IBEX - Q2 2026

Transcript

Operator (participant)

Welcome to the ibex second quarter FY 2026 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. 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 Greg Bradbury, Investor Relations for ibex.

Greg Bradbury (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 CEO, Bob Dechant.

Bob Dechant (CEO and Director)

Thanks, Greg. Good afternoon, and thank you all for joining us today as we review our fiscal second quarter 2026 results. I'd like to start by recognizing the entire ibex organization for delivering another outstanding quarter yet again. Their continued consistent execution underpins our financial and operational success and is key in building ibex into the category disruptor we are today. Looking to our results, I am pleased to report that the momentum we've built across the business accelerated in the second quarter, enabling us to deliver exceptional results with headline revenue growth of 17% and adjusted EPS growth of 46%. Quarter-over-quarter, we are continuing to further separate ourselves from the pack in the BPO market.

In fact, this quarter marks our fourth consecutive period of double-digit organic revenue growth, well above competitor growth rates, and underscores our clear differentiation, and this continues to resonate well in the market. Our market-leading growth is a direct result of the differentiation we have built into our business and our ability to execute against it. At the top, our growth starts with our new logo engine, which consistently is able to win trophy clients versus our much bigger competitors. In Q2, we had significant wins in health tech and fintech. Health tech has been a standout performer, growing rapidly since we launched the vertical in 2021, and is on track to become $100 million by the end of the fiscal year. This success demonstrates our ability to build and scale new verticals from the ground up.

Outside of the new wins, we are also driving growth within our existing customer base. Our approach is simple: Once we begin working with a customer, we build that relationship over time through a combination of exceptional operational delivery and differentiated service model built with innovative technology at its core. As a result, we're able to become more than another vendor. We are a trusted partner. One example that typifies this dual approach is our recent expansion into India. We entered this strategic market in late March of 2025, and we now have two sites with nearly 1,000 agents up and running. Beyond traditional contact center services, we've expanded our capabilities into the region to include broader revenue cycle management and credentialing services to better support our healthcare clients. This expansion has been fueled by both organic growth with existing clients and new logo wins in the region.

Expansion into India represents one of our highest growth vectors and will continue to be a key driver of growth as we reach critical mass. Our combined outperformance has allowed us to achieve several major milestones in calendar year 2025, including surpassing $600 million in revenue while growing 16% during that time. We were able to do it profitably, generating $80 million of EBITDA with 13% margins. This continues to validate that we have structurally built our company for performance, where our growth vectors are also our margin expansion vectors. Today, the ibex brand is stronger than it has ever been. Our employee and client Net Promoter Scores remain world-class, underscoring that the image we project to our customers is consistent with the culture we've built internally.

Our market-leading growth, combined with our healthy balance sheet, are enabling strategic investments in our growing AI capabilities, as well as further expansion into strategic markets and in top-performing geographies. We believe we are further along than any of our competitors in our AI solutions, partnerships, and deployments. As a reminder, our Wave iX AI solution has two dimensions: one, where we leverage business insights, organization, and partnerships with best-in-class agentic AI technology companies to create successful AI solutions for our clients. These solutions allow us to create a seamless end-to-end customer journey from AI agent to human agent. The second dimension of Wave iX is where we deploy AI internally across the agent life cycle. These purpose-built AI technologies enable us to drive operations more efficiently and effectively and dramatically improve agent hiring, training, and onboarding, what we call speed to green.

As a result, ibex is increasingly being recognized as an industry leader in AI-powered CX. Said another way, the transformation of our contact center operations to AI-powered is enabling us to extend our separation on both operational and financial performance. We are now moving beyond our leadership position in BPO 2.0 and are defining the market for BPO 3.0. To accomplish this, we are continuing to invest in bolstering our team and strategic partnerships to support this critical vector for growth. To that end, we recently promoted our President of ibex Digital and Deputy CFO, Mike Darwal, to the role of Chief AI and Digital Officer. As you might have surmised, Mike's worn many hats over a decade plus here that he's been with ibex, and he's proven himself to be an invaluable member of our leadership team.

Mike has been the Chief Engineer of the success of our soaring digital business. As the CX industry and ibex continues its transformation from AI-supported to AI first, we will continue to invest in the talent and the resources to maintain and extend our leadership. Looking ahead, ibex is well positioned for success in the second half of the fiscal year and beyond. We have built a structurally sound company with a market-leading growth profile, expanding margins, and strong cash flow generation. We also have one of the finest and growing rosters of trophy clients in the industry, each with significant outsourcing spend and expansion potential. Additionally, we continue to set ourselves apart from the traditional BPO CX provider, both in terms of our financial performance as well as our leadership in the AI evolution of the space.

Now, before I turn the call over to Taylor, I want to welcome Jack Jones as our new Chairman. Jack has been an invaluable board member for nearly nine years. Prior, he was one of the biggest buyers of BPO services during his 26+ years at JPMorgan Chase and was a key executive for 5+ years at Expert Global Solutions, a leading CX company. We're all excited to have him step into the chairman role. With that, Taylor will now go into more detail on our fiscal second quarter financial results and guidance. Taylor?

Taylor Greenwald (CFO)

Thank you, Bob, and good afternoon, everyone. Thank you for joining the call today. In my discussions of our second quarter fiscal year 2026 financial results, references to revenue, net income, and net cash generated from operations are 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 table attached to our earnings press release. Turning to our results, our second quarter results are once again among the strongest in our history, with record revenue and EPS. Second quarter revenue was $164.2 million, an increase of 16.7% from $140.7 million in the prior year quarter, marking our fourth consecutive quarter of double-digit top-line growth.

Revenue growth was driven predominantly by growth in our high-margin health tech vertical of 35.1%, travel, transportation, and logistics of 20.2%, and retail and e-commerce of 17.2%, as well as strong performance by our digital acquisition services, partially offset by an expected decline in telecommunications, one of our smallest verticals of 23.1%. We continue to win and grow in all geographic markets, and our focused efforts to grow our higher-margin offshore delivery locations are continuing to have a favorable impact on bottom-line results. Our highest margin offshore revenues grew 16.2% compared to the prior year quarter. Our nearshore locations grew 8.5%, and our onshore region grew 27.5%, driven by growth in our high-margin digital acquisition services. Offshore revenues comprised 52.3% of total revenue.

Onshore revenues expanded to 24% of total revenue from 22% in the prior year quarter, reflective of the growth in our digital acquisition services. Our higher margin digital and omnichannel services continues to strengthen, growing 19% versus the prior year quarter to 82% of our total revenue. We have structurally built ibex so that our growth vectors are our highest margin regions and services, and we expect that we'll continue to be successful in 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. Second quarter net income increased to $12.2 million, compared to $9.3 million in the prior year quarter.

The increase was primarily driven by the continued growth of work in our higher margin offshore regions and operating leverage gained from SG&A expenses as they decreased from 18.3% to 16.8% of revenue. Our tax rate was 19.1% versus 20.2% in the prior year quarter, primarily attributable to changes in revenue mix across our taxable jurisdictions and favorable discrete tax benefits in the current year quarter. We expect our effective tax rate before discrete items to remain consistent at 20%-22% for the remaining quarters before any discrete items, including discrete tax benefits related to stock-based compensation. Fully diluted EPS was $0.83, up 45% from $0.57 in the prior year quarter.

Contributing to the EPS growth was the impact from strong operating performance and fewer diluted shares outstanding as a result of our ongoing share repurchase program. Our weighted average diluted shares outstanding for the quarter were 14.7 million, versus 16.5 million one year ago. Moving to non-GAAP measures, adjusted EBITDA increased to a record of 20.7 million, or 12.6% of revenue, from 16.5 million, or 11.8% of revenue, for the same period last year. The 80 basis points improvement in adjusted EBITDA margin was primarily driven by growth in our higher-margin offshore locations during recent years, growth in key high-margin verticals from existing and new clients launched throughout fiscal year 2025 and fiscal year 2026 to date, and a reduction in SG&A expenses as a percentage of revenue.

Adjusted net income increased to $12.8 million from $9.6 million in the prior year quarter. Non-GAAP fully diluted earnings per share increased 46% to $0.87 from $0.59 in the prior year quarter. As a company, we're pleased with the client diversification we have established over the last several years. The second quarter of fiscal year 2026, our largest client accounted for 10% of revenue, and our top five, top ten, and top twenty-five client concentrations represented 39%, 57%, and 79% of overall revenue, respectively, as compared to 39%, 54%, and 79% of overall revenue in the prior year quarter, representative of a well-diversified client portfolio.

Over the past decade, we have done a tremendous job retaining our top 25 clients and are excited to see one of our signature wins from fiscal year 2025 already move in the top 20, and one of our signature client wins from fiscal year 2024 move into the top 10. Switching to our verticals, health tech increased to 17.4% of second quarter revenue versus 15.1% in the prior year quarter. Travel, transportation, and logistics increased to 14.1% versus 13.7% in the prior year quarter. Retail and e-commerce remained consistent at 28.6%, and our other vertical increased to 13.7% compared to 10.6% in the prior year quarter.

These increases 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 telecommunications vertical decreased to 8.7% of revenue for the quarter versus 13.1% in the prior year quarter, as we see lower volume from legacy carriers, marking the first time since pre-IPO this vertical comprises less than 10% of revenue. Revenues from the fintech vertical were relatively flat and represented 9.3% of revenue for the quarter versus 11% in the prior year, with expectation of growth in the ensuing quarters. Moving to cash flow, net cash generated from operating activities was a second quarter record of $6.6 million for the second quarter of fiscal year 2026, compared to $1.1 million for the prior year quarter.

The increase was driven by increased revenues and profitability, as well as lower use of working capital. Our DSOs were 73 days, up from 71 days at the end of the first quarter, which is consistent with our expectations. We expect our DSOs to remain stable in the mid-70s on a go-forward basis. Capital expenditures were $11.7 million, or 7.1% of revenue for the second quarter of fiscal year 2026, versus $4.3 million, or 3.1% of revenue in the prior year quarter. This planned increase was primarily driven by expansion in our offshore regions to meet our strong demand.

Following our typical seasonal pattern, free cash flow was an outflow of $5.1 million in the current quarter, compared to an outflow of $3.2 million in the prior year quarter, due to the increase in capital expenditures. During the quarter, we repurchased approximately 78,000 shares for $2.9 million, bringing our fiscal year share repurchase to 170,000 for $5.6 million, and leaving $7.8 million on our share repurchase authorization. We ended the second quarter with $15.5 million of cash and debt of $1.4 million, for a net cash position of $14 million, consistent with a net cash position of $13.7 million at the end of our last fiscal year. In the second quarter, we continued to build on the momentum we have generated over the past 12 months.

Our strong quarterly revenue performance was again led by meaningful growth in our higher-margin geographies, services, and vertical markets, particularly in health tech. This combination of drivers led to a record quarterly adjusted EBITDA of $20.7 million. As we look ahead to the second half of the fiscal year, our robust balance sheet is enabling us to make opportunistic investments to further extend our current AI leadership position. Additionally, with the clear returns we've already seen, we are proactively investing in increased sales resources as well as capacity in our top-performing geographies, positioning us for further success in the years ahead. Considering our outperformance in fiscal year 2026 thus far, we are confident in further raising our revenue and adjusted EBITDA guidance for the year.

Revenue is now expected to be in the range of $620 million-$630 million versus a previous range of $605 million-$620 million. Adjusted EBITDA is now expected to be in the range of $80 million-$82 million versus a previous range of $78 million-$81 million. We now expect capital expenditures to be at the upper end of our previous $20 million-$25 million range. Our business is well positioned for today and the years ahead, and we're excited about the future of ibex as we head into the third quarter of fiscal year 2026 and beyond. With that, Bob and I will now take questions. Operator, please open the line.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from David Koning with Baird. You may proceed.

David Koning (Senior Research Analyst)

Yeah. Hey, guys. Great job again. I guess to kick it off, you know, a lot of market turbulence around AI and who's gonna win and who's gonna lose and new products coming out. It sounds like you're doing very well. Just, you know, and you talked a little bit already about it on the call, but maybe give a little more color on the demand you're seeing. You know, is your industry and your company a benefit of AI? Is it, you know, is it a headwind? Maybe just talk through that a little more.

Bob Dechant (CEO and Director)

Yeah, David, thanks, thanks for the question and, you know, and your opening comments. Couldn't be more prouder of the team that just continues to deliver quarter over quarter. Look, I think we have established ourselves in the AI leadership position in this industry, and there's a lot of, a lot of good things that comes out of that. It helps our new logo engine going in, winning traditional just BPO deals, because this is a company that can take the journey of where our, those clients, those trophy clients, want to go. So it helps us significantly in that. Number two, it helps us in the operational execution of the day-to-day business that we have to outperform, to outdistance our, to continue to distance ourselves from the pack in terms of performance, which then pays off in market share growth.

As an example, and I think this is on the slide, our top ten clients, we grew 20%. Where did that come from? It came from market share of because of our outperformance. Then the third dimension is where we now are creating those AI agentic solutions, you know, AI agents. But the value proposition that we have is very, very unique because we're leveraging the power of our business insights organization and what we do on the human side, and we kinda create that, what I'll call, seamless journey end to end. And it's almost think of it as like an integrated supply chain in the world of, you know, years ago, and all of a sudden you get more velocity through that supply chain, and you engineer cost out, and but you create it as an integrated supply chain.

That's what we're doing and the vision that we're sharing that's different, I believe, than anybody in the industry right now, and that's resonating well.

David Koning (Senior Research Analyst)

Yeah. Great. Thanks for that. I guess, secondly, just the mix of business is changing. It sounds like very favorably, higher margins, better growth and away from telecom towards healthcare. Does that change the kind of sequential pattern of revenue through each year? Or does that, usually Q3 and Q4 are down a couple, you know, a few percent sequentially, whatever. Is there any, like, changes either to that or any other mix shift impacts to the business?

Bob Dechant (CEO and Director)

So that's a really good question, Dave. And, you know, I would say as, you know, most of us kinda have gotten to understand, the world of retail is very, very heavy in the December quarter, right? As, you know, as you get from, you know, Black Friday, Cyber Monday, all the way through the holidays, Christmas and all. And so, you know, we've been a leader in that vertical for a long time, and so you would see a huge spike in Q2, as, you know, kinda you highlight, and then that would start tapering off in Q3 and Q4. I think the mix has changed, and if you look at what we did last year, you know, you could see that, you know, that Q2 to Q3 sequential, you know, did not go down like it has historically.

So it does change some of that. And so, you know, we feel pretty good about, you know, we feel pretty good about, you know, I think, you know, maybe a little bit more consistent flow over the four quarters, you know, and less massive, you know, just a massive spike for Q2.

David Koning (Senior Research Analyst)

Yeah. Okay. And maybe that, that's helpful. And then maybe just one quick last question. The gross margins went down year-over-year, but the operating expense percent of revenue got way more favorable. Is that a little mix of maybe the offshore shift, or what's driving that?

Taylor Greenwald (CFO)

You want me to take that, Bob?

Bob Dechant (CEO and Director)

Yeah, sure, take Tay. Thanks.

Taylor Greenwald (CFO)

Yeah, no. So you're, you're right. We're doing a very good job in terms of growing our SG&A expenses less than revenue, and you're seeing SG&A come down as a % of revenue. And if you look at our gross margins, we're very-- we feel very good about the trajectory of our gross margins in the long term, 'cause if you look at the growth vectors, as Bob was mentioning, they're the, they're the high margin vectors, right? It's the, it's the vertical markets, it's the offshore geos, it's the services, the high-margin services, and then you throw AI in. It's the, the high-margin geos and services which are, are driving our business forward. But we do have a couple headwinds, currently, and, and they're not bad, necessarily bad headwinds to have. One is on our deferred training revenue.

I think we touched on this in the first quarter and also saw it in the second quarter, that the year-over-year impact on deferred training, whereas we're growing, we have more training, and we expense most of the training costs in period, but the revenue associated with training gets spread over the course of the program. So that's a bit of a headwind for us right now during this high-growth phase. And then, in addition, you know, we're less than a year into India right now, and, you know, we're still investing in India, and we're up to where we expect those margins to be. So, you know, those are two headwinds that we feel right now, but as I said, they're not necessarily bad headwinds to have. It's just representative of the growth.

David Koning (Senior Research Analyst)

Yeah. Gotcha. Well, now, thanks again. Great job.

Bob Dechant (CEO and Director)

Great. Thanks, Dave.

Taylor Greenwald (CFO)

Great. Thanks, David.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one, one on your telephone. One moment for questions. I'm not showing any further questions. I'd now like to turn the call back over to Bob Dechant for any closing remarks.

Bob Dechant (CEO and Director)

Great. Thanks, Josh. And thank you all for joining us today. As I've said, I couldn't be more proud of what ibex has accomplished and what this team continually does quarter over quarter. We are a differentiated company. We are best-in-class in culture, engagement, our tech stack, and we are leading the clubhouse in AI. So put all those together, we really like where the future is for this business, and we look forward to reporting on in the next 90 days. Thank you all. Have a good night.

Operator (participant)

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.