Q3 2022 TTEC Holdings Inc Earnings Call

November 10, 2022

Thank you for standing by at this time, you will hear music up until this conference begins. Thank you so much for standing by.

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Welcome to <unk> third quarter 2022 earnings conference call I would like to remind all parties that you will be in a listen only mode until the question and answer session. This call is being recorded at the request of T. Chek I would now like to turn the call over to Paul Miller, <unk>, Senior Vice President Treasurer and Investor Relations.

<unk> officer. Thank you Sir you may begin.

Good morning, and thank you for joining us today <unk> is hosting this call to discuss its third quarter financial results for the period ended September 32022 participating on today's call are Ken Tuchman, our chairman and Chief Executive Officer of <unk>.

<unk> Chief financial Officer of GTECH, and Shelley's, one bag, Chief Executive officer of <unk> engage and president of T. Chek yesterday, <unk> issued a press release announcing its financial results. While this call will reflect items discussed within that document for complete information about our financial performance. We also encourage you to read our.

Third quarter 2022 quarterly reports on Form 10-Q.

Before we begin I want to remind you that matters discussed on today's call are 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 of <unk>.

<unk> of new developments that 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 2021 annual report on Form 10-K as amended by our <unk>.

And quarterly reports on Form 10-Q, a replay of this conference call will be available on our website under the Investor Relations section I will now turn the call over to Ken.

Good morning, everyone and thank you for joining us today I am pleased with our solid execution and our overall financial results for the third quarter. Our performance was driven by our broad and diverse base of global clients and our full range of CX strategy analytics technology and operational capabilities, Let me share a few third.

Quarter financial highlights bookings were $200 million.

An increase of 17% over the prior year period revenue was $592 5 million an increase of 7% over the prior year period on a constant currency basis, and adjusted EBITDA was $72 $2 million. Our bookings this quarter reflect continued strong demand for our CX technology and.

Services solutions, however, like most businesses across the globe our clients are facing macroeconomic uncertainties in this highly dynamic environment as expected the impact across the verticals. We serve has varied in sectors that are more resilient like healthcare banking automotive and government there is ongoing.

<unk> strength in other pockets like technology based hyper growth companies, we're seeing continued softness.

We expect these trends to continue into the next year as our clients adapt.

As our as our clients adapt.

To the evolving dynamics in the marketplace, we're working closely with each of them and we will remain agile and responsive to their needs.

In any economy, focusing on customer experience is critical.

<unk> customers spend more.

Are less costly to serve and are easier to retain happy customers are active promoters for their favorite brands and help companies attract new customers and a hyper competitive market.

Our portfolio of <unk> solutions has always delivered the highest customer satisfaction at the lowest total overall cost to serve and.

In the current environment clients are leaning into our best in class capabilities to modernize and optimize their CX platforms to deliver seamless customer experiences that are personalized convenient and better for their bottom line.

We continue to accelerate our diversification strategy and I am pleased with our progress on several fronts, including geographic expansion with new nearshore and offshore delivery locations for both our engage and digital businesses growth with new and embedded.

<unk> clients across strategic verticals deep.

Deeper collaboration with strategic CX technology partners, and innovation and our comprehensive portfolio of digital CX solutions with automation data analytics at the core of our offering.

The CX technology landscape continues to evolve.

Drew T Tech digital we're integrating the entire CX technology ecosystem of contact center technology with enhanced automation and analytics to enable experiences that are predictive seamless and simple for customers and frontline employees.

To enable these modern experiences companies of every size must migrate to the cloud as many on premise platforms reach end of life. It is no longer question of if companies will migrate to the cloud. It's simply a question of when they will we've built a differentiated platform to help companies desire.

<unk> build and implement their migration strategy effortlessly.

Wherever a company is on their journey.

Our portfolio of pure play CX technologies, and our experienced team of software engineers are well positioned to capitalize on the CX cloud imperative.

To.

<unk>, our digital business, we're thrilled to welcome Dave Seabold as our CEO of <unk> digital at the end of this month.

Dave is an accomplished digital leader with decades of global experience accelerating growth and profitability with marquee enterprises.

And clients and technology partners are.

A senior executive of IBM, <unk> and most recently at <unk>, Dave as a results oriented leader and a strong cultural fit.

Confident in <unk> ability to scale, our <unk> digital business and to help us unlock its full potential.

I'm also pleased to promote Shelly swamp back to President of T. Chek. In addition to our role as CEO of T Chek engage.

Excuse me in the last six months Shelly has immersed herself in all aspects of the business and has hit the ground running she has captured the hearts and minds of our teams across the globe and has connected with our clients as a strategic adviser at a time when they need a results oriented partner like her.

With these two dynamic leaders on my side.

I will continue to set the company strategic direction and focus on innovation M&A and client engagements are more energized than ever about our team our differentiated platform and our future with that I'll hand, it over to Shelly.

Thank you Ken and good morning, everyone.

Our execution this quarter was solid.

The macro environment, we made progress on many initiatives across the business, we delivered over $200 million bookings and signed 18, new logos in the quarter, including six.

Thanks Neil.

Let me start with a few updates on our engagements.

Bookings this quarter included a good mix of new logos and embedded.

For example, we signed a fortune 500 financial advisory firm.

Sourcing we also stand of our health care footprint, new insurance payers seeking our expertise managing complex programs.

Today, we serve hundreds of global clients from our delivery operations in 20 countries and we are accelerating our nearshore and offshore expansion to provide clients with even more cost effective options for geo diversity and multilingual services.

Last quarter I mentioned that we opened three new geographies and today I'm pleased to report that our performance and our newest nearshore location in Colombia is exceeding our projections in terms of scale and execution.

We are well positioned to meet client demand as we expand our global work from home platform, but more near shore and offshore location.

Many of our largest clients operate regulated industries that require work to be done onshore and we continue to be there goes to partner our reputation as a leader in license delivery enables us to manage these complicated program with exceptional results.

This quarter, we made strong progress implementing digital display solutions for our clients.

Across the industry as more and more clients are piloting our blended solutions are experiencing dramatic improvements in associate productivity and customer satisfaction are non liquids are up 60% year over year.

And this quarter, we welcome back Jeff.

<unk> operating officer have engaged prior to returning to T Chek Overstock global growth and geographic expansion of leading providers, including total international.

It's great to have Chuck on the team driving frontline employee engagement and client satisfaction across the globe.

Now, let's move on to third quarter highlights from the digital side of the business.

First we won several public sector deals, including a managed services engagement with a high profile Federal agency and most notably a large multiyear contract spanning multiple offerings from our digital portfolio, including Amazon connect CRM automation and analytics.

We gained additional momentum in healthcare with the large cross platform a cloud migration deal that will enable seamless interactions between patients and physicians across a widely distributed health care system.

And we continue to make progress across all of our CX technology partners. Notable strength this quarter came from our work with Microsoft Genesis.

And our momentum with Cisco continues to build in particular with our professional services practice.

We look forward to announcing exciting new growth areas with partners in the months to come.

And lastly, our analytics practice experienced 37% growth this quarter driven by cross sell opportunities with our other practice area.

As I speak with clients across verticals and a few topics that are top of mind.

Every client recognizes that the talent environment has changed forever, our clients are coming to us for our expertise in managing the new labor dynamics and our ability to reliably higher trained routine.

<unk> global frontline team.

Yes.

Another hot topic is the need to implement CX initiatives to deliver near term benefits, while advancing our company's long term CX transformation.

I would now like to say projects that are material enough to matter, but managed a little less ticket size.

This is where our design build operate model leveraging the collective capabilities and are digitally engaged.

Powerful.

We're making steady progress expanding our geographic footprint accelerating our go to market advancing our digital solutions and strengthening our strategic partnerships.

As we navigate the near term dynamic environment.

We will remain agile and responsive.

We're very focused.

Focus on execution calibrating our investments.

Aligning our cost structure and optimizing what is under our control.

Before I hand, it off to Dustin I would like to personally welcome JC, both a trusted colleague I look forward to working with him to unlock the best of feedstocks for our clients and amazing teammates.

You need to be very inspired by the passion and commitment of everyone of our 62000 employees across the globe.

And now I'll hand, it up to <unk> to discuss our financials.

Thank you Shelly and good morning, everyone.

As mentioned, we are pleased with our third quarter financial performance as we continue to navigate the ever changing economic landscape that is impacting some of our clients in their businesses.

Moving to third quarter bookings performance.

Our third quarter, 2022 bookings increased 17% to $200 million compared to $171 million in the prior year period.

Our digital bookings, excluding product sales increased 44% year over year, reflecting strong demand across our CX technology services offerings, including our Genesys, Microsoft dynamics, Amazon connect and Cisco solutions.

In our engage segment demand was strong across our customer care and acquisition services geographic footprint and industry mix with particular strength in our public sector financial services and health care verticals, all of which tend to be better insulated against macro cyclicality.

Our third quarter bookings included 18, new logos, representing 11 million bookings as well as six multi segment deals.

I'll address our backlog and pipeline and my outlook remarks.

In my remaining discussion on the third quarter 2020, due results referenced the revenues on a GAAP basis.

While EBITDA operating income and earnings per share on a non-GAAP adjusted basis.

Full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release.

We are using the term like for like basis to describe our revenue growth excluding the impact of foreign exchange translation and treating acquisitions as if we owned them in the prior periods.

On a consolidated basis in the third quarter of 2022 revenue was $592 5 million, an increase of four 5% and five 7% on a like for like basis, excluding the impact of pandemic related volumes.

Organic growth was relatively flat on a constant currency basis.

Adjusted EBITDA was $72 2 million or 12, 2% of revenue compared to $78 7 million or 13, 9% in the prior year.

Operating income was $50 2 million or eight 5% of revenue compared to $59 4 million or 10, 5% in the prior year.

And lastly, EPS was <unk> 74, compared to one dollar and a penny in the prior year.

The continued strengthening of the U S. Dollar in the third quarter was $14 1 million headwinds revenue benefited operating income by a positive $3 $9 million, primarily within our engage segment.

Our third quarter engaged revenue benefited from our Spaniel acquisition, which we acquired in early April and increased volumes from new and existing clients.

Most of our bookings composition, our digital revenue benefited from higher recurring cloud and systems integration work offset by lower or more normalized levels of non core product sales.

Other revenue highlights include a 146% increase in public sector, primarily attributable to the <unk> acquisition, a 33% increase in travel and hospitality.

8% increase in automotive and a 19% increase from EMEA.

Turning to our operating profit the year over year decrease was primarily a function of the reduction in higher margin pandemic related volumes compared to the prior year period integration related costs associated with the <unk> acquisition and incremental growth oriented investments in talent acquisition.

I will now cover our third quarter 2022 segment results.

Our digital segment revenue was $117 9 million in the third quarter of 2022.

$124 1 million in the prior year period.

Similar to our digital bookings composition, our results reflect increased revenue from our cloud and systems integration services across our tier one CX tech partner platforms offset by lower product sales. Excluding these noncore product sales digital revenue grew 8%.

We are pleased with the progress we made in our Cisco practice, returning our professional services.

Just back to 9% growth in the third quarter over the prior year.

The first quarter of year over year growth since the fourth quarter of 2019.

Our CF technology IP business continues to perform well delivering 19% growth in the third quarter of the prior year period, as we continue to execute against our product roadmap and released new proprietary tools and connectors that improve our customers' time to value and enhanced functionality with leading CX technologies.

Our recurring cloud and managed services revenue represented 54% of digital is total revenue or.

Our diverse systems integration services, which have a high attachment rate for supporting future upgrade and expansion engagements represent another 29% of total revenue.

Operating income was $15 9 million or 13, 5% of revenue compared to $15 six or 12, 5% of revenue in the prior year period.

The margin improvement is due to higher margin revenue mix, partially offset by incremental investments in <unk> leadership, and engineering talent sales and marketing and product and technology developments.

Our engage segment third quarter 2020 revenue increased seven 2% to $474 5 million of the prior year eight 6% growth on a like for like basis, excluding the impact of the pandemic related volumes.

While the venue asset acquisition was the primary contributor to growth in the quarter, we deliver meaningful volumes across industry sectors with particular strength in public sector automotive and travel industries.

Our embedded base continued its strong performance as demonstrated by engages last 12 month revenue retention rate of 98%.

<unk> pandemic related volumes engaged revenue retention was 108%.

Operating income was $34 3 million or seven 2% of revenue compared to $43 8 million or nine 9% in the prior year period.

Our engage operating margin reflects the impacts highlighted in my comments on the total company results.

As well as our continued build out a strategic investment in our offshore delivery centers, we anticipate debt, which we anticipate will further diversify our client services and benefit margins over the long term.

I will now share some metrics related to our cash flow liquidity capital deployment before discussing our outlook.

At quarter end cash was $172 3 million with $959 $2 million of debt. The vast majority of which represented borrowings under our $1 5 billion credit facility.

Net debt increased by $124 1 million to $787 million year over year, primarily due to the acquisition related investments and capital distributions, partially offset by a positive cash flow generation.

Cash flow from operations was $27 5 million in the third quarter of 2022 compared to $42 2 million in the prior year. The decrease was primarily driven by decline in profit over the prior year period and timing of working capital.

Capital expenditures were $28 8 million or four 9% of revenue for third quarter of 2022.

$17 2 million or 3% in the prior year. The increase is a function of multiple program ramps. It investments planned team member desktop upgrades and facility related renovations.

Yeah.

Our normalized tax rate was 24, 2% in the third quarter of 2022 versus $19 six from the prior year.

The increase was primarily related to the change in tax regulation really depends a special economic zone within the Philippines jurisdictional mix of income and reduction in select international tax benefits.

In September the board declared the next semiannual dividend of <unk> 52 per share, which was paid on October 26, 2022 to shareholders of record as of October 11 2022.

This dividend representing a 10, 6% increase over October 2021 dividend and a 4% percent over the April 'twenty two dividend.

We remain committed to our capital distributions to shareholders through semiannual dividend.

Turning to our outlook, our full year guidance remains unchanged from last year's quarters update and continues to reflect the uncertainty surrounding the global economy.

Let me make a few additional comments.

We exited the third quarter with a 2020 revenue backlog of $2 4 billion or 99% of the midpoint of our guidance. Our current pipeline is $2 billion, an increase of 12% over the prior year.

We continued optimizing our cost structure this quarter and have implemented cost containment initiatives. So we can quickly adjust to the ever changing macro environment.

Our ongoing cost containment initiatives include but are not limited to optimizing our supply chain through vendor consolidation, reducing discretionary spend rationalizing of our non core real estate.

Streamlining our G&A and overhead functions, while maintaining growth related investments made earlier in the year.

Please reference our commentary on the business outlook section to our third quarter 2022 earnings press release to obtain our expectations for fourth quarter and full year 2022 performance, the consolidated and segment level.

In addition, the full year 2022 guidance midpoint and metrics comments that we provided during the second quarter earnings call are still applicable.

In closing.

<unk>, we remain committed to maximizing shareholder value through continuous technology innovation operational excellence and long term profitable growth.

Your interest in <unk> and look forward to sharing our full year 2023 outlook. When we announce our fourth quarter 2022 earnings results I will now turn the call back over to Ken. Thanks, Duston before we close I'd like to recognize and thank Regina Paolillo, who is retiring from the company. After 11 years of dedicated service and various.

Executive roles.

During her tenure at T. Chek, she was a champion for our people and adviser to our clients a valued resource to our shareholders and a trusted partner to me.

Regina his tireless efforts have helped us build our global CX platform and position us for the next phase of growth.

As we celebrate our 40th anniversary I want to thank our incredibly talented global team of 62000, <unk> ambassadors, who deliver results for our clients and their customers every day.

Working together I'm confident that we're well positioned to drive profitable growth build differentiation and create lasting value for our clients and our shareholders for many years to come.

With the holiday season approaching on behalf of all of US at <unk> Tec, best which best wishes for much health and happiness, we continue to be grateful for your support and look forward to sharing more exciting progress with you in the new year I'll now turn the call over to Paul.

Thanks, Ken as we open the call we ask that you limit your questions to one at a time operator, you may open the line.

Thank you so much Bob we will now begin the question and answer session. If you would like to ask a question you May Press Star and then number one Lisa and Nick are falling and record your name and company purely been a problem said your name is required can induce your question to withdraw your question May pass car and a number of tier one moment. Please for the first question at this time, we had our first question coming from the lineup.

Mike Latimore of Northland Capital markets. Your line is now open you may raise your question.

Alright, Thanks, Zack good morning, Congrats on.

Solid results here.

Just touching on the bookings growth I mean that was up 17%.

The macro environment, I guess I would've thought that maybe you see a little bit of a slowing in bookings growth, but maybe can you talk a little bit about that.

What's driving that.

How sustainable is that kind of bookings growth in this environment.

Good morning.

Yeah.

I would love to.

To tell you with <unk>.

Level of.

Incredible accuracy as to what's going to take place in the future, but I think it's a bit unrealistic just based on the.

The marketplace that we're seeing across the globe as far as the global economy, what I would say to you is the following.

We see continued strength in our health care vertical continued strength in our automotive vertical continued strength in our public sector and federal vertical and we have been very intentional and we've been telling the street. This for quite some time that we have deliberately.

Diversified our business.

So that we can get through any form of a recession.

And take advantage of verticals that we feel are not as cyclical as other verticals and so I think that that is helping I think its paying off.

But that said.

As Duston said in his comments and I said in my comments, we are seeing some other verticals like in the tech space.

That.

Are not as strong and so we are really amping up our focus is.

These areas, where we have.

A very strong reputation in.

And therefore, we feel good about the bookings that we closed in third quarter and right now the trends for fourth quarter are looking very similar so that said, it's very difficult at this time for me to see around the corner of what it's going to look like in 2023.

But hopefully that gives you some some clarity I don't know Shelly if you want to add anything to that.

I might just.

So to reiterate.

The mix of bookings.

In Q3, and that's what we see in our pipeline, we have a number of clients.

BFS sector that are new to outsourcing. So we're looking at taking advantage of the mix actually of our onshore nearshore and offshore location.

We're pleased with that.

Yes.

A big focus this quarter and going into next quarter.

Being there for our embedded base, but also I think focused on new logos.

Great. Thanks.

And then just great.

Great to hear the Cisco practices growing.

Can you talk a little bit about.

Kind of what's the change there and.

Okay.

Yes.

Factors behind that.

Yes, I mean I think.

I believe that what's taken place as the following Cisco made a decision about two and a half years ago that they were going to move from a premise based product offering to a cloud based product offerings.

One could argue that maybe they put the announcement out a bit premature and that chilled the practice.

Across the globe not only for us but for everybody.

That said.

The web based product that they have.

They announced about two five years ago, which was immature at the time now has.

Real maturity.

As a substantial client base.

And has proven that it can scale and proven that it has the feature set and so what we're seeing now is a.

There is a significant embedded Cisco base that's on the.

What we would call the premise based solution that is now feeling comfortable to begin their migration and so.

We're very pleased with that we think that that creates a lot of future opportunity and and are hopeful that.

This trend is going to continue.

As as I said in my script, it's not a matter of if Ceos and Cfos are going to move to the cloud, it's just simply a matter of.

And so consequently, we are benefiting.

<unk> of that migration that is now taking place it definitely took longer than we would've hoped.

Maybe not thats, maybe the bad news, but the good news is is that we're seeing very very good activity.

And very strong pipeline and.

Cisco has been a great partner.

And then just one point of clarification to fall into there is that the comment we're referencing Mike around the growth is around the professional services part of the business as you can imagine right. So where did you Ken's point, we're doing a lot of implementation work on our new platform is going to take time for the recurring portion of managed services to kind of catch up behind that which you would expect to kind of give you update on in 2023, but again a very <unk>.

Perfect Science, it is a leading indicator of where the Brexit.

Okay that makes sense alright, thanks very much.

Thank you.

We now have the next question from the line of Jerry.

Craig Hallum. Your line is now open you may raise your question.

Thank you.

And then last quarter you went through some examples of customers who had pulled back and initial concerns and then came back with <unk>.

Increased demand understanding that.

The fascinating part of this is you can cut costs in the short term, but it will impact your customer happy to so where do you think we are in that continuum as you look coming out of Q3.

Or are we early in the phase of people starting to make those cutbacks are we closer to that.

Point, where they realize they need to keep these investments in place.

Good morning, George.

What I would say to you is the following we're seeing as recently as the last 48 hours from clients that.

Our increasing their their requirements with us, which is a good thing and asking us to add more.

Because of their conservative newness that said.

Although I am very positive about the business and our future and the team et cetera.

Think that.

I think it's safe to say that every CEO has his hand or her hand on on the trigger.

And what I mean by that is that I think that they are watching with a very keen eye as to not only their business, but the trends with consumers.

Inflation.

Supply chain et cetera, and so consequently, we have <unk>.

Shelly has been working incredibly hard along with her team mates.

On allowing us to become dramatically more agile than we already were so that we can work closely closely with our clients and demonstrate to them that we have the ability to not only expand quickly, but also to be able to control. The cost. So that's my way of saying to you that I think that the fog is not.

Not totally cleared from our clients or the marketplace due to the fact that you know.

Every week there is some new headlines.

Whether it's the mid terms and what took place there too.

The CPI number that just came out 20 minutes ago or whatever.

Et cetera, and I think that there I think clients are more agile than ever and I think they are kind of navigating this almost on a week by week.

Basis, I think that as we go into the new year. Once we're there I do think that clients will settle down and I think that they will give us a much clearer picture in a much clearer forecast.

Then they have over the last quarter, so to speak so I know I'm not answering your question with the level of precision that I typically like to answer, but I think that you.

You would you would agree that.

Theres just a lot of uncertainty out there in the global economy.

Now.

I keep asking would it be possible with our sales leaders whether.

I'm just curious would it be possible to have duston clarify because I think this is important you mentioned a bunch of verticals that are strong and very few verticals really just hyper growth.

That are weak is there a way to size those up because I think thats in part.

A little bit of the answer to the question.

In terms of size them up relative to the impact on <unk> in terms of the size of the vertical.

Well, if I add up health care government auto financial services travel versus hyper growth Tech.

They're much bigger I would say no. So there is a couple of things Ryan there is he's calling out those two but if you go back to the prior our prior quarter, we talked about CMS right. So telco.

As well as the impacts in hyper growth hyper growth by itself cuts across all those vertical industries to give you an idea of the size of that is roughly about $400 million in size. I think we were expecting to grow roughly 20% for the full year. This quarter. As an example is still growing but it's growing away in the 4% range. So the hyper growth is the piece that cuts across the entire business George.

With mix, a little bit harder to sort through that but then if you look at telco as well as.

The other areas that I think you are still we're still seeing some weakness.

Alright, Thanks, guys that's helpful. Yes.

Yes, absolutely.

We now have the next question coming from the line of Maggie Nolan of William Blair. Your line is now open you may raise your question.

Good morning. This is Jesse Owens from Maggie Congrats on the quarter and congrats to everyone on the new roles.

I had one last question on verticals and then a follow up question. So you guys were clear about what youre seeing in terms of resiliency versus weakness, but can you talk more about the behavior. You are seeing in these different verticals are you seeing cancellations or are you seeing.

Preference for smaller contracts.

Some of the behaviors you're seeing.

I'll start and let Shelly add to it what I would say no we are not seeing cancellations.

And.

What I would say is as it relates to acquiring net new business.

It's a mixed bag in some cases people are changing providers and they want to move very quickly for whatever particular reason.

So that's a good thing for us in other cases there.

We're working on long term transformation plans and they are taking more time.

To commit to a final contract.

For the large deal I would not say that it's evident in maybe duston you have an opinion on this.

At the deal sizes are getting smaller.

It's actually a very good question because there were times in our past history, where we did see.

That where clients were kind of being more incremental.

Et cetera, we're not seeing that right now.

I would say that they're stepping in with both feet but.

But I don't know if Shelly.

I would just say I think it kind of goes back to Blake.

Ken said earlier everybody's got their finger on the trigger wanting to be agile lake running so there's a lot of.

Situations, where actually we've had our customers come to us and ask us. If we can do things very quickly and I think that actually plays to our strengths in terms of being able to staff up different types of more quickly and so we will remain agile and ready to respond to their needs I think there are.

Said earlier, we have several clients who had not considered out.

Zinc outsourcer or.

Really excited to bring on board and to our client base. So I think that's exciting and we have some others that are just having to scale different parts of their business and so we're right there with them.

I mean, I think the one thing that we have suggested in the past that we are in our fingers Cross type mode is.

Or more we believe that there what we know that theres over $300 billion being spent just on the engage side of the business with internal captives.

We believe that a good recession causes those captives to shall we say wake up and smell the coffee and realize that.

There is a benefit to them actually starting to partner and moving that business to a partner.

So I think that that in itself could be a net.

A very significant positive for us.

Shelly mentioned one in her.

Script of a company that has never outsourced before thats in the Fortune 200, and now they've chosen to to start that journey with us exclusively et cetera. So my point being that we believe that that in itself could be.

How you turn lemons and eliminate in a recession by getting these captives to shall we say.

We're off more of their internal operations.

So thus far I don't think that were seeing any of those types of trends now what we what we are seeing with certain clients. Obviously that are really being affected by their demand as their volumes are lower.

And that's why we're doing everything we can to try to continue to keep adding more and more clients to make up for any reduced volumes that we're seeing.

I hope that got it.

Yes.

Good context I appreciate the thorough response, we had one follow up on the offshore business. So you guys called out strong performance in Colombia are you noticing increased inbound to offshore just looking through the filing it.

Like offshore revenue actually declined year over year and may be workstations as well.

Can you talk about what's going on there and your expectations ahead.

Yes, I mean I think.

Here's what I would say first of all currently we called out just simply because that's one of our newest location. So we continue to scale, our business and other onshore and nearshore locations like Philippines, Mexico, India, and the like I think we.

We exited a number of a number of our bookings this quarter.

Do you take some of our to help our clients.

Diversify their geographic footprint some clients that we're serving onshore today that we're going to actually add offshore operations.

It's not it's not instead of onshore it's actually in addition, im sorry, So I think we're going to continue to add more locations as I said, we're going to expand more in Latin America, and we have some other plans that will keep you posted here over the coming quarters and just as a follow on point to that we recognize that it's slightly down in the quarter right now as it is a lot of them.

Bookings that we have over the quarter, the new geographies that we're opening up theres a longer ramp schedule associated with bringing those geographies to scale and based on the bookings that we've already booked already up to Q3 relative to the larger bookings that we have ramping in the Philippines on Colombia and other locations, we fully expect to reverse that trend in a more material way in 2023.

And also begin to shift the mix and just keep in mind, our mixes somewhat impacted this year as well because due to the acquisition of annual which was largely domestically at work.

Great. Thanks for taking my questions.

We now have the next question from the line of Cathy Chan of Bank of America. Your line is now open you may raise your question.

Hey, guys. Good morning, So I guess I'm just trying to understand you guys outperformed in <unk>, but the midpoint of the 2022 outlook was unchanged and I'm just talking about revenue here so that implies.

Some incremental weakness in <unk> could you just walk us through the puts and takes there that are baked into the guide any changes in your expectations and for example, like FX or the hyper growth clients.

Specifically that you talked about or are there other pieces that we should be aware of.

Thanks, Yes sure yes sure cast this is Dustin and I will take this question. So a couple of comments I'll make one is as we mentioned the theme that we experienced during Q2, our continuing in Q3.

Due to FX, specifically, we talked about a number that was in the 30 $30 million to $40 million range that stepped up into the mid 40 is now relative to FX impact on our full year guide right CME is about at the same level that it was beforehand and I would say hyper growth was a little bit weaker when you think about weaker than it was when we kind of person anticipated in the prior quarter.

When you think about the full year guide really what that reflects is more uncertainty than anything else and when you think about the revenue between Q3 and Q4, there is some volatility relative to volumes and which one quarter could be a little bit higher in the next quarter could be a little bit lower and that's really just a factor of <unk>.

Type programs, where the ratner and lifecycle and so at this point in time due to the kind of uncertainties and those continued trends or themes. Despite the fact that we're optimistic about the bookings that we booked et cetera, we're continuing to kind of maintain our guidance at this point in time.

Got it that's helpful. And then just one follow up on the digital revenue piece I think you said it was 8% year over year growth.

The noncore product sales.

Can you just help us reconcile that with historically you had said the medium term target for organic growth for digital was about 15% to 20 or 25%.

That still the longer term growth plan here and just help us reconcile the difference between those.

Thank you.

Yeah, absolutely. So at this point in time, where we're continuing to maintain the 15% to 25% for long term growth.

And again, we've called out the challenge that we've had primarily within our Cisco business, which is roughly 30% of our overall business collectively and the pressure that business is putting in overall P&L relative to growth as tampering that expectations and so this particular quarter was we had a very large product sale in the prior year in the third quarter roughly to the tune of about 20 million.

That's impacting the growth in this quarter alone but longer term. This is why we talk about Cisco in terms of the progress we're making there returning that practice back to growth in that long term target range is required for us to hit that overall growth rate and so we're continuing to make progress in web better update for you in 2023 and outside of those <unk>.

Areas, we called out other areas of strength, which I would say broadly speaking, we think about digital as a whole excluding cisco the businesses performing well.

Got it and those headwinds.

Or did it all probably going to persist into next quarter and beginning of next year would you say.

Yes, yes, if you go back to the comment around looked at very positive obviously very excited about the fact that we return our systems implementation business professional services business back to growth in the third quarter and Thats really a leading indicator for the ramps that we're doing but if you think about that business as well as our justice practice, our two largest areas, where we have recurring revenue.

I mean, it takes a while once you start ramping these programs up and transition people into these new cloud products takes a while for us to get to a place where the managed services net revenue stream catches up which we anticipate sometime in the back half of 2023.

Got it that's helpful. Thank you.

Very welcome.

We now have the next question coming from the line of Brandenburg and of Cowen. Your line is now open you may raise your question.

Hi, Thanks. This is <unk> on for Brian on client performance understand there's an FX effect, but the top two to five cohort appears to have notably decelerated in the quarter can you talk about the underlying dynamics at play here and what to expect going forward.

So I'll take the I'll take that question so across the board I would say look one of the things we've talked about earlier is around the diversification of the business.

There may be some moderation in some of our top customers relative to the growth that we've called out and to some degree in general and is reflected in our overall performance in the third quarter I don't think there's any notable difference outside of the top one being.

Customer financial services customers, we've talked about in the past relative to <unk>.

There will be large COVID-19 related volumes in that customer there as those volumes continue to come down rate, even this quarter, particularly we had an impact associated with Covid, where we're still there is a decline of about $25 million year over year between Q3 of 'twenty one in Q3 of 'twenty two.

That's one of the dynamics one of the top customers. There. There is some moderation of volumes across the board. There is primarily in verticals that we talked about where we are seeing some weakness and but again with that said we have over 765 clients today are very diverse customer base and felt very positive about that kind of going into the backdrop that we're heading into.

Got it.

<unk> digital with the SEC.

Change of senior leadership in the past year, or so how might that strategy evolve.

What needs to be done for stronger growth execution here.

Yes, Im not sure I know what you mean, when you say the second change it's actually not a second change.

As you know T Tech digital has done a myriad of acquisitions and everything that's taken place was all planned et cetera down to and including US recruiting top caliber CEO that can grow the business to well in excess of $1 billion. So.

What I would just simply say to you is is that we couldnt be more excited with Dave joining.

This is a.

Gentlemen that has incredible experience.

In managing these types of businesses et cetera, and I have all the states of the world with as Mark market facing experience and his reputation of growing businesses double digit.

That he will that he will do an excellent job.

<unk>.

And growing the business and taking it to two.

New height so.

We feel frankly really good about the business and are going to continue to keep our our focus on trying to double the business in the shortest period.

Possible, while also maximizing the profitability of the business and we think all the trends in the marketplace of what's taking place with the cloud.

And people beginning people now understanding that customer experience is an imperative and that most companies don't have modern technology thats required to address the needs of their customers and therefore, we think that this business has a very long tail with a very bright future.

And the only comment to come back to that on again, we referencing a prior question is that again the primary.

Practice for this kind of dampening growth right now as our Cisco practice right. So that's obviously still top of mind and again, we're already demonstrating strength there and then the other point that I'll call that Shelley made earlier is around this comment we ran our analytics practice like Theres a lot of bright spots in our overall digital business and that's another area and what's important about that comment is that that practice, we've obviously had for quite some time.

And we're really seeing is acceleration now as a result of these acquisitions and integration that we're doing there and so there's a number of areas that we're seeing now that can become accelerant for growth going into 2023.

Obviously data coming on board to help us.

Not that further.

Thank you.

Very welcome.

We now have the next question coming from the line of Joseph <unk> of Canaccord. Your line is now open you may ask your question.

Hey, everyone. Good morning, Nice performance here in the quarter and my congrats to everyone in their new capacities and congrats to Regina for a great run.

Well deserved retirement my question is.

Maybe it's just for Ken Ken I know you are not the low cost provider I know you provide a higher value service.

Broadly.

You don't really compete on price.

How how is that value proposition.

Perhaps getting tweaked in the current environment if it is.

Or how clients are perceiving that in the.

Place and how competitors may be trying to explore.

Exploit the weakness in demand relative to.

So are there pricing thanks a lot.

Good morning, well first of all as I said before we're not having any seeing any client cancellation. So that in itself should tell you that we're that we're not experiencing any issues because of how we price our business. What I would just tell you is that we're very.

Economically focused with our clients and what we demonstrate to our clients day in and day out.

Is the total cost to serve and the total value delivered and so what I would just tell you is is that clients are becoming increasingly far more sophisticated than they were even a couple of years ago, where a few years ago. They might have focused on what was the lowest cost per hour or what was the lowest cost per minute and what we've now shown them is that you can't measure that.

Wei will you have to measure is off of the outcomes.

So we are providing our clients with a myriad of analytics that consistently demonstrate that we are the lowest overall cost to serve and it's why our embedded base continues to keep growing. So a good example would be back in the day. When we were talking to the street about how we were very aggressively.

Increasing our frontline workers' wages.

We were the first in the industry to really achieve very significant frontline wage increases and to be able to pass that through what we demonstrated to our clients is that by doing so we can hire a higher quality.

Employee that has far better retention that gets to proficiency at a much faster rate that has higher quality and that ultimately creates what we call best in class first contact resolution and so at the end of the day.

The provider that is underpinning the associate or not hiring the better quality employee.

<unk> from their top times or longer to things like.

Their first contact resolution is nowhere near as good and ultimately on the engage side as an example, it's the first contact resolution that ultimately drives the lower overall cost to serve so.

Although in some cases.

Would say that were that were premium priced at the end of the day. Our clients are very sophisticated and they are consistently looking at how we're performing against anyone else that they might be currently using as well as constantly comparing us to their internal captives and I'm happy to say that in the majority of cases.

Because they provide us with the data we are outperforming their internal captives let alone.

Our other our other peers that are providing similar services. So I hope that answers your question.

But it also goes without saying that this is why <unk>.

Kelly and her team are very rapidly also expanding all of the various different offshore opportunities because our goal is to continue to add significantly more business, but in many other countries.

And.

And to be able to help our clients with that as well and Thats why Colombia has taken off and has done so well and why you will see multiple announcements in the very near future of other countries that are that are opening and going live.

In the very near future.

Great. That's good color. Thanks, a lot Karen much appreciate it thank you.

We now have the next question coming from the line of James Faucette of Morgan Stanley . Your line is now open you may raise your question.

Thank you very much.

I wanted to ask you had mentioned that there is a portion of.

Your customer base.

Because of regulatory or other reasons to keep things onshore. So just wondering what portion of your revenue is that represent now and I guess really operationally.

Those customers.

Essentially face their own constraints et cetera, how do they tend to manage.

The constraints that they have a lot of times, we see people move offshore et cetera to try to reduce costs, but obviously that wouldn't be possible for them. So just trying to get a little bit of color on that part of your customer base.

Yes.

You bet.

The regulated industries include some of the work that we do in the DSM five vertical in the health care vertical and then obviously in the public sector vertical as well, where we have our.

Concentration of onshore resources and like you said James like this isn't it's not a matter of if they want to move the work offshore.

Alright, its license work it tends to be more complex work.

And I think so how are we managing that with them.

I mean, we're just I think we become their go to partner, partly because of the training programs that we've put in place in the what we have.

Been able to demonstrate in terms of being able to <unk>.

Handled that complex work and in particular in many of these cases, there is a lot of seasonal ramps that we have to work with the client on and we're able to be very agile from that perspective.

I think that will continue to be a strong part of our.

Future and we actually part of the booking part of our bookings this quarter and the $200 million included additional work there.

And then James just to follow up on some of the numbers side of it is doesn't speak ins on BSI roughly 40% of the work is license and the healthcare roughly 24% of the world's license.

Those are acquired from <unk>.

Active on require to be onshore.

Got it got it appreciate that and then.

The move to offshore a lot of times, we see the result can be lower revenue or revenue per head at least but better margins. So how should we be thinking about.

That impact on P&L and going forward and then.

How that impacts the way youre evaluating investment thanks.

Absolutely as a couple of things I would say one is.

We don't focus on transitioning work from onshore to offshore we focus on expanding with our clients growing our overall share of wallet and doing that through offshore and so far that's the motion that we've been in James we haven't seen it where we're taking programs dollar for dollar and transition them somewhere else, which is obviously, a much lower rate or margin and by doing that youre kind of taking the best of both worlds where you are.

Maintaining the domestic business that we have but expanding and for some of the reasons. We just outlined right, which is to some degree protected or theres a moat around it and so we're going offshore where we can and there's very high demand across the board and where a lot of our investments go into the area and to give you an idea there was about a 10 point margin differential at the gross margin level between domestic and offshore work and if you look.

Arthur.

Obviously the site we opened in Colombia.

We mentioned of three or four now we are at this point, we've opened up the past year and we're going to continue to do that and then the payback period on those investments is actually very quick relative to the cost of staying at the site, bringing insight leadership.

A ship and then landing a client we tend to do it right nowadays so far largely within our embedded base right as an anchor client into those new new countries, new Geos and so far the anchors that we've gone in with have been expansion opportunities not what it was the transition or a mix shift.

Does that help.

That does help thank you so much you're very welcome.

We now have the next question coming from the have incentives.

Of Barrington Research. Your line is now open you may raise your question.

Yes.

Yes, Ken.

Curious what your offshore.

A portion of the delivery mix is today in order of magnitude. If you don't have the exact number.

Sort of if you have a target.

It's roughly around 30%.

And our target is to get it to 50%.

In the relatively near future, we're definitely seeing.

With our focus in this area that we are having success, especially as we start adding more languages, especially in the Asian area.

So.

That's where we currently are I mean, one of the issues is as head of our domestic business.

Just keeps growing and so that.

No.

Amplifies.

The offshore percentage.

So on one hand, it's a good problem to have on the other hand, our desire is to have is to get that to 50%.

And I would tell you that our I think our sales organization is doing a great job in having a lot of success and I think that youll start to see that percentage from.

From 30% move up in.

In the quarters to come.

Thank you and one question tied to the macro on the potential positive side are you seeing acquisition valuations become more attractive and are you seeing wage inflation move more in your direction.

I would say that it's.

First of all we definitely think that acquisition valuations will come down, but I've been to this movie multiple times. This is my fifth recession, and it's like real estate.

And that is that it takes the seller a while to realize that the peak of the market is not the price that theyre going to get I would estimate that we're not going to see the potential of <unk>.

The.

Valuation reductions until the earliest the end of first quarter.

Best case, and more likely the middle of the middle of the year.

And so that.

That will clearly play into it. The other thing is is that the finance markets are locked up right now.

That's going to be very interesting because the private equity players.

Really don't have access to leverage at this point in time on deals that will obviously clear out eventually and change in the near future, but that will also have an impact on driving valuations down.

You had another question yes.

Yes wage inflation trend employee wage inflation.

I think I would say that I think it's too early to call.

Do I think that.

As more and more companies announced their reductions enforced that that in itself is going to impact wages. There is no question about it and do we expect to see more of them yes.

Actually.

The ones most recently in the news we've been anticipating and.

So I guess my point in saying that is that I think that.

We will see.

Less demand for higher wages.

Probably even sooner than that.

Then we will see evaluations of sellers coming down my best guess is that we will see some real.

Benefits so to speak to the global economy and the climate.

Right after the first of the year.

And Thats.

We have lots of reasons for feeling that way.

But I would say that I think that that's when it's going to start to set and I think it's when the interest rate impacts are going to have an effect on.

Companies, adding more to their workforce.

And that will.

We'll obviously.

Provide some benefits to us in the future.

I think the one.

Though big unknown that every CEO is trying to figure out as we've all seen steep wage increases on the frontlines, it's hard to imagine that the base pays that we've moved to are now going to roll back I think it's simply going to be easier to hire people easier to keep them longer because they are.

Going to have less other opportunities too.

To move somewhere else for a bit more money et cetera. So hopefully that's helpful.

Yes. Thank you.

Our last question coming from the line of Anne Yes, not as strong of Sidoti. Your line is now open you may raise your question.

Hi, Thank you for taking my question.

You mentioned earlier.

Some of your customers change providers can you talk about the golf and.

How did you win them over.

Well I think.

We'll share specific client needs.

<unk> our competitor.

Competitor.

I would just let me give you a little bit of color.

Some of those examples that I mentioned were in the Ssi.

Vertical.

We also and also in travel hospitality I think thats definitely a bright spot for us here in Q3.

Continued momentum going into Q4, where it that's an area, where we're taking share based on not based on being the lowest priced but being based on being the highest value based on our performance and obviously, where we're at Ken said our clients are quite sophisticated. So we certainly have a cost effective solution, but we are very focused on the value overall value.

Many of our clients. So it tends to be about performance and it tends to be about our ability to work with our clients in terms of being able to ramp.

People quickly.

As I said earlier in the license arena, certainly around our ability to handle that complex work I think.

On the digital side, though I can add some color on the future calls Dave will be able to also addresses where we.

Where we are consistently seeing.

Sure.

What do you want to call it defections from other competitors et cetera is.

You have multiple gsi's.

That are.

That provide capabilities across.

Across a myriad of AV platform so to speak.

None of them are as focused on <unk> as we are none of them.

So consequently, we on a fairly consistent basis.

Our winning <unk>.

Significant deals, where we're taking over where theres been embedded gsi's for years not months years multiple years, and where they are pulling the plug on them and saying for this CX project, we need you to take it over we need to fix it to transform it itself.

And.

And by the way, it's not that we're targeting.

<unk>, it's just simply that the clients are not getting the speed and the capability.

In the CX area from these other gsi's and so consequently, we become the beneficiary. The last point that I would make on that topic is that because we are so well positioned with the large hyper scaler.

They when they run into a problem, where they initially gave the business to a large.

GSI, a global systems integrator and the client is.

Demonstrating that they are unhappy they are actually coming to us and saying we need you to step in and take this over because it's impacting our reputation as far as how this implementation was going and so that we've been doing for years.

And we continue to see that.

<unk> opportunities.

Thank you.

Thank you for your questions that is all the time, we had today I will now turn the call back to Paul Miller.

Yes. Thank you everybody for your participation and interest in <unk> Tec operator, you may close the call. Thank you.

This concludes <unk> third quarter 2022 earnings Conference call you May now disconnect at this time.

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Welcome to <unk> third quarter 2022 earnings conference call I would like to remind all parties that you will be in a listen only mode until the question and answer session. This call is being recorded at the request of <unk> I would now like to turn the call over to Paul Miller, <unk> Senior Vice President Treasurer.

And Investor Relations officer. Thank you Sir you may begin.

Engage and president of GTECH yesterday, <unk> issued a press release announcing its financial results. While this call will reflect items discussed within that document for <unk>.

Information about our financial performance. We also encourage you to read our third quarter 2022 quarterly reports on Form 10-Q.

A new developments that 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.

More detailed description of our risk factors. Please review our 2021 annual report on Form 10-K as amended by our subsequent quarterly reports on Form 10-Q, a replay of this conference call will be available on our website under the Investor Relations section I will now turn the call over to Ken.

Good morning, everyone and thank you for joining us today I am pleased with our solid execution and our overall financial results for the third quarter.

Our performance was driven by our broad and diverse base of global clients and our full range of CX strategy analytics technology and operational capabilities, Let me share a few third quarter financial highlights bookings were $200 million.

An increase of 17% over the prior year period revenue was $592 5 million an increase of 7% over the prior year period on a constant currency basis, and adjusted EBITDA was $72 2 million.

Our bookings this quarter reflect continued strong demand for our CX technology and services solutions. However, like most businesses across the globe. Our clients are facing macroeconomic uncertainties in this highly dynamic environment as expected the impact across the verticals. We serve has varied in sectors that are more risk.

William like healthcare banking automotive and government there is ongoing strength in.

In other pockets like technology based hyper growth companies, we're seeing continued softness.

We expect these trends to continue into the next year as our clients adapt.

As our as our clients adapt to.

To the evolving dynamics in the marketplace, we're working closely with each of them and we will remain agile and responsive to their needs.

In any economy, focusing on customer experience is critical.

Satisfied customers spend more.

Are less costly to serve and are easier to retain happy customers are active promoters for their favorite brands and help companies attract new customers and a hyper competitive market our.

Our portfolio of <unk> solutions has always delivered the highest customer satisfaction at the lowest total overall cost to serve and.

Clients across strategic verticals deep.

Deeper collaboration with strategic CX technology partners, and innovation and our comprehensive portfolio of digital CX solutions with automation and analytics at the core of our offering.

The CX technology landscape continues to evolve.

Through T Tech digital we're integrating the entire CX technology ecosystem, our contact center technology with enhanced automation and analytics to enable experiences that are predictive seamless and simple for customers and frontline employees.

To enable these modern experiences.

Every size must migrate to the cloud as.

As many on premise platforms reach end of life. It is no longer a question of if companies will migrate to the cloud it's simply a question of when they will.

We've built a differentiated platform to help companies design build and implement their migration strategy effortlessly.

Wherever a company is on their journey.

Our portfolio of pure play CX technologies, and our experienced team of software engineers are well positioned to capitalize on the CX cloud imperative.

To accelerate our digital business, we're thrilled to welcome Dave Siebel as our CEO of <unk> digital at the end of this month.

Dave is an accomplished digital leader with decades of global experience accelerating growth and profitability with marquee enterprises.

And clients and technology partners are.

A senior executive of IBM, <unk> and most recently at Hff's, Dave as a.

Results oriented leader and a strong cultural fit I'm confident in <unk> ability to scale, our <unk> digital business and to help us unlock its full potential.

I'm also pleased to promote Shelly swung back to president of T. Chek. In addition to our role as CEO of <unk> engage.

With these two dynamic leaders on my side.

I will continue to set the company's strategic direction and focus on innovation M&A and client engagements are more energized than ever about our team our differentiated platform and our future with that I'll hand, it over to Shelly.

Thank you Ken and good morning, everyone.

Our execution this quarter was solid.

The macro environment and made progress on many initiatives across the business, we delivered over $200 million bookings on slide 18.

In the quarter, including segment deal.

Let me start with a few updates on our engagement.

Bookings this quarter included a good mix of new logos and embedded base.

For example, we signed a fortune 500 financial advisory firm.

Sourcing we also stand of our health care footprint, new insurance payers seeking our expertise in complex program.

Last quarter I mentioned, we opened three new geographies and today I'm pleased to report that our performance and our newest location in Colombia is exceeding our projections in terms of scale and execution.

We are well positioned to meet client demand and expand our global work from home platform have been more near shore and offshore location.

Many of our largest clients operate regulated industries that require work to be done onshore and we continue to be there goes to partner our reputation as a leader in license delivery enabled us to manage these complicated program with exceptional.

This quarter, we made strong progress implementing digital display solutions for our clients.

Across the industry as more and more clients are piloting our blended solution are experiencing dramatic improvements in associate productivity.

Satisfaction with.

With winter up 60% year over year.

And this quarter, we welcome back zircon.

<unk> operating officer have engaged prior to returning to T J Chuck Overstock.

Graphic expansion in lean six providers, including so it's great to have Chuck on the team driving frontline employee engagement and client satisfaction across the globe.

Now, let's move on to third quarter highlights from the digital side of the business.

Automation and analytics.

We gained additional momentum in healthcare with the large cross platform cloud migration.

Seamless interactions between patients and physicians across a widely distributed health care sector.

And we continue to make progress across all of our CX technology partners. Notable strength this quarter came from our work with Microsoft and Genesis.

And our momentum with Cisco continues to build in particular with our professional services practice.

We look forward to announcing.

Many new growth areas with partners in the months to come.

And lastly, our analytics practice grew 37% growth this quarter driven by cross sell opportunities.

This area.

As I speak with clients across vertical there are few topics that are top.

All lines.

Every client recognizes that the talent environment has changed forever, our clients are coming to us for our expertise in managing the new labor.

To reliably hire train and retain.

Higher global 19.

Yes.

Another hot topic is the need to implement CX initiatives to deliver near term benefits, while advancing our company's long term CX transformation.

Projects that are material enough to matter.

John .

This is where our design build operate model leveraging the collective capabilities and our digital engagement.

Powerful.

We're making steady progress expanding our geographic footprint accelerating our go to market advancing our digital solutions and strengthening our strategic partnerships.

As we navigate the near term dynamic environment.

We will remain agile and responsive.

We're very focused on execution calibrating our streamlining.

Streamlining our cost structure and optimizing what is under our control.

Before I hand, it off to Dustin I'd like to personally welcome Stacey trusted colleague.

Look forward to working with him to unlock the best for our clients and amazing teammates.

I continue to be very inspired by the passion and commitment of everyone of our 62000 employees across the globe.

And now I'll hand, it off to Dustin.

Financial.

Shelley and good morning, everyone.

As mentioned, we are pleased with our third quarter financial performance as we continue to navigate the ever changing economic landscape that is impacting some of our clients in their businesses.

Moving to third quarter bookings performance.

Our third quarter, 2022 bookings increased 17% to $200 million compared to $171 million in the prior year period.

Our digital bookings, excluding product sales increased 44% year over year, reflecting strong demand across our CX technology services offerings.

Alluding or Genesys, Microsoft dynamics, Amazon connect and Cisco solutions.

In our engage segment demand was strong across our customer care and acquisition services.

Geographic footprint and industry mix with particular strength in our public sector financial services and health care verticals.

All of which tend to be better insulated against macro cyclicality.

Our third quarter bookings included 18, new logos, representing 11 million bookings as well as six multi segment deals.

Ill address our backlog and pipeline and my outlook remarks.

In my remaining discussion on our third quarter 2020, due results referenced the revenues on a GAAP basis.

While EBITDA operating income and earnings per share on a non-GAAP adjusted basis.

A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release.

We are using the term like for like basis to describe our revenue growth excluding the impact of foreign exchange translation and treating acquisitions as if we owned them in the prior periods.

On a consolidated.

Holiday basis in the third quarter of 2022 revenue was $592 5 million, an increase of four 5% and five 7% on a like for like basis, excluding the impact of pandemic related volumes organic.

Organic growth was relatively flat on a constant currency basis.

Adjusted EBITDA was $72 2 million or 12, 2% of revenue compared to $78 7 million or 13, 9% in the prior year.

Operating income was $50 2 million or eight 5% of revenue compared to $59 4 million or 10, 5% in the prior year.

And lastly, EPS was <unk> 74, compared to a dollar and a penny in the prior year.

The continued strengthening of the US dollar in the third quarter was $14 1 million headwind to revenue benefited operating income by a positive $3 $9 million, primarily within our engage segment.

Our third quarter engaged revenue benefited from our Spaniel acquisition, which we acquired in early April and increased volumes from new and existing clients.

Most of our bookings composition, our digital revenue benefited from higher recurring cloud and systems integration work offset by lower or more normalized levels of non core product sales.

Other revenue highlights include a 146% increase in public sector, primarily attributable to the <unk> acquisition, a 33% increase in travel and hospitality, a 13% increase in automotive and a 19% increase from EMEA.

I will now cover our third quarter 2022 segment results.

Our digital segment revenue was $117 9 million in the third quarter of 2022 compared to $124 1 million in the prior year period.

Excluding these noncore product sales digital revenue grew 8%.

We are pleased with the progress we made in our Cisco practice, returning our professional services practice back to 9% growth in the third quarter over the prior year.

First quarter of year over year growth since the fourth quarter of 2019.

Our CX technology IP business continues to perform well delivering 19% growth in the third quarter of the prior year period, as we continue to execute against our product roadmap and released new proprietary tools and connectors that improve our customers' time to value enhanced functionality with leading CX technologies.

Our recurring cloud and managed services revenue represented 54% of digital is total revenue.

Our diverse systems integration services, which have a high attachment rate for supporting future upgrade and expansion engagements represent another 29% of total revenue.

Operating income was $15 9 million or 13, 5% of revenue compared to $15 six or 12, 5% of revenue in the prior year period.

The margin improvement is due to higher margin revenue mix, partially offset by incremental investments and see its leadership in engineering talent sales and marketing and product and technology developments.

Our engage segment third quarter 2020 revenue increased seven 2% to $474 5 million of the prior year eight 6% growth on a like for like basis, excluding the impact of the pandemic related volumes.

While the <unk> acquisition was the primary contributor to growth in the quarter, we deliver meaningful volumes across industry sectors with particular strength in public sector automotive and travel industries.

Our embedded base continued its strong performance as demonstrated by engages last 12 month revenue retention rate of 98% excluding pandemic related volumes engaged revenue retention was 108%.

Operating income was $34 3 million or seven 2% of revenue compared to $43 8 million or nine 9% in the prior year period.

Our engage operating margin reflects the impacts highlighted in my comments on the total company results.

I will now share some metrics related to our cash flow liquidity capital deployment before discussing our outlook.

At quarter end cash was $172 3 million with $959 $2 million of debt. The vast majority of which represented borrowings under our $1 5 billion credit facility.

Capital expenditures were $28 8 million or four 9% of revenue for third quarter of 2022 compared to $17 2 million or 3% in the prior year. The increase is a function of multiple program ramps. It investments planned team member desktop upgrades and facility related renovations.

Yes.

Our normalized tax rate was 24, 2% in the third quarter of 2022 versus $19 six from the prior year.

The increase was primarily related to the change in tax regulation really depends on a special economic zone within the Philippines jurisdictional mix of income and reduction in select international tax benefits.

In September the board declared the next semiannual dividend of <unk> 52 per share, which was paid on October 26, 2020 to shareholders of record as of October 11, 2022. This.

This dividend representing a 10, 6% increase over October 2021 dividend and a 4% percent over the April two dividend.

We remain committed to our capital distributions to shareholders through semiannual dividend.

Turning to our outlook, our full year guidance remains unchanged from last year's quarters update and continues to reflect the uncertainty surrounding the global economy.

I want to make a few additional comments.

We exited the third quarter for the 2022 revenue backlog of $2 4 billion or 99% of the midpoint of our guidance. Our current pipeline is $2 billion, an increase of 12% over the prior year.

Okay.

We continued optimizing our cost structure this quarter and have implemented cost containment initiatives. So we can quickly adjust to the ever changing macro environment.

Streamlining our G&A and overhead functions, while maintaining growth related investments made earlier in the year.

In addition, the full year 2022 guidance midpoint and metrics comments that we provided during the second quarter earnings call are still applicable.

In closing.

We remain committed to maximizing shareholder value through continuous technology innovation operational excellence and long term profitable growth.

Value your interest in <unk> and look forward to sharing our full year 2023 outlook. When we announce our fourth quarter 2022 earnings results I will now turn the call back over to Ken. Thanks, Duston before we close I'd like to recognize and thank Regina Paolillo, who is retiring from the company. After 11 years of dedicated service and various.

Executive roles during her tenure at T. Chek, She was a champion for our people and adviser to our clients a valued resource to our shareholders and a trusted partner to me Regina. His tireless efforts have helped us build our global <unk> platform and position us for the next phase of growth.

As we celebrate our 40th anniversary I want to thank our incredibly talented global team of 62000, <unk> ambassadors, who deliver results for our clients and their customers every day.

Working together I'm confident that we're well positioned to drive profitable growth build differentiation and create lasting value for our clients and our shareholders for many years to come.

With the holiday season approaching on behalf of all of US at GTECH, Best which best wishes for much health and happiness, we continue to be grateful for your support and look forward to sharing more exciting progress with you in the new year I'll now turn the call over to Paul.

Thanks, Ken as we open the call we ask that you limit your questions to one at a time operator, you may open the line.

Thank you so much Paul we will now begin the question and answer session. If you would like to ask a question you May Press Star and then number one Lisa and Nick your phone and record your name and company clearly been problems had your name is required can induce your question. So maybe why your <unk> in a number of tier one moment. Please for the first question at this time, we had our first question coming from the line of Michael.

More of Northland capital markets. Your line is now open you may raise your question.

Alright, Thanks, guys. Good morning, Congrats on.

The solid results here.

So just touching on the bookings growth I mean that was up.

17%.

Despite the macro environment, I guess I would've thought that maybe you see a little bit of a slowing in bookings growth, but maybe can you talk a little bit about that what's driving that and how sustainable is that kind of bookings growth in this environment.

Good morning look.

I would love to.

To tell you with a level of.

Incredible accuracy as to what's going to take place in the future, but I think it's a bit unrealistic just based on.

The marketplace that we're seeing across the globe as far as the global economy, what I would say to you is the following.

We see continued strength in our healthcare vertical continued strength in our automotive vertical continued strength in our public sector and federal vertical.

And we have been very intentional and we've been telling the street this for quite some time.

We have deliberately diversified our business.

So that we can get through any form of a recession.

And take advantage of verticals that we feel are not as cyclical as other verticals and so I think that that's helping.

It's paying off.

But that said.

I think that as Justin said in his comments and I said in my comments, we are seeing some other verticals like in the tech space.

That.

Are not as strong and so we are really amping up our focus.

In these areas, where we have a.

A very strong reputation in.

But hopefully that gives you some some clarity I don't know if Shelly if you want to add anything to that.

I might just.

So to reiterate.

The mix of bookings.

Diverse in Q3 and not that we see in our pipeline.

Pipeline, we have a number of clients.

BFS sector that are new to outsourcing. So we're looking at taking advantage of the mix actually of our onshore nearshore and offshore location.

We're pleased with that.

We've had a big focus.

This quarter and going into next quarter.

Being there for our embedded base, but also I think focused on new logos.

Great Thanks and.

Then just great.

Great to hear the Cisco practices growing.

Can you talk a little bit about.

Kind of what's the change there and.

Yeah.

Yes.

Factors behind that.

Yes, I mean I think.

One could argue that maybe they put the announcement out a bit premature and that chilled the practice.

Across the globe not only for us but for everybody.

That said.

The web based product that they.

They announced about two and a half years ago, which was immature at the time now has.

Real maturity.

As a substantial client base.

And has proven that it can scale and proven that it has the feature set and so what we're seeing now is a.

There is a significant embedded Cisco base that's on the.

What we would call the premise based solution that is now feeling comfortable to begin their migration and so.

We're very pleased with that we think that that creates a lot of future opportunity and and are hopeful that that.

This trend is going to continue as as I said in my script, it's not a matter of if Ceos and cfos are going to move to the cloud. It's just simply a matter of when and so consequently, we're benefiting off of that migration that is now taking place it definitely took longer than we would've hoped.

That's maybe not Thats, maybe the bad news, but the good news is is that we're seeing very very good activity.

And very strong pipeline and.

Cisco has been a great partner.

And then just one point of clarification to fall into there is that the comment we're referencing Mike around the growth is around the professional services part of the business as you can imagine right. So where did you Ken's point, we're doing a lot of implementation work on our new platform is going to take time for the recurring portion of the managed services to kind of catch up behind that which we would expect to kind of give you update on in 2023, but again a very <unk>.

<unk> signed it is a leading indicator of where the practices.

Okay that makes sense alright, thanks very much.

Thank you.

We now have the next question from the line of Jerry.

Craig Hallum. Your line is now open you may raise your question.

Thank you.

And then last quarter you went through some examples of customers who had pulled back and initial concerns and then came back with it.

Increased demand understanding that.

The fascinating part of this is you can cut costs in the short term, but it will impact your customer happy to so where do you think we are in that continuum as you look coming out of Q3.

Or are we early in the phase of people starting to make those cutbacks are we closer to that.

Point, where they realize they need to keep these investments in place.

Good morning, George.

What I would say to you is the following we're seeing as recently as the last 48 hours from clients that.

<unk>.

Our increasing their their requirements with us, which is a good thing and asking us to add more.

More because of their conservative nets that said and.

Although I'm very positive about the business and our future and the team etcetera I think that.

I think it's safe to say that every CEO has his hand or her hand on on the trigger.

And what I mean by that is that I think that they are watching with a very keen eye as to not only their business, but the trends with consumers.

Inflation.

Supply chain et cetera, and so consequently, we have Shelly has been working incredibly hard along with her team mates.

Allowing us to become dramatically more agile than we already were so that we can work closely closely with our clients and demonstrate to them that we have the ability to not only expand quickly, but also to be able to control. The cost. So that's my way of saying to you that I think that the fog is.

Is not totally cleared from our clients or the marketplace due to the fact that you know.

Every week there is some new headlines whether it's the mid terms and what took place there too.

The CPI number that just came out 20 minutes ago or whatever it is.

And I think that there I think clients are more agile than ever and I think they are kind of navigating this almost on a week by week.

<unk> I think that as we go into the new year. Once we're there I do think that clients will settle down and I think that they will give us a much clearer picture in a much clearer forecast.

Then they have over the last quarter.

So to speak so I know I'm not answering your question with the level of precision that I typically like to answer, but I think that.

You would you would agree that.

Theres just a lot of uncertainty out there in the global economy.

Right now.

I keep asking would it be possible with our sales leaders whether.

I'm, just curious would it be possible to have duston clarify because I think this is important.

Mentioned, a bunch of verticals that are strong and very few verticals really just hyper growth.

Then a week is there a way to size those up because I think that's in part.

A little bit of the answer to the question.

In terms of size them up relative to the impact on <unk> in terms of the size of the vertical.

Well, if I add up health care government auto financial services travel versus hyper growth Tech.

They're much bigger I would say no. So there is a couple of things Ryan there is he's calling out those two but if you go back to the prior our prior quarter, we talked about CMS right. So telco.

As well as the impacts in hyper growth hyper growth by itself cuts across all those vertical industries to give you an idea of the size of that is roughly about $400 million in size. I think we were expecting to grow roughly 20% for the full year. This quarter. As an example is still growing but it's growing in the 4% range. So hyper growth is the piece that cuts across the entire business George.

It's a little bit harder to sort through that but then if you look at telco as well as.

The other areas that I think theres still were still seeing some weakness.

Alright, thanks, guys.

<unk>.

Yes, absolutely.

We now have the next question coming from the line of Maggie Nolan of William Blair. Your line is now open you may raise your question.

Good morning. This is Jesse Herrick from Maggie congrats on the quarter and congrats to everyone on the new roles.

I had one last question on verticals and then a follow up question.

So you guys were clear about what youre seeing in terms of resiliency versus weakness, but can you talk more about the behavior you're seeing in these different verticals are you seeing.

Installations are you seeing.

Preference for smaller contracts what are some of the behaviors you're seeing.

I'll start and let Shelly add to it what I would say no we're not seeing cancellations.

And.

What I would say is as it relates to acquiring net new business.

It's a mixed bag in some cases people are changing providers and they want to move very quickly for whatever particular reason.

So that's a good thing for us in other cases there.

We're working on long term transformation plans and they are taking more time.

To commit to a final contract.

For the large deal I would not say that it is evident and maybe duston you have an opinion on this.

At the deal sizes are getting smaller.

It's actually a very good question because there were times in our past history, where we did see.

That where clients were kind of being more incremental.

Et cetera, we're not seeing that right now.

I would say that they're stepping in with both feet but.

But I don't know Shelley.

I would just say I think it kind of goes back to.

Ken said earlier everybody's got their finger on the trigger wanting to be agile lake running so there's a lot of.

Situations, where actually we've had our customers come to us and ask us. If we can do things very quickly and I think that actually plays to our strengths in terms of being able to staff up different types of more quickly. So we will remain agile and ready to respond to their needs I think there are.

<unk> said earlier, we have several clients who had not considered.

Using outsourced services before release.

Excited to bring onboard as our client base. So I think that's exciting and we have some others that are just having to scale different parts of their business and so we're right there with them.

I mean, I think the one thing that we have suggested in the past that we are in.

Our fingers cross type mode is.

Or more we believe that there what we know that theres over $300 billion being spent just on the engage side of the business with internal captives.

We believe that a good recession causes those captives to shall we say wake up and smell the coffee and realize that.

There is a benefit to them actually starting to partner and moving that business to a partner.

And so I think that that in itself could be a net.

A very significant positive for us.

Shelly mentioned one in her.

Script of a company that has never outsourced before that's in the Fortune 200, and now they've chosen to to start that journey with us exclusively et cetera. So my point being that we.

We believe that that in itself could be.

How you turn lemons and to eliminate in a recession by getting these captives to shall we say.

Pair off more of their internal operations.

So thus far I don't think that were seeing any of those types of trends now.

We are seeing with certain clients, obviously that are really being affected by their demand as their volumes are lower.

And that's why we're doing everything we can to try to continue to keep adding more and more clients to make up for any reduced volumes that we're seeing.

I hope that got it.

Yes, that's good context I appreciate the thorough response, we had one follow up on the offshore business. So you guys called out.

<unk> performance in Colombia are you noticing increased inbound to offshore.

Just looking through the filing it looked.

It looked like offshore revenue actually declined year over year, and maybe workstations as well, but can you talk about what's going on there and your expectations ahead.

Yes, I mean I think.

We exited a number a number of our bookings this quarter.

To take some of our to help our clients.

Diversify their geographic footprint some clients that we're serving onshore today that we're going to actually add offshore operation.

It's not it's not instead of I'm sorry, it's actually in addition, im sorry, So I think we're going to continue to add more locations as I said, we're going to expand to more in Latin America.

Plans that will keep you posted here over the coming quarters and just as a follow on point to that we recognized a slightly down in the quarter right now as it is a lot of the bookings that we have for the quarter. The new geographies that we're opening up theres a longer ramp schedule associated with bringing those geographies to scale and based on the bookings that we've already booked already up to Q3 right relative to the larger bookings that we had.

Have ramping in the Philippines on Colombia, and other locations, we fully expect to reverse that trend in a more material way in 2003, and and also begin to shift the mix and just keep in mind, our mixes somewhat impacted this year as well because due to the acquisition of annual which was largely domestic related work.

Great. Thanks for taking our questions.

We now have the next question from the line of Cathy Chan of Bank of America. Your line is now open you may raise your question.

Hey, guys. Good morning, So I don't know just trying to understand so you guys outperformed in <unk>, but the midpoint of the 2022 outlook was unchanged and I'm just talking about revenue here so that implies some.

Specifically that you talked about or are there other pieces that we should be aware.

Thanks, Yes, sure yes sure Kathy this is Dustin and I will take this question. So a couple of comments I'll make one is as we mentioned the theme that we experienced during Q2, our continuing in Q3.

If you go to FX, specifically, we talked about a number that was in the 30 $30 million to $40 million range that stepped up into the mid Forty's now relative to FX impact on our full year guide right CME is about at the same level that it was beforehand and I would say hyper growth was a little bit weaker when you think about weaker than it was then we kind of person anticipated in the prior quarter.

When you think about the full year guide really what that reflects is more uncertainty than anything else and when you think about the revenue between Q3 Q4, there is some volatility relative to volumes and which one quarter could be a little bit higher in the next quarter could be a little bit lower and that's really just a factor of just.

Can you kind of programs, where the ratner own lifecycle and so at this point in time due to the kind of uncertainties and those continued trends or themes. Despite the fact that we're optimistic about the bookings that we booked et cetera, we're continuing to kind of maintain our guidance at this point in time.

Got it that's helpful. And then just one follow up on the digital revenue piece I think you said it was 8% year over year growth.

The noncore product sales.

So can you just help us reconcile that with historically you had said the medium term target for organic growth for digital was about 15% to 20 or 25% is that still the longer term growth plan here.

Help us reconcile the difference between the take care. Thank you.

Yes, absolutely so right at this point in time, where we're continuing to maintain the 15% to 25% for long term growth.

We've called out the challenge that we've had primarily within our Cisco business, which is roughly 30% of our overall business collectively and the pressure that business is putting in overall P&L relative to growth as tampering that expectations and so this particular quarter was we had a very large product sale in the prior year in the third quarter roughly to the tune of about $20 million.

That's impacting the growth in this quarter alone.

Longer term. This is why we talk about Cisco in terms of the progress we're making there returning that practice back to growth in that long term target range is required for us to hit that overall.

Right and so we're continuing to make progress and we'll have a better update for you in 2023 and outside of those areas, we called out other areas of strength.

Broadly speaking, we think about digital as a whole excluding cisco's business performing well.

Got it and those headwinds for our digital are probably going to persist into next quarter and beginning of next year would you say.

<unk> I mean, it takes a while once you start ramping these programs up and transition people into these new cloud products takes a while for us to get to a place where the managed services net revenue stream catches up which we anticipate sometime in the back half of 2023.

Got it that's helpful. Thank you.

Very welcome.

We now have the next question coming from the line of Brandenburg and of Cowen. Your line is now open you may raise your question.

Hi, Thanks. This is <unk> on for Brian on client performance understand there's an FX effect, but the top two through five cohort appears to have notably decelerated in the quarter can you talk about the underlying dynamics at play here and what to expect going forward.

So I'll take I'll take that question so across the board I would say look one of the things we've talked about earlier is around the diversification of the business.

There may be some moderation in some of our top customers relative to.

The growth, we've called out and to some degree in general is reflected in our overall performance in the third quarter I don't think Theres any notable difference outside of the top one being our customer financial services customers, we've talked about in the past relative to that.

So that's one of the dynamics, whether it's how customers. There there is some moderation of volumes across the board. There is primarily in verticals that we talked about where we are seeing some weakness and but again with that said we have over 765 clients today are very diverse customer base and felt very positive about that kind of going into the backdrop that reading into.

Got it.

<unk> digital.

Second change of senior leadership in the past year, or so how might that strategy evolve.

What needs to be done for stronger growth execution here.

Yes, Im not sure I know what you mean, when you say the second change.

Actually not a second change as you know T Tech digital has done a myriad of acquisitions and everything Thats taken place was all planned et cetera down to and including US recruiting top caliber CEO that can grow the business to well in excess of $1 billion. So.

What I would just simply say to you is is that we couldnt be more excited with Dave joining.

This is.

Gentlemen that has incredible experience.

In managing these types of businesses et cetera, and I have all the faith in the world.

As mark market facing experience and his reputation of growing business is double digit.

That he will that he will do an excellent job in.

And growing the business and taking it to.

New Heights so.

We feel frankly really good about the business and are going to continue to keep our our focus on trying to double the business in the shortest period.

Possible, while also maximizing the profitability of the business and we think all the trends in the marketplace of what's taking place with the cloud.

And people beginning people now understanding that customer experience is an imperative and that most companies don't have the modern technology thats required to address the needs of their customers and therefore, we think that this business has a very long tail with a very bright future.

And the only comment to come back to that on again, we referencing a prior question is that again the primary.

Practice railroads kind of dampening growth right now with our Cisco practice rights and Thats, obviously still top of mind and again, we're already demonstrating strength there and then the other point that I'll call that Shelley made earlier is around this comment we ran our analytics practice like Theres a lot of bright spots in our overall digital business and Thats another area and what's important about that comment is that practice, we've obviously had for quite some time.

Obviously data coming on board to help us help kind of ignite that further.

Thank you.

Very welcome.

We now have the next question coming from the line of Joseph <unk> of Canaccord. Your line is now open you may ask your question.

Hey, everyone. Good morning, Nice performance here in the quarter and my congrats to everyone in their new capacities.

Congrats to Regina for a great run.

And well deserved retirement my question is.

Maybe it's just for Ken Ken I know you are not the low cost provider I know you provide a higher value service.

Broadly.

And you don't really compete on price.

How how is that value proposition.

Perhaps getting tweaked in the current environment if it is.

Or how clients are perceiving that in the marketplace and how competitors may be trying to.

Exploit the weakness in demand relative to some.

Some of their pricing thanks, a lot.

Good morning, well first of all as I said before we're not having any seeing any client cancellation. So that in itself should tell you that we're.

But we're not experiencing any issues because of how we price our business what I would just tell you is that we're very.

Economically focused with our clients and what we demonstrate to our clients day in and day out.

Is the total cost to serve and the total value delivered.

So what I would just tell you is is that clients are becoming increasingly far more sophisticated than they were even a couple of years ago, where a few years ago. They might have focused on what was the lowest cost per hour or what was the lowest cost per minute and what we've now shown them is that you can't measure that way what you have to measure is off of the outcomes.

And so we are providing our clients with a myriad of analytics that consistently demonstrate that we are the lowest overall cost to serve and it's why our embedded base continues to keep growing. So a good example would be back in the day. When we were talking to the street about how we were very aggressive.

<unk>, increasing our frontline workers' wages.

The better quality employee everything from their top times or longer to things like that.

Their first contact resolution is nowhere near as good and ultimately.

And on the engage side as an example, it's the first contact resolution that ultimately drives the lower overall cost to serve so.

Although in some cases.

And because they provide us with the data we are outperforming their internal captives let alone.

Our other our other peers that are providing similar services. So I hope that answers your question.

But it also goes without saying that this is why <unk>.

Shelley and her team are very rapidly also expanding all of the various different offshore opportunities because our goal is to continue to add significantly more business, but in many other countries.

And.

In the very near future.

Great. That's good color. Thanks, a lot Karen let's appreciate it thank you.

We now have the next question coming from the line of James Faucette of Morgan Stanley . Your line is now open you may raise your question.

Thank you very much.

I wanted to ask you had mentioned that there is a portion of.

Your customer base.

Because of regulatory or other reasons to keep things onshore. So just wondering what portion of your revenue is that represent now and I guess really operationally.

Those customers.

Essentially face their own constraints et cetera, how do they tend to manage.

Yes.

You bet.

The regulated industries include some of the work that we do in the DSM five vertical in the health care vertical and then obviously in the public sector vertical as well, where we have our.

Concentration of onshore resources and like you said things like this isn't it's not a matter of if they want to move the work offshore they can't right. Its license work it tends to be more complex work.

And I think so how are we managing that with them.

I mean, we're just I think we become their go to partner, partly because of the training programs that we've put in place and the what we've been able to demonstrate in terms of being able to have.

Handled that complex work and in particular in many of these cases, there is a lot of seasonal ramp that we have to work with the client on and we're able to be very agile from that perspective and so.

I think that will continue to be a strong part of our.

Future.

Actually part of the booking part of our bookings this quarter and the $200 million included additional work there.

And then James just to follow up on some of the numbers side of it is doesn't speak ins on BSI roughly 40% of the work is license and the healthcare roughly 24% of the world's license.

Those are required.

Active on higher to be onshore.

Got it got it appreciate that and then in.

The move to offshore a lot of times. We see the result is can be lower revenue or revenue per head at least but better margins. So how should we be thinking about.

That impact on P&L and going forward and then.

How that impacts the way youre evaluating investment thanks.

Absolutely as a couple of things I would say one is.

We don't focus on transitioning work from onshore to offshore we focus on expanding with our clients growing our overall share of wallet and doing that through offshore and so far that's the motion that we've been in James we haven't seen it where we're taking programs dollar for dollar and transition them somewhere else, which is obviously a much lower rate a higher margin and by doing that you are kind of taking the best of both worlds where you.

We're maintaining the domestic business that we have but expanding and for some of the reasons. We just outlined right, which is to some degree protected or theres a moat around it and so we're going offshore where we can and there's very high demand across the board and where a lot of our investments go into the area and to give you an idea. There was about a 10 point margin differential that gross margin level between domestic and offshore work and if you look.

Or does.

The obviously the site we opened Colombia.

We mentioned of three or four now we are at this point, we've opened up in the past year and we're going to continue to do that and then the payback period on those investments is actually very quick relative to the cost staying at the site, bringing insight leadership and then landing a client we tend to do it right. Nowadays so far largely within our embedded base right as an anchor client into those new new countries, new geos so far.

The anchors that we've gone in with have been expansion opportunities not what it was the transition or a mix shift.

Does that help.

That does help thank you so much you're very welcome.

We now have the next question coming from the have Vincent Colicchio of Barrington Research. Your line is now open you may raise your question.

Okay.

Yes, Ken.

Curious.

What's your offshore.

A portion of the delivery mix is today in order of magnitude. If you don't have the exact number.

Sort of if you have a target.

It's roughly around 30%.

And our target is to get it to 50%.

In the relatively near future, we're definitely seeing.

With our focus in this area that we are having success, especially as we start adding more languages, especially in the Asian area.

So.

That's where we currently are I mean, one of the issues is as head of our domestic business.

Just keeps growing and so that.

No.

Amplifies.

The offshore percentage.

So on one hand, it's a good problem to have on the other hand, our desire is to have is to get that to 50%.

And I would tell you that our I think our sales organization is doing a great job in having a lot of success and I think that youll start to see that percentage from.

From 30% move up in.

In the quarters to come.

Thank you and one question tied to the macro and the potential positive side are you seeing acquisition valuations become more attractive and are you seeing wage inflation move more in your direction.

I would say that.

First of all we definitely think that acquisition valuations will come down, but I've been to this movie multiple times. This is my fifth recession, and it's like real estate.

And that is that it takes the seller a while to realize that the peak of the market is not the price that theyre going to get I would estimate that we're not going to see the potential of <unk>.

The.

Valuation reductions until the earliest the end of first quarter.

Best case, and more likely that the middle of the middle of the year.

And so that.

That will clearly play into it. The other thing is is that the finance markets are locked up right now.

That's going to be very interesting because the private equity players.

You had another question.

Yes wage inflation trend employee wage inflation.

I think I would say that I think it's too early to call.

Do I think that.

As more and more companies announced their reductions enforced that that in itself is going to impact wages. There is no question about it and do we expect to see more of them yes.

Actually.

The ones most recently in the news we've been anticipating and.

So I guess my point in saying that is that I think that.

We will see.

Less demand for higher wages.

Probably even sooner than that.

Then we will see evaluations of sellers coming down my best guess is that we will see some real.

Benefits so to speak to the global economy and the climate.

Right after the first of the year.

And Thats.

We have lots of reasons for feeling that way.

But I would say that I think that that's when it's going to start to set and I think it's when the interest rate impacts are going to have an effect on.

Companies, adding more to their workforce.

And that will.

We'll obviously.

Provide some benefits to us in the future.

I think the one.

Though big unknown that every CEO is trying to figure out as we've all seen steep wage increases on the front lines, it's hard to imagine that the base pays that we've moved to are now going to roll back I think it's simply going to be easier to hire people easier to keep them longer because they are.

Going to have less other opportunities too.

To move somewhere else for a bit more money et cetera. So hopefully that's helpful.

Yes. Thank you.

Our last question coming from the line of Anne Yes, not as strong of Sidoti. Your line is now open you may raise your question.

Hi, Thank you for taking my question.

You mentioned earlier.

Some of your customers James providers can you talk about this.

And how did you win them over.

Well I think.

We'll share specific client needs.

Our competitor.

I would just let me give you a little bit of color some.

Some of those examples that I mentioned were in the Ssi.

Vertical.

We also and also in travel hospitality I think that definitely was a bright spot for us here in Q3.

Continued momentum going into Q4, where that's an area, where we're taking share based on not only from being the lowest priced but being based on being the highest value based on our performance and obviously, where Ken said our clients are quite sophisticated. So we certainly have a cost effective solution, but we are very focused on the value overall value.

Many of our clients. So it tends to be about performance and it tends to be about our ability to work with our clients in terms of being able to ramp.

People quickly.

As I said earlier in the license arena, certainly around our ability to handle that complex work I think.

On the digital side, though I can add some color on the future calls Dave will be able to also addresses where we where we are consistently seeing.

Sure.

What do you want to call it defections from other competitors et cetera is.

You have multiple gsi's.

<unk> R.

That provide capabilities across.

Across a myriad of AV platform so to speak.

None of them are as focused on <unk> as we are none of them.

So consequently, we on a fairly consistent basis.

Our winning <unk>.

And.

And by the way, it's not that we're targeting.

<unk>, it's just simply that the clients are not getting the speed and the capability.

They when they run into a problem, where they initially gave that business to a large.

GSI, a global systems integrator and the client is.

And we continue to see that.

<unk> opportunities.

Thank you.

Thank you for your questions that is all the time, we had today I will now turn the call back to Paul Miller.

Yes. Thank you everybody for your participation and interest in <unk> Tec operator, you may close the call. Thank you.

This concludes <unk> third quarter 2022 earnings Conference call you May now disconnect at this time.

Q3 2022 TTEC Holdings Inc Earnings Call

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