TTEC Holdings, Inc. (NASDAQ: TTEC) Third Quarter 2022 Results Conference Call November 10, 2022 08:30 AMm. ET
Participating companies
Paul Miller – Senior Vice President, Treasurer and Officer of RI
Ken Tuchman – President and Chief Executive Officer
Dustin Semach – Chief Financial Officer
Shelly Swanback – President, TTEC and CEO-TTEC Engage
Conference Call Participants
Mike Latimore – Northland Capital Markets
George Sutton-Craig Hallum
Jesse Fink-William Blair
Cassie Chan – Bank of America
Joseph Vafi – Canaccord
James Faucette – Morgan Stanley
Vincent Colicchio – Barrington Research
Anja Soderström – Sidoti
Operator
Welcome to TTEC’s third quarter 2022 earnings convention call. [Operator Instructions] This call is recorded at TTEC’s request.
I would now like to turn to Paul Miller, Senior Vice President, Treasurer and Director of Investor Relations at TTEC. Thank you, sir. You can get started.
Pablo Miller
Good morning and thank you for joining us today. TTEC is holding this call to discuss the third-quarter monetary effects for the era ending September 30, 2022. Today’s call features Ken Tuchman, president and CEO of TTEC; Dustin Semach, CFO of TTEC; and Shelly Swanback, President and CEO of TTEC Engage and President of TTEC.
Yesterday, TTEC issued a statement announcing its monetary results. While this call reflects the topics discussed herein, for complete data on our monetary performance, we also invite you to read our Third Quarter 2022 Quarterly Report on Form 10-Q.
Before we begin, I would like to remind you that the topics discussed on today’s call come with forward-looking statements similar to our operating performance, monetary objectives and business outlook, which are based on the existing ideals and assumptions of management. Forward-looking statements reflect our outlook as of the date of this call, and we assume no legal responsibility to revise such data as a result of further developments that may occur. Forward-looking statements are subject to threats, uncertainties and other points that may also only cause our actual effects to differ materially from those expected and described today. For a more detailed description of our threat points, please see our 2021 Annual Report on Form 10-K modified through our upcoming Quarterly Reports on Form 10-Q. A. The repetition of the convention call will be available on our online page in the Investor Relations section.
Now I’ll pass on the one to Ken.
Ken Tuchman
Good morning everyone, and thank you for us today.
I am pleased with our strong execution and overall third-quarter monetary effects. Our functionality is driven through our broad and varied global client base and our comprehensive set of CX strategies, analytics, technologies and operational capabilities. Let me share some economic highlights from the third quarter.
Reserves were $200 million, a 17% increase over last year. Revenue of $592. 5 million, an increase of 7% over the same time last year, in uniform currencies. and adjusted EBITDA of $72. 2 million. Our bookings this quarter reflect continued strong demand for our CX generation and service solutions.
However, like major corporations around the world, our consumers face macroeconomic uncertainties in this highly dynamic environment. Unsurprisingly, the impact on the verticals we serve is varied. Government, strength is constant. In other pockets, such as technology-based hypergrowth corporations, we see continued weakness. We expect those trends to continue over the next year as our customers adapt to dynamic market changes. them, and we will remain agile and responsive to their needs.
In any economy, it is essential in the visitor experience. Satisfied consumers spend more, charge less to serve, and are less difficult to retain. Satisfied consumers are active promoters of their favorite brands and help companies attract new consumers in a hypercompetitive market.
Our portfolio of CX responses has consistently delivered visitor satisfaction with the lowest total cost of service. In today’s environment, consumers depend on our best-in-class features to modernize and optimize their CX platforms to deliver continuous, personalized, convenient, and better services. Visitor reports for your back line.
We continue to drive our diversification strategy. And I’m with our progress on several fronts, adding geographic expansion with new delivery sites nearby and overseas for our Engage and Digital businesses, expansion with new core consumers incorporated into strategic verticals, closer collaboration with strategic CX generation and innovation partners. In our comprehensive portfolio of virtual CX responses with automation and analytics at the core of our offering. The CX generation landscape continues to evolve.
With TTEC Digital, we integrate the entire CX generation ecosystem of mid-touch generation with enhanced automation and analytics to enable predictive and continuous reporting for consumers and frontline employees.
To enable those trendy experiences, businesses of all sizes will need to migrate to the cloud. Since many on-premises platforms are successful at the end of their life, it’s no longer a question of whether businesses will migrate to the cloud. It’s just a matter of when they’ll do it.
We have built a differentiated platform for corporations to effortlessly design, build and enforce their migration strategy. Wherever a company is on its journey, our portfolio of natural CX technologies and our experienced team of software engineers are well placed to capitalize on CX. Cloud imperative.
To boost our virtual business, we are excited to welcome Dave Seybold as CEO of TTEC Digital later this month. Dave is a well-rounded virtual leader with decades of global experience, accelerating expansion and the ability to generate profits with celebrity businesses and consumers and generation. Partners. Senior Executive at IBM, Avanade and, most recently, Atos, Dave is a results-oriented leader with a strong cultural fit. I am confident in Dave’s ability to evolve our TTEC Digital business and unlock its full potential.
I am also pleased to announce Shelly Swanback for the role of President of TTEC, in addition to her role as CEO of TTEC Engage. Over the past six months, Shelly has immersed herself in each and every facet of the business and was given the opportunity for a great start. She has captured the hearts and minds of our groups around the world and is connected to our clients as a strategic advisor at a time when they want a results-driven wife like her.
With those two dynamic leaders at my side, I will continue to set the strategic direction of the company and innovation, mergers and acquisitions and visitor engagement. I am more alive than ever about our team, our differentiated platform and our future. .
With that, I pass it on to Shelly.
Shelly Swan
Thank you, Ken, and good morning everyone.
Our execution this quarter was strong. In this dynamic macroeconomic environment, we have many complex projects across the company. We delivered more than $200 million in bookings and signed 18 new logos in the quarter, adding six crossover agreements.
Let me start with some updates on our Engage activity. This quarter’s bookings included a clever combination of new logos and integrated base earnings. For example, we signed with a Fortune 500 money advisory firm that is new to outsourcing. Our presence in healthcare with new insurance payers Our experience in managing complex programs.
Today, we serve many global consumers from our delivery operations in 20 countries. And we’re accelerating our expansion overseas and abroad to offer our consumers even more cost-effective features for geodiversity and multilingual services. Last quarter, I commented that we had opened 3 new geographies.
And today, I’m pleased to announce that our functionality on our new nearshore site, Colombia, exceeds our projections in terms of scale and execution. We are well placed to meet visitor demand as we expand our global work-from-home platform. and open more nearshore and offshore locations.
Many of our largest consumers operate in regulated industries that require ground paints, and we remain their partners. Our reputation as a leader in licensing allows us to manage those complex systems with exceptional results. This quarter, we made great strides in implementing voice responses for our consumers. Across industries, more and more consumers are testing our mixed responses and seeing dramatic innovations in associate productivity and visitor satisfaction.
Our non-voice earnings increased 60% year-over-year. And this quarter, we welcome Chuck Koskovich back as Engage’s chief operating officer. Prior to returning to TTEC, Chuck oversaw global and geographic expansion at major CX vendors, adding TELUS International. It’s wonderful to have Chuck back on the team that drives the engagement of frontline workers and the satisfaction of visitors around the world.
Let’s now move on to the highlights of the 3rd quarter on the virtual side of the business. First, we won several deals with the public sector, adding the controlled commitment to a leading federal firm and, at most, a multi-year primary contract. covering various offerings in our virtual portfolio, adding Amazon Connect, CRM, automation and analytics.
We gained further momentum in healthcare with a core multi-platform cloud migration agreement that will enable seamless patient-physician interactions in a widely distributed healthcare system. And we continue to make progress across all of our CX generation partners.
The notable strength this quarter came from our collaboration with Microsoft and Genesys. And our momentum with Cisco continues to grow, especially with our practice. We look forward to announcing exciting new expansion spaces with partners in the coming months.
And finally, our analytics practice grew 37% this quarter thanks to cross-selling opportunities with our other practice areas. While I talk about customers across all verticals, there are a few topics that come to mind.
First, each and every consumer recognizes that the skills environment has replaced forever. Our consumers come to us for our expertise in handling new paint dynamics and our ability to hire, train, retain and, of course, motivate a large-scale global frontline team. .
Another hot topic is the desire to implement CX projects that deliver short-term benefits while advancing the company’s long-term CX transformation. be performed. This is where our design, build, and function style that leverages the selective features of our Digital and Engage businesses is so powerful.
We are making steady progress through expanding our geographic footprint, accelerating our time to market, advancing our virtual responses, and strengthening our strategic partnerships. As we navigate the dynamic environment in the near term, we will continue to be agile and responsive to market conditions. We are very execution-oriented, calibrating our investments, streamlining our loading scheme and optimizing what our control is.
Before I pass the word to Dustin, I would like to personally welcome Dave Seybold, a trusted colleague. I look forward to running with him to unlock TTEC’s most productive for our consumers and our incredible teammates. the work and commitment of our 62,000 employees worldwide.
And now I’m going to give Dustin the floor to talk about our finances.
Dustin Semach
Thank you, Shelly, and good morning everyone.
As mentioned, we are with our third-quarter monetary functionality as we continue to navigate the ever-changing economic landscape impacting some of our customers in their businesses.
Transition to third-quarter reserve yield. Our Q3 2022 bookings increased 17% to $200 million, up from $171 million in the same period last year. Our virtual bookings and product sales grew 44% year-over-year, reflecting a strong call for our CX generation service offerings, adding our Genesys, Microsoft Dynamics, Amazon Connect and Cisco solutions.
Now, in our Engage segment, demand has been strong in our visitor service and procurement facilities, geographic presence and industry mix, with a specific strength in our public sector, monetary facilities and healthcare verticals, all of which tend to be more opposite. to macrocyclicality. Our third-quarter bookings included 18 new logos, representing $11 million in reserves, as well as six crossover deals.
I will refer to our order book and project portfolio in my comments on the outlook. In my remaining discussion of the third quarter 2022 effects, the earnings reference is based on GAAP, while EBITDA, consistent with earnings source and earnings consistent with percentage consistent on a non-GAAP adjusted basis. A complete reconciliation of our GAAP and non-GAAP bills is included in the tables attached to our earnings press release.
We use the comparable base term to describe our earnings expansion excluding the effect of currency translation and treat acquisitions as if we had them in prior periods.
On a consolidated basis in the third quarter of 2022, profit was $592. 5 million, up 4. 5% and 5. 7% on a comparable basis, excluding the influence of pandemic-related volumes. Organic expansion was relatively strong at a constant level of exchange rates.
Adjusted EBITDA $72. 2 million or 12. 2% of revenue, compared to $78. 7 million or 13. 9% last year. Source of operating income $50. 2 million or 8. 5% of revenue, compared to $59. 4 million or 10. 5% last year. opposite to $1. 01 the year before.
The continued strengthening of the US dollar in the third quarter had a negative effect of $14. 1 million on earnings, but benefited the operating source of positive $3. 9 million earnings, basically within our Engage segment. Our third-quarter Engage profit benefited from our acquisition of Faneuil, which we acquired in early April, and higher volumes from new and existing customers.
Like the composition of our reserves, our virtual profit benefited from larger cloud integration charts and recurring systems, offset by lower or more normalized levels of non-commodity sales. due to the acquisition of Faneuil, a 33% increase in hospitality, a 13% increase in automotive and a 19% increase in EMEA.
Let’s move on to our operating income. The year-over-year reduction is basically based on minimizing pandemic-related volumes in upper margins compared to the previous year’s period, integration costs related to the acquisition of Faneuil, and more growth-oriented investments and skills acquisitions. I will now cover our Third Quarter 2022 Segment Results.
Revenue in our virtual segment was $117. 9 million in the third quarter of 2022, compared to $124. 1 million in the same era last year. Similar to the composition of our virtual reserves, our effects reflect an accumulation in profits from integrating our systems and the cloud. through our Tier 1 CX Technology Partner platforms, compensated through decreased product sales. Excluding those non-core product sales, virtual revenue generation increased 8%.
We are pleased with the progress we have made in our Cisco practice, reducing our practice to 9% year-over-year expansion in the third quarter, the first quarter of year-over-year expansion since the fourth quarter of 2019.
Our CX generation IP business continues to perform well, with 19% development in the third quarter of the prior year era as we continue to execute our product roadmaps and launch new proprietary equipment and connectors that time our customers to quote and decorate capacity with the industry. -Leading CX technologies.
Our recurring cloud and controlled facility earnings accounted for 54% of Digital’s overall earnings. Our various systems integration facilities, which have a higher rate of linkage to long-term upgrade and expansion commitments, accounted for an additional 29% of overall earnings.
Operating source of revenue $15. 9 million or 13. 5% of revenue, compared to $15. 6 million or 12. 5% of revenue in the prior year period. engineering, sales and marketing talent, and product development and generation.
Revenue from our Engage segment in the third quarter of 2022 increased 7. 2% to $474. 5 million year-over-year, representing growth of 8. 6% on a like-for-like basis, excluding the influence of our pandemic-related volumes.
While the acquisition of Faneuil’s assets was a major participant in the quarter’s expansion, we delivered significant volumes across all business sectors, with specific strength in the public sector, automotive and travel industries. evidenced through Engage’s earnings retention rate of 98% over the past 12 months. Excluding pandemic-related volumes, Enlist’s earnings retention was 108%.
Operating source of revenue was $34. 3 million or 7. 2% of revenue, compared to $43. 8 million or 9. 9% at the same time last year. Our Engage operating margin reflects the effects highlighted in my comments on the company’s overall effects, as well as our continued progression and strategic investments in our offshore delivery centers. We hope that, we will further diversify our visitor facilities and benefit margins in the long run.
Now I’m going to percentage some measures similar to our liquidity moneyArray, capital deployment before talking about our outlook. At the end of the quarter, the money was $172. 3 million and $959. 2 million in debt, the vast majority of which represented loans under our $1500 million line of credit. Net debt increased from $124. 1 million to $787 million year-over-year, primarily due to investments similar to acquisitions and capital distributions, partially offset through our positive money generation.
Operating money was $27. 5 million in the third quarter of 2022, compared to $42. 2 million in the previous year. The reduction is basically due to reducing profits compared to the previous year’s era and the operating capital schedule.
Capital expenditures were $28. 8 million or 4. 9% of revenue for the third quarter of 2022, compared to $17. 2 million or 3% a year earlier. Construction is based on program ramps, IT investments, planned team members, desktop upgrades, and facility renovations.
Our normalized tax rate was 24. 2% in the third quarter of 2022, compared to 19. 6% last year. source of income and relief from certain foreign tax benefits.
In September, the Board declared the next semi-annual dividend of $0. 52 consisting of stock, which was paid on October 26, 2022 to shareholders of record as of October 11, 2022. This dividend represented an accumulation of 10. 6% over the October 2021 dividend and a 4% accrual over the April 2022 dividend. We remain committed to our capital distributions to shareholders through a half-yearly dividend.
Let’s move on to our perspectives. Our full-year guidance remains unchanged from last year’s quarter update and continues to reflect the uncertainty surrounding the global economy.
I need to make a few more comments. We ended the third quarter with an order book for 2022 of $2400 million, 99% of our forecast midpoint. Our existing portfolio is $2 billion, a cumulative 12% over the past year.
We continued to optimize our cargo design this quarter and implemented cargo containment projects to temporarily adapt to the ever-changing macroeconomic environment. our non-essential assets, simplifying our G functions.
Please see our commentary on the business outlook segment of our Q2 2022 earnings press release for our expectations related to fourth quarter and full-year 2022 performance, the segment’s consolidation point. 2022 year that were provided at the time of the quarter’s earnings call remain applicable.
In conclusion, we remain committed to maximizing shareholding through continuous technological innovation, operational excellence and successful long-term growth. We appreciate your interest in TTEC and look ahead to share our full-year 2023 outlook when we announce our fourth quarter 2022 results. .
Now I will call Ken back.
Ken Tuchman
Thank you Dustin.
Before closing, I would like to acknowledge and thank Regina Paolillo, who is retiring from the corporate after 11 years of committed service in leadership roles. During her tenure at TTEC, she has been a champion to our employees and an advisor to our clients, a valuable resource to our shareholders and a trusted spouse to me. Regina’s tireless efforts have helped us build our global CX platform and position ourselves for the next phase of growth.
As we celebrate our 40th anniversary, I must thank our incredibly talented global team of 62,000 CX Ambassadors who make an impact for our consumers and their consumers every day. Working together, I am confident that we are well placed to drive success. Grow, generate differentiation and create sustainable prices for our consumers and shareholders for many years to come.
As we approach the holiday season, on behalf of all of us at TTEC, I wish you all the best for your fitness and happiness. We continue to thank each other for your progress and look forward to sharing with you the exciting progress in the new year.
Now I’ll pass on to Paul.
Pablo Miller
Thank you Ken. [Operator Instructions] Operator, you can open the line.
Q&A session
Operator
[Operator Instructions] At this point we had the first one coming from Mike Latimore’s line of Northland Capital Markets. Your line is now open. You can raise your Array
Mike Latimore
It is ok. Thanks guys. Hello. Congratulations on the clever effects created here. I’m just scratching the surface of reserve expansion. I mean, it’s accumulating 17% despite the macro environment. But maybe you can tell us a little bit about that?How sustainable is this type of reserve expansion in this environment?
Ken Tuchman
Hello. Listen, I would like to tell you precisely what will happen in the future. But I think it’s a little unrealistic just based on the market we’re seeing around the world as far as the global economy is concerned. What I would say to tell you is this: We see continued strength in our physical care vertical, continued strength in our automotive vertical, continued strength in our public sector and federal vertical.
And it’s been very intentional, and I’ve been telling The Street for some time that we intentionally diversify our business so that we can get through any form of recession and take advantage of verticals that we don’t think are as cyclical as other verticals. And I think it helps. I think it will be worth it.
But having said that, I think as Dustin said in his comments and I said in my comments, we see other verticals like in the area of technology that are so strong. So, we’re actually expanding our concentrate into regions where we have a very smart reputation. And as a result, we are pleased with the bookings we closed in the third quarter.
And right now, the trends for the fourth quarter are very similar. That said, right now it’s very complicated for me to see just around the corner what it will look like in 2023. But I hope it gives you some clarity. I don’t know, Shelly, if you need to upload anything to that.
Shelly Swan
Well, I can just reiterate. I think the reserve mix varied in the third quarter, and that’s what we’re seeing in our project portfolio. We have several clients in the BFSI sector who are new to outsourcing, so we are looking to take advantage of the combination of our onshore, nearshore and offshore sites. We’re happy with that. And as Ken said, we just focused on this quarter and next quarter, being there for our built-in base, but also on new logos.
Mike Latimore
Super. Et then simply wonderful to hear how Cisco’s practices develop. Can you tell us a little bit about the type of replenishment being taken there?And what are the main points of this?
Ken Tuchman
Oui. Je I mean, I think what’s happening is this. Cisco made the decision about 2. 5 years ago to move from an on-premise product supply to a cloud-based product supply.
You can also say that they would possibly have posted the ad a little ahead of time and that it cooled the practice around the world, not just for us, but for everyone. That said, the internet product they announced about 2. 5 years ago, which was immature at the time, now has a genuine adulthood and has a genuinely extensive visitor base and has proven that it can scale and that it has the feature set.
So what we’re seeing now is that there’s a significant built-in Cisco foundation that builds on what we would call the on-premises solution that you’re now comfortable starting your migration. So, we are very happy with that. We believe this creates many long-term opportunities and expect this trend to continue. As I said in my script, it’s not about whether CEOs and CIOs will move to the cloud. It’s just a matter of when. And so, therefore, we get advantages from this migration that is being positioned now.
It took longer than we would have expected. Possibly it wouldn’t be, possibly it would be the bad news, but the good news is that we’re seeing very, very smart activity and a very strong portfolio. And Cisco has been a wonderful partner.
Dustin Semach
And just one point of explanation we need to stick to is this comment we refer to, Mike, about expansion around the company’s professional facilities component. A lot of deployment paints on your new platform, however, will take some time for the recurring controlled installations component to catch up with this, which we hope to give you some sort of upgrade in 2023. But again, a very positive sign because it is a leading indicator of the direction the practice is taking.
Mike Latimore
Thanks.
Operator
[Operator instructions] We now have the following from the George Sutton line of Craig-Hallum. His line is now open. You can raise your Array
Jorge Sutton
Ken, last quarter reviewed some examples of consumers who had subsidized below their initial considerations and then came back with increased demand, understanding that the desirable component of this is that you can reduce prices in the short term, however, it will have an effect on your customer’s happiness. So where do you think we are on that continuum at the end of the third quarter?Are we at the birth of the phase where other people are being born to make those cuts?Or are we closer to the point where they realize they want to keep investments in place?
Ken Tuchman
Hello, Georges. What I would tell you is the following. We also recently detected that in the last 48 hours some consumers are expanding their needs with us, which is one thing and asks us to upload more due to their caution.
That said, and while I’m very positive about the company, our long-term and team, etc. , I think it’s to say that each and every CEO has a cause. And what I mean by that is that I think they’re watching very closely not only their business, but also trends with consumers, inflation, supply chain, etc.
And as a result, we have: Shelly has worked incredibly hard with her teammates to enable us to become significantly more agile than we already were so that we can work hard with our consumers and show them that we have the ability to not only grow temporarily but also to be able to cost.
So this is my way of telling you that I think the fog hasn’t completely disappeared from our customers or the market due to the fact that every week there’s a new title, whether it’s mid-term and what happened there: the number of CPIs that just came out 20 minutes ago or whatever, and so on. And I think there, I think consumers are more agile than ever.
And I think they sail almost week to week. I think as we enter the new year, once we get there, I think consumers will settle in. And I think they will give us a much clearer picture. and a much clearer forecast than last quarter, so to speak.
So I know I’m not responding to your inquiry with the point of detail that I would sometimes like to answer. But I think I agree that there’s a lot of uncertainty in the global economy right now. I keep asking our sales managers, whether it’s Array or not. . .
Jorge Sutton
I’m just curious, would it be imaginable for Dustin to explain it because I think it’s important?You discussed a bunch of verticals that are strong and very few verticals are actually just hyperexpansion technologies that are weak. Is there a way to compare them, because I think that’s part of the answer to the question?
Dustin Semach
In terms of size in relation to the effect on or size in terms of the length of the vertical?
Jorge Sutton
Well, if I go up healthcare, government, automotive, monetary, rather than hyper-growth technology, I think they’re much bigger.
Dustin Semach
So there are a couple of things there. He calls the two of us, however, if you go back to the last, our last quarter, we talk about CME, right?So telecommunications, as well as the effects on hypergrowth. Hypergrowth itself runs through all those vertical industries.
To give you a concept of how long that amount lasts, it’s around $400 million, okay, we expected an expansion of about 20% for the whole year. This quarter, for example, continues to grow, but only grows in the 4% range. So hyperexpansion is the detail that runs through the total company, George, which makes sorting a little more difficult. But if you look at telecommunications and other areas, I think we still see weaknesses.
Jorge Sutton
Yes. It is ok. Thanks guys.
Dustin Semach
Is it useful?
Jorge Sutton
Yes, absolutely.
Operator
Now we have the following from William Blair’s Maggie Nolan lineage. Your line is now open. You can raise your Array
Jesse Fink
Hello. Speaks Jesse for Maggie. Congratulations on the quarter and congratulations to everyone on the new roles. I have a last query about vertical markets and then a follow-up query. So they’ve been transparent about what they see in terms of resilience rather than weakness, but can you elaborate on the behaviors you see in those other sectors?Are you seeing cancellations?Do you see a preference for small contracts?What are some of the behaviors you observe?
Ken Tuchman
I start and let Shelly upload something. What I would say is no, we don’t see cancellations. And what I would say is that in terms of getting net new business, it’s a combined purse. In some cases, others people transfer suppliers and need to replace them very temporarily for a specific reason. So that’s a smart thing for us.
In other cases, they paint long-term transformation plans and take longer to dedicate themselves to a final contract for big business. I wouldn’t say it’s apparent and maybe, Dustin, you have an opinion about it, that the duration of the offers are decreasing. That’s a very smart query because there were times in our afterlife where we noticed consumers being more progressive, etc. We don’t see that right now. I would say they interfere with either foot.
I don’t know, Shelly, you. . .
Shelly Swan
I’d just say I think he’s going back to what Ken said before. Everyone has their finger in the cause when they need to be agile as a race. So, there are many conditions in which our consumers have come to us. And he asked if we can do things very quickly. And I think that plays with our strength in terms of being able to hire other types of work. Therefore, we will remain agile and in a position to meet your needs.
I think there are, as I said before, we have several consumers who hadn’t thought about employing outsourced facilities before, and we’re excited to integrate them into our consumer base. So I think it’s exciting. And we have others who just want to develop other parts of their business. So, we’re there with them.
Ken Tuchman
I mean, I think the only thing you notice in the afterlife that we’re in a finger-crossed mode is that there’s more, we think there’s, well, we know there’s over $300 billion spent just on the company’s engagement aspect with internal captives. .
We believe that a smart recession causes those captives, say, to wake up and smell the coffee and realize that there is merit in them starting to marry and move this business to a spouse. And I think that in itself can be a network – a very positive one for us.
Shelly discussed one in her script of a company she had never outsourced before and is in the Fortune 200. And now they have chosen to start this adventure exclusively with us, etc. In itself, the way you turn lemons into lemonade in a recession by making those captives, say, more involved in your internal operations. So far, I don’t think you’ve noticed any of those kinds of trends.
Now, what we’re seeing with some consumers, obviously, who are affected by their demand, is that their volumes are lower. And that’s why we’re doing everything we can to keep adding more and more consumers to compensate. the reduced volumes we are seeing. I hope that. . .
Jesse Fink
Yes, it’s a smart context. Thank you for the detailed reply. We kept track of activities abroad. So it has announced a solid performance in Colombia. Do you notice an increase in incoming calls abroad?of incomes had declined year after year and perhaps so had jobs. Can you tell us what is happening there and your expectations for the future?
Shelly Swan
Oui. Je I mean, I think, here’s what I would say. First of all, we call Colombia just because it’s one of our new locations. We continue to expand our activities in other offshore and nearshore sites, such as the Philippines, Mexico, India, etc.
I think we’ve had several of our bookings this quarter to take some of our. . . to help our consumers diversify their geographic presence, right?Instead of onshore, it’s on the rise to onshore.
So I think we’ll continue to upload more locations. As I said, we’re going to expand further in Latin America and we have other plans that we’ll keep you posted here in the coming quarters.
Dustin Semach
Oui. Et this is a follow-up point to that. We recognize that it’s going down in the quarter right now. A lot of the reserves that we have in our hearts, the new geographies that we’re opening, there’s a longer ramp schedule related to climbing those geographies.
And based on the bookings we already made during the third quarter, compared to the larger reserves we have in the Philippines, Colombia and elsewhere, we fully plan to oppose this trend in a more draped way in 2023 and also start converting the combine. And keep in mind that our combine was affected this year also due to the acquisition of Faneuil, which was largely domestic work.
Jesse Fink
Super. Thank you for answering my questions.
Operator
Now we have the next one in the line of Cassie Chan of Bank of America. Your line is now open. You can raise your Array
Cassie Chan
Hi, guys. So, I guess I’m just trying to figure it out, it passed the third quarter, but the midpoint of the outlook for 2022 remained unchanged. And I’m just talking about revenue. Therefore, this implies some progressive weakness in the fourth quarter. Could you mention the bets and withholdings that are included in the guide?Changes in your expectations? And, for example, as FX or hypergrowth clients, the CME, exactly what did you mention?Or are there other cases we deserve to be aware of?Thank you.
Dustin Semach
Yes. Sure, Cassie. I’m Dustin. I will answer that question. I will therefore make a few comments. The first is, as mentioned, that the issues we found in the current quarter continue into the third quarter. If you happen in particular to FX, we talk about a figure that was between $ 30 million and $ 40 million. This has intensified in the mid-40s now relative to the effect of FX on our full annual guide, right?
CME is pretty much at the same point as before, and I would say hyperexpansion has been a bit weaker. When you think, weaker than we expected in the first trimester. When you think about the full annual guide, really, what it reflects is more uncertainty than anything else.
And when you think about earnings between the third and fourth quarters, there’s some volatility relative to volumes where one quarter may be a little higher and the next quarter may be a little lower. in its own life cycle.
And so at this point, because of the kind of uncertainties and those ongoing trends and issues, even though we’re sure of the reservations that we’ve made, et cetera, we’re proceeding to our direction right now.
Cassie Chan
they gave it to me It’s helpful. And then just a follow-up to the article about virtual income. I think he said it was an 8% annual growth in sales of non-essential products. So can it help us reconcile that historically? The long-term biological expansion target for virtual was approximately 15% to 20% or 25%. Is it still the long-term expansion plan here?And just help us reconcile the difference between the numbers.
Dustin Semach
Yes, absolutely. So, at this point, we continue with long-term growth of 15% to 25%. And again, we talked about the challenge we face primarily in our Cisco business, which accounts for about 30% of our overall business as a whole.
And the tension they exert on the P
But in the longer term, which is why we talk about Cisco in terms of the progress we’re making there, the return of that practice to expansion in that diversity of long-term goals is mandatory for us to achieve that overall rate of expansion. . And so we continue to progress, and we will have a bigger update for you in 2023. And outside of those spaces, we’ve called other fortress spaces, which I would say, basically, when you think about virtual in general, outside the doors of Cisco, business is going well.
Cassie Chan
And those headwinds for the virtual will likely persist into the next quarter and early next year, he says.
Dustin Semach
So if you go back to the comment on the aspect, it’s very positive and obviously very enthusiastic that we’ve taken our systems implementation business, our professional facilities business back to expansion in the third quarter. And that’s a main indicator for the ramps we do. But if you think about that business, as well as our Genesys practice, our two main spaces where we have recurring revenue, and it takes a while once you start developing those programs.
Cassie Chan
they gave it to me It’s useful. Thank you.
Operator
Now we have the following from Bryan Bergin’s line of Cowen. Your line is now open. You can raise your Array
unidentified analyst
As far as consumer functionality is concerned, I perceive that there is a monetary effect, however, the cohort of the two to the five most sensitive turned out to have slowed down particularly over the course of the quarter. Can you tell us about the underlying dynamics at play here and what to expect in the future?
Dustin Semach
So I’m going to answer that question. So, in general, I would say, look, one of the things we talked about earlier is business diversification. There would possibly be some moderation in some of our key customers relative to growth, however, to some extent, overall, as evidenced by our overall functionality in the third quarter. I don’t think there’s any noticeable difference outdoors, as the former is monetary visitors, as we’ve mentioned in the past, compared to the giant COVID-related volumes in that visitor.
And volumes keep going down, don’t they? Even this quarter, in particular, we’ve had a COVID-related effect where we still are: there’s a drop of about $25 million year-over-year between the third quarter of 2021 and the third quarter of 22.
And that’s one of the dynamics, one of the most productive consumers out there. There is a certain moderation of volumes at all levels. They’re basically in the verticals we’ve talked about, where we see some weakness. And yet, again, having said that, we have over 765 customers today, a very varied visitor base and we feel very positive to enter the context we are targeting.
unidentified analyst
And at TTEC Digital, this is the time of change of direction in the last year. And what do you want to do for a more powerful expansion execution here?
Ken Tuchman
Yes, I’m not sure what he means when he says change at the moment. This is not a change of timing. As you know, TTEC Digital has made a lot of acquisitions. And everything that happened was planned, etc. , right down to the hiring of a high-caliber CEO who can grow the company to over a billion dollars.
So what I just need to tell you is that we couldn’t be more excited for Dave to join us. He is a gentleman who has delighted in running that kind of business, etc. He enjoys dealing with the market and its reputation as a double-digit expansion company that will do a great job of developing the company and taking it to new heights.
So, frankly, we feel really smart in the business and will continue to focus on looking to double the business in the shortest time imaginable while maximizing the profitability of the company. And we think about all the trends in the market of what’s going on. Down with the cloud and other people starting out: Other people now perceive that visitor fun is an imperative and most businesses don’t have the modern generation to meet the needs of their visitors. And therefore, we believe that this company has a very long tail with a very bright future.
Dustin Semach
And the only comment to go back to, referring to a previous question, is that, again, the main practice is to slow down expansion right now with Cisco’s practice, okay, that’s still an obvious priority. And again, we are already showing up strength there.
And then the other point that Shelly raised earlier is this comment when we run our analysis practice. There are many positives to our virtual business in general, and that’s the area.
And what’s vital about this comment is that, this practice is evident that we’ve had for some time. And we’re seeing that acceleration now as a result of the acquisitions and integration that we’re doing there. So, there are a number of spaces that we’re seeing now that can become expansion accelerators through 2023. And, evidently, Dave joins us to help implement this even further.
unidentified analyst
Thanks.
Operator
We now have the following from the lineage of Joseph Vafi de Canaccord. Your line is now open. You can ask your
Jose Vafi
Hello World. Hello. Good functionality here in the quarter. And congratulations to everyone on their new roles, and congratulations to Regina on a wonderful career and well-deserved retirement. My inquiry is possibly only for Ken. Ken, I know you are not the reasonable provider. I know you’re offering a wonderful price service overall, and it’s not competitive on price. How can this price proposition be replaced in the existing environment if this is the case or how do consumers understand this in the market and how can the competition try to take advantage of weak demand relative to some of their prices?
Ken Tuchman
Bonjour. Eh well, first of all, as I said before, we have no visitor cancellations. So, in itself, this tells them that we don’t have any upheaval because of the way we compare our activities. What I would like to tell you is that we are very focused on the economy with our consumers. And what we demonstrate to our consumers day in and day out is the total charge that must be served and the total price provided.
So what I just need to tell you is that consumers are adapting more complicated than a few years ago, whereas a few years ago they were consistent with maybe focusing on which is the lowest hourly charge or which is the lowest. Consistent cost per minute. And what we’ve now shown you is that you can’t measure it that way.
What you want to measure is outside the results. We provide our clients with a wealth of analytics that consistently prove that we offer the lowest overall cost. And that’s why our integrated base continues to grow.
So a smart example would be to go back to the days when we were talking to The Street about how we were very aggressively raising the wages of our frontline workers. We were the first in the industry to get very significant frontline pay raises and power to pass them on.
What we’ve shown our clients is that by doing so, we can hire a higher-quality worker who has much more retention, who acquires the skill at a much faster rate, who has higher quality. And that ultimately creates what we call best-in-class first-contact resolution.
And so, at the end of the day, the vendor who pays the associate less or doesn’t hire the higher-quality employee—everything from their longer communication times to things like their first-touch solution—isn’t so good. And in the end, on the Engage side, for example, it’s the first-touch solution that ultimately reduces the total cost of service.
So, in some cases, you can say that we are offering the best prices, at the end of the day, our consumers are very sophisticated. And they are constantly looking for our functionality rather than any other they may be employing right now and constantly. comparing us to their inner captives.
And I’m happy to say that in most cases, because they provide us with the data, we outperform their inner captives, not to mention our other peers who provide similar services. I hope that answers your question. But it also goes without saying that this is the explanation of why Shelly and her team are also discovering all the other opportunities abroad very quickly, because our purpose is to continue to generate many more businesses still in many other countries and to be to help our clients. With that too.
And that’s why Colombia took off and did so well and that’s why we see multiple short-term announcements from other countries that will open and go live in the very short term.
Jose Vafi
Great, it’s the right color. Thank you very much Ken. Je I appreciate it very much.
Operator
Now we have the following from the James Fauette line of Morgan Stanley. Your line is now open. You can raise your Array
James Robinet
Thank you so much. I wanted to ask you, Shelly, you mentioned that there is a part of your clientele that, for regulatory or other reasons, has to keep things down. So, I wonder how much of your source of income is, that’s it now? And I actually assume, operationally, that those consumers are potentially facing their own limitations, etc. , how do they tend to deal with the limitations that they have?We often see other people moving abroad, etc. , to check to reduce costs. But obviously, this would not be imaginable to them. So, just look to get some color in that component of your visitor base.
Shelly Swan
Oui. Eh, well, it’s the regulated industries that come with some of the paints that we do in the BFSI vertical, in the physical care vertical and then, notoriously, also in the public sector vertical, where we have our concentration of resources on land. . And like you said, James, it’s not. . . It is not a question of whether they need to move the paintings outside. They can’t, right? These are authorized paintings. This is a more complex job.
And I think, so how do we deal with this with them?I mean, we’re just, I think we have your beloved spouse in part because of the education systems that we’ve put in place and, what we’ve been able to demonstrate in terms of our ability to take on this complex task.
And in particular, in many of those cases, there are a lot of seasonal ramps that we have to work with the client, and we can be very agile from that point of view. And I believe it will remain a vital component of our future. And we, part of the eBook, some of our e-reserves this quarter and the $200 million included more paintings there.
Dustin Semach
And then, James, just to improve some of the numbers. Therefore, at BFSI, about 40% of the paintings are licensed. And our health care, about 24% of the paints are allowed, and they are acquired from the point of view of the coast.
james robin
They gave it to me they gave it to me I appreciate that. And then, in the shift overseas, often, we see that the result is, consistent perhaps with a drop in profits or consistent with the capita profit source at least, even higher margins. So how do we deserve to think about this?have an effect on P?
Dustin Semach
So, some things I would say. The first is, once again, that we are not concentrating on transitioning from inland to offshore paintings. We focus on expanding with our clients, expanding our overall portfolio percentage, and doing it offshore. And so far, that’s the movement we’re in and about.
And James, we haven’t noticed where we take dollar-for-dollar systems and move them somewhere else, which is obviously at a much slower pace, a higher margin. And in doing that, we take the most productive of both worlds, where to maintain the national business that we still have expanding.
And for some of the reasons that we just described, it’s true, that it’s to some extent or there’s a ditch around it, so we’re going out to sea where we can. And there is a very important demand in all spaces and many of our investments go to the region.
And to give you an idea, there is a margin gap of about 10 problems in gross margin between domestic and foreign work. And if you take a look at ours, obviously, the site opened in Colombia and we discussed it 3 or 4 now that we are. At this point, we opened last year. And we will continue to do so.
And then, the era of recouping those investments is very rapid compared to the charge of staying on site, establishing a leadership on the site, and then getting a visitor. And we have a tendency to do that now, in large part with our built-in base, as a visitor anchors in those new countries, those new geographies. And so far, the anchors we’ve left with have been opportunities for expansion, not what I would say, a combined transition or change. Help?
James Robinet
Help. Thank you so much.
Operator
Now we have the following coming from the Vincent Colicchio line of Barrington Research. Your line is now open. You can raise your Array
Vincent Colicchio
Yes, Ken, I’m curious to know what your offshore percentage of the delivery mix is today by order of magnitude if you don’t have the exact number. What if you have a goal?
Ken Tuchman
It’s around 30%, and our goal is to reach 50% in the not-too-distant future. Obviously we see that, thanks to our concentration in this area, we succeed, especially when we start loading more languages, especially in the Asian area. That’s where we are now. In other words, one of the problems is that our national business helps to continue growing. And so it amplifies the offshore percentage.
So, on the one hand, it’s a smart challenge. On the other hand, our desire is to bring this to 50%. And I would tell them that I think our sales organization is doing a wonderful job and is very successful. And I think you’re starting to see that 30% percentage add up in the next few quarters.
Vincent Colicchio
Yes, thanks. And a macrorelated on the prospective positive side. Do you see acquisition valuations more attractive?And do you see wage inflation moving more in your direction?
Ken Tuchman
I would say it is; First, we believe that acquisition valuations are passed on back and forth. But I’ve noticed this movie many times. This is my fifth recession. And it’s like a real estate, and it takes a while for the trader to realize that the top of the market is not the value he is trying to get.
I would estimate that we will not see the possibility of valuation discounts until as soon as possible, at the end of the first quarter and, in the case of cases, and more likely, in the middle of the year. And that will obviously play a role.
The other thing is that money markets are stuck right now. It’s going to be very attractive because personal equity players don’t actually have access to leverage right now in transactions. It will also have an effect on declining valuations.
Did you have a question. . . ?
Vincent Colicchio
Yes, wage inflation.
Ken Tuchman
Inflation of employee wages. I think. . . I’d say I think it’s too early to call. Do I think that as more and more corporations announce their reduction, that in itself will have an effect on wages?And do we expect to see more?
Sí. De fact, we who have recently made headlines have anticipated it. So, I guess, what I mean by saying this is that I think we’re going to see less demand for higher wages, probably even faster than we’re going to see salespeople’s valuations go down. My most productive guess is that we will see genuine benefits, so to speak, for the global economy and climate right after the first day of the year. And this is. . . I. . . We have many reasons to feel that.
But I would say I think that’s when it’s going to start settling in. I think that’s when the effect of interest rates will have an effect on companies that hire more labor, etc. benefits in the future.
I think the one big unknown that each and every CEO is looking to solve is that we’ve all noticed big pay rises on the front lines. It’s hard to believe that the base wages we’ve moved to now will fall. It will simply be less difficult to rent people, less difficult to stay with them longer because they will have fewer opportunities to move elsewhere for a little more money, and so on.
So I hope it’s useful.
Vincent Colicchio
Yes. Thank you.
Operator
Our last one comes from the lineage of Anja Soderstrom of Sidoti. Your line is now open. You can raise your Array
Anja Söderström
Hi, thank you for answering my question. I have just been followed up. They previously talked about how some of their consumers have switched providers. Can you tell us who those other people are?
Shelly Swan
Well, I think we probably wouldn’t share the names of express customers.
Ken Tuchman
Nor that of the competitor.
Shelly Swan
Oui. Ni the names of competitors. I just need, let me give you some color. Some of the examples I discussed were in the BFSI vertical. And so were we, and also in hospitality, I think it was definitely a positive thing for us here in the third quarter and continued momentum in the fourth quarter, where this is a domain where we’re taking actions based on, and not being the lowest price, but being, based on the highest price based on our performance.
And obviously, we are, as Ken said, our consumers are sophisticated. So, we have a cost-effective solution, but we are very focused on the price, the overall price that we offer to our consumers. performance and our ability to work with our consumers in terms of being able to get other people up quickly.
Ken Tuchman
However, I believe that on the virtual side, I can load color. And on long-term calls, Dave will answer that too. Where we constantly see, what you need to call it, defections from other competitors, etc. is that you have several ISIs that offer features on a plethora of platforms, so to speak.
None of them are as focused on CX as we are. None of them. And so, as a result, we win, pretty consistently, vital contracts where we take over built-in ISTs for years, not months, years, several years, and they pull them off and say, for this CX project, we want you to get it back. We want you to fix it, that, etc.
And, by the way, it’s not like we’re targeting those ISGs. It’s just that consumers don’t get the speed and CX capability of those other ISTs and, as a result, we are the beneficiaries.
The last point I’d like to make about this is that, because we’re so well placed with the big hyperscalers, they, when they encounter a challenge where, first of all, they handed over the business to a great ISG, a global systems integrator. And the visitor shows that they are not satisfied, comes to us and says, we want you to step in and take over because it affects our reputation of how this implementation was going. And that’s what we’ve been doing for years, and we continue to see those opportunities.
Anja Söderström
Thanks.
Ken Tuchman
Thanks.
Operator
Thank you for your questions. That’s all the time we have today. I give the floor to Paul Miller.
Pablo Miller
Yes. Thank you all for your participation and interest in TTEC. Operator, you can call. Thank you.
Operator
This concludes TTEC’s third quarter 2022 earnings convention call. You can now log out at this time.