IBEX Limited (NASDAQ:IBEX) First Quarter 2023 Results Conference Call November 15, 2022 4:30 p. m. Eastern Time
Participating companies
Michael Darwal – Chief Digital Officer
Bob Dechant – President and Chief Executive Officer
Karl Gabel – Chief Financial Officer
Conference Call Participants
Tobey Sommer – Truist
Operator
Welcome to the call for the convention of effects of the first quarter and full year 2023 of IBEX. At this time, all participants are in listen-only mode. After the presentation of the speakers, there will be a question and answer session. [Operator Instructions] As a reminder, today’s call is being recorded. Please note that an earnings presentation can also be made on the IBEX online investor relations page in inverter. ibex. co.
Now I will pass the ground to Mr. Michael Darwal with IBEX. Lord, it may continue.
Michel Darval
Good morning and thank you for joining us today. Before we begin, I would like to remind you that the issues addressed in today’s call are likely to come with forward-looking statements similar to our monetary operating functionality and business outlook objectives, which are based on management’s existing ideals and assumptions. Please note that those forward-looking statements reflect our outlook as of the date of this call and we assume no legal responsibility to revise such data as a result of further developments that may occur.
Forward-looking statements are subject to threats, uncertainties and other points that may cause our actual effects to differ materially from those expected and described today. For a more detailed description of our threat points, please see our Annual Report on Form 20-F filed with the U. S. Securities and Exchange Commission. The U. S. Air Force on October 4, 2022.
With that, I pass it on to Bob Dechant, CEO.
Bob Singer
Good morning everyone, and thank you all for joining us today as we look at the effects of the first quarter of fiscal 2023. I am incredibly proud of our company’s continued functionality in the face of existing market conditions. Our effects have been very strong in all areas. We delivered the best first quarter in the company’s history, evidenced by a 17. 8% year-over-year earnings expansion to $127. 9 million. They make up 76% of our total profits.
Adjusted EBITDA increased 59% year-over-year to $18. 2 million or 14. 3%. Adjusted net income source increased to $6. 4 million from $0. 9 million and lost money increased to $5. 2 million from $1. 6 million in the prior year quarter. Over the past 12 months, revenue was $512. 9 million, up 16% and well above our previous expansion rates of 10%, while adjusted EBITDA amounted to $73. 6 million.
Our company was built to navigate turbulent waters effectively and perform well in all market conditions. This has been driven through our rugged new logo engine that continues to win top-tier elite consumers and new economy leading consumers across our strategic verticals. The ability to outperform our competition in key consumer performance signals allows us to identify and temporarily expand our partnerships, resulting in significant percentage gains in the market. The result is an enviable business both in the diversification of visitors and in the vertical.
In addition, IBEX is well built structurally from the point of view of the virtual combination where today it incorporates omnichannel and only virtual represents 71% of our general activity and continues to grow. If you remember, when I joined IBEX in May 2015, 98% of our business was voice only. As a result, we are strategically placed to capitalize on secular expansion trends in virtual interactions with early visitors.
During the quarter, we gained 3 new customers, adding a leading healthcare company and a leader in the new high-expansion economy, both of which have significant expansion potential. In addition to the earnings we had at the end of the fourth quarter of fiscal 2022, we had 11 new visitor launches in the quarter. As a result, we expect another solid year of earnings generated through new [technical difficulties] in the year. And our portfolio continues to grow non-linearly as our logo and reputation grow, and our additional investments in our sales and marketing organization become a reality.
We continue to make notable paintings in our strategic healthcare and fintech verticals with 53% year-over-year growth. These two key verticals now make up more than 30% of our business, up from approximately 23% in the first quarter of fiscal 2022. And we will continue to grow with our recent late-stage contracts and pipeline agreements.
Another key driving force of our earnings expansion is the expansion within our incorporated core clients where we continue to land and grow, resulting in an accumulation of portfolio stake. With new consumers gained since fiscal 2016, our annual earnings retention rate has been over 140% over the past five years as we expand into new geographies and with consumers.
Our visitor retention continues to be as strong as any BPO in the industry and our NPS score has an incredibly high score of 68. We’re gaining new consumers, whether it’s among the world-class giant consumers in virtual transformation and the Play Economy First. This highlights our ability to win against classic multi-billion dollar competition and competition aimed only at the new economy.
IBEX’s differentiated BPO 2. 0 capabilities, unmatched corporate culture and Wave X generation stack resonate well with consumers and set IBEX apart. Recently, we have been identified internationally with several highly sought after awards.
At CALA, we have been named Best Workplace and Best Workplace for Women for the third year in a row. In the Philippines, Philippine Daily Inquirer and Statista chose us as one of the Filipino employers. During our time in Pakistan, we won the Most Responsive BPO and Gender Diversity and Inclusion awards.
Our technologies also continue to be noticed. Wave X won the Product of the Year Contact Center Technology Award and the Customer Experience Innovation Award for the company for embracing generation as a key tool for visitor service excellence through CUSTOMER magazine.
Finally, we are incredibly proud of Julie Casteel, one of my key leaders who named Executive Woman of the Year at the 2022 Globee Women World Awards. These awards recognize IBEX as innovators, thought leaders and market players in the visitor service and tactile media industries. .
Thanks to our track record of significant new consumers, our consumer diversification remains among those in the industry and continues to strengthen. Today, we have over 50 consumers generating over a million dollars a year and expect that number to grow to around 60 by the end of the fiscal year as our new logo engine continues to run at full capacity.
Let’s move on to profitability. Adjusted EBITDA margin advanced through 370 core issues compared to the same as last year to a very smart point of 14. 3%. This margin improvement resulted in an adjusted EBITDA expansion of 59. 1% year-over-year to $18. 2 million, and we expect to achieve a significant margin improvement as we continue to grow and sell in our available capacity built over the past two years.
Before concluding, let me take a few minutes to talk about the macroeconomic environment. Inflation and wage pressures continue to burden the business with demands. Our team aims to assemble those demanding situations on a basis and generate effects for both customers and shareholders.
Our business is capable of achieving 17. 8% expansion and solid margins, while experiencing slowdowns with our consumers and advertising consumers, and our strategy comes out of a giant low-margin client. This is an example of the resilience and sustainability we have built into this business. We see opportunities as consumers continue to struggle with load pressures and demanding situations operating their own U. S. -based touch centers. U. S.
IBEX is a wonderful solution for them, especially with our capacity already built in all our regions. In addition, our strong operational functionality positions us well to continue to gain portfolio share as consumers look to weed out the worst-performing providers. Uniquely positioned to capitalize on those vital trends.
Looking ahead to the rest of fiscal 2023 and beyond, we are very confident in our business. Our momentum remains strong and we are passionate about the long term of IBEX. Finally, I would like to thank my team for their continued determination of our mission.
I will now call Karl to review the monetary effects and advice. Karl?
Carlos Gabel
Thank you, Bob, good afternoon everyone. Thank you for joining today’s call. In my discussions, of our monetary effects for the first quarter of fiscal 2023, references to revenue, net source of income, and net money generated through inconsistent transactions are based on IFRS, while adjusted net source of income, adjusted earnings consistent with share, adjusted EBITDA and loose money are not GAAP-based.
Reconciliations of our IFRS and non-GAAP measures are included in the tables attached to our earnings press release. We had a strong quarter, our most productive start to the year on record, evidenced through earnings expansion of 17. 8% to $127. 9 million, to $108. 6 million in the prior year quarter. We continue to see strong expansion in our BPO 2. 0 clients, which have been earned since fiscal 2016, as this cohort grew 44% year-over-year and now accounts for 76% of our overall profit to 62% in the last quarter of the year.
The net source of revenue increased to $4. 3 million from $3 million in the prior year quarter. The accumulation in the net source of revenue is basically due to stronger operating results, adding the absence of non-recurring prices in the first quarter of fiscal 2023, partially offset by a negative effect on the measurement of the fair price of warrants, and an accumulation of depreciation. We expect our annual effective tax rate to be between 12% and 14% on a normalized basis, excluding the effect of fair adjustment of the price of warrants.
On a non-GAAP basis, the adjusted net source of revenue increased to $6. 4 million from $0. 9 million in the prior year quarter. Increase in adjusted net income and adjusted diluted earnings consistent with the consistent percentage primarily due to results consistent with the strongest consistents, partially offset through consistent depreciation and amortization.
Adjusted EBITDA increased to $18. 2 million or 14. 3% of revenue, compared to $11. 5 million or 10. 6% of revenue at the same time last year. The increase in adjusted EBITDA margin is basically due to the expansion of our BPO 2. 0 consumers. As expansion continues in offshore higher margin regions, prices related to the increase in new consumers and operating leverage decrease as we continue to grow.
By the first quarter of fiscal 2023, the concentration of our five most sensible consumers decreased to 39%, to 42% of total profit from the same quarter last year. Our 10 most sensible consumers now account for 58% of total profit, up from 61% in the year-ago quarter. We have worked hard to diversify our visitor base and are proud of the progress we continue to make.
Transition to our verticals. Retail and e-commerce rose to 21. 4% of first-quarter earnings, up from 17. 8% in the year-ago quarter. Transportation and logistics grew at thirteen percent of first-quarter profits from 11. 8 percent in the year-ago quarter.
Conversely, our exposure to the telecommunications sector decreased to 17. 3% of quarterly profit from 21. 5% in the prior year quarter. Net from operations $8. 8 million for the quarter, compared to $6. 9 million in the prior year quarter, primarily due to higher operating results, partially offset by increased current capital usage.
Net money generated through non-working capital operations $16 million for the quarter, compared to $7. 8 million in the year-ago quarter. Our DSOs were 59 days, 4 days less year over year and 4 more days sequentially. We continue to be well below the industry average.
Capital expenditures were $3. 6 million, or 2. 8% of revenue in the first quarter of fiscal 2023, compared to $5. 3 million, or 4. 9% of revenue in the prior year quarter, as we continued to utilize our available capacity following the removal of distancing requirements.
Non-GAAP loose cash flow increased to $5. 2 million in the current quarter, compared to $1. 6 million in the prior year quarter. We ended the first quarter with $42. 9 million in money, compared to $48. 8 million in June 2022, primarily due to a net repayment of our revolving credit facility in the quarter.
Total debt of $88. 9 million, adding total loans of $7. 7 million and lease obligations of $81. 3 million, down from $104. 7 million in June 2022. Loan availability under our revolving credit services increased to $56. 7 million in September 2022 from $50. 5 million in June 2022.
Finally, our corporate has a wonderful drive. We continue to grow at record speed and aggressively expand our existing business base across business lines and geographies. However, we recognise the challenging macroeconomic environment with wage and inflationary pressures, post-pandemic effects on the industry and market uncertainty, but we remain positive about IBEX’s outlook, based on the strengths of our existing partnerships, new visitor driver, operational functionality and strategic presence.
We have great confidence in the expansion of our business and therefore reaffirm our previous direction for fiscal 2023. We look forward to continued success.
With that, Bob and I will now ask questions. Operator, please open the line.
Q&A session
Operator
Thank you. [Operator Instructions] Our first comes from Truist’s Tobey Sommer line. Your line is open.
Tobey Sommer
Hello. Can you hear me?
Bob Singer
Yes, Toby. Hi, I’m Bob. How are you?
Tobey Sommer
Hey, it’s going really well. Thank you. I was wondering if you could describe the situations or what drives the launches of your new logo in the quarter, because you outlined a few things where you’re ahead of the curve in terms of what you can deliver. and then a market phenomenon where consumers are looking to upgrade underperforming providers. How would you characterize those pilots in your recent launches?
Bob Singer
Of course. So clever question. And the way I see it is that there are a multitude of transactions that are simply made through the demanding situations faced by consumers, whether they are our existing consumers or the target consumers. And the ones that, and regularly have, have the ones that have captives are regularly in what I’ll call more of the front-line segment, whereas consumers in the new economy have a tendency to outsource from day one or possibly would have had a small captive that they then started outsourcing. And those macroeconomic points are pressing, I think, on their internal operations. And the effects have moved to running away from home through COVID, and then looking to get their agents back to the centers.
Agents don’t need to do that. Wear jumps. The charge of replacing those officials is expanding because of inflation and wage pressures, and so on. Then you almost have that virtuous circle that goes through there. That then leads them to say, hey, look, I have to react. I have to pass quickly. I have to look for opportunities to remain resilient. And that’s where outsourcing fits well into the space.
So to see that effect, Tobey happened almost a year ago, where we had several customers that we took a look at and then launched to nearby or overseas markets as a way to manage that. And I think it’s a trend that’s going to continue. here while continuing to have real hurdles and turbulence in the US market.
So, for me, it’s a big driving force that then runs out and I look at our consumers who maybe don’t have that; Maybe your business rarely develops much temporarily, but you can see your business shrink. While handling this, they are looking to consolidate the volume of their most productive suppliers instead of seeing everyone see their volumes reduced by 20%, they will keep their most productive suppliers at full capacity and eliminate that from the worst. And that works very well for IBEX, because we are strong operationally. And I testify to our Network Promoter with our consumers and also with our visitor loyalty figures, which have been exceptional. And so it plays very well in the trajectory of expansion of the IBEX.
Tobey Sommer
Thank you very much for that context. It has been able to expand some of the capacity it has added in the last two years and that is getting better margins. Is margin consumers less of a headwind?Is there – how long can there be some kind of tailwind of not wanting to invest a ton in CapEx before wanting to revive this?
Bob Singer
So, according to our analysis, we have a capacity of about $150 million, capacity available in markets that were exploding and were close to shore, offshore and places like that. So if you take a look at our expansion trajectory, I think it pushes us well beyond fiscal 2023 and somewhere beyond fiscal 2024 and fiscal 2025 that we can grow primarily without a lot of capital expenditures.
Now, I think in this period we’re going to need to expand into new geographic areas, which we’re not in today. And it will require a little bit of CapEx, as you go down that path, but we’re in a really smart position on the next call, two years or more to operate this business. CapEx down, we think you’ll see a margin, an appreciation when you fill those centers because we have those prices. Many of the prices are set under — something under our belt already. And so the bottom line of that is, I think we’re going to: we’re well placed for healthy EBITDA expansion with low CapEx, which then translates into very strong loose cash flow.
Tobey Sommer
Last consultation for me and I’m back in line. What do you think the company wants to do, over the next year or two, to position you at 2x 3x the length assuming your aspirations are going in that direction?
Bob Singer
Of course. Yes, it is, yes, they are. And our aspirations are, we’re on a biological path to $1 billion. If you just look at our trajectory and my team and I really have that on our — on our radar. Get there, I think we want to keep doing what we’re doing very well today, which is opening up new markets, becoming a dominant player in the markets, and then just creating new logos and filling the centers of the ones quickly. The kind of recipe for good fortune is continued expansion in the province of the Philippines, in our markets closest to the coast.
And then some other market that I look at and say is a domain that we probably need to enter, that would be a market like India, where a lot of our consumers are: look at it and look for growth. And so I see that as the biological aspect of what we’re doing well today, and we’re sticking to what we’re very smart at executing very well. On top of that, Tobey, I’m looking at how we can expand what we offer. Can it be complementary?
And that’s a domain that I think is about higher value, higher-margin services. And those are the spaces where we actually spend a lot of time thinking, how and where we’re going, can we grow organically by making efforts like we’ve done in healthcare and fintech, or is it something we want a complementary acquisition to expand those capabilities?And those are the things that my team and I are looking for and we hope to have a very entrepreneurial strategy to achieve this to drive aggressively and keep moving down the more responsive line and the back line.
Tobey Sommer
thanks.
Operator
[Operator Instructions] I don’t show any more questions [Technical difficulty] the call goes back to Bob Dechant’s comments.
Bob Singer
Yes, operator and Valerie, thank you for accepting it as true for me. And thank you all for answering the call today. In fact, we are satisfied with our results. And I just want to thank my control team for continuing this business and I hope to bring you all together in a quarter from now and at that point everyone will have a Thanksgiving and a healthy and satisfied holiday season. So thank you all and accept as true in IBEX.
Operator
Ladies and this concludes the conference. Thank you all for [technical difficulty].