This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Ladies and gentlemen, welcome to the TDCX Q1 2023 results announcement. My name is Neil and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I will now hand you over to your host, Jason Lim, Head of Investor Relations from TDCX to begin. Jason, please go ahead.
spk04: Hello everyone and welcome to TDCX First Quarter 2023 Earnings Conference Call. My name is Jason Lim, the Head of Investor Relations. Allow me to introduce management on the call. We have our Executive Chairman, Founder and CEO, Mr. Lahong Junick, our CFO, Mr. Chin Tzu-Ning, and our EVP of Corporate Development, Mr. Edward Goh. Before we continue, I would like to remind you that we will make forward-looking statements which are subject to risks and uncertainties and may not be realized in the future. You should not place any reliance on any forward-looking statements. Also, this call includes the discussion of certain non-IFRS financial measures, such as adjusted EBITDA, adjusted net income, and constant currency revenue growth. For a reconciliation of the non-IFRS measures to the closest IFRS measures, please refer to the Form 6K, which is available on our website. We have prepared a convenient translation for the translation of Singapore dollars to the US dollar. This was done at a rate of 1 USD to 1.327 Singapore dollars. It should not be construed as representation that any Singapore dollar amount can be converted to USD at this or any other rate. With that, let me hand over the call to Lahan. Lahan, please.
spk05: Hello, everyone, and thank you for joining us for TDCX first quarter 2023 results briefing. Our team delivered a resilient set of Q1 results through continued focus on operational excellence and efficiency, despite challenging market conditions. We'd like to thank the entire TDCx team spanning across 16 geographies for their efforts in keeping our forward momentum going. In particular, a warm welcome to our new TDCx colleagues at our newest locations of Brazil, Vietnam, and Turkey, who have done an amazing job for our clients since we started. Also want to thank our clients, many with whom we've had longstanding relationships for their continued trust in us. me begin with some highlights of our performance as a result of a great team effort we delivered at the top end of our revenue guidance this quarter with 124 million us dollars representing an 8.2 percent year-on-year growth the singapore dollar had strengthened considerably against all our foreign subsidiaries local currencies notably Bertrand de La Chapelle, across our Malaysians Philippines island and Japan businesses on a constant currency basis revenue would have grown 13.1% against the same period last year, this was driven by increased revenues across ourselves and digital marketing and omni channel CX service lines. Earnings performance was robust as EBITDA grew 7% to $32 million, while profit for the period was up 22.5% to $21 million. The set of results included a net reversal of equity settled share-based payment expenses of $3.9 million. To recap, the targets for our performance share program were set in November 2021, when the business and capital market environments were very different. Investing criteria for the PSP program includes, among others, total shareholder return and earnings criteria. In this current market environment, some of the key performance conditions of our performance share plan not expected to be obtained. Therefore, we had to reverse some previously accrued costs. Excluding the reversals, our adjusted EBITDA declined 16.2% to 30 million US dollars, and adjusted margins declined to 24.2% from 31.2% last year. Our CFO will provide detailed reasons for this later. To a large extent, much of the margin compression is due to planned costs, such as our geographic expansion, choosing to recruit in good time ahead of projected growth in the peak summer travel season and in keeping strong support and shared service staff ratios. We also continue to invest in initiatives such as the Digital CX Center of Excellence and TDCX AI, our in-house consulting arm. We run our business for the long term and believe these investments are necessary. Besides these, these are productivity measures and cost levers that we can pull to bring margins back nearer to our guidance levels over the course of the year. And our CFO will share more on this later. We continue to execute well from a business perspective. Operationally, I'm very proud that we remain at the top end of performance tables for our clients, demonstrating that TDCX continues to execute at the very highest levels Our client count rose by a strong 55% to 85% as of March 2023. Our growth was broad-based and we're excited that revenue from clients outside of top five rose 45% year on year. This included clients that we added from our Hong Kong subsidiary. As a result, we improved our revenue diversification. as our top five clients contributed 76% of this quarter's revenue, down from 83% in the same period last year. Lastly, we want to highlight our strong returns, which reflects the underlying strength of our business. A return on equity of 19% places us ahead of many of our peers. Over the last two years, we've embarked on a strategic geographic expansion, and this has really started to contribute meaningfully. For example, Korea, Colombia, Romania all recorded revenue in Q1 2023 more than four times what they contributed in Q1 2022. Last year, we've added new geographies like Turkey, Vietnam, and Hong Kong, which were not part of our footprint just a year ago. All in, revenue from new geographies was 10 times in Q1 2023 compared to what it was in Q1 2022. Most recently, we announced the launch of our newest campus in Sao Paulo, Brazil, in support of a key gaming client. We also opened our office in Jakarta in 2023, which further bolsters TDCX's Southeast Asia network. Indonesia is the largest Southeast Asian market with a population of 270 million, with over 70% internet penetration and a large ecosystem of international and regional tech companies. With a growing headcount of over 18,400 employees globally, we are excited by our new, wider geographic reach. This empowers us to serve more clients across the world. Moving into client highlights, as mentioned earlier, we continue to grow our client count steadily. While our client count stands at 85 as of March 2023, another six clients have been signed up, but not yet launched. We look forward to kick-starting this campaign soon. As shared earlier, our higher client count and growth-based growth have contributed to the improved revenue diversification metrics. In terms of contribution from verticals, digital advertising and media remains our largest vertical at 51% of revenue in this quarter. The revenue contracted slightly year on year with a decrease in volumes from some of our clients, partly offset by good growth from several other clients in this space. Our second largest vertical was travel and hospitality at 24% of revenue. This vertical saw a strong growth of 34% year on year, driven by the strong rebound in cross-border travel with room for further recovery. We have started ramping up our hiring to meet the demand for the summer peak period, as well as increased outbound Chinese travel in the second half. We have always shared that TVCX differentiator is our focus on more complex work. Now, given the speed of developments in tech and AI, the need for moving up the complexity ladder is all the more a key strategic priority for us. And we intend to deliver this by attracting top talent, providing good training, and optimizing our tools and processes. Allow me to illustrate how we do this across our three lines of business. Sales and digital marketing, which represent 27% of our Q1 revenue mix involves digital marketing experts focused on optimizing average revenue per account for SMB advertisers, campaign and lifecycle management, agency management and onboarding, deep analytics, creative consulting and marketing operations on behalf of our digital advertising clients. Our talents in this LOB are recruited from a diverse range of linguistic backgrounds with obvious higher qualifications and capabilities on the content trust and safety which represents 13 of our revenue mix it involves complex content moderation interventions that require human interpretation and nuanced knowledge of cultural and political norms we also perform a wide range of complex trust and safety functions to ensure the authenticity and accuracy of listings for rental or sales, KYC procedures for some of our FinTech clients, as well as data annotation and labeling work. Lastly, our biggest service line remains Omnichannel CX, which is 59% of our Q1 revenue mix. The vast majority of these are primarily complex B2B interactions or complex b2c discussions for example many of our clients have multiple tiers of complexity or escalation we typically deal with the highest tiers and serve the most demanding or highest paying customers who require a wide globe approach others such as escalations are time sensitive and require us to employ empathy and mediation skills to intervene Our long-standing focus on new economy clients has provided us with deep domain expertise and understanding of innovative verticals and client needs. We have doubled down on our consulting strategy to add even greater value to our clients. This January, we launched our Digital CX Center of Excellence to pilot and validate new CX models to support emerging technology architecture, as well as to develop practical real-world use cases. By leveling up our consulting capabilities, we're able to showcase our domain expertise, obtain a seat at the strategic table, and can therefore deepen our relationship with clients. I'm also happy to announce that we recently launched TDCX AI, a specialized consulting division which leverages AI in CX applications and helps clients on their AI journey. The team is composed of 50 specialists with expertise in AI algorithms, data science, and business analytics. We think these insights and tools will help clients deliver hyper-personalized customer experiences, which will allow clients to create tailored CX journeys or targeted marketing strategies, which will in turn drive customer loyalty and revenue growth. We are also investing in generative AI tools to enhance internal productivity, which will free up our employees to focus on higher value, more rewarding and fulfilling work. There are lots of fresh and exciting opportunities presented by this generative AI wave, and we are agile and nimble enough to pivot quickly to meet new demands. We will share more about developments in TDCxAI in due time. To sum up, a solid presence in asia a globally expanding footprint a culture aligned with new economic clients and continuous technological innovation i believe tdcx of the right fundamentals and we're well positioned to excel in this constantly evolving bpo market Before I pass my time to Mr. Chin, who will bring you through our results and guidance in greater detail, I'd like to briefly touch upon outlook. Broadly speaking, the near-term macroeconomic outlook remains uncertain. Sales cycles have lengthened, and generally speaking, clients remain hesitant to commit into more business in the near term. On the other hand, a number of our largest clients have recently reported slightly more optimistic Q1 earnings. We are cautiously optimistic that business will improve into FY2024. With that, let me hand over to Mr Chin.
spk02: Thank you, Lohan. For Q1 2023, revenue rose 8.2% on a reported basis. Had the Singapore dollar remained constant against our operating subsidiaries' currencies from Q1 2022, revenue would have risen by 13.1%. Notably, the exchange rates used for the translation of some of the local functional currencies of the Malaysian Ringgit, Philippine Peso, Thai Baht, Japanese Yen and RMB depreciated between 4% to 16% against the Group's presentation currency of Singapore Dollar for the three months ended 31 March 2023 compared to the three months ended 31 March 2022. This quarter's earnings included a net reversal of the share-based payment expense of around US$4 million, as Lohan had alluded to earlier on. This was because certain performance share plan awards are not expected to vest, reflecting the current macro and business environment. Largely as a result of this, EBITDA increased 7% to US$32 million and net profit for the period grew 22.5% to US$21 million. With effect from January 1st, 2023, the group has decided to include adjustments for net foreign exchange gains or losses and acquisition-related professional fees in the adjusted EBITDA, adjusted net income, and adjusted EPS in addition to the adjustment for equity settled share-based payment expense or reversal that was included in prior periods. Over the course of the previous year, we have identified such additional items as not indicative of our ongoing operating performance and that adjusting for such items renders a more meaningful understanding of the underlying performance of the business to the readers. For like-for-like comparability, similar adjustments have been made on the adjusted EBITDA and adjusted net income for Q1 2022. While we believe that such non-IFRS financial measures provide useful information to readers, these have limitations as analytical tools and you should not consider them in isolation or as a substitute for analysis of the financial results as reported under IFRS. Back to the results, adjusted EBITDA declined 16.2% to US$30 million in Q1 2023, as margins contracted from 31.2% to 24.2%, with largely higher costs incurred during the quarter. I will discuss this in further detail in a later slide. Consequently, from the lower adjusted EBITDA, our adjusted net income declined 19.1% to US$18 million. Earnings per share in Q1 2023 landed at US$0.14, while adjusted EPS was US$0.13. Let me next provide some insights of our revenue by service verticals. Our revenue growth was led by growth in our sales and digital marketing line of business, followed by omnichannel CX services. but partly offset by a decline in content trust and safety. Revenue from sales and digital marketing services increased by 23% to US$33 million, primarily due to the expansion of existing campaigns by our key digital advertising and media clients and volume contributions from new clients onboarded in the second half of 2022. Omnichannel CX revenue rose 9% to US$74 million, primarily due to increased business volumes from the expansion of existing campaigns by travel and hospitality clients as well as in the gaming fmcg and technology verticals content trust and safety revenue declined 17 year on year to us dollar 16 million due to lower volume requirements by the client in the digital advertising and media vertical the mix from the different service lines has been shared by lauron in an earlier slide next let me provide some details on the adjusted EBITDA margin movement from 31.2% in Q1 2022 to 24.2% in Q1 2023. There are three broad categories. Firstly, in Q1 2022, we had the COVID-19 related government aid grants largely from Singapore that did not recur in Q1 2023 of 0.7 percentage point. Secondly, there was a 1.9 percentage point impact due to the higher non-employee awareness attributable to infrastructure costs of expanded and new sex capacities, coupled with more business and operational traveling and recruitment costs. Thirdly, there was a 4.5 percentage point compression relating to higher employee benefit expenses, excluding the equity settled share based payment expense reversal. This included higher group corporate costs to cope with compliance and listing requirements obligations since becoming public listed. higher proportion of deployed resources versus billable resources, which also drove up higher campaign support and shared service resource costs. To elaborate, we have some excess agent headcount on our payroll to cater for higher volumes in four months planned by some of our key clients, namely in the travel and hospitality, gaming, digital advertising and fintech sectors. We also opted to retain trained and experienced program support resources such as quality assurance and team leaders. for future business recoveries or ramp-ups. As we roll forward this year, we are targeting two areas to recover some of the margin compression. Firstly, we are focusing on the impact of over-resourcing gap to be optimized by closer engagement with our clients for better projection, visibility of existing and new business volumes over the rest of the year. Secondly, Part of the impact from higher overheads and non-employee costs will be progressively reduced as we generate better economies of scale from our new geographies. These have been considered in our outlook for the year, which I will share in the next slide. Next, let me provide an update on our full year 2023 outlook. We are reiterating our revenue growth guidance on constant currency terms at 3% to 8% for the full year 2023. We also maintain our adjusted EBITDA margin outlook of approximately 25% to 29%. This does not include investments such as our Digital CX Center of Excellence and our recently launched TDCX AI arm. With that, let me hand over back to Lohan.
spk08: Alright, thank you Mr Chin.
spk05: Guys, we're ready for questions.
spk07: Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to withdraw your question. When preparing to ask your question, please ensure your phone is unmuted locally. Thank you. We now have our first questions from Florian Aja from CreditSuite. Please go ahead.
spk11: Thank you, management, for the presentation. I've got a quick three, four questions. First, I understand, Laurent, you gave a brief comment on the discussion that you're having with clients, but it will be helpful for investors if you can provide more color. How is the visibility compared to, say, suppose a quarter ago when you gave the original guidance? Is the outlook over the last three months or four months has improved since you're obviously you're at the peak early in the year. So how do you see the move forward in 2023? Also, I understand AI, you started to have initial movements over there. But how do you see overall impact on AI on the business per se, which segments, verticals you think will be impacted most and how does these initiatives by you kind of help you mitigate some of those headwinds that may proceed? So that's number one on overall commentary on visibility and AI. Secondly, on margin side, Mr. Chin, I understand you gave more color on it, but it will be helpful if you can provide going ahead how should we think on the outlook given you're expecting an improvement and the revenue guidance implies still a headwind in second half so economies of scale how do you want to achieve given the revenue may based on guidance may not be growing at the same rate as first quarter and secondly if you can provide some colors on country-wise I don't want to specific country, but how should countries which have been launched two, three years ago, where they are in terms of your base case margin expectation, how far are they from what we should expect on a steady state margin level. So those are the two. Third on the tax rate, if you can provide some color. This quarter was down. So is this the normal tax rate which should be assumed? Thank you.
spk05: All right. Thank you, Varun. I'll take some of your questions. I'll defer some to Mr. Chin. Just touching lightly on the margin compression, and I think Mr. Chin will be giving you more details. I think a lot of the impact that you see is by design, if I may say, as we had to make decisions to adapt to the times, but with the future in mind. And so I think Mr. Chin will be a bit clearer here on the strategic decisions we make to keep our clients happy, but also take into account the operational opportunities as well as the limitations to be the best partner to our clients, but also to our employees and to our investors. Going back to, and then Mr. Chin will talk on this as well as the countries and the tax rate. You asked me about AI and the impact of AI on TDCX. So I think maybe it's a little bit easy for me to reiterate how differentiated TDCX are and how we have anticipated this. And if you look back to our IPO paper now a few years back, we were already discussing this topic. doing much more complex work than a number of our peers. 51% of our business is in digital advertising. Close to 70% is in business to business. Not that we're immune to AI and the automation journey, but this is not something new to us. And obviously we've been going through that process for a number of years. And we discussed it before, but the impact that this has on our work is that our work is becoming increasingly complex, and that's forcing us to hire more competent personnel, provide better training for them, and retention are important topics. And the way clients look at it is exactly the same way. And the pressure usually right now we feel is on speed to proficiency. And clients are asking us to help them to get their specialists to a higher level of competency at a higher pace and work on retention. So hence the launch of TDCxAI, where we are intending to respond to the increasing interest of clients in advisory services to guide them in their strategy. We've been very successful with this recently and will be continuing to press hard on TDCxAI to address the opportunity. We think beyond the possible impact that is difficult to estimate, the opportunities are going to come with the fact that clients are all wanting to do something, but the resources are hard to come by, and that's exactly the way outsourcing works, when it's hard to find resources, outsourcing as an opportunity to shine. So we intend to capitalize on this, and we've already made steps, obviously, towards that goal. Now your question on the client discussions, Visibility has not improved dramatically. It's still a volatile environment, both on the macroeconomic side of things. As you know, everybody's waiting to see what the Fed is going to do, whether there's going to be an impact on the economy. We've heard a lot of layoffs, especially recently. We hope that's the end of those layoffs. and that clients are in better positions to make decisions, especially coming towards the mid-year. We anticipate clients will need to make decisions to make the year. So we hope those decisions will come a bit at an accelerated pace, but I cannot guarantee this. So the discussions with clients are ongoing. They're fruitful and meaningful, but I cannot say that our visibility has increased so far. So sorry for a long-winded response. I'll hand over to Mr. Chin to maybe get a bit clearer on the margin compression as well as other details that you've asked.
spk08: Yes. Hi, Varun. Can you?
spk04: Hello. Yes, we can hear you Mr Chin, maybe a bit louder.
spk12: So on the compression of the margin, as I mentioned a while ago, the cost was a bit more than what we had when we were newly listed in Q1. and throughout the course of the year of 2022 to sort of cope with the compliance and the listing issues since becoming listed ourselves in late 2021. So that kind of came to a bit of a high level throughout 2020. So that culminated into Q1 2020 and there were some advisory work that also started in the first quarter. The second point about the margin compression came from the deployment of resources against the billable headcounts that evidently and really the campaign support and shared service resources. So there were some additional access agent headcount on our payroll to cater for certain volumes that were planned in the four months by some of our key clients in the gaming and especially advertising sectors. So in that sense, in some of the new programs in the field and new sites in Europe, Latin America, as well as in Vietnam and Korea as well, we had some attention there. So in advance of the available phase of these headcounts, there was this margin of erosion arising from this situation that we had. and also in essence we also opted to retain as much of our trained and experienced support resources like QAs and ETLs in anticipation of future business volume recovery and also as possible new business which we are aiming for on the new low hold that they are quite, I would say, confident, cautious, confident to tackle. So on that front, going forward, I would say the, as what you were saying, that the headwinds in the second half year will impact on our margins going forward. I think naturally we will We actually started to focus on narrowing the lossing gap to optimize the visibility of the volume. So we are having really close hand-in-hand engagement with our clients and working with for better projection visibility for the existing and new visitor volumes for the rest of the year. And we probably, we are actually, we will shift off some of the program's volumes, I mean the headcounts, by seeing what their numbers are like and maybe taking a bit of risk in addressing spikes in volumes if those happen. And also the overseas and non-employee costs, we will optimise as much as we can when the scale of the new business and new sites started to increase over the remaining period of the year. That pretty much connects back to what we talked about, the margin. As for the tax part, probably jump to the question first. There was this in one of the business units in Europe from the calculation that we made, projection of the profitability of this unit, as well as to a certain extent, the absence of the prosperity that started in Malaysia in 2022 that did not happen in 2023. So going forward, we will probably be landing at about 20% ER for subsequent quarters. subject to any other unforeseen types of rules and laws that are being implemented by any particular jurisdiction that they operate in. Did I cover all your questions or did I miss out any other questions?
spk11: Yeah, no, thank you. I think there is some problem with the audio, but most of it I got it. Thank you. Thank you.
spk07: Thank you very much. We now have our next question from fit pen from Goldman Sachs. Please go ahead.
spk01: Hi, thank you very much for the opportunities. And good morning management here as well. A couple of questions from Maybe number one, going back to the revenue again, understand that there's some headwind that we're supposed to expect, but the constant currency basic revenue actually came in above 13% on a year-on-year versus your guidance of 5% to 8%. So particularly, can you actually highlight which quarters or in what timeframe that we might actually see headwind coming in and in what sector as well? I'm just wondering, like, why do you keep like very conservative sense here as well, despite hearing some of the improvement. And number two, somewhat related to that as well. I think previously you mentioned that part of the weakness of USU is because some of your digital advertisement clients see less willingness to spend overall, but given that some of these clients and the sector itself is actually seeing their results and basically numbers coming in better than expected in first quarter, Are you potentially seeing better demand indication from, let's say, the OCX sector, SDM sector, from them? That's question number two. And last question, just wanted to ask about the new location that you just launched, Brazil and Indonesia. Can we have more colors if you already have clients locked in for these new locations? And if so, which segment should we see uplift and when? Okay.
spk05: Super. Thank you very much for all the questions. On the headwinds part where, yeah, we grew in constant currency at 13% in first quarter, which looks pretty decent. And the question is, why are we not upping our guidance? I think it comes back to the visibility issue and really us thinking as usual, and as you know, as a conservative stance, as we don't want to over-exaggerate the opportunities that are in front of us. The market remains jittery, uncertainty on the macroeconomic front, and that's not to be underestimated. Coming back to your question on digital advertising, clients who have reported better Quarters, it's great, but nonetheless, you can see that they're still looking for efficiencies. And sometimes clients look at every single aspect of efficiencies, whether they are anticipating a slowdown or are they looking at improving their profitability as a trade-off to some investments they're making. We're not sure, and at least we can't see at this point, a huge turnaround of confidence, saying that the second half is going to be trading much, much stronger. So until then, we don't think we should change our guidance. The new locations that we've launched, the most recent one, Vietnam, is very busy at full capacity right now. Indonesia is a new site that we, so you know, we have those Greenfield sites where we start with a client and some sites where we make an investment and wait to get clients as a strategic move. Indonesia is such an investment that we've made as opposed to last year. We spent quite a bit of last year setting up sites that were really a greenfield operation, purpose-built for our clients, and they started going straight away with business. So we tried to make that trade-off between a strategic location expansion versus really greenfield sites for clients to further our growth, and quite happy to see how the strategy of growing our new offices has paid off for us or continues to pay off by driving some growth that is starting to be quite noticeable at this point. Thank you, Pang.
spk12: Let me just leave a question that I think I omitted to answer to Varun's, one of the three questions. on the new logos revenue as well as the margin performance of those new sites that were set up in the last two, three years. Basically, they are still operating below the mature units that were set up much longer ago. But they are on a trend quite nicely in the sense that they are coming not so much as yet to a full release date but they are still finding their foot on running the programs because they are still young and a lot of hand-holding by the mature units in Malaysia and Singapore in running those programs. on a positive track direction, but yet to arrive at the margins of the maturity.
spk05: And Pong, I continue as well on the new geos. If you look at Colombia, Korea, Romania, our revenue was up four times compared to Q1 2022. So it's quite significant in terms of growth. Overall, the new GOs compared to last year's same quarter actually grew 6.5 times when we exclude the Hong Kong operation. It's a lot more even if we add the Hong Kong operation. So it's starting to really contribute and more to come in that front for sure.
spk08: Operator, can we have the next caller, please?
spk07: Sure. Thank you very much. We now have our next question from Ranjan Shama from J.P. Morgan. Please go ahead.
spk06: Hi, good morning, and thank you for the presentation. Just a couple of questions from my side. Firstly, coming back to the revenue guidance, if you're guiding for 3% to 8% growth on a constant currency basis, while the first quarter, the 13% growth, So should we think that the revenues might decline in the coming quarters despite the expansion in logos and despite the expansion in geography? The second is like how are your hiring decisions evolving with Gen AI? Are you looking to hire more to build capabilities? I know you talked about efficiencies, but also I'd like to understand if you're looking to provide some solutions based on LLMs as well, and how that's affecting your hiding decisions. Thank you.
spk05: Thank you. On the revenue, we don't provide a per quarter guidance, unfortunately. So as we mentioned, we're really sticking to our guidance in constant currency basis. And yeah, so that's really how far I can go at this point. On the gen AI, and I want to call it AI in general, if I may say, and beyond that, the consulting part of things, absolutely we want to invest in that sector. It's still early days, yet TDCX has been in this business for years now. Our digital lab has been building AI models for the past eight years. leveraging machine learning. Some of our revenue comes from data annotation as well. So we're absolutely in the business, but we want to take it to the next level and invest in resources and capabilities. We have to say right now we're quite overwhelmed in terms of the number of use cases we're working on. And we are really looking for talent in that space to take it to the next level. And as we build that capability and continue to really do it at a very strategic level with our clients, there are two objectives. One, continue to nurture our relationship and by that seat at the strategic table with our clients, but the second one is to look at how this can spice up our revenue and possibly our margins moving forward. But nothing to announce at this point. As we said, we just launched TDCX AI and we'll be tracking it pretty closely in the coming months.
spk08: Okay, thank you.
spk07: Thank you very much. We now have our next question from Hon Tan from HSBC. Please go ahead.
spk10: Thank you. Could I ask what your employee utilization was this quarter? It's massive. You, of course, have been hiring much faster than top line growth. So curious how this has affected sort of staff utilization.
spk05: i don't i don't think we we report really on the employee utilization at this point but the i think if you mentioned that our employee account has grown faster than our revenue growth there's a reason that i think mr chin has explained around the margin compression and the the fact that there's a misalignment between how quickly we scale down our headcounts to reflect the new revenue forecast or the new revenue that is given to us by clients and the decisions that we make to hold on to some buffers to wait for the business to rebound. So you'll see that discrepancy possibly, especially in Q1. But that's typical playbook, operational playbook that we use to mitigate between operational risk and client satisfaction and financial performance. So we try to find the right balance between those three and get to the right flavor of the moment where you are in a situation where your growth has slowed we have capacity chasing growth. So that's probably one of the main reasons, and I think Satineh has already covered this topic already.
spk10: Thank you. Could you also comment on levels of inflation in the key markets? How much does that impact employee costs in the first quarter.
spk12: Mr Chin maybe can comment on this. The wage inflation for current quarters has not been quite evident. which decision internally to maintain costs so we are careful on that front. So far, I think we are managing it quite reasonably well. The market is still a bit tight on that front. So far, I think the production level is still under decent control by the management. I would say that which is not a main factor in the current.
spk10: Thank you. Final question for me. I noticed you incurred some due diligence fee on this continued acquisition. So I wonder whether you could give us any color on why you decided not to pursue this opportunity.
spk03: I think you're aware we said that we are actively pursuing and evaluating different opportunities out there, and they're all at different stages. At some point where we see the right opportunities that warrant a closer look, we would appoint professional advisors to help us conduct due diligence, and we did. It's just in this case, for reasons that I can't disclose, which is quite typical in M&A discussions, we decided not to pursue. So the talks were basically discontinued. I think we continue to take a very disciplined approach going forward and scan the entire landscape to look for the right fit and the right targets.
spk08: Okay, that's all from me. Thank you.
spk07: Thank you very much. We now have our last question from K. Seon from CGS CIMB. Please go ahead.
spk09: Hi, morning. Thanks for taking my question. Quickly on the revenue side of things, I noticed on a two-on-two basis, revenue contribution from SBM actually came off while OCX was more slapdick. Any reasons for this? Because I imagine that the SDM would typically be more resilient in times of, for example, digital advertising slowdown because clients are trying to more proactively reach out to drive revenue growth. So, how should we read into this?
spk05: No, good question, Casey. If you look at it from Q2Q, it looks like it's more acute in reduction. But if we look at it from Q2 last year, we've grown quite significantly on the sales and digital marketing. I think it's around 25% up on the sales and digital marketing. So it's probably more of a quarter issue. But I don't want to underestimate as well the impact of macro on sales and digital marketing. As much as it's a bit more resilient, it is not immune to macro pressure. And digital advertising is obviously impacted, so we have to take that into account. But we're confident with that sector this year as one of the key drivers of our growth as well.
spk12: To expand on Lohan's answer just now is that Q1 this year was a shorter working period as opposed to during any other or else be equal. Q4 last year was a slightly longer work quarter, in that October and November was a longer period of work months, whereas December was a bit more slowed down, as opposed to Q1 this year, where GEN and FACT had a bit of a break and a short month typically, and January was the start of the year where the engines took a bit of time to reboot before the full month of March. So that's where the number of workdays deviation between the two quarters had a little bit of effect to the revenue.
spk09: uh trending that you just got it so i guess just circling back to your full year guidance for for revenue just wanted to confirm if uh you know the the mix uh expectation internally is still the same compared to three months ago because i think that then uh guided that the sdm segment growth should be stronger compared to ocx so is that expectation still the same
spk08: Yes, yeah.
spk09: Yes, we do expect probably a bit more seasonality.
spk04: Yeah, we still expect sales and digital marketing to grow faster than the rest, but for the exact mix of business lines, we don't provide forward guidance on the mix.
spk09: Got it. And secondly, I guess just again on M&A versus care by tax, Notice that this quarter, of course, we haven't managed to secure M&A targets. But on the share buyback front, it also seems to be a bit lacking. I think the share buyback was only about US$30,000. Compared to last year, at current share price levels, I think management was more proactive in share buybacks. So just wondering, how should we read into this?
spk03: I think there are multiple factors there in guiding us whether we activate the share buyback. I think obviously one is the current valuation versus peers. Number two is always sensitive to the float and the impact when we dip into the market. I think third is also the fact that there are regulatory sort of considerations, including when we are in possession of price-sensitive information, which creates sort of restrictions on when we can go into the market. So we consider all the three I just mentioned before going to the market. I recognize that in the first queue, I come across as just relatively small in terms of the quantum. But going forward, I think we'll adopt the same sort of principle when looking at whether we can go into the market.
spk09: Got it. Thank you so much.
spk04: Thanks, Casey. We've completed the calls via the phone line. We have some questions online. Let me just read them out. This is from Jason Tu from UOB Keihin. Elaboration on professional fees for the acquisition. I think we've answered that. Second one, what is management's view on the macro environment affecting TDCX? Are new economic clients cutting back on their CX spending?
spk05: Yeah, I think we addressed this as well, but not specifically to new economic clients. But they're, again, not immune to the macro environment, and they are reacting with the swift action, I would say, in terms of adapting to the scenarios that are in front of them. So, no, I think new economy or not new economy, everybody's in the same boat, looking at efficiencies and making some rationalization decisions or being impacted by the slowdown and having to adapt accordingly. As a result of that, we're also not immune to the macro environment and it's reflected in our guidance and the difference in our growth this year versus last year for sure. Thanks, Johan.
spk04: Next question. Employee expense for Q1 is 64% of revenue with a historical average of around 60%. Will we taper down again and is there any expected timeline for this? Mr Chin, can you take out this piece?
spk12: Yes, we will aim for that to land back at that ratio, but I would say it's quite a fair moving path. That's something that we are looking at as a target. Probably in the near term, we will we will not land at those rates yet. But again, the revenue jet productivity and the headcount optimisation are still in the progress of what we will work on. So that's something that we will try to attain.
spk08: Thanks, Mr Chin.
spk04: I think that's all the questions we have now, both online and on the webcast as well as the phone line. So thank you for dialing in. Sorry, I think there's one last question from Jonathan, and we probably have time to take a last question. Operator, can we have Jonathan, please?
spk07: Sure, thank you. We now have Jonathan Wolfe from Philips Securities. Please go ahead.
spk09: Hi, management. Morning. Thanks for taking this last question. I just actually only have one. Could you give us, I guess, based on your revenue growth for this quarter, how much of it came from new geographies from the last several years?
spk08: Maybe just in terms of revenue growth.
spk04: Revenue growth from new geographies? Yes, correct. Around $8 million of revenue in Kewan was from new geographies. I think about just over $7 million of revenue growth is from new geographies.
spk08: Okay, great. Thank you.
spk04: Okay, I think that's it. We have answered all the questions. Please feel free to reach out to the IR team if you need anything else. Thank you for the time and have a good day ahead.
spk07: Thank you very much. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
Disclaimer