TTEC - NASDAQ

Welcome to TTEC's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded at the request of TTEC. I would now like to turn the call over to Paul Miller, TTEC's Senior Vice President, Treasurer, and Investor Relations Officer. Thank you. Sir, you may begin.

Good morning, and thank you for joining us today. TTEC is hosting this call to discuss its third quarter financial results for the period ended September 30, 2023. Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of TTEC; Shelly Swanback, Chief Executive Officer of TTEC Engage and President of TTEC; and Francois Bourret, Interim Chief Financial Officer of TTEC. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within that document, 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 of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. For 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 am 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, adjusted EBITDA was $64 million, operating income was $47 million and EPS was $0.48. 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 rates, labor strengths in multiple industries, looming student loan payments, inconsistent consumer spending habits, and geopolitical unrest. 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 their traditional indicators to plan for the future. While the economy may not technically be in a recession, many of our clients are now operating as though we are. Given all these factors, we're updating our outlook for Q4 and guidance for the full year. Clients are scrutinizing the dollars they spend. They're 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 some of our clients, 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 improvements, and technology innovations, all areas where TTEC excels. While the current dynamics may be temporarily uncertain, we maintain our conviction that CX is a business imperative, a brand differentiator, and will be a strategic driver of growth and profitability for decades to come. Although the 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 TTEC forward. We are navigating this environment thoughtfully, and we'll 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 TTEC Engage and TTEC 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, they must move to the cloud. However, almost half the respondents to our study expressed 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 in automation and human interaction. However, close to 75% of the respondents cite 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 study respondents have even begun the 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're discovering that they need deep and practical CX expertise like ours to put these new AI-enabled capabilities to work. Through TTEC Digital, TTEC Engage, and our deep partnerships with the hyperscalers, 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 5 continents for decades, and we continue to grow. Year-to-date, we've expanded to 8 new offshore locations with more on horizon. In addition, through TTEC Digital, we continue to broaden our global delivery capabilities, particularly in India, doubling the size of our Hyderabad engineering team since the start of the year. Our strategic relationships with the premier CX technology partners continues to grow stronger, stickier, and more valuable. With preferred status with all the CX hyperscalers, we're working together to pioneer new AI-based solutions, accelerate market adoption, and expand our global reach. For example, given our extensive public sector experience, we're working with one of our hyperscaler 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 FedRAMP certification. For another hyperscaler, we're working side-by-side to architect next-generation AI-enabled workforce optimization capabilities for their CCaaS platform. 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's important to emphasize that over the past 41 years, TTEC has successfully navigated challenging economic cycles and technological disruptions 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, I'm confident 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 engaged 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 their Q4 revenue. Not surprisingly, market uncertainty was a theme in our recent client advisory meeting. While they couldn't speak to individual clients daily, hearing our voices together amplified several things. CX remains a priority. However, in this climate, clients are carefully focusing their 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 skills, tools, and experience to guide them as the landscape continues to evolve. They value our ability to provide a variety of nearshore and offshore locations, 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, they're seeking proven use cases before they move forward with full force. This is especially true in regulated and complex industries. And as Ken mentioned earlier, we're making good progress on our AI strategy that we outlined last quarter. We're actively partnering with clients in both TTEC Digital and TTEC Engage to better understand how to responsibly and affordably scale what we're learning from successful pilots. 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 intents to define optimal routing strategies in real-time. Enabled across 15 languages, the initiatives delivered dramatic improvements, including 24/7 availability, a faster response time, a lower handle time, and over $1 million in projected cost savings annually. In healthcare, we're partnering with the payer to shorten their sales cycle by integrating generative AI into the pre-enrollment process. Our consulting team is lending 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 LLMs and knowledge assist applications to improve the efficiency of our internal help desk, complex analytic models to evaluate new hire candidates, voice detect processing to speed up desktop administration, and AI for marketing segmentation and creative development. Using AI responsibly across our business is one of our highest priorities. Ultimately, we'll touch everything we do. I look forward to sharing additional progress on all of our AI initiatives in the quarters to come. Now on to business update for TTEC Digital. We exceeded our Q3 guidance, closing 14 new logos as we continue to help clients improve the quality of their customer experiences with CX technology. 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 Genesys practice. Elongated sales cycles impacted our professional services revenue this quarter and into next quarter. While some companies are delaying their technology modernization plans, many are faced with end-of-life platform decisions that require action. Encouragingly, we are 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 TTEC Digital. We employ some of the most tenured expertise in CCaaS, CRM, and analytics across the globe. With several thousand 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 continue to make progress on our strategic priorities, win new clients, and expand with existing clients. Third quarter revenue reflects continued solid demand in healthcare, financial services, and public sector. Revenue from these verticals grew 7%. However, as I mentioned earlier, some Engage client decisions negatively impacted the 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 client. Additionally, a few clients in the telecom sector changed 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're 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. Engage closed 10 new logos across a variety of services and industry verticals, including healthcare and financial services, technology, and retail. More than half of these new logos will be delivered offshore. Additionally, more than half of our expansion with the existing clients will be delivered offshore as well. And we established our presence in Malaysia and Thailand 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 65,000 employees across the globe, thank you for your continued support. Now, over to you, Francois.

Thank you, Shelly, 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 2023 financial outlook. In my discussion on the third quarter financial results, reference to revenue is on a GAAP basis, while EBITDA, operating income, and earnings per share are on a non-GAAP adjusted basis. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release. TTEC's consolidated third quarter financial results are in line with our previously provided guidance. 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 $603 million compared to $592 million in the prior year period, representing 0.8% 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 7.8% of revenue compared to $50 million or 8.5% in the prior year. And EPS was $0.48 compared to $0.68 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 sudden changes in client demand, creating temporary stranded costs. On the other hand, we continue to rationalize and optimize resources to maintain an agile cost structure. Turning to our third quarter segment performance. Digital financial performance was above our forecast for the quarter. 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 Digital's total revenue. If we exclude the Cisco decline for the same period, managed services increased by nearly 20%. 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 CX 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 2.6% 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, pub sec, and financial services verticals are growing organically by 7% in the third quarter of 2023, despite the lower demand than anticipated for seasonal work, modestly impacting the 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 5.9% of revenue compared to $34 million or 7.2% in the prior year. 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. The more timely collection of receivables over last year was more than offset by timing of certain accounts payable, 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 a $34 million increase in net interest expense over the prior 9-month period. Capital expenditures were $22 million or 3.6% of revenue for the third quarter 2023 compared to $29 million or 4.9% in the prior year period. The reduction is primarily a function of reduced facility related in renovations and IT equipment purchases on behalf of clients. As of September 30, 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 the 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. TTEC paid a $0.52 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 billion 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's fourth quarter outlook reduced our full-year revenue guidance by $50 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, our digital business is anticipated to grow 5% year-over-year per our fourth quarter outlook. Finally, the margin shortfall from lower revenue will be offset by greater execution and efficiencies attributable to our 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 reward 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 Shelly. From a margin standpoint, our guidance range reflects the isolated credit risk of the client 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 takeout initiatives in the fourth quarter that will primarily benefit margins in 2024. TTEC's overall pipeline for the next 6 months continues to be above $1 billion, which is well diversified across verticals, geographies, and CX 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. [Operator Instructions] Our first question is coming from the line of Maggie Nolan of William Blair.

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 contracts from clients that are impacting the fourth quarter? Or what other factors can help us understand these 2 segments that are usually a little bit more countercyclical?

Maggie, thanks for the question. Yes. There's 2 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 lower their overall staffing levels for the season due to their budget pressures. We performed really well here. So we've maintained or increased our wallet share with these clients. We just had expected more growth in the healthcare 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 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, revenue year-over-year is not declining. So I just want to make sure like is this, curious, just less than our expected growth and is the reason why we have a change in our Q4 forecast?

That's helpful context. And then on adjusted EBITDA on your margin profile in general, can you kind of help us get an understanding of some of the dynamics that you spoke about in the fourth quarter, some of the rebalancing that you'll do, and focus on costs that you'll do? What that means preliminarily for how you're thinking about 2024, just kind of directionally as we compare it to 2023 and consider some of the initiatives that you just outlined?

Maggie, this is Francois. It's a good question. So if you look at our margin in the fourth quarter, the first piece I would say is the seasonal work that Shelly mentioned is highly accretive in the fourth quarter. Therefore, it's short term in nature, and that's something that as we move forward, we'll continue. And 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 in a normalized standpoint from a margin standpoint, like it would be more aligned with the EBITDA margin we had previously shared for this year.

Next question, it comes from the line of Mike Latimore of Northland Capital Markets.

On the gross margin in the quarter, down sequentially year-over-year. How should we think about that trending in the fourth quarter?

So when you look at our margin quarter-over-quarter, I think there's 2 dynamics, you have the Engage situation that we just talked about, that is more impacted by the seasonal work, and for Digital, it's simply I think was more of revenue mix in the third quarter, where we had this onetime product that impacted margin. But as we move forward, you're going to notice the margin improving by 200 basis points 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 continuous cost optimization that we've been engaging in Digital.

Okay. And then can you think -- you talked about, I think, being significant bookings in Digital in the fourth quarter. I think you said 70 potential deals from like that. Can you just -- it sounds pretty strong, can you think that up with the comp and also that you've had some slowdown as well, maybe just think those 2 separate comments up? And what use cases are you seeing coming into these bookings?

Yes, Mike, I think a couple of things. First, I think the dynamic environment that everybody has been talking about, right? Clients have definitely been scrutinizing their initiatives and trying to sort out overall budgets for this year and into next year, and that played a part in some delays in our bookings in Q3, which obviously 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 expected to close in Q3 have now moved forward. So we're encouraged by the strong start in bookings here in October, beginning of this quarter, and happy with our pipeline. And what I would just say is, again, lots of clients have lots of interest in AI from our benchmarking survey and our workshops. That's driving a lot of client conversations, and just the same dynamics we've been talking about people needing to move their technologies to the cloud so they can take advantage of these new tools.

Do you have any particular vendors, suppliers stand out in those bookings? I think you talked about Genesys earlier, but anyone that really kind of jump up?

No. I mean I think we're seeing demand across the board.

Yes. That's for sure. I mean whether it be our Microsoft practice, which is we see a lot of demand, a lot of opportunity on the CRM side or whether it be AWS. We're excited about Cisco's new capabilities that they just announced 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 are in high demand right now as well. So I would say that 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 CCaaS capability, 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 opportunity for years to come.

Our next question is coming from the line of George Sutton of Craig-Hallum.

Ken, you said something very interesting in your script and that is that some of your customers are acting as if they're 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?

George, look, here's what I would say. We were just discussing this prior to taking these questions. Because I'm old, I've been through several recession cycles. And what we see in each recession cycle is a period in time where clients begin to realize that the probability is higher than not. And therefore, they -- as I mentioned in the last quarter call, they begin preparing for the worst and hoping for the best. I think 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 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 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 slow down, 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 when things cleared and they understood what the new normal was, they 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 clients. 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'd call, commercial aspects? Yes. Not everybody is cutting back, but they're 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 aren't as good as they historically would be because we don't want to be caught in an overstaffed situation, et cetera. And so that's what we're seeing. And I would be shocked if any of the other companies that provide capabilities like ours aren't seeing the exact same thing. Both Shelly 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'm being specific in answering your question and telling you specifically in what area, but we mentioned telecom in my script, and I think that's 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 that's causing these companies to not have the volumes that they would have to onboard net new customers, net new technology, technical support, et cetera. So that's an example. And I also think that with recessionary pressures, the consumer is definitely pulling back on nondiscretionary. 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, Ken. And I would let you know you are young relative to our presidential candidates if that's 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're definitely ready. And Shelly has made it one of her 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 these other new markets that we've mentioned, whether it be South Africa, whether it be Honduras, whether it be Thailand. We've got Malaysia that's just now coming online. We're expanding further into Latin America and expanding our Mexico operations. I could go on. I'm sure I'm missing countries. We're live in Egypt. We're expanding in Colombia, et cetera. And so yes, we are -- we have -- we are absolutely ready. We've got all the management in place in all these different regions, and we're absolutely launching new business in these new markets.

And it's resonating with our clients. That's why you see our pipeline, whether it's a pursuit of new logos or expansion with our existing clients, really across the board.

Our next question is coming from the line of Bryan Bergin of TD Cowen.

It's actually Jared on for Bryan today. In terms of offshoring, any sense on the headwinds to engage growth year-on-year in 3Q related to existing clients moving from onshore resources to offshore resources? And then is this headwind to growth anticipated in increase in FY '24 relative to FY '23?

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 volumes of the work we're doing today and just diversifying the footprint in places that we do that work. So that wasn't a material -- hasn't 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 in our pipeline because of our new offshore locations that we can now offer.

Got it. And then do the volume forecast being provided 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 forecast that are being provided now by clients?

Well, I would just sort of point back to what Ken was speaking about earlier. I mean, I think certainly, our clients are being -- I guess, they are 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 decide that they need more volumes. But as Ken said, I think everyone is preparing for the worst, if you will, looking at what their demand might look like for the next quarter, and no, not really a whole lot more to say there from that. And I would say some of them are conservative, will come back, and they're all 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.

So what we've done for this -- the guidance that is currently in the press release is on a full-year basis. And instead of trying to be over accurate in the -- with the midpoint, we've just narrowed the range for the full year.

And for our next question, it comes from the line of Vincent Colicchio of Barrington Research.

Yes. I'm curious how hypergrowth performed in the quarter relative to plan and sort of what level we're at now with that business?

Yes. So hypergrowth has really played out as we expected. At the beginning of the year, we talked about it coming down to about $300 million, and that's where we expect we'll end the year. As Francois said, from a Q4 perspective, obviously, hypergrowth year-over-year played a material -- with a material factor in what -- in our guidance for Q4. And is there anything else you want to add, Francois? Just no changes really there.

Just a bit more color on the impact on our Q4 year-over-year. So the $48 million revenue decline, $40 million coming from hypergrowth and the balance is really the seasonal work that Shelly talked earlier. So those are really the 2 items that -- and again, the hypergrowth is aligned to our expectation. And ultimately, we were hopeful that the healthcare season would bring us in line with last year.

And how would you characterize pricing and clients in terms of -- no pun intended, looking for better terms?

I'd say -- I mean, I'd say pretty steady. I mean it continues to be competitive. Obviously, I think our conversations are a lot around really reducing any impediments for adding new partners, right, for getting started and that tends to be more about the conversation than new pricing or new terms per se.

For our next question, it comes from the line of Cassie Chan of Bank of America.

So I guess I just wanted to ask, if we sort of look forward into 2024, are you expecting 4Q to kind of be the trough and then maybe sort of a sequential improvement throughout 2024 given certain temporary headwinds that you're expecting to abate and maybe some improvement you're seeing in other parts of the business?

Cassie, it's Francois. 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 2024 holistically.

All right. And then in terms of the healthcare, public sector, and financial services verticals, you said that grew organically, I think, 7%. What are you guys anticipating for 4Q for that? And just remind us again for telecom, how big is this sector or vertical for you guys? And what are you expecting for that to grow in 4Q?

Yes. So the first -- for first to your question on the 3 verticals, yes, Francois did say that they grew 7% in Q3, and 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 3 of those verticals. We also have a large client that will go live in pub sec at the beginning of next year.

And on the telco, just adding a bit, so you asked what is the size of the telco, and we are holistic in our portfolio. On a full-year basis, obviously, depending on the quarter, it 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.

Our next question is coming from the line of Joseph Vafi of Canaccord.

Maybe switching away from the macro for a second. There have been a couple of really big mergers in the sector. Just wondering what you're seeing as a result of those mergers? And then a quick follow-up.

Yes. I mean, I think we definitely have some client opportunities that are a result of our clients wanting to diversify their partner network. And I think we'll -- I'm hopeful we're going to continue to see more of those because of our offshore expansion -- offshore and nearshore expansion because now we have more options to offer our clients. And we have those locations open now, and we're ready to go. So definitely seeing some opportunities in our pipeline that we're working on currently.

Okay. That's great. And then I know you mentioned doubling the Hyderabad headcount. Is there any specific technologies or specific -- anything functional area, verticals or something that you're seeing demand from to double that staff?

Well, it's really across the board. I mean -- and just for -- to be sure it was clear, that's for our Digital business. And so the great news is we're expanding -- Dave is expanding that team really to support all of our partner practices, probably to varying degrees, depending on the work, but it's not for one particular partner. We also have offshore capabilities in our analytics practice as an example. So this is going to be a major strategic focus for Dave going forward as well, and we're making great progress there. We're excited about that.