AgileThought, Inc. (AGIL)·Q4 2022 Earnings Summary

Executive Summary

• Q4 2022 revenue was $43.06M, up 2.3% year over year and down 0.8% sequential; full-year 2022 revenue reached $176.85M (+11.5% YoY). Q4 gross margin was 31.6%, and full-year gross margin was 32.6% .
• Q4 results came in above company guidance: Q3 guide for Q4 revenue was “at least $42.2M,” and FY22 gross margin guide was 31.5%–32.5%; actuals were $43.06M and 32.6%, respectively. Bolded: Above guidance on Q4 revenue and FY22 gross margin .
• Q4 GAAP operating income was $9.02M and GAAP net income was $4.76M, aided by an $8.16M gain on debt extinguishment; non-GAAP adjusted operating income was $5.07M and adjusted diluted EPS was $0.03 .
• 2023 outlook introduced: Q1 2023 revenue of at least $43.2M; FY 2023 revenue of at least $201.6M and gross margin of 33.5%–34.5%. Focus remains on exiting non-core revenues and ramping sales capacity .
• Credit facilities amended due to covenant defaults as of and after Dec 31, 2022; maturities pulled forward (first lien to Jan 1, 2025; Credit Suisse second lien to Jul 1, 2025) with staged principal repayments ($15M by Apr 15, 2023; $20M by Jun 15, 2023; $25M by Sep 15, 2023) and fees; this is a key risk to monitor .

What Went Well and What Went Wrong

What Went Well

• Q4 and FY22 came in above guidance: “We reported another strong quarter and a successful year, with revenues and gross margins above our guidance.” CFO highlighted FY22 revenue +11.5% organic YoY and gross margin +340 bps YoY to 32.6% .
• Continued business transformation and demand backdrop: “2022 was a transformative year… despite some macro volatility we continue to experience a strong demand environment. The rise of AI and machine-generated content is transforming the digital landscape…” CEO .
• Non-GAAP profitability improvement: Q4 adjusted operating income rose to $5.07M (11.8% margin) vs $0.44M in Q4 2021; adjusted diluted EPS improved to $0.03 vs $(0.05) in Q4 2021 .

What Went Wrong

• Sequential pressure and margin compression in Q4: revenue fell 0.8% QoQ and gross margin declined 270 bps QoQ to 31.6% (from 34.3% in Q3) as the company exits non-core revenue streams .
• Balance sheet risks: the company disclosed covenant defaults and amended credit facilities with accelerated maturities and required near-term repayments totaling up to $60M by Sep 15, 2023, plus a $6M fee PIK’ed to principal; leverage/liquidity covenants reset, with potential EBITDA covenant if the $15M April payment missed .
• Elevated interest expense: FY22 interest expense was $12.89M; total debt increased to $76.06M (from $57.11M in FY21), contributing to financing risk and cash flow sensitivity .

Financial Results

Segment Breakdown (Revenue by Geography)

KPIs and Other Metrics

Non-GAAP reconciliation items in Q4 included an $8.16M gain on debt extinguishment, equity-based compensation, intangible amortization, and other adjustments (see reconciliation tables) .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “2022 was a transformative year… we started pursuing a path of material investments in sales while exiting non-core revenues… we expect our revenue growth to accelerate throughout 2023, along with solid gross margin improvement… The rise of AI and machine-generated content is transforming the digital landscape…” .
• CFO: “We reported another strong quarter and a successful year, with revenues and gross margins above our guidance… Revenues for 2022 were $176.8 million, representing 11.5% organic year over year growth… Excluding [two professional services] clients, our 2022 organic revenue growth was 20%+… We also made significant improvements in profitability… and expect solid top-line performance and gross margin improvement in 2023.” .

Q&A Highlights

• Growth drivers and vertical mix: In discussing 2023’s ≥14% growth outlook, management cited “very strong demand” in healthcare and financial services as key areas of strength .
• Execution on non-core exit and sales ramp: Team ramp expected to materially accelerate top-line in 2H23; non-core exit completion targeted for 1H23, framing near-term mix/margin dynamics .
• Guidance clarifications: Q1 2023 revenue ≥$43.2M; FY 2023 revenue ≥$201.6M; FY 2023 gross margin 33.5%–34.5% .

Estimates Context

• S&P Global (Capital IQ) Wall Street consensus for AGIL could not be retrieved due to a mapping issue; therefore, beats/misses vs S&P Global consensus are not available. Use of S&P Global consensus is preferred; in its absence, note that third-party summaries indicated EPS of $0.03 and revenue of $43.06M with a reported beat vs non-S&P consensus sources . Values retrieved from S&P Global were unavailable; consensus comparison omitted.

Key Takeaways for Investors

• Above internal guidance: Q4 revenue and FY22 gross margin exceeded company guidance, validating near-term execution despite non-core exit impacts .
• Margin trajectory mixed near term: Q4 gross margin fell QoQ to 31.6% as mix shifts; FY23 guide implies margin recovery to 33.5%–34.5% with operational initiatives and non-core exit completion .
• Financing risk is a central watch item: Facility amendments due to covenant defaults, accelerated maturities (to 2025) and staged repayments through Sep 2023 raise liquidity and execution risk; monitor cash generation and covenant compliance closely .
• Sales capacity as a growth lever: ~50% increase in sales headcount underpins FY23 growth guide (≥14% YoY), with healthcare and financial services leading demand; expect revenue acceleration in 2H23 as hires ramp .
• Geographic mix stable: US revenue softened sequentially in Q4 while LatAm increased, keeping total flat QoQ; monitor utilization and pricing across geographies for margin recovery .
• Client concentration persists: Top 10 clients ~61% of revenue; improving large-client count (33 in FY22) helps reduce concentration risk over time .
• Tactical positioning: Near-term trading should focus on covenant milestones and cash metrics; medium-term thesis hinges on successful non-core exit, margin normalization, and sales-driven growth in core verticals .