TTEC Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 11 speakers on the call.

Operator

This call is being recorded at the request of TTEC. I would now like to turn the call over to Paul Miller, OTEC Senior Vice President, Treasurer and Investor Relations Officer. Thank you, sir. You may begin.

Speaker 1

Only. Good morning and thank you

Speaker 2

for joining us today. TTEC is hosting this call to discuss its Q1 financial results

Speaker 3

for

Speaker 2

the period ended March 31, 2023. Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of TTEC only. Shelley Swan Mack, Chief Executive Officer of TTEC Engage and President of TTEC and Francois Burey, Interim Chief Financial Officer of TTEC. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within that document.

Speaker 2

For complete information about our financial performance, we also encourage you to read our Q1 2023 quarterly report on Form 10 Q, which we anticipate filing in the coming business days. 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 that may occur. Forward looking statements are subject to various risks, uncertainties and other factors that could cause for actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, to the call.

Speaker 2

Please review our 2022 Annual Report on Form 10 ks. A replay of this conference call will be available on our website only mode under the Investor Relations section. I will now turn the call over to Ken.

Speaker 4

Thanks, Paul, and good morning, everyone. We appreciate you joining us today. We're off to a strong start in 2023 with a beat on both top and bottom line. Revenue increased 8.6 percent to $633,000,000 on a constant currency basis. Adjusted EBITDA was $83,000,000 only or 13.1 percent of revenue and non GAAP EPS was $0.78 per share.

Speaker 4

As the CX technology and services landscape only. Our clients are trusting us to manage their current CX needs, while also seeking guidance for the future. Only. Our full range of AI enabled Tx technology, managed services and operational capabilities has the breadth and depth to deliver strategic benefits to our only mode of communication with our clients right now, while also preparing them for what's on the horizon. Demand for our solutions remains strong only as CX executives are caught in a balancing act between the efficiencies of digitization and the empathy of human conversations.

Speaker 4

Only. With our domain expertise in both CX technology and operations, our business is well positioned to meet this challenge with tailored programs that optimize both digital and human interactions. The 3 trends that I shared last quarter remain relevant and timely. The move to the cloud for CX technology continues. Only.

Speaker 4

The focus on evolving from reactive support to proactive experiences remains mission critical and the advancements only. Given the current focus on AI, my comments today will center on the developments only. Happening at the intersection of customer experience and artificial intelligence. We've been integrating AI technology into our CX offerings for some time. With the current buzz surrounding all things AI, we plan to share details on our approach to AI with you more frequently.

Speaker 4

Only. We have many examples of solutions that are delivering high value outcomes leveraging AI, including using analytics to simplify and personalize customer journeys, bots to facilitate training, automation to augment associate efficiency only and predictive models to support intelligent routing. Also across verticals, we're customizing these solutions to address industry specific business challenges. Recent advancements in generative AI have opened up a wealth of new CX use cases, including exciting new ways to dramatically improve the customer experience. It is early days and as with any disruptive technology, It's important to separate the helpful from the hype.

Speaker 4

To gain the full benefit of AI, brands need to have their systems, only. We're working with our clients to help them assess their readiness across capabilities Such as mix of voice and digital interactions, depth of understanding of their current customer journeys, only. Quality, accuracy and completeness of their existing knowledge bases, effectiveness of their current automation tools and only. The level of integration across their enterprise technologies. Above all else, we're helping our clients maintain old customer first mindset.

Speaker 4

We know that there is no margin for error in customer experience. Simplicity, accuracy and trust makes the difference between a loyal customer advocate and a vocal detractor across the customer lifecycle. Advances in Aon present Tremendous opportunities, but getting it right is not easy. Success requires deep technology integration experience, vertical expertise only and organizational agility. TTEC is uniquely positioned to harness the full potential of AI capabilities for CX by leveraging the synergies between our 2 business segments.

Speaker 4

Through TTEC Engage, We provide digitally enabled infrastructure, operational delivery, quality assurance, workforce management and an amazing employee experience. Only. Our first hand knowledge from direct interactions with millions of customers on behalf of our clients and expertise from our associates operating on the front lines provides the insight and experiences to differentiate our clients' brands. Only. Through TTEC Digital, we design, build, integrate and operate all the core technologies required to power CX, only, including CCaaS, CRM, AI and analytics platforms.

Speaker 4

Unlike some of our competitors only. We're attempting to offer point solutions. We have the capability to seamlessly integrate all elements of the CX ecosystem, giving us a significant advantage in delivering comprehensive and cohesive solutions to our clients. The result of this world class offering is increased revenue per customer, reduced total cost to serve and the highest level of customer satisfaction and loyalty. Only.

Speaker 4

TTEC Digital is a pure play $500,000,000 Tx Technology and Services business that generates on revenue through professional services, managed services, software and proprietary IP. With an unparalleled set of credentials and references, only. We have deep strategic partnerships with the leading technology players and employ the most experienced CX data scientists, cloud engineers and consultants in the market. We're leveraging our cross functional domain expertise from digital and engage through our AI center of excellence for customer experience. This diverse team of technologists and operational delivery experts are combining last mile customer engagement with the latest in digital innovation to expand our solutions, drive thought leadership and develop the AI guardrails only necessary for clients to protect their businesses and customers.

Speaker 4

These guardrails are especially important as we only to see increasing pressure from government agencies and regulators as the risk around security, privacy and intellectual property becomes better understood. We're using AI to streamline workflows and speed up processes through the automation of binary transactions and interactions. Additionally, One of our top priorities is leveraging AI to enhance the capabilities of our knowledge workers who are focused on complex and mission critical interactions for our clients. Only. By improving efficiency and simplifying repetitive tasks, we're freeing up time for our employees to listen and only mode to respond to customers during emotionally charged moments of truth.

Speaker 4

This genuine human connection is what ultimately builds only to trust, loyalty, revenue growth and ongoing affinity with a brand. Now I'd like to share a few thoughts on M and A only mode and specifically consolidation among some of our engaged competitors. As you know, M and A has been and will continue to be an important pillar for shareholder value creation at TTEC. That said, we don't believe in building scale for scale sake. M and A must ultimately create tangible value for our clients.

Speaker 4

We remain committed to M and A that helps differentiate our solutions for clients and accelerates the execution of our business strategy. Only. Our M and A strategy will continue to be focused on both digital and Engage acquisitions to help accelerate vertical solutions only through incremental capabilities, new geographies and additional clients. In closing, I'd like to reiterate my confidence in our business. Our management team is executing.

Speaker 4

Our clients continue to rely on us as a strategic partner. Our CX engineers are developing new and relevant solutions for the market and our frontline teams

Speaker 1

only. Our next

Speaker 4

question comes from the line of Jefferies. Thanks, Jeff. Thank you. And now I'll hand it off to Shelly.

Speaker 5

Thanks, Ken, and good morning, everyone. We're pleased with our Q1 performance

Speaker 3

only across both of our TTEC Engage and

Speaker 5

TTEC Digital business segments. Our strong performance on revenue and profitability is a result of our disciplined and agile execution. We acquired 20 new clients across the business and have a strong and growing pipeline. I'll begin my review of the quarter with some highlights from our TTEC Engage business. 1st quarter growth was driven by engagements in resilient verticals where our work is mission critical and also complex.

Speaker 5

Revenue from our top 10 clients continue to grow. Our strong relationships and delivery track record with these top clients are enabling us to expand our business with them through new solutions and offshore delivery. In addition, we're seeing a growing number of first time outsourcers in our new client wins and pipeline. In Healthcare, we had a robust close to the year. The strong performance extended seasonal revenue beyond expectations for several programs into the Q1.

Speaker 5

Our depth of knowledge on proven expertise with complex licensed work is driving growth with very large national payer clients and also with regional brands. Only. Beyond our payer segment, we're also seeing increasing momentum in clinical and provider services, which include higher margin offshore, data management and back office programs. Only. New deals this quarter included initiatives in provider data management, consumer directed health and also durable and medical equipment.

Speaker 5

Only. In addition, our domain expertise across the breadth of the CX Healthcare member journey was recognized by the global research firm, Everest, only mode, who noted TTEC as a market value leader in healthcare BPO, CXM. With consumers in the driver's seat demanding improved healthcare experiences, our CX transformation expertise is in high demand. Now on to our BFSI vertical, where historically many companies have been hesitant to consider digital channels only and near shore or offshore options for their customer experience support. Increasingly, we're helping both existing and new clients use new delivery and support models, including these near shore and off only locations.

Speaker 5

For example, this quarter we expanded into a new line of business with 1 of our InsurTech clients by implementing human powered only data annotation to process claims offshore. And with growing the national focus on improving the citizen experience, our public sector practice is in a unique position to capitalize on opportunities across federal, state and local government agencies. Our Engage and digital teams are working to combine citizen experience consulting, only systems integration, managed services and operational excellence, all backed by our FedRAMP and StateRAMP certifications. Another client highlight from the Q1 is the consultative approach we're taking with a long tenure client in the tech space. We're beginning to work with them to deploy generative AI to leverage their full library of product knowledge across thousands of different product SKUs in order to provide our associates with more accurate and timely answers order than ever before.

Speaker 5

We're executing well on our plans to expand our footprint with new geographies and languages. Client demand continues to accelerate with growing off over pipeline and 5 of our 7 new logos for the quarter, including offshore services. For example, one of our offshore wins was with a first time outsourcer, a growing business whose primary focus is on reducing the carbon footprint in the U. S. By partnering with major retailers to reuse and recycle electronics.

Speaker 5

Now I'll move on to our TTEC Digital segment. Similar to Engage, our Digital segment delivered value to our clients and partners with strong first quarter performance. We're capitalizing on the demand from clients who are migrating to the cloud and also from clients who are delaying their cloud migrations, but want to get more from their only to our existing

Speaker 3

CX technology.

Speaker 5

Our growth in professional services this quarter was driven by projects from both types of clients. These professional services create high value outcomes for our clients and are strategic for us because they deliver higher margins, expand our scope of influence and open the door to new areas for growth with anchor clients. Key wins for cloud migrations this quarter included clients in banking, insurance and also public sector. Only. Our recurring revenue also continues to grow with a focus on providing ongoing managed services as the volume and pace of features and functions increase on literally every over.

Speaker 5

We're helping our clients absorb and take advantage of these changes to optimize their customer experiences. For existing clients who aren't ready to migrate to the cloud, we're extending our managed over the next few quarters. It's rewarding to see our technology partners recognize TTEC Digital's significance in the market. This quarter, we won several prestigious awards, including contact center innovation from AWS and North American Partner of the Year from Genesis. To meet demand and strengthen our profit as we continue to expand our cost optimized global delivery model.

Speaker 5

This quarter, we opened our new flagship engineering center in Hyderabad, India. Only. By mid year, a third of our engineering talent will be operating out of tech hubs in India and the Philippines with more locations to come in the near future. Not surprisingly AI has emerged as a top priority for our clients. In my discussions during our client advisory board session last week, generative AI was a key topic.

Speaker 5

Our clients are optimistic about the transformation capabilities, yet measured in their plans. They're looking for us to help them understand the requirements and risks that must be addressed in order to be successful. In fact, many companies don't yet have the foundational elements or CX expertise needed. This is where we come in. We're helping clients across the AI spectrum from making tech platform decisions to executing new AI initiatives to improving their existing AI efforts for a bigger impact.

Speaker 5

For for example, this quarter we worked with a financial services company to improve the effectiveness of their conversational messaging. Their first implementation lacked a sophisticated analysis of

Speaker 3

speech patterns and was

Speaker 5

routing interactions to the wrong channels. Only. Our team came in and strengthened the predictive models with a deeper understanding of language and intents to properly route interactions and improve customer experience. As Ken mentioned, we continue to expand our AI offerings to help our clients take advantage of the new capabilities enabled by generative AI. For example, we've enhanced our CX AI Readiness assessment and roadmap to help clients understand their current ability to use AI and shape their go forward initiatives.

Speaker 5

We recognize the importance of safeguarding our clients' data and minimizing the inherent risks of using emerging technologies. A key to successful generative AI efforts will require the use of private large language models. We're helping clients safely implement these private large language models with an expert team to customize the platform and train the proprietary datasets. The progress in AI is advancing quickly. Our team is staying ahead with latest innovations and tools and solutions.

Speaker 5

And I look forward to sharing our progress with you in the months to come. Overall, our strong Q1 performance is a great start to the year. As we move into the Q2, we're laser focused on execution, maintaining an agile cost structure and executing on the strategic investments we have underway. We'll provide further updates on our full year outlook when we share our 2nd quarter results. Across both our digital and engaged only.

Speaker 5

Our employees are at the heart of everything we do. Every day, I'm inspired by the talent, dedication and energy of almost 65,000 employees that make up our to the Etech family. We're deeply committed to our inclusive environment that inspires our employees to do their best for our clients every single day. We're very proud to have been named number 17 on the Forbes list of top 500 Employers for Diversity. To learn more about our full range of ESG programs, I invite you to read our recently published ESG report.

Speaker 5

On behalf of our Board and our teams operating across the globe, Thank you for your continued support. Now let me introduce you to Francois Buret, our Interim CFO, who has been with our company over the 7 years serving in multiple financial roles and most recently as our Global Controller. Francois, over to you.

Speaker 1

Thank you, Shili, and good morning. I'm excited to be here today and share additional details on our Q1 financial results and provide more insight into our Q2 and full year 2023 outlook. In my discussion on the Q1 2023 financial results, reference to revenue is on a GAAP basis, while EBITDA, operating income and earnings per share are on non GAAP adjusted basis. Only. A full reconciliation of our GAAP to non GAAP results is included in the tables attached to our earnings press release.

Speaker 1

Over the prior year period, only. Our non GAAP reporting is also adjusted for gains or losses from foreign exchange included in the other income that impacts EBITDA and EPS calculations. Only. The press release includes the adjusted reconciliation for 2022 to reflect the same. My references to the term on a like for like basis describe our revenue growth only, excluding the impact of foreign exchange translation and treating acquisitions as we own them in the prior year period.

Speaker 1

Only. Turning to our Q1 financial results. Revenue was CAD 632,000,000 an increase of 8.6% on a constant currency basis. On On a like for like basis, growth was 1.4%. Adjusted EBITDA was CAD83 1,000,000 for 13.1 percent of revenue compared to $84,000,000 or 14.3 percent in the prior year.

Speaker 1

Operating income was $61,000,000 or 9 point 6% of revenue compared to $67,000,000 or 11.4 percent in the prior year, and EPS was $0.78 compared to $1.06 in the prior year. The strengthening of our U. S. Dollar had a $6,000,000 negative impact on revenue in the Q1 of the prior year period, while benefiting operating income by a positive $2,000,000 primarily in our Engage segment. We are pleased with our execution and financial results for Q1.

Speaker 1

The over performance relative to our guidance was primarily attributable to extended seasonal health care demand that carry over from the prior year, driving stronger volume. We also benefited from stronger demand in our digital and recurring business. On a year over year basis, only. Top line growth primarily reflects the contribution from increased CX Technology Professional Services in our digital segment, The April 2022 Fanuel Asset Acquisition and seasonal volumes in our Engage segment. It was partially offset by the anticipated reduction in volumes from our hyper growth portfolio.

Speaker 1

Turning to our operating and EBITDA margin, the year over year moderate decrease is a function of integration related costs only session with the Faneuil Asset acquisition, near term margin pressure related to the revenue mix and growth oriented investments including among other things strategic expansion in new offshore delivery locations. Turning to our Q1 new business activities. We added 20 new client relationships and are meaningful business from our enterprise and public sector embedded based clients. Engage embedded based performance only. Remain strong as demonstrated by Engage's last 12 month revenue retention rate of 97%.

Speaker 1

Sequentially, Backlog grew 2.4% quarter over quarter inclusive of our offshore backlog increasing by 5% year over year. Accordingly, Engage backlog represents 97% of the midpoint of our segment revenue guidance and is supported by a healthy pipeline for the remainder of the year. In our digital segment, despite elongated sales cycle, The demand was solid as clients continue to recognize the long term benefits from modernizing their CX ecosystems. For the full year, Our digital recurring backlog increased by 4% over the same period last year, mainly driven by our Genesis practice. Only.

Speaker 1

Our professional services backlog is also up, increasing 35% over the same period last year. Digital total backlog on For TTEC overall, we ended the quarter with a full year 2023 revenue on a backlog of $2,300,000,000 representing 92% of the midpoint of our revenue guidance. Our pipeline for the next 6 months is $1,400,000,000 which which is well diversified across all verticals with particular strength in financial services, healthcare, technology and public services. Turning now to our Q1 segment results. Our Digital segment Reported Q1 2023 revenue of $117,000,000 an increase of 5.5% on a constant currency basis over the prior year period.

Speaker 1

Operating income was $11,000,000 or 9 percent of revenue compared to $14,000,000 or 12.4 percent of revenue in the prior year period. Only. Our Q1 revenue growth reflects momentum in the professional services and recurring revenue across our emerging CXTech partner platforms. Only. As previously mentioned, this was partially offset by the revenue reduction in the Cisco practice.

Speaker 1

Only. Our recurring revenue grew 2.4% in the Q1 of 2023 over the prior year period, representing 55% of on digital total revenue. Our professional services revenue, which has a high attachment rate for the additional expansion in upgrade services, Grew 14%, representing 37.1% of total revenue. The decline in operating margins with the incremental investment in CX leadership and engineering talent, sales and marketing and technology development. Only.

Speaker 1

The Range segment reported Q1 2023 revenue of $516,000,000 an increase of 9.3% on a constant currency basis over the prior year, or 0.5 percent on a like for like basis. The Fanuel Asset Acquisition was the primary contributor Growth in the quarter alongside increased volumes across services and select verticals, most notably healthcare. Only. Revenue growth was partially offset by the previously mentioned reduction in volumes from our hypergrowth portfolio. Only.

Speaker 1

Excluding hyper growth clients, our Engage like for like growth was 3.3%. Healthcare, Financial Services and Public Sector

Speaker 3

only mode. Continue to show resilience and solid demand against this macro environment.

Speaker 1

These verticals are forecasted to grow organically by approximately 6% in the full year. Only. As previously mentioned, the hyper growth sector is cyclical in nature and more dependent on discretionary spending. As a result, our clients in this portfolio, especially those in non resilient verticals are experiencing lower revenue. In the Q1, operating income was $50,000,000 or 9.7 percent of revenue compared to $53,000,000 or 11.2 percent the prior year.

Speaker 1

Only. Our Engage operating margin reflects the items mentioned in my earlier comments. We also continue to rationalize for discussing our offers. Cash flow from operations increased to $49,000,000 in the Q1 of 2023 compared to $14,000,000 in the prior year period. Only.

Speaker 1

The increase was primarily a function of working capital management with DSO improving 3 days to 58 days. Capital expenditures were $14,000,000 or 2.2 percent of revenue for the Q1 of 2023 compared to $17,000,000 or 2.8 percent in the prior year period. While we continue to invest in IT infrastructure and are accelerating our geographic only. The reduction is explained by the completion of large projects in 2022. Our Q1 2023 normalized tax rate was 26 0.8% versus 21.2% in the prior year.

Speaker 1

The increase is primarily related to the impact of changes in valuation allowances, on jurisdictional mix of income and reduction in select federal tax credits. As of March 31, 2023, Cash was €151,000,000 with €933,000,000 of debt, of which €930,000,000 represented borrowings under a €1,500,000,000 credit facility. Only. Year over year, net debt increased by $131,000,000 to $782,000,000 primarily related to acquisition only related investments in capital distribution, partially offset by positive cash flow generation. In the Q1 of 2023, only.

Speaker 1

TTEC Board declared a next semiannual dividend of $0.52 per share or $24,600,000 which was paid on April only 2023 to shareholders of Rickard as of March 31, 2023. Turning to our 2023 outlook. We are pleased with our Q1 performance and strong client demand as evidenced by our growing backlog. Only. That said, given the macroeconomic uncertainties, we remain prudent and believe it is too early to change our full year outlook.

Speaker 1

We remain focused on our execution and business fundamentals. And if current trends continue, we are confident we will deliver revenue and profit only of the midpoint of our guidance range. Please reference our commentary in the business outlook and section to our Q1 2023 earnings press release to update your expectations for the Q2 and full year 2023 performance at a consolidated and segment level. In closing, only. We remain keenly focused on executing our strategic priorities and we look forward to providing an update on on full year outlook when we announce our Q2 earnings in early August.

Speaker 1

I will now turn the call back

Speaker 2

to Paul. Thanks, Francois. As we open up the call, we ask that you limit your questions to 1 at a time. Operator, you may now open the line.

Operator

Thank you. We will now begin the question and answer session. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. Our first question is from the line of George Sutton of Craig Hallum.

Operator

You may now ask your question.

Speaker 6

Only. Thank you. Nice results guys. Ken and Shelly, I really appreciate the discussion on AI. Certainly, the number one question that I get from only.

Speaker 6

Ken, I just want to make sure I heard correctly. I think you're saying at least for now we see an increased revenue For customer, we see a reduced cost to serve as a result of AI. Am I hearing that correctly?

Speaker 4

Only. Yes. Well, the other thing I think that we're saying is that over time, we believe that AI leads to higher profitability, only. Because in areas where we can reduce labor costs, that obviously gives only that much more margin opportunity and it's why we've been leaning into AI for the past several years and readying the so that we can take advantage of these technologies. It's also why we've made such a massive investment in digital, only So that we can integrate to all the various different CX systems that exist out there, which is one of the absolute highest priorities if someone wants to take advantage of AI, you have to have the skill set of being able to integrate to all of the various different systems.

Speaker 6

Thanks guys.

Speaker 4

Thanks George. Thanks George.

Operator

Thank you. Next question is from the line of Maggie Nolan of William Blair. You may now ask your question.

Speaker 7

Thank you. I'm hoping you can expand a little bit more on on the hypergrowth segment and just the long term opportunity that you see there kind of despite near term dynamics.

Speaker 4

Only. I'll start out and let Shelly take it from there. Look, the hypergrowth segment only. It's really driven for the most part by the consumer. And as you it's no secret that many of these e Commerce businesses, etcetera, being affected right now as we move into this post COVID environment, etcetera.

Speaker 4

So what I would say to you is that, I think that there's a bit of a double whammy effect between the post COVID event of people being able to get out and shop in a more Historical way that they did in bricks and mortar, as well as the consumer, although being strong, really starting to shift only to more of what I would classify as necessity type items. Shelly?

Speaker 5

Yes. And I would just say only More near term, Maggie, it's playing our hypergrowth business is playing out as we talked about last quarter. So only. And I would tell you, we're starting to see some green shoots in terms of pipeline. We do have some opportunities from a hyper growth perspective in our pipeline.

Speaker 3

Only.

Speaker 7

Thank you. And then obviously, it was a nice quarter for revenue. Only. I understand completely that it's too early to remove any sort of conservatism from the outlook. But how are you thinking about only mode.

Speaker 7

Going forward from here, particularly if you do start to see a little bit of an acceleration in revenue.

Speaker 5

Only. Well, I think first of all, as I said in our prepared remarks, right, maintaining an agile cost structure is really important for us and on. We'll continue to stay focused on that. We're also focused on executing on the investments that we've been talking about and we're executing well on those plans. So we'll continue to be agile in adjusting to the environment ahead.

Speaker 1

Yes. That's why anything Yes. Just quickly, as we mentioned in our last call, one thing that was key for us this year is building on these investments that we're making to only position us well for the next year and this year as well. And so we're considering this investment. Obviously, we're monitoring holistically the owned microeconomic environment, but at this point we are keep doing what we said we're going to be doing, focusing on execution and making these investments will make a difference for each stake.

Speaker 1

Only.

Speaker 7

My follow-up to that would be any sort of variation in the cost structure on a quarter by quarter basis that we should keep in mind for the purposes of margins?

Speaker 1

Outside of the normal seasonality that you've seen in our business at this point.

Speaker 7

Got it. Thanks for taking my questions.

Speaker 4

Thank you.

Operator

Thank you. Next question is from the line on Brian Bergin of TD Cowen. Your line is now open.

Speaker 8

Hey, good morning. Thank you. So I wanted to just ask on the outlook here. So 1Q is only. A pretty notable beat across all the metrics.

Speaker 8

Your commentary clearly does suggest some prudence here, but I just did want to ask about whether you've seen only. Any changes worth calling out in sales cycles or the volume commitments across the various cohorts over the last 3 months only or if it's really just stabilized and gone according to plan?

Speaker 5

I'd say overall stabilized and going According to plan, Brian, as I said, in the digital business, it's interesting because we have some clients who are moving forward full steam ahead with their cloud migrations on others that we're helping them make the most out of the technology that they have already. So I think good news is we can serve each of those types of clients. On the Engage side, just too soon to understand what the environment in the back half of the year might mean in terms of consumer demand and therefore demand from our clients. But so far, we feel well positioned, as Francois said. Owned and our backlog is growing as well.

Speaker 5

So nothing in particular to call out.

Speaker 4

Yes. And I would say not to contradict anything that Shelly just said is For me personally, I'm a bit surprised on the positive side in that I would say that demand is stronger than what I thought it was going to be, That our pipeline is significantly better than I thought it was going to be. And as it relates to closing cycles only. On the Engage side, I'd say that they're pretty they're very typical and we're not seeing the kicking of the only And that you tend to see when one is anticipating economy slowing down. So, I think right now, only.

Speaker 4

We're very, very happy with where we're at, but I think that we're also realist. This is probably the 5th recession that I've been through, only. And we believe it is smart just to be cautious and we would rather surprise on the upside versus on the downside. So only. I hope that's helpful.

Speaker 4

But what I would say to you is that not only did we feel very good about only how we performed in the quarter, we feel very good about how our sales and marketing organization performed.

Speaker 5

And I'd say also just a lot of growing demand for our offshore locations and capabilities. And I think only. That's very positive. A substantial part of our pipeline is for offshore services. And so really, really pleased about how that's developing.

Speaker 4

Yes, it's one of our commitments to The Street that we're going to put the pedal to the metal on bringing on as much offshore business as possible so that We can drive the margin profile to a higher overall margin. So I'm really pleased that Shelly and her team are very focused on executing on that and it's I would say it's going as planned. Only.

Speaker 2

Okay. It's all good to hear.

Speaker 8

It makes complete sense on the prudence here. My follow-up is kind of on the headcount and the operations. So Can you kind of give us a sense how headcount has progressed since 4Q across digital and engage and how you're expecting workforce levels in each segment to trend here over the course of the balance of the year?

Speaker 5

Well, I can start. I'll give a couple Comments here and then Francois, turn it to you. First thing is, keep in mind in our Engage business, we have a lot of seasonality, right? So we have seasonality there. In the digital business, we continue to grow our cost effective owned global delivery model.

Speaker 5

So that was my comment earlier around by the first half about half in halfway through the year, Brian, we expect that actually 30% to 40% of our engineering talent will come from our India and Philippine locations. So we have a big focus there, partly just to be able to meet the growing demand from clients and also just from a margin profile perspective. Only. Francois, anything you'd like to add?

Speaker 1

No, I would just say like it's important for us to see for the Engage business to understand holistically only. The seasonality how it can fluctuate your headcount and how the geo mix can influence your headcount. But right now, we're seeing our offshore headcount growing at a faster pace than onshore headcount, onshore headcount supported by the pipeline that we have and the backlog as well that we've seen growing offshore.

Speaker 9

Only. Okay. Thank you.

Speaker 4

Thank you.

Operator

Thank you. Next question is from the line of Mike Latimore of Northland Capital Markets. Your line is now open.

Speaker 3

Thanks, Dan. Congrats on the strong start to the year here. Only. The digital guidance sort of implies improving growth rates in the second half. Can you talk a little bit about kind of just the key drivers to kind of see accelerating growth in the additional business?

Speaker 1

Only. Yes. So the accelerated growth with digital for the back end of the year is really going to come from a professional services. Only. We have good momentum right now throughout some of our practices, especially Microsoft, AWS.

Speaker 1

This is really where we see the strength of our Club coming for the back end of the year. So very we're feeling very good for the back end of the year for digital right now.

Speaker 3

Got it. And then what should we use as tax rate for the year?

Speaker 1

The guidance we're providing is between 24% 26%.

Speaker 3

Okay, great. Only. Thank you.

Speaker 1

Thanks Mike. Thank you Mike.

Operator

Thank you. Next question is from the line of Joe Vafi of Canaccord. Your line is now open.

Speaker 1

Thank you. This is Balaseni on for Joe. Thanks for taking our question. Only. I was wondering if you can touch on your pipeline for cross sell opportunities between your digital and engaged businesses.

Speaker 1

Maybe quite an update on some of the opportunities, Shelly, you mentioned you're working on the Q4 call. Thank you.

Speaker 5

Only. Absolutely. Well, I'd say overall, as Francois said, our pipeline continues to grow. We're pleased with that. Diversified certainly across industry verticals only Would be the first point.

Speaker 5

Secondly, we have a number of opportunities where we're working together across our TTEC Digital and TTEC Engage teams, Primarily in opportunities where clients want to take advantage of technology, right, whether it's about only enabling our knowledge workers and associates that are serving our clients, and or where we're using the technology capabilities to just only to improve the agent's experience. And so I would say no numbers to share in particular, but I would say that's an area that's developing nicely for us as well.

Speaker 1

Only. Thanks.

Operator

Thank you.

Speaker 9

Thank you.

Operator

Next question is from the line of Cassie Chan from Bank of America. Your line is now open.

Speaker 10

Hey, guys. So first, I just wanted to ask about revenues. I guess, How should we think about organic constant currency revenue growth progression throughout the year versus the 1.4% in 1Q? I think typically in terms of seasonality, 1Q is the lowest in terms of dollars and sequential growth. But now like the to Q2 guide is supposed to be a little bit softer than 1Q.

Speaker 10

So is it kind of expected to trough in 2Q and then accelerate in 3Q, 4Q? Thanks.

Speaker 1

Only. Just to start about the variance quarter over quarter. So Q1 is typically a strong quarter for us because this This is where you get the flow through from the seasonal work that starts in Q4 from the prior year. Therefore, for us the reason we were significantly only. Above the guidance for Q1 is that we had very strong healthcare volume coming through.

Speaker 1

Also on the hyper growth, The softness in revenue already communicated didn't materialize as fast as we thought. So a very strong Q1 from that standpoint. As you move forward in terms of the Growth rate for the remaining of the year. Our guidance right now is giving you a digital on a like for like basis, meaning constant currency if there is any acquisition like in Engage. But Digital right now is at 8% and you have sorry, digital at 8%, Engage right now the midpoint of our guidance is at minus 1.4%.

Speaker 1

But bear in mind that the Q1 result is really putting us in a good position right now.

Speaker 10

Only. Okay. Thanks. And then for the full year, I just wanted to make sure I have all the pieces in place there. So I think are you guys still expecting about $300,000,000 from the hypergrowth clients in 2023?

Speaker 10

And I believe you guys said that healthcare, financial services and public sector Are now expected to grow about 6% for the full year of 2023. I believe it was 7% before. I just wanted to clarify that as well as sort of ask what's driving the softer outlook. Thanks.

Speaker 1

Yes, those numbers are still accurate.

Speaker 5

Only. Yes. I think Kathy, what I would say is hyper growth, yes, still in the $300,000,000 range. And I think last time we said 5 to 7% growth across the other verticals and so that continues to be our outlook at the moment.

Speaker 10

Okay. That's helpful. Thank you.

Operator

Thank you. Our last question is from the line to James Faucette of Morgan Stanley. Your line is now open.

Speaker 9

Hey, it's Jonathan on for James. Thanks for taking our question. Only. Can you talk through your target delivery mix as it relates to onshore versus offshore outside of engineering talent as you continue to work through your offshore expansion? And then how should we be thinking about the revenue implications of that shift given some of the pricing dynamics between onshore and offshore delivery?

Speaker 4

Only. Well, as it relates to revenue dynamics, I really don't think that there is any type of a negative impact due to the fact that only. All the offshore work that Shelly is talking about that we have been pursuing is all net new business that we're bringing on. There's very little shift only of the embedded base to offshore. And there's good reason behind that because we have some significant specialty in health only.

Speaker 4

Care with thousands and thousands of licensed insurance agents and significant specialty and financial services with also licensed requirements only and a lot of a fair bit of public service and federal. That business typically, for most part, has no choice but to stay onshore. It's all the net new business that we're bringing on right now that we're placing in our offshore facilities. Only. And as to what our goals are of Engage onshore versus offshore, only.

Speaker 4

I think over time, the goal will be somewhere where we have a balanced portfolio of 50% on and 50% offshore. And we feel very confident that we will achieve that based on the speed at which we're opening new locations and the speed at which clients only are taking up that capacity and asking to move to these new geographies and new locations. You want to add anything?

Speaker 5

No, I think that's right. And I mean, I think only Really pleased with how the client demand that we're seeing and how our pipeline is developing for our existing, but in particular for the new offshore locations That we're opening up. And I think, Jonathan, as we talked about last time, right, we will get to that fifty-fifty mix or that balanced portfolio over time here. This year, we're certainly looking to expand our offshore by a couple of percentage points. And so that's what we're working on every day.

Speaker 9

Only. Got it. Thanks for that color. And I know it's relatively early days in your offshore expansion, but can you talk through hiring trends you're seeing in some of your newer geographies?

Speaker 4

Only. So far, we're very pleased. And it's a lot of that has to do with the locations that we're picking and where we're going, We are experiencing no difficulty whatsoever in filling the roles only as we open up these new sites. So, so far we feel extremely confident about the hiring abilities. And frankly, only.

Speaker 4

It's one of the many reasons why we decided to start to add all these different geographies is because we wanted to have far more diversification I wanted to be able to have much more certainty that we can hire at a much faster rate, etcetera, and it's absolutely proving to be the case.

Speaker 5

And of course, we're going into markets where we think the talent market is strong, right. So far so good, going well.

Speaker 9

Appreciate the color. Thank you.

Speaker 1

Thank you.

Operator

Thank you for your questions. That is all the time we have today. I will now turn

Speaker 1

Thank you, everyone, for joining us today.

Speaker 2

This concludes our Q1 earnings call. Thank you.

Operator

This concludes TTEC's Q1 and 2023 earnings conference call. You may disconnect at this

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Earnings Conference Call
TTEC Q1 2023
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