IBEX Limited

Welcome to the IBEX Third Quarter Full Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's remarks, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. To note, there is also an accompanying earnings deck presentation available on the IBEX Investor Relations website at investors.ibex.co. I will now turn the conference over to your host, Ms. Brindley Johnson, with the Blue Shirt Group.

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 20F filed with the U.S. Securities and Exchange Commission on October 14, 2021. With that, I'll turn it over to Bob Deckett, CEO.

Thank you, Brinley. Good afternoon, everyone. And thank you all for joining us today as Carl and I share our third quarter results. I'm excited to announce that Q3 was the highest growth quarter in our company's history. We delivered organic revenue growth of 19%. which accelerated from an impressive 13% growth in Q2. This continues to be driven by our omni-channel solutions integrated with WaveX technologies and business analytics across both our new and existing clients. Our revenue generated from new clients won since FY16 Those we call BPO 2.0 clients grew by its highest rate ever this quarter at 60% year over year and from 57% in Q2. This strong growth is a testament not only to our ability to attract and partner with new clients, but also our strategy to expand our solutions and differentiate in the marketplace. I'm most excited that these new customers now make up 70% of our total company revenues, up from 52% a year ago. And I believe we are well positioned to continue growth above our historical 10% rate. Our revenue growth is driven primarily by our continued success in our profitable new logo engine, which sells differentiated BPO 2.0 solutions to many of the world's best brands. This quarter, we won seven new clients for a total of 19 year-to-date, and these wins span across our key verticals and geographies. we have had an amazing success in the FinTech and health tech space. This quarter, we had two significant wins in these verticals. Our success has enabled these two key verticals to grow by 100% over prior year and now represent 25% of our total revenues. Expanding into these verticals insulates the business from the impact of seasonality seen with some of our other verticals and leads to increased stability of the revenue base across the fiscal year. We are also excelling in the digital first base. To highlight one of our important client wins, the number one job search marketplace in the world has partnered with IBEX to deliver premium customer experience support for SMB customers in the U.S. Our solution centralized their program in our English-first Jamaica market and offered a highly scalable geographic solution for future growth. This is an example of how IBEX's award-winning BPO 2.0 capabilities are leveraged to deliver differentiated solutions enabling us to displace their prior partner. With additional new customer wins since the quarter closed, we are on track to generate approximately $50 million of in-year revenue from our new clients and expect this cohort of new customers to generate well over $100 million in revenue in FY23. Another key vector for our revenue growth is expansion within our embedded base clients, where we continue to win market share and grow client spend by winning new lines of businesses, new additional services, and new geographies. I'm incredibly proud in our ability to rapidly expand with these great brands. As an example, in Q2, we launched in the U.S. with Opendoor, a leading digital platform for residential real estate to support their customers who are buying and selling homes online. Since the launch, we quickly expanded to provide a multi-geo solution that adds back office processes to the customer facing support while helping our client greatly improve efficiency and productivity in a very complex process. As a result of our new client wins and expansions, we have created a business where our client diversification is among the best in the industry and continues to strengthen. Comparing to the year-ago quarter, our top five customers now represent 38.5% of our revenue, down from 49.4%. Our top 10 customers now represent 56% of total revenues versus 69%. And our top 25 customers now represent 84% of the revenues, down from 90%. Our business is now driven firmly by this dominant growth engine. However, our overall growth has been offset by the continued decline of our Legacy III clients, which now represent only 19% of our revenue, compared to 34% in the year-ago quarter. We expect this trajectory among this cohort to continue into FY23 as a result of organic demand decline and a strategic decision that allowed us to replace our lowest margin business within this client group with the new higher margin health tech industry client. We've been able to utilize skilled frontline agents that were previously dedicated to this client to scale in the U.S., while we also expand into the Philippines with this health tech client. This transition and subsequent grant should be completed by early Q1, and we project this new client to be a top client for FY23. Wage inflation and labor shortages continue to deliver unprecedented challenges. We see this amplified in particular in the U.S. We are addressing this by successfully negotiating price increases with many of our clients. We have also been able to include COLA provisions in in several of our newer contracts that we believe will help mitigate this effect on our P&L. However, there's another part of this story that is creating a meaningful opportunity for IBEX. New and existing clients are facing operational challenges and margin pressure from these rising labor costs. Clients are engaging IBEX during this challenging time to develop solutions that help them overcome this dynamic. This presents an opportunity for IBEX to demonstrate clear ROI and efficiency gains for our clients. We believe this will be a tailwind to our growth as clients are forced to reevaluate cost structures and contact center strategies going forward while looking for innovative digital partners. A great example of this was a win we had last quarter with a leading hotel brand with over 600 property franchisees that for many years operated 100% of their contact centers internally. Adding to their challenges and complexity is a digital transformation that they are in the process of implementing for their guests. While wage inflation and COVID simultaneously made it very challenging to operate their centers, IBEX was able to start in Q2 with an integrated omni-channel proof of concept launch in Jamaica that was very successful. This led to C-suite level discussions where IBEX will take over all their operations, including a rebadge of their U.S. operations along with continued growth in Jamaica and the future launch into Honduras, which we expect to complete by October. We expect more opportunities like this to continue to present themselves, given the ongoing wage pressures. Moving to our profitability, adjusted EBITDA margins improved sequentially this quarter to 14.6%. but continue to experience some pressures compared to last year as a result of our business growing at a faster pace. The largest driver this quarter was a $2 million increase in agent training costs associated with ramping our business to attain our very strong revenue growth. If agent training costs held steady compared to last year, adjusted EBITDA margins would have been greater than 16% and up on a year-over-year basis. We are encouraged about the outlook of margin improvements over the midterm. The markets in which we operate are now beginning to remove social distancing requirements. As we continue to win and onboard new programs, we expect a meaningful margin improvement beginning next fiscal year. We also have the ability to grow revenue into our existing footprint by over $150 million. Looking ahead, we believe we have reached our peak spending while we have built out world-class capacity to sell into for our clients over the last two years. Our free cash flow On a normalized basis, excluding working capital changes was almost 10 million for the quarter, up 67 percent year over year. While Carl will review this in greater detail, we expect to see significantly lower capital needs going forward to support our growth and expect an inflection in our free cash flow beginning in FY23. Recently, the Philippines has been an area of concern discussed by several of our competitors on recent conference calls with the government's tax laws impacting margins and the ability to bring employees back to the centers. We are pleased to report that this continues to be one of our best performing geographies and the tax implications for IBEX are relatively negligible. as a result of the foresight of management to have both PESA approved and non-PESA sites. This allows us to give our employees the choice between in-center and work-from-home jobs without incurring financial or operational challenges. Our competitive position in the market remains strong and continues to be validated by the increase in demand from our existing and new clients. In regard to our capital allocation, our net cash position on our balance sheet continues to offer us tremendous amount of flexibility when opportunities present themselves. As a reminder, our board has authorized us to repurchase up to 20 million of our common stock, and we're excited to continue executing at such attractive prices. In closing, we are on track to complete the company's highest growth year. As such, we are reaffirming our full year guidance. Looking forward to FY23 and beyond, we expect to sustain a revenue trajectory firmly in excess of 10% per annum. The majority of our footprint today is operating in a socially distanced model complemented with work at home. As we move forward to a world where we are able to resume pre-COVID operating models, we are in an optimal position to significantly grow with limited CapEx investments. We are confident this will soon have a meaningful and positive impact on our margins and free cash flow. We plan to share our future goals and strategic initiatives in more detail later this year. I will now turn the call over to Carl. Carl?