新聚思 (SNX) 2019 Q3 法說會逐字稿

Good afternoon.

My name is Chantelle, and I'll be your conference operator today.

I would like to welcome everyone to the SYNNEX Third Quarter Fiscal 2019 Earnings Call.

Today's call is being recorded.

(Operator Instructions) At this time, for opening remarks, I would like to pass the call over to Ms. Mary Lai, Head of Investor Relations.

Miss, you may begin.

Thank you.

Good afternoon.

Welcome to the SYNNEX Corporation earnings call for the third quarter fiscal 2019.

Joining me today to review our financial results are Dennis Polk, President, CEO; Marshall Witt, CFO; and Chris Caldwell, President of Concentrix.

After the prepared remarks, we will open the call to a question-and-answer session.

Before we begin, we remind everyone that today's discussion contains forward-looking statements within the meaning of the federal securities laws, which statements include any predictions, estimates, projections or other statements about future events, including the company's projected financial results.

Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties discussed in today's earnings release in the Form 8-K we filed and in the Risk Factors section of our Form 10-K and other reports and filings with the SEC.

We do not intend to update any forward-looking statements.

Also during this call, we will reference certain non-GAAP financial information.

Reconciliation of non-GAAP and GAAP reporting is included in our earnings press release and Form 8-K available under the IR section of our website.

This conference is the property of SYNNEX Corporation and may not be recorded or rebroadcasted without our permission.

And now I will turn the call over to our CFO for the financial update.

Marshall?

Thank you, Mary, and thank you all for joining us today.

Our Q3 revenue, GAAP and non-GAAP net income and diluted EPS all exceeded our expectations.

On a consolidated basis, total revenue was an all-time record of $6.2 billion, up 29% compared to $4.8 billion in the same quarter of last year.

FX did not have a significant impact on our top line or bottom line.

At the segment level, Technology Solutions delivered its highest ever revenue of just over $5 billion, an increase of 16% compared to $4.3 billion in the prior year quarter.

Concentrix revenue was $1.2 billion, essentially flat versus last quarter and up 136% from $492 million in the prior year quarter, primarily due to the Convergys acquisition completed in October of 2018.

On a pro forma constant currency basis, revenue grew almost 3%.

Our consolidated gross profit dollars totaled $726 million, up 69% or $296 million versus a year ago.

And gross margin was just shy of 12%, an improvement of 278 basis points from the prior year quarter.

Several factors contributed to the gross profit dollars and margin increase, most notably the positive contribution from our Convergys acquisition and overall strong revenue growth in Technology Solutions.

Technology Solutions gross margin of 6% increased 19 basis points from the prior year quarter.

Concentrix gross margin was 36.7%, down 10 basis points from the prior year quarter.

Total adjusted SG&A expense was $456 million or 7% of revenue, up $185 million in absolute dollars and up 173 basis points as a percentage of revenue compared to the year ago quarter.

The increase in SG&A was mainly attributed to the Convergys acquisition.

The third quarter consolidated non-GAAP operating income came in at the company's highest level ever of $270 million, up $111 million or 69% year-over-year.

Non-GAAP operating margin of 4.4% was a 105 basis point expansion from the prior year period.

At the segment level, Technology Solutions non-GAAP operating income was a record of $150 million, up 28% or $33 million over the prior year quarter.

Adjusted operating margin was 3%, up 28 basis points compared to a year ago.

We achieved significant operating leverage in the quarter as we grew the business.

For Concentrix, non-GAAP operating income in the quarter was $121 million, up $78 million in absolute dollars or 182% year-over-year.

Adjusted operating margin was 10.4%, up 169 basis points from the prior year period.

The increase both profit dollars and margin was primarily due to the Convergys acquisition.

Third quarter net total interest expense and finance charges came in line with our guidance and was approximately $43 million, up from $20 million in the prior year quarter.

The year-over-year increase was due to borrowings to fund the Convergys acquisition and growth in our Technology Solutions business.

We improved our adjusted debt-to-EBITDA leverage ratio from 3.4x in the prior quarter to 2.8x this quarter and expect further improvements next quarter.

Due to a lower leverage ratio, our interest rate is expected to decline approximately 20 basis points in Q4.

For the fourth quarter of fiscal 2019, we expect our quarterly net total interest expense and finance charges to be approximately $40 million.

We remain well positioned from a liquidity standpoint while fixing approximately 6% (sic) [60%] of our variable debt.

The effective tax rate for the third quarter was 25% compared to 28% a year ago.

The decrease in the tax rate is primarily related to the U.S. Tax Reform Act.

For the fourth quarter of fiscal 2019, we anticipate the effective tax rate to be approximately 26%.

Non-GAAP net income was $169 million, up $69 million or 69% from the prior year period, reflecting solid contributions from both segments.

Our third quarter non-GAAP diluted EPS was $3.30, up $0.79 or 31% over the same period a year ago.

Now turning to the balance sheet.

Our accounts receivable totaled $3.5 billion and inventories totaled $2.8 billion on August 31, 2019.

Our cash conversion cycle for the third quarter was 49 days, down 4 days compared to the prior quarter and up 4 days compared to the prior period.

The increase in DIO over the last year was primarily due to expected seasonal increase in Q4 and timing.

Preliminary cash generated from operations was approximately $250 million for the third quarter, and our free cash flow came in strong at $217 million.

As we have consistently stated throughout this year, of our goal to pay down debt, we paid down $196 million in total borrowings in Q3.

Moving forward in Q4, we expect to generate positive cash flow and we are committed to our target of reducing total debt by approximately $400 million in fiscal 2019.

At the end of Q3 between our cash and credit facilities, SYNNEX had approximately $2.1 billion in liquidity available to fund growth.

Other financial data and metrics of note for the third quarter are as follows: Depreciation expense was $39 million; amortization expense was $52 million; capital expenditure for the quarter was approximately $33 million; trailing 4 quarters ROIC was 8.6% and 11.1% for adjusted ROIC.

As described in our press release, the Board of Directors approved a regular quarterly cash dividend of $0.375 per common share to be paid on October 25, 2019, to stockholders of record as of the close of business on October 11, 2019.

Now moving to our fourth quarter fiscal 2019 outlook.

We expect revenue to be in the range of $5.85 billion to $6.15 billion.

Non-GAAP net income is expected to be in the range of $180.5 million to $191 million.

Non-GAAP diluted EPS is expected to be in the range of $3.50 to $3.70 per diluted share based on weighted average shares outstanding of approximately 51.1 million.

Non-GAAP net income and non-GAAP diluted EPS guidance exclude after-tax cost of approximately $44 million or $0.86 per share related to the amortization of intangibles and acquisition-related and integration expenses.

Please note that these statements of fourth quarter fiscal 2019 expectations are forward looking, and our actual results may differ materially.

Now I'll turn the call over to Dennis.

Thank you, Marshall, and thanks to everyone for joining our call today.

Our team delivered another record quarter in both revenue and profits in Q3.

Our revenue of $6.2 billion generated a 29% top line growth year-over-year, and we delivered our highest ever gross profit dollars, operating profit dollars and net income.

Our revenue increase came from both strong organic growth and the Convergys acquisition from last October.

Our financial performance in Q3 further validates our differentiated business model and is a testament to our core values and operating philosophies.

We often use the term entrepreneurial when describing our company culture and resultant success.

Entrepreneurial is not a term often used at companies our size, but an entrepreneurial spirit is at our core and is key to delivering results like we did for Q3.

We have taken very deliberate steps to drive our growth, investing in our associates, systems and relationships with partners and customers.

As we sit today, we have a deeper and richer engagement model in each of our business segments, a direct result from best-in-class execution by our teams as well as our organic investments and the strategic acquisitions we've made.

Regarding our specific segments.

Our Concentrix business performed right on target, and we continue to make great strides in our integration effort of Convergys.

I would like to now turn over the call to Chris to discuss our Concentrix Q3 results and Q4 outlook.

Chris?

Thanks, Dennis.

Concentrix delivered solid results in the third quarter, continuing our trend of like-for-like constant currency revenue growth and over -- year-over-year margin expansion.

We made important progress in the quarter in our integration efforts and the related synergies contributed to a 170 basis point expansion in our adjusted operating margin even as we begin to invest in the seasonal ramp into the fourth quarter.

Third quarter revenue for Concentrix totaled $1.16 billion, an increase of approximately 136% on a reported basis.

On a like-for-like constant currency basis, revenues were up approximately 2.6% with currency fluctuations causing just over a 1% headwind on this measure.

We had a strong quarter of new business signings and are encouraged by the strength of our pipeline and the breadth of verticals, geographies and capabilities included in our new business wins.

We have also executed very well on our strategy to rebalance our portfolio with telecom revenues now slightly below 25%.

Year-over-year, this represented an impact of 3% to our growth rate, but gives us a healthier balance to our business going forward.

Adjusted operating income for the quarter was $121 million, up from $43 million in the year ago period.

Adjusted operating margin was 10.4%, up from 8.7% last year.

The improved profit margins are the result of progress of integrations, synergies, strong cost containment efforts and continuing efforts to improve the profit profile of our portfolio of offerings, footprints and clients.

On the transaction synergy front, we exited the quarter at an annual run rate for synergies of approximately $100 million, well ahead of our year 1 target of $75 million and believe we will achieve more than $150 million run rate at the end of fiscal 2020, a full year ahead of our schedule.

Our GAAP results for the quarter reflect approximately $9 million of integrated-related expenses as we made meaningful progress in the integration as we finish migrating our finance and HR systems to 1 common set of tools this quarter.

The majority of what remains is a consolidation of facilities and data centers, which will continue to happen through 2020.

We continue to expect the total spend on transaction and integration will be approximately $100 million including approximately $40 million we already spent last year.

Our margin expansion and disciplined investment strategy resulted in another quarter of strong cash flow generation.

Cash flows from operations in the quarter totaled approximately $132 million.

Additionally, we spent $27 million on capital expenditures this quarter.

We expect a moderate increase in capital spending during the fourth quarter.

We continue to believe that on a long-term basis, capital spending in this business unit should approximate 3% of revenue.

Turning to Q4.

We expect a meaningful sequential ramp in revenue and profitability consistent with the seasonal pattern in our business.

We will continue to rebalance our portfolio on higher-margin services across our verticals for the coming quarters as we have successfully done all last year while still focusing on driving profitable growth.

As I conclude, I would like to thank all the Concentrix team members who are working to exceed our clients' needs and have helped us achieve our milestones for the integration ahead of our schedule.

Our broad capability set, in conjunction with the team's hard work and dedication, give me confidence in our continued success.

Back to you, Dennis.

Thanks, Chris.

Moving on to our Technology Solutions business.

Our TS segment achieved an all-time record revenue of $5 billion in Q3.

Contribution to this achievement was well represented across our sub-business units and geos within TS.

Assisting our year-over-year growth was the shipment of several sizable rollout and integration projects we won in prior quarters.

Our expectations was -- were that these larger projects would shift over Q3 and Q4 but a significant portion was transacted in Q3.

While a benefit to our quarter, by no means, was that the only reason for our exceptional performance as our core distribution business grew faster than the market as well.

Major project areas contributing to our growth were PCs, networking and cloud and software-related solutions.

From a customer standpoint, we saw strength in SMB, and we had a solid SLED seasonal period.

With our rapid growth in the quarter came significant leverage as TS non-GAAP operating margin achieved a Q3 record of 2.97%, a very high bar to continue to meet but does show the capability of our platform when we layer on more business.

Turning to our fourth quarter outlook.

Historically, Q4 is our strongest quarter of the year, and we are in solid shape entering the final 3 months of 2019.

Looking forward, as Chris noted, we expect our Concentrix business to have a seasonally strong Q4 and as a result, drive significant leverage and returns.

For Technology Solutions, we expect normal seasonality for Q4.

Our sequential top line revenue growth may be a bit more muted than prior years but primarily due to the success noted in Q3 versus any other factors.

Similar to last quarter, while we acknowledge that there are macro and other challenges in the current environment, we believe we are well positioned to adeptly adjust to any change in our large marketplaces.

Our commitment to foster deep and strategic relationships with our partners and customers has been and will continue to be paramount to our strategy.

From these relationships, we will continue to generate new and innovative opportunities to grow our business.

To wrap up my comments, I want to thank all of our dedicated associates around the world.

The results today are from a tremendous amount of hard work by the entire team.

I also want to thank our business partners and shareholders for their continued trust and support.

With that, I'd like to open up the call for questions.

(Operator Instructions) Your first question comes from Adam Tindle with Raymond James.

I just want to start on Concentrix.

I think revenue grew in the quarter.

And rewinding back to the Convergys acquisition before you acquired it, that business was declining for a little while and was flat in Q4 of 2018 when you acquired it, and now the combined business I think has grown revenue each quarter in fiscal '19.

So I just want to touch on the sustainability of that trend for the combined business.

You've talked about exiting Q4 of '19 at market growth rates.

Does that still stand?

And as we think beyond Q4, are there reasons why you would not sustain that market growth rate, callouts of contracts exiting or anything like that moving forward?

Adam, it's Chris.

So a couple of things.

You're correct.

The Convergys business was declining for about 3 years prior to us doing the acquisition, and we have been able to sort of stabilize and start to grow the combined business.

We do see it as sustainable.

I mean that's what we're in the business of, and we've had a very solid track record of turning around declining businesses and growing it.

We have been more aggressive in this acquisition in terms of rebalancing the portfolio to make sure it's more equally balanced around some geographies, equally balanced around capability set, equally balanced around verticals.

And that, as we indicated, has produced some headwinds, but we expect to kind of overcome that going through 2020 and continue to grow our business.

And in terms of exiting on the growth rate, we are still focused on driving to that.

If you look at the underlying business, we're doing that already if we weren't sort of rationalizing some of the portfolio, and our belief is that we continue to do that and drive sustainable growth.

Okay.

That's helpful.

And just another one on Concentrix, on non-GAAP operating income, I think it was about $120 million in the quarter.

And if you kind of build this up a year ago in Q3 of 2018, stand-alone Concentrix was about $40 million.

Convergys generated $60 million as a public company.

You talked about synergies, which are over $20 million run rate.

So if you just kind of keep both businesses flat and add in cost synergies, it would kind of get you to that $120 million that you reported in Q3.

So just a long way of saying that skeptic could maybe point out that it doesn't look like operating profit dollars are growing outside of the acquisition and cost synergies.

I guess if you could just maybe touch on what might be missing in that analysis and maybe more broadly, touch on the path to growing operating profit dollars in the business moving forward?

Yes.

Adam, it's not really apples to apples because what you're not seeing is the underlying ramp-up of new programs that we've won and new capabilities that we're investing in outside of sort of duplication in synergies that we've driven in the business.

That's the underlying margin expansion opportunities that we have in front of us as we go forward into 2020 because as the sort of new programs, new investments start to harvest, you'll start to see that margin expansion.

We had the same sort of thought -- or I guess skepticism a year -- a bit ago when we're getting to 10 -- double-digit op income, is that we invest very heavily, but the reality is it drives a better business over time.

And so we continue to seek good margin expansion possibilities in our business.

Very fair point.

Maybe just one last quick clarification for Marshall on cash flow.

It was positive in the quarter, and this is typically a seasonally weak quarter over the past few years.

TS growth was very strong, which is typically a drag on cash flow.

Can you just talk about cash generation in the quarter?

And is it possible -- it looks like there's some room in inventory days that continue to come down.

Could you get the cash cycle back to the mid-40s like years past?

Yes.

Adam, the short answer is yes.

The takeaway for us is that we're pleased to see equal contribution in cash flow for both segments, Convergys or Concentrix and in TS.

And then in Q4, we still expect, as in my prepared remarks, to see another solid quarter performance.

And yes, gross versus net does cloud a little bit of the absolute cash conversion cycle.

And I think if you were to peel that away, low 40s is what you'd see, and that's what we'd expect going forward.

Your next question comes from Ananda Baruah with Loop Capital.

Appreciate you guys taking the question.

Apologize for the background noise.

I'm traveling.

I put it on mute in between, so that seems -- yes.

Just a couple for me, if I could.

You mentioned, Dennis, that some of the large deals, which you won will ship this quarter, and so revenue may have been, I guess, a little bit higher, so that they are anticipated, but the guidance for next quarter is healthy as well.

Can you just tie together the remarks?

And do you have more new big deals wins now ramping next quarter as well?

Like can you talk about any momentum there?

And then I have a follow-up for you.

Sure, Ananda.

This is Dennis.

So as far as talking about the project wins in Q3, we're just trying to get some background behind how we beat our expected -- or our guidance we gave to the market back in June.

As far as the Q4 guidance, we do still have a few projects that should roll out in Q4, but overall Q4 is just about our performance in the marketplace and our expectations that we'll continue to beat the overall growth in the market.

That's really helpful.

And then next question is actually for both of the business because.

I believe year-to-date, you've made remarks in the past about share gains both in TS, that includes also larger deal wins now that you've had Westcon-Comstor sort of in the portfolio.

And then I believe you've also talked about somewhat seeing share gains as well, maybe even above original expectation in Concentrix with the addition of the Convergys product line.

Can you talk to what you're seeing in terms of share gains in both of the businesses?

And do you think that those can continue to be material going forward?

And then I have one last one after that.

Ananda, it's Chris.

So let's talk about the Concentrix business first.

In terms of share gains, we are making share gains across our portfolio.

That's some of what is driving the growth and also improving some of the profit margins as we get more capabilities and get more scale across those clients.

Some of that is being offset by automation, but what we're finding is that our partners are sort of driving more business to us as we automate it and then taking out smaller partners out of their ecosystem.

And that tends to be what you're experiencing within the BPO business.

Dennis?

Yes.

On the TS side, Ananda, it comes down to a lot of blocking and tackling on a day-to-day basis that allows us to increase our share.

Just to give you kind of a couple of highlights that we focus on the most, we talked about going after and trying to win larger deals over the past year, and we've been successful in doing that.

Having a larger platform, a larger collection of vendor partners has allowed us to do that, and that's allowed us to take share.

But I'd really go back to the basics of the day-to-day blocking and tackling, building relationships with vendor partners and customers that's really allowed us to grow our business overall.

Okay.

Great.

And then that's helpful.

And then last one for me, Marshall.

To hit the -- to hit your debt paydown target for the November quarter, do you need to do anything unusual?

Or is it basically set up as long as you guys execute to achieve that?

And then looking at the next fiscal year, once you get past the 2.5x leverage or once you achieve that, what should our expectation be for those -- sort of for your leverage targets as we go forward?

Yes.

Ananda, I'd say the playbook we had for Q3, we expect to repeat that in Q4 with balanced improvement through progression from both segments.

Too early to look at next year, but our intent to continue to pay down doesn't cease or stop at the end of this year.

As I mentioned, the fact that our leverage got to a point where our interest rate is now going to be down in Q4, we expect that to benefit us even further into 2020.

So expect solid cash contribution next year, but beyond that, I won't give any specifics yet.

You next question comes from Matt Sheerin with Stifel.

Just had another question or clarification regarding the guidance in Tech Solutions.

Chris talked about meaningful sequential growth in Concentrix, so let's say that's mid- to high single digits.

That would imply that Tech Solutions would be down sequentially.

I know you talked about seasonality but also talked about all those big deals that you've filled last quarter.

So could you just clarify that?

Because if you look back historically in the last 5 or 10 years, you've been anywhere from up 3% to up double digits.

So if you can clarify, that will be great.

Yes, Matt, you kind of answered your own question there.

Bigger deals in Q3, we're conservative in terms of how we guide.

So I think that's, as Dennis said in his remarks, probably the biggest contributor to our outlook for Q4.

But we still expect a strong Q4.

Gross revenue on a year-over-year basis, we still believe we'll be in that mid-single digits, which is what we look at in terms of our stance for where we compare relative to the market.

So mid-single digits year-over-year, so that'll still be down a little bit sequentially.

And on the -- if you could just drill down in terms of the area of strength because in those deals, those rollouts, is that primarily PC kind of fulfillment deals?

You also talked about strength in networking, and we saw from your competitor had double-digit growth with big networking suppliers.

So is there momentum in that business?

Or are you also just benefiting from the Westcon cross-selling relationships?

Yes.

Matt, this is Dennis.

The last part of your question, yes, we're 2 years into the Westcon-Comstor acquisition.

We're 1 full year into the North American system integration, so really starting to see a lot of benefits from that transaction.

Obviously, networking was a big part of the Westcon-Comstor business.

And the cross-selling of networking products is really starting to be a significant tailwind for us at this point in time.

Okay.

And then on the PC rollout, is that primarily PC fulfillment that you're seeing?

No.

Our PC business, as I mentioned in my prepared remarks, was strong in the past quarter.

But when it came -- when it comes to the rollout projects, that was really more around storage and networking products and server as well.

Okay.

And then just lastly, there's been reports about another round of Intel CPU shortages and concerns about supply.

Are you seeing that at all?

And then you've been pretty much on top of all these shortages of various components in the last couple of years.

But any concerns there or any actions there?

We're always concerned when there are shortages in the market, but as we've shown, we can execute well through any type of challenges when it comes to shortages of products that we sell.

The processor shortage challenge has really existed for most of the year, and it really continued Q3, and we're -- based on our projections and assumptions on Q4 as if it will continue.

Your next question comes from Ruplu Bhattacharya with Bank of America.

One of the benefits of the Convergys acquisition was that you could cross-sell services across geographies.

So can you talk about like how far along are you in that process and maybe talk about which verticals you're seeing stronger growth, faster growth versus which verticals are growing slower?

It's Chris.

Yes.

So first off, I think we talked about it 2 quarters ago, 3 quarters ago that the majority of our deals that we are writing right now take from 1 part of the acquisition or the other that came together.

So we are getting that benefit of that cross-selling right now that's happening not only in market share gains with set client bases that we're focused on as well as net new clients because we have a very robust footprint.

So that's already kicking in, and we're seeing some very, very good benefits.

We're also seeing some good traction in some of our higher-value services like analytics and voice of the customer and some of our key practices that came across from the Convergys acquisition across our overall client base.

So we're seeing some good traction from that perspective.

And then in terms of just overall stronger vertical, we don't really break them out.

I would say that our strategic verticals are growing faster than our average, which tend to be health care, financial services, banking, consumer electronics, technology.

We've also seen travel do relatively well, although that also encapsulates some e-commerce players in that space as well.

Okay.

Maybe then another one for you.

Given where you are with the Convergys integration, what is your appetite for more M&A in this space?

And maybe if you can -- maybe, Marshall, if you can give us your thoughts on uses of cash, M&A versus buybacks versus pay down of debt.

Yes, Ruplu, so yes, our approach generally in regards to capital markets and our allocation has been pretty consistent.

We look at both sides of our business with the same type of weighting and opportunistic view and lens.

As you know, in the last few years, we've done deals on both sides, and we continue to look at that again as the -- I stated in my prepared remarks about our liquidity.

Turn it over to Dennis or Chris, anything else -- color on that?

I would say the same thing as Marshall.

We're opportunistic.

We are always in the market looking.

And if it's the right investment, we will be able to act on it.

Okay.

Okay.

And that makes sense.

And one last question for me.

With respect to inventory turns and your overall outlook for inventory, I think inventory was up 7% sequentially even though the revenue is kind of being guided maybe down a little bit on -- at the midpoint.

So how should we think about the inventory turns going forward over the next couple of quarters?

And how should we think about free cash flow over the next couple of quarters?

Sure.

So I'll get free cash flow, we obviously expect to have continued free cash flow into Q4 to accomplish our goal of paying down total debt for the year of $400 million by the end of 2019.

A couple of more of specific comments around inventory.

We did see inventory move up slightly, and the biggest reason for that was we had a lot of in transit towards the end of August that if you pull that out in essence makes our inventory fairly flat whether you look at November or if you look at May where our revenues were up 11% and 10%, respectively.

So we feel good about that.

Again, in my comments made earlier about the cash conversion cycle, if you look at our DIO, it came in around 47 days.

The impact that gross versus net had on it for the quarter was 6 days.

So we pulled that back, we're right around 40, which is again good efficiency for us.

And as I always say, we're never satisfied with our overall conversion cycle, and we always look to press that to be more efficient going forward.

Your next question comes from Shannon Cross with Cross Research.

My first is just geographic.

I think you talked about it on the TS side being pretty broad-based strength, but I'm wondering if you saw any prebuying in Japan prior to the consumption tax increase or anything specific in any of the geos?

Shannon, this is Dennis.

As far as our geos, I think it's best to kind of put them in 2 categories.

Japan, LatAm and Canada all performed right to expectations from a top and bottom line perspective.

And then regarding Japan, did we get some tailwinds from consumption tax and other aspects in the market?

Probably some, yes.

But overall, I think we're performing at or better than market regardless of that action that's going on.

So non-U.

S. geos performed right to expectations.

Our U.S. geography performed better than expectations.

Part of that is what we talked about earlier, which is I think we're executing quite well on the basics of our business and building solid relationships with all our constituents.

And part of that I think is the U.S. market is just growing faster than the others, especially in the IT supply chain.

And just to clarify on Japan, are you anticipating any, I hate to use the term, but air pocket in the upcoming quarter as maybe everything has sort of been fulfilled prior to this consumption tax?

Or does that not appear to be a pressure you may find?

I would expect there would be some reduction in consumption once the tax passes, but it's not material enough to really change our overall metrics in Japan.

Okay.

And then in terms of -- you talked about cloud and software being areas of growth again in TS.

What specifically are customers looking for?

I'm just trying to figure out how much of this is just sort of a continuation of current trends or if there's been any change.

Yes, Shannon.

Dennis again.

We're not hearing anything different than we have over the past year really.

I've talked a lot about -- our customers tell us repeatedly the investment in technology makes our businesses more efficient, more cost effective and investing in technology usually is a very good ROI.

That's been a consistent message I've heard in visiting with customers over the past quarter and frankly past year once again.

And going forward, I would expect the same.

So nothing significant to call out regarding software or I call out cloud also.

And in those 2, we're just performing very well as to where the market's going, and I expect us to continue to do so.

Okay.

And I guess, Marshall, when you think about your revenue guidance for the current quarter, you've exceeded revenue for the last couple of quarters.

I guess I'm just trying to figure out how much of what you put out there, which is solid, but I just -- again, given the outperformance this quarter is more sort of a conservative look or if there's enough from the pull forward that you had on some of the contracts and then maybe some prebuying in Japan that leads you a little bit more conservative outlook next quarter?

Or are you just, given the uncertainty in the environment, treading cautiously?

Shannon, this is Dennis.

I'm going to take that one if you don't mind.

As far as Q3, really the guidance there is on me.

I let the macro headlines affect by thinking on what our revenue and the expectations for the quarter would be.

It turns out the macro headlines didn't really affect our core businesses, and as always, our teams executed well through all the challenges in the market.

As far as our thoughts on Q4, still some challenges in the market as well as some macro headlines to worry about.

But in applying our Q4 guidance, we thought about what occurred in Q3, again, despite the headlines that would suggest there might be some headwinds.

And we believe now at this point, our guidance for Q4 is reflective of where the market really is going to be for the quarter, again, acknowledging that we did have a set of business, a larger project rollout business that I talked about that we expected to occur over Q3 and Q4, but was largely in Q3.

So despite that, as Marshall indicated earlier, I expect that to grow at or above market rates in Q4.

Your next question comes from Vincent Colicchio with Barrington Research.

Got a couple first for Chris.

Chris, did the non-CRM business grow significantly faster than the CRM business, if you can break it down in that way?

Yes.

Vince, it grew slightly faster but not significantly faster.

We had continued to push our portfolio more to that balance the nonvoice, voice.

But those deals tend to take a little longer.

So we've seen some good traction in some proceedings and proof of concepts, but I expect it will be more into 2020 before we see big changes in that.

And what was the contribution of the top 5 in the quarter?

We didn't break that out this quarter, Vince, and we're actually in the process of figuring out what stats to break out on a regular basis.

But it was not meaningfully different than where it has been when we last reported it.

Okay.

So if you're able to improve growth rates next year given, I guess, the need to ramp new projects, will margins be negatively impacted from that due to the ramp costs?

So Vince, we've actually done a very good job of kind of changing as a business through the course of the year and not have those ramp costs impact us.

Certainly is a drag on the business, but we're sort of overcompensating it by sort of the synergy numbers that we're driving and also, frankly, being able to repurpose facilities and move people around a little faster because we've got some of that capacity that we're going through.

You won't see sort of that pure play until we kind of get through some of that reorganization of the portfolio.

And we haven't put sort of a fine deadline on it yet to kind of indicate, but you'll see that impact get less and less through the proceeding quarters.

Your next question comes from Tim Yang with Citi.

I have 2 questions that I will ask at the same time.

Number one, on Concentrix.

Do you have to expand in more verticals to achieve industry average gross?

Or do you think your current end exposure is good enough for you to generate this industry average growth after integration?

And number two on TS.

I think you mentioned PC contributed to the TS strength.

Can you give some color on how much of it is from Windows 10 upgrade?

And how should we think about your PC business in 2020 as most of the users finish the Windows 10 upgrade?

So Tim, it's Chris.

Why don't I do the Concentrix business first.

No, we don't believe we have to expand outside of our current verticals that we focus on to achieve market growth rates.

In fact, as kind of indicated earlier, we're achieving those growth rates underneath the covers as we rebalance our portfolio, and so we're quite comfortable on the verticals that we're focused on.

Tim, Dennis here.

Regarding PC business, definitely was a positive to our quarter, but when I think about our performance in the quarter, the growth of our PC business wasn't the number one reason why we delivered the exceptional revenue growth that we showed in Q3.

Definitely a helper to the performance and results but not the main driver.

I mean as far as 2020, when the support ends, we do expect there'll be a roll-off throughout 2020.

As you know, our business is more SMB-focused, and we believe that roll-off will be a longer tail and thus, we'll benefit throughout the rest of 2020 when that occurs.

There are no further questions at this time.

I will now turn the call back over to Mary Lai.

Thank you for joining our call today, and we look forward to speaking with you next time.

This concludes our conference call.

This concludes today's conference call.

You may now disconnect.