Q1 2022 Ibex Ltd Earnings Call
Thank you for standing by and welcome to <unk> first quarter fiscal year 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session you will.
I need to press star one on your telephone please be advised that today's conference maybe recorded should you require any further assistance. Please press star zero I would now like to turn the call over to your host Brinley Johnson Blue shirt group.
Good afternoon, and thank you for joining us today before I begin I'd like 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 managements.
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 probably 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 more detailed description of our risk factors. Please review our final prospectus filed with the Securities and Exchange Commission on August 10 2020.
With that I'll turn it over to Bob <unk> CEO.
Thank you Brent Lee.
Good afternoon, and thank you all for joining us today as we discuss our first quarter fiscal year 2022 financial results.
We are excited to speak to you today is Carl and I share our business overview.
Our results.
First and foremost we hope you are all staying safe and healthy.
<unk> reminds us each and every day to put our employees and their families first.
Critical factor in our success is our people without our employees their drive and commitment to put our customers first we would not have achieved the success we are experiencing today.
Many thanks to each of them for their continued commitment to our business.
As we shared with you last quarter, we are in the midst of a very exciting year at IDEXX our.
Our year marked by key strategic growth initiatives that includes formally launching our staff augmentation business, we call IDEXX augment.
Expansion of our <unk> technology.
And geographic expansion into Honduras, driven by our long term thinking as we invest for our future and continue to transform our business.
As expected the first quarter proved to be our slowest of what will otherwise be an impressive year for IMAX.
This was really driven by the tale of two cities.
Our growth engine now 62% of revenues.
And our legacy customer group largely comprised of telco customers, which experienced significant onetime reset last year and is now approaching the tail end of the decline in rough comparisons year over year.
The growth engine.
Consisting of clients new from FY 16.
Adopting our omnichannel capabilities now make up 62% of our business up.
Up from 46% in prior year.
52% from Q4, FY 'twenty one.
And this continues to grow at an explosive rate.
This has driven a remarkable change in the mix of our business, including our top clients.
Today, our largest clients represents 11% of our revenues.
In FY 16, our top three clients were approximately 80%.
And we continue to add to this engine.
Our sales organization continues to really set the tone for the business with another strong quarter.
Revenue growth and the addition of nine new clients across key verticals. As a reminder, this comes on the heels of last year, which we drove 23, new clients a record for IMAX and <unk>.
We are well on our way to delivering another exceptional year and new client revenue and wins.
As previously discussed our growth model is designed to deploy a land and expand approach with our clients we.
We deliver exceptional CX results.
With extremely proficient launches and then showcase the additional insights and partnerships.
That wave X and our business intelligence tools can offer this allows us to win new lines of business and service with these clients and expand our wallet share with them over time.
On average the <unk>.
Revenues in year, two of our client relationships are between two and a half to three and a half ex of year. One revenues with continued strong growth in tier three and beyond with.
We've shared this in a table in our recently filed annual report, which I encourage everyone to review.
Now as an example, one of our strategic clients, we won in FY 19.
We became a top 10 client for us.
Recently expanded with us in two additional locations in the Philippines and Jamaica.
Effectively doubling the size of our business.
As part of the expansion into new state of the art facilities.
<unk> was awarded two new lines of business plus additional market share.
IBEX is consistently ranked in the first two positions for performance in the customers outsource BPI network.
This growth that we have one is expected to move our clients into our top three clients later this year.
In Q1, though this growth was offset by declines in our legacy three clients were onetime events occurred in our two legacy telco customers.
<unk> emerged from bankruptcy.
And the other which had a major divestiture last year.
This decline, which played out over the last three quarters.
Will be behind us beginning in the third quarter.
These clients now represent only 25% of existing revenue exiting the quarter.
Going forward will be overshadowed by our new omni channel business.
As a result of our powerful growth engine scaling to such a substantial percentage of our business as well as our revenue diversification our client mix has purposefully and strict structurally changed.
This is most evident in the repositioning of our top three clients.
As of this quarter, we now have a new number one client when measured by revenue over the last 12 months.
This client is one of the most dominant technology providers and marketplaces in the world.
This not only represents a meaningful strategic relationship.
A key partner and partner partial owner in our business with warrants and the underlying common equity ownership.
As indicated above we also believe that we will soon have another high high growth Omnichannel client.
Entering our top III later this year.
These relationships represent a paradigm of IDEXX to point out, where we deliver differentiated customer value propositions and a new level of service for our clients and in key strategic relationships like this offer a dedicated team in place not only as an extension of our.
<unk> brands, but internally to support this relationship as well.
As a result, these relationships with our clients have become mission critical extensions of their brands and creating a business that is truly essential as evidenced by our continued 100% retention within our top 20 clients.
As I noted in our earnings release, our spending this quarter outpaced our revenues as we onboard new clients and invest in key long term growth initiatives.
We have added 4100, new seats in the calendar year, representing 25% increase.
While this was initially done to invest ahead of the curve, we ultimately have such a strong backlog and demand from our customers looking to grow with us in hindsight. It is largely being done just to service that customer base and the new clients.
This includes our expansion into Honduras.
New market for IMAX and one in which we are very excited about.
We have a strong early mover advantage and are entering the market with a beautiful state of the art CX delivery center, which will serve as our anchor in the region.
We believe that we have the ability to become the leader in this market just as we have done in Jamaica.
In Nicaragua, and the island a ball.
We have always invested for our future.
And we will not manage the business for a given quarter.
We have a significant pipeline of committed business and we expect to return to growth this quarter.
Turning to our balance sheet.
We have a strong cash position.
Company is currently Levered at approximately one eight times EBITDA and thus has significant room for increasing leverage when additional opportunities present themselves.
In closing, while we are of course disappointed by the short term pause after 16 quarters of impressive revenue growth and achieving record margins along the way. We expect this track record to resume in our current quarter.
As such our.
Guidance is reaffirmed.
We are incredibly excited about what's ahead for IMAX.
I will now turn the call over to Carl Carl over to you.
Thank you Bob and good afternoon, everyone. Thank you for joining the call today.
I'll start off with our first quarter 2022 results and then turn to our fiscal year 2022 guidance.
Our technology lead clients continue to grow at an impressive rate and clients continue to rely on IDEXX as a trusted partner for their significant seasonal volume.
Our health Tech and Fintech strategic verticals, coupled with our digital first client wins continue to outpace our more mature telecommunications clients and provides a platform for utilization of our competitive and differentiating wait X technology solutions.
In my discussion of financial results references to revenue and net income.
On an IRS basis.
While adjusted net income adjusted EBITDA and adjusted earnings per share.
Non-GAAP basis.
Reconciliation of our IRS and non-GAAP measures are included in the tables attached to our earnings press release.
First quarter revenue was flat at $108 6 million compared to $108 8 million in the prior year quarter.
Current quarter revenue was impacted by significant decreases related to our legacy top three clients, which now represents only 25% of our revenue as well as decreases related to our digital marketing volumes.
These decreases were offset by continued growth in our clients won since fiscal year 2016.
This cohort grew by 34% over the prior year quarter and now represents 62% of our total revenue.
In addition, we deferred net trading revenue of $3 5 million compared to $1 2 million in the prior year quarter.
Indicating significant future revenue growth, but impacting both revenue and margins in the quarter.
Net income in the first quarter was $3 million compared to a net loss of $3 4 million.
The same period last year.
On a non-GAAP basis, adjusted net income was <unk> 9 million versus $5 5 billion last year.
Adjusted fully diluted earnings per share was <unk> versus.
Versus 32 cents.
In the prior year quarter.
Adjusted EBITDA for the first quarter of <unk>.
Fiscal year, 2022 was 11 5 million or 10, 6% of revenue.
Paired to $15 8 million or 14, 5% of revenue in the prior year adjust.
Adjusted EBITDA margin decreased primarily due to significant increases in payroll and other costs related to ramping new business in the quarter lower digital marketing volumes and long term investments in our sales and marketing organization and cyber security technologies as we continue to scale up the business.
We are excited about the major improvement in our client concentration.
On a trailing 12 month revenue basis.
We now have a new top client, who is the leading technology provider and marketplace in the world.
Our top three.
Client concentration decreased by almost 10 full percentage points to 28, 7% this quarter from 38, 1% of overall revenue in the year ago quarter.
Our Fintech health Tech verticals continue to grow in response to our aggressive investments two years ago incur.
Increasing significantly the 25% in the first quarter up from nine 9% in the first quarter of fiscal year 'twenty one.
The telecommunications vertical decreased 21, 5% of revenue as compared to 33, 5% a year ago.
Total capital expenditures, including cash and noncash amounts were $9 7 million.
Or eight 9% of revenue in the first quarter of fiscal year, 2022 versus $3 2 million or 3% of revenue last year.
We added close to 900, new seats in our high margin near shore and offshore locations during the quarter with approximately another 2300 seats expected to come online in the second quarter.
16% compared to $5 9 million in the first quarter of fiscal year 2021 positively impacted by decreases in nonrecurring costs cash taxes, and working capital offset by lower adjusted EBITDA.
Dsos were 63 days for the first quarter up 10 days from the same period last year and seven days sequentially. The.
The sequential quarter increase was driven by timing of collections, while the year over year increase was also impacted by one of our larger clients reverting to standard payment terms.
Non-GAAP free cash flow decreased to $1 6 million.
From $2 7 million in the prior year.
The decrease in free cash flow was primarily driven by an increase in cash capital expenditures of <unk>.
<unk> 3 million as compared to $3 2 million from last year.
On a normalized basis.
The warrant fair value adjustment.
We expect our annual tax rate to continue to decrease to the mid single digits.
Reflecting the ongoing benefits of our tax planning efforts. In addition to the expected decrease in our overall normalized tax rate. We will also recognize a deferred tax benefit of approximately $4 million this year.
Our balance sheet remains strong and we ended the quarter with $54 million in cash and total borrowings of $28 3 million and lease liabilities of $86 6 million compared to cash of $57 8 million total borrowings of $28 5 billion and lease liabilities of $84 million as of June.
June 2021.
Turning now to our fiscal year 2022 guidance.
We are reaffirming our guidance for full year revenue growth of 7% to 9% and EBITDA of 69% to $71 million with capex commitments of 30% to 35 million.
With continued.
<unk> wins from our strategic verticals in digital first clients the significant investments, we're making to increase our capacity to meet client demand and new client revenue that will materialize beginning in Q2.
We are confident in our guidance for fiscal year 2022.
With that Bob and I will now take questions. Operator, please open the lines.
Operator before we open it up for questions. There is one item I'd like to dress.
As you may be aware the resource group International Limited TR G is our largest shareholder with controlling interest in IMAX.
Last week <unk> managing partner Zia Chishti was accused of sexual assault and subsequently resigned as CEO chairman and director of another TRT company affinity.
After discussions with affinities board.
It's very important to note that Mr. Chesty stepped off the.
The board of buybacks in 2017.
He has not been involved in any strategy or any business discussions around the company since that time.
As well.
<unk> Board is composed of a vast majority of independent board members, who are unaffiliated with DRG.
The affinity incident is in no way related to IMAX.
<unk> is committed to the strong values of our more than 31000 employees worldwide, our customers and our partners.
These recent developments do not in any way.
Impact our promise to maintain those values, we hold dear.
We want to reiterate to our employees customers and partners that IMAX maintains a robust one.
Worldwide whistle blower solution for any employee who seeks it.
It is overseen by our Chief legal officer.
Chief people officer, and ultimately the audit committee of IMAX, which is composed of independent board members under NASDAQ guidelines to address all of the sensitive matters of this nature.
More personally.
Want to say how proud we are of the work we have done here at IMAX around diversity.
Equity and inclusion over the many years.
When I joined the company, we created an employee first culture.
Which includes one of openness transparency wellbeing and safety that remains at the forefront of IBEX today.
I am confident that we will continue to see our company thrive.
With that operator you.
You May now open the line for questions.
Thank you as a reminder to ask a question you will need to press star one on your Touchtone telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of.
Dave Koning of Baird. Please go ahead, yeah, Hey, guys. Thank you.
Hey, David Yeah, and I guess first of all.
Just thinking through this quarter the margin was a little lower than normal, but you also got I would say the benefit of some of your top clients, becoming a little smaller than normal maybe is there a correlation there where some of those larger clients generating higher margin or is it something else is it maybe wage inflation or maybe just talk to you a little more on margin.
<unk>.
Sure Dave Great question, Thanks for that.
Let me, let me frame. It this way if you take our business with our non legacy three so the legacy telcos. If you look at the clients outside of that we're growing and those are our higher margin clients now we've on boarded new clients and we're growing significantly.
With.
That client base.
So much so that this quarter, we had significant hiring about 50% more hiring of.
New agents this quarter.
And then we did a year ago, and we had great growth from Q1 to Q2 last last year.
It's really driven not by volumes going down outside of those.
The two legacy.
It's driven by growth that has accelerated training.
In the quarter that were honestly optimistic that we will now hit.
Hit stride in Q2 as a result of all that hiring so it's really front loading.
Costs associated with that and then the cost associated with the build out to centers to accommodate that massive growth.
Got you that's helpful that makes sense and then.
I guess, when we think of the cadence you talked about growth resuming in Q2, I assume you mean year over year growth. If that's the case that would require eight 9% sequential growth in Q2, and then the rest of the year a little more sequential growth and maybe is that right is that how to think about it and kind of what I think.
You've kind of hit on it now, but what's kind of driving that sequential lift through the year.
Sure So Dave.
Dave.
You understand our business flow and model model very well.
Excited with this growth that we will.
Be resuming our business towards that double digit growth.
The impact of <unk>.
Our downturn of our.
Telco businesses.
Is flattening off and then in the second half of the year, we will have really favorable comparisons. So I think you've hit it exactly this quarter.
Those comparisons will still be down significantly because of what occurred in the back half of last year. This year.
Layered on in the second half we won't have that we won't have favorable comparisons and we just have strength out of our.
<unk> strength out of our grew.
Growth clients and new business that we've on boarded that are really just taking hold in Q2 of this this year. So we're really excited about this business and.
The flow of.
The flow of quarterly revenues and profitability.
Got you thanks, guys.
I appreciate it.
Thank you. Our next question comes from Tobey Sommer.
Truest Securities Your line is open.
Thank you.
That's sort of a broad question.
And it has to do with visibility in.
Forward trends and the dose.
How would you characterize your visibility.
Now at this juncture and if you could sort of.
Think about it.
Over the period of time, we've been public and compare and contrast today versus sort of a period of time since going public.
So tobey great question.
I think.
We have.
Very very good visibility with our clients the lion's share of our clients out over.
Minimally three to four quarters.
A lot of that is because we have tight partnerships and they are very open to say, here's what we see our business growing and making sure that we're aligned.
And strategically planning our network of geographies and capacity.
To service them.
I will say the one area of the business that we didn't have visibility to was.
One of our clients telco clients divesting the business of course, we're not going to have visibility to that and the structural changes.
Occurred to there.
And then the other is our clients who are.
We emerged from bankruptcy and I'll just address they are very very important client to us we have not lost market share but.
Working as a partner with them we actually.
Work significantly at taking their coal volumes down kind of collective hours required down significantly to help them drive kind of profitability. So I feel we have great visibility in this business I think we have one last element is our new logo business that we.
Continually bring on.
We have fantastic visibility I believe that.
In year.
<unk>.
There are two in year three.
We've done the analysis of this business over the last 345 years.
And we can predict where those revenues will be and we're excited extremely excited about that.
We will say that our nine new logos for the quarter.
We're <unk>.
A material new logos, we set a record last year not only in number but in year revenue.
Bye bye.
More than 100% of prior year. So our revenues will be in year of our new logos last year was 100% more than we've ever had.
We are on pace to beat that this year.
And I feel really excited about that and then you just.
Use that as your visibility down.
And the subsequent year or two and three of those relationships were excited where that potential Texas.
Thank you.
Could I ask you a question about wallet share and what I'd like to ask a two ends of the spectrum. How do you feel that your sort of customer market share or wallet share is trending.
In the <unk>.
Legacy customers that are sort.
Important.
And the largest of your.
Emerging customers how is how is the IBEX perf.
Performing from that perspective.
So those are some of the most key metrics that I look at Tobey So just.
Kudos to your question.
I will say with our.
Important.
Three clients that have been with us for over 15 years.
Our market share has held serve on that.
So our downturn and there is nothing unique to IDEXX, it's their enterprise volumes as a result of the two one times have gone down significantly so we've held market share.
Sort of on that and maybe have grown.
Market share.
<unk> point or two but nothing nothing nothing material.
Now on the on the new clients that we've brought in.
We measure those and we are performing so well that we are taking massive market share I highlighted.
One client that.
We've in essence.
Effectively doubled our size of business. This is a classic client that we have gone into where there.
Prior had multibillion dollar service providers and we've gone in and we've taken the lion's share of the market share. So we have the largest market share more than 50% in that enterprise with our client that is now number one.
We are we have as much market share in the markets that we service as anybody in that market. So I feel most proud of our ability to go in and steal that business based on.
Based on performance.
And so with that if you have the right client I look and you say you have a.
Two vectors of growth with our clients one is market share.
Number two is.
If they are the right clients with which our growth clients youre going to grow with the wind behind their back so it's almost doubled.
Kind of a double accelerator behind you and we're really.
We're really excited about as how that plays out over the next 12 to 24 to 36 months.
Thank you.
Yeah.
Yeah.
Thank you once again to ask a question. Please press star one on your Touchtone telephone again Thats Star one on your Touchtone telephone to ask a question.
Our next question comes from the line.
Dan Perlin of RBC capital markets. Your question. Please.
Thanks, and good evening.
I had a question around obviously the revenue performance this quarter I feel like.
Come off of last quarter. The messaging from you guys was <unk> is going to be at the low end if not below the 7% to 9% guidance I mean, I think you did.
Definitely thought it was going to be a weak quarter, but.
Lot weaker than I expected.
And based on the consensus numbers it sounds like it was we're going to run off as expected. So my question is how much of this was a surprise to you from these three three clients and then the digital volumes relative to what your expectations were.
So Dan that's a good question and let me say we're disappointed.
<unk>.
At the end of the day with where the top line growth was.
We're hoping to drive a few percentage points of growth now underlying.
That was.
Significant ramping that we've done which is billed revenue that goes to clients.
As we were modeling.
We kind of looked at it from how we run the business and there are some inherent growth in there that then in the accounting World has got pushed in differed deferred revenue that we will get it in over time so.
Some where between.
Those two numbers I think we.
We felt we'd be in.
Maybe we were a percentage point or two down from down from where we thought we would be as we run the business.
But I will say.
The position we're at right now the numbers.
We built out the number of new.
Sure.
New agents that we've hired in Q1 continue to hire in Q2 that are hitting full.
Full speed for the for the quarter.
We feel really good we feel really good about our ability to get this business right back on track and like I said hit hit our full year numbers and if you look at flat growth.
Quarter, one you can kind of as David highlighted you can kind of look.
Model, where I think we will go into Q2, three and four.
Well, let me ask a different way when we go into the forward curve.
If we look at your.
Let's just call them that the clients.
Let's just say have.
Have dragged down your growth.
Absolute dollars as we jump off into December quarter, and March and June have they stopped like are there going to be.
Near a absolute dollars flat level and then all of this new incremental business that you've won and you've been building. These seats four are going to grow over that or are they still declining materially and you're telling us that this new business. This bolus of new business is going to be so large that the absolute dollars are still going to grow over that and therefore, you are still going to get.
Growth at an accelerating rate throughout the year, just trying to make sure I understand.
Sure so.
Yes fair question in.
The in Q2, we have seen that decline flattened out. So we're very encouraged by that and as we've talked with them about where this is looking out now two three quarters out we kind of feel like we've.
It took about three quarter score all of those things to play out we've leveled and when we look out overall that business, saying kind of flat to maybe very very minor decline over the next three or four quarters. So we're encouraged by that this quarter.
Does the decline started in Q3 last year.
Those comparisons will be down fairly sizable.
That being said sequential quarter, we don't have we don't have that incremental headwind for the business. So.
I feel that that's why you'll see this business in this quarter rebounding and rebounding.
Very very strongly to comparisons in Q3 Q4.
Okay that makes sense.
Let me ask just one other follow up number jump back in the queue. So.
Are you, saying that youre going to grow sequentially, but not year over year in December.
No no no no no no no okay.
At all no I feel strong growth for this year no no no I think we are resuming to a growth quarter absolutely okay.
And year over year, Okay, right and if you can just piece those two two puzzles together year over year in our legacy will be down even though it's.
It's flattened we have significant growth.
Significant growth in the outside.
Really our new from 16.
That moved from 16 last quarter, we're in the 45% to 40% growth range of that business, that's where it was last year or last quarter this quarter and we see that.
They're not accelerating more.
Okay, no that cohort sounds fantastic. So okay. Thank you.
Thanks, Dan.
Thank you. Our next question comes from John.
George Im sorry, George Melas of <unk> management your question. Please.
Thank you.
Good afternoon, gentlemen, I'm fairly new to the story and I just have a modeling question I'm trying to understand your capex guidance for fiscal 'twenty two.
And that 30 to 35 is that just cash Capex does that include the <unk>.
<unk>.
India.
Hey, George Thanks.
Joining the call and interested the IBEX narrative, so Karl cable why don't you take that call.
George through jewelry of kind of the Capex number thanks.
Sure Bob Thanks. Thank you for the question George Yes, 30, or $35 million is are our cash capex and Thats made up of both the growth Capex that <unk> been talking about and also our maintenance capex.
And Karl why don't you just touch on approximately where our maintenance capex is.
On an annual basis.
Sure sure and the maintenance Capex.
If you look at the industry.
Typically runs around 2%, but if you look at it over a three year period, sometimes you might run a little bit higher than 2% and sometimes you might run a little bit lower than 2%.
So that would kind of give you a gauge on that.
The split between the maintenance Capex and growth Capex.
Okay. George what's interesting is we've built out a lot of seats that we.
We are still today operating in this most of them in a socially distanced environment.
So as we.
Hopefully at some point resume to a.
A normal environment that capacity is built out will now have significant capacity to sell into as we go from.
Just think about a thousand seats centers that have 500 seats usable to them using a 1000 seats in that center.
And I shared numbers last quarter, but when we look at this we have somewhere between 140 and.
100 <unk>.
Upwards of that to $175 million of new revenues, we can sell into these footprints as we get past that which we're excited about because that will certainly.
Turning this business into we believe a really strong free cash flow business.
But let me just ask that question slightly differently yield capex is actually greater than 30% 35, because you actually getting equipment also on a lease basis.
Is that right.
Yeah.
George again this is Carl.
On our balance sheet.
On <unk> 16, you have right of use assets and you have wider use leases.
The assets get capitalized.
Have broken that applied on this quarter. So you can actually see the right of use assets.
That relate to when you are opening up.
Centre or some things like that under <unk> 16.
What we're talking about.
The 30% to $35 million is more or less.
Weighted to the property and equipment that line item.
Okay. Thank here does that answer your question because I didn't underwrite just a follow up the company doesn't own facilities, we rent facilities.
When we're recognizing the asset and liability for the facilities. It will go under a rating.
Right of use asset and a liability.
Yeah.
Okay.
Okay.
My question relates to would be that that so if we look at EBITDA should we subtract some thing.
From.
Some element for leases in order to get to a real EBITDA.
No.
To compare it to the way it was done before when capitalized leases.
Yes.
Under <unk> 16, and your depreciation.
And year.
Amortization.
Clued the amortization that's going through for the also for the right of use assets.
So that'll be part of depreciation and amortization in the in the.
Pro forma there was in the actual perspective, if you go back a year or so.
Actually a pro forma in there that actually shows at that time, what the metrics would be before and after.
Flying.
<unk> 16 accounting.
And if you have any questions. We can certainly talk right after.
After the call.
Do that thank you.
Thank you. This now ends our Q&A session I will now turn it back to management for closing remarks.
Well, thank you very much.
In summary, I want to say how proud we are of the work we've done here from a business and a financial standpoint, but also around diversity equity and inclusion.
And that's important.
And we look forward to great things to come and thank you for your attendance and.
And listening in.
We look forward to talking to you next quarter CFO.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Thank you for standing by and welcome to the IMAX first quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference maybe recorded should you require any further assistance. Please press star zero I would now like to turn the call over to your host Brinley Johnson 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 and annual goals and business outlook.
Based on management's current beliefs and assumptions. Please note that these forward looking statements reflect our opinions 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.
Describe today for them.
Detailed description of our risk factors. Please review our final prospectus filed with the Securities and Exchange Commission on August 10th 2020, with that I'll turn it over to Bob decades C E O.
Thank you Brenda Lee.
Good afternoon, and thank you all for joining us today as we discuss our first quarter fiscal year 2022 financial results.
We are excited to speak to you today is Carl and I share our business overview.
Our results.
First and foremost we hope you are all staying safe and healthy.
The pandemic reminds us each and every day to put our employees and their families first.
A critical factor in our success is our people.
Our employees their drive and commitment to put our customers first we would not have achieved the success we are experiencing today.
Many thanks to each of them for their continued commitment to our business.
As we shared with you last quarter, we are in the midst of a very exciting year at IMAX.
Our year marked by key strategic growth initiatives that includes formally launching our staff augmentation business, we call IBEX augment.
Expansion of our wave X technology.
And geographic expansion into Honduras, driven by our long term thinking as we invest for our future and continue to transform our business.
As expected the first quarter proved to be our slowest.
What would otherwise be an impressive year for IDEXX.
This was really driven by the tale of two cities.
Our growth engine now 62% of revenues.
And our legacy customer group largely comprised of telco customers, which experienced a significant one time reset last year and is now approaching the tail end of the decline in rough comparisons year over year.
The growth engine.
Consisting of clients new from FY 2016.
Adopting our omnichannel capabilities now make up 62% of our business up.
Up from 46% in prior year.
52% from Q4, FY 'twenty one.
And this continues to grow at an explosive rate.
This has driven a remarkable change in the mix of our business, including our top clients.
Today, our largest clients represents 11% of our revenues.
In FY 16, our top three clients where approximately 80%.
And we continue to add to this engine our sales organization continues to really set the tone for the business with another strong quarter of.
Revenue growth and the addition of nine new clients across key verticals.
As a reminder, this comes on the heels of last year, which we drove 23, new clients are records for IDEXX, and we are well on our way to delivering another exceptional year and new client revenue and wins.
As previously discussed our growth model is designed to deploy a land and expand approach with our clients we.
We deliver exceptional CX results.
With extremely proficient launches and then showcase the additional insights and partnerships we shouldn't.
That wave X and our business intelligence tools can offer this allows us to win new lines of business and service with these clients and expand our wallet share with them over time.
On average the revenues in year two of our client relationships are between two and a half to three and a half ex of year. One revenues with continued strong growth in tier three and beyond we've shared this in a table in our recently filed annual report.
Short, which I encourage everyone to review.
Now as an example, one of our strategic clients, we won in FY 19.
Quickly became a top 10 client for us.
Recently expanded with us in two additional locations in the Philippines and Jamaica.
Effectively doubling the size of our business.
As part of the expansion into new state of the art facilities.
<unk> was awarded two new lines of business plus additional market share.
IMAX is consistently ranked in the first two positions for performance in the customers outsource BPI network.
This growth that we have one is expected to move our clients into our top three clients later this year.
In Q1, though this growth was offset by declines in our legacy three clients were onetime events occurred in our two legacy telco customers.
One way to emerge from bankruptcy.
And the other which had a major divestiture last year.
This decline, which played out over the last three quarters will be behind us beginning in the third quarter.
These clients now represent only 25% of existing revenue exiting the quarter.
Which going forward will be overshadowed by our new omni channel business.
As a result of our powerful growth engine scaling to such a substantial percentage of our business as well as our revenue diversification our client mix has purposefully and strict structurally changed.
This is most evident in the repositioning of our top three clients.
As of this quarter, we now have a new number one client when measured by revenue over the last 12 months.
This client is one of the most dominant technology providers and marketplaces in the world.
This not only represents a meaningful strategic relationship but.
The key partner and partner partial owner in our business with warrants and then underlying common equity ownership.
As indicated above we also believe that we will soon have another high.
<unk> growth Omnichannel client.
Entering our top three later this year.
These relationships represent a paradigm of IDEXX to point out where we deliver differentiated customer value propositions and a new level of service for our clients and then key strategic relationships like this offer a dedicated team in place not only as an extension of our.
<unk> brands, but internally to support this relationship as well.
As a result, these relationships with our clients have become mission critical extensions of their brands and creating a business that's truly essential as evidenced by our continued 100% retention within our top 20 clients.
As I noted in our earnings release, our spending this quarter outpaced our revenues as we onboard new clients and invest in key long term growth initiatives.
While this was initially done to invest ahead of the curve, we ultimately have such a strong backlog and demand from our customers looking to grow with us in hindsight. It is largely being done just to service that customer base and the new clients.
This includes our expansion into Honduras.
New market for IMAX and one in which we are very excited about.
We have a strong early mover advantage and are entering the market with a beautiful state of the art CX delivery center, which will serve as our anchor in the region.
We believe that we have the ability to become the leader in this market just as we have done in Jamaica.
In Nicaragua, and the island a ball.
We have always invested for our future.
And we will not manage the business for a given quarter.
We have a significant pipeline of committed business and we expect to return to growth this quarter.
Turning to our balance sheet.
We have a strong cash position.
Company is currently Levered at approximately one eight times EBITDA and thus has significant room for increasing leverage when additional opportunities present themselves.
In closing, while we are of course disappointed by this short term pause after 16 quarters of impressive revenue growth and achieving record margins along the way. We expect this track record to resume in our current quarter.
As such our guidance is reaffirmed.
We are incredibly excited about what's ahead for IMAX.
I will now turn the call over to Carl Carl over to you.
Thank you Bob and good afternoon, everyone. Thank you for joining the call today.
I'll start off with our first quarter 2022 results and then turn to our fiscal year 2022 guidance.
Our technology lead clients continue to grow at an impressive rate and clients continue to rely on IDEXX as a trusted partner for their significant seasonal volume.
Our health Tech and Fintech strategic verticals, coupled with our digital first client wins continue to outpace our more mature telecommunications clients and provides a platform for utilization of our competitive and differentiating wait X technology solutions.
In my discussion of financial results references to revenue and net income are on an IRS basis.
Adjusted net income adjusted EBITDA and adjusted earnings per share.
Non-GAAP basis.
Conciliation of our IRS and non-GAAP measures are included in the tables attached to our earnings press release.
First quarter revenue was flat at $108 6 million compared to $108 8 million in the prior year quarter.
Current quarter revenue was impacted by significant decreases related to our legacy top three clients, which now represents only 25% of our revenue as well as decreases related to our digital marketing volumes.
These decreases were offset by continued growth in our clients won since fiscal year 16.
This cohort grew by 34% over the prior year quarter and now represents 62% of our.
Our total revenue.
In addition, we deferred net trading revenue of $3 5 million compared to $1 2 million in the prior year quarter.
Indicating significant future revenue growth.
Impacting both revenue and margins in the quarter.
Net income in the first quarter was $3 million compared to a net loss of $3 4 million for the same period last year.
On a non-GAAP basis, adjusted net income was <unk> 9 million versus $5 5 billion last year.
Adjusted fully diluted earnings per share was <unk>.
Versus 32.
In the prior year quarter.
Adjusted EBITDA for the first quarter of fiscal.
Fiscal year, 2022 was 11 5 million or 10, 6% of revenue compared to $15 8 million or 14, 5% of revenue in the prior year.
The EBITDA margin decreased primarily due to significant increases in payroll and other costs related to ramping new business in the quarter.
Lower digital marketing volumes and long term investments in our sales and marketing organization and cyber security technologies as we continue to scale up the business.
We are excited about the major improvement in our client concentration.
On a trailing 12 month revenue basis.
We now have a new client.
With the leading technology provider in marketplace in the world.
Our top three <unk>.
And concentration decreased by almost 10 full percentage points to 28, 7% this quarter from 38, 1% of overall revenue in the year ago quarter.
Our Fintech health Tech vertical continue to grow in response to our aggressive investments two years ago increase.
Increasing significantly the 25% in the first quarter up from nine 9% in the first quarter of fiscal year 'twenty one.
Telecommunications vertical decreased 21, 5% of revenue as compared to 33, 5% a year ago.
Total capital expenditures, including cash and noncash amounts were $9 7 million.
Or eight 9% of revenue in the first quarter of fiscal year, 2022 versus $3 2 million or 3% of revenue last year.
We added close to 900, new seats in our high margin near shore and offshore locations during the quarter with approximately another 2300 seats expected to come online in the second quarter.
Net cash generated from operations was $6 9 million for the quarter.
Up 16% compared to $5 9 million in the first quarter of fiscal year 2021 positively impacted by decreases in nonrecurring costs cash taxes and working capital.
Offset by lower adjusted EBITDA.
Dsos were 63 days for the first quarter up 10 days from the same period last year.
Seven days sequentially.
The sequential quarter increase was driven by timing of collections, while the year over year increase was also impacted by one of our larger clients reverting to standard payment terms.
Non-GAAP free cash flow decreased to $1 6 million from $2 7 million in the prior year.
The decrease in free cash flow was primarily driven by increase in cash capital expenditures.
$5 3 million as compared to $3 2 million from last year.
On a normalized basis.
After the warrant fair value adjustment.
We expect our annual tax rate to continue to decrease to the mid single digits.
Reflecting the ongoing benefits of our tax planning efforts. In addition to the expected decrease in our overall normalized tax rate. We will also recognize a deferred tax benefit of approximately $4 million this year.
Our balance sheet remains strong and we ended the quarter with $54 million in cash total borrowings of $28 3 million and lease liabilities of $86 6 million compared to cash of $57 8 million total borrowings of $28 5 billion and lease liabilities of $84 million as of June.
June 2021.
Turning now to our fiscal year 2022 guidance, we are reaffirming.
Jennifer arming our guidance for full year revenue growth of 7% to 9% and EBITDA of $69 million to $71 million with capex commitments of 30% to 35.
With continued wins from our strategic verticals in digital first clients the significant investments, we're making to increase our capacity to meet client demand.
New client revenue that will materialize beginning in Q2.
We are confident in our guidance for fiscal year 2022.
With that.
Rob and I will now take questions.
Operator, please open the line.
Operator before we open it up for questions. There is one item I'd like to dress.
As you may be aware the resource group International Limited TR G is our largest shareholder with a controlling interest in IMAX.
Last week <unk> managing partner <unk> was accused of sexual assault and subsequently resigned as CEO chairman and director of another TRT company affinity.
After discussions with affinities board.
It's very important to note that Mr. <unk> <unk>.
Stepped off.
The board of IBEX in 2017.
He has not been involved in any strategy or any business discussions around the company since that time.
As well.
<unk> Board is composed of a vast majority of independent board members, who are unaffiliated with DRG.
The affinity incident is in no way related to IMAX.
<unk> is committed to the strong values of our more than 31000 employees worldwide, our customers and our partners.
These recent developments do not in any way impact our promise to maintain those values we hold dear.
We want to reiterate to our employees customers and partners that IMAX maintains a robust worldwide whistle blower solution for any employee who seeks it.
It is overseen by our Chief legal officer.
Chief people officer, and ultimately the audit committee of IMAX, which is composed of independent board members under NASDAQ guidelines to address all of the sensitive matters.
Of this nature.
More personally.
I want to say how proud we are of the work we have done here at IMAX.
Round diversity eco.
Equity and inclusion over the many years.
When I joined the company, we created an employee first culture.
Which includes one of openness transparency wellbeing and safety that remains at the forefront of IBEX today.
I am confident that we will continue to see our company thrive.
With that operator.
You May now open the line for questions.
Thank you as a reminder to ask a question you will need to press star one on your Touchtone telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of.
Dave Koning of Baird. Please go ahead.
Yeah, Hey, guys. Thank you.
Hey, Dave Yeah, and I guess first of all.
Just thinking through this quarter and the margin was a little lower than normal, but you also got I would say the benefit of some of your top clients, becoming a little smaller than normal maybe is there a correlation there where some of those larger clients generating higher margin or is it something else is it maybe wage inflation or maybe just talk to you a little more on margin.
<unk>.
Sure Dave Great question, Thanks for that.
Let me, let me frame. It this way if you take our business with our non legacy three so the legacy telcos. If you look at the clients outside of that we're growing and those are higher margin clients now.
Onboarding, new clients and we're growing significantly with.
Got that client base.
So much so that this quarter, we had significant hiring about 50% more hiring of new agents this quarter.
Then we did a year ago, and we had great growth from Q1 to Q2 last last year. So, it's really driven not by volumes going down outside of those.
The two legacy.
It's driven by growth that has accelerated training.
In the quarter that were honestly optimistic that we will now hit.
Yes.
Stride in Q2 as a result of all that hiring so it's really front loading.
The cost associated with that and then the cost associated with the buildup to centers to accommodate that massive growth.
Got you that's helpful that makes sense and then I.
I guess, when we think of the cadence you talked about growth resuming in Q2, I assume you mean year over year growth. If that's the case that would require eight 9% sequential growth in Q2, and then the rest of the year a little more sequential growth and maybe is that right is that how to think about it and kind of what.
You've kind of hit on it now, but what's kind of driving that sequential lift through the year.
Sure so.
Dave.
You understand our business flow and models models very well we're excited with this growth that we will.
Be resuming our business towards that double digit growth.
<unk>.
The impact of our.
Downturn of our.
Our telco businesses.
Is flattening off and then in the second half of the year, we will have really favorable comparisons. So I think you've hit it exactly this quarter.
Those comparisons will still be down significantly because of what occurred in the back half of last year of this year.
Layered on in the second half we won't have that we won't we will have favorable comparisons and we just have strength out of our.
Our strength out of our.
Growth clients and new business that we've on boarded that are really just taking hold in Q2 of this year. So we're really excited about this business in the.
The flow of.
The flow of quarterly revenues and profitability.
Got you thanks, guys.
I appreciate it.
Thank you. Our next question comes from Tobey Sommer.
It was true of Securities. Your line is open.
Thank you.
That's sort of a broad question.
And it has to do with visibility in.
Sort of forward trends and that those laws.
How would you characterize your visibility.
Now at this juncture, if you could sort of.
Think about it under over the period of time, we've been public and compare and contrast today versus sort of a period of time since going public.
So tobey great question.
I think.
We have.
Very very good visibility with our clients the lion's share of our clients out over.
Minimally three to four quarters.
A lot of that is because we have tight partnerships and they are very open to say, here's what we see there our business scope and making sure that we're aligned.
And strategically planning our network of geographies and capacity to.
To service them.
I will say the one area of the business that we didn't have visibility to was.
One of our clients telco clients divesting the business of course, we're not going to have visibility to that and the structural changes.
That occurred to there.
And then the other is our clients who.
<unk> emerged from bankruptcy I'll just address they are very very important client to us we have not lost market share, but working as a partner with them we.
Actually.
Worked significantly at taking their call volume is down and Theyre kind of collective hours required down significantly to help them drive kind of profitability. So I feel we have great visibility in this business I think we have one last element is our new logo business that we continue.
We bring on.
We have fantastic visibility I believe.
In year, but really out in your two and your three.
We've done the analysis of this business over the last 345 years.
And we can predict where those revenues will be and we're excited extremely excited about that and I just will say that our nine new logos for the quarter.
We're.
Material, new logos, we set a record last year, not only a number but in year revenue.
Bye bye.
More than a 100% of prior year. So our revenues are in Europe are new logos last year was 100% more than we've ever had.
We are on pace to beat that this year.
And I feel really excited about that and then you just park.
Use that as your visibility down.
The subsequent year or two and three of those relationships were excited where that potential takes us.
Thank you.
Could I ask you a question about wallet share I'd like to ask the two ends of the spectrum. How do you feel that your sort of customer market share or wallet share is trending in the.
Legacy customers that are.
Sort of important.
And the largest of your.
Emerging customers how is how is the IBEX perf.
Performing from that perspective.
So those are some of the most key metrics that I look at Tobey So just.
Kudos to your question.
I will say with our.
Important.
Three clients that have been with us for over 15 years.
Our market share has held serve on that.
So our downturn and there is nothing unique to IMAX, it's their enterprise volumes as a result of the the two one times have gone down significantly so we've held market share.
Sort of on that maybe have grown.
Market share.
Percentage point or two but nothing nothing nothing material.
Now on the on the new clients that we've brought in.
We measure those and we are performing so well that we are taking massive market share.
Delighted.
One client that.
We've in essence.
Effectively doubled our size of business. This is a classic client that we have gone into we're very.
Prior had multibillion dollar service providers and we've gone in and we've taken the lion's share of the market share. So we have the largest market share more than 50% in that enterprise with our client that is now number one.
We are we have as much market share in the markets that we have services anybody in that market. So I feel most proud of our ability to go in and steal that business based on based.
Based on performance.
And so with that if you have the right client I look and you say you have a.
Two vectors of growth with our client one is market share.
Number two is.
If they are the right clients with which our growth clients youre going to grow with the wind behind their back so it's almost a double.
Kind of a double accelerator behind you and we're really excited.
How that plays out over the next 12 24 36 months.
Thank you.
Yeah.
Thank you once again to ask a question. Please press star one on your Touchtone telephone again Thats Star one on your Touchtone telephone to ask a question.
Our next question comes from the line.
Dan Perlin of RBC capital markets. Your question. Please.
Thanks, and good evening.
I had a question around obviously the revenue performance this quarter I feel like.
Coming off of last quarter.
Messaging from you guys was <unk> is going to be at the low end, if not below the 7% to 9% guidance I mean, I think you.
We thought it was going to be a weak quarter, but.
There's a lot weaker than I expected.
Based on the consensus numbers it sounds like it was we're gonna everyone else expected. So my question is how much of this was a surprise to you from these three three clients and then the digital volumes relative to what your expectations were.
So Dan that's a good question and let me say we're disappointed.
At the end of the day with where the top line growth was we were hoping to drive a few percentage points of growth now underlying.
That was Oh.
Significant ramping that we've done which is billed revenue that goes to clients that as we were modeling.
We kind of looked at it from how we run the business and there are some inherent growth in there.
Then in the accounting World has got pushed in differed deferred revenue that will get it overtime so somewhere between those.
Those two numbers I think we.
We felt we'd be in.
Maybe we were a percentage point or two down from down from where we thought we would be as we run the business.
But I will say.
The position we're at right now the number of seats, we built out the number of new new.
The new agents that we've hired in Q1 continue to hire in Q2 that are hitting.
Full speed for the for the quarter.
We feel really good we feel really good about our ability to do to get this business right back on track and like I said.
We hit our full year numbers and if you look at flat growth.
Quarter, one you can kind of as David highlighted you can kind of look.
Model, where I think we will go into Q2, three and four.
Well, let me ask it a different way when we go into the forward curve.
If we look at your.
Let's just call them that the clients that have let's say have.
Drag down your growth.
Absolute dollars as we jump off into December quarter, and March and June have they stopped like are there going to be.
Here, a absolute dollar flat level and then all of this new incremental business that you've won and you've been building. These seats four are going to grow over that.
Or are they still declining materially and you're telling us that this new business. This bolus of new business is going to be so large that the absolute dollars are still going to grow over that and therefore, you are still going to get growth at an accelerating rate throughout the year, just trying to make sure I understood.
Sure so.
Yes fair question in.
The in Q2, we have seen that decline flattened out. So we're very encouraged by that and as we've talked with them about where this is looking out now.
Three quarters out we kind of feel like we have.
It took about three quarter score all of those things to play out we've leveled.
We look out overall that business, saying.
Flat to maybe very very minor decline over the next three or four quarters. So we're encouraged by that now this quarter because of the decline started in Q3 last year.
Those comparisons will be down fairly sizable.
That being said sequential quarter, we don't have we don't have that incremental headwind for the business. So.
I feel that that's why you'll see this business in this quarter rebounding and rebounding.
Very strongly to comparisons in Q3 Q4.
Is that okay that makes sense.
Yes.
Yeah, Let me ask just one other follow up number jump back in the queue. So.
Are you, saying that youre going to grow sequentially, but not year over year in December.
No no no no no no no okay.
At all no I feel strong growth for this year no no no I think we are resuming to a growth quarter absolutely okay.
And year over year, Okay, right and if you could just piece those two two puzzles together year over year in our legacy will be down even though.
It's flattened we have significant growth.
Significant growth in the outside.
And really our new from 16.
That new from 16 last quarter, we're in the 45% to 40% growth range of that business, that's where it was last year or last quarter this quarter and we see that.
They're not accelerating more.
Okay, no that cohort sounds fantastic. So okay. Thank you.
Yes.
Thanks, Dan.
Thank you our next question comes from.
George.
Sorry, George Melas of <unk> management your question. Please.
Thank you.
Good afternoon, gentlemen, I'm fairly new to the story and I just have a modeling question I'm trying to understand your capex guidance for fiscal 'twenty two.
And that 30% to 35 is that just cash capex or does that include the <unk>.
Lisa.
India.
Hey, George Thanks.
Joining the call and interested the IBEX narrative. So Karl cable why don't you take that call in and work towards through Georgia.
Capex. Thanks.
Sure Bob. Thank you for the question George Yeah, 30, or $35 million is are our cash capex and Thats made up of both the growth Capex that <unk> been talking about and also our maintenance capex.
And Karl why don't you just touch on approximately where our maintenance capex is.
On an annual basis.
Sure sure and the maintenance Capex, if you look at the industry.
Typically runs around 2%, but if you look at it over a three year period, sometimes you might run a little bit higher than 2% and sometimes you might run a little bit lower than 2%.
So that would kind of give you a gauge on.
The split between the maintenance Capex and growth Capex.
Okay. George what's interesting is we've built out a lot of seats that we are still today operating in most of them in a socially distanced environment.
And so as we.
Hopefully at some point resume to a.
A normal environment that capacity is built out will now have significant capacity to sell into.
As we go from.
Just think about it.
Seat centers that have 500 seats usable to them using a 1000 seats and that center and I shared numbers last quarter, but when we look at this we have somewhere between 141.
<unk>.
Words about to $175 million of new revenues, we can sell into these footprints as we get past that which.
We're excited about because that will certainly.
Turned this business into we believe a really strong free cash flow business.
Right, but let me just ask that question slightly differently yield capex is actually greater than 30% 35, because you actually getting equipment also on a lease basis.
Is that right.
Yeah.
George again this is Carl.
On our balance sheet.
Obviously on <unk> 16, you have right of use assets and you have wider use leases.
The assets get capitalized we have broken that apply on this quarter. So you can actually see the right of use assets.
That relate to when you're opening up.
Centers and things like that under <unk> 16.
What we're talking about.
The 30% to $35 million is more or less.
Weighted to the property and equipment that line item.
Okay. Thank here does that answer your question because I didn't underwrite just to follow up the company doesn't own facilities, we rent facilities.
When we're recognizing the asset and liability for the facilities. It will go under a rating as right of use asset and a liability.
Yeah.
Okay.
Okay.
My question relates to would be that that so if we look at it would be that should we subtract some thing.
Some element for leases in order to get to a real EBITDA.
No.
To compare it to the way it was done before when capitalized leases.
Yes.
Under <unk> 16, and your depreciation.
And year.
Amortization. It will include the amortization that's going through for the also for the right of use assets.
So that'll be part of depreciation and amortization any in the.
Pro forma there was in the actual perspective, if you go back a year or so there's actually a pro forma in there that actually.
Those at that time, what the metrics would be before and after applying.
Applying.
The <unk> 16 accounting.
And if you have any questions. We can certainly talk right.
After the call.
I'll do that thank you.
Thank you. This now ends our Q&A session I will now turn it back to management for closing remarks.
Thank you very much.
In summary, I want to say how proud we are of the work we've done here from a business and a financial standpoint, but also around diversity equity and inclusion.
It's important.
And we look forward to great things to come and thank you for your attendance.
And listening and we look forward to talking to you next quarter CFO.
This concludes today's conference call. Thank you for participating you may now disconnect.