Q1 2023 Ibex Ltd Earnings Call
Welcome to the IDEXX first quarter 'twenty to 'twenty three earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please star one one on your telephone.
Today's call is being recorded.
There's also an accompanying or any of that but.
It's in our belt when the IMAX Investor Relations website at investors IBEX dotcom.
I will now turn the call over to Mr. Dowell.
The Opex, Sir you may begin.
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 could differ materially from those expected and described today.
For a more detailed description of our risk factors. Please review our annual report on form 20-F filed with the U S Securities and Exchange Commission on October four 2022.
Thank you Mike.
Good afternoon, everyone and thank you all for joining us today as we share our first quarter fiscal 2023 results.
I am extremely proud of how well our business continues to perform in the face of the current market conditions.
Our results were very strong across the board.
We delivered the company's best first quarter on record.
Highlighted by revenue growth of 17, 8% year on year.
Two $127 9 million.
This was led by 44, 3% growth of our <unk> 2.0 clients comprised of those new clients one since FY 16.
Which now represent 76% of our total revenues.
Adjusted EBITDA increased an impressive 59% year on year to $18 2 million or 14, 3%.
Adjusted net income increased to $6 4 million from <unk> 9 billion and free cash flow increased to $5 2 million from $1 6 million in prior year quarter.
On a trailing 12 month basis revenue was $512 9 million up 16% and well above our historical 10% growth rates, while adjusted EBITDA was $73 6 million.
Our business has been built to successfully navigate choppy waters and performed well in all market conditions.
This has been fueled by our powerful new logo engine that continues to win both elite blue chip clients and leading new economy clients across all our strategic verticals.
Our ability to outperform our competition on a key client kpis leads to our rapid land and expand partnerships, resulting in sizable market share gains.
The result is a business that is enviable in both client and vertical diversification.
Additionally, <unk>.
<unk> is built well structurally from a digital mix standpoint, where today integrated Omnichannel and digital only support is 71% of our overall business and continues to grow.
If you recall.
When I joined <unk> in May of 2015, 98% of our business was voice only.
As a result.
We are strategically positioned to capitalize on the secular trends of growth in digital first customer interactions.
In the quarter, we won three new clients, including a leading healthcare company and a top tier high growth New economy company, who both have significant growth potential.
Along with the wins, we had in late Q4 FY 'twenty two.
We had 11, new client launches in the quarter.
As a result, we expect another great year of revenue build by new in.
In the fiscal year.
And our pipeline continues to expand non linearly as our brand and reputation grows and our added investments into our sales and marketing organization take hold.
We continue to do a remarkable job in our strategic verticals of health Tech and Fintech with growth of 53% year over year.
These two key verticals now represent over 30% of our business up from approximately 23% in Q1 FY 'twenty two.
And we will continue to grow with our recent wins and late stage pipeline deals.
Another key vector for our revenue growth is expansion within our embedded base clients, where we continue to land and expand resulting in an increased share of wallet.
With the new clients won since FY 16, our annual revenue retention rate has been greater than 140% over the last five years as we expand into new geographies and new services with these clients.
Our client retention continues to be as strong as any GPO in the industry.
And our NPS score has increased to an extremely high rating of 68.
We are winning new clients across both large digitally transforming blue chip clients and pure play new economy digitally first brands.
This highlights our ability to win against both traditional multibillion dollar competitors as well as new economy only focus competitors.
IDEXX is differentiated PPO 2.0 capabilities are unparalleled company culture, and our wave X technology stack are resonating well with clients.
And differentiate IMAX.
Recently.
We were recognized across the globe with multiple highly sought after awards.
In Canada, we were named the best place to work and best place to work for women for a third year in a row.
In the Philippines, we were selected as one of the Philippines best employers by the Philippine Daily Inquirer and statistics.
While in Pakistan, we won the best PPO and gender diversity and Inclusivity Awards.
Our technologies continue to be noticed as well.
Wave <unk>, one the contact Center Technology Award.
<unk> of the year Award.
Customer experience Innovation award honoring the company for embracing technology as a key tool for customer service excellence by customer magazine.
Lastly, we are incredibly proud of Julie Castile one of my key leaders, who was named female executive of the year at the global 2022 Women World Awards.
These awards distinguish IMAX as innovators thought leaders in market movers in the contact center and customer care industries.
With our track record of important new client wins, our client diversification remains among the industry best.
And continues to strengthen.
Today, we have over 50 clients that generate over $1 million per annum and.
And we expect that number to increase to approximately 60% by fiscal year end as our new logo engine continues to run full throttle.
Moving on to profitability.
Adjusted EBITDA margin improved 370 basis points.
The same prior year period to a very healthy 14, 3%.
This margin improvement resulted in 59, 1% adjusted EBITDA growth over the prior year quarter to $18 2 million.
And we expect to realize meaningful margin improvement as we continue to grow and sell into our available capacity built out over the last two years.
Yeah.
Before I conclude let me spend a few minutes talking about the macro economic environment.
Inflation and wage pressures continue to add challenges to the business.
Our team is focused on a daily basis meeting these challenges and delivering on results for both clients and shareholders.
Our business was able to achieve 17, 8% growth and strong margins, while incurring downturns with our.
And total trading clients.
And our strategic exit of a large low margin clients.
This is an example of the resiliency and sustainability, we have built into this business.
We see opportunities present themselves as clients continue to struggle with cost pressures and the difficulties operating their own U S based contact centers.
<unk> is a great solution for them.
Especially with our already built capacity in all our regions.
Additionally, our stellar operational performance positions us well to continue to gain share of wallet as clients look to eliminate bottom performing vendors.
I believe we are uniquely positioned to capitalize on these important trends.
Looking forward to the remainder of FY 'twenty three and beyond we are very confident in our business our momentum remains strong.
And we are passionate about the future of IMAX.
Lastly.
I'd like to thank my team for their continued dedication to our mission.
I'll now turn the call over to Carl to go through the financial results and guidance.
Carl.
Thank you Bob and good afternoon, everyone. Thank you for joining the call today.
In my discussion of our first quarter fiscal year 2023 financial results references to revenue net income and net cash generated from operations are on an IRS basis. Our adjusted net income adjusted earnings per share adjusted EBITDA and free cash flow are on a non-GAAP .
Basis.
Reconciliations of our <unk> and non-GAAP measures are included in the tables attached to our earnings press release.
We had a strong quarter, representing our best start with fiscal year on record.
<unk> by 17, 8% top line revenue growth.
102007, 9 million compared to $108 6 million in the prior year quarter.
We continue to experience high growth in our bps Q O clients. Those that were won since fiscal year 2016, as this cohort grew by 44% over the prior year quarter and now represents 76% of our total revenue versus 62% in the prior year.
<unk>.
Net income increased to $4 3 million versus $3 million in the prior year quarter.
The increase in net income was primarily driven by stronger operating results, including the absence of nonrecurring costs in Q1 fiscal year 'twenty, three partially offset by a negative impact from the fair value measurement of share warrants and increased depreciation.
We expect our effective tax rate to be in the range of 12% to 14% on a normalized basis, excluding the effect of the warrant fair value adjustment.
On a non-GAAP basis.
Adjusted net income increased to $6 4 million compared to $9 million in the prior year quarter.
non-GAAP fully diluted adjusted earnings per share increased to 34 cents compared to <unk>.
In the prior year quarter.
The increase in adjusted net income.
And adjusted fully diluted earnings per share was primarily driven by stronger operating results, partially offset by increased depreciation.
Adjusted EBITDA increased to $18 2 million or 14, 3% of revenue compared to 11 5 million or 10, 6% of revenue for the same period last year.
The increase in adjusted EBITDA margin was primarily driven by growth in our <unk> two point of clients.
Along with continued growth in higher margin offshore regions.
Lower costs associated with ramping up new clients as well as operating leverage as we continue to scale.
For the first quarter of fiscal year, 2023, or top five client concentration decreased to 39%.
From 42% of overall revenue compared to the same quarter last year.
Our top 10 clients now account for 58% of total revenue down from 61% in the prior year quarter.
We have worked hard to diversify our client base and are proud of the progress we continue to make.
Switching to our verticals.
Retail and E Commerce increased to 21, 4% of first quarter revenue versus 17, 8% in the prior year quarter.
Fintech and health Tech increased to 31% of first quarter revenue versus 23, 2% in the prior year quarter.
And travel transportation and logistics increased to 13% our first quarter revenue versus 11, 8% in the prior year quarter.
Conversely, our exposure to the telecommunications vertical decreased to 17, 3% of quarterly revenue versus 21, 5% in the prior year quarter.
Net cash generated from operations was $8 8 million for the quarter compared to $6 9 million in the prior year quarter.
Merely due to stronger operating results, partially offset by an increased use of working capital.
Net cash generated from operations, excluding working capital.
Was $16 million for the quarter compared to $7 8 million in the prior year quarter.
Our Dsos were 59 days down four days year over year and up four days sequentially, we continue to be well below industry average.
Capital expenditures were $3 6 million or two 8% of revenue in the first quarter of fiscal year 'twenty three.
$5 3 million or four 9% of revenue in the prior year quarter as we continued to utilize our available capacity as a result of the removal of social distancing requirements.
non-GAAP free cash flow increased to $5 2 million in the current quarter compared to one 6 million in the prior year quarter.
We ended the first quarter with $42 9 million in cash down from $48 8 million as of June 2022, mostly driven by net paydown on our revolving line of credit during the quarter.
Total debt was $88 9 million, including total borrowings of $7 7 million and lease liabilities of $81 3 billion gallon.
Down from total debt of $104 7 million.
As of June of 2022.
Borrowing availability under our revolving credit facilities increased to $56 7 million at September 2022, compared to $55 billion as of June 2022.
In closing our business has great momentum.
We continue to grow at a record pace and aggressively expand our current base of business across multiple lines of business and geographies.
However, we acknowledge the challenging macroeconomic environment with wage and inflationary cost pressures post pandemic industry impacts.
And market uncertainty, but remain optimistic about <unk> outlook based on the strength of our existing partnerships.
New client engine operational performance and strategic footprint.
We have a high degree of confidence in the growth of our business and as a result, we are reaffirming our previous guidance for fiscal year 2023.
We look forward to continued success.
With that.
Bob and I will now take questions operator, please open the line.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your Touchtone telephone again to ask a question. Please press star 111 moment. Please.
Our first question comes from the line of Tobey Sommer of choice. Your line is open.
Hello can you hear me.
Yeah, Tobey Hey, it's Bob Howard.
Hey, thanks.
Sure.
I was wondering if you could describe the.
The conditions are what's driving your new logo launches in the quarter.
Because you just got a couple of things where you are on your front foot in terms of what you're able to offer and then some market phenomenon where.
Customers are are looking to replace underperforming vendors how would you characterize those drivers.
Your recent launches.
Sure so so.
Really good question.
How I look at this is there is a.
A flurry of deals that are just driven by the challenges that clients, whether they are existing clients or you don't target clients.
And those and they typically those those that have captives are typically in the what I'll call more of the Blue chip.
The blue chip bucket, whereas the new economy clients tend to they've outsourced from day, one or they may have had a small little captive that then they started to outsource and.
These macro.
Economic factors are really putting pressure I believe in their internal operations.
And the effects have been.
Move to work at home through Covid, then try to get the aid their agents back into the centers agents don't want to do that attrition jumps up the cost of replacing those agents is increasing because of wage inflation and pressures et cetera. So you almost have this virtuous cycle going on.
There.
That then leads them to.
To say, Hey, look I have to react I have to move fast I need to look.
<unk> alternatives to stay resilient, and Thats, where outsourcing really fits well.
Into.
This space and so we started seeing this effect Toby happen almost a year ago, where we had several clients that we're looking at.
At that and then launching in nearshore or offshore markets.
As a way to deal with that and I believe that Thats, a trend thats going to continue here.
As we continue.
Some of the real hurdles and turbulence in the U S market.
And so.
To me that's a big driver that then.
Gets complemented with and I look at it those clients of ours that may not have this may not have their enterprise rapidly growing but may have enterprise shrinking.
As they deal with that they're looking to consolidate volume to their best providers rather than have everybody kind of have their volumes declined by 20%, they're going to keep their top performers running full and take that out of out of the bottom performers and that's <unk>.
<unk> really well to IMAX.
Because we're really strong operationally and evidence of that with our net promoter as from our clients and it also from our client retention.
Numbers, which have just been outstanding and so that plays very well to the IBEX growth trajectory.
Thank you very much for that context.
<unk>.
Been able to grow into some of the capacity that you added over the last couple of years and that's helping margins how do we think about.
How should we think about that on a go forward basis.
The growth increases.
The the pruning of lower margin customers is less of a headwind.
Is there how long can we sort of tailwind of not needing to invest.
A ton in Capex last before you need to sort of revive that.
Yeah, and so are our.
Sure.
Analysis has that we have about approximately.
$150 million worth of.
Capacity.
Available capacity in the markets that we're really.
Exploding.
Nearshore offshore.
And places like that.
And so if you look at our growth trajectory, we feel that that pushes pushes us well beyond FY 'twenty three and somewhere into.
Past FY 'twenty, four and into FY 'twenty five that we're able to mostly grow without a whole lot of Capex now I do think over that timeframe, we are going to want to.
Grow into some new geographies that we're not in today and that will require a little capex as you go down that path, but we are we're in a really really.
Really good position over the next call. It two years plus four four operating this business.
Low Capex, we believe you will see margin.
Appreciated as you fill those centers because we have those costs.
Much of those costs are fixed.
Under kind of under our belt already and so.
The end result of that is I think we're positioned well for FERC.
Healthy EBITDA expansion low Capex, which then results in very strong free cash flow.
Last question for me and I'll get back into queue.
What have you.
He is.
Things that the company needs to focus on building out over the next year or two to position you to be.
Two three.
The size, assuming your aspirations go that direction.
Sure Yes.
Yes, they are and are our aspirations are.
We are on it.
On an organic.
Track to $2 billion, if you just look at our trajectory.
My team and I really have that.
That in our.
On our radar now to accomplish that I think we need to continue to do what we do really well today, which is opening up in new markets become a dominant player in those markets and then just built.
Win new logos and fill those centers rapidly I.
I believe that.
Kind of the recipe for success of that of continued growth in provincial Philippines into our near shore.
Additional nearshore markets and then another market that I look and say is an area that we probably want to move into would be a market like India, where a.
A lot of our clients are.
Look into and look for growth and so.
I view that as the organic side of what we do well today and sticking to that sticking to what we know how to.
Executed extremely well.
On top of that though Toby I look at how.
How do we expand the services that we do that can be complementary and that's an area that I think we.
You look at higher margin higher value services and those are the areas that we're certainly spending a lot of time thinking about how and where do we go are we able to organically expand into that put some effort like we did into healthcare and fintech or is that something that we need a tuck in acquisition to build those.
Capabilities and those are the things that my team and I are really looking and.
Hope to really have a very firm strategy to accomplish that too aggressively.
Aggressively drive and keep moving topline and bottom lineup.
Thank you.
Thanks.
Again, ladies and gentlemen.
Our one touch tone telephone.
To ask a question.
Sure.
Okay.
Sure no further questions.
Bob.
As of March.
Yes, operator.
Valerie Thank you for turning it over to me and thank you all for being on the call today, we're really excited about our results.
And I just want to thank my management team for continued delivering on this business and look forward to.
Getting together with you all in a quarter from now and in that time, hopefully you all have.
Healthy and happy Thanksgiving and holiday season. So thank you all and your confidence in IBEX.
Ladies and gentlemen.
All participants.
Hum.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
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