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Operator
Welcome to T-TECH's second quarter 2022 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 second quarter financial results for the period into June 30th, 2022. Participating on today's call are Ken Tuchman, T-TECH's Chairman and Chief Executive Officer, Dustin Simak, T-TECH's Chief Financial Officer, and Shelley Swanback, Chief Executive Officer of T-TECH Engage. Yesterday, T-TECH issued a press release announcing its financial results. While this call will reflect items discussed within this document, For complete information about our financial performance, we also encourage you to read our second quarter 2022 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 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 2021 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. Thank you, Paul.
Ken Tuchman
Good morning, everyone, and thank you for joining us today. Our results for the second quarter exceeded our revenue and profit expectations as we continued to make meaningful progress on several of our key initiatives. For the quarter, bookings were $170 million, revenue was $604 million, and adjusted EBITDA was $84 million, reflecting our planned increase in growth-oriented investments. And we signed 26 new clients in our digital and engaged business units. Shortly, Shelley will provide an update on the business, and Dustin will share financial details. I'll focus my comments today on our progress with our strategic priorities. We understand that the current dynamic macro environment is top of mind for everyone. For our part, we remain highly confident in the enduring strength of our business. Our digitally enabled customer experience solutions continues to deliver the business outcomes our clients need most. Our ability to help companies and government entities attract, retain, serve, and grow profitable customer relationships remains mission critical in any economic cycle. In a strong economy, consumers are bombarded with options. They choose brands that differentiate with personalized, engaging, and effortless experiences. In a challenging economy, however, consumers become more selective and discerning. They spend their precious dollars with fewer, highly trusted brands that consistently treat them with compassion and respect. We've seen this time and time again. Companies that devote resources to strengthening their customer experiences in a challenging economy are in a far better position to retain their customers for the long run. Over the years, we've created a highly differentiated platform that blends best of breed customer experience technology with exceptional operational delivery. We've built trusted relationships with over 760 global brands and public sector entities, and we've diversified our business across industries, capabilities, and geographies. Our strategy remains steadfast, We will continue to expand our geographic footprint, innovate new digital CX solutions, deliver superior services to our clients, and invest dollars wisely for the future. Now I'll provide more detail on our progress with several of our key strategic pillars. Let's start with technology innovation and differentiated IP. The total addressable market for customer experience technology and services is greater than $115 billion. As a one-stop shop for CX transformation, T-TECH Digital operates at the heart of this massive market opportunity. With our comprehensive suite of strategy, analytics, and technology solutions, we take a consultative approach to addressing the full range of digital customer experience business challenges that the market faces today. Our CX transformation platform is supported by strong partnerships with several technology leaders including AWS, Cisco, Genesis, Google, and Microsoft, to name a few. Our position as a technology agnostic partner with dedicated practices across all the premier CX Cloud platforms puts T-TECH Digital in a class all of its own. Here are a few highlights from the T-TECH Digital ecosystem this quarter. Last month, Microsoft expanded its CX footprint with the launch of their new digital contact center platform. We're proud to be chosen as the strategic launch partner and are currently implementing the platform with several of our Microsoft clients. We look forward to rolling out this transformational platform to new segments of the market soon. Cisco's move from premise-based platform to the cloud has accelerated multiple cloud conversion initiatives. Many of our Cisco clients are immense organizations that delayed move to the cloud for as long as they could. They have finally realized that the features and benefits enabled by the cloud are essential to their future. As these clients migrate, T-TECH has become the partner of choice to lead these complex omnichannel cloud conversions. Our global AWS Connect team continues to be recognized as the market leader T-TECH was awarded the 2022 Contact Center Partner of the Year for the Australia-New Zealand region and is the largest Amazon Connect partner in the world today. Our global practice is highly relevant to companies who are seeking CX expertise to unlock the benefits of AWS's flexible platform. As demand for digital transformation accelerates, we continue to build robust, best shore digital delivery capabilities. Overall, our T-TECH digital team in India has grown 57% over the last year. To further advance growth and optimize profit, we continue to pursue acquisitions that will expand T-TECH's digital scale and scope. The next pillar in our strategy is deep industry verticalization. We have deliberately doubled down on verticals that are highly defensible regardless of economic cycles. In particular, healthcare, public sector, and automotive, all of which are delivering strong results. In healthcare, year over year, we've made compelling progress across all our KPIs. Revenue and bookings both grew double digits in the second quarter as the size of the deals, velocity of the win rates, and client net promoter scores continue to rise. Our deep industry expertise is creating opportunities with net new clients as well as opening new lines of business within our embedded base. On the public sector side, last quarter I shared our strategy behind our focus on government. The presidential mandate has put citizen centricity in focus and demand for CX transformation is now robust. Second quarter's revenues grew 59% year over year. driven by the acquisition of certain fanual assets. We expect the momentum in the vertical to continue to accelerate in the quarters to come. We have a long history in the automotive vertical, serving multiple clients across the globe. Digitization, increasing automation, and new business models have revolutionized the industry, creating new challenges and opportunities to build engagement with customers. Revenue has grown 22% year-over-year in this vertical as we continue to partner with multinational automotive brands to reimagine and digitize the entire automotive customer lifecycle. Now, I'd like to hand it over to Shelly to share her perspectives on the business.
Shelley
Thanks, Ken, and good morning, everyone. In my first 90 days here, I've been impressed with our broad range of CX strategy, technology, and operational capabilities, and I'm very excited to take them forward. I've spoken with dozens of our clients, and one thing that comes through loud and clear is that they view T-TECH as a true partner. Our clients trust us with our customers, they appreciate our strategic approach, and depend on our high-quality delivery and innovative digital CX capabilities. They value our agility, especially during dynamic times like these. With these trusted relationships firmly in place, we're well positioned to help our clients to continue to accelerate growth, drive profitability, and also increase customer loyalty. In the second quarter, demand with our embedded base remained strong, with a mix of wins across current programs and new lines of business. In our healthcare vertical, we branched out into several new areas with solutions and provider support, licensed pharmacy, clinical trials, and consumer-directed health. In our customer growth services division, a global travel brand, an international logistics company, and a fast-growing enterprise SaaS technology provider expanded their digital revenue generation contracts with us. And our T-TECH digital go-to-market team continued expansion of their work with a large national healthcare payer and preeminent regional hospital in addition to several other embedded base wins. Now, let me share a few highlights from the 26 new clients who signed on with us this quarter as well. We added new logos across industries, including a premium high-end retail brand, a FinTech disruptor, an e-health innovator, and a national fast casual restaurant chain. In the public sector, we had a very busy quarter. Our team initiated a significant back office contract with the federal agency. In addition, our integration with the public sector contracts acquired through FANUEL in early April are well underway, including several significant wins with the State Transportation Authority. Our work here will leverage a broad spectrum of technology in front office and back office capabilities. The public sector pipeline continues to gain momentum, and we look forward to sharing additional wins in the months ahead. Our healthcare and public sector verticals are robust and growing with the work largely delivered onshore. To provide clients with more options and to strengthen our margin profile, we're broadening our footprint with new nearshore and offshore locations. This quarter, we continue to diversify with expanded operations in Colombia, in Egypt, India, Greece, and South Africa. We closed several significant client deals this quarter, have a growing pipeline, and plan to open up additional geographies in the quarters to come. Now, looking at the current macro environment, as Ken mentioned earlier, our healthcare, public sector, and automotive verticals are delivering solid results. However, in a few verticals, we're seeing a recent shift in client behavior, including lengthened sales cycles and some moderation and growth-related volumes in the second half of the year. These clients are currently operating with increased uncertainty and conservatism. We remain agile and ready to scale as their conditions change. Despite the recent shift, we anticipate our business will grow in the high single digits in fiscal 2022, excluding FX and pandemic-related volumes. As we look ahead, I'm very excited about our path forward. We have a well-established client base with strong, trusted relationships built on our operational strength and digital expertise. While maintaining an agile cost structure, we'll continue to prudently invest in our business and move full steam ahead with our strategic priorities. We'll open up new geographies, grow our sales team with a focus on new logos, and expand our portfolio of new digitally-enabled offerings and value-added services that leverage all the capabilities that T-TECH has to offer. And finally, we'll continue to build a passionate, diverse team of employees across the globe who come to work every day, dedicated to caring for our clients and their customers with empathy and compassion. I look forward to sharing our progress with you in the quarters to come. And now I will turn it to Dustin to share our financial performance.
Ken
Thanks, Shelley, and good morning. I will first address our second quarter results before providing more color on our updated full-year 2022 guidance. We are pleased with our second quarter performance, achieving many of our key metrics, closing on a meaningful strategic asset acquisition, and surpassing $600 million in revenue in the second quarter for the first time, representing double-digit top-line growth of 10.8% over the same period last year on a constant currency basis. Taking it all together amid a dynamic, rapidly changing macroeconomic environment, we delivered a strong first half of 2022 as we executed against our key growth pillars. Our second quarter 2022 bookings were 170 million compared to 204 million in the prior year period. Our digital segment booking highlights include strong demand across our Genesys, AWS Connect, and Microsoft Dynamics cloud solutions. In addition to increased sales conversions, in our long-standing Cisco practice. In our Engage segment, demand was strong across our core customer care and customer acquisition services and from our more resilient public sector and healthcare verticals. Travel and hospitality continued to do well given historic levels of pent-up demand in that sector. Our second quarter bookings included 26 new logos representing over 28 million in bookings as well as six multi-segment deals. I will address our second half pipeline and backlog in my outlook remarks. In remaining discussion on the second quarter of our 2022 results, reference to revenues on a GAAP basis, while EBITDA, operating income, and earnings per share 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. Moving forward, we are using the term like-for-like basis to describe our revenue growth excluding the impact of foreign exchange translation and treating acquisitions as if we owned them in the prior periods. On a consolidated basis, in the second quarter of 2022, revenue was $604.3 million, an increase of 8.9% and 12% on a like-for-like basis, excluding the impact of pandemic-related volumes. Organic growth was 1.9%. Adjusted EBITDA was $84.1 million, or 13.9% of revenue, compared to 95.7 million or 17.3% in the prior year. Operating income was 61.2 million or 10.1% of revenue compared to 78.6 million or 14.2% in the prior year. And EPS was 98 cents compared to $1.27 in the prior year. The strengthening of the US dollar in the second quarter had a negative 10.5 million impact on revenue and a positive $2.7 million impact on operating income, primarily within our engaged segment. Our second quarter revenue performance was driven by the FANU acquisition, which we acquired in early April, and increased volumes from our existing and new clients across both segments. Other revenue highlights include a 59% increase in public sector, a 24% increase in EMEA, a 22% increase in automotive, and an 11% increase in healthcare. I will now move to operating profit. We delivered operating profit for the quarter at the upper range of guidance. The decrease over the prior year reflects the reduction in higher margin pandemic-related volumes compared to the prior year period, integration-related costs associated with the FANUEL asset acquisition, and the incremental growth-oriented investments discussed in the past two quarters. Turning now to our second quarter 2022 segment results. Our digital segment revenue increased 8% to $116.6 million in the second quarter of 2022 over the prior year period. All organic growth, primarily led by our Genesys Omnichannel Cloud and Microsoft Dynamics solutions. Furthermore, our AWS Connect and Cisco practices provide a meaningful contribution in the quarter and offer important diversity to our digital best-in-breed technology solutions. As Ken mentioned earlier, we are encouraged by the outlook in our Cisco practice. As we foster our long-term relationship and partner with them on their renewed focus to migrate over 3 million of their on-premise clients to their cloud-based CX platform, our Cisco pipeline activity and conversion is increasing, including a large integrated CX infrastructure product sale last quarter with associated follow-on design, integration, and operating services. Shifting to geographic expansion. We continue to aggressively build out and invest in our offshore delivery centers, which will continue to enhance our value proposition in the market and drive margin expansion over the long term. Also, our expansion to EMEA is currently on track. Our recurring cloud and managed services revenue represented 54% of digital's total revenue. Our diverse systems integration services, which have a high attachment rate for supporting future upgrade and expansion engagements, represented another 27% of total revenue. Operating income was $17.1 million, or 14.7% of revenue compared to 17.1 million or 15.8% of revenue. Margins reflect the impact from remaining AptX-related integration costs and incremental investments in CX leadership and engineering talent, sales and marketing, and product and technology developments. Our Engage segment second quarter 2022 revenue increased 9.1% to 487.7 million over the prior year. 13.8% growth on a like-for-like basis, excluding the impact of pandemic-related volumes. While the FANU asset acquisition was the primary contributor to growth in the quarter, we delivered a meaningful broad-based increase in business-as-usual volumes across healthcare, automotive, and travel. As shared last quarter, the underlying core growth is masked by the high contribution of pandemic-related revenue in the prior year period. Our embedded base continues its strong performance as demonstrated by Engage's revenue retention rate of approximately 100%. Excluding pandemic-related volumes, Engage's revenue retention rate was 111%. Operating income was 44.1 million, or 9% of revenue, compared to 61.5 million, or 13.8%. Our Engage profit margin reflects the impacts highlighted in my comments on the total company results. I will now share some metrics related to our cash flow, liquidity, and capital deployment before discussing our outlook. At quarter end, cash was $163.2 million with $934.7 million of debt, the vast majority of which represented borrowings under our $1.5 billion credit facility. Net debt increased $103.7 million to $771.5 million year-over-year as our strong cash flow generation was offset primarily by acquisition-related investments and capital distributions. Cash flow from operations was 77.6 million in the second quarter of 2022 compared to 63.1 million in the prior year. The increase was primarily a result of improved working capital efficiencies. Capital expenditures were 19.1 million or 3.2% of revenue for the second quarter of 2022 compared to 12 million or 2.2% in the prior year. Our normalized tax rate was 24.3% in the second quarter of 2022 versus 21.4% in the prior year. The increase is primarily related to a change in tax regulation related to PESA, a special economic zone within the Philippines, jurisdictional mix of income, and reduction in select international tax benefits. In February, the Board declared the next semiannual dividend of 50 cents per share, which was paid on April 20th of 2022, to shareholders of record as of March 31st of 2022. This dividend represented a 6.4% increase over the October 2021 dividend and a 16.3% over the April 2021 dividend. We remain committed to our capital distributions to shareholders through a semiannual dividend. Turning to our outlook, we are operating in an increasingly dynamic environment as we enter the second half of 2022. Driven by the macroeconomic environment, we have recently seen two shifts in client behaviors within certain verticals. First, late in the second quarter, many new and existing clients delayed purchasing decisions. Second, While our healthcare, public sector, and automotive and other verticals continue to perform well, our comms, media, and entertainment clients and early-stage, venture-backed, hyper-growth clients became more cautious about their demand in the second half. As a result, moderated their volume forecast for the second half of 2022. Given these recent shifts in the dynamic environment, we are updating our guidance for the full year of 2022. We expect our revenue growth for the full year of 2022 to be 6.2% down from our prior guidance. driven primarily by FX and previously mentioned impacts within our hypergrowth and comms, media, and entertainment verticals. Our revenue guidance for the full year of 2022 is 8.5% on a like-for-like basis, excluding the impact at pandemic-related volumes. We exited the second quarter of 2022 with a revenue backlog of $2.325 billion, or 96.4% of our midpoint of our updated guidance. Our current pipeline is $1.985 billion up 21% over the prior year period. We have streamlined our cost structure while still maintaining growth-oriented investments previously discussed, partially offsetting the profit impact related to the reduction in revenue. As a result, our EBITDA margin for the full year of 2022 will be 13.2%, down approximately 150 bps from our prior guidance. Net interest expense is estimated to increase in the second half of 2022, reflecting higher borrowing levels related to the FANUEL asset acquisition, in addition to the Federal Reserve's more aggressive, front-loaded step-up in short-term rates in an effort to combat high inflation. Our tax rate range is revised from 21 to 23 percent to 22 to 24 percent, reflecting recent changes in the tax regulations related to the PESA and economic zone within the Philippines. Turning to the midpoint of our 2022 guidance, including FANUEL assets, As outlined in greater detail in our second quarter earnings press release, we expect GAAP revenue of $2.414 billion, an increase over the prior year of 6.2%, and 7.7% on a constant currency basis. Non-GAAP adjusted EBITDA of $320 million, a decrease of 9.8% over the prior year, and 13.2% of revenue compared to 15.6% in the prior year. Non-GAAP operating income of $244 million, a decrease of 14.7% over the prior year and 10.1% of revenue compared to 12.6% in the prior year. Non-GAAP earnings per share of $3.53, a decrease of 23.6% over the prior year. Step-up in net interest expense and tax outlook are driving an outsized impact relative to decline in operating income. Other relevant guidance metrics include capital expenditures between 3 and 3.2% of revenue, of which approximately 65% is growth oriented. A full year effective tax rate between 22 and 24%. And a diluted share count between 47.4 and 47.8 million. Please reference our commentary in the business outlook section to our second quarter of 2022 earnings press release to obtain our expectations for the third quarter and full year 2022 performance at the consolidated and segment level. In closing, we are helping organizations across the world deliver value-added, outcome-based customer experiences through our digitally-enabled CX technology and service solutions. The platform we have built, the investments we are making, the client relationships we have developed, and our talented leadership and teams position us well to navigate the dynamic environment ahead of us. Thank you for your continued interest and support of T-TECH. I will now turn it back over to Ken.
Ken Tuchman
Thanks, Dustin. In closing, I'm excited as ever about T-TECH's future. I'm confident working with Shelley and our leadership team that we've created a solid plan to drive our vision forward. In the months ahead, we will continue to expand our footprint and offerings, evolve our go-to-market strategy, deploy capital to make organic investments and strategic acquisitions, and provide early returns to our shareholders in the form of dividends. While the updated guidance reflects some of our clients' uncertainty, Our past experience tells us that client volumes will recover as their visibility improves. With a strong foundation and a differentiated value proposition in place, we're well positioned for future growth, and we remain committed to doubling our business within the next five years. On behalf of our executive leadership, our board, and our amazing team across the globe. Thank you for your continued support. Thank you, and back to you, Paul.
Paul Miller
Thanks, Ken. As we open the call, I ask that you limit your questions to one at a time. Operators, you may open the line.
Operator
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star and then one. Please unmute your phone and record your name and company name clearly when prompted. your name and company 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 George Sutton of Craig Hallam. You may now ask your question.
George Sutton
Thank you. Ken, you were the first one to confidently and correctly suggest months ago we were in a recession, so I appreciate your view of the future and In your prepared comments, you mentioned slower decision-making by clients and lower spend by growth clients. What forward-looking indicators might change those dynamics in your view? And if I could add that if CPI came in surprisingly low this morning, would that help?
Ken Tuchman
Good morning, George. Look, my personal opinion, and I'm not an economist, but I've been saying this to our team, is over the last, call it 30 days, What we've seen is a bit of a deer in the headlights across the whole kind of global 1,000 companies out there. When I talk to my friends that are CEOs of much larger corporations than T-TECH, they all are saying the exact same thing. And so what we find in these periods of time, because obviously this is not by any stretch the first recession that I've participated in, is that it's very common for companies to correctly and temporarily over-rotate. And then once they begin to get visibility and see what their volumes are, they course correct. That creates, to be very frank, challenges for us. because we do a fair amount of financial service work with licensed employees, a fair amount of healthcare work with licensed employees. We have thousands of them. And as you can imagine, the training cycles on those employees is pretty significant. And so consequently, on many of the verticals, we can in fact respond very rapidly and within 72 hours be increasing staff requirements, et cetera. But on some of the verticals, it's not so easy due to the fact that there is a lead time in the recruiting and trading and onboarding and nesting, et cetera. So what I would just say to you is that it's my opinion that this kind of what I'll call cloudy period that we believe all companies are experiencing right now, where they're trying to understand what their volumes are going to be, what their forecasts are going to be, et cetera. They're naturally going to be conservative, and they're naturally going to, in various different consumer verticals, are going to take a very conservative approach. And that's what we've experienced. made the decision as a team that we would rather be up front and lay it all out there as we see it today versus, you know, kind of death of a thousand paper cuts, so to speak, quarter by quarter. And so this is why we've taken the position based on kind of the forecast and lack of forecast that we're seeing from a multitude of our clients. And frankly, we're seeing this in every geography. It doesn't matter if it's Europe. It doesn't matter if it's North America, Latin America, etc., due to all these kind of, I'd like to say, exogenous factors of rapid inflation, etc., The part, though, that gives us quite a bit of comfort is we still feel like the consumer is strong. And so we're hopeful that they have over-rotated. And we're already seeing signals with multiple clients who have actually brought their forecast down and then came back to us two weeks later and said, you know what, we are asking you now not to bring the forecast down as much as we've told you due to the fact that we're beginning to feel more confident in our future. So I think it's going to be, unfortunately for us, this is going to be a week-by-week type thing, and therefore we think taking a conservative approach makes the most sense. As far as the numbers that are going to come out today, You know, I don't know that it's going to have much of an impact, per se. I think that if we see a 9 percent inflation number, I think that's going to, in some ways, spook.
George Sutton
It came out very favorable, just so you're aware. Much lower than expected.
Ken Tuchman
Oh, great. Okay, good. Well, then maybe the feds aren't going to, you know, raise the rates another 100 bps, and it'll be something less. So, anyways, I hope I answered your question. I'm sorry if I babbled on too long.
George Sutton
Appreciate the perspective.
Ken Tuchman
Thank you, George.
Operator
Thank you. Next question is from the line of Maggie Nolan of William Blair. You may now ask your question.
William Blair
Hi, thank you. Maybe building up on that question a little bit regarding your revised guidance, is it reflecting just the volume reductions that you've seen you know, so far as of today, or is there an expectation or a buffer built in for potential future reductions?
Ken
Hey, Maggie, this is Dustin. Right now, today, as our outlook, there is a buffer kind of built in right now for expectations of how the second half will play out, and that's just due to some degree, going back to the comments we made earlier in the script around some of the uncertainty that we're experiencing right now and our clients are experiencing about their own second half demand. But just as a reminder, going beyond that, we're seeing this in pockets. If you look at some of our other verticals, whether it's healthcare, automotive, public sector, they're areas that continue to be strong and they're resilient right now relative to the macroeconomic backdrop.
William Blair
That's helpful. Thank you. And then have you noticed any level of increase in demand specifically for your offshore offerings? and how is that kind of performing versus maybe some of the more onshore or nearshore options?
Ken
Yeah, so a couple comments I would make there. We are seeing an uptick. If you go back to some of Shelley's comments in the script, We're pleased to see a number of new clients sign up in some of the new geographies, you know, kind of showing some of the green shoots in our new geographic expansion, particularly within Engage. Then on digital, Ken mentioned this, you know, roughly 60% increase in India year-over-year in terms of headcount, and we're seeing a huge uptick there that's affecting not only, I mean, top line, but increasing our demand, specifically, excuse me, increasing margins, but specifically within areas like our Genesis practice as well as our Microsoft practice.
William Blair
Thank you.
Operator
Thanks, Becky. Thank you. Thank you. Next question is from the line of Mike Lattimore of North End Capital Markets. You may now ask your question.
Becky
Great, thanks. Yeah, good morning. Maybe, Justin, can you give a little view into how you're thinking about gross margin here in the second half of the year and how that might play out, you know, with a little softening demand as well as just kind of the tight labor market?
Ken
So if you look at our updated guidance overall, what I would tell you is gross margins are right now kind of planned to be expected in the same range they were in Q2, and that will play out in the second half as well. So at this point, as we mentioned beforehand, relative to inflation and wages, we feel pretty good about where we're at from a contractual perspective and managing that through the back half of 21 and kind of coming into 22. So we feel good about where we are from a contractual perspective and the underlying wage we've contracted at. and in our overall pricing. And so we don't see that as a crunch per se relative to gross margins.
Becky
And then assuming we are in a little bit of a recessionary environment, does that make it more or less likely that you would pursue acquisitions here?
Ken Tuchman
I think that it goes without saying that we're going to continue to be opportunistic, and we're going to look at acquisitions that drive all of our strategic pillars forward, and you can plan on that any acquisitions that we'll do will be properly accretive and will make sense. So what I would say is that we think that a bit of the reset in the market as far as other companies' valuations simply creates that that much more opportunity for us.
Paul Miller
Okay. All right. Thank you. Thank you.
Operator
Thank you. Next question is from the line of Brian Bergen of Cowan. You may now ask your question.
Brian Bergen
Hi. It's actually Jared on for Brian today. So it looks like headcount was down sequentially. What drove this reduction and are you expecting further headcount reductions over the rest of fiscal 22?
Ken
So, Jared, I appreciate the question. This is Dustin speaking. A couple comments here. This follows the seasonality kind of in line with our overall business. And what you would typically expect is due to some of the smart seasonal work we have that goes on the back half of Q4-21 as it comes in, you'd naturally see a downtick in headcount kind of in Q2, and you'll see it ramp back up in Q3. And as a reminder, Q4 is typically our strongest quarter for our ending headcount. And right now we're in the process, if you look at Q3 overall, this is when our healthcare smart seasonal work will begin to ramp. And we're in the process of doing that right now as we speak.
Ken Tuchman
And this has been a trend for the last probably 15 years, just FYI.
Brian Bergen
Got it. And then in terms of the pullback and client decision making, is that primarily within Engage or does that also encompass digital as well?
Ken
So on the decision making, we're seeing that candidly across the board. And so what you're seeing, again, is just right now this point is more of a delay. A couple comments I made in the script, if you focus on, if you look at our pipeline overall, it's actually up 21% year over year. So as a broader pipeline statement, demand is strong. It is just a delay in purchase decisions. But it is across the board. And when you see it in digital, I would say it's much more related to kind of short-term professional services work. And then engaged is in the verticals that we outlined earlier before.
Ken Tuchman
Yeah, the other thing that I would say regarding our pipeline that we're feeling really actually quite good about is that we made the intentional decision at the beginning of this year that we were going to ramp up our sales and marketing focus and activity for offshore and nearshore, which is why you've seen us announce more offshore markets, et cetera. And so our goal is to significantly over a period of time increase the percentage of our business that's offshore to obviously drive higher margins, et cetera. So what I would say to you is that we feel pretty good about the pipeline not only being up over 21%, but that the mix of the pipeline is reflecting the direct energy that we're putting into increasing our offshore and nearshore capabilities.
Shelley
And I would just add in particular with new logos, right? This is about adding offshore, right?
Brian Bergen
So... Next question. Does that answer your question? Yes, thank you.
Operator
Thank you. Next question is from the line of Anya Soderstrom of CIDOTI. Your line is now open.
Anya Soderstrom
Thank you for taking my question. So given the delay that's sort of softening your outlook for 2022, how should we think about 2023 and beyond?
Ken Tuchman
You know, at this point in time, we've made the decision that we're not going to comment on 2023. We think that it's far more responsible for us to continue to execute and get far more visibility so that we can, as we always are, be very transparent and make sure that we're giving proper, solid guidance.
Anya Soderstrom
Okay, thank you, that was helpful to me.
Ken Tuchman
Thank you.
Operator
Thank you, next question is from the line of Vincent Colocchio of Barrington Research. You may now ask your question.
Vincent Colocchio
Yeah, I'm curious, amongst your new economy clients, is part of the weakness there due to funding issues with any of them?
Ken
Hey, Vincent, this is Dustin speaking, so absolutely. Across the board, what I would say is if you break down hyper-growth clients, you can put them in two different buckets. And as we commented specifically, it's part of the reason we pointed towards early stage venture-backed, where what we've seen is in the past, these customers are kind of going for growth at all costs, right? And not necessarily being cash flow negative and not being profitable. And what you're seeing is this dramatic shift when those particular customers, where they are going back now for profitable growth, and so making some of these decisions right now in the short term that are impacting customers.
Ken Tuchman
impacting our overall outlook now but what we're also seeing on the hyper growth side is that the larger more established and either near cash flow positive or already cash flow positive they're actually up ticking and they're actually continuing to show really good growth so it's a bit of a you know it's a bit of a tale of two cities so to speak in that you've got these unicorn highly funded venture-backed companies, they're the ones that I would say are seeing the most extreme cutbacks and pullbacks and cost-cutting, et cetera. And then you have the other side of that, which would be the very large hyper-growth companies that are actually doubling down and are growing and increasing.
Vincent Colocchio
And then on multi-segment deals, I think you said you did six. That was flat, I think, with last quarter. Did that meet your plan, and do you expect to continue to make progress there in the second half despite the headwinds?
Ken
We do, yeah. So, again, we continue to call it out. We'll continue to focus on what we call a one T-tech go-to-market motion, kind of leveraging the best of the capabilities of both of our segments. Those six deals that we did, again, we'll continue to make progress in the second half, and it continues to be a focus point for us overall.
Vincent Colocchio
That's it for me. Thank you.
Ken
Thank you. Thank you.
Operator
Thank you. Next question is from the line of James Fawcett of Morgan Stanley. You may now ask your question. Excuse me, James. You may not.
James Fawcett
Oh, I'm sorry. Sorry. Working my headset here. Wanted to dig in quickly on that comment. Can you talk a little bit about the types of verticals in the hypergrowth segment on those new customers or on those new economy customers? Excuse me. So, this is a good question.
Ken
So, James, just to clarify, are you talking specifically where we're kind of seeing some pullback in volumes?
James Fawcett
Yeah, on those hyper growth that are being impacted, like what verticals are they in? And, you know, like, do any of them fit into what Ken described earlier where they're adjusting pretty quickly there and revising their views and even wanting to come back?
Ken Tuchman
Well, first of all, these clients aren't per se going away. They're just dramatically reducing their volume forecast. So whether it be, I really can't use account names, but mattress companies or whether it be prepackaged meals or whether it be some exercise companies, etc., their investors are, let's just say, forcing them to tighten their belt. And therefore, that means they're spending less on advertising, which means they're getting less response, which then reflects directly on the volumes that we see. And there should be no surprise when you just look at what some of the big again, I don't want to mention names that are publicly speaking about their advertising revenues, publicly speaking about, you know, just where clients' heads are at, et cetera, et cetera. And so it's really just a trickle-down effect. That said, I want to just stress that we still feel that the consumer is strong, the job market is obviously still very tight, And consequently, there's more people entering the labor market as they come off of the free money, whatever you want to call it, you know, giveaway. And so more people are entering the job market. And so we think this is a very unusual slash weird recession in that on one hand, you've got inflation and you have high interest rates. And on the other hand, you have extremely low unemployment. I've been through at least five of these cycles. This one is pretty unique. And frankly, it's why we're not all that concerned by it. And we kind of feel internally like this will not be anything like the 2008 recession.
Ken
And just to follow on to that point, Ken, A couple things I would say. One is, just to reiterate what Ken said, look, this is driven by volumes and not by customer churn. The second point that I would make is despite this reduction even in hypergrowth, we still expect that vertical to grow double digits for full year 2022. And just as a reminder, and go back to the overall guidance, is that even despite the takedown, we're growing roughly 8.5% on a like-for-like basis, excluding the pandemic-related volumes.
James Fawcett
Yep, yep. And then Wanted to follow up on another question you were being asked about onshore versus offshore. Just wondering if you can give a little more color or nuance into, you know, if that dynamic is impacting your updated outlook at all or to what degree you've taken that into account? Or is that just wondering, like, how impactful that really is right now?
Ken Tuchman
You know, it's not tremendously impactful, but it goes without saying that net new clients that we put offshore operate at a smaller revenue base on a per-client workstation basis. So from a revenue standpoint, you obviously have to sell more to drive the growth, but from a profit standpoint, you know, you're driving, in many cases, close to double the profit.
James Fawcett
Got it. That's great, Keller. Thank you very much, guys. Thank you. Thank you.
Operator
Thank you. Last question is from the line of Jason Kofferberg of Bank of America. Your line is now open.
Jason Kofferberg
Hey, guys. This is Cassie on for Jason. First I just wanted to ask on the quarter itself, it seems like you guys delivered a pretty sizable beat to margins, and it sounds like you're still investing and building up a geographical footprint, so just wanted to know what drove the upside on adjusted EBITDA margins relative to your expectations that you said in one queue.
Ken
Yeah, so a couple of things, Cassie. First, thank you for the question. And you're right, we did come up at the upper end of our overall range, largely driven by our execution within delivery, as well as, as we mentioned earlier, kind of in our outlook and anticipation, we've also been streamlining our cost structure, which drove an overall benefit to the bottom line.
Jason Kofferberg
Okay, got it. And then I also wanted to ask on the 26 new client wins that you called out, you know, is there any difference in the size or scope of the project versus like previous, you know, clients that you had signed before? And I just wanted to ask if that was, you know, baked into the 2022 guide, if there's any impact there. Thanks.
Ken
So no impact on the 2022 guide in the sense that everything that happened in the quarter, who we sold and our expectations for the second half from a sales perspective is kind of baked into that. That's much more of a statement and a positive statement about how that could potentially impact 2023. No difference in terms of overall size relative to average deal size, et cetera. As we mentioned, it's about $28 million in bookings for that overall 26 clients. But it does speak to the strength of our acquisition motion, our ability to attract new clients across both segments, which we were very pleased with.
Jason Kofferberg
Got it. Thank you.
Ken Tuchman
Thank you. 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
Thank you, operator, and thank you all for your participation. This concludes our second quarter earnings call. Bye-bye.
Operator
This concludes T-TECH's second quarter 2022 earnings conference call. You may disconnect at this time.
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