Q4 2022 TTEC Holdings Inc Earnings Call

Speaker 2: Welcome to T-TEX 4S Quarters in full your 2022 earnings conference call. I would like to remind all parties that you will be in the lesson only mode until the question and answer session. This call is being recorded at the request of T-TEX. I would now like to turn the call over to Paul Miller, T-TEX senior vice president, Treasurer and investor relations officer. Thank you, sir. You may begin. Good morning and thank you for joining us today. T-TEX is hosting this call to discuss its fourth quarter in full year 2022 financial results.

Speaker 3: which we anticipate will be filed at Market Closed today. Before we begin, I want to remind you that matters discussed on the days call may include forward-looking statements released to our operating performance financial goals in business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinion as of the data this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause or actual result to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our annual report on Form 10K. 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.

Speaker 3: Thank you, Paul. Good morning, everyone, and thank you for joining us today. We ended 2022 with solid execution and financial results despite the increased uncertainties surrounding the global macroeconomic environment. Our performance reflects our broad and diverse base of global clients, our expertise across strategic verticals, and our full range of digital CX technology, AI, and service capabilities. For the full year of 2022, bookings were $762 million. Revenue increased 9.4% to 2.44 billion on a constant currency basis. Adjusted EBITDA was $326.6 million or 13.4% of revenue. In addition, last year, we enhanced our public sector vertical with a meaningful acquisition. We publicly launched the global macroeconomic strategic partnership with Google. We deepened our partnership with each of our core strategic CX technology partners, including the largest hyper-scalers. We strengthened our first mover advantage.

Speaker 3: and AI with strategic investments and new offerings and several new client wins. We expanded our client base by winning 93 new logos and we grew our delivery footprint with three new offshore geographies. And we were recognized as a CX leader by all four major analyst firms. In addition, we were named by Forbes as one of America's best large employers for the third consecutive year. And lastly, we marked our 40th anniversary as a pioneer, a global leader, and an innovator and customer experience. I'm pleased with our accomplishments in 2022, despite the fact that our financial performance was tempered by the increased macroeconomic headwinds that emerged in the second half of last year. As we look ahead, some clients and select verticals continue to have reduced visibility into their short to midterm outlook. And therefore, at this point in time, we believe it's prudent to approach 2023 guidance conservatively. Having said that, I could not be more excited about our strength and global leadership team and our differentiated platform. I'm confident in our ability to deliver significantly higher revenue growth and margins.

Speaker 3: large enterprises have completed their CX migration to the cloud. As the largest pure play CX technology and services player in the world, we're helping these companies use the modern capabilities enabled by the cloud to create customer experiences across every touchpoint that are personalized, effortless, and differentiated. Our T-Tech digital business has implemented some of the most complex enterprise CX cloud migrations at scale across every major platform.

Speaker 3: We're well positioned to capitalize on the remaining 80% of large businesses and governments, still operating on outdated on-premise legacy platforms. These digital transformation initiatives are complicated and will provide us with technology and managed service opportunities for many years to come. Turn number two. The world's leading brands are moving from reactive customer support to proactive customer experiences. Smart brands no longer are waiting for their customers to reach out when something goes wrong. They're using advanced analytics to anticipate the future needs of their customers with proactive outreach and next best actions. With our investments in predictive digital capabilities that enable customer acquisition, growth and retention, we're delivering strong results for our clients in multiple industries including healthcare, financial services, and automotive. Turn number three. AI is redefining the role of the frontline associates creating a new class of knowledge workers.

Speaker 3: Whether a customer is reaching out about a complex issue or a highly charged emotional moment of truth, they expect a skilled, compassionate human to be on the other side. AI has the potential to turn these frontline knowledge workers into super agents by augmenting their skills with real-time insights and next best actions. These capabilities accelerate speed to proficiency, create new career pathways, deliver the best possible business outcomes and will create higher margin opportunities for T-Tech. These three trends are putting pressure on companies across the globe to find a partner so that they can move quickly and with confidence. For the past 40 years, we've led the market by helping our clients understand how new digital technologies fit into their CXE system. While technology has always been fundamental to our solutions for clients, we've provided a steady hand to separate the helpful from the hype. From the earliest IVRs to today's latest developments with AI, our focus has always been delighting customers and helping our clients grow. Our two distinct but connected business segments enable us to deliver different results in this new phase of AI-driven CX innovation. Today, T-Tech Digital is the largest pure-play CX technology and services player in the world. We have the data scientist, the CX consultants, the CX technology expertise across all leading platforms. Our clients look to us, given our deep experience with complex implementations and our strategic partnerships with the hyper-scalers and the premier C-CAS players. Complementing T-Tech Digital is our T-Tech Engage business, which handles millions of last mile customer interactions on behalf of the world's leading partners. Our teams of knowledge workers, conversational designers, data curators, and analytic experts deliver experiences that consistently delight our clients and wow their customers.

Speaker 3: inspired to build something truly unique in the industry. A single end-to-end resource for premium CX technology, AI, and service to power the most customer-centric brands on the planet.

Speaker 4: And today we are as excited as ever. And with that, I'll hand the call over to Shelley. Thank you, Ken. And good morning, everyone. As Ken mentioned in his opening statement, we delivered a strong fourth quarter. Our solid performance was possible due up to our trusted and long-standing partnerships with our clients and the passion, hard work, and contributions of our amazing 69,000 teammates across the globe. Like Ken, I'm very enthusiastic about the relevance of our CF solutions and the market demand for the outcomes we deliver. Clients across industries continue to be focused on the importance of a great customer experience, well-positioned to help them apply the most relevant talent, technology, and AI solutions for their business. Shifting now to our engaged business, the weakening macroeconomic environment is creating a few specific short-term challenges. The uncertainty in this economic environment is affecting the short and midterm outlooks for some of our clients, subsequently impacting our visibility. We're responding to their needs by remaining agile. While we have continued strength in resilient verticals like public sector, financial services,

Speaker 4: Moving quickly and have a qualified pipeline for offshore delivery that has increased over the same time last year, we expect this momentum to continue to build. We're building our talent base with highly skilled knowledge workers to support more complex interactions, a place where we're uniquely qualified. As we help our clients migrate simple interactions to non-voice channels, the demand for more highly trained and experienced knowledge workers is growing.

Speaker 4: AI-based tools are enabling us to find, train, and onboard these knowledge workers with speak. Initiatives like our FlexES platform are offering knowledge workers more flexibility with their schedule while allowing us to better match supply with ed and flow of demand. We're leaning into resilient verticals where we offer differentiated solutions. The specialized nature of the work and licensing requirements and healthcare, financial services, and public sector provide us with a competitive advantage. Our domain expertise and proven best practices in these verticals are enabling us to track new companies as well as expand our embedded base. In healthcare in 2022, we implemented 14 open enrollment programs for 10 clients and we were consistently the top performer. As we build on the trust, earn from these successful client programs, we will sell new asynchronous offshore services delivered at a higher margin. In financial services, we continue to expand our business with new logos and grow our embedded data. We also grow our embedded base with additional claims, collections, fraud, and back office services. We're also growing in property and casualty and now support three out of five of the industry leaders in this category. In this highly competitive marketplace, we're partnering with insurers to use analytics as a differentiator with just-in-time estimates and hyper-personalized offers. In public sector, we continue to scale as we complete the integration of the public sector assets we acquired last year. For example, our work with New York Metro tolling and Trans-Street Transportation authorities is well underway with an anticipated Gold Life Date in 2024.

Speaker 4: This comprehensive contract includes the X technology account management, cluster support, and back office services. And more broadly, we're focusing our go-to-market on opportunities to help companies reduce costs by taking advantage of our expanding global footprint and scaling our trust and safety and AI operations solutions. I'm particularly excited about helping our clients harness the power of AI with expanded services and data annotation and curation supported by our skilled knowledge workers. Now, I'll move on to our key tech digital segment. Given the rapid pace of CS technology innovation, companies are looking for a partner with the breadth and depth to design, build, operate, and also manage their digital transformation. These technology consulting and long-term managed service contracts fall right in our sweet spot. It's the only pure CX technology partner that also manages millions of customer interactions every day. We deliver value and customer insight that no one else can. And it's so great to have these Dave Seabold on our team with his deep partner and client relationships and strong track record of growing global businesses at scale. Dave brings extensive cloud and CF expertise to the business at a pivotal time. He's already making an impact with our people, our clients, and our partners. Dave and his team are accelerating progress on our digital priorities. First, capturing the growth opportunity to help clients with their CX Cloud Migration AI and large digital transformation initiative enabled by our strategic partnerships with Genesis, Microsoft, AWS, Cisco, and Google. We continue to be chosen by these partners for complex and first-of-a-kind CX engagements, including generative AI. Next, continue to scale our offshore delivery platform to strengthen our margin profile.

Speaker 4: Last year we successfully grow our off-sharp footprint by 60% and we have plans underway to further scale in 2023. And finally, continuing to build and scale our IP-based software that we directly invent in our solutions and also sell across the hyper-scalers marketplaces. I'll wrap up our segment discussion with a few thoughts about the exciting progress being made in AI. Discussion around AI has been happening for some time. What's different now is that practical business benefits are within reach. Having works of clients to take advantage of previous AI and technology innovation cycles before, it's clear that technology is only one part of the equation in terms of delivering tangible business results. We're uniquely positioned to capture the opportunity because of our combination of deep CX domain expertise, CX technology services at scale and our experience delivering frontline customer engagement. In conclusion, we're managing for today while we continue to strengthen the foundation for our future. We're viewing 2023 as a year of focus on disciplines and agile execution as we continue to drive towards diversification across clients, geographies, languages and solutions to optimize our revenue mix and further strengthen our margin profile. Our outlook for T-Tech in 2023 is low single-digit growth with tempered margins driven by our engaged segment performance being impacted with the points I've been given. I mentioned earlier with our focus strategy, crude investment and strengthen leadership team. We expect margins and growth to accelerate in 2024 and beyond.

Speaker 3: with particular strengths in financial services, healthcare, automotive, and travel and hospitality. As well as across our expanded geographic footprint, including continued momentum in our MEA region, which have bookings growth 60% in the fourth quarter and 40% in 2022. We added 22 new client relationships in the fourth quarter and 93 for the full year 2022.

Speaker 3: This represents an increase of 13% over the prior year full period. Dear recent acquisitions, our digital revenue as a percentage of our overall revenue has increased. Due to the nature of the business digital bookings, we would like to hire mixed non-recurring services relative to engage. As a result, moving forward, we will begin giving color on each individual's segments performance rather than discussing bookings at the overall T-Tech level. We will engage its performance, we will give color on each vertical, and for digital performance we will give color by offering. I will share our 2023 backlog details in my closing remarks. In my discussion on the fourth quarter of full year 2022 financial results, reference to revenues on a gap basis, while EBITDA operating income and earnings per share on a non-gap adjusted basis. The full reconciliation of our gap to non-gap results is included in the tables attached to our earnings press release. My references to the term on a like-to-like basis describes our revenue growth, excluding the impact of foreign exchange, translation, and treating acquisitions as if we've owned them in the prior year period.

Speaker 3: As mentioned, we are pleased with our 4-quarter financial performance, especially considering the headwinds that both Ken and Shelley highlighted earlier. On a consolidated basis in the 4-quarter of 2022, revenue was 658.3 million, and increased to 7.5 percent on a lack-of-the-Light basis, excluding the impact of pandemic-related volumes, revenue grew 4.7 percent. Organic growth was 2 percent on a constant currency basis. Adjusted EBITDA with 84.8 million, or 12.9 percent of revenue, compared to 84.1 million, or 13.7 percent in the prior year. Operating income was 69.9 million, or 10.6 percent of revenue, compared to 68.3 million, or 11.2 percent in the prior year. And lastly, EPS was 89 cents compared to $1.08 in the prior year. The strengthening of the U.S. dollar had a 12.6 million negative impact on revenue in the 4-quarter over the prior year period, while benefiting operating income by a positive 4.5 million, primarily within our engaged segment. Our 4-quarter year-rear top-line performance primarily reflects the contribution from the April 2022 annual asset acquisition to our engaged segment, as well as increased CX technology services in our digital segment, driven by an increasing adoption of cloud CX technologies. During your operating in EBITDA-Light basis, the U.S. dollar has been increased by a positive 4.5 million, or 12.9 percent in the prior year.

Speaker 5: 4 million negative impact on revenue while positively impacting operating income by 13.9 million, primarily within our engaged segment. Our full-year top-line growth was primarily driven by the engaged FANUASA acquisition in April of 2022 and Digital's ABTEX acquisition in April of 2021.

Speaker 5: Alongside increased business across our core offerings from new and existing clients. The full year bottom line decline is driven predominantly by the same reasons mentioned for the fourth quarter.

Speaker 5: Turning now to our fourth quarter and full year 2022, segment results. Digital segment revenue increased 4.2% to 123.4 million in the fourth quarter of 2022 of the prior year period, all organic.

Speaker 5: Operating income was 16.5 million or 13.3% of revenue compared to 20.2 million or 17.1% of revenue in the prior year period. Our fourth corner revenue growth is a function of increased cloud and systems integration services across our Tier 1, CX Tech partner platforms, slightly offset by lower year-to-year product sales and on-premise managed services as more clients move to the cloud. Our combined recurring cloud and managed services revenue grew 4.5% in the fourth quarter of 2022 over the prior year period representing 54% of digital total revenue. And our reoccurring systems integration revenue grew 18%.

Speaker 5: representing 27% of total revenue. The client operating margins reflect incremental investment in the CX leadership and engineering talent, sales and marketing, and product and technology developments. On a full year basis, visuals 2022 revenue increased 13.9%, the 471.5 million over the prior year period, of which 1.7% was organic on a constant currency basis. Operating income was 63.5 million or 13.5% of revenue spread at 59.6 million or 14.4% in the prior year period. Full year revenue primarily benefited from the AppTech acquisition. Operating margins were impacted by the reasons noted in the fourth quarter in addition to acquisition related integration costs. Our cloud and managed services revenue grew 15% in 2022 over the prior year period, representing 54% of digital's total revenue, and our systems integration revenue grew 20%, representing 27% of total revenue. Moving to engage. Our engaged segment reported 4th quarter 2020 revenue of 534.9 million and increased of 8.3% over the prior year, 4.6% on a lack the lack basis excluding the impact of pandemic-related volumes. Organic growth was 1.3% on a constant currency basis. On a full year basis revenue increased 6.1% to 1.97 billion, 9.7% on a lack for lack basis excluding the impact of pandemic-related volumes. Organic growth was 1.6% on a constant currency basis.

Speaker 5: The annual asset acquisition was the primary contributor to growth in the quarter and the full year alongside increased volumes across virtual and digital delivery capabilities. Contribution from RMEA region and select verticals including healthcare and financial services excluding the pandemic related volumes. Our embedded base performance remains strong as demonstrated by engages last 12 month revenue retention rate of 97%. Excluding pandemic related volumes engages revenue retention rate with 105%. In the fourth quarter operating income was 53.4 million or 10% of revenue compared to 48.1 or 9.7%. On a full year basis operating income was 185.1 million or 9.4% of revenue compared to 226.6 million or 12.2%. Our engaged operating margins reflect impacts high lighted in my earlier comments. I will now share other 2022 measures before moving to our outlook. As of December 31, 2022 cash was 153.4 million with 963.6 million of debt, which 960 million represented borrowings under our 1.5 billion credit facility. That debt increased 171.3 million, day 110.2 million, year-to-year primarily related to acquisition related investments associated with the FANUASED acquisition and capital distributions partially offset by cash flow generation. Cash flow from operations was 137 million in 2022 compared to 251.3 million in the prior year. The reduction in cash flow from operations was primarily a function of low profitability, higher interest payments, and a DSO of 58 days in the fourth quarter compared to 54 days in the prior year period.

Speaker 5: Capital expenditures were 84 million or 3.4% of revenue for the full year of 2022 compared to 60.4 or 2.7% in the prior year. The increase is driven by investments in IT security and infrastructure and are accelerated geographic expansion efforts. Our full year normalized tax rate was 23% in 2022 versus 21.3% in the prior year. Increased is primarily related to change in tax regulation related to bezza, a special economic zone within the Philippines, jurisdictional mix of income and a reduction in select international tax benefits. In the fourth quarter of 2022, TTECH paid a 52 cent per share dividend or 24.6 million. On February 23rd of 2023, the board declared the next semiannual dividend of 52 cents per share, payable on April 20th of 2023, shareholders of record as of March 31st of 2023. According to our 2023 outlook, we're going to provide some contact supporting our guidance. First, our outlook reflects the impact shall we discuss earlier, including continued uncertainty due to further weakening macroeconomic environment that we first signaled on the second half of 2022, and we expect to persist in the first half of 2023 affecting select verticals. While we're seeing strength and resilient verticals like financial services, healthcare and public sector, this is being offset by continued weakness in our hyperbros sector. We expect that growth will ramp in the second half of 2023 driven by recovery and the previously mentioned impacted engage verticals, and continue to market execution throughout the year. Digital's growth will accelerate with this year 23 driven by increased adoption of CX Cloud technologies, muted by a continued turnaround within our Cisco practice and macro driven LinkedIn cell cycles. We are continuing to make investments to further globalize our delivery and language footprint. To complete the integration of recent acquisitions, strengthen our executive leadership team and enhance our infrastructure and technology landscape. Continued investments, coupled with impacts in our hyperbros sector, is putting pressure on our margins at fiscal year 23. Last, we enter 2023 with total revenue backlog of 2.211 billion, 87% of our full year guidance at the midpoint. Now, turning to the midpoint of our 2023 guidance as outlined in greater detail in our fourth quarter of 2020, our entire year 2020, our increased press release.

Speaker 5: Gap revenue of 2.5 billion an increase of the prior year of 2.3 percent adjusted EBIDA 300 million a decrease of 8.2 percent over the prior year and 12 percent of revenue compared to 13.4 percent in the prior year. Nogap operating income of 231 million a decrease of 6.9 percent of the prior year and 9.3 percent of revenue compared to 10.2 percent in the prior year. Nogap earnings per share of $2.54 a decrease of 31 percent over the prior year. The EPS decline is driven predominantly by the interest rate hikes across 2022 and anticipated interest rate hikes in 2023 that will impact our variable interest rate. Other relevant guidance metrics include capital expenditures between 3.4 and 3.6 percent of revenue of which 65 percent is growth oriented. A full year effect of tax rate between 22 and 24 percent and a diluted share count between 47.3 and 47.5 million. These reference are commentary in the business outlook section to our fourth quarter and full year 2022 earnings press release to obtain our expectations for first quarter and full year 2023 performance that they can solidate it and segment level. In closing we are confident we will successfully navigate the dynamic environment ahead of us position the company for accelerate growth as we exit the year. We are excited about our future supported by our 40-year track record of delivering innovation and value driven CX outcomes for our clients strong executive leadership team and a unmatched CX technology and services platform. I will now turn the call back to Paul. Thanks Dustin. As we open up the call we ask that you limit your questions to one at a time. Operator you may open the line.

Speaker 3: it was last year at the same time. That said, being through now five recessions, I want to be realistic about will we see the same level of conversions that we were seeing, let's just say same time last year. And with clients all expressing visibility issues across the globe, we really just want to take a question.

Speaker 3: conservative approach. We would rather guide conservatively and have the potential to exceed than let our investors down. And so we're taking this conservative approach and we feel like I said, very confident in our business and where it's going. We're very excited about the current pipeline that we have. And frankly, I don't want to pimp people, but we see some very exciting large deals. And unfortunately, during a cloudy time like this from a macroeconomic standpoint, sometimes clients take a bit longer to make a decision. Sometimes they change the overall commitment of how large they're going to commit to in some of these large new deals, et cetera. And so we just felt that it was prudent to take this conservative approach. Thanks, Ken. That makes sense. And then when you think about those large deals that might be building, is there any kind of incremental demands for maybe more of an offshore component within those deals? I know you've added a couple of locations. And then would there be any impact from that kind of incorporated into your revenue or your guide? Absolutely. So I don't want to speak for Shelley, but what I would just tell you is the following. Our focus for 2023 goes without saying it's all about execution. And we are absolutely committed to increasing our offshore footprint, not because it would be a nice thing to do, but because we actually have very large and better-based clients that are saying, we need the same capabilities and the same quality of service in other regions within other languages. And so we are fast tracking, bringing online Asian languages, fast tracking, bringing on more European languages, et cetera. So we're going to talk about the market in the markets that we're entering. So to answer your question, there will be more offshore business coming on.

Speaker 4: is a matter of fact our pipeline has a significant amount of offshore business. And there's a huge focus on that because we realize that by us increasing our offshore percentages that that really is what will help us on the engaged side drive a higher margin. Shall we want to add anything to that? I would just add Maggie. We're seeing strong demand for our offshore services in the new locations, even in those resilient sectors that I talked about, financial services and healthcare, which has traditionally been more onshore services for us. But as we open up and expand our locations and really capitalize on the great performance, particularly in healthcare that we had over the open enrollment season last fall. We're seeing good demand and new interest from our clients in some of those new offshore locations. And of course, we're as Kent said, very focused on this. And not just with our embedded base, but for new client prospects as well. Thank you all. Thank you. Thank you. Next question is from the line of Mike Lattimore of North and capital markets. Your line is now open. Yeah, great. Good morning. Just a question on the digital digital division. It looks like you're expecting some solid improvement in that business throughout the year. What are you talking about in terms of?

Speaker 3: revenue growth and margins, I guess can you just provide a little bit more detail on kind of what would drive that improvement? Yeah, I mean I think one thing important is that the practices outside of Cisco Deskton have been talking about Cisco for a while in terms of growing through that business, they're getting that back to growth. The other practices are growing 10 plus percent and I think we're excited about the pipeline and the momentum that we have with our partners across those other platforms. Certainly as Dave's joined the team and the relationship he brings with both partners and clients, we're expecting accelerated go-to-market execution throughout the year. And then the hyper growth category within Gage, what percent of revenue is that? And fiscal year 2022, you're looking at a business roughly about 400 million. Great, thank you. Thank you. Thank you. Next question is from the line of George Sutton of Craig Hallum. Your line is now open. Thank you. Hannah, I'm wondering if you could address the AI opportunity as you see it and where you're involved specifically relative to AI and any go-to-market detail. Beyond that would be helpful. Good morning George. You're asking a great question and I'm trying to think of how to give a short answer but what I'll start out by saying is the following. On the engage side, there is tremendous opportunity for us to be working with many of our partners on the training of AI. I think there's a big misconception in the marketplace with all the hype around chat GPT that it's going to be, have a real positive impact on areas like customer service. When in fact it actually is going to have very little impact because it's a horizontal AI product, which means that it grabs its information from crawling the web, reading Reddit, reading Wikipedia, etc.

Speaker 3: You know, our classic way that we do business today. But hopefully that's helpful. Well, I don't want to suck up all the oxygen on the call. Oh, that's great. Just one other question. I think there's a dichotomy with your guidance relative to your clearly out bringing in some great leadership to expand, I know your plans to expand to a much larger company. Can you just give us a sense of how that growth is going to come as it?

Speaker 3: get to where we ultimately have been communicating to the street. We brought Shelly in, we brought Dave in, and we actually brought in a myriad of other very senior leaders that have all come on board over the last, let's just say, 12 months. And their entire focus is execution to double the business and double it in the shortest period of time possible while significantly increasing our margins. And I have absolutely no doubt that we have the right team. There is a reason why we brought Shelly in.

Speaker 3: intentionally did not bring in a BPO type person. We wanted somebody that understood technology, understood technology implementation. We wanted somebody that understood digital, and we wanted somebody that understood very large scale. Shelly with her experience of being one of the key people in building Accenture Digital from zero to $20 billion has that experience, understands those capabilities that allows her to partner very closely with Dave Seable who also has multi-billion dollar experience on the digital side as well. Consequently, it's really allowing me now to spend much more of my time on strategy, on vision, on potential future M&A, as well as on partnerships with these large technology players at a very senior level and then helping the acquisition of large clients. It's really been fun to work with both of these folks. I think that at the leadership side as well as with Dustin who's really brought a whole new way of looking at our numbers. So I think that you're going to see that given a relatively short period of time, we're going to be delivering results that people can get very excited about. So thanks, Ken. Thank you. Thank you. Next question is from the line of Vincent Cooke-Cue of very important research. Your line is now open. Yes, Ken. Curious, are you seeing meaningful consolidation opportunities and if so, to what extent are they baked into the 2023 outlook? Consolidation, you mean of client volumes? Yes, clients on client side.

Speaker 3: There is certainly a lot of talk about that amongst clients. We are seeing that with certain key clients, especially where they're very focused on measuring performance and where we're consistently outperforming. And so we see that as a real opportunity. In the past, you've heard me speak about the captive opportunities that we're focused on, which would be companies that have never outsourced and have very large, outsourcing, excuse me, very large organizations internally. Some of these organizations internally that have never outsourced, believe it or not, are spending in excess of a billion dollars. And so we're very focused on that as well. I think that what one of the things that is really important for the street to understand is that we saw this self-made, if you want to call it recession coming quite some time ago. And we've really been very intentional on focusing on verticals that we think are going to have the least amount of impact as the economy potentially slows down. And so what I would just simply say to you is that the verticals that we're focusing on all have extremely large captives. So not only do we have the benefit of...

Speaker 3: the consolidation where they're going with fewer players, which we think is a good thing, not a bad thing. But in addition to that, what we're also seeing is that they're peeling off more business that's internal and moving it to a partner such as T-Tech. We think that's a trend that we're going to see over the next five plus years, and again, not to sound like a broken record, but there's still $300 billion just on the gauge side that has not been outsourced. And we think that that will become a leaky tire, so to speak, where it'll be leaking more and more business to the marketplace. Because the bottom line is that we feel very confident, we can demonstrate that we can do it better, we can do it faster, and we can do it under lower overall cost with a higher total value delivered. And that's our value proposition. And then when we couple that with technology capabilities, that adds even more capability. And that's our capability to turbocharge the relationship and to offer something that we think is unique in the marketplace. Thanks. Well, I might just add, just in terms of, you know, our top 10 clients actually provided a lot of our growth in 2022, and we see that continuing into 2023. And in particular, some of these were there, as you said, consolidating, you know, we're performing well, and they're giving excited. And we see demand for our new offshore locations to add to the services that we're providing to those clients. I think also, you know, we're very focused on those resilient sectors that can mention, particularly financial services and healthcare, in terms of helping those clients that haven't outsourced before. And that typically ends up being kind of a mix of onshore and offshore services. And so we're seeing a lot more demand in those sectors, which is why we're very, very focused on them. And one for you, Dustin, if I can, um,

Speaker 5: What is your assumption for the guidance for hyper growth? Do you expect it to stabilize in the second half or further deteriorate? What are you thinking? Yeah, the expectation is that it will be stabilized kind of second half. It's going to come down in the first half, stabilized in the second half. And then, you know, ideally going back to Maggie's original question, but momentum and then gas would go into 2024. Okay. Thank you. It is really just just, you've been to be clear. It's really a continuation of kind of impacts that we had in 2022. You know, because the hyper growth is continued to grow in 2022. If you go back to the second half, we talked about it being muted. And so it came down, but still grew. And then that now has created a downstream impact into 23.

Speaker 5: And just the only other point that's I'll fall on to Shelley's comment, the giving idea in terms of just to put a pen on the consolidation is that our top 10 grew roughly 4%. And that's including the decline in pandemic related volumes in 2022. And you're looking at a number for 2020 in the neighborhood of 14%, 15% for excluding the pandemic. So that gives you a sense in terms of how we consolidate, at least particularly where we play with large enterprise customers. Where we have significant scale. Thank you. Thank you. Next question from the line of Joseph Vaffy of Canacorn. Your line is now open. Hey guys, good morning. Maybe a question on cross sell in 2023. Are you looking at cross sell between your two divisions any differently? I mean, it feels like digital's got a kind of a wider opportunity. With cloud migration, emergency, AI, potential to maybe move into a Jace and C's outside of CX. And is that business gets more strategic inside enterprises? You know, potentially be able to drag along more CX volumes. Just how are you looking at that, that overall dynamic here this year? Thanks.

Speaker 4: Hey guys, I just wanted to ask, what are you guys baking in for your 2023 outlook in terms of your onshore and offshore delivery mix, as well as some nutrition metrics around that? And for your offshore, I know you guys talked about continuing to build out your offshore geographies and you added three more, I think you guys said, and grew 60% in 2022.

Speaker 4: Are you expecting a similar case in 2023? And is this like replacing some of your onshore delivery centers? Thank you. So the 60% was a reference to growing our delivery footprint inside of digital and we definitely will continue to scale that footprint. Certainly on the engaged side, we plan to add four to five new geographies this year. And you know, those will, as we sell into that demand and open those geographies, we expect the pace of those offshore services to increase throughout the year.

Speaker 5: as well as I would say improving labor markets if we do expect a nutrition to improve within 2023 across both offshore and domestic footprints.

Speaker 3: Okay, got it. And also wanted to ask on free cash. Well, I know you pointed out a few things in the quarter specifically of great example, the DSO's, you know, are these one time in nature and anything about free cash. Expectations for 2023. Thank you. It's a great question. Yeah, so our free cash flow was impacted by one time items that we discussed earlier. Going forward, I would say the one major impact is going to continue as the step up. It's also affecting EPS, the step up and interest.

Speaker 3: Next question is from the line of Brian Bergen of Cowan. Your line is now open. Hi, thank you. This is Zach Aadman on for Brian . First question for Dustin. Thank you mentioned upcoming new disclosures on vertical performance plan for this year. We heard the color for the hyper growth vertical, but can you give us a sense or or some more insight on the growth assumptions for?

Speaker 5: the other key vertical cohorts embedded within the calendar 23 outlook. Yeah, so I would say going back to right now what we're at this point talking about is you look at hyperbroad, it's roughly 400 million, this specific number is roughly 380s coming down to roughly 300 million dollars in fiscal year 2023 and then the rest of the remaining verticals are growing at 7 percent and there's a variety of outcomes with them. I would say strength within financial services and healthcare predominantly and then strong performance still in public sector and as well as.

Speaker 5: Automotive but slightly behind I would say financial services and health care. We'll give you more color kind of going forward in terms of specific growth rates. The tension of that statement was more going forward in Q1 and beyond. In terms of moving to these specific growth rates, reach vertical on the actual earnings Great, great. Follow up on offshore. Just looking at um.

Speaker 5: to see if we can get any sense around the numbers. Like to what extent is offshoring affecting revenue and helping to offset margin pressure? Anyway, you can frame that quantitatively within the outlet this year. So again, if you think about the metrics, there'll be just again, I'm about to catch this question. You think about the 7030 mix, and you think about our guidance next year this year and for fiscal year 23, and you think if it is a 7367 and 10 points in margin differential in the gross margin, that's kind of the puts and takes if you will in terms of.

Speaker 3: Hey guys, this is John DeVon for James. What's with giving you the confidence in that back half stabilization hyper growth section or sector of your business? Well, we have a, I mean, first of all, we have a couple of clients in that hyper growth sector that are definitely growing and interested in our offshore, expanding offshore footprint.

Speaker 3: And so, you know, we see growth opportunities in that portfolio despite, you know, the unfortunate, unfortunately, some of those clients, you know, with this post-pandemic normalization having softer demand. So, we have a pipeline of opportunities with some of the clients in that hypergrose sector and in Dustin's bed. We're also expecting our clients outside the hypergrose sector to grow in the mid-s and in the budget. So, John , I'm just going to follow up to that point, keep in mind that, again, a lot of the term we had within our hypergrose sector happened in the second half of the year. So, it's a little bit of just a ramp down and compare, if you will, because we talked about in the second half, the impact of the second half.

Speaker 3: and follow up with how are you thinking about the M&A environment and your capacity to acquire? I think that right now we're really focused on execution and really trying to understand where values are going to be. So the truth matters, we have a solid pipeline of potential M&A. That said, I think that it's safe to say that that we're really focused on the M&A.

Speaker 3: We are, you know, we're going to be very fiscally responsible and mind our balance sheet. And so what I would just say to you is that although M&A is something that is absolutely going to continue to be part of our strategy or future strategy, we think that it's prudent for us to wait a little bit and try to see where the valuations come in on some of the targets that we're looking at. I think that any of the M&A that we would be doing would be much more geared towards the strategic side and areas that would be benefiting more of the digital business. But what I would just simply say to you is that we're going to, right now, our team is very focused on execution on our can of growth. Thanks, Ryan Ken.

Speaker 2: Thank you for your questions. That is all the time we have today. I will now turn the call back to Paul Miller. Thank you, everyone, for joining us today. This concludes our call. Thank you. This concludes T-TEX 4th quarter in full year 2022 earnings conference call.

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Welcome to T-TEX 4th quarter in full your 2022 earnings conference call. I would like to remind all parties that you will be in the lesson only mode until the question and answer session. This call is being recorded at the request of T-TEX. I would now like to turn the call over to Paul Miller.

T-TEX Senior Vice President, Tresher and Investor Relations Officer. Thank you, sir. You may begin. Good morning, and thank you for joining us today. T-TEX is hosting this call to discuss its old quarter in full year 2022 financial results for the period ended December 31, 2022.

Participating on today's call are Ken Tuxen, Chairman and Chief Executive Officer of T-Tech, Shelley Swanback, Chief Executive Officer of T-Tech Engage, and President of T-Tech, and Dustin Seymatch, Chief Financial Officer of T-Tech.

Yesterday, TPEC 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 2022 Annual Report on Form 10K, which we anticipate will be filed at Market Closed today. Before we begin, I want to remind you that matters discussed on the days call may include forward-looking statements.

and other factors that could cause or actual result of different materially from those expected and described today. For a more detailed description of our risk factors, please review our annual report on Form 10K. 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. Thank you Paul. Good morning everyone and thank you for joining us today.

We ended 2022 with solid execution and financial results, despite the increased uncertainties surrounding the global macroeconomic environment. Our performance reflects our broad and diverse space of global clients.

Our expertise across strategic verticals and our full range of digital CX technology, AI, and service capabilities. For the full year of 2022, bookings were $762 million. Revenue increased 9.4% to 2.44 billion on a constant currency basis.

Adjusted EBITDA with $326.6 million or 13.4% of revenue. In addition, last year, we enhanced our public sector vertical with a meaningful acquisition. We publicly launched our strategic partnership with Google, we deepened our partnership with each of our core strategic CX technology partners.

And, we are recognized as a CX leader by all four major analyst firms.

In addition, we were named by Forbes as one of America's best large employers for the third consecutive year. And lastly, we marked our 40th anniversary as a pioneer, a global leader, and an innovator and customer experience. I'm pleased with our accomplishments in 2022.

Despite the fact that our financial performance was tempered by the increased macroeconomic headwinds that emerged in the second half of last year. As we look ahead, some clients and select verticals continue to have reduced visibility into their short to midterm outlook. And therefore, at this point in time,

we believe it's prudent to approach 2023 guidance conservatively. Having said that, I could not be more excited about our strength and global leadership team and our differentiated platform. I'm confident in our ability to deliver significantly higher revenue growth and margins. As we exit this current macroeconomic environment,

And now, let's move to our views on the market. In any economy, an exceptional customer experience sets the most admired brands apart.

Happy customers are loyal. They spend more money and become active promoters of their favorite brands. In an uncertain economy, keeping these loyal customers is paramount.

Yet, at the same time, businesses are challenged to do more with less.

Our outcomes-based solutions are more critical than ever in this environment. Over the past decade, we've set up our company to capitalize on three game-changing mega-trends. From legacy giants to digitally native startups, these trends will be altering the face of every industry across the globe.

We've been preparing for this inflection point and we're well positioned to capitalize on the opportunity ahead of us. Let me begin. Trend number one, the CX move to the cloud is no longer an option.

It's an imperative. Currently only about 20% of large enterprises have completed their CX migration to the cloud. As the largest pure play CX technology and services player in the world, we're helping these companies use the modern capabilities enabled by the cloud to create customer experiences across every touchpoint that are personalized, effortless, and differentiated. Our T-Tech Digital Business.

has implemented some of the most complex enterprise CX cloud migrations at scale across every major platform. We're well positioned to capitalize on the remaining 80% of large businesses and governments, still operating on outdated on-premise legacy platforms.

These digital transformation initiatives are complicated and will provide us with technology and manage service opportunities for many years to come. Turn number two, the world's leading brands are moving from reactive customer support to proactive customer experiences.

Smart brands no longer are waiting for their customers to reach out when something goes wrong. They're using advanced analytics to anticipate the future needs of their customers with proactive outreach and next best actions.

With our investments in predictive digital capabilities that enable customer acquisition, growth and retention, we're delivering strong results for our clients in multiple industries, including healthcare, financial services, and automotive.

Trend number three, AI is redefining the role of the frontline associates, creating a new class of knowledge workers, whether a customer is reaching out about a complex issue or highly charged emotional moment of truth.

They expect a skilled, compassionate human to be on the other side. AI has the potential to turn these frontline knowledge workers into super agents by augmenting their skills with real-time insights and next best actions. These capabilities accelerate speed to proficiency, create new career pathways, deliver the best possible business outcomes, and will create higher margin opportunities for T-Tech.

These three trends are putting pressure on companies across the globe to find a partner so that they can move quickly and with confidence. For the past 40 years, we've led the market by helping our clients understand how new digital technologies fit into their CXE system. While technology has always been fundamental to our solutions for clients, we've provided a steady hand to separate the helpful from the hype.

From the earliest IVRs to today's latest developments with AI, our focus has always been delighting customers and helping our clients grow. Our two distinct but connected business segments enable us to deliver different future results in this new phase of AI-driven CX innovation. Today, T-Tech Digital is the largest pure play CX technology in services player.

in the world. We have the data scientist, the CX consultants, the CX technology expertise across all leading platforms. Our clients look to us, look to us, given our deep experience with complex implementations and our strategic partnerships with the hyper-scalers and the premier CX players.

Complementing T-Tech Digital is our T-Tech Engage business, which handles millions of last mile customer interactions on behalf of the world's leading brands.

Our teams of knowledge workers, conversational designers, data curators, and analytic experts deliver experiences that consistently delight our clients and wow their customers.

And when we combine the capabilities of these two business segments, we're uniquely positioned to build and deliver proprietary CX solutions on top of Microsoft and OpenAI's ChatGPT, Google CCAI and Amazon's Lambda. We believe this not only helps us support the world's leading brands more effectively.

with AI machine learning, but it also serves as a moat relative to the rest of our competitors. As Google, Genesis, Microsoft, Cisco, and AWS develop market applications for new technologies like Generative AI. They are collaborating with us for our frontline knowledge and our CX technology domain expertise.

Together, we're investing in solution development, go to market strategies, and delivery models for this new generation of customer experience. Human discernment and compassion will play a key role in building trust as these new AI functions are integrated into CX solutions. Like many digital innovations before, these new capabilities will augment our frontline knowledge workers.

Now I'd like to share our thoughts on 2023. With a strong foundation and an agile mindset, we have the resilient and have preserved, presser, presser-raired, excuse me, through the economic cycles, global pandemics and natural disasters. We know that these events are cyclical and working as a team.

We have demonstrated time and again that we have the determination, tenacity, and long-term track record and vision to come out stronger on the other side. I'm more confident than ever about our path forward with Shelley Swarmback and Dave Seabold by my side. Together, we're actively navigating the current environment and doubling down on our priorities that will build momentum as we progress through the year. From the very beginning, we've aspired to build something truly unique in the industry, a single end-to-end resource for premium CX technology, AI, and service.

to power the most customer-centric brands on the planet. Today we are as excited as ever. With that, I'll hand the call over to Shelley.

Thank you, Ken, and good morning, everyone. As Ken mentioned in his opening statement, we delivered a strong force quarter. Our solid performance was possible due up to our trusted and long-standing partnerships with our clients and the passion, hard work, and contributions of our amazing 69,000 teammates across the globe.

Like Ken, I'm very enthusiastic about the relevance of our CF solutions and the market demand for the outcomes we deliver. Clients across industries continue to be focused on the importance of a great customer experience, where well-positioned to help them apply the most relevant talent, technology, and AI solutions for their business. Shifting now to our engaged business.

The weakening macroeconomic environment is creating a few specific short-term challenges. The uncertainty in this economic environment is affecting the short and midterm outlooks for some of our clients, subsequently impacting our visibility. We're responding to their needs by remaining agile. While we have continued strength and resilient verticals like public sector, finance,

pressures while we continue to make investments in technology, infrastructure, our global footprint, and M&A integration. This will give us momentum as we exit 2023 and head into 2024. Now, let me share our engaged initiatives that will add velocity to our growth engine, improve our margin profile, and set the company up for long-term.

America, Amia, Asia, and Africa, where we're seeing increasing demand from both current clients and prospects.

Additionally, we're moving quickly and have a qualified pipeline for offshore delivery that has increased over the same time last year. We expect this momentum to continue to build.

We're building our talent base with highly skilled knowledge workers to support more complex interactions, a place where we're uniquely qualified. As we help our clients migrate simple interactions to non-bois channels, the demand for more highly trained and experienced knowledge workers is growing. AI-based tools are enabling us to find, train, and onboard these knowledge workers with

Initiatives like our FlexES platform are offering knowledge workers more flexibility with their schedule while allowing us to better match supply with ed and flow of demand. We're leaning into resilient verticals where we offer differentiated solutions. The specialized nature of the work and licensing requirements and healthcare, financial services and public sector provide us with a competitive advantage. Our domain expertise and proven best practices in these verticals are enabling us to track new companies.

as well as expand her embedded base. In health care in 2022, we implemented 14 open enrollment programs for 10 clients, and we were consistently the top performer. As we build on the trust, earn from these successful client programs, we will sell new asynchronous offshore services delivered at a higher margin. In financial services, we continue to expand our business with new logos and grow our embedded base with additional claims, collections, fraud, and back office services. We're also growing in property and casualty and now support three out of five of the industry leaders in this category. In this highly competitive marketplace, we're partnering with insurer to see the analytics as a differentiator.

and scaling our trust and safety and AI operations solutions. I'm particularly excited about helping our clients harness the power of AI with expanded services and data annotation and curation supported by our skilled knowledge workers.

Now, we'll move on to our key tech digital segment. Given the rapid pace of CS technology innovation, companies are looking for a partner with the breadth and depth to design, build, operate, and also manage their digital transformation.

These technology consulting and long-term managed service contracts fall right in our sweet spot. Is the only pure CX technology partner that also manages millions of customer interactions every day. We deliver value and customer insight that no one else can. And it's so great to have these states see bold on our team with a deep partner in client relationship and strong track record of growing global businesses at scale.

AI and large digital transformation initiatives enabled by our strategic partnerships with Genesis, Microsoft, AWS, Cisco, and Google. We continue to be chosen by these partners for complex and first-of-a-kind CX engagements including generative AI. Next.

Continues to scale our offshore delivery platform to strengthen our margin profile. Last year we successfully grow our offshore footprint by 60 percent and we have plans underway to further scale in 2023. And finally, continuing to build and scale our IP based software that we directly invent in our solutions and also sell across the hyper-scalers marketplaces. I'll wrap up our segment discussion with a few thoughts about the exciting progress for our thing needed.

the CTX domain expertise, the CTX technology services at scale, and our experience delivering frontline customer engagement. Inconsclusion we're managing for today while we continue to strengthen the foundation for our future. We're viewing 2023 as a year of focus on disciplines and agile execution as we continue to drive towards diversification across clients, geographies, languages, and the world.

and solutions to optimize our revenue mix and further strengthen our margin profile. Our Outlook for T-Tech in 2023 has low single-digit growth with tempered margins driven by our engaged sickness performance being impacted with the points I mentioned earlier. With our focus strategy, crude investments, and strengthen leadership team, we expect margins and growth to accelerate in 2024 and beyond. And I look forward to sharing our progress as we continue to deliver best-in-class solutions for our clients, growth opportunities for employees.

and returns for our shareholders. And now I will turn the call over to Dustin. Thank you, Sheldon, good morning. We appreciate everyone taking the time to join us today. I'll start with a review of our fourth quarter in full year 2022 results before providing you context on our 2023 guidance.

Turning to our bookings. Despite the dynamic environment, our go-to-market teams delivered a solid year. In the fourth quarter of 2022, bookings were $197 million compared to $206 million in the prior year period, resulting in full year bookings of $762 million, an increase in $751 million in the prior year. Bookings in our digital segment will particularly strong.

increasing 10% in the fourth quarter of the prior year period and 23% in 2022. The business signings were predominantly driven by demand for our genesis and Microsoft CX technology solutions in addition to Amazon Connect and Cisco, many of which are in large multi-year CX transformational engagements. While our cell cycles have extended, our enterprise and public sector clients continue to...

automotive and travel and hospitality. As well as across our expanded geographic footprint, including continued momentum in our MIA region, which have bookings growth 60% in the fourth quarter and 40% in 2022.

We added 22 new client relationships in the fourth quarter and 93 for the full year 2022. This represents an increase of 13% over the prior year full period.

Dear recent acquisitions, our digital revenue as a percentage of our overall revenue has increased. Due to the nature of the business digital bookings, we would like to hire a mix of non-recurring services relative to engage. As a result, moving forward, we will begin giving color on each individual's segments performance rather than discussing bookings at the overall T-Tech level. We will engage its performance, we will give color on each vertical, and for digital performance we will get...

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

My references to the term on a like-to-like basis describes our revenue growth, excluding the impact of foreign exchange translation and treating acquisitions as if we've owned them in the prior year period. As mentioned, we are pleased with our four-quarter financial performance, especially when considering the headwinds that both Ken and Shelley highlighted earlier. On a consolidated basis in the four-quarter of 2022, revenue was 658.3 million and increased to 7.5%.

On a lack-of-like basis, excluding the impact of pandemic-related volumes, revenue grew 4.7%. Organic growth was 2% on a constant currency basis. Just an EBITDA with 84.8 million or 12.9% of revenue compared to 84.1 million or 13.7% in the prior year.

Operating income with 69.9 million or 10.6% of revenue compared to 68.3 million or 11.2%

And lastly, EPS was $0.89 compared to a dollar away in the prior year. The strengthening of the U.S. dollar had a $12.6 million negative impact on revenue in the fourth quarter over the prior year period, while benefiting operating income by a positive 4.5 million, primarily within our engaged segment.

Our fourth quarter year-rear top-line performance primarily reflects the contribution from the April 2022 annual asset acquisition to our engaged segment, as well as increased CX technology services in our digital segment, driven by an increasing adoption of cloud CX technologies. Starting to our operating in EBITDA margins, the year-rear decrease is primarily a function of integration-related costs associated with a annual asset acquisition, leadership in engineering, and calid acquisitions, growth oriented investments, including the strategic build-out in our offshore delivery centers.

and the reduction in higher margin pandemic related volumes compared to the prior year period. Moving forward, we will no longer report the impact for pandemic related volumes given its modest formating impact. However, for consistency, we felt it was important to share through the end of fiscal year 22. On consolidated basis for the full year 2022, revenue was 2.44 billion and increased to 7.5 percent and 8.3 percent on a life-like basis excluding the impact of pandemic related volumes. Organic growth was 1.6 percent on a cost of currency basis. Just

or 13.4% of revenue compared to 354.4 million or 15.6% in the prior year. Operating income was 248.5 million or 10.2% of revenue compared to 286.2 million or 12.6% in the prior year. And lastly, EPS was $3.68 greater $4.62 in the prior year. Strengthening of the US dollar in 2022 at a 42.4 million negative impact on revenue while positively impacting the operating income by 13.9 million, primarily within our engaged segment.

Our full year top line growth was primarily driven by the engaged FANUASA acquisition in April of 2022 and Digital's APTECS acquisition in April of 2021 alongside increased business across our core offerings from new and existing clients. The full year bottom line decline is driven predominantly by the same reasons mentioned for the fourth quarter. Turning now to our fourth quarter and full year 2022, segment results. Digital's segment revenue increased 4.2% to 123.4 million in the fourth quarter of 2022 of the prior year period, all organic.

Operating income was 16.5 million or 13.3% of revenue compared to 20.2 million or 17.1% of revenue in the prior year period. Our fourth corner revenue growth is a function of increased cloud and systems integration services across our Tier 1, CX Tech partner platforms, slightly offset by lower year-to-year product sales and on-premise managed services as more clients move to the cloud. Our combined recurring cloud and managed services revenue grew 4.5% in the fourth quarter of 2022 over the prior year period representing 54% of digital's total revenue. And our reoccurring systems integration revenue grew 18% representing 27% of total revenue.

The client operating margins reflect incremental investment in the CX leadership and engineering talent, sales and marketing, and product and technology developments. On a full-year basis, visuals 2022 revenue increased 13.9%, the 471.5 million over the prior year period, of which 1.7% was organic on a constant currency basis. Operating income with 63.5 million or 13.5% of revenue spread at 59.6 million or 14.4% in the prior year period.

For your revenue, primarily benefited from the AppText acquisition, operating margins were impacted by the reasons noted in the fourth quarter in addition to acquisition-related integration costs. Our cloud and managed services group revenue grew 15 percent in 2022 over the prior year period, representing 54 percent of digital's total revenue, and our systems integration revenue grew 20 percent, representing 27 percent of total revenue. Moving to engage.

Our engaged segment reported 4.4 or 2022 revenue of 534.9 million and increased of 8.3% over the prior year, 4.6% on a lack-of-the-lack basis excluding the impact of pandemic-related volumes. Organic growth was 1.3% on a constant currency basis. On a full-year basis, revenue increased 6.1% to 1.97 billion, 9.7% on a lack-of-the-lack basis excluding the impact of pandemic-related volumes. Organic growth was 1.6% on a constant currency basis. The annual asset acquisition was the primary contributor to growth in the quarter of the year.

88.1 or 9.7%.

On a full year basis, operating income was 185.1 million or 9.4% of revenue, compared to 226.6 million or 12.2%. Our engaged operating margins reflect impacts highlighted in my earlier comments.

I will now share other 2022 measures before moving to our outlook. As of December 31, 2022, cash was $153.4 million with $963.6 million of debt, which $960 million represented borrowing under our $1.5 billion credit facility. That debt increased $171.3 million, $102 million, year-to-year, primarily related to acquisition related investments associated with the FANUASED acquisition and capital distributions partially offset by cash flow generation. Cash flow from operations was $137 million in 2022.

compared to 251.3 million in the prior year. The reduction in cash with operations was primarily a function of low profitability, higher interest payments, and a DSO of 58 days in the fourth quarter compared to 54 days in the prior year period. Capital expenditures were 84 million or 3.4% of revenue for the full year of 2022, compared to 60.4 or 2.7% in the prior year. The increase is driven by investments in IT security and infrastructure in our accelerated geographic expansion efforts.

Our full year normalized tax rate was 23% in 2022 versus 21.3% in the prior year. Increased is primarily related to change in tax regulation related to bezza, a special economic zone within the Philippines, jurisdictional mix of income, and a reduction in select international tax benefits. In the fourth quarter of 2022, T-Tech paid a 52 cent per share dividend or 24.6 million. On February 23rd of 2023, the board declared the next semiannual dividend of a 52 cent per share, payable on April 20th of 2023, shareholders of record as in March 31st of 2023. 32 are 2023 outlook. We're going to provide some contact supporting our guidance. First, our outlook reflects the impact shelly discussed earlier.

including continued uncertainty due to further weakening macroeconomic environment that we first signaled on the second half of 2022, and we expect to persist in the first half of 2023, affecting select verticals. While we're seeing strength and resilient verticals like financial services, healthcare and public sector, this is being offset by continued weakness in our hyperbroad sector. We expect that growth will ramp in the second half of 2023, driven by recovery and the previously mentioned impacted engaged verticals, and continue to go to market execution throughout the year.

Digital's growth will accelerate the fiscal year 23 driven by increased adoption of CX cloud technology, muted by a continued turnaround within our Cisco practice and macro driven LinkedIn cell cycles.

We are continuing to make investments to further globalize our delivery and language footprint, complete the integration of recent acquisitions, strengthen our executive leadership team, and enhance our infrastructure and technology landscape. Continued investments, coupled with impacts in our high-profile growth sector, is putting pressure on our margins at fiscal year 23. Last, we enter 23 with total revenue backlog of 2.211 billion, 87% of our full year guidance at the midpoint. Now, according to the midpoint of our 2023 guidance, that's outlined in greater detail in our fourth quarter and full year 2022, our in-spest release.

The FREVANOO of 2.5 billion an increase of the prior year of 2.3 percent adjusted EBITDA 300 million a decrease of 8.2 percent over the prior year and 12 percent of revenue compared to 13.4 percent in the prior year. NONGAP operating income of 231 million a decrease of 6.9 percent of the prior year and 9.3 percent of revenue compared to 10.2 percent in the prior year. NONGAP earnings per share of $2.54 a decrease of 31 percent over the prior year. The EPS decline is driven predominantly by the interest rate hikes.

across 2022 and anticipate the interest rate hikes in 2023 that will impact our variable interest rate. Other relevant guidance metrics include capital expenditures between 3.4 and 3.6 percent of revenue, of which 65 percent is growth oriented, a full year effective tax rate between 22 and 24 percent, and a diluted share count between 47.3 and 47.5 million. These reference are commentary in the business outlook section to our fourth quarter and full year 2022 earnings press release to obtain our expectations for first quarter and full year 2023 performance that they consolidated and segment level. In closing, we are confident we will successfully navigate the dynamic environment ahead of us, position the company for accelerate growth as we exit the year.

We are excited about our future supported by our 40-year track record of delivering innovation and value-driven CX outcomes for our clients, strong executive leadership team, and a unmatched CX technology and services platform. I will now turn the call back to Paul. Thanks, Dustin. As we open up the call, we ask that you limit your questions to one of the time. Operator, you may open the line. We will now begin the question and answer session. If you would like to ask a question, please press star and then one. Please unmute your phone and record your name and company name clearly and prompted to cancel your request, press star and then two. Our first question is from the line of Maggi Nolan of William Blair. Your line is now open. Thank you so much. It seems like the revenue guidance is perhaps a wider ban than we've seen in the past.

Could you elaborate on some of your assumptions there and what would get us to the high end versus the low end of the guidance? Hey Baggy, this is Dustin speaking. I'll go ahead and take that first and let Ken and Shelley comment afterwards. So a couple of comments, Maggie, as we discussed in the first half of 2022, we kind of indicated that there was emerging headwinds in the second half and we're seeing that now persist into some degrees even continue weakness in the beginning of first half of 2023. And it's really reflecting that uncertainty and our outlook. So in the assumptions that we have right now relative to what would get us to the higher that range is, you know, how this hyperbroad sector performs in the full year. And to give you some context, if you think about hyperbroad where it's at, you take the decline that business.

The rest of the business right now, you talk about resilient and furicles like financial services, healthcare, etc. They're growing right now in roughly 7 percent growth versus the hyper growth business that's in the decline. So it's really about, we need to continue to execute in the resilient verticals that we've discussed. And then if hyper growth comes back and doesn't decline to the degree that we expected to at this point in time, then we'll see it guide up to the higher end of the range. Hi Maggie, it's Ten Tuckedman, good morning. What I would add to that is the following is that our pipeline is actually quite a bit stronger this year. Same.

same period than it was last year at the same time. That said, being through now five recessions, I want to be realistic about will we see the same level of conversions that we were seeing last year. And with clients all expressing visibility issues across the globe, we really just want to take a conservative approach. We would rather guide conservatively.

and have the potential to exceed, then let our investors down. And so we're taking this conservative approach, and we feel, like I said, very confident in our business and where it's going. We're very excited about the current pipeline that we have, and frankly, I don't want to pimp people, but we see some very exciting large deals, and unfortunately, during a cloudy time like this from a macroeconomic standpoint, sometimes clients take a bit longer to make a decision. Sometimes they change the overall commitment of how large they're going to commit to in some of these large new deals, etc. And so we just felt...

that it was prudent to take this conservative approach. Thanks, Ken. That makes sense. And then when you think about those large deals that might be building, is there any kind of incremental demand for maybe more of an offshore component within those deals? I know you've added a couple of locations. And then would there be any impact from that kind of incorporated into your revenue or your guide? Absolutely. Absolutely.

You know, I don't want to speak for Shelley, but what I would just tell you is the following. Our focus for 2023 goes without saying it's all about execution. And we are absolutely committed to increasing our offshore footprint, not just because it would be a nice thing to do, but because we actually have very large and better-based clients that are saying, we need the same capabilities and the same quality of service in other regions, in other languages. And so we are fast-tracking, bringing online Asian languages, fast-tracking, bringing on more European languages, etc. in the markets that we're entering. So to answer your question, there will be more offshore business coming on. As a matter of fact, our pipeline has a...

significant amount of offshore business. And there's a huge focus on that because we realize that by us increasing our offshore percentages that that really is what will help us on the engage side drive a higher margin. Shelly, when you add anything to that? I would just add Maggie. We're seeing strong demand for our offshore services in the new locations, even in those resilient sectors that I talked about, financial services and healthcare, which has traditionally been more on-shore services for us.

But as we open up and expand our locations and really capitalize on the great performance, particularly in healthcare that we had over the open enrollment season last fall, we're seeing good demand and new interest from our clients in some of those new offshore locations. And of course, we're, as Ken said, very focused on this and not just with our embedded base, but for new client prospects as well. Thank you all. Thank you. Thank you. Next question is from the line of Mike Ladimor of Northland capital markets. Your line is now open.

Yeah, great. Good morning. Just a question on the digital division. It looks like you're expecting some solid improvement in that business throughout the year, both in terms of revenue growth and margins. I guess can you just provide a little bit more detail on what would drive that improvement? Yeah, I mean, I think one thing important to note is that the practices outside of Cisco Desson has been talking about Cisco for a while in terms of growing through that business, they're getting that back to growth. The other practices are growing 10 plus percent. And I think we're excited about the pipeline and the momentum that we have with our partners across those other platforms. Certainly as Dave's joined the team and the relationship he brings with both partners and clients, we're expecting accelerated go-to-market executions throughout the year. And then the hyper growth.

category with engaged. What percent of revenue is that? What percent of engaged revenue is that? In fiscal year 2022, you're looking at a business roughly about 400 million. All right, great. Thank you. Thank you. Thank you. Next question is from the line of George Sutton of Craig Hallum. Your line is now open. Thank you. Hannah, I'm wondering if you could address the AI opportunity as you...

What percent of revenue is that? What percent of engage revenue is that? In fiscal year 2022, you're looking at a business roughly about 400 million. Next question is from the line of George Sutton of Craig Hallum. Your line is now open. Thank you. Hannah, I'm wondering if you could address the AI opportunity as you see it and where you're involved.

specifically relative to AI and any go-to-market details beyond that would be helpful. Good morning, George. You're asking a great question and I'm trying to think of how to give a short answer, but what I'll start out by saying is the following. On the engaged side, there is tremendous opportunity for us to be working with many of our partners on the training of AI. I think there's a big misconception in the marketplace with all the hype around chat GPP that it's going to be, have a real positive impact on areas like customer service. When in fact, it actually is going to have very little impact because it's a horizontal AI product, which means that it grabs its information from crawling the web, reading, reading Wikipedia, etc. And consequently, there's a lot of misinformation within all those different vessels of information. So the future of AI as it will be used in the customer experience space.

is really with what we call vertical AI. And that's where we're actually working with our clients as well as working with the AI providers, which would be in most cases, the hyperscalers, narrowing that information so that it's put in a vertical format and consequently when questions are asked whether it be for a chat bot, a voice bot, et cetera, that you're getting every single time an accurate answer and not something that's rather in the bizarro category as many people have been playing with chat GPT and experiencing. So we see opportunity and where we have opportunity and we are currently executing on opportunity in everywhere from data annotation to AI training to also in all the actual implementation of the AI and then integrating that into the Ccast platform, the Omni Channel platforms, et cetera. It's quite a heavy lift.

There's quite a bit of a very early days with not only where the technology is but also where clients are and so there's a lot of proof of concepts, a lot of experimentation going on and we're really grateful that the hyper-scalers have chosen to partner with us in a very significant way and that they obviously have a very large pipeline and we're there to service that pipeline as well as our embedded basic clients and engage. So across the board.

We see significant opportunity in this area. We also see some exciting opportunities over time and how we actually price and how we can move to much more of an outcomes based set of pricing when we're introducing this technology, which we believe has the potential to drive significantly higher margins versus our classic way that we do business today. Hopefully that's helpful. I don't want to suck up all the oxygen on the call.

That's great. Just one other question. I think there's a dichotomy with your guidance relative to your clearly out bringing in some great leadership to expand, I know your plans to expand to a much larger company. Can you just give us a sense of how that growth is going to come? Is it predominantly organic and the team you're building, sort of what, just give us some sense of that dichotomy that I don't think the market appreciates? I would say that it is going to be predominantly organic.

is execution to double the business and double it in the shortest period of time possible while significantly increasing our margins. And I have absolutely no doubt that we have the right team. There is a reason why we brought Chellian, intentionally did not bring in a BPO type person. We wanted somebody to understand technology, understood technology implementation.

We wanted somebody that understood digital and we wanted somebody to understood very large scale. Shelly with her experience of being one of the key people in building Accenture Digital from zero to twenty billion dollars has that experience, understands those capabilities. It allows her to partner very closely with Dave Sebel who also has multi billion dollar experience on the digital side as well. And so consequently it's really allowing me now to spend much more of my time on strategy, on vision, on potential future M&A as well as on partnerships with these large technology players at a very senior level.

and then helping the acquisition of large clients. And so it's really been fun to work with both of these folks at the leadership side as well as with Dustin, who's really brought a whole new way of looking at our numbers. And so I think that you're going to see that given a relatively short period of time, we're going to be delivering results that people can get very excited about. So thanks, Ken. Thank you. Thank you. Next question is from the line of Vincent, Coloke, you.

of Barrington Research, your line is now open. Yes, Ken, curious, are you seeing meaningful consolidation opportunities and if so, to what extent are they baked into the 2023 outlook? A consolidation, you mean of client volumes where there are... Yes, yes, clients on the client side. There is certainly a lot of talk about that amongst clients. We are seeing that with certain key clients, especially where they're very focused on measuring performance and where we're consistently outperforming. And so we see that as a real opportunity. In the past, you've heard me speak about the captive opportunities that we're focused on.

which would be companies that have never outsourced and have very large organization internally. Some of these organizations internally that have never outsourced believe it or not are spending in excess of a billion dollars and so we're very focused on that as well. I think that one of the things that is really important for the street to understand is that we saw this self-made if you want to call it recession coming quite some time ago and we've really been very intentional on focusing on verticals that we think are going to have the least amount of impact as the economy potentially slows down. And so what I would just simply say to you is that the...

verticals that we're focusing on all have extremely large captives. So not only do we have the benefit of the consolidation where they're going with fewer players, which we think is a good thing, not a bad thing, but in addition to that, what we're also seeing is that they're peeling off more business that's internal and moving it to a partner such as T-Tech. We think that's a trend that we're going to see over the next five plus years, and again, not to sound like a broken record, but there's still $300 billion just on the engage side that has not been outsourced. And we think that that will become a leaky, kind of a leaky tire, so to speak, where it'll be leaking more and more business to the marketplace. Because the bottom line is that we feel very confident, we can demonstrate that we can do it better, we can do it faster, and we can do it under lower overall cost with a higher total value delivered. And that's our value proposition, and then when we couple that with technology capabilities.

And one for you Dustin, if I can. What is your assumption for the guidance for hyper growth? Do you expect it to stabilize in the second half or further deteriorate? What are you thinking? Yeah, the expectation is that it will be stabilized kind of second half. It's going to come down in the first half, stabilizing the second half. And then...

I hope ideally going back to Maggie's original question, but momentum and then gas would go into 2024. Thank you. It's really just just meant to be clear. It's really a continuation of kind of impacts that we had in 2022. You know, because the hyperbros continue to grow in 2022. If you go back to the second half, we talked about it being muted. And so it came down, but still grew, and then that now has created a downstream impact into 23. And just the only other point that's still fall on to Shelley's comment, the giving idea in terms of just to put a pen on the consolidation, is that our top 10 grew roughly 4%. And that's including the decline in pandemic related volumes in 2022. And you're looking at a number for 2020 neighborhood of 14, 15% for excluding the pandemic. That gives you a sense.

in terms of how it can solidate, at least particularly when we play with large enterprise customers. We'll have significant scale. Thank you. Thank you. Next question from the line of Joseph Vaffy of Canacorn. Your line is now open. Hey guys, good morning. Next maybe a question on Crossel in 2023.

And that business gets more strategic inside enterprises, you know, potentially be able to drag along more CX volumes. Just how are you looking at that overall dynamic here this year? Well, I think there's two things. The first thing I would just say, just within our digital business, certainly, you know, if you look at practices like our AWS practice.

broadly in terms of cross-selling digital and engaged. This is one of the reasons I'm really excited to have Dave on the team. And we're being very thoughtful about those opportunities and absolutely. We have enterprise clients that we serve from an engaged perspective. And as they begin to modernize their technology platforms in the CX arena.

Those are opportunities for us. In fact, Dave and I are working on some of those together as we speak. And so I do think that will be an opportunity where obviously very focused on the opportunities that digital, this idea of the distinct opportunities that digital engage as well. Thank you. Thank you. Next question is from the line of Cassie Chan of Bank of America. Your line is now open. Hey guys, I just wanted to ask, what are you guys baking in for your 2023 outlook in terms of your onshore and offshore delivery mix, as well as some nutrition metrics around that and.

For your offshore, I know you guys talked about continuing to build out your offshore geographies. I knew I added three more. I think you guys said and grew 60% in 2022. Are you expecting a similar case in 2023? And is this like replacing some of your onshore delivery centers? Thank you. I'll start. So the 60% was a reference to growing our delivery footprint inside of digital, and we definitely will continue to scale that footprint. Certainly on the engaged side, we plan to add four to five new geographies this year. And, you know, those will, as we sell into that man's demand and open those geographies, we expect the pace of.

and then your comment coming back to your point on attrition, while we are not giving out specific attrition metrics, partly due to the efforts across 2022 as well as I would say, improving labor markets if we do expect attrition to improve within 2023.

across both are offshore and in domestic footprints. Okay, got it. And also wanted to ask on free cash flow. I know you pointed out a few things in the quarter specifically of, for example, the DSOs. You know, are these one time in nature and anything about free cash flow expectations for 2023? Thank you.

It's a great question. Yeah. Our pre-castball was impacted by one-time items that we discussed earlier. Going forward, I would say the one major impact is going to continue is the step-up. It's also affecting EPS, the step-up and interest payments. They are variable facilities. You're going from roughly, you have $3,000,000 interest expense in 2022 stepping up into the mid-70s in 2023. If you think about this prior year, roughly $50 million in cash flow, next year we're going to double and land around $100 million. Thank you. You're welcome. Thank you. Next question is from the line of Brian Bergen of Cowlin. Your line is now open.

Hi, Bank this is Zach Aadman on for Brian . First question for Dustin. Thank you mentioned upcoming new disclosures on vertical performance plan for this year. We heard the color for the hyper growth vertical, but can you give us a sense or some more insight on the growth assumptions for the other key vertical cohorts embedded within the calendar 23 outlook?

Yeah, so I would say going back to right now what we're at this point talking about is you look at hyperbroad, it's you know I said roughly 400 million, this specific number is roughly three eighties coming down to roughly 300 million dollars in fiscal year 2023. And then the rest of the remaining burials are growing at seven percent and there's a variety of outcomes with them. I would say strength within financial services and healthcare predominantly. And then strong performance still in public sector and as well as automotive but slightly behind I would say financial services and healthcare. We'll give you more color kind of going forward in terms of specific growth rates. The attention of that state.

So, again, if you think about the metrics that we took just to get into about the catches question, you think about the 70-30 mix, and you think about our guidance next year this year for fiscal year 23, and you think of it as a 73-67 and 10 points of margin differential in the gross margin, that's kind of the up to puts and takes, if you will, in terms of ups and downs relative to it.

because the expectation is still net expansion, right? Okay, thank you. So it's relatively minor, but then 10 is over time to continue and mix it, and then it will continue to have an outside impact as we move forward, X-ring 23 and into 24. Thank you. Last question is from the line of James Fawcett of Morgan Stanley . Your line is now open. Hey guys, this is John DeVon for James. What's with giving you the confidence in that back half stable?

hypergrowth section or sector of your business? Well, we have a, I mean, first of all, we have a couple of clients in that hypergrowth sector that are definitely growing and interested in our offshore, expanding offshore footprints. And so, you know, we see growth opportunities in that portfolio despite, you know, the unfortunate – unfortunately, some of those clients, you know, with this post-pandemic formalization having softer demand. So, we have a pipeline of opportunities with some of the clients in that hypergrowth sector and in Justin's bed. We're also expecting our clients outside the hypergrowth sector to grow.

and it's not really related to content moderation.

So it's more of the statement around the rebase lining of the economy in 2023, the post-pandemic normalization, and then having a platform to grow off of, expecting that, again, that the macroeconomic weakness will alleviate in the second half. You just didn't, and you follow up. How are you thinking about the M&A environment and your capacity to?

I think that right now we're really focused on execution and really trying to understand where values are going to be. So the truth matters we have a solid pipeline of potential M&A, that said...

I think that it's safe to say that we are, you know, we're going to be very fiscally responsible and mind our balance sheet. And so what I would just say to you is that although M&A is something that is absolutely going to continue to be part of our strategy or future strategy, we think that it's prudent for us to wait a little bit and try to see where the evaluations come in on some of the targets that we're looking at. I think that any of the M&A that we would be doing would be much more geared towards the strategic side and areas that would be benefiting more of the digital business.

But what I would just simply say to you is that we're going to, right now, our team is very focused on execution and on organic growth. Thank you for your questions. That is all the time we have today. I will now turn the call back to Paul Miller. Thank you, everyone, for joining us today. This concludes our call. Thank you.

What I would just simply say to you is that we're going to, right now, our team is very focused on execution and on organic growth. Thanks, Ryan Ken. Thank you for your questions. That is all the time we have today. I will now turn the call back to Paul Miller. Thank you, everyone, for joining us today. This concludes our call. Thank you.

This concludes T-TEX 4S Quarter and FULL-Year 2022 earnings conference call. You may disconnect at this time.