Synnex Delays Concentrix Spin-off, Cites Coronavirus Crisis
‘We can’t bring this business to the market ... when the focus will be on the virus pandemic, response, and recovery. We will bring Concentrix to the market when the focus will be back on the strategies and prospects of the business,’ says Synnex CEO Dennis Polk.
Synnex has decided to delay its previously-announced plan to split into two separate companies, one focused on distribution and one on services, citing uncertainties in the market caused by the COVID-19 coronavirus pandemic.
Synnex President and CEO Dennis Polk on Tuesday unveiled the delay during the Fremont, Calif.-based distributor's first fiscal quarter 2020 financial conference call.
Synnex's focus is fully on all of Synnex and not the spinout of Concentrix, Polk said in his prepared remarks.
"The reality at this point is that we can’t bring this business to the market as an independent company when the focus will be on the virus pandemic, response, and recovery," he said. "We will bring Concentrix to the market when the focus will be back on the strategies and prospects of the business."
Executives of Synnex and Concentrix were not available to provide further comment.
Synnex in January unveiled plans to separate into two independent companies as a way to drive a sharper focus on both distribution and business services.
One of the two, Synnex Technology Solutions, will continue Synnex's focus on IT distribution. Synnex Technology Solutions will continue to provide a full range of IT-focused distribution, logistics, and integration services.
The second is Concentrix, which will become one of the world's top-two global providers of services in the eight industry verticals including technology and consumer electronics; banking, financial services, and insurance; health care; media and communications; retail and ecommerce; travel and transportation; automotive; and energy and public sector. Synnex said Concentrix currently supports over 125 of the Global Fortune 200 clients, and recorded annual revenue of about $4.7 billion in fiscal year 2020.
For the first fiscal quarter 2020, which ended February 29, Concentrix had revenue of $1.189 billion, up just over 1 percent from the $1.173 billion the organization reported for the same period last year. Concentrix operating income for its first fiscal quarter 2020 was $88.2 million, up over 45 percent over last year.
Concentrix President Chris Caldwell told analysts during his prepared remarks that Concentrix delivered solid results in the quarter and continued its year-over-year constant currency revenue growth and margin expansion despite impacts to its China operations.
"We also continued to achieve synergy target ahead of schedule, see a strong pipeline, and were happy with our execution in the marketplace," Caldwell said.
Concentrix does not yet know the short-term or long-term impact it faces from the COVID-19 coronavirus in terms of business volume or the ability for its operations to capture the volume that is currently being given to, Caldwell said.
"Our primary operational issue to-date has been where the responses of virus by certain cities, states, and countries have made it impossible for our staff to get to our offices," he said. "To a varying degree, we have seen this type of disruption for every region in which we operate."
Concentrix has about 230,000 personnel worldwide, of which over 150,000 are living within restricted movement and work situations that are indicated to last a few days to a few more weeks, but most likely will be extended, Caldwell said.
Of the 150,000 staff in restricted movement locations, approximately 70,000 are unable to work currently at all, he said. The company expects to experience further restrictions as governments continue to refine strategies for dealing with the COVID-19 pandemic, he said.
The biggest part of Concentrix's business impacted by the pandemic is the travel and transportation vertical, which represents about $300 million annually, Caldwell said. He said he expects an impact of 75 percent, and that the business will take many quarters to recover.
Other parts of the business are also seeing negative impacts such as the fintech business, although to a much lower degree, Caldwell said.
The organization is experience higher volume in healthcare, traditional financial companies, and some of the insurance verticals, he said.
"The work that our team is doing every day to support our clients and staff is consistent with emerging from the situation stronger so that we can achieve our long-term growth and margin expansion objectives, albeit on a longer horizon," he said.
In response, Concentrix has been able to move 45,000 personnel to work from home, and intends to move thousands more into working from home over the next few weeks, depending on logistics and on getting client consents, Caldwell said. The company has also decreased employee density, increased sanitation cleaning, and split teams for business continuity, and is looking at offering other technology solutions to help clients automated their processes, he said.
"While we are seeing success with our initiatives, doing this at scale requires tremendous effort both in terms of resources and time," he said. "To reiterate what I said earlier, our focus remains on delivering for our clients and protecting our staff to position the company to exit the situation stronger, and I am confident that our team will make it happen."
Marshall Witt, Synnex's chief financial officer, said during the conference call that, while Synnex is delaying the spinout of Concentrix due to the pandemic, the company is far ahead of its original execution plan.
Synnex in February filed its Form 10 on a confidential basis, Witt said. The company also made significant process with its banking partners on the final spinout, and completed most of the needed internal administration, he said.
"As a result, we were planning to announce on this call that the spin would occur more likely than not at the start of our Q3 or June 1st of this year," he said. "We are still currently committed to doing the spin. But it will be delayed as our primary focus will continue to be on managing our business on a day-to-day basis."
When asked by a financial analyst about salaries during the pandemic, Caldwell said that by principal as a company Concentrix pays its staff.
"There are some government mandates that are publicly out there where they have requested that there will be continued payments for a period of time and/or inability to do any change of staffing level," he said. That really is by jurisdictional conversation, but currently right now, we are paying the individuals who are in a period of not working due to restricted travel or restricted movement."
Prior to the COVID-19 coronavirus pandemic, Concentrix had about 5,000 work-at-home agents, but ramped up within two weeks to 50,000, Caldwell said in response to another analyst's question.
Concentrix is able to ramp up its work-from-home numbers, but how quickly depends on support and infrastructure which varies from country to country as well as dependence on client IT systems, he said.
"We expect that we continue to grow that number pretty significantly," he said. "As you can see in two weeks, 45,000 is significant and our expectation is provided there is no logistical impacts, we continue to grow, probably, not to another 45,000 in two weeks, but certainly we continue to grow that number."