Q3 2021 TDCX Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Stuart Your chorus call operator, welcome and thank you for joining the T. D. C X incorporated third quarter 2021 results conference call.
Throughout today's recorded presentation.
All participants will be in a listen only mode.
The presentation will be followed by a question and answer session.
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I'd now like to turn the call over to management. Please go ahead.
Hello, everyone and welcome to the T. D C exiting 'twenty one third quarter earnings Conference call. My name is Jason <unk> from Investor Relations and allow me to introduce management on the call. We have our executive chairman founder and CEO, Mr. Lull unique and our CFO Mr teams.
Before we continue I'd like to remind you that we will make forward looking statements, which are subject to risks and uncertainties and may not be realized in the future. You said you should not place undue reliance on any forward looking statements.
Also this call includes a discussion of certain non-GAAP financial measures, such as EBITDA and EBITDA margins.
For a reconciliation of the non-GAAP financial measures to the Covid doesn't get measures. Please refer to our press release or the form 6K, which are available on our IR website.
Lastly, we have provided a convenience translation for the translations of Singapore dollar into the U S. Dollar. This was done at a rate of one U S dollar to $1 30, 611, Singapore dollar.
This should not be construed as representation that is Singapore dollar mouse could be called budget into the USD at this or any other REIT.
Our management will now share updates on the operating and financial performance. This will be followed by a Q&A session in which we would welcome any questions. You may have with that let me turn the call over to longhorn the horn.
Thank you, Jason Hello, everyone and thank you for joining US today. It is my absolute pleasure to welcome you to our first ever results call as a public company.
Before we begin I'd like to take a moment to thank all our clients partners and investors for your support and for being part of this incredible journey towards our successful IPO in October what we've achieved would not have been possible without the amazing team of over 14000 people what helped deliver better results.
Over the past years and in particular for this set of results, which we are reporting on let me now go through some highlights of our Q3 performance. We're very pleased to announce strong revenue and earnings growth for the quarter saw a strong Q3 revenue rose 41% year on year.
Two $109 million, mostly contributed by large established clients in digital media and travel in particular travel came back in a good way for US It is still not at 2019 levels, though.
We also continued to ramp up in the exciting verticals, such as Fintech and gaming revenue rose across all the geographies. We operate in two of our largest geographies, Malaysia and the Philippines continued to deliver very strong growth, whilst newer footprints like Japan, and China grew in excess of.
50% and Spain doubled year on year during.
During the quarter, we achieved a new milestone with Meda and revenue contributions from Latin America as we commence our first campaigns in Colombia I'm also excited by outperformance in sales and digital marketing where revenue rose 93%.
And I'll just bonds in this space significantly expanded their volumes with us year on year revenue from our relatively new professional social media content segment rose four pods.
We're focused on quality growth higher margins by staying true to our strategy of focusing on new economy times and strength in southeast Asia, We continued to achieve quality growth and improve upon our margins EBITDA rose 51%.
$39 million as EBITDA margins rose to 35, 5%.
Revenue from new economy clients continued to increase and now stands at 93, 4% of total revenue in Q3.
New logos, we continued to gain traction with new clients since the start of 2021, we have signed.
16, new logos, including several of this fast growing technology companies in Asia are new logos also included our first plant in the food delivery and crypto verticals. Since we have signed that crypto client, we've deepened our relationship with them and they've started to contribute meaningfully to revenue operation.
Lee we delivered on our head count increase and continues to expand.
Total head count rose, 34% to over 14100 as of <unk> September 2021.
We believe that this stellar set of results puts us on the songs footing moving forward as we start this new chapter as a listed entity Mr.
Mr. Chen will share more details on the financials later.
But for the benefit of the new investors and analysts joining us let me quickly provide an overview of our business before I hand over to our CFO.
Our business comprises three key service offerings.
Number one omnichannel CX solutions number two sales in digital marketing services and number three content monitoring and moderation services for Omnichannel customer experience, we help our clients manage relationships with their customers by providing complex customer experience solutions such as.
After sales service and customer support across multiple languages and multiple channels. One simple example would be helping of foreign English speaking visitors resolved urgent accommodation issues with the Japanese Ost was a bilingual agent.
Who is a well trained to handle complex level issues.
For sales and digital marketing services, we helped small medium enterprises plan and execute their digital advertising campaigns on the worlds, leading social media and search engine platforms.
This requires specialized personnel well versed in the science of AD optimization on such digital platforms.
Lee our content monitoring in moderation services helps our clients create a safe and secure online environment for all social media platforms by providing the human touch through content monitoring so the services made up 62%, 22% and 14% of our Q3 revenues respectively.
While CX solutions have historically represented the majority of our business over time sales and digital marketing as well as content monitoring in moderation services have both a greater share of the revenue mix. This.
This increased diversification in our business mix represents our efforts and continually adapting to our customers' changing business needs and our ability to grow with our customers at scale.
Now in terms of the addressable market, we operate in a very exciting space, where we see increasing demand in CX services, especially in southeast Asia and from new economy clients. According to Frost <unk> Sullivan, the southeast Asia CX market size stood at $10 billion in 2020 and is expected to grow to.
$14 billion by 2025 within the space of the New economy segment alone is expected to rise even faster at a compounded annual growth rate or CAGR of 19%.
From a global context, the market is expected to rise from 80 billion $200 billion over the same period with the new economy segment growing at a CAGR of 17%.
So we are strongly positioned to capture the market from these trends. We believe that we have those first mover advantage in southeast Asia with a unique footprints and.
And we plan to continue to carefully expand our global footprint, while keeping a very strong focus on our center of gravity in Asia. We have an attractive time base that consists of some of the largest and most innovative brands in their respective industries, such as social media and travel and hospitality.
Our relationships with our Blue chip new economy clients offer significant opportunities and we are well positioned to ride that growth.
We have an international footprint in 10 geographies across Asia, Europe, and Latin America.
This provides us with access to a broader talent pool, and equips us with multilingual capabilities to serve our global customer base, including English in key Asian languages, such as men drain tie Korean Malay Vietnamese Japanese as well as Asia Unicorn languages, such as with their needs.
<unk> and senior leaders in.
In the recent years, we have opened new offices and to call new client mandates in different geographies, representing our global ambitions and execution.
As you can see in the Pie chart over 90% of our Q3 revenues come from our core businesses in southeast Asia, while our relatively new geographies in Japan, and China are starting to contribute meaningfully.
<unk> also expanded into Colombia, India, and Romania in the past two years and we are ramping up our business there.
Let me round up with <unk> key competitive advantages, we have first of all a strong Pan Asia footprint and our leadership position in key Southeast Asian markets helps drive our competitive edge, we run highly successful offshore operations, which drives cost benefits and higher margins we focus.
On market, leading global leaders in the new economy sectors.
To meet the demands of high growth digital clients were designed to be agile and flexible and scalable in line with our pumps rapid growth.
Emphasis on supporting complex issues is why more than 60% of our employees have college or University degrees and the quality of our employees is a key differentiator next.
Next we are domain experts with a deep understanding of high growth in complex verticals, such as digital advertising Fintech gaming.
Finally, we augment our incredibly talented people with proprietary technology that drives productivity and accuracy of our service delivery.
All the above leads to better employee outcomes, including a lower attrition rates compared to the industry average and high employee satisfaction scores.
Our corporate culture is designed to foster a work environment that is fully aligned with our clients.
I would like now to spend a bit of time on the on some upcoming trends as well as reiterating the key tenants of our strategy.
As economies reopen we are progressively getting ready for a return to the office and for the great reshuffle as it is called our teams are reviewing protocols right now as well as people trends and we will be leveraging several of the solutions we have available.
Firstly, a key theme will be flexibility, we will implement hybrid work arrangements for both office collaboration and work from home.
Keeping in touch with our people a lot more frequently.
Treat them like our customers and empower them supersize engagements and bring mental health support front and center.
Thirdly, rewarding our people with smart compensation and benefits, an even greater focus on performance based compensation and real world results versus time spent less.
Lastly, reinvent training less pass through more self paced online recognize and reward people while invested in themselves by using our training tools and options.
<unk> is all about culture, a culture a culture, it's so easy to lose our culture with the reduced personal timing office. So this will need renewed focus and energy now.
Now from a strategic point of view, our plans have not changed we want to one expand geographies. We are opening new offices in North Asia and looking at other locations in Asia. The approach to work from home has opened new possibilities with lighter in country satellite setup was.
Number two invest in people as I mentioned earlier of attracting and retaining the best will be central to our success.
Three lean and effective continued to digitalize HR finance anticipate inflation.
Number four acquisitions building pipelines, but staying true to our DNA principles will be very selective when we look for acquisition.
Let me now hand over to Mr. Jim to cover the financials.
Okay.
Thank you Aloha.
Let me first quickly share some details on our historical financial performance before we dive into details of Q3 2021 over the next few slides.
On the left we have the revenue performance.
In the middle our EBITDA numbers and on the right net profit.
As you can see our business has achieved consistent high growth of 55% revenue CAGR from FY 2018 to FY 2020, and 61% EBITDA CAGR from FY 2018 to FY 2020.
Net profit CAGR was 50% over the same period.
This was coupled with a track record of consistently heightened EBITDA margins rising to 32, 9% in FY 'twenty up from 36% in FY 18.
For the nine months ended September 2021, he record U S dollar at 294 million in revenue U.
U S dollar 96 million EBITDA and U S 55 million net profit.
These numbers attest to the successful execution of our business strategies and competitive positioning where we are focused on the following principles.
Focus on high growth CX segment.
Strong exposure to new economy clients.
Focus on complex offerings.
Regionalization of operation underpinned by multilingual hubs.
And 90% of our agents based in Southeast Asia.
Let me now share some details on our Q3 financial performance.
Revenue Rose 41, 3% to U S dollar and $109 3 million driven by broad based growth across all of our three business segments.
And across all geographies.
And the next slide I will share the breakdown by service type and geography.
EBITDA Rose 51, 1% to U S dollar $38 $8 million.
We expanded margins from 33, 3% to 35, 5% on the back of improved staff productivity and continued focus on careful and disciplined cost management.
Net profit for the period Rose 46, 7% to U S dollar $22 2 million that reflected some incremental tax charges in Q3.
On this slide we will share more details on our Q3 revenue performance by the services we offer.
And by the geography in which we operate.
Revenue from <unk> solutions.
Rose 37, 9% to $68 $2 million due mainly to higher business volumes driven by expansion of existing campaigns.
As well as the ramp up of new projects that commenced during the first half of 2021.
In addition, this is volumes benefited from the nascent recovery in the travel and hospitality sector from the impact of COVID-19.
Revenues from sales and digital marketing services rose strongly by 93, 4% to U S dollar $23 7 million.
Due to the volume expansion of existing campaigns, while social media clients.
Such engine right across.
Our deliveries.
Asia.
Revenues from content monitoring and moderation services increased by seven 1% to U S dollar $15 6 million.
These high contribution from our social media client.
In terms of revenue contribution by key geography.
Singapore Rose, 32% to U S dollar $28 7 million.
Philippines Rose, 45% of U S dollar $28 7 million.
Malaysia Rose, 40% to U S dollar $28 2 million.
Island Rose, 35% to U S dollar $33 million.
Japan Rose, 66% to U S dollars $6 3 million.
In China around 73% in U S dollar at $2 4 million.
Let me now share some details on our expenses.
We continue to monitor closely our overall cost structure and ensure that our total operating cost base streamline and align to support our fast growing business.
For the three months ended September 2021 operating.
Operating costs as a percentage of revenue improved to 74.0% compared to 77, 2% for the same period last year.
Being a people centric business and probably benefits expense makes up the largest portion of our total operating cost base.
Our employee benefit expenses.
Increased by 37, 5% to USD $63 6 million, while Q3 in tandem with this volume expansion.
The average number of employees in Q3 rose by 44% compared to the same period of 2020.
On a group staff productivity basis revenue per employee rose by 5%.
While employee benefits per employee rose by 3%.
Demonstrating that we have improved productivity, while managing wage inflation.
Our depreciation expense increased by 22, 2% to U S. Dollar $7 6 million for Q3, primarily due to depreciation on right of use assets.
New renovations and capital expenditure in relation to office expansion of this asset growth.
All other expenses, which includes items such as recruitment transport and telecommunication expenses, those 34, 3% to U S dollars $9 6 million.
Aggregating the above movements total operating expenses rose by 35, 5% to U S dollars $80 9 million, which is lower than our topline growth of 41, 3%.
Lastly.
Let me now move to the financial outlook.
We expect full financial year, 2021 revenues to be in the range of $6 549 million to $6 553 million.
This translates to a U S dollar 403 to U S. Dollar funded 6 million, assuming an exchange rate of one U S dollar to $1 3611, Singapore dollar.
At the midpoint of the range revenue growth is expected to be 26, 7% compared to 2020.
We expect full year 2021, EBITDA margins to be approximately 31, 7% to 32, 2%.
This excludes expenses associated with the performance share plan, which will be recognized from Q4 2021 onwards.
The PSP service to incentivize and maintained our senior management team and top talent.
As well as to ensure alignment of interest with investors in creating shareholder value.
We will start to incur expenses related to our existing and ongoing life as a publicly listed company.
Lastly, the margin guidance includes our expectations.
To continue to invest in business development efforts technology and innovation to drive growth in the long term.
With that we end our presentation.
I'll now hand, it back to <unk> for some closing remarks.
Thank you Mr Chin.
Finally, a big thank you again through our incredible employees and my incredible management team how collectively they are maneuvering around the obstacles created by the pandemic, particularly in Asia is exemplary also wanted to touch a bit on the our corporate social responsibility initiatives be greener is a.
For all of us to care for the environment in <unk>. This year was able to offset 38770 tons of carbon dioxide.
Happier, which is about our employee wellbeing happy to report that we achieved an employee satisfaction score of 89% even as the pandemic was creating havoc everywhere in Asia and finally, the third pillar of our corporate social responsibilities B Kinder, which is our community outreach program.
And which is about to be redesign as a central entity to at lease communities in Asia Digital AD partners.
Thank you everyone for listening and let's now move to Q&A.
Ladies and gentlemen at this time, we will begin the question and answer session.
And who wishes to ask a question press star followed by one on their touch tone telephone.
We wish to remove yourself from the question queue. You May press star followed by two <unk>.
Using speaker equipment today, please lift the handset before making your selection.
I wanted to ask a question you May press star followed by one at this time.
One moment for the first question please.
First question comes from the line of <unk> <unk> from Goldman Sachs. Please go ahead.
Hi, everyone. Thank you very much for that Tom and congratulations what a great set of results. A couple of question from me maybe we can go one by one.
Firstly I just wanted to understand that.
I'm sure you're asking I'm not concerned about that.
There was an impact from the slowdown in travel and hospitality segment.
Were to include the travel and hospitality.
What would that look like that quite kind of an idea on GAAP basis, and similarly packed with you our so connected worker.
From the expansion of.
Kannan climbed as high at all I guess.
Doug when Ofcom new clients.
That's question number one.
Great. Thank you.
So on the travel we're still deeply affected by the travel impact if you look at the Q3 alone the whole travel and hospitality business.
Still down by 22%.
Q on Q.
If you looked at it from the last trading nine months.
We're still minus.
Minus.
Around the same around the same number in the 20%.
Zones, so it's still significant.
Impactful for us in terms of travel and hospitality.
Because we have other businesses that are picked up in <unk>.
Tech and gaming.
And in in digital advertising, we were able to compensate the treaty.
Pretty nicely.
Now in terms of the growth coming from.
The clients still the majority of our growth is still coming from all our larger clients.
But other businesses like <unk> grew by 62, 5%. If I include the Crypto for example in our Fintech business.
Gaming.
86%, we had the new social media clients that grew by 300%.
So growth almost everywhere in all our current lines.
But the two larger clients seem to be contributing to the weaker part of the growth for the business.
Alright, Thank you very much.
Also in the.
Touched upon that growth rate right just wanted to understand guidance that youre providing for yet.
So from the guidance that you provided.
Look at the fourth quiet current staffing Neal that year on year growth rate.
I'll come back to actually.
Is there any specific training.
Jess why that slowed down and could you also help provide some framework on what should we think about growth going forward into next year as well.
Okay.
Q4.
This year.
One first thing you need to take into account.
Well, we have a very strong Q3 two to begin with.
Second Q4 last year was unusually high so it was almost 20% more than Q3, which is it was unusual year. It was a 2020, we were in a still big time in the independent Mick.
So we are doing we're going to do a great Q4 is just at the base of comparison.
<unk> is much higher if you look at 2020.
So normally Q4 is not a strong.
Of all the quarters in terms of seasonality so that explains.
These to begin with but still it will be a very decent growth compared to Q4.
2020 now forward looking.
The way, we look at growth moving into 2022.
We're very very much guided by the statistics of the.
The markets, we operate in and we know that specifically in southeast Asia.
You see Google.
It grew at 19%.
But.
The statistics, we look at and we rely upon.
We need to be doing more than that and we've demonstrated in the past that.
We were able to beat those numbers pretty comfortably.
We're not ready to give guidance for next year, we will invest in the quarter four results announcements.
Okay.
Sure. Thank you very much.
I'm not sure.
Is that a contract no question.
Thank you Mike.
Can monopolize the time.
Over to you.
Alright.
I also wanted to understand right.
If you quick chat in term of a country by country.
Any color on which countries we see okay.
Very interesting trends and especially.
Okay. Thank you mentioned that as an ROIC in countries like Italy.
That seemed to be doing pet parents.
At any time now.
Thanks, Pat on that as you expand into more grassroots went down as Colombia, Spain, Romania, If you can Alex with Xiaomi.
And traction.
Okay.
Absolutely so absolutely be in Malaysia, and the Philippines are powerhouses.
So Malaysia grew by 40%.
In the Philippines by by 45%.
So.
It's quite solid growth.
But other markets grew as well pretty well, Japan by 66%.
In Spain, which is starting from a small base by 193%, but really we are replacing.
A lot of expectations around Malaysia, and the Philippines.
The central are keys to our business now.
Now moving forward in terms of new new countries. As you know we pursue inorganic growth strategy, we're pursuing quality growth.
So it will take time.
All of them to grow.
So usually it takes us about three years to get to a decent levels, which we're starting to enjoy with the Spain, whilst Colombia, we just opened at the beginning of this year in the middle of the pandemic.
And then we just opened in India as well in the middle of a pandemic, but we've signed up a plus clients in India, we signed above us clients in Colombia.
We are opening Romania as well.
We did in the in the smaller in a small way as a as a support to our bus within our operation.
The global expansion will take a bit of.
Time to grow.
So we're relying on Motorola.
Our growth on our existing footprint in Asia Pacific for the moment.
Sure. Thank you very much maybe Allison.
Thanks, Pete I think we have about six questions on.
So maybe we'll just take out the six questions first before we come back to you if we have more time right.
Right.
Great. Thank you.
Okay. Thanks. Thanks, Thank you bank sorry, so I'll just read off some of the questions that we have I think we can combine two questions from Z Janco partners and Casey Pharmacy IMD is about wage inflation can you talk about the impact of inflation on wages and our cost structure and what is the doctor MSA.
<unk> allowed for in which inflation will be passed on to your clients and if so how quickly.
Alright, So I will show this one with Mr. Chin.
So far we've been able to cushion our wage inflation pretty pretty well.
And it's a collaboration with our clients to begin with.
So.
Our clients are very involved in and the work, we do and we're always watching labor.
Labour competition attrition competencies and so we work together to adapt our compensation and benefits strategies together with our <unk> pricing.
We're not always able to.
<unk>.
Wage inflation on the on our clients, but but we do work together and we track a number where we look at our revenue growth versus.
Our.
Wage inflation and Mr. Cheung will talk more about this at this point it's positive.
It's definitely on the list of things, we do our contracts vary in terms.
And in the duration and.
In terms in terms of weather.
We can have a cooler cost of living adjustments or do we need to wait for the contract to be renewed to us for a wage increase or price increase.
But in some cases, we work with clients directly even doing contract.
Syed on the on changing the pricing too.
Give us the possibility to attract the right competent labor.
So I hope that answers the question Mr. Chin, if you would give a bit of color on how our wages.
I've been traded versus saw our revenue.
Paul.
Yes.
Revenue per agent.
<unk> has increased quarter to quarter by 5%.
And on.
On the flip side, which.
Employee benefit expense of the employee on average blended <unk> increased by 3%.
So.
I will supplement the hardest.
Explanation by saying that.
While we tried to pass on.
US dollar for a dollar of reaching patients to our clients.
So look on in hunting and improving our productivity.
Two to buffer against such wage inflation.
In terms of using better tools observation.
Yes.
Reorganized.
The bulk team management team.
All of those programs.
I'm going to destock.
Efficiently.
Issues so.
I will say, we historically have been able to offer these reaching completion.
Pretty closely.
Wow.
The remaining period.
I mean, one thing yes.
Inflation is pretty.
Common topic.
Policy by many.
Companies and employers.
You will be watching closely.
<unk> reorganized our.
Revisit and reopening our compensation package to to be able to.
The.
Our deliver both to our clients.
At the same time to manage the margins closely.
Thank you thank.
Thank you Mr. Chen.
Okay. Thanks, just achieved so we have the next question on line from a couple of investors again.
<unk>.
We have grown.
The 13% Q on Q and the current quarter, but the implied guidance is only 2%, 3% Q on Q into the fourth quarter any reason for that change the different growth rate in Q4 revenue.
No I think we really tracking according to plan. This is very much what we had forecast.
Q4 that we got.
<unk>.
As I mentioned earlier the contrast between Q4 2000.
2000, and in the strong Q3 that we were anticipating so it's not unexpected it's very much in line with our forecast and I think there was a question earlier on about the impact of trouble will now business and I'd actually.
You may not have answered it properly but.
Our growth excluding travel would have been 43%. So that's to give you a sense of the.
The overall impact of trouble on the business.
So it's just to clarify.
For the nine months for the first nine months and yet.
So I think I think we now have a question on on the conference call from volume.
Can we move back to.
Having the question from borrowing on the call. Please.
Sure Jason we have a question from the line of Arun <unk> from Credit Suisse. Please go ahead.
Yeah, Hi.
The management with a strong quarter.
Two questions.
A lot of you have seen a very strong traction in the client's matrix. So you've added 16 client.
I would love to hear the breakup word, which what because on any of the guidance.
Without naming you will not see a lot more excitement from your site.
Yes.
Along do you think these clients would it take to ramp up right.
Client attrition is a strong matrix, we should focus on.
Because.
Leads to future growth, but in terms of how long does it take in your experience.
Clients to start meaningfully pick up.
And on the client again take the last question want to understand over the last few years you have been.
Hmm.
Looking at your client base and kind of where you start getting some of those lines. We're not seeing how do you or would that phase now should.
Should we expect continued growth in clients.
Some of the lower Cogs, so that the clients that can come back with other pushed it.
Thank you everyone.
Yes, Im quite excited about the new logos that we brought in to begin with in terms of the acceleration of the pace I think.
First nine months of last year, we had brought in about nine new logos. This year to 16, so there's definitely a.
An acceleration here out of the 16 logos, we brought in as well if you wanted a bit of color.
Nine of them are from Asia, which is an interesting trend.
Historically, a lot of our logos.
Companies from the West North America, primarily but we're starting to see the emergence of <unk>.
Asian companies, which is exciting.
I did about the businesses, we brought in in terms of crypto.
You are starting to yield.
Pretty fast.
And.