Q3 2023 TTEC Holdings Inc Earnings Call
Yeah.
Yes.
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Welcome to <unk> third quarter 2023 earnings conference call I would like to remind all parties that you will be in a listen only mode until the question and answer session. This call is being recorded at the request of GTECH I would now like to turn the call over to Paul Miller, <unk> Senior Vice President Treasurer.
<unk> and Investor Relations officer. Thank you Sir you may begin.
Good morning, and thank you for joining us today <unk> is hosting this call to discuss its third quarter financial results for the period ended September 32023.
Dissipating on today's call are Ken Tuchman, <unk>, Chairman and Chief Executive Officer update deck Shelley's, one bag Chief Executive officer of <unk> engage and president of <unk> Tec and Francois <unk> interim Chief Financial Officer T Tech yesterday, <unk> issued a press release announcing its financial results while this call.
It will reflect items discussed within that document for complete information about our financial performance. We also encourage you to read our third quarter 2023 quarterly report on Form 10-Q.
Before we begin I want to remind you that matters discussed on today's call may include forward looking statements related to our operating performance financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward looking statements reflect our opinion as the date of this call and we undertake no obligation to revise this infer.
<unk> as a result of new developments that may occur forward looking statements are subject to various risks uncertainties and other factors that could cause our actual results to differ materially from those expected and described today or a more detailed description of our risk factors. Please review our 2022 annual report.
On Form 10-K, a replay of this conference call will be available on our website under the Investor Relations section I will now turn the call over to Ken.
Good morning, and thank you for joining us today. This quarter, we continued to focus on delivering high value CX outcomes for our clients and seamless technology enabled experiences for their customers.
In this current challenging environment I'm proud that our global team delivered on our Q3 forecast and that we have met or exceeded overall expectations each quarter year to date, turning now to our third quarter consolidated results revenue was $603 million on a non-GAAP basis.
<unk> EBITDA was $64 million.
Operating income was $47 million.
And EPS was <unk> 48.
There is no question that businesses are operating in a state of unprecedented and accelerating change the macroeconomic factors that we have been discussing for the last several quarters are unfortunately now playing out contributing factors include higher interest rates that are expected to last longer ongoing inflation above target.
It's labor strikes in multiple industries looming student loan payments inconsistent consumer spending habits and geopolitical unrest with.
With all this uncertainty it's no surprise that businesses and consumer confidence is beginning to fade and overall sentiment continues to decline.
Every day, it's getting harder for businesses to predict and rely on the traditional indicators to plan for the future. While the economy may not technically dean a recession. Many of our clients are now operating as though we are <unk>.
Given all these factors we are updating our outlook for Q4 and guidance for the full year.
Clients are scrutinizing the dollars they spend they are focusing their attention and resources on initiatives that are urgent essential and will have an immediate and predictable financial benefit on their business.
The impact on us is mixed for us.
Some of our client this mindset is delaying decision, making or driving last minute unexpected changes in forecast as they prepare for future headwinds.
Conversely.
For other clients. These pressures are steering them towards options like offshoring process improvement and technology innovations.
All areas, where <unk> excels, while the current dynamics may be temporarily uncertain, we maintain our conviction that <unk> is a business imperative a brand differentiator and will be a strategic driver of growth and profitability for decades to come.
Although this sector is currently somewhat challenged I want to reiterate our confidence in the attractiveness of the market opportunity, our differentiated capabilities and our strategy to drive <unk> forward.
We are navigating this environment thoughtfully and will continue to balance our focus on innovation with operational and financial rigor Shelly will share more details shortly.
Now on to a discussion around AI.
Last quarter, we outlined our AI strategy across both <unk> engage and <unk> digital and we're making good progress market interest in AI remains high however, implementation has been primarily limited to pilots.
Many clients see the potential benefits. However, they currently lack the technology infrastructure data readiness and confidence that these initiatives can scale in a cost effective and reliable manner.
The findings of our recent AI benchmark study reflect the current limited state of market and client readiness.
For example, one for businesses to unlock the full benefit of AI.
I must move to the cloud however, almost half the respondents to our study express concern about their technology platform readiness and only a small fraction are operating at a scale in the cloud.
Number two the ability to understand and act on insights from conversational intelligence is essential to achieve the right balance of automation and human interaction.
Close to 75% of the respondents site issues around data quality and customer privacy as current barriers to their success.
And three while new generative AI enabled tools are emerging daily to augment associate productivity only a few of our steady respondents has even begun to pilot capabilities like proactive knowledge management AI generated response and real time coaching it is clear that the initial hype.
And early excitement around AI is moderating as clients look beyond pilots. They are discovering that they need deep and practical CX expertise like ours to put these new AI enabled capabilities to work.
Drew T Tech digital T chek engage and our deep partnerships with the hyper scaler, we're uniquely positioned and ready to capture the opportunity as the market and technologies continue to evolve and mature.
Now let me briefly update you on several other key initiatives we continue.
To expand our geographic footprint to provide clients with a variety of high quality lower cost solutions, we've been operating on five continents for decades, and we continue to grow year to date, we've expanded to eight new onshore locations with more of a horizon. In addition, <unk> digital we continue to broaden our global delivery capabilities.
Particularly in India, doubling the size of our hydro <unk> engineering team since the start of the year our.
Our strategic relationships with the Premier CX technology partners continues to grow stronger stickier and more valuable with preferred status with all the CX hyper scaler, we're working together to pioneer new AI based solutions accelerate market adoption and expand our global reach for example, given our extensive pub.
Vic sector experience, we're working with one of our Hyperscale as strategic partners to help them navigate the complexity of public sector operations. Our engineers are supporting them in the development of their comprehensive roadmap for fed ramp certification.
For another hyper scaler, we're working side by side to architect next generation AI enabled workforce optimization capabilities with their <unk> platform before.
Before I turn it over to Shelly I'd like to share a few closing comments. There is no doubt that every business, including ours is operating in a rapidly changing and complex environment. However, it is important to emphasize that over the past 41 years <unk> has successfully navigated challenging economic cycles and technological.
<unk> before.
Because of our trusted relationships with clients market reputation as an innovator and leader and the dedication of our employees across the globe. We've emerged stronger every time.
As we move ahead in this climate.
Confidence in our leadership and go forward strategy. Our focused approach will continue to enable us to deliver valuable CX outcomes for our clients differentiated experiences for their customers compelling career opportunities for our employees and improved financial performance for our shareholders and now I'll hand, it over to Shelly.
Thanks, Ken and good morning, everyone. We're pleased with our performance year to date, but let me begin my comments by addressing the impact of the dynamic macroeconomic environment and our change in full year guidance.
This quarter, a few of our engage clients made sudden changes to their forecast due to their business conditions. Those actions will unfortunately impact our fourth quarter and full year results.
And while digital exceeded Q3 guidance delayed client decisions will impact our Q4 revenue.
Not surprisingly market uncertainty with the theme at our recent client advisory meeting, while David I'll speak to individual clients daily hearing our voices together amplified several things.
<unk> remains a priority. However in this climate clients are carefully focusing our investments on initiatives with an immediate financial payoff.
Cost pressures are challenging clients to do things very differently clients will lean into partners like us who have the skill tools and experience to guide them as Atlanta team continues to evolve.
Value our ability to provide a variety of nearshore and offshore location CX technology solutions and practical services that will rapidly impact their bottom line.
Generative AI continues to generate interest while clients are excited about the potential there is taking proven used cases before they move forward with full force. This is especially true in regulated and complex industries.
And as Tim mentioned earlier, we're making good progress on our AI strategy that we outlined last quarter, we're actively partnering with clients in both the <unk> digital and <unk> engage to better understand how to responsibly and affordably scale, what we're learning from successful pilot.
We currently have dozens of projects in flight.
For example, this quarter, we collaborated with an auto OEM in Europe on a conversational AI effort, we captured and analyzed intends to define optimal routing strategies in real time.
Enabled across 15 languages, the initiatives delivered dramatic improvements, including 24 by seven availability faster response time, a lower handle time and over 1 million projected cost savings annually.
In healthcare, we're partnering with the payer to shorten our sales cycle by integrating generative AI into the pre enrollment process.
Consulting team is blending data with a human centered design approach to ensure that every interaction is handled with an optimal balance of empathy and convenience.
We're also applying AI across our business internally, we're using LLM that knowledge assist applications to improve the efficiency of our internal help desk complex analytic models to evaluate new hire candidates voice to text processing dispute up desktop administration, and AI from marketing segmentation and creative development.
<unk> responsibly across our business with one of our highest priorities ultimately it will touch everything we do.
I look forward to sharing additional progress on all of our AI initiatives in the quarters to come.
Now onto a business update for <unk> Tec digital we exceeded our Q3 guidance closing 14, new logos as we continue to help clients improve the quality of our customer experiences with CX technology revs.
Revenue, including product sales was up for the quarter, 15%.
Growth in our recurring managed services, which makes up 50% of our digital revenue continues to be driven by a high percentage of client renewals as well as new logos, particularly in our Genesis practice.
Our long dated sales cycles impacted our professional services revenue this quarter and into next quarter. While some companies are delaying their technology modernization plan. Many are faced with end of life platform decisions that require action.
Encouragingly, we're starting to see several opportunities that were delayed moving through our pipeline.
To that end, we expect solid Q4 bookings that have nearly 70 migration initiatives in our pipeline compared to 38 migrations completed so far this year.
As we move forward, we will continue to leverage our differentiated position in <unk> digital we employ some of the most tenured expertise in CCAR CRM and analytics across the globe with several thousands specialized engineers, we've implemented more CX solutions than anyone and with our growing offshore innovation center in Hyderabad, We're building, a profitable and scalable mix of onshore and offshore.
Talent.
Moving on to engage this quarter, we continued to make progress on our strategic priorities win new clients and expand with existing clients third quarter revenue reflects continued solid demand in health care financial services and public sector revenue from these verticals grew 7%.
However, as I mentioned earlier, some engaged client decision negatively impacted our results and our outlook for the fourth quarter.
Specifically, our fourth quarter seasonal business will not grow as expected given client response to the macro factors discussed earlier and an isolated situation with one financially challenged clients.
Additionally, a few clients in the telecom sector change their forecast in response to reduced customer demand from lackluster mobile technology and product releases from a margin perspective. It goes without saying that we are actively adjusting supply and demand for these client programs and continue to implement cost related actions in response to the overall environment.
We expect these efforts to have a more meaningful impact in 2024 and look forward to sharing more details with you on our Q4 call.
Now moving on to some highlights for the quarter.
Gage closed 10, new logos across a variety of services and industry verticals, including healthcare financial services technology and retail more than half of these new logos will be delivered offshore.
Additionally, more than half of our expansion with existing clients will be delivered offshore as well.
And we established a presence in Malaysia and talent with additional Asian language support.
While offshore deal sizes are generally smaller we're pleased that our expanded language capabilities and geographic presence are resonating with our clients our offshore pipeline is up more than 50% compared to last year.
Now for some overall closing comments before I hand, it over to Francois.
We believe that the challenging macro conditions will persist through the end of this year and into early 2024 in both digital and engage we're keenly focused on managing everything in our control to capitalize on market opportunities, while operating an agile platform and in a prudent approach to cost management.
With our portfolio of clients technology and talent, we're confident about our future.
On behalf of our board, our leadership team and 65000 employees across the globe.
For your continued support.
Now overseeing and Francois.
Thank you Shirley and good morning.
I will start by addressing our third quarter financial results before sharing additional context into our updated fourth quarter and full year of 2023 financial outlook.
In my discussion on the third quarter financial results reference to revenues on a GAAP basis, while EBITDA operating income and earnings per share our non-GAAP adjusted basis.
A full reconciliation of our GAAP to non-GAAP results is included in the table that <unk> earnings press release.
<unk> consolidated third quarter financial results are in line with our previously provided guidance for our digital segment exceeded expectations, while our engage segment faced some softness around specific areas that will also impact our fourth quarter outlook.
For our third quarter consolidated financial results.
Revenue was 600 $603 million compared to $592 million in the prior year period, representing 8% growth on a constant currency basis.
Adjusted EBITDA was $64 million or 10, 6% of revenue compared to $68 5 million or 11, 6% in the prior year.
Operating income was $47 million or seven 8% of revenue compared to $50 million or eight 5% in the prior year.
And EPS was <unk> 48, compared to <unk> 68 cents in the prior year.
In the third quarter foreign exchange movement over the prior year period positively impacted revenue by $6 million and negatively impacted operating income by 1 million the year over year decrease in operating and EBITDA margins was primarily a function of lower engage revenue driven by a sudden changes in client demand creating temporary.
These trended costs on the other hand, we continue to rationalize and optimize resources to maintain and agile cost structure.
Turning to our third quarter segment performance.
Digital financial performance was above our forecast for the quarter.
For our digital segment reported third quarter 2023 revenue of $133 million, an increase of 14, 7% over the prior year period.
Operating income was $19 million or 14, 5% of revenue compared to $16 million or 13, 6% of revenue in the prior year period.
Excluding the Cisco practice, and one time product sales the digital business grew 7% year over year in the third quarter, our digital core operating efficiencies contributed to the improved overall operating margin.
The recurring managed services revenue grew 4% in the third quarter over the same period last year and represents more than 50% of the digital total revenue.
If we exclude the Cisco decline for the same period managed services increased by nearly 20 person in.
In the third quarter, Cisco represented 29% of our recurring revenue down from over 50% just a couple of years ago.
One time product sales in the quarter were associated with the acceleration of <unk> infrastructure investments and were a key contributor to this quarter growth, including 5 million brought forward from the fourth quarter.
Our engage segment reported third quarter 2023 revenue of $470 million, a decrease of two 6% on a constant currency basis over the prior year.
This financial performance was below our forecast shared for the third quarter.
Representing 53% of engage revenue the healthcare bump sick and financial services verticals are growing organically by seven person in the third quarter of 2023, despite the lower demand than anticipated for our seasonal work modestly impacting our third quarter, but having a greater impact in the fourth quarter.
It represents the primary reason for the engage revenue shortfall relative to the previous midpoint of our guidance.
In the third quarter operating income was 28 million or five 9% of revenue compared to $34 million or seven 2% in the prior year or.
Our engage operating margin is primarily a function of the aforementioned factors impacting revenue and associated near term costs.
Margins also reflect the planned strategic investments that we continue to make to expand our offshore delivery footprint.
I will now share other third quarter 2023 measures before discussing our outlook cash flow from operations in the third quarter was a negative $32 million compared to a positive $28 million in the prior year period Theyre more timely collection of receivables over last year was more than offset by timing of certain accounts payable.
<unk> payroll higher interest expense and lower profitability.
Year to date, our free cash flow increased by 4 million to $59 million over the prior year period, Despite the $34 million increase in net interest expense over the prior nine month period.
Capital expenditures were $22 million or three 6% of revenue for the third quarter 2023, compared to 29 million or four 9% in the prior year period.
The reduction is primarily a function of reduced facility related and renovation and it equipment purchases on behalf of clients.
As of September 30th 2023, cash was 152 million with $967 million of debt of which $964 million represented borrowings under our $1 5 billion credit facility.
Year over year net debt increased by 29 million to $816 million, primarily related to capital distributions and acquisition related payments, partially offset by a positive free cash flow.
Our capital allocation remains focused on investments that support our strategic initiatives as well as the service of our debt and shareholder returns.
You take paid at 52 cents per share or $24 7 million semiannual dividend on October 31, 2023 to shareholders of record as of October 16 2023.
Turning to our fourth quarter and full year 2023 outlook.
We have lowered the range of our full year guidance based on our updated outlook for the fourth quarter.
On a consolidated basis, we now expect full year revenue to be in the range of $2 43, and $2 45 billion relatively flat with the prior year.
Adjusted EBITDA margin percentage to be in the range of 11, 1% and 11, 4% and adjusted earnings per share in the range of $2 11 to $2 27.
The earlier tax estimate decreases to 24% and interest expenses remain unchanged.
Please refer to the third quarter earnings press release for the updated guidance range.
I will now provide additional context into our updated outlook at the segment level, primarily driven by client actions due to the uncertain environment.
Digital fourth quarter outlook reduced our full year revenue guidance by $15 million driven by the timing impact from the longer sales cycle and delayed bookings, especially for professional services.
Based on quarter to date pipeline conversions, we anticipate solid digital professional services bookings in the fourth quarter.
In addition, excluding Cisco services, and one time product sales for our digital business is anticipated to grow 5% year over year for our fourth quarter outlook.
Finally, the margin shortfall from lower revenue will be offset by greater execution inefficiencies attributable towards strong offshore footprint and cost rationalization aligning with our long term strategy.
Turning to engage the fourth quarter revenue outlook explains the $42 million reduction to our full year revenue guidance, reflecting the level of uncertainty.
60% of our revenue change to our prior guidance is explained by the moderated level of seasonal work in healthcare and public sector relative to our earlier growth expectation.
The balance of the revenue reduction came from the telco vertical for the reasons shared by Shelley.
From a margin standpoint, our guidance range reflects the isolated credit risk declines mentioned by Shelly and a temporary supply and demand imbalance.
As we rebalance staffing levels with demand our operating costs will return to normalized levels by year end.
In addition, we have also accelerated other cost take out initiatives in the fourth quarter that will primarily benefit margins in 2024.
He takes overall pipeline for the next six months continues to be above $1 billion, which.
Which is well diversified across verticals geographies and service offerings.
In closing, we're pleased with our year to date results. However, the rapidly changing macroeconomic uncertainties impacted a number of our clients and in turn put downward pressure on our financial outlook for the next months.
As a result and until the economic environment and visibility improves we will continue to apply a conservative view driven by the weakening consumer demand and higher for longer interest rates.
Longer term, we continue to view the fundamentals of our business and the value proposition, we provide as exceptionally durable.
As we're pivoting to 2024, we remain keenly focused on our strategic priorities that will deliver profitable growth.
We look forward to providing our full year 2024 outlook when we announce our fourth quarter earnings results at the end of February.
I will now turn the call back to Paul.
Thanks, Francois as we open up the call we ask that you limit your questions to one at a time operator, you may now open the line.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star and then one please UN mute your phone and record your name clearly room prompted as long as your company name to withdraw your question. Please press Star two our first question is coming from the line of Maggie Nolan.
Liam Blair Your line is now open.
Hi, Thank you for taking my question. The first question I wanted to ask about was can you just help us understand.
What's going on with the seasonal revenue a little bit more granularly.
Are there any outright cancellations of.
Of contracts from clients that are impacting the fourth quarter or what other factors can help us understand.
These two segments that are usually a little bit more counter cyclical.
Hi, Maggie Thanks for the question, Yes, there's two pieces to this really first from a healthcare perspective for our seasonal revenue we had a few opportunities that didn't materialize as we expected in the last couple of months.
Just because our clients decided to to lower their overall staffing levels for the season due to their budget pressures.
We perform really well here, so we've maintained or increased our wallet share with these clients. We just had expected more growth in the health care season.
And then the second piece of it is we typically have supported the federal Emergency management agency with disaster relief and.
I guess, Fortunately there hasn't hasn't been as much need for that this year. So that we don't expect that work to come through for the remainder of the year.
And just Maggie one additional point to this just to be clear on the seasonal work in healthcare, but.
Our revenue year over year is not declining so I just want to make sure like you've just curious just less than our expected growth and is the reason why we have a change in your future forecast.
Thank you that's all contacts and then on adjusted.
Adjusted EBITDA.
On your margin profile in general can you kind of help us get an understanding of that some of the dynamics that you spoke about in the fourth quarter and some of that rebalancing that you'll do and focus on costs that you'll do what that means preliminarily for how youre thinking about 2024, just kind of directionally as we compare it to.
<unk> 2023, and consider something like that.
The initial initiatives that you just outlined.
I might use this farce, where it's a good question. So we should look at our margin in the fourth quarter or the first piece I would say is the seasonal worked at Shelby mentioned is highly accretive in the fourth quarter. Therefore, it's short term in nature and that's something that as we move forward.
It will continue into the second piece of our margin that had an impact to our margin is the stranded cost that we mentioned earlier and which is also we're seeing short term in nature. So as we look next year and on a normalized standpoint from a margin standpoint like it would be more aligned with the EBITDA margin. We had previously shared for this year.
Thank you very much.
Okay.
Thank you Maggie for next question is coming from the line of Mike Latimore of Northland Capital markets. Your line is now open.
Hey, guys. Thank you.
On the gross margin in the quarter.
Yes.
Down.
Sequentially year over year, how should we think about that trending in the fourth quarter.
So when we look at our margin quarter over quarter I think there's two dynamics you have D engage.
The situation that we just talked about that is.
More impacted by the seasonal work.
And for digital it's easy I think it was more of revenue mix in the third quarter, where we had this one time product that impacted margin, but as we move forward you're going to know what is the margin improving by 200 basis point between Q3, and Q4 for digital where 25% of that is related to the improved revenue mix and the second piece of that will be the continued.
Continuous cost.
Optimization that we've been engaging in digital.
Okay. Thanks, and then.
Okay.
When you think you talked about I think.
Yeah.
<unk>.
Significant bookings in digital in the fourth quarter I think you said 70 potential deals like that.
Can you just it sounds pretty strong can you think that up with the comment also that <unk> had some slowdown as well maybe.
Maybe just think of those two separate comments up and what.
Used cases are you seeing coming in in these bookings.
Yeah, Mike I think a couple of things first I think the dynamic environment that everybody has been talking about clients. There has definitely been scrutinizing their initiatives and trying to sort out.
Overall budgets for this year and into next year and that played that played a part in some delays in our bookings in Q3, which obviously has a has it has the impact in Q4. The good news I would say is that a number of those opportunities that we had in digital that we expect it to close in Q3 have now moved forward. So.
We're encouraged by the strong start in bookings here in October at the beginning of this quarter.
Happy with our pipeline and what I would just say is again lots of clients or lots of interest in AI from our benchmarking survey in our workshops, that's driving a lot of client conversations than just the same dynamics, we've been talking about people needing to move their technologies to the cloud. So we can take advantage of these inflows.
Did any particular.
Vendors suppliers standout and those bookings I think you talked about Genesis, it's early but any ones that really kind of sandbox.
No I mean, I think we're seeing we're seeing demand across the board yes.
For sure I mean, whether it be our Microsoft practice, which is we see a lot of demand a lot of opportunity.
The CRM side.
Or whether it would be eight.
AWS.
We're excited about cisco's, new capabilities that they just announced a.
A week or so ago.
And so yes, I think I would say across the board as well as we're introducing new partners.
That.
That are in high demand right now as well so.
I would say that it's.
It's pretty much evenly across the board.
And more and more people are realizing that their technology stack is frankly outdated and if they want to take advantage of a modern <unk> capability, while modern omnichannel capability, they're going to have no choice, but to move to the cloud and with only 15% of enterprises in the cloud we see that as a significant.
<unk> opportunity for years to come.
Okay.
Great. Thanks very much.
Thanks, Mike.
Thank you.
Our next question is coming from the line of George Sutton of Craig Hallum. Your line is now open.
Thank you Ken you said something very interesting in your script and that is that some of your customers are acting as if they are in a recession and I'm wondering if you could just give us a sense of how broad that statement is and what does that statement tell us for 2024.
Hi, George.
Look here's what I would say we were just discussing this priority to taking these questions.
Sure.
Because I'm old I've been through several recession cycles, and what we see in each recession cycle is.
A period of time, where clients begin to realize that the probability is higher than not and therefore.
As I mentioned in the last quarter call. They begin preparing for the worst and hoping for the best.
That this is a very unique.
Economic situation right now in that I think that people don't fully understand what's going to happen due to all the factors that I laid out whether it would be.
Our interest rate is going to go up another 25 or 50 basis points, but more importantly, how long are they going to stay up.
I could go on and on and on and so Consequently, what I would say is is that we're in that classic cycle. Just like we were when we entered the pandemic, where there's about a 90 to 120 day period of time, where clients are getting their bearing and when they do that they tend to.
Slowdown become more introspective try to figure out what is actually going to take place in the economy, that's exactly what happened with the pandemic and then win when things cleared and they understood what the new normal was.
Frankly got right back to business.
I think we're in that exact same situation right now I think that a high percentage of the marketplace.
Overstaffed because of the pandemic and all the stimulus money that was out there and I think that now they are trying to shed a lot of that cost structure for lack of a better term I'm speaking about the client so I'm not speaking about us.
And consequently, I think that.
This is touching pretty much the majority of verticals is it impacting our public sector vertical no is it impacting our federal vertical no.
Is it.
But do we think that it's hitting all the what I would call commercial aspects, yes, not everybody is cutting back but they are all acting in that classic kind of nebulous mode of we don't know what our forecasts are going to be for fourth quarter, we're going to hold off we're going to wait till the last minute. We're okay.
Our service levels arent as good as they have historically.
Would be because we don't want to be caught in a in a overstaff.
<unk> situation et cetera. So.
That's what we're seeing and I would be shocked if any of the other companies that provide capabilities like ours arent seeing the exact same thing.
Both both Shelley and Dave talk to our clients on almost a daily basis and this is the feedback they're getting from the clients when I talk to clients I'm hearing the exact same thing.
So I don't know that I am being specific in answering your question in telling you specifically in what area, but we mentioned telecom in my script.
And I think Thats a good example.
The telecom industry depends upon.
New product introductions that have.
Technological step changes to motivate people to change out their product and.
It's no secret without mentioning names.
That these products are feeling more.
Like the same year after year and so people are satisfied with keeping the product that they have and thats, causing these.
These companies to not have the volumes that they would have to onboard net new customers.
Customers net new technology technical support et cetera.
So that's an example, and I also think that with.
With recessionary pressures the consumers definitely pulling back on non discretionary so.
I could wax on but I don't want to suck up all the oxygen here. So I hope that's helpful.
And I'm happy to talk to you more offline.
If you'd like to do so.
That's great Kevin and I would let you know you are young relative to our presidential candidates if thats helpful. So.
You made the statement that the offshore pipeline was up 50% I just want to make sure. We fully understand your readiness to take on that kind of growth and what that means for the broader business opportunity.
So we are definitely ready.
It's Shelly has made it one of our highest priorities to get these.
Additional offshore markets open so that our clients can have diversification and so we're live and operating in all of these other new markets that we've mentioned, whether it be south Africa, whether it be Honduras, whether it be Thailand.
<unk> got Malaysia, that's just now coming online.
We're expanding further into Latin America and the.
Expanding our Mexico operations.
I could go on I'm sure I'm missing countries, we're alive in Egypt.
Expanding in Colombia.
And and so yes. We are we have we are absolutely ready we've got all the management in place.
In all of these different regions and.
Absolutely.
Launching new business in these new markets.
It's resonating with our clients that plays to our pipeline.
Whether it's in pursuit of new logos or expansion with our existing clients.
Really across the board.
Great. Thanks, guys.
Thanks George.
Thank you.
Our next question is coming from the line of Bryan Bergin of TD Cowen. Your line is now open.
It's actually Jared on for Brian today in terms of offshoring any sense on the headwinds and gauge growth year on year and <unk> relate to existing clients moving from onshore resources offshore resources and then this headwind to growth anticipated to increase in FY 'twenty four relative to FY2023.
No actually that hasn't really been a headwind for us I mean, I would say so far most of our conversations with our existing clients really are about expansion new lines of business additional.
Additional volumes of the work we're doing today and just just diversifying the footprint in places that we do that work so that wasn't a material hasnt been a material headwind.
For Q3 or for this year and I think again I think we're also excited just about the new logos.
And our pipeline because if our new offshore locations that we can now offer.
Got it and then the volume forecast being provide by clients now appear to be conservative I know last quarter. You mentioned you thought there were certain client cohorts that the volume forecasts were pretty conservative, but any kind of change in view on the volume forecasts that are being provided by clients.
Well I mean, I was just sort of point back to what Ken was speaking about earlier I mean, I think certainly our clients are being guests theyre being conservative in their forecast based on budget pressures. We have some we always have some variability where clients are too conservative and then come back and decided that they need more volumes.
But as Ken said, I think everyone preparing for the worst if you will is looking at what their demand might look like for the next quarter.
Quarter and.
No not really a whole lot more to say therefore that I would say some of them are conservative we'll come back and they are opening great.
Being very careful right now.
And if I could sneak in one more quickly what's your revenue visibility to the midpoint of the guide currently I don't think I heard that.
And so what we've done for this.
Guidance that is currently in the brisk releases on a full year basis, instead of trying to be over accurate.
With a mid point, we've just narrowed the range.
For the full year.
Alright, thank you.
Thank you.
And for our next question.
Comes from the line of Vincent Colicchio of Barrington Research. Your line is now open.
Okay.
Yes, so curious how hybrid hyper growth performed in the quarter relative to plan and sort of what level. We're at now is that that business.
Yes, so hyper growth has really played out as we as we expected at the beginning of the year, we talked about it coming down to about $300 million and Thats, where we expect we will end the year as Francois said from a Q4 perspective, obviously hyper growth year over year state of material.
But the minute chill factor in.
In our guidance for Q4.
Eric This is taking us one asking just no changes really there is a bit more color on the impact in our Q4 year over year. So.
The $48 million revenue declined $40 million coming from hyper growth in the balance is read the FEMA work that should we talked earlier. So that those are really the two items that and again hyper growth is aligned to our expectation and it's Mickey we were hopeful that the health care season would bring us in line with last year.
And how would you characterize pricing and.
Clients in terms of.
No pun intended to looking for better terms.
I'd say I mean, I would say pretty steady I mean, it continues to be competitive as obviously I think our conversations are a lot around really.
Reducing any impediments for adding new partners right for getting started in that.
Tends to be more about the conversation then.
New pricing, our new terms per se.
Thank you.
Thank you.
Thank you Vincent for next question.
It comes from the line of Cathy Chan of Bank of America. Your line is now open.
Hey, guys. Thanks for taking my question. So I guess I just wanted to ask if we sort of look forward.
2024 are you expecting <unk> to kind of be the trough and then maybe sort of a sequential improvement throughout 2024, given that's all right.
<unk> got a temporary headwind that youre expecting to abate and maybe some improvement you're seeing in other parts of the business.
I guess, it's also us so as you know and consistent with prior year, we do not provide guidance about 2024, and even now with the lack of visibility we have with the macroeconomic environment. It would be premature to give you any insight into Q1, and two and 2024 holistically.
Okay, and then in terms of.
The health care public sector and financial services verticals, you said that grew organically I think 7%. What are you guys anticipating for Q for that and just remind us again for their telecom how big is this sector or vertical for you guys and what are you expecting for that to grow in <unk>.
Yes, so it's still the first so first to your question on the three.
Verticals, Yes, <unk> did say that it grew 7% in Q3 and.
They will they will grow low single digits for the rest of the year and we feel good about those verticals we continue to have.
Good opportunities in our pipeline for all three of those verticals.
We also have a large client that will go live in hub Sac at the beginning of next year.
And on.
The telescope just heading out of it. So you ask what is the size of the telco holistically in our portfolio.
On a full year basis, obviously, depending on the quarter will range between 10% and 15% and right now we're seeing our telco vertical being relatively.
Stable year over year and for the reason already mentioned by Ken.
Yes.
Thank you. Our next question is coming from the line of Joseph <unk> of Canaccord. Your line is now open.
Hey, guys. Good morning, maybe switching away from the macro for a second there's been a couple of really big merger.
The sector, just wondering what youre seeing is a.
Out of those mergers and a quick follow up.
Yes, I mean, I think we definitely have some client opportunities that a result of our clients wanting to diversify their partner network and I think well I'm hopeful we're going to continue to see more of those because our offshore expansion offshore and near shore expansion because now we have.
More options to offer our clients and we have those locations open now.
And we are ready to go so definitely definitely see some opportunities in our pipeline that we're working on currently.
Okay. That's great and then I know you mentioned doubling the hydro Bard head count is there any.
Perfect technologies or specific.
Anything functional area of verticals or something that.
Youre seeing demand from.
Double of that stuff. Thanks, a lot.
Well, it's really across the board.
And just just to be sure. It was clear that's for our digital business.
So the great news is we're expanding days expanding that team really to support all of our partner practices properly to varying degrees.
Depending on the work but.
It's not for one particular partner we also.
Has offshore capabilities and our analytics practice as an example, so this is going to be.
Major strategic focus for Dave going forward as well and we're making great progress that we're excited about that.
Great. Thanks Shelly.
Thank you for your questions that is all the time, we have today. This concludes <unk> third quarter 2023 earnings Conference call. You may disconnect at this time.