IBEX(IBEX) - 2021 Q4 - Annual Report

Introduction The company's common shares were listed on Nasdaq in August 2020, with financial statements prepared under IFRS and presented in U.S. dollars - The company's common shares were listed on the Nasdaq Global Market under the ticker symbol "IBEX" on August 7, 2020[17] - The company's fiscal year ends on June 30, and audited consolidated financial statements for the three years ended June 30, 2021, have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB)[19] - All financial information is presented in U.S. dollars[20] Cautionary Statement Regarding Forward-Looking Statements This report contains forward-looking statements subject to risks, including COVID-19, cyberattacks, client retention, international operations, and data privacy compliance - This annual report contains forward-looking statements that are subject to risks and uncertainties, highlighting key factors that could cause actual results to differ materially from projections[22] - Important risk factors mentioned include the ongoing impact of the COVID-19 pandemic, the effect of cyberattacks on information technology systems, the ability to attract and retain key clients, the ability to manage international operations, particularly in Pakistan, the Philippines, Jamaica, and Nicaragua, and the ability to comply with privacy, data protection, and information security laws[23] PART I Key Information This section provides an overview of IBEX as a leading customer support provider, presents selected historical financial data, and details significant business, jurisdictional, and share-related risks Selected Financial Data The company presents selected consolidated financial data for FY2018-2021, showing consistent revenue growth, fluctuating net income, and non-GAAP measures like Adjusted EBITDA and Free Cash Flow Selected Financial and Operating Data (US$ in thousands) | Indicator | 2021 | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $443,662 | $405,135 | $368,380 | $342,200 | | Income / (loss) from operations | $13,799 | $19,513 | $6,805 | $(17,777) | | Net income / (loss) for the year | $2,847 | $7,770 | $10,965 | $(15,881) | | Adjusted EBITDA from continuing operations (unaudited) | $66,244 | $55,241 | $38,512 | $4,886 | | Adjusted EBITDA margin (unaudited) | 14.9% | 13.6% | 10.5% | 1.4% | | Total assets | $274,287 | $195,236 | $188,302 | $157,081 | | Total equity | $80,659 | $16,148 | $8,628 | $27,953 | Risk Factors The company faces numerous business, jurisdictional, and share-related risks, including COVID-19 impacts, cybersecurity attacks, client concentration, Bermuda incorporation, and principal shareholder control - Business Risks: - COVID-19 Pandemic: The pandemic has adversely impacted business and results, with ongoing uncertainty, requiring remote work mobilization that poses operational and cybersecurity risks, and potentially increasing costs for facility reconfiguration and employee health management[39] - Cybersecurity Attack: The company was targeted by a ransomware attack on August 17, 2020, impacting a portion of its IT systems and resulting in the exfiltration of some non-production data, which, while not believed to have a material impact, could lead to future losses or reputational harm[53] - Client Concentration: A substantial portion of revenue comes from a few key clients, with the top three clients accounting for 35.0% of revenue in FY2021, down from 43.7% in FY2020 and 50.6% in FY2019[56] - Jurisdictional & Shareholder Risks: - Bermuda Incorporation: The company is subject to Bermuda's Economic Substance Act 2018, requiring a substantial economic presence, and as a foreign private issuer, it is exempt from certain U.S. proxy rules and Nasdaq corporate governance standards[162] - Control by Principal Shareholder: The largest shareholder, The Resource Group International Limited (TRGI), beneficially owns approximately 62% of outstanding common shares, giving it substantial control over key transactions and board appointments[170] - Amazon Warrant: A 10-year warrant issued to an Amazon subsidiary could dilute ownership interests if exercised, and its fair value fluctuations could adversely impact results of operations[199] Information on the Company This section details the company's history, including its 2017 reorganization and 2019 spin-off of Etelequote, and provides a comprehensive business overview, outlining its transformation into a technology-led CX provider, service offerings, global delivery model, growth strategy, organizational structure, and property, plant, and equipment History and Development of the Company IBEX Limited was incorporated in 2017 by TRGI to consolidate its customer experience (CX) businesses, completed a reorganization, spun off Etelequote Limited in 2019, and qualifies as both an "Emerging Growth Company" and a "Controlled Company" - On June 30, 2017, TRGI completed a Reorganization Transaction, resulting in various continuing business entities becoming subsidiaries of IBEX Limited[205] - On June 26, 2019, the company transferred all its equity interests in Etelequote Limited to its parent company, TRGI, for a consideration of $47.9 million, with Etelequote now treated as a discontinued operation[209] - The company qualifies as a "controlled company" under Nasdaq rules because more than 50% of its voting power is held by TRGI, exempting it from certain board and committee independence requirements[215] Business Overview IBEX is a technology-led CX solutions provider, focusing on high-growth clients through ibex Connect, Digital, and CX platforms, powered by Wave X, with a global delivery model and 'land and expand' strategy - The company has transformed from a traditional BPO to a technology-led CX provider, focusing on high-growth brands, with new clients acquired since FY16 representing approximately $230 million of revenue in FY21, accounting for 52% of total revenues[225][230] - IBEX's service offerings are categorized into three main areas: - ibex Connect: Core offering for omni-channel customer service, technical support, and back-office services[269] - ibex Digital: Technology-driven customer acquisition solutions, including digital marketing and e-commerce[270] - ibex CX: A suite of tools to measure, monitor, and manage clients' customer experiences and analytics[271] - The company's growth strategy focuses on a "land and expand" model, winning new digital-first clients and then expanding the scope of services, resulting in revenues from client relationships in their second year being 2.5x to 3.5x of their first-year revenues[258][259] - IBEX has significantly shifted its capacity to lower-cost regions, with 74% of its capacity as of October 1, 2021, located in offshore and nearshore markets like the Philippines, Jamaica, and Nicaragua, up from a smaller proportion in prior years[239][255] Property, Plant and Equipment As of June 30, 2021, the company operated 31 leased delivery centers across seven countries with 17,916 workstations, primarily in the Philippines, Jamaica, and Pakistan Delivery Centers and Workstations by Country (as of June 30, 2021) | Country | Number of centers | Number of workstations | | :--- | :--- | :--- | | United States | 6 | 2,153 | | Philippines | 9 | 7,335 | | Pakistan | 7 | 2,300 | | Jamaica | 5 | 4,399 | | Nicaragua | 2 | 1,510 | | Senegal | 1 | 204 | | United Kingdom | 1 | 15 | | Total | 31 | 17,916 | Operating and Financial Review and Prospects This section analyzes the company's financial condition and results for FY2019-2021, detailing key performance factors, operational results, non-GAAP measures, liquidity, capital resources, and contractual obligations Operating Results FY2021 revenue grew 9.5% to $443.7 million, driven by new clients, while operating income decreased due to COVID-19 costs and warrant adjustments, with Adjusted EBITDA increasing to $66.2 million Consolidated Statement of Profit or Loss (US$ in thousands) | | Fiscal Year ended June 30, | | :--- | :--- | :--- | :--- | | | 2021 | 2020 | 2019 | | Revenue | $443,662 | $405,135 | $368,380 | | Income / (loss) from operations | $13,799 | $19,513 | $6,805 | | Net income / (loss) for the year, continuing operations | $2,847 | $7,770 | $(4,519) | | Net income / (loss) for the year | $2,847 | $7,770 | $10,965 | - In fiscal year 2021, the company invested approximately $13 million in employee health, safety, and wellness related to COVID-19, including transportation, disinfection, and company-paid vaccinations, compared to $6.1 million in net costs incurred in FY2020[336] Reconciliation of Adjusted EBITDA from continuing operations (US$ in thousands) | | Year ended June 30, | | :--- | :--- | :--- | :--- | | | 2021 | 2020 | 2019 | | Net income / (loss) from continuing operations | $2,847 | $7,770 | $(4,519) | | Finance expense | 9,034 | 9,428 | 7,709 | | Income tax expense | 1,918 | 2,315 | 3,615 | | Depreciation and amortization | 28,197 | 24,472 | 21,805 | | EBITDA from continuing operations | $41,996 | $43,985 | $28,610 | | Adjustments (Non-recurring, share-based payments, etc.) | 24,248 | 11,256 | 9,902 | | Adjusted EBITDA from continuing operations | $66,244 | $55,241 | $38,512 | Liquidity and Capital Resources Principal liquidity sources are operations and credit facilities; cash increased to $57.8 million due to the August 2020 IPO, and net debt decreased to $54.7 million Summary of Cash Flows (US$ in thousands) | | Year ended June 30, | | :--- | :--- | :--- | :--- | | | 2021 | 2020 | 2019 | | Net cash inflow / (outflow) from Operating activities | $25,897 | $51,719 | $2,202 | | Net cash inflow / (outflow) from Investing activities | $(20,173) | $(4,835) | $(9,084) | | Net cash inflow / (outflow) from Financing activities | $30,429 | $(33,867) | $2,552 | | Net increase / (decrease) in cash | $35,972 | $12,997 | $(4,646) | - The company's cash position improved significantly due to its initial public offering in August 2020, which raised net proceeds of $63.1 million[458] Net Debt Calculation (US$ in thousands) | | June 30, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Total debt (Borrowings and Leases) | $112,516 | $105,970 | | Cash and cash equivalents | $57,842 | $21,870 | | Net debt | $54,674 | $84,100 | Contractual Obligations As of June 30, 2021, total contractual obligations were $143.6 million, primarily comprising lease obligations, lines of credit, and long-term borrowings Future Contractual Obligations as of June 30, 2021 (US$ in thousands) | Obligation | Total | Less than one year | 1 to 3 years | 4 to 5 years | Over 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Lease obligations | $112,885 | $18,344 | $32,811 | $25,725 | $36,005 | | Long term borrowings | $6,481 | $4,626 | $1,855 | — | — | | Lines of credit | $22,312 | $22,312 | — | — | — | | Total obligations | $143,641 | $45,732 | $35,229 | $25,725 | $36,955 | Directors, Senior Management and Employees This section covers leadership, compensation, board structure, and employee base, detailing executive backgrounds, aggregate compensation, equity plans, and the global workforce of 24,243 employees Compensation FY2021 aggregate compensation for directors and executive officers was approximately $7.0 million, including salary, share-based payments, and bonuses, with the 2020 LTIP as the primary equity incentive plan - Aggregate compensation for directors and executive officers in fiscal year 2021 was approximately $7.0 million, comprising $2.8 million in salary, $1.7 million in share-based payments, and $2.5 million in commissions and bonuses[522] - The company adopted the IBEX Limited 2020 Long Term Incentive Plan (2020 LTIP), authorizing 1,287,326 common shares for issuance, which is the primary vehicle for future equity awards[522][557] - The 2017 IBEX Plan was terminated on December 28, 2018, and all grants were cancelled; the 2018 Restricted Share Plan (2018 RSA Plan) was subsequently adopted, with no further awards made under it as of May 2020, and future grants coming from the 2020 LTIP[536][551] Employees As of June 30, 2021, IBEX had 24,243 global employees, mostly production agents, with a strong focus on workplace culture for recruitment and retention, and no unionized workforce Employees by Functional Area (as of June 30, 2021) | Function | Number of Employees | Percent of Total | | :--- | :--- | :--- | | Production agents | 19,224 | 79.3% | | Production support | 3,226 | 13.3% | | Corporate & Other | 1,693 | 7.4% | | Total | 24,243 | 100.0% | - The company considers its employees its most valuable asset and focuses on a strong workplace culture to drive recruitment and retention, with none of its employees part of a labor union[617][618] Major Shareholders and Related Party Transactions This section details the company's ownership structure, with TRGI as the principal shareholder controlling 62% of shares, and outlines key related-party agreements and transaction approval policies Major Shareholders As of September 1, 2021, TRGI beneficially owned 61.8% of outstanding common shares, granting it significant control, while executive officers and directors collectively owned 8.9% Beneficial Ownership as of September 1, 2021 | Name | Number of Shares | Percentage | | :--- | :--- | :--- | | TRGI (Principal Shareholder) | 11,416,683 | 61.8% | | All executive officers and directors as a group (15 persons) | 1,638,229 | 8.9% | Related-Party Transactions The company has several related-party transactions, primarily with TRGI and its affiliates, including a Stockholders' Agreement requiring TRGI's consent for material actions, and registration rights for TRGI and Amazon - A Stockholders' Agreement with TRGI requires TRGI's prior written consent for a range of material actions, including significant acquisitions, mergers, asset dispositions, and incurrence of indebtedness[636] - On July 21, 2020, the board approved a one-time dividend of $4.0 million, which was paid to TRGI as the holder of the Series A preferred share prior to the IPO[635] - The company has granted registration rights to both TRGI and Amazon, allowing them to require the company to register their shares for public sale under certain conditions[639][640] Additional Information This section covers material contracts, exchange controls, and U.S. and Bermuda income tax consequences for shareholders, including the company's tax assurance until 2035 and its expected non-PFIC status Taxation The company is exempt from Bermuda income taxes until 2035 and expects U.S. federal income tax distributions to be dividends, not anticipating classification as a Passive Foreign Investment Company (PFIC) - There is currently no Bermuda income tax, withholding tax, or capital gains tax payable by the company or its shareholders, and the company has received an assurance from the Bermuda Minister of Finance that this will not change until at least March 31, 2035[668] - For U.S. federal income tax purposes, the company does not expect to be classified as a Passive Foreign Investment Company (PFIC) for the current or foreseeable future tax years; however, this is a factual determination made annually[681] PART II Material Modifications to the Rights of Security Holders and Use of Proceeds In August 2020, the company completed its IPO, selling 3,571,429 common shares at $19.00, raising $63.1 million net proceeds for facility expansion, system upgrades, and potential debt repayment - In its August 2020 IPO, the company sold 3,571,429 common shares at $19.00 per share, raising net proceeds of approximately $63.1 million[698] - The net proceeds are intended to be used for building out and expanding facilities, investing in upgraded support systems, and/or repaying high-interest debt[699] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of June 30, 2021, successfully remediating a material weakness identified in the prior fiscal year - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[701] - A material weakness in internal control over financial reporting related to complex accounting matters, identified during the FY2020 audit, was determined to be remediated as of June 30, 2021[704] PART III Financial Statements This section contains the audited consolidated financial statements for FY2019-2021, prepared under IFRS, including the independent auditor's report, core statements, and detailed notes Notes to the Consolidated Financial Statements The notes provide detailed information on basis of preparation, critical accounting estimates, revenue recognition, borrowings, leases, share-based compensation, related-party transactions, and the Etelequote spin-off - Going Concern: Management has a reasonable expectation that the Group has adequate resources to continue its operational existence for at least twelve months from the date of approval of the financial statements, despite incurring non-recurring expenses due to COVID-19[751][754] - Revenue Recognition: Revenue from contact center services is recognized over time as services are performed; revenue from digital services is recognized at a point in time upon successful customer acquisition; revenue from the discontinued ETQ operation included estimates for renewal commissions[835][838][839] - Warrant: A 10-year warrant was issued to Amazon to acquire 1,674,017 common shares at an exercise price of $9.42, vesting based on revenue milestones, and accounted for as a liability at fair value, with changes in fair value recorded in the income statement[1126][1127][1128] - Discontinued Operations: On June 26, 2019, the Group transferred its Etelequote Limited subsidiary to its parent company, TRGI, with the results of Etelequote presented as a discontinued operation, which had net income of $15.5 million in FY2019[1146][1150]