Concentrix Corporation (NASDAQ:CNXC) Third Quarter 2022 Results Conference Call September 29, 2022 9:00 AMm. ET
Participating companies
David Stein – Vice President, Investor Relations
Chris Caldwell – President and Chief Executive Officer
André Valentine – Chief Financial Officer
Conference Call Participants
Vincent Colicchio – Barrington Research
Ruplu Bhattacharya – Bank of America
Operator
Have a nice day and thank you for being here. Welcome to the call of Concentrix’s Q2 2022 Monetary Effects Convention. At this time, all participants are in listen-only mode. After the presentation of the speakers, there will be a response session. [Operator Instructions] Note that today’s convention is recorded.
Now I’d like to give the lecture to your speaker today, David Stein, vice president of investor relations. Continue.
David Stein
Thank you Elisabeth and good morning. Welcome to Concentrix’s fiscal 2022 third quarter earnings call. This call is the property of Concentrix and may not be recorded or retransmitted without the written permission of Concentrix. , deal with dubious problems. Such uncertainties could cause our actual long-term effects to differ materially from those expressed in our forward-looking statements.
We do not adopt the updating of our forward-looking statements as a result of new data or long-term events or developments. Please see yesterday’s earnings release and our most recent SEC filings for more information regarding uncertainties that may affect our long-term financial results. This includes the threat points provided in our annual report on Form 10-K.
In addition to the call, we’ll discuss non-GAAP monetary measures, adding loose cash flow, non-GAAP operating income, adjusted EBITDA and adjusted EPS, and consistent currency adjusted earnings expansion. A reconciliation of those non-GAAP measures will be performed. had in the press release and on the Concentrix Investor Relations online page under Finance.
With me are Chris Caldwell, our president and CEO; and Andre Valentine, our CFO. Chris will provide an overview of our operational functionality and expansion strategy, and Andre will cover our monetary effects and business outlook. We will then open the call for your questions.
Now I’m going to pass on to Chris.
Chris Calwell
Thank you very much David. Hello everyone and welcome to our call for results for the third quarter of fiscal year 2022. First, many of our regions have experienced excessive weather in recent weeks. And I would like to send our minds to our groups who continue to focus on protecting our and delivering for our customers, continue to do remarkable work.
Now, before we dive into our operating results, I want to discuss economics and conversion dynamics with some of our clients as they try to cope with the persistent demanding situations of the existing macroeconomic environment. At times like these, our consumers want to drive revenue, do more with less through automation, and build visitor loyalty by ensuring the most productive experience imaginable. We believe our provision of disruptive and differentiated visitor reporting uniquely positions us to meet those desires globally.
Our portfolio of new businesses remains strong, and customers who see weakness in their business, we make consolidation pictures with us. Historically, we have done well in good economic times and bad helping our clients achieve their goals. I remain optimistic about the option of achieving our long-term monetary goals.
Our culture values flexibility, tenacity and fear for the good fortune of our consumers in all our actions.
Now let’s move on to our third-quarter results. We conducted the quarter well, proceeding to deliver an expansion of forged earnings and earnings innovations in line with our goal. Reported third-quarter earnings were $1. 58 billion, up 13. 1%, adding a stronger-than-expected headwind to the currency.
At constant exchange rates, gains increased by up to 17. 3% and biological expansion at constant exchange rates to 7. 5%. Our third-quarter GAAP revenue source increased to $221 million, up 22% and adjusted EBITDA increased 20% to $258 million year-over-year. Our non-GAAP earnings consistent with a consistent percentage increased 19% to $2. 95 consistent with a consistent percentage, up from $2. 49 consistent with a consistent percentage last year. We achieved expansion across all of our strategic verticals in the third quarter despite the demanding macroeconomic environment.
Ongoing supply chain issues and lower volume expansion compared to the start of the year have impacted our consumer earnings in some of our verticals somewhat. Our New Economy customers had a very positive impact during the quarter. New economy visitor earnings increased 27% year-over-year to nearly $370 million in the quarter. We continue to take advantage of the breadth of consumers in our new economy, both vertically and geographically. Significant opportunities for expansion through our portfolio of businesses in the medium and long term.
Since our last earnings call, we have signed the largest contract Catalyst has ever signed in its history. Strategic partner, we will enable your virtual strategy first, co-creating the long-term entire virtual experience. This significant competitive victory underscores the importance of transforming the virtual facilities we can now offer through Catalyst and will generate revenue in the coming years starting in the first quarter of 2023.
In addition, we signed a significant new outsourcing agreement with a consumer in our BFSI vertical, once again, a Fortune One Hundred company. This principal transformation assignment with a leading visitor experience insurance company leverages our presence, scale and commitment across multiple sites. to automation, CX generation and analytical capabilities. This allocation is expected to generate a large number of millions of dollars in profits over the next five years.
After a thorough and highly competitive process, Concentrix was chosen as the number one business partner of the visitors. Our unique end-to-end pricing proposition provides mission-critical facilities that set us apart in the virtual CX market and maintain the resilience of our business model.
During the quarter, we also signed more than 2 dozen new logos. Examples of our earnings come with a diversity of new customers in technology, banking/finance, retail and healthcare. The trend towards supplier consolidation also continues to enable expansion in the percentage of visitors to our key accounts. During the quarter, we also welcomed ServiceSource’s world-class B2B sales features to temporarily gain and integrate with our brand. Organizational design and marketing ended a few days after closing.
We have a very strong cultural alignment with the new B2B team, and we are confident that we will exceed our first year job synergy goal while generating significant earnings synergies. We know the moves required to achieve more than $20 million in first-year synergies that we spelled out as an expectation when we announced the transaction, and we have begun to expand a pipeline of joint opportunities that will exceed our first-year sales synergy target.
Our strategy of investing in the features that enable us to design, build and operate the long-term visitor experience is progressing. By the end of the third quarter, we had a portfolio of over $160 million integrator and single-source operator opportunities that combine Concentrix Catalyst’s functions, operations and B2B team that we would not have been able to participate in without those investments.
From an operational perspective, we continue to provide exceptional service with record visitor price achievement scores and staff movements that continue to be higher than pre-pandemic levels. We remain focused on being the spouse of our clients and adding price to those higher strategic relationships. In terms of hiring new technical skills, staffing to meet Catalyst’s demands remains a challenge. We are applying to leverage our global footprint to expand our ability to progress, adding new skill sets in Poland and Costa Rica.
Our worker and visitor satisfaction scores continue to be positive. Customers rate us very well for innovating the visitor’s adventure through generation. This innovation also extends to our internal operations. During the quarter, we introduced and developed more evolved in-house generation platforms, Connect CX, Quality CX, Recruit CX to further unlock margin expansion. The more generation-driven we offer our customers, the more powerful our relationships become.
As we continue to revel in higher wage inflation, specifically in North America and parts of Europe, we continue to make smart progress on wage-related pricing and increased automation to reduce our costs. This is evidenced through our healthy margin expansion in the third quarter. . In terms of running from home, we saw some feedback from our sites in the third quarter and feel like we’re handling those transitions with the more productive interests of us and consumers in mind.
At the end of the quarter, approximately 50% of our business was operating from home. Our strong money generation has allowed us to continue our balanced capital allocation strategy. to investors in the form of dividend completions and percentage buybacks.
In the third quarter, we paid $13 million in dividends and repurchased approximately $50 million of our consistent percentages at an average value of approximately $136 consistent with the consistent percentage. They are pleased to increase the quarterly dividend to 10%. This quarterly dividend accrual translates to $1. 10 consistent with a constant percentage on an annualized basis. As you can see from our guidance, we will close our fiscal year 2022 through assembly of fixed at the beginning of the year and with our new earnings, we will continue to grow faster than the market.
In short, we focus on transforming any CX for our consumers and consumers. We delve into our visitor appointments and frequently innovate with new responses and expand into emerging markets, while selectively pursuing strategic acquisitions to generate incredible returns for our shareholders.
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 advice.
With that, I pass it on to André. Andrew?
André Valentine
Well, thank you, Chris, and good morning, everyone. I’ll start with a review of our monetary effects for the third quarter and then talk about our business outlook for the fourth quarter.
We saw sustained earnings growth, impressive margin improvements, and solid money generation in the third quarter. Third quarter earnings were $1580 million, up 13. 1% as reported. The improvement in reported earnings includes a negative effect of 4. 2% similar exchange rate fluctuations. This higher-than-expected currency reflects the continued weakening of the euro, sterling, Japanese yen and Australian dollar during the quarter. As a reminder, about 0. 33 of our earnings are denominated in currencies other than the US dollar.
The biological expansion adjusted in uniform currency was 7. 5%. Revenue increased across all of our verticals in the third quarter. In percentage terms, profit increases with healthcare customers once they returned led the way, with an expansion of about 26%. Revenue increased 24% in the third quarter, retail and e-commerce verticals.
Our generation and electronics segment Jstomer grew by 12%. The turnover of banking, monetary facilities and insurance customers increased by 11%. Jstomer Communications and Media revenue increased 7% in the quarter, driven by the contribution of the Catalyst acquisition. Each of our 4 strategic verticals grew 10% or more on a biological basis in consistent currencies during the quarter.
Our New Economy consumers generated strong year-over-year expansion of 27% and accounted for 23% of third-quarter revenue. The varied nature of our new economy consumers from a vertical and geographical attitude remains a strength of our business. As stated in our current quarter earnings call, our year-over-year biological expansion in the third quarter continued to be impacted by a headwind of approximately 1 percentage point similar to systems that moved in the current quarter of 2022 earlier than originally planned.
The finishing touch of previous COVID-specific systems in 2022 was another earnings headwind, impacting our year-over-year expansion in the third quarter. While this was included in our expectations, it amounts to a 1 percent headwind. point of gain in the third quarter and will continue to have a similar effect year-over-year through the fourth quarter of 2022.
Let’s move on to profitability. Non-GAAP operating income source $221 million in the third quarter, compared to $182 million last year. Our non-GAAP operating margin is 14%, up a hundred basic issues from 13% in the third quarter of last year. Adjusted EBITDA $258 million, compared to $215 million in the third quarter of last fiscal year.
Our adjusted EBITDA margin was 16. 4%, up 100 basic issues from 15. 4% in the third quarter of last year. This impressive margin expansion reflects the expanding cash earnings stream with new and existing customers, Catalyst contributions, productivity innovations and value increases, partially offset through investment in new program ramps and wage inflation.
Non-GAAP net revenue for the third quarter was $154 million, compared to $132 million last year. Consistent earnings at constant percentage were $2. 95 on a non-GAAP basis, compared to $2. 49 last year. GAAP effects for the third quarter of 2022 included $42 million in intangible amortization, $13 million in acquisition and integration expenses and $10 million in reimbursement expenses consistent with percentages. Our GAAP tax rate was 28% in the third quarter and our non-GAAP tax rate was 27%. These tax rates were higher, basically due to the geographical distribution of our source of income. We expect our full-year GAAP and non-GAAP tax rate to be approximately 25%.
Let’s move on to money. Our third-quarter operating cash flow totaled $152 million and capital expenditures were $26 million. This resulted in a loose cash flow of $126 million in the quarter. Our money expenditures that affected loose cash flow included $10 million in transaction and integration prices similar to the acquisition of ServiceSource on the fourth.
For the full year, we now expect loose money to accumulate through approximately $100 million compared to last year. This will be slightly below our long-term loose money target of approximately 85% of non-GAAP net income. Cash transactions and integration expenses similar to our acquisitions this year will be the main explanation for this variation.
Let us take stock. At the end of the third quarter, money and money equivalents were $176 million and an overall notable debt of $2400 million. Net debt of $2200 million at the end of the third quarter. In terms of capital deployment, we have maintained our balanced approach, adding over equity, investment in the business through mergers and acquisitions, and debt repayment.
During the quarter, we paid a quarterly dividend of $0. 25 consistent with the consistent percentage. And as Chris mentioned, our Board of Directors increased our quarterly dividend to $0. 275 consistent with the consistent percentage payable in the fourth quarter. This accumulation in our quarterly dividend reflects our monetary strength and confidence in the future.
We repurchased 369,000 consistent percentages of our consistent percentages for approximately $50 million in the third quarter. Purchases in the third quarter were made with an average value of approximately $136 on a consistent percentage. At the end of the quarter, we had $367 million left in our repo authority consistent with percentage. We also spent $143 million to get ServiceSource during the quarter, net of money earned. pro forma basis for the last 4 quarters. As we committed at the time of the acquisition of PK, we continue to have the possibility of reducing our net leverage to less than 2 times pro forma adjusted EBITDA until the end of the year, unless further mergers and acquisitions occur. We expect to achieve this vital goal, despite our percentage consistent buyback activity and our acquisition of ServiceSource.
Our liquidity remains strong at more than $1. 2 billion, adding our $1 billion unused credit facility, money and the additional capacity of our AR securitization, which provides significant monetary flexibility for the future.
Now, I’m going to talk about our business outlook for the fourth quarter. As noted in the earnings report, given the significant volatility in exchange rates, we have slightly shifted our technique towards earnings direction to concentrate on consistent expansion rates rather than discrete US dollar values. This gives investors a clearer view of our company’s underlying performance. We’ll be expecting a headwind from about five percent year-over-year problems in the fourth quarter. We will also be expecting to give a contribution of $175 million to the profits of the acquired businesses since the beginning of fiscal 2022.
Our fourth quarter profitability guidance includes a non-GAAP operating income source of more than $254 million. This equates to a non-GAAP operating margin of approximately 15%, a cumulative of 110 basic problems from the prior year. We expect interest expense in the fourth quarter at approximately $28 million, with an effective tax rate of 24% to 25% and a diluted weighted average number of shares of approximately 51. 5 million shares.
Based on the expected data for the fourth quarter, we expect a constant currency biological profit expansion for 2022 of approximately 9%. Based on existing exchange rates, we also expect this to come with a headwind of around four percent year-over-year gains over our reported earnings for the full year 2022. We will expect a net contribution of $486 million in acquired business earnings, net of the effect of divested operations in mid-2021.
Our full-year profitability guidance includes a non-GAAP operating income source of more than $890 million. This equates to a non-GAAP operating margin of approximately 14%, an improvement of 90 core issues over 2021. We expect full-year interest spending of approximately $70 million, an effective tax rate of approximately 25% and a weighted average number of diluted shares of approximately 51. 8 million shares.
Our business outlook does not come with effects related to acquisitions or transactions and integration pricing related to long-term acquisitions. The effects of long-term foreign currency fluctuations are also not included in the forecast. Functionality with forged profit expansion and impressive margin expansion. We, our exclusive visitor, enjoy offerings that will keep our business resilient throughout economic cycles. faster than market expansion through 2025 with significant margin increases, strong loose cash flow generation and the ability to be a leading consolidator in the field, deleveraging our strong balance sheet.
With that, Elizabeth, opens the line for questions.
Q&A session
Operator
[Operator Instructions] The first comes from the lineage of Vincent Colicchio of Barrington Research.
Vincent Colicchio
Yes, Chris, great neighborhood. What gives you confidence in the. . . If I have the right number, a sequential expansion of 7% in the fourth quarter?
Chris Calwell
So, Vince, I mean, clearly, we’ve spent a lot of time analyzing our entire portfolio, looking at our new earnings when they’re going to increase. We took into account what we saw from a software attitude of the source chain and volume of visitors. And we’re 29 days away from the start of the quarter. So we’re pretty confident that’s where we’re going to land for the rest of the fourth quarter.
Vincent Colicchio
It’s smart to hear that you were seeing supplier consolidation, some of the things you’d like to see in a challenging environment. Curious if there has been a slowdown in sales cycles?
Chris Calwell
No, there really hasn’t been a genuine slowdown in sales cycles. What we have detected is that larger deals are coming to the market. Obviously we called two who won. These agreements take longer, but they are not prolonged for the duration of the agreement that they are. Therefore, classic transactions are the same sales cycle, consolidation transactions tend to stick to the same type of classic sales cycle. The larger transactions that arrive are a bit longer, again, within the classic time frames for those types of transactions. So we look at the market from a pipeline attitude and from an agreeing attitude, honestly, relatively solid and it feels pretty strong.
Vincent Colicchio
And are you seeing a significant development in the willingness to outsource more paintings due to pressure from charges?
Chris Calwell
We see consumers: new potential consumers and existing consumers having more conversations about how to make the most of their loading style variables. And clearly, he has noticed in the news several companies that have reduced their workforce. This painting is still ongoing, still needs to be done and traditionally it will be up to suppliers like us to recover some of it, not all, but some of this painting is yet to be done. And certainly, several of our discussions about lead generation come from the discussions of some.
Vincent Colicchio
And one last and step back to the queue. Your clientele in the new economy, you commented that you were diversified, very impressive performances. Curious if there is an exhibition. I guess, in general, there isn’t much. But what is the exposure to corporations that have funding like?
Chris Calwell
Yes. In our new economy group, it is very little. It’s nothing. We have some clients who still want to raise funds. But as a percentage of our earnings in this portfolio, it’s not significant, Vince.
Operator
[Operator Instructions] Our next one comes from Ruplu Bhattacharya’s lineage with Bank of America.
Ruplu Bhattacharya
My first consultation, I suppose, would possibly stick to the consultation on consumers in the new economy. Chris, I think what you said is that profits for consumers in the new economy grew about 27% year-over-year in the quarter. I mean, if I go back to the story of the last two quarters, I think the expansion rates you talked about are more than 40%. So, I mean, have you noticed a slow weakness in that expansion?How do we think about that? Yes, I mean, 27% is a significant expansion. I’m not saying it’s not a strong expansion, but it turns out it’s a slowdown from the last few quarters.
Chris Calwell
Yes, Ruplú, you are right. There is a bit of a slowdown. And we’ve been talking about it for a while, thinking this kind of thing in the higher 40s. Primarily, two things happened around this. First, you’ve noticed that consumers in this area decrease their own expenses due to declining volumes, that’s part of it. I also think that what we’re seeing, just in terms of aggressiveness to penetrate net new markets in this area, is also done with a little more caution.
Therefore, we expect consumers in the new economy to develop very strongly, to be above our average business type and we are very satisfied with the type of visitor portfolio we had because, it must be remembered, a giant part of our new economy. consumers come from other regions and are not in North America. This allows for a secure diversification of this source of income stream. But we surely saw some of the things we expected in the third and fourth quarters.
Ruplu Bhattacharya
It is ok. Chris, I mean, last quarter you said you saw clients who, because of macro, were looking to advance their movement overseas, right?And I think you made $50 million in profit for the total year. Have you noticed?Do you see more consumers who need to move?And do you only have that in mind?
Chris Calwell
Yes. Ruplu, the right question. Actually, I think, I think at our time, we moved forward, I’ll call it, by offshoring profits. As a reminder, the vast majority of these paintings probably originally started at sea, but basically started on land. due to COVID. And really, we accelerated it. And then, and what we’ve noticed after that, is that new offers are coming in from which they’re delivered, more or less in the right proportions for the right reasons.
And the paintings on the coast that we do on the coast are there for a reason, whether it’s a promise of the visitor’s logo, whether it’s for protection or regulation, whatever the case may be. So in our portfolio business, we haven’t noticed any additional changes in the way other people think about where they can deliver their works. In fact, we’ve encapsulated that in our current quarterly calendar.
Ruplu Bhattacharya
It is ok. Maybe one more for you, and then I have two for André. But you talked about those two big deals. Can you give us more main points?Are they with the existing consumers you had?Or are they new conquests with new consumers?And then what kind of paintings is it? And you said it came from Catalyst. So I guess it’s more worrying, higher, how to say, it’s a more troubling and deeper painting. And how big are those contracts? And how many years those contracts last. So, any main point you can provide would be helpful.
Chris Calwell
Yes, of course. So, let’s start with Catalyst’s victory. Catalyst won over an existing consumer we had. We were one of many suppliers for this consumer. The consumer is a Fortune One Hundred company. The consumer reached out to about 30 or 40 large, large, large virtual IT transformation companies, adding headlines, of which we were a part. And its purpose of reducing itself to one or two strategic partners. Purpose of gaining a greater kind of end-to-end control of your application development, application support, and some sort of strategy around virtual execution. And it took almost, my God, nine months, 10 months to go through this very exhaustive process, to the hunt for capabilities, to the hunt for scalability, to the hunt for experience, to the hunt for security, it’s incredibly, incredibly ruthless.
And we were the only type of initiator who won. They brought in one or two spouses who were smaller, but we’ve become the key strategic spouse for that consumer and take care of the paintings of the other people who are there, so if you’re a consolidation game guy. And we’re actually doing a big cleanup on their app stacks and the tech stack, but we’re also developing new technologies for them, resulting in more automation for them and more self-service for them. This is a vital agreement worth tens of millions of dollars, and it’s a multi-year deal based on what we’ve signed. So incredibly, incredibly satisfied about it. Highly technical virtual transformation capabilities, something like best-in-class, a vital victory for us.
The other consumer we won with, since our last earnings call, is more in our classic trades. This is a new visitor for us. It is a matter of a months-long process. This is a consumer who not only seeks to make his position more variable because there will be a rebranding detail, but also foresees a transformation detail to enter the company and necessarily drive automation. , carry out a kind of other supporting paints for the company, as well as the arrival of analytics and certain technologies in your business.
And so, we’ve been selected as your number one transformation partner, and we’re going to do some of the paintings again, and then we’re going to increase our global footprint. That’s worth millions of dollars over the next five years. . And clearly, we’d very much like to make it bigger beyond that, yet what is signed is a bunch of millions of dollars over the next five years. And it’s also a Fortune One Hundred company.
Hopefully this will give you some color in those two opportunities.
Ruplu Bhattacharya
Thank you for all those details, Chris. André, I also have some questions for you. Based on the operating margin exercise guidance, it appears that this implies an operating margin of approximately 14%. Are there more headwinds or tailwinds for margin improvement?Perhaps you can tell us about some of the drivers you see for margin expansion from there?
And then, as a component of that, if you can communicate about the pricing environment. I think you have said in the afterlife that you are looking to put in position a bigger pricing mechanism in terms of more results-based pricing. And how do we think about headwinds and headwinds for margins over the next two quarters?
André Valentine
Of course. It is smart to communicate to you, Ruplu. Yes, so we are very pleased with the margin expansion achieved this year. You’re right, we’re at 14% for the full year consultant, 15% in the fourth quarter. The full year is up 90 basic problems from last year.
You will remember our Investor Day, we indicated that our goal for 2025 is to increase this margin to 14. 5%. Therefore, we believe we still have other levers to use to keep increasing margins over time. We will not update this objective in this scenario. This remains our purpose for 2025. But these are the things we think we can do from a marginal perspective. No doubt if you think about some of the two transactions, namely the ones Chris mentioned, the ability to do more complex transformative things. , whether in the Catalyst area or in the CX area, that complexity, the advent of technology, gives every chance of increasing margins because the price of paints increases.
Certainly, we can also introduce technology, as Chris alluded to, with Recruit CX and the CX quality tool that we put in position to be more productive in what we do internally and generate margins that way. Finally, as we continue to show strong biological growth, we may indeed see leverage in our Gs.
So many reasons why we can increase our margins over time. Yes, the pricing environment hasn’t really changed much in recent quarters. So, two things I would say about it is that we’ve been able to deal with inflation. worldwide, which is most pronounced in North America and parts of Europe. We’ve been very successful in getting worthwhile builds over time to keep up with the ones they’re building. And that, I think, is a testament to the cost of the facilities we supply to our customers.
He discussed results-based pricing. I would say it’s still pretty early days in terms of the amount of outcome-based pricing that currently exists in our portfolio. We see more in some of our projects, but it’s still not the preponderance. of agreements that we see, nor our existing set of agreements that we are executing.
Ruplu Bhattacharya
And then, just for my last question, if I could ask you what you think about capital allocation in this environment. I mean, I know it closes ServiceSource. Is there a lot of integration involved in this?And are you open to more mergers and acquisitions than percentage buybacks?I know he still has permission. And I saw that the Board legalized an accumulation in the dividend. Possibly it would just be a comment on the timing of this, like why now?And just your mind about how you will allocate capital in the future. And sorry, some other component of this is that if you can also communicate about CapEx, CapEx has to move forward. And thanks for all the details. Thank you for answering all my questions.
André Valentine
Of course. Happy to. So, I’ll start with ServiceSource and integration pricing. If you take a look at our press release, we recommend that there will be another $15 million in integration pricing in the fourth quarter. If you go back to when we announced the deal, we think the integration charge would be about $44 million in the process, and we think we’re in line with that, as we spent what we spent in the third quarter and recommend that we move on to spending another $15 million in the fourth quarter, then some still to come probably in the early part of next year.
From a capital allocation perspective, our thinking has not changed. We continue to view cumulative mergers and acquisitions as a vital component of our strategy. Therefore, we will continue to seek attractive sets of clients through mergers and acquisitions, through domain expertise. , whether in a vertical or a geography and certainly, generation thinking about what we would be interested in, from a mergers and acquisitions perspective.
Beyond that, we will continue to generate a strong flow of loose money. And in the absence of mergers and acquisitions, we will seek deleveraging. We remain committed to achieving net leverage below 2x until the end of this year. This is a commitment we make when we buy PK. At the time, we didn’t think we’d be as active in the buyback rate as we were, nor did we know we were going to buy ServiceSource. And yet, we are satisfied with our money generation. Take us under this 2x until the end of the year.
As for the dividend, I think it just shows the confidence we have in the company and our ability to generate loose money and return capital to shareholders. The moment: It’s the one-year anniversary of our dividend launch. Therefore, it seemed prudent to put forward to the Board of Directors and discharge its approval to build the dividend. That’s really the story about it.
Operator
[Operator Instructions] We have a trace of Vincent Colicchio’s lineage from Barrington Research.
Vincent Colicchio
Chris, health care has had a. . . It looks like a quarter of very strong growth. It’s still a small vertical for you. I think you might need to give us your thoughts on long-term prospects here and whether this can become one of your biggest verticals eventually.
Chris Calwell
So, Vince, the fitness is: you’re right on each and every account. Health is a very key vertical for us, very strategic. It grows well. We continue to invest to continue expanding it. It has a tendency to be a bit spotty from an expansion perspective, just like it wins deals in this space. And we’d like to see it increase its length within our kind of two strategic verticals. But other than that, and the importance this could have on the table, just to know that we are focused on expanding fitnesscare as a key strategic vertical for us.
Vincent Colicchio
And then one last one. You said that in North America and Europe, wages are high. Signs of green shoots, lack of a bigger word, improvement there or not?
Chris Calwell
I’ll tell you, in the last few quarters, it’s probably more stable, I guess, that’s the most productive way to put it, where it’s probably more predictable than what we’re still seeing is the kind of higher areas. But I will say that the heat of the birth of the year could be from birth to cold. We have no challenge in meeting our commitments in our type of activity in those markets. But we are also very competitive to make sure that we are competitive in the market. It’s probably too early to say if it’s a bigger upgrade than that, but only outdoors does the heat come out a bit.
Operator
Merci. Je now I would like to turn my back on Chris Caldwell for closing remarks.
Chris Calwell
Thank you all so much for being with us today. We appreciate your interest in Concentrix and look forward to speaking with you next quarter. Thank you all very much. Have a wonderful day.
Operator
That concludes the convening of today’s convention. Thank you for participating. You can now log out.