PSG Global Solutions, LLC (TEP) Earnings Call Transcript & Summary

Hello, and welcome to the Teleperformance acquires PSG Global Solutions Call. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to Quy Nguyen-Ngoc, please, to begin today's conference. Please go ahead.

Yes. Hello, everybody. Good evening, good morning, I'm Quy Nguyen-Ngoc, Head of Investor Relations, Teleperformance. Welcome to this call for the presentation of the acquisition of PSG Global Solutions. I will make a preliminary comment, please remind that we are currently in quite period prior to the Q3 2022 revenue release, which is planned on 3rd November. The result, we will not talk about Q3 stuff. And I will not address any questions on Q3 results. Now we are -- I let the floor to Daniel Julien, CEO of at Teleperformance.

Good morning, everybody, or good afternoon. We are together today to present the acquisition made today by Teleperformance of PSG Global Solutions. PSG Global Solutions is a company specialized in RPO, recruitment process outsourcing. And PSG Global Solutions has developed a digital platform that can and help to select and to hire the most adequate profile, reducing dramatically, time to hire and cost to hire. Snapshot on the company. The company that started in 2008, headquarter within Marina del Rey in California with operations in the Philippines. The two co-presidents of the company's Vivek Padmanabhan and Brian Cotter. Right now the company is strong of 4,000 employees. We are expecting $75 million in revenue in 2022, a little bit more than 110 clients and with high profitability and high growth profile. So before Olivier is going to present you in detail the characteristic of this acquisition, let me tell you the rationale for these acquisitions. First, it was the right company to acquire at the right time. Why? First, everybody knows the issues of recruitment and the market needs in the U.S., in the English-speaking world and all over the world. Second, the company, thanks to this with technology, proprietary platform has the potential to scale. Third, there is a synergy, notable synergy with Teleperformance core business as we hired several hundred thousands of people every year. Fourth, again, the proprietary technology of PSG Global Solutions is a very significant competitive advantage. And the fifth point is that there is a highly committed management who choose to stay and develop the company with Teleperformance. So this acquisition is going to help us to grow our already very successful line of specialized services that is led by Scott Klein and in which you already have language line solutions #1 leader in online interpretation services in the U.S. and U.K. You have TLS, the visa processing company for government, Health Advocate, the advocacy service for the employees in the U.S. and, [ against one ], the revenue cycle management. So PSG Global Solution is going to join this very dynamic and profitable group of specialized services that balance the activity of Teleperformance Group. Having said that -- now I think it's time for Olivier to present in a more structured fashion the specifics of PSG. Olivier?

Thank you, Daniel. I'm sure you noticed that the presentation that we displayed on our website is available how ability to reach -- you will see that we are presenting on Page 3, different solutions that PSG Global Solutions or PSG Global is offering to its client. To make it simple, there are 3 type of possibilities, if I may say. One is recruiting, the second 1 is recruiting support and the 1 is a full cycle recruiting process outsourcing. So there are different, I would say, deepness of the ability of recruiting people that are offered to clients. As you can see, that could be simple, screening and sourcing, marketing, interviews, scheduling and preparation to something much more, I would say, advanced with credentialing clinical referencing, on bonding, payroll billing, this is recruiting support and the full cycle rollup process, which is totally, I would say, the full cycle, including the onboard. So the client of the group of the PSG Global Solution has the opportunity to pick the different process that they want to follow with PSG Global Solution. If you look on Page 4 of this presentation, you will see 2 things. First of all, of course, remind that this company has been established in a way, so it's not a small company coming from nowhere, more than 4,000 employees. All of them are working in a remote work way, more than 1 of the 10 clients as mentioned by Daniel, mostly multi-companies in sectors which are very solid, health care. Annual revenue for this year, which is going to be 75, and a very high profitability and cash energy business. We are, of course, in the range of what we see in the Global Specialized Service division, with TLS [indiscernible] and delivering a very good figure. You have on the left side of this presentation, as already rated by strong market. As you can see, the recruiting support is a major part of it, but the partial recruiting is also 35%. And the full-size RPO is only 3 that's growing fastly. And you have on the right side of the slide, the different sectors that are served by PSG Global Solutions. Not surprisingly, health care or recruiting is a big one, is a big part. That is also the reason why PSG Global Solution being part of specialized service working with longer-land solution, else the case, I would say, landing in a place where health care is famous and well known in the market, notably in the U.S. So this is going, of course, to help the scale-up of this business, as you can imagine. You will see that the other sectors are there. And that's all the business that are covered by PSG Global Solution, of course, without cross-service of Teleperformance, as mentioned by Daniel. There are the difference -- on page -- on the following page you'll find the specifics of the company, which is a delivery model based on the proprietary technology. They have a fully integrated proprietary technology, which leads to committed to engagement on proprietary management. We are very quick, very automated. And of course, they are focused on data and analytics. The delivery is global. Of course, a big part of the workforce is based in Philippines. And these people are working together for the last 14 years in this region. And they are able probably and they will be able -- not probably, surely to develop their skills across Teleperformance network. And we have -- as we want to do at Teleperformance, they have end market specialization. So we are very deep expertise in the different markets and in the recruitment business that helps to answer properly the demand of the client. Let's move now to the following slide, and the equity in rationale that has been explained by Daniel. I'm not going to comment much more on that. But clearly there is high value service with a high profitability company. Digital integrated business service, mostly indicated to U.S. health care, which is perfectly aligned with our strategy of priority. We call it PBT, but of course, we can scale up this activity across new client verticals and new geographies and new language, of course. It will help, of course, for service. The financial is simple. The operation [indiscernible] earnings per share by nearly 3%. It's not so major, but it's nice to -- clearly nice to have. And if you look on the following page, you have an idea of the size of the market, which is for U.S. estimated at $300 billion of the market spend for equipment of which $25 billion are addressable markets and process outsourcing. And today, only $3.4 million is addressed by this kind of business. So this market is going to grow by 12%. And again, I'm not going to comment anymore on what Daniel said about the difficulty of hiring across the world, across the different verticals, seasonality, cost of, which is difficult, increased your churn. So the size of now, this business is much more, I would say, professional and effective. Only 20% of the corporate equities acts as a provider and we do believe that this will increase dramatically. Revenue, you have the trend of the revenue on the following page of the company that moved from $27 million to $75 million by 2022. And we probably continue at a very, very high speed in 2023. If you look on Page 9, the impact of Teleperformance, the enterprise value is $300 million. Everything will be financed through cash on hand. There is nothing to be fund the acquisition. This acquisition is, of course, accretive and EBITDA margin will be roughly in the range of plus 15% by 2023 on a full -- on a pro forma basis. The earnings per share, excluding amortization of intangibles should increase by 3%, nearly by 3%. And of course, at the end of the day, will be after the acquisition, we'll have a net debt-to-EBITDA ratio, which is -- which will be in the range of 1.5%, leading the group totally in a position to face any opportunity that might arise during the coming months and years. So that is what I wanted to tell about this acquisition, and we are with Daniel and the team, of course, available for any questions you might have.

[Operator Instructions] Our first question today comes from Oscar Val of JPMorgan.

I have 2 questions. The first 1 is on the cyclicality of this business and what visibility you have for next year? Do you have -- does the business have kind of new business wins that underpin your visibility for next year's growth? That's the first question. And then the second question is on the management team. Is there an earnout in place? And is that part of the $300 million?

Your first question, yes, there is a pretty high visibility on 2023 and we expect a significant growth again. And at the time that I can say is that during our due diligence, we have the possibility to review the main clients of this company that are all extremely satisfied. And expressed the intention to continue to develop the relationship with the company. On top, with the integration of the company, we plan to boost the development by strengthening the business development team here in the U.S. But also -- and not necessarily just in 2023, but also by opening other markets where Teleperformance is present and is going to be a great facilitator for the business. Now -- the question of the earnout, Olivier, maybe you want to answer?

Yes, yes, there is an earnout, which is not part of this enterprise value, which is tied to, let's say, to the business plans that have been -- planning by management team.

In fact there is an earnout that is very accretive for Teleperformance, but based on midterm achievement of a business plan that is pretty aggressive.

Okay. Good to know. Just following up on the first part of the question, is it possible to quantify what your thoughts are for 2023 growth for this business?

As it's a question that I would prefer to answer in a couple of weeks from now because we are in a very strange period regarding 2023. As we are going to have a conference call on our Q3 on November 3, on which we are going to make the point on our activity -- past activity and activity for the end of the year and also how we foresee 2023 as an early sign of -- we prefer to keep that for 1 week from now, risen and now. But yes, we have a particular vision of double-digit growth. I mean it's a solid growth, of course.

We now move on to our next question, which comes from David Cerdan of Kepler.

I have a very basic question. I don't understand the revenue per employee, $75 million of revenues for 4,000 employees. So can you explain me because if I'm right, the average revenue concrete along the $20,000, so it's really low.

It's very simple, David. It's very simple. The vast majority is based in the Philippines.

4,000 people are based in Philippines.

How much?

4,000.

Not exactly 4,000 -- 4,000 minus 2,000 that are in the U.S.

Okay. And regarding the scalability of this business, what is the plan, is it to develop first in the U.S. second in outside the U.S. altogether. Can you explain that?

I mean, I'm going to try to be very simple in my answer. First, we are buying a company that is a little bit less than 1% of our revenue, but that is going to be accretive on the earnings per share of 3%, that's quite interesting and maybe ring a bell for you. Second, we buy this company not only for what it is, but for what it can be by itself and with CP. What it can be by itself? When you decide to have a pretty -- a more aggressive plan to develop the business in verticals where they are present but where they can significantly develop like the logistics like the financial services, it's amazing that they already do the business, they do with the so reduced sales force, and of course, in the tradition of Teleperformance, we are going to significantly increase the sales force one in the U.S.; second, cross fertilizing of course, with clients of language line who have thousands of clients, as you can imagine, where there is a clear interest and also fertilizing with our core service. But then there is -- and again, we have the time to do that. I mean, for me, the future is not the next quarter or the next year, I mean, in the next 3 years. Of course, we are going to develop in the different English-speaking markets. And then as Teleperformance is extremely present in some non-English speaking markets, whether in Europe or in LatAm, yes, we are going to take advantage of a significant presence in these countries to help them to open antenna, always utilizing their digital platform because this is the fundamental of the competitive advantage, which is to reuse the time to hire and the cost to hire. But clearly, and I'm not going to give today a number. But I see in a time frame of 3 to 5 years, a business that is going to be multiplied by between 3 to 5x.

Okay. Great. And I have to ask you this question regarding the telecom controversy, can we have an update?

No. Obviously, I prefer to give an update also in November 3 because again we are in -- in a period where it's not -- where we cannot speak too much. But what you call the controversy is an article in a newspaper that has been used by different actives and that do not impact at all our business in contact moderation with our different clients.

And the audit. Due to -- what's supposed to be published now a few weeks ago...

So we wait until November 3 -- wait till November 3, I mean, I can tell you that Teleperformance respect strictly all the regulations, the best practice, and so the way the information was presented based on few interviews was misleading. And it's nice to say misleading.

We now move on to our next question, which is from Suhasini Varanasi.

Just one, please. This appears to be the first move into a -- quite a different vertical is recruitment compared to, let's say, ones, for example -- I know you especially because a lot different but recruitment already has been established players. Just wanted to understand how you're thinking about this vertical in the medium term? Do you expect to allocate further capital for the sector in terms of M&A in order to build this out? And do you expect this to become a bit more material in the next?

Right now, for us, it goes in the strategy of strengthening our line of specialized service companies, which help us to enlarge the profile and the legibility of Teleperformance from being CX outsourcer to being a digital integrated business service outsourcer. And in fact, we are very pragmatic. If we see a line of business that grow faster, better than another line of business, we allocate more resources. We are also very pragmatic and cautious. So we are going to make sure in 2023 that all our expectations are matched in terms of top line and bottom line. And depending on the growth profile and the profitability profile in our bouquet of services, we will allocate more or less resulted. But we do not plan at this stage, we do not plan to make any other M&A, in any case, this is not in our first step. Any other M&A in the RPO in the recruitment process outsourcing. We continue to consider other M&A in our core business or either in the specialized services.