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Operator
Welcome to T-TECH's third quarter 2021 earnings conference call. I would like to remind all parties that you will be in a listen-only mode until the question and answer session. This call is being recorded at the request of T-TECH. I would now like to turn the call over to Paul Miller, T-TECH Senior Vice President, Treasurer, and Investor Relations Officer. Thank you, sir. You may begin.
Paul Miller
Good morning and thank you for joining us today. T-TECH is hosting this call to discuss its third quarter earnings result for the period ended September 30th, 2021. Participating in today's call are Ken Tuckman, our Chairman and Chief Executive Officer, and Regina Paolillo, our Global Chief Operating Officer. Yesterday, T-TECH 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 2021 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 opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments which 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 recently filed Form 10-Q and our 2020 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 Tucker.
Ken Tuckman
Thanks, Paul, and good morning to everyone. Our performance this quarter was solid once again as demand for end-to-end CX technology and service platform continues to grow. Revenue over the prior year quarter increased 15% to $566 million, and bookings for the quarter were $171 million, including 19 new clients. Our current pipeline is comprised of a healthy mix of our CX technology and service offerings with both new and existing clients. Our booking volumes, backlog, and existing pipeline are setting us up for a continued long-term growth. Our client base is well diversified across verticals and geographies with accelerated demand in the digital hypergrowth segment. We now serve 100 clients in this category with an annualized revenue run rate of $400 million and a 38% growth rate in the third quarter versus the same period last year. These wildly successful hypergrowth companies span connected in-home fitness, food delivery, e-commerce, e-gaming, online travel, health tech, fintech, streaming media, and more. These digital natives are thriving based on their commitment to deliver amazing, personalized, and effortless customer experiences. As they scale and evolve, they are depending on our CX technology and operational leadership to ensure that their experiences continue to set them apart. Whether they are born digital unicorns or blue-tip industry giants, Companies are recognizing that in the experience economy, customer obsession is the key to their success. They acknowledge that to acquire, retain, and grow customers in this competitive marketplace, they must rapidly modernize their CX capabilities. However, when they move to implementation, a massive challenge awaits. Helping clients solve these complex CX problems is our singular focus. The roadblocks are numerous, complicated, and costly to navigate. Many brands lack a clear CX transformation roadmap. They suffer from an antiquated legacy mindset and operate rigid processes that detract from the customer experience. They have disconnected data because they are unable to harness the full value of their CRM platforms. In addition, their disjointed mix of point solution technology vendors makes it impossible to deliver a fully seamless and connected customer journey. As a trusted end-to-end CX technology partner, we solve for these transformational outcomes at scale. Our comprehensive end-to-end CX technology services platform was built to solve these tough challenges for our clients across the globe. Every day, clients are utilizing our proprietary technology to help them orchestrate disparate systems, simplify complex processes, and enable seamless journeys that are fluid, effortless, and engaging for their customers. Now let me share some examples of how we're helping clients achieve meaningful outcomes as they improve their customer experience. I'll start with T-TECH Digital. We've been deliberate We've been deliberate and aggressive in building a holistic digital platform with depth, breadth, and scale and flexibility. Working alongside our valued clients, we've developed our own IP to deliver breakthrough results and earn stellar credentials through our extensive delivery of value-driven outcomes for our clients. Others may say they have digital CX technology capabilities. but none can match our track record with successful CX transformations. Managing hundreds of thousands of SaaS licenses right now, we're one of the largest cloud contact center providers in the world. We bring unique domain expertise and deep operating knowledge to every phase of digital transformation, from design through deployment and ongoing operations. Our multidisciplinary digital team is comprised of CX designers, full-stack engineers, technologists, and data scientists who design, build, and manage CX technology to deepen customer loyalty while increasing revenue, profitability, and wallet share for our clients. We take a vertical-focused, customer-centric approach to transforming our client CX environments by combining thoughtful planning, best-fit technology, and our proprietary IT to deliver modern technology solutions from the ground up. For example, in our automotive vertical, we're helping several of the largest global automotive brands reinvent their automotive customer lifecycle. Advances in connected cars, self-aware vehicles, always-on sensors, and new business models are moving so quickly that our clients are leaning on us for our CX and automotive domain expertise to future-proof their customer experience. Our CX architects and engineers are building transformation plans that include the technology, processes, and people requirements to enable insight-driven interactions that will dramatically improve the customer experience and increase frontline employee productivity. These agile solutions are built around a vision of a seamless customer journey that touches every aspect of the dealer experience and the supply chain. In the healthcare space, we're driving initiatives to deliver a better patient experience for providers and improving operating efficiencies for payers. For a national healthcare provider, we developed a mobile behavioral health assessment that reduced bed admittance by over 40%. In another healthcare example, for a large payer, we recently architected a data and AI capability to ingest internal and external data feeds to gain insight into population health management. This information will enable our clients to improve chronic disease treatment and create targeted proactive prevention campaigns. Our impact in this vertical continues to grow as patient experience becomes increasingly digital. With our aspirations of growing our digital business to $1 billion, we continue to make significant investments in our differentiated platforms. This quarter, We brought on several strategic leadership hires to further advance our go-to-market. We're expanding our product portfolio with new capabilities, and we continue to invest in strengthening our relationships with our CX technology partners. Our focus on bringing T-TECH IP to market is another example of how we're differentiating our offerings and increasing our market share. Based on our deep expertise working with industry-leading CX technology partners, we've developed turnkey cloud solutions that enable systems to seamlessly work together without the pain of lengthy and costly integrations. Available through direct and indirect technology marketplace channels, these apps enable rapid deployment and integration of workforce management, agent productivity, and analytic solutions. This month, we added a new suite of CX applications to our IP portfolio with the launch of our proprietary Smart Apps Cloud, designed initially for our financial service clients. Focused on eliminating CX pain points for customers and employees, our solution streamlines customer identification processes with safe and secure protocols while reducing the administrative burden of frontline subject matter experts. These proprietary apps are filling a vital need in the marketplace and are providing us with exciting new platform for growth. Now let me turn to our digitally enabled engaged segment, where we continue to drive vertical differentiation to help our clients go to market faster, stay ahead of industry trends, and outperform their competition. Like our approach in our digital business unit, we're building and delivering industry-specific solutions with a combination of our own purpose-built technology and specially trained subject matter experts. For example, for a global online vacation marketplace, we're building and operating an AI-enabled trust and safety governance center of excellence, where our fraud investigators are using our own advanced data modeling to detect and eliminate online fraud. For a fast-growing fintech unicorn, we created our own AI-based training platform to accelerate speed to proficiency for our financial service advisors. For a next-gen digital health insurer, we created a membership growth engine by arming our healthcare advocates with proprietary sentiment analysis models and intent mapping to inform next best actions and accelerate sales. And for a cryptocurrency trading platform, we're using natural language processing and our own predictive analytics to help our fintech advisors proactively manage highly complex interactions. We continue to expand and optimize our global delivery footprint by providing clients a mix of onshore, nearshore, and offshore, and work-from-home options. Our expansion strategy includes a diverse set of delivery models, locations, and languages. I'm pleased to announce that we're now open for business in Colombia, and we'll continue to expand our global delivery footprint in the months ahead. Now I'd like to take a moment to provide a brief update on the September 2021 cyber incident. Unfortunately, it's no surprise that companies and governments across the globe are operating in a heightened threat environment with cyber incidents occurring daily. Since we began our business nearly four decades ago, security has been at the forefront of everything we do. Our operations have been rock solid and we've been diligent in securing and protecting our environment for our clients, their customers, and our people. The cyber incident occurred on September 12th, and we moved quickly and decisively to identify, contain, and resolve the event. Our ability to respond rapidly is a testament to the resiliency of our organization and the enduring trust we've earned with our loyal client base. We view this as an isolated incident that had a temporary impact on a portion of our operations. In a short period, we were fully operational and do not expect any future impact on the business or our financial performance. Regina will provide additional details. And now, to wrap up. Across the globe, we're helping our clients radically reimagine how to build authentic, lasting, and profitable customer relationships. In a digital landscape that is constantly changing, We're building automation, AI, and omnichannel capabilities into everything we do. These technologies are either natively built in our engaged business or they're being leveraged from the offerings engineered in our digital business. To our clients, it doesn't matter where they come from. They simply want one trusted partner to manage and optimize all elements so that they can move quickly, reliably, and with confidence. Our ability to offer clients a full spectrum of digital capabilities combined with decades of operational frontline CX experience distinctively positions us in a category all of our own. As we embark on the next decade of growth, our longer-term strategic initiatives have not changed. We are relentless in our pursuit to increase our market share by adding differentiated CX offerings, building new channel partnerships, expanding our delivery footprint, growing our client base, and executing strategic and accretive acquisitions. Our strategy gives us several attractive avenues to leverage profitable growth to increase shareholder value, including strong cash flow, a well-capitalized balance sheet, and ongoing dividends. Our continued progress would not be possible without the 60,000-plus incredible employees across the globe. Through our ESG initiatives, We continue to make progress on commitments to build a future that is diverse, inclusive, equitable, and sustainable. As a CX company, these efforts are hardwired into the core and are a meaningful part of our culture of caring. We strive to be the employer, partner, and investment of choice by consciously making decisions that benefit our people, clients, shareholders, and communities where we operate. It's a true honor that earlier this year, Forbes magazine named T-Tech one of the best large employers of 2021. And just last week, Forbes named us one of the top 25 female-friendly companies in the world. Finally, I have some exciting news that I want to share. Yesterday, we announced that Regina Paolillo as T-Tech's Global Chief Operating Officer, a newly created role, and Dustin Seemax to succeed Regina as T-TECH's Chief Financial Officer. With T-TECH Digital and T-TECH Engage, we've created a winning CX technology and services platform that is prepared to take us to a dynamic new level of performance. To unlock its full potential, we've been deliberate in developing an experienced and tenured executive bench. With Regina and Dustin in their new roles, we're fortifying our leadership team to enable me to fully focus on the key drivers of client and shareholder value creation. These include strategy development, growth, technology innovation, and execution of strategic and accretive M&A. Regina's diverse and tenured experience as our T financial and administrative officer for the past decade at T-TECH, combined with the strategic, financial, and operational roles she held at TriZetto, General Atlantic Partners, Genpak, and Gartner position her well to execute this newly created Global Chief Operating Officer role. Dustin was recruited to T-TECH in 2020 with the intent to become our CFO. Over the past 12 months, he's demonstrated strength in building and executing our finance functions to drive revenue growth, expand margins, and increase cash flow. Alongside his T-TECH experience, Dustin has had a relevant and noteworthy career in the technology services and business process outsourcing industries, including Rackspace Technologies, DXC, CSC, and IBM. Before I close, I want to thank our global T-TECH team for their continued and loyal commitment to serving our clients and thank our shareholders for your continued support. I'll now hand it off to Regina.
Paul
Thanks, Ken, and good morning, everyone. I want to first reemphasize Ken's comments regarding the overall fundamental strength of the business. Our diverse and integrated offering portfolio, go-to-market execution, delivery platform, and global footprint have never been more relevant. Our strategy is resonating in the market, and it shows in our year-to-date bookings, expanding revenue backlog, and increasing sales pipeline. Turning to our new business signings, we had 171 million in bookings in the third quarter of 2021. I'll share a handful of highlights. The bookings growth, excluding pandemic-related work, was 47%, with digital growing 57% and engage increasing by 42%. We signed 10 multi-segment deals, totaling $55 million, or $5.5 million per deal, well above our overall average deal size. We acquired 19... new client relationships. The recurring revenue bookings increased 250 basis points to 57.6% of total bookings in the quarter. From a vertical perspective, we have significant bookings in healthcare, financial services, technology, auto, and telecom media. With our third quarter year-to-date bookings of 545 million, our 112% LTM revenue retention, a 98.8% in-year revenue backlog coverage, and a next six-month pipeline of over $1.4 billion, we're confident in executing our full-year 2021 guidance and delivering our previously articulated 2022 revenue growth rates. Before jumping into our third quarter and year-to-date financial performance, I'll take a few minutes to address the September cybersecurity incident. It's important to note that the incident only affected the engaged segment and only a portion of the engaged clients. From the beginning, our top priority was to safeguard our clients, people, partners, and shareholders by ensuring that we execute a swift return to service and minimize any data exposure. Our risk management incident response and business continuity protocols were immediately activated. The teams worked tirelessly to restore the systems that were affected. By the third day, we had 95% of our client services operative, and within five days, 100%. The incident had a relatively modest one-time impact on the engaged third quarter results. Revenue was negatively impacted by approximately 15.2 million, and adjusted EBITDA and operating income were negatively impacted by approximately 24 million, including the profit on the lost revenue and expenses related to system restoration and remediation, the investigation we completed, and compliance activities. We expect to recuperate the lion's share of the lost profit and incident expense through our various insurance programs over the upcoming quarters. I am pleased to share with you that beyond this five-day period post the incident, we have not experienced nor do we expect to experience any further client impact from this event. I want to personally acknowledge our employees, clients, and partners for their understanding, trust, patience, dedication, and support as we navigated through this cyber event. Turning to our third quarter financial results, on a consolidated basis in the third quarter of 2021, revenue increased 15% to $566.7 million. Taking into consideration the $15.2 million of revenue loss from the cybersecurity attack, the revenue growth would have been 18%, exceeding the high end of our guidance. Further adjusting for the large short-term government contract in the 2020 results, revenue increased 23.5%. The organic revenue growth was 4.3%, and adjusted for the government contract and one-time $15.2 million engaged revenue loss from the cybersecurity incident the organic revenue growth rate would have been 12.3%. Adjusted EBITDA increased 2% to 78.7 million or 13.9% of revenue compared to 15.7% in the prior year exceeding the high end of our guidance. Non-GAAP operating income decreased 5.9% to 59.4 million or 10.5% of revenue versus 12.8% in the prior year period, exceeding the high end of our guidance. The decline in our adjusted EBITDA and non-GAAP operating income was driven by ramps in Engage, the deferred revenue purchase accounting adjustment in digital associated with the Avtex acquisition, lost profit on the one-time revenue loss from the cybersecurity incident, and a step up in investments in R&D, sales, marketing, and geo-expansion, all of which were planned. Non-GAAP EPS was $1.01, relatively unchanged over the prior year and well above the high end of our guidance, predominantly due to our operating income performance and a lower tax rate. Our exchange had a positive impact of $3.1 million on revenue and $1.3 million on operating income, primarily impacting our engaged business. Turning now to our third quarter segment results, Our digital segment revenue increased 62.1% to 124.1 million in the third quarter compared to the prior year period in line with the high end of our guidance. The recurring revenue from our subscription-based CX Cloud and managed services grew 18.6% and our highly reoccurring professional services revenue, primarily systems integration, grew 84.2%. We are particularly pleased with the growth in our Genesis and Amazon Connect omnichannel platforms, our Microsoft Salesforce practices, and our digital IP offerings. Client product purchases from our Tier 1 omnichannel technology partners were also higher than usual in the quarter, primarily from a large existing healthcare client's investment in its CX delivery platform, which we are in the process of implementing. Non-GAAP operating income was 15.6 million or 12.5% of revenue compared to 15.4 million or 20.1% in the prior year period in line with our guidance. The margin was primarily impacted by a combination of the AVTEX deferred revenue purchase accounting adjustment and the quarter's offering mix, which had a higher than usual amount of lower margin product sales. Excluding the deferred revenue adjustment, the operating income margin would be approximately 14%. With approximately $377 million of 2021 revenue backlog, representing 93.6% of our revenue guidance, we are highly confident in meeting our 2021 digital revenue guidance. Our engaged segment reported third quarter revenue of $442.6 million, an increase of 6.3% over the prior year period, all organic. Adding back the estimated loss of the revenue from the cyber event, revenue growth would have been approximately 10% year-over-year, exceeding the high end of our guidance. Our Engage segment's organic growth highlights include new and expanded lines of business in our embedded base, significant growth in our healthcare, travel, auto, and technology verticals, revenue growth contributions from all regions, with Canada and EMEA growing 146% and 43%, respectively, Our hypergrowth-borne digital sector growing 38% and an LTM revenue retention rate of 118.9% versus 105.6% previously. Our engaged segments non-GAAP operating income declined 8.2% to 43.8 million compared to 47.7 million in the prior year period and significantly overperformed our guidance. The margin was 9.9% in the third quarter of 2021 compared to 11.5% in the prior year period. The margin decline is primarily related to the higher margin COVID programs in the prior year period now being replaced with longer-term programs. The higher COVID margins were a function of the intense supply chain challenges and reduced time to ramp, enabling us to premium price. As we continue to scale, improve our offshore mix, maximize our delivery footprint, and increase the percentage of revenue, derived from higher margin offerings, we expect to restore our engaged non-GAAP operating margin in the range of 12 to 13 percent. I'll now share select balance sheet and working capital metrics. Third quarter cash flow from operations decreased to 42.2 million from 81.5 million. The decline is primarily due to changes in working capital related to the timing of payroll funding and insurance proceeds. DSO improved to 57 days in the third quarter of 2021, down from 63 days in the prior year period and 58 days sequentially. At September 30, 2021, cash was $148.9 million and debt was $811.8 million, of which $805 million represented borrowings under our credit facility. Net debt increased to $662.9 million from $203 million in the prior year, primarily related to acquisition-related investments and capital distributions partially offset by cash flow generation. Capital expenditures were $17.2 million or 3% of revenue for the third quarter 2021 compared to $15.9 million or 3.2% in the prior year. The decrease as a percentage of revenue is primarily due to our continued focus on the improvement and our fixed asset utilization, in particular, our facility and technology assets. Our normalized tax rate was 19.6% in the quarter 2021 versus 20.6% in the prior year. The 100 basis point reduction is primarily due to the jurisdictional mix of our income. We anticipate a forward tax rate of approximately 22%. In the third quarter, we paid a semiannual dividend in the amount of 47 cents or $22.1 million, which was paid on October 22, 2021, to shareholders of record on October 8. This dividend represents a 17.5% increase over the semiannual dividend paid in October of 2020. Before I transition to our guidance, I want to emphasize that we remain highly encouraged on our near and longer-term prospects. In an intense and impatient customer experience market, We are winning by leading with our differentiated outcome-based end-to-end customer experience as a service solution. It shows in our bookings, revenue growth, revenue backlog, and pipeline. Importantly, we are making and will continue to make the investments necessary to execute on our strategy, including advancing our top-line growth rate and scaling our operating platforms. Taking into account the third-quarter impact of the cybersecurity incident, which is offset by the underlying strength in our business, we estimate full year results in line with the guidance range we previously provided. Accordingly, we estimate gap revenue of $2,255,000,000, an increase over the prior year of 15.7%, adjusted EBITDA of $352.4 million, an increase of 15.9% over the prior year, and 15.6% of revenue, compared to 15.6% in the prior year. Non-GAAP income from operations of $285.2 million, an increase of 17.7% over the prior year and 12.6% of revenue compared to 12.4% in the prior year. Non-GAAP earnings per share of $4.57, an increase of 75 cents or 19.7% over the prior year. Other relevant guidance metrics include capital expenditures of approximately 2.9% of revenue, a full year effective tax rate of approximately 22%, and a diluted share count of approximately 47.4 million. Please also reference our commentary in the business outlook section of our third quarter 2021 earnings press release. Before I close, I want to reiterate our directional 2022 revenue and EBITDA growth rate which I first shared last quarter. We currently expect TTECH's full 2022 revenue growth in the 9% to 11% range and 2022 EBITDA growth in the 10% to 12% range. This includes digital revenue growing between 18% and 22% and the engaged revenue growing between 7% and 9%. Additionally, we currently estimate digital's 2022 EBITDA to grow between 20% and 22% and engaged EBITDA to grow between 8% and 10%. We look forward to finalizing this guidance in conjunction with our year-end earnings call. I'll now turn the call back to Paul.
Paul Miller
Thanks, Regina. As we open the call, we ask that you limit your questions to one at a time. Operator, you may open the line.
Operator
Thank you. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star and then 1. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To cancel your request, press star and then two. One moment, please, for the first question. Our first question is from the line of Maggie Nolan of William Blair. Your line is now open.
William Blair
Hi, thank you. Good growth, excluding that cyber incident. I did have a question about kind of where the incident impacted Did it impact any of your top five clients, or can you talk about the dynamics within that bucket, and then just general comments on the health and growth prospects within those top clients?
Ken Tuckman
Hi, Maggie. It's Ken. How are you? What I would say to you is that different clients had different impact. It really only impacted a relatively small group of clients. Most of the impact really had more to do with us, not with our systems not operating. It actually had more to do with just simply us being cautious and them being cautious while we gave them an all clear. So what I would say to you is I'm clearly not going to disclose names or companies, et cetera, but we feel like we're in very good shape right now. And our clients were extremely appreciative of the speed at which we responded and and how we were able to maintain stable systems pretty much throughout the entire event.
William Blair
Got it. That's helpful. And then just in general dynamics amongst your top five clients and growth prospects?
Ken Tuckman
What I would say is that in almost every case, I'm thinking right now of the top three, there's growth. coming from them and expansion coming from them. And in multiple cases on not just the engaged front, but also the digital front. So we're seeing people taking advantage of our capabilities on both sides. Regina, do you want to add anything or Dustin?
Paul
You know, I would just add that, you know, we continue to have, you know, anywhere from 88 to 90 percent of our bookings in our embedded base. you know, a good majority of that ends up in being, you know, in our top, you know, 25, including kind of the top 10. So I would say no change there. You can also, you know, if you look at our LTM revenue retention, so going back 12 months and looking at clients that were in place in, you know, 12 months ago versus where they've grown to today, that growth rate overall is 111%. And Engage, where I think you were talking about, in particular, is almost 119%. And again, a lot of that coming from our largest clients. Also, I think you can take from the reiteration of next year's guidance that we're very comfortable that the machine that we have relative to a go-to-market and the operational excellence is there. We had a bit of a blip with this cyber event. But it was one time and contained to less than a week's time. And we feel good that our relationships are in place. But we're going above and beyond and making sure from a trust point of view that brand that we have stays intact into the future. And we are making the right investments. You don't go through these things without seeing things that can be improved. And we're taking every opportunity to improve them. and work very closely with the compliance and CISO groups within our client base.
William Blair
Okay, thanks Regina and congrats to you and Dustin. Thank you Maggie.
Maggie
Thank you.
Operator
Thank you. Next question is from the line of George Sutton of Craig Hallam. You may now ask your question.
George Sutton
Thank you. This is Adam on for George. Thanks for taking my questions. Great to hear about pipeline backlog and bookings all pointing in the right direction. Ken, I was curious if there's any new or evolving drivers of that recent pipeline activity worth highlighting?
Ken Tuckman
Boy, I almost don't even know where to start. I mean, I think there's a myriad of things. As I was saying in my script, it goes without saying that there's no longer any question from any major company where the competitive battleground is. And as products continue to commoditize and services look more like other services, the true differentiating platform is experience. And so consequently, we no longer have to pound that into our clients' heads. They're now coming to us and saying, we've got to up our game. Many of them have just been historically either taking advantage of their internal captives along with their traditional partners and they're realizing that what they've been offering really isn't differentiated enough and so consequently we're winning a substantial amount of business from people who are basically asking us to help them reinvent their experience on the digital side as well as on the technical side, as well as on the engaged side. The other thing that we're seeing is that the labor markets are getting very, very tight. It's no secret. And many of our clients are really experiencing difficulty with many of their providers as well as their own captives in being able to properly maintain and staff their environments. We tend to be the high-quality provider that tends to pay our front line a more competitive wage, et cetera, and we're not experiencing some of the difficulties that others are experiencing as it relates to hiring and so therefore we're seeing an increased amount of business coming to us because of our ability to meet our staffing requirements that clients are asking us to staff to and consequently they're then asking us to increase the amount of business that they already awarded to us. I'd say that the third area is that there is a huge push to get to the cloud and as fast as possible and that more and more clients are looking to basically transform how they're currently, not only the technology that they're using, but moving away from hosting their own environment of premise-based technology and moving to the cloud and with us being the world's largest partner of companies like Amazon and and Genesis and Cisco, et cetera, it goes without saying that we're pretty much always included in the opportunities that are out there to take advantage of helping these clients move to the cloud. So we're seeing a myriad of drivers. We feel like things are accelerating right now. And then you add on top of that that the economy in many areas is booming. In this travel sector, for example, we are seeing all travel clients right now dramatically try to expand to deal with the increased demand for travel, not only from the standpoint of increased within the U.S., but now that the U.S. borders are open, you've got what's estimated to be another 30% increase in travel. So that's another opportunity. And we're just seeing it across all areas. Our FinTech area is growing very rapidly with all the different FinTech companies and startups, as well as large commercial banks that are adding FinTech to their arsenal to compete with the startups. I could go on and on and on, but the bottom line is that we're seeing strength in virtually every single vertical right now at this point.
Paul
And if I could just add a couple of demonstration points that I think are important in terms of thinking about the reliability of that future growth rate. Year-to-date, we have 52 logos. New logos, these new logos sometimes come in small, but having that level of new logo bodes well for the future as we grow a good percentage of them. Our multi-segment deals, are, you know, 10 in the quarter. But, you know, as I said in the script, if you think about the average deal size, it was $5.5 million, which is almost two times our overall company deal size. So it just demonstrates the strength of the magnitude of the deal when we're combining all of our capability. I want to make a comment on the COVID replacement. You know, we had a lot of angst in the second half of last year and the beginning of this year, will we really replace that? If you think about our year-to-date, in our overall 545 million of bookings, we have around 40 of what we would call pandemic-related, primarily vaccination, related to 216 million last year. So the team's done a very good job of executing that replacement that was so important. And then last but not least, which really speaks to margin, if you look at our year-to-date bookings, we've got about $113 million in the engaged business that's offshore, and that's about three times what we were last year. So nice, you know, getting back to the balance between onshore and offshore, which will bode well for our operating margins.
George Sutton
Great detail. Thanks, guys.
Operator
Thank you. Next question is from the line of Mike Latimore of Northland Capital Market. You may now ask your question.
Mike Latimore
Great. Thanks. Yeah. Next quarter. Congratulations, Regina and Dustin. Thank you. On the, I think you gave a revenue retention number on Engage, 118.9%, up a significant amount year over year. Can you just put a little more color on that? You know, is that, more seats handling voice calls? Is it messaging? Like just a little bit more color on what's driving the revenue retention number and what is a kind of healthy, solid number for that?
Paul
So I would start by saying that, you know, it's a function first and foremost of retention, right? Just base retention of the existing revenue. So we have less turn and volatility in our base volumes. Second, it's a sign that the bookings, right, that we talked about where, you know, 88 to 90% is in the embedded base are yielding. Second, I would say that, I guess next I would say that, you know, in digital, it's been, you know, it's been, I would say, Early on, it easier go to find new clients for the digital business that were very interested in transforming their technology. It's taken more time to go back to our embedded base and execute more digitization. Now, that digitization can come in the form of what you're talking about, being able to handle non-voice types of calls. So that's a part of it. but it's also doing the transition of the technology. And, you know, we're finding where we leverage outcome-based in our embedded base, you know, wherein we make a commitment that the number of associates or the volume that an associate can handle with better technology, we put skin in the game on. So those are a couple of things I'd mention. Ken, you want to add?
Ken Tuckman
The only part I would elaborate on is that we're definitely seeing more opportunities in the textual-based area, the messaging area, which is something that we've been pushing for, et cetera, so that we start to really increase our mix of voice and then across all the different channels. And so obviously as we help clients, with their digital capabilities and add Omnichannel, and then when they choose to use this for Engage, that feeds more messaging business to us, more textual business to us, et cetera, and gives us more opportunity to handle that business in other markets, nearshore, offshore, et cetera, that are potentially better margin as well. So that's really all that I would add.
Mike Latimore
And then just, I guess, on the acquisition front, what would be the – top kind of category you're thinking about in terms of additional acquisitions?
Ken Tuckman
Well, as you heard us say, our goal is to get our digital business to a billion dollars. So we're going to do that through a combination of organic and through M&A. And so clearly we have our eyes out for opportunities that we think would be strategic and accretive to our digital business. And then secondly, we're very rapidly expanding the geography of our engaged business, and so we're open to opportunities in that area as well. But what I would say to you is that we are very actively out there looking, and at the same time, we're not going to do anything stupid. as it relates to that we need to pay a market competitive fair price and not overpay for something, so to speak, so that it's problematic in the future.
Mike Latimore
All right.
Ken Tuckman
Thanks. Thank you.
Operator
Thank you. Next question is from the line of Joseph Vaffey of Canaccord. Your line is now open.
Joseph Vaffey
Hey, guys, good morning, and congrats to Regina and Dustin on the well-deserved promotions. Maybe I might have missed it, but did you say what percentage of the business now is hyper-growth clients, Ken?
Ken Tuckman
No, no, that we gave a percentage. We said 400 million of our revenue is now coming from hyper-growth and growing very rapidly.
Paul
So, you know, 15% to 17%, yep.
Joseph Vaffey
Got it. And when you look at those hyper growth clients, do they book new business differently than, say, kind of a traditional or a blue chip company? Are the bookings numbers kind of smaller and grow with them, or is it kind of the same type of bookings up front with those clients?
Ken Tuckman
That's a very good question. I'd say that they definitely are smaller bookings up front. But then what happens is that when they catch fire, the speed of zero to 60 is nothing like with a traditional Fortune 500 company. And so, you know, I mentioned the categories that we're winning business from. You can imagine who some of those companies are. And so they may come on as, I'm making it up, but a million-dollar client, and in six months or 12 months, they become dramatically larger than that, many-fold the size, and then just continue to keep on growing. So I hope that helps, but that's not uncommon. And we're signing between three and four of those types of deals a month right now
Paul
I mean, you know, I think we also gave the number, right? So, you know, it's going to be a run rate of 400 million, and we have about 100 clients, so it's an average of four, but you can have clients in there that have 30, 40 million because they, and we're not going to name the brands, but they're the ones that you're using every day, you know, that just over the last couple of years, you know, we've been focused on this for probably four years now, very focused, and, you know, I would, I think we've done a great job of growing it, and at this point there's clients that are 500K or a million, but there's lots of clients that are above the $10 million mark.
Joseph Vaffey
That's great. And what is the appetite for those types of clients on the digital side versus engaged? Are they mostly engaged customers and just trying to get a feel for where they're buying and what they're buying?
Ken Tuckman
It's really all over the board. One of the reasons why it tends to be less digital for now is because we've made the conscious decision to really focus on large enterprise, mega enterprise, and then with the Avtex acquisition have now gone to enterprise. I think that what you'll see in the very near future is some announcements that will provide capabilities to more of that entry-level startup phase set of clients. And that will open up a whole new market segment for us. So what I would just simply say to you is that what we want to make sure is that when some of these companies start out and they only, let's say, hypothetically start out with 25 workstations, typically the offerings that we've had historically are And the energy that we put in them really wouldn't justify our energy in those areas. And what I would say to you is in the very near future, we'll have offerings that will make tons of sense for those types of clients so that they can start out with us and then grow into large enterprise platforms.
Joseph Vaffey
That's great. That makes a lot of sense, Ken, and that's exciting. And then just I know you commented a little bit on the labor front, saying that you've got more capacity than others in this environment. Just your updated latest thoughts on pricing, being able to pass on labor cost increases to workers and it sounds, Regina, like you have it under control pretty well given the margin guidance, but just some more updated thoughts on the supply side. Thanks.
Ken Tuckman
Look, there's no doubt that there's been true wage inflation on the frontline workers, and we pride ourselves that we've been ahead of this for now going on at least three years where we saw inflation you know, not necessarily what we're seeing today, but where we knew that we needed to do something very proactively with our clients. We were very successful in the 2000, I want to say 18 timeframe of getting pretty significant price increases. I might be off if it's not 18, it's 19, Regina can correct me. And then when we, when we entered into the pandemic, and we saw frontline wages going up substantially, we proactively went to all of our clients, we showed them the data, we showed how competitive the marketplace was getting as far as what other companies were paying, et cetera, and we got in front of it. And the bottom line is that for, I would say, the most part, the majority of the clients were very fast to react to our need to increase the labor wages and increase our pricing. And we now have a very open dialogue with all of our clients. And what we're basically showing them is that A, we have multiple avenues of resolving this issue. One of the avenues is that we just simply pay what the market requires so that we can hire the best quality people and have the lowest attrition in the marketplace. The other is is that we blend them blend that with some near shore Environment to ease some of the pain the other is that we blend it with some offshore and then obviously the other where we're really taking advantage of is Offering digital solutions that reduce some of their labor costs so that ultimately they can afford to pay the higher rates but that we can offset it through a lot of the hyper automation that we're introducing to the account so What I would say to you is, in some ways, this tight labor market is actually benefiting us and it's helping us not only just with our engaged business and driving the top line number up, but it's also getting more clients who would never consider nearshore or offshore. They're now absolutely taking advantage of it and considering it, as well as clients that are saying, how can you help us digitally so that we can afford these new costs that we weren't budgeted for. So we feel, for the most part, you know, pretty good. But there's no denying this is a very tight labor market. And it's not just in the U.S. It's in many, many markets, as you know.
Operator
Thank you. Next question is from the line of Brian Bergen of Cowen. Your line is now open.
Brian Bergen
Hi, good morning. Thank you. Question, I'm curious around the one T tech or the combined digital and engaged contracting. Is there a common type of client or client profile that's engaging this way. And when you're signing these combined engagements it who you're competing against. I imagine it's a smaller list than than typical
Ken Tuckman
On the combined side, we're really not competing with anybody for the most part. It's either it's really them deciding to go with a pure digital provider to do the work, you know, in EPAM and in DAVA, Globant and Accenture, et cetera, or do they go with somebody that's handled billions of interactions, understands their vertical industry almost as well as they do, understands what their what their customer advocates need on their desktop, et cetera, and are talking to our existing embedded-based clients that are saying that we're implementing at a dramatically faster pace and scaling with the best of breed technologies. So what I would say is that when it's a 1T tech, we're not – we truthfully are not – competing with a company that's providing, you know, kind of an end-to-end one-stop shop. It's really them deciding, are we going to go with a separate engaged partner and a separate digital partner?
Brian Bergen
Okay. And then I appreciate the update on the mix of the digital natives. Can you also give us a sense on how much has been in the higher value areas within engaged areas like customer acquisition and fraud support versus some of the traditional customer support areas?
Ken Tuckman
I don't know that I can give you a number just because I don't actually have it off the top of my head, but I would be happy to make sure that Paul and Dustin get to you offline.
Paul
I'm not sure I understand the question. You're saying, you know, in our Engage business, what is the digital mix?
Brian Bergen
Well, you know, areas like the fraud support, customer acquisition, just trying to understand some of the higher margin streams within Engage, what the mix of that business is evolved to be.
Paul
Yeah, I mean, I would say if you kind of take the CGS and you take the lines of business, you know, that are within the care, you know, you've probably got 30 to 40 percent of the business depending on the quarter. You know, for example, our licensed seasonal work in health care is very significant, and, you know, that's a peak in the fourth quarter. Let's say out of, you know, out of the entire base, that stuff that is, you know, a multiple in terms of its growth and a multiple in terms of its margin, you know, it's probably around 40% of the portfolio at this point.
Brian Bergen
Okay. Thank you very much.
Operator
Thank you. Our last question is from the line of James Fawcett of Morgan Stanley. You may now ask your question.
James Fawcett
Hey guys, this is Jonathan on for James. Thanks for taking our questions. Now, it looks like, at least based on your filings, that you grew headcount sequentially by about 6.5% per quarter. How do you think about the mix of that between digital and engaged from a net headcount perspective, and how do you think about the appropriate or sustainable level of headcount additions going forward?
Paul
Yeah, so I think you have to remember that when we go from Q3 to Q4, we have a huge bump up in the business for our seasonal work. What happens is that in order to prepare for that season, which hits prime time October 1st for healthcare and not too long after for retail and business services, we're hiring up for that. If you look at our Q4 at 567, and if you look at our guidance, more or less going to 595 or so, you see like a $30 million tick up, and to serve that 30 million, which is predominantly coming from engaged seasonal business, those folks are in place. So you'll see that come back down in the beginning of the year. I would say not as much as traditionally because the business has got a lot of strength, and we had a strong Q4 bookings, and we expect a strong Q3 bookings, and we expect a strong Q4.
James Fawcett
I appreciate that, Carla. And you had mentioned some of the pricing dynamics earlier. Are you seeing some of your competitors come in with aggressive pricing despite the wage inflation in the markets?
Ken Tuckman
What I would just simply say is that we're winning more than our fair share or our typical percentage of business. Our conversion rates are definitely higher. And so I can't really comment just because I don't actually know. I think the market has definitively kind of consolidated, for lack of a better term. And rather than calling out names, I would say that there is a percentage of the marketplace that, frankly, we don't compete with at all. And if a client is even considering using those particular companies, we're probably not even bothering with that client because that means that they're not customer-obsessed, they're not customer-centric, they don't care about quality, et cetera. And so I would just say that you could count them on your left hand, and it's fewer than five that we bump into, so to speak, on a on a regular basis. And that's good for us. And it's, you know, I think it's where the industry is going. Many of these smaller companies just don't have the balance sheet. They don't have the scale. They don't have the track record. They don't have the systems, the processes, et cetera. And so the kinds of businesses that we're targeting, we tend to be creating the opportunities. We're not waiting for RFPs to come in. The ones that are coming in via RFPs, those tend to be kind of commodity type based deals that we're just not focused on. We're focused on deals where we're very much involved in providing transformational capabilities, which means there's some level of consulting that requires journey mapping, that requires technology assessment, et cetera, and that ultimately then converts to a deal that we're providing multiple capabilities to the client.
Paul
Yeah, I mean, we are a premium pricer. We know that from the feedback from our clients. We know it from the third-party surveys that we do on wins and losses. What we are doing better and better is turning that pricing discussion not into we'll drop our rate, but let us come in and execute some of the assets and capabilities that we have on the digital side, and therein get your overall cost. So if cost is an issue, how do we have more offshore mix, or how do we automate, or how do we augment so the yield out of a particular associate and the quality of the engagement is better? So for us, we see it as an opportunity to point towards our other capabilities and, you know, win the cost conversation that way as opposed to dropping rate.
Ken Tuckman
Because it's ultimately about the total value delivered. It's ultimately about the, you know, us creating solutions that deliver defined outcomes and that those defined outcomes can be variabilized to a cost that a CFO can relate to, a chief digital officer, chief customer officer, etc., And most of our, you know, so-called competitors, they don't even look, they don't, that's just not how they're, you know, they're approaching it more from a labor augmentation point of view. And, you know, that's just a different market than we're focused on.
James Fawcett
Thanks for the call, guys. And congrats, Regina and Dustin, on the new roles. Thank you.
Operator
Thank you for your questions. That is all the time we have today. I will now turn the call back to Paul Miller.
Paul Miller
Yeah, thank you. This concludes our earnings call. Thank you for your participation. Have a great day.
Operator
This concludes T-TECH's third quarter 2021 earnings conference call. You may disconnect at this time.
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