Ibex Ltd

NASDAQ:IBEX

Earnings Call Analysis

IBEX Announces Strong Q1 Growth Led by Higher-Margin Services

IBEX reported a remarkable first quarter of FY '25, achieving record revenue of $129.7 million, up 4.1% year-over-year. Growth was fueled by a 23.4% surge in HealthTech and significant wins in various sectors, offsetting a 13% decline in FinTech. The company continues to expand its higher-margin offshore delivery, which now comprises 76% of total revenue. Adjusted EBITDA margin rose to 12%, reflecting improved profitability. IBEX forecasts revenue between $515 million to $525 million and adjusted EBITDA between $67 million to $69 million for FY '25, underscoring strong supply chain resilience and a focus on AI-driven solutions.

Strong Financial Performance in Q1 FY 2025

IBEX Limited reported a record first quarter for fiscal year 2025, with revenues reaching $129.7 million, marking a 4.1% increase compared to $124.6 million in the same quarter last year. The significant growth can be attributed to higher revenues in key verticals such as HealthTech, which saw a remarkable 23.4% increase, retail and e-commerce at 8.6%, and travel, transportation, and logistics at 10%. However, the FinTech sector experienced a decline of 13%, indicating challenges in this area.

Profitability and Margin Expansion

The adjusted EBITDA margin continued its upward trend, improving for the ninth time in ten quarters to reach 12%. This increase reflects the company's strategic focus on high-margin offshore and nearshore delivery, which accounted for 76% of total revenue, an increase from 75% in the previous year. The net income rose slightly to $7.5 million from $7.4 million, driven by efficient operations and client diversification.

Client Diversification Continues to Enhance Stability

IBEX demonstrated effective client diversification in Q1 of FY 2025, with its largest client making up only 11% of total revenue. Moreover, the concentration of revenue from the top five, ten, and twenty clients decreased slightly, suggesting a more stable and broad revenue base. The company's strategies in client relationship management have enabled it to capture a larger share of the market across various sectors.

Strategic Investments in AI and Technology

IBEX has made substantial investments in AI technologies, launching innovative solutions such as AI Automate and AI Translate. These initiatives have not only positioned the company competitively but also led to notable wins in customer relationships, including partnerships with major players in e-commerce and travel. The company’s AI offerings have garnered recognition, with AI Translate being awarded the 2024 Generative AI Product of the Year.

Outlook for FY 2025

Looking ahead, IBEX revised its revenue guidance for fiscal year 2025 to between $515 million and $525 million, which marks an increase from the previous lower end of $510 million. Adjusted EBITDA is expected to fall within the range of $67 million to $69 million. The company's capital expenditures are anticipated to be between $15 million and $20 million as it continues to scale its operations and enhance service offerings.

Challenges and Risks Ahead

Despite the positive results, management acknowledged potential headwinds, including the macroeconomic environment. The ongoing variability in market conditions may present challenges, especially in sectors like FinTech, which have shown volatility. The team remains cautiously optimistic about maintaining growth momentum while being mindful of potential external factors that could impact performance.

Shareholder Value and Capital Management

IBEX continued to return value to its shareholders through its ongoing share repurchase program, repurchasing approximately 282,000 shares at a cost of $4.7 million in Q1. The remaining authorization for buybacks stands at $22.2 million, reflecting a commitment to enhancing shareholder value alongside growing the business.

Earnings Call Transcript 2025-Q1

[Operator]

Thank you for standing by. My name is Hermione, and I will be your conference operator today. At this time, I would like to welcome everyone to IBEX Limited First Quarter 2025 Financial Results Conference Call. [Operator Instructions]

To note, there is an company earnings deck presentation available on the IBEX Investor Relations website at investors.ibex.co.

I will now turn this conference over to Mr. Michael Darwal, Head of Investor Relations for IBEX. Please go ahead.

[Michael Darwal, executive]

Good afternoon, and thank you for joining us today. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinion as of the date of this call, and we undertake no obligation to revise this information as a result of new developments, which may occur.

Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on September 12, 2024.

With that, I will now turn the call over to IBEX CEO, Bob Dechant.

[Robert Dechant, executive]

Thanks, Mike. Good afternoon, everyone, and thank you all for joining us today as we share our first quarter fiscal year 2025 results.

Let me start my remarks by thanking my team for their continued fantastic performance. I believe they are the best in the industry. With our performance in the first quarter, we have now improved adjusted EBITDA margin over the prior year in 9 out of the last 10 quarters. And in an industry that has recently been challenged growing top line, IBEX is one of the first BPOs to return to meaningful organic revenue growth, where we grew at 4.1% in the quarter. On top of that, the first quarter of FY '25 was another record-setting quarter for IBEX, where we achieved first quarter bests across a number of key financial metrics, including revenue, net income, EPS and EBITDA.

Our growth was driven by great performance from our new logo team and new wins within our embedded base clients as we outperform our competition and take market share. I am excited to report that our growth vectors continue to be our margin expansion drivers as we grow our higher margin services and geographies, which represent nearly 80% of our overall business.

As a result, we are confident in our ability to continue to drive top line growth and margin expansion. We have built a culture of winning, one where we continue to demonstrate our unique ability to successfully punch above our weight and beat our much larger competitors. We have also differentiated ourselves from the competition by leveraging an unparalleled agent-first culture paired with our award-winning Wave iX technology stack and our deep analytics capabilities. We are now extending our competitive moat with cutting-edge AI solutions.

Let me highlight some of the key results we delivered in Q1. We delivered record Q1 revenue of $129.7 million, up 4.1% from a year ago. This was driven by market share growth in many of our top clients and scaling many of the 18 new logo clients we won last year. On top of that, we won and launched three new client relationships in the quarter and are having early success in the current quarter. The signature win was with one of the largest e-commerce companies in the world, where we are rapidly scaling global English support for their customers worldwide out of our offshore footprints.

We expanded year-over-year adjusted EBITDA margin for the ninth time in the last 10 quarters, delivering a 12% adjusted EBITDA margin while setting record Q1 net income of $7.5 million. We achieved record adjusted EPS of $0.52, up 30% from $0.40 a year ago. And with our strong free cash flow and balance sheet, we were able to repurchase more than 280,000 shares at a cost of $4.7 million in the quarter. Again, I'm so proud of the results that this team continues to deliver.

We are having great success with our customer-facing Wave iX solutions we call AI Automate, AI Translate and AI Authenticate. Last quarter, I announced our first significant win with AI Automate for a leading mobile carrier. I'm excited to announce that we have won two additional AI opportunities this quarter. The first is the deployment of AI Automate to transform the customer experience for a new client. Our new client is also having us displace one of our largest competitors for their traditional BPO agent-led customer support. We now have a tightly integrated end-to-end solution for them.

Our second AI win is with a leading travel-related client, where we are providing AI translate to do language translation services for a broad range of foreign languages. This solution will transform their customer experience from old world third-party language translation to a new cutting-edge solution. I'm also proud to report that our AI Translate solution has recently earned the 2024 Generative AI Product of the Year Award.

Lastly, I am also proud to report that IBEX was named #2 for America's Best Employers for Tech Workers by Fortune Magazine, beating out companies like Salesforce, Microsoft and many others.

In summary, we are excited with our trajectory as we move forward into FY '25. We believe our business is positioned for consistent growth, continued strong EPS and free cash flow and one where we lead the competition from an AI perspective. As I have previously stated, our ability to win big with high profile brands is the staple of IBEX. We expect this to continue throughout FY '25 and beyond.

With that, I will now turn the call over to Taylor to go into more details on our first quarter FY '25 financials and guidance. Taylor?

[Taylor Greenwald, executive]

Thank you, Bob, and good afternoon, everyone. Thank you for joining the call today. In my discussions of our first quarter fiscal year 2025 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.

Turning to our results. Our first quarter results are among the strongest in our history. We achieved record first quarter revenue, net income, EPS, adjusted net income, adjusted EPS and adjusted EBITDA. First quarter revenue was $129.7 million, an increase of 4.1% from $124.6 million in the prior year quarter. Revenue growth was driven by vertical growth in HealthTech of 23.4%, retail and e-commerce of 8.6% and travel, transportation and logistics of 10% and was partially offset by a decline in the FinTech vertical of 13%.

Our focused efforts to grow our higher-margin nearshore and offshore delivery locations are having a favorable impact on bottom line results. Offshore and nearshore revenues now comprise 76% of total revenue versus 75% in the prior year quarter. Our lower margin onshore region decreased to 24% of total revenue versus 25% in the prior year quarter.

Revenue mix in the higher-margin digital and omnichannel services continued to be strong. Digital and omnichannel delivery represented 76% of our total revenue, consistent with 77% in the prior year quarter. We expect that we will continue to be successful driving growth in these higher margin services. As Bob mentioned, we're seeing our pipeline, particularly in higher margin services, strengthen, leading to an acceleration of new client wins.

First quarter net income increased to $7.5 million compared to $7.4 million in the prior year quarter. The increase was primarily driven by the meaningful growth of work in higher margin offshore regions of 12% year-over-year for the quarter, the site and cost optimization efforts completed over the past year and further leverage from revenue growth, partially offset by higher income tax expense.

Fully diluted EPS was $0.43, up from $0.39 in the prior year quarter. Contributing to the EPS growth was the impact from fewer diluted shares outstanding as a result of our ongoing share repurchase program. Diluted shares for the quarter were $17.5 million versus $18.9 million 1 year ago.

Moving to non-GAAP measures. Adjusted EBITDA increased to $15.6 million or 12% of revenue from $13.7 million or 11% of revenue for the same period last year. The 100 basis point improvement in adjusted EBITDA margin was primarily driven by growth in our higher-margin offshore locations during recent years, growth in key verticals from existing and new clients launched throughout fiscal year 2024 and the first quarter of fiscal year 2025 and stronger operating results due to site optimization efforts.

Adjusted net income increased to $9 million from $7.6 million in the prior year quarter. Non-GAAP fully diluted earnings per share increased to $0.52 from $0.40 in the prior year quarter. The increases were driven by the higher EBITDA and fewer diluted shares outstanding due to our ongoing share repurchase program, offset by higher taxes. We expect our tax rate to track toward 21% to 22% for the year.

As a company, we're pleased with the client diversification we have established over the last several years. For the first quarter of fiscal year 2025, our largest client accounted for 11% of revenue, and our top 5, top 10 and top 25 client concentrations declined slightly compared to the prior year to 36%, 51% and 77%, respectively, of overall revenue, representative of a well-diversified client portfolio, which continues to become more diversified.

Switching to our verticals. HealthTech increased to 14.1% of first quarter revenue versus 11.9% in the prior year quarter. Retail and e-commerce increased to 24.5% versus 23.4% in the prior year quarter and travel, transportation and logistics increased to 14.2% versus 13.5% in the prior year quarter. These increases were driven by continued growth in multiple offshore geographies and our continued ability to win significant new clients in these verticals.

Conversely, our exposure to the FinTech vertical decreased to 12.4% of revenues for the quarter versus 14.8% in the prior year quarter, impacted by the changing landscape for some client payment support models and geographic shifts from onshore to offshore delivery.

Net cash generated from operating activities was relatively constant at $7.8 million for the first quarter of fiscal 2025 compared to $8.7 million for the prior year quarter. The slight decrease in net cash inflows from operating activities was primarily due to longer DSOs for our receivables, offset by higher revenues and stronger operating results. Our DSOs were 75 days, up from 72 days at the end of the year and in line with industry average. DSOs increased slightly this quarter due to late payments from certain clients, which received early in the second quarter. We expect our DSOs to remain stable on a go-forward basis.

Capital expenditures were $3.6 million or 2.8% of revenue for the first quarter of fiscal year 2025 versus $2.1 million or 1.6% of revenue in the prior year quarter. The increase was primarily driven by expansions in our offshore and nearshore regions to support growth in these higher-margin geographies.

Free cash flow was $4.1 million in the current quarter compared to $6.6 million in the prior year quarter. The decrease was driven by increased capital expenditures during the quarter and the aforementioned longer DSOs.

Our end of quarter cash and net cash balances were relatively constant versus the end of our fiscal year June 30, 2024, at $62.3 million and $60.8 million versus $62.7 million and $61.2 million. We repurchased approximately 282,000 shares for $4.7 million in the first quarter, which offset our free cash flow. We have $22.2 million remaining to repurchase under our current share repurchase program.

To summarize our first quarter of fiscal 2025, we further built our top line momentum in the quarter with 4.1% revenue growth. This is a result of our focused effort to win new logos and deliver superior services, allowing us to expand with our embedded client base. Importantly, our profitability continues to improve. This was our 9th of the last 10 quarters where we delivered year-over-year adjusted EBITDA margin expansion, leading to strong cash flow that we are using to further invest in AI capabilities and sales resources.

As we look ahead, we remain confident in our strategy to drive revenue growth throughout 2025 and continue to return value to shareholders. For fiscal year 2025, revenue is expected to be in the range of $515 million to $525 million, raising the lower end of the previous range from $510 million. Adjusted EBITDA is expected to be in the range of $67 million to $69 million. Capital expenditures are expected to be in the range of $15 million to $20 million. Our business is well positioned for today and the years ahead, and we're excited about the future of IBEX as we head into the second quarter of fiscal year 2025 and beyond.

With that, Bob and I will now take questions. Operator, please open the line.

[Operator]

[Operator Instructions] Your first question comes from the line of David Koning with Baird.

[David Koning, analyst]

Great job. And I guess my first question, just the inflection in revenue, you've been kind of flat to down for a few quarters, probably 4 or 5 quarters just with macro. And now all of a sudden, you hit a pretty nice inflection in growth. And I guess twofold question. One is 4% first quarter of the year, your full year is 1% to 3% so is there a reason to think that, hey, you could actually keep this momentum up around mid-single digits? And then I guess, secondly, is it more the backdrop is getting a little better? Or is this a lot of just client signings just all hitting and driving a lot of the growth?

[Robert Dechant, executive]

Yes, Dave, thanks for the question. So let me touch first on the growth. If you think about it, we had a strong year in FY '24 of winning new logos that all kept scaling, ramping. And so as we shared, as you get into FY '25, we think that those are going to be all kind of hitting full stride and maybe even continue to grow. So we had good visibility of that. And that was kind of the first part of the equation. The second part of the equation on the growth was market share gains in the base. And we had, especially in our top 5 clients, we won a lot of business. We won new LOBs, new geographies, a lot of launches in markets -- our offshore markets, et cetera, taking market share away from our competitors. And so we had 2 really strong vectors that we feel really good about, and we could see all that coming together in FY '24, especially in the back half of '24. Now, the third variable is really kind of the rest of the base. And we still think of that as a little bit choppy -- a little bit of still some challenges around the macros.

And so when you put those together and we look out, we're hopeful that -- and our goal is to keep driving this and keep signing new logos and keep growth accelerating. Knowing that there's still some choppiness in the business, I think we'll kind of sit and say those could -- those variables and how they play out could be -- there could be some headwinds that we don't necessarily see right now. And so we're trying to be a little bit conservative on guidance, but our goal is to certainly kind of keep that -- keep the momentum going.

[David Koning, analyst]

Yes. That's great. And maybe just my one follow-up. HealthTech looked like the one place where growth kind of disconnected from kind of recent levels in a really nice positive way. Was there 1 or 2 clients added in the quarter? Or was it just existing clients just something happening to kind of inflect their growth?

[Robert Dechant, executive]

A little bit of both. So some nice wins on the new logo side. Really, if you think about starting in the second half of our FY '24, those things start hitting stride. We also had, I think, just we're doing really good with those clients. And so we've won kind of a lot of market share away from our competitors. We call it with those clients. It's like, look, take the IBEX challenge, we're going to outperform and then we're going to keep the numbers moving up and to the right around our delivery for them. And that's what we've been doing, and they reward you with new GOs and new LOBs. And it's a recipe for success, and we have a long -- honestly, we have a long track record of doing that here. And yes, we're -- we just really feel good about the business here.

[Operator]

There are no further questions. I will now turn the call back over to Bob Dechant, CEO, for closing remarks.

[Robert Dechant, executive]

Thanks, Hermione, and I appreciate it. So look, we all are proud of what this team did. Results are great. We have a lot of momentum as we move for the rest of the year. Thank you all for delivering and look forward to our discussions over the next quarters and appreciate your confidence in IBEX. Thanks. Have a good day.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.