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spk06: Good day and welcome to the Agile Thought, Inc. fourth quarter and full year 2021 financial results and corporate update conference call. At this time, all participants are in a list-numbing mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star N2. Participants on this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through June 30th, 2022. I would now like to turn the call over to Scott Gordon of Core IR, the company's investor relations firm. Please go ahead, sir.
spk05: Good afternoon, and thank you for participating in today's Agile Thought conference call. Joining me from the company's leadership team are Manuel Senderos, Chairman and Chief Executive Officer, and Ana Hernandez, Chief Financial Officer. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results of the company, and are therefore forward-looking statements. The content of this call contains time-censored information that is accurate only as of today, March 31st, 2022. Except as required by law, Agile Cloud disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. The company's actual results may differ materially from its projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Today's remarks will also include references to non-GAAP financial measures, such as adjusted EBITDA. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the associated earnings press release. This conference call will be available to replay via webcast through Agile Thought's investor relations website at ir.agilethought.com. Manuel will begin with an overview of Agile Thought, followed by the company's fourth quarter highlights. Anna will then take you through a review of the quarterly and full-year financials before we proceed to the Q&A section. With that, it is my pleasure to now turn the call over to CEO Manuel Cinderos. Manuel, please go ahead.
spk04: Thanks, Scott. Good afternoon. And thanks to everyone for joining our fourth quarter and year-end conference call. For those still a bit new to our story, I will provide a brief corporate background before highlighting the key themes and results from 2021, as well as our outlook for the coming year. We are a leading provider of next-generation software development and digital transformation services for our corporate clients, many of which are Fortune 1000 companies. We leverage our engineers and IT professionals to help our clients achieve their business goals and accelerate ROI. While our corporate customers are diverse across many industries and their markets, they all share the desire and need to adapt to the evolving digital landscape. The driving forces of mobile analytics, cloud technologies, AI, and IoT, just to name a few, are extremely strong secular winds that are forcing companies across the world to accelerate, or in many cases, begin their digital transformation process. This digital transformation services are the fastest growing segment of IT services. This market is forecasted to grow up to 15% annually over the next four years. In fact, industry analysts at Gartner expect this market segment to reach 750 billion by 2024. Only a small fraction of businesses have begun digital transformation, which is expected to account for 53% of overall tech spending by 2023. So against that background, how does IGELPOD fit into the IT landscape? We deliver full lifecycle software offerings and implement interwoven technologies to help our clients digitally position themselves. We segment our full cycle capabilities into three verticals we call Innovate, Build, and Run, which offers strategic consulting, digital delivery services, and digital operations services, respectively. Our clients especially value our custom product development capabilities, our agile development methodologies, and the iterative design process we have developed, which allows for continuous improvement as they run through our DevOps framework. Our blue chip clients are the larger corporations in their industries that have ample IT and digital transformation budgets. Currently, corporate clients based in the U.S. account for approximately 65% of our revenue. However, we are focusing our sales and new client efforts in the U.S. with a goal of reaching 85% on that metric within two years. We service our clients utilizing our growing team of approximately 2,600 employees, of whom 87% are in Latin America, with the remainder based in the U.S. Thus, we use a strategic hybrid onshore-nearshore approach, as we benefit from being able to tap into a deep pool of STEM talent in Latin America with a regional focus on technology. We then foster new hires with our corporate culture and training programs to build a sustainable workforce that forms the foundation for our anticipated growth. The regional proximity to our U.S. clients and the ability to offer client support in most of the time zones for our U.S. clients makes our near-shore delivery a win-win for both sides. The bottom line for us is that as we increase our mix of revenue from U.S. clients and expand our near-shore delivery from Latin America, we can accelerate revenue growth and improve gross margin percentage. Couple this basic strategy with a recent achievement of minimum scale to obtain operating leverage of the SG&A that is in place to support our multi-year growth targets. We can now expect to grow our bottom line at a faster rate than our top line. As we have previously indicated, our long-term goals are organic revenue growth of 20%, gross margins of 35%, and adjusted EBITDA margin of 18%. In addition to our strong organic growth, another significant growth driver is M&A. As illustrated by 11 acquisitions completed over the past six years, we will continue to look for talking acquisitions that can strengthen our capabilities and offerings while providing additional sustainable upside and operating leverage. With that background, let us now turn our attention to where we are today. The year 2021 was transformational for Agile as we made considerable progress on several key elements of our strategy, positioning the company for accelerated growth in 2022 and beyond. Our decision to invest aggressively in our U.S.-focused commercial sales force has paid dividends, as we have delivered four consecutive quarters of sequential sales growth, added 36 new customers to our enterprise customer base in 2021, and signed new contracts, or TCV, worth $218 million, which represents a strong 1.4x book-to-bill ratio for full year 2021. We have also made tremendous strides this year in both our recruitment initiatives and additions to our senior management team. In 2021, we added a net of 298 billable employees to our staff. Despite a competitive market for talent, our attrition shows initial signs of steady decline as a benefit of new internal programs and employee benefits. while our recruiting efforts continue to drive new talent into the iJobPod family. Turning our attention to our financial performance during the fourth quarter of 2021, revenue increased 22% year-over-year and 4.2% sequentially to $42.1 million. Both growth rates align well with our targeted 20% year-over-year organic revenue growth. We added nine new clients during the fourth quarter and 36 in total in calendar 2021. This is compelling evidence that our investments are beginning to pay off. As new client acquisitions is critical component of our accelerating long-term growth. The trend in new client acquisition is strong as we have added 19 new clients in the second half of 21 as compared to 17 in the first half of 21. We are further excited about trends in contract bookings and increased percentage of revenue from the U.S. Thus far, in the first quarter of 2022, total contract value in the fourth quarter of 2021 was $53 million, which was up 130% year-over-year and represented a book-to-bill ratio of 1.3x. Encouragingly, our internal data thus far indicate that bookings in the first quarter of 2022 will increase 25% sequentially, paving the way for strong revenue growth later in calendar 2022. In the third quarter of 2021, gross margin percentage was a bit weak due to increased staffing ahead of new projects and engagements that were expected to start fourth quarter of 21. However, Gross margin percentage rebounded to more historically consistent levels of 29.7% in the fourth quarter, leading to 41% year-over-year and 16% sequential increases in gross profit. Key to our growth is our ability to source and onboard talent to convert expanding bookings to revenue. As we consistently deliver sequential organic revenue growth, we do expect quarterly gross profit and gross margin to potentially fluctuate over the next couple of quarters as we ramp up our talent acquisition and onboarding and prepare teams for new projects. However, we anticipate that our strategic focus on securing a higher U.S. revenue mix coupled with an increase in our near-shore delivery will lead to an increasing trend in gross margin percentage in the coming quarters, and in particular, in second half 2022. Again, we are targeting 35% gross margin in the longer run, as compared to 29.7% gross margin in the fourth quarter. With our higher expected revenue and margins, we also expect to see a substantially improving trend in adjusted EBITDA. In many respects, we are right on the cusp of that right now. It is worth pointing out that over much of 2021, we have been scaling our organizational structure. making investments for future growth, and preparing to enter the public market. All these elements have come with increased costs in our SG&A, but some of these expenses will have run their course, and we believe such expenses will begin to normalize going forward. SG&A, as a percentage of revenue, is expected to decline, increasing our operating leverage in the process and accelerating our adjusted EBITDA growth. Turning to the balance sheet, we materially reduced our debt, total outstanding debt of $57 million as of December 31, 2021, compared to $137 million on December 31, 2020. In 2022, we expect to continue our deleveraging effort, refinance our external credit facility in the second quarter, which will extend the maturity, lower our interest costs, and provide greater operating capital and flexibility. In summary, our strategic objectives are to grow our market share in the digital transformation market, place more emphasis on acquiring new businesses in the U.S., increase our new short delivery in our engagements, and grow Latin American billable employee base. We believe we are extremely well positioned to continue to execute on these goals in the coming quarters. And with that, I will now turn the call over to our CFO, Ana Hernandez. who will provide additional insights into our quarterly and yearly financial results. Ana?
spk03: Thank you, Manuel, and good afternoon, everyone. I would like to provide a summary of our fourth quarter 2021 financial results. Revenue in Q4 was $42.1 million, an increase of 4.2% sequentially from Q3, and an increase of 22% year over year. This sequential increase was driven by the conversion to reliability of the talent we hired during the third quarter to fulfill our bookings and the addition of new logos as we discussed before. Gross margin percentage in the fourth quarter rebounded to 29.7% versus 26.6% in the third quarter of 2021. Upfront cost in the third quarter to build our headcount ahead of projects starting in the fourth quarter normalized. as this utilization, leading to improved gross margins in the fourth quarter. On a year-over-year basis, gross profit increased 41% from fourth quarter of 2020 to fourth quarter of 2021. Adjustability for the fourth quarter was $283,000 versus a loss of $597,000 in the third quarter of 2021 and $722,000 in the fourth quarter of 2020. Elevated SG&A to support revenue acceleration and public readiness expenses were a key negative contributor to our profitability measures in 2021. We expect our SG&A expenses will begin to normalize going forward as a percentage of revenue. Net loss for the fourth quarter was 5.9 million, as compared to a net loss of 10.8 million in the third quarter of 2021. and a net loss of $6.6 million in the fourth quarter of 2020. Now I will discuss full-year 2021 results. Revenue for 2021 declined 3.2% year-over-year to $159 million from $164 million in 2020, as we leave behind the last effects that COVID has on some statistics clients, which are all now on a stable and growing trend. From a geographic perspective, for the full year 2021, revenues from our United States and Latin American operations represented 65% and 35% respectively, compared to the same period of prior year where the U.S. represented 69% and LATAM 31%. Revenues from our top 10 clients accounted for 65% of our total revenues in 2021. as compared to 67% in the prior year period, resulting in greater diversification across our client base. Gross margin percentage for 2021 was 29.2% as compared to 30.8% in 2020. The declining gross margin is explained by the investment made during the year, particularly in the third quarter, to staff and onboard talent ahead of new projects with the objective of converting a larger portion of bookings into revenue. Noteworthy, the gross margin of our top 20 strategic clients for 2021 was 33.8%. Adjusted EBDAs for 2021 was 3.4 million as compared to 17.9 million in 2020. The decreases in revenue and gross margin percentage, along with increased SG&A expenses used to build the company's readiness for scale and becoming a public company, contributed to the decreased adjusted EBITDA. Net loss in 2021 was 20 million, as compared to a net loss in 2020 of 26.3 million. While 2021 had lower gross profit and higher SG&A and stock-based compensation expenses than those respective amounts in 2020, These factors were more than offset by a $16.7 million in permanent charge in 2020. Switching to the balance sheet, in August 2021, we closed an equity capitalization of $91.5 million through our business combination with Leaf Capital Acquisition Corporation and came public in a simultaneous transaction. In December 2021, we closed a $25 million equity transaction. Much of the proceeds from these two transactions were used to reduce our bank debt, which began 2021 at 98 million and ended the year at 41 million. Total debt at year-end 2021 stood at 57 million, down from 137 million at the start of the year. We are in the process of refinancing our outstanding term loan and expect that the outcome of this refi will bring more favorable terms and flexibility than our existing facilities. Cash at year-end 2021 was $8.6 million, and common shares outstanding at year-end 2021 was $50,402,763. Now I would like to provide forward guidance for the first quarter of 2022. For the first quarter, we expect total revenue in the range of 43 million to 43.3 million. Gross margin percentage for the first quarter is expected to be within a range of 28.3 to 28.6%. So that concludes my prepared remarks, and now I would like to turn the call back to Manuel for any remaining remarks.
spk04: Thank you, Anna. In conclusion, we are confident about our competitive positioning and expect to show operating leverage as 2022 unfolds. The continued evolution of digital transformation across the global economy provides significant tailwinds for us, and we expect to capitalize on such secular tailwinds for the benefit of our shareholders. And with that, I'd like to turn the call over to the operator so that we can begin the question and answer session. Operator?
spk06: Thank you. Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star then the number one on your telephone. If your question has been answered and you wish to withdraw your question, you may do so by pressing star then two. If you're using a speakerphone, please pick up your handset before entering your request and speaking on the call. One moment, please, for our first question. And the first question will come from Maggie Nolan with William Blair. Please go ahead.
spk01: Hi, thank you. Can you walk us through how your near shore value proposition is being received by existing and potential clients in light of some of the geopolitical events that are affecting the industry? Are you seeing incremental opportunity here?
spk04: Hello, Maggie. Yeah, that's a good, that's a great question. We are seeing incremental opportunity both from existing customers, new customers, and even from our competitors. which have been impacted by the conflict in Russia and Ukraine, and they're asking for help. So we are seeing increased demand due to that. We also believe that there is going to be a more conscious shift from our customers to geopolitical risks and try to probably diversify their positions in that sense.
spk01: Thank you. And then on the talent side, it sounds like you're going to continue to kind of rev that hiring engine. Can you talk about which delivery geographies you'll be focused on and the current kind of competitive environment for talent in those areas and whether that's changed of late?
spk04: Yes, of course. So we're very focused on growing Mexico as our key stronghold. And we're doubling down on Mexico in that regard for recruiting, making agreements with universities to have some more college hires through that. We're also increasing our nearshore utilization from Brazil, where we already have 250 consultants, but we believe there's a nice talent pool there to be tapped to use for nearshore. Argentina will also be growing for us. So I would say those three geographies in Latin America are our main focus.
spk01: Thank you. And then I believe, Anna, you mentioned that SG&A would come down as a percentage of revenue over time. Are the investments in the sales force complete for a period of time? And then do you view... you know, those sales reps as completely productive at this point in time, or is there additional kind of leverage from them over the next quarters or years?
spk02: Yeah, I think, Maggie, you know, the sales investment that we did, I believe that is now really, you know, giving us fruits of basically the talent engine that we built there. At this juncture, I believe that we are well positioned for what we are expecting during the first half of the year with the current size of the team that we have. Perhaps in the second half, we would be evaluating to keep investing on that sales engine if we want to expand ourselves in other practices like maybe high tech and media and entertainment is something that we have been evaluating too. But at this point, with the investments that we did in last year, we believe that we have a pretty solid team to provide the growth that we are expecting during the first half of the year.
spk01: Okay, great. Thank you all for taking my questions. Thank you, Maggie.
spk06: Thank you. And, again, if you have a question, please press star, then 1. The next question is from Brian Kinslinger with Alliance Global Partners. Please go ahead.
spk07: Great. Thanks. Nice results. Can you talk about wage inflation for a candidate with the same credentials as last year? If you hire someone today versus a year ago, how much higher are salaries for new hires for either experienced or recent grads? And then maybe in turn talk about how pricing is trending as well. Thanks.
spk04: Yeah, that's a great question, Brian. So, yeah, of course we are seeing wage inflation. including companies that were based in East Europe that are trying to expand their operations in Mexico. So we are seeing that pressure in the Mexican market. We do believe the Mexican market is large enough to be able to handle that in terms of talent pool. Our response for wage inflation is really providing a faster career path for our consultants and allow them to get promoted quicker. rather than having to absorb wage inflation within the current position. So for us, the response is train them quicker and progress them through the career path quicker. Now, we're also seeing very good progress over the last two quarters in increasing pricing with existing customers. And they have all been very... open to having that discussion with us, and we are seeing increased pricing with existing customers. And obviously, all our new customers are coming on at much higher rates than what we have in our installed base.
spk07: Great. That's helpful. My follow-up is, from a business development perspective, which of your industry verticals that you focus on do you see the strongest growth opportunity in the near term based on your pipeline And then the similar question, if you look more at the longer-term perspective, is there one industry that maybe outweighs in terms of the opportunity that you see ahead? Thanks so much.
spk04: Yeah, sure, Brian. So we see a huge opportunity in healthcare where we have a very good presence. We think there's a lot of still large customers to be had and mid-sized customers also where we've been very successful in landing as new clients. So we think healthcare is a big opportunity. A lot of companies that are primarily technology-based in their operations have been very good new clients for us throughout last year. And as Anna mentioned, we see in the future opening up that new high-tech and media and entertainment industry for us. We're looking at a good path to opening that up maybe in the second half of the year where we also see a lot of demand and opportunities.
spk06: And thank you, Brian. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Manuel Cenderos for any closing remarks.
spk04: Well, thanks, everybody that participated. We really appreciate you spending the time with us and trying to understand our story. I hope we were clear enough in explaining ourselves. So thank you and enjoy your afternoon.
spk06: And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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