Welcome to TeleTech's Fourth Quarter, Full Year 2015 Earnings Conference Call. I would like to remind all parties that you will be in a listen-only mode until the question and answer of today's conference call. This call is being recorded at the request of TeleTech. 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 fourth quarter and full year 2015 results ended December 31. 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 the fourth quarter and full year 2015. While this call will reflect items discussed within those documents we encourage all listeners to read our most recent Form 10-K. Before we begin I want to remind you that matters discussed today on this call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call and we undertake no obligation to revise this information as a result of new 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 impairment and/or restructuring charges, and the potential impact to the financial results due to foreign exchange rate fluctuations. For a more detailed description of our risk factors please review our most recent 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.

Thank you, Paul, and good morning to everybody. 2015 was a productive year for TeleTech. We achieved another year of strong bookings, added marquee brands to our client portfolio, expanded our integrated suite of offerings, and launched exciting new products. Furthermore, on a non-GAAP constant currency basis, we reported year-over-year growth in revenue, operating income, cash flow from operations and earnings per share. My comments today will touch on full year 2015 and our view on where the customer experience market is headed. Our managed services platform that delivers customer experience excellence, deeper customer engagement, accelerated growth and digital transformation is gaining traction. After my comments, I'll turn the call over to Regina for a review of the company's financial performance and outlook. Turning to our financial results for full year, full year 2015 non-GAAP revenue was $1.35 billion on a constant currency basis, up 8.8% over the prior year. Full year 2015 non-GAAP operating margin was 8.5% on a constant currency basis compared to 8.1% on the prior year. Full year GAAP EPS was $1.48 per share in 2015, an increase from $1.43 in 2014. Solid bookings continued into fourth quarter resulting in full year 2015 new signings of $470 million, an increase of 7% over 2014 bookings. Bookings also remain well diversified among industries, geographies and segments, with 56% coming from the customer strategy, technology and growth segments, up from 48% last year. Furthermore, we added over a dozen significant new clients to the portfolio in 2015 and increased - excuse me, in 2015 and increased the number of clients that have taken more than one service across segments to 74 clients, a 42% year-over-year increase. Undeniably our value-oriented suite of integrated capabilities and go-to-market strategy is working as demonstrated by eight consecutive quarters of new business signings…

Thank you, Ken, and good morning, everyone. I'll start with a review of our 2015 fourth quarter results, make some comments on our full year 2015 results, and end with a summary of our 2016 guidance. In the fourth quarter 2015 our GAAP revenue was $341.8 million, a 1.1% increase over the same period last year. Adjusted for constant currency fourth quarter revenue was $357 million, a 5.6% increase. GAAP operating income was $25.1 million in the fourth quarter or 7.3% of revenue, compared to $30.1 million or 8.9% in the prior period. The Q4 operating income was adversely impacted by one-time charges related to the write-down of goodwill associated with WebMetro and Brazil. Adjusted for constant currency, restructured and the aforementioned impairment charges, our operating income was $31.3 million or 8.8%. On a non-GAAP constant currency basis, our emerging businesses, including our strategy, technology and growth segments, collectively grew 20%. These businesses delivered healthy improvement and profitability with operating income of 41% to $14.3 million, resulting in an operating income margin of 13.5%, or 200 basis points over the prior year. Our customer management segment grew revenue 0.4% on a constant currency basis, which admittedly was less than we expected. And this is primarily related to lower healthcare exchange volumes experienced across the industry. CMS' operating margin was 6.8% versus 8.8% in the prior year. The decline is related to lower than expected healthcare volumes, lower facility utilization and a non-recurring litigation settlement. Our normalized tax rate in the fourth quarter was 19.7% versus 22% in the prior year. The reduction is primarily related to the geographic mix of our taxable income. Our GAAP EPS was $0.35 versus $0.44. Non-GAAP EPS before adjustment for foreign exchange was $0.47. Tax adjusting for the impact of foreign exchange EPS was $0.49,…

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

Thank you. We will now begin the question-and-answer session. Our first question will be coming from the line of Mr. Mike Malouf from Craig-Hallum Capital. Sir, your line is open.

Great. Thanks, guys for taking my questions.

Hi, Mike.

I'm just wondering if you could comment a little bit, there is so many changes going on in your business right now, as you really did a good job of articulating in your comments, Ken. And I just wondered, as you look out at the different ways that consumers interact and the cloud-based solution that you guys are really championing, what does that mean for your long-term operating margins as you look out over the next three, three-plus years?

For us, our goal is very simple and that is that over time our technology will play a dramatically more significant role, and the more revenues that flow through our technology platforms, the higher the margins. Our business, as you know, is driven by a large amount of labor and we're seeing ways to drive dramatically more efficiency, while driving a higher experience. And that's all through an orchestrated platform. So, to answer your question, the whole reason why we're going through all this transformation is to build a platform that drives significantly higher margins.

Okay. And then a question on cash use, I was just looking at the number of shares, it looks like from June to now we basically have flat shares outstanding. And you really have sort of three focuses on uses of cash and that's your dividend, of course, acquisitions and then share buybacks. It seems like the buybacks and the acquisitions have been a little bit quieter than normal. Are those still three major uses, do you think you will start using some of that share buyback that you have the ability to use or are you waiting for a larger acquisition? Can you give us a sense on cash use over the next year or so?

Yes. I mean, I think it's no secret that valuations in 2015 more likely than not hit a peak, and we looked at, I would say, hundreds of deals and made the decision to let others enjoy the benefit of those acquisitions and the valuations that they were willing to pay. We believe that a lot of these companies, that prices will attenuate going into the latter half of 2016 and '17. So we are absolutely fully committed to doing more acquisitions. We obviously increased our line of credit, so that we can flex our balance sheet. We didn't just do it for the sake of doing it. And this line of credit lets us go up as high as, with an accordion over $1.2 billion. So we think we're in a perfect situation to be able to do so meaningful acquisitions. That said, we believe in our stock and we have no intention of really slowing down in the purchasing of our stock. We would have liked to have purchased more stock last year, but due to the way our stock is purchased through the 10b5 plan, the blackout period seemed to be much more extended and consequently, we were in the - the plan was what was dictating what we could and could not purchase because it controls all of the purchasing. So, what I would say to you is, our number one priority is absolutely accretive and strategic acquisitions. That said, we also believe that it is accretive for us to purchase our stock and will continue to do so. Did I answer your question, Mike? I'm sorry if I waxed on too long.

You hit the first two. Maybe I can just continue on. On the dividend side, is that something that you think could increase over time or is that a pretty good level you think right now?

No, I think it absolutely can increase. Our cash flow is good, it's solid. We've got a very solid business with a solid client base. And, as you can see from our diversified part of our portfolio, which is growing very nicely just as we projected multiple years ago, our expectation was that those businesses were going to grow at a faster rate and that they had the potential to throw more profit to the bottom line. And we're already seeing exactly that. They are growing at a dramatically faster rate than the heritage business and we're seeing real operating leverage as these businesses gain scale. We should be realistic. These businesses, you know, they were non-existent just a few years ago. And today they are now - some of them are getting close to becoming near $200 million by the end of this year. And my attitude is, on any of these businesses, when they start to hit $200 million, $250 million in size and scale, their overall efficiency goes up dramatically and that's when we really begin to see the accretion of the profits that we have been looking for and planning on.

Got it. Thanks for the help. I appreciate it.

Thank you, Mike.

Thank you. Our next question will be from the line of Steve McManus from Sidoti. Sir, your line is open.

Hey, guys. And thanks for taking my questions. So the first one, I just wanted some insight regarding the capacity utilization rates. So the super site build-out is pretty much behind you guys, why are you expecting a dip in the first half of '16, is that mainly due to the healthcare volume or anything else worth noting there?

So just it's probably worthy of a clarification. The super site is behind us in the sense that we built the super site for, as you know, one of our largest clients. And that site is filled. There were sites that were vacated because this was a transfer and growth. And those sites that were vacated are we feel, very strategic sites and make sense for us, rather than to exit them, to keep them in our portfolio as we grow our CMS and CGS businesses. So, one is that it's not entirely behind us because we continue to fill those very relevant strategic sites that were vacated. Second is that we naturally have a dip into Q1 and Q2. We typically have an increase in utilization in Q4 on our seasonal volume and that comes off into Q1, we see a decrease. Q2 is probably our lowest quarter and then you'll see us start to grow into Q3 and Q4.

Okay. And then looking at the CGS segment, a lot going on during the year. How should we look at operating margins moving into '16, any continued investments there that we should expect that will impact profitability moving forward?

Yes. So, that business went from seven points - an NOI of 6.3% in '14 to 8.1% in '15, and we expect to see it at or slightly higher than the 10% level into next year. A part of it, if it's going to grow, right, it will grow at least 30%. And part of the reason that the OI, while it will probably reach near mid-teens by the end of '16, overall for the year it will be burdened by a ramp, significant volumes of ramp. I would just remind you that this business is predominantly now being sold on an outcome-based and it does take a little bit of time. Albeit we received some fixed pricing for the early days, it does take some time to get to its peak margin as we ramp the business.

Okay, great. Thanks a lot.

Thank you. Your next question will be from the line of Frank Atkins. Sir, your line is open.

Thanks for taking my questions. Could you give us an update on the currency exposure, just on the revenue side, and do you anticipate any changes going forward there?

Yes, I think as I probably said four or five times during my comments in the script, my formal comments on guidance, our guidance is - has about 3% adverse foreign exchange impact for 2016, and our OI has about a 20 basis point negative impact from foreign exchange movement.

Okay. But could you give us the breakdown in terms of the particular currencies or percentages of revenue driving that?

Yes. So for us, it's the Australian dollar where we have one of our largest clients. We have an Australian dollar contract, which is one of our biggest clients. And so, as we bring those results back, revenue and OI, given the strengthening of the dollar, probably over 30% in the last two years, the dollar has strengthened against the Australian dollar. That's probably 90% of it, the balance is Brazil, and those are the primary.

Okay. Great, that's helpful. And then I wanted to ask a little bit about pricing in the emerging businesses, any changes you are seeing there?

No, not really. None whatsoever, actually. If anything, I think that as we're gaining stride we're seeing really good opportunity to drive better overall margins. So, no, I would say not. And really that's to be expected. These are in many cases, businesses that have very unique positions in the marketplace and they don't have the same level of competition. And, frankly, in some of the areas, capabilities we're providing, we really feel that our offerings are proprietary and very unique. And so, we think we've got very good potential for continuing to drive margin. Another thing that I should note is that on for example, CGS services, the business is being priced less and less in a what I would call a classic time and material format, which is how our heritage business of CMS operates, and is moving much more to an outcome-based format. And so in that type of a format, it gives us much better potential to be able to utilize all of our capabilities and all of our tools to drive the best possible outcome. And since we're being compensated on the outcome it tends to lend itself to far better margins.

Okay. Great. And last one from me, can you talk a little bit about the hiring environment and retention in these emerging businesses as you are growing them?

That's a great question, and I have to tell you that, to my surprise, we are probably seeing some of the best talent that we have seen in a very long time, if not since the inception of the company. I think that people are genuinely excited about where we are going and what our focus is. I think that they believe that there is really a need for a company that is passionately focused on experience, engagement, growth and digital transformation and that when you bring all those things together it kind of hits every CEO's agenda. And so, I am frankly very surprised in a very positive way because I would think with unemployment as low as it is in the United States that we would be challenged with finding top-notch talent and we are absolutely not. We've got a great talent pipeline. We feel really good about the talent that we've recently brought in and really good about the prospect pipeline of talent that we're filling vacancies. So, overall, we have no concerns at this point in time with the talent. And I know that many of my friends in other industries are experiencing recruiting issues and thankfully we're not right now.

All right, great. Thank you very much.

Thank you.

Thank you. The next question will be from the line of Bill Warmington from Wells Fargo. Sir, your line is open.

Thank you. Good morning, everyone.

Good morning.

So you had mentioned the outcome-based solutions and I wanted to ask how much revenue is currently falling into that category?

Well, it's a little hard to say only because we're also starting to move some of our CMS business into more of an outcome-based format, as well. But the business that's truly designed from an outcome-based standpoint would be CGS, and a high percentage of their revenue is outcome-based, and our newer deals are moving more and more to that. So I am not prepared to give you an exact number for two reasons. One, because I'm not capable because I don't actually have the number at hand, and, two, because even if I was capable, I don't think strategically that that's in our best interest to expose it. But what I would tell you is that it is absolutely our objective in two of the businesses, both CMS and CGS to move to more of an outcome-focused business model, much more so with CGS because it's all about igniting growth than about CMS which is about service and support and driving incredible experiences. But what we're finding is that we're demonstrating to clients that there's a real opportunity to take service and basically take a service interaction and shift it to a sales opportunity. And, therefore, in those cases, we want to be fairly compensated for the new revenue that we are mining that in fact, did not exist prior to us doing the work that we were doing. So, as we introduce more analytics and more artificial intelligence into the stuff that we're doing, we think that that gives us the ability to be far more efficacious with finding new revenue streams for our clients. And therefore they feel that it's fair that we're enjoying in sharing in that revenue increase, via being paid outcome-based revenues, which typically are a percentage of what we're generating.

Now, in the CGS business, the Revana business, that's seen some very strong growth. Maybe you could comment a little bit in terms of what's been driving that, has it been more the up-sell and cross-sell to the existing clients? Has it been more of the search engine optimization to small and medium business? Is it more the in-ad - I am sorry, in-country word - ad word search, what is it that is really driving that?

I think it's a myriad of things, and I think the best way of explaining it is, of the four businesses that we report on, it is a business that has a very defined and very measurable outcome that we're willing to put our money where our mouth is and that we're willing to guarantee. So what that means is that a client can use our capability with basically a zero based budget and we will deliver off that zero-based budget the amount of net new customers that they want, and that is a very appealing sales proposition. But it's not like what others are trying to do where they are providing outbound telemarketing services or whatever. The fact that we have a complete search to intent to acquisition business, the fact that we have a very sophisticated real-time analytical platform that is driving significant results, is what's allowing us to have the actuarial data to feel comfortable to price these things in a way where we can basically guarantee an expense to revenue type of a relationship. So it's not uncommon for us to say to a client that we will generate, if you spend a $1 with us, we will generate, depending upon the category anywhere from $5 to $11, and we'll guarantee it. And we're doing it for the biggest companies in the world right now and every single time that they bring in other companies to champion challenger us, I can absolutely say with absolute transparency that we're 200% to 300% better in performance than these other companies that are using traditional methodology. So, it's not just the SCO, SCM capabilities, but it's all the proprietary technology that Revana has been investing in over the last 5 years. And they've been investing millions and millions of dollars building a platform that does everything from all the digital campaign management, all the real-time search engine, word buying where it can buy real-time based on the input and based on the results that we're getting minute-by-minute. I could go on and on and bore you with a bunch of technological googly-gop [ph]. But the point is that they have an end-to-end platform that is bulletproof, that's proven. Last year I believe they delivered about $5.5 billion to $6 billion on net new revenues on behalf of our customers that's documented. And we think that numbers going to be dramatically higher this year because of the growth that they are experiencing. So it's a business that's also very complementary to our other services, and to your point, we've got about 280 of the largest corporations in the world as our client base. And so we are in fact marketing to the client base. But to Revana's credit, they have achieved a lot of net new logos that in fact, were not part of any of our other business units. And then obviously we sell the other direction to the other capabilities and services that we have.

And then one follow up, if I might, just to ask about the target margin as you go out and how you get there, what are you thinking?

Are you saying overall?

I'm saying for the whole company. As you look out three years, an estimate in terms of what you're thinking about in terms of where you want to take the margins, and then how do you get there?

So I think that three years from now we really want to have 50% of our revenues or 55% of our revenues to be in these emerging categories. So I think you're asking a very fair question and a good question. The reality is that our margin is going to be dictated by how much of our business is diversified into these other categories. And so, what I would just tell you is that we're committed to having double-digit growth rates and double-digit EBITDA margins. And there's no question about it that we're not satisfied with where the margins are today. We believe that the margins need to be significantly higher than where they are. But we also understand that like any businesses that's focused on transforming, as well as growing, you've got to invest. And so whether it's a SaaS business, like a salesforce.com, or any of these other types of businesses that are emerging, the amount of energy that has to be put into the SG&A, into the growth and into the R&D is very significant. And so, while I'm not - while I'm never satisfied with the profitability of the business, what I am satisfied with is that we have a lot of moving parts, that we are building a very comprehensive and very sophisticated ecosystem. And we're doing all of that while maintaining solid cash flows and while putting a good profit to the bottom line when most companies that are in this mode are making excuses and basically are not making money. So we think that we've done a good job of balancing these priorities. I will tell you that it has not been easy, but we're feeling like we're getting a lot more stride right now. And we think that as we get out there, to your point, to year three and year four, we absolutely should see the double-digit growth and the double-digit margins. And we are seeing the double-digit growth and the double-digit margins right now in all the diversified businesses. It's the heritage business that to be expected, is not experiencing double-digit growth. But that said, we believe that we can grow that business at a faster rate. And so we're now putting a lot more focus on that business in 2016 now that we've kick-started all these other businesses and have them going in the right direction with the right management team and the right leadership.

Got it. All right, thank you very much.

Thank you.

Thank you. Our last question will come from the line of Shlomo Rosenbaum from Stifel. Sir, your line is open.

Hi, good morning.

Good morning.

Ken, what percentage of your bookings from last year are now what you would categorize as repeatable multi-year revenue? As you have more of your bookings going towards the emerging markets, what's the shift, what does it look like, how much has to be resold every year?

I am going to let Regina answer the question. But what I want to point out to you is that even in our consulting business, which you could argue is not recurring revenue, what you find in that business is, is that the projects might not be per se recurring, meaning they have a beginning, a middle and an end, but the clients tend to be very much recurring and so consequently the revenue base tends to be pretty stable. But with that let me let Regina answer that question for you.

Yes. The recurring is about 55% and the non-recurring is 45% for '15. But I would echo what Ken said, if you look at that non-recurring in our consulting business and in our CTS business for product and consulting even there, there is a real repeatability of that business on a regular basis. So for example in CTS, we will come into the year because of that repeatability with somewhere between 60% and 65% of backlog. And even in consulting, we come in with pretty significant backlog given the frequency in which clients are writing SOWs with us.

And both of those businesses, Shlomo, as you can imagine with what's going on in omni-channel and what's going on in cloud, every major corporation is going through a massive transition off of their premise based equipment onto cloud, as well as from one to two channels of voice plus maybe emails to now 10 channels, and need an integrated omni-channel approach. So, we see a long tail on the CTS business, and on the consulting business, ditto, because all of our clients and every company that we are focused on are all right now in a massive transformation mode, trying to re-jigger and rewire for the digital economy, so that they can be competitive to an Amazon or Uber, et cetera. I don't think we have a single client that doesn't have their goals on how are they going to compete in this highly - in this world that's fast moving to all digital.

Sure, I can appreciate it. What I'm just trying to do is map the bookings, which were, you know, on a percentage of revenue are kind of like 36% of last year's revenue, to the organic growth and just try to parse when we see bookings what kind of growth can we expect from it. But I understand what you're explaining. Just to change tag for a second question, Regina, could you just explain, there is like a $2.1 million add-back for changes in valuation allowance and return to provision adjustments. I just don't understand what that is, is that a tax add-back or something…

Yes, that's just a tax expense. What I would say is it's a tax expense. It affected the tax provision.

And so, is that part of the 20% or so underlying tax rate expense?

It's how to go from the reported tax rate of 26.8% in Q4 to the normalized tax rate of 19.7%.

Okay, okay, now I got it. And if I could just squeeze in a last thing, can you just go into the detail of what was going on in the healthcare side, just so we get a little bit more detail on the variance and how you guys are thinking about projecting that business?

Yes. So Q4 was - the volumes in our healthcare business were down relative to the exchange volumes. So I would say kind of in the - in the kind of mid - early to mid-November we started to detect in conversations and forecasts with our clients that the volumes that they projected for the exchange business just did not materialize, and I think that was really shared very broadly in the industry. If you look at Q4 bookings and Q1 bookings, and just in general, we are moving more and more towards the majority of that business being ongoing as opposed to seasonal. So I'm not saying it's a one-time. What I am saying is that we continue to grow our healthcare business. We'll see strong bookings in Q1, and that we're filling out those relationships, some of which started on seasonal volume. The level of service and capability we bring is winning us what I would say is 365 days a year business. So, see that as less of an issue going into the fourth quarter of 2016. So, to some extent, one time and then improved by the fact that that healthcare business is growing and is ongoing.

Okay. Thanks so much.

Operator, you may conclude the call.