IBEX GLOBAL SOLUTIONS PLC ORD 1P (IBEX) Q1 2022 Earnings Call Transcript

IBEX GLOBAL SOLUTIONS PLC ORD 1P (IBEX 0.23%)
Q1 2022 Earnings Call
Nov 22, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to IBEX's first quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference may be recorded.

[Operator instructions] I would now like to turn the call over to your host, Brinlea Johnson of Blueshirt Group.

Brinlea Johnson -- The Blueshirt Group

Good afternoon, and thank you for joining us today. Before we begin, I want to remind you that matters discussed today 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 opinions 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 final prospectus filed with the Securities and Exchange Commission on August 10, 2020. With that, I'll turn it over to Bob Dechant, CEO.

Bob Dechant -- Chief Executive Officer

Thank you, Brinlea. Good afternoon, and thank you all for joining us today as we discuss our first quarter fiscal year 2022 financial results. We are excited to speak to you today as Karl and I share our business overview and our results. First and foremost, we hope you are all staying safe and healthy.

The pandemic reminds us each and every day to put our employees and their families first. A critical factor in our success is our people. Without our employees, their driving commitment to put our customers first, we would not have achieved the success we are experiencing today. Many thanks to each of them for their continued commitment to our business.

As we shared with you last quarter, we are in the midst of a very exciting year at IBEX, are earmarked by key strategic growth initiatives that includes formally launching our staff augmentation business we call IBEX Augment, expansion of our Wave X technology, and geographic expansion into Honduras driven by our long-term thinking as we invest for our future and continue to transform our business. As expected, the first quarter proved to be our slowest of what will otherwise be an impressive year for IBEX. This was really driven by the tale of two cities: our growth engine, now 62% of revenues; and our legacy customer group, largely comprised of telco customers, which experienced a significant one-time reset last year and is now approaching the tail end of the decline and rough comparisons year over year. The growth engine consisting of clients new from FY '16 who are adopting our omnichannel capabilities now make up 62% of our business, up from 46% in prior year and 52% from Q4 FY '21 and this continues to grow at an explosive rate.

This has driven a remarkable change in the mix of our business, including our top clients. Today, our largest client represents 11% of our revenues. In FY '16, our top three clients were approximately 80%, and we continue to add to this engine. Our sales organization continues to really set the tone for the business with another strong quarter of revenue growth and the addition of nine new clients across key verticals.

As a reminder, this comes on the heels of last year, which we drove 23 new clients, a record for IBEX, and we are well on our way to delivering another exceptional year in new client revenue and wins. As I have previously discussed, our growth model is designed to deploy a land-and-expand approach with our clients. We deliver exceptional CX results with extremely proficient launches and then showcase the additional insights and partnerships and issues that Wave X and our business intelligence tools can offer. This allows us to win new lines of business and service with these clients and expand our wallet share with them over time.

On average, the revenues in Year 2 of our client relationships are between 2.5 to 3.5x of Year 1 revenues with continued strong growth into Year 3 and beyond. We've shared this in a table in our recently filed annual report, which I encourage everyone to review. Now, as an example, one of our strategic clients we won in FY '19, who quickly became a top 10 client for us, recently expanded with us in two additional locations in the Philippines and Jamaica, effectively doubling the size of our business. As part of the expansion into new state-of-the-art facilities, IBEX was awarded two new lines of business plus additional market share.

IBEX is consistently ranked in the first two positions for performance in the customer's outsourced BPO network. This growth that we have won is expected to move our client into our top three clients later this year. In Q1, though, this growth was offset by declines in our legacy three clients, where one-time events occurred in our two legacy telco customers, one which emerged from bankruptcy, and the other, which had a major divestiture last year. This decline, which played out over the last three quarters will be behind us beginning in the third quarter.

These clients now represent only 25% of existing revenue exiting the quarter, which going forward, will be overshadowed by our new omnichannel business. As a result of our powerful growth engines scaling to such a substantial percentage of our business, as well as our revenue diversification, our client mix has purposely and structurally changed. This is most evident in the repositioning of our top three clients. As of this quarter, we now have a new No.

1 client when measured by revenue over the last 12 months. This client is one of the most dominant technology providers and marketplaces in the world. This not only represents a meaningful strategic relationship but a key partner and partner partial owner in our business with warrants and an underlying common equity ownership. As indicated above, we also believe that we will soon have another high-growth, omnichannel client entering our top three later this year.

These relationships represent a paradigm of IBEX 2.0, where we deliver differentiated customer value propositions and a new level of service for our clients and in key strategic relationships like this offer a dedicated team in place, not only as an extension of our customers' brands but internally to support this relationship as well. As a result, these relationships with our clients have become mission-critical extensions of their brands and creating a business that's truly essential as evidenced by our continued 100% retention within our top 20 clients. As I noted in our earnings release, our spending this quarter outpaced our revenues as we onboard new clients and invest in key long-term growth initiatives. We have added 4,100 new seats in the calendar year representing a 25% increase.

While this was initially done to invest ahead of the curve, we ultimately have such a strong backlog and demand from our customers looking to grow with us. In hindsight, it is largely being done just to service that customer base and the new clients. This includes our expansion into Honduras, a new market for IBEX, and one in which we are very excited about. We have a strong early mover advantage and are entering the market with a beautiful state-of-the-art CX delivery center, which will serve as our anchor in the region.

We believe that we have the ability to become the leader in this market just as we have done in Jamaica, in Nicaragua, and the island of Bohol. We have always invested for our future and will not manage the business for a given quarter. We have a significant pipeline of committed business, and we expect to return to growth this quarter. Turning to our balance sheet.

We have a strong cash position. The company is currently levered at approximately 1.8 times EBITDA and thus has significant room for increasing leverage when additional opportunities present themselves. In closing, while we are, of course, disappointed by the short-term pause after 16 quarters of impressive revenue growth and achieving record margins along the way, we expect this track record to resume in our current quarter. As such, our guidance is reaffirmed, and we are incredibly excited about what's ahead for IBEX.

I will now turn the call over to Karl. Karl, over to you.

Karl Gabel -- Chief Financial Officer

Thank you, Bob, and good afternoon, everyone. Thank you for joining the call today. I'll start off with our first quarter 2022 results and then turn to our fiscal year 2022 guidance. Our technology-led clients continue to grow at an impressive rate, and clients continue to rely on IBEX as a trusted partner for their significant seasonal volume.

Our HealthTech and FinTech strategic verticals, coupled with our digital-first client wins, continue to outpace our more mature health communications clients and provides a platform for utilization of our competitive and differentiating Wave X technology solutions. In my discussion of financial results, references to revenue and net income are on an IFRS basis while adjusted net income, adjusted EBITDA, and adjusted earnings per share are on a non-GAAP basis. Reconciliation of our IFRS to non-GAAP measures are included in the tables attached to our earnings press release. First quarter revenue was flat at $108.6 million, compared to $108.8 million in the prior-year quarter.

Current quarter revenue was impacted by significant decreases related to our legacy top three clients, which now represents only 25% of our revenue, as well as decreases related to our digital marketing volumes. These decreases were offset by continued growth in our clients won since fiscal year '16. This cohort grew by 34% over the prior-year quarter and now represents 62% of our total revenue. In addition, we deferred net trading revenue of $3.5 million, compared to $1.2 million in the prior-year quarter, indicating significant future revenue growth but impacting both revenue and margins in the quarter.

Net income in the first quarter was $3 million, compared to a net loss of $3.4 million for the same period last year. On a non-GAAP basis, adjusted net income was $0.9 million versus $5.5 million last year, and adjusted fully diluted earnings per share was $0.05 versus $0.32 in the prior-year quarter. Adjusted EBITDA for the first quarter of fiscal year 2022 was $11.5 million or 10.6% of revenue, compared to $15.8 million or 14.5% of revenue in the prior year. Adjusted EBITDA margin decreased primarily due to significant increases in payroll and other costs related to ramping new business in the quarter, lower digital marketing volumes, and long-term investments in our sales and marketing organization and cybersecurity technologies as we continue to scale up the business.

We are excited about the major improvement in our client concentration. On a trailing 12-month revenue basis, we now have a new top client who is the leading technology provider and marketplace in the world. Our top three client concentration decreased by almost 10 full percentage points to 28.7% this quarter from 38.1% of overall revenue in the year-ago quarter. Our FinTech and HealthTech verticals continue to grow in response to our aggressive investments two years ago, increasing significantly to 20.5% in the first quarter, up from 9.9% in the first quarter of fiscal year '21.

The Telecommunications vertical decreased to 21.5% of revenue as compared to 33.5% a year ago. Total capital expenditures, including cash and noncash amounts, were $9.7 million or 8.9% of revenue in the first quarter of fiscal year 2022 versus $3.2 million or 3% of revenue last year. We added close to 900 new seats in our high-margin, nearshore, and offshore locations during the quarter with approximately another 2,300 seats expected to come online in the second quarter. Net cash generated from operations was $6.9 million for the quarter, up 16%, compared to $5.9 million in the first quarter of fiscal year 2021, positively impacted by decreases in nonrecurring costs, cash taxes, and working capital offset by lower adjusted EBITDA.

DSOs were 63 days for the first quarter, up 10 days from the same period last year and seven days sequentially. The sequential quarter increase was driven by timing of collections, while the year-over-year increase was also impacted by one of our larger clients reverting to standard payment terms. Non-GAAP free cash flow decreased to $1.6 million from $2.7 million in the prior year. The decrease in free cash flow was primarily driven by an increase in cash capital expenditures of $5.3 million as compared to $3.2 million from last year.

On a normalized basis, after the warrant fair value adjustment, we expect our annual tax rate to continue to decrease to the mid-single digits, reflecting the ongoing benefits of our tax planning efforts. In addition to the expected decrease in our overall normalized tax rate, we will also recognize a deferred tax benefit of approximately $4 million this year. Our balance sheet remains strong, and we ended the quarter with $54 million in cash, total borrowings of $28.3 million, and lease liabilities of $86.6 million, compared to cash of $57.8 million, total borrowings of $28.5 million, and lease liabilities of $84 million as of June 2021. Turning now to our fiscal year 2022 guidance.

We are reaffirming our guidance for full year revenue growth of 7% to 9% and EBITDA of $69 million to $71 million with capex commitments of $30 million to $35 million. With continued wins from our strategic verticals and digital-first clients, the significant investments we're making to increase our capacity to meet client demand, and new client revenue that will materialize beginning in Q2, we are confident in our guidance for fiscal year 2022. With that, Bob and I will now take questions. Operator, please open the line.

Bob Dechant -- Chief Executive Officer

Operator, before we open it up for questions, there's one item I'd like to address. As you may be aware, the Resource Group International Limited TRG is our largest shareholder with controlling interest in IBEX. Last week, TRG's managing partner, Zia Chishti, was accused of sexual assault and subsequently resigned as CEO, chairman, and director of another TRG company, Affinity, after discussions with Affinity's board. It's very important to note that Mr.

Chishti stepped off the board of IBEX in 2017. He has not been involved in any strategy or any business discussions around the company since that time. As well, IBEX's board is composed of a vast majority of independent board members who are unaffiliated with TRG. The Affinity incident is in no way related to IBEX.

IBEX is committed to the strong values of our more than 31,000 employees worldwide, our customers, and our partners. These recent developments do not, in any way, impact our promise to maintain those values we hold dear. We want to reiterate to our employees, customers, and partners that IBEX maintains a robust worldwide whistleblower solution for any employee who seeks it. It is overseen by our chief legal officer, chief people officer, and ultimately, the audit committee of IBEX, which is composed of independent board members under NASDAQ guidelines to address all the sensitive matters of this nature.

More personally, I want to say how proud we are of the work we have done here at IBEX around diversity, equity, and inclusion over the many years. When I joined the company, we created an employee-first culture, which includes one of openness, transparency, well-being, and safety that remains at the forefront of IBEX today. I'm confident that we will continue to see our company thrive. With that, operator, Latif, you may now open the line for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Please stand by while we compile the Q&A roster. Our first question comes from the line of Dave Koning of Baird. Please go ahead.

Dave Koning -- Robert W. Baird & Co. -- Analyst

Yeah. Hey, guys. Thank you. 

Bob Dechant -- Chief Executive Officer

Hey, Dave.

Dave Koning -- Robert W. Baird & Co. -- Analyst

Yeah. And I guess, first of all, just thinking through this quarter, the margin was a little lower than normal, but you also got, I would say, the benefit of some of your top clients becoming a little smaller than normal. Maybe is there a correlation there where some of those larger clients generating higher margin? Or is it something else? Is it maybe wage inflation? Or maybe just talk through a little more on margins.

Bob Dechant -- Chief Executive Officer

Sure. Dave, great question. Thanks for that. Let me frame it this way.

If you take our business with our nonlegacy three, so the legacy telcos. If you look at the clients outside of that, we're growing. And those are our higher-margin clients. Now we've on-boarded new clients, and we're growing significantly with that client base.

So, much so that this quarter, we had significant hiring -- about 50% more hiring of new agents this quarter than we did a year ago, and we had great growth from Q1 to Q2 last year. So, it's really driven not by volumes going down outside of those -- the two legacies. It's driven by growth that has accelerated training in the quarter that we're honestly optimistic that we will now hit stride in Q2 as a result of all that hiring. So, it's really front-loading the costs associated with that and then the costs associated with the build-outs of the centers to accommodate that massive growth.

Dave Koning -- Robert W. Baird & Co. -- Analyst

Gotcha. Yeah, that's helpful. That makes sense. And then I guess when we think of the cadence, you talked about growth resuming in Q2.

I assume you mean year-over-year growth. If that's the case, that would require 8%, 9% sequential growth in Q2. And then the rest of the year, a little more sequential growth. And maybe -- is that right? Is that how to think about it? And kind of what I think you kind of hit on it now, but what's kind of driving that sequential lift through the year?

Bob Dechant -- Chief Executive Officer

Sure. So, Dave, you understand our business flow and model very well. We're excited with this growth that we will be resuming our business toward that double-digit growth. The impact of our downturn of our telco businesses is flattening off.

And then in the second half of the year, we'll have really favorable comparisons. So, I think you've hit it exactly. This quarter, those comparisons will still be down significantly because of what occurred in the back half of last year or this year layered on in the second half, we won't have that -- we'll have favorable comparisons, and we just have strength out of our -- strength out of our growth clients and new business that we've on-boarded that are really just taking hold in Q2 of this year. So, we're really excited about this business, and the flow of quarterly revenues and profitability.

Dave Koning -- Robert W. Baird & Co. -- Analyst

Gotcha. Thanks, guys. Appreciate it.

Operator

Thank you. Our next question comes from Tobey Sommer of Truist Securities. Your line is open.

Tobey Sommer -- Truist Securities -- Analyst

Thank you. I wanted to ask sort of a broad question, and it has to do with visibility in sort of forward trends in the business. How would you characterize your visibility now at this juncture? And if you could sort of think about it under -- or over the period of time you've been public and compare and contrast today versus sort of a period of time since going public.

Bob Dechant -- Chief Executive Officer

So, Tobey, great question. I think we have very, very good visibility with our clients, the lion's share of our clients out over minimally three to four quarters. A lot of that is because we have tight partnerships, and they're very open to say, here's where we see our business going and making sure that we are aligned and strategically planning our network of geographies and capacity to service them. I will say one area of the business that we didn't have visibility to was one of our clients, telco clients, divesting the business.

Of course, we're not going to have visibility to that and the structural changes that occurred to their -- and then the other is our client who emerge from bankruptcy. And I'll just address, they are a very, very important client to us. We have not lost market share, but working as a partner with them, we actually worked significantly at taking their call volumes down and their kind of collective hours required down significantly to help them drive kind of profitability. So, I feel we have great visibility in this business.

I think we have one last element is our new logo business that we continually bring on. We have fantastic visibility, I believe, of that in year really out -- in Year 2 and Year 3. We've done the analysis of this business over the last three, four, five years, and we can predict where those revenues will be and we're excited, extremely excited about that. And I just will say that our nine new logos for the quarter were material new logos.

We set a record last year, not only in number but in year revenue by more than 100% of prior year. So, our revenues of any year of our new logos last year was 100% more than we've ever had. We are on pace to beat that this year, and I feel really excited about that. And then you just, you know, use that as your visibility down, you know, in the subsequent Year 2 and 3 of those relationships.

We're excited where that potential takes us.

Tobey Sommer -- Truist Securities -- Analyst

Thank you. Could I ask you a question about wallet share? And I'd like to ask on two ends of the spectrum. How do you feel that your sort of customer market share or wallet share is trending in the legacy customers that are sort of important and the largest of your emerging customers, how is IBEX performing from that perspective?

Bob Dechant -- Chief Executive Officer

Sure. So, those are some of the most key metrics that I look at, Tobey. So, just kudos to your question. I will say with our important three clients that have been with us for over 15 years, our market share has held serve on that.

And so, our downturn in there is nothing unique to IBEX. It's their enterprise volumes as a result of the two one-times have gone down significantly. So, we've held market share -- help serve on that and maybe you've grown market share 1 percentage point or two, but nothing material. Now on the new clients that we've brought in, we measure those, and we are performing so well that we are taking massive market share.

I highlighted the one client that we've, in essence, effectively doubled our size of business. This is a classic client that we have gone into, where very prior had multibillion-dollar service providers. and we've gone in, and we've taken the lion's share of the market share. So, we have the largest market share, more than 50% in that enterprise with our client that is now No.

1. We are -- we have as much market share in the markets that we service as anybody in that market. So, I feel most proud of our ability to go in and steal that business based on performance. And so, with that, if you have the right client, I look and you say, you have two vectors of growth with that client.

One is market share. And number two is as if they're the right clients which are growth clients, you're going to grow with the wind behind our back. So, it's almost you have a double -- kind of a double accelerator behind you. And we're really excited as how that plays out over the next 12, 24, to 36 months.

Tobey Sommer -- Truist Securities -- Analyst

Thank you.

Operator

[Operator instructions] Our next question comes from the line Dan Perlin of RBC Capital Markets. Your question, please.

Dan Perlin -- RBC Capital Markets -- Analyst

Thanks, and good evening. I had a question around, obviously, the revenue performance this quarter. I feel like come off of last quarter, the messaging from you guys was 1Q is going to be at the low end, if not below the 7% to 9% guide. So, I mean, I think you definitely thought it was going to be the weak quarter, but it's a lot weaker than I expected.

And based on the consensus numbers, it sounds like it was being like everyone else expected. So, my question is how much of this was a surprise to you from these three clients and then in the digital volumes relative to what your expectations were?

Bob Dechant -- Chief Executive Officer

So, Dan, that's a good question. And let me say we're disappointed with, at the end of the day, with where the top-line growth was, we are hoping to drive a few percentage points of growth. Now underlying that was a significant ramping that we've done, which is build revenue that goes to clients that as we were modeling, we kind of looked at it from how we run the business, and there is some inherent growth in there that then in the accounting roles got pushed in deferred revenue that we'll get in over time. So, somewhere between those two numbers, I think we felt we'd be -- maybe we're 1 percentage point or two down from where we thought we would be as we run the business.

But I will say the position we're at right now, the number of seats we built out, the number of new agents that we've hired in Q1, continue to hire in Q2 that are hitting full speed for the quarter, we feel really good. We feel really good about our ability to get this business right back on track. And like I said, hit our full-year numbers. And if you look at flat growth in Quarter 1, you can kind of -- as David highlighted, you can kind of look and model where I think we will go in Q2, 3, and 4.

Dan Perlin -- RBC Capital Markets -- Analyst

Yeah. Well, let me ask you a different way when we go on the forward curve. If we look at your -- let's just call them the clients that have, let's just say, have dragged down your growth, absolute dollars as we jump off into December's quarter in March and June. Have they stopped -- like are they going to be near an absolute dollar flat level, and then all this new incremental business that you've won and you've been building these seats for are going to grow over that? Or are they still declining materially, and you're telling us that this new business, this bolus of new business is going to be so large that the absolute dollars are still going to grow over that, and therefore, you're still going to get growth? They had an accelerating rate throughout the year.

Just trying to make sure I understand.

Bob Dechant -- Chief Executive Officer

Sure. So, yeah, fair question. In Q2, we have seen that decline flatten out. So, we're very encouraged by that.

And as we've talked with them about where this is looking out now two, three quarters out, we kind of feel like we've -- that it took about three quarters for all of those things to play out. We've leveled and we look out -- overall, that business saying kind of flat to maybe very, very minor decline over the next three, four quarters. So, we're encouraged by that. Now this quarter because the decline started in our Q3 last year, those comparisons will be down fairly sizably.

That being said, sequential quarter, we don't have that incremental headwind for the business. So, I feel that that's why you'll see this business in this quarter rebounding and rebounding very, very strongly to comparisons in Q3, Q4. Does that make sense? Dan, do you follow? Yeah.

Dan Perlin -- RBC Capital Markets -- Analyst

Yeah, yeah. Let me ask one other follow-up and then I'll jump back in the queue. So, are you saying that you're going to grow sequentially, but not year over year in December?

Bob Dechant -- Chief Executive Officer

No, no, no. No, no, no. Not at all. No, I feel strong growth for this year.

No, no, no. I think we're resuming to a growth quarter, absolutely, both sequentially and year over year -- OK. Right. And if you just piece those two puzzles together, year over year in our legacy will be down.

Even though it's flattened, we have significant growth, significant growth in the outside, you know, and really our new from '16. That new from '16 last quarter, we're in the 35% to 40% growth range of that business. That's where it was last year -- or last quarter, this quarter. And we see that there is not accelerating anymore.

Dan Perlin -- RBC Capital Markets -- Analyst

That sounds fantastic. OK. Thank you.

Bob Dechant -- Chief Executive Officer

Yeah. Thanks, Dan.

Operator

Thank you. Our next question comes from George -- I'm sorry, George Melas of MKH Management. Your question, please.

George Melas -- MKH Management Company -- Analyst

Thank you. Good afternoon, gentlemen. I'm fairly new to the story, and I just have a modeling question. I'm trying to understand your capex guidance for fiscal '22 and that $30 million to $35 million, is that just cash capex? Or does that include the leases in there?

Bob Dechant -- Chief Executive Officer

George, thanks for joining the call and interest in the IBEX narrative. So, Karl Gabel, why don't you take that call and walk George through kind of capex?

Karl Gabel -- Chief Financial Officer

Thanks. Sure, Bob. Thank you for the question, George. Yes, the $30 million to $35 million is our cash capex, and that's made up of both the growth capex that Bob's been talking about and also our maintenance capex.

Bob Dechant -- Chief Executive Officer

And, Karl, why don't you just touch on approximately where our maintenance capex is, you know, on an annual basis?

Karl Gabel -- Chief Financial Officer

Sure, sure. And the maintenance capex, if you look at the industry, it typically runs around 2%. But if you look at it over a three-year period, sometimes, you might run a little bit higher than 2%, and sometimes, you might run a little bit lower than 2%. So, that would kind of give you a gauge on the split between the maintenance capex and the growth capex.

Bob Dechant -- Chief Executive Officer

And, George, what's interesting is we've built out a lot of seats that we are still today operating, and most of them in a socially distanced environment. And so, as we, hopefully, at some point, resume to a normal environment, that capacity is built out, we'll now have significant capacity to sell into as we go from just think about 1,000 seat centers that have 500 seats usable to them using 1,000 seats in that center. And I shared numbers last quarter, but when we look at this, we have somewhere between $140 million and -- upwards of that to $175 million of new revenues we can sell into these footprints as we get past that, which we're excited about because that will certainly turn this business into, we believe, a really strong free cash flow business.

George Melas -- MKH Management Company -- Analyst

Great. But let me just ask that question slightly differently. Your capex is actually greater than $30 million or $35 million because you're actually getting equipment also on a lease basis. Is that right?

Karl Gabel -- Chief Financial Officer

Yeah. I think -- George, again, this is Karl. On our balance sheet, obviously, on IFRS 16, you have right-of-use assets and you have right-of-use leases, the assets get capitalized. We have broken that apart on this quarter, so you can actually see the right-of-use assets that relate to when you're opening up centers and things like that under IFRS 16.

What we're talking about in the $30 million to $35 million is more or less -- it's related to the property and equipment, that line item. OK. Does that answer your question? Because heading under -- just a follow-up. The company doesn't own facilities.

We rent facilities. So, when we're recognizing the asset and liability for the facilities, it will go under a right-of-use asset and liability.

George Melas -- MKH Management Company -- Analyst

OK. My question relates to EBITDA debt. So, if we look at EBITDA, should we subtract something from some element for leases in order to get a real EBITDA to compare it to the way it was done before when capitalized leases.

Karl Gabel -- Chief Financial Officer

Yes. Under IFRS 16, in your depreciation and your amortization, it will include the amortization that's going through for the -- also for the right-of-use assets. So, that will be part of your depreciation and amortization. In the pro forma, there was in the actual perspective, if you go back a year or so, there's actually a pro forma in there that actually shows at that time what the metrics would be before and after applying the IFRS 16 accounting.

And if you have any questions, we can certainly talk after the call.

George Melas -- MKH Management Company -- Analyst

I'll do that. Thank you.

Operator

Thank you. This now ends our Q&A session. I will now turn it back to management for closing remarks.

Bob Dechant -- Chief Executive Officer

Well, thank you very much. In summary, I want to say how proud we are and the work we've done here from a business and a financial standpoint but also around diversity, equity, and inclusion, and that's important. And we look forward to great things to come. And thank you for your attendance and listening and we look forward to talking to you next quarter.

See you all.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Brinlea Johnson -- The Blueshirt Group

Bob Dechant -- Chief Executive Officer

Karl Gabel -- Chief Financial Officer

Dave Koning -- Robert W. Baird & Co. -- Analyst

Tobey Sommer -- Truist Securities -- Analyst

Dan Perlin -- RBC Capital Markets -- Analyst

George Melas -- MKH Management Company -- Analyst

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