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Operator
Welcome to T-TECH's first quarter 2023 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 quarter financial results for the period ended March 31st, 2023.
Shelley
Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of T-TECH, Shelley Swanback, Chief Executive Officer of T-TECH Engage and President of T-TECH, and Francois Bourret, Interim Chief Financial Officer of T-TECH.
Paul Miller
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 first quarter 2023 quarterly report on Form 10-Q, which we anticipate filing in the coming business days. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinion as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause for actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our 2022 Annual Report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section. I will now turn the call over to Ken. Thanks, Paul, and good morning, everyone. We appreciate you joining us today. We're off to a strong start in 2023 with a beat on both top and bottom line. Revenue increased 8.6% to $633 million on a constant currency basis. Adjusted EBITDA was $83 million, or 13.1% of revenues. and non-GAAP EPS with 78 cents per share. As the CX technology and services landscape grows more complex, our clients are trusting us to manage their current CX needs while also seeking guidance for the future. Our full range of AI-enabled CX technology, managed services, and operational capabilities has the breadth and depth to deliver strategic benefits to our clients right now while also preparing them for what's on the horizon. Demand for our solutions remains strong as CX executives are caught in a balancing act between the efficiencies of digitization and the empathy of human conversations. With our domain expertise in both CX technology and operations, our business is well positioned to meet this challenge with tailored programs that optimize both digital and human interactions. The three trends that I shared last quarter remain relevant and timely. the move to the cloud for CX technology continues. The focus on evolving from reactive support to proactive experiences remains mission critical, and the advancements in digital CX and AI are accelerating. Given the current focus on AI, my comments today will center on the developments happening at the intersection of customer experience and artificial intelligence. We've been integrating AI technology into our CX offerings for some time, With the current buzz surrounding all things AI, we plan to share details on our approach to AI with you more frequently. We have many examples of solutions that are delivering high value outcomes leveraging AI, including using analytics to simplify and personalize customer journeys, bots to facilitate training, automation to augment associate efficiency, and predictive models to support intelligent routing. Also, Across verticals, we're customizing these solutions to address industry-specific business challenges. Recent advancements in generative AI have opened up a wealth of new CF use cases, including exciting new ways to dramatically improve the customer experience. It is early days, and as with any disruptive technology, it's important to separate the helpful from the hype. To gain the full benefit of AI, Brands need to have their systems, data processes, and teams prepared and aligned. We're working with our clients to help them assess their readiness across capabilities such as mix of voice and digital interactions, depth of understanding of their current customer journeys, quality, accuracy, and completeness of their existing knowledge bases, effectiveness of their current automation tools, and the level of integration across their enterprise technologies. Above all else, we're helping our clients maintain a customer-first mindset. We know that there's no margin for error in customer experience. Simplicity, accuracy, and trust makes the difference between a loyal customer advocate and a vocal detractor across the customer lifecycle. Advances in Aon present tremendous opportunities, but getting it right is not easy. Success requires deep technology integration experience, vertical expertise, and organizational agility. T-TECH is uniquely positioned to harness the full potential of AI capabilities for CX by leveraging the synergies between our two business segments. Through T-TECH Engage, we provide digitally-enabled infrastructure operational delivery, quality assurance, workforce management, and an amazing employee experience. Our firsthand knowledge from direct interactions with millions of customers on behalf of our clients and expertise from our associates operating on the front lines provides the insight and experiences to differentiate our clients' brands. Through T-TECH Digital, we design, build, integrate, and operate all the core technologies required to power CX, including CCaaS, DRM, AI, and and analytics platforms. Unlike some of our competitors who are attempting to offer point solutions, we have the capability to seamlessly integrate all elements of the CX ecosystem, giving us a significant advantage in delivering comprehensive and cohesive solutions to our clients. The result of this world-class offering is increased revenue per customer, reduced total cost to serve, and the highest level of customer satisfaction and loyalty. vTech Digital, is a pure play $500 million CX technology and services business that generates revenue through professional services, managed services, software, and proprietary IP. With an unparalleled set of credentials and references, we have deep strategic partnerships with the leading technology players and employ the most experienced CX data scientists, cloud engineers, and consultants in the market. We're leveraging our cross-functional domain expertise from digital and engaged through our AI Center of Excellence for Customer Experience. This diverse team of technologists and operational delivery experts are combining last mile customer engagement with the latest in digital innovation to expand our solutions, drive thought leadership, and develop the AI guardrails necessary for clients to protect their businesses and customers. These guardrails are especially important as we see increasing pressure from government agencies and regulators as the risk around security, privacy, and intellectual property becomes better understood. We're using AI to streamline workflows and speed up processes through the automation of binary transactions and interactions. Additionally, one of our top priorities is leveraging AI to enhance the capabilities of our knowledge workers, who are focused on complex and mission-critical interactions for our clients. By improving efficiency and simplifying repetitive tasks, we're freeing up time for our employees to listen and respond to customers during emotionally charged moments of truth. This genuine human connection is what ultimately builds trust, loyalty, revenue growth, and ongoing affinity with a brand. Now I'd like to share a few thoughts on M&A, and specifically consolidation among some of our engaged competitors. As you know, M&A has been and will continue to be an important pillar for shareholder value creation at T-TECH. That said, we don't believe in building scale for scale's sake. M&A must ultimately create tangible value for our clients. We remain committed to M&A that helps differentiate our solutions for clients and accelerates the execution of our business strategy. Our M&A strategy will continue to be focused on both digital and engaged acquisitions. that help accelerate vertical solutions through incremental capabilities, new geographies, and additional clients. In closing, I'd like to reiterate my confidence in our business. Our management team is executing. Our clients continue to rely on us as a strategic partner. Our CX engineers are developing new and relevant solutions for the market, and our frontline teams are delivering exceptional CSAT scores across the globe. We're operating on a strong foundation, and I remain excited about the future. And now, I'll hand it off to Shelly.
Ken
Thanks, Ken, and good morning, everyone. We're pleased with our first quarter performance across both of our T-TECH Engage and T-TECH Digital business segments. Our strong performance on revenue and profitability is a result of our disciplined and agile execution. We acquired 20 new clients across the business and have a strong and growing pipeline. I'll begin my review of the quarter with some highlights from our T-TECH engaged business. First quarter growth was driven by engagements and resilient verticals where our work is mission critical and also complex. Revenue from our top 10 clients continue to grow. Our strong relationships and delivery track record with these top clients are enabling us to expand our business with them through new solutions and offshore delivery. In addition, we're seeing a growing number of first-time outsourcers in our new client wins and pipeline. In healthcare, we had a robust close to the year. This strong performance extended seasonal revenue beyond expectations for several programs into the first quarter. Our depth of knowledge and proven expertise with complex licensed work is driving growth with very large national payer clients and also with regional brands. Beyond our payer segment, we're also seeing increasing momentum in clinical and provider services, which include higher margin offshore data management and back office programs. New deals this quarter included initiatives in provider data management, consumer-directed health, and also durable and medical equipment. In addition, our domain expertise across the breadth of the CX healthcare member journey was recognized by the global research firm Everest, who noted T-TECH as a market value leader in healthcare BPO CXM. With consumers in the driver's seat demanding improved healthcare experiences, our CX transformation expertise is in high demand. Now, onto our BFSI vertical, where historically many companies have been hesitant to consider digital channels and near-shore or offshore options for their customer experience support. Increasingly, we're helping both existing and new clients use new delivery and support models, including these near-shore and offshore locations. For example, this quarter we expanded into a new line of business with one of our insure tech clients by implementing human-powered data annotation to process claims offshore. And with growing national focus on improving the citizen experience, our public sector practice is in a unique position to capitalize on the opportunities across federal, state, and local government agencies. Our Engage in Digital teams are working to combine citizen experience consulting, systems integration, managed services, and operational excellence, all backed by our FedRAMP and StateRAMP certifications. Another client highlight from the first quarter is the consultative approach we're taking with a long tenure client in the tech space. We're beginning to work with them to deploy generative AI to leverage their full library of product knowledge across thousands of different product SKUs in order to provide our associates with more accurate and timely answers than ever before. We're executing well on our plans to expand our footprint with new geographies and languages. Client demand continues to accelerate with growing offshore pipeline and five of our seven new logos for the quarter, including offshore services. For example, one of our offshore wins was with a first-time outsourcer. a growing business whose primary focus is on reducing the carbon footprint in the U.S. by partnering with major retailers to reuse and recycle electronics. Now I'll move on to our T-TECH digital segment. Similar to Engage, our digital segment delivered value to our clients and partners with strong first quarter performance. We're capitalizing on the demand from clients who are migrating to the cloud and also from clients who are delaying their cloud migrations but want to get more from their existing CX technology. Our growth and professional services this quarter was driven by projects from both types of clients. These professional services create high value outcomes for our clients and are strategic for us because they deliver higher margins, expand our scope of influence, and open the door to new areas for growth with Anchor clients. Key wins for cloud migrations this quarter included clients in banking, insurance, and also public sector. Our recurring revenue also continues to grow with a focus on providing ongoing managed services. As the volume and pace of features and functions increase on literally every CX platform, we're helping our clients absorb and take advantage of these changes to optimize their customer experiences. For existing clients who aren't ready to migrate to the cloud, we're extending our managed services relationships and leveraging our professional services to help them optimize their current technology. It's rewarding to see our technology partners recognize T-TECH digital significance in the market. This quarter, we won several prestigious awards, including Contact Center Innovation from AWS and North American Partner of the Year from Genesis. To meet demand and strengthen our profit margins, we continue to expand our cost-optimized global delivery model. This quarter, we opened our new flagship engineering center in Hyderabad, India. By mid-year, a third of our engineering talent will be operating out of tech hubs in India and the Philippines, with more locations to come in the near future. Not surprisingly, AI has emerged as a top priority for our clients. In my discussions during our client advisory board session last week, generative AI was a key topic. Our clients are optimistic about the transformation capabilities, yet measured in their plans. They're looking for us to help them understand the requirements and risks that must be addressed in order to be successful. In fact, many companies don't yet have the foundational elements or CX expertise needed. This is where we come in. We're helping clients across the AI spectrum from making tech platform decisions to executing new AI initiatives to improving their existing AI efforts for bigger impact. For example, this quarter we worked with a financial services company to improve the effectiveness of their conversational messaging. Their first implementation lacked a sophisticated analysis of speech patterns and was routing interactions to the wrong channels. Our team came in and strengthened the predictive models with a deeper understanding of language and intents to properly route interactions and improve customer experience. As Ken mentioned, we continue to expand our AI offerings to help our clients take advantage of the new capabilities enabled by generative AI. For example, we've enhanced our CX AI readiness assessment and roadmap to help clients understand their current ability to use AI and shape their go-forward initiatives. We recognize the importance of safeguarding our clients' data and minimizing the inherent risks of using emerging technologies. A key to successful generative AI efforts will require the use of private large language models. We're helping clients safely implement these private large language models with an expert team to customize the platform and train the proprietary data sets. The progress in AI is advancing quickly. Our team is staying ahead with latest innovations and tools and solutions, and I look forward to sharing our progress with you in the months to come. Overall, our strong first quarter performance is a great start to the year. As we move into the second quarter, we're laser focused on execution, maintaining an agile cost structure, and executing on the strategic investments we have underway. We'll provide further updates on our full year outlook when we share our second quarter results. Across both our digital and engaged businesses, our employees are at the heart of everything we do. Every day I'm inspired by the talent, dedication, and energy of almost 65,000 employees that make up our T-TECH family. We're deeply committed to our inclusive environment that inspires our employees to do their best for our clients every single day. We're very proud to have been named number 17 on the Forbes list of top 500 employers for diversity. To learn more about our full range of ESG programs, I invite you to read our recently published ESG report. On behalf of our board and our teams operating across the globe, thank you for your continued support. Now, let me introduce you to Francois Bourret, our interim CFO, who has been with our company over the past seven years, serving in multiple financial roles, and most recently as our global controller. Francois, over to you.
Ken
Thank you, Shelley, and good morning. I'm excited to be here today and share additional details on our first quarter financial results and provide more insight into our second quarter and full year 2023 outlook. In my discussion on the first quarter 2023 financial results, Reference to revenue is on a GAAP basis, while EBITDA, operating income, and earnings per share are a non-GAAP adjusted basis. The full reconciliation of our GAAP to non-GAAP results is included in the table attached to our earnings press release. Over the prior year period, our non-GAAP reporting is also adjusted for gains or losses from foreign exchange included in the other income that impacts EBITDA and EPS calculations. The press release includes the adjusted reconciliation for 2022 to reflect the same. My references to the term on a like-for-like basis describe a revenue growth excluding the impact of foreign exchange translation and treating acquisitions as we own them in the prior year period. Turning to our first quarter financial results, revenue was $632 million, an increase of 8.6% on a constant currency basis. On a like-for-like basis, Growth was 1.4%. I just said EBITDA was $83 million or 13.1% of revenue compared to $84 million or 14.3% in the prior year. Operating income was $61 million or 19.6% of revenue compared to $67 million or 11.4% in the prior year. And EPS was $0.78 compared to $1.06 in the prior year. The strengthening of our U.S. dollar had a $6 million negative impact on revenue in the first quarter of the prior year period, while benefiting operating income by a positive $2 million primarily in our engaged segment. We are pleased with our execution and financial results for the first quarter. The overperformance relative to our guidance was primarily attributable to extended seasonal health care demand that carried over from the prior year, driving stronger volumes. we also benefited from stronger demand in our digital and recurring business. On a year-over-year basis, top-line growth primarily reflects a contribution from increased CX technology professional services in our digital segment, the April 2022 annual asset acquisition, and seasonal volumes in our engaged segment. It was partially upset by the anticipated reduction in volumes from our hyper-growth portfolio. Turning to our operating and EBITDA margins, The year-over-year moderate decreases a function of integration-related costs associated with the financial asset acquisition, near-term margin pressure related to the revenue mix, and growth-oriented investments, including, among other things, strategic expansion and new offshore credit relocations. Turning to our first quarter, new business activities. We added 20 new client relationships and earned meaningful business from our enterprise and public sector embedded-based clients. Engage embedded-based performance remains strong as demonstrated by Engage's last 12-month revenue retention rate of 97%. Sequentially, backlog grew 2.4% quarter-to-quarter, inclusive of our offshore backlog increasing by 5% year-over-year. Accordingly, Engage backlog represents 97% of the midpoint of our segment revenue guidance and is supported by a healthy pipeline for the remainder of the year. In our digital segment, despite an elongated sales cycle, demand was solid as clients continued to recognize the long-term benefits from modernizing their CX ecosystems. For the full year, our digital recurring backlog increased by 4% over the same period last year, mainly driven by our genesis practice. Our professional services backlog is also up, increasing 35% over the same period last year. Digital total backlog represents 72% of the midpoint of our segment revenue guidance. For GTEC overall, we ended the quarter with a full year 2023 revenue backlog of $2.3 billion, representing 92% of the midpoint of our revenue guidance. Our pipeline for the next six months is $1.4 billion, which is well diversified across all verticals. with particular strength in financial services, healthcare, technology, and public services. Turning now to our first quarter segment results. Our digital segment reported first quarter 2023 revenue of $117 million, an increase of 5.5% on a constant currency basis over the prior year period. Operating income was $11 million or 9% of revenue compared to $14 million or 12.4% of revenue in the prior year period. Our first quarter revenue growth reflects momentum in the professional services and recurring revenue across our emerging CX Tech partner platforms. As previously mentioned, this was partially affected by the revenue reduction in the Cisco practice. Our recurring revenue grew 2.4% in the first quarter of 2023 over the prior year period, representing 55% of digital total revenue. Our professional services revenue, which has a high attachment rate for additional expansion and upgrade services, grew 14%, representing 37.1% of total revenue. The decline in operating margins reflect incremental investment in CX leadership and engineering talent, sales and marketing, and technology development. Our engaged segment reported first quarter 2023 revenue of $516 million, an increase of 9.3% on a constant currency basis over the prior year, or 0.5% on a like-for-like basis. The annual asset acquisition was the primary contributor to growth in the quarter alongside increased volume across services and static verticals, most notably healthcare. Revenue growth was partially offset by the previously mentioned reduction in volumes from our hypergrowth portfolio. Excluding hypergrowth clients, our engaged life-for-life growth was 3.3%. Healthcare, financial services, and public sector continued to show resilience and solid demand against this macro environment. These verticals are forecasted to grow organically by approximately 6% in the full year. As previously mentioned, the hyper-growth sector is cyclical in nature and more dependent on discretionary spending. As a result, our clients in this portfolio, especially those in non-resilient verticals, are experiencing lower revenue. In the first quarter, operating income was 50 million or 9.7% of revenue compared to 53 million or 11.2% the prior year. Our engaged operating margin reflects the items mentioned in my earlier comments. We also continue to rationalize our brick and mortar global footprint as we maintain a strong work-from-home presence, especially onshore. I will now share other first quarter 2023 measures before discussing our offers. Cash flow from operations increased to $49 million in the first quarter of 2023 compared to $14 million in the prior year period. The increase was primarily a function of working capital management, with DSO improving three days to 58 days. Capital expenditures were $14 million, or 2.2% of revenue for the first quarter of 2023, compared to $17 million, or 2.8% in the prior year period. While we continue to invest in IT infrastructure and are accelerating our geographic extension efforts, the reduction is explained by the completion of large projects in 2023. Our first quarter 2023 normalized tax rate was 26% versus 21.2% in the prior year. The increase is primarily related to the impact of changes in valuation allowances, jurisdictional mix of income, and reduction in select federal tax credits. As of March 31, 2023, cash was $151 million, with $933 million of debt, of which $930 million represented borrowings under a $1.5 billion credit facility. Year-over-year, net debt increased by $131,782,000, primarily related to acquisition-related investments and capital distribution, partially upset by positive cash flow generation. In the first quarter of 2023, ETEC Board declared its next semi-annual dividend of $0.52 per share, or $24.6 million, which was paid on April 20, 2023, to shareholders of Ricker as of March 31, 2023. Turning to our 2023 outlook, we are pleased with our first quarter performance and strong client demand as evidenced by our growing backlog. That said, given the macroeconomic uncertainties, we remain prudent and believe it is too early to change our full-year outlook. We remain focused on our execution and business fundamentals, and if current trends continue, we are confident we will deliver revenue and profit above the midpoint of our guidance range. Please reference our commentary in the business outlook and section to our first quarter 2023 earnings press release to obtain our expectations for the second quarter and full year 2023 performance at the consolidated and segment level. In closing, we continue to make investments to further globalize our delivery and language footprint, complete the integration of recent acquisitions, and enhance our infrastructure and technology landscapes. We also continue to maintain an agile construction, prioritizing our investments and discretionary spend with the changing landscape. We remain keenly focused on executing our strategic priorities, and we look forward to providing an update on our full year outlook when we announce our second quarter earnings in early August. I will now turn the call back to Paul.
Shelley
Thanks, Francois. As we open up the call, we ask that you limit your questions to one at a time. Operator, you may now open the line.
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 clearly when prompted. Your name is required to introduce your question. To cancel your request, press star and then two. Our first question is from the line of George Sutton of Craig Hallam. You may now ask your question.
George Sutton
Thank you. Nice results, guys. Ken and Shelley, I really appreciate the discussion on AI. Certainly the number one question that I get from clients is what the impacts are. Ken, I just want to make sure I heard correctly. I think you're saying, at least for now, we see an increased revenue per customer. We see a reduced cost to serve as a result of AI. Am I hearing that correctly? Yes.
Paul Miller
Well, the other thing that I think that we're saying is that over time, we believe that AI leads to higher profitability. Because in areas where we can reduce labor costs, that obviously gives us that much more margin opportunity. And it's why we've been leaning into AI for the past several years and readying the companies so that we can take advantage of these technologies. It's also why we've made such a massive investment in digital technology. so that we can integrate to all the various different CX systems that exist out there, which is one of the absolute highest priorities if someone wants to take advantage of AI. You have to have the skill set of being able to integrate to all of the various different systems.
George Sutton
Thank you, guys. Thanks, George.
Operator
Thank you. Next question is from the line of Maggie Nolan of William Blair. You may now ask your question.
William Blair
Thank you. I'm hoping you can expand a little bit more on the hypergrowth segment and just the long-term opportunity that you see there, kind of despite near-term dynamics.
Paul Miller
I'll start out and let Shelley take it from there. Look, the hypergrowth segment is really driven, for the most part, by the consumer. And it's no secret that that many of these e-commerce businesses, et cetera, are being affected right now as we move into this post-COVID environment, et cetera. So what I would say to you is that I think that there's a bit of a double whammy effect between the post-COVID event of people being able to get out and shop in a more historical way that they did in bricks and mortar, as well as the consumer, although being strong, really starting to shift to more of what I would classify as necessity type items. Shelley?
Ken
Yeah, and I would just say more near-term, Maggie, it's playing, you know, our hyper-growth business is playing out as we talked about last quarter. And I would tell you we're starting to see some green shoots in terms of pipeline. We do have some opportunities from a hyper-growth perspective in our pipelines.
William Blair
Thank you. And then obviously, you know, it's a nice quarter for revenue. I understand completely that, you know, it's too early to remove any sort of conservatism from the outlook. But how are you thinking about costs going forward from here, particularly if you do start to see a little bit of an acceleration in revenue?
Ken
Well, I think, first of all, as I said in our prepared remarks, right, maintaining an agile cost structure is really important for us, and we'll continue to stay focused on that. We're also focused on executing on the investments that we've been talking about. And, you know, we're executing well on those plans. So, we'll continue to be agile in adjusting to the environment ahead. That's all I need to say.
Ken
Yeah, just to add quickly, you know, as we mentioned in the last call, one thing that was key for us this year is, you know, building on these investments that we're making to position us well for the next year and this year as well. And so, we're considering this investment. Obviously, we're monitoring you know, holistically the microeconomic environment. But at this point, we are, you know, keep doing what we said we're going to be doing, focusing on the institution and making these investments will make a difference for TIC.
William Blair
My follow-up to that would be any sort of variation in the cost structure on a quarter-by-quarter basis that we should keep in mind for the purposes of margins?
Ken
Outside of the normal seasonality that you've seen in our business at this point,
William Blair
Got it. Thanks for taking my question.
Ken
Thank you.
Operator
Thank you. Next question is from the line of Brian Bergen of TD Cowen. Your line is now open.
Brian Bergen
Hey, good morning. Thank you. So I wanted to just ask on the outlook here. So, you know, 1Q is a pretty notable beat across all the metrics. Your commentary clearly does suggest some prudence here, but I just did want to ask about whether you've seen any changes worth calling out in sales cycles or the volume commitments across the various cohorts over the last three months or if it's really just stabilized and gone according to plan?
Ken
I'd say overall stabilized and going according to plan, Brian. As I said, in the digital business it's interesting because we have some clients who are moving forward full steam ahead with their cloud migrations and others that we're helping them make the most out of the technology that they have. So I think, you know, good news is we can serve each of those types of clients. On the engaged side, just too soon to understand what the environment in the back half a year might mean in terms of consumer demand and therefore demand from our clients. But so far, we feel well-positioned, as Francois said. Pipeline is strong, and so our backlog is growing as well. So nothing in particular to call out.
Paul Miller
Yeah, and I would say not to contradict anything that Shelley just said is, for me personally, I'm a bit surprised on the positive side in that I would say that demand is stronger than what I thought it was going to be, that our pipeline is significantly better than I thought it was going to be. And as it relates to closing cycles on the engaged side, I'd say that they're very typical and We're not seeing the kicking of the can that you tend to see when one is anticipating an economy slowing down. I think right now, we're very, very happy with where we're at, but I think that we're also realists. This is probably the fifth recession that I've been through, and we believe that it's smart just to be cautious, and we would rather surprise on the upside versus on the downside. I hope that's helpful, but what I would say to you is that not only did we feel very good about how we performed in the quarter, we feel very good about how our sales and marketing organization performed.
Ken
And I'd say also just a lot of growing demand for our offshore locations and capabilities. That's very positive. A substantial part of our pipeline is for offshore services, and so really, really pleased about how that's developing.
Paul Miller
Yeah, and it's one of our commitments to the street that we're going to put the pedal to the metal on bringing on as much offshore business as possible so that we can drive the margin profile to a higher overall margin. I'm really pleased that Shelly and her team are very focused on executing on that, and I would say it's going as planned.
Brian Bergen
Okay, that's all good to hear. It makes complete sense on the prudence here. My follow-up is kind of on the headcount and the operations. So can you kind of give us a sense of how headcount has progressed since 4Q across digital and engage and how you're expecting workforce levels in each segment to trend here over the course of the balance of the year?
Ken
Well I can start. I'll give a couple of comments here and then Francois I'll turn it to you. First thing is keep in mind in our engaged business we have a lot of seasonality, right? So we have seasonality there. In the digital business we continue to grow our cost-effective global delivery model. So that was my comment earlier around by the first about halfway through the year, Brian, We expect that actually 30 to 40% of our engineering talent will come from our India and Philippine locations. So we have a big focus there, partly just to be able to meet the growing demand from clients and also just from a margin profile perspective. Francois, anything you'd like to add?
Ken
No, I would just say it's important, especially for the engaged business, to understand holistically the seasonality, how it can fluctuate your headcount, and how the geomix can influence your headcount. You know, right now we're seeing, you know, our offshore headcount growing at a faster pace than onshore headcount, supported by the pipeline that we have and the backlog as well that we've seen growing offshore.
James Fawcett
Thank you.
Ken
Thank you.
Operator
Thank you. Next question is from the line of Mike Lattimore of Northland Capital Markets. Your line is now open.
Mike Lattimore
Thanks, yeah. Congrats on the strong start to the year here. The digital guidance sort of implies, you know, improving growth rates in the second half. Can you talk a little bit about kind of just the key drivers to kind of see accelerating growth in the digital business?
Ken
Yeah, so the accelerated growth with digital for the back end of the year is really going to come from our professional services. We really have good momentum right now throughout some of our practices. especially Microsoft, AWS. This is really where we see the strength of our backlog coming for the back end of the year. So we're feeling very good for the back end of the year for digital right now.
Mike Lattimore
Got it. And what should we use as tax rate for the year?
Ken
The guidance we're providing is between 24 and 26%. Okay, great.
Mike Lattimore
Thank you.
Paul Miller
Thanks, Mike. Thank you, Mike.
Operator
Thank you. Next question is from the line of Joe Vaffey of Canaccord. Your line is now open.
Joe Vaffey
Thank you. This is Paula Fanny on for Joe. Thanks for taking our question. I was wondering if you can touch on your pipeline for cross-sell opportunities between your digital and engaged businesses. Maybe provide an update on some of the opportunities, Shelley, you mentioned you're working on the Q4 call. Thank you.
Ken
Absolutely. Well, I'd say overall, as Francois said, our pipeline continues to grow. We're pleased with that. Diversified certainly across industry verticals would be the first point. Secondly, we have a number of opportunities where we're working together across our T-TECH Digital and T-TECH Engage teams, primarily in opportunities where clients want to take advantage of technology, whether it's about enabling our knowledge workers and associates that are serving our clients and or where we're using the technology capabilities to just improve the agent's experience. And so I would say, you know, no numbers to share in particular, but I would say that's an area that's developing nicely for us as well.
Joe Vaffey
Thanks.
Operator
Thank you. Thank you. Next question. Next question is from the line of Cassie Chan from Bank of America. Your line is now open.
Cassie Chan
Hey guys. So first I just wanted to ask about revenues. I guess how should we think about organic constant currency, you know, revenue growth progression throughout the year versus the 1.4% and 1Q? I think that typically in terms of seasonality, you know, 1Q is the lowest in terms of dollars and sequential growth. But now like the 2Q guide is supposed to be a little bit softer than 1Q. So is it kind of expected to trough in 2Q and then accelerate in 3Q, 4Q? Thanks.
Ken
Just to start about the variance quarter to quarter, Q1 is typically a strong quarter for us because this is where you get the flow through from the seasonal work that starts in Q4 from the prior year. Therefore, for us, the reason we were significantly above the guidance for Q1 is that we had very strong healthcare volume coming through. Also, on the hypergrowth, the softness and revenue already communicated didn't materialize as fast as we thought. So, A very strong Q1 from that standpoint. As you move forward in terms of the growth rate for the remaining of the year, you know, our guidance right now is giving you a digital on a like-for-like basis, meaning concentrate and see if there is any acquisition like an engage. But digital right now is at 8% and you have – sorry, digital at 8% and engage right now, the midpoint of our guidance is at minus 1.4%. But bear in mind that the Q1 result is really putting us in a good position right now.
Cassie Chan
Okay, thanks. And then for the full year, I just wanted to make sure I have all the pieces in place there. So I think, are you guys still expecting about $300 million from the hyper-growth clients in 2023? And I believe you guys said that healthcare, financial services, and public sector are now expected to grow about 6% for the full year of 2023. I believe it was 7% before. I just wanted to clarify that, as well as sort of ask what's driving the software outlook. Thanks.
Ken
Yeah, those numbers are still accurate.
Ken
Yeah, I think, Cassie, what I would say is hypergrowth, yes, still in the 300 million range and, you know, I think last time we said 5% to 7% growth across the other verticals and so that continues to be our outlook at the moment.
Cassie Chan
Okay, that's helpful. Thank you.
Operator
Thank you. Our last question is from the line of James Fawcett of Morgan Stanley. Your line is now open.
James Fawcett
Hey, it's Jonathan on for James. Thanks for taking our questions. Can you talk through your target delivery mix as it relates to onshore versus offshore outside of engineering talent as you continue to work through your offshore expansion? And then how should we be thinking about the revenue implications of that shift given the pricing dynamics between onshore and offshore deliveries?
Paul Miller
Well, as it relates to revenue dynamics, I really don't think that there is any type of a negative impact due to the fact that all the offshore work that Shelley's talking about that we have been pursuing is all net new business that we're bringing on. There's very little shift of the embedded base to offshore. And there's good reason behind that because we have some significant specialty in healthcare with thousands and thousands of licensed insurance agents and significant specialty in financial services with also licensed requirements and a fair bit of public service and federal, that business typically, for the most part, has no choice but to stay onshore. It's all the net new business that we're bringing on right now that we're placing in our offshore facilities. And as to what our goals are of engage onshore versus offshore, I think over time, you know, the goal will be, you know, somewhere where we have a balanced portfolio of 50% on and 50% offshore. And we feel very confident that we will achieve that based on the speed at which we're opening new locations and the speed at which clients are taking up that capacity and asking to move to these new geographies and new locations. Do you want to add anything?
Ken
No, I think that's right. And I mean, I think, you know, really pleased with how the client demand that we're seeing and how our pipeline is developing for our existing, but in particular for the new offshore locations that we're opening up. And I think, Jonathan, as we talked about last time, right, we will get to that 50-50 mix or that balanced portfolio, you know, over time here. This year, we're certainly looking to expand our offshore, you know, by a couple percentage points. And so that's what we're working on every day.
James Fawcett
Got it. Thanks for that color. And I know it's relatively early days in your offshore expansion, but can you talk through hiring trends you're seeing in some of your New York geographies?
Paul Miller
So far, we're very pleased. And it's, you know, a lot of that has to do with the locations that we're picking and where we're going, but we are experiencing no difficulty whatsoever in filling the roles as we open up these new sites. So far, we feel extremely confident about the hiring abilities. And frankly, it's one of the many reasons why we decided to start to add all these different geographies is because we wanted to have far more diversification. I wanted to be able to have much more certainty that we can higher at a much faster rate, et cetera, and it's absolutely proving to be the case.
Ken
And of course, we're going into markets where we think the talent market is strong, right? So, so far so good. Going well.
James Fawcett
Appreciate the color. Thank you.
Paul Miller
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 everyone for joining us today. This concludes our first quarter earnings call. Thank you.
Operator
This concludes TTECH's first quarter and 2023 earnings conference call. You may disconnect at this time.
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