Welcome to the IBEX Third Quarter FY 2025 Earnings Conference Call. At this time, please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. 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 Mr. Michael Darwal, Head of Investor Relations for 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 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 in September 2024. With that, I will now turn the call over to IBEX CEO, Bob Dechant.

Thanks, Mike. Good afternoon, and thank you all for joining us today as we share our third quarter fiscal year 2025 results. I'd like to begin today by once again thanking my team for another outstanding quarter. Our track record of delivering great results continues to showcase why they are the best in the industry. And Q3 FY 2025 didn't disappoint. The momentum we have continues to build, and I am excited to report that we have returned to double-digit organic revenue growth at 11%. This marks our best growth in more than two years and resulted in our highest revenue for a quarter ever as a company. Additionally, we had another strong quarter on profitability, where we delivered adjusted EBITDA of $19.4 million at a margin of 13.8% and expanded gross margin by 50 basis points. I am also excited to announce that we achieved a major strategic milestone in the quarter with our entry into the India market for a leading healthcare client. Operating in this key location has been a strategic priority for the company and further enhances our client delivery options. Our reputation as a growth leader in the industry is driven by our success with our powerful new logo sales engine, winning large enterprise deals where we can execute our land and expand strategy. Blue-chip clients choose us for our differentiated capabilities and our ability to disrupt the status quo and outperform our competition. More recently, clients are also choosing us for our ability to quickly bring innovative AI solutions to market, enabling us to solve for today with our BPO solutions and tomorrow with our AI stack. This is a powerful combination. In the quarter, we won four key new logo opportunities, often against our much larger competitors, giving us a total of 12…

Thank you, Bob. And good afternoon, everyone. Thank you for joining the call today. In my discussions of our third quarter fiscal year 2025 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 tables attached to our earnings press release. Turning to our results, our third quarter results are once again among the strongest in our history with record top-line results, strong profitability, and record adjusted EPS. Quarter revenue was $140.7 million, an increase of 11% from $126.8 million in the prior year quarter. Revenue growth was driven by vertical growth in health tech of 20%, travel, transportation, and logistics of 19%, and retail and e-commerce of 15%, along with growth in our digital acquisition business. These increases were partially offset by a decline in the fintech vertical of 12%. It is worth noting this quarter also saw slight sequential growth over our second quarter, which is typically our highest revenue fiscal quarter, the first time in nine years. Market share gains enabled this result. Focused efforts to grow our higher margin offshore delivery locations are continuing to have a favorable impact on bottom-line results. Offshore revenues now comprise 51% of total revenue versus 48% in the prior year quarter, contributing to our 50 basis point gross margin improvement to 31.8%. Revenue mix in our higher margin digital and omnichannel services also continues to be strong. Digital and omnichannel delivery represented 81% of our total revenue, an increase from 78% in the prior year quarter, and grew 16% versus the same quarter a year ago. For context, digital and…

Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. Our first question comes from Jacob Hagerty with Baird. You may proceed.

Hey, guys. Congrats on the great results and getting into India. It's exciting. So I just had a question for you. You guys beat on your sequential, like, you know, against normal sequential trends pretty meaningfully this quarter. And I was just kinda curious if that's something that we should expect going forward. You know, it looks like, you know, based on the guidance kind of at the top end, you're still looking at being below normal sequential trends. So how should we kinda model, like, Q4 sequential trends? Do you expect them to be similar to this quarter, or do you expect a step down? And then kinda going into 2026, is this gonna become a trend of, you know, being able to exceed the historical trends? Thanks.

Yeah. Thanks. And great question. And, Jacob, I appreciate your being on the call and all. So we're really proud that, you know, that our Q3 did not contract from our, you know, our seasonal, typical seasonal, strongest quarter of Q2. How that happened, there are multiple dimensions to that. First of all, over the years, we've done a pretty good job of building our business beyond just heavy, heavy retail. And so when you bring in healthcare opportunities, things like that, a lot of those volumes are not quite, you know, they extend into Q3 pretty well, as, let's say, client customers and members may change plans and such. So we think we've structurally changed it. Now that being said, we have a strong amount of Q2, you know, call it peak holiday volume that we will always have. One of the key things we did this year was we were able to take significant market share away from our competitors in Q3 driven by performance. And so as those volumes were contracted across the enterprise, for our retail customers, they took the volume out of our competitors and kept us, you know, much stronger based off of performance. Our goal is to keep that up year over year. And, you know, so there you know, those are two vectors that drove that. The third is our strength of our new logo, our new logo team. And I when I looked at data, I think we're about $5 million of, you know, new logo revenue in the quarter that, you know, did not exist a year ago. And we expect that to continue. So, you know, look, we would love it to be flat year over year. I don't think that's necessarily the perfect expectation. But I feel pretty confident that the sequential decline from Q2 to Q3 will be muted, you know, will be, you know, the slope down will be a lot less than it has historically been. Now as it relates to Q4, you know, look. You know, we typically decline just a little bit from Q3 to Q4. From a, you know, from an absolute dollar standpoint. We'll see where, you know, where that's going. I mean, trend probably is, you know, is will probably continue. Taylor, you know, I'll throw it over to you, Taylor. Maybe you have it, you know, a little more comment on Q3 to Q4.

Yeah. No, Bob. I think you're correct. I think we will see the trend of a small decline from Q3 to Q4 in our full-year guidance would suggest that. Also, you look at the year-over-year growth rates, you know, Q4 last year was the year where we really started inflecting toward growth. So comps are gonna get a little tougher for us, but we still feel like we have great momentum and are very pleased with the direction of the business.

Yeah. No. I appreciate it. And, just to kind of follow-up on that. So, you know, when we've talked about kinda AI with you guys in the past, it's been about it coming on at a stronger margin. So I just kinda wanted to touch on the year-over-year margin decline this quarter. Is that, like, really just pretty much a percentage coming from your expansion to India? Is there a little piece of, you know, maybe new volume that was signed that's kind of bringing that down a little bit? Or what's kind of the dynamic there?

Sure. Let me start with that. So when we think of our overall business, we actually grew gross margin by 50 basis points year over year. So that is driven by the growth of our high-margin services and regions. We expect that to continue. Now we've made some pretty big investments in the quarter, in particular, India. You know, those costs hit the quarter, but they jump-start you for another vector of growth. So that's how we looked at that. So I think structurally, our business is not under headwinds on margin decline unless we're making aggressive investments for growth, which is, you know, growth in, you know, kind of a, you know, a real strategic footprint for us. So, you know, we feel very good about that trajectory of our business. Now, you know, you kinda touched on AI. Now we believe AI will come in and be even a higher margin service than any of the other services we have in our stack and any of the other geographies we have in our stack today. Now what's really exciting is as we move from Q3 to Q4, I think we are now moving from our business, our AI solutions being what I'll call prototypes and pilots, to now being full deployments. That will have a very, very important impact on our clients' business. And then we'll, as a result, start driving, as I said, meaningful revenue and margin expansion for us. I look at the move from Q3 to Q4 as that inflection point from going, you know, like, exciting pilots to really powerful deployments and, you know, full production deployments. And so we're really excited about that and think that positions us very well into FY '26.

Yeah. No. That sounds good. Just I guess, just kinda touching on and this is my last question. Sorry. Just kinda touching on the AI dynamics there. When you're saying that it's going to provide a meaningful revenue uplift, so is that something that you guys are going to start realizing kinda right away, right at the start of the implementation of these projects, or does that take a, you know, a quarter or two to develop? And then is that something that, you know, you're implementing within your base as well where we might even see existing contracts get a revenue uplift?

Sure. So, you know, really, really good question. You know, we've been winning these deals over the last several quarters. And I would say kinda to your question, it's a couple quarters worth of as you win those, work with clients to, you know, to begin piloting the solution before you go full production. And so we've been deploying these, but mostly in exciting pilots that now are going into production. So those will go into production and should start generating revenue and, you know, revenue and high margin, let's say, starting this quarter, our Q4, and obviously then move stronger into FY '26. The wins that we continue to have will have that probably two-quarter effect of where we pilot them. And then we move into, you know, kind of full-scale production. So, you know, we feel like with the 75 opportunities that we have in the pipeline, we're gonna continue to win. Win at a good rate, and start layering those in as, you know, pilots that evolve into production and you could just see, you know, you can see a, you know, a cascading effect into, you know, into the growth of that, I think, quarter over quarter. So we're pretty, you know, I think we're pretty excited about that. And let me just, there's two key offers we have that we have really made commercial. One is our AI automate, and that's where we are automating customer interactions. And we see low complexity calls as ideal for that. And we're working with our clients to identify those, and bring those in. We, you know, that will go into eliminating some of the human volume. But the math that we've done with our size, when we win those opportunities, we win them on an enterprise basis. We may have 20% of the outsourced work or 30% of the outsourced work, we may lose some of that revenue to the, you know, from the human calls that then goes to AI. But we're winning AI at an enterprise level. The math, we believe that's accretive revenue to us. Now the second solution we have is AI translate. And AI translate for us is where we go after the language translation services bureaus. Where it's a percentage accretive to us. That's every deployment there is accretive, fully accretive revenue to us. So when you put those two together, we believe that AI is a growth vector into our overall business. Even as it may, you know, be offset a little bit with, you know, with, you know, with cannibalizing a little bit of our agent volume. But because we win so much of that on an enterprise level, we believe it's all accretive.

No. That all makes sense. Thank you.

Great. Thank you for the questions.

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

Josh, thank you, and thank you all for attending the call today. As you could tell, we're very proud of the results that we've delivered this quarter. But I think more importantly, these results that we've delivered over quarter after quarter after quarter. You can see the momentum in the business. We're very excited about what we've built. We believe that we have created just a fantastic business in this space. And we're outperforming the industry. Look forward to that. So thank you all, and we look forward to talking to you all after the full-year results in September. Thank you.

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