulations in multiple jurisdictions;

 

   

effect of tax rate on accounting for acquisitions and dispositions;

 

   

issues arising from tax audit or examinations and any related interest or penalties; and

 

   

uncertainty in obtaining tax holiday extensions or expiration or loss of tax holidays in various jurisdictions.

We report our results of operations based on our determination of the amount of taxes owed in various tax jurisdictions in which we operate. The determination of our worldwide provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain.

We are also subject to tax audits, including with respect to transfer pricing, in the United States and other jurisdictions and our tax positions may be challenged by tax authorities. There can be no assurance that our current tax provisions will be settled for the amounts accrued, that additional tax exposures will not be identified in the future or that additional tax reserves will not be necessary for any such exposures. Any increase in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on our business, results of operations and financial condition.

We have pursued and intend to continue to pursue strategic acquisitions or investments in new markets and may encounter risks associated with these activities, which could harm our business and operating results.

We have in the past pursued, and in the future expect to pursue, acquisitions of, or investments in, businesses, technologies and assets in new or existing markets, either within or outside the CX solutions industry, that complement or expand our existing business. Our acquisition strategy involves a number of risks, including:

 

   

difficulty in successfully integrating acquired operations, IT and other systems, clients, services, businesses, and employees with our operations on a timely and cost-effective basis;

 

   

risk that the acquired businesses will fail to maintain the quality of services that we have historically provided or that we expect from the acquired businesses;

 

   

the announcement or consummation of a transaction may have an adverse impact on relationships with third parties, including existing and potential clients;

 

   

loss of key employees of acquired operations or inability to attract, retain and motivate employees necessary for our expanded operations;

 

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acquired businesses located in regions where we have not historically conducted business may subject us to new operational risks, laws, regulations, employee expectations, customs, and practices;

 

   

difficulty in scaling critical resources and facilities for the business needs of the expanded enterprise;

 

   

diversion of our capital and management attention away from operational matters and other business issues;

 

   

increase in our expenses and working capital requirements;

 

   

in the case of acquisitions that we may make outside of the United States, difficulty operating internationally and over significant geographical distances;

 

   

other financial risks, such as potential liabilities of the businesses we acquire; and

 

   

our due diligence process may fail to identify significant issues with the acquired company’s service quality, financial disclosures, accounting practices or internal control deficiencies.

We may incur additional costs and certain redundant expenses in connection with our acquisitions and investments, which may have an adverse impact on our operating margins. Future acquisitions may result in dilutive issuances of equity securities, the incurrence of additional debt, large write-offs, a decrease in future profitability, or future losses. The incurrence of debt in connection with any future acquisitions could restrict our ability to obtain working capital or other financing necessary to operate our business. Our recent and future acquisitions or investments may not be successful, and if we fail to realize the anticipated benefits of these acquisitions or investments, our business and operating results could be harmed.

Our goodwill and identifiable intangible assets could become impaired, which could have a material non-cash adverse effect on our results of operations.

We have recorded substantial goodwill and amortizable intangible assets as a result of our previous acquisitions. We review our goodwill and intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We assess whether there has been an impairment in the value of goodwill at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or intangible assets may not be recoverable include declines in stock price, market capitalization or cash flows and slower growth rates in our industry. We could be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or intangible assets were determined, negatively impacting our results of operations.

The inability or unwillingness of clients that represent a large portion of our accounts receivable balance to timely pay such balances could adversely affect our business.

We often carry significant accounts receivable balances from a limited number of clients that generate a large portion of our revenues. For example, approximately 26% of our accounts receivable balance as of November 30, 2019 was attributable to five clients. A client may become unable or unwilling to timely pay its balance due to a general economic slowdown, economic weakness in its industry or the financial insolvency of its business. While we closely monitor our accounts receivable balances, a client’s financial inability or unwillingness, for any reason, to pay a large accounts receivable balance or many clients’ inability or unwillingness to pay accounts receivable balances that are large in the aggregate would adversely impact our income and cash flow.

Our business is subject to many regulatory requirements, and changes in current regulations or their interpretation and enforcement, or the adoption of new regulations, could significantly increase our cost of doing business.

Our business is subject to many laws and regulatory requirements in the United States and the other countries in which we operate, covering such matters as labor relations, healthcare, outsourcing, trade

 

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restrictions, tariffs, taxation, sanctions, data privacy, consumer protection (including the method and timing of placing outbound telephone calls and the recording or monitoring of telephone calls), internal and disclosure control obligations, governmental affairs, and immigration. Many of these regulations, including those related to labor relations and data privacy, change frequently and sometimes conflict among the various jurisdictions and countries in which we provide services. Laws and regulatory requirements may also be subject to interpretation. If our interpretation conflicts with positions taken by regulatory agencies or other government bodies in the future, we may be subject to legal liability or be unable to conduct business in the same manner. Violations of any laws and regulations to which we are subject, including failing to adhere to or successfully implement processes in response to changing regulatory requirements, could result in liability for damages, fines, criminal prosecution, unfavorable publicity and damage to our reputation, and restrictions on our ability to operate, which could have a material adverse effect on our business, results of operations, and financial condition.

In particular, because a substantial portion of our operating costs consist of labor costs, changes in governmental regulations relating to wages, mandatory time off, severance, healthcare, and other benefits or employment taxes, or violations of such regulations, could have a material adverse effect on our business, results of operations, or financial condition. In addition, changes in policies or laws of the United States or non-U.S. governments resulting in, among other things, higher taxation, limitations on the ability of companies to utilize offshore outsourcing, currency conversion limitations, restrictions on fund transfers, or the expropriation of private enterprises, could reduce the anticipated benefits of our global operations. Any actions by countries in which we conduct business to reverse policies that encourage international trade or investment could also adversely affect our business.

Our reputation may be damaged by events outside of our control, which could adversely affect our results of operations.

As a provider of CX solutions, our reputation is important to growing our business with new and existing customers and attracting and retaining our employees. Our reputation can be affected by events outside of our control, including negative publicity associated with our clients’ businesses or social media campaigns directed against us or our clients. Responding to such events can distract from our business and increase costs. If our reputation is damaged, we could experience increased difficulty in attracting and retaining clients and employees, which could adversely affect our business and results of operations.

Our results of operations could be adversely affected by litigation and other commitments and contingencies.

We face risks arising from various unasserted and asserted claims, including, but not limited to, commercial, employee, consumer protection, tax, and patent infringement claims. Certain claims may be structured as class action lawsuits or otherwise allege substantial damages. We may also be subject to claims related to, or arising out of, the spin-off. Unfavorable outcomes in pending or future litigation or the settlement of asserted claims could negatively affect us. Regardless of the outcome, litigation could result in substantial expense and could divert the efforts of our management.

We have developed proprietary IT systems, mobile applications, and cloud-based technology and acquired technologies that play an important role in our business, which we will continue to own following the separation. If any claim alleging infringement of intellectual property rights is successful against us and if indemnification is not available or sufficient, we may be required to pay substantial damages to the third party and indemnify our clients for losses arising out of the infringement. In order to continue delivery services to our clients, we may also need to seek and obtain a license of the other party’s intellectual property rights. We may be unable to obtain such a license on commercially reasonable terms, if at all, which could disrupt our business and have a material adverse effect on our results of operations.

In addition, in the ordinary course of business, we may make certain commitments, including representations, warranties and indemnities relating to current and past operations and divested businesses, and

 

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issue guarantees of third party obligations. The amounts of such commitments can only be estimated, and the actual amounts for which we are responsible may differ materially from our estimates.

If we incur liability as a result of any current or future litigation, commitments or contingencies and such liability exceeds any amounts accrued, our business, results of operations and financial condition could be adversely affected.

Risks Relating to the Spin-Off

The spin-off may not achieve some or all of the anticipated benefits.

We may not realize some or all of the anticipated strategic, financial, operational, marketing or other benefits from the spin-off, or such benefits may be delayed by a variety of circumstances, which may not be under our control. As independent publicly traded companies, SYNNEX and Concentrix will be smaller, less diversified companies with a narrower business focus and may be more vulnerable to changing market conditions, which could materially and adversely affect their respective business, financial condition and results of operations.

Our financial information may not be fully representative of our results as a stand-alone public company.

SYNNEX did not account for us, and we were not operated, as a stand-alone public company for the periods presented in our combined financial statements included in this information statement. Our combined financial statements have been carved out from SYNNEX’ consolidated financial statements and reflect assumptions and allocations made by SYNNEX and prescribed by generally accepted accounting principles. Our combined financial statements do not fully represent what our financial position, results of operations and cash flow would have been had we operated as a stand-alone public company during the periods presented. We have not made adjustments to reflect the many significant changes that will occur in our capital structure, cost structure, funding, operations and effective tax rate as a result of our separation from SYNNEX, including debt and interest expense we will have, increased costs associated with reduced economies of scale and other costs associated with being a stand-alone public company. As a result, the historical and pro forma information included in this information statement is not necessarily indicative of what our financial position, results of operations and cash flow may be following the spin-off. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Combined Financial Statements” and our combined financial statements and notes thereto included elsewhere in this information statement.

We have not previously operated as an independent public company.

We have not previously operated as an independent public company, and our management has no experience, as a group, in operating our business as a stand-alone entity. Following the spin-off, we will be fully responsible for arranging our own funding, managing all of our own administrative and employee arrangements and supervising all of our legal and financial affairs, including publicly reported financial statements. We will adopt separate stock-based and performance-based incentive plans for our employees and will develop our own compliance and administrative procedures necessary for a publicly held company.

Our working capital requirements and capital for general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of SYNNEX. Following the spin-off, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships, or other arrangements, which may not be on terms as favorable as those obtained by SYNNEX, and the cost of capital for our business may be higher than SYNNEX’ cost of capital prior to the spin-off.

We anticipate that our success in these endeavors will depend substantially upon the ability of our senior management and other key employees to work together. Accordingly, we cannot assure you that as an

 

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independent company our aggregate results of operations will continue at the same level. Additionally, we depend on our senior management. The loss of services of members of our senior management team could adversely affect our business until suitable replacements can be found. There may be a limited number of persons with the requisite skills to serve in these positions and we may be unable to locate or employ qualified personnel on acceptable terms.

The requirements of being a stand-alone public company will increase certain of our costs and require significant management focus.

As a stand-alone public company, we will incur significant legal, accounting and other expenses associated with compliance-related and other activities. The Sarbanes-Oxley Act of 2002, related SEC rules and the stock exchange on which our common stock will be listed regulate corporate governance practices of public companies. Concentrix has not previously been a public company. Although members of our management team have prior experience managing public companies, management has not previously managed a public company together as a group. Our separation from SYNNEX will also result in loss of access to SYNNEX’ resources and experience in this area. Compliance with these requirements will also result in other costs and obligations and make some activities more time-consuming. For example, in connection with the spin-off, we will create new committees of the board of directors and will adopt internal controls and disclosure controls and procedures. In addition, we will incur additional expenses associated with our SEC reporting requirements and other securities law compliance measures. Under Section 404 of the Sarbanes-Oxley Act, for our annual report on Form 10-K for the second fiscal year after the spin-off, we will need to document and test our internal control procedures and our management will need to assess and report on our internal control over financial reporting. Furthermore, if we identify any issues in complying with those requirements, we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions. Our prospects must be considered in light of the risks, difficulties and expenses encountered by newly public companies. Costs to obtain director and officer liability insurance will contribute to our increased costs. As a result of the associated liability, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in governance and reporting requirements.

We expect to have approximately $[] of indebtedness outstanding upon completion of the separation and distribution, and our indebtedness could adversely affect our financial condition.

We expect to incur approximately $[●] of indebtedness in connection with the separation, and we may increase our indebtedness in the future. See “Description of Material Indebtedness.” The terms of our indebtedness may be less favorable than those secured by us prior to the separation, which could adversely impact our financial condition. We may also incur additional indebtedness in the future. Our level of indebtedness could have adverse consequences to us and our stockholders, including:

 

   

requiring us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures and other general corporate requirements, and to grow our business;

 

   

limiting our ability to borrow additional funds as needed, make strategic acquisitions or take advantage of other business opportunities as they arise, or pay cash dividends

 

   

increasing future debt costs and limiting the future availability of debt financing;

 

   

increasing our vulnerability to general adverse economic and industry conditions; and

 

   

limiting our flexibility in planning for, or reacting to, changes in our business and industry.

To the extent that we incur additional indebtedness, the risks described above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not

 

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be sufficient to service our outstanding debt or to repay our outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to service or refinance our debt.

Our business relationships may be subject to disruption due to uncertainty associated with the spin-off.

Parties with which we do business may experience uncertainty associated with the spin-off, including with respect to current or future business relationships with us. Our business relationships may be subject to disruption as clients, vendors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us. Some of our client relationships may have been improved historically by the client’s relationship with SYNNEX, and these relationships may change as result of the spin-off. These disruptions and changes could have a material and adverse effect on the businesses, financial condition, results of operations or prospects of the combined business, including a material and adverse effect on our ability to realize the anticipated benefits of the spin-off.

The terms of agreements that we will enter into with SYNNEX in connection with the spin-off will be established at a time when we are a wholly owned subsidiary of SYNNEX and, accordingly, the terms of these agreements may not be as favorable to us as they might have been had they been negotiated by persons fully independent of SYNNEX.

In connection with the spin-off, we will enter into various agreements with SYNNEX regarding our relationship with SYNNEX following the spin-off, including a separation and distribution agreement, employee matters agreement, tax matters agreement, and a commercial agreement. These agreements address important matters, such as allocation of assets, liabilities, rights, indemnifications, and other obligations between SYNNEX and us, and our ongoing commercial relationship following the spin-off. While we believe these agreements will reflect market terms and are based on market pricing, the terms of these agreements are being negotiated while we are a wholly owned subsidiary of SYNNEX. Therefore, these agreements may not be as favorable to us as they might have been had they been negotiated by persons with no relationship to SYNNEX.

If the spin-off is determined to be taxable for U.S. federal income tax purposes, we, our stockholders, and SYNNEX could incur significant U.S. federal income tax liabilities.

If the spin-off fails to qualify for tax-free treatment, SYNNEX would be subject to tax as if it had sold our common stock in a taxable sale for its fair market value, and our initial public stockholders would be subject to tax as if they had received a taxable distribution equal to the fair market value of our common stock that was distributed to them. Under the tax matters agreement between SYNNEX and us, we will generally be required to indemnify SYNNEX for any taxes resulting from the separation (and related costs and other damages) to the extent such amounts resulted from (1) an acquisition of all or a portion of our equity securities or assets by any means, (2) any action or failure to act by us after the distribution affecting the voting rights of our stock, (3) other actions or failures to act by us, or (4) certain breaches of our agreements and representations in the tax matters agreement. For a more detailed discussion, see the section entitled “Certain Relationships and Related Party Transactions—Tax Matters Agreement.” Our indemnification obligations to SYNNEX and its subsidiaries, officers, and directors are not limited by any maximum amount. If we are required to indemnify SYNNEX or such other persons under the circumstances set forth in the tax matters agreement, we may be subject to substantial liabilities.

 

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We must abide by certain restrictions to preserve the tax-free treatment of the spin-off and may not be able to engage in desirable acquisitions and other strategic or capital-raising transactions following the spin-off.

To preserve the tax-free treatment of the spin-off to SYNNEX and its stockholders, under a tax matters agreement that we will enter into with SYNNEX, for the two-year period following the distribution, we may be prohibited, except in specified circumstances, from:

 

   

issuing equity securities to satisfy financing needs;

 

   

acquiring businesses or assets with equity securities; or

 

   

engaging in mergers or asset transfers that could jeopardize the tax-free status of the distribution.

These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. For more information, see the sections entitled “Material U.S. Federal Income Tax Consequences of the Distribution.”

We are subject to potential indemnification liabilities to SYNNEX pursuant to the separation and distribution agreement.

The separation and distribution agreement with SYNNEX provides for, among other things, the principal corporate transactions required to effect the spin-off, certain conditions to the spin-off, and provisions governing our relationship with SYNNEX with respect to and following the spin-off. Among other things, the separation and distribution agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the separation and distribution, as well as those obligations of SYNNEX that we will assume pursuant to the separation and distribution agreement. If we are required to indemnify SYNNEX under the circumstances set forth in this agreement, we may be subject to substantial liabilities. For a description of this agreement, see the section entitled “Certain Relationships and Related Party Transactions—Separation and Distribution Agreement.”

No vote of the SYNNEX stockholders is required in connection with the spin-off and therefore SYNNEX stockholders have limited recourse.

No vote of the SYNNEX stockholders is required in connection with the spin-off. Accordingly, if this transaction occurs and you do not want to receive our common stock in the distribution, your only recourse will be to divest yourself of your SYNNEX common stock prior to the record date for the distribution.

The SYNNEX board of directors has reserved the right, in its sole discretion, to amend, modify or abandon the spin-off and the related transactions at any time prior to the distribution date; in addition, the conditions to the spin-off may not be met.

The SYNNEX board of directors has reserved the right, in its sole discretion, to amend, modify or abandon the spin-off and the related transactions at any time prior to the distribution date. This means that SYNNEX may cancel or delay the planned separation and distribution of our common stock if at any time the board of directors of SYNNEX determines that it is not in the best interests of SYNNEX and its stockholders. If the SYNNEX board of directors makes a decision to cancel the spin-off, stockholders of SYNNEX will not receive any distribution of our common stock and SYNNEX will be under no obligation whatsoever to its stockholders to distribute such common stock. In addition, the separation and distribution and related transactions are subject to the satisfaction or waiver by SYNNEX’ board of directors in its sole discretion of a number of conditions. We cannot assure you that any or all of these conditions will be met.

 

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In connection with our separation from SYNNEX, SYNNEX will indemnify us for certain pre-distribution liabilities and liabilities related to SYNNEX assets; however, these indemnities may be insufficient to protect us against the full amount of such liabilities.

Pursuant to the separation and distribution agreement, SYNNEX will agree to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that SYNNEX agrees to retain, and there can be no assurance that SYNNEX will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from SYNNEX any amounts for which we are held liable, such indemnification may be insufficient to fully offset the financial impact of such liabilities and/or we may be required to bear these losses while seeking recovery from SYNNEX.

Following the spin-off, we will be a smaller company and may experience increased costs resulting from a decrease in purchasing power or from increased efforts to build and maintain relationships.

Prior to the spin-off, we have benefitted from the size and purchasing power of SYNNEX in sourcing certain products and services from third-parties, as well as from SYNNEX’ reputation as a Fortune 500 company with close to 40 years of operating experience. Following the spin-off, we will be a smaller company and are unlikely to have the same purchasing power that we had as part of SYNNEX. We may be unable to obtain products and services at prices and on terms as favorable as those available to us prior to the separation or may need to expend greater time and effort to build and maintain relationships with third parties, which could increase our costs and reduce our profitability.

Risks Related to Ownership of Concentrix Common Stock

There has been no prior market for our common stock, and we cannot guarantee that our stock price will not decline after the spin-off.

There has been no prior trading market for our common stock, and we cannot predict the price at which our common stock will trade after the spin-off date. The price at which our common stock trades is likely to fluctuate significantly, particularly until an orderly market develops. Prices for our common stock will be determined in the trading markets and may be influenced by many factors, including:

 

   

our financial results;

 

   

developments generally affecting the CX solutions industry;

 

   

the performance of our business and the performance of similar companies;

 

   

our capital structure, including the amount of our indebtedness;

 

   

the announcement of acquisitions or dispositions;

 

   

additions or departures of key personnel;

 

   

changes in market valuations of similar companies;

 

   

general economic, industry and market conditions;

 

   

the depth and liquidity of the market for our common stock;

 

   

fluctuations in currency exchange rates;

 

   

our dividend policy;

 

   

investor perception of our business and us;

 

   

the passage of legislation or other regulatory developments that adversely affect us or our industry;

 

   

the volume of sales of Concentrix common stock by current SYNNEX stockholders following the spin-off; and

 

   

the impact of the factors referred to elsewhere in “Risk Factors.”

 

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In addition, the stock market regularly experiences significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our share price.

A trading market may not develop for shares of our common stock, which could adversely affect the market price of those shares.

There is currently no trading market for shares of our common stock. We intend to apply to have our shares of common stock listed on the [●] under the symbol “[●].” However, there can be no assurance that a trading market for our shares will develop or be sustained after the completion of the spin-off.

Substantial sales of our common stock may occur in connection with the distribution, which could cause our stock price to decline.

The shares of our common stock that SYNNEX intends to distribute to its stockholders generally may be sold immediately in the public market. Upon completion of the distribution, we expect that we will have an aggregate of approximately 51.5 million shares of common stock issued and outstanding, based on the number of outstanding shares of SYNNEX common stock as of [], 2020. These shares will be freely tradable without restriction or further registration under the Securities Act unless the shares are owned by one of our “affiliates,” as that term is defined in Rule 405 under the Securities Act.

Although we have no actual knowledge of any plan or intention on the part of any 5% or greater stockholder to sell our shares following the distribution, it is possible that some SYNNEX stockholders, including possibly some of our large stockholders, will sell our common stock that they receive in the distribution. For example, SYNNEX stockholders may sell our common stock because our business profile or market capitalization as an independent company does not fit their investment objectives or because our common stock is not included in certain indices after the distribution. The sales of significant amounts of our common stock, or the perception in the market that this will occur, may result in the lowering of the market price of our shares.

We cannot guarantee the payment of dividends on our common stock, or the timing or amount of any such dividends.

The payment of any dividends in the future, and the timing and amount thereof, to our stockholders will fall within the discretion of our board of directors. Our board of directors’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt, industry practice, legal requirements, regulatory constraints, and other factors that our board of directors deems relevant. For more information, see “Dividend Policy.” Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if and when we commence paying dividends.

Your percentage ownership in Concentrix may be diluted in the future.

In the future, your percentage ownership in Concentrix may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we will be granting to our directors, officers and employees and purchases of shares from Concentrix through our employee stock purchase plan. We anticipate that the compensation committee of our board of directors will grant stock-based awards to our employees and directors after the distribution, from time to time, under our employee benefits plans. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.

 

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Certain provisions of our certificate of incorporation and bylaws and of Delaware law will make it difficult for stockholders to change the composition of our board of directors and may discourage hostile takeover attempts that some of our stockholders may consider to be beneficial.

Certain provisions of our certificate of incorporation and bylaws and of Delaware law may have the effect of delaying or preventing changes in control if our board of directors determines that such changes in control are not in the best interests of us and our stockholders. These provisions may include, among other things, the following:

 

   

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;

 

   

stockholder action can only be taken at a special or regular meeting and not by written consent;

 

   

the inability of our stockholders to call a special meeting;

 

   

advance notice procedures for nominating candidates to our board of directors or presenting matters at stockholder meetings;

 

   

allowing only our board of directors to fill vacancies on our board of directors;

 

   

supermajority voting requirements to amend our bylaws and certain provisions of our certificate of incorporation; and

 

   

restrictions on an “interested stockholder” to engage in certain business combinations with us for a three-year period following the date the interested stockholder became such.

While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our board of directors, they could enable the board of directors to hinder or frustrate a transaction that some, or a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. We are also subject to Delaware laws that could have similar effects. One of these laws prohibits us from engaging in a business combination with a significant stockholder unless specific conditions are met. For more information, see “Description of Our Capital Stock”.

The concentration of ownership of our common stock among our executive officers, directors, and principal stockholders could allow them to influence matters requiring stockholder approval and could delay or prevent a change in control.

Based on our estimate as of [●] of 51.5 million shares of our common stock outstanding immediately upon completion of the spin-off, using the distribution ratio of one share of our common stock for each share of SYNNEX common stock, our executive officers, directors and principal stockholders are expected to own approximately [●]% of our outstanding common stock immediately upon completion of the spin-off. In particular, MiTAC Holdings Corporation (“MiTAC Holdings”) and its affiliates are expected to own approximately 18% of our common stock. MiTAC Holdings is a publicly-traded company on the Taiwan Stock Exchange. As a result, these stockholders have the potential ability to influence or control matters requiring stockholder approval, including the election of directors and the approval of mergers and acquisitions, or exert influence on actions of our board of directors. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

 

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FORWARD-LOOKING STATEMENTS

This information statement contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” These statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. Forward-looking statements are statements that relate to future periods and include, but are not limited to, statements about:

 

   

our revenue, gross margins, operating costs, and results;

 

   

market growth and market and industry trends;

 

   

competition and pricing pressures, and the demand for customer experience outsourcing services;

 

   

our strategy and competitive strengths, our business model, our investment expectations and the services we offer;

 

   

concentration of client revenue and the performance of our clients’ products and services;

 

   

our international operations and foreign currency exchange rates;

 

   

the COVID-19 pandemic and its impact on our business;

 

   

adequacy of our internal controls, disclosure controls and procedures and information technology security practices;

 

   

our employee hiring, retention and turnover, and succession planning for key personnel;

 

   

global health and economic, political, and social conditions;

 

   

tax deductions and our effective tax rates;

 

   

our strategic acquisitions and divestitures of businesses and assets;

 

   

our goodwill;

 

   

changes in laws or regulations affecting our business;

 

   

our belief regarding the impact of current or future litigation, commitments and contingencies;

 

   

the impact of our accounting policies and recently issued accounting pronouncements;

 

   

our future needs for additional financing, the likely sources for such funding and the impact of such funding;

 

   

market risks;

 

   

adequacy of our capital resources to meet our capital and investment needs;

 

   

the terms, conditions and impact of the spin-off;

 

   

the terms of our agreements with SYNNEX;

 

   

general economic conditions in the United States and internationally;

 

   

fluctuations in the market for, and the concentration of ownership of, our equity;

 

   

our corporate governance plans; and

 

   

the elements of our director and executive compensation program.

In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “project,” “plan,” or the negative of these terms, and similar expressions intended to identify forward-looking

 

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statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in this information statement in greater detail under the heading “Risk Factors.” Also, these forward-looking statements represent our estimates and assumptions only as of the date of this information statement. Unless required by U.S. federal securities laws, we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made.

You should read this information statement and our registration statement on Form 10 and the documents that we reference therein and have filed as exhibits to the registration statement, of which this information statement is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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THE SPIN-OFF

Background

On January 9, 2020, SYNNEX announced its intent to separate its Concentrix business into an independent, publicly-traded company. To accomplish this separation, SYNNEX intends to distribute the common stock of Concentrix Corporation to its stockholders on a pro rata basis. References to “we,” “our,” “us,” “the Company” or “Concentrix” refer to Concentrix Corporation and its consolidated subsidiaries after giving effect to the separation and distribution.

On [●], the distribution date, each SYNNEX stockholder will receive one share of Concentrix common stock for each share of SYNNEX common stock held at the close of business on the record date for the distribution, as described below. No SYNNEX stockholder will be required to make any payment, surrender or exchange your shares of SYNNEX common stock or take any other action to receive your shares of Concentrix common stock in the distribution. The distribution of our common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “—Spin-off Conditions.”

Reasons for the Spin-off

The SYNNEX board of directors believes that separating the Concentrix business from the remainder of SYNNEX is in the best interests of SYNNEX and its stockholders for a number of reasons, including the following:

 

   

Dedicated Management Teams with Enhanced Strategic Focus. The spin-off will allow each company to focus on and more effectively pursue its own distinct operating priorities and strategies and will enable the management of each company to focus on the unique needs and distinct markets of its business. As a distributor of information technology systems and products and provider of systems design and integration solutions, SYNNEX can focus on margin expansion and working capital efficiencies in its core business, pursuing organic growth with product offering expansion, and identifying and pursuing strategic opportunities. As a provider of technology-infused CX solutions, Concentrix can focus on expanding and deepening relationships with its existing clients, investing in technology and innovating solutions for its clients, and further expanding into adjacent markets beyond CRM BPO.

 

   

More Efficient Organizational Structure. The spin-off will create two companies, each with a simplified and more efficient organizational structure that will facilitate decision making fully aligned with the unique needs of its business.

 

   

Focused Capital Allocation. The spin-off will allow each company to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business in the manner most appropriate for its distinct strategy and business needs.

 

   

Direct Access to Capital Markets and Ability to Pursue Strategic Opportunities. The spin-off will create an independent equity structure that will provide SYNNEX and Concentrix direct access to capital markets and facilitate the ability of each company to utilize its common stock for future acquisitions.

 

   

Improved Management Incentive Tools. The spin-off will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s business, improving the alignment of management and employee incentives with performance and growth objectives.

 

   

Unique Investment Profile. The spin-off will allow investors to separately value SYNNEX and Concentrix based on their unique investment profiles and will provide investors with two distinct and targeted investment opportunities.

 

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Neither Concentrix nor SYNNEX can assure you that, following the spin-off, any of the benefits described above or otherwise will be realized to the extent anticipated or at all.

The SYNNEX board of directors also considered a number of potentially negative factors in evaluating the spin-off, including the following:

 

   

as part of SYNNEX, the Concentrix business has historically benefitted from SYNNEX’ larger size and purchasing power in procuring certain goods and services and some of the Concentrix client relationships may have been improved by the client’s relationship with SYNNEX;

 

   

we will incur costs as a stand-alone public company, which include an independent board of directors, stock exchange listing fees, audit, accounting, tax, legal, and other professional services costs;

 

   

the actions required to separate SYNNEX and Concentrix could disrupt our operations;

 

   

certain costs and liabilities that were otherwise less significant to SYNNEX as a whole will be more significant for Concentrix as a stand-alone company;

 

   

we may not achieve the anticipated benefits of the spin-off for a variety of reasons, including, among others: (i) the spin-off will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business; (ii) following the spin-off, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of SYNNEX; and (iii) following the spin-off, our business will be less diversified than SYNNEX’ business prior to the spin-off; and

 

   

to preserve the tax-free treatment of the separation and the distribution to SYNNEX for U.S. federal income tax purposes, under the tax matters agreement that Concentrix will enter into with SYNNEX, Concentrix will be restricted from taking actions that may cause the separation and distribution to be taxable to SYNNEX for U.S. federal income tax purposes. These restrictions may limit our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business for a period of time.

The SYNNEX board of directors concluded that the potential benefits of the spin-off outweighed these factors.

Manner of Effecting the Spin-off

The general terms and conditions relating to the spin-off are set forth in the separation and distribution agreement between SYNNEX and Concentrix. For a description of that agreement see, “Certain Relationships and Related Party Transactions—Separation and Distribution Agreement.”

On the distribution date, SYNNEX will effect the spin-off by delivering all of the outstanding shares of our common stock to [●], as spin-off agent, for distribution to the holders of record of SYNNEX common stock at the close of business on the record date. The distribution will be made in book-entry form on the basis of one share of our common stock for each share of SYNNEX common stock held on the record date of [●].

A book-entry account statement reflecting your ownership of shares of our common stock will be mailed to you, or your brokerage account will be credited for the shares, on or about [●]. If you hold physical share certificates that represent your SYNNEX common shares and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of Concentrix common stock that have been registered in book-entry form in your name.

Results of the Spin-off

After the spin-off, Concentrix will be an independent public company owning and operating our CX solutions business. Immediately after the spin-off, we expect to have approximately 5,000 holders of shares of our common stock and approximately 51.5 million shares of our common stock issued and outstanding based on

 

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the spin-off ratio described above and the anticipated number of beneficial stockholders and outstanding SYNNEX shares on [●], the record date. The actual number of shares to be distributed will be determined based on the number of SYNNEX shares outstanding on the record date.

The spin-off will not affect the number of outstanding SYNNEX shares or any rights of SYNNEX stockholders, although it will affect the market value of the outstanding SYNNEX common shares.

Market for Concentrix Common Stock

There is no existing market for our common stock. We intend to file an application for listing on the [●] under the symbol “[●].” We also expect that a “when-issued” trading market for our common stock will begin on or around the record date. The term “when-issued” means that shares can be traded prior to the time shares are actually available or issued. On the first trading day following the spin-off date, “when-issued” trading in our common stock will end and “regular-way” will begin. “Regular-way” trading refers to trading after a security has been issued and typically involves a transaction that settles on the second full business day following the date of a trade.

We cannot predict the trading prices for our common stock before or after the spin-off date. The trading price of our common stock is likely to fluctuate significantly, particularly until an orderly market develops. Prices for our common stock will be determined in the trading markets and may be influenced by many factors, including:

 

   

our financial results;

 

   

developments generally affecting the CX solutions industry;

 

   

the performance of our business and the performance of similar companies;

 

   

our capital structure, including the amount of our indebtedness;

 

   

the announcement of acquisitions or dispositions;

 

   

additions or departures of key personnel;

 

   

changes in market valuations of similar companies;

 

   

general economic, industry and market conditions;

 

   

the depth and liquidity of the market for our common stock;

 

   

our dividend policy;

 

   

investor perceptions of our business and us;

 

   

fluctuations in currency exchange rates;

 

   

the passage of legislation or other regulatory developments that adversely affect us or our industry; and

 

   

the impact of the factors referred to in “Risk Factors.”

We have appointed [●] to serve as transfer agent and registrar for our common stock.

Transferability of Shares You Receive

Shares of Concentrix common stock distributed to holders in connection with the distribution will be transferable without registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), except for shares received by persons who may be deemed to be Concentrix affiliates. Persons who may be deemed to be Concentrix affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with Concentrix, which may include certain Concentrix executive officers, directors or principal stockholders. Securities held by Concentrix affiliates will be subject to resale restrictions

 

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under the Securities Act. Concentrix affiliates will be permitted to sell shares of Concentrix common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.

Spin-off Conditions

We expect that the spin-off will be effective on the spin-off date, [●], provided that, among other things:

 

   

the SEC has declared effective our registration statement on Form 10, of which this information statement is a part, under the Securities Exchange Act of 1934, as amended, no stop order suspending the effectiveness of our registration statement is in effect, no proceedings for such purpose have been instituted or threatened by the SEC, and this information statement has been made available to SYNNEX stockholders;

 

   

SYNNEX has received an opinion from Ernst & Young LLP regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code;

 

   

the transfer of assets and liabilities between SYNNEX and Concentrix shall be completed in accordance with the separation and distribution agreement;

 

   

an independent appraisal firm shall have delivered one (1) or more opinions to the SYNNEX board of directors confirming the solvency and financial viability of SYNNEX before the consummation of the distribution and each of SYNNEX and Concentrix after the consummation of the distribution, and such opinions shall be acceptable to SYNNEX in form and substance in SYNNEX’ sole discretion, and such opinions shall not have been withdrawn, rescinded, or modified in any respect;

 

   

the actions and filings necessary under applicable U.S. federal, U.S. state or other securities or blue sky laws have been taken or made and, where applicable, have become effective or been accepted;

 

   

any approvals or notifications of any governmental authorities required to complete the separation and distribution have been obtained;

 

   

SYNNEX and Concentrix have entered into the separation and distribution agreement, the employee matters agreement and the tax matters agreement;

 

   

no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions is in effect;

 

   

the shares of Concentrix common stock to be distributed to SYNNEX stockholders in the distribution have been accepted for listing on the [●], subject to official notice of distribution; and

 

   

no other events or developments exist or have occurred that, in the judgment of SYNNEX’ board of directors, in its sole discretion, make it inadvisable to effect the separation, the distribution or the other related transactions.

The fulfillment of the foregoing conditions will not create any obligation on SYNNEX’ part to effect the spin-off, and the SYNNEX board of directors has reserved the right to amend, modify or abandon the spin-off and the related transactions at any time prior to the spin-off date. SYNNEX may, in its sole discretion, also waive any of these conditions. SYNNEX does not intend to notify its stockholders of any modifications to the terms of the separation that, in the judgment of its board of directors, are not material. For example, the SYNNEX board of directors might consider material such matters as significant changes to the distribution ratio, the assets to be contributed, or the liabilities to be assumed in the separation. To the extent that the SYNNEX board of directors determines that any modifications by SYNNEX materially change the material terms of the distribution, SYNNEX will notify SYNNEX stockholders informing them about such modifications as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K, or circulating a supplement to this information statement.

 

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Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to stockholders of SYNNEX who will receive shares of our common stock in the spin-off. It is not to be construed as an inducement or encouragement to buy or sell any of our securities. We believe that the information contained in this information statement is accurate as of the date set forth on its cover. Changes may occur after that date, and unless required by U.S. securities law, we will not update the information except in the normal course of our public disclosure obligations and practices.

Accounting Treatment

The spin-off will be accounted for by SYNNEX on a historical cost basis, and no gain or loss will be recorded.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION

The following is a summary of the material U.S. federal income tax consequences to SYNNEX and SYNNEX stockholders in connection with the distribution. This summary is based on the Code, the Treasury Regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect as of the date of this information statement and all of which are subject to differing interpretations and may change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below. This summary is for general information purposes only and is not tax advice. This summary assumes that the separation will be consummated in accordance with the separation agreement and as described in this information statement.

Except as specifically described below, this summary is limited to SYNNEX stockholders that are “U.S. Holders,” as defined immediately below. For purposes of this summary, a U.S. Holder is a beneficial owner of SYNNEX common stock that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or a resident of the U.S.;

 

   

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the U.S. or any state thereof or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust, if (1) a court within the U.S. is able to exercise primary jurisdiction over its administration and one or more U.S. persons have the authority to control all its substantial decisions, or (2) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury Regulations.

This summary also does not discuss all tax considerations that may be relevant to SYNNEX stockholders in light of their particular circumstances, nor does it address the consequences to SYNNEX stockholders subject to special treatment under the U.S. federal income tax laws, such as:

 

   

dealers or traders in securities or currencies;

 

   

tax-exempt entities;

 

   

cooperatives;

 

   

banks, trusts, financial institutions, or insurance companies;

 

   

persons who acquired shares of SYNNEX common stock pursuant to the exercise of employee stock options or otherwise as compensation;

 

   

stockholders who own, or are deemed to own, at least 10 percent or more, by voting power or value, of SYNNEX’ equity;

 

   

holders owning SYNNEX common stock as part of a position in a straddle or as part of a hedging, conversion, constructive sale, synthetic security, integrated investment, or other risk reduction transaction for U.S. federal income tax purposes;

 

   

certain former citizens or former long-term residents of the U.S.;

 

   

holders who are subject to the alternative minimum tax; or

 

   

persons that own SYNNEX common stock through partnerships or other pass-through entities.

This summary does not address the U.S. federal income tax consequences to stockholders who do not hold shares of SYNNEX common stock as a capital asset. Moreover, this summary does not address any state, local, or foreign tax consequences or any estate, gift or other non-income tax consequences.

 

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If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds shares of SYNNEX common stock, the tax treatment of a partner in that partnership generally will depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its own tax advisor as to the tax consequences of the distribution.

YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC U.S. FEDERAL, STATE AND LOCAL, AND NON-U.S. TAX CONSEQUENCES OF THE DISTRIBUTION IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES AND THE EFFECT OF POSSIBLE CHANGES IN LAW THAT MIGHT AFFECT THE TAX CONSEQUENCES DESCRIBED IN THIS INFORMATION STATEMENT.

Treatment of the Distribution

It is a condition to the distribution that SYNNEX receives the Tax Opinion (as defined below), in form and substance acceptable to SYNNEX, substantially to the effect, among other things, that the distribution, together with certain related transactions, will qualify as a tax-free transaction under Sections 368(a)(1)(D) and 355 of the Code.

Assuming the distribution qualifies as tax-free under Sections 368(a)(1)(D) and 355 of the Code, for U.S. federal income tax purposes:

 

   

no gain or loss will be recognized by SYNNEX as a result of the distribution;

 

   

no gain or loss will be recognized by, or be includible in the income of, a SYNNEX stockholder solely as a result of the receipt of Concentrix common stock in the distribution;

 

   

the aggregate tax basis of the shares of SYNNEX common stock and shares of Concentrix common stock in the hands of each SYNNEX stockholder immediately after the distribution will be the same as the aggregate tax basis of the shares of SYNNEX common stock held by such holder immediately before the distribution, allocated between the shares of SYNNEX common stock and shares of Concentrix common stock in proportion to their relative fair market values immediately following the distribution; and

 

   

the holding period with respect to shares of Concentrix common stock received by SYNNEX stockholders will include the holding period of their shares of SYNNEX common stock.

SYNNEX stockholders that have acquired different blocks of SYNNEX common stock at different times or at different prices should consult their tax advisors regarding the allocation of their aggregate adjusted basis among, and their holding period of, our shares distributed with respect to blocks of SYNNEX common stock.

Ernst & Young LLP will provide a tax opinion (“Tax Opinion”) to SYNNEX which will be based on, among other things, certain assumptions as well as on the accuracy of certain factual representations and statements that we and SYNNEX make. In rendering the Tax Opinion, Ernst & Young LLP also will rely on certain covenants that we and SYNNEX enter into, including the adherence by SYNNEX and us to certain restrictions on their and our future actions. If any of the facts, representations, assumptions, or undertakings described or made in connection with the Tax Opinion are not correct, are incomplete or have been violated, Ernst & Young LLP may not be able to provide the Tax Opinion, the ability to rely on the Tax Opinion could be jeopardized, or the tax consequences of the distribution could differ from those described above. We are not aware of any facts or circumstances, however, that would cause these facts, representations, or assumptions to be untrue or incomplete, or that would cause any of these undertakings to fail to be complied with, in any material respect. In addition, Ernst & Young LLP’s ability to provide the Tax Opinion will depend on the absence of changes in existing facts or law between the dates of this information statement and the closing date of the distribution.

 

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We cannot assure you that the IRS will agree with the conclusions expected to be set forth in the Tax Opinion, and it is possible that the IRS or another tax authority could adopt a position contrary to one or all those conclusions and that a court could sustain that contrary position. You should note that SYNNEX does not intend to seek a ruling from the IRS as to the U.S. federal income tax treatment of the distribution or related transactions. The Tax Opinion is not binding on the IRS or a court, and there can be no assurance that the IRS will not challenge the validity of the distribution and related transactions as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code or that any such challenge ultimately will not prevail.

If, notwithstanding the conclusions that we expect to be included in the Tax Opinion, it is ultimately determined that the distribution does not qualify as tax-free under Section 355 of the Code for U.S. federal income tax purposes, then generally SYNNEX would recognize corporate level taxable gain on the distribution in an amount equal to the excess, if any, of the fair market value of Concentrix common stock distributed to SYNNEX stockholders on the distribution date over SYNNEX’ tax basis in such stock. Alternatively, in the event that SYNNEX and we jointly make an election under Section 336(e) of the Code with respect to the distribution, in general, (i) the SYNNEX group would recognize taxable gain as if we had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of Concentrix common stock and the assumption of all of our liabilities and (ii) we would obtain a related step-up in the basis of its assets.

In addition, if the distribution is ultimately determined not to qualify as tax-free under Section 355 of the Code for U.S. federal income tax purposes, each SYNNEX stockholder that receives shares of Concentrix common stock in the distribution would be treated as receiving a distribution in an amount equal to the fair market value of Concentrix common stock that was distributed to the stockholder, which generally would be taxed as a dividend to the extent of the stockholder’s pro rata share of SYNNEX’ current and accumulated earnings and profits, including SYNNEX’ taxable gain, if any, on the distribution, then treated as a non-taxable return of capital to the extent of the stockholder’s basis in SYNNEX stock and thereafter treated as capital gain from the sale or exchange of SYNNEX stock. In that case, a SYNNEX stockholder’s basis in the distributed Concentrix common stock would equal that stock’s fair market value when distributed and a SYNNEX stockholder’s holding period for the distributed Concentrix common stock would begin the day following the distribution.

Even if the distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, the distribution may result in corporate level taxable gain to SYNNEX under Section 355(e) of the Code if either we or SYNNEX undergoes a 50 percent or greater ownership change as part of a plan or series of related transactions that includes the distribution, potentially including transactions occurring after the distribution. The process for determining whether one or more acquisitions or issuances triggering this provision has occurred, the extent to which any such acquisitions or issuances results in a change of ownership and the cumulative effect of any such acquisitions or issuances together with any prior acquisitions or issuances is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. If an acquisition or issuance of stock triggers the application of Section 355(e) of the Code, SYNNEX would recognize taxable gain as described above, but the distribution would be tax-free to each SYNNEX stockholder. In certain cases, Concentrix may be required to indemnify SYNNEX for all or part of the tax liability resulting from the application of Section 355(e). For further details regarding our potential indemnity obligation, see the section entitled “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”

U.S. Treasury Regulations require certain stockholders that receive stock in a distribution to attach a detailed statement setting forth certain information relating to the distribution to their respective U.S. federal income tax returns for the year in which the distribution occurs. We urge you to consult your tax advisor to determine whether you are required to file such statement. SYNNEX will provide stockholders who receive Concentrix common stock in the distribution with the information necessary to comply with such requirement. In addition, all stockholders are required to retain permanent records relating to the amount, basis, and fair market value of Concentrix common stock received in the distribution and to make those records available to the IRS upon request of the IRS.

 

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THE FOREGOING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF SHAREHOLDERS. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.

 

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DIVIDEND POLICY

On March 24, 2020, as a result of the unpredictable economic environment due to the impact of the COVID-19 pandemic, SYNNEX announced the suspension of its quarterly dividend. On June 25, 2020, SYNNEX announced that consideration to reinstate the dividend will be assessed after a few more quarters of consistent performance and market stability.

The payment of any dividends by Concentrix following the separation, and the timing and amount thereof, is within the discretion of our board of directors. Our board of directors’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt, industry practice, legal requirements, regulatory constraints and other factors that our board of directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if and when we commence paying dividends.

 

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CAPITALIZATION

The following table shows Concentrix’ capitalization as of May 31, 2020 on both a historical basis and an unaudited pro forma basis giving effect to our anticipated post-spin-off capital structure. This table should be read together with our “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our historical and unaudited pro forma combined financial statements and the notes to those statements included elsewhere in this information statement. For an explanation of the pro forma adjustments made to our historical financial statements, see “Unaudited Pro Forma Combined Financial Statements.”

The pro-forma capitalization is not necessarily indicative of our capitalization had the spin-off and our anticipated post-spin-off capital structure been completed on the date assumed. The pro-forma capitalization below may not reflect the capitalization or financial condition that would have resulted had we been operating as an independent, publicly-traded company at that date and is not necessarily indicative of our future capitalization or financial condition.

 

     As of May 31, 2020  
($ in thousands, except par value)    Actual     Pro Forma  

Cash and cash equivalents

   $ 94,749                         
  

 

 

   

 

 

 

Debt:

    

Loan receivable from Parent

     (62,183  

Loans payable to Parent

     1,768,449    

New indebtedness

     —      
  

 

 

   

 

 

 

Total indebtedness

     1,706,266    
  

 

 

   

 

 

 

Equity:

    

Parent company investment

     1,588,748    

Common stock, par value $0.0001

     —      

Additional paid-in capital

     —      

Accumulated other comprehensive income (loss)

     (96,208  
  

 

 

   

 

 

 

Total equity

     1,492,540    
  

 

 

   

 

 

 

Total capitalization

   $ 3,198,806    
  

 

 

   

 

 

 

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

The following selected combined financial data are qualified by reference to, and should be read together with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement and the combined financial statements and accompanying notes included elsewhere in this information statement. The selected combined statements of operations and other data presented below for the six-month periods ended May 31, 2020 and 2019 and the combined balance sheet data as of May 31, 2020 have been derived from our unaudited combined financial statements included elsewhere in this information statement. The selected combined statements of operations and other data presented below for fiscal years 2019, 2018 and 2017 and the combined balance sheet data as of November 30, 2019 and 2018 have been derived from our audited combined financial statements included elsewhere in this information statement. The combined statements of operations and other data for fiscal years 2016 and 2015 and the combined balance sheet data as of November 30, 2017, 2016 and 2015 have been derived from our unaudited combined financial statements that are not included in this information statement. The combined statements of operations data include the operating results from our acquisitions from the closing date of each acquisition. Historical operating results are not necessarily indicative of the results that may be expected for any future period. The historical operating results reflect allocations of certain costs incurred by SYNNEX on behalf of Concentrix. While we believe the allocations to be reasonable, it is possible that actual costs incurred in the future could differ from those presented herein. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 1, 2 and 3 to our combined financial statements included elsewhere in this information statement for a discussion of factors, such as business combinations and the adoption of new accounting guidance, that affect the comparability of the following selected combined financial data.

 

    Six Months Ended     Fiscal Years Ended November 30,  
    May 31,
2020
    May 31,
2019
    2019     2018     2017     2016     2015  
    (unaudited)     (unaudited)                       (unaudited)     (unaudited)  

Statements of Operations Data: (in thousands)

             

Revenue

  $ 2,254,982     $ 2,334,148     $ 4,707,912     $ 2,463,151     $ 1,990,180     $ 1,587,736     $ 1,416,670  

Gross profit

    790,360       863,836       1,748,448       937,552       749,154       615,447       538,314  

Operating income

    111,791       122,853       294,332       144,761       114,623       63,877       51,127  

Net income

    54,787       54,963       117,164       48,271       72,250       37,101       22,154  

 

    As of
May 31,
2020
    As of November 30,  
    2019     2018     2017     2016     2015  
    (unaudited)                 (unaudited)     (unaudited)     (unaudited)  

Balance Sheet Data: (in thousands)

           

Cash and cash equivalents

  $ 94,749     $ 79,656     $ 123,389     $ 123,499     $ 125,603     $ 96,328  

Working capital(1)

    (1,404,146     (1,398,703     (1,714,155     (577,639     (653,279     (331,551

Total assets

    4,955,479       4,653,755       4,766,993       1,668,407       1,536,747       1,048,560  

Borrowings, current

    —         —         69,762       12,000       12,000       —    

Total Parent equity

    1,492,540       1,469,841       1,319,802       261,543       163,109       156,977  

 

(1) 

Working capital is negative due to the inclusion of loans payable to Parent for acquisitions related to the Concentrix business and for ongoing operations. As part of the separation, these loans will be refinanced by a combination of current and long-term debt and consequently, working capital is expected to be positive.

 

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    Six Months Ended     Fiscal Years Ended November 30,  
    May 31,
2020
    May 31,
2019
    2019     2018     2017     2016     2015  
    (unaudited)     (unaudited)                       (unaudited)     (unaudited)  

Other Data: (in thousands)

             

Depreciation

  $ 61,979     $ 73,274     $ 139,174     $ 80,274     $ 65,616     $ 52,102     $ 36,755  

Amortization

    73,357       83,752       166,606       74,324       64,252       52,833       52,126  

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The unaudited pro forma condensed combined financial statements presented below have been derived from Concentrix’ historical unaudited combined statements of operations for the six months ended May 31, 2020 and historical audited combined statements of operations for the year ended November 30, 2019, and the unaudited combined balance sheet as of May 31, 2020 included elsewhere in this information statement. The unaudited pro forma condensed combined financial statements should be read in conjunction with Concentrix’ historical combined financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this information statement. The unaudited pro forma condensed combined statement of income has been prepared to give effect to the Pro Forma Transactions (as defined below) as if the Pro Forma Transactions had occurred or had become effective as of December 1, 2018. The unaudited pro forma condensed combined balance sheet has been prepared to give effect to the Pro Forma Transactions as though the Pro Forma Transactions had occurred on May 31, 2020.

Our unaudited pro forma condensed combined financial statements have been prepared based on available information, assumptions, and estimates that management believes are reasonable. The unaudited pro forma condensed combined financial statements are for illustrative and informational purposes only, and do not reflect what Concentrix’ financial position and results of operations would have been had the separation occurred on the dates indicated and are not necessarily indicative of its future financial position and future results of operations.

Our unaudited pro forma condensed combined financial statements have been prepared to reflect adjustments to our audited historical combined financial statements that are: (i) factually supportable, (ii) directly attributable to the distribution, and, for purposes of the combined statements of income, (iii) expected to have continuing impact on our results of operations. The unaudited pro forma condensed combined financial statements have been adjusted to give effect to the following (the “Pro Forma Transactions”):

 

   

The issuance of shares of Concentrix common stock;

 

   

The tax-free distribution, for U.S. federal income tax purposes, of Concentrix common stock to SYNNEX shareholders and the resulting elimination of SYNNEX’ historical investment in Concentrix;

 

   

Our anticipated post-distribution capital structure; and

 

   

The impact of, and transactions contemplated by the separation and distribution agreement, tax matters agreement and employee matters agreement.

Our historical combined statement of income includes allocations of certain expenses relating to support functions historically provided by SYNNEX. To operate as an independent public company, we expect to incur costs to replace those services previously provided by SYNNEX in addition to incremental stand-alone costs. Due to the immaterial nature of these activities, the fact that Concentrix has been independently managed and resourced, the amount and timing of these incremental costs could vary but are not expected to be materially different from the as reported amounts. Consequently, such costs are not included in the Pro Forma Transactions.

The unaudited pro forma condensed combined financial statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” included elsewhere in this information statement.

 

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Unaudited Pro Forma Condensed Combined Statement of Income

(currency and shares in thousands, except per share amounts)

Six Months Ended May 31, 2020

 

     As Reported     Pro Forma
Adjustments
     Notes     Pro Forma  

Revenue

         

Customer experience services

   $ 2,244,884                                           

Customer experience services to Parent

     10,098         
  

 

 

   

 

 

      

 

 

 

Total revenue

     2,254,982         

Cost of revenue

         

Cost of revenue for customer experience services

     1,458,447         

Cost of revenue related to services to Parent

     6,175         
  

 

 

   

 

 

      

 

 

 

Gross profit

     790,360         

Selling, general and administrative expenses

     (678,569       
  

 

 

   

 

 

      

 

 

 

Operating income

     111,791         

Interest expense (primarily related to borrowings from Parent) and finance charges, net

     (30,513        (d  

Other income (expense), net

     4,876         
  

 

 

   

 

 

      

 

 

 

Income before income taxes

     86,154         

Provision for income taxes

     (31,367        (e  
  

 

 

   

 

 

      

 

 

 

Net income

   $ 54,787         
  

 

 

   

 

 

      

 

 

 

Pro forma earnings per common share:

          (f  
         

 

 

 

Basic

          (f  
         

 

 

 

Diluted

         

Pro forma weighted-average common shares outstanding:

          (f  
         

 

 

 

Basic

          (f  
         

 

 

 

Diluted

         

(Amounts may not add due to rounding)

The accompanying notes are an integral part of these unaudited combined pro forma financial statements.

 

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Unaudited Pro Forma Condensed Combined Statement of Income

(currency and shares in thousands, except per share amounts)

Year Ended November 30, 2019

 

     As Reported     Pro Forma
Adjustments
     Notes     Pro Forma  

Revenue

         

Customer experience services

   $ 4,687,327                                                   

Customer experience services to Parent

     20,585         
  

 

 

   

 

 

      

 

 

 

Total revenue

     4,707,912         

Cost of revenue

         

Cost of revenue for customer experience services

     2,946,664         

Cost of revenue related to services to Parent

     12,800         
  

 

 

   

 

 

      

 

 

 

Gross profit

     1,748,448         

Selling, general and administrative expenses

     (1,454,116       
  

 

 

   

 

 

      

 

 

 

Operating income

     294,332         

Interest expense (primarily related to borrowings from Parent) and finance charges, net

     (92,196        (d  

Other income (expense), net

     2,280         
  

 

 

   

 

 

      

 

 

 

Income before income taxes

     204,416         

Provision for income taxes

     (87,252        (e  
  

 

 

   

 

 

      

 

 

 

Net income

   $ 117,164         
  

 

 

   

 

 

      

 

 

 

Pro forma earnings per common share:

          (f  
         

 

 

 

Basic

          (f  
         

 

 

 

Diluted

         

Pro forma weighted-average common shares outstanding:

          (f  
         

 

 

 

Basic

          (f  
         

 

 

 

Diluted

         

(Amounts may not add due to rounding)

The accompanying notes are an integral part of these unaudited combined pro forma financial statements.

 

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Unaudited Pro Forma Condensed Combined Balance Sheet

(currency in thousands, except par value)

At May 31, 2020

 

     As Reported     Pro Forma
Adjustments
     Notes     Pro Forma  

ASSETS

         

Current assets:

         

Cash and cash equivalents

   $ 94,749                                                   

Accounts receivable, net

     868,831         

Receivable from SYNNEX Corporation (“Parent”)

     20,725         

Loan receivable from Parent

     62,183          (c  

Other current assets

     174,114         
  

 

 

   

 

 

      

 

 

 

Total current assets

     1,220,602         

Property and equipment, net

     403,720         

Goodwill

     1,815,692         

Intangible assets, net

     855,810         

Deferred tax assets

     71,773         

Other assets

     587,882         
  

 

 

   

 

 

      

 

 

 

Total assets

   $ 4,955,479         
  

 

 

   

 

 

      

 

 

 

LIABILITIES AND EQUITY

         

Current liabilities:

         

Accounts payable

   $ 102,610         

Payable to Parent

     83,248         

Loans payable to Parent

     1,768,449          (c  

Accrued compensation and benefits

     304,727         

Other accrued liabilities

     358,384         

Income taxes payable

     7,330         
  

 

 

   

 

 

      

 

 

 

Total current liabilities

     2,624,748         

Other long-term liabilities

     655,957          (a  

Deferred tax liabilities

     182,234         
  

 

 

   

 

 

      

 

 

 

Total liabilities

     3,462,939         
  

 

 

   

 

 

      

 

 

 

Equity:

         

Common stock ($0.0001 par value)

     —            (c  

Additional paid-in capital

     —            (c  

Parent company investment

     1,588,748          (b  

Accumulated other comprehensive income (loss)

     (96,208       
  

 

 

   

 

 

      

 

 

 

Total Parent equity

     1,492,540         
  

 

 

   

 

 

      

 

 

 

Total liabilities and equity

   $ 4,955,479         
  

 

 

   

 

 

      

 

 

 

(Amounts may not add due to rounding)

The accompanying notes are an integral part of these unaudited combined pro forma financial statements.

 

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(a)

Reflects an adjustment to other noncurrent liabilities of $[●] related to uncertain tax positions that will be retained by SYNNEX.

 

(b)

Reflects the net distribution to SYNNEX of $[●] based upon the anticipated post-separation capital structure.

 

(c)

Reflects (i) the elimination of $[●] of loans receivable from and payable to SYNNEX included in our historical combined balance sheet, which will be refinanced as part of the separation; and (ii) our anticipated financing arrangements.

 

(d)

Reflects the adjustment to interest expense, net for: (i) the elimination of all net interest expense, $[●] for the year ended November 30, 2019, primarily related to net interest on loans payable to and receivable from SYNNEX in our combined statements of operations; and (ii) the addition to interest expense of $[●] related to our anticipated financing arrangements.

 

(e)

Reflects the tax effect of the pro forma adjustments impacting income before provision for taxes on income, calculated using the effective GAAP tax rate of [●]%.

 

(f)

Pro forma basic earnings per share and pro forma weighted-average basic shares outstanding is based on 51.5 million shares outstanding, which is the number of shares of our common stock expected to be outstanding following the separation.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical combined financial statements, the notes to those combined financial statements, the unaudited pro forma condensed combined financial statements, and the notes to those pro forma condensed combined financial statements included elsewhere in this information statement. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

References to “we,” “our,” “us,” “the Company” or “Concentrix” refer to the combined entities of the customer experience business of SYNNEX Corporation (“SYNNEX” or the “Parent”).

Certain comparisons of the year-over-year changes in revenue, cost of revenue and selling, general and administrative expenses in the discussion of our results of operations for the fiscal years ended November 30, 2019, 2018 and 2017 include a supplemental comparison as if the Company’s acquisition of Convergys had occurred at the beginning of the earliest year in the comparison. These supplemental comparisons can be identified by the language “if the Convergys acquisition had occurred at the beginning of [the relevant fiscal year].” The amounts used in these supplemental comparisons were determined by adding (x) the Convergys results of operations for the relevant period prior to the Company’s acquisition of Convergys to (y) the Company’s combined results of operations for the relevant periods. We believe the presentation of this supplemental information is useful because the Convergys acquisition had a significant impact on revenue, cost of revenue, and selling, general and administrative expenses for the post-acquisition period and the supplemental comparison enables readers to better understand changes in the combined business. The amounts include adjustments for amortization of intangibles expense and acquisition-related transaction costs as if the Convergys acquisition occurred at the beginning of the referenced periods. These supplemental comparisons are provided for informational purposes only and may not necessarily reflect the results of operations that would have occurred had the Convergys acquisition actually occurred as of the beginning of any period referenced.

Overview and Basis of Presentation

Concentrix is a leading global provider of technology-infused Customer Experience (“CX”) solutions, centered on helping our clients enhance the brand experience for their end-customers. We provide end-to-end capabilities that help drive deep customer understanding and engagement. Our solutions facilitate communication between our clients and their customers, provide analytics and process optimization, and support client-centric operations and back-office processing across the enterprise. Our differentiated portfolio of solutions supports Global Fortune 2000 as well as high-growth companies across the globe in their efforts to deliver an optimized, consistent brand experience across all channels of communication, such as voice, chat, email, social media, asynchronous messaging, and custom applications. We strive to deliver exceptional services globally supported by our deep industry knowledge, technology and security practices, talented people, and digital and analytics expertise.

We generate revenue from performing services that are generally tied to our clients’ products and services. Any shift in business or the size of the market for our clients’ products or services, or any failure of technology or failure of acceptance of our clients’ products or services in the market may impact our business. The employee turnover rate in our business is high, as is the risk of losing experienced employees. High employee turnover rates may increase costs and decrease operating efficiencies and productivity.

 

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On January 9, 2020, SYNNEX announced its intent to separate its Concentrix business into an independent, publicly traded company. The combined financial statements, which are discussed below, reflect the results of operations, financial position, and cash flows of our business and are derived from the historical results of operations and the historical basis of the assets and liabilities of the CX business of SYNNEX from its consolidated financial statements as if we had been operating on a stand-alone basis prior to the spin-off and related transactions. We believe that the assumptions made in preparing our combined financial statements are reasonable. However, our historical results may not be indicative of our future performance and do not necessarily reflect what our financial condition and results of operations would have been had we operated as an independent, stand-alone entity during the periods presented, particularly because changes will occur in our operations and capitalization as a result of the spin-off and related transactions. Please read “Unaudited Pro Forma Condensed Combined Financial Statements” for more information.

In particular, the financial information included herein does not reflect the changes that will occur in our funding as a result of the spin-off. Historically, we have been funded primarily through borrowings from SYNNEX, and while those borrowings required that we pay interest to SYNNEX, there is no guarantee that the interest rates paid to third-party financing sources will be the same as the rates paid to SYNNEX. With the exception of these items discussed above, we do not expect any significant changes in the daily operations of our business.

In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”). In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and labor force participation, and created significant volatility and disruption of financial markets. “Shelter-in-place” restrictions by various governments around the world negatively impacted our results of operations for the six months ended May 31, 2020 as many of our employees were unable to work productively for the full period despite client demand. We also incurred incremental costs associated with allowances for doubtful accounts and higher salaries and employee related expenses. We successfully transitioned a signification portion of our workforce to a remote working environment and implemented a number of safety and social distancing measures in our sites to protect the health and safety of employees. At the end of the second quarter of fiscal year 2020, over 90% of our workforce is productive, and we anticipate a return to regular productivity by the end of the third quarter of fiscal year 2020.

The extent of the continued impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration, spread and severity of the pandemic, country and state restrictions regarding virus containment, accessibility to the Company’s delivery and operations locations, our continued utilization of remote work environments in response to future health and safety instructions, the pace at which the Company is able to ramp back to seasonal business levels, and the impact to the Company’s clients’ businesses, all of which are uncertain and cannot be predicted. We are unable to predict how long the pandemic conditions will persist, what additional measures may be introduced by governments or our clients and the effect of any such additional measures on our business. As a result, many of the estimates and assumptions involved in preparation of the interim financial statements included in this Information Statement required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic, our estimates may materially change in future periods. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends.

The separation, which was delayed by SYNNEX due to the focus on managing the economic impact of COVID-19 pandemic, barring further economic disruption, is now expected to be completed in the fourth quarter of calendar year 2020, subject to current economic and capital market trends.

 

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Revenue and Cost of Revenue

We generate revenue through the provision of customer experience solutions to our clients pursuant to client contracts. Our client contracts typically consist of a master services agreement, supported in most cases by multiple statements of work, which contains the terms and conditions of each contracted solution. Our agreements can range from less than one year to over five years in term and are subject to early termination by our clients for any reason, typically with 30 to 90 days’ notice.

The market for customer experience solutions is generally characterized by flat unit prices. Approximately 96% of our revenue is recognized as services are performed based on staffing hours or the number of client customer interactions handled using contractual rates. Remaining revenues are derived from the sale of premise-based and hosted self-care and technology solutions and the provision of professional services. Revenues from the sale of these solutions and provision of services are typically recognized as the services are provided over the duration of the contract using contractual rates.

Our cost of revenue consists primarily of personnel costs related to the delivery of our solutions. The costs of our revenue can be impacted by the mix of client contracts, where we deliver the customer experience solution, additional lead time for programs to be fully scalable and transition and initial set-up costs. Our cost of revenue as a percentage of revenue has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the management of our operating expenses, and the timing and costs incurred related to our acquisitions and investments.

During the six months ended May 31, 2020 and 2019, approximately 79% and 73% of our combined revenue was generated from our non-U.S. operations. In fiscal years 2019, 2018 and 2017, approximately 76%, 69% and 65%, respectively, of our combined revenue was generated from our non-U.S. operations, and we expect this to continue. As a result, our revenue growth and profitability has been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates.

Margins

Our gross margins fluctuate and can be impacted by the mix of client contracts, services provided, shifts in the geography from which our customer experience services are delivered, client volume trends, and the amount of lead time that is required for programs to become fully scaled and transition and set-up costs. Our operating margin fluctuates based on changes in gross margins as well as overall volume levels, as we are able to gain scale efficiencies in our selling, general and administrative costs in periods of higher volume.

Economic and Industry Trends

The customer experience solutions industry in which we operate is competitive. Clients’ performance measures are based on competitive pricing terms and quality of services. Accordingly, we could be subject to pricing pressure and may experience a decrease in revenue and operating income. Our business operates in over 40 countries across 6 continents. We have significant concentrations in the Philippines, India, the United States, the United Kingdom, throughout Europe, China and Japan. Accordingly, we would be impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to the U.S. Dollar.

Seasonality

Our revenue and margins fluctuate with the underlying trends in our clients’ businesses and trends in the level of consumer activity. As a result, our revenues and margins are typically higher in the fourth quarter of the year than in any other quarter.

 

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Critical Accounting Policies and Estimates

The discussion and analysis of our combined financial condition and results of operations are based on our combined financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review and evaluate our estimates and assumptions. Our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies involve the more significant judgments, estimates and/or assumptions used in the preparation of our combined financial statements.

Revenue Recognition

On December 1, 2018, we adopted Accounting Standards Codification Topic 606 applying the full retrospective method. See Note 2 to the combined financial statements included elsewhere in this information statement for information regarding the impact of adopting this new revenue standard.

We recognize revenue from our customer experience solutions contracts over time as the promised services are delivered to clients for an amount that reflects the consideration to which we are entitled in exchange for those services. We account for a contract with a client when it has written approval, the contract is committed, the rights of the parties, including payments terms, are identified, the contract has commercial substance and the consideration is probable of collection. Revenue is presented net of taxes collected from clients and remitted to government authorities. We generally invoice a client after the performance of services, or in accordance with the specific contractual provisions. Payments are due as per contract terms and do not contain a significant financing component. Service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output. We determine whether services performed during the initial phases of an arrangement, such as setup services, are distinct. In most cases, the arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). We record deferred revenue attributable to certain process transition and setup activities where such activities do not represent separate performance obligations. Billings related to such transition activities are classified under contract liabilities and subsequently recognized ratably over the period in which the related services are performed. We apply a measure of progress (typically time-based) to any fixed consideration and allocate variable consideration to the distinct periods of service based on usage. As a result, revenue is generally recognized over the period the services are provided on a usage basis. This results in revenue recognition that corresponds to the benefit to the client of the services transferred relative to the remaining services promised. Revenue on fixed price contracts is recognized on the straight-line basis over the term of contract service as the services are provided. Revenue on unit-price transactions is recognized using an objective measure of output including staffing hours or the number of transactions processed by service staff. Client contract terms can range from less than one year to more than five years.

Certain client contracts include additional payments from the client based upon the achievement of certain agreed-upon service levels and performance metrics. Certain contracts also provide for a reduction in consideration paid to the Company in the event that certain agreed-upon service levels or performance metrics are not achieved. Revenue related to such arrangements is accounted for as variable consideration when the likely amount of revenue to be recognized can be estimated to the extent that it is unlikely that a significant reversal will occur.

 

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Business Combinations

We allocate the fair value of purchase consideration to the assets acquired and liabilities assumed generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The determination of the fair value of assets and liabilities may involve engaging independent third parties to perform an appraisal. When determining the fair values of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, and discount rates. Fair value estimates are based on the assumptions we believe a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available. At November 30, 2019, the measurement period has ended for all acquisitions.

Acquisitions

We continually seek to augment organic growth with strategic acquisitions of businesses and assets that complement and expand our existing capabilities. Recent acquisitions have sought to enhance our capabilities and domain expertise in our key verticals, expand our geographic footprint, and further expand into higher value service offerings. We are also strategically focused on further increasing our scale to support our clients.

The Convergys Acquisition

On October 5, 2018, we acquired 100% of Convergys Corporation (“Convergys”), a customer experience outsourcing company with approximately $2.7 billion in annual revenue for a purchase price of approximately $2.3 billion plus the assumption of outstanding debt. The acquisition added scale, diversified our revenue base, expanded our service delivery footprint, and strengthened our leadership position as a top global provider of customer experience services. The purchase price was paid as a combination of approximately $1.25 billion in cash and the issuance of $1.02 billion in SYNNEX stock.

The Tigerspike Acquisition

On July 31, 2017, we acquired 100% of Tigerspike Pty Ltd., a digital products company incorporated in Australia, specializing in strategy, experience design, development, and systems integration, for $67.0 million, after certain post-closing adjustments.

Goodwill

At May 31, 2020, we have goodwill of $1,815.7 million recorded on our combined balance sheet. We test goodwill for impairment annually, and at other times if events have occurred or circumstances exist that indicate that the carrying value of goodwill may no longer be recoverable. Based on our qualitative assessment in 2019, we concluded that it was not more likely than not that the fair value of our reporting unit was less than its carrying value. We have not recorded any impairment charges related to goodwill during the three-year period ended November 30, 2019 or during the six months ended May 31, 2020.

Other Intangible Assets

At May 31, 2020, we had other intangible assets, net of amortization, with a carrying value of $855.8 million. This amount consists primarily of $851.9 million in client relationships. We evaluate the intangible assets for recoverability on an annual basis or if events or circumstances indicate a possible inability to recover their carrying value, by comparing estimates of undiscounted future cash flows to the carrying values of

 

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the related assets. Based on the result of our testing, no impairment charges were recognized during the three-year period ended November 30, 2019 or during the six months ended May 31, 2020.

Recently Issued Accounting Pronouncements

For a summary of recent accounting pronouncements and the anticipated effects on our combined financial statements, see Note 2—Summary of Significant Accounting Policies to the combined financial statements included elsewhere in this information statement.

Results of Operations – Six months ended May 31, 2020 and 2019

 

     Six Months Ended  
     May 31, 2020            May 31, 2019  
  

 

 

   

 

 

    

 

 

 
     (in thousands)  

Revenue

  

Customer experience services

   $ 2,244,884        $ 2,324,585  

Customer experience services to Parent

     10,098          9,563  
  

 

 

   

 

 

    

 

 

 

Total revenue

     2,254,982          2,334,148  

Cost of revenue

       

Cost of revenue for customer experience services

     1,458,447          1,464,742  

Cost of revenue related to services to Parent

     6,175          5,570  
  

 

 

   

 

 

    

 

 

 

Gross profit

     790,360          863,836  

Selling, general and administrative expenses

     (678,569        (740,983
  

 

 

   

 

 

    

 

 

 

Operating income

     111,791          122,853  

Interest expense (primarily related to borrowings from Parent) and finance charges, net

     (30,513        (46,801

Other income (expense), net

     4,876          231  
  

 

 

   

 

 

    

 

 

 

Income before income taxes

     86,154          76,283  

Provision for income taxes

     (31,367        (21,320
  

 

 

   

 

 

    

 

 

 

Net income

   $ 54,787        $ 54,963  
  

 

 

   

 

 

    

 

 

 

Revenue

 

    

 

     Six Months Ended      Percent Change  
            May 31, 2020      May 31, 2019      2020 to 2019  
            (in thousands)         

Industry vertical:

           

Technology and consumer electronics

      $ 651,910      $ 623,921        4.5

Communications and media

        474,248        587,286        -19.2

Retail, travel and ecommerce

        367,294        374,214        -1.8

Banking, financial services and insurance

        360,987        334,958        7.8

Healthcare

        182,290        180,373        1.1

Other

        218,254        233,396        -6.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 2,254,982      $ 2,334,148        -3.4
  

 

 

    

 

 

    

 

 

    

 

 

 

We generate revenue by delivering our customer experience solutions to our clients categorized in the above primary industry verticals. These solutions focus on customer engagement, process optimization, and back-office automation. Included in our revenue is $10.1 million and $9.6 million for customer experience solutions that we delivered to SYNNEX during the six months ended May 31, 2020 and 2019, respectively.

 

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Our revenue decreased 3.4% in the six months ended May 31, 2020, compared to the six months ended May 31, 2019, primarily reflecting the impact of “shelter in place” restrictions in response to COVID-19 in various countries in which we operate. These restrictions adversely impacted the ability of many of our employees to work productively for the full period despite client demand. Revenue from clients in our technology and consumer electronics vertical increased as a result of increased volumes from several hardware and software manufacturing clients. These increases were partially offset by a small decrease in revenue from our largest client in the vertical and a few other hardware and software manufacturing clients. Revenue from clients in our communications and media vertical decreased primarily due to a decrease in revenues from our largest client in this vertical caused by a combination of lower volumes, more services provided from our offshore locations and COVID-19 impacts on our employees’ ability to work productively despite client demand. Revenue from clients in our retail, travel and ecommerce vertical decreased due to reduced volumes from several travel and tourism clients, partially offset by increased volume from a few retail and ecommerce clients. Revenues from clients in the banking, financial services and insurance vertical increased due to increased volumes from several clients in the vertical. Revenues from clients in our healthcare vertical increased due to an increase in volumes with a few health insurance clients, partially offset by decreases in volumes from a few health insurance clients. Revenues from clients in our other vertical decreased reflecting a decrease in revenues from our largest automotive client and few other automotive clients, partially offset by growth with a few government clients. The decrease in revenues includes the negative translation effect of foreign currencies of $29.8 million. The negative foreign currency translation effect on revenue was primarily due to the weakening of the Brazilian real, Australian dollar, British pound and euro against the U.S. dollar.

Cost of Revenue, Gross Profit and Gross Margin Percentage

 

     Six Months Ended     Percent Change  
     May 31, 2020     May 31, 2019     2020 to 2019  
     ($ in thousands)        

Cost of revenue

   $ 1,464,622     $ 1,470,312       -0.4

Gross profit

     790,360       863,836       -8.5

Gross margin %

     35.0     37.0  

Cost of revenue consists primarily of personnel costs. Gross margins can be impacted by resource location, client mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs. Additionally, for the six months ended May 31, 2020 gross margin was impacted by COVID-19 by the cost of employees who were unable to work productively for the entire period and additional costs incurred related to our response to COVID-19.

Our cost of revenue decreased by 0.4% in the six months ended May 31, 2020 compared to the six months ended May 31, 2019, primarily due to the decrease in revenue, reductions in employee training, recruiting and transportation costs, and a net favorable foreign currency impact of $14.4 million on the cost of revenue. The net favorable foreign currency impact on the cost of revenue was caused primarily by the weakening of the Indian Rupee, the Brazilian real, the Australian dollar and the British pound against the U.S. dollar, partially offset by the strengthening of the Philippine Peso against the U.S. dollar. These decreases were partially offset by the incremental impact of approximately $46 million in COVID-19 related non-productive workforce and other costs.

Our gross profit decreased 8.5% in the six months ended May 31, 2020 compared to the six months ended May 31, 2019 primarily due to the decrease in revenue, the incremental impact of COVID-19 related non-productive workforce and other costs, and a net unfavorable foreign currency impact of $15.4 million on gross profit. In addition, our gross margin was temporarily impacted by decreased productivity as we transitioned some of our employees to work-from-home. These factors caused our gross margin in the six months ended May 31, 2020 to decrease to 35.0% from 37.0% in the six months ended May 31, 2019.

 

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Selling, General and Administrative Expenses

 

     Six Months Ended     Percent Change  
     May 31, 2020     May 31, 2019     2020 to 2019  
     ($ in thousands)        

Selling, general and administrative expenses

   $ 678,569     $ 740,983       -8.4

Percentage of revenue

     30.1     31.7  

Our selling, general and administrative expenses consist primarily of support personnel costs such as salaries, commissions, bonuses, employee benefits and share-based compensation costs. Selling, general and administrative expenses also include cost of our global delivery facilities, utility expenses, hardware and software costs related to our technology infrastructure, legal and professional fees, depreciation on our technology and facility equipment, amortization of intangible assets resulting from acquisitions, marketing expenses, and acquisition-related transaction and integration expenses.

Our selling, general and administrative expenses decreased in the six months ended May 31, 2020 compared to the six months ended May 31, 2019 due to a $24.9 million decrease in acquisition-related and integration expenses, a $10.2 million decrease in amortization of intangible assets included in selling, general and administrative expenses, reductions in various cost areas as a result of our response to COVID-19 and increased cost efficiencies related to Convergys acquisition synergies. The decreases were partially offset by incremental COVID-19 costs of approximately $7 million. These factors resulted in a decrease in selling, general and administrative expenses as a percentage of revenue to 30.1% in the six months ended May 31, 2020 from 31.7% in the six months ended May 31, 2019.

Operating Income

 

     Six Months Ended     Percent Change  
     May 31, 2020     May 31, 2019     2020 to 2019  
     ($ in thousands)        

Operating income

   $ 111,791     $ 122,853       -9.0

Operating margin

     5.0     5.3  

Our operating income and operating margin decreased during the six months ended May 31, 2020 six months ended May 31, 2020, reflecting decreases in gross profit and gross margin, partially offset by the reduction in selling, general and administrative expenses as a percentage of revenue, as discussed above.

Interest Expense and Finance Charges, Net

 

     Six Months Ended     Percent Change  
     May 31, 2020            May 31, 2019     2020 to 2019  
     ($ in thousands)        

Interest expense and finance charges, net

   $ 30,513        $ 46,801       -34.8

Percentage of revenue

     1.4        2.0  

Amounts recorded in interest expense and finance charges, net, consist entirely of interest on borrowings from SYNNEX, net of interest income. Net interest expense on borrowings from and to SYNNEX was $30,876 in the six months ended May 31, 2020 compared to $48,220 in the six months ended May 31, 2019. The reduction in interest expense on borrowings from and to SYNNEX reflects the reduction of outstanding borrowings from SYNNEX in the first half of 2020 as compared to the first half of 2019 due to our repayment of borrowings during 2019.

 

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Other Income (Expense), Net

 

     Six Months Ended     Percent Change  
     May 31, 2020     May 31, 2019     2020 to 2019  
  

 

 

   

 

 

   

 

 

 
     ($ in thousands)        

Other income (expense), net

   $ 4,876     $ 231       2010.8

Percentage of revenue

     0.2     0.1  

Amounts recorded as other income (expense), net include foreign currency transaction gains and losses, other than cash flow hedges, investment gains and losses, non-service component of pension costs, and other non-operating gains and losses.

Other income (expense), net in the six months ended May 31, 2020 was income of $4.9 million compared to $0.2 million for the six months May 31, 2019. The change in other income (expense) was due to the favorable resolution of a previously-recognized tax indemnity obligation in the first half of 2020 and an increase in net foreign currency gains.

Provision for Income Taxes

 

     Six Months Ended     Percent Change  
     May 31, 2020     May 31, 2019     2020 to 2019  
     ($ in thousands)        

Provision for income taxes

   $ 31,367     $          21,320       47.1

Percentage of income before income taxes

     36.4        27.9  

Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and international jurisdictions. Although we have been included in the consolidated tax returns of SYNNEX in certain jurisdictions, our tax provisions included herein has been recorded as if we had filed our taxes on a stand-alone basis. Our tax expense was increased for the six months ended May 31, 2020 and May 31, 2019 by an adjustment of $6.1 million and $5.5 million, respectively, to reflect the hypothetical tax impact if Concentrix was not part of SYNNEX’ U.S. consolidated group and therefore suffered higher taxes under the Tax Cuts and Jobs Act of 2017 (“TCJA”) and a higher U.S. foreign tax credit limitation. The offset to the hypothetical tax expense in both periods is reflected in the Parent company investment line of the Equity section of our combined balance sheet.

Our income tax expense increased during the six months ended May 31, 2020 compared to the six months ended May 31, 2019 due to the increase in our income before taxes for the six months ended May 31, 2020 and due to a reduction in reserves for uncertain tax positions and a downward adjustment to the provision for the transition tax related to mandatory repatriation under the TCJA for the six months ended May 31, 2019. The effective tax rate for the six months ended May 31, 2020 increased compared to the effective tax rate for the six months ended May 31, 2019 due to benefits recorded in the six months ended May 31, 2019 related to a reduction in reserves for uncertain tax positions and a downward adjustment to the provision for the transition tax related to mandatory repatriation under the TCJA.

 

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Results of Operations—Years ended November 30, 2019, 2018 and 2017

 

     Fiscal Years Ended November 30,  
     2019     2018     2017  
     (in thousands)  

Revenue

      

Customer experience services

   $ 4,687,327     $ 2,444,867     $ 1,974,830  

Customer experience services to Parent

     20,585       18,284       15,350  
  

 

 

   

 

 

   

 

 

 

Total revenue

     4,707,912       2,463,151       1,990,180  

Cost of revenue

      

Cost of revenue for customer experience services

     2,946,664       1,514,470       1,232,666  

Cost of revenue related to services to Parent

     12,800       11,129       8,360  
  

 

 

   

 

 

   

 

 

 

Gross profit

     1,748,448       937,552       749,154  

Selling, general and administrative expenses

     (1,454,116     (792,791     (634,531
  

 

 

   

 

 

   

 

 

 

Operating income

     294,332       144,761       114,623  

Interest expense (primarily related to borrowings from Parent) and finance charges, net

     (92,196     (38,239     (24,020

Other income (expense), net

     2,280       4,386       (2,326
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     204,416       110,908       88,277  

Provision for income taxes

     (87,252     (62,637     (16,027
  

 

 

   

 

 

   

 

 

 

Net income

   $ 117,164     $ 48,271     $ 72,250  
  

 

 

   

 

 

   

 

 

 

As discussed above, certain comparisons of the year-over-year changes in revenue, cost of revenue and selling, general and administrative expenses below refer to the changes in amounts as if the Convergys acquisition had occurred at the beginning of the earliest period presented. See the earlier discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 3 of the combined financial statements included elsewhere in this information statement for additional discussion of the pro forma financial information as if the acquisition of Convergys had occurred at the beginning of the earliest period presented.

Revenue

 

     Fiscal Years Ended November 30,      Percent
Change
    Percent
Change
 
     2019      2018      2017      2019 to 2018     2018 to 2017  
     (in thousands)               

Industry vertical:

             

Technology and consumer electronics

   $ 1,283,084      $ 880,958      $ 697,206        45.6     26.4

Communications and media

     1,142,242        345,455        195,279        230.6     76.9

Retail, travel and ecommerce

     763,265        376,622        258,987        102.7     45.4

Banking, financial services and insurance

     676,246        350,322        289,746        93.0     20.9

Healthcare

     369,187        184,376        145,048        100.2     27.1

Other

     473,888        325,418        403,914        45.6     (19.4 )% 
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 4,707,912      $ 2,463,151      $ 1,990,180        91.1     23.8
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

We generate revenue by delivering our customer experience solutions to our clients categorized in the above primary industry verticals. These solutions focus on customer engagement, process optimization, and back-office automation. Included in our revenue is $20.6 million, $18.3 million and $15.4 million for customer experience solutions that we delivered to SYNNEX during fiscal years 2019, 2018 and 2017, respectively.

 

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Our revenue increased 91.1% in fiscal year 2019, compared to fiscal year 2018, primarily due to the full year impact of the acquisition of Convergys in October 2018. If the Convergys acquisition had occurred at the beginning of fiscal year 2018, our revenue would have increased by 0.3% in fiscal year 2019, compared to revenue of $4,695,634 in fiscal year 2018. All vertical categories increased in fiscal year 2019 compared to fiscal year 2018 due to the acquisition of Convergys in October 2018. In the communications and media vertical, the increase was partially offset by a decrease in revenue from certain clients in the vertical. The remaining verticals experienced growth in addition to the benefit from the Convergys acquisition. The increase in revenue was partially offset by the negative translation effect of foreign currencies. The negative foreign currency translation effect on revenue was primarily due to the weakening of the euro, British pound and Australian dollar against the U.S. dollar.

Our revenue increased 23.8% in fiscal year 2018, compared to fiscal year 2017, primarily due to the acquisition of Convergys in October 2018. Convergys contributed approximately $439.4 million of revenue in fiscal year 2018. All vertical categories increased in fiscal year 2018 compared to fiscal year 2017 due to the acquisition of Convergys in October 2018. Our revenue from clients in technology and consumer electronics and retail, and travel and ecommerce verticals experienced growth in addition to the benefit from the Convergys acquisition. Our revenue from clients in the other vertical decreased in fiscal year 2018 from 2017 primarily due to a reduction in volumes with an automotive client due to the completion of a recall program, partially offset by increases due to the Convergys acquisition. Fluctuations in foreign currency exchange rates did not have a meaningful effect on revenues in fiscal year 2018 compared to fiscal year 2017.

Cost of Revenue, Gross Profit and Gross Margin Percentage

 

     Fiscal Years Ended November 30,     Percent Change     Percent Change  
     2019     2018     2017     2019 to 2018     2018 to 2017  
     ($ in thousands)              

Cost of revenue

   $ 2,959,464     $ 1,525,599     $ 1,241,026       94.0     22.9

Gross profit

     1,748,448       937,552       749,154       86.5     25.1

Gross margin %

     37.1     38.1     37.6    

Cost of revenue consists primarily of personnel costs. Gross margins can be impacted by resource location, client mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs.

Our cost of revenue increased by 94.0% in fiscal year 2019 compared to fiscal year 2018, primarily due to the full year impact of the acquisition of Convergys in October 2018, including changes in business mix with the addition of the Convergys business and net unfavorable foreign currency impacts caused primarily by the strengthening of the Philippine Peso and the Indian Rupee. If the Convergys acquisition had occurred at the beginning of fiscal year 2018, our cost of revenue would have increased by 1.4% in fiscal year 2019, compared to cost of revenue of $2,919,312 in fiscal year 2018.

Our gross profit increased 86.5% in 2019, primarily due to the full year impact of the Convergys acquisition, partially offset by negative foreign currency impacts. Our gross margin in 2019 was 37.1%, compared to 38.1% in 2018 due to changes in business mix and negative foreign currency impacts.

Our cost of revenue increased by 22.9% in fiscal year 2018 compared to fiscal year 2017 primarily due to the acquisition of Convergys in October 2018. If the Convergys acquisition had occurred at the beginning of fiscal year 2017, our cost of revenue would have decreased by 3.0% from $3,005,913 in fiscal year 2017 to $2,919,312 in fiscal year 2018.

Our gross profit increased 25.1% in fiscal year 2018 compared to fiscal year 2017 primarily due to the acquisition of Convergys in October 2018, changes in business mix and net favorable foreign currency translation. The net favorable foreign currency translation impact resulted from a strengthening of the British

 

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Pound and the Euro and a weakening of the Philippine Peso and Indian Rupee. Our gross margin in fiscal year 2018 was 38.1% compared to 37.6% in fiscal year 2017, reflecting the acquisition of Convergys in October 2018, changes in business mix and net favorable foreign currency translation.

Selling, General and Administrative Expenses

 

     Fiscal Years Ended November 30,     Percent Change     Percent Change  
     2019     2018     2017     2019 to 2018     2018 to 2017  
     ($ in thousands)              

Selling, general and administrative expenses

   $ 1,454,116     $ 792,791     $ 634,531       83.4     24.9

Percentage of revenue

     30.9     32.2     31.9    

Our selling, general and administrative expenses consist primarily of support personnel costs such as salaries, commissions, bonuses, employee benefits and share-based compensation costs. Selling, general and administrative expenses also include cost of our global delivery facilities, utility expenses, hardware and software costs related to our technology infrastructure, legal and professional fees, depreciation on our technology and facility equipment, amortization of intangible assets resulting from acquisitions, marketing expenses, and acquisition-related transaction and integration expenses.

Our selling, general and administrative expenses increased in fiscal year 2019 compared to 2018 primarily due to the full year impact of the Convergys acquisition in October 2018, and an increase in acquisition-related and integration expenses to $70.5 million in fiscal year 2019 from $37.5 million in 2018. In addition, amortization of intangible assets included in selling, general and administrative expenses increased to $166.6 million in fiscal year 2019 from $74.3 million in fiscal year 2018, reflecting the full year impact of the Convergys acquisition. These increases were partially offset by operational efficiencies, primarily synergies resulting from the integration of Convergys. Scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of revenue in fiscal year 2019, compared to fiscal year 2018. If the Convergys acquisition had occurred at the beginning of fiscal year 2018, our selling, general and administrative expenses would have decreased by 6.1% in fiscal year 2019, compared to $1,547,797 in fiscal year 2018, reflecting cost synergies. The $1,547,797 comparative amount for fiscal year 2018 reflects the sum of (a) $765,161 of Convergys selling, general and administrative expenses for the relevant period of fiscal year 2018 prior to the Company’s acquisition of Convergys, (b) $792,792 of Company selling, general and administrative expenses for fiscal year 2018, and (c) adjustments of $64,142 for incremental amortization of acquisition-related intangibles and $(74,298) for acquisition-related transaction costs.

Our selling, general and administrative expenses increased, in both amount and as a percentage of revenue in fiscal year 2018 compared to fiscal year 2017, primarily due to the acquisition of Convergys in October 2018, and acquisition-related and integration expenses of $37.5 million. In addition, amortization of intangible assets included in selling, general and administrative expenses increased to $74.3 million in fiscal year 2018 from $64.3 million in fiscal year 2017, reflecting the acquisition of Convergys in October 2018. These increases were partially offset by operational efficiencies. The increase in acquisition-related and integration expenses and amortization of intangibles resulted in an increase in selling, general and administrative expenses as a percent of revenue in fiscal year 2018 as compared to fiscal year 2017. If the Convergys acquisition had occurred at the beginning of fiscal year 2017, our selling, general and administrative expenses would have decreased by 1.8% from $1,574,996 in fiscal year 2017 to $1,547,797 in fiscal year 2018, primarily reflecting cost synergies. The $1,574,996 comparative amount for fiscal year 2017 reflects the sum of (a) $854,416 of Convergys selling, general and administrative expenses for fiscal year 2017, (b) $634,531 of Company selling, general and administrative expenses for fiscal year 2017, and (c) adjustments of $86,049 for incremental amortization of acquisition-related intangibles.

 

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Operating Income

 

     Fiscal Years Ended November 30,     Percent Change     Percent Change  
     2019     2018     2017     2019 to 2018     2018 to 2017  
     ($ in thousands)              

Operating income

   $ 294,332     $ 144,761     $ 114,623       103.3     26.3

Operating margin

     6.3     5.9     5.8    

Our operating income and operating margin increased during fiscal year 2019, compared to fiscal year 2018, due to the full year impact of the Convergys acquisition and integration synergies achieved during the year. These increases were partially offset by higher acquisition-related and integration expenses and the amortization of intangible assets, as compared to fiscal year 2018.

Our operating income and operating margin increased during fiscal year 2018, compared to fiscal year 2017, due to the Convergys acquisition and integration synergies. These increases were partially offset by increased acquisition-related and integration expenses and increased amortization of intangible assets, as compared to fiscal year 2017.

Interest Expense and Finance Charges, Net

 

     Fiscal Years Ended November 30,     Percent Change     Percent Change  
     2019     2018     2017     2019 to 2018     2018 to 2017  
     ($ in thousands)              

Interest expense and finance charges, net

   $ 92,196     $ 38,239     $ 24,020       141.1     59.2

Percentage of revenue

     2.0     1.6     1.2    

Amounts recorded in interest expense and finance charges, net, consist primarily of interest on borrowings from SYNNEX, interest on convertible debentures assumed in the Convergys acquisition and interest on capital lease obligations. Net interest expense on borrowings from and to SYNNEX was $93,330 in fiscal year 2019 compared to $38,805 in fiscal year 2018 and $24,654 in fiscal year 2017.

The increase in our interest expense and finance charges, net in fiscal year 2019, compared to fiscal year 2018, was due to the full year impact of additional borrowings from SYNNEX to fund the Convergys acquisition and the convertible debentures that we assumed in the Convergys acquisition that were outstanding for a portion of fiscal year 2019.

The increase in our interest expense in fiscal year 2018, compared to fiscal year 2017, was due to higher interest expense as a result of additional borrowings from SYNNEX to fund the Convergys acquisition in October 2018 and the convertible debentures that were assumed in the Convergys acquisition.

Other Income (Expense), Net

 

     Fiscal Years Ended November 30,     Percent Change     Percent Change  
         2019             2018             2017         2019 to 2018     2018 to 2017  
     ($ in thousands)              

Other income (expense), net

   $ 2,280     $ 4,386     $ (2,326     (48.0 )%      288.6

Percentage of revenue

     0.1     0.2     (0.1 )%     

Amounts recorded as other income (expense), net include foreign currency transaction gains and losses, other than cash flow hedges, investment gains and losses, non-service component of pension costs, and other non-operating gains and losses, such as changes in the fair value of convertible debt conversion spread.

 

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Other income (expense), net in fiscal year 2019 was income of $2.3 million, a change from income of $4.4 million in fiscal year 2018. The change in other income (expense) was due to the recognition in 2018 of $10.0 million in gains related to changes in the fair value of the conversion spread of the convertible debentures that we assumed in the acquisition of Convergys and extinguishment gains on the settlement of a portion of those debentures. This decrease in other income (expense) was partially offset by an increase in foreign currency translation gains in 2019.

Other income (expense), net was income of $4.4 million in fiscal year 2018 a change from expense of $2.3 in fiscal year 2017. The primary reason for the change was $10.0 million in gains related to changes in the fair value of the conversion spread of the convertible debentures that we assumed in the Convergys acquisition and extinguishment gains on settlement of a portion of those debentures. Partially offsetting those gains were losses from changes in foreign currency rates and an increase in the non-service component of pension costs due to the acquisition of Convergys in October 2018.

Provision for Income Taxes

 

     Fiscal Years Ended November 30,     Percent
Change
    Percent
Change
 
     2019     2018     2017     2019 to 2018     2018 to 2017  
     ($ in thousands)              

Provision for income taxes

   $ 87,252     $ 62,637     $ 16,027       39.3     290.8

Percentage of income before income taxes

     42.7     56.5     18.2    

Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and international jurisdictions. Although we have been included in the consolidated tax returns of SYNNEX in certain jurisdictions, our tax provisions included herein has been recorded as if we had filed our taxes on a stand-alone basis. Income taxes were negatively impacted due to limits to deductions which we do not expect post-separation.

Our income tax expense increased during fiscal year 2019 compared to fiscal year 2018 due to the increase in our income before taxes. The effective tax rate for fiscal year 2019 decreased compared to fiscal year 2018 primarily due to the impact of the reduction in federal income tax rates due to the TCJA and the mix of income earned in different tax jurisdictions. Additionally, the effective tax rate in fiscal year 2019 decreased compared to the rate in fiscal year 2018 due to the discrete impact of a net tax charge of $22.6 million related to the TCJA in fiscal year 2018. This adjustment included $30.5 million of transition tax expense for mandatory repatriation, partially offset by $7.9 million of tax benefit from the remeasurement of our net deferred tax balance to the new U.S. tax rate enacted under the TCJA.

Our income tax expense increased in fiscal year 2018 compared to fiscal year 2017 due to the increase in our income before taxes. The effective tax rate for fiscal year 2018 increased compared to fiscal year 2017 due to non-deductible expenses related to the acquisition of Convergys in October 2018 and the discrete net tax charge of $22.6 million related to the TCJA in 2018. These increases were partially offset by the reduction in federal income tax rates due to the TCJA and the mix of income earned in different jurisdictions.

Our tax expense in fiscal year 2019 was increased by an adjustment of $23.8 million ($33.4 million current tax expense offset by ($9.6) million deferred tax benefit) to reflect the hypothetical tax impact if Concentrix was not part of SYNNEX’ U.S. consolidated group and thereby suffered a much higher U.S. foreign tax credit limitation. The offset to the $23.8 million hypothetical tax expense is reflected in the Parent company investment line of the Equity section of our combined balance sheet. The hypothetical tax expense was applied only to our tax expense in fiscal year 2019 because the hypothetical expense relates to changes to tax law under the TCJA that were not applicable to the Company’s tax expense in fiscal year 2018 or 2017.

See Note 12—Income Taxes to the combined financial statements included elsewhere in this information statement for further details.

 

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Certain non-GAAP financial information

In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including:

 

   

Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue of each fiscal year in the billing currency using their comparable prior year’s currency conversion rate. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.

 

   

Non-GAAP operating income, which is operating income, adjusted to exclude acquisition-related and integration expenses, including related restructuring costs, amortization of intangible assets and share-based compensation.

 

   

Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue.

 

   

Adjusted earnings before interest, taxes, depreciation, and amortization, or adjusted EBITDA, which is non-GAAP operating income, as defined above, plus depreciation.

 

   

Adjusted EBITDA margin, which is adjusted EBITDA, as defined above, divided by revenue.

 

   

Non-GAAP net income, which is net income excluding (i) the tax effected impact of acquisition-related and integration expenses, including related restructuring costs, amortization of intangible assets and share-based compensation, and (ii) the net impact of the adjustments related to the TCJA.

 

   

Free cash flow, which is cash flows from operating activities less capital expenditures. We believe that free cash flow is a meaningful measure of cash flows since capital expenditures are a necessary component of ongoing operations. However, free cash flow has limitations because it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate payments for business acquisitions.

We believe that providing this additional information is useful to the reader to better assess and understand our base operating performance, especially when comparing results with previous periods and for planning and forecasting in future periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes. These non-GAAP financial measures exclude amortization of intangible assets. Our acquisition activities have resulted in the recognition of intangible assets, which consist primarily of client relationships, technology and trade names. Finite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in our statements of operations. Although intangible assets contribute to our revenue generation, the amortization of intangible assets does not directly relate to the services performed for our clients. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of our acquisition activity. Accordingly, we believe excluding the amortization of intangible assets, along with the other non-GAAP adjustments which neither relate to the ordinary course of our business nor reflect our underlying business performance, enhances our and our investors’ ability to compare our past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within our GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised. These

 

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non-GAAP financial measure also exclude share-based compensation expense. Given the subjective assumptions and the variety of award types that companies can use when calculating share-based compensation expense, management believes this additional information allows investors to make additional comparisons between our operating results and those of our peers. As these non-GAAP financial measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

 

    Six Months Ended     Fiscal Years Ended November 30,  
    May 31,
2020
    May 31,
2019
    2019     2018     2017  
                ($ in thousands)  

Revenue

  $ 2,254,982     $ 2,334,148     $ 4,707,912     $ 2,463,151     $ 1,990,180  

Foreign currency translation

    29,827         53,744       (5,292  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue in constant currency

  $ 2,284,809     $ 2,334,148     $ 4,761,656     $ 2,457,859     $ 1,990,180  

Operating income

  $ 111,791     $ 122,853     $ 294,332     $ 144,761     $ 114,623  

Acquisition-related and integration expenses

    19,056       43,231       70,473       37,490       1,057  

Amortization of intangibles

    73,357       83,752       166,606       74,324       64,252  

Share-based compensation

    8,102       4,374       10,554       7,740       5,244  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating income

  $ 212,306     $ 254,210     $ 541,965     $ 264,315     $ 185,176  
         

Net income

  $ 54,787     $ 54,963     $ 117,164     $ 48,271     $ 72,250  

Interest expense and finance charges, net

    30,513       46,801       92,196       38,239       24,020  

Provision for income taxes

    31,367       21,320       87,252       62,637       16,027  

Other (income) expense

    (4,876     (231     (2,280     (4,386     2,326  

Acquisition-related and integration expenses

    19,056       43,231       70,473       37,490       1,057  

Amortization of intangibles

    73,357       83,752       166,606       74,324       64,252  

Share-based compensation

    8,102       4,374       10,554       7,740       5,244  

Depreciation (excluding accelerated depreciation included in acquisition-related and integration expenses above)

    61,822       69,404       134,823       80,274       65,616  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 274,128     $ 323,614     $ 676,788     $ 344,589     $ 250,792  

Operating margin

    5.0     5.3     6.3     5.9     5.8

Non-GAAP operating margin

    9.4     10.9     11.5     10.7     9.3

Adjusted EBITDA margin

    12.2     13.9     14.4     14.0     12.6

Net income

  $ 54,787     $ 54,963     $ 117,164     $ 48,271     $ 72,250  

Acquisition-related and integration expenses

    19,056       43,231       70,473       37,490       1,057  

Amortization of intangibles

    73,357       83,752       166,606       74,324       64,252  

Share-based compensation

    8,102       4,374       10,554       7,740       5,244  

Income taxes related to the above(1)

    (24,594     (31,953     (60,118     (29,903     (17,924

U.S. tax reform adjustments

    —         —         —         22,626       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

  $ 130,708     $ 154,367     $ 304,679     $ 160,548     $ 124,879  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

The tax effect of taxable and deductible non-GAAP adjustments was calculated using the tax deductible portion of the expenses and applying the entity-specific, statutory tax rates applicable to each item during the respective fiscal years.

 

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Liquidity and Capital Resources

Cash Flows – Six months ended May 31, 2020 and 2019

The following summarizes our cash flows for the six months ended May 31, 2020 and 2019, as reported in our combined statement of cash flows in the accompanying combined financial statements.

 

     Six Months Ended  
     May 31,
2020
    May 31,
2019
 
     ($ in thousands)  

Net cash provided by operating activities

   $ 297,201     $ 217,696  

Net cash used in investing activities

     (66,384     (74,463

Net cash provided by (used in) financing activities

     (212,936     (207,080

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     (3,178     1,210  
  

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

   $ 14,703     $ (62,637

Cash, cash equivalents and restricted cash at beginning of year

     83,514       127,884  
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at the end of the period

   $ 98,217     $ 65,246  
  

 

 

   

 

 

 

Our primary uses of cash are working capital, capital expenditures to expand our delivery footprint and enhance our technology solutions, and acquisitions. Our financing needs for these uses of cash have been a combination of operating cash flows and related party borrowings from SYNNEX. Our working capital needs are primarily to finance accounts receivable. When our revenues are increasing, our net investment in working capital typically increases. Conversely, when revenue is decreasing, our net investment in working capital typically decreases. To increase our market share and better serve our clients, we may further expand our operations through investments or acquisitions. We expect that such expansion would require an initial investment in working capital, personnel, facilities, and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, additional borrowings, or the issuance of securities.

Operating Activities

Net cash provided by operating activities was $297.2 million in the first half of 2020 primarily generated from our net income of $54.8 million and adjustments for non-cash items of $142.1 million, a decrease in accounts receivable of $44.6 million and a net change in other operating assets and liabilities of $60.3 million. The adjustments for non-cash items primarily consist of $135.3 million of depreciation and amortization expense, $6.1 million of hypothetical current tax expense recorded for separate tax return basis presentation, a $6.1 million provision for doubtful accounts and share-based compensation of $8.0 million, partially offset by a deferred tax impact of $11.2 million.

Net cash provided by operating activities was $217.7 million in the first half of 2019, primarily generated from our net income of $55.0 million, adjustments for non-cash items of $160.7 million, a decrease in accounts receivable of $50.5 million and changes in amounts due to/from SYNNEX of $49.4 million. These increases were partially offset by changes in other operating assets and liabilities of $94.0 million. The adjustments for non-cash items primarily consist of $157.0 million of depreciation and amortization expense, $5.5 million of hypothetical current tax expense recorded for separate tax return basis presentation and $4.3 million in share-based compensation, partially offset by $11.0 million in deferred income taxes.

Investing Activities

Net cash used in investing activities in the first half of 2020 was $66.4 million, primarily for $69.2 million of capital expenditures to support our growth less repayment received of $5.5 million related to a loan to a non-Concentrix subsidiary of Parent as part of its centralized treasury operations and $2.6 million in payments related to the acquisition of Convergys.

 

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Net cash used in investing activities in the first half of 2019 was $74.5 million, primarily for $43.5 million of capital expenditures to support our growth, repayment of a loan of $24.7 million related to a loan from a non-Concentrix subsidiary of Parent as part of its centralized treasury operations and $6.2 million in payments related to the acquisition of Convergys.

Financing Activities

Net cash used by financing activities in the first half of 2020 was $212.9 million, consisting entirely of repayments on borrowings from SYNNEX.

Net cash used by financing activities in the first half of 2019 was $207.1 million, consisting of $148.0 million in repayments of convertible debentures assumed in the Convergys acquisition, net of $59.1 million of borrowings from SYNNEX.

We believe our current cash balances and credit availability are enough to support our operating activities for at least the next twelve months.

Free Cash Flow (a non-GAAP measure)

 

     Six Months Ended  
     May 31,
2020
    May 31,
2019
 
     ($ in thousands)  

Net cash provided by operating activities

   $ 297,201     $ 217,696  

Purchases of property and equipment

     (69,241     (43,530
  

 

 

   

 

 

 

Free cash flow (a non-GAAP measure)

   $ 227,960     $ 174,166  
  

 

 

   

 

 

 

Our free cash flow was $228.0 million in the first half of 2020 compared to $174.2 million in the first half of 2019. The increase in free cash flow in the first half of 2020 primarily reflects increased net cash provided by operating activities as a result of the net decrease in other operating assets and liabilities in the first half of 2020 as compared to the net increase in other operating assets and liabilities in the first half of 2019, partially offset by an increase in capital expenditures to support our growth.

Cash Flows—Years ended November 30, 2019, 2018 and 2017

The following summarizes our cash flows for the three years ended November 30, 2019, 2018 and 2017, as reported in our combined statement of cash flows in the accompanying combined financial statements.

 

     Fiscal Year Ended November 30,  
     2019     2018     2017  
     ($ in thousands)  

Net cash provided by operating activities

   $ 449,736     $ 212,323     $ 168,365  

Net cash used in investing activities

     (151,014       (1,150,973     (138,732

Net cash provided by (used in) financing activities

     (339,639     951,221       (37,301

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     (3,453     (12,446     4,918  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

   $ (44,370   $ 125     $ (2,750

Cash, cash equivalents and restricted cash at beginning of year

     127,884       127,759       130,509  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of year

   $ 83,514     $ 127,884     $ 127,759  
  

 

 

   

 

 

   

 

 

 

 

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Our primary uses of cash are working capital, capital expenditures to expand our delivery footprint and enhance our technology solutions, and acquisitions. Our financing needs for these uses of cash have been a combination of operating cash flows and related party borrowings from SYNNEX. Our working capital needs are primarily to finance accounts receivable. When our revenues are increasing, our net investment in working capital typically increases. Conversely, when revenue is decreasing, our net investment in working capital typically decreases. To increase our market share and better serve our clients, we may further expand our operations through investments or acquisitions. We expect that such expansion would require an initial investment in working capital, personnel, facilities, and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, additional borrowings, or the issuance of securities.

Operating Activities

Net cash provided by operating activities was $449.7 million in fiscal year 2019, primarily generated from our net income of $117.2 million, adjustments for non-cash items of $343.3 million and a decrease of accounts receivable of $6.3 million, partially offset by the net change in other assets and liabilities of $5.0 million. The adjustments for non-cash items primarily consist of $305.8 million of depreciation and amortization expense, $33.4 million of hypothetical current tax expense recorded for separate tax return basis presentation and share-based compensation of $10.4 million.

Net cash provided by operating activities was $212.3 million in fiscal year 2018, primarily generated from our net income of $48.3 million, adjustments for non-cash items of $149.3 million, and changes in amounts due to/from SYNNEX of $67.4 million. These increases were partially offset by a decrease in accounts payable of $28.1 million, changes in other assets and liabilities of $16.0 million, and an increase in accounts receivable of $8.5 million. The adjustments for non-cash items primarily consist of $154.6 million of depreciation and amortization expense and $7.7 million in share-based compensation, less $11.4 million in deferred income taxes and $10.0 million in convertible debt conversion option fair value adjustments and extinguishment gains.

Net cash provided by operating activities was $168.4 million in fiscal year 2017, primarily generated from our net income of $72.3 million, adjustments for non-cash items of $115.6 million, and changes in other assets and liabilities of $26.8 million. Partially offsetting these sources of cash were increases in accounts receivable of $20.0 million, changes in amounts due to/from SYNNEX of $18.7 million and decreases in accounts payable of $7.5 million. The adjustment for non-cash items consisted of $129.9 million of depreciation and amortization expense and share-based compensation of $5.1 million, partially offset by $18.1 million of deferred taxes.

Investing Activities

Net cash used in investing activities in fiscal year 2019 was $151.0 million, primarily for capital expenditures to support our growth, $30.4 million loan to non-Concentrix subsidiary of Parent as part of its operations and $9.4 million of acquisition-related payments.

Net cash used in investing activities in fiscal year 2018 was $1,151.0 million, primarily due to $1,072.3 million in payments for the acquisition of Convergys, net of cash acquired, and $92.5 million in capital expenditures to support our growth.

Net cash used in investing activities in fiscal year 2017 was $138.7 million primarily due $78.7 million in capital expenditures to support our growth and $57.8 million in payments to acquire Tigerspike, net of cash acquired.

 

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Financing Activities

Net cash used by financing activities in fiscal year 2019 was $339.6 million, consisting of $191.6 million in repayments on borrowings from SYNNEX and $148.0 million to redeem the convertible debentures assumed in the Convergys acquisition.

Net cash provided by financing activities in fiscal year 2018 was $951.2 million, consisting primarily of $1,277.2 million of borrowings from SYNNEX to fund the acquisition of Convergys, net of $325.9 million of repayments of borrowings from SYNNEX.

Net cash used by financing activities in fiscal year 2017 was $37.3 million, consisting primarily of net repayments of borrowings from SYNNEX.

We believe our current cash balances and credit availability are enough to support our operating activities for at least the next twelve months.

Free Cash Flow (a non-GAAP measure)

 

     Fiscal Year Ended November 30,  
     2019     2018     2017  
     ($ in thousands)  

Net cash provided by operating activities

   $ 449,736     $ 212,323     $ 168,365  

Purchases of property and equipment

     (111,122     (92,518     (78,702
  

 

 

   

 

 

   

 

 

 

Free cash flow (a non-GAAP measure)

   $ 338,614     $ 119,805     $ 89,663  
  

 

 

   

 

 

   

 

 

 

Our free cash flow was $338.6 million in fiscal year 2019, compared to $119.8 and $89.7, in fiscal years 2018 and 2017, respectively. The increase in free cash flow in fiscal year 2019 primarily reflects the full year impact of the Convergys acquisition, partially offset by $70.5 million in transaction and integration costs. The increase in fiscal year 2018 primarily reflects the acquisition of Convergys in October 2018, partially offset by $37.5 million in transaction and integration costs.

Capital Resources

Our cash and cash equivalents totaled $79.7 million and $123.4 million as of November 30, 2019 and 2018, respectively. Of our total cash and cash equivalents, 94% and 95% was held by our non-U.S. legal entities as of November 30, 2019 and 2018, respectively. Our cash and cash equivalents held by our non-U.S. legal entities are no longer subject to U.S. federal tax on repatriation into the United States. Repatriation of some non-U.S. balances is restricted by local laws. Historically, we have fully utilized and reinvested all non-U.S. cash to fund our international operations and expansion. If in the future our intentions change, and we repatriate the cash back to the United States, we will report in our combined financial statements the impact of the state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements.

We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations, and our anticipated sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months in all geographies. We also believe that our longer-term working capital, planned capital expenditures, anticipated stock repurchases, dividend payments, and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.

 

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Debt and Credit Arrangements

Our primary source of financing has historically been intercompany borrowings from SYNNEX. At May 31, 2020 and November 30, 2019, the outstanding borrowings from SYNNEX totaled $1,768.5 million and $1,981.4 million, respectively. An additional source for financing of the acquisition of Convergys in October 2018 was our assumption of outstanding convertible debentures that had been issued by Convergys. At November 30, 2018, the carrying value of the convertible debentures that remained outstanding totaled $69.8 million. These amounts were repaid in full during fiscal year 2019 and at November 30, 2019, no convertible debentures were outstanding.

Contractual Obligations to Third Parties

Our contractual obligations consist of repatriation tax under the TCJA, which is already recorded on our combined balance sheet. In addition, our contractual obligations include payments for our operating lease arrangements and guarantees. The following table summarizes our contractual obligations at November 30, 2019:

 

     Payments Due by Period  
     Total      Less than
1 Year
     1 - 3
Years
     3 - 5
Years
     > 5
Years
 
     (in thousands)  

Contractual Obligations:

              

Repatriation tax under the TCJA

   $ 51,846      $ 4,132      $ 9,544      $ 14,260      $ 23,910  

Non-cancellable operating leases

     675,946        191,384        276,098        145,801        62,663  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 727,792      $ 195,516      $ 285,642      $ 160,061      $ 86,573  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of November 30, 2019, we have established a reserve of $61.7 million for unrecognized tax benefits. As we are unable to reasonably predict the timing of settlement of these guarantees and the reserve for unrecognized tax benefits, the table above excludes such liabilities. At May 31, 2020, there were no material changes to our contractual obligations as of November 30, 2019.

Certain of SYNNEX’ subsidiaries, including certain Concentrix legal entities in the United States, jointly and severally guarantee certain of SYNNEX’ revolving lines of credit and term loans in the United States. All SYNNEX subsidiaries in the United States, including the Concentrix legal entities in the United States, have pledged their assets as security under the agreements. As of November 30, 2019, the balance payable by SYNNEX under these agreements was $2.8 billion. The amounts guaranteed by us under these agreements are recorded in our combined financial statements to the extent drawn from the Parent, net of repayments to the Parent. The guarantees by the Concentrix legal entities and the related asset pledges will be terminated or released substantially concurrent with the separation.

Client Concentration

Our largest client accounted for 10%, 21% and 23% of our revenues in fiscal years 2019, 2018 and 2017, respectively, and 10% of revenue for each of the six months ended May 31, 2020 and 2019. The revenues that we recognize from this client are earned under multiple contracts and statements of work. No other client accounted for more than 10% of our revenues in 2019, 2018 or 2017 and no other client accounted for more than 10% of our revenues for each of the six months ended May 31, 2020 and 2019.

 

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are and will be exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from changes in market rates and prices. Our risk management strategy includes managing these risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. We utilize derivative financial instruments to hedge economic exposures, as well as reduce earnings and cash flow volatility resulting from shifts in market rates. In using derivative financial instruments to hedge our exposures to changes in exchange rates, we expose ourselves to counterparty credit risk. We manage our exposure to counterparty credit risk by entering into derivative financial instruments with investment grade-rated institutions that can be expected to perform fully under the terms of the agreements and by diversifying the number of financial institutions with which we enter into such agreements. There can be no guarantee that the risk management activities that we have entered into will be sufficient to fully offset market risk or reduce earnings and cash flow volatility resulting from shifts in market rates. See Note 6 of the combined financial statements included elsewhere in this information statement for additional discussion of our financial risk management.

Foreign Currency Risk

While approximately 65% of our revenue is priced in U.S. dollars, we recognize a substantial amount of revenue under contracts that are denominated in euros, British pounds, Australian dollars and Japanese yen, among other currencies. A significant increase in the value of the U.S. dollar relative to these currencies may have a material adverse effect on the value of those services when translated into U.S. dollars.

We serve many of our U.S.-based, European and British clients from our customer experience delivery centers located around the world. As a result, a substantial portion of the costs to deliver these services are denominated in the local currency of the country where the services are performed. This creates a foreign exchange exposure for us. As of May 31, 2020, we have hedged a portion of our exposure related to the anticipated cash flow requirements denominated in certain foreign currencies by entering into hedging contracts with institutions to acquire a total of PHP 28,955.0 million at a fixed price of $550.8 million at various dates through May 2022; INR 13,460.0 million at a fixed price of $176.8 million at various dates through May 2022; and CAD 1.0 million at a fixed price of $0.8 million through June 2020. The fair value of these derivative instruments as of May 31, 2020 is presented in Note 6 of the combined financial statements included elsewhere in this information statement. The potential loss in fair value at May 31, 2020 for such contracts resulting from a hypothetical 10% adverse change in the underlying foreign currency exchange rates is approximately $73 million. This loss would be substantially mitigated by corresponding gains on the underlying foreign currency exposures.

Other foreign currency exposures arise from transactions denominated in a currency other than the functional currency. We periodically enter into hedging contracts that are not denominated as hedges. The purpose of these derivative instruments is to protect us against foreign currency exposure related receivable, payables and intercompany transactions that are denominated in currencies that are different from the functional currencies of the company or our respective legal entities. As of May 31, 2020, the fair value of these derivatives not designated as hedges was a net receivable of $4.1 million.

 

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Interest Rate Risk

Our primary source of financing at May 31, 2020 is our $1,768.5 million in outstanding borrowings from SYNNEX. Our interest rate risk associated with these borrowings reflects the interest rate risk to which SYNNEX is exposed on its outstanding external borrowings. Holding other variables constant, including the total amount of outstanding indebtedness, a 100-basis point increase in the interest rate applied to our outstanding indebtedness from SYNNEX at May 31, 2020 would have increased our annual interest expense by approximately $17.7 million. We intend to replace our outstanding borrowings from SYNNEX by external sources of financing prior to or substantially concurrent with the separation. We expect that these external sources of financing will expose us to interest rate risk. See “Description of Material Indebtedness.”

 

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BUSINESS

Overview

We are a leading global provider of technology-infused Customer Experience (“CX”) solutions, centered on helping our clients enhance the brand experience for their end-customers. We provide end-to-end capabilities that help drive deep customer understanding and engagement. Our solutions facilitate communication between our clients and their customers, provide analytics and process optimization, and support client-centric operations and back-office processing across the enterprise. Our differentiated portfolio of solutions support Global Fortune 2000 as well as high-growth companies across the globe in their efforts to deliver an optimized, consistent brand experience across all channels of communication, such as voice, chat, email, social media, asynchronous messaging, and custom applications. We strive to deliver exceptional services globally supported by our deep industry knowledge, technology and security practices, talented people, and digital and analytics expertise.

We offer our clients integrated solutions supporting the entirety of the customer lifecycle; CX and user experience (“UX”) strategy and design; analytics and actionable insights; and innovative new approaches to enhancing the customer experience through the latest technological advancements in our industry. We believe that we are at the forefront of the shift from traditional Customer Relationship Management (“CRM”), which is focused on a portion of the customer lifecycle, to CX, which supports the entirety of it. Through our end-to-end capabilities, we deliver better economic outcomes for our clients with solutions designed to meet their unique needs as they navigate a landscape characterized by discerning consumers and new market entrants.

We have strong relationships with companies across the globe and are a provider of choice for industry leaders. We believe in supporting our clients over the long term to build enduring relationships. Our average client tenure is 15 years. As of today, we serve over 125 Global Fortune 2000 clients as well as more than 50 high-growth companies across various verticals and geographies that are attempting to disrupt their respective industries. We primarily support clients in verticals with certain characteristics, such as high growth, high transaction volume, high levels of compliance and security, and steep barriers to entry. Our strategic verticals include technology and consumer electronics, communications and media, retail, travel and ecommerce, banking, financial services and insurance, healthcare, and other. Our clients include:

 

   

7 of the top 10 global digital companies

 

   

8 of the top 10 global internet companies

 

   

6 of the top 10 U.S. health insurance companies

 

   

4 of the top 5 U.S. banks

 

   

7 of the top 10 global automotive companies

Through our technology-infused offerings, our clients benefit from having a single resource that enables them to address the entirety of the customer journey from acquisition to support to renewal. Our end-to-end capabilities and broad service offerings help our clients acquire, retain, and improve the lifetime value of their customer relationships while optimizing their back-office processes.

We combine global consistency with local expertise, enhancing the end user experience for our clients’ customers through services rendered by 235,000 employees across more than 275 locations in more than 40 countries and 6 continents, where we conduct business in over 70 languages.

Our revenues for the fiscal year ended November 30, 2019 increased 91.1% from the prior fiscal year to $4.7 billion, primarily due to the acquisition of Convergys in October 2018. We recorded operating income of $294 million over the same period with our operating income margin expanding 40 basis points to 6.3%.

 

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Our History

We trace our roots back to 2004 when SYNNEX acquired BSA Sales, Inc., a company with 20 employees focused on helping clients through outsourced sales and marketing services. In 2006, SYNNEX combined New York-based Concentrix with BSA Sales under the Concentrix name, with the goal of bringing technology and innovation into businesses to help clients reimagine and design the next generation of experiences. As our business evolved, our scope and scale widened to an organization of 235,000 employees in more than 40 countries but our commitment to our philosophy of technology and innovation remained unchanged.

We are one of the fastest growing CX companies globally. From fiscal year 2004 to fiscal year 2012, powered by organic growth, acquisitions, and product expansion, our organization expanded to 7,500 employees and our revenue grew at a compound annual growth rate (CAGR) of approximately 56%. With our acquisition of the IBM CRM business in 2014, we significantly expanded the reach of our Concentrix business to approximately 170 customers in 24 countries. Since 2014, we have continued to make strategic acquisitions that bolstered our offerings, geographic reach, and scale. Our acquisition of Convergys in 2018 represented the largest acquisition in our industry to date, nearly doubling our scale and creating a global customer engagement services company that is a leader in CX solutions capabilities and reach.

Our Market Opportunity

According to International Data Corporation, the global outsourced Customer Experience Management (“CXM”) industry is currently sized at $79 billion and is estimated to expand at a 4% CAGR over the next three years driven by increased complexity to customer interactions and new digital channel growth. We believe there is considerable room for growth in our sector as only a small portion of the CRM market is outsourced today.

In order to maintain relevancy, our clients must transform their systems in response to increased competition and consumer demands. To meet the evolving needs of their customers, our clients are looking to large CX solutions providers, such as Concentrix, to automate their systems and provide professional support to address complexities beyond the scope of automation. We are a leader in next-generation CX technology driven by a focus on innovation, which we believe will increase our total addressable market as we enter and grow across new and existing markets. Our suite of integrated solutions include: digital services that enable efficient customer self-service; Voice of the Customer (“VOC”) solutions to gather and analyze customer feedback to foster loyalty to, and growth with, clients; analytics, and consulting solutions that synthesize data and provide professional insight to improve clients’ customer experience strategies; Robotic Process Automation (“RPA”) solutions that automate customer engagement processes to reduce client costs; Artificial Intelligence (“AI”) technology that can intelligently act on customer intent to improve customer experience with non-human engagement; support for clients’ engagement with customers across the Internet of Things (“IoT”) and through multiple interconnected channels; Vertical BPO services that provide specialized support to specific industry verticals; and Back Office BPO services that support clients in non-customer facing areas.

Industry Trends

 

   

Growing Importance of Customer Experience. We believe customer experience has become a strategic imperative for all enterprises today. Data, analytics, and digital solutions have reshaped the ways firms interact with their customers. As a result, enterprises are modernizing how they manage the customer experience across all channels of communication. The market is evolving from customer relationship management solutions that act as a cost cutting measure, toward end-to-end CX management solutions that create value throughout the entire customer lifecycle at an appropriate cost.

 

   

Empowered Consumers and Users. The modern consumer is discerning and has come to expect a high level of care and responsiveness from their service providers. Old paradigms have shifted as increasingly competitive markets and easily accessible crowd-sourced information have empowered consumers to unprecedented levels. As consumers demand more and have an increased amount of

 

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alternatives, companies must differentiate on how they manage their customer relationships. This shift is driving the market toward consumer-centric solutions that limit customer churn and promote brand loyalty.

 

   

Technological Innovation. Emerging technology is driving change within our industry and shaping the demands of our clients. Advancements in areas such as Digital Services, RPA, AI and Machine Learning (“ML”) are further disrupting our markets and our clients’ markets while opening new avenues for growth and opportunities for us to better serve our clients. These technologies provide clients the opportunity to interact more effectively with their customers and improve the customer experience by automating processes, optimizing customer journeys to reach faster solutions, enabling personalized engagement across multiple platforms, and focusing human engagement on the most complex interactions.

 

   

Evolving Role of People. The skillset required of employees in the CRM and BPO industry is shifting as enterprises place increased importance on CX. Increasing complexity in the voice channel is driving a trend of longer customer engagements requiring CRM and BPO support professionals to have a more robust skill set. The increasing importance of skilled labor in our industry is offset by the transition of low complexity support to online support (self-service), driven by heavy automation and digitization. Despite growth in digital channels, phone conversations currently remain the preferred option for customer services interactions. We believe the human element will continue to be important in our industry, as focus shifts from routine service to “last-mile” support requiring human-touch to deliver a stronger customer experience.

 

   

Mission Critical Nature of Cybersecurity. Technological innovation coupled with the proliferation of smart devices and mobile connectivity is generating sensitive data at scale, while at the same time, the avenues for access have become numerous. Data security is paramount in an environment where improper access or carelessness can compromise customers and businesses. Businesses require scalable, industry-leading data protection and security to avoid reputational and operational risks in an environment characterized by the threats and benefits of free-flowing information.

 

   

Enterprise Preferences Driving Vendor Consolidation. Enterprises have become increasingly multinational. As their scope of business increases, enterprises require a partner that can serve their needs by rapidly deploying solutions and new technology consistently across multiple geographies and channels. Enterprises therefore prefer vendors with scale and end-to-end capabilities that can be a one-stop shop and are consolidating existing relationships to vendors with scale to achieve their business objectives and pursue cost savings.

 

   

Market Fragmentation Driving Industry Consolidation. We operate in a fragmented marketplace characterized by numerous vendors offering services across various levels of the value chain. Currently the top 10 players in CX only hold an approximate 30% market share with the remaining market share held by thousands of other vendors. As client preferences continue to evolve in line with enterprise preferences, we anticipate that our market will undergo further consolidation.

 

   

Existing Solutions Have Many Limitations. As executives look to successfully navigate digital transformation and manage their customers’ experience across a wider variety of channels, unsophisticated providers and solutions often fail to meet customers’ needs. Currently there is a limited set of providers with end-to-end, global offerings of scale in the marketplace. The fragmentation of the market and, for many industries, high regulatory hurdles create additional complexity as most providers are small, niche, or local players. These issues are compounded by a lack of sufficient investment in cybersecurity, creating exposure to regulatory, reputational, and operational risks. These pain points, coupled with the prevalence of providers offering legacy solutions that fail to address the demands of the modern consumer, create an opportunity for large-scale, global CX solutions providers.

 

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Our CX Solutions

We offer technology, people and process solutions that help clients enhance the experience for their customers and improve business performance. Our CX solutions encompass four complementary areas: Customer Lifecycle Management; CX/UX Strategy and Design; Digital Transformation; and VOC and Analytics. Through our integrated CX solutions offering, our clients engage us to acquire, support and renew customers, leverage customer feedback and insights to constantly improve business performance, and identify and implement customer-facing and back-office process improvements. We help our clients by creating tools that their customers and employees love to use, enable better customer interactions through real-time sentiment analysis, and integrate multiple customer interactions and touchpoints into one-stop smart mobile applications. We provide these solutions and other complementary services in 70 languages, across 6 continents, from over 275 locations in the Americas, Asia-Pacific and EMEA.

Customer Lifecycle Management. We seek to deliver next-generation customer engagement solutions and services that address the entirety of the customer lifecycle. We offer our clients the means to acquire, support and renew customers across all channels while minimizing attrition and increasing customer lifetime value. Our Customer Lifecycle Management solutions include services such as customer care, sales support, digital marketing, technical support, digital self-service, content moderation, creative design and content production, and back office services. Customer Lifecycle Management represents our core service offering and a significant majority of the services we provide.

In addition to our Customer Lifecycle Management services, we also provide the complementary services described below, which are provided to clients as integrated solutions with our core service offering:

 

   

CX/UX Strategy and Design. We strive to help our clients reimagine what great is, designing next generation CX solutions to exceed customer expectations. Our CX/UX Strategy and Design solutions, including CX strategy, data-driven user design, journey mapping, and multi-platform engineering, enable our clients to create effortless, personalized customer engagements and align business priorities around measurable goals. Through these services, we promote a more rapid integration of digital and enabling technologies, providing transformational business services to our clients.

 

   

Digital Transformation. We seek to offer cutting edge solutions to reshape how brands better engage with their customers. Our innovative solutions and services are focused on creating disruption to help our clients stay relevant and achieve better business outcomes. Our Digital Transformation solutions include services such as RPA and cognitive automation that automate processes to improve efficiency and accuracy, mobile app development to create new channels of engagement, work at home and gig platforms that capitalize on a changing and flexible workforce, Interactive Voice Response (“IVR”) and natural language understanding solutions that improve outcomes and customer experience with automated responses to verbal interactions, messaging and social platforms that allow clients to engage with customers across myriad platforms, and system integration services.

 

   

Voice of the Customer and Analytics. Our VOC solutions turn customer feedback into actionable insights. Our Analytics solutions provide businesses with insight into rapidly changing markets through data, which provides our clients with a competitive edge. Our VOC and Analytics solutions include offerings such as VOC SaaS platform, speech and text insights, sentiment analysis, advanced analytics and real-time reporting.

Our Competitive Strengths

We believe the following strengths differentiate us from our competitors and provide us with a competitive advantage:

 

   

Extensive Global Presence: We operate globally in over 40 countries across 6 continents with the ability to conduct business in 70 different languages. We believe we are well-positioned to serve the largest multinational brands in nearly every market in which they operate. Our global footprint includes

 

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a strong presence in emerging markets such as India, China, Brazil, Vietnam, Thailand and Indonesia, which provides an opportunity to grow with our clients in these regions. Our ability to create value for our clients across a global delivery platform has enabled us to be a partner of choice.

 

   

Market Leader with a Differentiated Brand and Value Proposition: We believe we have a compelling brand and reputation as a leading provider of technology-infused solutions that shape the customer experience. We have a differentiated combination of global scale, local reach, technological expertise, end-to-end solution capabilities and full lifecycle services. We are widely recognized as a leading provider of CX solutions; garnering industry attention via 84 industry awards in fiscal year 2019. Third party researchers have also taken note of our leading global practice with Everest Group Research distinguishing us as a leader for the 5th year, as well as naming us a star performer and leader in market impact, with high buyer satisfaction scores.

 

   

Strong Relationships with a Growing and Diversified Client Base: We provide customer experience solutions for over 125 Global Fortune 2000 brands worldwide. Leading companies worldwide, including more than 50 clients that believe they are disruptors in their industries and over 80 of the Fortune 500, rely upon our solutions and services. We serve a wide variety of clients, extending across numerous verticals, including one of the world’s largest ride-sharing companies, a large retail disruptor, a top global airline, a global beverage brand, a leading cloud company, and a major healthcare provider. Our end-to-end capabilities and global scale has enabled us to build long-lasting relationships with our clients spanning over 15 years on average. Our commitment to our clients is our primary focus and has generated numerous accolades to date, including 105 client awards in fiscal year 2019.

 

   

Continued Investment in Research and Development: We believe that our investment in technology differentiates us from our competitors. We have provided technology-infused solutions for longer than a decade. We have been at the forefront of developing technology-infused CX solutions that improve the customer experience and will continue to strive for this in the future. We have been a leader in our industry in advancements such as conversational virtual assistants, multichannel and augmented CRM, predictive analytics, emotion analytics, cognitive learning and AI and enjoy a first mover advantage. We are also an industry leader in cybersecurity best practices. We believe our strong focus on innovation has enabled us to maximize value for our clients and made it harder for our competitors to compete with us. Due to our size and scale, and the regular implementation of technology as part of our CX solutions, our costs of developing, maintaining and integratng new technologies are not material on a stand-alone basis.

 

   

Track Record of Sustainable Organic Growth: We have a long track record of long-term organic revenue growth, and we believe we will continue to enjoy sustainable growth as a result of:

 

   

Nature of our offerings

 

   

Substantial switching costs for our clients

 

   

High net retention rates

 

   

Strong barriers to entry in the CX solutions market

 

   

Large and expanding addressable market

 

   

Demonstrated History of Strategic Acquisitions. We have acquired and integrated more than 15 companies since our inception. We have a demonstrated ability to turn around underutilized assets and maximize their value, which we believe allows us to explore a broader scope of opportunities than our peers. In 2018, we acquired Convergys, which enhanced our ability to deliver additional transformation services to our clients with a broader global footprint.

 

   

Corporate Culture Committed to Our Clients’ Success: Our unified team allows us to deliver consistent and exceptional results. As of November 30, 2019, our team consisted of more than 235,000 employees globally. We enjoy high staff engagement because of a strong company culture that is fanatical about serving our clients through integrity and bold and disruptive thought.

 

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Experienced Management Team: Our passionate and committed management team is led by industry experts with a deep understanding of our clients’ needs. We have a highly talented management team with significant experience in the CX industry, with our top 10 executives having over 140 years of combined service at our company. Through our acquisitions we have benefited from the addition of management talent, who have contributed valuable new perspectives and insights. Under our tenured management team, we have grown our revenue from $1.1 billion in fiscal year 2014 to $4.7 billion in fiscal year 2019, while delivering strong profitability.

Our Growth Strategy

The key elements to our growth strategy are:

 

   

Expand and Deepen Relationships with Existing Clients: We have a well-established track record of cross-selling and offering additional solutions and premium services to sustain and grow our relationships with our existing clients. We have historically focused on clients with high transaction volume on a recurring basis, fast growing verticals, and large enterprises, and will continue to do so. We believe our scale, efficiency, and technology generates incremental value for our clients with each process we manage, naturally driving our customers to spend more with us. We believe our focus on technology innovation and responding to our clients’ needs position us for continued growth.

 

   

Relentlessly Innovate and Develop New Digital Services and Solutions: We believe we have developed innovative solutions for our clients, and we are focused on investing in technology. Investment in CX solutions technologies can enable more effective engagement with customers and improve the customer experience through increased automation, optimize customer journeys to reach faster solutions, enable personalized engagement across multiple platforms, and focus human engagement on the most complex interactions. For these reasons, we believe investments in disruptive technologies, applications, and services will continue to be instrumental in driving better value for our clients and result in increased profitability.

 

   

Further Expand into Adjacent Markets: Our marketplace continues to expand beyond CRM BPO. We see significant opportunity for growth across adjacent markets. We intend to continue to provide our clients with an integrated offering of solutions that include digital services, VOC solutions, analytics and consulting, RPA solutions, AI technology, IoT solutions, Vertical BPO services and Back Office BPO services. To further capitalize on new market adjacencies, we have made significant investments across emerging technologies such as RPA, AI, ML, VOC, IVR, and IoT, which we believe will enhance our clients’ ability to offer personalized, effective engagement in all customer interactions to increase customer satisfaction and promote brand loyalty. As our industry evolves, we will continue to invest in these new and fast growing markets to further sustain long-term growth.

 

   

Selectively Pursue Strategic Acquisitions: We have made targeted acquisitions to increase our technology expertise, enter new verticals and geographies, and increase our scale, including the IBM Customer Care Business and Convergys. Our market remains highly fragmented and we believe that our acquisition strategy enhances and augments our growth avenues. We intend to continue to evaluate and pursue complementary, value enhancing acquisitions.

 

   

Invest in Emerging Markets: We have invested in delivery operations in emerging, high-growth markets such as India, China, Brazil, Vietnam, Thailand and Indonesia. We expect to continue to invest in similar markets to be well-positioned to serve multinational brands and enable us to grow with our clients in the regions and countries where they are growing.

Our Customers

We serve more than 650 clients across various verticals and geographies. Our strategic verticals include: technology and consumer electronics, communications and media, retail, travel and ecommerce, banking, financial services and insurance, healthcare and other. We focus on developing long-term, strategic relationships

 

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with clients in verticals with certain characteristics, such as high growth, high transaction volume, high levels of compliance and security, and steep barriers to entry.

Our largest client accounted for 10%, 21% and 23% of our revenues in fiscal years 2019, 2018 and 2017, respectively, and 10% of our revenue for each of the six months ended May 31, 2020 and 2019. The revenues that we recognize from this client are earned under multiple contracts and statements of work. No other client accounted for more than 10% of our revenues in 2019, 2018 or 2017 and no other client accounted for more than 10% of our revenues for each of the six months ended May 31, 2020 and 2019. We do not believe that the loss of any single customer would have a material adverse effect on the Company and its subsidiaries taken as a whole.

Sales and Marketing

We market our services through a sales force organized by industry vertical and geography. The length of our selling cycle varies depending on the type of engagement. Our efforts may begin in response to our lead generation program, a perceived opportunity, a reference by an existing client, a request for proposal or otherwise. The sales cycle varies depending on the type of services work as well as whether there is an existing relationship with the client.

We have designated client partners or global relationship managers for each of our strategic relationships. The relationship manager is supported by process improvement, quality, transition, finance, human resources, information technology and industry or subject matter expert teams to ensure the best possible solution is provided to our clients.

We also strive to foster relationships between our senior leadership team and our clients’ senior management. These “C-level” relationships ensure that both parties are focused on establishing priorities, aligning objectives and driving client value from the top down. High-level executive relationships have been particularly constructive as a means of increasing business from our existing clients. It also provides us with a forum for addressing client concerns. We constantly measure our client satisfaction levels to ensure that we maintain high service levels for each client.

Our Operations

We have global delivery capability which allows us to scale people and other resources from around the world, including language fluency, proximity to clients and time-zone advantages. A critical component of this capability is our more than 275 locations in more than 40 countries throughout the Americas, Asia-Pacific and EMEA. Our delivery centers improve the efficiency of our engagement teams through the reuse of processes, solution designs and infrastructure by leveraging the experience of delivery center professionals. Services are provided from these global locations to customers worldwide in multiple languages. These services are supported by proprietary technology to enable efficient and secure customer contact through various channels including voice, chat, web, email, social media and other digital tools. Many of our delivery centers are PCI DSS (Payment Card Industry Security Standards Council’s Data Security Standards) version 3.2.1 certified. Many of our delivery centers are certified to ISO standards. Twenty-eight of our delivery centers around the world are certified to COPC (Customer Operation Performance Center) OSP standard.

We operate a distributed data processing environment that can integrate service delivery center data servers and databases with thirty-nine data centers and point of presence strategically located across the globe. Our technologically-advanced and secured data centers provide availability 24 hours a day, 365 days a year, with redundant power and communication feeds and emergency power back-up, and are designed to withstand most natural disasters.

The capacity of our data center and contact center operations, coupled with the scalability of our customer management solutions, enable us to meet the changing needs of large-scale and rapidly growing companies and government entities. By employing the scale and efficiencies of common application platforms, we can provide

 

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client-specific enhancements and modifications without incurring many of the costs of a full custom application, which positions us as a value-added provider of customer support products and services.

International Operations

Approximately 75% of our revenue is generated by our non-U.S. operations. A key element in our business strategy has been to locate our service delivery contact centers in markets that are strategic to our customer requirements and cost beneficial. We have significant operations in the Philippines and India.

Sales and cost concentrations in international jurisdictions subject us to various risks, including the impact of changes in the value of foreign currencies relative to the U.S. Dollar, which in turn can impact reported sales.

See Note 9 to the combined financial statements included elsewhere in this information statement for additional financial information related to our international and domestic operations.

Seasonality

Our revenue and margins fluctuate with the underlying trends in our clients’ businesses. As a result, our revenues and margins are typically the highest in our fourth fiscal quarter.

Information Technology

We invest in IT systems, infrastructure, automation and security to enhance workforce management and improve productivity. Our contact centers can employ a broad range of technology, including digital switching, intelligent call routing and tracking, proprietary workforce management systems, case management tools, proprietary software systems, computer telephony integration, interactive voice response, advanced speech recognition, web-based tools and relational database management systems with embedded security. Our innovative use of technology enables us to improve our voice, chat, web and e-mail handling and personnel scheduling, thereby increasing our efficiency and enhancing the quality of the services we deliver to our clients and their customers. We are able to respond to changes in client call volumes and manage call volume traffic based on agent availability. Additionally, we can use this technology to collect information concerning the contacts, including number, response time, duration and results of the contact and report the information to the client on a periodic basis for purposes of monitoring quality of service and accuracy of billing.

Competition

We operate in a highly competitive and rapidly evolving global marketplace. Our major competitors include Accenture plc, Atento S.A., Cognizant Technology Solutions Corporation, Conduent Inc., ExlService Holdings, Inc., Genpact Limited, Globant S.A., Medallia, Inc., Qualtrics, LLC, Sykes Enterprises Inc., Teleperformance S.A., TTEC Holdings, Inc., Transcosmos Inc., and WNS (Holdings) Limited.

In the future, we may face greater competition due to the consolidation of business process outsourcing providers. Consolidation activity may result in competitors with greater scale, a broader footprint or more attractive pricing than ours. In addition, a client or potential client may choose not to outsource its business, by setting up captive outsourcing operations or by performing formerly outsourced services for themselves, or may switch CX solutions providers.

Employees

As of November 30, 2019, we had approximately 235,000 full-time employees, of which approximately 49,000 were based in the Americas, approximately 164,000 were based in Asia-Pacific, and approximately 22,000 were based in EMEA. Except for a small number of our employees in certain countries, generally

 

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required by local regulations or brought in through acquisitions, our employees are not represented by a labor union, nor are they covered by a collective bargaining agreement. We consider our employee relations to be good.

Properties

Our principal executive offices are located in Fremont, California, and are leased by us. As of November 30, 2019, we occupied more than 275 facilities comprising service and delivery centers and administrative facilities covering approximately 16.6 million square feet, of which approximately 1.3 million square feet was owned and the remainder was leased.

Legal Proceedings

From time to time, we are involved in legal proceedings in the ordinary course of business. We do not believe that these proceedings will have a material adverse effect on the results of our operations, our financial position or the cash flows of our business.

 

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MANAGEMENT

Executive Officers

Set forth below is information, as of September 8, 2020, regarding those persons that we expect will serve as our executive officers following the spin-off and their anticipated positions. Additional executive officers are expected to be appointed prior to the separation. We will include information concerning those additional executive officers in an amendment to the registration statement of which this information statement forms a part.

 

Name

  

Age

  

Position

Christopher Caldwell    48    Chief Executive Officer
Andre Valentine    56    Chief Financial Officer

Christopher Caldwell, Chief Executive Officer. Chris Caldwell has served as Executive Vice President and President of Concentrix since February 2014. He previously served as President of Concentrix from June 2012 to February 2014, Senior Vice President and General Manager of Concentrix from March 2007 to June 2012, and Senior Vice President, Global Business Development of SYNNEX from March 2007 to June 2012. Mr. Caldwell joined SYNNEX in 2004 as Vice President, Emerging Business through the acquisition of EMJ Data Systems Ltd.

Andre Valentine, Chief Financial Officer. Andre Valentine has served as Executive Vice President and Chief Financial Officer of Concentrix since October 2018. He previously served as Chief Financial Officer of Convergys Corporation from August 2012 to October 2018, Senior Vice President of Finance, Customer Management of Convergys from 2010 to 2012 and 2002 to 2009, Senior Vice President, Controller of Convergys 2009 to 2010, and Vice President, Controller of Convergys from 1998 to 2002.

 

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BOARD OF DIRECTORS

We are in the process of identifying the individuals who will be our directors following the spin-off, and we expect to provide details regarding these individuals in an amendment to the registration statement of which this information statement forms a part. The nominees identified will be presented to SYNNEX, Concentrix’ sole stockholder, for election prior to the spin-off.

Each member of our board of directors will serve until their successors are duly elected and qualified or until their earlier death, resignation, disqualification or removal. The authorized number of directors may be changed by resolution of the board of directors. Vacancies on the board of directors can be filled by resolution of the board of directors.

Director Independence

Our Corporate Governance Guidelines provide that a majority of our board of directors will consist of independent directors. These standards are available on our website at www.concentrix.com. Our director independence standards reflect the [●] corporate governance listing standards. In addition, each member of the audit committee of the board of directors (the “Audit Committee”) is expected to meet the heightened independence standards required for audit committee members under the applicable listing standards, and each member of the compensation committee of the board of directors (the “Compensation Committee”) is expected to meet the heightened independence standards required for compensation committee members under the applicable listing standards. Our board of directors will assess on a regular basis, and at least annually, the independence of directors and, based on the recommendation of the nominating and governance committee of the board of directors (the “Nominating and Governance Committee”), will make a determination as to which members are independent.

Compensation Committee Interlocks and Insider Participation

During our fiscal year ended November 30, 2019, Concentrix was not an independent company and did not have a compensation committee or any other committee serving a similar function. Decisions as to the compensation of those who served as our executive officers for that fiscal year were made by SYNNEX, as described in the section of this information statement captioned “Executive Compensation”

Corporate Governance

We expect that our board of directors will fully implement our corporate governance initiatives at or prior to the time of the spin-off. We believe these initiatives will comply with the rules and regulations of the SEC adopted thereunder, as well as with the listing standards of the [●]. After the spin-off, our board of directors will continue to evaluate, and improve upon as appropriate, our corporate governance principles and policies.

Our board of directors intends to adopt Corporate Governance Guidelines in connection with the spin-off, and also intends to adopt a code of ethics and business conduct that applies to each of our directors, officers and employees. The code will address various topics, including:

 

   

compliance with laws, rules and regulations;

 

   

conflicts of interest;

 

   

insider trading;

 

   

corporate opportunities;

 

   

competition and fair dealing; and

 

   

payments to government personnel.

 

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Upon completion of the spin-off, the code of ethics and business conduct will be posted on our website. Our Audit Committee also intends to implement whistleblower procedures by establishing formal procedures for receiving and handling complaints from employees that will require that any concerns regarding accounting or auditing matters reported under these procedures be communicated promptly to the audit committee.

Board Committees

Pursuant to our bylaws, our board of directors is permitted to establish committees from time to time as it deems appropriate. Initially, to facilitate independent director review and to make the most effective use of the directors’ time and capabilities, our board of directors will establish the following committees: audit committee, nominating and corporate governance committee and compensation committee. The intended membership and functions of each committee are described below:

Audit Committee

[●], [●] and [●] are expected to be the members of the Audit Committee. [●] is expected to be the Chair of the Audit Committee. Our board of directors is expected to determine that at least one member of the Audit Committee is an “audit committee financial expert” for purposes of the rules of the SEC. In addition, we expect that our board of directors will determine that each Audit Committee member is independent, as defined by the rules of the stock exchange on which our common stock will be listed and Section 10A(m)(3) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance with our Corporate Governance Guidelines, and that each member has satisfied the [●]’s financial literacy requirements.

The Audit Committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control, and legal compliance functions by approving the services performed by our independent registered public accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The Audit Committee oversees the audit efforts of our independent registered public accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. The Audit Committee also has oversight responsibility for our risk assessment and management activities, including with respect to information technology, cybersecurity and privacy.

Compensation Committee

[●], [●] and [●] are expected to be the members of the Compensation Committee. [●] is expected to be the Chair of the Compensation Committee. Our board of directors is expected to determine that each member of the Compensation Committee is independent, as defined by the rules of the [●] and in accordance with our Corporate Governance Guidelines. In addition, we expect that the members of the Compensation Committee will qualify as “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. The Compensation Committee reviews and determines our general compensation policies and the compensation provided to our officers, including targets for annual and long-term bonus plans. In addition, the Compensation Committee reviews, administers, and approves equity-based compensation for our officers and employees and administers our equity incentive plan and employee stock purchase plan.

The Compensation Committee is responsible for overseeing human capital and compensation risks, including evaluating and assessing risks arising from our compensation policies and practices for all employees and ensuring executive compensation is aligned with performance. To assist it in satisfying these oversight responsibilities, the Compensation Committee is authorized to retain its own compensation consultant and meets regularly with management to understand the financial, human resources and stockholder implications of compensation decisions being made.

 

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Nominating and Governance Committee

[●], [●] and [●] are expected to be the members of the Nominating and Governance Committee. [●] is expected to be the Chair of the Nominating and Governance Committee. Our board of directors is expected to determine that each of the members of the Nominating and Governance Committee is independent, as defined by the rules of the [●] and in accordance with our Corporate Governance Guidelines. The Nominating and Governance Committee is responsible for making recommendations to the board of directors regarding candidates for directorships and the size, director qualifications, and composition of the board of directors, director compensation, including equity compensation, and for overseeing our corporate governance guidelines and reporting and making recommendations to the board of directors concerning corporate governance matters. In addition, the Nominating and Governance Committee is responsible for considering director nominations by stockholders. The Nominating and Governance Committee oversees risks related to our overall corporate governance, including board of directors and committee composition, the size and structure of the board of directors, director independence, and our corporate governance profile and ratings. The Nominating and Governance Committee also is actively engaged in overseeing risks associated with succession planning for the board of directors and management.

Communications with the Board of Directors

The board of directors has established a process for stockholders and other interested persons to send communications to directors. Stockholders who wish to communicate with the Concentrix board of directors as a whole or to non-management directors, may send communication in writing to: [●], Chair of the Audit Committee, Concentrix Corporation, 44111 Nobel Drive, Fremont, California 94538 or Allison Leopold Tilley, Pillsbury Winthrop Shaw Pittman LLP, 2550 Hanover Street, Palo Alto, California 94304. Stockholders must include their name and address in the written communication and indicate whether they are a stockholder of Concentrix or other interested person. [●] and Ms. Leopold Tilley will review any communication received from a stockholder or other interested person, and all material communications from stockholders or other interested persons will be forwarded to the appropriate director or directors or board of directors committee based on the subject matter.

 

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BOARD COMPENSATION

Our director compensation program is under development, and we expect to provide details regarding our director compensation in an amendment to the registration statement of which this information statement forms a part. Following the spin-off, we anticipate that our Nominating and Governance Committee will review and make recommendations to our board of directors concerning director compensation. Our objective for our initial director compensation is to provide our directors with a fair compensation package that is tied to the services they will perform as well as to the performance of the company.

We expect that our initial director compensation program will consist of an annual retainer, committee chair retainers and a long-term equity compensation component, which is expected to consist of restricted stock grants. We will provide coverage for directors under a director and officer liability insurance policy. We will also reimburse directors for their reasonable out-of-pocket expenses for attending meetings of the board of directors and its committees and educational seminars and conferences in accordance with a director education program.

We anticipate that our board will adopt stock ownership guidelines that require each outside director to own beneficially a minimum number of shares of our stock to promote and increase such ownership and to further align their interests with those of our stockholders.

 

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EXECUTIVE COMPENSATION

Introduction

As discussed above, Concentrix is currently part of SYNNEX and not an independent company, and the Compensation Committee is not expected to begin meeting until after the spin-off. Historically, our employees have participated in the compensation and benefit programs of SYNNEX and its subsidiaries. Therefore, except as otherwise indicated, the below Compensation Discussion and Analysis describes the compensation practices of SYNNEX as they relate to certain individuals who are expected to be appointed as executive officers of Concentrix. After the spin-off, Concentrix’ executive compensation program, policies, and practices for its executive officers will be subject to the review and approval of the Compensation Committee.

For purposes of the following Compensation Discussion and Analysis and the tabular executive compensation disclosures that follow, the individuals listed below are referred to collectively as Concentrix’ “named executive officers” or “NEOs.” They are Concentrix’ chief executive officer and chief financial officer. Additional executive officers are expected to be appointed prior to the separation. We will include information concerning those additional executive officers in an amendment to the registration statement of which this information statement forms a part.

 

Name

  

Position

Christopher Caldwell    Chief Executive Officer
Andre Valentine    Chief Financial Officer

Additional information regarding the members of Concentrix’ management who will be designated as executive officers is set forth in the section of the information statement captioned “Management—Executive Officers.”

We expect that immediately following the spin-off, the Concentrix executive compensation program, policies, and practices will be substantially similar to those employed at SYNNEX, as described below. The Compensation Committee will review the executive compensation program, policies, and practices and will make adjustments as appropriate over time in order to meet the company’s particular business needs and goals.

The following Compensation Discussion and Analysis describes SYNNEX’ general compensation philosophy, policies, and practices as they applied to Concentrix’ NEOs during the fiscal year ended November 30, 2019. We have noted where certain elements of SYNNEX’ executive compensation program did not apply to one or more of the NEOs employed by Concentrix in the fiscal year ended November 30, 2019.

Compensation Discussion and Analysis

Objectives and Philosophy of the SYNNEX Compensation Program

The SYNNEX compensation philosophy is to pay for performance as well as to offer competitive compensation in order to attract and retain talented executive officers. With respect to “pay for performance,” the SYNNEX program is designed to align the interests of its executive officers with those of its stockholders, for whom they work. As a result, a significant portion of our named executive officers’ total compensation depends on the each individual’s performance relative to operational and financial objectives. In particular, in determining total compensation, SYNNEX stresses a compensation philosophy that is performance-driven with relatively moderate base salaries, but high variability through a Management Incentive Plan and equity compensation. SYNNEX believes that total compensation should reflect some level of risk associated with the performance of the business. As a result, a substantial portion of our named executive officer’s total compensation is in the form of profit sharing and equity grants.

SYNNEX believes that the compensation of its executive officers should reflect their success as a management team, as well as individuals, in attaining key operating objectives, such as growth of sales, growth

 

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of operating earnings and earnings per share, return on invested capital, growth or maintenance of market share, long-term competitive advantage, and ultimately, in attaining an increased market price for the SYNNEX common stock. SYNNEX believes that the performance of executive officers in managing the business, considered in light of general economic conditions, its company and industry, and competitive conditions, should be the basis for determining their overall compensation.

SYNNEX also believes that the compensation of its executive officers should not be based on the short-term performance of its stock, whether favorable or unfavorable, as the trading price of the stock will, in the long-term, reflect the business’ operating performance, and ultimately, the management of SYNNEX by its executive officers. Following the separation and distribution, we will seek to have the long-term performance of our stock reflected in executive compensation through our equity incentive programs.

Competitive compensation is important to attract and retain the talent necessary to lead the company in the competitive and changing business environment in which we operate. In this regard, SYNNEX is mindful of the median level of compensation of our competitors as well as of the median level of compensation in the local area in which an individual is located. SYNNEX strives for internal equity among employees according to job responsibilities, experience, capability, and individual performance. The SYNNEX executive compensation program impacts all employees by setting general levels of compensation and helping to create an environment of goals, rewards and expectations. As SYNNEX believes the performance of every employee is important to its success, SYNNEX is mindful of the effect that its executive compensation and incentive program has on all of its employees.

The SYNNEX compensation philosophy emphasizing performance permeates total compensation for both executive officers and non-executive employees. While SYNNEX does not have an exact formula for allocating between cash and non-cash compensation, SYNNEX tries to balance long-term equity versus short-term cash compensation and variable compensation versus fixed compensation. Executive officers who have greater ability to influence the performance of the business receive more long-term equity as a percentage of total compensation than non-executive employees who have less ability to influence the performance of the business. Similarly, performance-related cash compensation for executive officers as a percentage of total compensation is greater than performance-related cash compensation of non-executive employees. The goal is to create a balanced culture of high performance without undue risk assumption.

Elements of the SYNNEX Compensation Program

SYNNEX has implemented an executive compensation program that consists of four compensation components:

 

  (1)

base salary;

 

  (2)

Management Incentive Plan bonus;

 

  (3)

equity grants; and

 

  (4)

performance-based, long-term incentives (LTI).

The compensation elements are usually administered in three cycles. Merit raises for base salaries are generally performed in the April-May period. Annual equity grants in the form of stock options, restricted stock awards or restricted stock units (RSUs), other than LTI awards, are generally awarded in the September-October period. Management Incentive Plan bonuses are generally paid in the December-January period and LTI awards in the form of performance-based RSUs are generally granted in the January-February period. However, all of the above elements are reviewed and determined on at least an annual basis.

Since Mr. Caldwell was an executive officer of SYNNEX in 2019, the SYNNEX Compensation Committee was responsible for decisions regarding his compensation, as provided in its charter. Mr. Valentine was not an

 

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executive officer of SYNNEX, and Mr. Caldwell, generally in consultation with Dennis Polk, the President and Chief Executive Officer of SYNNEX, was responsible for decisions regarding his compensation consistent with the overall design of the SYNNEX compensation program.

The components of the compensation program for our named executive officers are described as follows:

Base Salary. Base salaries are designed to provide a consistent cash flow throughout the year as compensation for day-to-day responsibilities. Base salaries are reviewed and, if deemed appropriate, adjusted on an annual basis. Merit increases are based on, among other things, individual performance, any new responsibilities assumed and the magnitude of our merit increase budget for the year. With respect to each named executive officer’s individual performance, we assess the breadth and complexity of an individual’s responsibilities and contributions and seek to quantify the same. Determination of base salary is not made in accordance with a strict formula that measures weighted qualitative and quantitative factors, but rather is based on objective data synthesized to competitive ranges and to internal policies and practices.

Management Incentive Plan. Management Incentive Plan bonuses reward individuals for achieving operating and financial goals, in keeping with a performance-driven environment conducive to increasing stockholder value. Bonuses granted to our named executive officers under the SYNNEX Management Incentive Plan are based upon both qualitative and quantitative considerations. The SYNNEX Compensation Committee established in writing specific performance goals for Mr. Caldwell, which must be achieved in order for an award to be earned under the Management Incentive Plan for that fiscal year. Performance goals under the Management Incentive Plan may be based upon any one or more of the following: net income per share, revenue, cash flow, earnings per share, return on equity, total stockholder return, share price performance, return on capital, return on assets or net assets, income or net income, operating income or net operating income, operating profit or net operating profit, operating margin or profit margin, return on operating revenue, return on invested capital, sales productivity, sales growth, market segment share or similar financial performance measures as may be determined by the SYNNEX Compensation Committee. The SYNNEX Compensation Committee set reasonably stringent minimum Management Incentive Plan hurdles and performance metrics. The SYNNEX Compensation Committee is also authorized to recoup any bonuses or portion thereof to mitigate the potential for undue risk assumption.

Mr. Caldwell’s Management Incentive Plan bonus for fiscal year 2019 was based upon the achievement of certain EBITDA performance goals by the Concentrix business. He was not eligible for a bonus unless we met or exceeded the minimum threshold percentage of the EBITDA performance goals. In 2019, the minimum threshold percentage was 75% and the maximum percentage was 133.3%. The actual bonus payable, if the applicable minimum threshold percentages was met, was paid on a sliding scale of the target performance actually achieved based upon a certain percentage of Mr. Caldwell’s annual base salary for the applicable fiscal year.

Management Incentive Plan bonuses for Mr. Valentine was determined by Mr. Caldwell based on Concentrix’ performance with respect to revenue, EBITDA, and operating income margin, as well as Mr. Valentine’s annual performance and contributions to our success. While Mr. Valentine had a target award based on a percentage of his base salary, his award did not have fixed threshold and maximum percentages.

For fiscal 2019, our named executive officers were eligible to receive a Management Incentive Plan bonus based on the following approximate percentages of their respective fiscal year base salaries:

 

Name

   Minimum Payment
(if Threshold is Met)
as Percentage of Base
Salary(1)(%)
     Target Payment as
Percentage of Base
Salary(1)(%)
     Maximum Payment
as Percentage of Base
Salary(1)(%)
 

Christopher Caldwell

     100        200        300  

Andre Valentine

     —          90        —    

 

(1)

The applicable base salary is each officer’s then-current base salary at the end of the fiscal year.

 

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Actual awards under the Management Incentive Plan may be more or less than the applicable targets depending upon Concentrix performance, as well as the named executive officer’s individual performance. For fiscal year ended November 30, 2019, based on the performance of our business and each individual’s contributions, our named executive officers received the following Management Incentive Plan bonuses:

 

Name

   Management
Incentive Plan
Bonuses
 

Christopher Caldwell

   $ 1,307,543  

Andre Valentine

   $ 443,215  

Equity Grants. Long-term incentives involve equity grants and performance retention grants, including restricted stock awards, RSUs and stock options. Restricted stock and RSUs help us to retain key personnel, whereas stock options provide incentive for creating incremental stockholder value. The value of equity grants and performance retention grants derives from stock price, which aligns executive compensation with stockholder value.

Equity grants are based on a number of considerations, including:

 

   

job responsibilities and past performance;

 

   

likely future contributions;

 

   

potential reward to the individual if the stock price appreciates in the public market;

 

   

management tier classification;

 

   

equity grants made by competitors; and

 

   

existing vested and unvested equity holdings.

Determination of equity grant amounts is not made in accordance with a strict formula that measures weighted qualitative and quantitative factors or by reference to specific fixed targets, but rather is based on objective data synthesized to competitive ranges and to internal policies and practices, including an overall review of both employee and corporate performance and the value of equity grants of comparable officers at comparable companies. SYNNEX evaluates its corporate performance objective primarily by financial performance, including growth, return on equity, return on invested capital, and diluted earnings per share. SYNNEX also distinguishes between equity grants of stock options, restricted stock awards or RSUs based upon an officer’s position. SYNNEX believes that stock options carry more risk than restricted stock. As such, SYNNEX expects certain officers with the most direct impact on its overall performance to accept more equity risk and their grants are more heavily weighted towards stock options rather than restricted stock awards or RSUs. In this regard, Mr. Caldwell was the only one of our named executive officers to receive a stock option grant in 2019.

To avoid any impropriety or even the appearance of such, the SYNNEX Compensation Committee in most cases makes equity grants only during open trading windows. If the date of an equity grant falls within a trading black-out period, then the effective grant date is upon the expiration of the third trading day after the trading black-out period ends. The exceptions to this standard procedure are the granting of Long-Term Incentive RSUs, which are valued as of the first business day of the fiscal year, and the granting of equity awards to new employees, which are granted as of the date employment begins. The exercise price for all stock option grants is the market closing price of SYNNEX common stock on the effective grant date. Annual equity grants to our named executive officers are generally awarded each year in the September-October period. SYNNEX believes that the automatic and consistent nature of its equity grant process avoids the possibility of timing deviations.

Performance-Based, Long-Term Equity Incentives. The SYNNEX LTI program, currently implemented through its 2013 Stock Incentive Plan, is designed to provide long-term retention incentives, and also to create an alignment between the interests of SYNNEX executive officers and those of its stockholders because

 

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appreciation in the stock price of SYNNEX shares will benefit both its executive officers and its stockholders. Under the SYNNEX 2013 Stock Incentive Plan, the SYNNEX Compensation Committee may grant LTI awards that require, as a condition to vesting, the attainment of one or more performance targets specified by the SYNNEX Compensation Committee from the list of possible financial and operational performance metrics specified in the plan.

For 2019, the LTI award granted to Mr. Caldwell, as a SYNNEX executive officer, was comprised of performance-based RSU grants. Mr. Caldwell received a grant of performance-based RSUs that cliff vest based upon (1) the achievement of certain threshold EPS target performance percentages and (2) the achievement of certain ROIC performance percentages with both performance metrics measured over a three-year period. In determining the EPS target performance metrics, SYNNEX focused upon growth, return on equity, ROIC, and EPS. The minimum threshold EPS target performance percentage is 75% and the maximum target performance percentage is 166.7%. If the minimum threshold target performance percentage of the internally established EPS goal is not achieved, no performance-based RSUs vest for Mr. Caldwell, regardless of the achievement of the ROIC performance metrics. The minimum threshold target performance percentage is based on the previous year’s EPS plus a reasonable, three-year “stretch” goal taking into account the then current economic environment. Alternatively, if the maximum target performance percentage of the internally established EPS goal is exceeded, no incremental performance-based RSU vesting beyond the maximum award benefits Mr. Caldwell.

The dollar value of Mr. Caldwell’s LTI award was based upon one-third of his target Management Incentive Plan award for the 2019 fiscal year. The actual number of performance-based RSUs, if the applicable minimum threshold percentage is met, vest on a sliding scale of the target EPS performance percentage actually achieved and the dollar limits pre-established by the SYNNEX Compensation Committee. This amount is then adjusted by the percentage increase or decrease corresponding with SYNNEX performance as measured by the ROIC performance metric. To the extent that SYNNEX fails to meet its performance targets for the applicable three-year period, then that portion of the shares underlying the performance-based RSUs are canceled and do not vest. If, for example, SYNNEX achieves an EPS equal to 75% of the EPS target, Mr. Caldwell would receive 50% of the targeted shares. Similarly, if SYNNEX achieves an EPS equal to 166.67% of EPS target, then Mr. Caldwell would receive 200% of the targeted shares.

In order to allow for vesting of 200% of the target performance-based RSUs (pursuant to the vesting criteria discussed above), Mr. Caldwell was granted a number of performance-based RSUs equal to two times the target grant. For fiscal year 2019, based upon the per share price, adjusted for the exclusion of dividend equivalents, on the first business day of fiscal 2019 (December 3, 2018), of $77.60, Mr. Caldwell was granted performance-based RSUs as follows:

 

     Number of
RSUs
granted
(represents
maximum
award of
200% of
target
award)
     Value of
LTIs at
maximum
award of
200% of
target
award
     Number of
RSUs
vesting
at 100%
target
performance
     Value of LTIs
at 100% target
performance
(represents
100% of target
award)
     Number of
RSUs
vesting at
75% of
target
performance
     Value of
LTIs
at 75% target
performance
(represents
50% of target
award)
 

Christopher Caldwell

     9,868      $ 765,757        4,934      $ 382,878        2,467      $ 191,439  

In addition to Mr. Caldwell’s LTI award as an executive officer of SYNNEX, for 2019, each of our named executive officers was granted a SYNNEX LTI award comprised of performance-based RSU grants to incentivize and retain the named executive officers through the separation and distribution as follows:

 

     Number of RSUs granted      Value of RSUs granted  

Christopher Caldwell

     32,453      $ 2,999,955  

Andre Valentine

     7,031      $ 649,946  

 

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These awards were not determined based on reference to specific targets. The RSUs cliff vest upon the earliest of the following: (1) the third anniversary of the grant date provided the named executive officer remains in continuous employment by SYNNEX through the vesting date; (2) the second anniversary of the grant date provided (a) the named executive officer remains in continuous employment by SYNNEX through the vesting date and (b) Concentrix achieves an increase of at least ten percent (10%) in adjusted EBITDA as reported in Company financial statements from Concentrix continuing operations for any consecutive 12-month

period during this two-year period, measured against adjusted EBITDA, with comparable financial measure adjustments (such adjustments to include, without limitations, the effect of any acquisitions), as reported in Company financial statements from Concentrix continuing operations during any trailing 12-month period beginning August 1, 2018; or (3) the expiration of the six-month period after a change in control of Concentrix provided the named executive officer remains in continuous employment by SYNNEX or Concentrix through the vesting date.

With respect to both the SYNNEX equity grants and the LTI program, the SYNNEX Compensation Committee considers at least annually whether to approve specific long-term equity awards based on the recommendations of the SYNNEX President and Chief Executive Officer (except with respect to his own awards). When determining awards, the SYNNEX Compensation Committee considers factors such as an individual’s position, his prior and expected future performance and responsibilities, the company’s retention and succession needs, and the long-term incentive award levels for comparable executives and key employees at companies that compete with SYNNEX for executive and managerial talent. The SYNNEX Compensation Committee also considers the total value of equity awards previously granted and the existing equity ownership of the individual when determining restricted stock award levels, with particular attention paid to the value of unvested awards. In addition, the SYNNEX Compensation Committee considers the potential dilution and accounting costs of long-term equity awards as compared to those granted at other publicly traded companies that compete with SYNNEX for business and executive talent. The SYNNEX 2013 Stock Incentive Plan does not state a formulaic method for weighing these factors, nor does the SYNNEX Compensation Committee employ one.

Deferred Compensation Plan. The SYNNEX deferred compensation plan permits designated employees to accumulate income for retirement and other personal financial goals by deferring present income through a nonqualified plan. The SYNNEX deferred compensation plan became effective on January 1, 1994 and was amended on January 7, 2008 to conform with changes required by Section 409A of the Code. Currently, none of our named executive officers participate in this plan.

Benefits, Perquisites and Other. Other benefits to our named executive officers include medical, dental and life insurance, as well as 401(k) plan participation. These benefits are generally available to all our employees. In addition, Mr. Valentine participates in a supplemental life insurance program and a supplemental long-term disability program that are legacy benefits from his employment with Convergys prior to our acqusition of Convergys in October 2018.

Risk Assessment of SYNNEX Compensation Program

Consistent with SEC disclosure requirements, SYNNEX has assessed its compensation programs and has concluded that its compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company. The risk assessment process included a review of program policies and practices; program analysis to identify risk and risk control related to the programs; and determinations as to the sufficiency of risk identification, the balance of potential risk to potential reward, risk control and the support of the program and their risks to the company strategy. Although SYNNEX reviewed all compensation programs, SYNNEX focused primarily on the programs with variability of payout, with the ability of an executive officer to directly affect payout and the controls on executive officer action and payout. By way of examples, SYNNEX

 

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reviewed its compensation programs for certain design features that have been identified by experts as having the potential to encourage excessive risk-taking, including:

 

   

too much focus on equity;

 

   

compensation mix overly weighted toward annual incentives;

 

   

highly leveraged payout curve a