Welcome to the IBEX Second Quarter Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I will now turn the conference over to your host, Ms. Brinlea Johnson with the Blueshirt Group.

Good afternoon and thank you for joining us today. Before we begin, I want to remind you that the matters discussed today 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 opinions as of the date of this call and we undertake no obligation to revise this information, as a result of new developments, which may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our final prospectus filed with the US Securities and Exchange Commission on October 14, 2021. With that, I'll turn it over to Bob Dechant, CEO.

Thank you, Brinlea. Good afternoon, everyone, and thank you all for joining us today as we discuss our second quarter fiscal year 2022 results. Karl and I are excited to be presenting to you today. We are now 18 months since our IPO of August 2020. We have made significant progress on our strategic initiatives over this time, despite the challenges from the pandemic. We have built a business that has evolved and is accelerating meaningfully in terms of growth and new client wins. We have improved our client diversification, which was a risk at the time of the IPO and is now an advantage. At the same time, our growth continues to dominate in our high margin regions. Importantly, we continue to transform our business into a digital-first business with many great client brands referred to as BPO 2.0 over the last two years. We believe FY '22 will be a watershed year for IBEX with many key milestones within sight and our forward trajectory is even more exciting. As we shared with you last quarter, we were confident that our business was positioned to accelerate growth into Q2 and beyond, and this is exactly what we delivered in the second quarter with record results. Revenues increased approximately 13% year over year, representing a combined two-year growth of 23% and resulting in our highest revenue quarter ever of $132.2 million. LTM for revenue and EBITDA are $458 million and $61.8 million respectively, resulting in a 7.1% organic growth and 13.5% EBITDA margin. The confidence we have in our business is allowing us to raise revenue guidance. However, the underlying narrative is even more compelling. In my six years at the helm, the growth engine we have built here is the strongest ever. Our revenue generated from new clients won since FY '16, who are hyper-growth companies, primarily adopting our omnichannel capabilities integrated with Wave X Technologies and analytics grew by an impressive 57% during the quarter, up from 37% a year ago and 34% last quarter. This group of customers now makes up 70% of our total company revenues. Our legacy three clients, which at the time of our IPO were 44% of revenue have stabilized as revenues for these clients were approximately flat sequentially. Importantly, these clients now represent less than 20% of revenue, and we expect to continue to reduce that percentage going forward as the rest of our business accelerates. The new logo engine continues to perform at a blistering rate. We closed three new logos for the quarter for a total of 12 year to date across key verticals. For added perspective, in FY '20, we sold $12.5 million of in-year revenue from new clients. Last year, we won 23 new clients, which built $30 million of in-year revenue. This year, we expect to generate $50 million of in-year revenue from our new clients with more important opportunities slated for the back half of the year. As a reminder, our growth model is designed to deploy a land and expand approach with our clients, and this is what we are achieving. We begin our client partnerships by delivering exceptional CX results and then showcase the additional insights and partnership solutions that Wave X and our business intelligence tools can offer. This subsequently allows us to expand into new services with these clients and increase our wallet share with them over time. On average, the revenues in year two of our client relationships are between 2.5X to 3.5X year one revenues with continued strong growth into year three. Therefore, in FY '23, we expect to drive over $100 million in revenue from this new cohort of clients with continued growth into FY '24. While I am very excited about our performance and outlook, I am particularly proud of the robust and rapid diversification of our client base. We've added exceptional high-growth brands, and today our top five clients represent just 41% of our business versus approximately 58% at the time of our IPO. We now have nearly 50 clients with more than $1 million in annual revenue. Our largest client now represents just 12% of revenue. This level of diversification is now a true competitive advantage for IBEX and is exceptional for a BPO provider of any size. This incredible diversification stems into the strategic industry verticals we're winning within the market. Our FinTech and HealthTech verticals are now approximately 20% of our business combined. We started our initiative of targeting these markets in FY '20 and we now project these to be more than $100 million in organic revenue this fiscal year. This will represent an increase of greater than 65% for the year, and furthering the success of the quarter, we continue to have 100% client retention, a testimony to our value proposition and our ability to deliver for our clients. The structural design of our business that includes powerful growth and accelerated demand with our digital-first clients, high win rates of our sales pipeline, well-diversified client mix, limited telco exposure, and industry-leading client retention gives us great visibility and confidence in our business. As such, we expect growth to continue to accelerate in the second half of the year beyond our Q2 growth rate of 13%. Our geographical makeup is equally impressive. We added approximately 2,500 new seats in the quarter with the majority of those in nearshore and the Philippines markets. Since our IPO, we have added over 6,500 seats in these markets. Today, 88% of our seats are in our high-margin regions, which have grown at a 22% CAGR since FY '16. The majority of our footprint today is operating in a socially distanced model, complemented with work at home. As we move forward to a world where we resume to a pre-COVID operating model, we are in a great position to significantly grow with limited CapEx investments. This will have a very positive impact on our margins and free cash flow. While our revenue growth was strong and margins improved sequentially from 0.6%, adjusted EBITDA was flat on a year-over-year comparison. This was driven primarily by costs associated with ramping our new business, which includes agent training and investments in overhead. We expect our overall margins to improve significantly in the second half of the year as our ramp costs stabilize. During the quarter, we also had a broadening of our ownership structure. TRGI, our majority shareholder, has approved the transfer of a portion of its IBEX shares to some of its shareholders. This has reduced TRGI's direct stake in IBEX from 62% to 35% and will allow us to meaningfully broaden our investor base over time. We welcome the transition of the holdings in IBEX of these new shareholders from an indirect stake to become direct IBEX shareholders. Our net cash position on our balance sheet continues to offer us a tremendous amount of flexibility when opportunities present themselves regarding capital allocation. This is demonstrated by our recent share repurchase announcement that we've made and the recent insider buying across members of our executive leadership team and the board, including myself. Regarding our share repurchase, our board has authorized us to repurchase up to $20 million of our common stock. We just recently began purchasing shares, and while we, of course, look forward to a re-rating of our stock price, the internal rate of return today for our shareholders is very attractive. One of the proudest moments this quarter came amidst a terrible tragedy. Our team endured as Typhoon Ode ripped through the island of Baha in the Philippines, causing significant damage to our employees' and their families' homes and to the community at large. Our team responded immediately and with such incredible care. Very quickly, IBEX employees donated over $100,000, which the company matched for a total of over $200,000 to provide for essential needs like food and water and for the rebuilding of the homes of our team members. We are also using a portion of the funds for community outreach programs to go along with the many hours our employees have volunteered to help the community get back on its feet. Our business and our employees demonstrated incredible resilience as they remained operational throughout the storm and continue to perform at very high levels. While we wish we would never know of tragedies like this again, it is amazing to watch the IBEX culture at work. As we continue to provide compelling solutions for our clients, we also develop meaningful and impactful initiatives for our employees and the communities we operate in. In particular, our diversity, equity, and inclusion programs that are part of our corporate ESG strategy have helped our employees develop critical skills necessary for elevating into new roles with added responsibility and decision-making. Since our IPO, we have launched the Women in IBEX initiative, where we have created multiple programs to support and advance women in the workplace. Keynote female speakers from our top clients have provided time and resources to this program, as well as participating in our global mentorship initiative, where leaders are matched with college graduates from underserved countries all over the world. Our commitment to developing our workforce is second to none, and we are energized by the advancements we are enabling in the lives of our employees around the globe. We are also proud of the diversity we have built at IBEX, from our board of directors, through our leadership, and through our agent population. In closing, we are confident in the business we have built and its outlook. We are a key partner for many great brands in the industry. We continue to add many new hyper-growth clients to our base in our strategic verticals. The growth we have is predominantly in our high-margin geographies and services. We expect our revenue growth and EBITDA margins to accelerate. As such, we are increasing our guidance for revenue growth to 10% to 12% from 7% to 9% previously while maintaining our previous EBITDA guidance of $69 million to $71 million. I will now turn the call over to Karl.

Thank you, Bob, and good afternoon, everyone. Thank you for joining the call today. We are excited about our progress and the results we delivered in Q2. Our business is accelerating as a result of our success with clients in the digital-first marketplace, as well as in our strategic FinTech and HealthTech verticals. Our performance highlights the level of differentiation that we have with our services, including our Wave X technologies. The momentum we are building will have a positive effect on our long-term growth and margin trajectory. In my discussions of financial results, references to revenue and net income are on an IFRS basis, while the adjusted net income, adjusted EBITDA, and adjusted earnings per share are on a non-GAAP basis. Reconciliations of our IFRS to non-GAAP measures are included in the tables attached to our earnings press release. Second-quarter revenue increased 12.8% to $132.2 million compared to $117.2 million in the prior year quarter and 21.7% sequentially. We continue to experience high growth in our clients won since fiscal year '16. This cohort grew by 57% over the prior year quarter and now represents 70% of our total revenue. The growth in revenue this quarter was offset by significant decreases related to our legacy top three clients. While these clients are down 38% from the prior year quarter, they are flat sequentially and now represent less than 20% or approximately $26 million in quarterly revenue. We expect this group's revenue base to remain around this level going forward and that it will decrease as a percent of revenue over time. Net income in the second quarter was $8.5 million compared to $2.5 million in the same period last year. The increase in net income was primarily driven by a $6.3 million decrease in the fair value measurement related to the warrant liability, offset by an increase of $1.7 million in depreciation as we continue to invest in the growth of the business. We expect our annual effective tax rate to be in the high single digits on a normalized basis, excluding the effect of the warrant fair value adjustment. This excludes a one-time deferred tax benefit of approximately $4 million, which is expected to be realized in the second half of our fiscal year, reflecting the benefits of our ongoing tax planning efforts as discussed last quarter. On a non-GAAP basis, adjusted net income was $5.2 million versus $6.1 million in the prior year quarter and adjusted fully diluted earnings per share were $0.27 versus $0.33 in the prior year quarter. The decrease in adjusted net income and adjusted fully diluted earnings per share was primarily driven by an increase in depreciation as mentioned previously. Adjusted EBITDA for the second quarter of fiscal year 2022 was $17.8 million with 13.5% of revenue compared to $18 million or 15.3% of revenue in the prior year quarter. The adjusted EBITDA margin decrease compared to the prior year quarter was primarily driven by the cost associated with ramping our business along with continuing investment in overhead to accommodate our growth. Sequential adjusted EBITDA margin increased 290 basis points over the first quarter. Switching to our verticals, our FinTech and HealthTech verticals continue to grow in response to our aggressive investments two years ago, increasing significantly to 19.5% in the second quarter, up from 11% in the second quarter of fiscal year '21. Travel and logistics increased to 13.2% of revenue compared to 8.4% in the prior year quarter, driven by new economy clients. Retail and e-commerce now represent 23.7% of revenue compared to 21.7% in the prior year quarter, as we continue to win in a digital-first marketplace. Our exposure to the telecommunications vertical decreased to 17.2% of revenue compared to 29.5% a year ago. In summary, we have made great progress on our revenue diversification goals. Total capital expenditures were $11.8 million or 8.9% of revenue in the second quarter of fiscal year '22 versus $6.4 million or 5.4% of revenue last year. We added over 2,500 new seats primarily in our high-margin, nearshore and offshore locations during the quarter. Net cash generated from operations was $3.4 million for the quarter compared to $4.3 million in the second quarter of fiscal year '21, impacted by higher working capital usage offset by lower cash taxes. DSOs were 62 days for the second quarter, an increase of 14 days from the same period last year and decreased one day sequentially. The year-over-year increase was driven by revenue growth, timing of collections, and one of our larger clients reverting to standard payment terms in the fourth quarter of fiscal year 2021. Non-GAAP free cash decreased to negative $8.4 million from negative $2.1 million in the prior year. The decrease in free cash was primarily driven by an increase in capital expenditures of $11.8 million as compared to $6.4 million from last year. Our balance sheet remains strong, and we ended the quarter with $51.5 million in cash, total borrowings of $37.7 million, and lease liabilities of $89.4 million compared to cash of $57.8 million, total borrowings of $28.5 million, and lease liabilities of $84 million as of June 2021. With continued focus on our strategic verticals, winning digital-first marketplace new clients and technology investments to expand our customized Wave X solutions, we believe we are well-positioned for continued future growth. With that, Bob and I will now take questions.

Our first question comes from the line of Tobey Sommer from Truist Securities. Your line is now open.

Thank you. I was wondering if you could map out over the next several quarters, how the margins improved. I'm focusing on two vectors: the growth that you've done in seats, as well as the added expenses associated with remote work at the same time; you're adding to that duplicative nature. How could you bridge us to a more profitable profile? Thank you.

Sure Tobey, and hey, thanks for joining and appreciate the question. When I think about our business, I think we have done a really good job of structurally building this business for double-digit growth and continued trajectory on our EBITDA margin. However, based on when certain clients come in clusters sometimes, like it did recently for us, you might see some fluctuations in your margins in a quarter. But when I think longer term, I feel like we've built this business where top-line growth can be in that upper single digits all the way up to the mid-teens. I also believe that, as we said even a little while back, our midterm trajectory was north of 15% EBITDA. So I think that trajectory looks good over the next several quarters.

You indicated that CapEx, you have some visibility into that perhaps diminishing after this elevated level. How do you sort of get comfort in that view as being the right one?

Sure Tobey. Our CapEx over the last year, driven by social distancing in our centers, has been at a higher rate than historically has been. We believe that at some point, when we resume back to pre-pandemic operating models or close to that, we have a nice 18-month to two-year trajectory of much lower CapEx. But then if we just step back and think a little longer term, we're a growth company and I feel like our CapEx will be overall in the range of about 5%, which will allow us to grow. We're excited about that kind of next 24 months of limited CapEx, especially as our centers fill back up again in a non-social distance environment. As mentioned, I think at that point, we'll generate a very positive effect from a free cash flow standpoint.

Thanks. If I could squeeze in one more, could we get your perspective on wages and inflation, both from a pricing perspective as you interface with customers, and as well as internal costs and elevated rates of turnover as a result potentially? I know you have multiple geographies to draw from in terms of your answer.

Sure. This is a very pertinent question in today's environment. When you think about our business, we are growing outside the US, and certainly in a market like the US, wages are under pressure. Our agent wages, which are really the important element, range between 50% to 70% of our total cost to operate, depending on the geography. We've engaged with clients and have had success with them in sharing where wages are going and consequently getting price adjustments from them. We have negotiated cost of living adjustments into many contracts. While we feel like we might not be 100% covered right now, we've done a good job at covering this ourselves. We will continue to have further discussions with our current clients, and a lot of our new clients have cost adjustments built into it.

Thank you. Our next question comes from the line of Dave Koning from Baird. Your line is now open.

Yeah. Hey guys. Great revenue momentum.

Yeah. Thanks, Dave. We're really excited about that. We knew we had a lot of good things going on with all the new logos we've been winning and just in the growth inside the base.

I guess my first question kind of relates to that. It looked like when we put kind of some of the numbers you gave around the top three, it looked like those were down $5 million, but that means the non-top three were actually up sequentially $28 million. That's a massive amount. Was there anything non-recurring in there or is it all pretty steady kind of going forward? How should we think of all that?

Sure. What we're most excited about is, there is some seasonality from retail around the holidays, and so there is a little bit of that. But the lion's share of our growth is sustainable, even when I'll say, growth into historical numbers would be growth into Q3 and Q4 for us. So we're excited about that trajectory. Historically, our Q1 to Q2 growth is typically around 7% to 9%, and us being at 20% to 22% was really exciting, and that's all the new stuff that we brought on board that we shared last quarter.

That's great to see. And then two just kind of quick ones, I'll just give them together. The wage inflation, is there any lag impact from the revenue like the COLA that you can get? Does this year have more wage inflation and then you get kind of that pickup in revenue that you can charge? And then when do those new shares that are being distributed, when do those hit the market?

Okay. Sure. There is a little bit of a lag, but we got ahead of this with some of our key clients and embedded clients. From my experience in this industry, I really like how our partnerships have allowed us to get ahead. I feel good about our position moving forward. Obviously, there will be risks and some pressure, but our US business is a much smaller percentage, and that's where the pressure is immediate. Regarding the new shares, there was a lockup period as those shares got distributed to the limited partners. It’s a six-month lockup, so I'd look at that to occur later in the calendar year.

Thank you. Our next question comes from the line of Arvind Ramnani from Piper Sandler. Your line is now open.

Hi. Thanks for taking my questions. The first question I had was around the exposure you have to certain industries. I think one company that stands out is Lyft and others. But just with a lot of vaccinations in and as we look into '22, do you expect to see an uptake in transaction-based volume from a certain segment of your customers? And is it material enough to think about or do you feel it's various counterbalances where it doesn't really matter?

Great question. I think your last part of that was probably most appropriate. There are some sub-segments where we think the transactions will start moving up, but I think those get offset by some counterbalances. For example, in retail and eCommerce, with the supply chain issues, the amount of overall transactions I think are off from where they were a year ago, and I think that's directly related to the supply chain. I think those issues are there for a little while and may persist even in a post-COVID world.

Okay. Helpful. Just in terms of share repurchases, I mean, certainly there's a word of confidence in going and buying stock at these levels, but do you kind of worry about it? Kind of liquidity as well, just given kind of the market cap of the stock; $20 million is almost like 10% of the float, right? That's a big sort of repurchase. How do you think of that balance and float?

Great question. First and foremost, the compelling IRR we see where we're trading is too hard to pass up. We have so much confidence in our business. However, as we discussed prior, we expect our float to improve when some of that becomes available in the next six months. From our standpoint, we couldn't pass on this opportunity from a wise use of our capital. We're comparing that to investing in further buildouts in centers that have aggressive ROIs; the share buyback was even more compelling.

Yeah, that makes sense. Just to clarify, on December 8th, you announced this $20 million; is this the same 20 or is it like 20 plus 20? Just wanted to clarify.

Thank you for that clarification. Yes, it is the same $20 million that we announced. It just kicked off this quarter.

Thank you. Our next question comes from the line of Matthew Roswell from RBC Capital Markets. Your line is now open.

Yes. Good. A couple of questions around the revenue growth cadence. How should we think about differences between third and fourth quarter with the new contracts ramping up? When does the legacy business stop being a headwind to year-on-year revenue growth?

Great question. As we've guided, we have what I think is really good visibility to our business. Q3 and Q4 will follow a different curve than what we've seen in the past, which is a sequential downturn. We have a lot of confidence. Regarding the legacy business, we consider that sequentially flat right now. But it has had several quarters of sequential downturns. When I think of full comparisons by Q1 of FY'23, that'll be flat, but with it being less than 20% of our business now, we don't see that factoring into many headwinds for us. You will see the true growth engine of our business as we move into Q3, Q4, and FY'23.

Okay. And final accounting question, if I can sneak one in. The revaluation on the Amazon warrant, that's solely tied to your stock as opposed to any change in the relationship with Amazon, correct?

Correct.

Correct. And Karl, why don't you add some color on that?

Sure. It is related to a mark-to-market on the liability at the end of each quarter, which is impacted by the stock price. If the stock price goes up, like Q2 of last year, you saw a positive impact; if it goes down, like Q2 of this year, it was a negative to the income statement. It's solely on the market that you're doing on this liability; nothing with the overall relationship with Amazon.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to management for closing remarks.

Thanks. I thank you all for attending. We are, as you can tell, very excited about the trajectory of our business. We feel very proud of what we've built here, and we look forward to seeing you all next quarter, as we share the exciting journey here. So thank you all and have a good night.

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