Earnings Call Transcript - IBEX Q4 2025

Operator, Operator

Welcome to the IBEX Fourth Quarter, Full Year 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. To note, there is an accompanying earnings 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.

Michael Darwal, Head of Investor Relations

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 11, 2025, and any other risk factors we include in subsequent filings with the SEC. With that, I will now turn the call over to IBEX's CEO, Bob Dechant.

Robert Dechant, CEO

Thanks, Mike. Good afternoon, and thank you all for joining us today as we share our fourth quarter and fiscal year 2025 results. Before we get into the details of our results, I think it might be helpful to step back and look at how our business has evolved over the past decade and why we are confident in our continued ability to outperform the market. In FY '16, when I joined as CEO, we undertook a strategic journey of transforming IBEX into a differentiated customer experience company. This strategy was built on three key pillars: one, the blend of our culture, engagement, and branding; two, our purpose-built technology, which we call Wave X; and three, our deep analytics and business insights capabilities. We call this BPO 2.0. Today, we believe we are best-in-class in each area. As a result, we have a differentiated company that is and can continue to outperform the competition. These capabilities, those three key pillars have enabled us to consistently win trophy new logo clients who are looking for a partner who can disrupt the status quo. Equally important, these attributes empower us to outperform our competitors and consequently win new market share. The thesis is that if you have extremely engaged employees, powered with great technology and analytics, you will outperform your competition, delight and retain your clients, and our financial results continue to validate our differentiation. In FY '24, as the market began to see the intersection of AI and CX as a threat, we set our new vision to BPO 3.0 with the goal to extend our capabilities and become an industry leader in delivering AI solutions to our clients, creating an even stronger company as a result. I am proud to report that FY '25 saw IBEX make great strides in this strategic next step. We've been able to deploy AI internally to enable our operational teams to execute more effectively and efficiently for our clients while, at the same time, we have jumped ahead of our competitors in deploying AI agent solutions like chatbots and voice bots to solve less complex interactions. What we have found is that having a seamless integrated solution from AI agent to human agent uniquely positions us to support customers along the entire customer journey, giving us a competitive advantage. Importantly, this strategy and our ability to execute against it helped IBEX deliver the most impressive results in our history as a company in FY '25, and has us well positioned to perform in FY '26 and beyond. FY '25 was a transcendent year for IBEX, where we significantly outperformed the BPO market and achieved all-time bests across a number of key financial metrics. In FY '25, we delivered record fiscal year revenue of $558.3 million, up 10% from a year ago. We finished the year with Q4 revenues increasing to a blistering 18% from the prior year. We delivered record adjusted EBITDA of $72 million for the fiscal year, up more than 10% from a year ago, while making key investments into new markets like India and geographic expansions into our highly profitable offshore regions. We achieved record adjusted EPS of $2.75, up 31% from a year ago, on record adjusted net income of $43 million, up 12% from a year ago. We posted our strongest free cash flow quarter ever of $23 million in Q4 and a record $27 million for the year. The IBEX brand is stronger than it has ever been. Our growth has been driven by operational excellence with our embedded base clients, enabling us to win significant market share from our competition while our differentiated value proposition resulted in new logo wins with trophy clients throughout the year. Importantly, this past quarter marked the shift from proof of concept for our AI solutions to full-scale deployments, setting the table for future growth. Fiscal 2025 was a milestone year across many fronts, including our successful entry into India. When we IPO-ed the company in August of 2020, we were early in our strategy and a work-in-progress company. We believed in ourselves and our strategy, and what an amazing journey this has been. Today, we have built IBEX into a structurally strong company that is outperforming the market and is well positioned for the future. Let me highlight the current state of IBEX. We are a growth leader. Revenue grew 10% in FY '25 when many of the largest players were experiencing low single-digit or negative growth. We have a strong margin profile that continues to expand, driven by double-digit revenue growth in our highest-margin services and geographies. We possess one of the finest rosters of trophy clients in the industry, each with significant outsourcing spend. Our balance sheet is very healthy, with 0 net debt and strong free cash flow generation. More than 80% of our business is higher valued digital-first and integrated omnichannel support. We have a powerful new logo engine that continues to win high-profile clients and an operational team that outperforms. We believe we are the early leader in bringing compelling AI CX solutions to market for our clients. All of this gives me, our leadership team, and our Board great confidence as we look ahead to the next three to five years. With these results in mind, I'd like to thank my team and the whole IBEX family for a tremendous quarter and fiscal year. Fiscal 2025 was a statement year, one for the record books, and highlights the strength of IBEX and this team. Last year, at this time, I said we believed we'd reached an inflection point for IBEX with a return to growth. The momentum we amassed throughout the fiscal year showed exactly that, delivering record results. We are now well positioned for another strong year in FY '26 and beyond. With that, I will now turn the call over to Taylor to go into more details on our fourth quarter and full year FY '25 financials as well as FY '26 guidance.

Taylor Greenwald, CFO

Thank you, Bob, and good afternoon, everyone. Thank you for joining the call today. In my discussions of our fourth quarter and fiscal year 2025 financial results, references to revenue, net income, and net cash generated from operations are all 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. Our fourth quarter results are once again among the strongest in our history, with record results across the board for revenue, adjusted EBITDA, EPS, adjusted EPS, and free cash flow. Fourth quarter revenue was $147.1 million, an increase of 18.2% from $124.5 million in the prior year quarter. This was our highest growth quarter in approximately three years. Revenue growth was driven by vertical growth in Retail & E-commerce of 25%, HealthTech up 19%, Travel, Transportation, and Logistics up 10%, and outstanding growth in our digital acquisition business. Our focused efforts to grow our higher-margin offshore delivery locations are continuing to have a favorable impact on bottom line results. Offshore revenue grew 17% from the prior year and comprised 49% of total revenue, allowing us to maintain our strong gross margin of 31.4%. Our revenue mix in our higher-margin digital and omnichannel services also continues to be strong. Digital and omnichannel delivery represented 82% of our total revenue, an increase from 77% in the prior year quarter, and grew 25% compared to the same quarter a year ago. For context, digital and omnichannel comprised roughly 65% at the time of our IPO in 2020 and was basically negligible when we started this journey in 2016. We expect that we'll continue to be successful driving growth in these higher-margin regions and services as new client wins and growth in our embedded base continue to be focused in these areas. Fourth quarter net income remained relatively consistent at $9.6 million compared to $9.8 million in the prior year quarter, results were primarily driven by the meaningful growth of work in higher-margin offshore regions growing 17% year-over-year for the quarter, offset by higher selling, general, and administrative expenses related to investments in our teams, technology, the Workday implementation, and our expansion into India. We also incurred severance and impairment expenses of $2 million related to long-term assets, undergoing a reduction in carrying value for us and the closure of a very small business loan. Net interest expense was $400,000 in the quarter versus $400,000 of net interest income in the prior year, and our tax rate was 19% versus 26% in the prior year. Fully diluted EPS was $0.66, up from $0.56 in the prior year quarter. Positively impacting EPS growth were fewer diluted shares outstanding due to our share repurchases totaling 3.9 million shares during fiscal 2025, which includes the repurchase of 58,000 shares in the fourth quarter for $1.7 million. Our weighted average diluted shares outstanding for the quarter were $14.5 million versus $17.6 million one year ago. Moving to non-GAAP measures. Adjusted EBITDA increased to $20.5 million, or 13.9% of revenue, from $17.9 million, or a record of 14.4% of revenue for the same period last year. Adjusted net income increased to $12.6 million from $10.2 million in the prior year quarter. Non-GAAP fully diluted adjusted earnings per share increased to $0.87 from $0.58 in the prior year quarter, which was driven by the impact of higher revenue, strong operating performance, a lower tax rate, and fewer diluted shares outstanding, offset by higher net interest expense. As a BPO company, we are pleased with the client diversification we have established over the last several years. For the fourth quarter of fiscal year 2025, our largest client now accounts for less than 10% of revenue due to the strong growth in the rest of the business. Our concentrations among the top five, top ten, and top twenty-five clients remain consistent with the prior year at 36%, 54%, and 79%, respectively, of overall revenue, representative of a well-diversified client portfolio. Over the past decade, we have done a tremendous job retaining our top twenty-five clients and are excited to see one of our signature client wins from fiscal year '24 now move into the top fifteen. Switching to our verticals, Retail & E-commerce increased to 25.3% of fourth quarter revenue versus 24% in the prior year quarter, and HealthTech and Travel, Transportation, and Logistics remained strong at 14% and 13.8% versus 13.9% and 14.8%, respectively, in the prior year quarter. These changes 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 10.6% of revenue for the quarter versus 13.7% in the prior year quarter. We expect the Fintech vertical to stabilize as we move forward based on the strength of our pipeline in this vertical. Moving on to our fiscal year 2025 results, revenue increased 9.8% to $558.3 million compared to $508.6 million in the prior year. Revenue growth was driven by vertical growth in HealthTech of 23%, Travel, Transportation, and Logistics of 14%, and Retail & E-commerce of 13%, along with outstanding growth in the digital acquisition business. We grew in both our onshore and offshore regions throughout the year. Onshore revenue, which comprised 24% of total revenue during the fiscal year, increased 13%, and offshore revenue, which comprised 51% of our total revenue, increased 15% versus the prior year. Our nearshore region, which comprised 25% of our total revenue, declined slightly at 3% versus the prior year as some of this business shifted to our offshore locations. Fiscal 2025 net income increased to $36.9 million versus $33.7 million in the prior year. The increase was driven by revenue growth and gross margin expansion, particularly in our higher-margin offshore regions, offset by increases in selling, general and administrative expenses and net interest expense. Our effective tax rate was 19.7% versus 17.9% for fiscal year 2024, which was attributable to changes in revenue mix across our taxable jurisdictions and discrete items recorded in the prior year. We expect our normalized tax rate going forward to be in a 20% to 22% range, benefiting from higher net income and lower diluted shares outstanding. Our GAAP diluted earnings per share increased 28% to $2.36. Reviewing non-GAAP measures for the full year, adjusted EBITDA increased to $72 million, or 12.9% of revenue, compared to $65.2 million, or 12.8% of revenue for the prior year. Adjusted EBITDA margin increased slightly as growth in our higher-margin offshore locations and in our digital acquisition business, as well as our site optimization efforts over the past year, were largely offset by increased SG&A expense. Adjusted net income increased 12.1% to $43 million compared to $38.4 million in the prior year. Non-GAAP fully diluted adjusted earnings per share increased 31% to $2.75 compared to $2.10. The increase in adjusted net income and non-GAAP fully diluted adjusted earnings per share was primarily driven by the top and bottom line operating performance discussed earlier and our lower share count. This was offset slightly by increased net interest expense compared to the prior year. Net cash generated from operating activities was a record of $45.7 million for fiscal 2025 compared to $35.9 million for fiscal 2024. The increase was primarily driven by an increase in revenue and a lower use of working capital. Our DSO ended the year at 72 days for the quarter, consistent with the DSO at the end of last year. We expect our DSO to remain stable in the mid-70s on a go-forward basis. Capital expenditures were $18 million, or 3.3% of revenue for fiscal year 2025, versus $9 million, or 1.7% of revenue in the prior year. This increase was primarily driven by expansions to meet the strong demand in our highest margin regions. Free cash flow for fiscal 2025 was a record of $27.3 million, up from $27 million in the prior year. Our record operating cash flow was offset by the increase in capital expenditures of $9.5 million as discussed above. We ended the fourth quarter with $15 million of cash and debt of $1.6 million for a net cash position of $13.7 million, an improvement of $21.2 million compared to net debt of $7.6 million at the end of our third quarter. When compared to our net cash position of $61.2 million as of June 30, 2024, this reflects the impact of $77.2 million in share repurchases during fiscal 2025, including our $70 million TRGI share repurchase. To summarize our 2025 fiscal year, we achieved outstanding top-line and strong bottom-line results during the year, allowing us to enter fiscal 2026 with great momentum. We delivered multi-year high top-line performance with 10% revenue growth for the year and 18% for the fourth quarter. Our adjusted EPS of $2.75 for fiscal year 2025 was up 31% over the prior year and was a record for our business. The fourth quarter was also our strongest quarter ever in generating free cash flow of $23 million. Our continuing strong financial results and healthy balance sheet are enabling strategic investments in our growing AI capabilities and sales resources, as well as further expansion into strategic markets and in our top-performing geographies. Importantly, with the backdrop of a fluid market environment, we maintain continued confidence in the business to provide the following guidance of growth in the first quarter and fiscal 2026. For fiscal 2026, revenue is expected to be in the range of $590 million to $610 million. Adjusted EBITDA is expected to be in the range of $75 million to $79 million. For the first quarter of fiscal year 2026, revenue is expected to be in the range of $143 million to $146 million. First quarter adjusted EBITDA is expected to be in the range of $17.5 million to $19 million. Capital expenditures are expected to remain in the range of $20 million to $25 million for the year. Our business is well positioned for today and in the years ahead, and we are excited about the momentum we've built as we head into fiscal year 2026. With that, Bob and I will now take questions.

Operator, Operator

Please open the line for questions. Our first question comes from David Koning with Baird.

David Koning, Analyst

Yes. Guys, great job again.

Robert Dechant, CEO

Thanks, Dave. Yes. We're really pleased with the quarter, the year, and the trajectory. So thank you.

David Koning, Analyst

Yes. Everything looks really good. And I guess maybe to kick it off, the quarter itself, when we've looked at Q4s in the past, I think, every quarter since we've covered the stock, it's been a flat to down sequential quarter. This quarter, you were up 5% sequentially. And I guess, a, is there anything in there that was a little bit one-time in nature? And b, there's a vertical called kind of other that doesn't fit the other verticals that you often talk about. And that one was up a lot, I think, over 100% year-over-year, about $8 million sequentially. Was there something in there that maybe a new client that's coming on? And is that sustainable?

Robert Dechant, CEO

Yes. That's a great question, and I appreciate the mention of our Q4 performance, which typically doesn't see the same jump as we've experienced this year. To address your question about whether any of this is a one-time occurrence, the answer is no; this represents a sustainable, annuity-type business. This quarter, we excelled in gaining market share within our existing base, thanks to our outstanding operational performance. Our team has consistently outperformed the industry, while our client services and business development team has effectively leveraged this success to capture market share, expanding into new regions, including India. These are significant growth opportunities. For example, with our second-largest client, a major e-commerce company, we saw growth in every market, notably a significant increase in Pakistan and the Philippines. We also recently secured approval for operations in Central America, the one market where we previously had no presence. We are optimistic about Q1, especially regarding our success in winning market share. Additionally, our digital acquisition business, led by Mike Darwal, accelerated markedly due to focused execution and our strong marketing capabilities, driving substantial customer acquisition for our clients. We expect this momentum to carry into the first half of the year. Lastly, our new logo team continues to perform well and has maintained its strong track record over the years. Combined with no client losses, these factors create a powerful growth business.

David Koning, Analyst

Yes. That's all good. And then maybe just a follow-up. We talk with you and then a lot of your competitors, and there's been obviously this fear about GenAI and the impact. But when we do our survey, the majority of you and your peers tend to say, yes, there are some volumes we might lose over time, but net, it's probably going to be positive, and it's just following the normal cadence of automation over time that you've seen for decades, really a little different type, but right? And maybe some commentary just on GenAI, how you feel about it positive, negative, etc.

Robert Dechant, CEO

Your comments align well with what we've observed. It's exciting to note that in Q4, we progressed from proof of concept to full-scale production implementations with our clients. We've gained valuable insights during this process. There's significant potential for automation, but what's even more crucial is managing the entire customer journey. By stepping into a leadership role in providing these solutions, we recognize the immense value of integrating AI agents with human agents to create a complete value proposition. Our clients view this as a significant opportunity, which has contributed to our new growth direction. It's true that we are further ahead than anyone else, and we possess more data about the end-to-end customer journey than any competitor, which we can leverage to our benefit.

Operator, Operator

This concludes the question-and-answer session. I would now like to turn it back to CEO, Bob Dechant, for closing remarks.

Robert Dechant, CEO

Thanks, Daniel. I'll be brief. I couldn't be more proud of what IBEX has done and of what my management team just continues to deliver quarter-over-quarter, year-over-year, and we are well positioned for FY '26. I look forward to chatting in the next quarter, but we're really proud of everything that we've done in this space and how we've created ourselves into a truly differentiated company. Thank you all. Have a good day.

Operator, Operator

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