IBEX Ltd (IBEX) Q4 2023 Earnings Call Transcript

Welcome to ibex's Fourth Quarter and Full Year 2023 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. Please note that an accompanying earnings deck presentation is available on the ibex Investor Relations website at investors.ibex.co. I will now turn this conference over to Michael Darwal, 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 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 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, 2023. Additionally, I would like to remind everyone that we've moved to being a domestic filer and as such are now reporting on a U.S. GAAP basis rather than from the previous IFRS standard. We've been messaging and preparing for the conversion and are excited to be reporting accordingly. With that, I will now turn the call over to Bob Dechant, CEO of ibex.

Thank you, Mike. Good afternoon, everyone, and thank you all for joining us today as we share our fourth quarter and fiscal year 2023 results. First, before I dive into the results, I'm very excited to welcome our new CFO, Taylor Greenwald, to his first earnings call with ibex. Taylor brings a fantastic background and skill set to ibex, having spent nearly 20 years in the industry. While Taylor started just a few weeks ago, I am already confident that he perfectly complements our culture and our team. FY '23 was another record year for ibex, where we achieved all-time bests across all key financial metrics, including revenue, EBITDA, EBITDA margin, net income, EPS, and free cash flow. We accomplished this in the face of unprecedented challenges across the BPO market, with significant macroeconomic pressure and massive competitor consolidation. We continue to demonstrate a unique ability to successfully compete and win against our much larger competitors. Our competitive advantage is built around an unparalleled agent-first culture with tremendous employee engagement. Our WaveX technology stack and our deep analytics capabilities that we call WaveX Insights enable us to consistently outperform our competitors. Additionally, our speed and flexibility create a significant advantage for ibex. The result is an amazingly resilient business that has performed extremely well in all market conditions. Let me take a moment to highlight the financial results we delivered in FY '23, one of the most turbulent years I've seen in my 25-plus years in this industry. We delivered record revenues of $523 million, up 6.1% year-over-year, driven by new wins with blue chip clients in our strategic verticals. Adjusted EBITDA increased 49% year-over-year. Adjusted EBITDA margin increased 370 basis points to 12.7%. Adjusted net income grew over 42% to $36.9 million for the year, another record for the company and resulting in adjusted EPS of $1.96 versus $1.39 in the prior year. We delivered record free cash flow of $22.9 million versus $14.1 million in the prior year, and ended the year with $57.4 million in cash and cash equivalents, with virtually zero borrowings as we head into fiscal 2024. Q4 was a solid quarter for ibex, tempered by prevailing market headwinds on revenue. During the quarter, we continued the shift of business from onshore to offshore with our clients, resulting in revenue growth of 1%. Our BPO 2.0 clients grew at 7% for the quarter, and now represent 79% of our overall revenue, up from 74% in Q4 FY '22. Revenues in our highly profitable offshore and nearshore region grew 10%, while our onshore region contracted 18% versus the prior-year quarter, as we successfully migrated clients from the U.S. to our low cost markets. As a result, EBITDA grew a healthy 21% versus prior-year quarter to $15.4 million, with a margin of 12.4%, up 210 basis points. As I have previously highlighted, we have structurally built our business for long-term margin expansion as we continue to grow in these regions with our clients. FY '23 was an amazing year for ibex winning awards. During the year, we won more than a dozen awards and recognitions, including 2023 America's Greatest Workplaces for Diversity by Newsweek, 2023 Philippines' Best Employers by the Philippine Daily Inquirer, Best Place to Work in Nicaragua for the third consecutive year and Best Place to Work for Women in Central America and the Caribbean for the second consecutive year by Great Places to Work, and the 2023 Contact Center Technology Award by CUSTOMER magazine for our WaveX, among many other awards. These are a testimony to the great brand and reputation we have built in the industry. I'm so proud of what this team has accomplished in FY '23, and I am equally excited about what the future will bring to ibex. At the core of ibex is our powerful new logo engine where we continue to win high-profile deals against heavy competition. Our ability to win new business across strategic verticals with both large digitally-transforming blue chip clients and pure play new economy digital-first brands is unique to ibex. We are able to build winning solutions across both client sets. While macroeconomic conditions began to lengthen sales cycles in the second half of FY '23, ibex posted another strong year of wins and generating revenue from these new clients. Over the course of the year, 10 new client relationships were established across healthtech, retail and e-commerce, and the technology verticals, generating approximately $35 million of new logo revenue for the year. These wins included multiple wins in our strategic healthcare vertical, including a leading healthcare payer and a top administrator for the dental industry, demonstrating our ability to win in high-profile deals. Importantly, we are beginning to see the pipeline velocity pick up speed since June. We secured six new logos during this timeframe, including key wins in healthtech and fintech. We also have significant deal flow in our current pipeline with several very high profile Fortune 100s, where I believe we are well positioned to win. Our land and expand model is driven by our ability to get out of the gates fast with our clients and deliver great results for them early and often. As an example, for the leading healthcare payer that we launched in October, we reached the number one provider out of seven on a balanced scorecard by March, competing against mostly long-tenured, multi-billion-dollar competitors. For the year, we won the Rising Star Award during their annual Partner Award Ceremony. Based on our outstanding performance, we were awarded a more than 3x headcount growth from the prior year on the current business and an important new line of business in a new geography. Again, our ability to drive operational excellence starts with our agents and their passion for working for ibex and supporting our great client brands. We are extremely proud of the environment we have created, especially for our incredible agents, who are the fabric of ibex. We were excited to be able to once again recognize our top-performing agents and leaders globally as we reinstated our regional VIP events post-pandemic. These are the pinnacle of employee recognition and engagement and differentiate us from our peers. The results speak for themselves as our employee net promoter score of 68 demonstrates. This is especially true in the highly competitive market like the Philippines, where we scored a best in class 79 employee net promoter score. Complementing our great employee engagement and culture is our WaveX technology stack and WaveX Insights, our deep analytics arm. These solutions enable our agents to achieve proficiency faster, empower our management to more efficiently and effectively run operations, and allow us to provide our clients analysis and solutions to improve the customer experience. These are the key elements of BPO 2.0. These are the reasons we have a long track record of winning great new clients and growing market share with them by outperforming the competitors. In recent months, the intersection of generative AI in CX has dominated the headlines. We see this as a great opportunity for leveraging our tech-led capabilities. We are moving quickly into building solutions, leveraging these capabilities. In fact, we are currently employing AI in our customer survey offering, using the technology to provide deep insights into surveys we conduct for our automotive clients across voice, email, and text. Our AI strategy is built on a three-prong approach to continue to differentiate ibex. First, we have already developed and deployed generative AI solutions to assist our agents in quickly providing solutions to customers, resulting in a productivity boost. We are already seeing operational gains here. Second, last quarter, we began deploying generative AI solutions to accelerate the deep analytics of WaveX Insights. These tools enable us to analyze 100% of all interactions in both real-time and post-interaction, resulting in a quality boost for our clients. This technology can operate at large scale in a very cost-effective manner, facilitating quick evaluations of the agent's entire performance and developing customized training and continued improvement plans. For our clients, we can promptly deliver valuable insights into their customer preferences, activity, and behavior. In prong number three, we are developing customer-facing solutions for our clients that help with the continued digital transformation of their customer experiences. This is the most exciting part of our strategy. With the recent addition of our Genesys relationship and additional AI-focused partnerships, ibex is well-positioned to expand our customer-facing AI-powered solutions. In Q4, we launched ibex tech, a team that is working with clients to build solutions such as human-like voice and chatbots, providing our clients a volume boost without the need to hire more agents. For instance, for a leading provider of media and digital entertainment technologies, ibex delivered an AI-based call deflection solution, integrated with Genesys, allowing callers to seamlessly select an AI bot to complete their support request while being on hold. This solution became impactful during their peak season. While we understand that these types of solutions may reduce the total volume of contacts our clients have, this aligns with our strategy of accelerating digital-first support for our clients. We are confident that this will help ibex become a more trusted partner, provide a new revenue growth vector with higher margins, and position us to gain more market share with our clients versus our larger labor arbitrage-focused competition. As I mentioned earlier, we have built ibex into a very strong and structurally solid business. This enables us to invest in our business for the long term to develop ibex into an even stronger company as we continue to grow. In Q4, we decided to upgrade our legacy ERP and HCM systems into an integrated Workday solution. We believe that this investment will enhance our capabilities to run this business even more efficiently and at an even larger scale. We're excited about the speed of this project and expect it to be completed by this time next year. From a capital allocation standpoint, our strong financial position and balance sheet allow us to evaluate M&A opportunities as a way to enhance our solutions and our competitive moat, as well as accelerate our growth. I'm excited to have Taylor as our CFO, as I believe his experience will contribute positively to our strategy here. In summary, we have built ibex into a business that has above-market revenue growth and strong margin expansion while competing effectively against our larger competitors. Our ability to win with high-profile brands is a staple of ibex. We expect this to continue into FY '24 and beyond. While market conditions will put some pressure on the first half of FY '24, I'm confident in the long-term trajectory of ibex and believe we are well positioned to take ibex to the next level as a public company. With that, I will now turn the call over to Taylor to go into more detail on our '23 financials and guidance for FY '24. Taylor?

Thank you, Bob, and good afternoon, everyone. I am very excited to join the ibex team and look forward to what we can accomplish as an organization. The combination of business performance and execution over the last several years has positioned ibex as a leader in the digital-first BPO 2.0 space, which is impressive. I was attracted to ibex by their diversified client base, vertical expansion, and geographic footprint. Importantly, the strong balance sheet gives me great confidence that we can continue to drive future revenue growth, strong EBITDA margins, and cash flow generation. As Mike mentioned, on July 1, 2023, ibex became a domestic filer, and we're now reporting our financial results in accordance with U.S. GAAP rather than IFRS. In my discussions of our fourth quarter and full year fiscal 2023 financial results, references to revenue, net income, and net cash generated from operations are now reported on a U.S. GAAP versus IFRS basis. Reconciliations of our U.S. GAAP to non-GAAP measures of adjusted net income, adjusted earnings per share, adjusted EBITDA, and free cash flow are included in the tables attached to our earnings press release. The two significant accounting impacts from the change to U.S. GAAP are in lease and warrant accounting. Among other items, this results in a June 30, 2023 reduction in reported debt of $78 million and a $5.3 million and $21.9 million reduction in reported fourth quarter and fiscal year 2023 adjusted EBITDA. With these impacts factored into the previously provided guidance issued under IFRS, our results align with our previously provided guidance. Turning to our results. Fourth quarter revenue increased approximately 1% to $124.4 million compared to $123.5 million in the prior-year quarter. Revenue growth was driven by our higher margin regions, offset by lower onshore revenue, as we successfully grew our strategic verticals while replacing a large legacy technology client. The shift from lower-margin onshore revenue locations to higher-margin nearshore and offshore significantly impacted both top- and bottom-line results. Onshore revenues declined 18%, while nearshore and offshore revenues benefited particularly from growth in healthtech and retail, increasing 10% versus the prior-year quarter. We continue to experience solid growth in our BPO 2.0 clients, as this cohort grew by 7% over the prior-year quarter and now represents 79% of our total revenue compared to 74% in the prior-year quarter. During the quarter, we continued to experience some macroeconomic headwinds, which contributed to longer new client sales cycles and impacted near-term revenue growth. However, as we head into the new fiscal year, we see encouraging signs of our pipeline accelerating. Fourth quarter net income declined to $4.5 million versus $6.4 million in the prior-year quarter. The decline was primarily due to higher taxes, including the absence of a one-time deferred tax benefit of $1.8 million in the prior-year quarter, offset in part by stronger operating results and lower interest expense. Moving to non-GAAP measures, adjusted EBITDA increased to $15.4 million or 12.4% of revenue compared to $12.8 million or 10.3% of revenue for the same period last year. The 210 basis point improvement in adjusted EBITDA margin was primarily driven by growth and profitability of our BPO 2.0 clients in higher margin regions, client price increases, and improved site capacity utilization, which increased from 69% to 77%. Adjusted net income declined to $6.2 million compared to $8.3 million in the prior-year quarter. Non-GAAP fully diluted earnings per share decreased to $0.33 compared to $0.45 in the prior-year quarter. The declines in adjusted net income and fully diluted adjusted earnings per share were primarily driven by higher income tax expense from the absence of the prior year deferred tax benefit mentioned earlier, partially offset by our stronger operating performance. As a company, we are pleased with the client diversification we have established over the last several years. For the fourth quarter of fiscal year 2023, our largest client accounted for less than 12% of revenue. Our Top 5 and Top 10 client concentrations were at approximately 37% and 55% of total revenue, respectively, and our Top 25 client concentration was 80%. In addition, we ended the fiscal year with 57 clients billing at over $1 million per annum versus 49 in the prior year, and 29 clients billing at over $5 million per annum, up from 23, exemplifying the success of our land and expand approach. We will continue to maintain our focus on client diversification. Switching to our industry verticals. Retail and e-commerce increased to 22% of fourth quarter revenue versus 19% in the prior-year quarter, driven by continued growth in multiple offshore geographies. Healthtech increased to 14% of fourth quarter revenue versus 9% in the prior-year quarter, largely due to the organic growth we've experienced based on the onshore and offshore wins, including the top healthcare payer Bob previously mentioned. Our exposure to the telecommunications vertical continues to decrease, accounting for 15% of quarterly revenue versus 17% in the prior-year quarter. Technology decreased to 9% from 11% of quarterly revenue, mainly due to the exit of a lower-margin legacy client in the fourth quarter of fiscal year 2022. Travel and transportation decreased slightly to 12% from 13% of quarterly revenue, primarily due to macroeconomic pressure experienced by one of our larger clients as discussed in prior quarters. Lastly, Fintech decreased to 17% from 21% of quarterly revenue, largely due to continued headwinds in the cryptocurrency and new economy investing markets. Moving to our fiscal year 2023 results, revenue increased 6% to $523.1 million, compared to $492.9 million in the prior year, as we successfully grew in our strategic verticals while replacing a large legacy technology client. Revenue growth was driven by our higher-margin regions, offset by lower onshore revenue, and the lapping of the low-margin onshore legacy clients that we exited in the fourth quarter of fiscal year 2022. Similar to the fourth quarter, the shift from lower-margin onshore revenue locations to higher-margin nearshore and offshore throughout the year had a meaningful impact on revenue, as onshore revenues declined 13% and nearshore and offshore revenues, particularly in the Philippines and Pakistan, increased 16% versus the prior year. We continue to experience higher growth in our BPO 2.0 clients as we grew this segment 19% over the prior year, accounting for 77% of our total revenue versus 69% in the prior year. The macroeconomic headwinds I mentioned earlier contributed to longer new client sales cycles and impacted near-term revenue growth, with a more prominent impact in the second half of the fiscal year. 2023 net income increased to $31.6 million versus $21.5 million in the prior year. The increase in net income was primarily due to stronger operating results and lower interest expense, offset by higher income tax expense. The increase in income tax expense was mostly driven by a significant one-time deferred tax benefit of $4.1 million recorded in the prior year. Moving to non-GAAP measures for the full year. Adjusted EBITDA increased to $66.6 million or 12.7% of revenue, compared to $44.7 million or 9.1% of revenue for the prior year. The 370 basis point increase in adjusted EBITDA margin is primarily driven by growth in profitability in our BPO 2.0 clients in higher margin regions, client price increases, and higher work site capacity utilization. Adjusted net income increased 42% to $36.9 million compared to $26 million in the prior year. Non-GAAP fully diluted adjusted earnings per share increased 41% to $1.96 compared to $1.39 in the prior year. The increase in adjusted net income and non-GAAP fully diluted adjusted earnings per share was primarily driven by our stronger operating performance and partially offset by higher income tax expense due to the absence of a prior year deferred tax benefit. Net cash generated from operations was $41.9 million for the fiscal year compared to $40 million in the prior year. The increase was primarily driven by improvements in operating results, offset by higher working capital requirements due to increased accounts receivable. Our DSOs were 63 days, up eight days year-over-year, but we continue to trend below the industry average. Capital expenditures were $19 million or 3.6% of revenue in the fiscal year versus $25.9 million or 5.3% of revenue last year. Our continued utilization of available capacity built out in prior years and made available with the removal of social distancing requirements is yielding lower capital expenditure requirements. Free cash flow increased to $22.9 million in the fiscal year compared to $14.1 million in the prior year, driven largely by improved operating results and lower capital expenditures. We ended the fiscal year with $57.4 million in cash, up from $48.8 million as of June 30, 2022. Total debt was $1 million, down from total debt of $15.7 million as of June 30, 2022. Borrowing availability under our revolving credit facilities increased to $71.9 million as of June 30, 2023, compared to $50.5 million as of June 30, 2022. Importantly, representing our strong balance sheet, our net cash position at fiscal year-end improved to $56.4 million from $33.1 million as of June 30, 2022. As we look forward, our strong balance sheet, positive cash flow, and growth of our digital-first BPO 2.0 business excite us about the long-term direction of ibex. We are a $500 million best-in-class digital-first service provider in a market over $100 billion, and we expect to win market share over time. As we enter fiscal year 2024, we are still experiencing macroeconomic headwinds and a continuation of revenue shifting to higher-margin near and offshore locations. These factors will impact revenue growth, as we currently expect fiscal year 2024 revenue to be in the range of $525 million to $535 million. We expect our adjusted EBITDA margin to approach 13% even as we build out our infrastructure, including a new ERP and HCM solution, to position ourselves for greater growth in the years ahead. Additionally, as we continue to benefit from expansions during COVID, our capital expenditures should remain in a $15 million to $20 million range for the year. For the quarter, we expect revenues to be in the range of $122 million to $125 million, and EBITDA margins to be roughly 11%. Our business is well positioned for today and the years ahead, and we are very excited about the future of ibex in fiscal year 2024 and beyond. With that, Bob and I will now take questions.

Thank you. Our first question comes from Ryan Potter with Citi. You may proceed.

Hey, thanks for taking my question. I guess maybe starting on visibility, what level of confidence and visibility do you have into the full year outlook here? And is there any difference than how much visibility you would have into initial outlook to start the year? And beyond that, I guess what needs to happen to hit the low end and upper end of the ranges? And are there any additional assumptions you're including regarding the macro or any buffers you may have embedded in the outlook?

Sure, Ryan, and thanks for that question. I'll hopefully address all parts, and feel free to remind me if I miss a couple. A year ago, we did not anticipate the back half of the year pipeline slowing down as it did over the last two quarters. I don't think anybody in this space had visibility to that. The reality is that it did occur. Now, with the economic challenges, we did a really good job working with our clients to help them transition to low-cost labor markets, moving a lot of U.S. work into places like the Philippines at lower price points and much higher margins for us. We think that's a great move so you might not have had complete visibility into that a year ago at the beginning of the year, but it has proven to be a strengthening of our partnerships and great solutions for our clients, ultimately winning us market share. Now, looking at this year, here's how I kind of view it. The delay in the pipeline over the last couple of quarters is applying some top-line pressure to our business. However, very candidly, that pipeline is heating up. We are winning larger, more meaningful deals, and we've secured six since June. I really like that pace, and we're competing at a big stage. So, when I think about the two ranges we provided, I believe our ability to hit the high end or exceed that hinges on our success with this pipeline. We are delivering very well for our incumbents in our install base. We continue to strengthen that install base while also expanding our capabilities. I think the primary variability comes from the pipeline. I really like our position and our resumes for winning, and I'm encouraged to see how strong our win rates have been for over five years.

No, I think that covered all. I guess just kind of shifting to AI, and thanks for providing some of the examples you gave on how you're leveraging AI in your business. But just on point one and point three, could you maybe provide some numbers around how much agent productivity has improved where you have deployed generative AI solutions? Then also in situations where you've used technology to help reduce the need for more agents with any client, does that change how you price your relationship with the client at all and does it impact total spend that you have with that client?

Sure. Great question. Let's talk about the first prong of AI, which gives agents productivity boosts. Now, we're still early on in these developments. What has to happen is you need to train generative AI to be effective for your agents and to be really customized. You don’t simply give them unfiltered access. We're really enthusiastic about the potential gains. Let me give you a glimpse of how this works: new agents that lack the required knowledge often struggle to find the answers they need without escalating issues. By providing access to generative AI, they can find solutions more quickly, greatly improving productivity for new hires. The early numbers indicate substantial improvements, although I hesitate to quote specific numbers as we’re still assessing the full scope of the impact. On the customer-facing solutions we're building, we notice greater efficiency during peak seasons when we would typically hire many agents. By leveraging AI solutions, we can avoid additional hiring and the associated costs, which can be burdensome for both us and our clients in terms of training and buildouts. Instead, we can provide an elegant solution that reduces the launch of new agents while still fulfilling some of the demand. This will alter our revenue structure slightly since we would characterize this more as a technology margin rather than a traditional BPO margin. We also believe this will create an entirely new revenue source for us, with higher margins associated with it. If executed correctly, we believe this strategy won’t cannibalize our existing business; rather, it strengthens our position as a partner and gives clients a reason to provide us with a larger share of their market share. I am optimistic that by acting quickly, we can capitalize on this tech-led environment, and we are ahead of others in this space.

That's great. I guess just one last clarification question. I know with the move to GAAP reporting here, will you be providing restated historical GAAP results on a quarterly basis, or will this be provided as you report future quarters?

So, Ryan, I'll introduce you to Taylor. It’s great to have him on board and for you guys to connect. So, over to you, Taylor.

Thanks for the question, Ryan. At this point, obviously, we've issued the 10-K, and we have our GAAP results for fiscal years 2021, 2022, and 2023. We haven't yet provided them on a quarterly basis, other than for the fourth quarter. It's a good question, and it’s something we’ll consider as we report in the next quarter.

Got it. Thanks again.

Great. Thanks, Ryan.

Thank you. One moment for questions. Our next question comes from Matthew Roswell with RBC. You may proceed.

Yes, thank you. Good afternoon. Just a quick question on the FY '24 margin guidance. It looks like you're calling for about a 30 basis points increase. Could you kind of bridge that? I would expect the shift to offshore to have more of a benefit, but I think the ERP implementation costs are pulling it down. So, could you just bridge us to that 30 basis point increase in margin? Thank you.

Yeah, Matthew, let me start out, then I'll bring Taylor in, who’s got a grip on this. So your instincts are right. We have a good tailwind on the business from the ongoing shift to offshore and the growth in those markets. That's beneficial to our business's margin standpoint. However, we've chosen to invest in upgrading our ERP and HCM systems, and that's a sizable investment. We are also investing in initiatives around AI and the sales and marketing engine. We have an opportunity to win at a large scale, and we are investing accordingly because we trust our chances. So, when you evaluate the pluses and minuses, we see that contributing to roughly a 30 basis point improvement.

We are going to manage that carefully. Going forward, we want to ensure we continue our margin progression. If we feel we're getting a bit ahead of ourselves on investments, we'll take corrective measures to maintain the margin progression we want to see.

Okay, so I guess you're not treating the ERP implementation as a one-time expense but rather flowing it through?

We are.

Thank you very much.

Yeah, thanks, Matt.

Thank you. One moment for questions. Our next question comes from Robert Bamberger with Baird. You may proceed.

Yeah, thanks for taking my question. Could you talk about the sequential revenue growth pattern throughout the year? Should we assume that there will be a Q1 sequential step-up followed by increases in Q2, then declines in Q3 and Q4, kind of like the typical sequential growth cadence?

Yeah, Robbie, thanks for joining the call and your questions. Sequentially, we expect a sizable increase as we move into Q2. Now that we are in a quarter, we can discuss where Q2 is trending. Historically, we have a significant amount of e-commerce business boosting our Q2 revenues. This last year has been different in our historical performance in Q3 and Q4, which tend to soften at a particular period due to the conclusion of the holiday retail peak. This year, however, I believe we will be a little flatter. I expect the second half of the year to be stronger, driven by this pipeline work we have made. These deals typically would have been decided two quarters prior but were delayed. We've noticed that these decisions are being made this summer and into September and October. I believe as those ramp up, considerable revenue growth will occur in January and February, smoothing out the curve.

Okay. That makes sense. Then, could you talk about the move from IFRS to GAAP and specifically discuss anything happening on the revenue side? I wouldn't expect any changes with revenue, but could you clarify what's happening on the margin side moving from IFRS to GAAP?

You're correct, on the revenue side, it was not material. In the fourth quarter, it was virtually nil. For the full year of '23, it might have been around a $200,000 headwind on revenue, so not significant. On the adjusted EBITDA side, however, is where you see the actual impact due to changes in lease accounting. Previously, lease expenses appeared as depreciation and interest, while now it’s shown as rent expense. The results you've seen in '23 and have also seen restated for the full year in '22 and '21 in K will continue going forward. The adjusted net income won’t be materially impacted, but GAAP net income will appear smoother moving forward.

That makes sense. And regarding free cash flow conversion, will there be any impact from the new accounting changes? Should we expect around 100% free cash flow conversion?

Nothing material impacting the free cash flow.

Perfect. Well, thank you, guys.

Thank you.

Great. Thanks for your questions, Robbie.

Thank you. I'd now like to turn the call back over to Bob Dechant for any closing remarks.

Thanks, Josh, and thanks, everybody, for joining the call. Lastly, I just want to really highlight my team and the work that they did over this last year. It was nothing short of exceptional. They're the best in the industry, and we're looking forward to delivering an equally strong FY '24. Thank you all.

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