IBEX Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 13, 2023

There are 7 speakers on the call.

Operator

Welcome to the Ibex Fourth Quarter and Full Year 2023 Earnings 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. To note, there is an accompanying earnings deck presentation available on the Ibex Investor Relations website at investors. Ibex.co.

Operator

I will now turn this conference over to Mr. Michael Darwall, Investor Relations of Ibex.

Speaker 1

Good afternoon, and thank you for joining us today. Before we begin, I want to remind you that matters discussed on today's call May include forward looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward looking statements reflect our opinion as of the date of this call, and we undertake no obligation to revise this information as a result of new developments, which may occur. Forward looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our annual report on Form 10 ks Filed with the U.

Speaker 1

S. Securities and Exchange Commission on September 13, 2023. Additionally, I would like to remind everyone that we have moved to being a domestic filer and as such are now reporting on a U. S. GAAP basis rather than from the previous IFRS standard.

Speaker 1

We have been messaging and preparing for the conversion and are excited to be reporting accordingly. With that, I will now turn the call over to Bob Dechant, CEO of IVXX.

Speaker 2

Thank you, Mike. Good afternoon, everyone, And thank you all for joining us today as we share our Q4 fiscal year 2023 results. First, before I dive into the results, I'm very excited to welcome our new CFO, Taylor Greenwald, to his first earnings call with IVXX. Taylor brings a fantastic background and skill set to Ibex, having spent nearly 20 years in the industry. While Taylor started just a few weeks ago, I am already confident that he perfectly complements our culture And our team.

Speaker 2

FY2023 was another record year for Ivex, where we achieved all time best across all key financial metrics, including revenue, EBITDA, EBITDA margin, net income, EPS and free cash flow. We accomplished this in the face of unprecedented challenges across the BPO market With significant macroeconomic pressure and massive competitor consolidation, We continue to demonstrate a unique ability to successfully compete and win against our much larger competitors. Our competitive advantage is built around an unparalleled agent first culture with tremendous employee engagement. Our Wavex technology stack and our deep analytics capabilities that we call Wavex Insights enable us to consistently outperform our competitors. Additionally, our speed and flexibility create a significant advantage for Ibex.

Speaker 2

The result is an amazingly resilient business that has performed Let me take a moment to highlight the financial results we delivered in FY2023, 1 of the most turbulent years I've seen in my 25 plus years in this industry. We delivered record revenues of $523,000,000 up 6.1% year over year, driven by new wins with blue chip clients in our strategic verticals. Adjusted EBITDA increased 49% year over year. Adjusted EBITDA margin increased 370 basis points to 12.7%. Adjusted net income grew over 42% to $36,900,000 for the year, another record for the company and resulting in adjusted EPS of $1.96 versus $1.39 in prior year.

Speaker 2

We delivered record free cash flow of $22,900,000 versus $14,100,000 in the prior year and ended the year with $57,400,000 in cash and cash equivalents With virtually 0 borrowings as we head into the fiscal 2024. Q4 was a solid quarter for Ivex, tempered by prevailing market headwinds on revenue. During the quarter, we continued the shift of business from onshore to offshore with our clients, resulting in revenue growth of 1%. Our BPO 2.0 clients grew at 7% for the quarter and now represent 79% of our overall revenue, up from 74% in Q4 FY 2022. Revenues in our highly profitable offshore and nearshore region grew 10%, While our onshore region contracted 18% versus prior year quarter, as we successfully migrated clients from the U.

Speaker 2

S. To our low cost markets. As a result, EBITDA grew a healthy 21% versus prior year quarter to $15,400,000 with a margin of 12.4%, up 210 basis points. As I have previously highlighted, we have structurally built our business for long term margin expansion as we continue to grow in these regions with our clients. FY2023 Was an amazing year for Ibex winning awards.

Speaker 2

During the year, we won more than a dozen awards and recognitions, including 2023 America's Greatest Workplaces for Diversity by Newsweek 2023 Philippines Best Employers and best placed to work for women in Central America and Caribbean for the 2nd consecutive year by Great Places to Work. And 2023 Contact Center Technology Award by Customer Magazine for our Wavex, among many other awards. These are a testimony to the great brand and reputation we have built in the industry. I'm so proud of what this team has accomplished in FY2023, and I am equally excited for what the future will bring to Ibex. At the core of IBEX is our powerful new logo engine where we continue to win high profile deals Against heavy competition, our ability to win new business across strategic verticals With both large digitally transforming blue chip clients and pure play new economy digital first Brands is unique to Ibex.

Speaker 2

We are able to build winning solutions across both client sets. While macroeconomic conditions began to lengthen cell cycles, in the second half of FY twenty twenty three, Ibex posted another strong year of wins and generating revenue from these new clients. Over the course of the year, 10 new client relationships were established across the HealthTech, Retail and e Commerce and the technology verticals and approximately $35,000,000 of new logo revenue for the year. These wins included multiple wins in our strategic healthcare vertical, including a leading healthcare payer and a top administrator for the dental industry, demonstrating our ability to win in high profile deals. Importantly, we are beginning to see the pipeline velocity pick up speed since June.

Speaker 2

We won 6 new logos during this timeframe, including key wins in HealthTech and FinTech. We also have significant deal flow in our current pipeline with several very high profile Fortune 100s We're I believe we are well positioned to win. Our land and expand model is driven by our ability to get out of the gates fast with our clients and deliver great results for them early and often. As an example, for the leading healthcare payer that we launched in October, We reached number 1 provider out of 7 on a balanced scorecard by March, competing against mostly long tenured Multi $1,000,000,000 competitors. For the year, we won the Rising Star Award during their annual partner award ceremony.

Speaker 2

Based on our outstanding performance, we were awarded a more than 3x headcount growth from prior year on the current business And an important new line of business and new geography. Again, Our ability to drive operational excellence starts with our agents and their passion for working for Ibex and supporting our great client brands. We are extremely proud of the environment we have created, especially for our incredible agents, We were excited to be able to once again recognize our top performing agents and leaders globally as we reinstituted our regional VIP events post pandemic. These are the pinnacle of employee recognition and engagement and differentiates us from our peers. The results speak for themselves As our employee Net Promoter Score of 68 demonstrates, this is especially true In the highly competitive market like the Philippines, where we scored a best in class 79 employee Net Promoter Score.

Speaker 2

Complementing our great employee engagement and culture is our Wavex technology stack And Wavex Insights, our deep analytics arm. These solutions enable our agents to achieve proficiency faster, Analysis and solutions to improve the customer experience. These are the key elements of BPO 2.0. These are the reasons we have a long track record of winning great new clients and growing market share with them by outperforming the competitors. In recent months, the intersection of generative AI and CX has dominated the headlines.

Speaker 2

We see this as great opportunity for leveraging our tech led capabilities. We are using Speed to move quickly into building solutions leveraging these capabilities. In fact, we are currently leveraging AI In our customer survey offering, using the technology to provide deep insights into surveys we do for our automotive clients across voice, Email and text. Our AI strategy is built on a 3 pronged approach to continue to differentiate Ibex. First, we have already developed and deployed generative AI solutions to assist our agents In quickly providing solutions to customers, resulting in a productivity boost, we are already seeing operational gains here.

Speaker 2

2nd, last quarter, we began deploying generative AI solutions to accelerate the deep analytics To enabling the analysis of 100% of all interactions in both real time and post interaction, resulting in a quality boost for our clients. This technology can operate at large scale in a very cost effective manner, enabling us to quickly evaluate the agent's entire performance and develop customized training and continued improvement plans. For our clients, We can quickly provide valuable insights into their customer preferences, activity and behavior. In prong number 3, we are developing customer facing solutions for our clients That helped the continued digital transformation of their customer experiences. This is the most exciting part of our strategy.

Speaker 2

With the recent addition of our Genesis relationship And additional AI focused partnerships, Ibex is very well positioned to expand our customer facing AI powered solutions. In Q4, we launched IvexTech, a team that is working with clients without the need to hire more agents. As an example, for a leading provider Of Media and Digital Entertainment Technologies, Ibex delivered an AI based call deflection solution Integrated with Genasys, which allows callers to seamlessly select an AI bot To complete their support request while being on hold, this solution became impactful during their peak season. While we realize that these types of solutions may reduce the total number of contact volumes our clients have, This fits into our strategy of accelerating digital first support for our clients. We are confident that this will help IVXX become a more trusted partner, provide a new vector of revenue growth With higher margins and position us to win more market share with our clients versus our bigger Labor arbitrage focused competition.

Speaker 2

As I previously highlighted, we have built Ibex into a very strong structurally solid business. This is enabling us to invest into our business for the long term to develop Ibex into an even stronger company as we continue to grow. In Q4, We made a decision to upgrade our legacy ERP and HCM systems into an integrated Workday solution. We believe that this investment will strengthen our capabilities to run this business even more efficiently and at even larger scale. We are excited about the speed that the project is moving and expect this to be completed by this time next year.

Speaker 2

From a capital allocation standpoint, our strong financial position and balance sheet is enabling us to evaluate M and A opportunities as a way to both enhance our solutions and our competitive mode as well as accelerate our growth. I'm excited to have Taylor as our CFO, as I believe his experience will help our strategy here. In summary, we have built Ibex into a business that has above market revenue growth and strong margin expansion and one that competes well against our larger competitors. Our ability to win With high profile brands is a staple of Ibex. We expect this to continue into FY 2024 and beyond.

Speaker 2

While market conditions will put some pressure on the first half of FY twenty twenty four, I'm confident in the long term trajectory of IVEX and believe that we are well positioned to take IVEX to the next level as a public company. With that, I will now turn the call over to Taylor to go into more detail on our 2023 financials and guidance for FY 2024. Taylor? Thank you, Bob, and good afternoon, everyone.

Speaker 3

I am very excited to join the Ibex team and look forward to what we can accomplish as an organization. The combination of business performance and execution over the last several years as Ibex has positioned itself as a leader in the digital first BPO 2.0 space I was attracted to Ibex by their diversified client base, vertical expansion and geographic footprint. Importantly, the strong balance sheet gives me great confidence that we can continue to drive future revenue growth, strong EBITDA margins and cash flow generation. As Mike mentioned, on July 1, 2023, IVXX became a domestic filer We're now reporting our financial results in accordance with U. S.

Speaker 3

GAAP rather than IFRS. In my discussions of our 4th Quarter and Full Year Fiscal 2023 Financial Results references to revenue, net income and net cash generated from operations are now reported on a U. S. GAAP versus IFRS basis. Reconciliations of our U.

Speaker 3

S. GAAP to non GAAP measures of adjusted net income, Adjusted earnings per share, adjusted EBITDA and free cash flow are also included in the tables attached to our earnings press release. The 2 significant accounting impacts from the change to U. S. GAAP are in lease and warrant accounting.

Speaker 3

Among other items, this results in a June 30, 2023 reduction in reported debt of 78,000,000 and a $5,300,000 $21,900,000 reduction in reported Q4 fiscal year 2023 adjusted EBITDA. These impacts are factored into the previously provided guidance issued under IFRS. Our results align with our previously provided guidance. Turning to our results. 4th quarter revenue increased approximately 1% to $124,400,000 compared to $123,500,000 in the prior year quarter.

Speaker 3

Revenue growth was driven by our higher margin regions, offset by lower onshore revenue as we successfully grew our strategic verticals while replacing a large legacy technology client. The shift from lower margin onshore revenue locations to higher margin nearshore and offshore has significant impact on both top and bottom line results. Onshore revenues declined 18% and nearshore and offshore revenues benefiting particularly from growth in HealthTech and Retail increased 10% versus the prior year quarter. We continue to experience solid growth in our BPO 2.0 clients as this cohort grew by 7% over the prior year quarter and now represents 79% of our total revenue compared to 74% in the prior year quarter. During the quarter, we continued to experience some macroeconomic headwinds, which contributed to longer new client sales cycles and impacted near term revenue growth.

Speaker 3

However, as we add into the new fiscal year, we're beginning to see encouraging signs of our pipeline accelerating. 4th quarter net income declined to $4,500,000 versus $6,400,000 in the prior year quarter. The decline was primarily due to higher taxes, including the absence of a one time deferred tax benefit of $1,800,000 in the prior year quarter, offset in part by stronger operating results and lower interest expense. Moving to non GAAP measures, Adjusted EBITDA increased to $15,400,000 or 12.4 percent of revenue compared to $12,800,000 or 10.3 percent of revenue for the same period last year. The 210 basis point improvement in adjusted EBITDA margin was primarily driven by growth And profitability of our BPO 2.0 clients in higher margin regions, client price increases and improved site capacity utilization, which increased from 69% to 77%.

Speaker 3

Adjusted net income declined to $6,200,000 compared to $8,300,000 in the prior year quarter. Non GAAP fully diluted earnings per share decreased to $0.33 compared to $0.45 in the prior year quarter. The declines in adjusted net income and fully diluted adjusted earnings per share were primarily driven by higher income tax expense from the absence of a prior year deferred tax benefit mentioned earlier and was partially offset by our stronger operating performance. As a company, we are pleased with the client diversification we have established over the last several years. For the Q4 of fiscal year 2023, our largest client accounted for less than 12% of revenue.

Speaker 3

Our top 5 and top 10 client concentrations were approximately 37% 55% of total revenue, respectively, and our top 25 client concentration was 80%. In addition, we ended the fiscal year with 57 clients billing at over $1,000,000 per annum versus 49 in the prior year and 29 clients billing at over $5,000,000 per annum, up from $23,000,000 exemplifying the success of our land and expand approach. We will continue to maintain our focus on client diversification. Switching to our industry verticals, Retail and e commerce increased to 22% of 4th quarter revenue versus 19% in the prior year quarter, driven by continued growth in multiple offshore geographies. Healthtech increased to 14% of 4th quarter revenue versus 9% in the prior year quarter, in large part due to the organic growth we've Based on the onshore and offshore wins, including the top healthcare payer Bob previously mentioned, our exposure to Telecommunications vertical continues to decrease accounting for 15% of quarterly revenue versus 17% in the prior year quarter.

Speaker 3

Technology decreased to 9% from 11% of quarterly revenue, mainly due to the exit of a lower margin legacy client in the Q4 of fiscal year 2022. Travel and transportation decreased slightly to 12% from 13% of quarterly revenue, primarily due to macroeconomic pressure experienced by one of our larger clients as discussed in the prior quarters. Lastly, FinTech decreased to 17% from 21% of quarterly revenue due in large part to continued headwinds in the cryptocurrency and new economy investing markets. Moving to our fiscal year 2023 results, revenue increased 6% to $523,100,000 compared to $492,900,000 in the prior year as we successfully grew in our strategic verticals, while replacing a large legacy technology point. Revenue growth was driven by our higher margin regions, offset by lower onshore revenue and the lapping of the low margin onshore legacy clients that we exit In the Q4 of fiscal year 2022.

Speaker 3

Similar to the Q4, the shift from lower margin onshore revenue locations The higher margin nearshore and offshore throughout the year had a meaningful impact on revenue as onshore revenues declined 13% and nearshore and offshore revenues, particularly in the Philippines and Pakistan increased 16% versus the prior year. We continue to experience higher growth in our BPO 2.0 clients As we grew this segment 19% over the prior year, accounting for 77% of our total revenue versus 69% in the prior year. The macroeconomic headwinds, which I mentioned earlier, contributed to longer new client sales cycles and impacted near term revenue growth and had a more prominent impact in the second half of the fiscal year. 2023 net income increased to $31,600,000 versus $21,500,000 in the prior year. The increase in net income was primarily due to stronger operating results and lower interest expense offset by higher income tax expense.

Speaker 3

The increase in income tax expense was mostly driven by a significant one time deferred tax benefit of $4,100,000 recorded in the prior year. Moving to non GAAP measures for the full year, Adjusted EBITDA increased to $66,600,000 or 12.7 percent of revenue compared to 44,700,000 or 9.1 percent of revenue for the prior year. The 370 basis point increase in adjusted EBITDA margin This is primarily driven by growth and profitability in our BPO 2.0 clients and higher margin regions, client price increases and higher work from site capacity utilization. Adjusted net income increased 42% to $36,900,000 compared to $26,000,000 in the prior year. Non GAAP fully diluted adjusted earnings per share increased 41% to $1.96 compared to $1.39 in the prior year.

Speaker 3

The increase in adjusted net income and non GAAP fully diluted adjusted earnings per share was primarily driven by our Net cash generated from operations was $41,900,000 for the fiscal year compared to $40,000,000 in the prior year. The increase was primarily driven by improvements in operating results, offset by higher working capital requirements driven by higher accounts receivable. Our DSOs were 63 days, up 8 days year over year. We continue to trend below industry average. Capital expenditures were $19,000,000 or 3.6 percent of revenue in the fiscal year versus $25,900,000 or 5.3 percent of revenue last year.

Speaker 3

Our continued utilization of available capacity build out in prior years and made available with the removal of social distancing requirements is yielding lower capital expenditure requirements. Free cash flow increased to $22,900,000 in the fiscal year compared to $14,100,000 in the prior year, driven largely by improved operating results and lower capital expenditures. We ended the fiscal year with $57,400,000 in cash, up from $48,800,000 as of June 30, 2022. Total debt was $1,000,000 down from total debt of $15,700,000 as of June 30, 2022 and borrowing availability under our revolving credit facilities increased to 71,900,000 as of June 30, 2023 compared to $50,500,000 as of June 30, 2022. Importantly, representing our strong balance sheet, our net cash position at fiscal year end improved to $56,400,000 from $33,100,000 as of June 30, 2022.

Speaker 3

As we look forward, our strong balance sheet, Positive cash flow, growth of our Digital First BPO 2.0 business, we're excited about the long term direction of Ibex. We are a $500,000,000 best in class digital first service provider in a market over $100,000,000,000 and we expect to win market share over time. As we enter fiscal year 2024, we are still experiencing macroeconomic headwinds and a continuation of revenue shifting to higher margin near and offshore locations. These factors will impact revenue growth as we currently expect fiscal year 2024 revenue to be in the range of $525,000,000 $535,000,000 We expect our adjusted EBITDA margin to approach 13% even as we build out our infrastructure, including a new ERP and HCM solution to position ourselves for greater growth in the years ahead. Additionally, As we continue to benefit from pass side expansions during COVID, our capital expenditures should remain in a $15,000,000 to $20,000,000 range for the year.

Speaker 3

For the quarter, we expect revenues to be in a range of $122,000,000 to $125,000,000 and EBITDA margins to be roughly 11%. Our business is well positioned for today and the years ahead, and we are very excited about the future of IVEX in the fiscal year 2024 and beyond. With that, Bob and I will now take questions. Operator, please open the line.

Operator

Thank you. Our first question comes from Ryan Potter with Citi. You may proceed.

Speaker 4

Hey, thanks for taking my question. I guess maybe starting on visibility, what level of confidence and visibility do you have into So full year outlook here and is there any different than how much visibility you would have into initial outlook to start the year? And beyond that, I guess, what needs to happen to hit the low end and And are there any additional assumptions you're including regarding the macro or any buffers you may have embedded in the outlook?

Speaker 2

Sure, Ryan. And thanks for that question. And hopefully, I can hit all parts and feel free if I missed a couple You don't remind me, but look, a year ago, we did not Anticipate in the back half of the year that the pipeline was going to slow down to where It did over the last two quarters. And I don't think anybody in this space had visibility to that. Reality is that did occur.

Speaker 2

Now, with the economic challenges, we did a really good job working with our Clients of helping them get to low cost labor markets, moving a lot of U. S. Work into places like the Philippines at lower price points and much higher margin for us. So we think that's a great and you might not have had all the great visibility of that A year ago at the beginning of the year, but I think those are great moves of strengthening our partnerships and providing great solutions for our clients and actually winning Now as I look at this year, here's how I kind of view The delay of the pipeline over the last couple of quarters is putting some top line pressure onto our business. But very candidly, that pipeline is heating up.

Speaker 2

And with very, What I'll call large material fortune, 100 type deals. We won 6 since June. I really like that pace and we're winning on the big stage. And so and I feel very good about What is there over the next quarter or 2 in our ability to win and beat what I'll call the big guys head on. So when I think about the two ranges that we gave, I believe our ability to hit the high end or above that is going to be dependent on our Success on this pipeline.

Speaker 2

Why we feel we are delivering Very well for our incumbents, our installed base. And so we continue to strengthen that installed base. We continue to Land and expand more types of work with those that we feel have great visibility. And so I think the big variability then comes into the pipeline. And I really liked our position.

Speaker 2

I liked our We've kind of resumed to our very, very strong win rates that we've had for 5 plus years. And so hopefully that answers The lines of your question, if there's something I might have missed, Ryan, please feel free to follow-up.

Speaker 4

No, I think that covered all. I guess just kind of shifting to AI and thanks for providing some of the examples you gave on You're kind of leveraging AI in your business, but just on the I think it's 0.1 and 0.3. Could you maybe provide Some numbers around how much agent productivity has improved, where you have deployed GenAI solutions, then also in situations where you've used Talked to help reduce the need for more agents with any client. Does that change how you price your relationship with the client at all? And does it impact total spend that you have with that client?

Speaker 2

Sure. Great. Yes, really, really solid question. And so let's talk about the first kind of the first prong of AI And that we call kind of the agent assist gives those agents the productivity boost in that. Now We're early on in that because what has to happen is you have to train the generative AI to be effective For your agents and to be really customized, you don't just throw it and kind of give them access to unfiltered answers.

Speaker 2

So we're early on that, but we're really excited about the potential gains. And let me give you an idea of how that can really work. Your new agents that may not be able to get immediate access from not the knowledge that they have inherently from being an agent for A long time. Quite often, they struggle with getting to the knowledge base, the right article. They might have to escalate To a Tier 2 supervisor to get to that.

Speaker 2

Having generative AI On their fingertips to where they can find that answer that use that tool to get to there. That's a really powerful productivity gains. The early numbers that we have are kind of impactful for a very small subset of kind of the new Geared around those new agents. So I hate to quote a number because it's still pretty early on. And but hopefully Walking you through that, you can see the kind of the potential impact that that could have and really help That agent's pathway to proficiency.

Speaker 2

In our more customer facing solutions that We're building. Here's where we really see that working is in peak season When the typical model is hire a whole lot of agents, we have to do a whole lot of build outs And you have to keep those agents for a very short amount of time. By leveraging AI solutions that allow us Not to have to do that incur all the build out costs, the training costs and then our clients paying for that. We think that we can provide a very elegant solution that doesn't have the need for As many agents in the ramp, you're still going to have need for some, but it doesn't stress test that ramp. So it's probably easier for us, easier on the build outs.

Speaker 2

But it also changes the dynamics Because now we kind of look at that as a technology margin and not a BPO margin. And so we think those things will provide another revenue source for us and a much higher revenue much higher margin out of that revenue. But I want to be clear, I don't think this if we do this right, I don't think this cannibalizes our business. And the reason why is if

Speaker 1

you do these

Speaker 2

And the reason why is if you do these things, I think you become a stronger partner and they're going to vote their market share To the provider that does that. And so I'm very optimistic about that this is not a cannibalization of top line, but it really Strengthens allows you to reason to win more market share of the work you do and then layer on new business in the form of True 100 percent digital machine AI driven, that's very, very high margin. That's why we're really excited. And I'm telling you, I think speed Really matters in this and I love our position as a tech led company positions us well, But our speed and flexibility position is faster. And I think we're beating everybody to the market here just because that's who we are in this tech led world.

Speaker 4

Yes, that's great. I guess just one last clarification question. I know with the move to GAAP Will you be providing restated historical GAAP results on a quarterly basis? Or will this only be provided as you report future quarters?

Speaker 2

So Ryan, I'll introduce you to Taylor and it's great to have Taylor on board and great for you guys to connect. So over to you, Taylor.

Speaker 3

Yes. Thanks for the question, Ryan. And so at this point, obviously, we've issued the 10 ks and we have our GAAP results for 2021, 2022 and 2023 full year results, we haven't provided them yet on a quarterly basis other than the 4th quarter. It's a good question. It's something we'll think about as we go forward in the next quarter.

Speaker 4

Got it. Thanks, Ken.

Speaker 2

Great. Thanks, Ryan.

Operator

Thank you. Our next question comes from Matthew Roswell with RBC. You may proceed.

Speaker 5

Yes, thank you. Good afternoon. Just a quick question on the FY 'twenty four margin guidance. It looks like you're calling for about, call it, 30 basis points of increase. Could you kind of bridge that, I would in terms of I would expect the shift to offshore should have more of a benefit, but I think The ERP implementation costs are pulling it down.

Speaker 5

So could you just kind of bridge us to that 30% that 30 basis point increase in margin? Thank you.

Speaker 2

Yes. Matthew, let me start out and then I'll bring Taylor in on this who's obviously drinking by the fire hose, but he's got his arms around this Real fast, but so I think your instincts are exactly right. We have a good, what I'll call Tailwind on the business on the continued move of business to the offshore and the growth in those markets. That's Great for our business from a margin standpoint. Now what we have chosen is To invest in on the ERP and HCM solutions, so you have Workday.

Speaker 2

So there's a That's a fairly sizable investment. We also have the investments that we're putting into think of it as the IVEX Tech, right? This The initiatives that we have going on around AI, that's another big theme on kind of investments into our business. And then candidly, the last piece is the sales and marketing engine. And we continue to see our ability to win on a big stage.

Speaker 2

And so we are investing into that because we like our chances to win and our close rates and those percentages. So we keep Feeding the beast, if you will there. So when you kind of do the pluses and minuses, we kind of look at that as roughly 30 basis point approval.

Speaker 3

And we're going to manage that carefully, right, as we go forward. We want to make sure we continue our margin progression. So if we think we're gaining a bit ahead of ourselves from the investments, we'll pull back to make sure that we see the margin progression we're going to see.

Speaker 5

Okay. So I guess you're not treating the ERP implementation as sort of a one time expense, you're flowing it through?

Speaker 2

We are.

Speaker 5

Okay. Thanks very much.

Speaker 2

Yes. Thanks, Matt.

Operator

Thank you. One moment for questions. Our next question comes from Robert Bamberger with Baird. You may proceed.

Speaker 6

Yes. Thanks for taking my question. Maybe could you talk about the sequential revenue growth pattern throughout the year? Should we assume sort of that Q1 sequential step up and then step up in Q2 followed by declines in Q3 and Q4 kind of like typical sequential growth cadence?

Speaker 2

Yes, Robbie. Thanks for joining the call and your questions. And so sequentially, we expect Fairly sizable increase as we move into Q2. And as we get A quarter now, we can talk about where Q2 is trending. But historically, we'd have a lot of E commerce business that drives that our Q2, the December quarter sequential growth.

Speaker 2

Now this last year and historically Q3, Q4 softened and it's kind of driven a little bit by The end of the retail peak for the holiday season, etcetera. What I feel this year, we're going to be a little flatter. In other words, kind of have A strong back half of the year, I think driven by this pipeline work that we have. These deals Typically would have been 2 quarters ago would have been decisions made and ramp starting. And the pipeline and decisions delayed for those two quarters.

Speaker 2

So what we're finding is those decisions are being made this summer and into September, October. And we think that by the time you get those ramped, You'll be bringing sizable revenue gains from those in the January or February month that should smooth that curve And make it look a little bit stronger in the back half of the year than our historicals have been.

Speaker 6

Okay. Yes, that makes sense. And then maybe just talking about the move from IFRS to GAAP. Can you maybe just specifically talk about Anything happening on the revenue side there? I don't imagine anything on revenues, but just exactly what's happening on the margin side moving from IFRS to GAAP and how we should think about that Maybe historically and then going forward.

Speaker 3

Yes. No, I think you're right. On the revenue side, it was not material. I think in the Q4, it was virtually nil. And for the full year of 2023, you maybe had a $200,000 headwind on revenue, So not material.

Speaker 3

On the adjusted EBITDA side is where you see the real impact and that's because of the change in lease accounting. Previously, most of the lease expense was showing up as depreciation and interest expense, and now it's showing up as rent expense. And so the results you've seen in 2023 and you've also seen restated for the full year in 2022 and 2021 in the ks will continue going forward. On an adjusted net income, it's not that material. The GAAP net income was material because on the warrants before we were accounting for that on a mark to market basis.

Speaker 3

And so there's a lot of volatility if you remember and we pulled that out of Now we're accounting for the warrants on an equity basis, which smooths that out. So the GAAP net income will be smoother going forward.

Speaker 6

Yes. That makes sense. And then just on free cash flow conversion, anything with the new accounting changes that would impact that going forward? Should we expect Somewhere around 100% or anything impacting that?

Speaker 3

Nothing material impacting the free cash flow. Perfect.

Speaker 6

Well, thank you guys.

Speaker 2

Thank you. Great. Thanks for your questions, Robbie.

Operator

Thank you. I'd now like to turn the call back over to Bob Dechant for any closing remarks.

Speaker 2

Yes. Thanks, Josh, and thanks everybody for joining the call. Lastly, I just want to really highlight my team and the work that they did over this last year. It was nothing short of exceptional. They're the best in the industry and we're looking forward to delivering equally strong FY 2024.

Speaker 2

Thank you all.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now

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Key Takeaways

  • In FY2023 Ibex achieved record revenue of $523.1 M (up 6.1% YoY), delivered $66.6 M in adjusted EBITDA (a 49% increase, 12.7% margin), generated $36.9 M in adjusted net income, and produced $22.9 M in free cash flow.
  • The continued shift from onshore to offshore/nearshore operations drove Q4 revenue growth of 1%, with low-cost markets up 10% and onshore down 18%, contributing to a 210 bps rise in adjusted EBITDA margin to 12.4%.
  • Ibex won 10 new client relationships across HealthTech, Retail & e-commerce, and Technology in FY23 (adding ~$35 M in new logo revenue) and has secured 6 additional Fortune 100-level logos since June, with pipeline momentum improving.
  • Leveraging its Wavex technology stack and a three-pronged generative AI strategy, Ibex is boosting agent productivity, enabling real-time analytics, and launching customer-facing AI solutions such as call deflection via Genasys integration.
  • With $57.4 M in cash, virtually no debt, and plans to implement Workday for ERP/HCM by mid-2024, Ibex is targeting FY24 revenue of $525 M–$535 M and an adjusted EBITDA margin approaching 13%.
AI Generated. May Contain Errors.
Earnings Conference Call
IBEX Q4 2023
00:00 / 00:00