UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended August 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _____________ to _____________
Commission File Number: 001-39494
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
(Address of Principal Executive Offices) | (Zip Code) | ||||||||||
(800 ) 747-0583
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
The | ||||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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.
☒ | 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
| Class | Outstanding as of September 30, 2022 | |||||||
| Common Stock, $0.0001 par value | ||||||||
Concentrix Corporation
Form 10-Q
Index
Index
| Page | ||||||||
| PART I | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2 | ||||||||
| Item 6. | ||||||||
1
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCENTRIX CORPORATION
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except par value)
| August 31, 2022 | November 30, 2021 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Current portion of long-term debt | |||||||||||
| Accrued compensation and benefits | |||||||||||
| Other accrued liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net | |||||||||||
| Other long-term liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 14) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock, | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
CONCENTRIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except per share amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense and finance charges, net | |||||||||||||||||||||||
| Other expense (income), net | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income before non-controlling interest | |||||||||||||||||||||||
| Less: Net income attributable to non-controlling interest | |||||||||||||||||||||||
| Net income attributable to Concentrix Corporation | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONCENTRIX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(currency in thousands)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | ||||||||||||||||||||
Net income before non-controlling interest | $ | $ | $ | $ | |||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
Unrealized gains (losses) of defined benefit plans, net of taxes of $( | ( | ||||||||||||||||||||||
Unrealized gains (losses) on cash flow hedges during the period, net of taxes of $ | ( | ( | ( | ( | |||||||||||||||||||
Reclassification of net (gains) losses on cash flow hedges to net income, net of taxes of $( | ( | ( | |||||||||||||||||||||
Total change in unrealized gains (losses) on cash flow hedges, net of taxes | ( | ( | ( | ( | |||||||||||||||||||
Foreign currency translation, net of taxes of $ | ( | ( | ( | ( | |||||||||||||||||||
Other comprehensive income (loss) | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive income (loss) | ( | ||||||||||||||||||||||
| Less: Comprehensive income (loss) attributable to non-controlling interest | |||||||||||||||||||||||
| Comprehensive income (loss) attributable to Concentrix Corporation | $ | ( | $ | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONCENTRIX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(currency and share amounts in thousands)
(unaudited)
Three and Nine Months Ended August 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentrix Corporation Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Treasury stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable non-controlling interest | Shares | Amount | Additional paid-in capital | Shares | Amount | Retained earnings | Accumulated other comprehensive loss | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, May 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of non-controlling interest in subsidiary | ( | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation activity | — | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock for tax withholdings on equity awards | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances, August 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, November 30, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Equity awards issued as acquisition purchase consideration | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of non-controlling interest in subsidiary | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of non-controlling interest in subsidiary | ( | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation activity | — | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock for tax withholdings on equity awards | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances, August 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CONCENTRIX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(currency and share amounts in thousands)
(unaudited)
Three and Nine Months Ended August 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentrix Corporation Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Treasury stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional paid-in capital | Shares | Amount | Retained earnings | Former parent company investment | Accumulated other comprehensive loss | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, May 31, 2021 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation activity | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock for tax withholdings on equity awards | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances, August 31, 2021 | $ | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, November 30, 2020 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of net former parent investment in Concentrix | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock at separation and spin-off | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation activity | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock for tax withholdings on equity awards | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances, August 31, 2021 | $ | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
CONCENTRIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
| Nine Months Ended | |||||||||||
| August 31, 2022 | August 31, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income before non-controlling interest | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Non-cash share-based compensation expense | |||||||||||
| Provision for doubtful accounts | ( | ||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Unrealized foreign exchange loss | ( | ||||||||||
| Gain on divestitures and related transaction costs | ( | ||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | ( | ( | |||||||||
| Payable to former parent | ( | ||||||||||
| Accounts payable | ( | ( | |||||||||
| Other operating assets and liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Acquisitions of business, net of cash acquired | ( | ( | |||||||||
| Proceeds from divestitures, net of cash sold | |||||||||||
| Other investments | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from the Credit Facility - Term Loan | |||||||||||
| Repayments of the Credit Facility - Term Loan | ( | ||||||||||
| Repayments of the Credit Facility - Prior Term Loan | ( | ( | |||||||||
| Proceeds from the Securitization Facility | |||||||||||
| Repayments of the Securitization Facility | ( | ( | |||||||||
| Cash paid for debt issuance costs | ( | ||||||||||
| Purchase of noncontrolling interest in subsidiary | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Repurchase of common stock for tax withholdings on equity awards | ( | ( | |||||||||
| Repurchase of common stock | ( | ||||||||||
| Dividends paid | ( | ||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of year | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Supplemental disclosure of non-cash investing activities: | |||||||||||
| Accrued costs for property and equipment purchases | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
CONCENTRIX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(currency and share amounts in thousands, except per share amounts)
(currency and share amounts in thousands, except per share amounts)
NOTE 1—BACKGROUND AND BASIS OF PRESENTATION:
Background
Concentrix Corporation (“Concentrix,” the “CX business” or the “Company”) is a leading global provider of Customer Experience (“CX”) solutions and technology that help iconic and disruptive brands drive deep understanding, full lifecycle engagement, and differentiated experiences for their end-customers around the world. The Company provides end-to-end capabilities, including CX process optimization, technology innovation and design engineering, front- and back-office automation, analytics and business transformation services to clients in five primary industry verticals. The Company’s primary verticals are technology and consumer electronics, communications and media, retail, travel and e-commerce, banking, financial services and insurance, and healthcare.
On December 1, 2020, the separation of the CX business (the “separation”) from SYNNEX Corporation, now known as TD SYNNEX Corporation (“TD SYNNEX” or the “former parent”), was completed through a tax-free distribution of all of the issued and outstanding shares of the Company’s common stock to TD SYNNEX stockholders (the “distribution” and, together with the separation, the “spin-off”). TD SYNNEX stockholders received one share of the Company’s common stock for each share of TD SYNNEX common stock held as of the close of business on November 17, 2020. As a result of the spin-off, the Company became an independent public company and the Company’s common stock commenced trading on the Nasdaq Stock Market (“Nasdaq”) under the symbol “CNXC” on December 1, 2020.
Basis of presentation
The accompanying interim unaudited consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The amounts as of November 30, 2021 have been derived from the Company’s annual audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2021. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These interim consolidated financial statements should be read in conjunction with the annual audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2021. All intercompany balances and transactions have been eliminated in consolidation.
Risks and uncertainties related to the COVID-19 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. The Company successfully transitioned a significant portion of its workforce to a remote working environment throughout the second quarter of 2020 and implemented a number of safety and social distancing measures in the Company’s sites to protect the health and safety of the team. During the three and nine months ended August 31, 2022, almost all of the Company’s workforce was productive, but the Company experienced the continued effects of the COVID-19 pandemic, as variants caused new waves of COVID-19 cases around the globe.
The extent of the continued impact of the COVID-19 pandemic on the Company’s operational and financial performance, including its ability to execute business strategies and initiatives in the expected time frame, will depend on future developments, including the duration, spread and severity of the pandemic, the evolution of the
8
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
For a discussion of the Company’s significant accounting policies, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2021. Accounting pronouncements adopted during the nine months ended August 31, 2022 are discussed below.
Concentration of credit risk
For the three and nine months ended August 31, 2022, no client accounted for more than 10% of the Company’s consolidated revenue. For the three and nine months ended August 31, 2021, one client accounted for 11.9 % and 11.7 %, respectively, of the Company’s consolidated revenue.
NOTE 3—ACQUISITIONS AND DIVESTITURES:
PK Acquisition
Background
On December 27, 2021, the Company completed its acquisition of PK, a leading CX design engineering company with more than 5,000 staff in four countries. PK creates pioneering experiences that accelerate digital outcomes for their clients’ customers, partners and staff. The acquisition of PK expanded the Company’s scale in the digital IT services market and supported the Company’s growth strategy of investing in digital transformation to deliver exceptional customer experiences. The addition of the PK staff and technology to the Company’s team further strengthened its capabilities in CX design and development, artificial intelligence (“AI”), intelligent automation, and customer loyalty.
Purchase price consideration
The total purchase price consideration, net of cash acquired, was $1,581.0 million, which was funded by proceeds from the Company’s new term loan (the “Term Loan”) under its amended senior secured credit facility (the “Credit Facility”) and additional borrowings under its accounts receivable securitization facility (the “Securitization
9
Facility”). See Note 8—Borrowings for a further discussion of the Term Loan, the Credit Facility and the Securitization Facility.
The preliminary purchase price consideration to acquire PK consisted of the following:
Cash consideration for PK stock (1) | $ | ||||
Cash consideration for PK vested equity awards (2) | |||||
Cash consideration for repayment of PK debt, including accrued interest (3) | |||||
Cash consideration for transaction expenses of PK (4) | |||||
| Total cash consideration | |||||
Non-cash equity consideration for conversion of PK equity awards (5) | |||||
| Total consideration transferred | |||||
Less: Cash acquired (6) | |||||
| Total purchase price consideration | $ | ||||
(1) Represents the cash consideration paid for the outstanding shares of PK’s common stock, which includes the final settlement of the merger consideration adjustment paid pursuant to the merger agreement.
(2) Represents the cash consideration paid for certain vested PK stock option awards and restricted stock awards.
(3) Represents the cash consideration paid to retire PK’s outstanding third-party debt, including accrued interest.
(4) Represents the cash consideration paid for expenses incurred by PK in connection with the merger and paid by Concentrix pursuant to the merger agreement. These expenses primarily related to third-party consulting services.
(5) Represents the issuance of vested Concentrix stock options that were issued in conversion of certain vested PK stock options that were assumed by Concentrix pursuant to the merger agreement.
(6) Represents the PK cash balance acquired at acquisition.
Preliminary purchase price allocation
The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification Topic 805, Business Combinations. The purchase price was allocated to the assets acquired, liabilities assumed and non-controlling interest based on management’s estimate of the respective fair values at the date of acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were the
10
assembled workforce, comprehensive service portfolio delivery capabilities and strategic benefits that are expected to be realized from the acquisition. None of the goodwill is expected to be deductible for income tax purposes.
The following table summarizes the preliminary estimates of fair values of the assets acquired, liabilities assumed and non-controlling interest as of the acquisition date:
| As of | |||||
| December 27, 2021 | |||||
| Assets acquired: | |||||
| Cash and cash equivalents | $ | ||||
| Accounts receivable | |||||
| Property and equipment | |||||
| Operating lease right-of-use assets | |||||
| Identifiable intangible assets | |||||
| Goodwill | |||||
| Other assets | |||||
| Total assets acquired | $ | ||||
| Liabilities assumed and non-controlling interest: | |||||
| Accounts payable and accrued liabilities | |||||
| Operating lease liabilities | |||||
| Deferred tax liabilities | |||||
| Non-controlling interest | |||||
| Total liabilities assumed and non-controlling interest | |||||
| Total consideration transferred | $ | ||||
As of August 31, 2022, the purchase price allocation is preliminary. The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (not to exceed twelve months following the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of identifiable intangible assets acquired, the fair value of certain tangible assets acquired and liabilities assumed, and deferred income taxes. The Company expects to continue to obtain information for the purpose of determining the fair value of the assets acquired and liabilities assumed on the acquisition date throughout the remainder of the measurement period. The Company made immaterial measurement period adjustments during the three months ended August 31, 2022.
The preliminary purchase price allocation includes $469,300 of acquired identifiable intangible assets, all of which have finite lives. The preliminary fair value of the identifiable intangible assets has been estimated using the income approach through a discounted cash flow analysis of certain cash flow projections. The cash flow projections are based on forecasts used by the Company to price the PK acquisition, and the discount rates applied were benchmarked by referencing the implied rate of return of the Company’s pricing model and the weighted average cost of capital. The intangible assets are being amortized over their estimated useful lives on either a straight-line basis or an accelerated method that reflects the economic benefit of the asset. The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future forecasted cash flows of the Company following the acquisition of PK.
11
The preliminary amounts allocated to intangible assets are as follows:
| Gross Carrying Amount | Weighted-Average Useful Life | ||||||||||
| Customer relationships | $ | ||||||||||
| Technology | |||||||||||
| Trade name | |||||||||||
| Non-compete agreements | |||||||||||
| Total | $ | ||||||||||
Supplemental Pro Forma Information
The supplemental pro forma financial information presented below is for illustrative purposes only, does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information, is not necessarily indicative of the financial position or results of operations that would have been realized if the PK acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances.
The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the PK acquisition had occurred on December 1, 2020 to give effect to certain events that the Company believes to be directly attributable to the PK acquisition. These pro forma adjustments primarily include:
•An increase in amortization expense that would have been recognized due to acquired identifiable intangible assets.
•An adjustment to interest expense to reflect the additional borrowings of Concentrix on the amended credit facility and the repayment of PK’s historical debt in conjunction with the acquisition.
•The related income tax effects of the adjustments noted above.
The supplemental pro forma financial information for the periods presented is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| August 31, | August 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Net income | |||||||||||||||||||||||
ServiceSource Acquisition
Background
On July 20, 2022, the Company completed its acquisition of ServiceSource International, Inc. (“ServiceSource”), a global outsourced go-to-market services provider, delivering B2B digital sales and customer success solutions. The acquisition of ServiceSource is expected to complement Concentrix’ offerings in this area.
Purchase price consideration
The total purchase price consideration, net of cash acquired, was $142.8 million, which was primarily funded by cash on the Company’s balance sheet, as well as borrowings under the Company’s Securitization Facility.
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The preliminary purchase price consideration to acquire ServiceSource consisted of the following:
Cash consideration for ServiceSource stock (1) | $ | ||||
Cash consideration for ServiceSource vested and unvested equity awards (2) | |||||
Cash consideration for repayment of ServiceSource debt, including accrued interest (3) | |||||
| Total consideration transferred | |||||
Less: Cash acquired (4) | |||||
| Total purchase price consideration | $ | ||||
(1) Represents the cash consideration paid for the outstanding shares of ServiceSource’s common stock.
(2) Represents the cash consideration paid or to be paid for vested and unvested ServiceSource stock option awards, restricted stock units and performance stock units.
(3) Represents the cash consideration paid to retire ServiceSource’s outstanding third-party debt, including accrued interest.
(4) Represents the ServiceSource cash balance acquired at acquisition.
Preliminary purchase price allocation
The purchase price was allocated to the assets acquired and liabilities assumed based on management’s estimate of the respective fair values at the date of acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were the assembled workforce, high-value service delivery capabilities and strategic benefits that are expected to be realized from the acquisition. None of the goodwill is expected to be deductible for income tax purposes.
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The following table summarizes the preliminary estimates of fair values of the assets acquired and liabilities assumed as of the acquisition date:
| As of | |||||
| July 20, 2022 | |||||
| Assets acquired: | |||||
| Cash and cash equivalents | $ | ||||
| Accounts receivable | |||||
| Property and equipment | |||||
| Operating lease right-of-use assets | |||||
| Identifiable intangible assets | |||||
| Goodwill | |||||
| Other assets | |||||
| Total assets acquired | $ | ||||
| Liabilities assumed: | |||||
| Accounts payable and accrued liabilities | |||||
| Operating lease liabilities | |||||
| Total liabilities assumed | |||||
| Total consideration transferred | $ | ||||
As of August 31, 2022, the purchase price allocation is preliminary. The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (not to exceed twelve months following the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of identifiable intangible assets acquired, the fair value of certain tangible assets acquired and liabilities assumed, and deferred income taxes. The Company expects to continue to obtain information for the purpose of determining the fair value of the assets acquired and liabilities assumed on the acquisition date throughout the remainder of the measurement period.
The preliminary purchase price allocation includes $40,200 of acquired identifiable intangible assets, all of which have finite lives. The preliminary fair value of the identifiable intangible assets has been estimated using the income approach through a discounted cash flow analysis of certain cash flow projections. The intangible assets are being amortized over their estimated useful lives on either a straight-line basis or an accelerated method that reflects the economic benefit of the asset. The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future forecasted cash flows of the Company following the acquisition of ServiceSource.
The preliminary amounts allocated to intangible assets are as follows:
| Gross Carrying Amount | Weighted-Average Useful Life | ||||||||||
| Customer relationships | $ | ||||||||||
| Technology | |||||||||||
| Trade name | |||||||||||
| Total | $ | ||||||||||
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Acquisitions impact on results of operations
The results of the acquired operations have been included in the consolidated financial statements since the acquisition dates. The following table provides the results of acquired operations included in the consolidated statement of operations from the acquisition dates through August 31, 2022:
| Three Months Ended | Nine Months Ended | ||||||||||
| August 31, 2022 | August 31, 2022 | ||||||||||
| Revenue | $ | $ | |||||||||
| Income before income taxes | ( | ||||||||||
In connection with the acquisitions, the Company incurred $12,565 and $15,213 of acquisition-related and integration expenses for the three and nine months ended August 31, 2022, respectively. These expenses primarily include legal and professional services, cash-settled awards, severance and retention payments to integrate the businesses. These acquisition-related and integration expenses were recorded within selling, general and administrative expenses in the consolidated statement of operations.
Divestitures
In July 2021, the Company completed the sales of its insurance third-party administration operations and software platform, Concentrix Insurance Solutions (“CIS”), and another non-CX solutions business in separate transactions for total cash consideration of approximately $73,708 . The divestitures generated a pre-tax gain of approximately $13,197 , net of related transaction costs. The gain on divestitures and related transaction costs were included in selling, general and administrative expenses in the consolidated statements of operations.
NOTE 4—SHARE-BASED COMPENSATION:
In November 2020, in connection with the spin-off, TD SYNNEX, as sole stockholder of Concentrix, approved the Concentrix Corporation 2020 Stock Incentive Plan (the “Concentrix Stock Incentive Plan”) and the Concentrix Corporation 2020 Employee Stock Purchase Plan (the “Concentrix ESPP”), each to be effective upon completion of the spin-off. 4,000 shares of Concentrix common stock were reserved for issuance under the Concentrix Stock Incentive Plan, and 1,000 shares of Concentrix common stock were authorized for issuance under the Concentrix ESPP. In December 2021, 523 additional shares of Concentrix common stock were reserved for issuance under the Concentrix Stock Incentive Plan resulting from an automatic annual increase pursuant to the terms of the plan.
In January 2022, the Company granted 137 restricted stock awards and restricted stock units and 129 performance-based restricted stock units under the Concentrix Stock Incentive Plan, which included annual awards to the Company’s senior executive team and retention and new hire awards to staff who joined the Company as part of the PK acquisition. The restricted stock awards and restricted stock units awards had a weighted average grant date fair value of $181.09 per share and vest over a service period of four years . The performance-based restricted stock units will vest, if at all, upon the achievement of certain annual financial targets during the three-year period ending November 30, 2024. The performance-based restricted stock units had a grant date weighted average fair value of $178.58 per share.
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| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | ||||||||||||||||||||
| Total share-based compensation | $ | $ | $ | $ | |||||||||||||||||||
| Tax benefit recorded in the provision for income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Effect on net income | $ | $ | $ | $ | |||||||||||||||||||
NOTE 5—BALANCE SHEET COMPONENTS:
Cash, cash equivalents and restricted cash:
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows:
| As of | |||||||||||
| August 31, 2022 | November 30, 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | |||||||||
Restricted cash balances relate primarily to restrictions placed on cash deposits by banks as collateral for the issuance of bank guarantees and letters of credit for leases and the terms of government grants.
Accounts receivable, net:
Accounts receivable, net is comprised of the following as of August 31, 2022 and November 30, 2021:
| As of | |||||||||||
| August 31, 2022 | November 30, 2021 | ||||||||||
| Billed accounts receivable | $ | $ | |||||||||
| Unbilled accounts receivable | |||||||||||
| Less: Allowance for doubtful accounts | ( | ( | |||||||||
Accounts receivable, net | $ | $ | |||||||||
Allowance for doubtful trade receivables:
Presented below is a progression of the allowance for doubtful trade receivables:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | ||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Net additions (reductions) | ( | ( | |||||||||||||||||||||
| Write-offs and reclassifications | ( | ( | ( | ( | |||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||
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Property and equipment, net:
The following tables summarize the carrying amounts and related accumulated depreciation for property and equipment as of August 31, 2022 and November 30, 2021:
| As of | |||||||||||
| August 31, 2022 | November 30, 2021 | ||||||||||
| Land | $ | $ | |||||||||
| Equipment, computers and software | |||||||||||
| Furniture and fixtures | |||||||||||
Buildings, building improvements and leasehold improvements | |||||||||||
| Construction-in-progress | |||||||||||
| Total property and equipment, gross | $ | $ | |||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
Property and equipment, net | $ | $ | |||||||||
Shown below are the countries where 10% or more of the Company’s property and equipment, net are located as of August 31, 2022 and November 30, 2021:
| As of | |||||||||||
| August 31, 2022 | November 30, 2021 | ||||||||||
| Property and equipment, net: | |||||||||||
| United States | $ | $ | |||||||||
| Philippines | |||||||||||
| India | |||||||||||
| Others | |||||||||||
| Total | $ | $ | |||||||||
Goodwill:
The following table summarizes the changes in the Company’s goodwill for the nine months ended August 31, 2022:
Balance as of November 30, 2021 | $ | ||||
| Acquisitions | |||||
| Foreign exchange translatio | |||||