Welcome to the 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. [Operator Instructions] To note, there is an accompanying earnings deck presentation available on the ibex Investor Relations website at investors.ibex.co. I will now turn this conference over to Michael -- Mr. 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 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 according. 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 compliments 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…

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 as ibex has positioned itself as a leader in the digital-first BPO 2.0 space 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 also 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 are 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…

Thank you. [Operator Instructions] 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. And hopefully, I can hit all parts, and feel free if I missed a couple to remind me. But look, a year ago, we did not anticipate in the back half of the year that the pipeline was going to slow down to where it did over the last two quarters. And I don't think anybody in this space had visibility to that. Reality is that did occur. Now, with the economic challenges, we did a really good job working with our clients of helping them get to low-cost labor markets, moving a lot of U.S. work into places like the Philippines at lower price points and much higher margin for us. So, we think that's a great -- and you might not have had all the great visibility of that a year ago at the beginning of the year, but I think those are great moves of strengthening our partnerships and providing great solutions for our clients and actually winning market share. Now, as I look at this year, here's how I kind of view. The delay of the pipeline over the last couple of quarters is putting some top-line pressure onto our business. But very candidly, that pipeline is heating up. And with very, what I'll call, large material Fortune 100-type deals, we've won six since June. I really like that pace, and we're winning on the big stage. And so -- and I feel very good about what is there over the next quarter or two in our ability to win and beat, what I'll call, the big guys head on. So, when I think about the two ranges that we gave, I believe our ability to hit the high end or above that is going to be dependent on our success on this pipeline, why we feel we are delivering very well for our incumbents, our install base. And so, we continue to strengthen that install base. We continue to land and expand more types of work with those that we feel have great visibility. And so, I think the big variability then comes into the pipeline. And I really like our position. I like our -- we've kind of resumed to our very, very strong win rates that we've had for five-plus years. And so, hopefully, that answers the [lion's] (ph) of your question. If there's something I might have missed, Ryan, please feel free to follow up.

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 kind of leveraging AI in your business. But just on the -- I think it was point one and point three. Could you maybe provide some numbers around how much agent productivity has improved where you have deployed gen AI solutions? Then also in situations where you've used tech 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 -- yeah, really, really solid question. And so, let's talk about the first -- kind of the first prong of AI and that we call kind of the agent assist, gives those agents the productivity boost in that. Now, we're early on in that, because what has to happen is you have to train the generative AI to be effective for your agents and to be really customized. You don't just throw it -- you don't kind of give them access to unfiltered answers. So, we're early on on that, but we're really excited about the potential gains. And let me give you an idea of how that can really work. Your new agents that may not be able to get immediate access from the knowledge that they have inherently from being an agent for a long time, quite often, they struggle with getting to the knowledge base, the right article. They might have to escalate to a tier-2 supervisor to get to that. Having generative AI on their fingertips to where they can find that answer that use that tool to get to there, that's a really powerful productivity gains. The early numbers that we have are kind of impactful for a very small subset of kind of the new -- geared around those new agents. So, I hate to quote a number, because it's still pretty early on, and -- but hopefully, walking you through that, you can see kind of the potential impact that that could have and really help that agent's pathway to proficiency. In our more customer-facing solutions that we're building, here's where we really see that working, is in peak season when the typical model is hire a whole lot of agents, we have to do a whole lot of buildouts, and…

Yeah, 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 might be provided as you report future quarters?

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

Yeah, thanks for the question, Ryan. And so at this point, obviously, we've issued the 10-K and we have our GAAP results for '21, '22, and '23 full year results. We haven't provided them yet on a quarterly basis other than the fourth quarter. It's a good question. It's something we'll think about as we go forward in the next quarter.

Got it. Thanks, again.

Great. Thanks, Ryan.

Thank you. [Operator Instructions] 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 30 basis points of increase. Could you kind of bridge that? I would -- in terms of -- I would expect the shift to offshore should have more of a benefit, but I think the ERP implementation costs are pulling it down. So, could you just kind of bridge us to that 30% -- that 30 basis point increase in margin? Thank you.

Yeah, Matthew, let me start out, and then I'll bring Taylor in on this, who's obviously drinking by the fire hose, but he's got his arms around this real fast. But -- so I think your instincts are exactly right. We have a good, what I'll call, tailwind on the business on the continued move of business to the offshore and the growth in those markets. That's great for our business from a margin standpoint. Now, what we have chosen is to invest in on the ERP and HCM solutions, so you have workdays. So there's a -- that's a fairly sizable investment. We also have the investments that we're putting into, think of it as the ibex tech, right? This -- the initiatives that we have going on around AI, that's another big theme on kind of investments into our business. And then, candidly, the last piece is the sales and marketing engine. And we continue to see our ability to win on a big stage. And so, we're investing into that because we like our chances to win and our close rates and those percentages, so we keep feeding the beast, if you will, there. So, when you kind of do the pluses and minuses, we kind of look at that as roughly a 30 basis point improvement.

And we're going to manage that carefully, right. As we go forward, we want to make sure we continue our margin progression. So, if we think we're getting a little bit ahead of ourselves on investments, we'll pull back to make sure that we see the margin progression we want to see.

Okay. So, I guess you're not treating the ERP implementation as sort of a one-time expense you're flowing it through?

We are.

Okay. 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. Maybe could you talk about the sequential revenue growth pattern throughout the year? Should we assume sort of that Q1 sequential step-up and then step-up in Q2, followed by declines in Q3 and Q4, kind of like typical sequential growth cadence?

Yeah, Robbie, thanks for joining the call and your questions. And so, sequentially, we expect fairly sizable increase as we move into Q2. And as we get a quarter now, we can talk about where Q2 is trending. But historically, we have a lot of e-commerce business that drives that -- our Q2, the December quarter, sequential growth. Now, this last year and historically, Q3, Q4 soften. And it's kind of driven a little bit by the end of the retail peak for the holiday season, et cetera. What I feel this year, we're going to be a little flatter, in other words, kind of have a strong back half of the year, I think driven by this pipeline work that we have. These deals typically would have been two quarters ago, would have been decisions made and ramps starting. And the pipeline and decisions delayed for those two quarters. So what we're finding is those decisions are being made this summer and into September, October. And we think that by the time you get those ramped, you'll be bringing sizable revenue gains from those in the January, February month that should smooth that curve and make it look a little bit stronger in the back half of the year than our historicals have been.

Okay. Yeah, that makes sense. And then, maybe just talking about the move from IFRS to GAAP, can you maybe just specifically talk about anything happening on the revenue side there? I don't imagine anything on revenues, but just exactly what's happening on the margin side, moving from IFRS to GAAP and how we should think about that maybe historically and then going forward?

Yeah, no. I think you're right, on the revenue side, it was not material. I think in the fourth quarter, it was virtually nil, and for the full year of '23, we maybe had a $200, 000 headwind on revenue, so not material. On the adjusted EBITDA side is where you see the real impact, and that's because of the change in lease accounting. Previously, most of the lease expense was showing up as depreciation and interest expense, and now it's showing up as rent expense. And so, the results you've seen in '23 and you've also seen restated for the full year in '22 and '21 in K will continue going forward. On an adjusted net income, it's not that material. The GAAP net income was material, because, on the warrants, before, we were accounting for that on a mark-to-market basis, and so there's a lot of volatility, if you remember, we pulled that out of adjust earnings. Now we're accounting for the warrants on an equity basis, which smooth that out. So, the GAAP net income will be smoother going forward.

Yeah, that makes sense. And then, just on a free cash flow conversion, anything with the new accounting changes that would impact that going forward? Should we expect somewhere around 100% or anything impacting that?

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.

Yeah, 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.