Q2 2024 IBEX Ltd Earnings Call

February 8, 2024

Operator: and many more. Thank you. Welcome to the Ibex second quarter full year 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Okay.

Welcome to the IMAX second quarter full year 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.

One on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. To note, there is an accompanying earnings deck presentation available on the IBEX Investor Relations website at investor.ibex.co. I will now turn this conference over to Mr. Michael Darwall, Investor Relations, IBEX. Good afternoon, and thank you for joining us.

Please be advised that today's conference is being recorded.

There is an accompanying earnings deck presentation available on the IMAX Investor Relations website at Investor Doc IBEX Darko I will now turn this conference over to Mr. Michael Dar wall Investor Relations of IBEX.

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.

Michael Darwall: Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinion as of the date of this call, and we undertake no obligation to revise this information as a result of new developments which may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our annual report on Form 10-K, filed with the U.S. Securities and Exchange Commission on September 13, 2019. 2023.

Please note that these forward looking statements reflect our opinion as of the date of this call and we undertake no obligation to revise this information as a result of new developments, which may occur.

Forward looking statements are subject to various risks uncertainties and other factors that could cause our actual results to differ materially from those expected and described today.

For a more detailed description of our risk factors. Please review our annual report on Form 10-K filed with the U S Securities and Exchange Commission on September 13th.

2023, as a reminder, as of July one 2023, we became a domestic filer and as such are now reporting on a U S GAAP basis, rather than from the previous IAF RF standard with that I will now turn the call over to IMAX CEO Bob decades.

Michael Darwall: As a reminder, as of July 1st, 2023, we became a domestic filer and, as such, are now reporting on a U.S. GAAP basis rather than from the previous IFRS standard. With that, I will now turn the call over to Ibex CEO, Bob Dekker. Thank you, Mike.

Thank you Mike Good afternoon, everyone and thank you all for joining us today as we share our second quarter fiscal 2024 results over the course of the last 12 months, we have made strategic investments into our building blocks for our next phase of growth.

Bob Dekker: Good afternoon, everyone, and thank you all for joining us today as we share our second quarter fiscal 2024 results. Over the course of the last 12 months, we have made strategic investments in our building blocks for our next phase of growth. Efforts which are now coming to fruition in terms of the size, speed, and quality of our new logo, pipeline, and wins. I'm very excited to report we had eight new client wins in the quarter, totaling 12 for the first half of FY24, as compared to seven for the first half of FY23. This tracks similarly to the velocity of our new client wins we had in FY22, our banner year for the new logo. These wins include several high-profile deals with Fortune 50 and Fortune 500 clients, opportunities we won head-to-head against our multi-billion dollar competitors, beyond this. We have continued to have success with exciting new economy breaks.

Efforts, which are now coming to fruition.

Terms of size and speed and quality of our new logo pipeline and wins.

I am very excited to report, we had eight new client wins in the quarter.

Totaling 12 for the first half of FY 'twenty four as.

As compared to seven four first half of FY2023.

This tracks similarly to the velocity of our new client wins, we had in FY 'twenty to our banner year for new logos.

These wins include several high profile deals with Fortune 50, and.

And fortune 500 clients opera.

Opportunities, we won head to head against our multibillion dollar competitors.

Beyond this we have continued to have success with exciting new economy brands.

These wins spanned our strategic verticals of health care.

Bob Dekker: These winds span our strategic verticals of health tech, retail, and e-commerce, and AI technology. Stepping back, and looking at these deals and our key pipeline opportunities. I am seeing that AI capabilities are playing a key role in client decision-making as they look for BPO partners who can not only deliver great contact center service but also rapidly deploy disruptive AI-based solutions. Our recent accomplishments highlight our ability to succeed on both fronts and positions us as well as we move forward. This momentum is continuing into our second half, with wins and great opportunities with premier brands in Q3. Although our new logo engine continues to build strength for future growth, the combination of softer volumes with several embedded-based cloths and the transition of significant client volume from our onshore to offshore region led to lower top line revenue in the quarter. Revenues came in at $132.6 million, down 4.8% from the prior year.

In retail and e-commerce.

AI technology.

Stepping back and looking at these deals and our key pipeline opportunities.

I am seeing that AI capabilities are playing a key role in client decision, making.

Look for BPL partners, who can not only deliver great contact center services.

But also rapidly deploy disruptive AI based solutions.

Our recent accomplishments highlight our ability to succeed on both fronts and positions us well as we move forward.

This momentum has continued into our second half with wins in great opportunities with Premier brands in Q3.

Although our new logo engine continues to build strength for future growth the.

The combination of softer volumes with several embedded base clients and the transition of significant client volume from our onshore to offshore regions led to lower top line revenue in the quarter.

Revenues came in at $132 6 million down four 8% from prior year.

The impact of this.

Bob Dekker: The impact of this, coupled with planned investments in three key areas, including our sales organizations, our AI initiative, and our integrated HCM ERP system, resulted in a decline in adjusted EBITDA to $14.3 million from $19.4 million in Q2 FY23. Additionally, we had a $2.3 million adverse impact associated with the recognition of deferred training revenue to both top and bottom line results when compared to the prior year quarter. As previously noted, when we are going through significant ramps for new wins, we defer training revenues associated with those ramps over the term of the program while recognizing the full training costs in the current period, while new client wins and ramps have a long-term positive impact for the business, while initial launches have a short-term negative impact.

Coupled with planned investments in three key areas, including our sales organization.

Our AI initiatives.

And our integrated HCM ERP systems resulted in a decline in adjusted EBITDA to $14 3 million from $19 4 million in Q2, FY2023.

Additionally, we had a $2 3 million adverse impact associated with the recognition of deferred training revenue to both top and bottom line results when comparing to prior year quarter.

As previously noted when.

When we are going through significant ramps for new wins, we deferred training revenues associated with those ramps over the term of the program.

While we are recognizing the full training costs in the current period.

While new client wins and ramps have a long term positive impact for the business. The initial launches have a short term negative impact.

Bob Dekker: Ibex continues to optimize its footprint and capacity utilization through a combination of shifting volume mix toward our offshore geography, as well as right-sizing our onshore and nearshore footpaths. Since the start of the fiscal year, capacity utilization has increased in each of our regions, driven by the combination of the shifting mix and the site rationalizations we undertook in the second half of fiscal year 2023. We exited December at 91% utilization of our seat capacity globally, including work at home, up from 77% as of June 2023. Our onshore delivery now represents less than 23% of revenue versus 27% the same quarter a year ago, and our offshore markets now make up nearly 50% versus less than 43% a year ago. It is these shifts that give us confidence in our expectations for appreciable margin improvement starting in Q3 FY24. I would like to spend a few minutes talking about our plan to accelerate our leadership position in deploying AI-based solutions. Recently, we announced the hiring of industry veteran Eric Garrow as our Senior Vice President of Digital Transformation.

IBEX continues to optimize its footprint and capacity utilization through a combination of shifting volume mix toward our offshore geographies as well as right sizing, our onshore and nearshore footprints.

Since the start of the fiscal year capacity utilization has increased in each of our regions driven by the combination of shifting mix and the site rationalizations, we undertook in the second half of fiscal year 2023.

We exited December at 91% utilization of our seat capacity globally, including work at home up from 77% as of June 2023.

Our onshore delivery now represents less than 23% of revenue versus 27% same quarter a year ago.

And our offshore markets now make up nearly 50%.

Versus less than 43% a year ago.

It is these shifts that give us confidence in our expectations for appreciable margin improvement starting in Q3 FY 'twenty four.

Okay.

I would like to spend a few minutes talking about our plan to accelerate our leadership position in deploying AI based solutions.

Recently, we announced the hiring of industry veteran Eric Garo as our senior Vice President of digital transformation.

In his newly appointed role Garo will spearhead the strategy and execution of IBEX is digital transformation offering.

Aimed at reshaping customer and brand interactions through the seamless integration of cutting edge contact center solutions and AI enabled technologies.

This is one of the several strategic investments we continue to make in support of our three axis strategy for deploying AI for our clients to improve performance.

And the customer experience.

Last quarter I discussed the disruptive solution, we are deploying for smart <unk> comp.

Conversational chat.

And voice spots for an important new client.

With Eric leading the charge, we have developed a robust pipeline across all three axes.

Bob Dekker: With Eric leading the charge, we have developed a robust pipeline across all three axes, and we continue to win new opportunities and deployments. As an example, we are implementing a solution for deep AI-driven analytics for a top health care company. Leveraging Anna Ayotte.

And we continue to win new opportunities and deployments.

As an example, we are implementing a solution for deep AI driven analytics for healthcare company leveraging.

Anna AI.

The goal is to redefine the patient experience by leveraging AI powered quality and sentiment analysis of every interaction to rapidly identify drivers of dissatisfaction.

Bob Dekker: The goal is to redefine the patient experience by leveraging AI-powered quality and sentiment analysis of every interaction to rapidly identify drivers of dissatisfaction. AI technology also creates opportunities for us on the quiet front. We are very excited about a new client win with an AI wearables technology pioneer who's developed the first wearable device and Software Platform to build and harness the full power of AI. We are working shoulder to shoulder with our client to bring this product and service successfully to market and to define an amazing customer experience. It is these exciting wins that showcase our differentiation and our first mover position in AI. From a capital allocation standpoint, we continue to execute on our share buyback program, which we announced last September, driven by the current valuation and our confidence in the trajectory of IBEX. Since we announced the program, we have acquired more than 700,000 shares.

AI technology also creates opportunities for us on the client front.

We are very excited about a new client win with an AI Wearables technology pioneer.

Who has developed the first wearable device and software platform to build and harness the full power of AI.

We are working shoulder to shoulder with our client to bring this product and service successfully to market.

And to define an amazing customer experience.

It is these exciting wins that showcase our differentiation and our first mover position in AI.

From a capital allocation standpoint, we continue to execute on our share buyback program, which we announced last September driven by the current valuation and our confidence in the trajectory of buybacks.

Since we announced the program we have acquired more than 700000 shares back.

Bob Dekker: This continues to be an attractive and efficient use of our capital. We continue to evaluate new markets for expansion, whether organically or through acquisition. We have an enviable net cash position of $48 million, giving Ibex the flexibility to constructively use and make targeted investments for growth.

This continues to be an attractive and efficient use of our capital.

We continue to evaluate new markets for expansion, whether organically or through acquisition.

We have an enviable net cash position.

A $48 million, giving IBEX, the flexibility to constructively use and make targeted investments for growth.

Bob Dekker: In closing, the BPO industry is at an inflection point where the winners will transform their business into higher-value solutions powered by AI. We believe we can be a long-term winner leveraging our speed. Flexibility, and Tech-Led DNA; our early results are encouraging. My team and I remained ever focused on continued strengthening of the business, and delivering value for our employees, clients, and shareholders. I will now turn the call over to Taylor to go through our finances.

In closing the BPM industry is at an inflection point, where the winners will transform their businesses into higher value solutions powered by AI.

We believe we can be a long term winner leveraging our speed.

Flexibility and Tech led DNA.

Our early results are encouraging.

My team and I remain ever focused on continued strengthening of the business and delivering value for our employees.

Clients and shareholders.

I will now turn the call over to Taylor to go through our financials Taylor.

Taylor.

Thank you Bob and good afternoon, everyone. Thank you for joining the call today.

Taylor: Thank you, Bob, and good afternoon, everyone. Thank you for joining us on the call. My discussions of our second quarter fiscal 2024 financial results, references to revenue, net income, and net cash generated from operations are on a U.S. GAAP basis, while adjusted net income, adjusted earnings per share, adjusted EBITDA, and free cash flow are on a non-GAAP basis. Reconciliations of our U.S. GAAP to non-GAAP measures are included in the tables attached to our earnings press release.

My discussions of our second quarter fiscal 2024 financial results references to revenue revenue net income and net cash generated from operations are on a U S GAAP basis.

Adjusted net income adjusted earnings per share adjusted EBITDA and free cash flow are on a non-GAAP basis reconciliations of our U S. GAAP to non-GAAP measures are included in the tables attached to our earnings press release.

Our second quarter results were impacted by softer than anticipated contact volume in some of our embedded base business as well as the year over year impact of the shifting mix from onshore to offshore delivery. These.

Taylor: Our second quarter results were impacted by softer than anticipated contact volume in some of our embedded-based business, as well as the year-over-year impact of the shifting mix from onshore to offshore delivery. These impacts, combined with a changing business environment for several of our FinTech and telecommunications clients, resulted in revenue of $132.6 million, a 4.8% decline compared to $139.3 million in the prior year quarter. Looking at revenue in total, revenue declines in the fintech and telecommunication verticals were partially offset by growth in our strategic health tech and retail and e-commerce verticals. The revenue mix continues to trend toward digital and omni-channel services and offshore geography. Digital and omni-channel delivery now represents 79% of our total revenue versus 73% in the second quarter a year ago, while our offshore and nearshore revenues now comprise 77% of total revenue versus 73% in the prior year quarter.

These impacts combined with the changing business environment for several of our Fintech and telecommunications clients resulted in revenue of $132 6 million or four 8% decline compared to $139 3 million in the prior year quarter.

Looking at revenue and total revenue declines in the fin Tech and telecommunications vertical were partially offset by growth in our strategic health Tech and retail and E Commerce verticals.

Revenue mix continued to trend toward digital and Omnichannel services and offshore geographies.

Digital and Omnichannel delivery now represents 79% of our total revenue versus 73% in the second quarter a year ago.

Our offshore nearshore revenues now comprise 77% of total revenue versus 73% in the prior year quarter.

Taylor: We expect that these mixed shift trends will have a positive impact on margins over time. Another significant factor in year-over-year revenue was the adverse impact of the recognition of training revenue associated with new client program ramps. In accordance with US GAAP, revenue associated with training, although billed at the beginning of a new program, is deferred and recognized over the expected life of the program. The Burt train revenue had a 2.3 million adverse impact on revenue when comparing our second quarter with the prior year.

We expect that these mix shift trends will have a positive impact on margins over time.

Another significant factor in year over year revenue was the adverse impact of the recognition of trading revenue associated with new client program ramps.

In accordance with U S GAAP revenue associated with training, although billed at the beginning of a new program is deferred and recognized over the expected life of the program.

The first train revenue had a $2 3 million adverse impact to revenue when comparing our second quarter with the prior year.

Taylor: The deferred revenue that was recognized in the second quarter was $1.7 million lower than in the prior year quarter, while training revenue billed and deferred in the second quarter was $600,000 higher than in the prior year quarter. This not only impacted revenue but also negatively impacted gross margin comparisons versus the prior year. Gross margin was 27.7% versus 28.4% in the prior year. Normalizing for this deferred train revenue impact, gross margin was up roughly 100 basis points from the prior year, reflecting improvement from our increasing offshore revenue. Net income was $6.1 million compared to $9.3 million in the prior year quarter.

Deferred revenue that was recognized in the second quarter was $1 7 million lower than compared to the prior year quarter, while training revenue build in deferred in the second quarter was 600000 higher than the prior year quarter.

This not only impacted revenue, but also negatively impacted gross margin comparisons versus the prior year gross margin was 27, 7% versus 28, 4% in the prior year normalizing for this deferred training revenue impact gross margin was up roughly 100 basis points from the prior year, reflecting improvement from.

Our increasing offshore revenue mix.

Net income was $6 1 million compared to $9 3 million in the prior year quarter. The decrease was primarily a result of the impact of deferred train revenue previously discussed as well as our strategic investments in our technology, including HCM and ERP infrastructure and our sales and marketing organizations. These investments are important pieces of our strat.

Taylor: The decrease was primarily a result of the impact of deferred train revenue previously discussed, as well as our strategic investments in our technology, including HCM and ERP infrastructure, and our sales and marketing organization. These investments are important pieces of our strategy to drive and support growth in our business. Our tax rate for the quarter was 17% compared to 18% last year. We expect the tax rate to remain in the high teens for the fiscal year.

To drive and support growth in our business.

Our tax rate for the quarter was 17% compared to 18% last year, we expect the tax rate to remain in the high teens for the fiscal year.

Fully diluted EPS was <unk> 33, compared to <unk> 49 in the prior year quarter.

On a non-GAAP basis, adjusted net income was <unk> 8 million compared to $12 2 million in the prior year quarter.

Taylor: Fully diluted EPS was $0.33 compared to $0.49 in the prior year quarter. On a non-GAAP basis, adjusted net income was $8 million compared to $12.2 million in the prior year quarter. Non-GAAP fully diluted adjusted earnings per share were $0.44 compared to $0.65 in the prior year quarter.

non-GAAP fully diluted adjusted earnings per share were <unk> 44, compared to 65 in the prior year quarter.

Adjusted EBITDA was $14 3 million or 10, 8% of revenue compared to $19 4 million or 13, 9% of revenue for the same period last year.

The change in adjusted EBITDA margin was primarily driven by the accounting for deferred train revenue as well as investments in our technology, including HCM and ERP infrastructure, and our sales and marketing organizations in support of our strategic vertical growth strategy.

Taylor: Adjusted EBITDA was $14.3 million, or 10.8% of revenue, compared to $19.4 million, or 13.9% of revenue for the same period last year. The change in adjusted EBITDA margin was primarily driven by the accounting for deferred train revenue as well as investments in our technology, including HCM and ERP infrastructure, and our sales and marketing organizations in support of our strategic vertical growth strategy. For the second quarter of fiscal year 2024, our top 5, top 10, and top 25 client concentrations remain largely flat at 41%, 59%, and 82%, respectively of overall revenue, representative of a well-diversified client portfolio. Switching to our verticals, retail and e-commerce increased to 29.0% of second quarter revenue versus 26.9% in the prior year quarter. Health Tech increased to 12.2% of second quarter revenue versus 8.7% in the prior year quarter, and travel, transportation, and logistics increased to 12.5% of second quarter revenue versus 11.4% in the prior year.

For the second quarter of fiscal year 2020 for our top five top 10, and top 25 client concentrations remained largely flat at 41%, 59% and 82% respectively of overall revenue representative of a well diversified client portfolio.

Switching to our verticals retail and e-commerce increased to 29, 8% of second quarter revenue versus 26, 9% in the prior year quarter.

Health Tech increased to 12, 2% of second quarter revenue versus eight 7% in the prior year quarter and travel transportation and logistics increased to 12, 5% of second quarter revenue versus 11, 4% in the prior year quarter.

Conversely, our exposure to the telecommunications vertical decreased to 14, 8% of quarterly revenue versus 16, 7% in the prior year quarter. Additionally, fintech decreased to 13, 7% of revenue for the quarter versus 19, 2% in the prior year quarter impacted by the changing landscape for crypto and new economy.

Investment platform clients.

Net cash generated from operating activities was a negative $1 6 million for the quarter compared to a positive $5 3 million in the prior year quarter for the first half of our fiscal year operating cash flow was a positive 7 million versus $10 9 million.

Our Dsos were 73 days up from 67 days at the end of the first quarter and in line with industry average.

Several larger client payments, we received the first week of January and negatively impacted dsos at the end of the second quarter.

Taylor: Conversely, our exposure to the telecommunications vertical decreased to 14.8% of quarterly revenue versus 16.7% in the prior year quarter. Additionally, fintech decreased to 13.7% of revenue for the quarter versus 19.2% in the prior year quarter, impacted by the changing landscape for crypto and new economy investment platform clients. Net cash generated from operating activities was a negative $1.6 million for the quarter compared to a positive $5.3 million in the prior year.

Capital expenditures were $2 9 million or two 2% of revenue in the second quarter of fiscal year 2024 versus $7 9 million or five 7% of revenue in the prior year quarter. As we continued to utilize our available capacity from build outs completed in previous years.

Free cash flow decreased to a negative $4 5 million in the current quarter compared to a negative $2 7 million in the prior year quarter due to lower income from operations and higher Dsos.

For the first half of our fiscal year free cash flow was a positive $2 1 million versus a negative 700000 in the prior year.

We ended the second quarter with $49 million in cash down from $57 4 million as of June 2023, driven by share repurchases during the quarter.

Net cash was 48.0 million down from $56 4 million as of June 2023.

We continued with our share repurchase program announced on September 18th 2023, authorizing us to repurchase up to $30 million worth of shares.

Taylor: For the first half of our fiscal year, operating cash flow was a positive $7 million versus $10.9 million. Our DSOs were 73 days, up from 67 days at the end of the first quarter, and in line with the industry average. Several larger client payments were received in the first week of January and negatively impacted DSOs at the end of the second quarter. Capital expenditures were $2.9 million, or 2.2% of revenue, in the second quarter of fiscal year 2024, versus $7.9 million, or 5.7% of revenue, in the prior year quarter, as we continue to utilize our available capacity from buildouts completed in previous years. Free cash flow decreased to a negative $4.5 million in the current quarter compared to a negative $2.7 million in the prior year quarter due to lower income from operations and higher DSOs.

During the second quarter, we repurchased 489000 shares for $8 4 million.

For fiscal year to date through January 31, 2024, we have repurchased 740000 shares for a total cost of $12 5 million.

Looking forward to the remainder of 2024, we expect softness in some of our client volumes to continue for the near term and therefore expect third quarter revenues to trend. Similarly, as the first two quarters on a year over year basis.

As our new client ramps reached scale in the fourth quarter, we anticipate inflection towards growth.

We remain confident that our strategy of driving growth in our higher margin offshore regions accelerated by our new client wins and realizing cost savings through optimizing our site footprint will drive improvement in adjusted EBITDA margins for the second half of our fiscal year and in the years ahead.

As a result of these factors we are updating our full year guidance.

On a full year basis, we expect revenues to be between $505 and $510 million and adjusted EBITDA margin in the range of 12% to 13%.

We feel strongly in our overall business fundamentals and a differentiated value proposition, we bring our clients. We remain excited about our business and believe our recent client wins strength of our pipeline and strategic investments will position us well as we move forward.

With that Bob and I will now take questions.

Operator, please open the line.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.

Taylor: For the first half of our fiscal year, free capital was a positive $2.1 million versus a negative $700,000 in the prior year. We entered the second quarter with $49 million in cash, down from $57.4 million as of June 2023, driven by share repurchases during the quarter. Nick Cash was $48.0 million, down from $56.4 million as of June 2023.

Our first question comes from the line of David Koning from Baird.

Yeah, Hey, guys. Thanks, Thanks for all the detail in.

Maybe first of all.

The Fintech segment I was just looking at it looked like it was down about 30% year over year, you talked a little bit about what happened to that that was really the entire decline of the total company is just just that piece really the rest of the team to do quite a bit better maybe just go through a little more of what what that was.

Taylor: We continue with our share repurchase program announced on September 18, 2023, authorizing us to repurchase up to $30 million worth of shares. During the second quarter, we repurchased 489,000 shares for $8.4 million. For fiscal year to date, through January 31st, 2024, we've repurchased 740,000 shares for a total cost of $12.5 million. We are looking forward to the remainder of 2024. We expect softness in some of our client volumes to continue for the near term and therefore expect third quarter revenues to trend similarly to the first two quarters on a year-over-year basis. As our new client ramps rescale in the fourth quarter, we anticipate an inflection toward growth. We remain confident that our strategy of driving growth in our higher-margin offshore regions, accelerated by our new client wins and realizing cost savings through optimizing our site footprint, will drive improvement and adjust EBITDA margins for the second half of our fiscal year and in the years ahead. As a result of these factors, we are updating our four-year guidance.

Sure David and thanks for joining thanks for the.

Question, so in the Fintech side.

We have.

Have had some crypto client as well as a kind of new.

Economy millennial trading.

App partner client and both of those.

Their businesses have been impacted really.

With kind of the economy, the crypto markets et cetera, and so so those are down on the other side of the equation.

I would look and say that a lot of the <unk>.

Various verticals, there's winners and losers and so when we talked about where the softness came in wasn't really aside from that.

That fintech.

<unk> mint.

There are winners and losers kind of cross across the various verticals. So.

We kind of like that as a as an overall macro.

It's like look.

One segment is.

No.

Our biggest segments aren't really moving down and so we have winners losers around those some that are down some of that are deploying various coal.

Cost shedding solutions that are putting some pressure on on various volumes.

Gotcha.

Operator: On a full-year basis, we expect revenues to be between $505 and $510 million, with an adjusted EBITDA margin in the range of 12% to 13%. We feel strongly about our overall business fundamentals and the differentiated value proposition we bring our clients. We remain excited about our business and believe our recent client wins, strength of our pipeline, and strategic investments will position us well as we move forward. With that, Bob and I will now take questions. Operator, please open the line.

That makes sense and then.

The utilization was actually quite good like maybe one of the best you've ever had but yet margins were.

We're a little weak what's the dynamic there.

Something I know it is going to get quite a bit better yet, but what's the dynamic there.

Yes, Great question, and let me start out with and Taylor, if you feel like adding feel free to do that but the biggest starts with the.

The deferred training impact in the quarter so.

Topline, but all the way down to the bottom line $2 3 million so that was if.

If you look at then the margins on an EBITDA basis, certainly that had a large impact.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

What's interesting and what Taylor shared if you normalize for that our gross margins actually.

They went up 100 100 basis points.

And now that we're kind of.

David John Koning: Please stand by while we compile the Q&A roster. Our first question comes from the line of David Koning from Baird. Yeah, hey guys, thanks for all the details. Maybe first of all, the fintech segment I was just looking at, it looked like it was down about 30% year over year. You talked a little bit about what happened there, but that was really the entire decline of the whole company. It's just that piece, really, and the rest seemed to do quite a bit better. Maybe just go through a little more of what that was.

Have that in our rearview mirrors some of those large ramps. That's why we feel like running where we are from the percentage of business in the.

Our offshore or nearshore and.

And running at the high Utilizations, we feel really confident about the margin.

Margin strengthening significantly.

Significantly in the second half.

Yes that makes sense and then maybe just.

Oh, Taylor's going to jump in sorry.

Alright.

No I was just going to just confirm that the underlying gross margins, we feel very good about.

Healthy as Bob said, they were up roughly 100 basis points when you adjust for the deferred train revenue and then as we look forward we see.

Some new wins in the higher margin regions, which are going to help propel our margins, we're going to we have some specific site and region.

Bob Dekker: Sure, David, and thanks for joining us. Thanks for that question. So, you know, on the fintech side, we have had some crypto clients, as well as, you know, kind of a new economy, millennial trading app partner client. And both of those, you know, their businesses have been impacted really, you know, with, you know, kind of the economy, the crypto markets, etc. And so, so those are down.

Initiatives to drive the contribution margin and a couple of spots and we're already starting to see.

Those bear fruit and then as Bob mentioned, we're going to continue to look at our footprint and we see some opportunities there as well. So we feel good about where our margins are and where theyre going ahead.

Yes.

Great and if I can just sneak one more in can you explain one more time I heard you say, one $1 7 million and lower trading revenue and then a $600000 cost that added up to $2. Three why did the training revenue go down so much year over year when it's when it should just be kind of ratable recognition.

Bob Dekker: On the other side of the equation, I would say that in a lot of the various verticals, there are winners and losers. And so when, you know, when we talked about, you know, where the softness came in, it wasn't really, you know, aside from, you know, that Fintech sub-segment. You know, there were winners and losers kind of across the various verticals. So, you know, we kind of like that as an overall macro that, you know, it's like, look, one segment isn't, you know, our biggest segments aren't really moving down. And so, you know, we have winners and losers around those, some that are down, some of that are deploying, you know, various, you know, call, you know, call shedding solutions that, you know, are putting some Gotcha. Yep. No, that doesn't make sense.

Yes, so so the way the accounting works.

When train revenues bills billed at the beginning of our program, but it's recognized over the life of the program. So.

If you look at last year versus this year the way the amortization of the deferred revenue recognition schedule worked out well.

Recognize about one 7 million.

That revenue that has no cash associated with the cash is all received upfront and then this year because once a new logos recently are actively ramping some new programs, we deferred an additional $600000 versus.

Versus the prior year.

You would have net those two together and you can see the $2 3 million adverse impact to our financials and I can also point you. If you look at our Q in footnote.

Two at the end of footnote too there is a detailed schedule of our deferred revenue that helps.

Provides some insight into that as well.

Awesome. Thanks, so much for all that.

Thank you.

Bob Dekker: And then, um, utilization was actually quite good, maybe one of the best you've ever had, but margins were a little weak. What's the dynamic there? I know it's going to get quite a bit better yet, but what's the dynamic? Yeah, great question. And let me start out with, and Taylor, if you feel like, you know, adding, feel free to do that.

One moment for our next question.

Our next question comes from the line of Tobey Sommer from <unk> Securities.

Yeah, Hey, Thanks for taking my question. This is Jack Wilson on for Tobey.

So that's what I have just a follow up on that margin question should we expect to see sort of any cadence for the margin through the remainder of the year do you expect that sort of ramp up or is it going to be a little more varied.

Bob Dekker: But the biggest starts with the deferred training impact in the quarter. So, you know, that that took, on the top line, but all the way down to the bottom line, 2.3 million. So, you know, so that was, you know, if you look at the margins on an EBITDA basis, certainly that had a large impact. What's interesting about what Taylor shared is that if you normalize for that, our gross margins actually, you know, they went up 100 basis points, and now that we're kind of, you know, have that in our rearview mirror some of those large ramps, that's why we feel like running where we are from the percentage of business in our offshore, near shore, and running at high utilizations, we feel really confident about the margin strengthening significantly in And maybe just if, yeah, if I, oh, Taylor's going to jump in.

No I think I would expect to see some ramp up we will see some notable improvement.

In Q3, and if you look at our first half of the year our margins.

EBITDA margins came in around 11% and we said for the year, we expect them to be 12% to 13%, which implies a margin in the back half of the year for the back half to be between 13% and 15% and I would.

Expect that to ramp up a bit between those two quarters.

Okay. Thanks for that.

And sort of a follow up on the utilization as well so once the full shifts to more offshore is complete is that 91% utilization sort of sustainable or is this sort of a.

I don't know part of that ramp our high point.

That's a great question Jack.

How I look at it is.

Especially with the seasonality that we have which is typically our Q2.

Kind of flexes up into the 90, so thats a good metric for us.

Taylor: Yes. All right. I was just going to, you know, confirm that, you know, the underlying gross margins, we feel very good about, they remain healthy, as Bob said, they're up roughly 100 basis points. We need to adjust for the deferred train revenue. And then as we look forward, you know, we see, you know, some new winds in the higher margin regions, which are going to help propel our margins. We're going to have some specific site and region initiatives to drive the contribution margin in a couple spots, and we're already starting to see those bear fruit.

And so but I would say that running in the in the 90 plus is not really that sustainable our goal is probably in the 85% range that so that's a good range so somewhere between 75% to 85% are the guardrails that we run that we run at.

<unk>.

What we're excited about this year is as we have some of the seasonality ramps.

Kind of dissipate.

This new logo engine is really picking up a lot of pace and the ramps that we are currently underway or.

Are filling up and so we feel that that will in the lion's share of that sitting in the let's say offshore and near shore market. So we think that that's going to continue to layer.

Taylor: And then, as Bob mentioned, we're going to continue to look at our footprints, and we see some opportunities there as well. So we feel good about where our margins are and where they're going. Yeah, that's no, that's great. And if I can just sneak one more, and can you explain one more time?

Layer in those markets strengthening utilizations and those keeping it pretty high which then we should be generating some pretty good gross margins in those regions in the back half.

Taylor: I heard you say 1.7 million lower training revenue and then a $600,000 cost that added up to 2.3. Why did the training revenue go down so much year over year when it should just be kind of measurable recognition? So the way the accounting works, you know, when train revenue is billed at the beginning of a program, but it's recognized over the life of the program. So, if you look at last year versus this year, the way the amortization or the deferred revenue recognition schedule worked out, we recognize about 1.7 million of that revenue that has no cash associated with it. The cash is all received up front.

Okay that makes sense and then just one last one for me so when you're talking to clients about AI is that something you're pitching to them and sort of using that as a differentiator or is that something they're asking you about sort of asking asking for.

Great Boy, that's a fantastic question and I would say that you have.

No.

Engagements that cover both as you described.

Some clients are.

We are looking at us and saying Hey, what are you seeing out there in the marketplace. What have you soft et cetera, and in that scenario will come in and say look we built the solution we built.

A smart IV, our solution or a voice or voice spot type solution. These things have impacted.

Taylor: And then this year, because we won some new logos recently and are actively ramping some new programs, we deferred an additional $600,000 versus the prior year. So you kind of net those two together, and you can see the $2.3 million adverse impact on our financials. And I can also point you out, if you look at our queue in footnote two, at the end of footnote two, there's a detailed schedule of our deferred revenue that helps provide some insight into that as well. Thanks so much for all that.

Call volumes, driven see set up things like that where we're proactively selling what we've already built and serviced.

And those.

It gives us a lot of credibility in this space as <unk> really start moving other clients that were sitting and saying Hey, we're kind of trying to whiteboard here.

And engaging us more in a consultant.

Consultative approach.

Where we're trying to figure out what the right strategy for them and maybe not have kind of a cam solution packs. So so theyre spanning.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Tobey Sommer from Truist Securities. Yeah, hey, thanks for taking my question. This is Jack Wilson on behalf of Tobey.

I think both both areas more most importantly, though is clients are looking at.

Jack Wilson: So just to follow up on that margin question, do we expect to see sort of any cadence for the margin through the remainder of the year? Do we expect that sort of ramp-up, or is it going to be a little more varied? No, I think I would expect to see some ramp-up.

BPL partners that are strong in both and so you really have to win the day.

Not just as a great PPO in a market like the Philippines, but you have to also be able to check the box and say look we have that ability we have the development and the experience to develop an AI solution.

Taylor: We'll see some notable improvement in Q3. And if you look at our first half of the year, our margins, you know, EBITDA margins came in around 11 percent. And we said for the year that we expected them to be 12 to 13 percent, which implies a margin in the back half of the year for the back half to be between 13 and 15 percent. And I would expect that to ramp up a bit between those two quarters. Okay, thanks for that.

And we are winning in that against I'll tell you the much bigger players and so kind of leveraging our speed our focus.

And just really the strength of us as a tech led company and so we really like our position as the clients are looking for both out of a PPO partner.

So hence we have a.

Pipeline, that's building that we feel pretty good about and getting a lot of traction inside our embedded base too.

Jack Wilson: Then sort of a follow-up on the utilization as well. So once the full shift to more offshore is complete, is that 91% utilization sort of sustainable, or is this sort of a, I don't know, part of that ramp or high? That's a great question, Jack, and how I look at it is, especially with the seasonality that we have, which is typically our Q2, you know, that kind of flexes up That's a good metric for us. And so, you know, but I would say that running in the, you know, in the 90 pluses is not really that sustainable.

Thank you so much that add color I'll turn it over.

Thank you.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

One moment for our next question.

Our next question comes from the line of Ryan Potter from Citi.

Hey, Thanks for taking my question.

Bob Dekker: Our goal is probably in the 85% range, you know, that's a good range, you know, so somewhere between 75 and 85 are the guardrails that we run at. And, you know, what we're excited about this year is that as we have some of the seasonality ramps, you know, that, you know, kind of dissipate, this new logo engine is really picking up a lot of pace, and the ramps that we are currently underway are, you know, filling up. And, you know, so we feel that that will, and the lion's share of that will be sitting in the, let's say, offshore and near shore markets. So we think that that's going to continue to layer, you know, layer in those markets, strengthening utilizations in those, keeping it pretty high, which then we should be generating some pretty good gross margins in those regions in the back. Oh, that makes sense. And then just one last one for me.

Wanted to start on the volume softness that you mentioned that you saw in the quarter and we expect to continue in <unk>.

You talked about the Fintech verso and that impacts you're seeing there, but I guess, what other factors would you attribute this softness in volumes too is it mostly coming from macro factors or is there some impact from technology vectors are you showing up like AI impacts and stuff like that that was also volume softness concentrated in.

Any other verticals call out beyond the Kentucky.

Sure so.

Probably the first place and Ryan Thanks for the question and also thanks for joining in.

The.

The logistics part of our transportation vertical.

The clients that we serve there.

Package deliveries down.

Pretty sizable and you can re occur.

Across really all of the logistics players front page Wall Street Journal articles etcetera. So that's an example, where.

You would say a sub segment might be might be impacted but flipping it over to let's say.

Bob Dekker: So when you're talking with clients about AI, is that something you're pitching to them and sort of using it as a differentiator? Or is that something they're asking you about and sort of asking for? Oh, great. Boy, that's a fantastic question.

World of retail and E Commerce, and we service several of the largest players in.

In those areas.

You have some strength that's going in there and we're excited about that.

The downturn, though in those select clients for us.

Bob Dekker: And I would say that you have, you know, Engagements that cover both, as you described. Some clients are looking at us and saying, hey, what are you seeing out there in the marketplace? What have you solved?

As you know.

Is a little bit more than historical.

And so when.

When I look at those I would say I would attribute that mostly to their volumes are down it's not really driven by.

Bob Dekker: Et cetera. And in that scenario, we'll come in and say, look, we've built this solution. We've built a smart IVR solution or a voice bot-type solution. These things have impacted call volumes, driven C-setup, things like that.

Kind of AI technology is just taking a swath of.

Volume out of the equation.

Now.

What we are seeing though is.

In the world of.

Clients looking at AI.

Bob Dekker: We're proactively selling what we've already built and serviced, and those give us a lot of credibility in this space, you know, as BPOs really start moving. Other clients, though, are sitting and saying, hey, you know, we're kind of trying to whiteboard, you know, and engaging us more in a consultative approach where we're trying to figure out what the right strategy is for them and maybe not have kind of a canned solution pack. So they're spanning, I think, both areas.

They are.

They are identifying.

Areas of their business and.

And engaging us to help solve where.

I can take volume out and you hear us.

What I would say kind of the way we think about it is.

In their world of digital transformation trying to take a classic voice call.

And tried to drive that to digital.

Self serve.

AI assisted or AI entirely solved.

And so so.

Bob Dekker: Most importantly, though, is that clients are looking for BPO partners that are strong in both. And so you really have to win the day, you know, not just as a great BPO in a market like the Philippines, but you have to also be able to check the box and say, look, we have that ability. We have the development and the experience to develop an AI solution, and we're winning in that against, I'll tell you, much bigger players. And so, you know, kind of leveraging our speed, our focus, and just really, you know, the strength of us as a tech-led company. And so I really like our position as the clients are looking for both out of a BPO partner. And hence, you know, we have a pipeline that's building that we feel pretty good about and is getting a lot of traction inside our embedded base. Thank you so much for that ad color there. I'll turn it over.

<unk>.

Are out there we are engaging with some clients to solve that that will take some volume out of the equation, but more importantly from an IBEX standpoint.

Is.

I think that plays into our strength.

80% of our business today is non voice as we've talked about it's very heavy digital first.

It is plays into the strength of our wave.

<unk> solutions and so.

I think in spite of that.

We think our strategy and our wins will help offset some of that downturn now our strategy and we've seen these.

Doug you mentioned kind of occurring for several quarters.

I think it hit us last of all the <unk> Pos because most of my peers have been under a lot of pressure for a while for US. It's been the last two quarters now we've been investing into our sales engine to try to outrun that so I think we're building a business and this is what I'm probably most excited about I think that we are building a business.

In spite of these elements.

We have the ability with how we're winning how were.

Operator: Thank you. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

The pipeline is really heating up and we're taking on and our win rates are through the roof.

I feel like we can outrun that.

And as we look at our business I think the inflection point for US is in Q4.

Operator: One moment for our next question. Our next question comes from the line of Ryan Potter from Citi. Hey, thanks for taking my question.

Got it that makes sense.

Tagging on that that last part of that was good to see the sales momentum continued in the quarter from <unk> in the early part of <unk>.

Ryan Potter: Why don't we start on the volume softness that you mentioned you saw in the quarter and you expect to continue in 3Q. I know you talked about the FinTech vertical and the impact you're seeing there, but I guess what other factors would you attribute this softness and volumes to? Is it mostly coming from macro-related factors, or is there some impact from technology factors already showing up like AI impacts and stuff like that? And also volume softness concentrated in any of our verticals to call out beyond us. Sure.

Is there any additional color you can give on those new deals in the quarter and how quickly you think they can ramp to.

They have the potential to fill.

Top clients for you and I guess how much.

Would you attribute to.

AI or having the capacity offshore to help win new deals.

Sure so.

Both of our largest wins.

What we're really really excited about that.

Against the biggest of the biggest what let me give you two dynamics one was in our near shore region into.

Bob Dekker: So probably the first place, and Ryan, thanks for the question and also thanks for joining us and all, the logistics part of our transportation vertical, you know, the clients that we serve there, package deliveries down pretty sizably. And, you know, you can read, you know, across really all the logistics players, you know, front page, Wall Street Journal articles, etc. So that's an example where, you know, you would say a sub segment might be impacted, but flipping it over to, let's say, in our world of retail and e-commerce, and we service several of the largest players in, you know, in those areas, you have some strength that's going in there, and we're excited about that.

In Jamaica, which we're thinking confident that we're already expanding into Nicaragua with them. The other is in the Philippines in the provincial play in our Philippines. So.

Winning across both theaters now my team has done when reviews with both clients.

And the wind review.

<unk> had a very common theme.

You guys were completely leaned in.

With me the CEO to my <unk> team.

And then to my entire.

Kind of support function teams that include our.

Our training heads our workforce heads.

And our heads of recruiting and development.

That's how we won that's how we run our business. So that's how we win is fully leaned in.

I candidly believe that.

The reason we're <unk>.

Bob Dekker: The downturn, though, in those select clients for us, is, you know, a little bit more than historical. And so when I look at those, I would say I would attribute it mostly to their volumes being down. It's not really driven by, you know, kind of AI technologies, just taking a swath of, you know, volume out of the equation.

<unk> with that.

And many of our bigger players are maybe not quite focused on that part of their business is there.

Deep into integration and synergies.

Secondly.

Aside from that as they really look at the market.

Bob Dekker: What we are seeing, though, in the world of clients looking at AI, they're, you know, they are, they are identifying areas of their business and engaging us to help solve where AI can take volume. And here's what I would say, you know, kind of the way we think about it in their world of digital transformation, trying to take a classic voice call and try to drive that to digital self-serve, you know, kind of AI assisted or AI, you know, entirely solved, and, you know, so, so. Rose, you are out there. We're engaging with some clients to solve that. That will take some volume out of the equation.

And then who's the best in the market and so that's why I highlight what im so encouraged about is winning in the near shore and winning in the Philippines against these because it's a testimony to not just IBEX, but IBEX in the markets that we operate we have a <unk>.

Just a brief solution there and thats showing and then the last leg of that so those are part of winning the day as the PPO and then the last leg is when we engage and talk about AI solutions.

Not talking slide where we're talking real.

Real solutions that we've been delivering that they look and say wow.

Those are credible solutions those are the types of things. We want we are hearing from your competitors slide where and.

Bob Dekker: But more importantly, from an Ibex standpoint, is that I think that plays into our strength. 80% of our business today is non-voice, as we've talked about. It's very heavy on digital first.

Put those all together it puts us in a great position.

Got it if I could sneak one last one in you mentioned wave IX and I think you guys announced a.

A week or two ago.

It might be early but.

And the initial client feedback to the new offerings and capabilities and how is this differentiated versus what's already out there in the marketplace.

Bob Dekker: It is, you know, plays into the strength of our Wave IX solution. And so, you know, I think in spite of that, we think our strategy and our wins will help offset some of that downturn. Now, our strategy, and we've seen these dimensions, you know, kind of occurring for several quarters. I think it hit us last of all the BPOs because most of my peers have been under a lot of pressure for a while. For us, it's been the last two quarters.

Sure. So we are we've IX is really a packaging of really the solutions that we've been out selling and engaging for the last kind of.

Nine months, but we've been we've kind of shared this as we are developing AI around the three axis <unk> say around agents access be around deep analytics and actually see around the customer interaction.

<unk>.

We've been out selling that now with this we've kind of put that altogether under an architecture.

And.

Just kind of have that.

Bob Dekker: Now we've been investing in our sales to try to outrun this. And I think we are building a business, and this is what I'm probably most excited about. I think that we're building a business in spite of these elements, that we have the ability with how we're winning, how we're, you know, that pipeline is really heating up, and we're taking on, and our win rates are through the roof. I feel like we can outrun that, and as we look at our business, I think the inflection point for us is in Q4. That all makes sense. And tagging on that last part of it, it was good to see the sales momentum continuing in the quarter from what you did in 1Q and the early part of 2Q. Is there any additional color you can give on those new deals in the quarter and how quickly you think they can ramp?

And then the various solutions underneath that now where we've come a long way is developing.

What I would say is the solutions and then the partner network the AI kind of.

Third party partner network that we have under there that we're bringing those solutions almost as an integrator.

And.

Those are the clients are really liking the way that we're thinking about.

What those engagements and what those partners are and they see them kind of as meaningful.

Okay.

Great. Thanks, Dan.

Thank you.

Thank you I would now like to turn the conference back over to Bob Dickey, Kent CEO for closing remarks.

Great. Thank you operator.

Look I think.

Appreciate everybody joining here really proud of what my team continues to do this business is positioned really strongly four four for the.

Ryan Potter: Do they have the potential to become top clients for you? And, I guess, how much of this would you attribute to AI or having the capacity offshore to help when it's needed? Schur.

The second half and beyond and I think this industry is at an inflection point as I said and I think we're in a great position to be a winner and a leader in the kind of in this.

Bob Dekker: So, both of our largest wins, you know, and we're really, really excited about that we went, you know, against the biggest of the biggest. Let me give you two dynamics. One was in our near shore region, in Jamaica, which we're thinking confident that we're already expanding into Nicaragua with them. The other is in the Philippines, in the provincial play in our Philippines.

Where the industry is moving to so thanks, all for your confidence and trust into IMAX have a good day.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Bob Dekker: So, A, we're winning across both theaters. Now, my team has done win reviews with both clients, and the wind review had a very common theme. You guys were completely leaning in, from me, the CEO, to my ELT team, and then to my entire, you know, kind of support function teams that include our training heads, our workforce heads, and our heads of recruiting and development. That's how we run our business. That's how we fully leaned in.

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Bob Dekker: I candidly believe that the reason we're, you know, starts with that, and many of our bigger players are maybe not quite focused on that part of their business as they are, you know, deep into integrations and synergies. Secondly, aside from that, they really look at the market and then decide who's the best in the market. And so that's why I highlight what I'm so encouraged about winning in Nearshore and winning in, you know, the Philippines against these, because it's a testimony to, you know, not just Ibex, but Ibex in the markets that we operate. We have a, you know, a best of breed solution there, and that's showing. And then the last leg of that, so those are part of winning the day as And then the last leg is when we engage and talk about AI solutions. We're not talking slideware.

Okay.

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Bob Dekker: We're talking real, you know, real solutions that we've been delivering, that they look at and say, wow, you know, those are credible solutions. Those are the types of things we want. We're hearing from your competitors slightly, and putting those all together puts us in a great position. Got it.

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Okay.

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Ryan Potter: And if I could sneak one last one in, you mentioned Wave IX, and I think you guys announced that a week or two ago. So it might be early, but any initial client feedback on the new offering capabilities and how is this differentiated versus what's already out there in the market? Sure, so we've, you know, our Wave IX is really a packaging of, really the solutions that we've been out selling and engaging for the last, you know, kind of nine months. But we've been, you know, we kind of shared this as we are developing AI around, you know, the three axes, axis A around agents, axis B around deep analytics, and axis C around customer interaction. And, you know, we've been out selling that. Now, you know, with this, we've kind of put that all together under an architecture. And, and, you know, just kind of have that, you know, and then the various solutions underneath that.

Yeah.

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Operator: Thank you. Thank you. I would now like to turn the conference back over to Bob Dickens, CEO, for closing remarks. Great.

Okay.

Bob Dekker: Thank you, operator. Look, I think, you know, I appreciate everybody joining us here. I'm really proud of what my team continues to do.

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Bob Dekker: This business is positioned really strongly for the second half and beyond. And I think this industry is at an inflection point, as I said. And I think we're in a great position to be a winner and a leader in the, you know, kind of where the industry is moving to. So thanks all for your confidence and trust in Ibex. Have a good day.

Okay.

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Okay.

Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Welcome to the Ibex second quarter full year 2024 earnings conference call. At this time all participants are in a listen-only mode.

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Michael Darwall: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. To note, there is an accompanying earnings deck presentation available on the IBEX Investor Relations website at investor.ibex.co. I will now turn this conference over to Mr. Michael Darwall, Investor Relations, IBEX. Good afternoon, and thank you for joining us.

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Bob Dekker: As a reminder, as of July 1st, 2023, we became a domestic filer and, as such, are now reporting on a U.S. GAAP basis rather than from the previous IFRS standard. With that, I will now turn the call over to Ibex CEO, Bob Dekker. Thank you, Mike. Good afternoon, everyone.

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Bob Dekker: And thank you all for joining us today as we share our second quarter fiscal 2024 results. Over the course of the last 12 months, we have made strategic investments in our building blocks for our next phase of growth, efforts which are now coming to fruition in terms of the size, speed, and quality of our new Logo Pipeline and WIMP.

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Bob Dekker: I'm very excited to report we had eight new client wins in the quarter, totaling 12 for the first half of FY24, as compared to seven for the first half of FY23. This tracks similarly to the velocity of our new client wins we had in FY22, our banner year for new logos. These wins include several high-profile deals with Fortune 50 and Fortune 500 clients.

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Bob Dekker: Opportunities We won head-to-head against our multi-billion dollar competitors; beyond this, we have continued to have success with exciting new economy brands. These winds span our strategic verticals of health tech, retail, and e-commerce, and A.I. Technology. Stepping back, and looking at these deals and our key pipeline opportunities. I am seeing that AI capabilities are playing a key role in client decision-making as they look for BPO partners who can not only deliver great contact center service but also rapidly deploy disruptive AI-based solutions. Our recent accomplishments highlight our ability to succeed on both fronts and positions us well as we move forward.

Thanks.

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Thank you.

Okay.

Bob Dekker: This momentum is continuing into our second half, with wins and great opportunities with premier brands in Q3. Although our new logo engine continues to build strength for future growth, the combination of softer volumes with several embedded base clots and the transition of significant client volume from our onshore to offshore region led to lower top-line revenue in the quarter. Revenues came in at $132.6 million, down 4.8% from the prior year.

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Yeah.

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Bob Dekker: The impact of this, coupled with planned investments in three key areas, including our sales organizations, which are AI-initiated, and our integrated HCM ERP system, resulted in a decline in adjusted EBITDA to $14.3 million from $19.4 million in Q2 FY23. Additionally, we had a $2.3 million adverse impact associated with the recognition of deferred training revenue to both top and bottom line results when compared to the prior year quarter. As previously noted, when we are going through significant ramps for new wins, we defer training revenues associated with those ramps over the term of the program while recognizing the full training costs in the current period, while new client wins and ramps have a long-term positive impact for the business, while initial launches have a short-term negative impact.

There is an accompanying earnings presentation available on the IMAX Investor Relations website at Investor Dot IBEX Darko I will now turn this conference over to Mr. Michael Dar wall Investor Relations of IBEX.

Shipments reflect our opinion as of the date of this call and we undertake no obligation to revise this information as a result of new developments, which may occur.

Forward looking statements are subject to various risks uncertainties and other factors that could cause our actual results to differ materially from those expected and described today.

For a more detailed description of our risk factors. Please review our annual report on Form 10-K filed with the U S Securities and Exchange Commission on September 13.

Efforts, which are now coming to fruition in terms of size speed and quality of our new logo pipeline and wins.

I am very excited to report, we had eight new client wins in the quarter.

Totaling 12 for the first half of FY 'twenty four as.

As compared to seven four first half of FY2023.

This tracks similarly to the velocity of our new client wins, we had in FY 'twenty to our banner year for new logos.

These wins include several high profile deals with Fortune 50, and.

Fortune 500 clients opera.

Opportunities, we won head to head against our multibillion dollar competitors.

Bob Dekker: In his newly appointed role, Garrow will spearhead the strategy and execution of Ibex's digital transformation offering, aimed at reshaping customer and brand interactions through the seamless integration of cutting-edge contact center solutions and AI-enabled technology. This is one of the several strategic investments we continue to make in support of our three-axis strategy for deploying AI for our clients to improve performance. Costs and the customer experience. Last quarter, I discussed a disruptive solution we are deploying for smart IDR, conversational chat and voice, for an important new client win. With Eric leading the charge, we have developed a robust pipeline across all three axes, and we continue to win new opportunities and deployments. For example, we are implementing a solution for deep AI-driven analytics for a top health care company. Leveraging, Anna Ayotte.

Beyond this we have continued to have success with exciting new economy brands.

These wins spanned our strategic verticals of health Tech.

In retail and e-commerce.

AI technology.

Stepping back and looking at these deals and our key pipeline opportunities.

I am seeing that AI capabilities are playing a key role in client decision, making.

Look for BPL partners, who can not only deliver great contact center services.

But also rapidly deploy disruptive AI based solutions.

Our recent accomplishments highlight our ability to succeed on both fronts and positions us well as we move forward.

This momentum has continued into our second half with wins in great opportunities with Premier brands in Q3.

Although our new logo engine continues to build strength for future growth the.

Bob Dekker: The goal is to redefine the patient experience by leveraging AI-powered quality and sentiment analysis of every interaction to rapidly identify drivers of dissatisfaction. AI technology also creates opportunities for us on the client front. We are very excited about a new client win with an AI wearables technology pioneer who's developed the first wearable device and Software Platform to build and harness the full power of AI. We are working shoulder to shoulder with our client to bring this product and service successfully to market and to define an amazing customer experience. It is these exciting wins that showcase our differentiation and our first mover position in AI. From a capital allocation standpoint, we continue to execute on our share buyback program, which we announced last September, driven by the current valuation and our confidence in the trajectory of IBEX. Since we announced the program, we have acquired more than 700,000 shares.

The combination of softer volumes with several embedded base clients and the transition of significant client volume from our onshore to offshore regions led to lower top line revenue in the quarter.

Revenues came in at $132 6 million down four 8% from prior year.

The impact of this.

Coupled with planned investments in three key areas, including our sales organization.

Our AI initiatives.

And our integrated HCM ERP systems resulted in a decline in adjusted EBITDA to $14 3 million from $19 4 million in Q2, FY2023.

Additionally, we had a $2 $3 million adverse impact associated with the recognition of deferred training revenue to both top and bottom line results when comparing to prior year quarter.

As previously noted when.

When we are going through significant ramps for new wins, we deferred training revenues associated with those ramps over the term of the program.

While we are recognizing the full training costs in the current period.

While new client wins and ramps have a long term positive impact for the business. The initial launches have a short term negative impact.

<unk> continues to optimize its footprint and capacity utilization through a combination of shifting volume mix toward our offshore geographies as well as right sizing, our onshore and nearshore footprints.

We exited December at 91% utilization of our seat capacity globally, including work at home up from 77% as of June 2023.

Our onshore delivery now represents less than 23% of revenue.

27% same quarter a year ago.

Taylor: Thank you, Bob, and good afternoon, everyone. Thank you for joining us on the call. My discussions of our second quarter fiscal 2024 financial results References to revenue, net income, and net cash generated from operations are on a U.S. GAAP basis, while adjusted net income, adjusted earnings per share, adjusted EBITDA, and free cash flow are on a non-GAAP basis. Reconciliations of our U.S. GAAP to non-GAAP measures are included in the tables attached to our earnings press release.

And our offshore markets now make up nearly 50%.

Versus less than 43% a year ago.

It is these shifts that give us confidence in our expectations for appreciable margin improvement starting in Q3 FY 'twenty four.

Okay.

I would like to spend a few minutes talking about our plan to accelerate our leadership position in deploying AI based solutions.

Recently, we announced the hiring of industry veteran Eric Garo as our senior Vice President of digital transformation.

Taylor: Our second quarter results were impacted by softer than anticipated contact volume in some of our embedded base business, as well as the year-over-year impact of the shifting mix from onshore to offshore delivery. These impacts, combined with a changing business environment for several of our FinTech and telecommunications clients, resulted in revenue of $132.6 million, a 4.8% decline compared to $139.3 million in the prior year quarter. Looking at revenue in total, revenue declines in the fintech and telecommunication verticals were partially offset by growth in our strategic health tech and retail and e-commerce verticals. The revenue mix continues to trend toward digital and omni-channel services and offshore geography. Digital and omni-channel delivery now represents 79% of our total revenue versus 73% in the second quarter a year ago, while our offshore and nearshore revenues now comprise 77% of total revenue versus 73% in the prior year quarter.

In his newly appointed role Garo will spearhead the strategy and execution of IBEX is digital transformation offering.

Aimed at reshaping customer and brand interactions through the seamless integration of cutting edge contact center solutions and AI enabled technologies.

This is one of the several strategic investments we continue to make in support of our three axis strategy for deploying AI for our clients to improve performance.

And the customer experience.

Last quarter I discussed the disruptive solution, we are deploying for smart <unk> comp.

Conversational chat.

And voice spots for an important new client win.

With Eric leading the charge, we have developed a robust pipeline across all three axes.

And we continue to win new opportunities and deployments.

As an example, we are implementing a solution for deep AI driven analytics for healthcare company leveraging.

Anna AI.

The goal is to redefine the patient experience by leveraging AI powered quality and sentiment analysis of every interaction to rapidly identify drivers of dissatisfaction.

Taylor: We expect that these mixed-shift trends will have a positive impact on margins over time. Another significant factor in year-over-year revenue was the adverse impact of the recognition of training revenue associated with new client program rent. In accordance with US GAAP, revenue associated with training, although billed at the beginning of a new program, is deferred and recognized over the expected life of the program. The per train revenue had a $2.3 million adverse impact on revenue when comparing our second quarter with the prior year.

AI technology also creates opportunities for us on the client front.

We are very excited about a new client win with an AI Wearables technology pioneer.

Who has developed the first wearable device and software platform to build and harness the full power of AI.

We are working shoulder to shoulder with our client to bring this product and service successfully to market.

And to define an amazing customer experience.

It is these exciting wins that showcase our differentiation and our first mover position in AI.

Taylor: Deferred revenue that was recognized in the second quarter was $1.7 million lower than in the prior year quarter, while training revenue billed and deferred in the second quarter was $600,000 higher than the prior year quarter. This not only impacted revenue but also negatively impacted gross margin comparisons versus the prior year. Gross margin was 27.7% versus 28.4% in the prior year. Normalizing for this deferred trading revenue impact, gross margin was up roughly 100 basis points from the prior year, reflecting improvement from our increasing offshore revenue. Net income was $6.1 million compared to $9.3 million in the prior year quarter.

Since we announced the program we have acquired more than 700000 shares back.

This continues to be an attractive and efficient use of our capital.

We continue to evaluate new markets for expansion, whether organically or through acquisition.

We have an enviable net cash position.

A 48 million.

Giving IBEX the flexibility to constructively use and make targeted investments for growth.

In closing the BPM industry is at an inflection point, where the winners will transform their businesses into higher value solutions powered by AI.

We believe we can be a long term winner leveraging our speed.

Flexibility and Tech led DNA.

Our early results are encouraging.

My team and I remain ever focused on continued strengthening of the business and delivering value for our employees clients and shareholders.

I will now turn the call over to Taylor to go through our financials.

Taylor.

Thank you Bob and good afternoon, everyone. Thank you for joining the call today.

My discussion of our second quarter fiscal 2024 financial results references to <unk> revenue net income and net cash generated from operations are on a U S GAAP basis.

Taylor: Adjusted EBITDA was $14.3 million, or 10.8% of revenue, compared to $19.4 million, or 13.9% of revenue for the same period last year. The change in adjusted EBITDA margin was primarily driven by the accounting for deferred train revenue as well as investments in our technology, including HCM and ERP infrastructure, and our sales and marketing organizations in support of our strategic vertical growth strategy. For the second quarter of fiscal year 2024, our top 5, top 10, and top 25 client concentrations remain largely flat at 41%, 59%, and 82%, respectively of overall revenue, representative of a well-diversified client portfolio. Switching to our verticals, retail and e-commerce increased to 29.0% of second quarter revenue versus 26.9% in the prior year quarter. Health Tech increased to 12.2 percent of second quarter revenue versus 8.7 percent in the prior year quarter, and Travel, Transportation, and Logistics increased to 12.5 percent of second quarter revenue versus 11.4 percent in the prior year.

Looking at revenue and total revenue declines in the fin Tech and telecommunications verticals were partially offset by growth in our strategic health Tech and retail and E Commerce verticals.

Revenue mix continued to trend toward digital and Omnichannel services and offshore geographies.

Digital and Omnichannel delivery now represents 79% of our total revenue versus 73% in the second quarter a year ago.

Our offshore or nearshore revenues now comprise 77% of total revenue versus 73% in the prior year quarter.

We expect that these mix shift trends will have a positive impact on margins over time.

Another significant factor in year over year revenue was the adverse impact of the recognition of trading revenue associated with new client program ramps and.

In accordance with U S GAAP revenue associated with training, although billed at the beginning of a new program is deferred and recognized over the expected life of the program.

The third train revenue had a $2 3 million adverse impact to revenue when comparing our second quarter with the prior year.

Our increasing offshore revenue mix.

Net income was $6 1 million compared to $9 3 million in the prior year quarter. The decrease was primarily result of the impact of deferred training revenue previously discussed as well as our strategic investments in our technology, including HCM and ERP infrastructure and our sales and marketing organizations. These investments are important pieces of our strat.

Taylor: For the first half of our fiscal year, operating cash flow was a positive $7 million versus $10.9 million. Our DSOs were 73 days, up from 67 days at the end of the first quarter, and in line with the industry average. Several larger client payments were received the first week of January and negatively impacted DSOs at the end of the second quarter. Capital expenditures were $2.9 million for 2.2% of revenue in the second quarter of fiscal year 2024, versus $7.9 million for 5.7% of revenue in the prior year quarter, as we continue to utilize our available capacity from buildouts completed in previous years. Free cash flow decreased to a negative $4.5 million in the current quarter compared to a negative $2.7 million in the prior year quarter due to lower income from operations and higher DSOs.

To drive and support growth in our business.

Our tax rate for the quarter was 17% compared to 18% last year, we expect the tax rate to remain in the high teens for the fiscal year.

Fully diluted EPS was <unk> 33, compared to <unk> 49 in the prior year quarter.

On a non-GAAP basis, adjusted net income was <unk> 8 million compared to $12 2 million in the prior year quarter.

non-GAAP fully diluted adjusted earnings per share were <unk> 44, compared to <unk> 65 in the prior year quarter.

Adjusted EBITDA was $14 3 million or 10, 8% of revenue compared to $19 4 million or 13, 9% of revenue for the same period last year.

The change in adjusted EBITDA margin was primarily driven by the accounting for deferred train revenue as well as investments in our technology, including HCM and ERP infrastructure, and our sales and marketing organization in support of our strategic vertical growth strategy.

Switching to our verticals retail and e-commerce increased to 29, 8% of second quarter revenue versus 26, 9% in the prior year quarter.

Taylor: We continued with our share repurchase program announced on September 18, 2023, authorizing us to repurchase up to $30 million worth of shares. During the second quarter, we repurchased 489,000 shares for $8.4 million. For fiscal year to date, through January 31st, 2024, we've repurchased 740,000 shares for a total cost of $12.5 million. Looking forward to the remainder of 2024, we expect softness in some of our client volumes to continue for the near term and therefore expect third quarter revenues to trend similarly to the first two quarters on a year-over-year basis. As our new client ramps up to reach scale in the fourth quarter, we anticipate an inflection towards growth. We remain confident that our strategy of driving growth in our higher-margin offshore regions, accelerated by our new client wins, and realizing cost savings through optimizing our site footprint will drive improvement and adjust EBITDA margins for the second half of our fiscal year and in the years ahead. As a result of these factors, we are updating our full-year guide.

Investment platform clients.

Net cash generated from operating activities was a negative $1 6 million for the quarter compared to a positive $5 3 million in the prior year quarter.

For the first half of our fiscal year operating cash flow was a positive 7 million versus $10 9 million.

Our Dsos were 73 days up from 67 days at the end of the first quarter and in line with industry average.

Several larger client payments, we received the first week of January and negatively impact the dsos at the end of the second quarter.

Free cash flow decreased to a negative $4 5 million in the current quarter compared to a negative $2 7 million in the prior year quarter due to lower income from operations and higher Dsos.

For the first half of our fiscal year free cash flow was a positive $2 1 million versus a negative 700000 in the prior year.

We ended the second quarter with $49 million in cash down from $57 4 million as of June 2023, driven by share repurchases during the quarter.

Net cash was 48.0 million down from $56 4 million as of June 2023.

Taylor: On a full year basis, we expect revenues to be between $505 and $510 million and an adjusted EBITDA margin in the range of 12 to 13 percent. We feel strongly about our overall business fundamentals and the differentiated value proposition we bring our clients. We remain excited about our business and believe our recent client wins, strength of our pipeline, and strategic investments will position us well as we move forward. With that, Bob and I will now take questions. Operator, please open the line.

We continued with our share repurchase program announced on September 18th 2023, authorizing us to repurchase up to $30 million worth of shares.

During the second quarter, we repurchased 489000 shares for $8 4 million for.

For fiscal year to date through January 31, 2024, we have repurchased 740000 shares for a total cost of $12 5 million.

Okay.

As our new client ramps reached scale in the fourth quarter, we anticipate inflection towards growth.

Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of David Koning from Baird. Yeah, hey guys, thanks for all the details. Maybe first of all, the FinTech segment I was just looking at, it looked like it was down about 30% year over year. You talked a little bit about what happened there. That was really the entire decline of the total company, just that piece, really, and the rest seemed to do quite a bit better. Maybe I will just go through a little more of what that was.

As a result of these factors we are updating our full year guidance.

On a full year basis, we expect revenues to be between $505 and $510 million and adjusted EBITDA margin in the range of 12% to 13%.

With that Bob and I will now take questions.

Operator, please open the line.

Thank you as a reminder to ask a question. Please press star one one on your telephone.

David John Koning: Sure, David, and thanks for joining. Thanks for that call and the question. So, you know, on the fintech side, we have had some crypto clients, as well as, you know, kind of a new economy, millennial trading app partner client. And both of those, you know, their businesses have been impacted really, you know, with, you know, kind of the economy, the crypto markets, etc. And so, so those are down.

Wait for your name to be announced to withdraw your question. Please press star one one again, please standby, while we compile the Q&A roster.

Our first question comes from the line of David Koning from Baird.

Yes, Hey, guys. Thanks, Thanks for all the detail.

Maybe first of all.

The Fintech segment I was just looking at it it looked like it was down about 30% year over year, you talked a little bit about what happened there that was really the entire decline of the total company is just just that piece related the rest seem to do quite a bit better maybe just go through a little more of what what that was.

Bob Dekker: On the other side of the equation, I would say that in a lot of the various verticals, there are winners and losers. And so when, you know, when we talked about, you know, where the softness came in, it wasn't really, you know, aside from, you know, that fintech subsegment. You know, there were winners and losers kind of across the various verticals. So, you know, we kind of like that as an overall macro that, you know, it's like, look, one segment isn't, you know, our biggest segments aren't really moving down. And so, you know, we have winners and losers around those, some that are down, some of that are deploying, you know, various, you know, call shedding solutions that, you know, are putting some pressure on, you know Gotcha. Yep. No, that doesn't make sense.

Sure David and thanks for joining us thanks for that.

The question so in the Fintech side.

We have.

Have had some crypto client as well as a kind of a new economy millennial trading.

App partner client and both of those.

Their businesses have been impacted really.

With kind of the economy, the crypto markets et cetera, and so so those are down on the other side of the equation.

I would look and say that a lot of the <unk>.

Various verticals, there's winners and losers and so when we talked about where.

Where the softness came in wasn't really aside from.

That fintech subsegment.

They're winners losers kind of cross across the various verticals so.

We kind of like that as a as an overall macro bet.

Look one segment is.

No.

Our biggest segments aren't really moving down and so we have winners losers around those some that are down some of that are deploying various call.

Cost shedding solutions that are putting some pressure on on various volumes.

Bob Dekker: But the biggest starts with the deferred training impact in the quarter. So, you know, that took $ 2.3 million from the top line but all the way down to the bottom line. So, you know, so that was, you know, if you look at the margins on an EBITDA basis, certainly that had a large impact.

Gotcha.

That makes sense and then.

The utilization was actually quite good.

Maybe one of the best you've ever had but yet margins were.

We're a little weak what's the dynamic there and I know something I know, it's going to get quite a bit better yet, but what's the dynamic there.

Taylor: What's interesting about what Taylor shared is that if you normalize for that, our gross margins actually, you know, they went up 100 basis points. And now that we kind of, you know, have that in our rearview mirror, some of those large ramps, that's why we feel like running where we are from the percentage of business in our offshore, our near shore, and running at high utilizations, we feel really confident about the margin, you know, margin strengthening significantly in the second. I was just going to confirm that the underlying gross margins we feel very good about remain healthy, as Bob said they were up roughly 100 basis points when you adjust for the deferred train revenue, and then as we look forward, we see some new wins in the higher margin regions, which are going to help propel our margins.

Yes, Great question, and let me start out with and Taylor, if you feel like adding feel free to do that but the biggest starts with the.

The deferred training impact in the quarter, so that too.

Topline, but all the way down to the bottom line $2 3 million. So so that was if.

If you look at then the margins on an EBITDA basis, certainly that had a large impact.

What's interesting and what Taylor shared if you normalize for that our gross margins actually.

Bob.

They went up 100 100 basis points.

And now that we're kind of.

Have that in our rearview mirror some of those large ramps. That's why we feel like running where we are from the percentage of business in the in our offshore or nearshore and.

And running at the high Utilizations, we feel really confident about the margin.

Taylor: We have some specific site and region initiatives to drive the contribution margin in a couple spots, and we're already starting to see those bear fruit, and then, as Bob mentioned, we're going to continue to look at our footprint, and we see some opportunities there as well. So we feel good about where our margins are and where they're going. Yeah, that's no, that's great. And if I can just sneak one more, and can you explain one more time?

Margin strengthening significantly.

Significantly in the second half.

Yes that makes sense and then maybe just.

If I owe Taylor's going to jump in yeah. So.

Alright.

No I was just going to just confirm that the underlying gross margins, we feel very good about.

Main healthy as Bob said, they were up roughly 100 basis points. When you adjust for the deferred train revenue and then as we look forward we see.

Some new wins in the higher margin regions, which are going to help propel our margins, we're going to we have some specific site and region.

Initiatives to drive the contribution margin and a couple of spots and we're already starting to see.

Yes.

Great and if I can just sneak one more in can you explain one more time I heard you say, one $1 $7 million lower trading revenue and then a $600000 caused that added up to $2. Three why did the training revenue go down so much year over year when it's when it should just be kind of ratable recognition.

Yes, so so the way the accounting works.

When train revenues bills billed at the beginning of our program, but it's recognized over the life of the program. So.

If you look at last year versus this year the way the amortization of the deferred revenue recognition schedule worked out we recognized about $1.7 million of that.

That revenue that has no cash associated with the cash is all received upfront and then this year because were.

Once a new logos recently are actively ramping some new programs, we deferred an additional $600000 versus.

Versus the prior year.

You have net those two together and you can see the $2 3 million adverse impact to our financials and I can also point you. If you look at our Q in footnote.

Two at the end of footnote too there is a detailed schedule of our deferred revenue that helps.

Provides some insight into that as well.

Awesome. Thanks, so much for all that.

Thank you.

One moment for our next question.

Our next question comes from the line of Tobey Sommer from <unk> Securities.

Yeah, Hey, Thanks for taking my question. This is Jack Wilson on for Tobey.

No I think I would expect to see some ramp up we'll see some notable improvement.

In Q3, and if you look at our first half of the year our margins.

Expect that to ramp up a bit between those two quarters.

Okay. Thanks for that and then sort of a follow up on the utilization as well. So once the full shifts to more offshore is complete is that 91% utilization sort of sustainable or is this sort of a.

Jack Wilson: Then, sort of, a follow-up on the utilization of the product as well. So once the full shift to more offshore is complete, is that 91% utilization sort of sustainable, or is this sort of a, I don't know, part of that ramp or a high? That's a great question, Jack, and how I look at it is, especially with the seasonality that we have, which is typically our Q2, you know, that kind of flexes up into the 90s. That's a good metric for us. And so, you know, but I would say that running in the, you know, in the 90 pluses is not really that sustainable.

I don't know part of that ramp our high point.

That's a great question Jack.

How I look at it is.

Especially with the seasonality that we have which is typically our Q2.

Kind of flexes up into the 90, so thats a good metric for us.

And so but I would say that running in the in the 90 plus is not really that sustainable our goal is probably in the 85% range that so that's a good range so somewhere between $75 to 85% are the guardrails that we run that we run at.

<unk>.

What we're excited about this year is as we have some of this seasonality ramps.

Kind of dissipate.

This new logo engine is really picking up a lot of pace and the ramps that we are currently underway or.

Are filling up and so we feel that that will in the lion's share of that sitting in the let's say offshore and near shore market. So we think that that's going to continue to layer.

Layer in those markets strengthening utilizations and those keeping it pretty high which then we should be generating some pretty good gross margins in those regions in the back half.

Great Boy, that's a fantastic question and I would say that you have.

No.

Engagements that cover both as you described.

Some clients are.

We are looking at us and saying Hey, what are you seeing out there in the marketplace. What have you soft et cetera, and in that scenario will come in and say look we built the solution we built.

A smart IV, our solution or a voice or voice spot type solution. These things have impacted.

Call volumes, driven see set up things like that where we're proactively selling what we've already built and serviced.

Bob Dekker: We're proactively selling what we've already built and serviced, and those, you know, and those give us a lot of credibility in this space, as BPOs really start moving. Other clients, though, are sitting and saying, hey, you know, we're kind of trying to whiteboard, um, you know, and engaging us more in a consultative approach where we're trying to figure out what the right strategy is for them and maybe not have a kind of a canned solution pack. So they're spanning, I think, both areas.

And those.

Give us a lot of credibility in this space as <unk> really start moving other clients that were sitting and saying Hey, we're kind of trying to whiteboard here.

And engaging us more in a consulted.

Consultative approach.

Where we're trying to figure out what the right strategy for them and maybe not have kind of a cam solution packs. So so theyre spanning.

I think both both areas more most importantly, though is clients are looking at.

BPL partners that are strong in both and so you really have to win the day.

And we are winning in that against I will tell you the much bigger players and so kind of leveraging our speed our focus.

And just really the strength of us as a tech led company and so we really like our position as the clients are looking for both out of a PPO partner.

So hence we have a.

Pipeline, that's building that we feel pretty good about and getting a lot of traction inside our embedded base too.

Thank you so much that add color I'll turn it over.

Jack Wilson: I'll turn it over to you. Thank you. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Thank you.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

Operator: One moment for our next question. Our next question comes from the line of Ryan Potter from Citi. Hey, thanks for taking my question.

One moment for our next question.

Our next question comes from the line of Ryan Potter from Citi.

Hey, Thanks for taking my question.

Ryan Potter: Why don't we start on the volume softness that you mentioned you saw in the quarter and you expect to continue in 3Q. I know you talked about the FinTech vertical and the impact you're seeing there, but I guess what other factors would you attribute this softness and volumes to? Is it mostly coming from macro-related factors, or is there some impact from technology factors, or are you showing up like AI impacts and stuff like that? And also volume softness concentrated in. Any other verticals to call out beyond us? Sure.

Wanted to start on the volume softness that you mentioned that you saw in the quarter and we expect to continue in <unk>.

You talked about the fintech personal and that impacts you're seeing there, but I guess, what other factors would you attribute this softness in volumes too is it mostly coming from macro related factors or is there. Some impact from technology factors are you showing up like AI impacts and stuff like that that was also volume softness concentrated in.

Any other verticals call out beyond the Kentucky.

Sure so.

Probably the first place and Ryan Thanks for the question and also thanks for joining in.

The.

The logistics part of our transportation vertical.

The clients that we serve there.

Package deliveries down.

Pretty sizable and you can re occur.

Across really all of the logistics players front page Wall Street Journal articles etcetera. So that's an example, where.

You would say a sub segment might be might be impacted but flipping it over to let's say an hour.

World of retail and E Commerce, and we service several of the largest players in in.

In those areas.

You have some strength that's going in there and we're excited about that.

The downturn, though in those select clients for us.

As you know.

Is a little bit more than historical.

And so though.

When I look at those I would say I would attributed mostly to their volumes are down it's not really driven by.

Kind of AI technology is just taking a swath of.

Volume out of the equation.

Now what.

Bob Dekker: What we are seeing, though, in the world of clients looking at AI, they're, you know, they are, they are identifying areas of their business and engaging us to help solve where AI can take volume. And here's what I would say, you know, kind of the way we think about it in their world of digital transformation, trying to take a classic voice call and try to drive that to digital self-serve, you know, kind of AI assisted or AI, you know, entirely solved, and you know so, those are out there. We're engaging with some clients to solve that. That will take some volume out of the equation.

What we are seeing though is.

In the world of a clients.

Looking at AI.

They are.

They are identifying.

Areas of their business and.

And engaging us to help solve where.

I can take volume out and you hear us.

What I would say kind of the way we think about it is.

In their world of digital transformation trying to take a classic voice call.

And tried to drive that to digital.

Self serve.

AI assisted or AI entirely solved.

And so so.

<unk>.

Are out there we are engaging with some clients to solve that that will take some volume out of the equation, but more importantly from an IMAX standpoint.

Is.

I think that plays into our strength.

80% of our business today is non voice as we've talked about it's very heavy digital first.

Bob Dekker: It is, you know, plays into the strength of our Wave IX solution. And so, you know, I think in spite of that, we think our strategy and our wins will help offset some of that downturn. Now, our strategy, and we've seen these dimensions, you know, kind of occurring for several quarters. I think it hit us last of all the BPO because most of my peers have been under a lot of pressure for a while. For us, it's been the last two quarters.

It is plays into the strength of our wave.

X solutions and so.

I think in spite of that.

We think our strategy and our wins will help offset some of that downturn.

Now our strategy and we've seen these.

So you mentioned kind of occurring for several quarters.

It hit us last of all the <unk>.

Most of my peers have been under a lot of pressure for a while for US. It's been the last two quarters now we've been investing into our sales engine to try to outrun that so I think we're building a business and this is what I'm probably most excited about.

Ryan Potter: Now, we've been investing in our sales and trying to outrun this. And I think we are building a business, and this is what I'm probably most excited about. I think that we're building a business in spite of these elements, that we have the ability with how we're winning, how we're, you know, that pipeline is really heating up, and we're taking on, and our win rates are through the roof. I feel like we can outrun that, and as we look at our business, I think the inflection point for us is in Q4. That all makes sense. And tagging on that last part of it, it was good to see the sales momentum continue in the quarter from way down in 1Q in the early part of 2Q. Is there any additional color you can give on those new deals in the quarter and how quickly you think they can ramp?

Thank that we're building a business in spite of these elements that we have the ability with how we're winning how were.

That pipeline is really heating up and we're taking on and our win rates are through the roof.

I feel like we can outrun that and.

And as we look at our business I think the inflection point for US is in Q4.

Got it all makes sense.

Tagging on that that last part of that was good to see the sales momentum continued in the quarter from <unk> in the early part of <unk>.

Is there any additional color you can give on those new deals in the quarter and how quickly you think they can ramp to.

Bob Dekker: Do they have the potential to become top clients for you? And, I guess, how much of this would you attribute to AI or having the capacity offshore to help when needed?

Do they have the potential to fill.

Top clients for you and I guess how much.

Would you attribute to.

AI or having the capacity offshore to help win new deals.

Bob Dekker: So, both of our largest wins, you know, and we're really, really excited about that we went, you know, against the biggest of the biggest. Let me give you two dynamics. One was in our nearshore region, in Jamaica, which we're thinking confident that we're already expanding into Nicaragua with them. The other is in the Philippines, in the provincial play in our Philippines.

Sure so.

Both of our largest wins.

<unk>.

What we're really really excited about that we went.

Against the biggest of the biggest what let me give you two dynamics one was in our near shore region into.

In Jamaica, which we're thinking confident that we're already expanding into Nicaragua with them. The other is in the Philippines in the provincial play in our Philippines. So.

Bob Dekker: So we're, A, we're winning across both theaters. Now, my team has done win reviews with both clients, and the wind review had a very common theme. You guys were completely leaning in, from me, the CEO, to my ELT team, and then to my entire, you know, kind of support function teams that include our training heads, our workforce heads, and our, you know, heads of recruiting and development. That's how we run our business. That's how we... fully lean in. I candidly believe that the reason we're, you know, starts with that, and many of our bigger players are maybe not quite focused on that part of their business as they're, you know, deep into integrations and synergies. Secondly, aside from that, they really look at the market and then decide who's the best in the market.

Winning across both theaters now my team has done when reviews with both clients.

And in the wind review.

<unk> had a very common theme.

You guys were completely leaned in.

With me the CEO to my <unk> team.

And then to my entire.

Got it.

<unk> functional teams that include our.

Our training heads our workforce heads.

And our heads of recruiting and development.

That's how we won that's how we run our business. So that's how we win is fully leaned in.

I candidly believe that.

The reason we're <unk>.

Starts with that.

And many of our bigger players are maybe not quite focused on that part of their business is there.

Deep into integration and synergies.

Secondly.

Aside from that is they really look at the market.

And then who is the best in the market and so that's why I highlight what im so encouraged about is winning in the near shore and winning in the Philippines against these because it's a testimony to not just IBEX, but IBEX in the markets that we operate we have a.

Bob Dekker: And so that's why I highlight what I'm so encouraged about winning in Nearshore and winning in, you know, the Philippines against these, because it's a testimony to, you know, not just Ibex, but Ibex in the markets that we operate. We have a, you know, a best of breed solution there, and that's showing. And then the last leg of that, so those are part of winning the day as And then the last leg is when we engage and talk about AI solutions. We're not talking slideware.

Best of breed solution, there and Thats showing and then the last leg of that so those are part of winning the day as the PPO and then the last leg is when we engage and talk about AI solutions.

We're not talking slide where we're talking real.

Bob Dekker: We're talking real, you know, real solutions that we've been delivering, that they look at and say, wow, those are credible solutions, those are the types of things we want. We're hearing from your competitors, and put those all together, it puts us in a great position.

Real solutions that we've been delivering that they look and say wow.

Those are credible solutions those are the types of things. We want we are hearing from your competitors slide where.

And put those all together it puts us in a great position.

Got it if I could sneak one last one in you mentioned wave IX and I think you guys announced.

Ryan Potter: If I could sneak one last one in, you mentioned Wave IX, and I think you guys announced that a week or two ago, so it might be early, but any initial client feedback on the new offering capabilities and how is this differentiated versus what's already out there in the market? Sure, so we've, you know, our Wave IX is really a packaging of, really the solutions that we've been out selling and engaging for the last, you know, kind of nine months. But we've been, you know, we kind of shared this as we are developing AI around, you know, the three axes, axis A around agents, axis B around deep analytics, and axis C around customer interaction. And, you know, we've been out selling that now, you know, with this, we've kind of put that all together under an architecture. And, and, you know, just kind of have that, you know, and then the various solutions underneath that.

A week or two ago, so it might be early but.

And the initial client feedback to the new offerings and capabilities and how is this differentiated versus what's already out there in the marketplace.

Sure. So we've our wave IX is really a packaging of really the solutions that we've been out selling and engaging for the last kind of.

Nine months, but we've been we've kind of shared this as we are developing AI around the three axis <unk> say around agents access be around deep analytics and access C around the customer interaction.

<unk>.

We've been out selling that now with this we've kind of put that altogether under an architecture.

And.

Just kind of have that.

And then the various solutions underneath that now where we've come a long way is developing.

Bob Dekker: Now, where we've come a long way is developing the, what I would say is the solutions, and then the partner network, the AI, you know, kind of third party partner network that we have under there that we're bringing, you know, those solutions almost as an integrator. And, you know, those clients are really liking the way that we're thinking about what those engagements and what those partners are, and they see them kind of as meaningful. Great, thanks again. Thank you. Thank you. I would now like to turn the conference back over to Bob Dickens, CEO, for closing remarks. Great Thank you, Operator. Look, I think, you know, I appreciate everybody joining us here. I am really proud of what my team continues to do. This business is positioned really strongly for the second half and beyond. And I think this industry is at an inflection point, as I said, and I think we're in a great position to be a winner and a leader in the, you know, kind of where the industry is moving to.

What I would say is the solutions and then the partner network the AI kind of.

Third party partner network that we have under there that we're bringing those solutions almost as an integrator.

And.

Those are the clients are really liking the way that we're thinking about.

What those engagements and what those partners are and they see them kind of as meaningful.

Okay.

Great. Thanks, Dan.

Thank you.

Thank you I would now like to turn the conference back over to Bob Dickey, Kent CEO for closing remarks.

Great. Thank you operator.

Look I think.

Appreciate everybody joining here really proud of what my team continues to do this business is positioned really strongly four four for the.

The second half and beyond and I think this industry is at an inflection point as I said and I think we're in a great position to be a winner and a leader in the kind of in this where the industry is moving to so thanks, all for your confidence and trust into IMAX have a good day.

Bob Dekker: So thank you all for your confidence and trust in Ibex. Have a good day. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2024 IBEX Ltd Earnings Call

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