新聚思 (SNX) 2014 Q1 法說會逐字稿

Good afternoon. This is Cindy. I will be your conference coordinator today. At this time, I would like to welcome everyone to the SYNNEX 2014 first-quarter earnings conference call.

(Operator Instructions)

Today's conference is being recorded. If you have any objections, you may disconnect. At this time, I would like to pass the call over to Deirdre Skolfield, Director of Investor Relations at SYNNEX Corporation. Miss Skolfield, you may begin.

Thank you, Cindy. Good afternoon, and welcome to the SYNNEX Corporation fiscal 2014 first-quarter conference call for the period ended February 28, 2014. Joining us on today's call are Kevin Murai, President and Chief Executive Officer; Dennis Polk, Chief Operating Officer; Marshall Witt, Chief Financial Officer; and Chris Caldwell, Executive Vice President and President of Concentrix Corporation.

Before we begin, I would like to note that statements on today's call, which are not historical facts, may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements include, but are not limited to, statements regarding our strategy, including: business; sales and profitability growth; expenses; market share; investment in and growth of our Concentrix business; business trends; growth in shareholder value; expectation of our revenues; net income; and diluted earnings per share for the second quarter of fiscal 2014; margins; our expectation of our tax rate; anticipated benefits of the IBM CRM business acquisition; our performance; benefits of our business model; demand expectations; and economy and market conditions.

These are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Please refer to today's press release and documents filed with the Securities and Exchange Commission, specifically our most recent Form 10-K, for information on risk factors that could cause actual results to differ materially from those discussed in these forward-looking statements.

Also during this call, we will reference certain non-GAAP financial information. Today's earnings release, and the related current report on Form 8-K, describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release, which is available on the Investor Relations page of SYNNEX website. Additionally, this conference call is the property of SYNNEX Corporation and may not be recorded or rebroadcast without specific written permission from the Company.

Now, I'd like to turn the call over to Marshall for an update on our financial performance. Marshall?

Thank you, Deirdre. Good afternoon, everyone, and thank you for joining our call today. I will provide some color on the segment changes we made, and then summarize our results of operations and key financial metrics. I'll conclude with guidance for the second quarter of fiscal 2014 before turning the call over to Kevin.

As you saw in the release, we have renamed our business segments to better reflect our evolving business model. Our distribution segment, which as you know includes both broadline and value-added IT services and solutions, is now technology solutions.

Our GBS segment is now called Concentrix. The Concentrix segment includes the legacy Concentrix business and the recently acquired IBM CRM business and excludes support and IT services for the technology solutions segment, which are now included in the technology solutions segment. Additional information will be included in our 10-Q, which we expect to be filed early next week.

Technology solutions and Concentrix business segments performed very well in Q1. Our Q1 revenue, non-GAAP net income, and non-GAAP diluted EPS all came in above the high end of the outlook provided in our Q4 call.

Let me share some details behind our fiscal Q1 consolidated performance, starting with revenue. Total revenue was $3.03 billion, up 23% compared to $2.46 billion in the same quarter of the prior year. Technology solutions segment revenues were strong in US and Japan and continue to improve in Canada.

Revenue was $2.9 billion, up 20% year over year, led by strong consumer and commercial demand. Technology solutions revenues in the quarter were negatively impacted by the translation effect of foreign currencies, both the yen and the Canadian dollar, by $93 million. Q1 technology solutions revenues were up 23.8% on a constant currency basis, including Supercom.

Concentrix revenues, including one month of the IBM CRM acquisition, were $127 million. Legacy Concentrix revenues were consistent with expectations and up 18% year over year on an organic basis. The IBM CRM revenue for February was also consistent with our expectations.

Moving on to profitability, Q1 consolidated gross margin was 6.83%, compared to 6.34% in Q1 of 2013. The increase was due primarily to the one-month impact of the IBM CRM acquisition. Technology solutions segment margins were slightly down from prior year due to business mix and due to the prior year having certain reserve adjustments with favorably impacted our gross profit.

Q1 total selling, general, and administrative expenses, excluding $8.9 million in acquisition and integration expenses, increased as a percentage of revenues to 4.49%, or $135.8 million. This compares with 4.07% of revenues, or $100.1 million in the first quarter of fiscal 2013. We continue to have effectively manage costs, as we drive flexibility and efficiencies within our support structure, as our business grows. We also continue to make significant investments in people and infrastructure to support our profitable growth.

Q1 consolidated operating income, before non-operating items, income taxes, and non-controlling interest, was $62 million, or 2.05% of revenues, compared to $55.9 million, or 2.27%, in the prior year first quarter. Excluding the $8.9 million in IBM CRM acquisition and other integration costs and $5.7 million in amortization expenses, non-GAAP operating income was $76.6 million, or 2.53% of revenues. At the segment level, Q1 technology solutions GAAP income, before non-operating items, income taxes, and non-controlling interest, was $63.5 million, or 2.19% of revenues, up 19% from the prior-year quarter results of $53.5 million, or 2.21%.

For Concentrix, the loss from operations, before non-operating items, income taxes, and non-controlling interest, was $1.8 million, or negative 1.4% of Concentrix revenues, compared to operating income of $2.4 million, or 5.47% of revenues, in the prior-year quarter. The Q1 loss includes $8.9 million in charges related to the IBM CRM acquisition and other integration costs and $4.7 million in amortization expense. Excluding these charges, non-GAAP operating income for Concentrix in the quarter was $11.8 million, or 9.33% of revenues, which is a healthy profit in light of our significant headcount and infrastructure investments beyond the one-time expenses.

Net total interest expense and finance charges for Q1 were $4.5 million, down $1 million from the prior-year quarter. The decrease was a result of the settlement of our convertible debt in August of 2013. Q1 expense reflects the debt associated with the acquisition of the IBM CRM business, which was funded towards the end of January 2014 and higher working capital needs to fund our business growth. Net other income was $3 million in the first quarter of 2014, up $1.7 million from the prior-year quarter, primarily due to a $2.9 million benefit from a class action legal settlement.

The tax rate for the first quarter of fiscal 2014 was 36.3%, compared to 35.4% in the prior-year quarter. The increase in our effective tax rate was primarily due to our increased profitability and higher tax jurisdictions. For the remainder of fiscal 2014, we anticipate the annual tax rate to be in the range of 35% to 36%.

On a GAAP basis, our first-quarter net income was $38.4 million, or $1.01 per share diluted share. On a non-GAAP basis, our first-quarter net income was $47.7 million, or $1.25 per diluted share.

Turning to the balance sheet, our accounts receivable totaled $1.6 million at February 28, 2014 for a DSO of 47 days, which was up 3 days from the prior-year quarter. Inventory totaled $1.2 billion, or 40 days, at the end of the fourth quarter, up 4 days from the first quarter of 2013. Days payable outstanding was 43 days and up 6 days from the end of the prior-year first quarter. Hence, our overall cash conversion cycle for Q1 2014 was 44 days, up 1 day from Q1 of 2013.

Our debt-to-cap ratio was 33%, compared to 18% in Q4 2013, and consistent with our expectations. At the end of Q1, between our cash and credit facilities, the Company had approximately $600 million available to fund growth.

Other financial data and metrics of note for the first quarter are as follows: depreciation expense was $5.7 million; amortization expense was $5.7 million; HP, at approximately 28% of sales, is down from 31% a year ago, was the only vendor accounting for more than 10% of sales. The year-over-year percentage decrease was primarily due to the Supercom and IBM CRM acquisitions and other mix changes. HP revenue grew year over year.

Cash capital expenditure for the quarter was approximately $4.3 million. Annualized ROIC in Q1 of 2014 was 7.9%, including the impact of our acquisition-related expenses. Trailing Q4 ROIC was 8.8%, including the impact of our acquisition-related expenses. Preliminary cash flow used in operations was approximately $35 million in Q1 and was impacted by our strong growth in the distribution business.

Now, moving to our second-quarter 2014 expectations, we expect revenue to be in the range of $3.1 billion to $3.2 billion. For non-GAAP net income, the forecast is expected to be in the range of $52.7 million to $54 million. Non-GAAP EPS is anticipated to be in the range of $1.34 to $1.38.

The non-GAAP net income and non-GAAP EPS guidance excludes acquisition- and integration-related expenses and the after-tax cost of approximately $8.7 million, or $0.22 per share, related to the amortization of intangibles. One thing to note, weighted average shares are estimated for Q2 diluted EPS is 39.2 million.

As a reminder, these statements for Q2 expectations are forward looking and actual results may differ materially. I will now turn the call over to Kevin Murai, President and Chief Executive Officer, for his perspective on the business and our quarter results. Kevin?

Thank you, Marshall. Good afternoon, everyone, and thank you for joining our call today.

I am very proud of our first-quarter results and of the momentum we are seeing across all of our business segments and geographies. All of our legacy business units contributed to impressive year-over-year sales growth of 20%, and when including the IBM customer care acquisition, our revenue grew 23%.

Within our technology solutions segment, all of our geographies performed well. Sales in the US were strong, as overall IT spending continued to improve across all markets and product segments. Our Canadian sales grew organically and were also aided by our Supercom acquisition, which closed in April of last year.

Our Infotec business in Japan grew almost 40% in local currency, helped with the tailwinds of the planned increases in the consumption tax in April, but also from enhancements to our go-to-market program. Equally important, we continue to improve our margin through continued process improvements.

From a profitability perspective, we delivered healthy margin performance, even with stronger-than-normal growth in broadline product categories, such as PCs, notebooks, and tablets. Our Infotec business produced meaningful profit, as we drove leverage from the significant sales performance.

From a market perspective, we saw strength in both the commercial and consumer segments. Small and mid-sized business continued to be strong; state, local, and education grew; and the US federal market was stable. As I mentioned earlier, we saw good demand in PCs and notebooks, which we attribute in part to the refresh driven by support of Windows XP going away this month.

We also saw solid demand in the consumer markets, particularly in the US and Japan. We continue to focus on key technology growth areas, and our investments in platforms, programs, and people are paying off in areas like Hyve Solutions, software as a service, enterprise mobility, communications, and security.

Now, turning to our Concentrix segment, the headline for the quarter was our successful initial close on January 31 of our acquisition of the IBM customer care business. Overall, Concentrix yielded sales of $127 million, with the legacy business growing at an impressive 18% from the same quarter a year ago.

The acquisition has been immediately accretive to our non-GAAP operating income. I would like to thank the entire team for an incredibly successful integration so far and welcome all of our new associates to the SYNNEX family.

I will now turn the call over to the President of Concentrix, Chris Caldwell, for more color on the Concentrix business. Chris?

Thank you, Kevin.

This is definitely an exciting time in Concentrix's evolution, and we are exceedingly pleased with the progress on the integration work so far. Our primary objective was to ensure that there was no disruption to our new clients and staff, which we accomplished. Within the first 30 days, we had already on-boarded approximately 30,000 staff members, worldwide, onto our payroll and HR systems, started the rebranding of all our locations, and integrated the senior leadership team.

As we have been running the IBM customer care and industry vertical business for over two months now, I am even more confident that this investment was absolutely the right strategic move. It makes Concentrix a top-10 provider in a large and growing global market. We have a world-class solid leadership team, representing both companies, in place now, with a rich and deep breadth of offerings.

The talented staff, the technology integrated solutions, the rich analytics practice, the strong industry vertical portfolio that we have, and the blue-chip clients that we serve are all being leveraged in the new Concentrix. The feedback from both our clients and staff has been extremely positive. This has allowed us to capture new business, expand our existing business, from both organizations through the quarter, confirming our thesis on this strategic investment.

The majority of our clients that were part of the initial close have now moved their contracts to Concentrix, while the remainder are progressing as planned. As we stated at the time of our initial close, some business that is subcontracted from IBM, that are government project-based contracts, will sunset within the first two years of the acquisition as expected.

It is hard to put into words how excited I am about the new Concentrix and so proud of the combined teams' efforts in what we have accomplished so quickly. We have built and invested in a solid foundation of business to compete effectively with any global player, and we have a strong platform for growth, with key capabilities and deep expertise in 10 vertical markets.

We are nimble, extremely client focused, pursuing excellence that drives real value for our clients, which is a message that resonates very well in the marketplace. I am looking forward to a very bright future for Concentrix.

I will now turn the call back over to Kevin.

Thanks, Chris. Now, moving onto our second-quarter guidance, we expect that the growth we have been experiencing in IT demand in the US will continue; IT demand in Canada will continue to improve; and that demand in Japan will be strong, with some short-term impact in the second half of our quarter, following the April increase in consumption tax.

Within our Concentrix segment, we continue to make good progress in integrating the two businesses, and we expect to close the IBM customer care acquisition in the remaining countries in the coming months. We expect the overall business to be on track with the initial projections we made in February, and we look forward to reporting our first full quarter of the combined Concentrix business.

This is an exciting time for SYNNEX, and I would like to acknowledge the hard work and dedication of all of our associates around the world, from both our technology solutions and Concentrix businesses, and now, over 42,000 strong. I also want to thank our vendors, customers, and shareholders for their continued partnership and support. With that, I will now turn the call over to the Operator for questions.

(Operator Instructions)

Jim Suva, Citi.

Thank you, and congratulations to you and your team there at SYNNEX. My questions are regarding the IBM CRM business. As you know, we are quite positive on the integration of it, but I kind of wanted to get your response for a lot of the pushback we often hear about customer concentration -- how many customers are over 10% of that business?

And, how are you retaining them, as well as key employees to make sure that they just -- when they see a change of business card from IBM to SYNNEX, how do you retain those key talents and those key customers? Thank you.

Hi, Jim. It's Chris. So, let's talk about the clients first.

We've been working with the clients since September when we announced the transaction, and everything has been going according to plan with moving them across to our business. And frankly, once they start to understand the combination of the two businesses, where they get the leverage of working with us, they are more excited. And as proof of that, in Q1, we saw some additional expansion from customers coming over, which was fantastic to see.

From a staffing perspective, we have also been working with our staff, had many town halls, working with them in terms of the opportunities with us. They are very excited about being with a company that is now focus solely on growing the services business and investing in the services business further growth. So frankly, we have not seen any disruption to our staff base at this time, nor do we expect any.

And then, as a follow up on the customer concentration, can you help us understand -- is there a handful of customers 10%, 15%, 20%, or how should we think about that?

Jim, great question. We actually have a great portfolio of customers. In the new combined Concentrix, we only have one customer that is marginally over 10%, and the rest of the top 20 are spread very evenly through our 10 verticals to give us a nice, balanced portfolio.

Great, thank you. And again, congratulations to you and your team there at SYNNEX.

Thank you, Jim.

Brian Alexander, Raymond James.

Thanks. Again, nice quarter. Just wanted to touch on the distribution segment, if I look at the revenue is very strong in the quarter up, probably, 8% to 9% better than we expected.

Maybe, Kevin, just a little bit more color on where you saw the upside in the quarter in terms of customer and product segments, just given how strong it was and also by region. And, as far as linearity, was it a fairly normal, in linear quarter, or was it particularly back-end loaded? And then, I have a couple follow ups.

Sure. I guess starting at the highest level, Brian, overall demand in all three countries, in the US, Canada, and Japan, was stronger than we had initially anticipated at the beginning of the quarter.

What we saw was a lot of demand driven by, I guess, number one, just improving economies, but also the PC-notebook segment was very strong as well, and probably a little bit unforeseen in terms of the strength from our initial projections. We believe a big part of that is due to XP support going away. Certainly, we saw that in the US, and we saw that in Japan as well.

But, even when we take a look at other segments, other product segments, really there was strength across the entire business. There is always going to be some that are stronger and some a little bit weaker than what our average was, but segment by segment, every category actually performed very well.

Looking at markets within those countries, SMB continued to be very strong. We also saw good strength in our overall public sector business. Federal, I said was stable, really a lot of strength driven out of state, local, and education as well.

And then, in addition to that, within our consumer business, I do believe that we performed much better than where the overall consumer market had been. We saw good strength in both our Japanese and our US retail segments.

If you look at the revenue guidance, $3.1 billion to $3.2 billion, up about 4% sequentially at the midpoint. I think, normally, you are about flattish in the May quarter. Is that entire delta the incremental IBM revenue that you'll bring on in the May quarter? You'll get two months extra in the May quarter, so if we kind of extract the IBM acquisition that you are basically expecting normal seasonality on a sequential basis, is that the right way to think about it?

Yes, really for the most part, Brian, yes, we do expect normal seasonal trends between Q1 and Q2.

Okay, and then the final one is just on the earnings guidance. So $1.34 to $1.38, it's up about $0.11 sequentially at the midpoint versus the $1.25 you just did, but I think you should be getting at least $0.20 incremental from the IBM acquisition in the May quarter versus the February quarter. So, can you just help us break the EPS guidance on a sequential basis?

And, are you expecting the earnings contribution from, I guess, your legacy businesses, your non-IBM businesses to decline? I guess that's what I'm ultimately trying to ask. And, if so, is that really related to some of the benefits you had in February, like the XP support, the Japan consumption tax, or is there something flawed in the analysis?

No. I think there's a couple of things to point out first. First of all, as I said, we do expect normal seasonality, and obviously, in terms of profitability for our distribution business, we expect to continue to deliver normal and strong results. That being said, we did call out specifically, there was a benefit to our overall earnings in Q1 due to the final payment of the LCD class action suit settlement.

Also, the other thing to point out is our Japanese business in local currency in Q1 grew 40%. And, when you grow 40%, we obviously benefited from that short-term tailwind, a lot of that demand really driven by the increase in consumption tax happening right about now. But, we're able to leverage that type of strong top-line growth into very strong profit, and certainly as the consumption tax does increase this quarter, we certainly don't expect that we are going to see the same kind of levels of profitability because we probably won't see the same levels of top-line growth there.

Got it. Okay. That makes sense. Thank you.

Thank you.

Scott Craig, Bank of America.

Thanks. Good afternoon, everyone. Kevin, with the IBM integration, it certainly seems like you are a little bit ahead of plan, and understanding that you want to keep sort of expectation down a bit, and reiterating where you kind of saw it coming out for the full year, I'd like to get a sense for -- do you think you're ahead of plan and sort of why, if you were?

And then, secondly, it's a business that IBM seemed to struggle with from a profitability standpoint. And, first quarter, out of the gate, it seems like you guys definitely are not struggling with it like they were. So, can you help us understand what sort of changes you've made to that business, since acquiring them, that would help profitability relative to where it was with the prior owner? Thanks.

Hi, Scott, it's Chris. Why don't I take those two questions. So, from the first question, we're actually executing exactly on plan and where we thought we'd be at this time.

As we talked about in the last conference call around the IBM acquisition, we expected it to be about 12 months to be fully separated from IBM. And, that's still on goal and we are executing towards that. And primarily, there's some legacy IT systems in the back office that need to be moved off, which is what will be the long tail of the extraction from IBM.

In terms of sort of profitability, also we are executing on plan. I would caution you by saying we are continuing to invest in the business fairly heavily, as we build out more sales and more marketing within the organization, as well as investing in the technology that's coming across, as we are picking up a large portfolio of intellectual property that's coming that we need to continue to develop, and that is in the process of being done at the same time.

And lastly, in terms of the overall business and client -- there is some seasonality in this business as well that tends to go up and down, as the historical Concentrix business has gone up and down through the seasonality, so there's things like that, that you need to factor into your assumptions.

Okay. Thank you.

Thank you, Scott.

Ananda Baruah, Brean Capital.

Hello. Thanks, guys, heck of a quarter. I guess just following up on the distribution business to start, Kevin, why would there be such a hard stop in some of the momentum, I guess, this quarter versus next quarter in some of what you're seeing with regards to the XP support?

And, what are some of the other product categories -- you've kind of highlighted PCs, but what are some of the other product categories that caught you guys by surprise as well?

Yes, so Ananda, I hope I didn't give the impression that we expect the momentum to come to a stop this quarter. In fact, if anything, we expect a lot of that momentum to continue. Even on the demand that we saw more recently, driven by XP support going away, we do expect that to continue into this quarter as well, so I just wanted to be clear on that.

I think the point I was making on what we do expect to be, perhaps, a little bit different is really just the dynamics in spend in Japan because of the tax increase coming in. Apart from that, it's actually, this quarter, it's hard to break down by product category, because as I said, we grew pretty much across the board in all of our categories.

It's difficult to actually pinpoint one that could have been really that weak, apart from the obvious ones -- things like printers and the consumables that go with that were a little bit softer than our average. But, I think really, the one that was a bit of a surprise on the positive side was the PC notebooks, and overall our mobility practice, including tablets and other devices did very well too.

Got it. That's helpful. And, I guess if you expect the momentum to continue, at least somewhat, why would the view be for seasonal guidance -- seasonal trends in that business and not a little bit better?

Well, I think because -- I mean, just the way my math is working is, we came off a very strong Q1, which was very strong from a year-on-year basis, and if you just kind of extrapolate or do the midpoint -- interpolate the midpoint of where we are, we are still looking at double-digit growth in our distribution segment.

Got it. And then, I guess the last one for me, for now, when should we expect the rest of the IBM deal to close?

For the Wave 2 -- what we call, Wave 2, for the remaining countries that we have left, we expect them to close in the next few months -- in the coming months.

So, in the coming quarter?

Yes, in the coming quarter.

In the current quarter? Yes, is that closing baked into the guidance?

Ananda, we do extract the benefit, the economic benefit, from the entire business in one way or another. And so, yes, the benefit, itself, is baked in the quarter. However, treatment of revenue is somewhat different just because of how contracts get assigned to us and how long that takes.

I got you, so but the revenue benefit would be in the quarter already -- you are already recognizing it?

From a revenue perspective, we are not recognizing revenue of business we have not closed, but we are recognizing the economic benefit of the overall business.

Does that -- I just want to make sure that I understand that. Does that mean that for revenue that is being booked for the business that has not closed that you get -- that shows up in your P&L? Or, does that not show up until -- or does that show up some other way, or does that not show up until after the deal is closed?

I guess the simplest thing is you've got to separate the revenue treatment from the actual profitability. What I've been referring to economic benefit is really the profitability piece.

Yes.

Okay, so the revenue piece does not get recognized on any countries or any contracts that have not either closed or have been assigned to us.

Yes.

However, the benefit -- the profit from all of that business does come to us, some in the form -- some does flow through our P&L, but some does not. Some will actually flow onto the balance sheet.

I got you. So, if the deal were to close -- got it. So, last part -- and I apologize for taking this long -- say the deal closed in sort of a month from now, you may have revenue upside to your guidance, but you would not have any profit upside to the guidance, is that correct?

Ananda, we have -- based on what we know today in terms of our plans on when we intend on closing the remaining countries, we have already baked that into our guidance, so that really is our best view on what we think we are going to see.

I got it. Okay, that's very helpful. Thanks a lot.

Thanks, Ananda.

Osten Bernardez, Cross Research.

Hi. Good afternoon. Thanks for taking my questions.

To begin with respect to the IBM assets, you mentioned that in the past integrating the business would be, obviously, the initial focus, so how should we consider that in your $120 million first-year EBITDA target potential investments for new programs in the year to come? And then, whether you'll be able -- your ability to make that -- to achieve that goal?

And also, could you clarify what the size of those contracts -- those government contracts are that you mentioned that will be sunsetting over the next couple of years? And lastly, how effectively can you integrate those assets that are in the yet-to-be-closed regions?

I guess I'll start off. Chris, you can kind of take the other follow-up questions. We're on track, Osten, as Chris had said, both operationally as well as on track to achieve what we had laid out back in February, $120 million EBITDA benefit within the first 12 months after we did the initial close.

And Osten, in terms of hitting the investments, the investments that we talked about are kind of baked into that $120 million number for the end of the 12 months, so we feel very good about that and very confident about that. And, in terms of the government contracts, we're not breaking out the revenue at this point in time, and we'll provide more clarity to that at a later point, as we are just kind of going through and segmenting some of the bits and pieces to it. It is project work, so some may linger on, but just want to provide visibility to that at this point.

In terms of integrating at that Wave 2 -- or what we call, the Wave 2 countries, in terms of the last countries to close, we are actually already selling services from those countries right now and marketing them and have a very strong integration plan, as we did with the first close, to get the folks onto our payroll, re-brand the centers, put them onto our systems within sort of a day of close.

So, the expectation is that we'll just replicate the plan that we have already executed on and that's in place. But, as it stands right now, we look at the business as one internally, we manage it in terms of those locations being available to deliver services for, and the teams are working well together, despite some still being within the IBM organization.

Got it. That's it for me. Thanks.

Rich Kugele, Needham & Company.

Thank you. Good afternoon. Just a few questions. I also want to ask about the Concentrix side.

Have you seen the competitive landscape change for you, in any way, now that you have IBM behind you? And then, I've got a couple of follow ups.

So Rich, our competitors have changed slightly. Clearly, we weren't in all of the same verticals that we are in now, such as banking, financial services, and insurance, and healthcare, which are now part of our portfolio, so the competitors in that mix have changed.

Also, because our client base is significantly more blue chip, the companies that service those clients we compete exceedingly well with. And, those are new into the mix as we go to market.

Okay. And then, I was interested in your comment about how you're now signing over these contracts under your name. Has that led to any discussions on the customer's part, or your part for that matter, of changing the pricing? Or, is it assumed that you just transfer everything as it was negotiated, and all the contract terms are unchanged and you have a chance later to change them?

So, for the vast majority it is a complete movement, it's exactly as is, in terms of terms, contract length, metrics, performance indicators, and everything else, and it's been very seamless. For a few, there's been discussions around changing some of the metrics or equations.

But at the end of the day, it's really about driving the value, and provided the client is getting the same economic return, and we are getting the same economic return, then we have been able to move them and it's been sort of upside for both clients as well as us.

Okay. The last question is actually just has IBM continued to sell -- my understanding was that early on, you had said that they would be continuing to sell this service with you as the fulfillment?

That's correct. IBM has been exceedingly great partner for us in the last couple of months, and we've really worked well together with their teams on a global basis, and new opportunity creation as well as sort of farming the opportunities that were already in place and have seen at least one win within Q1 from that partnership, so very excited about continuing that on.

Great, and congratulations, again, on the quarter.

Thank you, Rich.

Matt Sheerin, Stifel.

Yes. Thanks. So a couple more questions regarding IBM. I'm trying to get a sense of the revenue contribution in the May quarter, assuming that your core distribution, typically, is flat to up just a little bit seasonally, then that would put IBM in the range of $200 million or so, does that make sense?

Hi, Matt. This is Marshall. So again, as Kevin had said, with Wave 2, or the non-closed countries, it's hard to -- first of all, we can't recognize any of that revenue until they do close.

So, it's difficult for us to carve out specifically to, we'll call it the IBM-CRM pieces, how much is attributable to that. As Chris had said, we are fully integrating both legacy and CRM going forward, and we'll be focused more on providing that guidance rather than a carve out.

Fair enough. And also, as the revenue recognition changes, I'm trying to figure out whether the gross margin attributable to the services business change, because it looks like it's at a run rate of in the mid-20%s or so? And, I'm trying to figure out whether revenue recognition changes would impact the gross-margin float for Concentrix, and then, in turn, the Company, as we model going forward?

Matt, let me take a shot at answering that. No, revenue recognition will not change. Concentrix's definition of how revenue is recognized will be consistently applied prior and going forward.

And Matt, in terms of the margin question, the margins are in line with both the businesses, as they come together, and we don't see any distribution factors between either of it. So, we are quite comfortable that we will continue to execute along those margin lines.

Okay. And, same thing goes for the amortization of intangibles, which I think you said was $13 million -- is that basically the number to be looking at as we go forward through the rest of the fiscal year?

Yes, Matt, this is Marshall again. Preliminary purchase price subject to change going forward, but I would use -- we provided some guidance right at the time of the close at the press release on [February 3] of about $4 million a month. I think that's a good number to use for incremental intangible.

Okay. And just lastly, if I may, just regarding a lot of questions around the demand and you sound quite positive. Just two things -- one did you see any disruptions at all during the quarter due to weather issues within North America? And then, as this pent-up demand from the -- being driven by the XP expiration, are you expecting a headwind, if you will, in terms of demand as we go into the summer?

Yes. So, on your first question, there were -- depending on -- I guess I could call it just smaller pockets of geography within the US, yes, we did see some impact to our customers actually being able to get to work, so we saw some impact on a daily basis. However, overall, we believe that revenue was not lost when you consider the entire quarter.

And then, going forward, it's really hard to call. I do believe that there was certainly some pent-up demand in refresh, and so I think in some ways, the expiration of support for XP kind of helped to release some of that pent-up demand.

I'm not sure how much the acceleration of a normal refresh would have been. I think it remains to be seen. Frankly, though, from what we can tell, in particular for this quarter, we do expect though that the demand picture is going to remain as it was, which is strong.

Okay. All right. Thanks a lot.

Thank you.

Thank you. At this time, there are no further questions. I would now like to hand the call back to Miss Dierdre Skolfield for closing remarks.

Thank you, Cindy. Thank you, everyone, for joining our call today. We look forward to speaking with you further during the quarter. This concludes our call.

Thank you. That concludes today's conference. Thank you for participating. You may now disconnect.