Welcome to TTEC's Third Quarter 2023 Earnings Conference Call. 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 shortages 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 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 the 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 continue 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 a 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 the 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 by 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 the 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 continuing 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's 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, public sector, 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 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 work in healthcare and public sector relative to our earlier growth expectation. The balance of the revenue reduction came from the telco vertical for the reasons shared by 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. 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 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 on 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, 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 simply was more of a revenue mix in the third quarter, where we had this one-time product that impacted margin. But as we move forward, you're going to 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.

Can you provide more insight into the significant bookings in Digital during the fourth quarter? You mentioned 70 potential deals, which sounds promising. Could you elaborate on that in relation to the comparisons, especially considering the recent slowdown? Also, what specific use cases are contributing to 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 jumps up?

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

Yes, that's for sure. We are seeing a lot of demand and opportunity in our Microsoft practice, especially on the CRM side, as well as with AWS. We're also excited about Cisco's new capabilities that were recently announced. Overall, I think the demand is pretty balanced across the board, and we are introducing new partners that are also in high demand. More people are realizing that their technology is outdated, and to leverage modern CCaaS and omnichannel capabilities, they will have to move to the cloud. With only 15% of enterprises currently in the cloud, we see this as a significant opportunity for the years ahead.

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, here's my take. We were just discussing this before the questions. I've experienced several recession cycles, and in each one, clients start to recognize the likelihood of tough times ahead. As I mentioned in the last quarter call, they prepare for the worst while hoping for the best. Currently, the economic situation is quite unique, and many people don't fully grasp what might happen next, especially regarding interest rates and how long they will remain elevated. We are in a familiar cycle, similar to what we saw at the start of the pandemic, where clients take about 90 to 120 days to reassess. During this time, they tend to slow down and reflect on the economic landscape. That was exactly the case during the pandemic, and once they understood the new normal, they quickly resumed business. Right now, many in the market have overstaffed due to the pandemic and stimulus funding, and they're working on reducing that cost structure. This trend affects most sectors; however, the public and federal sectors seem unaffected. Commercial aspects, on the other hand, are indeed feeling the impact. While not every company is cutting back, there is a general uncertainty around forecasts for the fourth quarter, leading to a more cautious approach. Our service levels are not as high as they used to be because of the desire to avoid overstaffing. I would be surprised if other similar companies aren’t experiencing the same. Both Shelly and Dave frequently communicate with our clients and are receiving the same sorts of feedback. When I talk with clients, I gather similar insights. While I am not providing specific areas, I did mention telecom as a relevant example. The telecom sector relies on new product launches with significant technology advancements to encourage customers to switch products. However, it’s becoming apparent that these products are starting to feel repetitive, making customers content to keep what they have. This is impacting the volume of new customers and tech support. Additionally, with recessionary pressures, consumers are definitely pulling back on non-essential spending. I could elaborate further, but I don’t want to dominate the conversation. I hope this helps, and I’m open to discussing this more privately if you wish.

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 absolutely are 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 to increase in FY '24 relative to FY '23?

No, that hasn't really been a challenge for us. So far, most of our discussions with existing clients focus on expansion, new business lines, and increasing the volume of work we're currently doing. We're also looking to broaden our presence in the areas where we operate. This has not been a significant obstacle for the third quarter or this year. We're also enthusiastic about the new clients in our pipeline, thanks to our new offshore locations that we can now offer.

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

I would refer back to what Ken mentioned earlier. Our clients seem to be conservative in their forecasts due to budget pressures. There’s always some variability where clients may be overly cautious then realize they need more volume. As Ken pointed out, everyone is preparing for the worst, considering what their demand might look like for the next quarter. There isn't much more to add on that front. Some clients are indeed conservative but will likely return for more, as they are all being very cautious at this time.

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 the guidance provided in the press release is for the entire year. Instead of trying to be overly precise with the midpoint, we've simply 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. Hypergrowth has unfolded as we anticipated. Earlier this year, we mentioned it would decrease to around $300 million, and we believe that will be our year-end figure. As Francois noted, hypergrowth had a significant year-over-year impact on our Q4 guidance. Francois, do you have anything to add? There are really no changes on that front.

Just a bit more insight on the impact for our Q4 year-over-year. The $48 million revenue decline consists of $40 million from hypergrowth, with the remainder attributed to seasonal work that Shelly mentioned earlier. These are the main factors, and the hypergrowth aligns with our expectations. Ultimately, we were optimistic that the healthcare season would put us in line with last year.

How would you describe pricing and clients in terms of seeking better terms?

I would say it's pretty steady. It continues to be competitive. Our discussions are primarily focused on reducing any barriers to adding new partners, rather than on new pricing or terms.

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 Q4 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 Q4 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 Q4?

Yes. Regarding your question about the three verticals, Francois mentioned that they experienced a 7% growth in Q3 and are projected to grow in low single digits for the remainder of the year. We are optimistic about those verticals and continue to see good opportunities in our pipeline for all three. Additionally, we have a significant client set to go live in the public sector at the start 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 believe we have several client opportunities arising from our clients' desire to diversify their partner networks. I am optimistic that we will continue to see more of these opportunities due to our offshore and nearshore expansion, which has provided us with more options to offer our clients. We have those locations operational now and are prepared to move forward. We are definitely noticing some opportunities in our pipeline that we are currently pursuing.

That's great. I know you mentioned doubling the Hyderabad headcount. Are there specific technologies or functional areas where you're seeing demand that would justify doubling that staff?

Well, it's really across the board for our Digital business. The great news is that Dave is expanding the team to support all of our partner practices, likely to varying degrees depending on the work involved, but it's not focused on just one particular partner. We also have offshore capabilities in our analytics practice, for example. This will be a major strategic focus for Dave moving forward, and we're making excellent progress there. We're excited about that.

Thank you for your questions. That is all the time we have today. This concludes TTEC's Third Quarter and 2023 Earnings Conference Call. You may disconnect at this time.