Earnings Call Transcript - CNXC Q2 2024

Operator, Operator

Good day, everyone, and thank you for standing by. Welcome to the Concentrix Fiscal Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand it over to the Vice President of Investor Relations, Sara Buda. Please proceed.

Sara Buda, Vice President of Investor Relations

Thank you, operator, and good evening, everyone. Welcome to the Concentrix second quarter fiscal 2024 earnings call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward-looking statements that address our expected future performance and that by their nature address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events or developments. Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and in our other public filings with the SEC. Also during the call, we will provide and discuss non-GAAP financial measures including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company's Investor Relations website under Financials. With me on the call today are Chris Caldwell, our President and CEO; and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy and Andre will cover our financial results and business outlook. Then we'll open the call to your questions. With that, I'll turn the call over to our CEO, Chris Caldwell.

Chris Caldwell, CEO

Thank you very much, Sara. Hello, everyone, and thank you for joining us today for our second quarter 2024 earnings call. First, let me start off by thanking our clients and game-changers for their contributions to our being included in the Fortune 500 list for the first time this year. We started with an idea that companies wanted to deliver a better brand experience for their customers. We believe that by considering the customer experience holistically across both back office and front office work, while investing in technology for frictionless engagement, we could create a market opportunity for ourselves. Over 20 years, we have grown that idea into a global player in over 70 countries, delivering solutions that continue to push the industry forward. I couldn't be prouder of the team or more thankful for the trust of our clients. Now, turning to the second quarter performance. We increased revenue by 47% as reported and grew 4% on a pro forma constant currency basis in the quarter, exceeding our prior guidance. We reported non-GAAP operating income of $321 million, an increase of 46% year-on-year and in line with our guidance. We delivered adjusted EBITDA of $380 million, an increase of 47% year-on-year. On a pro forma basis, we grew non-GAAP operating income 4% and adjusted EBITDA 2% year-on-year. We generated more than $200 million in adjusted free cash flow this quarter while returning more than $60 million of value to shareholders through dividends and share repurchases. We remain on track to generate $700 million of adjusted free cash flow for the full year after integration expenses and are on track to complete $120 million of share repurchases for the fiscal year, of which we have completed over $60 million through the end of Q2. Our positive momentum continued in the second quarter, giving us the confidence to raise our revenue growth guidance for the full year. Our revenue guidance does not anticipate any changes in the macroeconomic environment, but it does reflect ongoing client demand for our solutions and the stability of our clients' volumes. We see the same momentum in Catalyst as its growth continues to be accretive, which we expect to continue throughout 2024. From a vertical perspective, we are seeing particular strength in retail, travel, e-commerce, and banking and financial services that is expected to continue for the rest of 2024. As we mentioned in our first quarter call, we are increasing our investment in our technology while also investing to transition more business from competitors. In the second quarter, we accelerated these investments, while still expecting to increase our non-GAAP operating income by 40 basis points for the entire year on a pro forma basis. Specifically, we have increased our development spend to approximately 1% of revenue through the second quarter, an increase of approximately 50 basis points from the start of Q1. This increased investment relates to our development of technology platforms for both clients and internal use, as well as an increasing number of pilots that we have underway with clients using Generative AI. We see this investment remaining at this level for a few quarters prior to falling more in line with historically what we have spent, while revenue from these investments starts to become more meaningful. We also expect to incur approximately $20 million to $25 million of near-term incremental expense as we take on some large multi-year programs where we are taking share from competitors as clients consolidate capacity with us. These investments are temporary, and revenue follows in subsequent quarters. We see both of these as near-term and positive investments that will set us up for long-term growth and value creation. Now, let's talk about some of our recent wins and the trends we're seeing in the business. As a reminder, our growth strategy is to drive incremental value to clients through a broad set of technologies and services at global scale. Our strategy is working and we're starting to see this reflected in our growth rate and our pipeline building across both existing and new clients. Some examples of wins in the quarter include a major global retail e-commerce client, where we combine the power of our Generative AI contact and translation tools with our CX expertise and global footprint to design and implement a new customer solution experience for them across their EMEA operation. This allowed our clients to shift volume from competitors to us, resulting in a 20% increase in our revenue and a mid-single-digit increase in our margin for this specific program, while reducing costs for the client by double digits. Our use of Generative AI expertise was a win-win for us and our client. We also won a new large global media client this quarter. We will support the launch of one of their new high-profile channels in EMEA and consolidate their customer experience operations in Japan and Korea. We will also design and build a Generative AI knowledge management solution for their enterprise. They wanted a partner that can provide a complete solution delivered globally, consistently, and securely, which we are able to do. Other wins in the quarter include a global travel client that has a Webhelp relationship in Europe. This quarter, we started to expand our revenue as a combined organization by leveraging our AI footprint and our AI-based training tool to improve effectiveness and efficiency for our game-changers. This resulted in them shifting from a competitor to us, as well as a potential new revenue stream as they contemplate rolling out our AI solution across their enterprise. Finally, we sold Catalyst Services into a former Webhelp client in Europe to provide specialized digital engineering resources to build, enhance and maintain the client's digital infrastructure and CCaaS platform to support their primary channel for new business. This strengthens our existing relationship with the client. These wins underscore the breadth and complexity of solutions that we are delivering for our clients. They also reflect how our business continues to change. At our Investor Day two years ago, we talked about 13% of our business being commoditized low-complexity transactions. Last year, we updated investors that we were down to 10%, and net costs being reduced to 7%, meaning 93% of our transactions are now medium to high complexity in our business. These wins also demonstrate two important factors in our ability to gain market and wallet share. Clients are seeking a broader set of integrated solutions from fewer partners and are transitioning to us due to our global scale, technology, and integrated consulting implementation and support offerings. Secondly, automation and Generative AI is continuing to be an area of competitive advantage for us. As we have said before, we believe Generative AI presents a tremendous upside opportunity for Concentrix and our clients. We have an increasing number of pilots and solutions going into production with clients now. While the level of Generative AI adoption readiness varies greatly by vertical and client, there are a few common themes with these pilots in production. First, the vast majority of pilots in process are looking at using AI to augment a human advisor to make the advisor more effective at representing our client's brand and enhancing the brand experience for its customers. Second, many of these pilots are using Generative AI to upgrade or replace existing knowledge platforms, chatbots, automation systems, and IVR systems. This brings me to the upside opportunity we see as we combine our own AI tools with those of our partners to bring new value to our clients. Many of our technology platforms continue to gain traction in the market. We are building on this momentum and will be introducing a variety of new products over the coming quarters. This quarter, we filed a patent for GILES, which stands for Generative Intelligence from Limitless Engineer, a platform we developed to automate coding and testing using Generative AI that is helping us to build new platforms faster. From our internal usage, we're seeing up to a 40% productivity boost to experienced coders on transactional paths. We believe our investments in both Generative AI pilots and technology products will help us expand the share of wallet and share of market long-term and superior margin. Finally, let me touch on the Webhelp integration. As you can see from these wins we've mentioned, we're starting to see revenue synergies sooner than we expected. This is a testament to the successful integration of our go-to-market and delivery organizations, which we initiated on day one and are largely behind us. The integration is on track, as is the realization of planned cost synergies. In summary, our growth strategy is working. We are differentiating Concentrix from the market and delivering incremental value to clients through a broad set of technologies and services at global scale, and our recent wins offer evidence that AI is an upside opportunity for Concentrix. With that, I'd like to thank our game changers and our clients for the relationships over the last quarter and pass the call over to Andre.

Andre Valentine, CFO

Thank you, Chris, and hello everyone. I'll begin with a look at our financial results and then discuss our outlook for the rest of the year. The second quarter marked another solid quarter for the company. We exceeded our targets for revenue, delivered profits within our guidance range, and drove strong free cash flow. We delivered second quarter revenue of $2.4 billion, and on a pro forma constant currency basis, if the Webhelp combination was completed at the beginning of 2023, we grew revenue by 4%. For the first half of the year, our constant currency pro forma growth was 3.4%, so our overall revenue trends remain positive. As you can see from our guidance, we expect this stability to continue in the second half of the year. Looking at our revenue growth by vertical, on a pro forma basis, revenue from retail, travel, and e-commerce clients grew 10% year-over-year. Revenue from banking, financial services, and insurance clients grew 6%, and our other vertical grew 3%. Our technology and consumer electronics clients grew over 3% on a pro forma basis. While this vertical is still lagging some other sectors due to the macro environment, we were happy to see some positive momentum from consumer electronics clients as we gained share with key clients. We continue to see strength in enterprise tech. Revenue from our telco and media clients decreased 3% on a pro forma basis, primarily due to lower volumes from a few North American communications clients, as discussed in prior quarters. Turning to profitability, our non-GAAP operating income was $321 million in the quarter, an increase of $101 million compared with the second quarter of 2023. Our non-GAAP operating margin was 13.5%, down about 20 basis points from last year due to the inclusion of Webhelp, which historically operated at a slightly lower non-GAAP operating income margin. Adjusted EBITDA was $380 million, up $121 million year-over-year, and our adjusted EBITDA margin was 15.9%, roughly flat year-on-year. On a pro forma basis, our second quarter profitability metrics continued their solid improvement. Non-GAAP operating income increased $12 million, with a 30 basis point margin improvement compared with last year. Adjusted EBITDA was up $8 million, and our adjusted EBITDA margin was flat when compared with last year. Non-GAAP net income was $183 million in the quarter, an increase of approximately $46 million compared to the second quarter of last year. Non-GAAP EPS was $2.69 per share, an increase of $0.06 per share year-on-year. GAAP net income was $67 million for the quarter. The GAAP result for the second quarter of 2024 included $116 million in the amortization of intangibles, $31 million in expenses related to the Webhelp combination and integration, $22 million in share-based compensation expense, $2.5 million in step-up depreciation, a $7 million reduction in acquisition contingent consideration, $14 million in net foreign currency gains, and $4 million in imputed interest related to the seller's note issued in connection with the combination. Our adjusted free cash flow for the quarter was strong at $202 million, and we remain on track for our full year adjusted free cash flow outlook of $700 million, net of integration expenses. As we stated in our last call, the adjusted free cash flow metric is calculated as free cash flow excluding the impact of the factoring program we assumed and have continued to operate since the Webhelp combination. During the second quarter, the amount of factored accounts receivable decreased by $24 million, with the outstanding factored balance standing at about $162 million at the end of the quarter. In the second quarter, we made payments related to earnouts of past Webhelp acquisitions of approximately $28 million, of which approximately $5 million resulted in a reduction of adjusted free cash flow. Turning to the balance sheet, at the end of the second quarter, cash and cash equivalents were $207 million and total debt was $4.9 billion. Net debt was $4.7 billion at the end of the second quarter, and we repaid $150 million of the principal amount of our term loan in the quarter. We reduced our net debt to 2.97 times pro forma adjusted EBITDA at quarter-end, a sequential decrease from 3.04 times in the prior quarter. We expect to continue to reduce our net debt and net leverage through the end of 2024. We remain committed to our plan of reducing net leverage to close to two times adjusted EBITDA within two years of the close of the Webhelp combination, while supporting our dividend and buying back stock. During the second quarter, we repurchased approximately 660,000 shares of our stock for approximately $40 million at an average price of approximately $61 per share, and we paid $20 million through our quarterly dividend. As a reminder, on our first quarter earnings call in March, we committed to $100 million in share repurchases over the remaining three quarters of 2024, so we have about $60 million more to go on that commitment. At quarter-end, the remaining authorization on our share repurchase plan was approximately $227 million. Our liquidity remained strong at approximately $1.5 billion, including our over $1 billion line of credit, which is undrawn. We remain committed to investment-grade principles and we are steadfast in our capital allocation priorities. We expect to continue to drive organic growth, realize integration synergies related to the Webhelp combination, and repay debt, while continuing a disciplined program of returning capital to our shareholders through our dividend and disciplined share repurchases. Now I'll turn my attention to the business outlook for the third quarter and full year 2024. For the third quarter, we expect revenue of $2.35 billion to $2.4 billion based on current exchange rates. This reflects approximately 1.5% to 3.5% pro forma constant currency growth, net of an approximately 205 basis point exchange rate headwind. Pro forma revenue for the third quarter of 2023 would have been $2.367 billion, assuming the Webhelp combination occurred at the beginning of fiscal 2023. We expect non-GAAP operating income to be in the range of $330 million to $350 million in the third quarter. At the midpoint of our guidance, this equates to a non-GAAP operating income margin of approximately 14.3%. Importantly, this is an increase of 20 basis points over the prior year quarter, on both a reported and pro forma basis. On a pro forma basis, non-GAAP operating income was $334 million in the third quarter of 2023. We expect non-GAAP EPS of $2.76 per share to $3.04 per share for the third quarter. This assumes interest expense of $75 million to $76 million, excluding $4 million of imputed interest on the seller's note. It assumes a non-GAAP effective tax rate in a range of 25% to 26%. We anticipate a weighted average diluted share count for the third quarter. We estimate that about 4% of net income will be attributable to participating securities at about 96% of total net income will be attributable to common shares for the third quarter. Turning now to the full year 2024 guidance, based on our strong start and continued confidence in our strategy and execution, we are increasing our full year 2024 revenue guidance while reiterating our free cash flow guidance. Specifically, our guidance for the full year is as follows. We expect 2024 revenue to be in a range of $9.58 billion to $9.675 billion, reflecting approximately 2.5% to 3.5% pro forma constant currency growth. This is net of an approximately 150 basis point exchange rate headwind. This is an increase to our prior guidance of 1% to 3% year-on-year growth on a pro forma constant currency basis. We continue to expect first-year net synergies of $75 million. The current run rate is approximately $80 million on an annualized basis. We do anticipate that some of these synergy savings will be offset by continued ramp-up costs and accelerated investment in technology. As a result of the investments Chris referred to earlier, we are reducing our non-GAAP operating income expectation for the year. We now anticipate non-GAAP operating income in the range of $1.35 billion to $1.40 billion for the year, which represents a 14.3% margin at the midpoint. Importantly, this is an increase of 10 basis points over the prior year and 40 basis points over the prior year on a pro forma basis. We expect non-GAAP EPS of $11.40 per share to $12.07 per share. This assumes full-year interest expense of $300 million to $304 million, excluding $16 million of imputed interest on the seller's note. We expect an effective tax rate of approximately 25% to 25.5% and a weighted average diluted share count of approximately 65.1 million shares for the full year. In terms of cash flow, we are reiterating our outlook for $700 million in free cash flow in 2024, even after funding integration costs. This assumes no change in the amount of factored accounts receivable from the beginning of the year. Our strong free cash flow will position us to further reduce our net leverage to approximately 2.6 times adjusted EBITDA by year-end, while repurchasing approximately $120 million of shares as we have committed. Our business outlook and cash flow expectations do not include any future acquisitions or impacts from future foreign currency fluctuations. In conclusion, we are pleased with our performance in the second quarter and our outlook for the year. We are exceeding our revenue growth expectations with solid execution across key verticals. We're optimistic about our second half and are seeing solid demand for our unique technology and services offerings. We're increasing our competitive position with a broader set of technology and service offerings. With this backdrop, we are increasing our revenue guidance for the year, and we are reiterating our expectations for free cash flow. We will continue to return value to shareholders with our ongoing share repurchase program and dividend, while reducing leverage. With that, Carmen, please open the line for questions.

Operator, Operator

Thank you very much. The next question is from Joseph Vafi with Canaccord Genuity. Please go ahead.

Joseph Vafi, Analyst

Good afternoon, everyone. It's great to see the refined guidance, and I want to welcome Sara to the team. I thought we could start by discussing how you're addressing the macro environment and the AI developments. It seems like these factors are presenting more opportunities than previously expected. Could you compare what you're seeing in the macro landscape to how these insights have influenced the new guidance for the year? I also have a quick follow-up.

Chris Caldwell, CEO

Joe, it's Chris. So first of all, you're absolutely right. We are using your term, taking the bull by the horns from a Generative AI perspective. We're seeing very good traction in pilots and getting some things into production in our client base. And we're also seeing the ability where we think that there are misses in the market from a technology solutions perspective on the platforms, and we have a lot of this base built out for ourselves already. But now we need to work on getting it to commercial standards and from a multi-tenant perspective and ease of use perspective in large-scale rollouts. And so we don't want to miss that opportunity and are taking advantage of it. I think, secondly, we also are seeing good traction in taking share, as well as winning net new clients with even the AI products that we have right now, as we talked about in a couple of our wins. So we see that as being very, very positive and we built that into our guide of seeing our revenue increase, while also seeing some costs associated with doing these pilots and building out the infrastructure that we want and we think will put us in a very, very nice position for further growth. In terms of macro, we're not seeing really any change. We're not seeing it improving and we're not seeing it declining. We're seeing, and that's sort of a global comment. We're seeing things fairly stable and steady and clearly any kind of positive changes coming for that. We expect to benefit from it based on the share that we have within our client base.

Joseph Vafi, Analyst

Great. That's great color. And then thanks for that, Chris. And then maybe on one for Andre. I know that as we exit this year, some of the Webhelp merger-related costs are going to abate, and then more cost synergies are going to kick in, combined with continued debt pay down, maybe offset a little bit more now at this point by investment in the business. And I know you're not providing guidance for next year, but it would be great to get an updated framework on. You know, I think you've reiterated your $700 million in free cash flow guidance this year, but to kind of provide a little bit of framework for next year would also be helpful. Thanks a lot.

Andre Valentine, CFO

I'm glad to have this conversation, Joe. There are certainly reasons to feel optimistic about increasing our $700 million in free cash flow this year in 2025. While I don't want to provide specific guidance for 2025, two key factors will drive this expectation: the synergies we anticipate in the first year following the merger, targeting $75 million in net synergies, and we’re already surpassing that run rate. As we view the synergies we're currently realizing, we expect this figure to rise to at least $105 million in net synergies in the second year after the merger. Additionally, integration expenses are likely to decrease significantly from 2024 to 2025, potentially dropping by $50 million or more. Both of these aspects inspire confidence that we could see an increase in cash flow. Furthermore, we will be reducing debt, which could create opportunities, and possibly benefit from lower interest rates, which may help decrease interest expenses from a cash perspective in 2025.

Joseph Vafi, Analyst

Right. Thanks a lot, guys. Nice to see the guide up.

Chris Caldwell, CEO

Thanks, Joe.

Andre Valentine, CFO

Thanks, Joe.

Operator, Operator

Thank you. One moment for our next question.

Sara Buda, Vice President of Investor Relations

Operator, do we have the next question?

Operator, Operator

Okay. I think the question was going to be from Ruplu.

Ruplu Bhattacharya, Analyst

Hi. Thanks for taking my questions and congrats on inclusion in the Fortune 500 list. Andre, can you help me understand all of the moving pieces to the guidance? Looks like fiscal Q2 revenues beat the midpoint of guidance by $32 million and EPS beat by $0.07. But you're guiding fiscal Q3 down sequentially and lower than Street estimate. And if I look at fiscal year revenue guidance increase, that looks like it's about $23 million at the midpoint and then operating margin is down 50 bps to 14.3% and EPS is $0.36 lower. So, given all of these different data points, I mean, my questions to you would be on the revenue side, was there any pull in of revenue from Q2 to Q3, why would there be a sequential decline in Q3, and does that imply a somewhat steeper ramp between Q3 and Q4 to get to the full year?

Andre Valentine, CFO

No. So, Ruplu, as we've kind of commented about our revenue guide throughout this year, we want to be prudent in how we guide revenue. And so we think that we have done that with what we've provided here. So having grown at 4% here in Q2, you're right, we are guiding to growth of 1.5% to 3.5% over the balance of the year roughly. Certainly, that's what we're guiding to in Q3. Again, there, we're being prudent. We are not seeing anything in our clients' volumes. We are not seeing anything in our pipeline that suggests that revenue should decline. And so from a revenue perspective, just being prudent with the guide and frankly quite confident and focused on coming in as we did this most recent quarter, in the upper half of what we've guided to, which would put you very, very close to a continuation of the growth rate that we saw here in the first half.

Ruplu Bhattacharya, Analyst

And then on operating margins, the 50 basis points lower, $14.3 million versus $14.8 million for the full year. I think you talked about some investments you're making. Can you elaborate more on what are the investments that you're making and when do you expect to see revenue benefits from those investments?

Andre Valentine, CFO

We are making significant investments in technology and our platforms, particularly by incorporating Generative AI for internal use, client pilots, and the development of commercial products. We believe this heightened investment will be temporary and may start to decrease as we move towards the end of the year. We are also focusing on transitioning new business to us, which can involve transferring work from competitors where we handle upfront technology and training costs. We are willing to make these investments upfront because we anticipate that the revenue will materialize a few quarters later, and the profit margins on these deals are quite appealing to us. At the midpoint of our guidance, we have slightly reduced our expectations due to these investments, but we see this as a necessary step to grow the business and create long-term value.

Ruplu Bhattacharya, Analyst

Okay. And maybe I'll try and sneak one more in. Sorry if I missed this. Did you talk about the growth rate for the new economy clients and for the Catalyst business in fiscal Q2? And how are sales cycles trending for different sizes of deals? Thank you.

Andre Valentine, CFO

Catalyst is performing exceptionally well, showing solid growth from Q1 to Q2. This growth significantly contributes to the overall growth rate of the business in Q2, and we anticipate it will continue throughout the latter half of the year. New economy clients account for about 25% of our revenue, and as I mentioned at your technology conference earlier this month, they are growing at a faster pace than our enterprise clients, although not as rapidly as they did around two years ago. These clients are now placing a strong emphasis on return on investment, optimizing their operations, and incorporating technology to enhance efficiency, which aligns with the interests of our enterprise clients as well.

Ruplu Bhattacharya, Analyst

Okay. Thank you for all the details.

Andre Valentine, CFO

Sure. Thanks, Ruplu.

Operator, Operator

Next question comes from Divya Goyal with Scotiabank.

Divya Goyal, Analyst

Good evening, everyone. I have a question about Webhelp. Andre, you mentioned that there are certain earn-out payments you need to make related to the Webhelp acquisitions that occurred before you acquired Webhelp. Can you provide more details on that? Also, will this have an additional impact on your guidance for the year regarding the bottom line?

Andre Valentine, CFO

No. The payments we made, totaling about $28 million in Q2, are for past acquisitions by Webhelp. These commitments were made before we got involved with Webhelp and before closing the transaction in 2023. They do not affect our bottom line as they have been accrued for some time. While they require cash, most of this payment won't impact our free cash flow, with maybe a $5 million effect. We don't anticipate any further earnouts in 2024 connected to those acquisitions, and I don't see any for 2025. A similar amount of earnouts is expected in 2026. These were all factored into our financial model during the transaction, and they are unfolding as we expected.

Divya Goyal, Analyst

That's perfect. I have another question about Webhelp. Could you elaborate on the cross-sell synergies of Catalyst into Webhelp? How is that trending, and what overall appeal are you observing from Catalyst among the new Webhelp clients you recently acquired?

Chris Caldwell, CEO

Yes, for sure, Divya. It's Chris. So first on, we expected, obviously, revenue synergies, but we didn't necessarily account for them in the first year. They tend to take a while to gain traction, and we're kind of well ahead of where we expected to be at this point in time, both by the way, taking Concentrix clients across to sort of the Webhelp footprint and vice versa, as we talked about on the prepared remarks. From a technology perspective, we are gaining share across our whole client base, forgetting whether it's a Webhelp client originally, by integrating our technical services. The vast majority come from our Catalyst group. Some of that comes from our existing client success organization already. But ultimately, that value proposition of putting everything together that clients are most interested in has really helped us accelerate our growth rate and start to build a stronger pipeline that we're seeing right now.

Divya Goyal, Analyst

That's helpful. And is it fair to assume that your Catalyst business would be, to your point, consulting related? So would it be a higher margin business? Or what is the big difference between what you're doing with Catalyst versus your standard business from a margin standpoint?

Chris Caldwell, CEO

Yeah, Divya, good question. So in our Catalyst business, we have our consulting business. We have our analytics business. We have our digital engineering business, our CCaaS business, and our cloud migration business. And so there's a lot within our Catalyst business. The margin profile, some of it, as you can imagine, is higher than our core business. Some is actually lower than our core business because we're doing a lot of these pilots and we're doing a lot of the build-out of these tools within our Catalyst business, which is not necessarily accretive to our overall margin. But what we see long-term, as we talked about when we started investing in that business, is the ability to increase our margins much like we do in our core business to be more accretive than our core business as we go forward. But that's a longer-term comment.

Divya Goyal, Analyst

That's all for me. Thank you so much.

Andre Valentine, CFO

Thank you.

Operator, Operator

Thank you. One moment for our next question please.