TTEC Holdings, Inc. (TTEC) Q2 2015 Earnings Report, Transcript and Summary

Welcome to TeleTech's second quarter 2015 earnings conference call. [Operator Instructions] I would now like to turn the call over to Paul Miller, TeleTech's Senior Vice President, Treasurer, and Head of Investor Relations. Thank you, sir. You may begin.

Good morning, and thank you for joining us today. TeleTech is hosting this call to discuss its second quarter 2015 results ended June 30. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer. Yesterday, TeleTech issued a press release announcing its financial results for second quarter 2015. While this call will reflect items discussed within those documents, we encourage all listeners to read our second quarter report on Form 10-Q. Before we begin, I want to remind you that matters discussed in today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based upon management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new information that may become available. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those described. Such factors include, but are not limited to, reliance on several large clients; the risks associated with lower profitability from, or the loss of one or more, significant clients; execution risks associated with ramping new business or integrating acquired businesses; the possibility of asset impairments and/or restructuring charges; and the potential impact to our financial results due to foreign exchange rate fluctuations. For a more detailed description of our risk factors, please review our 2014 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 Tuchman, our Chairman and Chief Executive Officer.

Thanks, Paul, and good morning to everyone. We had a strong first half of 2015 and we're pleased with our topline growth, revenue diversity and overall market penetration. Our holistic managed services platform dedicated to improving customer experience, deepening customer engagement, and igniting customer growth continues to gain momentum. Today, I will focus on several key points before turning the call over to Regina for a deeper review of the company's financial performance and outlook, as well as other relevant business updates. First, I will share a few financial highlights from the first half of the year. Second, I will address the trends in the market that are creating exciting opportunities for us. And third, I will discuss how our business is beginning to pivot to an outcome-based managed services model. Starting with the financial highlights for the first six months of the year. In the first half of 2015, on a consolidated basis, our revenue increased, pipeline and bookings increased and EBITDA and operating income increased despite significant additional investments. Furthermore, our cash flow generation improved significantly at the half, in part due to our increased focus on client billing and collections. This quarter, we saw strong performance in our emerging businesses. Our Customer Growth Services segment, with its outcome-based revenue model had significant wins this quarter. This digitally enabled platform simplifies and amplifies revenue growth. We're pleased to see market demand continuing to accelerate in this segment. Our Customer Technology Services segment is performing well, because technology is central to removing the friction from the customer experience. Our cloud is gaining speed as our clients recognize the benefit of this quick ramp, pre-integrated, scalable, and lower-risk model. Our Customer Strategy Services segment is at the forefront of our clients' customer experience transformation with increasing frequency. In June, Robert Jimenez joined TeleTech to lead this segment. Robert brings global expertise in customer experience strategy, customer analytics, IT advisory and process optimization. Shortly, I'll share how we're combining capabilities from these business segments to deliver valuable outcomes. Now, turning to the business environment. We're seeing several forces converging in the market that are creating huge challenges for some of the world's largest and most recognized brands. The mobile revolution has established a reality where customers have access to everything they want, precisely when they want it. The average person reaches for their mobile device more than 100 times a day. They use mobile apps over two hours a day. And in less than a year, there will be over 2 billion global users with smartphones. This mobile wave is going to change the traditional ways of doing business. Customers can air their opinions, buy on impulse, upgrade, downgrade, in the moment and in front of millions of their closest friends. They have an instantaneous megaphone on their wrist or in their palm of their hand, and it's getting more powerful every day. New disruptive companies understand the mobile mindset and are building their systems and processes around this empowered customer base. They are using the SMAC stack; social, mobile, analytics and cloud, to enable a transparent and democratized approach that puts the customer in the center of everything they do. They are moving at Mach speed and scaling even faster. The change is profound. Just look at how Wall Street is valuing these customer-obsessed companies and discounting the ones who are falling behind. The perfect storm is creating an entirely new business environment. Customers have had a taste of what it's like to have interactions that are simple, fluid and personalized, and now they demand this from every company they do business with. Unfortunately, legacy giants have spent the past several years optimizing their processes around business needs instead of customer needs. While they have been successful revamping their systems and structure to reduce cost, they've alienated their only source of sustainable growth, their customers. The stark reality is that legacy companies are not prepared to meet the demands of this new marketplace. They know it, and are frantically searching for new ways to understand, navigate, execute the customer experience. In order to compete on a level playing field, let alone trying to differentiate their brand, they need to quickly evolve and deliver what their customers require. That's exactly what we do, enable Global 1000 companies to transform to this new, mobile, instant marketplace and effectively compete in the digital economy. Our evolution over the past several years has set us up to be that partner. We've invested hundreds of millions dollars, been awarded dozens of patents, acquired nine companies, made strategic investments in other areas and entirely redesigned our approach to the market. Today, many of our clients no longer see us as a classic BPO or contact center provider who measures success on a cost per head and minute. They're beginning to view us as an outcome-based managed services company, who measures success by the value we create for them and their customers. They are coming to us because they know we can do it better, faster, and at a lower overall cost to serve. Senior executives are inviting us into their Board rooms to help them diagnose their problems, prescribe the treatments and implement the solutions. In response, we're delivering a synchronized approach that integrates consulting, analytics, technology and operations to deliver three types of outcomes. Firstly, an exceptional customer experience. To us, that means providing all the capabilities a company needs to design and deliver a seamless customer experience across any channel a customer chooses; text, chat, voice, video, co-browse, document sharing, social, email and even bricks-and-mortar. The result is a wow experience at the lowest overall cost to serve. A deeper customer engagement means taking an existing customer and using customer insight to increase their connection and loyalty to a brand. The result is a customer base that stays longer, spends more, and advocates for a brand. And third, accelerated growth means harnessing the power of analytics and digital tools to segment, acquire, engage and convert new profitable customers. The result is faster growth at a preferable variable cost. Our emerging managed services model enables us to deliver these outcomes in two ways. First, we can provide a turnkey strategy to execution solution, where we do it all, people, processes, and technology. Or we can offer advisory best practices in technology platform, so that clients can execute on their own. Either way, when we help orchestrate an integrated experience, we reduce friction, improve customer satisfaction, enhance employee productivity, increase profitability and build a preferred and differentiated brand. In this technology-enabled environment, the only way to break through the clutter and create a true, lasting relationship with customers is to build an emotional connection with them. Technology is enabling a kind of intimacy and immediacy that can make or break a brand. We've built our outcome-based managed services platform to help clients leverage technology to bring empathy back to their interactions with their customers. Every day, our 40,000-plus employees are creating new and better ways to design and deliver on our promise of bringing humanity to the customer experience. They are creating touch points and journey strategies to surprise and delight customers. They're building processes that eliminate silos and reduce customer effort. They're architecting technology that removes barriers across channels. And they're creating training and development programs that inspire and empower employees. Across industries and geographies, our employees no longer work for a contact center company. They work for an outcome-based managed services company focused on customer experience, engagement and growth. While we still have work to do to complete our transformation, we're pleased that we've made significant progress redefining our place in the market. We remain confident in our direction, and we look forward to many exciting quarters and years to come. I will now turn the call over to Regina.

Thank you, Ken, and good morning, everyone. To summarize the second quarter 2015 financial results on a non-GAAP basis, revenue increased 10.8% to $327.5 million on a constant currency basis. EBITDA increased 12.6% to $41.8 million or 13.5% of revenue versus 12.5% last year. Operating income increased 10.6% to $23.6 million or 7.6% of revenue versus 7.2% last year. And diluted earnings per share were $0.34 versus $0.30 in the year-ago period. Collectively, revenue from our strategy, technology and growth segments grew 21.6% to $93.4 million on a constant currency basis. These emerging segments represented approximately 29% of revenue, up from 26% in the same period last year. Collectively, operating margins improved to 11% of revenue from 5.4% in the prior year. New business signings were $100 million versus $110 million in the prior-year quarter, representing six consecutive quarters at or above $100 million. In the 12 months ended June 30, 2015, bookings totaled $445 million, up 18.7% over the prior 12 month period. While we are pleased with our momentum, our second quarter bookings fell short of internal expectations. Appreciating the natural variability quarter-to-quarter, we did have several larger transactions, particularly in CMS and CGS move into the third quarter, many of which have already closed. Our second quarter 2015 consolidated GAAP revenue was $310.2 million, an increase of 5% over the year-ago period. On a constant currency basis, revenue was $327.5 million, representing a growth of 10.8%. Revenue from acquisitions within their first 12 months contributed $9.9 million in second quarter, resulting in a constant currency organic growth rate of 7.1%. Our second quarter year-over-year topline growth was complemented by a favorable mix across industries, geographies, and our integrated capabilities. Our growth in healthcare, technology and retail remained particularly strong. SG&A expense declined to 15.3% of revenue in the second quarter of 2015 from 16.2% in the prior year. Our GAAP operating margin in the second quarter of 2015 was 7.5% versus 7% in the prior year. On a non-GAAP basis, operating margin was 7.6% compared to 7.2% in the prior year. It's worth noting two items that impacted the second quarter of 2015 over the prior year. First our incremental investments in sales and R&D increased by $3.1 million. And second, amortization related to acquisitions increased by $422,000. In total, the impact to operating income was approximately $3.5 million or 110 basis points of margin. Our second quarter 2015 GAAP-based tax rate was 33.6% compared to 23% for the same period last year. The higher second quarter 2015 tax rate reflects a non-recurring reserve to true-up our international tax provision. And the prior year quarter had a one-time benefit related to reductions in acquisition-related contingent liabilities. Normalized, the effective tax rate was 24.7% in the second quarter of 2015 compared to 22.5% in the prior-year period. Second quarter fully diluted GAAP EPS was $0.30 compared to $0.34 in the prior-year period. Non-GAAP fully diluted EPS was $0.34, an increase from $0.30 in the same period last year. Cash flow from operations in the second quarter was $81.7 million compared to $18.1 million in the year-ago period. The change in our cash flow from operations is primarily related to the improvement in our working capital, with DSO declining to 76 days in the second quarter of '15, down from 82 days in the prior-year period. Capital expenditures were $16.5 million in the second quarter, down from $19.4 million over the prior year. CapEx is primarily related to the investment in our cloud platforms, our R&D initiatives, and most significantly, new facility builds and expansion, which include the super site that we build to support a five-year contract expansion with a large international client. Capacity utilization was 75% in the second quarter of 2015 compared to 81% in the prior year. As discussed on last quarter's call, we anticipated this decline in the near term as we move the previously mentioned super site from construction to production, and as we build incremental facilities to support our increasing seasonal work in the fourth and first quarters. In the second quarter, we repurchased approximately 240,000 shares for approximately $6.3 million. As of June 30, 2015, there were approximately $24.6 million authorized for future repurchases. Cash and total debt balances at quarter-end were $93.8 million and $124.5 million, respectively, resulting in a net debt position of $30.7 million. This represents an approximate $35 million net cash improvement over last quarter. Moving now to a review of our segments. Customer Management Services' second quarter revenue was $219.3 million versus $218.7 million, up 0.3%. On a constant currency basis, revenue was $234.1 million, up 7%. The year-over-year growth was attributable to broad program expansions, particularly in [technical difficulty] segments operating income was $13.3 million or 6.1% of revenue compared to $16.5 million or 7.5% in the year-ago quarter. There are a few important initiatives that are impacting CMS's operating performance, which were anticipated when we set full year guidance at the beginning of the year. They include: lower near-term utilization associated with the aforementioned super site; as well as the offseason impact related to the growth in our health care, tax, and retail seasonal businesses; the incremental investment in our sales and marketing and R&D expense, which are primarily allocated to our CMS segment; and foreign exchange headwinds related to the strengthening of the U.S. dollar. Collectively, these items had an impact of approximately 200 basis points. We expect the investments in the super site, sales and marketing, and R&D and the seasonality to impact the second and third quarters, followed by stronger CMS operating margins in the fourth and first quarters. Customer Growth Services' second quarter revenue was $30.6 million, up 5.9% from $28.9 million in the year ago period. On a constant currency basis, revenue grew 10.5%. We anticipate continued sequential growth. Our CGS segment's operating income in the second quarter of 2015 was $2.1 million or 6.9%, up from $1.8 million or 6.3% in the year prior. The improvement is primarily due to revenue growth and revenue mix into higher margin performance-based programs. Despite continued incremental investments, we expect to achieve double-digit operating income as we approach 2016. New business signings in the second quarter of 2015 for CGS reached another record high, which were comprised of business across verticals and geographies, a combination of new logos and large existing client expansions, as well as a mix of services across the search and sales platform. Customer Technology Services' second quarter 2015 revenue was $38.1 million, up 6.6% from $35.7 million in the prior-year period. Operating income was $3.3 million, 8.5% in the second quarter, up from $1.6 million or 4.5% in the same period last year. The CTS segment continues to perform above plan at the half, with particular strength in our Cisco platform, including our consulting, CRM, and cloud-based solutions. CTS had another strong quarter of bookings, including sizable new business signings, new logos, and existing clients, both within and outside of the CTS segment. We expect these favorable trends to continue as we return to double-digit topline growth and operating margins in the second half of the year. Customer Strategy Services' second quarter revenue was $22.3 million, up 82.4% from $12.2 million in the year ago period. On a constant currency basis, revenue grew 91.3%. The growth primarily came from change management consulting services through our acquisition of rogenSi. Excluding acquisitions, organic revenue growth was 3.3% on a constant currency basis. The segment's operating profit was $4.7 million in the second quarter of 2015 versus $0.7 million in the prior-year period. Operating income margin was 20.9% in the second quarter compared to 6% last year. Excluding restructuring charges and additional amortization expense from the rogenSi acquisition, the second quarter 2015 operating margin was approximately 24%. Overall, the strong margin performance in the quarter reflects increased revenue and high utilization of our consultants. In closing, I want to highlight the solid performance of the business. In the first half of 2015, we executed on many fronts. We grew the topline organically and inorganically, increased our vertical and geographic market share, expanded our capabilities into more outcome-based solutions and brought new, integrated offerings to market. Additionally, we are very pleased with the accelerated revenue growth and margin expansion in our emerging businesses. All in all, we remain resolute in our strategy and the deployment of incremental investment to further expand our sales channel and innovate our solution portfolio. It is evident that our integrated managed service platform is increasingly becoming a marketplace differentiator. While strong headwinds continue from the strengthening of the U.S. dollar, we are reaffirming our 2015 guidance. I'll now turn the call back to Paul.

Thanks, Regina. As we open up the call, we ask that you limit your call or questions to one or two at a time. Operator, you may now open the line.

[Operator Instructions] Our first question comes from the line of Mr. Mike Malouf of Craig-Hallum Capital Group.

If I could just start on the bookings, you had about $100 million this quarter. Regina, I think you talked about some things flowing over, what's the impact of that? And as you look into the third quarter, are we expecting sort of a very large new bookings to sort of make up for the second quarter?

Yes, I'll start, and then Ken can add some color commentary. Again, I think we noted in the script that there is a natural variability in the quarter-to-quarter, especially where you have larger transactions that follow the quarter. I mentioned that and feel very confident that you will see an above $100 million booking going into Q3, as we've already closed a number of those deals, in particular in CMS and CGS. I'd also say that, to me, the more relevant number to look at is an LTM metric for bookings, which is up near 18%, LTM-to-LTM at June 30. Maybe Ken, you want to give some color commentary.

I didn't hear the beginning of the question.

It's just a question about bookings, and given it was $100 million, can we expect that we would see maybe accelerated bookings beyond $100 million in the third and fourth quarters?

I think for sure the third quarter. And because we don't give guidance by quarter, I'm only saying that just because it's what Regina said that deals got signed literally within a day or two after of the quarter closed. So we're not in anyway feeling uncomfortable or stressed about how the bookings are coming in. And actually we're feeling really good about the types of logos that we're bringing on, and more importantly, the type of work that we're doing and how diversified the work is.

And then just a follow-up, and maybe for Ken. Can you talk a little bit about the acquisition landscape out there, pipeline, what you're looking for now, it's been a little while since we've seen something. And I'm wondering if perhaps you might be shifting gears to something more strategic, and whether those opportunities exist out there for you?

What I would just say is the following. First of all, we're very focused on M&A. We've got a great M&A team that all they focus on is looking for opportunities across the globe. I'm not prepared to tell you exactly where we're targeting. I don't think that that would make a lot of sense to disclose that. That said, although we have a considerable amount of prospects, it's no secret that valuations of companies are at, in many cases, an all-time high. And we're a very conservative company and we're going to do acquisitions that make sense for our business and for our customers and for our shareholders. So I would say that that has maybe had an impact and into why you maybe haven't seen some additional acquisitions. But what I would say to you is, is that our intention is to continue to keep doing acquisitions. And we feel that it's just a matter of time. We are also making technology investments. And we're excited to demonstrate and share the technology platform that is now operational and online. And we're just now starting to figure out when we would actually do an Analyst Day, so that we can actually demonstrate and share all this, so that people can see and witness what we've been kind of working on for quite some time. So what I would just say to you on the acquisition side is that we're confident that we'll get more acquisitions done, but they will be in the strategic areas that are going to continue to build the diversification of our business and continue to give us strategic relevance with our clients, and drive more to our managed services outcome based platform, and less focused on what I would just call labor-based type of acquisitions.

Our next question comes from the line of Mr. Tobey Sommer of SunTrust.

Ken, I'm curious, what proportion of the market that you're looking at do you think views customers in the kind of enlightened fashion that you described in your prepared remarks?

I believe wholeheartedly, that at minimum, 75% of the marketplace and quickly becoming a 100%. I'll go as far as to say the following. If you are a CEO today running a company with a large subscriber base or a large customer base, and you have not made your number one focus to be customer-centric and to put the customer at the center of everything that you do, you won't have a job in 36 months; full stop. And I'll go on record saying that to anybody, there is not a single client we have that is not in a mass panic. They are looking at what's happening to companies, they're looking at an old traditional model of, let's just say cable, and then they're looking at Netflix. And they are looking at what the service and support model is of Netflix and how frictionless it is and what the service and support model is of, let's just say, a traditional utility or cable. And they're realizing that if they don't get their service model to be more like Netflix, they're not going to exist. Look at what's happening with those stocks, just today or yesterday and the day before based on some commentary that was made by Disney. We're seeing it across the board, in automotive, in financial services, in technology for sure, et cetera. And the fact is, is that we're no longer in a world where there's just a few cool, fast-growing companies that have been focused on this, like an Amazon, an Apple, a Google. Now it's across the board, whether it's an Uber and how disruptive they're being; whether it's an Airbnb and how disruptive that's been to the hospitality industry. I could go on and on and on and give example after example. You have to pretty much have your head in the sand as a CEO if you are not trying to figure out how to re-architect your business and how to become customer-centric. And so I can't stress this enough. There's a reason why companies like Accenture and others are pivoting their entire business to a digital practice, et cetera. It's because so many companies have to go through this massive transformation in order for them to be competitive in this mobile-instant marketplace that we live in, that is not going away. It's just the speed and the intensity is just simply increasing. So sorry for the long diatribe, but you struck a very passionate chord of mine.

And in that small proportion that is lagging, is there a particular kind of set of industries or verticals that are in that 25% that seeming a little slower to wake up to the new reality?

Part of my issue in answering your question is that I don't want -- we represent so many of the largest brands and I don't want to be incriminating to any of the brands that we represent. So what I would just simply say is the following. On the outside, many of these companies might not feel like they are focused on the customer. But on the inside what I can tell you is they are ripping and replacing and changing everything. And so even the companies, without naming names that would typically come to mind as having the worst service in the industry or the worst reputation, I can assure you that they are spending very significant dollars to reinvent their interface and to reinvent how they ultimately do business. For some of them, is it going to take three years before the consumer actually feels the benefit of it? Yes. Some of them, are they never going to get there, because their legacy systems are such that they are too focused on trying to salvage their systems, instead of realizing that they need to forklift them? Yes, I think it's a very small percentage. But what I would say to you is that we're experiencing, right now, as we speak, clients who historically never were focused in the way that we're talking right now, who are now becoming very focused with a very high sense of urgency. They're getting pressure from their Board. They're getting pressure from their shareholders. They're getting pressure from their customer base. And it's one thing when you're just getting pressure from the customer base, but when it's coming from the top down, where the Board is really seeing it and witnessing it, as well as they're getting complaints on the golf course from their friends about what it's like to interface with that brand, people are very focused on this. And I don't see anything, including a deep recession, and I'm not suggesting there will be one, but that will force these people to turn around and look at going back or retrenching or anything like that. It's just, you just have to look at this environment that we live in. And you take it a step further, anyone who has kids, and you just watch how they are doing their shopping, it's mind-boggling. I'll mention a company that's not a client of ours, Nordstrom's. I was recently in Nordstrom's, and I said to the cashier, I'm just curious, how's business? And they said business is really good. I said, really? The store feels empty. And they said, well, our sales are flat across all of our retail stores, but our online business is growing 34% a year, and so it's totally changing our model. And so I would just say that this is happening to bricks-and-mortar. It's happening across every single industry. And I think that there were a lot of client companies that were in denial, that they could weather this and that there was going to be a need for the old model, et cetera, and now they're realizing they have to adopt.

Our next question comes from the line of Mr. Steve McManus of Sidoti & Company.

First one, just taking a look at the CGS segment, could you talk a little bit about some of the revenue mix transformation taking place there, and the ramps in the quarter? And should we expect the impact on margins to be pretty much behind us or trickle into the third quarter?

Sorry to make you repeat it, but can you please repeat it?

Sorry about that. Is this better?

Much better.

Now I can hear you.

So just looking at the CGS segment, can you talk a little bit about the revenue mix transformation that's taking place there, and the ramps during the quarter? And should we expect the impact on operating margins to be behind us or kind of trickle into the third quarter?

Yes, as in my comments from the margin perspective, we will, in year, in the second half approach double-digit margin operating income margins. What you're seeing weigh on the second quarter are ramps of a new solution that we put in market, Acquisition 360, where we work with our clients from lead generation, from segmentation, marketing, lead generation, campaigning through closure% and do that fully on an outcome basis. So as we ramp that solution, it has a bit of a tug on our operating income. Probably more importantly, we're seeing significant trends, tied to what Ken is talking about in terms of clients being frantic about the operating in this instant mobile environment, and in particular in the acquisition of customers. And so we're seeing really good momentum in our outbound selling, where we're leveraging our analytics and our tools.

When Regina says outbound, she means all the digital work that were doing that's creating demand generation for Revana.

And then with respect to the super site buildout, can you give us an idea of the impact on capacity utilization and kind of the timeframe that you expect, now that you've made some progress there in the next couple quarters?

Yes, you'll see our utilization return to the historical levels, around 80%, into 2016. We'll see a nice pickup in Q4 with our seasonal volume. We will sustain a good part of that through Q1. So as we get through the implementation of the super site, we have been building incremental seasonal, a facility for significant growth that we're seeing in that business. So we expect early in 2016, you'll see us get back into that 80% range.

Our next question comes from the line of Mr. Bill Warmington of Wells Fargo.

I have to say, I was very excited to hear about the Analyst Day coming up, are we doing a return to Beaver Creek? I guess, I'm dating myself by that reference, right?

That's a negotiation I have to have with my CFO, who is really cheap, so I hope so. So stay tuned.

Well, then I wanted to see if we could get some commentary on the Customer Management Services business by vertical, in terms of where you're seeing strength, where you're seeing weakness. You mentioned a number of the different verticals, communications, technology, retail, auto, financial services, travel, leisure, just what you're seeing there.

I don't want to sound overly exuberant, but I think that we're seeing strength across the majority of our verticals. I would say that there are certain verticals that are slower to close business in, like financial services due to the conservative nature of just their operating model and all the regulatory aspects of their business. So although, I believe there's a lot of opportunity, pursuits, the only place where we see the pursuits just take a fair bit of time, and more time than we would like to see, would be in the financial services area. But across the board, when I think of the areas that we're really focused on, healthcare, automotive, technology, et cetera, I think we feel very good about them. And I don't think that we're seeing anything that's leading us to believe that a particular vertical is experiencing issues with their marketplace or et cetera. So I would love to tell you, give you a little more detail than that, but I'm not sure that there's much more -- is there anything you want to add to that?

No, I think if there's an outlier. I agree with Ken. And if there's an outlier in terms of rate of growth, it's in healthcare, right. Just percentage, but it's kind of the base that we're coming from.

Healthcare being particularly strong?

Yes.

Yes.

So it would seem like, where's the weakness coming from? I'm trying to understand that, because there's a bit of a disconnect between the flat year-over-year revenue in CMS and --

Yes, but Bill, I think in fairness you have to give recognition to the headwinds of FX. We're all experiencing it. And we had almost an $18 million impact on FX purely in Q2. And you have to recognize that 90%-something of that is in CMS. And so we don't have a flat. We have a $234 million a quarter versus a $218 million quarter in the prior year.

Just a couple of other competitors in the space have talked about softness in the communications vertical, specifically wireless being an issue in the quarter. Is that part of what's going on here as well?

I don't think so. Actually, I think that we're up in the telecom sector. In addition, you should know that that's not a real focus of ours. We've always had a nice share of business in that space. And yet, if you said, are you putting a lot of sales activity in that area? I would say, we're not. As I say, my father taught me a long time ago that you got to follow where the money is and where the profit is. And we believe that there are other verticals that have much, much deeper reservoirs of opportunity. But that said, our telecommunications vertical is not down, it's up. So I would just say that we're not experiencing that, but we're also not focusing on that because obviously that we can see and had predicted this years ago, that telecom was going to become much more of a commodity type of an offering to the consumer, and therefore, they were going to get squeezed. So what I think we're enjoying in the telecom space is that some of our major telecom clients have decided that they are going to fight the battle on service as a differentiator. And that really works for us, because we have the reputation in the marketplace of delivering the highest Net Promoter Score and the best quality service. And so consequently, the CEOs that are very focused on that have been very, shall I just say, they have been generous with their business to us.

Our next question comes from the line of Mr. Jason Anderson of Stifel.

I'm in for Shlomo today. I was wondering, could you comment on maybe the organic constant currency growth rates by segment? I realize you gave it in total, but could you break it down by segment?

Sure.

Yes. So overall for the company, our organic growth rate is, organic 7.1% versus 10.8% overall. CMS, it's all organic, which was 7% constant currency. CGS is 10.5%, which is all organic. And in CTS, we had an 82%. The lion's share of that is inorganic, about 3.5% is organic.

And you have a lot excitement about the potential out here in the market. I was wondering, maybe could you give us an idea how should we think about maybe the long-term growth trends or maybe over the next couple of years, maybe by segment, if you could? And I realized there is some integration with the segments, so maybe they trend together, but I don't know if you can maybe help us with that.

Yes, I think that we believe, overall, long-term that we will experience double-digit type topline growth trends with the focus of double-digit bottomline. We don't give long-term guidance or segment type of guidance, so I really can't get into that. But what I would just tell you is that what we're experiencing and what we're going through is not by accident. We've been very, very deliberate in our strategy. We've been working on building this capability and this platform for multiple years. And we feel like we really do have the capability that is resonating, and that we will start to continue to see increased momentum. The momentum is showing overall in the bookings right now. We get the benefit of those bookings, as you know, in the out quarters. But what I would just say is, is that we feel very optimistic about the future and about our direction and our focus, and the market opportunities that are in front of us. And also, just about the types of relationships that we're building, the complexity of the relationships and how strategic they are to our clients, which to us matters, because when these relationships are highly strategic and they're at the top of these companies' top-three agenda items, then we know that that is going to have a benefit on helping us with our long-term reoccurring revenue model that we've enjoyed over so many years.

And if I could sneak on one more. You touched on where I wanted to go next, is when you talk about the increased complexity being excited about, feeling good about that type of work you're getting. Is that, you mentioned maybe the length, should we infer there is greater length in engagements, but maybe also larger dollars, annual larger dollars, maybe?

Yes, I think that we're seeing deal sizes over the last 12 months are, in fact, growing. I think, though, that what we're also seeing that a whole new set of logos are coming into our wheelhouse that historically we have not had the benefit of doing business with. And I think that what we're seeing is that the type of work that we're doing, because of the complexity is dramatically more sticky and will be much more strategically relevant. And, therefore, we think we'll have better longer-term retention. Also, I'll point out that a big chunk of where we're seeing a lot of growth in what we're doing is on how to help our clients increase revenues and find revenues in areas that they have not been able to find revenues, whether that be in service to sales, whether that be in increasing attachment rates, et cetera. And so as our business moves to much more of an ROI-focused model, we're finding that that really resonates with a client, which is why in my script I said versus a per-minute or per FTE-type model that we think does not allow us to deliver the full capabilities. So as we shift more to these outcome-based capabilities, it allows us to include significant technology, significant data analytics, significant strategic consulting, et cetera, instead of being measured on something like a per minute, et cetera, where there is no ability to afford those types of additional capabilities. So what I would just say to you is, stay tuned, and we will illuminate more and more on multiple case studies where this is taking place.

Thank you for your questions. That is all the time we have today. End of Q&A

Thank you for your participation. This concludes our call.