Good day and thank you for standing by. Welcome to the Concentrix First Fiscal Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Stein, Vice President, Investor Relations.
Please go
ahead. Thank you, and good morning. Welcome to the Concentrix Q2 fiscal 2021 earnings call. This call is the property of Concentrix and may not be recorded or rebroadcast without the permission of Concentrix. This call contains forward looking statements that address our expected future performance and that by their nature address matters that are uncertain.
These uncertainties may cause our actual future results to be materially different than those expressed in our forward looking statements. We do not undertake to update our forward looking statements as a result of new information or future events or developments. Please refer to yesterday's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10 ks. Also during the call, we will discuss non GAAP financial measures, including free cash flow, non GAAP operating income, adjusted EBITDA and adjusted EPS as well as constant currency revenue growth.
A reconciliation of these non GAAP measures is available in the news release and on the Our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. Then we'll open the call for your questions. Now I'll turn the call over to Chris.
Thank you very much, David. Good morning, everyone, and welcome to our Q2 earnings call for During the Q2, we continued to see our value proposition resonate in the market coupled with strong momentum in our sales and solid execution Driving our performance to exceed pre COVID levels. We had record revenue of 1 point $37,000,000,000 in the 2nd quarter, representing organic revenue growth of 29% compared with last year. Improved to $172,000,000 up 155 percent and adjusted EBITDA increased 113 to $208,000,000 compared with last year. In the second quarter, while the U.
S. And some parts of Europe started to open up, We saw continued effects of the COVID pandemic in certain regions, particularly Asia, where we invested in support and resources for our staff care for themselves and their families. We focused on humanitarian efforts for all of our staff and their families as they experience thousands of additional cases across India, Philippines, Vietnam and Malaysia. Our hearts and thoughts go out to all those affected. With the uptick in cases and lockdowns, over 70% of our staff worked At home in the quarter, our work at home performance remains in line with our pre COVID levels when staff were based in our facilities.
Happily, in recent weeks, we have seen a return to relatively stability as COVID cases have started to decrease. Our results in the Q2 included a net COVID impact on profit of $10,000,000 and we expect a similar impact in the Q3. Our Q2 was also very strong for bookings, nearly surpassing our record Q3 of 2020 for renewals, expansion and new logo wins. Our travel vertical is also now starting to show signs of recovery and our communications sector has started to reach a point of stability, which we expected. Andre will provide more details on the accelerated growth in each of our verticals.
To focus on our significant new business With Iconic and Disruptive Brands for a moment, we signed more than 2 dozen new clients including more than a dozen new disruptor brands. Our revenue from disruptor clients is now on a run rate to exceed $1,000,000,000 of total annual revenue. We were also happy to see New client signings growth across our geographical footprint versus being concentrated Driving our business growth is our combination of deep domain expertise, digitally enabled global delivery and the ability to invest in secure technical structure that is highly adaptable and scalable to support our clients' needs. Our unique value proposition intentionally automates lower complexity transactions on behalf of our clients, which leads to stickier, more profitable relationships and more opportunities for growth with existing and new programs. Our solutions help transform client businesses through increased efficiency and by delivering greater customer experiences.
For example, for a large retail and e commerce company This quarter, we recently transformed their existing contact model, reducing the human assist portion by a factor of 3. Then through digital self-service and chatbots, we improved the clients Net Promoter Score by 2.5 times. Our clients value our technology infused solutions and rated us with high performance scores for innovation in our 2nd quarter. Additional example of our wins in the Q2 include volume acceleration with 1 of the world's largest social media firms providing sales and content moderation services, Further penetration within 2 larger financial institutions to provide remediation services, anti money laundering services and know your customer services. Sales of these VOC essential platforms, additional implementations of Amazon Connect and significant growth with existing superior levels of customer experience as an imperative coming out of COVID.
Going into the second half of the year, we are encouraged by the Strength and breadth of our pipeline that continue to grow both from a size perspective and frequency of multiple offering engagements. Among these strong growth opportunities, some business challenges do come to manage. Areas we are fanatical about include the ongoing impact COVID and ensuring we're taking care of our team members around the world. We are also focused on continuing to upskill and invest in our staff as the work we are delivering is more complex This quarter, we are also taking a meaningful step forward by increasing our wages across North America sorry, United States for starting positions to ensure we can meet the demand of our growth and be more socially responsible to the communities we operate in. As a global company whose roots Run through 6 continents and grow deeper every day, we have a long standing commitment to our people and the communities we live and work in.
As part of that commitment, we are very happy to have released our first environmental, social and governance report with our earnings this quarter. The report provides more details on our efforts in corporate social responsibility, the investments we are making and our progress in having a measurable and meaningful impact to our staff and their communities. While we expect this report to involve as we move forward, one thing that will not change is our commitment to doing the right thing for all of our stakeholders, our staff, Our clients, our shareholders and the communities we work in. I would encourage you to visit the Investor Relations section of our website and download a copy. In summary, we are deepening our client relationships, relentlessly innovating with new digital solutions and expanding into emerging markets, while we selectively pursue Strategic acquisitions to drive superior return for our shareholders.
Based upon strong results year to date, we are confident in exceeding the goals we discussed On our last earnings call of constant currency revenue growth above 10% for fiscal 2021 and margins meaningfully above pre COVID levels. We are confident we will achieve our stated goal of growing faster than the market with progression in our profit margins. Finally, I would like to thank our exceptional staff for their commitment to execution, our clients for their trust and our talented Board of Directors for their support and Sure. I'll now turn the call over to Andres.
Thank you, Chris. It's good to be with you today. I'll begin with a review of our financial results for 2nd quarter and then discuss our business outlook for the Q3. As anticipated in our guidance last quarter, our revenue and profit growth accelerated in 2nd quarter and I'm pleased that we delivered results at the higher end of our guidance range. Revenue was 1 point $37,000,000,000 On a constant currency basis, revenue increased organically by over 24% compared with last year.
Reported revenues include a foreign currency benefit of $45,000,000 As Chris mentioned, our strong growth reflects Increased demand across a broad set of existing and new clients in all of our verticals. We also saw growth in every region in which we operate in the quarter. The magnitude of the increase reflects the extreme COVID impacts in the Q2 of last year. Still, even normalizing for COVID impacts, we believe we grew slightly faster in the Q2 than we did in the Q1 of 2021. Our top performing vertical in terms of year over year revenue growth was retail, travel and e commerce, which grew 38% due to strong e commerce Our Banking, Financial Services and Insurance and Healthcare verticals each grew approximately 36%.
Revenue from Technology and Consumer Electronics clients grew by approximately 27%. I'm pleased to report that we were able to achieve the relative stability we expected in the Communications and Media vertical as revenues in this vertical grew slightly on a sequential basis. On a combined basis, we also grew with clients in our other verticals by 15%. Contributing to the growth across our strategic verticals We are over 115 global disruptor clients, which represent about 19% of our 2nd quarter total revenue, Approximately $260,000,000 in quarterly revenue and grew by 47% year over year. Turning to profitability.
Our non GAAP operating income was $172,000,000 and our non GAAP operating margin was 12.6 2nd quarter adjusted EBITDA was $208,000,000 and our adjusted EBITDA margin was 15.2%. Our profitability reflects flow through from strong revenue growth, which more than offset the impact of COVID expenses. On a net basis, COVID expenses approximated $10,000,000 reduction in profit in the 2nd quarter. In terms of net income in the 2nd quarter, non GAAP net income was $125,000,000 and adjusted EPS was $2.37 GAAP results for the Q2 included $35,000,000 of amortization of intangibles and $9,000,000 of share based compensation expense. GAAP diluted EPS was 1 point tax rate of 34% in the 2nd quarter includes a $9,000,000 charge related to tax From the movement of our non core Insurance Solutions business to assets held for sale as part of our efforts to fine tune our business portfolio.
For clarity, the CIS business provides administrative services to life insurance clients and is unrelated to the CX services we provide to the insurance Our non GAAP tax rate was 26%. Moving to cash flow. Cash flow from operations quarter totaled approximately $203,000,000 and capital expenditures in the quarter were $29,000,000 Accordingly, we generated free cash flow of $174,000,000 in the quarter. We continue to expect capital Signatures for the full year to be in a range of 3.5% to 4% of revenue. Turning now to the balance sheet.
At the end of the Q2, cash and cash equivalents was $131,000,000 and total interest bearing debt was $959,000,000 During the quarter, we paid down $150,000,000 on our term loan, reducing our outstanding principal balance on that loan to $700,000,000 Net debt was $828,000,000 at quarterend. At the end of the second quarter, gross leverage approximated 1.2 times Trailing 4 quarters adjusted EBITDA and liquidity remains strong with over $819,000,000 of cash, I'm drawing lines of credit and capacity on our AR securitization. Our current liquidity gives us significant financial flexibility. Our priorities for capital deployment remain growing the existing business through funding organic and strategic growth opportunities. We remain comfortable with up to 3 times gross leverage, which provides ample capacity for future disciplined M and A.
Now I'll turn to our expectations for the Q3. Given the record demand for CX solutions, We expect 3rd quarter revenue to be in a range of $1,350,000,000 to $1,401,000,000 This translates to 6% constant currency revenue growth at the midpoint of the range, including an approximately two positive impact of foreign exchange rates compared with the Q3 of last year. We expect 3rd quarter non GAAP operating income of $160,000,000 to $174,000,000 reflecting flow through from strong revenue growth balanced with investments This includes a meaningful investment to increase the minimum wage the company will pay to our staff in the U. S. We expect interest Expense to be approximately $6,000,000 in the 3rd quarter, an effective tax rate of 27% to 28% and a weighted average diluted share count of approximately 50 Our non GAAP operating income guidance for the Q3 excludes approximately $34,000,000 related to the amortization of intangibles and $10,000,000 of share based compensation expense.
Based on our strong year to date performance, our guidance for the Q3 and strong new business We are confident that we will meaningfully exceed the revenue goal of $5,300,000,000 or double digit revenue growth that we discussed in our last earnings call. Similarly, we are confident that we will exceed our profitability goal of margins above pre COVID levels that we discussed on our last earnings call, again by a meaningful amount. We continue to expect that foreign exchange rates will have about a 2 point positive impact on full year 2021 revenue compared with 2020. In closing, we are very encouraged by the results of the 2nd quarter. We are confident in our expectations for the Q3 and beyond.
Finally, we are a well positioned global We're in a large fragmented and growing market executing a plan to grow organically faster than that market. As a proven successful consolidator in our market with a strong balance sheet, we are well positioned to deliver sustained growth, margin progression and strong free cash flow. At this time, Victor, please open the line for questions.
Our first question will come from the line of Ruplu Bhattacharya from Bank of America. You may begin.
Hi, thank you for taking my questions and congrats on the strong quarter. Chris, you've talked several times about disruptor clients being a focus for the company. Can you maybe just talk about how that relationship progresses with these disruptor clients? Is it all inflationary in the sense That is revenue in year 2 more than year 1 and year 3 more than year 2. And on average, how many years does it take for a disruptor client to become mature
Hi, Ruplu and appreciate the congratulations. From a disruptor perspective, it really Into a couple of categories. I mean, we look at disruptors in terms of are they going to be a leader in their space? Are they doing something that's truly Frankly, where is your focus on the end markets? And as you would expect, there are some disruptors who will start small With us very, very small and will grow extremely rapidly and get to a level of maturity within sort of 24 or 36 months.
There's others that will grow to a moderate level and sort of be consumed by somebody else in the space or consumed by sort of an existing Enterprise client. And then there's some that will not make the other series raises and will be relatively small and might disappear. Generally, what we find from a maturity curve perspective, it's somewhere between that, I'll call it 48 months and maybe 7 years that they start to kind of look at how they do procurement differently than what they've historically done in the past. What we offer to them though is Significant amount of agility, significant amount of ability to scale, the global diversity, significant amount of insight into Regulatory issues in some places, security issues in some places, and then access to technology that From a capital base, they might not be able to invest in as they start out, but certainly is high value to them as they continue to grow. So lots of different offerings we offer into that
Great. Thanks for all the details on that. For my next question, Chris, can you talk about what impact you think competitors Sykes Going private and being purchased by the Sitel Group we'll have on the industry. And as part of that, can you talk about the pricing environment and And your focus on outcomes based pricing, how is that trending?
Yes, for sure. So I mean, certainly, first, I'd like to wish Chuck Sykes congratulations. He's been Great competitor and certainly a legend in the industry and a fantastic operator. From our perspective, we historically have not really competed with that company I've cited in some technology spaces, but the pricing environment historically remains stable, whether it's Private or public competitors. I mean the market is generally the market and what clients are starting to change their attention to Is really to your second point outcomes based pricing or outcomes based performance incentives.
And that's really where I think we shine because we like those contracts. They tend To give us much more leverage, we're able to invest more in those contracts and get better benefit from them. And so we see that as something that will continue to progress in this environment and then takes out Sort of a simple price to price comparison in the marketplace.
Got it. And for my last one, if I can ask one to Andre. Andre, your revenue guide at the midpoint for fiscal 3Q is mostly flat sequentially, but operating margin guide looks like Down 40% sequentially to 12.1%. Can you maybe just talk about the puts and takes impacting operating margin? And then how do those factors trend going forward beyond 3Q?
Happy to and good to speak Thank you, Ruplu. So the real trend there, you're right, the midpoint relatively flattish from a revenue perspective and down just a tick Sequentially from a margin perspective. In the Q3, we invest pretty heavily in Ramps into the 4th quarter. And so that is certainly the largest of the puts As we think about rolling forward from Q2 to Q3, on top of that, as Chris and I both mentioned, We are doing some things globally with staff wages across the globe, With a real focus also on, the entry level wages for our U. S.
Staff. And so that will have an impact as well. But again, so that's kind of how we get to that guidance. We think it's balanced guidance and we're very confident we'll achieve it.
Okay. Thanks again for all the details. Congrats on the strong execution and results. Thanks.
Thank you. Thank you.
Our next question will come from the line of Shannon Cross from Cross Research. You may begin.
Thank you very much. I was wondering, can you talk a bit about how the conversations with customers have changed in sort of the Hopefully, we're in the post COVID world or what some of the customers have learned about what they want to do internally versus outsource. I'm just curious What kind of new opportunities might be there following what we've all gone through during the last year? And then I have a follow-up question. Thank you.
For sure, Shannon. So a couple of kind of high level trends. First of all, we see as a whole, Clients looking for more touchless ways of engaging with clients, in sort of a physical environment and certainly that's been driven by e commerce Driven by more sort of services and products delivered to their homes. It's been driven by more sort of digital engagements where you Don't actually have to talk to somebody or chat with somebody. And so we're seeing those are really the focus around conversations is how to reduce customer effort, How to reduce contact points and how to make the experience sort of delightful in a very simplistic way.
And so that's also changed some of What their priorities have been around saying when we outsource something instead of outsourcing one component of that in order to get full leverage, in order Take out more costs and drive a better experience. They're actually looking at outsourcing more end to end of the process so that, Since we can take over that and then not only put in our own technology, put on our own staff around it, design our own digital experience for it and deliver it to the clients. That has opened up and we made comments about this in sort of Q3 and Q4 scripts and even Q1 is that we're seeing our clients who we've had long standing relationships with Give us more stuff that historically has not been outsourced. And so we see that as a very positive trend.
Great. Thank you. And then I'm curious, Is there a potential for more asset sales when you look at the various companies and capabilities that you have? And on the flip side of that, how are you thinking about M and A these days?
So, Shen, just on the asset sales, you're talking about our divestiture of the CIS business?
Yes, yes, Exactly.
Yes. No, I mean, we're very happy with the portfolio of services that we have and frankly have been investing more and more. CIS was a Unique instance where we took it as far as we could and then it wasn't tying into the rest of our core focus around customer experience. And so I wanted to make sure that that team were able to continue to grow. And so that worked out very, very well for all parties involved.
When we look to the M and A environment, we've talked about this. Evaluations are on the higher side right at the moment. We're very focused on making Sure that we're disciplined in the type of transaction that we would do to drive the right shareholder returns. And we're also very focused in getting capabilities and Technology that will increase our overall ability to deliver better experiences for our clients. We're not after bulk for bulk or size for size, Because we've already attained that and now it's all about really driving superior value to our clients.
Okay. And maybe a clarification just on wages. Is this going to hit from an expense perspective all in the current quarter and or will it be something that sort of rolled through the model over the next few quarters? Thank you.
It's really in the guidance, Shannon, and starts to I I don't want to use the word impact, but the investment starts this quarter and the start of this quarter and will continue to be in our guidance going forward. But it effectively is Increase, for what we're doing within the wage category.
Okay. Thank you.
Thank you.
Once again, that's the time line for questions. Our next question comes from the line of Vincent Colicchio from Barrington Research. You may begin.
Yes, Chris, great quarter. Curious, the Communications and Media segment Had a nice quarter. Should we expect that to be stable going forward or maybe see some growth sequentially? And then similar question on the travel market.
So Vince, From the telecommunication standpoint, we're pretty happy with where it is and we've kind of mentioned that we're seeing stability. So you'll see some growth, you'll See some, frankly, ebbs and flows, but really what we're looking at as a percentage of business and we don't see a material change from where that is, even though the rest of the business It's growing. So, that would indicate there's some underlying uptick, but really we look at it as a percentage of business, more so than anything else and We're very happy with where it is and we're happy with the clients that we're doing and the services we're delivering and the profitability that it's returning to us. In terms of the travel vertical and clients, pre COVID, it was one of our fastest growing verticals, both in the disruptor category as well as in sort of the established Travel company category and hospitality category. What we're seeing is very encouraging, much sooner than we expected with signs of life in the domestic Travel markets, both in Europe and in North America.
So that we definitely want to grow. We definitely want to see continued increases and it Somewhat be reliant on how people feeling about travel and how sustainable travel is and then certainly how business travel kicks in. So a couple of components to that, but absolutely we expect to see that vertical grow over time.
And I think you mentioned the pandemic impacting some of your foreign locations. I apologize if I missed it, but Has the delivery has there been delivery disruption in any of those markets incrementally from last quarter?
No, the team is just an amazing, amazing team in the countries and frankly have just done a remarkable job. We increased our work at home presence as we Kind of called out almost 10%. In the region, we increased it significantly more, but globally, it moved our whole numbers up about 10% 70% work at home and the performance has been in line, if not a little bit better than in facilities in some of those regions. So Extremely happy with how delivery has been able to execute and how we've been able to support the clients.
And Andre, Was there anything unusual in other income this quarter?
And not really. So, what primarily shows up there, Vince, is Foreign currency translation gains, we do some hedging there to try to minimize those the volatility there. What you see coming through as a gain there is some of the forward points that we do get on the hedges that we put in place. And so as I was thinking about that line on a go forward basis, I would think about it being relatively neutral and flat.
Okay. Thanks for answering my questions.
Sure.
Thank you. And I'm showing no further questions at this time. I'd like to turn the call over to Chris for any closing remarks.
Thank you very much. We very much appreciate your interest in Concentrix today. Growth rate with margin expansion. As a market leader in CX Solutions, we are passionately focused on continuing strong execution in our operations to drive continued growth in our valuation. Thank you again and have
a great day. This concludes today's conference call. Thank you for participating.