IBEX Q3 FY2026 Earnings Call - Record Growth Driven by Health Tech Surge and Sierra AI Partnership

Operator: Welcome to the IBEX third 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 Mr. Greg Bradbury, investor relations for IBEX.

Greg Bradbury, Investor Relations, 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 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, Chief Executive Officer, IBEX: Thanks, Greg. Good afternoon, and thank you all for joining us today as we discuss our third quarter results for fiscal 2026. I’m excited to report that our third quarter represented yet another period of outperformance, where we again extended the separation between ourselves and the rest of the traditional BPO market. We delivered record revenue growth of 17% to $164.4 million, while adjusted EPS grew by 11% to $0.91. This was our fifth straight quarter of double-digit revenue growth, seventh of our last eight quarters of double-digit growth in adjusted EBITDA. It was our eighth consecutive quarter of double-digit GAAP and adjusted EPS growth, all done organically. Put together, we have a proven track record of delivering strong results and are confident in our momentum we have going into FY 2027 and beyond.

Our strong results were again anchored by our two key pillars of growth, driving new wins with key logos and market share gains with existing clients, driven by our continued ability to outperform the competition operationally. In fact, over the last five quarters, our growth within our top 10 clients, where we often compete against our multi-billion dollar competitors, has averaged more than 25%. We also had 100% client retention for the quarter and revenue retention for the year of 99.9%. This is the flywheel we have created that continues to drive blistering growth for IBEX. In the quarter, we won another new logo and have since added three additional significant wins in the first few weeks of April for a total of 11 year-to-date. These will set us up well for FY 2027.

Growth within our existing customers continues to be strong and broad-based, coming primarily across our strategic verticals. We continue to win big in our health tech verticals, where growth was nearly 54% and represented the high water mark for the quarter. This vertical has been a standout performer, growing rapidly since we launched it in 2021, and now will far exceed a $100 million business by the end of this fiscal year. This success demonstrates our ability to build and scale new verticals from the ground up and validates our ongoing investment in India as a high-growth market for our business now and in the future. The Ibex brand today is stronger than it’s ever been. Our employee and client Net Promoter Scores remain world-class, and our focus on culture and operational excellence is reinforcing our position as a trusted partner and industry leader.

All this is before we factor in our landmark strategic partnership with Sierra that we formally announced earlier this week. Through this partnership, IBEX will integrate Sierra’s market-leading AI technology with our best-in-class CX expertise, tech integration, and deep analytics to design and deploy scalable end-to-end AI-powered CX solutions. We believe we can stand up these solutions in weeks, not months or years. We are now uniquely positioned to provide a seamless solution that leverages the strengths of both leading AI and human-powered support. The volume and velocity of opportunities in just the first months since signing this partnership has been great, along with several decisive early wins. More to come on this in the near future. We believe this collaboration will be transformative for our business and set IBEX up well for the future.

Within that context of AI’s impact on our industry, I’d like to take some time to share our thoughts on the current state of the market and IBEX’s place in it. Today, there is a pervasive view that with the advent of generative AI, a lot of traditional call center work will be replaced by AI. The belief is that the size of the call center industry and volume of interactions handled by human agents will shrink over time, as a result, the BPO volumes will shrink as well. This is the perceived threat that is front and center in our industry. For labor arbitrage only driven businesses, what I call BPO 1.0, I honestly believe this perceived threat is real and represents a big challenge for their businesses. However, for differentiated providers like IBEX that are leaning into Agentic AI, this instead is an opportunity.

Let me explain. Clients today are looking for partners that are more than labor arbitrage, ones that bring culture, technology, and business insights to create a great experience for their customers. I call this BPO 2.0. They continue to rapidly move away from their legacy BPO 1.0 vendors, shifting from bigger to better in the decision-making process. This plays well for BPOs that are faster, more flexible, and differentiated. For IBEX, our land and expand flywheel, where we win trophy new clients and then take significant market share from the competition, has enabled us to post record results over many consecutive quarters and establish IBEX as the best BPO in the industry. We have done this as many of our clients are currently deploying Agentic AI. In fact, one of our larger clients began deploying an AI agent solution last summer.

Within six months, their call volumes decreased by 20% due to the containments of the AI solution. Yet over the same time, we have been able to continue to grow our overall business at 17%, while revenues with this client hold strong as we continue to take market share away from underperforming competitors. Now that we have established our partnership with Sierra, we have the opportunity to deliver on that solution ourselves, capitalizing on our deep understanding of the customer journeys and strong client partnerships. We believe these solutions will be accretive to our business as we add on the AI volumes on top of our BPO business and create another vector for highly profitable revenue growth. In summary, I am confident that this industry is extremely viable if you are a strong differentiating BPO with the ability to deliver a great Agentic AI solution.

I am even more confident in IBEX and our ability to lead this transformation in the BPO industry. Now, as I look forward, adding this powerful new arrow to our quiver uniquely enables us to provide a truly seamless customer experience from AI agent to human agent. This significantly widens and deepens our already compelling competitive moat and supercharges our already powerful business and defines our leadership position in BPO 3.0. That is the importance of this announcement to our business. To this point, our AI agent solution is seeing early and fast wins. We are winning opportunities versus other AI technology companies, SaaS companies, and BPO competitors, beating them across the board in terms of deal wins, speed to deployment, and successful containment and resolution.

As an example, in one of our early wins with a leading airline, we competed against all three competitor types and easily outperformed the various competitors in a bake-off, having our deployment with Sierra in place and delivering results far exceeding the targeted benchmarks before our competitors could even go live. We did this solution in three languages. As a result, we have now been awarded all the business. We are also seeing exciting traditional BPO opportunities coming to us as a result of our Sierra partnership. As an example, we recently were introduced to a leading luxury activewear brand looking for the right partner to help them scale human agent support to complement their great AI solution as their brand experiences hypergrowth. Within 30 days, we signed and launched this new client in April.

Our ability to respond and execute with speed and experience, and as I like to say, moving at the speed of AI, is setting IBEX apart. Additionally, it is clear that AI is raising the bar for exceptional human agent customer support, which plays very well into our strengths. We are excited with the velocity of our AI pipeline. In summary, we are confident in our ability to outperform the BPO industry. More importantly, we will continue to define and lead the new era of BPO 3.0 as we aim to make ourselves even more valuable and essential to our existing and new clients. I am proud of our team’s execution quarter-over-quarter and remain more optimistic than ever about our future. With that, I will now turn the call over to Taylor to go into more detail on our fiscal third quarter financial results and guidance. Taylor?

Taylor, Chief Financial Officer, IBEX: Thank you, Bob. Good afternoon, everyone. Thank you for joining the call today. In my discussions of our third quarter fiscal year 2026 financial results, references to revenue, net income, and net cash generated from operations are on a US 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 US 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 revenue, adjusted EBITDA, EPS, and adjusted EPS. As Bob mentioned, this was our fifth consecutive quarter of double-digit revenue growth. It was our seventh in our last eight quarters of double-digit Adjusted EBITDA growth, and it was our eighth consecutive quarter of double-digit GAAP and adjusted EPS growth.

Our differentiated solutions and execution are clearly separating us from the pack. Third quarter revenue was $164.4 million, an increase of 16.8% from $140.7 million in the prior year quarter. Revenue growth was driven predominantly by broad-based growth in our high-margin health tech vertical of 53.7%, technology vertical of 42.6%, travel, transportation, and logistics of 15.1%, and retail and e-commerce of 8.3%, along with continued growth in our digital acquisition business, partially offset by an expected decline in telecommunications, one of our smallest verticals, at 23.1%. We continued to win and grow in all geographic markets during the quarter.

Our onshore region grew 36.8% compared to the prior year quarter, driven by growth of our high-margin digital acquisition business and several clients in our higher-margin health tech vertical. Our highest-margin offshore revenues grew 13.9%, and our nearshore locations grew 3.7%. Offshore revenue comprises 50% of total revenue, as onshore revenue expanded to 27.9% of total revenue from 23.8% in the prior year quarter, reflective of the growth in our digital acquisition services and onshore health tech delivery. Our higher-margin digital and omni-channel services continue to strengthen, growing 18% 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, services, and vertical markets, and we expect that we will continue to be successful driving growth in these higher-margin areas as new client wins and growth in our embedded base continue to be focused in these areas. Third quarter net income increased to $13.3 million compared to $10.5 million in the prior year quarter. The increase was primarily driven by the continued revenue growth and operating leverage gained from SG&A expenses as they decreased from 19.2%-16.7% of revenue, partially offset by $800,000 of severance expense. The severance expense was incurred as one of our clients shifted their volumes from our nearshore to higher-margin offshore region. In the shift, we were able to pick up moderate market share.

We expect an additional asset impairment charge related to this move in the fourth quarter as we adjust capacity. Our tax rate was 16.6% versus 19.2% 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 for the fourth quarter to be approximately 19%. Fully diluted EPS was $0.89, up 22% from $0.73 in the prior year quarter. Contributing to the EPS growth was the impact from strong operating performance. Our weighted average diluted shares outstanding for the quarter were 15 million shares versus 14.4 million one year ago.

Moving to non-GAAP measures, adjusted EBITDA increased to a record of $22 million or 13.4% of revenue from $19.4 million or 13.8% of revenue for the same period last year. The 40 basis point decline in adjusted EBITDA margin was primarily driven by the temporary impact of the work shifting from nearshore to offshore and a less positive impact from deferred training revenue, partially offset by lower SG&A expenses as a percentage of revenue compared to the same quarter in the prior year. It’s worth noting that for the first nine months of fiscal year 2026, our adjusted EBITDA margin is up 50 basis points to 13%. Adjusted net income increased to $13.6 million from $11.8 million in the prior year quarter.

Non-GAAP fully diluted adjusted EPS increased 11% to $0.91 from $0.82 in the prior year quarter. As a company, we are pleased with the client diversification we have established over the last several years. For the third quarter of fiscal year 2026, our largest client accounted for 9% of revenue, and our top five, top 10, and top 25 clients, where we see many of our largest competitors, grew 22%, 19.3%, and 15.8%, demonstrating our ability to win market share. The concentrations for these same cohorts represented 35%, 54%, and 77% of overall revenue respectively, as compared to 38%, 54%, and 80% of the overall revenue in the prior year quarter, representative of a well-diversified client portfolio.

Over the past decade, we have done a tremendous job of not only retaining our top 25 clients, but also winning and growing new strategic clients. Two great examples of this are one of our signature client wins from fiscal year 2025, growing into a top 20 client, and one of our signature client wins from fiscal year 2024, growing into a top 10 client. Another signal of our ability to win and scale clients is the growth we continue to see in clients averaging more than $1 million per annum in revenue, the count of which has grown nearly 20% from the prior-year quarter to 70 clients in the third quarter. Switching to our verticals, health tech grew 54%, an increase to 20.8% of the third quarter revenue versus 15.8% in the prior-year quarter.

Technology grew 43%, an increase to 9.2% compared to 7.5%. Our other vertical increased 27%-14% of total revenue compared to 13% 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 lower margin telecommunications vertical decreased to 8.6% of revenue for the quarter versus 13.1% in the prior quarter, as we see lower volume from legacy carriers.

Revenues from the fintech vertical were up 5% and represented 9.7% of revenue for the quarter versus 10.8% in the prior year quarter, and revenues from retail and e-commerce grew 8.3%, representing 23.9% of revenue versus 25.8% in the prior year. Travel, transportation, and logistics grew 15% and stayed relatively constant at 13.8% of revenue. Moving to cash flow. Net cash generated from operating activities was a strong $11.9 million for the third quarter of fiscal year 2026 compared to $8.8 million for the prior year quarter. The increase was primarily driven by increased revenue and profitability. Our DSOs were 71 days, down from 73 days at the end of the second quarter, which is consistent with our expectations.

We expect our DSOs to remain stable in the low to mid-70s on a go-forward basis. Capital expenditures were $5.3 million or 3.2% of revenue for the third quarter of fiscal year 2026, consistent with the prior year quarter. Free cash flow was an inflow of $6.6 million in the current quarter compared to an inflow of $3.6 million in the prior year quarter, driven by the increase in net cash generated from operating activities. During the quarter, we repurchased approximately 140,000 shares for $4.5 million, bringing our fiscal year share repurchase to 310,000 shares for $10.1 million, and leaving $3.2 million on our share repurchase authorization.

We ended the third quarter with $15.4 million of cash and debt of $1.4 million for a net cash of $14 million, consistent with a net cash position of $13.7 million at the end of our last fiscal year. Our strong financial results in fiscal year 2026 are being driven by our differentiated strategy and sustainable growth trends with our clients, giving us confidence in continued outperformance heading into fiscal year 2027. Our third quarter revenue was again led by meaningful growth in our higher margin services and vertical markets, particularly a robust growth in health tech. This combination of drivers led to a record quarterly adjusted EBITDA of $22 million.

As we head into the fourth quarter, our healthy balance sheet and cash flows are enabling us to make thoughtful investments to support increased capacity for anticipated growth, as well as further extend our current AI leadership position. Reflective of our outstanding performance thus far and our forward momentum, we are again raising our revenue and adjusted EBITDA guidance for the year. Revenue is now expected to be in the range of $638 million-$642 million, up from $620 million-$630 million. Adjusted EBITDA is now expected to be in the range of $82 million-$84 million, up from $80 million-$82 million.

CapEx are now expected to be in the range of $25 million-$30 million, up from our previous range of $20 million-$25 million as a result of ongoing investment to meet increased demand in higher margin regions. Our business is well positioned for today and for the years ahead. We’re excited about the future of IBEX as we head into Q4 of fiscal year 2026 and beyond. With that, Bob and I will now take questions. Operator, please open the line.

Operator: 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 Dave Koning with Baird. You may proceed.

Dave Koning, Analyst, Baird: Yeah. Hey, guys. Congrats on another good quarter.

Bob Dechant, Chief Executive Officer, IBEX: Thanks, Dave. Yeah, we’re very proud of what we continue to do.

Dave Koning, Analyst, Baird: Yeah, for sure. Well, I wanted to kick it off just the new AI partnership. I have two questions around that. One is model. Then secondly around that, how do you, how do you decide, you know, whether to use some of your AI solutions or their AI solutions? Does this cannibalize some of your stuff? You know, how does that, how does that all work?

Bob Dechant, Chief Executive Officer, IBEX: Sure, Dave. Let me repeat what I think I heard you say because you were a little bit garbled, at least from my end. The question was really around with the Sierra, how does that impact or, you know, versus the stuff that we’ve built ourselves. I think it’s very easy to get, you know, to describe that. The elements that we’ve built in the Wave iX stack are in our internally focused business, things that can help our agents do their jobs better. Things like training simulators for agents, things like agent assist, you know, something at their side that they can use that’s AI to help them resolve, you know, a complex issue quicker. Those are the elements that we have built internally.

As it relates to AI agents, our philosophy was there’s no way we could compete against the best in class out there that are creating that engine. For us trying to build that, we would have fallen flat on our face in front of every CTO in the industry. We therefore believe that we wanted to partner with the leading player in the industry. Sierra is clearly that leader, a cut above.

From their standpoint, when they looked at us, they said, "Look, what you guys are doing, how you’ve leaned in, you guys are a cut above." Really aligned very well, you know, with the two companies’ visions, philosophies, and positions in the industry. To your point, it does not impact at all. In fact, you know, this gives us now the best in class engine with the best in class BPO.

Dave Koning, Analyst, Baird: Yeah. Okay. I also asked about the economic model. How does the rev share work on that?

Bob Dechant, Chief Executive Officer, IBEX: Sure. The contracts that we’re gonna be doing are gonna be IBEX contracts that we will be, you know, billing our clients on that. Then, you know, our teams will be working, building the implementations, et cetera. Then, you know, we have an arrangement with Sierra that those costs, you know, we’ve negotiated a cost structure for those resolutions and all. With the combination of the two, Dave, we believe it’s very accretive to BPO margins. You know, just directionally, our BPO margins are in the 30% gross margin range. These are technology slash software margins, which, as you know, are significantly higher, you know.

We feel, we feel that this is a high growth vector for us that will drive significant margin expansion for us when you put all that into the, you know, into the equation. I think your last part of your question, Dave, if I got it right, was, you know, hey, how do you see this cannibalizing your, you know, your business? Look, we’re leaning into that. We’re leaning into that. Our clients have been, you know, moving in AI, and we’re growing our business at the highest of anybody in the industry, as you can see. That’s been many quarters. We’ve been able to do that because of the flywheel, winning new clients and then taking market share from those clients.

This accelerates that because it validates us as a, as a cut above, as a differentiated player. As I mentioned on my remarks, they brought us opportunities that we’ve closed in AI speed, not BPO speed. We think that on whole, this is gonna accelerate our overall growth business. It will cannibalize some of our business that we have as human volume gets displaced by AI. If we have that solution in place, I can guarantee you that the models say that it’ll be accretive for revenue. You know, having the AI solution and the revenues associated to that, plus what we have on the BPO side, on the human side, add those two together, it will be a growth factor for us.

One of the real advantages of being fast, nimble, leaned in, and where all of this is opportunity for us.

Dave Koning, Analyst, Baird: Yeah. Great. If I can just do one more. On health, 54% growth, how much of that was new clients? How much of that is just existing clients growing? Is there any lumpy revenue, like not unsustainable revenue in Q3 because it was so, you know, so strong?

Bob Dechant, Chief Executive Officer, IBEX: Yeah, great question, Dave. Over the last two years, we’ve brought in six new logos on the healthcare space that are meaningful new logos, you know, players that are, you know, are leaders in their respective spaces. It’s a combination of that, we have a couple of the, you know, in particular, you know, the largest payer in the world. We’ve just been taking a whole lot of market share. Our 54% growth is an and. We’re taking market share where clients have massive budgets, north of $600 million.

Then we are winning a lot of, you know, very competitive new logos that we’re winning that’s driving that growth. You know, what’s interesting is some of that is landing in the U.S., and I will just call out the beauty of that is Dave, you’ve been with us forever, and you know that, you know, our U.S. business has, over the years, been a low-margin business, where the majority of our margins were made outside the U.S. Over the last two years with our play in healthcare, we have done a complete transformation of the U.S. market.

Now you can see it’s actually not at a trough, it’s growing and growing well, but it’s growing profitably because we’ve just taken what I would call legacy old telcos, where nobody ever makes money on them, and we’ve replaced them with leading healthcare companies. An amazing shift that we’ve done that is, you can see that in the results on top line and bottom line, you know, results.

Taylor, Chief Financial Officer, IBEX: Bob, just to follow-up on Dave’s question too. None of that revenue was one time in nature, Dave. It’s all sustainable and, you know, this is the new run rate for healthcare.

Dave Koning, Analyst, Baird: Awesome. Thanks, guys. Good job.

Bob Dechant, Chief Executive Officer, IBEX: Yeah, Dave. You know, to that point, what Taylor just said is if you look at how our business flows now, you know, historically, if you go back five years ago, Q2 for us, our Q2, the December quarter, was always a big increase, then our revenues came down. You know, would come down hard, you know, as a result of the retail and some of the, you know, open enrollment, let’s say, for healthcare in the early days of that. Today, if you look the last couple of years, we’ve been very smooth from Q2 to Q3, you know, and beyond. You know, you know, our business is structurally built that way.

There, you know, to Taylor’s point, there’s no real Q3 or Q2, you know, kinda one-time bumps that or Q3 one-time bumps that are gonna, that go down. It is sustainable and repeatable.

Dave Koning, Analyst, Baird: Gotcha. Well, thanks, guys. Good job.

Bob Dechant, Chief Executive Officer, IBEX: Yeah. Thanks, Dave.

Taylor, Chief Financial Officer, IBEX: Thanks, Dave.

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

Bob Dechant, Chief Executive Officer, IBEX: Thanks, Josh. Thank you all for listening today. I’d like to close by once again just thanking my entire organization who is the best in the industry, and they continue to deliver and execute. We built this amazing flywheel here, and we love the trajectory of our business in the future. Now with our Sierra announcement, we believe our business is extremely future-proofed and will be strong over the long haul. Thank you all. Look forward to talking next quarter.

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