TTEC Holdings, Inc. (TTEC) Q2 2017 Earnings Report, Transcript and Summary

Welcome to TeleTech's Second Quarter 2017 Earnings Conference Call. [Operator Instructions] 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 the second quarter financial results for the period ended June 30, 2017. 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. While this call will reflect items discussed within those documents, we encourage all listeners to read our quarterly report on Form 10-Q ended June 30, 2017. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. 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 as well as the potential impact to the financial results due to foreign exchange rate fluctuations and legislative developments in the United States or other countries where we do business. For a more detailed description of our risk factors, please review our Annual Report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section. I now turn the call over to Ken Tuchman, TeleTech's Chairman and Chief Executive Officer.

Good morning. Thank you, Paul. I'm delighted to be with you today to share the highlights of another solid quarter and a strong close to the first half. We continue to see positive trends on numerous fronts. The profit optimization improvements that we began executing in the second half of 2016 are yielding the promised results. The refinements to our sales, marketing and account management platform, which we started late in the second half of 2016, are generating early wins, and our end-to-end outcome-based customer engagement platform continues to increase in relevance in a growing market. Lastly, clients are leveraging us for customer engagement programs that are transforming their business in meaningful ways. For the first 6 months of 2017, over the same period last year, we reported an increase in revenue, operating income, net income, earnings per share and cash flow from operations. First half bookings exceeded $200 million and delivered a solid mix across verticals, geographies, segments, embedded base and new client relationships. We continue to prudently balance our growth investments with our profitability targets to take advantage of the market opportunity. We are also delivering increased value through strategic acquisitions, stock repurchases and dividends. I'd like to now share our current view on trends in the market. The opportunity for end-to-end customer engagement platform is growing. In almost every industry, technology has removed the barriers between the customers and brands. This direct relationship is putting increased pressure on companies to deliver exceptional service experiences at every touchpoint with the customer. Whether it’d be in person or through one of the numerous digital channels, when customers experience great service from one company on one channel, they expect and feel entitled to it from every company and every channel. And when they don't get the experience they want, it's easier than ever to find another company with a similar product who has a far more engaging experience. What customers want is very simple: Help me. Treat me with respect. Make it easy. Do what's best for me. Customers know that they have many choices. And those choices give them power. With the swipe of a finger, they can move to the competition. And in the heat of the moment, when their emotions are running at the highest, they can broadcast their frustrations in real time via social media and website reviews for millions to see, share and validate. In many cases, the customer experience has become a lightning rod. It has risen from a tactical cost of doing business to the battleground where customer loyalty is won or lost. This convergence of the brand and the customer experience is forcing executives across strategy, marketing, sales and technology to increase their budgets on innovation and service design. A recent Gartner report reinforces the point. In a global survey of global 1000 CMOs, they found that 77% of marketing budget was being spent on technology, innovation and services, while only 23% remained for traditional media. Our journey over the past seven years has landed us right in the center of this dynamic market. We've been deliberate in acquiring and building a full set of customer engagement capabilities to augment our operational excellence. Today, we are uniquely positioned to provide what brands need the most, the ability to deliver a simple, seamless and captivating customer experience across any and every channel at scale. In this omni-channel environment, there is no longer a clear line between the virtual and the physical world. Whether a customer is browsing in a brick-and-mortar retail store or shopping on a mobile app or doing both at the same time, customers expect continuity and simplicity. Every one of these cross-channel journeys is made up of multiple touchpoints, and every touchpoint is made up of multiple micro-interactions. Each must be designed, orchestrated and delivered across a growing number of channels. With advanced analytics and customer experience technologies, the promise of providing personalized experiences at scale is now achievable. However, companies are struggling to manage the volume and complexity of delivering these experiences consistently. Brands across the globe have realized that it's too complicated to orchestrate and deliver these omni-channel journeys on their own. They're seeking out partners like us to help them develop and execute customer engagement programs that apply strategy, best-of-breed technology, insights and operations. They need programs that launch quickly, adapt faster and improve continually. They need solutions that deliver the tangible outcomes of increased revenue, improved profitability and deeper customer engagement within and across every touchpoint. Our Humanify Customer Engagement as a Service offer launched last quarter, beats at the heart of this customer experience revolution. The value of a single, insight-driven, end-to-end solution is resonating with industry analysts, the media and, most importantly, our clients. Across every industry, clients are asking us to do more than improve a touchpoint. They're asking us to partner with them to transform the life cycle of a customer and their experiences. Let me share an example from a multimillion-dollar deal we closed this quarter. Our client is a global digital publisher, and our challenge was to help them reimagine their customer experience. They were looking to balance the quality of the experience with an appropriate level of investment. We helped them understand where and when automation would be appropriate. We began by studying their users' unique journeys. Our goal was to create a solution that allowed the customer to engage and access information when, where and how they wanted. We focused on the creation of a single robust knowledge engine with AI embedded inside, so that it was continually learning and improving. The knowledge hub was designed with multiple access points, including the website, social communities and internal data sources. When the solution launches, a customer will be able to start their journey on any channel. They'll be able to access self-service, then choose assistive support with a chatbot. If the interaction becomes more complex, they will seamlessly be escalated to one of our live professional associates. All of their interaction history will travel with them to make every interaction smarter. In this design, the customer doesn't have to chase down information. It's available when, where and how they want it. This solution takes the noise and the confusion out of the experience for the customer, while making it more efficient for the business. I share this example because it's a clear demonstration of how the ability to deliver a fluid customer experience has moved far beyond the walls and capabilities of a traditional contact center. To achieve this kind of seamless omni-channel cognitive experience requires a carefully choreographed approach that wraps strategy, insight, technology and operations around an individual customer needs. We call this Humanify. To help our clients stay ahead of what's coming next, we've recently centralized our product development functions to accelerate innovation across the enterprise. We are enhancing our omni-channel capabilities. We are extending our analytics platform to enable our clients to better monitor, measure and manage customer experiences across every channel. And while it's early days, we're seeing benefits from cognitive and machine learning in several ways. We're developing solutions to simplify and automate repeatable, low-value transactions, while at the same time, creating applications to augment high-value human interactions at scale. As we head into the second half of the year, we're well-positioned. Our sales and marketing engine is getting into gear. Our product innovation group is moving fast, and our client teams on the front lines across the globe are executing well. In an environment that is changing daily, we're providing our clients with solutions to their highest-priority challenges. We are helping them redefine their brands, build deeper engagement and loyalty with their customers and deliver consistent, profitable growth with a combination of digital, human and automated services. As a trusted advisor, we are consulting with clients in the boardroom and helping them build their roadmaps to the future. On the front lines, we're listening and responding to the needs of their customers with a combination of human and digital workers. Together with our clients, we continue to learn, refine and adjust to help navigate the ever changing customer experience landscape. In closing, while we're pleased with the business and performance improvements over the past year, we believe we are just scratching the surface on the immense opportunity before us. As we continue to enhance our go-to-market approach, expand our solutions portfolio and integrate our recent acquisitions, we not only are anticipating a stronger second half of 2017, but also accelerated profitable growth in 2018 and beyond. We're grateful to our amazing portfolio of marquee clients, the dedication of our 48,000 employees across the globe and our board of directors and shareholders for their ongoing commitment to our vision. I will now turn the call over to Regina.

Thank you, Ken. Good morning, everyone. I'll start with the highlights of our second quarter 2017 financial results, and then provide some commentary on our full year guidance. As Ken alluded to, the early results from the sales and marketing changes and profit enhancement initiatives that we executed are leading to strong financial results in 2017. Additionally, they are providing improved visibility and confidence in the increased volumes anticipated in the second half, in line with our full year guidance. Consistent with last quarter, the non-GAAP results exclude restructure, integration and impairment charges and the assets that we are exiting. The reconciliation of our GAAP to non-GAAP numbers is included in the tables attached to our press release. On a GAAP basis, our second quarter 2017 revenue increased 15.8% to $353.4 million over the same period last year. The revenue growth is comprised of 13.3% of acquired revenue growth and 3.2% of organic growth, offset in part by 70 basis points of negative foreign exchange impact. Our GAAP operating income was $21.6 million, up 33% versus the prior year, despite $3.6 million of restructuring and integration costs associated with the acquisition of Connextions. As you may recall, our integration plan included a $15 million to $16 million restructure and integration charge, leaving approximately $11.4 million to $12.4 million to be recorded in the second half. We are diligently working to complete the integration of the acquisition, and are on track to be materially complete in the third quarter. Our GAAP EPS grew 33.3% to $0.32 in the second quarter 2017 versus $0.24 in the prior-year period. On a non-GAAP basis, second quarter 2017 revenue increased 17.3% to $347.4 million over the same period last year, of which 13.7% is acquired revenue growth and 4.3% organic growth, offset again by 70 basis points of negative foreign exchange impact. Our non-GAAP operating income was $25.4 million, up 43.2% over the prior-year period. The improvement in operating income reflects a combination of increased revenue or additional scale, is reducing the expense to revenue ratio of our fixed operating cost. The impact of the profit optimization we executed in the second half of 2016 and a positive foreign exchange impact related to certain offshore operating and SG&A costs. Non-GAAP operating margin was 7.3% compared to 6% in the prior-year period. While we are pleased with the 43.2% increase in the non-GAAP operating income and a 130 basis point increase in our non-GAAP operating margin, in our view, it does not represent the normalized second quarter margin, given the impact of 2 specific items. First, certain short-term Connextions costs in the amount of $4 million, which are subsidized by the seller, and for accounting purposes reduced the purchase price versus the related operating expenses. You will note in our Form 10-Q that the purchase price was reduced by approximately $2.3 million from our previously stated $80 million to $77.7 million. This $2.3 million is comprised of the $4 million subsidization, offset by a $1.8 million true-up on working capital; and second, an increase in second quarter spend associated with a meaningful increase in our seasonal fourth quarter revenue related to the acquisition of Connextions. Using the midpoint of our guidance, we expect total company revenue in the third quarter to be in line with the second quarter. We expect our fourth quarter revenue to grow 8% sequentially. The seasonal fourth quarter volume is already contracted, with the lion's share comprised of a take-or-pay arrangement related to the Connextions acquisition. The assets held for sale are included in our GAAP results, and collectively comprise $6 million in revenue and a loss of $240,000 in our second quarter. This compares to $9 million of revenue and $1.4 million of operating loss in the prior-year period. In June, we completed the sale of our Avaya-based business within the CTS segment. We're making progress towards the exit of our Middle East consulting business within the CSS segment and our digital marketing platform within our CGS segment. Additional information is available on these acquisitions and divestitures section -- in each acquisition and divestiture section of our Form 10-Q. New business signings in the second quarter of 2017 were $107 million compared to $113 million in the prior-year quarter. Beyond the items that Ken highlighted, we continue to sign more strategic, multimillion dollar transactions with new and existing clients, some of which are integrated offerings of our solutions portfolio. These bookings include large customer care programs, including the digital publisher Ken mentioned, cross-selling customer growth outsourcing solutions, multiyear customer experience cloud platforms and customer strategy and value management consulting engagements. In the second quarter, we signed 11 new clients. Our year-to-date bookings of $208 million, alongside our current backlog and pipeline, strongly support the increased revenue volume we have estimated in the second half. Our reported tax rate in the second quarter of 2017 was 9.2%, down from 19.1% in the prior-year quarter. The lower tax rate primarily reflects a combination of the restructuring losses reported on assets held for sale and the distribution of income between U.S. and international tax jurisdictions. The normalized tax rate is 23.4%, in line with our guidance of between 23% and 25%. Capacity utilization was 76% in the second quarter of 2017, representing a 600 basis point improvement year-over-year. Capital expenditures were 17.6 million in the second quarter, up from 12.8 million in the prior year. The increase is largely associated with the Connextions acquisition as well as continued investment in our CMS footprint, CTS cloud infrastructure and other corporate IT and R&D initiatives. In the second quarter, we repurchased more than 223,000 shares of current stock for a cost of 6.7 million. We ended the quarter with 26.6 million of authorized repurchase funds. We distributed a $0.22 dividend per share or 10.1 million, which was paid on April 14, 2017 to shareholders of record on March 31. The dividend represented an 18.9% increase over the prior-year dividend. We ended the second quarter with 77.9 million in cash and 273.3 million in total debt, equated to a net debt position of 195.4 million. This represents an increase in net debt of 20 million dollars since the end of 2016, despite investing approximately 140 million in the last six month period, including the Connextions acquisition, CapEx, stock repurchases and dividends. Undeniably, cash flow from operations in the first half of the year was very strong, totaling 125.5 million, driven by improved profitability and working capital management. This compares to cash flow from operations of 55 million in the prior-year period. Our DSO was 76 days in the second quarter of 2017, down from 79 days at year-end and two days in the same period last year. Turning to our segment results, which represented on a non-GAAP basis. CMS's revenue grew 26.4% over the prior-year quarter, including 19.1% acquired growth and 8.3% organic growth, offset by a 90 base negative impact from foreign exchange. The organic growth was broad-based across geographies, the existing and new clients. In terms of vertical mix, healthcare, insurance, and travel and transport are progressively becoming a larger and larger percentage of CMS's revenue base. CMS's operating income grew 110%, comprised of 80% -- 85% organic growth and 35% positive foreign exchange, off by a negative 10% on a net loss from our two recent acquisitions. The loss is 100% attributable to the items outlined earlier, including the accounting treatment on the short-term Connextions subsidy and the higher ramp costs related to the higher seasonal volume in the fourth quarter. The organic operating income is a function of the 7.3% organic growth rate, alongside improved capacity utilization, streamlined operating efficiency and lower depreciation and amortization as a percent of revenue. We expect continued momentum in CMS's performance in the second half, supported by our already contracted backlog. Related to Connextions, we still estimate the acquisition to contribute approximately 85 million of revenue in the year and add approximately 45 million of additional annualized run rate revenue by the end of 2018. Once fully integrated, we expect the acquisition to deliver an operating margin at a premium to our current full year CMS operating margin. CGS's revenue decreased 11.9% year-over-year, and operating margin decreased to 76 -- 7.6% from 11.4% in the prior year. Revenue and operating profit fell slightly below our plan, as we recoup the previously discussed prior-year client attrition, continued to -- continue to implement our strategy to reposition certain programs to more cost-effective locations, and focus on those markets and solutions with the greatest opportunity for growth and profitability. While the return to growth in revenue and profitability in CGS is taking longer than expected, we continue to believe customer acquisition is a vital component of our solution portfolio. We see meaningful market opportunity in marketing and sales optimization as well as sales to service. Based on our current and estimated backlog, we expect CGS to show improved top and bottom line results in the second half, with volumes reaching historical levels by the fourth quarter and improving from there. CGS's revenue in the second quarter of 2017 decreased 0.7% over the prior-year period, and the operating income margin was down 30 basis points versus the prior-year period. While the year-over-year margin comparison is relatively flat, we did see a 250 basis point sequential improvement due to a more favorable revenue mix, which had lower margin product sales and more consulting and managed service solutions. Lower depreciation and amortization expense also benefited the margin. As we redirect resources and attention from our deemphasized Avaya-based business, we anticipate improved revenue and operating income growth in the second half, including further growth in our recurring Cisco-based managed services and cloud solutions. CSS's revenue decreased 3.6% in the second quarter of 2017 over the prior year, primarily from near-term declines in the mindset and sales transformation practices, offset by growth in our services optimization practice. CSS's operating income margin increased 200 basis points year-over-year to 11.3% of revenue. The positive operating income is related to expense rationalization and lower administrative and depreciation expense. We anticipate continuing, sequential, quarter-over-quarter improvement in revenue and operating income as we approach year-end. In the first half of 2017, we executed on many fronts. We grew the top line organically and inorganically, improved our profitability and cash flow generation, increased our vertical and geographic market share and expanded our capabilities into more integrated, outcome-based solutions. Further, we significantly enhanced our second half visibility with our first-half bookings and backlog and with the progress we have made on the Connextions integration and restructure, which is vital to our second half seasonal volume. As I comment on guidance, it is important to remember that our full year outlook excludes impairment, restructuring and integration charges and assets that we are exiting. We are affirming our current 2017 guidance with revenue between $1.4 billion and $1.410 billion. Using the midpoint of our full year revenue guidance, we estimate CMS to comprise 77% of revenue; CGS, 9%; CTS, 9.5%; and CSS, 4.5%. We continue to estimate operating margins in the range of 8.3% to 8.5%. At the midpoint of our full year guidance, we estimate CMS to comprise 74% of operating income; CGS, 8%; CTS, 13%; and CSS, 5%. Capital expenditures are expected at 4.6% of revenue, of which approximately 70% is growth-oriented. An estimated full year tax rate between 22% and 25% still applies. Using the midpoint of our full year guidance, we expect approximately 27% of our full year revenue and 37% of our full year operating income to be recognized in the fourth quarter. While we have over-performed our current guidance at the half-year mark, given the approximately $50 million increase in revenue second half over first half, and in the interest of conservatism, we are maintaining our current guidance. We look forward to updating you on our progress on our -- in our third quarter earnings call. I'll now turn the call back to Paul.

Thanks, Regina. As we open the call, I ask that you limit your questions to 1 or 2 at a time. Operator, you may now open the line.

[Operator Instructions] Your first question comes from Frank Atkins of SunTrust.

First question, I wanted to ask a little bit about the wage and hiring environment and attrition as you -- see going forward.

So the question is regarding the hiring environment?

That's correct, yes.

Yes. I mean, I think that like all companies, with the low employment economy in the United States, we're experiencing tighter recruiting efforts. That said, we are very actively involved with all of our clients and have been educating them and making them aware of the environment. And so, consequently, we're being very proactive on being able to work with our clients, so that we can try to be as competitive as possible, so that we can meet all of our hiring requirements, as well as maintain a relatively normal attrition. That said, it's a little challenging, but it's not anything that we're losing any sleep over at all at this point in time. And I'm only really speaking of the U.S. Outside of the U.S., in all the other countries that we operate in, we're really not experiencing any real challenges that are noticeable.

And can you give us some color in the CMS segment around the telecommunications vertical, and what you're seeing on the technology side there as well?

Could you help me a little bit more with what you mean by color on the telecommunications vertical? Telcom, if you're relating us to potentially other people that you follow, telcom is not an area that we have been very focused on over the last several years. And so it is a much smaller percentage in representation of our overall revenue. So when you say telcom, do you mean fixed line or wireless or both? Is that what you're speaking of?

Yes. I'm speaking of both as well as technology segment clients.

So on the telcom side, again, it's a much smaller percentage than others that are highly concentrated in that area. We actually are in the process of doing a deep-dive analysis of what the exact percentage is because what we found is that we were including things in the telcom category that potentially distorted the number upward, which was unintentional. On the technology side, again, I'm not sure what your question is regarding. What would you like me to give you as far as color? Our technology business is strong. That said, it's also not our highest-focused area. We tend to be focusing much more on healthcare, financial services and automotive and travel.

The next question comes from Mike Malouf of Craig-Hallum Capital Group.

This is Eric on for Mike. I just wanted to touch back on the wage pressures a bit. I know that you said it's been a little challenging with your clients, but can you just give a little more color on the ability to pass those wage increases on? Is it just that they're less willing to pass them on? Or are they just also seeing more difficulty in the hiring environment?

Well, a couple of things that we should start out with is, that we have always been the premium provider in the space. So it's common knowledge that we've always paid our associates more. It's common knowledge that in many cases, clients are paying us a bit more than what they're paying other providers. And so consequently, we are not at the low end of the market in these other markets. As a matter of fact, we were just looking the other day, and we see that there's several companies that are paying a couple dollars an hour less in the U.S. then we're paying, and in some cases $3 and $4 an hour less. So we're not going after the same types of clients. We're very focused on providing the highest quality service. And we know that the only way we can provide high-quality service is to try to have continuity with the employee as well as to be able to get the cream of the crop of the employees. And it's why clients are -- tend to be willing to pay us a bit more. And so what I would say to you is, is that I think we might be a little bit less affected, in that we're not paying wages that are at or below fast food-type wages, which is where I think that there's a lot of pressure, because some of those front-line wages are coming up. As it relates to our ability to pass cost on, many of our contracts, a high percentage of them, have annual COL, cost of living increases. And we calculate that locally by the market that we're in. And we are working with the clients well in advance, so that they understand the direction of where it's going. And yes, that is in fact passed on and recalculated in the rate. Now we don't have it in every single one of our contracts. And in the ones that we don't have it in the contracts, we proactively work with clients to make them aware of how tight that particular market may be or whether or not there's an increase in attrition, et cetera. And what we're finding in the majority of cases is that clients are experiencing the same thing themselves, and that they are agreeing without a cost of living increase to pay us more, so that we can pay our frontline more. So what I would say to you is, is that right now has not been a huge issue for us. And we continue to plan on educating them as to where the market is going and to try to stay in front of it as much as we can.

And then, Ken, just a follow-up. I think last quarter, you mentioned that you've also been working towards having variable performance clauses in your contracts. Are your clients still pretty receptive to this? I just wanted to sort of get an update on the outlook for this and if this is potentially a point of growth for you guys.

I think it depends upon the part of our business. But the answer is yes, I think that we're trying to position all of our businesses to have more of an outcome focus, and so what we're trying to do is design solutions that have defined outcomes, and then get rewarded for those defined outcomes or for achieving and overachieving on those defined outcomes. In some areas, we're newer at it. In the technology areas, we're just now building products in that area, products that are more outcome-based. And that will start coming online next year. In areas like sales, we've had those capabilities for many years. And absolutely, clients want to pay in a variabilized way, and they want to pay off of performance. And in the area of what I would call driving service and support, we are actually seeing a mix there. We have some very large clients that have decided to experiment and move in that direction. And I would say that it's been very successful for both parties. And so I can't tell you whether or not this is a trend that all clients would like to move to or not, because frankly, I think many of these -- each client is individual, and they look at it differently. But what I would tell you is that in areas where we have a significant amount of experience and actuarial data, and where we have technology that can drive enhancements to the outcome, we're very interested in having more of a reward-based system that's tied to outcome.

Thank you. The next question comes from Bill Warmington of Wells Fargo Securities. Your line is open.

It's Bill DiJohnson on for Bill Warmington. Just had a few questions for you guys. If we could start with bookings. You had a strong revenue quarter. And bookings were relatively strong. But even adjusted for divestitures, they were down year-over-year. Is there a simple reason why the trends between revenue growth and bookings growth have been diverging recently? Is it simply timing?

Regina?

Yes. I don't -- I mean, I would say that we're fairly consistent with the first half of last year. There's always a timings element to the booking. We continue to believe that we'll have growth in our bookings on a full year despite the assets held for sale. I'd also say that I think you're seeing the increase in revenue in total, obviously, has a lot to do with the two acquisitions we did, Atelka and Connextions, but we do have meaningful organic growth in CMS. And I would just say it's good execution against the bookings in the second half of last year, as well as -- we've had meaningful -- when you look at the mix of bookings, we've had good growth in CMS bookings in the first half. And a lot of that -- 80% of our bookings is in the embedded base. And so a lot of that is in known, understood relationships, where the ramp time takes -- it's less time to get to revenue.

And then, I guess, since you brought up CMS, can we talk a little bit about -- I mean, it's such a strong quarter. It's up 8% organically year-over-year, I think, you said. Was there an element of timing to that? You mentioned a few verticals were particularly strong, but is there anything geographically, too, to it?

Yes. I mean, again, it's up very significantly, given Atelka and Connextions were not in the same quarter last year. And then, yes, on an organic growth basis, it has also increased. But I really just gave you that answer. We had good second half bookings last year as well as very good growth first half of this year versus first half of last year in CMX as a component of the mix of our overall bookings. And a lot of that is an embedded base. As you know, that's a significant part of our strategy, to yield really strong growth from our embedded base. That's starting to work. And then volumes fluctuate. So we just -- we happened to have a very good volume -- volumes in the quarter are higher than we expected. And as I said, we believe that you'll see continued strong growth from CMS, given its backlog and given its seasonal fourth quarter.

I also think that you're seeing -- clients are expressing the interest in consolidating the number of providers that they're doing business with. Most clients, if you listen to the script, are really getting very, very focused on quality and very, very focused on the actual experience that's being delivered. They have much more sophisticated tools today than they even had a year ago or two years ago on how they can measure a client's satisfaction, whether it be with Net Promoter Score, whether it be with client sat, whether it be measuring Dsat, on and on and on. And so consequently, they are absolutely -- we're seeing them paring down to fewer suppliers that they think can deliver more reliably. And it's our hope over time that that will create a positive opportunity for us since we've always been very focused on driving what we believe is the highest quality experience. And so we think that as more and more clients understand the impact of what bad service is doing for them that there's going to be much more of a focus of this being less of an area, where companies are using it as an expense reduction center, but more of an area of where they're using it as a customer retention, a customer loyalty and a brand-building capability. And so more and more of our clients are talking about how critical this is to them in the marketplace since their customers have become so vocal with their ratings and with their blogs and with their social media postings, et cetera. So -- I mean, that's really the point that I was trying to get across in my script as to why we believe there's a turning point, and that the business is going to become far less, shall we say, transactional and far more strategic to our clients.

The next question comes from Frank Atkins of SunTrust.

I wanted to ask about this change in client behavior that's embracing the customer more and more from an end-to-end perspective? Can you give us an update of how many customers are using multiple of your segment, and what type of level that you're having conversations with in terms of C-Suite versus procurement officer?

Yes. At this point, we have about 1/3 of our customer base who are consuming more than one capability or where at I would say more than one segment's capability.

And I think that what's important to note is on the newer logos that we're winning, in almost every case, the majority of the new wins are consuming multiple, meaning more than 2, capabilities simultaneously from the very beginning, because it's now part of how we're designing the offering. And so I think you'll see that number increase as time goes on since all of our new logos, we're very focused on that taking place.

And then last one for me. Can you talk a little about the CGS group and the visibility that you have there looking forward?

Regina? The question was on visibility for CGS.

Yes. Really, for the most part, for CMS and CGS, the bookings by path will dictate what the revenue for the full year will be. We do have opportunities in some of the Q3 ramps, but the bulk of our revenue is based on the current backlog. And so as I said, we expect -- by the way, we expect CGS to continue to be in line with the guidance that we set for it. It's probably flat on revenue. It will be slightly better on operating income. But we expect it to be more or less flat to Q2 and Q3, and then tick up a bit based on the backlog we have. We start to -- towards the back half. We start to get rid -- through some of that turnover that we had last year, so some of that turnover was in Q3 and Q4 last year. And so the compare is more apples-to-apples as we go forward into the second half.

The next question comes from Joan Tong of Sidoti.

This is a question, maybe a higher level question for Ken. Can you -- like you talked about the tangible difference of your Humanify platform, this new go-to-market strategy compared to how you get things done in the past. Obviously, you have been selling end-to-end solutions for a while, but why is it different this go-around?

Well, I think the best way to explain it is the following. We've had 4 segments for -- I don't want to give you the wrong number of years, but for multiple years. And we -- the reality is, is that we have held each of these segments feet to the fire for producing profitable outcomes with each of their business units. The good news is, for the most part, they've done what we've asked them to do. The bad news is that by them operating in that fashion, they are rather independent and a bit of an island. And they're approaching clients independently, in many cases seeking their own logos independently. Under Humanify, the way we're now approaching is we're approaching basically all capabilities to a much more focused client base. And so it's much more about an end-to-end enterprise solution that wraps strategy and technology and service to execute and ignition of growth services and digital enablement all into one, as one offering. And therefore it's less confusing, and it's more digestible for the client. And it's actually -- makes more sense for us to be able to deliver a solution that is designed end-to-end, but that has defined outcomes. Whereas before, it was a bit more of -- we would start with a particular area, CMS, let's say, and then over time, we'd introduce a strategy group or we'd introduce a different group. And we just think that this is a much more unified approach to the marketplace. It's simpler to understand. And more importantly, we think we'll have far more efficacious results for our customers, for our clients.

And then my next questions relating to the -- the two acquisitions. Can you give us an update on the progress of the integration of the 2 acquisitions that you made recently?

Yes. I would say Atelka, at this point, is really almost for all intents and purposes 100% integrated. And we see a real opportunity for further synergies in terms of now that they're on our platforms, just driving improvements in the talent acquisition, training, visibility and so on, as well as leveraging those clients now that we're settled down to expand the balance of the business. The Connextions, we're in the heat of the moment. Q2 and Q3 were always planned as very intense quarters to be able to integrate Connextions, which is a very different and more complex situation, given it was a carve-out. But we're well into it. The balance of it will be done in Q3 because it was important to complete it prior to the seasonal volumes that will hit us starting in October. And we're on track. We're on track from the transition of the sites, the acquisition of the talent, the development of TeleTech's systems for the connections environment. And as I said earlier, we expect to hit our targets. And that Connextions, which was an operating loss in the quarter for a couple of reasons, will definitely have profit in the third quarter, and in the fourth quarter be onto a premium margin to the core business.

That is all the time we have today. Thank you for your time and continued interest. This concludes the TeleTech's second quarter 2017 earnings conference call. You may disconnect at this time.